SECURITY FEDERAL CORP - Quarter Report: 2003 June (Form 10-Q)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10 - Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE TRANSITION PERIOD:
FROM: _________________________ TO: _________________________
COMMISSION FILE NUMBER: 0-16120
SECURITY FEDERAL CORPORATION
| South Carolina | 57-0858504 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification) |
|
| 1705 WHISKEY ROAD, AIKEN, SOUTH CAROLINA 29801 | ||
| (Address of Principal Executive Office) (Zip code) | ||
| (803) 641-3000 | ||
| (Registrant's telephone number, including area code) | ||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES 3 NO
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
YES NO 3
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date.
| CLASS: | OUTSTANDING SHARES AT: | $0.01 PAR VALUE: |
| Common Stock | July 31, 2003 | 2,531,744 |
<PAGE>
INDEX
| PART I. | FINANCIAL INFORMATION (UNAUDITED) | PAGE NO. |
| Item 1. | Financial Statements (Unaudited): | |
| Consolidated Balance Sheets | 1 | |
| Consolidated Statements of Income | 2 | |
| Consolidated Statements of Shareholders' Equity | 3 | |
| Consolidated Statements of Cash Flows | 4 | |
| Notes to Consolidated Financial Statements | 6 | |
| Item 2. | Management's Discussion and Analysis -Results of Operations and Financial Condition | 11 |
| Item 3. | Quantitative and Qualitative Disclosure about Market Risk | 16 |
| Item 4. | Controls and Procedures | 16 |
| PART II. | OTHER INFORMATION | |
| Other Information | 17 | |
| Signatures | 18 | |
| SCHEDULES OMITTED | ||
| All schedules other than those indicated above are omitted because of the absence of the conditions under which they are required or because the information is included in the consolidated financial statements and related notes. | ||
<PAGE>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Security Federal Corporation and Subsidiaries
Consolidated Balance Sheets
| June 30, 2003 |
March 31, 2003 |
|
| Assets: | (Unaudited) | (Audited) |
| Cash And Cash Equivalents | $ 9,873,025 | $ 8,238,690 |
| Investment And Mortgage-Backed Securities: | ||
| Available For Sale: (Amortized cost of $156,199,573 at June 30, 2003 and $157,821,789 at March 31, 2003) |
158,543,238 |
160,150,262 |
| Held To Maturity: (Fair value of $32,022,439 at June 30, 2003 and $22,040,207 at March 31, 2003) |
31,746,222 |
21,966,533 |
| Total Investment And Mortgage-Backed Securities | 190,289,460 |
182,116,795 |
| Loans Receivable, Net: | ||
| Held For Sale | 5,865,872 | 3,670,498 |
| Held For Investment: (Net of allowance of $5,123,334 at June 30, 2003 and $4,911,224 at March 31, 2003) |
236,810,219 |
239,485,158 |
| Total Loans Receivable, Net | 242,676,091 |
243,155,656 |
| Accrued Interest Receivable: | ||
| Loans | 931,557 | 976,134 |
| Mortgage-Backed Securities | 475,006 | 441,900 |
| Investments | 628,818 | 667,735 |
| Premises And Equipment, Net | 5,777,988 | 5,219,947 |
| Federal Home Loan Bank Stock, At Cost | 2,970,200 | 2,858,600 |
| Repossessed Assets Acquired In Settlement Of Loans | 183,300 | 151,450 |
| Other Assets | 1,163,971 |
1,077,078 |
| Total Assets | $ 454,969,416 | $ 444,903,985 |
| Liabilities And Shareholders' Equity | ||
| Liabilities: | ||
| Deposit Accounts | $ 362,179,701 | $ 358,473,601 |
| Advances From Federal Home Loan Bank | 54,204,000 | 49,772,000 |
| Other Borrowed Money | 4,828,969 | 4,193,480 |
| Advance Payments By Borrowers For Taxes And Insurance | 410,333 | 279,425 |
| Other Liabilities | 2,359,222 |
2,145,526 |
| Total Liabilities | $ 423,982,225 |
$ 414,864,032 |
| Shareholders' Equity: | ||
| Serial Preferred Stock, $.01 Par Value; Authorized Shares - 200,000; Issued And Outstanding Shares - None |
$ - |
$ - |
| Common Stock, $.01 Par Value; Authorized Shares- 5,000,000; Issued - 2,530,394 And Outstanding Shares - 2,513,461 At June 30, 2003 And 2,529,824 And 2,507,717 At March 31, 2003 |
25,304 |
25,298 |
| Additional Paid-In Capital | 3,998,262 | 3,995,230 |
| Indirect Guarantee Of Employee Stock Ownership Trust Debt | (381,972) | (444,685) |
| Accumulated Other Comprehensive Gain(Loss) | 1,454,009 | 1,444,585 |
| Retained Earnings, Substantially Restricted | 25,891,588 |
25,019,525 |
| Total Shareholders' Equity | $ 30,987,191 |
$ 30,039,953 |
| Total Liabilities And Shareholders' Equity | $ 454,969,416 | $ 444,903,985 |
| See accompanying notes to consolidated financial statements. |
1
<PAGE>
Security Federal Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
| Three Months Ended June 30, |
||
| 2003 |
2002 |
|
| Interest Income: | ||
| Loans | $ 3,955,505 | $ 4,360,728 |
| Mortgage-Backed Securities | 922,079 | 798,626 |
| Investment Securities | 731,383 | 835,177 |
| Other | 4,768 |
7,150 |
| Total Interest Income | 5,613,735 |
6,001,681 |
| Interest Expense: | ||
