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EX-32 - EXHIBIT 32 - SECURITY FEDERAL CORPsfdl-20170930xex32.htm
EX-31.2 - EXHIBIT 31.2 - SECURITY FEDERAL CORPsfdl-20170930xex312.htm
EX-31.1 - EXHIBIT 31.1 - SECURITY FEDERAL CORPsfdl-20170930xex311.htm
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 SEPTEMBER 30, 2017
( ) 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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post 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    [ ]
 
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]
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
 
November 13, 2017
 
2,945,474
 




 
 
 
 
PART I.
FINANCIAL INFORMATION (UNAUDITED)
 
PAGE NO.
Item 1.
Financial Statements (unaudited):
 
3
 
Consolidated Balance Sheets at September 30, 2017 and December 31, 2016
 
3
 
Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2017 and 2016
 
4
 
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016
 
5
 
Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended September 30, 2017 and 2016
 
6
 
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016
 
7
 
Notes to Consolidated Financial Statements
 
9
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
33
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 
48
Item 4.
Controls and Procedures
 
48
 
 
 
 
PART II.
OTHER INFORMATION
 
 
Item 1.
Legal Proceedings
 
49
Item 1A.
Risk Factors
 
49
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
49
Item 3.
Defaults Upon Senior Securities
 
49
Item 4.
Mine Safety Disclosures
 
49
Item 5.
Other Information
 
49
Item 6.
Exhibits
 
49
 
Signatures
 
51
 
 
 
 

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
 
September 30, 2017
 
December 31, 2016
 
(Unaudited)
 
(Audited)
ASSETS:
 
 
 
Cash and Cash Equivalents
$
15,158,779

 
$
9,374,549

Certificates of Deposit with Other Banks
1,350,005

 
2,445,005

Investment and Mortgage-Backed Securities:
 
 
 
Available For Sale
388,643,233

 
362,059,429

Held To Maturity (Fair Value of $25,568,343 and $25,371,052 at September 30, 2017 and December 31, 2016, Respectively)
25,337,966

 
25,583,956

Total Investments and Mortgage-Backed Securities
413,981,199

 
387,643,385

Loans Receivable, Net:
 
 
 
Held For Sale
1,270,410

 
4,243,907

Held For Investment (Net of Allowance of $8,169,188 and $8,356,231 at September 30, 2017 and December 31, 2016, Respectively)
374,441,058

 
355,478,939

Total Loans Receivable, Net
375,711,468

 
359,722,846

Accrued Interest Receivable:
 
 
 
Loans
936,428

 
1,038,444

Mortgage-Backed Securities
587,965

 
605,474

Investment Securities
1,716,518

 
1,407,923

Total Accrued Interest Receivable
3,240,911

 
3,051,841

Premises and Equipment, Net
22,865,424

 
21,197,684

Federal Home Loan Bank ("FHLB") Stock, at Cost
2,473,700

 
2,776,500

Other Real Estate Owned ("OREO")
1,907,637

 
2,721,214

Bank Owned Life Insurance ("BOLI")
18,665,893

 
17,101,045

Goodwill
1,199,754

 
1,199,754

Other Assets
4,593,887

 
5,447,746

Total Assets
$
861,148,657

 
$
812,681,569

LIABILITIES AND SHAREHOLDERS’ EQUITY:
 
 
 
Liabilities:
 
 
 
Deposit Accounts
$
701,613,360

 
$
654,103,278

Advance Payments By Borrowers For Taxes and Insurance
669,491

 
260,580

Advances From FHLB
41,000,000

 
48,395,000

Other Borrowings
12,355,812

 
9,338,148

Note Payable
9,700,000

 
13,000,000

Junior Subordinated Debentures
5,155,000

 
5,155,000

Senior Convertible Debentures
6,064,000

 
6,084,000

Other Liabilities
6,679,470

 
5,233,289

Total Liabilities
$
783,237,133

 
$
741,569,295

Shareholders' Equity:
 
 
 
Common Stock, $.01 Par Value; Authorized 5,000,000 Shares; Issued and Outstanding Shares, 3,146,407 and 2,945,474, Respectively
$
31,464

 
$
31,464

Additional Paid-In Capital
12,036,744

 
12,036,744

Treasury Stock, at Cost (200,933 Shares)
(4,330,712
)
 
(4,330,712
)
Unvested Restricted Stock

 
(25,358
)
Accumulated Other Comprehensive Income
3,739,788

 
1,180,086

Retained Earnings
66,434,240

 
62,220,050

Total Shareholders' Equity
$
77,911,524

 
$
71,112,274

Total Liabilities and Shareholders' Equity
$
861,148,657

 
$
812,681,569


SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

3


SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Interest Income:
 
