noodls browser compatibility check

The security settings of your browser are blocking the execution of scripts.

To use noodls, javascript support must be enabled. Please change your browser's security settings to enable javascript.

If you have changed your browser's security settings, you can click here.

related announcements

Company News

Citigroup Inc.

Primary Offering Prospectus - Form 424B2
Hedge Fund Guided Portfolio Solution

Amendment to Tender Offer Statement Form SC TO I/A
IBM - International Business[...]

From surf to satellites: Campbell Watson is bringing AI to Earth[...]

Economy, Business and Finance

Security Federal Corporation

11/08/2024 | Press release | Distributed by Public on 11/08/2024 09:14

Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

sfdl20240930_10q.htm

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED September 30, 2024

☐ 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)

Securities registered pursuant to Section 12(b) of the Act: None

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 ☒ 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 ☒ 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 filer	☐	Smaller reporting company	☒
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

☐

Indicate by check mark whether the registrant is a shell corporation (defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

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 8, 2024	3,194,781

Table of Contents

PART I.	FINANCIAL INFORMATION (UNAUDITED)	PAGE NO.

Item 1.	Financial Statements (unaudited):	3

	Consolidated Balance Sheets at September 30, 2024 and December 31, 2023	3

	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2024 and 2023	4

	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2024 and 2023	5

	Consolidated Statements of Changes in Shareholders' Equity for the Three and Nine Months Ended September 30, 2024 and 2023	6

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36

Item 4.	Controls and Procedures	36

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 3.	Defaults Upon Senior Securities	37

Item 4.	Mine Safety Disclosures	37

Item 5.	Other Information	37

Item 6.	Exhibits	38

	Signatures	39

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.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Part 1. Financial Information

Item 1. Financial Statements

Consolidated Balance Sheets

	*September 30, 2024*			December 31, 2023
Dollars in thousands, except per share amounts	*(Unaudited)*			(Audited)
ASSETS:
Cash and Cash Equivalents	$	132,376			$	128,284
Certificates of Deposit with Other Banks		2,350				2,350
Investments:
Available For Sale ("AFS")		534,203				537,640
Held To Maturity ("HTM") Net of Allowance for Credit Losses of $0(Fair Value of $135,502and $158,540at September 30, 2024 and December 31, 2023, Respectively)		137,851				163,072
Total Investments		672,054				700,712
Loans Receivable, Net:
Held For Sale		1,649				967
Held For Investment (Net of Allowance for Credit Losses of $13,604and $12,569at September 30, 2024 and December 31, 2023, Respectively)		685,059				621,562
Total Loans Receivable, Net		686,708				622,529
Accrued Interest Receivable		5,791				5,512
Operating Lease Right-of-Use ("ROU") Assets		1,048				1,402
Land Held for Sale		938				938
Premises and Equipment, Net		29,545				28,637
Federal Home Loan Bank ("FHLB") Stock, at Cost		1,089				922
Bank Owned Life Insurance ("BOLI")		28,478				27,954
Goodwill		1,200				1,200
Other Assets		14,750				29,231
Total Assets	$	1,576,327			$	1,549,671
LIABILITIES:
Deposit Accounts	$	1,257,314			$	1,194,997
Borrowings from Federal Reserve Bank ("FRB")		65,000				119,200
Other Borrowings		24,323				19,180
Junior Subordinated Debentures		5,155				5,155
Subordinated Debentures		26,500				26,500
Operating Lease Liabilities		1,081				1,442
Other Liabilities		11,872				10,835
Total Liabilities		1,391,245				1,377,309
SHAREHOLDERS' EQUITY:
Senior Non-Cumulative Perpetual Preferred Stock, Series ECIP, $1,000Par Value; 82,949Shares Authorized, Issued and Outstanding at September 30, 2024 and December 31, 2023		82,949				82,949
Common Stock, $0.01Par Value; 5,000,000Shares Authorized; 3,457,706Shares Issued and 3,194,437Shares Outstanding at September 30, 2024 and 3,456,136Shares Issued and 3,228,777Shares Outstanding at December 31, 2023, Respectively		35				35
Additional Paid-In Capital ("APIC")		18,326				18,287
Treasury Stock, at Cost; 263,269and 227,359Shares Outstanding at September 30, 2024 and December 31, 2023, Respectively		(5,742	)			(4,913	)
Accumulated Other Comprehensive Loss ("AOCL")		(26,066	)			(35,050	)
Retained Earnings		115,580				111,054
Total Shareholders' Equity		185,082				172,362
Total Liabilities and Shareholders' Equity	$	1,576,327			$	1,549,671

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)

	*Three Months Ended September 30,*		*Nine Months Ended September 30,*
Dollars in thousands, except per share amounts	*2024*		2023		*2024*	2023
Interest Income:
Loans	$	10,594		$	8,402	$	30,183	$	23,884
Taxable Investment Securities		7,397			7,558		22,371		21,025
Tax-exempt Investment Securities		89			159		388		480
Other		1,451			703		4,129		1,205
Total Interest Income		19,531			16,822		57,071		46,594
Interest Expense:
Deposits		7,754			6,069		21,943		14,155
FHLB Advances and Other Borrowed Money		924			862		3,224		2,313
Subordinated Debentures		348			349		1,044		1,045
Junior Subordinated Debentures		95			96		286		267
Total Interest Expense		9,121			7,376		26,497		17,780
Net Interest Income		10,410			9,446		30,574		28,814
Provision for Credit Losses		580			-		1,090		221
Net Interest Income After Provision for Credit Losses		9,830			9,446		29,484		28,593
Non-Interest Income:
Net Gain on Sale of Investments		37			-		37		-
Gain on Sale of Loans		210			136		571		530
Service Fees on Deposit Accounts		311			319		935		890
Commissions From Insurance Agency		248			200		604		549
Trust Income		721			458		1,777		1,297
BOLI Income		178			163		524		469
ATM and Check Card Fee Income		761			736		2,363		2,288
Other		159			156		589		596
Total Non-Interest Income		2,625			2,168		7,400		6,619
Non-Interest Expense:
Compensation and Employee Benefits		5,359			4,962		16,425		15,227
Occupancy		800			808		2,425		2,386
Advertising		254			256		754		763
Depreciation and Maintenance of Equipment		297			657		1,297		1,844
FDIC Insurance Premiums		200			154		536		462
Consulting		172			168		489		523
Debit Card Expenses		388			348		1,126		1,037
Data Processing		351			314		1,029		942
Cloud Services		299			-		703		-
Other		1,193			1,257		3,833		3,679
Total Non-Interest Expense		9,313			8,924		28,617		26,863
Income Before Income Taxes		3,142			2,690		8,267		8,349
Provision for Income Taxes		732			568		1,878		1,775
Net Income		2,410			2,122		6,389		6,574
Preferred Stock Dividends		415			-		512		-
Net Income Available to Common Shareholders		1,995			2,122		5,877		6,574
Net Income Per Common Share (Basic)	$	0.62		$	0.65	$	1.83	$	2.02
Cash Dividend Per Share on Common Stock	$	0.14		$	0.13	$	0.42	$	0.39
Weighted Average Shares Outstanding (Basic)		3,195,368			3,248,226		3,214,454		3,251,610