| NOW And Money Market Accounts | 664,392 | 623,248 |
| Passbook Accounts | 45,656 | 69,284 |
| Certificate Accounts | 1,057,100 | 1,261,794 |
| Advances And Other Borrowed Money | 620,983 |
557,368 |
| Total Interest Expense | 2,388,131 |
2,511,694 |
| Net Interest Income | 3,225,604 | 3,489,987 |
| Provision For Loan Losses | 300,000 |
450,000 |
| Net Interest Income After Provision For Loan Losses | 2,925,604 |
3,039,987 |
| Other Income: | ||
| Gain On Sale Of Loans | 642,551 | 289,851 |
| Loan Servicing Fees | 49,187 | 50,792 |
| Service Fees On Deposit Accounts | 351,612 | 281,602 |
| Other | 157,214 |
176,886 |
| Total Other Income | 1,200,564 |
799,131 |
| General And Administrative Expenses: | ||
| Salaries And Employee Benefits | 1,612,656 | 1,490,544 |
| Occupancy | 219,060 | 195,314 |
| Advertising | 26,532 | 76,390 |
| Depreciation And Maintenance Of Equipment | 263,831 | 269,005 |
| FDIC Insurance Premiums | 13,595 | 12,766 |
| Amortization Of Intangibles | - | 116,310 |
| Other | 513,714 |
523,639 |
| Total General And Administrative Expenses | 2,649,388 |
2,683,968 |
| Income Before Income Taxes | 1,476,780 | 1,155,150 |
| Provision For Income Taxes | 554,121 |
438,000 |
| Net Income | $ 922,659 | $ 717,150 |
| Basic Net Income Per Common Share | $ 0.37 | $ 0.29 |
| Diluted Net Income Per Common Share | $ 0.36 | $ 0.28 |
| Cash Dividend Per Share On Common Stock | $ 0.02 | $ 0.0133 |
| Basic Weighted Average Shares Outstanding | 2,510,526 | 2,507,572 |
| Diluted Weighted Average Shares Outstanding | 2,558,299 | 2,564,794 |
| See accompanying notes to consolidated financial statements. | ||
2
<PAGE>
Security Federal Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity (Unaudited)
Common Stock |
Additional Paid-In Capital |
Indirect Guarantee of ESOP Debt |
Accumulated Other Comprehensive Income (Loss) |
Retained Earnings |
Total |
|
| Beginning Balance At March 31, 2002 | $ 16,842 | $ 3,985,312 | $ (358,297) | $ (183,335) | $ 21,940,041 | $ 25,400,563 |
| Net Income | - | - | - | - | 717,150 | 717,150 |
| Other Comprehensive Income, Net Of Tax: | ||||||
| Unrealized Holding Gains On Securities Available For Sale |
- |
- |
- |
1,474,519 |
- |
1,474,519 |
| Comprehensive Income | 2,191,669 | |||||
| Decrease In Indirect Guarantee of ESOP Debt | - | - | 33,714 | - | - | 33,714 |
| Cash Dividends ($.0133 per share) | - |
- |
- |
- |
(33,685) |
(33,685) |
| Balance at June 30, 2002 | $ 16,842 | $ 3,985,312 | $ (324,583) | $ 1,291,184 | $ 22,623,506 | $ 27,592,261 |
| Beginning Balance At March 31, 2003 | $ 25,298 | $ 3,995,230 | $ (444,685) | $ 1,444,585 | $ 25,019,525 | $ 30,039,953 |
| Net Income | - | - | - | - | 922,659 | 922,659 |
| Other Comprehensive Income, Net Of Tax: | ||||||
| Unrealized Holding Gains on Securities Available For Sale |
- |
- |
- |
9,424 |
- |
9,424 |
| Comprehensive Income | 932,083 | |||||
| Decrease In Indirect Guarantee of ESOP Debt | - | - | 62,713 | - | - | 62,713 |
| Exercise Of Stock Options | 6 | 3,032 | - | - | - | 3,038 |
| Cash Dividends ($.02 per share) | - |
- |
- |
- |
(50,596) |
(50,596) |
| Balance at June 30, 2003 | $ 25,304 | $ 3,998,262 | $ (381,972) | $ 1,454,009 | $ 25,891,588 | $ 30,987,191 |
| See accompanying notes to consolidated financial statements. | ||||||
3
<PAGE>
Security Federal Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
| Three Months Ended June 30, |
||
| 2003 |
2002 |
|
| Cash Flows From Operating Activities: | ||
| Net Income | $ 922,659 | $ 717,150 |
| Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: | ||
| Depreciation Expense | 197,102 | 200,778 |
| Amortization Of Intangibles | - | 116,310 |
| Discount Accretion And Premium Amortization | 407,943 | 67,824 |
| Provisions For Losses On Loans And Real Estate | 300,000 | 450,000 |
| Gain On Sale Of Loans | (642,551) | (289,851) |
| Gain On Sale Of Real Estate | (2,500) | (5,000) |
| Amortization Of Deferred Fees On Loans | (52,743) | (45,888) |
| Proceeds From Sale Of Loans Held For Sale | 27,331,214 | 14,888,734 |
| Origination Of Loans For Sale | (28,884,037) | (14,146,189) |
| (Increase) Decrease In Accrued Interest Receivable: | ||
| Loans | 44,577 | 69,794 |
| Mortgage-Backed Securities | (33,106) | (3,704) |
| Investments | 38,917 | (175,255) |
| Increase In Advance Payments By Borrowers | 130,908 | 121,269 |
| Other, Net | 183,748 |
(234,242) |
| Net Cash Provided (Used) By Operating Activities | (57,869) |
1,731,730 |
| Cash Flows From Investing Activities: | ||
| Principal Repayments On Mortgage-Backed Securities Available For Sale | 14,926,451 | 4,033,557 |
| Principal Repayments On Mortgage-Backed Securities Held To Maturity | 185,327 | 21,467 |
| Purchase Of Investment Securities Available For Sale | - | (15,975,750) |
| Purchase Of Investment Securities Held To Maturity | - | (22,984,825) |
