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Security Federal Corporation Announces Increase In Six Month Earnings

Security Federal Corporation (“Company”) (OTCBB:SFDL), the holding company for Security Federal Bank, today announced earnings for the six month and quarterly periods ended September 30, 2010. The Company reported net income available to common shareholders of $533,000 or $0.22 per common share (basic) for the six months ended September 30, 2010, an increase of $65,000 or 13.85% when compared to net income of $468,000 or $0.19 per common share (basic) for the six months ended September 30, 2009. This increase was primarily the result of an increase in the Company’s net interest income offset slightly by an increase in the provision for loan losses. For the three months ended September 30, 2010, net income available to common shareholders was $236,000 compared to $339,000 for the three months ended September 30, 2009. The primary reason for the decrease was an increase in the provision for loan losses.

Net interest margin for the six months ended September 30, 2010 increased 30 basis points to 3.10% up from 2.80% for the six months ended September 30, 2009 and 2.98% for the year ended March 31, 2010. As a result, net interest income increased $700,000 or 5.41% to $13.63 million for the six months ended September 30, 2010 compared to $12.93 million for the six months ended September 30, 2009. Net interest margin for the quarter ended September 30, 2010 increased 18 basis points to 3.07% up from 2.89% for the quarter ended September 30, 2009. Net interest income increased $105,000 or 1.58% to $6.71 million for the three months ended September 30, 2010 compared to $6.60 million for the three months ended September 30, 2009.

Non-performing assets, which consist of non-accrual loans and repossessed assets net of specific reserves, decreased $4.89 million to $35.31 million at September 30, 2010 from $40.20 million at March 31, 2010. This was also down from $42.82 million at December 31, 2009. Despite three consecutive quarterly decreases in non-performing assets, management of the Bank continues to be cautious about current market conditions and added an additional $4.05 million to the allowance for loan losses through the provision for loan losses, an increase of $1.05 million compared to provision expense of $3.0 million for the six month period ended September 30 in the previous year. For the quarter ended September 30, 2010, the Bank had $2.15 million in the provision for loan losses compared to $1.60 million in the three-month period the previous year. Management closely monitors the loan portfolio on an ongoing basis to proactively identify any potential problem loans. The allowance for loan losses represented 2.13% of total loans held for investment at both September 30, 2010 and March 31, 2010.

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