Security Federal Corporation, the holding company for Security Federal Bank (“Bank”), announced earnings for the year and quarter ended December 31, 2018. Net income increased $1.3 million, or 21.8%, to $7.2 million or $2.44 per common share (basic) for the year ended December 31, 2018 compared to $5.9 million or $2.01 per common share (basic) in 2017. Net income before taxes increased $423,000, or 5.1%, to $8.8 million for the year ended December 31, 2018 compared to $8.4 million in 2017. The increase in earnings was primarily attributable to increases in net interest income and non-interest income combined with a reduction in the corporate income tax rate.    

Chief Executive Officer Chris Verenes commented, “The fundamentals of our business—deposit, loan and noninterest income growth are strong. Our strategy of diversifying our footprint by expanding in the midlands of South Carolina and Augusta, Georgia is paying dividends. Security Federal is poised for a bright future.”

Net loans receivable grew $39.6 million, or 10.1%, to $430.1 million at December 31, 2018 from $390.5 million at December 31, 2017. The average yield earned on assets increased to 4.04% for the year ended December 31, 2018 compared to 3.87% for 2017. As a result of the loan growth and increase in the average yield earned on assets, interest income increased $3.3 million, or 11.0%, to $33.1 million during 2018 compared to $29.8 million in 2017. Total interest expense increased $1.3 million, or 30.5%, to $5.4 million for the year ended December 31, 2018 compared to $4.2 million for the previous year. Net interest income increased $2.0 million, or 7.9%, during 2018. Consistent with the increase in net interest income, the net interest margin increased four basis points to 3.38% for the year ended December 31, 2018 compared to 3.34% for 2017.

Non-performing assets increased $938,000, or 13.7%, to $7.8 million at December 31, 2018 from $6.8 million at December 31, 2017. Non-performing assets represented 0.85% and 0.79% of total assets at December 31, 2018 and 2017, respectively. Consistent with the increase in non-performing assets, the provision for loan losses also increased. The provision for loan losses was $925,000 for the year ended December 31, 2018 compared to $300,000 for the year ended December 31, 2017.

Non-interest income increased $325,000, or 4.4%, to $7.7 million for the year ended December 31, 2018 from $7.3 million during 2017. The largest increases in non-interest income were an increase of $178,000, or 22.4%, in asset management income and a $146,000, or 12.9%, increase in check card fee income.   

Non-interest expense increased $1.3 million, or 5.3%, to $25.6 million for the year ended December 31, 2018 compared to $24.3 million for the year ended December 31, 2017. The most significant increases were in salaries and employee benefits expense, which increased $1.1 million, or 5.3%, and depreciation and maintenance of equipment, which increased $251,000, or 12.2%. These increases are a result of our growth and expansion into new markets. Since 2015, we have added three new branches, with a fourth branch scheduled to open in Augusta during 2019.  

Effective January 1, 2018, the federal corporate tax rate declined from 35% to 21%. As a result of the reduced tax rate, the Company revalued its net deferred tax asset as of December 31, 2017. The impact was a one-time, non-cash charge to income tax provision of approximately $628,000. The total provision for income taxes was $1.6 million for the year ended December 31, 2018, a decrease of $866,000 compared to $2.4 million in 2017.

For the fourth quarter, net income increased $641,000, or 70.5%, to $1.6 million or $0.52 per common share (basic) in 2018 compared to $909,000 or $0.31 per common share (basic) for the same quarter in 2017. The increase in quarterly earnings was primarily attributable to increases in net interest income and non-interest income combined with a reduction in the corporate income tax rate.    

Net interest income increased $681,000, or 10.5%, to $7.2 million during the fourth quarter of 2018 compared to $6.5 million for the same quarter in 2017. Consistent with the increase in net interest income, the annualized net interest margin increased 13 basis points to 3.45% during the quarter ended December 31, 2018 compared to 3.32% for the same period in 2017.

The provision for loan losses was $775,000 for the fourth quarter of 2018 compared to $200,000 for the fourth quarter of 2017. The Company had net charge-offs of $207,000 and $148,000 during the fourth quarters of 2018 and 2017, respectively.

Non-interest income increased $259,000, or 16.7%, to $1.8 million during the fourth quarter of 2018 compared to $1.5 million during the same period in 2017. The largest increase was related to the net gain on sale of investments, which was $137,000 for the fourth quarter of 2018 compared to a net loss of $214,000 for the same period in 2017.  

Total assets increased $43.8 million, or 5.0%, to $912.6 million at December 31, 2018 from $868.8 million at December 31, 2017. Total deposits increased $65.4 million, or 9.3%, to $767.5 million at December 31, 2018 compared to $702.1 million at December 31, 2017. Total borrowings decreased $24.4 million or 29.5% to $58.3 million at December 31, 2018 from $82.7 million at December 31, 2017.