| Purchase Of Mortgage-Backed Securities Available For Sale | (31,842,449) | (6,477,998) |
| Maturities Of Investment Securities Available For Sale | 18,119,749 | 8,113,539 |
| Maturities of Investment Securities Held To Maturity | 13,030,331 | 31,576 |
| Purchase Of FHLB Stock | (590,400) | - |
| Redemption Of FHLB Stock | 478,800 | - |
| (Increase) Decrease In Loans To Customers | 2,188,882 | (158,565) |
| Proceeds From Sale Of Repossessed Assets | 209,450 | 145,157 |
| Purchase And Improvement Of Premises And Equipment | (755,143) |
(232,137) |
| Net Cash Used By Investing Activities | (7,033,827) |
(10,499,154) |
| Cash Flows From Financing Activities: | ||
| Increase In Deposit Accounts | 3,706,100 | 6,869,831 |
| Proceeds From FHLB Advances | 36,200,000 | 23,600,000 |
| Repayment Of FHLB Advances | (31,768,000) | (23,618,000) |
| Net Proceeds (Repayment) Of Other Borrowings | 635,489 | (652,820) |
| Dividends To Shareholders | (50,596) | (33,685) |
| Proceeds From Exercise of Stock Options | 3,038 |
- |
| Net Cash Provided By Financing Activities | 8,726,031 |
6,165,326 |
| (Continued) | ||
4
<PAGE>
Security Federal Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
| Three Months Ended June 30, |
||
| 2003 |
2002 |
|
| Net Increase (Decrease) In Cash And Cash Equivalents | 1,634,335 | (2,602,098) |
| Cash And Cash Equivalents At Beginning Of Period | 8,238,690 |
11,528,411 |
| Cash And Cash Equivalents At End Of Period | $ 9,873,025 | $ 8,926,313 |
| Supplemental Disclosure Of Cash Flows Information: | ||
| Cash Paid During The Period For Interest | $ 2,491,885 | $ 2,916,162 |
| Cash Paid During The Period For Income Taxes | $ - | $ 247,772 |
| Additions To Repossessed Acquired Through Foreclosure | $ 238,800 | $ 156,000 |
| Increase In Unrealized Net Gain On Securities Available For Sale, Net Of Taxes | $ 9,424 | $ 1,474,519 |
| See accompanying notes to consolidated financial statements. | ||
5
<PAGE>
Security Federal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation 6 <PAGE>
The accompanying unaudited consolidated financial statements were prepared in accordance with instructions from Form 10-Q and accounting principles generally accepted in the United States of America; therefore, they do not include all disclosures necessary for a complete presentation of financial condition, results of operations, and cash flows. Such statements are unaudited but, in the opinion of Management, reflect all adjustments, all of which are of a normal recurring nature and necessary for a fair presentation of results for the selected interim periods. Users of financial information produced for interim periods are encouraged to refer to the footnotes contained in the 2003 Annual Report to Shareholders when reviewing interim financial statements. The results of operations for the three month period ended June 30, 2003 are not necessarily indicative of the results may be expected for the entire fiscal year. This Form 10-Q contains certain forward-looking statements with respect to the financial condition, results of operations, and business. These forward-looking statements involve certain risks and uncertainties. Factors that may cause actual results to differ materially from those anticipated by such forward-looking statements include, but are not limited to, changes in interest rates, changes in the regulatory environment, changes in general economic conditions and inflation, changes in the securities market. Management cautions readers of this Form 10-Q not to place undue reliance on forward-looking statements contained herein.
2. Principles of Consolidation
The accompanying unaudited consolidated financial statements include the accounts of Security Federal Corporation (the "Company") and its wholly owned subsidiary, Security Federal Bank (the "Bank"), and the Bank's wholly owned subsidiaries, Security Federal Insurance ("SFINS"), Security Federal Investments ("SFINV"), Security Federal Trust ("SFT"), and Security Financial Services Corporation ("SFSC"). The Bank is primarily engaged in the business of accepting savings and demand deposits and originating mortgage loans and other loans to individuals and small businesses for various personal and commercial purposes. SFINS, SFINV, and SFT were formed during fiscal 2002 and began operation during the December 2001 quarter. SFINS is an insurance agency offering business, health, home and life insurance. SFINV engages primarily in investment brokerage services. SFT offers trust, financial planning and financial management services. SFSC is currently inactive.
3. Loans Receivable, Net
Loans Receivable, Net, at June 30, 2003 and March 31, 2003 consisted of the following:
Loans held for sale were $5,865,872 and $3,670,498 at June 30, 2003 and March 31, 2003, respectively.
