Company Quick10K Filing
Quick10K
Security Federal
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$34.35 3 $102
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-29 Earnings, Exhibits
8-K 2019-06-11 Officers, Exhibits
8-K 2019-04-29 Earnings, Exhibits
8-K 2019-04-18 Shareholder Vote
8-K 2019-02-21 Officers
8-K 2019-01-28 Earnings, Exhibits
8-K 2018-10-29 Earnings, Exhibits
8-K 2018-10-18 Officers, Amend Bylaw, Exhibits
8-K 2018-07-30 Earnings, Exhibits
8-K 2018-04-30 Earnings, Exhibits
8-K 2018-04-19 Shareholder Vote
8-K 2018-03-29 Officers, Exhibits
8-K 2018-01-29 Earnings, Exhibits
DVMT Dell 67,852
HCAC Hennessy Capital Acquisition III 368
QSEP QS Energy 44
DSNY Destiny Media Technologies 10
DEAC Elite Data Services 1
RAS RAIT Financial Trust 0
SY So-Young 0
GRP Granite Real Estate 0
REAL4 Real Estate Associates IV 0
NRU National Rural Utilities Cooperative Finance 0
SFDL 2019-06-30
Part 1. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii: Other Information
Item 1 Legal Proceedings
Item 1A Risk Factors
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
Item 3 Defaults Upon Senior Securities
Item 4 Mine Safety Disclosures
Item 5 Other Information
Item 6 Exhibits
EX-31.1 sfdl-20190630xex311.htm
EX-31.2 sfdl-20190630xex312.htm
EX-32 sfdl-20190630xex32.htm

Security Federal Earnings 2019-06-30

SFDL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 sfdl-20190630x10q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10 – Q
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD:
FROM:
 
TO:
 
COMMISSION FILE NUMBER: 000-16120
SECURITY FEDERAL CORPORATION
(Exact name of registrant as specified in its charter)
 
South Carolina
 
57-0858504
 
 
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)
 
238 RICHLAND AVENUE NORTHWEST, AIKEN, SOUTH CAROLINA 29801
(Address of principal executive office and Zip Code)
(803) 641-3000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yes [ X ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filed    [ ]
 
Smaller reporting company [ X ]
 
 
Non-accelerated filer    [ X ]
 
Emerging growth company [ ]
 
 
Accelerated filer [ ]
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
YES
 
 
 
NO
 
 
Indicate by check mark whether the registrant is a shell corporation (defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Securities registered pursuant to Section 12(b) of the Act: None
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.
 
CLASS:
 
OUTSTANDING SHARES AT:
 
SHARES:
 
 
Common Stock, par value $0.01 per share
 
August 13, 2019
 
2,955,925
 




 
 
 
PART I.
FINANCIAL INFORMATION (UNAUDITED)
PAGE NO.
Item 1.
Financial Statements (unaudited):
3
 
Consolidated Balance Sheets at June 30, 2019 and December 31, 2018
3
 
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2019 and 2018
4
 
Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2019 and 2018
5
 
Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2019 and 2018
6
 
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018
7
 
Notes to Consolidated Financial Statements
9
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
32
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
47
Item 4.
Controls and Procedures
47
 
 
 
PART II.
OTHER INFORMATION
 
Item 1.
Legal Proceedings
47
Item 1A.
Risk Factors
48
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
48
Item 3.
Defaults Upon Senior Securities
48
Item 4.
Mine Safety Disclosures
48
Item 5.
Other Information
48
Item 6.
Exhibits
48
 
Signatures
50
 
 
 

SCHEDULES OMITTED

All schedules other than those indicated above are omitted because of the absence of the conditions under which they are required or because the information is included in the consolidated financial statements and related notes.





SECURITY FEDERAL CORPORATION AND SUBSIDIARIES


Part 1. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
 
June 30, 2019
 
December 31, 2018
 
(Unaudited)
 
(Audited)
ASSETS:
 
 
 
Cash and Cash Equivalents
$
11,019,027

 
$
12,705,910

Certificates of Deposit with Other Banks
950,005

 
1,200,010

Investment and Mortgage-Backed Securities:
 
 
 
Available For Sale ("AFS")
434,193,401

 
386,255,837

Held To Maturity ("HTM") (Fair Value of $22,869,540 and $23,249,400 at June 30, 2019 and December 31, 2018, Respectively)
22,513,877

 
23,638,013

Total Investments and Mortgage-Backed Securities
456,707,278

 
409,893,850

Loans Receivable, Net:
 
 
 
Held For Sale
3,750,815

 
1,781,985

Held For Investment (Net of Allowance of $8,753,539 and $9,171,717 at June 30, 2019 and December 31, 2018, Respectively)
437,824,853

 
428,271,532

Total Loans Receivable, Net
441,575,668

 
430,053,517

Accrued Interest Receivable:
 
 
 
Loans
1,208,960

 
1,257,683

Mortgage-Backed Securities
608,127

 
591,849

Investment Securities
1,768,256

 
1,877,844

Total Accrued Interest Receivable
3,585,343

 
3,727,376

Operating Lease Right-of-Use Assets
2,901,753

 

Premises and Equipment, Net
25,505,350

 
24,174,707

Federal Home Loan Bank ("FHLB") Stock, at Cost
3,401,200

 
2,204,000

Other Real Estate Owned ("OREO")
734,140

 
722,442

Bank Owned Life Insurance ("BOLI")
21,507,893

 
21,237,893

Goodwill
1,199,754

 
1,199,754

Other Assets
4,325,166

 
5,494,800

Total Assets
$
973,412,577

 
$
912,614,259

LIABILITIES AND SHAREHOLDERS’ EQUITY:
 
 
 
Liabilities:
 
 
 
Deposit Accounts
$
786,448,829

 
$
767,496,707

Advance Payments By Borrowers for Taxes and Insurance
529,875

 
258,505

Advances From FHLB
60,700,000

 
34,030,000

Other Borrowings
15,753,586

 
10,698,429

Note Payable

 
2,362,500

Junior Subordinated Debentures
5,155,000

 
5,155,000

Senior Convertible Debentures
6,044,000

 
6,064,000

Operating Lease Liabilities
2,909,137

 