 
 
 
 
 
 
 
Loans
 
$
5,146,669

 
$
4,912,317

 
$
14,849,109

 
$
14,378,826

Mortgage-Backed Securities
 
1,274,753

 
1,192,792

 
3,552,887

 
3,672,252

Investment Securities
 
1,324,104

 
1,042,765

 
3,729,992

 
3,245,857

Other
 
6,295

 
4,944

 
34,804

 
14,057

Total Interest Income
 
7,751,821

 
7,152,818

 
22,166,792

 
21,310,992

Interest Expense:
 
 
 
 
 
 
 
 
NOW and Money Market Accounts
 
151,874

 
102,321

 
426,080

 
309,757

Statement Savings Accounts
 
10,726

 
8,984

 
30,000

 
25,468

Certificate Accounts
 
503,505

 
407,283

 
1,401,910

 
1,239,282

FHLB Advances and Other Borrowed Money
 
164,544

 
132,889

 
409,655

 
561,316

Note Payable
 
105,762

 

 
328,613

 

Senior Convertible Debentures
 
121,396

 
121,680

 
364,756

 
365,040

Junior Subordinated Debentures
 
38,975

 
31,445

 
110,863

 
91,002

Total Interest Expense
 
1,096,782

 
804,602

 
3,071,877

 
2,591,865

Net Interest Income
 
6,655,039

 
6,348,216

 
19,094,915

 
18,719,127

Provision For Loan Losses
 
100,000

 

 
100,000

 

Net Interest Income After Provision For Loan Losses
 
6,555,039

 
6,348,216

 
18,994,915

 
18,719,127

Non-Interest Income:
 
 
 
 
 
 
 
 
Gain on Sale of Investment Securities
 
79,363

 
360,425

 
707,902

 
772,143

Gain on Sale of Loans
 
373,636

 
256,918

 
894,053

 
657,473

Service Fees on Deposit Accounts
 
274,717

 
266,960

 
776,469

 
772,341

Commissions From Insurance Agency
 
172,074

 
149,529

 
451,311

 
441,519

Trust Income
 
186,000

 
197,000

 
554,000

 
521,000

BOLI Income
 
788,133

 
132,000

 
1,028,133

 
396,000

Check Card Fee Income
 
282,686

 
247,331

 
838,302

 
742,583

Grant Income
 

 

 

 
265,496

Other
 
205,524

 
170,519

 
542,250

 
504,200

Total Non-Interest Income
 
2,362,133

 
1,780,682

 
5,792,420

 
5,072,755

Non-Interest Expense:
 
 
 
 
 
 
 
 
Compensation and Employee Benefits
 
3,872,102

 
3,167,112

 
10,916,386

 
9,675,430

Occupancy
 
569,024

 
502,352

 
1,661,661

 
1,469,602

Advertising
 
120,033

 
100,251

 
391,742

 
343,034

Depreciation and Maintenance of Equipment
 
569,839

 
510,645

 
1,541,460

 
1,486,060

Federal Deposit Insurance Corporation ("FDIC") Insurance Premiums
 
64,518

 
62,163

 
168,707

 
322,653

Net Cost (Benefit) of Operation of OREO
 
105,172

 
25,991

 
(96,730
)
 
(647,990
)
Prepayment Penalties on FHLB Advances
 

 
260,594

 

 
789,306

Other
 
1,268,449

 
1,065,209

 
3,681,552

 
3,485,289

Total Non-Interest Expense
 
6,569,137

 
5,694,317

 
18,264,778

 
16,923,384

Income Before Income Taxes
 
2,348,035

 
2,434,581

 
6,522,557

 
6,868,498

Provision For Income Taxes
 
445,133

 
654,850

 
1,513,090

 
1,805,750

Net Income
 
1,902,902

 
1,779,731

 
5,009,467

 
5,062,748

Preferred Stock Dividends
 

 
110,000

 

 
330,000

Net Income Available to Common Shareholders
 
$
1,902,902

 
$
1,669,731

 
$
5,009,467

 
$
4,732,748

Net Income Per Common Share (Basic)
 
$
0.65

 
$
0.57

 
$
1.70

 
$
1.61

Net Income Per Common Share (Diluted)
 