Loans Held For Investment:
June 30, 2003
March 31, 2003
Residential Real Estate
$ 98,497,350
$ 99,948,293
Consumer
45,638,700
46,594,413
Commercial Business & Real Estate
108,109,227
106,996,940
252,245,277
253,539,646
Less:
Allowance For Possible Loan Loss
5,123,334
4,911,224
Loans In Process
10,161,510
8,990,687
Deferred Loan Fees
150,214
152,577
15,435,058
14,054,488
$ 236,810,219
$ 239,485,158
The following is a reconciliation of the allowance for loan losses for the three months ending:
June 30, 2003
June 30, 2002
Beginning Balance
$ 4,911,224
$ 3,689,079
Provision
300,000
450,000
Charge-offs
(159,544)
(166,660)
Recoveries
71,654
69,125
Ending Balance
$ 5,123,334
$ 4,041,544
Security Federal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited), Continued
Investment and Mortgage-Backed Securities, Held to Maturity
The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of investment and mortgage-backed securities held to maturity are as follows:
June 30, 2003 |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
| US Government and Agency Obligations | $ 30,990,531 | $ 234,831 | $ - | $ 31,225,362 |
| Mortgage-Backed Securities | 755,691 |
41,386 |
- |
797,077 |
| Total | $ 31,746,222 | $ 276,217 | $ - | $ 32,022,439 |
| March 31, 2003 | ||||
| US Government and Agency Obligations | $ 21,025,603 | $ 36,153 | $ 14,071 | $ 21,047,685 |
| Mortgage-Backed Securities | 940,930 |
51,592 |
- |
992,522 |
| Total | $ 21,966,533 | $ 87,745 | $ 14,071 | $ 22,040,207 |
Investment And Mortgage-Backed Securities, Available For Sale
The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of investment and mortgage-backed securities available for sale are as follows:
June 30, 2003 |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
| US Government and Agency Obligations | $ 34,791,542 | $ 782,186 | $ - | $ 35,573,728 |
| Mortgage-Backed Securities | 121,408,031 |
1,765,821 |
204,342 |
122,969,510 |
| Total | $ 156,199,573 | $ 2,548,007 | $ 204,342 | $ 158,543,238 |
| March 31, 2003 | ||||
| US Government and Agency Obligations | $ 52,929,442 | $ 822,283 | $ 13,094 | $ 53,738,631 |
| Mortgage-Backed Securities | 104,892,347 |
1,637,286 |
118,002 |
106,411,631 |
| Total | $ 157,821,789 | $ 2,459,569 | $ 131,096 | $ 160,150,262 |
7
<PAGE>
Security Federal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited), Continued
A summary of deposit accounts by type with weighted average rates is as follows:
| June 30, 2003 |
March 31, 2003 |
|||
| Demand Accounts: | Balance |
Rate |
Balance |
Rate |
| Checking | $ 83,418,028 | 0.41% | $ 82,521,610 | 0.50% |
| Money Market | 112,142,506 | 1.95% | 102,396,950 | 2.21% |
| Regular Savings | 16,992,327 |
0.99% | 16,455,391 |
1.23% |
| Total Demand Accounts | 212,552,861 |
1.27% | 201,373,951 |
1.43% |
| Certificate Accounts: | ||||
| 0 - 4.99% | 138,152,671 | 144,633,770 | ||
| 5.00 - 6.99% | 11,474,169 | 12,437,463 | ||
| 7.00 - 8.99% | - |
28,417 |
||
| Total Certificate Accounts | 149,626,840 |
2.62% | 157,099,650 |
2.92% |
| Total Deposit Accounts | $ 362,179,701 | 1.83% | $ 358,473,601 | 2.08% |
6. Advances From Federal Home Loan Bank
Federal Home Loan Bank Advances are summarized by year of maturity and weighted average interest rate in the table below:
| June 30, 2003 |
March 31, 2003 |
|||
| Fiscal Year Due: | Balance |
Rate |
Balance |
Rate |
| 2004 | $ 1,150,000 | 1.36% | $ 1,700,000 | 1.48% |
| 2005 | 10,054,000 | 6.14% | 10,072,000 | 6.14% |
| 2006 | 23,000,000 | 4.93% | 23,000,000 | 4.93% |
| 2007 | 5,000,000 | 2.64% | - | - |
| Thereafter | 15,000,000 |
3.09% | 15,000,000 |
3.09% |
| Total Advances | $ 54,204,000 | 4.36% | $ 49,772,000 | 4.50% |
These advances are secured by a blanket collateral agreement with the FHLB by pledging the Bank's portfolio of residential first mortgage loans and approximately $20.4 million in investment securities at June 30, 2003. Advances are subject to prepayment penalties.
The following table shows callable FHLB advances as of the dates indicated. These advances are also included in the above table. All callable advances are callable at the option of the FHLB. If an advance is called, the Bank has the option to payoff the advance without penalty, re-borrow funds on different terms, or convert the advance to a three-month floating rate advance tied to LIBOR.
| As of June 30, 2003 |
|||||
| Borrow Date |
Maturity Date |
Amount |
Int. Rate |
Type |
Call Dates |
| 11/10/00 | 11/10/05 | $5,000,000 | 5.85% | Multi-Call | 5/10/03 and quarterly thereafter |
| 09/04/02 | 09/04/07 | 5,000,000 | 2.82% | 1 Time Call | 09/04/05 |
| 11/07/02 | 11/07/12 | 5,000,000 | 3.354% | 1 Time Call | 11/07/07 |
| 03/10/03 | 03/10/06 | 5,000,000 | 1.15% | Multi-Call | 03/10/04 and quarterly thereafter |
| As of March 31, 2003 |
|||||
| Borrow Date |
Maturity Date |
Amount |
Int. Rate |
Type |
Call Dates |
| 11/10/00 | 11/10/05 | 5,000,000 | 5.85% | Multi-Call | 08/10/02 and quarterly thereafter |
| 09/04/02 | 09/04/07 | 5,000,000 | 2.82% | 1 Time Call | 09/04/05 |
| 11/07/02 | 11/07/12 | 5,000,000 | 3.354% | 1 Time Call | 11/07/07 |
| 03/10/03 | 03/10/06 | 5,000,000 | 1.15% | Multi-Call | 03/10/04 and quarterly thereafter |
8
<PAGE>
Security Federal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited), Continued
The following table reconciles the Bank's Shareholders' Equity to its various regulatory capital positions:
| June 30, 2003 | March 31, 2003 | |
| (Dollars in Thousands) |
||
| Bank's Shareholders' Equity | $ 31,250 | $ 30,324 |
| Unrealized Gain On Available For Sale Of Securities, Net Of Tax | (1,454) | (1,445) |
| Reduction For Goodwill And Other Intangibles | - |
- |
| Tangible Capital | 29,796 | 28,879 |
| Qualifying Core Deposits And Intangible Assets | - |
- |
| Core Capital | 29,796 | 28,879 |
| Supplemental Capital | 3,109 | 3,064 |
| Assets Required To Be Deducted | (125) |
(152) |
| Risk-Based Capital | $ 32,780 | $ 31,791 |
The following table compares the Bank's capital levels relative to the applicable regulatory requirements at June 30, 2003:
| (Dollars in Thousands) |
||||||
| Amt.Required |
% Required |
Actual Amt. |
Actual % |
Excess Amt. |
Excess % |
|
| Tangible Capital | $ 9,070 | 2.0% | $ 29,796 | 6.57% | $ 20,726 | 4.57% |
| Tier 1 Leverage (Core) Capital | 18,141 | 4.0% | 29,796 | 6.57% | 11,655 | 2.57% |
| Total Risk-Based Capital | 19,897 | 8.0% | 32,780 | 13.18% | 12,883 | 5.18% |
| Tier 1 Risk-Based (Core) Capital | 9,949 | 4.0% | 29,796 | 11.98% | 19,847 | 7.98% |
8. Earnings Per Share
The Company calculates earnings per share in accordance with Statement of Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS 128 specifies the computation, presentation and disclosure requirements for earnings per share ("EPS") for entities with publicly held common stock or potential common stock such as options, warrants, convertible securities or contingent stock agreements if those securities trade in a public market.