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

	*Three Months Ended September 30,*
Dollars in thousands	*2024*			2023
Net Income	$	2,410			$	2,122
Other Comprehensive Income (Loss):
Unrealized Holding Gains (Losses) on AFS Investments, Net of Tax of $2.5million and $2.1million at September 30, 2024 and 2023, Respectively		7,717				(5,741	)
Reclassification Adjustment for Gains Included in Net Income, Net of Tax of $9.4thousand at September 30, 2024		(28	)			-
Amortization of Unrealized Losses on AFS Securities Transferred to HTM, Net of Tax of $368and $505during the quarters ended September 30, 2024 and 2023, Respectively		1				1
Other Comprehensive Income (Loss), Net of Tax		7,690				(5,740	)
Comprehensive Income (Loss)	$	10,100			$	(3,618	)

	*Nine Months Ended September 30,*
Dollars in thousands		*2024*			2023
Net Income	$	6,389		$	6,574
Other Comprehensive Income (Loss):
Unrealized Holding Gains (Losses) on AFS Investments, Net of Tax of $3.0million and $1.8million at September 30, 2024 and 2023, Respectively		9,008			(4,719	)
Reclassification Adjustment for Gains Included in Net Income, Net of Tax of $9.4thousand at September 30, 2024		(28	)		-
Amortization of Unrealized Losses on AFS Securities Transferred to HTM, Net of Tax of $1.2thousand and $2.1thousand at September 30, 2024 and 2023, Respectively		4			6
Other Comprehensive Income (Loss), Net of Tax		8,984			(4,713	)
Comprehensive Income	$	15,373		$	1,861

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders' Equity (Unaudited)

For the Three and Nine Months Ended September 30, 2024 and 2023

	*Preferred Stock*		*Common Stock*			*Treasury Stock*
Dollars in thousands	*Shares*		*Amount*			*Shares*	*Amount*	*Shares*		*Amount*		*APIC*		*AOCL*		*Retained Earnings*		*Total*
Balance at December 31, 2023		82,949		$	82,949		3,456,136	$	35		227,359		$	(4,913	)	$	18,287		$	(35,050	)	$	111,054		$	172,362
Net Income		-			-		-		-		-			-			-			-			1,753			1,753
Other Comprehensive Income, Net of Tax		-			-		-		-		-			-			-			991			-			991
Employee Stock Purchase Plan		-			-		578		-		-			-			14			-			-			14
Treasury Stock Repurchases		-			-		-		-		4,230			(99	)		-			-			-			(99	)
Cash Dividends on Common Stock		-			-		-		-		-			-			-			-			(452	)		(452	)
Balance at March 31, 2024		82,949		$	82,949		3,456,714	$	35		231,589		$	(5,012	)	$	18,301		$	(34,059	)	$	112,355		$	174,569
Net Income		-			-		-		-		-			-			-			-			2,226			2,226
Other Comprehensive Income, Net of Tax		-			-		-		-		-			-			-			303			-			303
Employee Stock Purchase Plan		-			-		498		-		-			-			12			-			-			12
Treasury Stock Repurchases		-			-		-		-		29,180			(670	)		-			-			-			(670	)
Cash Dividends on Common Stock		-			-		-		-		-			-			-			-			(452	)		(452	)
Cash Dividends on Preferred Stock		-			-		-		-		-			-			-			-			(97	)		(97	)
Balance at June 30, 2024		82,949		$	82,949		3,457,212	$	35		260,769		$	(5,682	)	$	18,313		$	(33,756	)	$	114,032		$	175,891
Net Income		-			-		-		-		-			-			-			-			2,410			2,410
Other Comprehensive Income, Net of Tax		-			-		-		-		-			-			-			7,690			-			7,690
Employee Stock Purchase Plan		-			-		494		-		-			-			13			-			-			13
Treasury Stock Repurchases		-			-		-		-		2,500			(60	)		-			-			-			(60	)
Cash Dividends on Common Stock		-			-		-		-		-			-			-			-			(447	)		(447	)
Cash Dividends on Preferred Stock		-			-		-		-		-			-			-			-			(415	)		(415	)
Balance at September 30, 2024		82,949		$	82,949		3,457,706	$	35		263,269		$	(5,742	)	$	18,326		$	(26,066	)	$	115,580		$	185,082

	*Preferred Stock*		*Common Stock*			*Treasury Stock*
Dollars in thousands	*Shares*		*Amount*			*Shares*	*Amount*	*Shares*		*Amount*		*APIC*		*AOCL*		*Retained Earnings*		*Total*
Balance at December 31, 2022		82,949		$	82,949		3,453,817	$	35		200,933		$	(4,331	)	$	18,230		$	(40,779	)	$	104,129		$	160,233
Adoption of ASU 2016-13		-			-		-		-		-			-			-			-			(1,578	)		(1,578	)
Net Income		-			-		-		-		-			-			-			-			2,674			2,674
Other Comprehensive Income, Net of Tax		-			-		-		-		-			-			-			5,578			-			5,578
Employee Stock Purchase Plan		-			-		326		-		-			-			8			-			-			8
Cash Dividends on Common Stock		-			-		-		-		-			-			-			-			(423	)		(423	)
Balance at March 31, 2023		82,949		$	82,949		3,454,143	$	35		200,933		$	(4,331	)	$	18,238		$	(35,201	)	$	104,802		$	166,492
Net Income		-			-		-		-		-			-			-			-			1,778			1,778
Other Comprehensive Loss, Net of Tax		-			-		-		-		-			-			-			(4,551	)		-			(4,551	)
Employee Stock Purchase Plan		-			-		526		-		-			-			12			-			-			12
Cash Dividends on Common Stock		-			-		-		-		-			-			-			-			(423	)		(423	)
Balance at June 30, 2023		82,949		$	82,949		3,454,669	$	35		200,933		$	(4,331	)	$	18,250		$	(39,752	)	$	106,157		$	163,308
Net Income		-			-		-		-		-			-			-			-			2,122			2,122
Other Comprehensive Loss, Net of Tax		-			-		-		-		-			-			-			(5,740	)		-			(5,740	)
Treasury Stock Repurchases		-			-		-		-		12,700			(292	)		-			-			-			(292	)
Employee Stock Purchase Plan		-			-		777		-		-			-			19			-			-			19
Cash Dividends on Common Stock		-			-		-		-		-			-			-			-			(421	)		(421	)
Balance at September 30, 2023		82,949		$	82,949		3,455,446	$	35		213,633		$	(4,623	)	$	18,269		$	(45,492	)	$	107,858		$	158,996