Other Liabilities
6,735,520

 
6,030,685

Total Liabilities
$
884,275,947

 
$
832,095,826

Shareholders' Equity:
 
 
 
Common Stock, $.01 Par Value; Authorized 5,000,000 Shares; Issued and Outstanding Shares, 3,156,858 and 2,955,925, Respectively, at June 30, 2019 and 3,154,829 and 2,953,896, Respectively, at December 31, 2018
$
31,569

 
$
31,548

Additional Paid-In Capital
12,282,115

 
12,235,341

Treasury Stock, at Cost (200,933 Shares)
(4,330,712
)
 
(4,330,712
)
Accumulated Other Comprehensive Income (Loss) ("AOCI")
5,102,605

 
(27,909
)
Retained Earnings
76,051,053

 
72,610,165

Total Shareholders' Equity
$
89,136,630

 
$
80,518,433

Total Liabilities and Shareholders' Equity
$
973,412,577

 
$
912,614,259


SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

3


SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Interest Income:
 
 
 
 
 
 
 
Loans
$
6,046,834

 
$
5,685,638

 
$
12,050,336

 
$
11,075,125

Mortgage-Backed Securities
1,621,616

 
1,276,967

 
3,170,738

 
2,592,387

Investment Securities
1,434,119

 
1,057,234

 
2,848,112

 
2,117,900

Other
25,832

 
8,908

 
90,037

 
17,156

Total Interest Income
9,128,401

 
8,028,747

 
18,159,223

 
15,802,568

Interest Expense:
 
 
 
 
 
 
 
NOW and Money Market Accounts
570,965

 
262,005

 
1,056,438

 
449,210

Savings Accounts
18,868

 
12,747

 
35,194

 
24,300

Certificate Accounts
1,064,133

 
612,197

 
1,976,793

 
1,149,758

FHLB Advances and Other Borrowed Money
167,050

 
164,848

 
324,160

 
355,870

Note Payable
11,738

 
62,263

 
35,515

 
138,934

Senior Convertible Debentures
120,880

 
121,280

 
241,760

 
242,560

Junior Subordinated Debentures
55,771

 
50,331

 
113,181

 
94,016

Total Interest Expense
2,009,405

 
1,285,671

 
3,783,041

 
2,454,648

Net Interest Income
7,118,996

 
6,743,076

 
14,376,182

 
13,347,920

Provision For Loan Losses

 

 
100,000

 

Net Interest Income After Provision For Loan Losses
7,118,996

 
6,743,076

 
14,276,182

 
13,347,920

Non-Interest Income:
 
 
 
 
 
 
 
Gain on Sale of Investment Securities
670,134

 

 
960,902

 
436,304

Gain on Sale of Loans
372,048

 
367,646

 
546,331

 
653,649

Service Fees on Deposit Accounts
254,610

 
250,493

 
506,627

 
507,672

Commissions From Insurance Agency
175,693

 
149,111

 
326,993

 
328,336

Trust Income
258,600

 
243,500

 
517,200

 
476,000

BOLI Income
135,000

 
135,000

 
270,000

 
270,000

Check Card Fee Income
355,321

 
338,611

 
697,655

 
645,657

Grant Income
17,414

 

 
277,029

 

Other
253,741

 
260,185

 
585,656

 
470,948

Total Non-Interest Income
2,492,561

 
1,744,546

 
4,688,393

 
3,788,566

Non-Interest Expense:
 
 
 
 
 
 
 
Compensation and Employee Benefits
4,137,872

 
3,842,295

 
8,316,906

 
7,651,419

Occupancy
576,987

 
540,175

 
1,129,220

 
1,091,443

Advertising
176,480

 
85,418

 
349,164

 
274,090

Depreciation and Maintenance of Equipment
639,840

 
557,423

 
1,250,197

 
1,097,720

Federal Deposit Insurance Corporation ("FDIC") Insurance Premiums
69,306

 
66,595

 
142,482

 
133,381

Net Recovery of OREO Operation
(160,033
)
 
(198,493
)
 
(252,147
)
 
(159,760
)
Other
1,800,656

 
1,346,846

 
3,049,801

 
2,670,912

Total Non-Interest Expense
7,241,108

 
6,240,259

 
13,985,623

 
12,759,205

Income Before Income Taxes
2,370,449

 
2,247,363

 
4,978,952

 
4,377,281

Provision For Income Taxes
486,418

 
427,409

 
1,006,048

 
827,210

Net Income
1,884,031

 
1,819,954

 
3,972,904

 
3,550,071

Net Income Per Common Share (Basic)
$
0.64

 
$
0.62

 
$
1.34

 
$
1.20

Net Income Per Common Share (Diluted)
$
0.61

 
$
0.59

 
$
1.28

 
$
1.15

Cash Dividend Per Share on Common Stock
$
0.09

 
$
0.09

 
$
0.18

 
$
0.18

Weighted Average Shares Outstanding (Basic)
2,955,650

 
2,953,412

 
2,955,086

 
2,953,297

Weighted Average Shares Outstanding (Diluted)
3,257,850

 
3,257,017

 
3,257,286

 
3,256,929


SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

4


SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
 
Three Months Ended June 30,
 
2019
 
2018
Net Income
$
1,884,031

 
$
1,819,954

Other Comprehensive Income (Loss)
 
 
 
Unrealized Gains (Losses) on Securities:
 
 
 
Unrealized Holding Gains (Losses) on Securities AFS, Net of Taxes of $921,187 and $(289,726) at June 30, 2019 and 2018, Respectively
2,820,989

 
(884,515
)
Reclassification Adjustment for Gains Included in Net Income, Net of Taxes of $167,534 at June 30, 2019
(502,600
)
 

Amortization of Unrealized Gains on AFS Securities Transferred to HTM, Net of Taxes of $(1,931) and $(6,854) at June 30, 2019 and 2018, Respectively
(5,792
)
 