This standard specifies computation and presentation requirements for both basic EPS and, for entities with complex capital structures, diluted EPS. Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share is similar to the computation of basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. The dilutive effect of options outstanding under the Company's stock option plan is reflected in diluted earnings per share by application of the treasury stock method.
The following table provides a reconciliation of the numerators and denominators of the Basic and Diluted EPS computations:
| For the Quarter Ended |
||||
| June 30, 2003 |
||||
| Income (Numerator) Amount |
Shares (Denominator) |
Per Share |
||
| Basic EPS | $ 922,659 | 2,510,526 | $ 0.37 | |
| Effect of Diluted Securities: | ||||
| Stock Options | - | 28,387 | (0.01) | |
| ESOP | - | 19,386 | - | |
| Diluted EPS | $ 922,659 | 2,558,299 | $ 0.36 | |
9
<PAGE>
Security Federal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (continued)
| For the Quarter Ended |
||||
| June 30, 2002 |
||||
| Income (Numerator) Amount |
Shares (Denominator) |
Per Share |
||
| Basic EPS | $ 717,150 | 2,507,572 | $ 0.29 | |
| Effect of Diluted Securities: | ||||
| Stock Options | - | 38,495 | (0.01) | |
| ESOP | - |
18,727 |
- |
|
| Diluted EPS | $ 717,150 | 2,564,794 | $ 0.28 | |
10
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Security Federal Corporation and Subsidiaries
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition
Changes in Financial Condition
Total assets of the Company increased $10.1 million or 2.3% during the three months ended June 30, 2003 primarily as a result of increases of $8.2 million or 4.5% in total investment securities and $1.6 million in cash and cash equivalents.
Net loans decreased $480,000 or 0.2% to $242.7 million during the three months ended June 30, 2003. Residential real estate loans, net of loans in process, decreased $2.6 million or 2.9% during the period while consumer loans decreased $1.0 million or 2.0% and commercial loans increased $1.1 million or 1.0%. Loans held for sale increased $2.2 million to $5.9 million during the period.
Repossessed assets increased $32,000 to $183,000 during the three months ended June 30, 2003.
Non-accrual loans totaled $1.4 million at June 30, 2003 compared to $1.0 million at March 31, 2003. The Bank classifies all loans as non-accrual when they become 90 days or more delinquent. At June 30, 2003, the Bank held $1.0 million in impaired loans compared to $1.2 million at March 31, 2003. The Bank includes troubled debt restructuring ("TDR") within the meaning of SFAS No. 114 in impaired loans. At June 30, 2003, the Bank had seven loans totaling $665,000 in TDR's compared to seven loans totaling $674,000 at March 31, 2003. At June 30, 2003 one commercial loan TDR of $201,000 was more than 90 days delinquent and on non-accrual status. That loan is secured by commercial real estate. A commercial loan TDR of $218,000 secured by a residential dwelling and equipment was more than 30 days delinquent as was a $25,000 unsecured commercial loan TDR. Two consumer loans secured by residential mortgages totaling $75,000 were also more than 30 days delinquent. The other two TDR's, an $86,000 consumer loan secured by a residential dwelling and a $60,000 commercial loan secured by two rental properties were current as of June 30, 2003.
Deposits increased $3.7 million or 1.0% during the three months ended June 30, 2003 as a result of competitive rates offered by the Bank. Federal Home Loan Bank (FHLB) advances increased $4.4 million or 8.9% due to investment leverage strategies employed to increase net interest income. Other borrowings, consisting of commercial repurchase sweep accounts, increased $635,000 or 15.2% to $4.8 million during the three-month period.
The Board of Directors of the Company declared the 50th consecutive quarterly dividend, which was $.02 per share, in April 2003, which totaled $51,000. The employee stock ownership trust of the Company paid $63,000 of principal on the employee stock ownership plan loan during the three-month period. Unrealized net gains on securities available for sale, net of tax, increased $9,000 during the nine months ended June 30, 2003. The Company's net income for the three months was $923,000. These items combined to increase shareholders' equity by $947,000 or 3.5% during the three months ended June 30, 2003. Book value per share was $12.30 at June 30, 2003 compared to $11.98 at March 31, 2003.