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

	*Nine Months Ended*
	*September 30,*
Dollars in thousands	*2024*			2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	6,389			$	6,574
Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities:
Depreciation Expense		1,552				1,624
Discount Accretion and Premium Amortization, net		2,651				3,074
Provision for Credit Losses		1,090				221
Earnings on BOLI		(524	)			(469	)
Gain on Sales of Loans		(571	)			(530	)
Gain on Sales of Investments		(37	)			-
Loss on Sale of Land Held for Sale		-				9
Write-down of OREO		-				15
Gain on Sale of OREO		-				(2	)
Amortization of Operating Lease ROU Assets		355				343
Proceeds From Sale of Loans Held For Sale		21,321				18,451
Origination of Loans Held For Sale		(21,433	)			(18,060	)
Increase in Accrued Interest Receivable		(279	)			(587	)
Change in Other Assets		11,508				(921	)
Change in Lease Liabilities and Other Liabilities		786				4,813
Net Cash Provided By Operating Activities		22,808				14,555
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of AFS Securities		(51,191	)			(40,276	)
Proceeds from Paydowns and Maturities of AFS Securities		50,341				49,328
Proceeds from Sales of AFS Securities		13,703				-
Purchase of HTM Securities		(1,684	)			(16,936	)
Proceeds from Paydowns and Maturities of HTM Securities		26,832				10,337
Purchase of FHLB Stock		(167	)			(696	)
Redemption of FHLB Stock		-				425
Net Increase in Loans Receivable		(64,697	)			(49,926	)
Proceeds from Sale of Land Held for Sale		-				149
Proceeds from Sale of OREO		-				107
Purchase and Improvement of Premises and Equipment		(2,460	)			(2,368	)
Net Cash Used By Investing Activities		(29,323	)			(49,856	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Deposit Accounts		62,317				75,968
Increase (Decrease) in Other Borrowings, Net		5,143				(8,545	)
Proceeds from FRB Borrowings		80,000				346,055
Repayment of FRB Borrowings		(134,200	)			(320,935	)
Purchases of Treasury Stock		(829	)			(292	)
Proceeds from Employee Stock Purchase Plan		39				39
Dividends to Common Stock Shareholders		(1,351	)			(1,267	)
Dividends to Preferred Stock Shareholder		(512	)			-
Net Cash Provided By Financing Activities		10,607				91,023
Net Increase in Cash and Cash Equivalents		4,092				55,722
Cash and Cash Equivalents at Beginning of Period		128,284				28,502
Cash and Cash Equivalents at End of Period	$	132,376			$	84,224
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest	$	18,354			$	15,100
Cash Paid for Taxes	$	1,493			$	2,021
Non-Cash Transactions:
Other Comprehensive Income (Loss)	$	8,984			$	(4,713	)

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 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. The information included in Security Federal Corporation's (the "Company") Form 10-K for the year ended December 31, 2023 ("2023 Form 10-K") should be referred to when reviewing interim financial statements. The unaudited consolidated results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or any other period. 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.

NOTE 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 Investments, Inc. ("SFINV") and Security Federal Insurance, Inc. ("SFINS"). SFINV was formed to hold investment securities and allow for better management of the securities portfolio. SFINS is an insurance agency offering auto, business, and home insurance. 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.

NOTE 3 - SUMMARY OF SIGNIFICANT 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, 2023 included in our 2023 Form 10-K. 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. There have been no significant changes to the application of significant accounting policies since December 31, 2023.

Recent Accounting Pronouncements

The following is a summary of recent authoritative pronouncements that could affect accounting, reporting, and disclosure of financial information by the Company:

In December 2022, the Financial Accounting Standards Board ("FASB") issued amendments to extend the period of time preparers can use the reference rate reform relief guidance under ASC Topic 848 from December 31, 2022, to December 31, 2024, to address the fact that all London Interbank Offered Rate ("LIBOR") tenors were not discontinued as of December 31, 2021, and some tenors would not be published until June 2023. Theamendments are effective immediately for all entities and are applied prospectively. These amendments did not have a material effect on the Company's consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting authorities are not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows.

NOTE 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 available to common shareholders by the weighted average number of common shares outstanding. Diluted EPS is computed similar to 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 September 30, 2024 or 2023; and therefore, no dilutive options were included in the calculation of diluted EPS for those periods. The following tables include a summary of the Company's basic EPS for the periods indicated.

Three Months Ended September 30,

2024

2023

Dollars and shares in thousands

Income (1)

Shares

EPS

Income (1)

Shares

EPS

Basic EPS

1,995

3,195

0.62

2,122

3,248

0.65

Nine Months Ended September 30,

2024

2023

Dollars and shares in thousands

Income (1)

Shares

EPS

Income (1)

Shares

EPS

Basic EPS

5,877

3,214

1.83

6,574

3,252

2.02

(1) Net income available to common shareholders

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 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 September 30, 2024 and 2023, the Company had no options outstanding and there was no activity during the three and nine months ended September 30, 2024 and 2023. At those dates, there were 50,000 options available for grants.