$
0.61

 
$
0.54

 
$
1.61

 
$
1.53

Cash Dividend Per Share on Common Stock
 
$
0.09

 
$
0.08

 
$
0.27

 
$
0.24

Weighted Average Shares Outstanding (Basic)
 
2,945,474

 
2,944,001

 
2,945,215

 
2,944,001

Weighted Average Shares Outstanding (Diluted)
 
3,252,436

 
3,248,526

 
3,251,666

 
3,248,474


SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

4


SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

 
 
Three Months Ended September 30,
 
 
2017
 
2016
Net Income
 
$
1,902,902

 
$
1,779,731

Other Comprehensive Loss
 
 
 
 
Unrealized Gains (Losses) on Securities:
 
 
 
 
Unrealized Holding Losses on Securities Available For Sale, Net of Taxes of $(39,600) and $(774,093) at September 30, 2017 and 2016, Respectively
 
(64,802
)
 
(1,263,332
)
Reclassification Adjustment for Gains Included in Net Income, Net of Taxes of $30,158 and $136,962 at September 30, 2017 and 2016, Respectively
 
(49,205
)
 
(223,463
)
Amortization of Unrealized Gains on Available For Sale Securities Transferred to Held To Maturity, Net of Taxes of $(14,084) and $(20,270) at September 30, 2017 and 2016, Respectively
 
(23,019
)
 
(33,128
)
Other Comprehensive Loss
 
(137,026
)
 
(1,519,923
)
Comprehensive Income
 
$
1,765,876

 
$
259,808



 
 
Nine Months Ended September 30,
 
 
2017
 
2016
Net Income
 
$
5,009,467

 
$
5,062,748

Other Comprehensive Income
 
 
 
 
Unrealized Gains on Securities:
 
 
 
 
Unrealized Holding Gains on Securities Available For Sale, Net of Taxes of $1,892,760 and $1,861,700 at September 30, 2017 and 2016, Respectively
 
3,080,485

 
3,044,091

Reclassification Adjustment for Gains Included in Net Income, Net of Taxes of $269,003 and $293,415 at September 30, 2017 and 2016, Respectively
 
(438,899
)
 
(478,728
)
Amortization of Unrealized Gains on Available For Sale Securities Transferred to Held To Maturity, Net of Taxes of $(50,102) and $(55,872) at September 30, 2017 and 2016, Respectively
 
(81,884
)
 
(91,314
)
Other Comprehensive Income
 
2,559,702

 
2,474,049

Comprehensive Income
 
$
7,569,169

 
$
7,536,797




SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


5


SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
For the Nine Months Ended September 30, 2017 and 2016

 
 
 
Preferred
 Stock
 
 
 
Common
Stock
 
Unvested Restricted Stock
 
 
Additional
Paid – In
 Capital
 
 
 
Treasury
Stock
 
Accumulated
Other
 Comprehensive Income
 
 
 
Retained
Earnings
 
 
 
 
Total
Balance at December 31, 2015
$
22,000,000

 
$
31,464

 
$
(25,358
)
 
$
12,028,832

 
$
(4,330,712
)
 
$
4,262,361

 
$
57,000,835

 
$
90,967,422

Net Income

 

 

 

 

 

 
5,062,748

 
5,062,748

Other Comprehensive Income, Net of Tax

 

 

 

 

 
2,474,049

 

 
2,474,049

Stock Option Compensation Expense

 

 

 
5,976

 

 

 

 
5,976

Cash Dividends on Preferred Stock

 

 

 

 

 

 
(330,000
)
 
(330,000
)
Cash Dividends on Common Stock

 

 

 

 

 

 
(706,914
)
 
(706,914
)
Balance at September 30, 2016
$
22,000,000

 
$
31,464

 
$
(25,358
)
 
$
12,034,808

 
$
(4,330,712
)
 
$
6,736,410

 
$
61,026,669

 
$
97,473,281



 
 
 
Common
Stock
 
Unvested Restricted Stock
 
 
Additional
Paid – In
 Capital
 
 
 
Treasury
Stock
 
Accumulated Other Comprehensive Income
 
 
 
Retained
Earnings
 
 
 
 
Total
Balance at December 31, 2016
$
31,464

 
$
(25,358
)
 
$
12,036,744

 
$
(4,330,712
)
 
$
1,180,086

 
$
62,220,050

 
$
71,112,274

Net Income

 

 

 

 

 
5,009,467

 
5,009,467

Other Comprehensive Income, Net of Tax

 

 

 

 
2,559,702

 

 
2,559,702

Vesting of Restricted Stock

 
25,358

 

 

 

 