Liquidity and Capital Resources
In accordance with Office of Thrift Supervision (OTS) regulations, the Company is required to maintain sufficient liquidity to operate in a safe and sound manner. The Company's current liquidity level is deemed adequate to meet the requirements of normal operations, potential deposit outflows, and loan demand while still allowing for optimal investment of funds and return on assets.
Loan repayments and maturities of investments are a significant source of funds, whereas loan disbursements and the purchase of investments are a primary use of the Company's funds. During the three months ended June 30, 2003, loan repayments exceeded loan disbursements resulting in a $480,000 or 0.20% decrease in total net loans receivable.
Deposits and other borrowings are also an important source of funds for the Company. During the three months ended June 30, 2003, deposits increased $3.7 million while FHLB advances increased $4.4 million. The Bank had $59.0 million in additional borrowing capacity at the FHLB at the end of the period. At June 30, 2003, the Bank had $122.4 million of certificates of deposit maturing within one year. Based on previous experience, the Bank anticipates a major portion of these certificates will be renewed.
11
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Security Federal Corporation and Subsidiaries
Management's Discussion and Analysis of Results of Operations and Financial Condition
Liquidity and Capital Resources, Continued
Through its operations the Bank, has made contractual commitments to extend credit in the ordinary course of its business activities. These commitments are legally binding agreements to lend money to our customers at predetermined interest rates for a specified period of time. At June 30, 2003, the Bank had $25.6 million in unused consumer lines of credit, including home equity lines and unsecured lines. The Bank also had $7.7 million in unused commercial lines of credit committed to customers. The majority of the $33.3 million will not be drawn at the same time. The Bank evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, by the Bank upon extension of credit, is based on our credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, commercial and residential real estate. The Bank manages the credit risk on these commitments by subjecting them to normal underwriting and risk management processes.
The Company is in the process of constructing a full service branch office in Lexington, South Carolina, which is expected to open in August 2003. The total cost of the two-story building, which is being constructed on land on which the Company has a long-term lease, is $1.4 million. At June 30, 3003, the Company had paid approximately $700,000 for the construction in progress. The Company plans to lease the second floor for rental income.
Historically, the Company's cash flow from operating activities has been relatively stable. The cash flow from investing activities have had a trend of increasing outflows due to increases in purchases of mortgage-backed and investment securities. The cash flows from financing activities have had a trend of increased inflows as a result of increases in FHLB advances. Management believes that the Company's liquidity will continue to be supported by the Company's deposit base and borrowing capacity during the next year.
Critical Accounting Policies
We have adopted various accounting policies which govern the application of accounting principles generally accepted in the United States in the preparation of our financial statements. Our significant accounting policies are described in the footnotes to the consolidated financial statements at March 31, 2003 as filed on our annual report on Form 10-K. Certain accounting policies involve significant judgements and assumptions by us which have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies to be critical accounting policies. The judgements and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Because of the nature of the judgements and assumptions we make, actual results could differ from these judgements and estimates which could have a material impact on our carrying values of assets and liabilities and our results of operations.
We believe the allowance for loan losses is a critical accounting policy that requires the most significant judgements and estimates used in preparation of our consolidated financial statements. Refer to the portion of this discussion that addresses our allowance for the loan losses for a description of our processes and methodology for determining our allowance for loan losses.
Accounting and Reporting Changes
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-based Compensation—Transition and Disclosure", an amendment of FASB Statement No. 123, "Accounting for Stock-Based Compensation", to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 and Accounting Pronouncement Board ("APB") Opinion No. 28, "Interim Financial Reporting", to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. While SFAS No. 148 does not amend SFAS No. 123 to require companies to account for employee stock options using the fair value method, the disclosure provisions of SFAS No. 148 are applicable to all companies with stock-based employee compensation, regardless of whether they account for that compensation using the fair value method of SFAS No. 123 or the intrinsic value method of APB Opinion No. 25. The provisions of SFAS No. 148 are effective for annual financial statements for fiscal years ending after December 15, 2002, and for financial reports containing condensed financial statements for interim period beginning after December 15, 2002. The Company has adopted the disclosure provisions of SFAS No. 148 which had no impact on the financial condition or operating results of the Company.
12
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Security Federal Corporation and Subsidiaries
Management's Discussion and Analysis of Results of Operations and Financial Condition
Accounting and Reporting Changes, Continued
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts and loan commitments that relate to the origination of mortgage loans held for sale, and for hedging activities under SFAS No. 133. SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003. The adoption of SFAS No. 149 will not have a material impact on the financial condition or operating results of the Company.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances.) Many of those instruments were previously classified as equity. SFAS No. 150 is generally effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material impact on the financial condition or operating results of the Company.
In June 2003, the American Institute of Certified Public Accountants (AICPA) issued an exposure draft of a proposed Statement of Position (SOP), Allowance for Credit Losses. The proposed SOP addresses the recognition and measurement by creditors of the allowance for credit losses related to all loans, as that term is defined in SFAS No. 114, Accounting by Creditors for Impairment of a Loan. The proposed SOP provides that the allowance for credit losses reported on a creditor's balance sheet should consist only of (1) a component for individual loan impairment recognized and measured pursuant to FASB Statement No. 114 and (2) one or more components of collective loan impairment recognized pursuant to FASB Statement No. 5, Accounting for Contingencies, and measured in accordance with the guidance in the proposed SOP. The provisions of the proposed SOP would be effective for financial statements for fiscal years beginning after December 15, 2003, with earlier application permitted. The effect of initially applying the provisions of the proposed SOP would be reported as a change in accounting estimate. Comments on the exposure draft are due by September 19, 2003. The effect on the financial condition or operating results of the Company related to the adoption of this proposed SOP have not been determined, but would most likely be material.
