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EXCEL - IDEA: XBRL DOCUMENT - SECURITY FEDERAL CORP | Financial_Report.xls |
EX-32 - EXHIBIT 32 - SECURITY FEDERAL CORP | sfdl-20140930xex32.htm |
EX-31.1 - EXHIBIT 31.1 - SECURITY FEDERAL CORP | sfdl-20140930xex311.htm |
EX-31.2 - EXHIBIT 31.2 - SECURITY FEDERAL CORP | sfdl-20140930xex312.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10 – Q
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014
( ) 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
(Exact name of registrant as specified in its charter)
South Carolina | 57-0858504 | |||
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
238 RICHLAND AVENUE, WEST, AIKEN, SOUTH CAROLINA 29801
(Address of principal executive office and Zip Code)
(803) 641-3000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES | X | NO |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filed [ ] | Accelerated filer [ ] | |||
Non-accelerated filer [ ] | Smaller reporting company [ X ] |
Indicate by check mark whether the registrant is a shell corporation (defined in Rule 12b-2 of the Exchange Act).
YES | NO | X |
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: | SHARES: | ||||
Common Stock, par value $0.01 per share | November 12, 2014 | 2,944,001 |
PART I. | FINANCIAL INFORMATION (UNAUDITED) | PAGE NO. | |
Item 1. | Financial Statements: | 3 | |
Consolidated Balance Sheets at September 30, 2014 (Unaudited) and December 31, 2013 | 3 | ||
Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended September 30, 2014 and 2013 | 4 | ||
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the Three and Nine Months Ended September 30, 2014 and 2013 | 5 | ||
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) for the Nine Months Ended September 30, 2014 and 2013 | 6 | ||
Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2014 and 2013 | 7 | ||
Notes to Consolidated Financial Statements | 9 | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 32 | |
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 46 | |
Item 4. | Controls and Procedures | 47 | |
PART II. | OTHER INFORMATION | ||
Item 1. | Legal Proceedings | 47 | |
Item 1A. | Risk Factors | 47 | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 47 | |
Item 3. | Defaults Upon Senior Securities | 47 | |
Item 4. | Mine Safety Disclosures | 47 | |
Item 5. | Other Information | 47 | |
Item 6. | Exhibits | 47 | |
Signatures | 50 | ||
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.
SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Part 1. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2014 | December 31, 2013 | ||||||
ASSETS: | |||||||
Cash And Cash Equivalents | $ | 8,210,921 | $ | 7,629,771 | |||
Certificates Of Deposit With Other Banks | 2,095,000 | 2,100,395 | |||||
Investment And Mortgage-Backed Securities: | |||||||
Available For Sale (Amortized Cost Of $421,262,865 And $430,241,854 At September 30, 2014 And December 31, 2013, Respectively) | 428,819,911 | 431,003,452 | |||||
Loans Receivable, Net: | |||||||
Held For Sale | 2,057,504 | 1,234,158 | |||||
Held For Investment (Net Of Allowance Of $8,646,974 And $10,241,970 At September 30, 2014 And December 31, 2013, Respectively) | 342,057,363 | 357,682,507 | |||||
Total Loans Receivable, Net | 344,114,867 | 358,916,665 | |||||
Accrued Interest Receivable: | |||||||
Loans | 985,215 | 1,031,747 | |||||
Mortgage-Backed Securities | 720,806 | 732,100 | |||||
Investment Securities | 1,425,548 | 1,393,156 | |||||
Total Accrued Interest Receivable | 3,131,569 | 3,157,003 | |||||
Premises And Equipment, Net | 18,377,829 | 17,243,390 | |||||
Federal Home Loan Bank ("FHLB") Stock, At Cost | 3,851,600 | 5,016,600 | |||||
Repossessed Assets Acquired In Settlement Of Loans | 3,859,424 | 3,947,226 | |||||
Bank Owned Life Insurance | 11,075,045 | 11,474,305 | |||||
Intangible Assets, Net | — | 11,970 | |||||
Goodwill | 1,199,754 | 1,199,754 | |||||
Other Assets | 4,139,647 | 7,547,528 | |||||
Total Assets | $ | 828,875,567 | $ | 849,248,059 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY: | |||||||
Liabilities: | |||||||
Deposit Accounts | $ | 646,463,924 | $ | 658,696,772 | |||
Advances From FHLB | 68,320,000 | 87,740,058 | |||||
Other Borrowings | 10,781,356 | 8,002,739 | |||||
Junior Subordinated Debentures | 5,155,000 | 5,155,000 | |||||
Advance Payments By Borrowers For Taxes And Insurance | 578,614 | 255,364 | |||||
Senior Convertible Debentures | 6,084,000 | 6,084,000 | |||||
Other Liabilities | 5,822,307 | 5,324,046 | |||||
Total Liabilities | 743,205,201 | 771,257,979 | |||||
Shareholders' Equity: | |||||||
Serial Preferred Stock, $.01 Par Value; Authorized 200,000 Shares; Issued And Outstanding, 22,000 Shares At September 30, 2014 And December 31, 2013, Respectively | 22,000,000 | 22,000,000 | |||||
Common Stock, $.01 Par Value; Authorized 5,000,000 Shares; Issued 3,144,934 Shares At September 30, 2014 And December 31, 2013, Respectively | 31,449 | 31,449 | |||||
Additional Paid-In Capital | 11,987,644 | 11,978,137 | |||||
Treasury Stock, At Cost (200,933 Shares At September 30, 2014 And December 31, 2013, Respectively) | (4,330,712 | ) | (4,330,712 | ) | |||
Accumulated Other Comprehensive Income | 4,689,769 | 472,406 | |||||
Retained Earnings | 51,292,216 | 47,838,800 | |||||
Total Shareholders' Equity | 85,670,366 | 77,990,080 | |||||
Total Liabilities And Shareholders' Equity | $ | 828,875,567 | $ | 849,248,059 |
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Interest Income: | ||||||||||||||||