(20,562
)
Other Comprehensive Income (Loss), Net of Tax
2,312,597

 
(905,077
)
Comprehensive Income
$
4,196,628

 
$
914,877


 
Six Months Ended June 30,
 
2019
 
2018
Net Income
$
3,972,904

 
$
3,550,071

Other Comprehensive Income (Loss)
 
 
 
Unrealized Gains (Losses) on Securities:
 
 
 
Unrealized Holding Gains (Losses) on Securities AFS Net of Taxes of $1,920,184 and $(1,186,283) at June 30, 2019 and 2018, Respectively
5,867,006

 
(3,627,413
)
Reclassification Adjustment for Gains Included in Net Income, Net of Taxes of $240,226 and $109,076 at June 30, 2019 and 2018, Respectively
(720,676
)
 
(327,228
)
Amortization of Unrealized Gains on AFS Securities Transferred to HTM, Net of Taxes of $(5,272) and $(17,719) at June 30, 2019 and 2018, Respectively
(15,816
)
 
(46,240
)
Other Comprehensive Income (Loss)
5,130,514

 
(4,000,881
)
Comprehensive Income (Loss)
$
9,103,418

 
$
(450,810
)

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


5


SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
For the Six Months Ended June 30, 2019 and 2018

 
Common
Stock
 
Additional Paid – In Capital
 
Treasury Stock
 
AOCI
 
Retained Earnings
 
Total
Balance at December 31, 2017
$
31,539

 
$
12,212,844

 
$
(4,330,712
)
 
$
2,932,122

 
$
67,077,661

 
$
77,923,454

Net Income

 

 

 

 
1,730,117

 
1,730,117

Other Comprehensive Loss, Net of Tax

 

 

 
(3,095,804
)
 

 
(3,095,804
)
Reclassification of stranded tax effects from AOCI to Retained Earnings

 

 

 
611,091

 
(611,091
)
 

Stock Options Exercised
4

 
8,015

 

 

 

 
8,019

Cash Dividends on Common Stock
 
 
 
 
 
 
 
 
(265,889
)
 
(265,889
)
Balance at March 31, 2018
$
31,543

 
$
12,220,859

 
$
(4,330,712
)
 
$
447,409

 
$
67,930,798

 
$
76,299,897

Net Income

 

 

 

 
1,819,954

 
1,819,954

Other Comprehensive Loss, Net of Tax

 

 

 
(905,077
)
 

 
(905,077
)
Stock Options Exercised
1

 
2,290

 

 

 

 
2,291

Cash Dividends on Common Stock

 

 

 

 
(265,898
)
 
(265,898
)
Balance at June 30, 2018
$
31,544

 
$
12,223,149

 
$
(4,330,712
)
 
$
(457,668
)
 
$
69,484,854

 
$
76,951,167



 
Common Stock
 
Additional Paid – In Capital
 
Treasury Stock
 
AOCI
 
Retained Earnings
 
Total
Balance at December 31, 2018
$
31,548

 
$
12,235,341

 
$
(4,330,712
)
 
$
(27,909
)
 
$
72,610,165

 
$
80,518,433

Net Income

 

 

 

 
2,088,873

 
2,088,873

Other Comprehensive Income, Net of Tax

 

 

 
2,817,917

 

 
2,817,917

Employee Stock Purchases
5

 
12,004

 

 

 

 
12,009

Redemption of Convertible Debentures
10

 
19,990

 

 

 

 
20,000

Cash Dividends on Common Stock

 

 

 

 
(265,982
)
 
(265,982
)
Balance at March 31, 2019
$
31,563

 
$
12,267,335

 
$
(4,330,712
)
 
$
2,790,008

 
$
74,433,056

 
$
85,191,250

Net Income

 

 

 

 
1,884,031

 
1,884,031

Other Comprehensive Loss, Net of Tax

 

 

 
2,312,597

 

 
2,312,597

Employee Stock Purchases
6

 
14,780

 

 

 

 
14,786

Cash Dividends on Common Stock

 

 

 

 
(266,034
)
 
(266,034
)
Balance at June 30, 2019
$
31,569

 
$
12,282,115

 
$
(4,330,712
)
 
$
5,102,605

 
$
76,051,053

 
$
89,136,630


SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

6


SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)
 
Six Months Ended June 30,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net Income
$
3,972,904

 
$
3,550,071

Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities:
 
 
 
Depreciation Expense
781,982

 
704,130

Discount Accretion and Premium Amortization
2,636,812

 
2,917,979

Provision for Loan Losses
100,000

 

Earnings on BOLI
(270,000
)
 
(270,000
)
Gain on Sales of Loans
(546,331
)
 
(653,649
)
Gain on Sales of Mortgage-Backed Securities ("MBS")
(2,459
)
 
(181,034
)
Gain on Sales of Investment Securities
(958,443
)
 
(255,270
)
Gain on Sales of OREO
(137,274
)
 
(307,316
)
Write Down on OREO
14,000

 
50,000

Amortization of Operating Lease Right-of-Use Assets
188,759

 

Amortization of Deferred Loan Costs
89,585

 
39,554

Proceeds From Sale of Loans Held For Sale
19,548,315

 
24,602,224

Origination of Loans Held For Sale
(20,970,814
)
 
(23,426,657
)
Decrease (Increase) in Accrued Interest Receivable:
 
 
 
Loans
48,723

 
13,235

MBS
(16,278
)
 
44,299

Investment Securities
109,588

 
(11,590
)
Increase in Advance Payments By Borrowers
271,370

 
294,178

Decrease in Other, Net
(2,678
)
 
(340,203
)
Net Cash Provided By Operating Activities
$
4,857,761

 
$
6,769,951

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchase of MBS AFS
$
(71,340,833
)
 
$
(21,859,860
)
Proceeds from Payments and Maturities of MBS AFS
16,427,795

 
18,844,610

Proceeds from Sale of MBS AFS
26,770,329

 
17,007,024

Proceeds from Payments and Maturities of MBS Held To Maturity ("HTM")
1,020,431

 
1,564,802

Purchase of Investment Securities AFS
(67,023,891
)
 
(27,418,272
)
Proceeds from Payments and Maturities of Investment Securities AFS
17,308,244