Impact of Inflation and Changing Prices
The consolidated financial statements, related notes, and other financial information presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in relative purchasing power over time due to inflation. Unlike industrial companies, substantially all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution's performance than does inflation. See "Item 3. Quantitative and Qualitative Disclosures about Market Risk" for additional discussions of changes in interest rates.
13
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Security Federal Corporation and Subsidiaries
Management's Discussion and Analysis of Results of Operations and Financial Condition
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2003
Net Income
Net income was $923,000 for the three months ended June 30, 2003, representing an increase in earnings of $206,000 or 28.7% from $717,000 for the same period in 2002.
Net Interest Income
Net interest income decreased $264,000 or 7.6% to $3.2 million during the three months ended June 30, 2003 as a result of a decrease in total interest income offset in part by a decrease in interest expense. Interest earning assets increased an average of $65.2 million while interest-bearing liabilities increased $58.5 million. The interest rate spread decreased 77 basis points to 2.75% during the three months ending June 30, 2003 compared to the same period in 2002.
Interest income on loans decreased $405,000 or 9.3% to $4.0 million during the three months ended June 30, 2003 as a result of the yield in the loan portfolio decreasing 92 basis points despite the average loan portfolio balance increasing by $8.2 million. Interest income from investment, mortgage-backed, and other securities increased $17,000 or 1.1% due to an increase in the average balance of approximately $57.0 million in the investment portfolio despite a 142 basis points decrease in the average yield in the portfolio. Total interest income decreased $388,000 or 6.5% to $5.6 million for the three months ended June 30, 2003 from $6.0 million for the same period in 2002.
Total interest expense decreased $124,000 or 4.9% to $2.4 million during the three months ended June 30, 2003 compared to $2.5 million for the same period one-year earlier. Interest expense on deposits decreased $187,000 or 9.6% during the period as average interest bearing deposits grew $43.6 million compared to the average balance in 2002 while the cost of deposits decreased 58 basis points. Interest expense on advances and other borrowings increased $64,000 or 11.4% as the cost of debt outstanding decreased 87 basis points during the 2003 period compared to 2002 while average total borrowings outstanding increased approximately $14.9 million.
Provision for Loan Losses
The Bank's provision for loan losses was $300,000 during the three months ended June 30, 2003 compared to $450,000 for the quarter ending June 30, 2002. The amount of the provision is determined by Management's on-going monthly analysis of the loan portfolio. Non-accrual loans, which are loans delinquent 90 days or more, were $1.4 million at June 30, 2003 compared to $1.0 million at March 31, 2003. The ratio of allowance for loan losses to the Company's total loans was 2.07% at June 30, 2003 compared to 1.98% March 31, 2003. Net charge-offs were $88,000 during the three months ended June 30, 2003 compared to $98,000 during the same period in 2002.
Other Income
Total other income increased $401,000 or 50.2% to $1.2 million during the three months ended June 30, 2003 compared to the same period a year ago. Gain on sale of loans increased $353,000 or 121.7% to $643,000 during the period as the origination and sale of fixed rate mortgages increased due to the low rates offered on fixed rate loans industry wide. Loan servicing fees decreased $2,000 to $49,000 while service fees on deposit accounts increased $70,000 or 24.9% due to a concerted effort to reduce waived service charges. Other miscellaneous income including credit life insurance commissions, net gain on sale of repossessed assets, safe deposit rental income, annuity and stock brokerage commissions, and trust fees, and other miscellaneous fees decreased $20,000 or 11.1% during the three months ended June 30, 2003.
14
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Security Federal Corporation and Subsidiaries
Management's Discussion and Analysis of Results of Operations and Financial Condition
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2003, CONTINUED
General and Administrative Expenses
General and administrative expenses decreased $35,000 or 1.3% to $2.6 million during the three months ended June 30, 2003 compared to the same period in 2002. Salaries and employee benefits expense increased $122,000 due to an increase in full time equivalents in order to prepare for the opening of the Lexington branch during the September 2003 quarter and as a result of normal annual salary increases. Occupancy expense increased $24,000 due primarily to the land lease for the Lexington branch, which is currently under construction. Advertising expense decreased $50,000 or 65.3% while the depreciation and maintenance of equipment expense decreased $5,000 or 1.9% during the quarterly period. FDIC insurance premiums increased slightly by $1,000 during the 2003 quarter. The amortization of intangibles expense decreased $116,000 to zero during the quarter. At June 30, 2003, the Company had no further intangibles on the balance sheet. Other miscellaneous expense, consisting of legal, professional, and consulting expenses, stationery and office supplies, and other sundry expenses, decreased $10,000 or 1.9% for the three months ended June 30, 2003 compared to the three months ended June 30, 2002.
15
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Security Federal Corporation and Subsidiaries
Management's Discussion and Analysis of Results of Operations and Financial Condition
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates. The Company's market risk arises principally from interest rate risk inherent in its lending, investment, deposit and borrowing activities. Management actively monitors and manages its interest rate risk exposure. Although the Company manages other risks such as credit quality and liquidity risk in the normal course of business, management considers interest rate risk to be its most significant market risk that could potentially have the largest material effect on the Company's financial condition and results of operations. Other types of market risks such as foreign currency exchange rate risk and commodity price do not arise in the normal course of the Company's business activities.
The Company's profitability is affected by fluctuations in the market interest rate. Management's goal is to maintain a reasonable balance between exposure to interest rate fluctuations and earnings. A sudden and substantial increase or decrease in interest rates may adversely impact the Company's earnings to the extent that the interest rates on interest-earning assets and interest-bearing liabilities do not change at the same rate, to the same extent or on the same basis. The Company monitors the impact of changes in interest rates on its net interest income using a test that measures the impact on net interest income and net portfolio value of an immediate change in interest rates in 100 basis point increments and by measuring the Bank's interest sensitivity gap ("Gap"). Net portfolio value is defined as the net present value of assets, liabilities, and off-balance sheet contracts. Gap is the amount of interest sensitive assets repricing or maturing over the next twelve months compared to the amount of interest sensitive liabilities maturing or repricing in the same time period. Recent net portfolio value reports furnished by the OTS indicate that the Bank's interest sensitivity has improved in recent quarters over the past year. The Bank has rated favorably compared to Thrift peers concerning interest rate sensitivity.