Loans | $ | 4,852,458 | $ | 5,375,962 | $ | 14,636,508 | $ | 16,485,033 | ||||||||
Mortgage-Backed Securities | 1,538,902 | 1,360,586 | 4,568,036 | 3,943,033 | ||||||||||||
Investment Securities | 995,233 | 966,936 | 3,006,439 | 2,655,352 | ||||||||||||
Other | 2,345 | 2,219 | 8,370 | 6,262 | ||||||||||||
Total Interest Income | 7,388,938 | 7,705,703 | 22,219,353 | 23,089,680 | ||||||||||||
Interest Expense: | ||||||||||||||||
NOW And Money Market Accounts | 125,749 | 186,183 | 435,482 | 630,239 | ||||||||||||
Statement Savings Accounts | 6,821 | 6,932 | 19,537 | 27,720 | ||||||||||||
Certificate Accounts | 488,300 | 601,056 | 1,497,402 | 2,015,069 | ||||||||||||
FHLB Advances And Other Borrowed Money | 617,271 | 854,292 | 2,049,563 | 2,753,183 | ||||||||||||
Senior Convertible Debentures | 121,680 | 121,680 | 365,040 | 365,040 | ||||||||||||
Junior Subordinated Debentures | 25,441 | 25,952 | 75,643 | 77,549 | ||||||||||||
Total Interest Expense | 1,385,262 | 1,796,095 | 4,442,667 | 5,868,800 | ||||||||||||
Net Interest Income | 6,003,676 | 5,909,608 | 17,776,686 | 17,220,880 | ||||||||||||
Provision For Loan Losses | — | 600,000 | 200,000 | 2,645,381 | ||||||||||||
Net Interest Income After Provision For Loan Losses | 6,003,676 | 5,309,608 | 17,576,686 | 14,575,499 | ||||||||||||
Non-Interest Income: | ||||||||||||||||
Gain On Sale Of Investment Securities | 142,816 | 419,360 | 187,687 | 1,173,140 | ||||||||||||
Gain On Sale Of Loans | 119,041 | 227,332 | 465,571 | 622,960 | ||||||||||||
Service Fees On Deposit Accounts | 300,920 | 303,350 | 861,476 | 845,444 | ||||||||||||
Commissions From Insurance Agency | 116,894 | 103,330 | 317,757 | 348,292 | ||||||||||||
Trust Income | 158,000 | 135,000 | 404,000 | 405,000 | ||||||||||||
Bank Owned Life Insurance Income | 75,000 | 78,000 | 479,364 | 261,000 | ||||||||||||
Check Card Fee Income | 229,542 | 222,252 | 674,098 | 640,374 | ||||||||||||
Community Development Financial Institution ("CDFI") Financial Award Income | 183,789 | 97,000 | 483,499 | 733,071 | ||||||||||||
Other | 160,304 | 152,467 | 481,191 | 396,695 | ||||||||||||
Total Non-Interest Income | 1,486,306 | 1,738,091 | 4,354,643 | 5,425,976 | ||||||||||||
Non-Interest Expense: | ||||||||||||||||
Compensation And Employee Benefits | 2,781,418 | 2,677,608 | 8,464,967 | 8,267,433 | ||||||||||||
Occupancy | 515,881 | 484,857 | 1,491,633 | 1,447,835 | ||||||||||||
Advertising | 115,268 | 79,130 | 358,527 | 256,861 | ||||||||||||
Depreciation And Maintenance Of Equipment | 408,685 | 412,020 | 1,219,461 | 1,220,952 | ||||||||||||
Federal Deposit Insurance Corporation ("FDIC") Insurance Premiums | 177,537 | 191,535 | 541,779 | 555,733 | ||||||||||||
Amortization Of Intangibles | — | 12,501 | 11,970 | 37,503 | ||||||||||||
Net (Profit) Cost Of Operation Of Other Real Estate Owned | (71,623 | ) | 506,174 | 451,947 | 1,243,935 | |||||||||||
Prepayment Penalties On FHLB Advances | — | 191,181 | — | 429,523 | ||||||||||||
Other | 1,095,710 | 1,109,892 | 3,125,894 | 3,109,619 | ||||||||||||
Total General And Administrative Expenses | 5,022,876 | 5,664,898 | 15,666,178 | 16,569,394 | ||||||||||||
Income Before Income Taxes | 2,467,106 | 1,382,801 | 6,265,151 | 3,432,081 | ||||||||||||
Provision For Income Taxes | 756,466 | 360,970 | 1,775,175 | 860,319 | ||||||||||||
Net Income | 1,710,640 | 1,021,831 | 4,489,976 | 2,571,762 | ||||||||||||
Preferred Stock Dividends | 110,000 | 110,000 | 330,000 | 330,000 | ||||||||||||
Net Income Available To Common Shareholders | $ | 1,600,640 | $ | 911,831 | $ | 4,159,976 | $ | 2,241,762 | ||||||||
Net Income Per Common Share (Basic) | $ | 0.54 | $ | 0.31 | $ | 1.41 | $ | 0.76 | ||||||||
Net Income Per Common Share (Diluted) | $ | 0.52 | $ | 0.31 | $ | 1.35 | $ | 0.76 | ||||||||
Cash Dividend Per Share On Common Stock | $ | 0.08 | $ | 0.08 | $ | 0.24 | $ | 0.24 | ||||||||
Weighted Average Shares Outstanding (Basic) | 2,944,001 | 2,944,001 | 2,944,001 | 2,944,001 | ||||||||||||
Weighted Average Shares Outstanding (Diluted) | 3,248,201 | 2,944,001 | 3,248,201 | 2,944,001 |
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Three Months Ended September 30, | ||||||||
2014 | 2013 | |||||||
Net Income | $ | 1,710,640 | $ | 1,021,831 | ||||
Other Comprehensive Loss | ||||||||
Unrealized Gains On Securities: | ||||||||
Unrealized Holding Losses On Securities Available For Sale, Net Of Taxes Of $67,172 And $752,070 At September 30, 2014 And 2013, Respectively | (111,155 | ) | (1,230,443 | ) | ||||
Reclassification Adjustment For Gains Included In Net Income, Net Of Taxes Of $54,270 And $159,357 At September 30, 2014 And 2013, Respectively | (88,546 | ) | (260,003 | ) | ||||
Other Comprehensive Loss | (199,701 | ) | (1,490,446 | ) | ||||
Comprehensive Income (Loss) | $ | 1,510,939 | $ | (468,615 | ) |
Nine Months Ended September 30, | ||||||||
2014 | 2013 | |||||||
Net Income | $ | 4,489,976 | $ | 2,571,762 | ||||
Other Comprehensive Income (Loss) | ||||||||
Unrealized Gains (Losses) On Securities: | ||||||||
Unrealized Holding Gains (Losses) On Securities Available For Sale, Net Of Taxes Of $2,649,406 And $4,113,767 At September 30, 2014 And 2013, Respectively | 4,333,729 | (6,720,796 | ) | |||||
Reclassification Adjustment For Gains Included In Net Income, Net Of Taxes Of $71,321 And $445,793 At September 30, 2014 And 2013, Respectively | (116,366 | ) | (727,347 | ) | ||||
Held To Maturity Transfer To Available For Sale, Net Of Taxes of $0 and $530,733 at September 30, 2014 and 2013, Respectively | — | 865,933 | ||||||