NOTE 6 - INVESTMENTS, AVAILABLE FOR SALE ("AFS")

AFS securities are recorded at fair market value. There was no allowance for credit losses for AFS securities as of September 30, 2024 and December 31, 2023. The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of AFS securities at the dates indicated were as follows:

September 30, 2024

Dollars in thousands

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Fair Value

Student Loan Pools

40,972

101

(258

)

40,815

Small Business Administration ("SBA") Bonds

71,519

417

(2,042

)

69,894

Tax Exempt Municipal Bonds

6,772

(592

)

6,180

Taxable Municipal Bonds

64,550

(9,333

)

55,217

Mortgage-Backed Securities ("MBS")

385,080

342

(23,325

)

362,097

Total AFS Securities

568,893

860

(35,550

)

534,203

	December 31, 2023
Dollars in thousands		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Student Loan Pools	$	51,022	$	72	$	(728	)	$	50,366
SBA Bonds		79,014		416		(2,677	)		76,753
Tax Exempt Municipal Bonds		21,501		643		(908	)		21,236
Taxable Municipal Bonds		64,669		-		(11,554	)		53,115
MBS		368,081		31		(31,942	)		336,170
Total AFS Securities	$	584,287	$	1,162	$	(47,809	)	$	537,640

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. The majority of the Bank's MBS are issued or guaranteed by an agency of the United States government such as Ginnie Mae, or by Government Sponsored Entities ("GSEs"), including Fannie Mae and Freddie Mac. Ginnie Mae MBS are backed by the full faith and credit of the United States government, while those issued by GSEs are not.

The amortized cost and fair value of AFS securities at September 30, 2024, 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 MBS are not due at a single maturity date, they are disclosed separately, rather than allocated over the maturity groupings below.

Dollars in thousands	*September 30, 2024*
AFS Securities:	*Amortized Cost*		*Fair Value*
One Year or Less	$	199		$	199
After One - Five Years		11,779			11,595
After Five - Ten Years		54,927			50,985
More Than Ten Years		116,908			109,327
MBS		385,080			362,097
Total AFS Securities	$	568,893		$	534,203

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The amortized cost and fair value of AFS securities pledged as collateral for certain deposit accounts, FHLB advances, FRB, and other borrowings were $488.3 million and $455.6 million at September 30, 2024, and $533.7 million and $490.5 million at December 31, 2023, respectively.

The Company received $13.7 million in gross proceeds from sales of AFS securities during the three and nine months ended September 30, 2024; and recognized gross gains of $408,000 and gross losses of $371,000 during those periods. There were no sales of AFS securities during 2023; and therefore, no proceeds from sales, gross gains or gross losses were recorded during the year ended December 31, 2023.

The following tables summarize gross unrealized losses and the related fair value, aggregated by investment category and length of time that individual AFS securities have been in a continuous unrealized loss position at the dates indicated.

	*September 30, 2024*
	*Less than 12 Months*		*12 Months or More*			*Total*
Dollars in thousands	*Fair Value*		*Unrealized Losses*			#	*Fair Value*	*Unrealized Losses*		#			*Fair Value*	*Unrealized Losses*
Student Loan Pools	$	8,325		$	(25	)	7	$	27,243		$	(233	)	26	$	35,568	$	(258	)
SBA Bonds		2,398			(26	)	4		27,364			(2,016	)	50		29,762		(2,042	)
Tax Exempt Municipal Bonds		-			-		-		6,180			(592	)	5		6,180		(592	)
Taxable Municipal Bonds		-			-		-		55,217			(9,333	)	59		55,217		(9,333	)
MBS		51,843			(215	)	16		279,757			(23,110	)	201		331,600		(23,325	)
	$	62,566		$	(266	)	27	$	395,761		$	(35,284	)	341	$	458,327	$	(35,550	)

	December 31, 2023
	Less than 12 Months		12 Months or More			Total
Dollars in thousands	Fair Value		Unrealized Losses			#	Fair Value	Unrealized Losses		#			Fair Value	Unrealized Losses
Student Loan Pools	$	377		$	(1	)	1	$	43,872		$	(727	)	34	$	44,249	$	(728	)
SBA Bonds		2,200			(5	)	4		39,151			(2,672	)	63		41,351		(2,677	)
Tax Exempt Municipal Bonds		-			-		-		12,965			(908	)	12		12,965		(908	)
Taxable Municipal Bonds		-			-		-		53,115			(11,554	)	59		53,115		(11,554	)
MBS		36,069			(434	)	30		292,864			(31,508	)	213		328,933		(31,942	)
	$	38,646		$	(440	)	35	$	441,967		$	(47,369	)	381	$	480,613	$	(47,809	)

At September 30, 2024 our AFS investment portfolio consisted of 500 individual AFS securities, 368 of which were in an unrealized loss position. At December 31, 2023, 416 individual AFS securities were in an unrealized loss position. The Company reviews its investment securities portfolio at least quarterly and more frequently when economic conditions warrant, assessing whether an allowance for credit loss is deemed necessary. Management's evaluation of those securities as of September 30, 2024is discussed below.

SBA Bonds - SBA securities are fully backed by the U.S. government. At September 30, 2024, there were 116AFS SBA Bonds, 54of which had unrealized losses. These unrealized losses related principally to changes in market interest rates. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company did not recognize the unrealized losses on these securities during the three and nine months ended September 30, 2024.

MBS - At September 30, 2024, approximately 77%of the AFS MBS held by the Company were issued or guaranteed by an agency of the U.S. government such as Ginnie Mae, or by GSEs, including Fannie Mae and Freddie Mac. Ginnie Mae MBS are backed by the full faith and credit of the U.S. government, while those issued by GSEs are not. At September 30, 2024, there were 170of these securities in an unrealized loss position. These unrealized losses are believed to be caused by the current interest rate environment. The contractual cash flows of those investments are guaranteed by an agency of the U.S. Government. Because the decline in market value is attributable to the current interest rate environment and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, unrealized losses on these securities were not recognized into income during the three and nine months ended September 30, 2024.

Also included in AFS MBS 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 U.S. government. At September 30, 2024, we held 57private label CMO securities with an amortized cost and fair value of $87.6 million and $83.5 million, respectively. At that date, 47of these securities had unrealized losses. Of the 47securities in a loss position, 36 were rated AA or higher by Moody's, Bloomberg, and/or S&P. In addition, each of the individual securities have credit enhancements further reducing potential realized losses. The unrealized losses on these securities are believed to be caused by the current interest rate environment. Because the decline in market value is attributable to the current interest rate environment and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, unrealized losses were not recognized into income during the three and nine months ended September 30, 2024.

