Aiken-based Security Federal Corp. reported lower quarterly earnings Friday, a combination of higher costs because of expansion, a charge-off for loan losses in a weakening economy and a tighter income margin from lower interest rates.

The holding company for the 13-branch Security Federal Bank reported quarterly net income of $785,000, or 31 cents per share, down from $1.1 million, or 43 cents per share, a year ago.

The decline in interest rates in recent quarters continued to hurt the bank, Chief Financial Officer Roy Lindburg said. Despite the lower rates, the bank was able to post net income from interest of $5.4 million for the quarter, up from $5.1 million a year ago.

Mr. Lindburg said in a statement that the bank did not participate in subprime lending or invest in mortgage-backed securities, but it was "not exempt from the impact of these events and the general worsening of national economic conditions."

The company saw an increase of nonperforming assets, from $6.7 million in March to $9.8 million at the end of the quarter. It increased its provision for loan losses to $275,000.

General and administrative expenses increased $694,000, or 15.8 percent, to $5.08 million for July, August and September. The increase was the result of increased personnel and property costs related to expansion into Evans and Richland County in South Carolina. Security Federal plans to open a 14th branch within the next year in Ballentine, S.C.

Total assets at the end of September were $905.46 million, up 7.7 percent since the end of March, when assets were $840 million.

Deposits increased 2.4 percent in the past six months to $605.1 million.