Other Comprehensive Income (Loss) | 4,217,363 | (6,582,210 | ) | |||||
Comprehensive Income (Loss) | $ | 8,707,339 | $ | (4,010,448 | ) |
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
For the Nine Months Ended September 30, 2014 and 2013
Preferred Stock | Warrants | Common Stock | Additional Paid – In Capital | Treasury Stock | Accumulated Other Comprehensive Income | Retained Earnings | Total | ||||||||||||||||||||||||
Balance at December 31, 2012 | $ | 22,000,000 | $ | 400,000 | $ | 31,449 | $ | 11,630,717 | $ | (4,330,712 | ) | $ | 7,431,310 | $ | 45,429,720 | $ | 82,592,484 | ||||||||||||||
Net Income | — | — | — | — | — | — | 2,571,762 | 2,571,762 | |||||||||||||||||||||||
Other Comprehensive Loss, Net Of Tax | — | — | — | — | — | (6,582,210 | ) | — | (6,582,210 | ) | |||||||||||||||||||||
Stock Option Compensation Expense | — | — | — | (5,749 | ) | — | — | — | (5,749 | ) | |||||||||||||||||||||
Redemption Of Warrant Issued In Conjunction With Serial Preferred Stock | — | (400,000 | ) | — | 350,000 | — | — | — | (50,000 | ) | |||||||||||||||||||||
Cash Dividends On Preferred | — | — | — | — | — | — | (330,000 | ) | (330,000 | ) | |||||||||||||||||||||
Cash Dividends On Common | — | — | — | — | — | — | (706,549 | ) | (706,549 | ) | |||||||||||||||||||||
Balance at September 30, 2013 | $ | 22,000,000 | $ | — | $ | 31,449 | $ | 11,974,968 | $ | (4,330,712 | ) | $ | 849,100 | $ | 46,964,933 | $ | 77,489,738 |
Preferred Stock | Common Stock | Additional Paid – In Capital | Treasury Stock | Accumulated Other Comprehensive Income | Retained Earnings | Total | |||||||||||||||||||||
Balance at December 31, 2013 | $ | 22,000,000 | $ | 31,449 | $ | 11,978,137 | $ | (4,330,712 | ) | $ | 472,406 | $ | 47,838,800 | $ | 77,990,080 | ||||||||||||
Net Income | — | — | — | — | — | 4,489,976 | 4,489,976 | ||||||||||||||||||||
Other Comprehensive Income, Net Of Tax | — | — | — | — | 4,217,363 | — | 4,217,363 | ||||||||||||||||||||
Stock Option Compensation Expense | — | — | 9,507 | — | — | — | 9,507 | ||||||||||||||||||||
Cash Dividends On Preferred | — | — | — | — | — | (330,000 | ) | (330,000 | ) | ||||||||||||||||||
Cash Dividends On Common | — | — | — | — | — | (706,560 | ) | (706,560 | ) | ||||||||||||||||||
Balance at September 30, 2014 | $ | 22,000,000 | $ | 31,449 | $ | 11,987,644 | $ | (4,330,712 | ) | $ | 4,689,769 | $ | 51,292,216 | $ | 85,670,366 |
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, | |||||||
2014 | 2013 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net Income | $ | 4,489,976 | $ | 2,571,762 | |||
Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: | |||||||
Depreciation Expense | 891,142 | 947,448 | |||||
Amortization Of Intangible Assets | 11,970 | 37,503 | |||||
Stock Option Compensation (Benefit) Expense | 9,507 | (5,749 | ) | ||||
Discount Accretion And Premium Amortization | 3,922,542 | 5,485,576 | |||||
Provisions For Losses On Loans | 200,000 | 2,645,381 | |||||
Income Accrued On Bank Owned Life Insurance | (225,000 | ) | (261,000 | ) | |||
Gain On Sales Of Loans | (465,571 | ) | (622,960 | ) | |||
Gain On Sales Of Mortgage-Backed Securities | (451,751 | ) | (791,003 | ) | |||
(Gain) Loss On Sales Of Investment Securities | 264,064 | (382,137 | ) | ||||
Gain On Sale Of Real Estate Owned | (193,403 | ) | (80,001 | ) | |||
Write Down On Real Estate Owned | 405,000 | 1,124,378 | |||||
Amortization Of Net Deferred Costs (Fees) On Loans | 12,775 | (3,255 | ) | ||||
Gain On Disposition Of Premises And Equipment | — | 431 | |||||
Proceeds From Sale Of Loans Held For Sale | 16,877,096 | 27,252,344 | |||||
Origination Of Loans Held For Sale | (17,234,871 | ) | (23,244,549 | ) | |||
(Increase) Decrease In Accrued Interest Receivable: | |||||||
Loans | 46,532 | 17,586 | |||||
Mortgage-Backed Securities | 11,294 | 157,418 | |||||
Investment Securities | (32,392 | ) | (168,844 | ) | |||
Increase In Advance Payments By Borrowers | 323,250 | 414,946 | |||||
Other, Net | 1,333,451 | 2,576,122 | |||||
Net Cash Provided By Operating Activities | 10,195,611 | 17,671,397 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Purchase Of Mortgage-Backed Securities Available For Sale | (50,417,565 | ) | (64,782,671 | ) | |||
Principal Repayments On Mortgage-Backed Securities Available For Sale | 24,085,687 | 45,539,786 | |||||
Principal Repayments On Mortgage-Backed Securities Held To Maturity | — | 942,806 | |||||
Purchase Of Investment Securities Available For Sale | (40,181,576 | ) | (60,296,593 | ) | |||
Maturities Of Investment Securities Available For Sale | 17,167,888 | 16,419,156 | |||||
Purchase of Investment Securities Held To Maturity | — | (1,000,000 | ) | ||||
Maturities Of Investment Securities Held To Maturity | — | 3,501,978 | |||||
Proceeds From Sale of Investment Securities Available For Sale | 29,526,067 | 16,947,896 | |||||
Proceeds From Sale of Mortgage-Backed Securities Available For Sale | 25,063,634 | 31,945,850 | |||||
Proceeds From Redemption of Certificates Of Deposits With Other Banks | — | 250,000 | |||||
Purchase Of FHLB Stock | (4,434,480 | ) | (2,696,106 | ) | |||
Redemption Of FHLB Stock | 5,599,480 | 4,200,106 | |||||
Proceeds From Bank Owned Life Insurance | 624,260 | — | |||||
Decrease In Loans Receivable | 13,826,634 | 23,717,082 | |||||
Proceeds From Sale Of Repossessed Assets | 1,461,940 | 5,256,365 | |||||
Purchase And Improvement Of Premises And Equipment | (2,025,581 | ) | (513,144 | ) | |||
Proceeds From Sale of Premises and Equipment | — | 1,750 | |||||
Net Cash Provided By Investing Activities | 20,296,388 | 19,434,261 |
