Security Federal Corporation (“Company”) (OTCBB:SFDL), the holding company for Security Federal Bank (“Bank”), today announced results for its fiscal year and for the fourth quarter of its fiscal year both ending March 31, 2010. The Company reported net income available to common shareholders of $632,000 or $0.26 per common share (basic) for its fiscal year ended March 31, 2010, compared to net income available to common shareholders of $2.18 million or $0.87 per common share (basic) for its prior fiscal year ended March 31, 2009. Regulations require the reappraisal of certain properties financed by Security Federal. Those properties reappraising for less than the loan amount are required to be written down as if they were sold immediately at a loss. Because of the current depressed real estate values, that exercise resulted in the Bank showing a loss on certain loans regardless of whether a loss is ultimately realized. Given that requirement and writedown, net loss available to common shareholders for the quarter ended March 31, 2010 was $155,000 or $0.06 loss per common share (basic) compared to net income of $132,000 or $0.05 per common share (basic) for the quarter ended March 31, 2009.
The decrease in earnings for both periods was primarily the result of management’s decision to increase the allowance for loan losses through additional charges to the provision for loan losses coupled with an increase in general and administrative expenses attributable to increased FDIC insurance premiums. These factors were offset by an increase in the Company’s net interest margin.
Net income was significantly impacted by management’s decision to increase the allowance for loan losses through additional charges to the provision. For the quarter and year ended March 31, 2010, charges to the provision for loan losses were $2.68 million and $8.16 million, respectively compared to $1.80 million and $2.83 million for the same periods in the previous year. The increase in both periods reflected the Company’s concern for the condition of the local and national economy coupled with an increase in non-performing assets. Non-performing assets, which consist of non-accrual loans and repossessed assets net of specific reserves, increased $26.99 million to $40.20 million at March 31, 2010 from $13.20 million at March 31, 2009. This was a decrease however from $42.82 million for the previous quarter ended December 31, 2009. Net charge-offs as a percent of gross loans were 1.04% for the year ended March 31, 2010 compared to 0.11% for the year ended March 31, 2009. 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 2.13% of gross loans as of March 31, 2010 compared to 1.65% as of March 31, 2009.