 
16,336,240

Proceeds from Sale of Investment Securities AFS
35,174,873

 
11,563,456

Proceeds from Payments and Maturities of Investment Securities HTM

 
2,000,000

Proceeds from Redemption of Certificates of Deposits with Other Banks
250,005

 

Purchase of FHLB Stock
(4,517,900
)
 
(4,080,600
)
Redemption of FHLB Stock
3,320,700

 
4,512,200

Purchase of BOLI

 
(1,900,000
)
Increase in Loans Receivable
(10,545,706
)
 
(40,310,177
)
Proceeds From Sale of OREO
914,376

 
599,434

Purchase and Improvement of Premises and Equipment
(2,112,625
)
 
(884,239
)
Net Cash Used By Investing Activities
$
(54,354,202
)
 
$
(24,025,382
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Increase in Deposit Accounts
$
18,952,122

 
$
36,399,604

Proceeds from FHLB Advances
143,080,000

 
150,778,000

Repayment of FHLB Advances
(116,410,000
)
 
(162,023,000
)
Increase in Other Borrowings, Net
5,055,157

 
2,829,389

Repayment of Note Payable
(2,362,500
)
 
(3,400,000
)
Proceeds from Employee Stock Options Exercised

 
10,310

Proceeds from Employee Stock Purchases
26,795

 

Dividends to Common Stock Shareholders
(532,016
)
 
(531,787
)
Net Cash Provided By Financing Activities
$
47,809,558

 
$
24,062,516

Net (Decrease) Increase in Cash and Cash Equivalents
(1,686,883
)
 
6,807,085

Cash and Cash Equivalents at Beginning of Period
12,705,910

 
10,319,624

Cash and Cash Equivalents at End of Period
$
11,019,027

 
$
17,126,709


7


SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

 
 
 
 
Consolidated Statements of Cash Flows (Unaudited) (Continued)
 
 
 
 
 
Six Months Ended June 30,
 
2019
 
2018
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
Cash Paid for Interest
$
3,531,407

 
$
2,450,522

Cash Paid for Income Taxes
$
746,541

 
$
422,273

Non-Cash Transactions:
 
 
 
Initial Recognition of Operating Lease Right-of-Use Assets
$
3,090,512

 
$

Initial Recognition of Operating Lease Liabilities
$
3,090,512

 
$

Transfers From Loans Receivable to OREO
$
802,800

 
$
315,550

Other Comprehensive Income (Loss)
$
5,130,514

 
$
(4,000,881
)

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


8



SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements




1. Basis of Presentation

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and accounting principles generally accepted in the United States of America ("GAAP"); therefore, they do not include all disclosures necessary for a complete presentation of financial condition, results of operations, and cash flows.  Such statements are unaudited but, in the opinion of management, reflect all adjustments, which are of a normal recurring nature and necessary for a fair presentation of results for the selected interim periods.  Users of financial information produced for interim periods are encouraged to refer to the footnotes contained in the audited consolidated financial statements appearing in Security Federal Corporation’s (the “Company”) 2018 Annual Report to Shareholders which was filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”) when reviewing interim financial statements. The unaudited consolidated results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

2. Principles of Consolidation

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Security Federal Bank (the “Bank”) and the Bank’s wholly owned subsidiaries, Security Federal Insurance, Inc. (“SFINS”), Security Federal Investments, Inc. ("SFINV"), and Security Financial Services Corporation (“SFSC”). SFINS is an insurance agency offering auto, business, health and home insurance.  SFINS has a wholly owned subsidiary, Collier Jennings Financial Corporation, which has as subsidiaries Security Federal Auto Insurance, The Auto Insurance Store Inc., and Security Federal Premium Pay Plans Inc. Security Federal Premium Pay Plans Inc. has one wholly owned premium finance subsidiary and also has an ownership interest in four other premium finance subsidiaries. SFINV was formed to hold investment securities and allow for better overall management of the securities portfolio. SFSC is currently inactive. All significant intercompany transactions and balances have been eliminated in consolidation.

The Company has a wholly owned subsidiary, Security Federal Statutory Trust (the “Trust”), which issued and sold fixed and floating rate capital securities of the Trust.  However, under current accounting guidance, the Trust is not consolidated in the Company’s financial statements.  The Bank is primarily engaged in the business of accepting savings and demand deposits and originating mortgage loans and other loans to individuals and small businesses for various personal and commercial purposes.

3. Critical Accounting Policies

The Company has adopted various accounting policies, which govern the application of accounting principles generally accepted in the United States in the preparation of our financial statements.  Our significant accounting policies are described in the footnotes to the audited consolidated financial statements at December 31, 2018 included in our 2018 Annual Report to Shareholders.  Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of certain assets and liabilities, and, as such, have a greater possibility of producing results that could be materially different than originally reported.  We consider these accounting policies to be critical accounting policies.  The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances.  Because of the nature of the judgments and assumptions we make, actual results could differ from these judgments and estimates which could have a material impact on our carrying values of assets and liabilities and our results of operations.

The Company believes the allowance for loan losses is a critical accounting policy that requires the most significant judgments and estimates used in preparation of the consolidated financial statements.  The impact of an unexpected and sudden large loss could deplete the allowance and potentially require increased provisions to replenish the allowance, which would negatively affect earnings. The Company provides for loan losses using the allowance method.  Accordingly, all loan losses are charged to the related allowance and all recoveries are credited to the allowance for loan losses.  Additions to the allowance for loan losses are provided by charges to operations based on various factors, which, in management’s judgment, deserve current recognition in estimating possible losses.  Such factors considered by management include the fair value of the underlying collateral, stated guarantees by the borrower (if applicable), the borrower’s ability to repay from other economic resources, growth and composition of the loan portfolio, the relationship of the allowance for loan losses to the outstanding loans, loss experience, delinquency trends, and general economic conditions.  Management evaluates the carrying value of the loans periodically and the allowance is adjusted accordingly.