 
25,358

Cash Dividends on Common Stock

 

 

 

 

 
(795,277
)
 
(795,277
)
Balance at September 30, 2017
$
31,464

 
$

 
$
12,036,744

 
$
(4,330,712
)
 
$
3,739,788

 
$
66,434,240

 
$
77,911,524


SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

6


SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)
 
Nine Months Ended September 30,
 
2017
 
2016
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net Income
$
5,009,467

 
$
5,062,748

Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities:
 
 
 
Depreciation Expense
1,101,900

 
1,053,224

Stock Option Compensation Expense
25,358

 
5,976

Discount Accretion and Premium Amortization
4,190,700

 
4,038,220

Provisions for Losses on Loans
100,000

 

Earnings on BOLI
(374,000
)
 
(396,000
)
Income Recognized From BOLI Death Benefit
(654,133
)
 

Gain on Sales of Loans
(894,053
)
 
(657,473
)
Gain on Sales of Mortgage-Backed Securities
(250,149
)
 
(55,958
)
Gain on Sales of Investment Securities
(457,752
)
 
(716,185
)
Gain on Sale of Premises and Equipment
(1,900
)
 

Gain on Sales of OREO
(321,687
)
 
(841,728
)
Write Down on OREO
68,121

 
40,000

Amortization of Deferred Loan Costs
127,058

 
88,054

Proceeds From Sale of Loans Held For Sale
33,301,781

 
23,896,772

Origination of Loans Held For Sale
(29,434,231
)
 
(24,920,171
)
Decrease (Increase) in Accrued Interest Receivable:
 
 
 
Loans
102,016

 
38,341

Mortgage-Backed Securities
17,509

 
(14,884
)
Investment Securities
(308,595
)
 
90,706

Increase in Advance Payments By Borrowers
408,911

 
379,234

Other, Net
594,400

 
2,244,880

Net Cash Provided By Operating Activities
$
12,350,721

 
$
9,335,756

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchase of Mortgage-Backed Securities Available For Sale ("AFS")
$
(42,875,234
)
 
$
(37,793,135
)
Proceeds from Payments and Maturities of Mortgage-Backed Securities AFS
28,487,010

 
23,942,058

Proceeds From Sale of Mortgage-Backed Securities AFS
19,003,897

 
3,082,591

Purchase of Mortgage-Backed Securities Held To Maturity ("HTM")

 
(1,507,125
)
Proceeds from Payments and Maturities of Mortgage-Backed Securities HTM
2,836,011

 
3,496,657

Purchase of Investment Securities AFS
(75,688,312
)
 
(30,233,311
)
Proceeds from Payments and Maturities of Investment Securities AFS
17,854,087

 
18,402,244

Proceeds From Sale of Investment Securities AFS
27,825,020

 
18,410,863

Purchase of Investment Securities HTM
(3,997,750
)
 

Proceeds from Payments and Maturities of Investment Securities HTM
1,000,000

 

Proceeds From Redemption of Certificates of Deposits with Other Banks
1,095,000

 

Purchase of FHLB Stock
(5,129,700
)
 
(5,014,800
)
Redemption of FHLB Stock
5,432,500

 
4,554,900

Purchase of BOLI
(2,000,000
)
 

Proceeds From BOLI Death Benefit
1,463,285

 

Increase in Loans Receivable
(19,680,925
)
 
(19,976,753
)
Proceeds From Sale of OREO
1,558,891

 
3,159,524

Purchase and Improvement of Premises and Equipment
(2,769,640
)
 
(1,599,727
)
Proceeds From Sale of Premises and Equipment
1,900

 

Net Cash Used By Investing Activities
$
(45,583,960
)
 
$
(21,076,014
)

7


SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited) (Continued)
 
 
 
 
 
Nine Months Ended September 30,
 
2017
 
2016
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Increase (Decrease) in Deposit Accounts
$
47,510,082

 
$
(1,798,293
)
Proceeds from FHLB Advances
157,576,000

 
251,755,000

Repayment of FHLB Advances
(164,971,000
)
 
(240,395,000
)
Increase in Other Borrowings, Net
3,017,664

 
6,185,542

Repayment of Note Payable
(3,300,000
)
 

Purchase of Senior Convertible Debentures
(20,000
)
 

Dividends to Preferred Stock Shareholders

 
(330,000
)
Dividends to Common Stock Shareholders
(795,277
)
 