7
SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) (Continued) | Nine Months Ended September 30, | ||||||
2014 | 2013 | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Decrease In Deposit Accounts | $ | (12,232,848 | ) | $ | (6,985,633 | ) | |
Proceeds From FHLB Advances | 171,890,000 | 77,900,000 | |||||
Repayment Of FHLB Advances | (191,310,058 | ) | (105,012,811 | ) | |||
Increase In Other Borrowings, Net | 2,778,617 | 555,375 | |||||
Repayment Of Warrant Issued In Conjunction With Preferred Stock | — | (50,000 | ) | ||||
Dividends To Preferred Stock Shareholders | (330,000 | ) | (330,000 | ) | |||
Dividends To Common Stock Shareholders | (706,560 | ) | (706,549 | ) | |||
Net Cash Used By Financing Activities | (29,910,849 | ) | (34,629,618 | ) | |||
Net Increase In Cash And Cash Equivalents | 581,150 | 2,476,040 | |||||
Cash And Cash Equivalents At Beginning Of Period | 7,629,771 | 7,903,950 | |||||
Cash And Cash Equivalents At End Of Period | $ | 8,210,921 | $ | 10,379,990 | |||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||||
Cash Paid During The Period For: | |||||||
Interest | $ | 4,407,602 | $ | 5,921,035 | |||
Income Taxes | $ | 180,350 | $ | 358,419 | |||
Supplemental Schedule Of Non Cash Transactions: | |||||||
Transfers From Loans Receivable To Other Real Estate Owned | $ | 1,038,960 | $ | 3,038,682 | |||
Transfers From Investment Securities Held To Maturity To Available For Sale | $ | — | $ | 49,907,323 | |||
Transfers From Mortgage-Backed Securities Held To Maturity To Available For Sale | $ | — | $ | 22,100,000 | |||
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
8
SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for 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, 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 audited consolidated financial statements appearing in Security Federal Corporation’s (the “Company”) 2013 Annual Report to Shareholders which was filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2013 (“2013 10-K”) when reviewing interim financial statements. The Company changed its fiscal year from March 31 to December 31 effective January 17, 2013. The results of operations for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the entire fiscal year.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Security Federal Bank (the “Bank”) and the Bank’s wholly owned subsidiaries, Security Federal Insurance, Inc. (“SFINS”) and Security Financial Services Corporation (“SFSC”). SFINS was formed during fiscal 2002 and began operating during the December 2001 quarter and is an insurance agency offering auto, business, health, and home insurance. SFINS has a wholly owned subsidiary, Collier Jennings Financial Corporation which has as subsidiaries Security Federal Insurance Technologies, Inc. and Security Federal Premium Pay Plans Inc. (the “Collier Jennings Companies”). Security Federal Premium Pay Plans Inc. has one wholly owned premium finance subsidiary and also has an ownership interest in four other premium finance subsidiaries. SFSC was formed in 1975 and is currently inactive.
The Company has a wholly owned subsidiary, Security Federal Statutory Trust (the “Trust”), which issued and sold fixed and floating rate capital securities of the Trust. However, under current accounting guidance, the Trust is not consolidated in the Company’s financial statements. 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.
3. Critical Accounting Policies
The Company has 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 audited consolidated financial statements at December 31, 2013 included in our 2013 Annual Report to Shareholders. Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of certain assets and liabilities, and, as such, have a greater possibility of producing results that could be materially different than originally reported. We consider these accounting policies to be critical accounting policies. The judgments 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 judgments and assumptions we make, actual results could differ from these judgments and estimates which could have a material impact on our carrying values of assets and liabilities and our results of operations.
The Company believes the allowance for loan losses is a critical accounting policy that requires the most significant judgments and estimates used in preparation of the consolidated financial statements. The impact of an unexpected and sudden large loss could deplete the allowance and potentially require increased provisions to replenish the allowance, which would negatively affect earnings. The Company provides for loan losses using the allowance method. Accordingly, all loan losses are charged to the related allowance and all recoveries are credited to the allowance for loan losses. Additions to the allowance for loan losses are provided by charges to operations based on various factors, which, in management’s judgment, deserve current recognition in estimating possible losses. Such factors considered by management include the fair value of the underlying collateral, stated guarantees by the borrower (if applicable), the borrower’s ability to repay from other economic resources, growth and composition of the loan portfolio, the relationship of the allowance for loan losses to the outstanding loans, loss experience, delinquency trends, and general economic conditions. Management evaluates the carrying value of the loans periodically and the allowance is adjusted accordingly.