9



SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements




 
3. Critical Accounting Policies, Continued

While management uses the best information available to make evaluations, future adjustments may be necessary if economic conditions differ substantially from the assumptions used in making these evaluations.  The allowance for loan losses is subject to periodic evaluations by our bank regulatory agencies, including the Board of Governors of the Federal Reserve System ("Federal Reserve"), the FDIC and the South Carolina Board of Financial Institutions, that may require adjustments to be made to the allowance based upon the information that is available at the time of their examination.

The Company values impaired loans at the loan’s fair value if it is probable that the Company will be unable to collect all amounts due according to the terms of the loan agreement at the present value of expected cash flows, the market price of the loan, if available, or the value of the underlying collateral.  Expected cash flows are required to be discounted at the loan’s effective interest rate.  When the ultimate collectibility of an impaired loan’s principal is in doubt, wholly or partially, all cash receipts are applied to principal.  When this doubt does not exist, cash receipts are applied under the contractual terms of the loan agreement first to interest and then to principal.  Once the recorded principal balance has been reduced to zero, future cash receipts are applied to interest income to the extent that any interest has been foregone.  Further cash receipts are recorded as recoveries of any amounts previously charged off.

The Company uses assumptions and estimates in determining income taxes payable or refundable for the current year, deferred income tax liabilities and assets for events recognized differently in its financial statements and income tax returns, and income tax expense. Determining these amounts requires analysis of certain transactions and interpretation of tax laws and regulations. The Company exercises considerable judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments and estimates are reevaluated on a continual basis as regulatory and business factors change. No assurance can be given that either the tax returns submitted by us or the income tax reported on the Consolidated Financial Statements will not be adjusted by either adverse rulings by the United States Tax Court, changes in the tax code, or assessments made by the Internal Revenue Service.

4. Earnings Per Share

Accounting guidance specifies the computation, presentation and disclosure requirements for earnings per share (“EPS”) for entities with publicly held common stock or potential common stock such as options, warrants, convertible securities or contingent stock agreements if those securities trade in a public market. Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding.  Diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive common shares had been issued.  The dilutive effect of options outstanding under the Company’s stock option plan is reflected in diluted EPS by application of the treasury stock method. There were no stock options outstanding at June 30, 2019. All of the options outstanding at June 30, 2018 had an exercise price below the average market price during the six months ended June 30, 2018. Therefore, these options were considered to be dilutive to EPS in that period. Diluted EPS also assumes the convertible debentures were converted into 302,200 and 303,200 shares of common stock at the beginning of both the three and six month periods ended June 30, 2019 and 2018, respectively. The related interest expense recorded during the period is added back to the EPS numerator while the underlying shares are added to the denominator.

The following tables include a summary of the Company's basic and diluted EPS for the periods indicated.

10



SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements



 
Three Months Ended June 30,
 
2019
 
2018
 
Income
 
Shares
 
Per Share Amounts
 
Income
 
Shares
 
Per Share Amounts
Basic EPS
$
1,884,031

 
2,955,650

 
$
0.64

 
$
1,819,954

 
2,953,412

 
$
0.62

Effect of Dilutive Securities:
 
 
 
 
 
 
 
 
 
 
 
Stock Options

 

 

 

 
405

 

Senior Convertible Debentures
90,660

 
302,200

 
(0.03
)
 
90,960

 
303,200

 
(0.03)

Diluted EPS
$
1,974,691

 
3,257,850

 
$
0.61

 
$
1,910,914

 
3,257,017

 
$
0.59

 
Six Months Ended June 30,
 
2019
 
2018
 
Income
 
Shares
 
Per Share Amounts
 
Income
 
Shares
 
Per Share Amounts
Basic EPS
$
3,972,904

 
2,955,086

 
$
1.34

 
$
3,550,071

 
2,953,297

 
$
1.20

Effect of Dilutive Securities:
 
 
 
 
 
 
 
 
 
 
 
Stock Options

 

 

 

 
432

 

Senior Convertible Debentures
181,320

 
302,200

 
(0.06)

 
181,920

 
303,200

 
(0.05)

Diluted EPS
$
4,154,224

 
3,257,286

 
$
1.28

 
$
3,731,991

 
3,256,929

 
$
1.15



5. Stock-Based Compensation

Certain officers and directors of the Company participate in incentive and non-qualified stock option plans. Options are granted at exercise prices not less than the fair value of the Company’s common stock on the date of the grant. At June 30, 2019, the Company had no remaining options outstanding and there was no activity during the six months ended June 30, 2019.

The following is a summary of the activity under the Company’s stock option plans for the three and six months ended June 30, 2018:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2018
 
Shares
 
Weighted Average Exercise Price
 
Shares
 
Weighted Average Exercise Price
 
 
 
Balance, Beginning of Period
4,150

 
$
22.91

 
4,500
 
$
22.91

Options Exercised
(100
)
 
22.91

 
(450)
 
22.91

Options Forfeited
(2,400
)
 
22.91

 
(2,400)
 
22.91

Balance, End of Period
1,650

 
$
22.91

 
1,650
 
$
22.91

 
 
 
 
 
 
 
 
Options Exercisable
1,650

 
 
 
1,650
 
 
 
 
 
 
 
 
 
 
Options Available For Grant
50,000

 
 
 
50,000
 
 
 
 

11



SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements



6. Investment and Mortgage-Backed Securities, Available For Sale

The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of investment and mortgage-backed securities available for sale at the dates indicated were as follows:

 
June 30, 2019
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Student Loan Pools
$
42,103,107

 
$
238

 
$
300,679

 
$
41,802,666

Small Business Administration (“SBA”) Bonds
127,569,964

 
819,719

 
526,779

 
127,862,904

Tax Exempt Municipal Bonds
43,719,725

 
3,209,011

 
1,659

 
46,927,077

Taxable Municipal Bonds
994,317

 
40,013

 

 
1,034,330

Mortgage-Backed Securities
212,865,678

 
3,888,596

 
342,850

 
216,411,424

Equity Securities
155,000

 

 

 
155,000

Total Available For Sale
$
427,407,791

 
$
7,957,577

 
$
1,171,967

 
$
434,193,401

 
 
 
 
 
 
 
 
 
December 31, 2018
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Student Loan Pools
$
12,934,037