(706,914
)
Net Cash Provided By Financing Activities
$
39,017,469

 
$
14,710,335

Net Increase in Cash and Cash Equivalents
5,784,230

 
2,970,077

Cash and Cash Equivalents at Beginning of Period
9,374,549

 
8,381,951

Cash and Cash Equivalents at End of Period
$
15,158,779

 
$
11,352,028

 
 
 
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
Cash Paid During The Period For:
 
 
 
Interest
$
2,937,283

 
$
2,565,836

Income Taxes
$
1,162,000

 
$
572,242

Supplemental Schedule of Non Cash Transactions:
 
 
 
Transfers From Loans Receivable to OREO
$
491,748

 
$
323,730


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 ("U.S. 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”) 2016 Annual Report to Shareholders which was filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2016 (“2016 10-K”) when reviewing interim financial statements. The unaudited consolidated results of operations for the nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. 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”) and Security Financial Services Corporation (“SFSC”). SFINS was formed during fiscal 2002 and began operating during the December 2001 quarter and is an insurance agency offering auto, business, 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. SFSC was formed in 1975 and 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, 2016 included in our 2016 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 Common 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. All of the options outstanding at September 30, 2017 had an exercise price below the average market price during the three and nine months ended September 30, 2017. Therefore, these options were considered to be dilutive to EPS in those periods. None of the options outstanding at September 30, 2016 had an exercise price below the average market price during the three or nine month periods ended September 30, 2016. Therefore, these options were not deemed to be dilutive to EPS in those periods.

Net income available to common shareholders represents consolidated net income adjusted for preferred dividends declared, accretions of discounts and amortization of premiums on preferred stock issuances and cumulative dividends related to the current dividend period that have not been declared as of period end. The following table provides a reconciliation of net income to net income available to common shareholders for the periods presented:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Earnings Available To Common Shareholders:
 
 
 
 
 
 
 
Net Income
$
1,902,902

 
$
1,779,731

 
$
5,009,467

 
$
5,062,748

Preferred Stock Dividends

 
110,000

 

 
330,000

Net Income Available To Common Shareholders
$
1,902,902

 
$
1,669,731

 
$
5,009,467

 
$
4,732,748



10



SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements




4. Earnings Per Common Share, Continued

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

 
Three Months Ended September 30,
 
2017
 
2016
 
Income
 
Shares
 
Per Share Amounts
 
Income
 
Shares
 
Per Share Amounts
Basic EPS
$
1,902,902

 
2,945,474

 
$
0.65

 
$
1,669,731

 
2,944,001

 
$
0.57

Effect of Dilutive Securities:
 
 
 
 
 
 
 
 
 
 
 
Stock Options

 
3,762

 
(0.01
)
 

 

 

Senior Convertible Debentures
75,266

 
303,200

 
(0.03)

 
75,442

 
304,200

 
(0.03)

Unvested Restricted Stock

 

 

 

 
325

 

Diluted EPS
$
1,978,168

 
3,252,436

 
$
0.61

 
$
1,745,173

 
3,248,526

 
$
0.54


 
Nine Months Ended September 30,
 
2017
 
2016
 
Income
 
Shares
 
Per Share Amounts
 
Income
 
Shares
 
Per Share Amounts
Basic EPS
$
5,009,467

 
2,945,215

 
$
1.70

 
$
4,732,748

 
2,944,001

 
$
1.61

Effect of Dilutive Securities:
 
 
 
 
 
 
 
 
 
 
 
Stock Options

 
3,251

 
(0.01
)
 

 

 

Senior Convertible Debentures
226,149

 
303,200

 
(0.08)

 
226,325

 
304,200

 
(0.07)

Unvested Restricted Stock

 

 

 

 
273

 
(0.01
)
Diluted EPS
$
5,235,616

 
3,251,666

 
$
1.61

 
$
4,959,073

 
3,248,474

 
$
1.53



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. The following is a summary of the activity under the Company’s stock option plans for the periods presented:

 
Three Months Ended September 30,
 
2017
 
2016
 
Shares
Weighted Average Exercise Price
 
Shares
Weighted Average Exercise Price
 
 
Balance, Beginning of Period
19,500

$23.49
 
25,000

$23.50
Options Forfeited
(1,000
)
24.61
 
(3,500
)
23.03
Balance, End of Period
18,500

$23.43
 
21,500

$23.57





11



SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements




5. Stock-Based Compensation, Continued

 
Nine Months Ended September 30,
 
2017
 
2016
 
Shares
 
Weighted Average Exercise Price
 
Shares
 
Weighted Average Exercise Price
 
 
 