9
SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
3. Critical Accounting Policies, Continued
While management uses the best information available to make evaluations, future adjustments may be necessary if economic conditions differ substantially from the assumptions used in making these evaluations. The allowance for loan losses is subject to periodic evaluations by our bank regulators, including the Board of Governors of the Federal Reserve System ("Federal Reserve"), the FDIC and the South Carolina Board of Financial Institutions, and may be subject to adjustments based upon the information that is available at the time of their examination. The Company values impaired loans at the loan’s fair value if it is probable that the Company will be unable to collect all amounts due according to the terms of the loan agreement at the present value of expected cash flows, the market price of the loan, if available, or the value of the underlying collateral. Expected cash flows are required to be discounted at the loan’s effective interest rate. When the ultimate collectibility of an impaired loan’s principal is in doubt, wholly or partially, all cash receipts are applied to principal. When this doubt does not exist, cash receipts are applied under the contractual terms of the loan agreement first to interest and then to principal. Once the recorded principal balance has been reduced to zero, future cash receipts are applied to interest income to the extent that any interest has been foregone. Further cash receipts are recorded as recoveries of any amounts previously charged off.
The Company uses assumptions and estimates in determining income taxes payable or refundable for the current year, deferred income tax liabilities and assets for events recognized differently in its financial statements and income tax returns, and income tax expense. Determining these amounts requires analysis of certain transactions and interpretation of tax laws and regulations. The Company exercises considerable judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments and estimates are reevaluated on a continual basis as regulatory and business factors change. No assurance can be given that either the tax returns submitted by us or the income tax reported on the Consolidated Financial Statements will not be adjusted by either adverse rulings by the United States Tax Court, changes in the tax code, or assessments made by the Internal Revenue Service.
4. Earnings Per Common Share
Accounting guidance 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. Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding. Diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive 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.
Net income available to common shareholders represents consolidated net income adjusted for preferred dividends declared, accretions of discounts and amortization of premiums on preferred stock issuances and cumulative dividends related to the current dividend period that have not been declared as of period end.
The following table provides a reconciliation of net income to net income available to common shareholders for the periods presented:
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Earnings Available To Common Shareholders: | |||||||||||||||
Net Income | $1,710,640 | $1,021,831 | $4,489,976 | $2,571,762 | |||||||||||
Preferred Stock Dividends | 110,000 | 110,000 | 330,000 | 330,000 | |||||||||||
Net Income Available To Common Shareholders | $1,600,640 | $911,831 | $4,159,976 | $2,241,762 |
10
SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
4. Earnings Per Common Share, Continued
The following table shows the effect of dilutive options and warrants on the Company's earnings per share for the periods indicated:
For the Three Months Ended September 30, 2014 | For the Nine Months Ended September 30, 2014 | ||||||||||||||||||||
Income | Shares | Per Share Amounts | Income | Shares | Per Share Amounts | ||||||||||||||||
Basic EPS | $1,600,640 | 2,944,001 | $0.54 | $4,159,976 | 2,944,001 | $1.41 | |||||||||||||||
Effect of Dilutive Securities: | |||||||||||||||||||||
Senior Convertible Debentures | 75,442 | 304,200 | (0.02) | 226,325 | 304,200 | (0.06) | |||||||||||||||
Diluted EPS | $1,676,082 | 3,248,201 | $0.52 | $4,386,301 | 3,248,201 | $1.35 |
There were no dilutive securities or options for the three and nine months ended September 30, 2013, therefore no reconciliation is provided for these periods.
5. Stock-Based Compensation
Certain officers and directors of the Company participate in an incentive and non-qualified stock option plan. Options are granted at exercise prices not less than the fair value of the Company’s common stock on the date of the grant. The following is a summary of the activity under the Company’s stock option plans for the periods presented:
Three Months Ended September 30, | |||||||||
2014 | 2013 | ||||||||
Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | ||||||
Balance, Beginning of Period | 47,500 | $22.41 | 68,400 | $22.63 | |||||
Options Granted | — | — | — | — | |||||
Options Exercised | — | — | — | — | |||||
Options Forfeited | — | — | (3,400 | ) | 24.06 | ||||
Balance, End Of Period | 47,500 | $22.41 | 65,000 | $22.55 |
Nine Months Ended September 30, | |||||||||
2014 | 2013 | ||||||||
Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | ||||||
Balance, Beginning of Period | 61,500 | $22.49 | 68,400 | $22.63 | |||||
Options Granted | — | — | — | — | |||||
Options Exercised | — | — | — | — | |||||
Options Forfeited | (14,000 | ) | 22.74 | (3,400 | ) | 24.06 | |||
Balance, End Of Period | 47,500 | $22.41 | 65,000 | $22.55 | |||||
Options Exercisable | 33,900 | 45,400 | |||||||
Options Available For Grant | 50,000 | 50,000 |
11
SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
5. Stock-Based Compensation, Continued
At September 30, 2014, the Company had the following options outstanding:
Grant Date | Outstanding Options | Option Price | Expiration Date | |||
01/01/05 | 18,000 | $20.55 | 12/31/14 | |||
01/01/06 | 3,500 | $23.91 | 01/01/16 | |||
08/24/06 | 3,500 | $23.03 | 08/24/16 | |||
05/24/07 | 2,000 | $24.34 | 05/24/17 | |||
07/09/07 | 1,000 | $24.61 | 07/09/17 | |||
10/01/07 | 2,000 | $24.28 | 10/01/17 | |||
01/01/08 | 13,000 | $23.49 | 01/01/18 | |||
05/19/08 | 2,500 | $22.91 | 05/19/18 | |||
07/01/08 | 2,000 | $22.91 | 07/01/18 |
None of the options outstanding at September 30, 2014 or 2013 had an exercise price below the average market price during the three or nine month periods ended September 30, 2014 or 2013. Therefore, these options were not deemed to be dilutive to earnings per share in those periods.
6. Stock Warrants
In conjunction with its participation in the U.S. Department of the Treasury’s (“U.S. Treasury”) Capital Purchase Program, the Company sold a warrant to the U.S. Treasury to purchase 137,966 shares of the Company’s common stock at $19.57 per share. The warrant had a 10-year term and was immediately exercisable upon issuance.
On July 31, 2013, the Company repurchased its outstanding warrant at a fair market value of $50,000 from the U.S. Treasury. As a result of the transaction the warrant was canceled which reduced warrants outstanding by $400,000 and increased additional paid in capital by $350,000.