 
$
20,713

 
$
69,249

 
$
12,885,501

SBA Bonds
125,777,016

 
560,352

 
890,837

 
125,446,531

Tax Exempt Municipal Bonds
60,141,164

 
1,518,974

 
329,769

 
61,330,369

Taxable Municipal Bonds
1,998,258

 
3,546

 
23,919

 
1,977,885

Mortgage-Backed Securities
185,291,038

 
1,073,432

 
1,903,919

 
184,460,551

Equity Securities
155,000

 

 

 
155,000

Total Available For Sale
$
386,296,513

 
$
3,177,017

 
$
3,217,693

 
$
386,255,837


Student Loan Pools are typically 97% guaranteed by the United States government while SBA bonds are 100% backed by the full faith and credit of the United States government. Included in the tables above and below in mortgage-backed securities are Government National Mortgage Association ("GNMA") mortgage-backed securities, which are also backed by the full faith and credit of the United States government.  At June 30, 2019, AFS GNMA mortgage-backed securities had an amortized cost and fair value of $88.4 million and $89.3 million, respectively, compared to an amortized cost and fair value of $80.4 million and $80.2 million, respectively, at December 31, 2018.

Also included in mortgage-backed securities in the tables above and below are private label collateralized mortgage obligation ("CMO") securities, which are issued by non-governmental real estate mortgage investment conduits and are not backed by the full faith and credit of the United States government.  At June 30, 2019 the Bank held AFS private label CMO mortgage-backed securities with an amortized cost and fair value of $27.5 million and $27.8 million, respectively, compared to an amortized cost and fair value of $29.7 million and $29.5 million, respectively, at December 31, 2018.


12



SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements



6. Investment and Mortgage-Backed Securities, Available For Sale, Continued

The amortized cost and fair value of investment and mortgage-backed securities available for sale at June 30, 2019 are shown below by contractual maturity.  Expected maturities will differ from contractual maturities because borrowers have the right to prepay obligations with or without call or prepayment penalties. Since mortgage-backed securities are not due at a single maturity date, they are disclosed separately, rather than allocated over the maturity groupings set forth in the table below.
 
June 30, 2019
Investment Securities:
Amortized Cost
 
Fair Value
One Year or Less
$
557,354

 
$
557,305

After One – Five Years
7,115,134

 
7,184,250

After Five – Ten Years
53,034,809

 
53,245,373

More Than Ten Years
153,834,816

 
156,795,049

Mortgage-Backed Securities
212,865,678

 
216,411,424

Total Available For Sale
$
427,407,791

 
$
434,193,401



At June 30, 2019 the amortized cost and fair value of investment and mortgage-backed securities available for sale pledged as collateral for certain deposit accounts, FHLB advances and other borrowings were $149.0 million and $150.9 million, respectively, compared to an amortized cost and fair value of $111.8 million and $111.7 million, respectively, at December 31, 2018.

The Company received $61.9 million and $28.6 million in gross proceeds from sales of available for sale securities during the six months ended June 30, 2019 and 2018, respectively. As a result, the Company recognized gross gains of $1.2 million and $503,000 during the six months ended June 30, 2019 and 2018, respectively, with $283,000 and $67,000 gross losses recognized for the same periods, respectively.

The following tables show gross unrealized losses and fair value, aggregated by investment category, and length of time that the individual available for sale securities were in a continuous unrealized loss position at the dates indicated.
 
June 30, 2019
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
Unrealized
Losses
 
Fair
Value
Unrealized
Losses
 
Fair
Value
Unrealized
Losses
Student Loan Pools
$
32,833,351

$
267,097

 
$
2,025,945

$
33,582

 
$
34,859,296

$
300,679

SBA Bonds
5,500,585

35,593

 
54,691,034

491,186

 
60,191,619

526,779

Tax Exempt Municipal Bonds


 
1,145,730

1,659

 
1,145,730

1,659

Mortgage-Backed Securities
22,979,022

142,857

 
22,160,286

199,993

 
45,139,308

342,850

 
$
61,312,958

$
445,547

 
$
80,022,995

$
726,420

 
$
141,335,953

$
1,171,967

 
December 31, 2018
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
Unrealized
Losses
 
Fair
Value
Unrealized
Losses
 
Fair
Value
Unrealized
Losses
Student Loan Pools
$
8,384,145

$
69,249

 
$

$

 
$
8,384,145

$
69,249

SBA Bonds
59,496,936

479,955

 
25,054,861

410,882

 
84,551,797

890,837

Tax Exempt Municipal Bonds
4,585,849

91,281

 
9,626,613

238,488

 
14,212,462

329,769

Taxable Municipal Bond


 
980,520

23,919

 
980,520

23,919

Mortgage-Backed Securities
38,168,598

249,050

 
81,947,249

1,654,869

 
120,115,847

1,903,919

 
$
110,635,528

$
889,535

 
$
117,609,243

$
2,328,158

 
$
228,244,771

$
3,217,693



13



SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements



6. Investment and Mortgage-Backed Securities, Available For Sale, Continued

Securities classified as available for sale are recorded at fair market value.  At June 30, 2019 and December 31, 2018, 62.0% and 72.4% of the unrealized losses, representing 73 and 92 individual securities, respectively, consisted of securities in a continuous loss position for 12 months or more. The Company has the ability and intent to hold these securities until such time as the value recovers or the securities mature.  The Company believes, based on industry analyst reports and credit ratings, that the deterioration in value is attributable to changes in market interest rates and is not in the credit quality of the issuer and therefore, these losses are not considered other-than-temporary. The Company reviews its investment securities portfolio at least quarterly and more frequently when economic conditions warrant, assessing whether there is any indication of other-than-temporary impairment (“OTTI”).

Factors considered in the review include estimated future cash flows, length of time and extent to which market value has been less than cost, the financial condition and near term prospects of the issuer, and our intent and ability to retain the security to allow for an anticipated recovery in market value. If the review determines that there is OTTI, then an impairment loss is recognized in earnings equal to the entire difference between the investment’s cost and its fair value at the balance sheet date of the reporting period for which the assessment is made, or the Company may recognize a portion in other comprehensive income. The fair value of investments on which OTTI is recognized then becomes the new cost basis of the investment. There was no OTTI recognized during the six months ended June 30, 2019.