 
Balance, Beginning of Period
21,500

 
$23.57
 
29,500

 
$23.55
Options Forfeited
(3,000
)
 
24.43
 
(8,000
)
 
23.47
Balance, End of Period
18,500

 
$23.43
 
21,500

 
$23.57
 
 
 
 
 
 
 
 
Options Exercisable
18,500

 
 
 
17,800

 
 
 
 
 
 
 
 
 
 
Options Available For Grant
50,000

 
 
 
50,000

 
 


At September 30, 2017, the Company had the following options outstanding:

Grant Date
 
Outstanding Options
 
Option Price
 
Expiration Date
10/01/07
 
2,000
 
$24.28
 
10/01/17
 
 
 
 
 
 
 
01/01/08
 
12,000
 
$23.49
 
01/01/18
 
 
 
 
 
 
 
05/19/08
 
2,500
 
$22.91
 
05/18/18
 
 
 
 
 
 
 
07/01/08
 
2,000
 
$22.91
 
07/01/18




12



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:
 
September 30, 2017
 
Amortized Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
Federal Home Loan Mortgage Corporation (“FHLMC”) Bond
$
968,436

 
$

 
$
2,790

 
$
965,646

Small Business Administration (“SBA”) Bonds
123,756,916

 
1,186,563

 
139,930

 
124,803,549

Tax Exempt Municipal Bonds
78,068,936

 
3,175,211

 
429,120

 
80,815,027

Taxable Municipal Bonds
2,017,913

 

 
5,323

 
2,012,590

Mortgage-Backed Securities
177,751,622

 
2,548,619

 
465,620

 
179,834,621

State Tax Credit
56,800

 

 

 
56,800

Equity Securities
155,000

 

 

 
155,000

Total Available For Sale
$
382,775,623

 
$
6,910,393

 
$
1,042,783

 
$
388,643,233

 
 
 
 
 
 
 
 
 
December 31, 2016
 
Amortized Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
FHLB Bonds
$
998,001

 
$

 
$
1

 
$
998,000

SBA Bonds
101,280,921

 
909,361

 
284,223

 
101,906,059

Tax Exempt Municipal Bonds
72,248,915

 
1,185,753

 
1,899,519

 
71,535,149

Taxable Municipal Bonds
2,021,192

 

 
30,062

 
1,991,130

Mortgage-Backed Securities
183,657,697

 
2,575,616

 
972,222

 
185,261,091

Equity Securities
250,438

 
117,562

 

 
368,000

Total Available For Sale
$
360,457,164

 
$
4,788,292

 
$
3,186,027

 
$
362,059,429


The FHLMC and FHLB 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.  SBA bonds are 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 September 30, 2017 the Bank held AFS GNMA mortgage-backed securities with an amortized cost and fair value of $93.0 million and $94.2 million, respectively, compared to an amortized cost and fair value of $107.9 million and $109.2 million, respectively, at December 31, 2016.

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 September 30, 2017 the Bank held AFS private label CMO mortgage-backed securities with both an amortized cost and fair value of $31.2 million compared to an amortized cost and fair value of $20.0 million and $19.7 million, respectively, at December 31, 2016.










13



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 September 30, 2017 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.
 
September 30, 2017
Investment Securities:
Amortized Cost
 
Fair Value
One Year or Less
$
190,589

 
$
190,501

After One – Five Years
14,816,156

 
14,930,955

After Five – Ten Years
47,080,250

 
47,638,450

More Than Ten Years
142,937,006

 
146,048,706

Mortgage-Backed Securities
177,751,622

 
179,834,621

Total Available For Sale
$
382,775,623

 
$
388,643,233


At September 30, 2017 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 $97.6 million and $99.5 million, respectively, compared to an amortized cost and fair value of $75.3 million and $76.9 million, respectively, at December 31, 2016.

The Bank received $29.3 million and $6.9 million in gross proceeds from sales of available for sale securities during the three months ended September 30, 2017 and 2016, respectively. As a result, the Bank recognized gross gains of $241,000 and $360,000, respectively, and gross losses of $162,000 and $0, respectively, for the same periods.

During the nine months ended September 30, 2017 and 2016, the Bank received $46.8 million and $21.5 million, respectively, in gross proceeds from sales of available for sale securities. As a result, the Bank recognized gross gains of $870,000 and $772,000, respectively, with $162,000 and $0 gross losses recognized for the same periods.

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 have been in a continuous unrealized loss position at the dates indicated.

