As a South Carolina corporation, the Company is authorized to engage in any
activity permitted by South Carolina General Corporation Law. The Company is
a one bank holding company. Through the bank holding company structure, it is
possible to expand the size and scope of the financial services offered beyond
those currently offered by the Bank. The holding company structure also provides
the Company with greater flexibility than the Bank would have to diversify its
business activities, through existing or newly formed subsidiaries, or through
acquisitions or mergers of financial institutions as well as other companies.
There are no current arrangements, understandings or agreements regarding any
such acquisition. Future activities of the Company, other than the continuing
operations of Security Federal, will be funded through dividends from Security
Federal and through borrowings from third parties.
Community Development Capital Initiative ("CDCI"). On September 29,
2010, the Company entered into a Letter Agreement with the U.S. Department of
the Treasury ("Treasury") in connection with its participation in
the CDCI which was established by the Treasury pursuant to the Troubled Asset
Relief Program ("TARP"). The CDCI was established by the Treasury
to invest lower cost capital in Community Development Financial Institutions
("CDFI"), supporting their efforts to provide credit to small businesses
and other qualified customers.
Pursuant to the CDCI, the Company entered into an Exchange Agreement with the
Treasury and exchanged the 18,000 shares of its Fixed Rate Cumulative Perpetual
Preferred Stock, Series A ("Series A Preferred Stock"), previously
sold to the Treasury on December 19, 2008 pursuant to the TARP Capital Purchase
Program ("CPP"), for 18,000 shares of newly designated Fixed Rate
Cumulative Perpetual Preferred Stock, Series B ("Series B Preferred Stock").
In addition to, and in connection with the Companys participation in the CDCI,
on September 29, 2010, the Company entered into a Letter Agreement with the
Treasury (including the Securities Purchase Agreement - Standard Terms, the
"Purchase Agreement"), pursuant to which the Company sold an additional
4,000 shares of Series B Preferred Stock to the Treasury at a price of $4.0
million. As a result of its participation in the CDCI and the transactions under
the Exchange Agreement and the Purchase Agreement, the Treasury now holds 22,000
shares of the Companys Series B Preferred Stock, with an aggregate liquidation
preference amount of $22.0 million.
The additional capital received by the Company from Treasury pursuant to the
Purchase Agreement was contingent upon the Companys completion of a separate
stock offering of the same amount, as required by the Companys prior federal
regulator, the Office of Thrift Supervision ("OTS"). In satisfaction
of this requirement, on September 29, 2010, the Company sold 400,000 shares
of its common stock to certain accredited investors in a private placement at
a price of $10.00 per share, for gross proceeds of $4.0 million.
Security Federals principal lending activities are making loans on commercial
real estate and one-to-four family residential real estate. The Bank originates
fixed rate residential real estate loans for sale in the secondary market and
adjustable rate mortgage loans ("ARMS") to be held in its portfolio.
The Bank also originates construction loans on single family residences, multi-family
dwellings and commercial real estate, and loans for the acquisition, development
and construction of residential subdivisions and commercial projects. To a lesser
extent, the Bank originates consumer loans and commercial business loans.
3.31%