7. Investment and Mortgage-Backed Securities, Held to Maturity

The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of held to maturity securities at the dates indicated below were as follows:
 
June 30, 2019
 
 Amortized Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
Federal Home Loan Mortgage Corporation ("FHLMC") Bond
$
998,764

 
$
1,565

 
$

 
$
1,000,329

Mortgage-Backed Securities (1)
21,515,113

 
385,464

 
31,366

 
21,869,211

Total Held To Maturity
$
22,513,877

 
$
387,029

 
$
31,366

 
$
22,869,540

 
 
December 31, 2018
 
 Amortized Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
FHLMC Bond
$
998,541

 
$

 
$
20,564

 
$
977,977

Mortgage-Backed Securities (1)
22,639,472

 
78,281

 
446,330

 
22,271,423

Total Held To Maturity
$
23,638,013

 
$
78,281

 
$
466,894

 
$
23,249,400

(1) COMPRISED OF MORTGAGE-BACKED SECURITIES OF GSEs OR GNMA 

The FHLB, FHLMC and the Federal National Mortgage Association ("FNMA") are government sponsored enterprises ("GSEs") and the securities and bonds issued by GSEs are not backed by the full faith and credit of the United States government.  At June 30, 2019, the Bank held an amortized cost and fair value of $12.5 million and $12.8 million, respectively, in GNMA mortgage-backed securities classified as held to maturity, which are included in the table above, compared to an amortized cost and fair value of $13.3 million and $13.1 million, respectively, at December 31, 2018. The Company has not invested in any private label mortgage-backed securities classified as held to maturity.

At June 30, 2019, the amortized cost and fair value of mortgage-backed securities held to maturity that were pledged as collateral for certain deposit accounts, FHLB advances and other borrowings were $18.7 million and $19.0 million, respectively, compared to an amortized cost and fair value of $19.8 million and $19.4 million, respectively, at December 31, 2018.




14



SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements



7. Investment and Mortgage-Backed Securities, Held to Maturity, Continued

The amortized cost and fair value of investment and mortgage-backed securities held to maturity at June 30, 2019 are shown below by contractual maturity.  Expected maturities will differ from contractual maturities because borrowers have the right to prepay obligations with or without call or prepayment penalties. Since mortgage-backed securities are not due at a single maturity date, they are disclosed separately, rather than allocated over the maturity groupings set forth in the table below.

 
June 30, 2019
Investment Securities HTM:
Amortized Cost
 
Fair Value
One – Five Years
$
998,764

 
$
1,000,329

Mortgage-Backed Securities
21,515,113

 
21,869,211

 Total Held to Maturity
$
22,513,877

 
$
22,869,540



The following tables show gross unrealized losses, fair value, and length of time that individual held to maturity securities have been in a continuous unrealized loss position at the dates indicated below.

 
June 30, 2019
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
Unrealized
Losses
 
Fair
Value
Unrealized
Losses
 
Fair
Value
Unrealized
Losses
Mortgage-Backed Securities (1)
$

$

 
$
4,802,482

$
31,366

 
$
4,802,482

$
31,366

 
$

$

 
$
4,802,482

$
31,366

 
$
4,802,482

$
31,366

(1) COMPRISED OF MORTGAGE-BACKED SECURITIES OF GSEs OR GNMA 
 
December 31, 2018
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
Unrealized
Losses
 
Fair
Value
Unrealized
Losses
 
Fair
Value
Unrealized
Losses
FHLMC Bond
$

$

 
$
977,977

$
20,564

 
$
977,977

$
20,564

Mortgage-Backed Securities (1)


 
16,855,973

446,330

 
16,855,973

446,330

 
$

$

 
$
17,833,950

$
466,894

 
$
17,833,950

$
466,894

(1) COMPRISED OF MORTGAGE-BACKED SECURITIES OF GSEs OR GNMA 

The Company’s held to maturity portfolio is recorded at amortized cost.  The Company has the ability and intent to hold these securities to maturity.


15



SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements



8.    Loans Receivable, Net

Loans receivable, net, consisted of the following as of the dates indicated below:
 
June 30, 2019
 
December 31, 2018
Residential Real Estate Loans
$
86,342,461

 
$
83,965,416

Consumer Loans
55,487,981

 
56,907,555

Commercial Business Loans
28,644,611

 
28,086,686

Commercial Real Estate Loans
284,436,448

 
275,960,438

Total Loans Held For Investment
454,911,501

 
444,920,095

Loans Held For Sale
3,750,815

 
1,781,985

Total Loans Receivable, Gross
$
458,662,316

 
$
446,702,080

Less:
 
 
 
Allowance For Loan Losses
8,753,539

 
9,171,717

Loans in Process
7,976,939

 
7,225,271

Deferred Loan Fees
356,170

 
251,575

 
17,086,648

 
16,648,563

Total Loans Receivable, Net
$
441,575,668

 
$
430,053,517


The Company uses a risk based approach based on the following credit quality measures when analyzing the loan portfolio: pass, caution, special mention, and substandard. These indicators are used to rate the credit quality of loans for the purposes of determining the Company’s allowance for loan losses. Pass loans are loans that are performing and are deemed adequately protected by the net worth of the borrower or the underlying collateral value. These loans are considered to have the least amount of risk in terms of determining the allowance for loan losses. Loans that are graded as substandard are considered to have the most risk. These loans typically have an identified weakness or weaknesses and are inadequately protected by the net worth of the borrower or collateral value. All loans 90 days or more past due are automatically classified in this category. The caution and special mention categories fall in between the pass and substandard grades and consist of loans that do not currently expose the Company to sufficient risk to warrant adverse classification but possess weaknesses.