12
SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
7. 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:
September 30, 2014 | |||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair value | ||||||||||||
FHLB Securities | $ | 11,360,428 | $ | 67,439 | $ | 270,512 | $ | 11,157,355 | |||||||
Federal Farm Credit Bank ("FFCB") Securities | 5,750,000 | — | 177,026 | 5,572,974 | |||||||||||
Fannie Mae ("FNMA") Bonds | 996,641 | — | 1,143 | 995,498 | |||||||||||
Small Business Administration (“SBA”) Bonds | 93,610,391 | 1,730,343 | 411,445 | 94,929,289 | |||||||||||
Tax Exempt Municipal Bonds | 63,623,690 | 2,234,988 | 46,117 | 65,812,561 | |||||||||||
Mortgage-Backed Securities | 245,663,777 | 5,949,642 | 1,554,523 | 250,058,896 | |||||||||||
Equity Securities | 257,938 | 35,400 | — | 293,338 | |||||||||||
$ | 421,262,865 | $ | 10,017,812 | $ | 2,460,766 | $ | 428,819,911 | ||||||||
December 31, 2013 | |||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair value | ||||||||||||
FHLB Securities | $ | 13,538,723 | $ | 25,695 | $ | 893,968 | $ | 12,670,450 | |||||||
FFCB Securities | 5,750,000 | — | 383,820 | 5,366,180 | |||||||||||
FNMA And Freddie Mac ("FHLMC") Bonds | 1,993,473 | — | 18,543 | 1,974,930 | |||||||||||
SBA Bonds | 99,228,708 | 1,914,720 | 319,443 | 100,823,985 | |||||||||||
Tax Exempt Municipal Bonds | 63,590,959 | 410,151 | 2,685,988 | 61,315,122 | |||||||||||
Mortgage-Backed Securities | 245,882,053 | 5,843,365 | 3,128,883 | 248,596,535 | |||||||||||
Equity Securities | 257,938 | — | 1,688 | 256,250 | |||||||||||
$ | 430,241,854 | $ | 8,193,931 | $ | 7,432,333 | $ | 431,003,452 |
FHLB securities, FFCB securities and FNMA and FHLMC mortgage-backed securities are issued by government-sponsored enterprises (“GSEs”). GSEs are not backed by the full faith and credit of the United States government. SBA bonds are backed by the full faith and credit of the United States government. Included in the tables above and below in mortgage-backed securities are Ginnie Mae ("GNMA") mortgage-backed securities, which are also backed by the full faith and credit of the United States government. At September 30, 2014 the Bank held an amortized cost and fair value of $162.2 million and $166.2 million, respectively, in GNMA mortgage-backed securities included in mortgage-backed securities listed above compared to an amortized cost and fair value of $170.4 million and $173.5 million, respectively, at December 31, 2013. All mortgage-backed securities above are either GSEs or GNMA mortgage-backed securities. The Company has not invested in any private label mortgage-backed securities.
13
SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
7. Investment and Mortgage-Backed Securities, Available For Sale, Continued
The amortized cost and fair value of investment and mortgage-backed securities available for sale at September 30, 2014 are shown below by contractual maturity. Expected maturities will differ from contractual maturities because borrowers have the right to prepay obligations with or without call or prepayment penalties.
Investment Securities | Amortized Cost | Fair Value | |||||
Less Than One Year | $ | 658,223 | $ | 668,859 | |||
One – Five Years | 12,750,683 | 12,967,641 | |||||
Over Five – Ten Years | 65,430,624 | 66,324,657 | |||||
More Than Ten Years | 96,759,558 | 98,799,858 | |||||
Mortgage-Backed Securities | 245,663,777 | 250,058,896 | |||||
$ | 421,262,865 | $ | 428,819,911 |
At September 30, 2014 the amortized cost and fair value of investment and mortgage-backed securities available for sale pledged as collateral for certain deposit accounts, FHLB advances and other borrowings were $125.7 million and $129.1 million, respectively, compared to an amortized cost and fair value of $118.3 million and $121.1 million, respectively, at December 31, 2013.
The Bank received $27.3 million and $17.1 million in gross proceeds from sales of available for sale securities during the three months ended September 30, 2014 and 2013, respectively. As a result, the Bank recognized gross gains of $319,000 and $520,000, respectively, and gross losses of $176,000 and $101,000, respectively, for the three months ended September 30, 2014 and 2013.
The Bank received $54.6 million and $48.9 million in gross proceeds from sales of available for sale securities during the nine months ended September 30, 2014 and 2013, respectively. As a result, the Bank recognized gross gains of $795,000 and $1.3 million, respectively, and gross losses of $607,000 and $101,000, respectively, for the nine months ended September 30, 2014 and 2013.
The following tables show gross unrealized losses and fair value, aggregated by investment category, and length of time that the individual available for sale securities have been in a continuous unrealized loss position at the dates indicated.
September 30, 2014 | |||||||||||||||||||||||
Less than 12 Months | 12 Months or More | Total | |||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||
FHLB Securities | $ | 1,990,966 | $ | 9,034 | $ | 3,738,525 | $ | 261,478 | $ | 5,729,491 | $ | 270,512 | |||||||||||
FFCB Securities | 5,572,974 | 177,026 | — | — | 5,572,974 | 177,026 | |||||||||||||||||
FNMA Bonds | 995,498 | 1,143 | — | — | 995,498 | 1,143 | |||||||||||||||||
SBA Bonds | 21,286,280 | 321,062 | 3,711,116 | 90,383 | 24,997,396 | 411,445 | |||||||||||||||||
Tax Exempt Municipal Bond | 1,335,360 | 3,378 | 7,827,171 | 42,739 | 9,162,531 | 46,117 | |||||||||||||||||
Mortgage-Backed Securities | 20,395,081 | 1,049,063 | 48,229,099 | 505,460 | 68,624,180 | 1,554,523 | |||||||||||||||||
$ | 51,576,159 | $ | 1,560,706 | $ | 63,505,911 | $ | 900,060 | $ | 115,082,070 | $ | 2,460,766 |
14
SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
7. Investment and Mortgage-Backed Securities, Available For Sale, Continued
December 31, 2013 | |||||||||||||||||||||||
Less than 12 Months | 12 Months or More | Total | |||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||
FHLB Securities | $ | 10,288,110 | $ | 651,608 | $ | 1,757,640 | $ | 242,360 | $ | 12,045,750 | $ | 893,968 | |||||||||||
FFCB Securities | 4,435,070 | 314,930 | 931,110 | 68,890 | 5,366,180 | 383,820 | |||||||||||||||||
FNMA Bonds | 1,974,930 | 18,543 | — | — | 1,974,930 | 18,543 | |||||||||||||||||
SBA Bonds | 12,183,961 | 288,678 | 3,541,453 | 30,765 | 15,725,414 | 319,443 | |||||||||||||||||
Tax Exempt Municipal Bond | 39,848,206 | 2,556,014 | 2,008,272 | 129,974 | 41,856,478 | 2,685,988 | |||||||||||||||||
Mortgage-Backed Securities | 88,516,030 | 2,756,216 | 6,436,369 | 372,667 | 94,952,399 | 3,128,883 | |||||||||||||||||
Equity Securities | — | — | 101,250 | 1,688 | 101,250 | 1,688 | |||||||||||||||||
$ | 157,246,307 | $ | 6,585,989 | $ | 14,776,094 | $ | 846,344 | $ | 172,022,401 | $ | 7,432,333 |
Securities classified as available for sale are recorded at fair market value. At September 30, 2014, 11.3% of the unrealized losses, or 22 individual securities consisted of securities in a continuous loss position for 12 months or more. At December 31, 2013, 11.4% of the unrealized losses, or 11 individual securities consisted of securities in a continuous loss position for 12 months or more. The Company has the ability and intent to hold these securities until such time as the value recovers or the securities mature. The Company believes, based on industry analyst reports and credit ratings, that the deterioration in value is attributable to changes in market interest rates and is not in the credit quality of the issuer and therefore, these losses are not considered other-than-temporary. The Company reviews its investment securities portfolio at least quarterly and more frequently when economic conditions warrant, assessing whether there is any indication of other-than-temporary impairment (“OTTI”).
