Security Federal Corporation (“Company”) (OTCBB:SFDL), the holding company for Security Federal Bank, today announced earnings for the first quarter of its fiscal year ending March 31, 2011. The Company reported net income available to common shareholders of $297,000 or $0.12 per common share (basic) for the three months ended June 30, 2010, an increase of $168,000 or 129.89% when compared to net income of $129,000 or $0.05 per common share (basic) for the three months ended June 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.

Net interest margin for the quarter ended June 30, 2010 increased 43 basis points to 3.14% up from 2.71% for the quarter ended June 30, 2009 and 2.98% for the year ended March 31, 2010. As a result, net interest income increased $595,000 or 9.40% to $6.92 million for the three months ended June 30, 2010 compared to $6.33 million for the three months ended June 30, 2009.

Non-performing assets, which consist of non-accrual loans and repossessed assets net of specific reserves, decreased $1.29 million to $38.91 million at June 30, 2010 from $40.20 million at March 31, 2010. This was also down from $42.82 million at December 31, 2009. Despite two consecutive quarterly decreases in non-performing assets, management of the Bank continues to be cautious about current market conditions and added an additional $1.90 million to the allowance for loan losses through the provision for loan losses, an increase of $500,000 compared to provision expense of $1.4 million for the same period in 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 2.02% of total loans held for investment as of June 30, 2010 compared to 2.13% as of March 31, 2010.

Non-interest income for the quarter ended June 30, 2010 decreased $48,000 or 3.36% to $1.38 million compared to $1.43 million for the same quarter in 2009. General and administrative expenses decreased $221,000 or 3.84% to $5.54 million for the three months ended June 30, 2010 compared to $5.76 million for the same quarter in the previous year. General and administrative expenses for the three months ended June 30, 2009 were higher than the current period as a result of a special one-time FDIC assessment totaling $425,000 for the 2009 quarter.

Total assets at June 30, 2010 were $961.67 million compared to $956.00 million at March 31, 2010, an increase of $5.68 million or 0.59% for the three-month period. Net loans receivable decreased $2.46 million or 0.43% to $565.94 million at June 30, 2010 from $568.40 million at March 31, 2010. Total deposits increased $10.85 million or 1.56% to $705.11 million at June 30, 2010 compared to $694.25 million at March 31, 2010. Federal Home Loan Bank advances, other borrowings, and subordinated debentures decreased $6.97 million or 3.72% to $180.34 million at June 30, 2010 from $187.30 million at March 31, 2010.

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.

Forward-looking statements:

Certain matters discussed in this press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to, among other things, expectations of the business environment in which the Company operates, projections of future performance, perceived opportunities in the market, potential future credit experience, and statements regarding the Company’s mission and vision. These forward-looking statements are based upon current management expectations and may, therefore, involve risks and uncertainties. The Company’s actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements as a result of a wide variety or range of factors including, but not limited to, interest rate fluctuations; changes in the level and trend of loan delinquencies and write-offs; economic conditions in the Company’s primary market area ; results of examinations of us by the Office of Thrift Supervision or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our reserve for loan losses or to write-down assets; demand for residential, commercial business and commercial real estate, consumer, and other types of loans; success of new products; competitive conditions between banks and non-bank financial service providers; regulatory and accounting changes; technology factors affecting operations; pricing of products and services; and other risks detailed in the Company’s reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended March 31, 2010. Accordingly, these factors should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements. The Company undertakes no responsibility to update or revise any forward-looking statement.
(In Thousands, except for Earnings per Share and Ratios)
For the quarter ended June 30,
2010   2009
Total interest income $ 11,351 $ 12,065
Total interest expense   4,427       5,736  
Net interest income 6,924 6,329
Provision for loan losses   1,900       1,400  

Net interest income after the provision

 for loan losses
5,024 4,929
Non-interest income 1,378 1,426
Non-interest expense   5,539       5,760  
Income before income taxes 863 595
Provision for income taxes   322       223  
Net income $ 541     $ 372  

Preferred stock dividends & accretion of

 preferred stock to redemption value
  244       243  
Net income available to common shareholders $ 297     $ 129  
Earnings per common share (basic) $ 0.12     $ 0.05  
June 30, 2010   March 31, 2010   Change
Total assets $ 961,675 $ 956,002 0.6 %
Cash and cash equivalents 8,855 8,805 0.6 %
Total loans receivable, net 565,937 568,399 -0.4 %
Investment and mortgage-backed securities 319,151 311,046 2.6 %
Deposits 705,106 694,252 1.6 %
Borrowings 180,337 187,303 -3.7 %
Shareholders' equity 69,443 67,861 2.3 %
Book value per common share $ 20.86 $ 20.22 3.2 %
Interest rate spread 3.02 % 2.95 % 2.4 %
Total risk based capital ratio (1) 13.64 % 13.30 % 2.6 %
Non performing assets (2) 38,913 40,200 -3.2 %
Non performing assets to total assets 4.05 % 4.21 % -3.9 %
Allowance as a percentage of gross loans 2.02 % 2.13 % -5.2 %
(1)- This ratio is calculated using Bank only information and not consolidated information
(2)- Non-performing assets are reported net of specific reserves of $68,000 in June 2010 and $1.80 million in March 2010.

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