For the three month period ended June 30, 2003, the Bank's interest rate spread, defined as the average yield on interest bearing assets less the average rate paid on interest bearing liabilities was 2.75%. As of the year ended March 31, 2003, the interest rate spread was 3.00%. The interest rate spread has decreased due to investment securities growing faster than loan receivables. Loan receivables earn a higher yield than investment securities. Also, loan yields are falling due to refinancing of residential and commercial loans. If interest rates were to increase suddenly and significantly, the Bank's net interest income and net interest spread would be compressed.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures: An evaluation of the Company's disclosure controls and procedures (as defined in Section 13(a) - 14(c) of the Securities Exchange Act of 1934 (the "Act")) was carried out under the supervision and with the participation of the Company's Chief Executive Officer, Chief Financial Officer and several other members of the Company's senior management within the 90-day period preceding the filing date of this quarterly report. The Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures as currently in effect are effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is (i) accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time period specified in the SEC's rules and forms.
(b) Changes in Internal Controls: In the quarter ended June 30, 2003, the Company did not make any significant changes in, nor take any corrective actions regarding, its internal controls or other factors that could significantly affect these controls.
16
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Security Federal Corporation and Subsidiaries
Part II: Other Information
| Item 1 | Legal Proceedings |
| The Company is not engaged in any legal proceedings of a material nature at the present time. From time to time, the Company is a party to legal proceedings in the ordinary course of business wherein it enforces its security interest in mortgage loans it has made. | |
| Item 2 | Changes In Securities And Use Of Proceeds |
| Not applicable. | |
| Item 3 | Defaults Upon Senior Securities |
| None | |
| Item 4 | Submission Of Matters To A Vote Of Security Holders |
| None | |
| Item 5 | Other Information |
| None | |
| Item 6 | Exhibits And Reports On Form 8-K |
| Exhibits: | |
| 3.1 Articles Of Incorporation (1) | |
| 3.2 Articles Of Amendment, Dated August 28, 1998, To Articles Of Incorporation | |
| 3.3 Bylaws (2) | |
| 10 Executive Compensation Plans And Arrangements: | |
| Salary Continuation Agreements (3) | |
| Amendment One To Salary Continuation Agreements (4) | |
| Stock Option Plan (3) | |
| 1999 Stock Option Plan (5) | |
| 2002 Stock Option Plan (6) | |
| Incentive Compensation Plan (3) | |
| 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act. | |
| 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act. | |
| 32 Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act. | |
| (1) | Filed as an exhibit to the Company's June 23, 1998 proxy statement and incorporated herein by reference. |
| (2) | Filed as an exhibit to the Company's Form 8-K dated August 31, 1998 and incorporated herein by reference. |
| (3) | Filed on June 28, 1993, as an exhibit to the Company's Annual Report on Form 10-KSB pursuant to Section 12(g) of the Securities Exchange Act of 1934. All of such previously filed documents are hereby incorporated herein by reference in accordance with Item 601 of Regulation S-K. |
| (4) | Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for the quarter ended December 30, 1993 pursuant to Section 12(g) of the Securities Exchange Act of 1934. All of such previously filed documents are hereby incorporated herein by reference in accordance with Item 601 of Regulation S-K. |
17
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Security Federal Corporation and Subsidiaries
Other Information, Continued
| (5) | Filed on March 2, 2002, as an exhibit to the Company's Registration Statement on Form S-8 and incorporated herein by reference. |
| (6) | Filed as an exhibit to the Company's June 19, 2002 proxy statement and incorporated herein by reference. |
Signatures
Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to the signed on its behalf by the undersigned thereunto duly authorized.
| SECURITY FEDERAL CORPORATION | |
| Date: 8/07/2003 | By: /s/ Timothy W. Simmons |
| Timothy W. Simmons President Duly Authorized Representative |
|
| Date: 8/07/2003 | By: /s/ Roy G. Lindburg |
| Roy G. Lindburg Treasurer/CFO Duly Authorized Representative |
18
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Exhibit 31.1
Certification
I, Timothy W. Simmons, certify that:
| 1. | I have reviewed this June 30, 2003 10-Q of Security Federal Corporation; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have: | |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| c) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | |
| 5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): | |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. | |
| Date: August 13, 2003 | ||
| /s/ Timothy W. Simmons Timothy W. Simmons President and Chief Executive Officer |
19
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Exhibit 31.2
Certification
I, Roy G. Lindburg, certify that:
| 1. | I have reviewed this June 30, 2003 10-Q of Security Federal Corporation; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have: | |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| c) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | |
| 5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): | |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. | |
| Date: August 13, 2003 | ||
| /s/ Roy G. Lindburg Roy G. Lindburg Chief Financial Officer |
20
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Exhibit 32
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
OF SECURITY FEDERAL CORPORATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with this Quarterly Report on Form 10-Q that:
| 1. | the report fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, and |
| 2. | the information contained in the report fairly presents, in all material respects, the company's financial condition and results of operations. |
| /s/ Timothy W. Simmons |
/s/ Roy G. Lindburg |
| Timothy W. Simmons Chief Executive Officer |
Roy G. Lindburg Chief Financial Officer |
| Dated: August 7, 2003 |
A signed original of this written statement required by Section 906 has been provided to Security Federal Corporation and will be retained by Security Federal Corporation and furnished to the Securities and Exchange Commission or its staff upon request.