Factors considered in the review include estimated future cash flows, length of time and extent to which market value has been less than cost, the financial condition and near term prospects of the issuer, and our intent and ability to retain the security to allow for an anticipated recovery in market value.
If the review determines that there is OTTI, then an impairment loss is recognized in earnings equal to the entire difference between the investment’s cost and its fair value at the balance sheet date of the reporting period for which the assessment is made, or we may recognize a portion in other comprehensive income. The fair value of investments on which OTTI is recognized then becomes the new cost basis of the investment.
8. Investment and Mortgage-Backed Securities, Held to Maturity
On June 30, 2013, the Company transferred all of its investment and mortgage-backed securities classified as held to maturity to available for sale. Based on changes in the current rate environment, management elected this change to more effectively manage the investment portfolio, including subsequently selling some securities that were formerly classified as held to maturity. The amortized cost of the securities that were transferred totaled $72.0 million and the net unrealized gain related to these securities totaled $1.4 million on the date of the transfer. As a result of the transfer and subsequent sales, the Company believes its held to maturity classification process has been compromised and careful evaluation and analysis will be required going forward in determining when circumstances are suitable for management to assert with a great degree of credibility that it has the intent and ability to hold debt securities to maturity.
15
SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
9. Loans Receivable, Net
Loans receivable, net, consisted of the following as of the dates shown:
September 30, 2014 | December 31, 2013 | ||||||
Residential Real Estate Loans | $ | 79,702,132 | $ | 83,004,482 | |||
Consumer Loans | 50,290,048 | 52,205,901 | |||||
Commercial Business | 10,154,181 | 7,775,098 | |||||
Commercial Real Estate | 213,004,588 | 228,399,555 | |||||
Total Loans Held For Investment | 353,150,949 | 371,385,036 | |||||
Loans Held For Sale | 2,057,504 | 1,234,158 | |||||
Total Loans Receivable, Gross | 355,208,453 | 372,619,194 | |||||
Less: | |||||||
Allowance For Loan Losses | 8,646,974 | 10,241,970 | |||||
Loans In Process | 2,412,953 | 3,465,072 | |||||
Deferred Loan Fees (Costs) | 33,659 | (4,513 | ) | ||||
11,093,586 | 13,702,529 | ||||||
Total Loans Receivable, Net | $ | 344,114,867 | $ | 358,916,665 |
Changes in the allowance for loan losses for the three and nine months ended September 30, 2014 and 2013 are summarized as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Balance At Beginning Of Period | $ | 9,112,157 | $ | 11,007,279 | $ | 10,241,970 | $ | 11,318,371 | |||||||
Provision For Loan Losses | — | 600,000 | 200,000 | 2,645,381 | |||||||||||
Charge Offs | (590,942 | ) | (1,002,990 | ) | (2,384,994 | ) | (3,470,300 | ) | |||||||
Recoveries | 125,759 | 45,042 | 589,998 | 155,879 | |||||||||||
Total Allowance For Loan Losses | $ | 8,646,974 | $ | 10,649,331 | $ | 8,646,974 | $ | 10,649,331 |
The Company uses a risk based approach based on the following credit quality measures when analyzing the loan portfolio: pass, caution, special mention, and substandard. These indicators are used to rate the credit quality of loans for the purposes of determining the Company’s allowance for loan losses. Pass loans are loans that are performing and are deemed adequately protected by the net worth of the borrower or the underlying collateral value. These loans are considered the least risky in terms of determining the allowance for loan losses. Substandard loans are considered the most risky category. These loans typically have an identified weakness or weaknesses and are inadequately protected by the net worth of the borrower or collateral value. All loans 90 days or more past due are automatically classified in this category. The other two categories fall in between these two grades.
The following tables list the loan grades used by the Company as credit quality indicators and the balance in each category at the dates presented, excluding loans held for sale.