Municipal Bonds - At September 30, 2024there were fivetax exempt municipal securities and 59taxable municipal securities that had unrealized losses. The Company believes the unrealized losses on these investments were caused by the interest rate environment and do not relate to the underlying credit quality of the issuers. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, unrealized losses were not recognized into income during the three and nine months ended September 30, 2024. Each of the municipal securities held was rated "A2" (Moody's) or "AA-" (S&P) or better.

Accrued interest receivable on AFS securities totaled $2.7million at September 30, 2024and was excluded from the estimate of credit losses.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 7 - INVESTMENTS, HELD TO MATURITY ("HTM")

HTM securities are recorded at amortized cost. The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of HTM securities at the dates indicated were as follows:

September 30, 2024

Dollars in thousands

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Fair Value

US Treasury Bonds

11,949

(57

)

11,892

FHLB Bond

1,000

Student Loan Pools

13,641

347

13,988

SBA Bonds

8,611

298

8,909

Taxable Municipal Bonds

970

)

962

MBS

101,680

350

(3,279

)

98,751

Total HTM Securities

137,851

995

(3,344

)

135,502

	December 31, 2023
Dollars in thousands		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
US Treasury Bonds	$	23,874	$	-	$	(278	)	$	23,596
FHLB Bond		1,000		-		-			1,000
Student Loan Pools		16,881		278		-			17,159
SBA Bonds		11,305		493		-			11,798
Taxable Municipal Bonds		962		-		(28	)		934
MBS		109,050		96		(5,093	)		104,053
Total HTM Securities	$	163,072	$	867	$	(5,399	)	$	158,540

At September 30, 2024, the amortized cost and fair value of HTM securities that were pledged as collateral for certain deposit accounts, FHLB advances and FRB and other borrowings were $99.1 million and $96.8million, compared to an amortized cost and fair value of $107.5 million and $103.8million at December 31, 2023respectively.

At September 30, 2024, HTM securities had a combined book value of $137.9 million and an average book yield of 4.8%, which was calculated by multiplying the carrying value of each HTM security by its yield and dividing the sum by the total carrying value. The following table includes a summary of the amortized cost and average book yield of HTM securities by contractual maturity at September 30, 2024. Since MBS do not have fixed maturity dates, they are disclosed separately.

Dollars in thousands		Carrying Value	Average Book Yield
HTM Securities:
Due in one year or less	$	11,949	3.49	%
Due after one year through five years		2,914	4.88	%
Due after five years through ten years		4,321	7.24	%
Due after ten years		16,987	7.18	%
MBS		101,680	4.39	%
Total HTM Securities	$	137,851	4.76	%

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

	*September 30, 2024*
	*Less than 12 Months*		*12 Months or More*			*Total*
Dollars in thousands	*Fair Value*		*Unrealized Losses*			*Fair Value*		*Unrealized Losses*	*Fair Value*			*Unrealized Losses*
US Treasury Bonds	$	-		$	-		$	11,892	$	(57	)		$	11,892	$	(57	)
Taxable Municipal Bonds		-			-			962		(8	)			962		(8	)
MBS		22,267			(71	)		47,561		(3,208	)			69,828		(3,279	)
	$	22,267		$	(71	)	$	60,415	$	(3,273	)		$	82,682	$	(3,344	)

	December 31, 2023
	Less than 12 Months		12 Months or More			Total
Dollars in thousands		Fair Value			Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
US Treasury Bonds	$	-		$	-		$	23,596	$	(278	)	$	23,596	$	(278	)
Taxable Municipal Bonds		-			-			934		(28	)		934		(28	)
MBS		40,732			(458	)		58,731		(4,635	)		99,463		(5,093	)
	$	40,732		$	(458	)	$	83,261	$	(4,941	)	$	123,993	$	(5,399	)

At September 30, 2024and December 31, 2023, 42and 55individual HTM securities were in a loss position, including 38 and 42 securities that were in a loss position for greater than 12 months, respectively. The Company believes, based on industry analyst reports and credit ratings, that the deterioration in value was attributable to changes in market interest rates and was not in the credit quality of the issuer. The Company has the ability and intent to hold these securities to maturity.

The estimate of expected credit losses on HTM securities is primarily based on the ratings assigned to the securities by debt rating agencies and the average of the annual historical loss rates associated with those ratings. The Company then multiplies those loss rates, as adjusted for any modifications to reflect current conditions and reasonable and supportable forecasts as considered necessary, by the remaining lives of each individual security to arrive at a lifetime expected loss amount. Additionally, private label CMO securities which are not explicitly or implicitly guaranteed by the U.S. government are evaluated utilizing underlying pool data such as historical loss rates, loan-to-value ratios and credit enhancement data.

At September 30, 2024, the Company held an amortized cost and fair value of $10.4million and $10.4 million in HTM private label CMO securities, compared to an amortized cost and fair value of $14.6million and $14.3 million at December 31, 2023, respectively. All MBS issued by government-sponsored corporations are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The state and local governments securities held by the Company are highly rated by major rating agencies.

As a result of the analysis, the allowance for credit losses for HTM securities was notconsidered to be material as of September 30, 2024 . The following table summarizes the amortized cost and credit ratings of our HTM securities that were considered to have greater than zeropercent credit loss probability at September 30, 2024 .

Dollars in thousands	*Amortized Cost*
Taxable Municipal Bond
AA	$	970
Total Taxable Municipal Bond	$	970
Private Label MBS
AAA	$	6,848
A		1,267
Not Rated		989
Total Private Label MBS	$	9,104

As of September 30, 2024, there were no HTM securities classified as either nonaccrual or 90 days or more past due and still accruing. Accrued interest receivable on HTM securities totaled $738,000 at September 30, 2024and was excluded from the estimate of credit losses.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 8 - LOANS RECEIVABLE, NET

Loans receivable, net, consisted of the following as of the dates indicated below:

Dollars in thousands	*September 30, 2024*		December 31, 2023
Real Estate Loans:
Construction	$	114,727		$	104,508
Residential Mortgage		200,532			172,883
Commercial		293,184			264,802
Commercial and Agricultural Loans		30,410			33,286
Consumer Loans:
Home Equity Lines of Credit ("HELOC")		36,145			34,497
Other Consumer		23,902			24,520
Total Loans Held for Investment, Gross		698,900			634,496
Less:
Allowance for Credit Losses		13,604			12,569
Deferred Loan Fees		237			365
		13,841			12,934
Total Loans Receivable, Net	$	685,059		$	621,562

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information regarding the borrowers' ability to pay off their loan in accordance with its terms. This information includes, but is not limited to, current financial and credit documentation, payment history, public information and current economic trends, among other factors. Risk ratings are used to rate the credit quality of loans for the purposes of determining the Bank's allowance for credit losses. The following definitions are used for credit quality risk ratings:

Pass - 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 credit losses.

