Security Federal Corporation Announces Annual and Fiscal Fourth Quarter Earnings

Business Wire, May 15, 2009

AIKEN, S.C. -- Security Federal Corporation (“Company”) (OTCBB:SFDL), the holding company for Security Federal Bank (“Bank”), today announced earnings for its fiscal year and for the fourth quarter of its fiscal year both ending March 31, 2009. The Company reported net income available to common shareholders of $2.18 million or $0.87 per common share (basic) for its fiscal year ended March 31, 2009, compared to net income available to common shareholders of $4.28 million or $1.66 per common share (basic) for its prior fiscal year ended March 31, 2008. Net income available to common shareholders for the quarter ended March 31, 2009 was $132,000 or $0.05 per common share (basic) compared to $1.02 million or $0.40 per common share (basic) for the quarter ended March 31, 2008.

Net income in both periods was significantly impacted by management’s decision to increase the allowance for loan losses through additional charges to the provision for loan losses. For the quarter and year ended March 31, 2009, charges to the provision for loan losses were $1.80 million and $2.83 million, respectively compared to $445,000 and $895,000 for the same periods in the previous year. The increase in the provision during both periods reflected the Company’s concern for the condition of the local and national economy coupled with overall growth in its loan portfolio and an increase in non-performing assets. Non-performing assets, which consist of non-accrual loans and repossessed assets, increased $8.12 million to $14.91 million at March 31, 2009 from $6.79 million at March 31, 2008. Despite this increase, non-performing assets comprised less than 2% of total assets at March 31, 2009 and March 31, 2008, respectively. The Company also maintained relatively low and stable trends related to net charge-offs. Net charge-offs as a percent of gross loans were 0.11% for the year ended March 31, 2009 compared to 0.02% for the year ended March 31, 2008. Management of the Bank continues to be concerned about current market conditions and closely monitors the loan portfolio on an ongoing basis to proactively identify any potential problem loans. The allowance represented 1.64% of total loans as of March 31, 2009 compared to 1.53% as of March 31, 2008.

Net interest income increased $2.46 million or 12.24% to $22.55 million for the year ended March 31, 2009 compared to $20.09 million for the previous year. The increase in net interest income was a result of an increase in average interest bearing assets, which was offset by a decrease in the Company’s net interest margin. The precipitous decline in interest rates during the year combined with the Bank’s efforts to maintain competitive deposit rates within its primary market areas resulted in a six basis point decrease in net interest margin to 2.63% for the year ended March 31, 2009 compared to 2.69% in the previous year.

Net interest margin for the quarter ended March 31, 2009 improved when compared to previous quarters. For the three months ended March 31, 2009, net interest margin increased 25 basis points to 2.81% up from 2.56% for the quarter ended March 31, 2008. As a result, net interest income increased $1.50 million or 30.07% to $6.47 million for the three months ended March 31, 2009 compared to $4.97 million for the three months ended March 31, 2008.

Non-interest income for the current quarter was $1.29 million compared to $1.35 million for the comparable quarter in 2008. For the year ended March 31, 2009, non-interest income was $4.50 million, an increase of $7,000 or 0.16% when compared to $4.49 million for the same period in the prior year. General and administrative expenses increased $995,000 or 22.81% to $5.36 million for the three months ended March 31, 2009 and $3.18 million or 18.34% to $20.50 million for the year ended March 31, 2009 compared to $4.36 million and $17.32 million, respectively, for the same periods in the previous year. The increases in both periods were the result of increased personnel and property costs related to the Bank’s recent expansion into two new market areas: Richland County in South Carolina and Columbia County in Georgia.

Total assets at March 31, 2009 were $984.66 million compared to $840.03 million at March 31, 2008, an increase of 17.22% for the year. Net loans receivable increased $93.16 million or 17.99% to $611.09 million at March 31, 2009 from $517.93 million at March 31, 2008. Total deposits were $671.71 million at March 31, 2009 compared to $590.85 million at March 31, 2008, an increase of 13.69%. Federal Home Loan Bank advances, other borrowings, and subordinated debentures increased $44.04 million or 22.45% to $240.21 million at March 31, 2009 from $196.17 million at March 31, 2008.