Security Federal announces second-quarter earnings

Security Federal Corp., the holding company of Security Federal Bank, announced earnings for the second quarter of its fiscal year ended March 31, 2010. The company reported net income available to common shareholders of $339,000 or $0.14 per common share (basic) for the three months ending Sept. 30 compared to net income of $785,000 or $0.31 per common share (basic) for the three months ending Sept. 30, 2008. For the six months ending Sept. 30, 2009, net income available to common shareholders was $468,000 or $0.19 per common share (basic) compared to $1.59 million or $0.63 per common share (basic) for the six months ending Sept. 30, 2008.

Net income for the six-month period ending Sept. 30, 2009, included the effects of non-operating items, specifically increased FDIC insurance premiums related to a one-time special assessment charged to all banking institutions, a gain on the sale of securities and a loss incurred on the sale of the South Augusta office of Security Federal Insurance. Excluding these non-operating items, the Company had operating earnings of $665,000 or $0.27 per common share (basic) for the six months ending Sept. 30, 2009, compared to operating earnings of $1.5 million or $0.60 per common share (basic) for the six months ended Sept. 30, 2008. The decrease in net income was primarily the result of management's decision to increase the allowance for loan losses coupled with the effects of the non-operating charges incurred during the six months ending Sept. 30, 2009.

Net income was significantly impacted by management's decision to increase the allowance for loan losses through additional charges to the provision. Additions to the allowance for loan losses were $1.60 million and $3.00 million for the quarter and six-month periods ending Sept. 30, 2009, respectively, compared to $275,000 and $500,000, respectively, for the comparable periods in the prior year. The increase in both periods reflects management's concern regarding the current conditions in the local and national economy coupled with an increase in non-performing assets within the bank's loan portfolio. Non-performing assets, which consist of non-accrual loans and repossessed assets, increased $24.67 million to $39.58 million at Sept. 30 from $14.91 million at March 31. Despite this increase, the company maintained relatively low and stable trends related to net charge-offs. Annualized net charge-offs as a percent of gross loans were 0.15 percent for the six months ending Sept. 30 compared to 0.10 percent for the same period in 2008 and 0.12 percent for the year ending March 31. Management of the bank continues to closely monitor the loan portfolio on an ongoing basis to proactively identify any potential problem loans. The allowance for loan losses represented 2.10 percent of total loans held for investment as of Sept. 30 compared to 1.65 percent as of March 31.

The company's earnings were also reduced by two non-operating charges incurred during the six month period. The Company expensed $425,000 in additional FDIC insurance premiums as a result of a one-time special assessment enacted by the FDIC to help replenish the government's deposit insurance fund. This amount was in addition to the regular quarterly assessment. The assessment applies to all federally insured deposit institutions and is calculated as 5% of an assessment base determined relative to asset size. Also, during the six months ended September 30, 2009, the Company recorded a loss of $90,000 related to the sale of the South Augusta office of the Company's insurance subsidiary, Security Federal Insurance, which was sold because the insurance agency office was not located within the Company's branch footprint.

Net interest margin increased 22 basis points to 2.80 percent for the six months ending Sept. 30 compared to 2.58 percent for the comparable period in the previous year. As a result, net interest income increased $2.35 million or 22.17% to $12.93 million for the six months ended September 30, 2009, compared to $10.59 million for the six months ended September 30, 2008. For the quarter ended September 30, 2009, net interest margin increased 29 basis points to 2.89% from 2.60% for the same quarter in 2008. The margin also increased 18 basis points from 2.71% for the quarter ended June 30, 2009. Net interest income increased $1.14 million or 20.93% to $6.60 million for the three months ended September 30, 2009, compared to $5.46 million for the three months ended September 30, 2008.

Non-interest income for the current quarter increased $360,000 or 33.93% to $1.42 million for the three months ended September 30, 2009 compared to $1.06 million for the comparable quarter in 2008. For the six months ended September 30, 2009, non-interest income was $2.85 million, an increase of $665,000 or 30.48% when compared to the same period in the prior year. General and administrative expenses increased $337,000 or 6.64% to $5.41 million for the three months ended September 30, 2009 and $1.27 million or 12.88% to $11.17 million for the six months ended September 30, 2009 compared to $5.08 million and $9.90 million for the same periods in the previous year. The increases in both periods were primarily the result of increased FDIC insurance premiums paid.

Total assets at September 30, 2009 were $981.96 million compared to $984.66 million at March 31, 2009, a decrease of $2.70 million or 0.27% for the six-month period. Net loans receivable decreased $11.43 million or 1.87% to $599.66 million at September 30, 2009 from $611.09 million at March 31, 2009. Total deposits increased $701,000 or 0.11% to $662.42 million at September 30, 2009 compared to $661.71 million at March 31, 2009. Federal Home Loan Bank advances, other borrowings, and subordinated debentures decreased $5.06 million or 2.02% to $245.15 million at September 30, 2009 from $250.21 million at March 31, 2009.

Security Federal Bank has 13 full service branch locations in Aiken, Clearwater, Graniteville, Langley, Lexington, North Augusta, Wagener, Columbia and West Columbia, South Carolina and Evans, Georgia. A full range of financial services, including trust and investments, are provided by the Bank and insurance services are provided by the Bank's wholly owned subsidiary, Security Federal Insurance, Inc.