Caution - Loans that do not currently expose the Company to sufficient risk to warrant adverse classification but possess weaknesses.

Special Mention - Loans that do not currently expose the Company to sufficient risk to warrant adverse classification but possess more weaknesses than Caution loans.

Substandard - Loans that 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.

Doubtful - Loans that have all the weaknesses of Substandard loans and those weaknesses make collection or liquidation highly questionable and improbable based on current conditions and values.

Loss - Loans that are considered uncollectible and of such little values that their continuance as assets is not warranted.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following tables present the Company's recorded investment in loans by credit quality indicators by year of origination as of September 30, 2024 and December 31, 2023.

September 30, 2024

Term Loans by Year of Origination

Dollars in thousands

2024

2023

2022

2021

2020

Prior

Revolving

Total

Construction Real Estate

Pass

31,021

21,607

13,526

13,764

975

1,115

5,347

87,355

Caution

8,871

3,186

10,769

441

360

246

23,906

Special Mention

1,452

1,483

Substandard

138

156

121

1,500

1,983

Total Construction Real Estate

39,923

24,931

24,295

14,361

1,129

4,427

5,661

114,727

Current Period Gross Write-Offs

Residential Real Estate

Pass

14,086

34,164

40,322

10,695

13,187

23,606

10,128

146,188

Caution

4,914

15,664

10,378

5,907

4,405

5,042

114

46,424

Special Mention

802

1,881

221

417

376

243

3,940

Substandard

957

744

2,279

3,980

Total Residential Real Estate

19,802

52,666

50,921

17,763

17,968

31,170

10,242

200,532

Current Period Gross Write-Offs

Commercial Real Estate

Pass

25,283

19,502

46,221

49,906

14,893

63,467

3,504

222,776

Caution

5,616

12,432

4,018

4,358

5,034

18,432

319

50,209

Special Mention

6,790

143

881

440

6,659

14,964

Substandard

326

192

401

4,316

5,235

Total Commercial Real Estate

37,689

32,077

51,446

54,896

20,328

92,874

3,874

293,184

Current Period Gross Write-Offs

Commercial and Agricultural

Pass

4,719

3,290

3,537

2,221

399

1,822

4,458

20,446

Caution

1,933

3,139

1,050

1,530

157

1,027

8,858

Special Mention

436

100

612

Substandard

181

102

494

Total Commercial and Agricultural

6,652

7,046

4,689

3,813

421

2,109

5,680

30,410

Current Period Gross Write-Offs

HELOC

Pass

28,502

Caution

6,595

Special Mention

536

Substandard

512

Total HELOC

36,145

Current Period Gross Write-Offs

Other Consumer

Pass

4,259

3,983

2,597

926

407

4,985

17,243

Caution

1,970

1,699

1,417

540

258

279

6,262

Special Mention

173

Substandard

105

224

Total Other Consumer

6,293

5,767

4,099

1,571

695

191

5,286

23,902

Current Period Gross Write-Offs

143

188

Total Loans

110,359

122,487

135,450

92,404

40,541

130,771

66,888

698,900

Total Current Period Gross Write-Offs

164

270

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

	*December 31, 2023*
	*Term Loans by Year of Origination*
Dollars in thousands	*2023*		*2022*			*2021*		*2020*	*2019*		*Prior*			*Revolving*		*Total*
Construction Real Estate
Pass	$	31,811		$	21,125		$	15,431	$	1,518		$	617		$	1,322	$	5,089	$	76,913
Caution		4,073			14,381			1,192		3,148			275			333		150		23,552
Special Mention		-			29			-		-			1,072			457		-		1,558
Substandard		143			310			333		133			1,474			92		-		2,485
Total Construction Real Estate		36,027			35,845			16,956		4,799			3,438			2,204		5,239		104,508
Current Period Gross Write-Offs		-			-			-		-			-			1		-		1
Residential Real Estate
Pass		28,352			36,426			12,290		14,164			3,991			22,239		9,708		127,170
Caution		15,050			10,397			5,954		1,497			1,546			4,134		149		38,727
Special Mention		2,291			158			430		394			-			190		-		3,463
Substandard		574			-			618		-			48			2,283		-		3,523
Total Residential Real Estate		46,267			46,981			19,292		16,055			5,585			28,846		9,857		172,883
Current Period Gross Write-Offs		-			-			-		-			-			-		-		-
Commercial Real Estate
Pass		12,702			48,077			49,377		16,593			17,806			52,848		2,375		199,778
Caution		16,951			4,880			4,212		5,197			12,831			8,468		20		52,559
Special Mention		213			900			452		408			-			5,485		100		7,558
Substandard		-			342			57		-			-			4,508		-		4,907
Total Commercial Real Estate		29,866			54,199			54,098		22,198			30,637			71,309		2,495		264,802
Current Period Gross Write-Offs		-			-			-		-			-			-		-		-
Commercial and Agricultural
Pass		4,763			5,991			6,672		643			348			2,128		4,205		24,750
Caution		3,732			1,131			1,715		67			16			207		816		7,684
Special Mention		458			22			100		9			7			90		-		686
Substandard		-			-			-		1			-			62		103		166
Total Commercial and Agricultural		8,953			7,144			8,487		720			371			2,487		5,124		33,286
Current Period Gross Write-Offs		-			-			16		-			-			-		-		16
HELOC
Pass		-			-			-		-			-			-		27,192		27,192
Caution		-			-			-		-			-			-		6,290		6,290
Special Mention		-			-			-		-			-			-		401		401
Substandard		-			-			-		-			-			-		614		614
Total HELOC		-			-			-		-			-			-		34,497		34,497
Current Period Gross Write-Offs		-			-			-		-			-			-		1		1
Other Consumer
Pass		6,543			3,874			1,580		740			190			63		4,922		17,912
Caution		2,316			1,975			911		468			137			51		295		6,153
Special Mention		77			123			-		-			-			-		6		206
Substandard		67			36			73		48			10			6		9		249
Total Other Consumer		9,003			6,008			2,564		1,256			337			120		5,232		24,520
Current Period Gross Write-Offs		-			23			17		17			-			11		89		157
Total Loans	$	130,116		$	150,177		$	101,397	$	45,028		$	40,368		$	104,966	$	62,444	$	634,496
Total Current Period Gross Write-Offs	$	-		$	23		$	33	$	17		$	-		$	12	$	90	$	175

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Past Due and Nonaccrual Loans

The tables below present an age analysis of past due balances by loan category at the dates indicated.