 
September 30, 2017
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
Unrealized
Losses
 
Fair
Value
Unrealized
Losses
 
Fair
Value
Unrealized
Losses
FHLMC Bond
$
965,646

$
2,790

 
$

$

 
$
965,646

$
2,790

SBA Bonds
22,776,378

102,708

 
6,857,393

37,222

 
29,633,771

139,930

Tax Exempt Municipal Bonds
6,094,283

73,787

 
10,341,319

355,333

 
16,435,602

429,120

Taxable Municipal Bonds
2,012,590

5,323

 


 
2,012,590

5,323

Mortgage-Backed Securities
46,108,221

323,710

 
13,021,339

141,910

 
59,129,560

465,620

 
$
77,957,118

$
508,318

 
$
30,220,051

$
534,465

 
$
108,177,169

$
1,042,783











14



SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements




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

 
December 31, 2016
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
Unrealized
Losses
 
Fair
Value
Unrealized
Losses
 
Fair
Value
Unrealized
Losses
FHLB Securities
$
998,000

$
1

 
$

$

 
$
998,000

$
1

SBA Bonds
28,490,243

228,432

 
8,212,824

55,791

 
36,703,067

284,223

Tax Exempt Municipal Bonds
47,405,066

1,899,519

 


 
47,405,066

1,899,519

Taxable Municipal Bond
1,991,130

30,062

 


 
1,991,130

30,062

Mortgage-Backed Securities
62,738,366

916,699

 
5,600,262

55,523

 
68,338,628

972,222

 
$
141,622,805

$
3,074,713

 
$
13,813,086

$
111,314

 
$
155,435,891

$
3,186,027


Securities classified as available for sale are recorded at fair market value.  At September 30, 2017 and December 31, 2016, 51.3% and 3.5% of the unrealized losses, representing 28 and 15 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 nine months ended September 30, 2017.

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:
 
September 30, 2017
 
 Amortized Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
FHLB Bonds
$
2,000,000

 
$

 
$
2,040

 
$
1,997,960

FHLMC Bonds
997,997

 
1,707

 

 
999,704

Mortgage-Backed Securities (1)
22,339,969

 
249,124

 
18,414

 
22,570,679

Total Held To Maturity
$
25,337,966

 
$
250,831

 
$
20,454

 
$
25,568,343

 
 
December 31, 2016
 
 Amortized Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
Mortgage-Backed Securities (1)
$
25,583,956

 
$
63,342

 
$
276,246

 
$
25,371,052

Total Held To Maturity
$
25,583,956

 
$
63,342

 
$
276,246

 
$
25,371,052

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

15



SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements



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

At September 30, 2017, the Bank held an amortized cost and fair value of $13.9 million and $14.1 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 $16.3 million and $16.2 million, respectively, at December 31, 2016. The Company has not invested in any private label mortgage-backed securities classified as held to maturity.

At September 30, 2017, 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 $23.4 million and $23.7 million, respectively, compared to an amortized cost and fair value of $23.2 million and $23.0 million, respectively, at December 31, 2016.

The amortized cost and fair value of investment and mortgage-backed securities held to maturity at September 30, 2017 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.
 
September 30, 2017
Investment Securities:
Amortized Cost
 
Fair Value
One – Five Years
$
2,997,997

 
$
2,997,664

Mortgage-Backed Securities
22,339,969

 
22,570,679

 Total Held to Maturity
$
25,337,966

 
$
25,568,343


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.
 
September 30, 2017
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
Unrealized
Losses
 
Fair
Value
Unrealized
Losses
 
Fair
Value
Unrealized
Losses
FHLB Bonds
$
1,997,960

$
2,040

 
$

$

 
$
1,997,960

$
2,040

Mortgage-Backed Securities (1)
889,172

811

 
1,424,142

17,603

 
2,313,314

18,414

 
$
2,887,132

$
2,851

 
$
1,424,142

$
17,603

 
$
4,311,274

$
20,454

(1) COMPRISED OF MORTGAGE-BACKED SECURITIES OF GSEs OR GNMA 
 
December 31, 2016
 
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)
$
15,447,596

$
276,246

 
$

$

 
$
15,447,596

$
276,246

 
$
15,447,596

$
276,246

 
$

$

 
$
15,447,596

$
276,246

(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.