The tables below summarize the balance within each risk category by loan type, excluding loans held for sale, at June 30, 2019 and December 31, 2018.
June 30, 2019
 
Pass
 
 
Caution
 
Special
Mention
 
 
Substandard
 
 
Total Loans
Residential Real Estate
$
77,215,699

 
$
4,408,390

 
$
1,258,332

 
$
3,460,040

 
$
86,342,461

Consumer
45,116,336

 
8,043,951

 
476,096

 
1,851,598

 
55,487,981

Commercial Business
22,838,747

 
5,210,616

 
329,530

 
265,718

 
28,644,611

Commercial Real Estate
211,766,521

 
51,632,311

 
16,617,403

 
4,420,213

 
284,436,448

Total
$
356,937,303

 
$
69,295,268

 
$
18,681,361

 
$
9,997,569

 
$
454,911,501

December 31, 2018
 
Pass
 
 
Caution
 
Special
Mention
 
 
Substandard
 
 
Total Loans
Residential Real Estate
$
75,558,544

 
$
3,369,776

 
$
958,354

 
$
4,078,742

 
$
83,965,416

Consumer
46,948,251

 
6,899,912

 
567,682

 
2,491,710

 
56,907,555

Commercial Business
22,670,318

 
4,708,036

 
339,533

 
368,799

 
28,086,686

Commercial Real Estate
204,197,354

 
45,653,796

 
18,492,785

 
7,616,503

 
275,960,438

Total
$
349,374,467

 
$
60,631,520

 
$
20,358,354

 
$
14,555,754

 
$
444,920,095





16



SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements



8.    Loans Receivable, Net, Continued

The following tables present an age analysis of past due balances, including loans on non-accrual status, by category at June 30, 2019 and December 31, 2018:
 
June 30, 2019
 
 
30-59 Days
Past Due
 
 
60-89 Days
Past Due
 
90 Days or
More Past Due
 
 
Total Past
Due
 
 
 
Current
 
 
Total Loans
Receivable
Residential Real Estate
$
317,819

 
$

 
$
55,844

 
$
373,663

 
$
85,968,798

 
$
86,342,461

Consumer
346,110

 
170,596

 
44,051

 
560,757

 
54,927,224

 
55,487,981

Commercial Business
60,945

 
35,448

 
42,968

 
139,361

 
28,505,250

 
28,644,611

Commercial Real Estate
1,576,388

 
16,509

 
2,071,736

 
3,664,633

 
280,771,815

 
284,436,448

Total
$
2,301,262

 
$
222,553

 
$
2,214,599

 
$
4,738,414

 
$
450,173,087

 
$
454,911,501

 
December 31, 2018
 
 
30-59 Days
Past Due
 
 
60-89 Days
Past Due
 
90 Days or
More Past
Due
 
 
Total Past
Due
 
 
 
Current
 
 
Total Loans
Receivable
Residential Real Estate
$

 
$
332,000

 
$
497,713

 
$
829,713

 
$
83,135,703

 
$
83,965,416

Consumer
555,798

 
247,894

 
1,120,462

 
1,924,154

 
54,983,401

 
56,907,555

Commercial Business
205,613

 
106,163

 
18,648

 
330,424

 
27,756,262

 
28,086,686

Commercial Real Estate
1,556,863

 
424,103

 
1,634,770

 
3,615,736

 
272,344,702

 
275,960,438

Total
$
2,318,274

 
$
1,110,160

 
$
3,271,593

 
$
6,700,027

 
$
438,220,068

 
$
444,920,095


At June 30, 2019 and December 31, 2018, the Company did not have any loans that were 90 days or more past due and still accruing interest. The Company's strategy is to work with its borrowers to reach acceptable payment plans while protecting its interests in the existing collateral.  In the event an acceptable arrangement cannot be reached, the Company may have to acquire these properties through foreclosure or other means and subsequently sell, develop, or liquidate them.

The following table shows non-accrual loans by category at June 30, 2019 compared to December 31, 2018:

 
June 30, 2019
 
December 31, 2018
 
$
 
%
 
Amount
 
Percent (1)
 
Amount
 
Percent (1)
 
Increase (Decrease)
 
Increase (Decrease)
Non-accrual Loans:
 
 
 
 
 
 
 
 
 
 
 
Residential Real Estate
$
1,377,567

 
0.3
%
 
$
2,084,870

 
0.5
%
 
$
(707,303
)
 
(33.9)%
Consumer
354,381

 
0.1

 
1,274,673

 
0.3

 
$
(920,292
)
 
(72.2)
Commercial Business
115,375

 

 
124,458

 

 
(9,083
)
 
(7.3)
Commercial Real Estate
2,614,607

 
0.6

 
3,564,494

 
0.8

 
(949,887
)
 
(26.6)
Total Non-accrual Loans
$
4,461,930

 
1.0
%
 
$
7,048,495

 
1.5
%
 
$
(2,586,565
)
 
(36.7)%

(1) PERCENT OF TOTAL LOANS HELD FOR INVESTMENT, NET OF DEFERRED FEES AND LOANS IN PROCESS. 








17



SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements




8.    Loans Receivable, Net, Continued

The following tables show the activity in the allowance for loan losses by category for the three and six months ended June 30, 2019 and 2018:
 
Three Months Ended June 30, 2019
 
Residential
Real Estate
 
 
Consumer
 
Commercial
Business
 
Commercial
Real Estate
 
 
Total
Beginning Balance
$
1,147,670

 
$
1,121,205

 
$
991,982

 
$
5,537,698

 
$
8,798,555

Provision for Loan Losses
(23,308
)
 
69,702

 
(95,635
)
 
49,241

 

Charge-Offs

 
(135,286
)
 

 
(28,079
)
 
(163,365
)
Recoveries
1,450

 
36,706

 
496

 
79,697

 
118,349

Ending Balance
$
1,125,812

 
$
1,092,327

 
$
896,843

 
$
5,638,557

 
$
8,753,539

 
Six Months Ended June 30, 2019
 
Residential
Real Estate
 
 
Consumer
 
Commercial
Business
 
Commercial
Real Estate
 
 
Total
Beginning Balance
$
1,191,443

 
$
1,203,593

 
$
923,600

 
$
5,853,081

 
$
9,171,717

Provision for Loan Losses
(35,958
)