16
SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
9. Loans Receivable, Net, Continued
Credit Quality Measures | |||||||||||||||||||
September 30, 2014 | Pass | Caution | Special Mention | Substandard | Total Loans | ||||||||||||||
Residential Real Estate | $ | 71,912,700 | $ | 966,600 | $ | 645,340 | $ | 6,177,492 | $ | 79,702,132 | |||||||||
Consumer | 48,075,273 | 1,054,675 | 133,982 | 1,026,118 | 50,290,048 | ||||||||||||||
Commercial Business | 9,209,345 | 362,845 | 110,068 | 471,923 | 10,154,181 | ||||||||||||||
Commercial Real Estate | 123,194,407 | 38,901,566 | 35,187,083 | 15,721,532 | 213,004,588 | ||||||||||||||
Total | $ | 252,391,725 | $ | 41,285,686 | $ | 36,076,473 | $ | 23,397,065 | $ | 353,150,949 |
Credit Quality Measures | |||||||||||||||||||
December 31, 2013 | Pass | Caution | Special Mention | Substandard | Total Loans | ||||||||||||||
Residential Real Estate | $ | 74,505,587 | $ | 890,902 | $ | 403,138 | $ | 7,204,855 | $ | 83,004,482 | |||||||||
Consumer | 50,370,640 | 843,799 | 143,649 | 847,813 | 52,205,901 | ||||||||||||||
Commercial Business | 6,807,620 | 368,019 | 524,928 | 74,531 | 7,775,098 | ||||||||||||||
Commercial Real Estate | 135,793,150 | 43,252,464 | 25,581,235 | 23,772,706 | 228,399,555 | ||||||||||||||
Total | $ | 267,476,997 | $ | 45,355,184 | $ | 26,652,950 | $ | 31,899,905 | $ | 371,385,036 |
The following table presents an age analysis of past due balances by category at September 30, 2014:
30-59 Days Past Due | 60-89 Days Past Due | 90 Days or More Past Due | Total Past Due | Current | Total Loans Receivable | ||||||||||||||||||
Residential Real Estate | $ | — | $ | 983,996 | $ | 3,121,609 | $ | 4,105,605 | $ | 75,596,527 | $ | 79,702,132 | |||||||||||
Consumer | 735,649 | 85,847 | 543,421 | 1,364,917 | 48,925,131 | 50,290,048 | |||||||||||||||||
Commercial Business | 242,346 | 21,290 | 452,119 | 715,755 | 9,438,426 | 10,154,181 | |||||||||||||||||
Commercial Real Estate | 4,809,091 | 452,022 | 9,636,646 | 14,897,759 | 198,106,829 | 213,004,588 | |||||||||||||||||
Total | $ | 5,787,086 | $ | 1,543,155 | $ | 13,753,795 | $ | 21,084,036 | $ | 332,066,913 | $ | 353,150,949 |
The following table presents an age analysis of past due balances by category at December 31, 2013:
30-59 Days Past Due | 60-89 Days Past Due | 90 Days or More Past Due | Total Past Due | Current | Total Loans Receivable | ||||||||||||||||||
Residential Real Estate | $ | — | $ | 1,363,132 | $ | 4,607,613 | $ | 5,970,745 | $ | 77,033,737 | $ | 83,004,482 | |||||||||||
Consumer | 1,494,429 | 234,878 | 399,062 | 2,128,369 | 50,077,532 | 52,205,901 | |||||||||||||||||
Commercial Business | 115,186 | — | 33,055 | 148,241 | 7,626,857 | 7,775,098 | |||||||||||||||||
Commercial Real Estate | 5,103,522 | 2,046,666 | 4,972,667 | 12,122,855 | 216,276,700 | 228,399,555 | |||||||||||||||||
Total | $ | 6,713,137 | $ | 3,644,676 | $ | 10,012,397 | $ | 20,370,210 | $ | 351,014,826 | $ | 371,385,036 |
17
SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
9. Loans Receivable, Net, Continued
At September 30, 2014 and December 31, 2013, the Company did not have any loans that were 90 days or more past due and still accruing interest. Our strategy is to work with our borrowers to reach acceptable payment plans while protecting our interests in the existing collateral. In the event an acceptable arrangement cannot be reached, we may have to acquire these properties through foreclosure or other means and subsequently sell, develop, or liquidate them.
The following table shows non-accrual loans by category at September 30, 2014 compared to December 31, 2013:
At September 30, 2014 | At December 31, 2013 | $ | % | |||||||||||||||||
Amount | Percent (1) | Amount | Percent (1) | Increase (Decrease) | Increase (Decrease) | |||||||||||||||
Non-accrual Loans: | ||||||||||||||||||||
Residential Real Estate | $ | 3,121,609 | 0.89 | % | $ | 4,607,613 | 1.25 | % | $ | (1,486,004 | ) | (32.25 | )% | |||||||
Commercial Business | 452,119 | 0.13 | 33,055 | 0.01 | 419,064 | 1,267.78 | ||||||||||||||
Commercial Real Estate | 9,636,646 | 2.75 | 4,972,667 | 1.35 | 4,663,979 | 93.79 | ||||||||||||||
Consumer | 543,421 | 0.15 | 399,062 | 0.11 | 144,359 | 36.17 | ||||||||||||||
Total Non- accrual Loans | $ | 13,753,795 | 3.92 | % | $ | 10,012,397 | 2.72 | % | $ | 3,741,398 | 37.37 | % |
(1) PERCENT OF TOTAL LOANS HELD FOR INVESTMENT, NET OF DEFERRED FEES AND LOANS IN PROCESS.
The following tables show the activity in the allowance for loan losses by category for the periods indicated:
For the Three Months Ended September 30, 2014 | ||||||||||||||||||||
Residential Real Estate | Consumer | Commercial Business | Commercial Real Estate | Total | ||||||||||||||||
Beginning Balance | $ | 1,507,281 | $ | 833,746 | $ | 496,578 | $ | 6,274,552 | $ | 9,112,157 | ||||||||||
Provision | 26,596 | 73,403 | 36,529 | (136,528 | ) | — | ||||||||||||||
Charge-Offs | (71,701 | ) | (75,262 | ) | (3,703 | ) | (440,276 | ) | (590,942 | ) | ||||||||||
Recoveries | 121 | 8,440 | 1,950 | 115,248 | 125,759 | |||||||||||||||
Ending Balance | $ | 1,462,297 | $ | 840,327 | $ | 531,354 | $ | 5,812,996 | $ | 8,646,974 |
For the Nine Months Ended September 30, 2014 | ||||||||||||||||||||
Residential Real Estate | Consumer | Commercial Business | Commercial Real Estate | Total | ||||||||||||||||
Beginning Balance | $ | 1,706,643 | $ | 847,777 | $ | 426,658 | $ | 7,260,892 | $ | 10,241,970 | ||||||||||
Provision | (60,716 | ) | 230,236 | 104,527 | (74,047 | ) | 200,000 | |||||||||||||
Charge-Offs | (319,364 | ) | (283,302 | ) | (20,835 | ) | (1,761,493 | ) | (2,384,994 | ) | ||||||||||
Recoveries | 135,734 | 45,616 |