16



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:
 
September 30, 2017
 
December 31, 2016
Residential Real Estate Loans
$
79,106,075

 
$
77,979,909

Consumer Loans
56,864,234

 
50,667,894

Commercial Business Loans
23,496,773

 
16,279,177

Commercial Real Estate Loans
228,182,149

 
222,599,294

Total Loans Held For Investment
387,649,231

 
367,526,274

Loans Held For Sale
1,270,410

 
4,243,907

Total Loans Receivable, Gross
$
388,919,641

 
$
371,770,181

Less:
 
 
 
Allowance For Loan Losses
8,169,188

 
8,356,231

Loans In Process
4,935,647

 
3,526,064

Deferred Loan Fees
103,338

 
165,040

 
13,208,173

 
12,047,335

Total Loans Receivable, Net
$
375,711,468

 
$
359,722,846


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 September 30, 2017 and December 31, 2016.
September 30, 2017
 
Pass
 
 
Caution
 
Special
Mention
 
 
Substandard
 
 
Total Loans
Residential Real Estate
$
70,517,818

 
$
2,020,878

 
$
1,378,317

 
$
5,189,062

 
$
79,106,075

Consumer
52,443,484

 
1,738,094

 
254,190

 
2,428,466

 
56,864,234

Commercial Business
20,293,905

 
1,799,445

 
732,917

 
670,506

 
23,496,773

Commercial Real Estate
145,016,591

 
61,842,493

 
15,929,625

 
5,393,440

 
228,182,149

Total
$
288,271,798

 
$
67,400,910

 
$
18,295,049

 
$
13,681,474

 
$
387,649,231

December 31, 2016
 
Pass
 
 
Caution
 
Special
Mention
 
 
Substandard
 
 
Total Loans
Residential Real Estate
$
70,503,057

 
$
665,235

 
$
1,082,928

 
$
5,728,689

 
$
77,979,909

Consumer
46,818,650

 
2,591,860

 
6,357

 
1,251,027

 
50,667,894

Commercial Business
14,731,698

 
1,002,170

 
50,081

 
495,228

 
16,279,177

Commercial Real Estate
127,068,983

 
71,927,031

 
18,153,718

 
5,449,562

 
222,599,294

Total
$
259,122,388

 
$
76,186,296

 
$
19,293,084

 
$
12,924,506

 
$
367,526,274





17



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 September 30, 2017 and December 31, 2016:
 
September 30, 2017
 
 
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
$
206,120

 
$

 
$
2,551,216

 
$
2,757,336

 
$
76,348,739

 
$
79,106,075

Consumer
865,261

 
15,856

 
453,189

 
1,334,306

 
55,529,928

 
56,864,234

Commercial Business
204,739

 
32,265

 
217,700

 
454,704

 
23,042,069

 
23,496,773

Commercial Real Estate
2,019,717

 
17,037

 
4,298,231

 
6,334,985

 
221,847,164

 
228,182,149

Total
$
3,295,837

 
$
65,158

 
$
7,520,336

 
$
10,881,331

 
$
376,767,900

 
$
387,649,231


 
December 31, 2016
 
 
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
$
653,858

 
$

 
$
2,488,158

 
$
3,142,016

 
$
74,837,893

 
$
77,979,909

Consumer
625,178

 
119,640

 
241,571

 
986,389

 
49,681,505

 
50,667,894

Commercial Business
536,492

 
69,256

 
145,401

 
751,149

 
15,528,028

 
16,279,177

Commercial Real Estate
1,719,758

 
256,285

 
2,639,837

 
4,615,880

 
217,983,414

 
222,599,294

Total
$
3,535,286

 
$
445,181

 
$
5,514,967

 
$
9,495,434

 
$
358,030,840

 
$
367,526,274


At September 30, 2017 and December 31, 2016, the Company did not have any loans that were 90 days or more past due and still accruing interest. Our strategy is to work with our borrowers to reach acceptable payment plans while protecting our interests in the existing collateral.  In the event an acceptable arrangement cannot be reached, we 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 September 30, 2017 compared to December 31, 2016:

 
September 30, 2017
 
December 31, 2016
 
$
 
%
 
Amount
 
Percent (1)
 
Amount
 
Percent (1)
 
Increase (Decrease)
 
Increase (Decrease)
Non-accrual Loans:
 
 
 
 
 
 
 
 
 
 
 
Residential Real Estate
$
2,551,216

 
0.67
%
 
$
2,488,158

 
0.68
%
 
$
63,058

 
2.5%
Consumer
453,189

 
0.12

 
241,571

 
0.07

 
$
211,618

 
87.6
Commercial Business
217,700

 
0.06

 
145,401

 
0.04

 
72,299

 
49.7
Commercial Real Estate
4,298,231

 
1.12

 
2,639,837

 
0.73

 
1,658,394