September 30, 2024

30-59 Days

60-89 Days

90 Days or

Total Loans

Dollars in thousands

Past Due

More Past Due

Total Past Due

Current

Receivable

Construction Real Estate

329

116

445

114,282

114,727

Residential Real Estate

617

1,942

187

2,746

197,786

200,532

Commercial Real Estate

206

401

647

1,254

291,930

293,184

Commercial and Agricultural

695

275

1,008

29,402

30,410

HELOC

208

285

35,860

36,145

Other Consumer

325

487

23,415

23,902

Total

2,380

2,508

1,337

6,225

692,675

698,900

	December 31, 2023
	30-59 Days		60-89 Days			90 Days or							Total Loans
Dollars in thousands	Past Due		Past Due			More Past Due		Total Past Due	Current		Receivable
Construction Real Estate	$	971		$	-		$	643	$	1,614		$	102,894	$	104,508
Residential Real Estate		1,103			47			240		1,390			171,493		172,883
Commercial Real Estate		500			519			336		1,355			263,447		264,802
Commercial and Agricultural		81			1			2		84			33,202		33,286
HELOC		347			64			21		432			34,065		34,497
Other Consumer		273			138			46		457			24,063		24,520
Total	$	3,275		$	769		$	1,288	$	5,332		$	629,164	$	634,496

At September 30, 2024 and December 31, 2023, the Company did nothave 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 nonaccrual loans by category at the dates indicated.

	*September 30, 2024*		December 31, 2023
Dollars in thousands	*Nonaccrual Loans with No Allowance*		*Nonaccrual Loans with an Allowance*			*Total Nonaccrual Loans*		Nonaccrual Loans with No Allowance	Nonaccrual Loans with an Allowance		Total Nonaccrual Loans
Construction Real Estate	$	1,025		$	-		$	1,025	$	868		$	-	$	868
Residential Real Estate		1,099			-			1,099		1,307			-		1,307
Commercial Real Estate		3,772			-			3,772		4,125			-		4,125
Commercial and Agricultural		342			-			342		50			-		50
HELOC		435			-			435		413			-		413
Other Consumer		96			-			96		62			-		62
Total Nonaccrual Loans	$	6,769		$	-		$	6,769	$	6,825		$	-	$	6,825

The Company did not recognize any interest income on nonaccrual loans during the nine months ended September 30, 2024 and 2023.

The following table represents the accrued interest receivables written off by reversing interest income during the three and nine months ended September 30, 2024 and 2023:

	*For the Three Months Ended September 30,*
Dollars in thousands	*2024*		2023
Residential Real Estate	$	4		$	-
Other Consumer		-			7
Total	$	4		$	7

	*For the Nine Months Ended September 30,*
Dollars in thousands	*2024*		2023
Construction Real Estate	$	-		$	3
Residential Real Estate		12			7
Commercial Real Estate		6			1
Commercial and Agricultural		5			1
Other Consumer		2			2
Total	$	25		$	14

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Allowance for Credit Losses

The following tables show the activity in the allowance for credit losses on loans by category for the three and nine months ended September 30, 2024 and 2023:

	*Three Months Ended September 30, 2024*
	*Real Estate*			*Commercial and*			*Consumer*
Dollars in thousands	*Construction*			*Residential*			*Commercial*		*Agricultural*	*HELOC*		*Other*			*Total*
Beginning Balance	$	2,006			$	4,010		$	4,864	$	731		$	762		$	585		$	12,958
(Reversal of) Provision for Credit Losses		(11	)			92			523		27			(8	)		102			725
Charge-Offs		-				-			-		-			-			(113	)		(113	)
Recoveries		-				13			6		8			-			7			34
Ending Balance	$	1,995			$	4,115		$	5,393	$	766		$	754		$	581		$	13,604

	Three Months Ended September 30, 2023
	Real Estate			Commercial and			Consumer
Dollars in thousands	Construction			Residential			Commercial		Agricultural		HELOC			Other			Total
Beginning Balance	$	2,201			$	3,261		$	4,427		$	1,102			$	654		$	638		$	12,283
(Reversal of) Provision for Credit Losses		(55	)			236			(117	)		(76	)			1			61			50
Charge-Offs		-				-			-			-				-			(53	)		(53	)
Recoveries		4				31			5			7				11			10			68
Ending Balance	$	2,150			$	3,528		$	4,315		$	1,033			$	666		$	656		$	12,348

	*Nine Months Ended September 30, 2024*
	*Real Estate*		*Commercial and*			*Consumer*
Dollars in thousands	*Construction*		*Residential*			*Commercial*		*Agricultural*	*HELOC*			*Other*			*Total*
Beginning Balance	$	1,828		$	3,551		$	5,052	$	808			$	731		$	599		$	12,569
Provision for Credit Losses		167			522			322		18				22			149			1,200
Charge-Offs		-			-			-		(82	)			-			(188	)		(270	)
Recoveries		-			42			19		22				1			21			105
Ending Balance	$	1,995		$	4,115		$	5,393	$	766			$	754		$	581		$	13,604

	Nine Months Ended September 30, 2023
	Real Estate			Commercial and			Consumer
Dollars in thousands	Construction			Residential			Commercial		Agricultural		HELOC			Other			Total
Beginning Balance	$	2,323			$	2,125		$	4,804		$	874			$	599		$	452		$	11,177
Adjustment to Allowance for Credit Loss on Adoption of ASU 2016-13		264				462			(340	)		112				108			179			785
(Reversal of) Provision for Credit Losses		(449	)			896			(164	)		44				(76	)		125			376
Charge-Offs		(1	)			-			-			(16	)			(2	)		(124	)		(143	)
Recoveries		13				45			15			19				37			24			153
Ending Balance	$	2,150			$	3,528		$	4,315		$	1,033			$	666		$	656		$	12,348

Allowance for Credit Losses and Collateral Dependent Loans

The Company has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following provides more detail about the types of collateral that secure collateral dependent loans:

•

Commercial real estate loans can be secured by either owner occupied commercial real estate or non-owner occupied investment commercial real estate. Typically, owner occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies. Non-owner occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate.

	•	Construction real estate loans are typically secured by commercial and residential lots.
	•	Commercial and agricultural business loans are primarily secured by business equipment, furniture and fixtures, inventory and receivables.
	•	Residential real estate loans are typically secured by first mortgages, and in some cases could be secured by a second mortgage.

•

Home equity lines of credit are generally secured by second mortgages on residential real estate property.

•

Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property. Some consumer loans are unsecured and have no underlying collateral.

The following table summarizes the amortized cost of collateral dependent loans at the dates indicated:

Dollars in thousands	*September 30, 2024*		December 31, 2023
Construction Real Estate	$	725		$	643
Residential Real Estate		286			668
Commercial Real Estate		3,532			3,567
HELOC		303			332
Total	$	4,846		$	5,210

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Modifications to Borrowers Experiencing Financial Difficulty

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

Loan modifications made for borrowers experiencing financial difficulty typically have their impact already factored into the allowance for credit losses. This is due to the measurement methodologies used in estimating the allowance. Consequently, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain of its real estate loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. As such multiple types of modifications may have been made on the same loan within the current reporting period each much be reported. The combination is at least two of the following: a term extension, principal forgiveness, and interest rate reduction. Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

The Company had two modified loans with a combined balance of $323,000 at September 30, 2024, compared to two modified loans with a combined balance of $342,000 at December 31, 2023. The Company did notmodify any loans to borrowers experiencing financial difficulty during the nine months ended September 30, 2024or 2023.

As of September 30, 2024 and 2023, there were no loans modified with borrowers experiencing financial difficulty for which there was a payment default within 12 months of the restructuring date. The Company considers any loan 30 days or more past due to be in default.

Allowance for Credit Losses - Unfunded Commitments

The Company maintains an allowance for credit losses - unfunded commitments for credit exposures such as unfunded balances for existing lines of credit and commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e., commitment cannot be canceled at any time). The allowance for credit losses - unfunded commitments is adjusted through the provision for (reversal of) credit losses. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans. The allowance for credit losses - unfunded commitments of $749,000 and $859,000 at September 30, 2024 and December 31, 2023, respectively, is separately classified on the balance sheet within "Other Liabilities."

The following tables present the balance and activity in the allowance for credit losses - unfunded loan commitments for the three and nine months ended September 30, 2024 and 2023.

	*For the Three Months Ended September 30,*
Allowance for Credit Losses - Unfunded Commitments (Dollars in thousands)	*2024*			2023
Beginning Balance	$	894			$	1,109
Reversal of provision for unfunded commitments		(145	)			(50	)
Ending Balance	$	749			$	1,059

	*For the Nine Months Ended September 30,*
Allowance for Credit Losses - Unfunded Commitments (Dollars in thousands)	*2024*			2023
Beginning Balance	$	859			$	-
Adjustment for adoption of ASU 2016-13		-				1,214
Reversal of provision for unfunded commitments		(110	)			(155	)
Ending Balance	$	749			$	1,059

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 9 - DEPOSITS

Deposits outstanding at the dates indicated are summarized below by account type as follows:

Deposit Account Type (Dollars in thousands)	*September 30, 2024*		December 31, 2023
Checking	$	435,410		$	473,936
Money Market		434,082			401,992
Savings		84,942			88,319
Certificates of Deposit		302,880			230,750
Total	$	1,257,314		$	1,194,997

The Company had $5.2 million and $5.0 million in brokered checking and money market depositsat September 30, 2024and December 31, 2023, respectively, and $25.8 million and $6.5 million in brokered certificates of deposit at both September 30, 2024 and December 31, 2023. In addition, $75,000 and $57,000, in deposit account overdrafts were reclassified to loans at September 30, 2024 and December 31, 2023, respectively.

Certificates of deposits that met or exceeded the FDIC insurance limit of $250,000 were $65.6 million and $50.2 million at September 30, 2024 and December 31, 2023, respectively. All deposits that met or exceeded the FDIC insurance limit totaled $330.6 million and $327.7 million at September 30, 2024 and December 31, 2023, respectively.

The amounts and scheduled maturities of certificates of deposit at the dates indicated were as follows:

Dollars in thousands	*September 30, 2024*		December 31, 2023
Within 1 Year	$	222,042		$	198,325
After 1 Year, Within 2 Years		57,651			16,568
After 2 Years, Within 3 Years		14,629			9,487
After 3 Years, Within 4 Years		3,487			2,636
After 4 Years, Within 5 Years		4,494			3,734
Thereafter		577			-
Total Certificates of Deposit	$	302,880		$	230,750

NOTE 10 - BORROWINGS

The Company had $15.0 million in outstanding borrowings under the Federal Reserve discount window and $50 million under the Federal Reserve Bank Term Funding Program ("BTFP") with a weighted average borrowing rate of 4.82% at September 30, 2024compared to $119.2 million in outstanding borrowings under the BTFP with a weighted average borrowing rate of 4.60%at December 31, 2023. During the first quarter of 2023, the Company elected to participate in the BTFP, allowing the Company to refinance its existing borrowings from the FRB discount window to receive a lower fixed rate. Advances made under the BTFP were for up to one year and were extended at the one year overnight index swap ("OIS") rate as of the day the advance is made plus 10 basis points. The interest rate was fixed for the term of the advance on the day the advance was made. To determine the rate, the BTFP used the fixed OIS rate based on the effective federal funds ratefor a one-year maturity. Effective January 24, 2024, the FRB announced that future advances under the BTFP through its expiration on March 11, 2024, would be no lower than the interest rate on reserve balances in effect on the date the advance is made. Depository institutions may borrow from the FRB discount window for periods as long as 90 days, and borrowings are prepayable and renewable by the borrower daily. At September 30, 2024, the Company had pledged as collateral for these borrowings investment securities with an amortized cost and fair value of $384.8 million and $361.4 million, compared to an amortized cost and fair value of $381.0 million and $350.6 million at December 31, 2023, respectively.

During the third quarter of 2023, the Company entered the FRB's Borrower-In-Custody ("BIC") program, which allows for the pledging of various loan types to secure FRB borrowings. As of September 30, 2024, the Company had pledged loan collateral for FRB borrowings with an amortized cost and collateral value of $88.3 million and $67.6 million at September 30, 2024, and $93.5 million and $65.5 million at December 31, 2023, respectively. Borrowing capacity provided by pledged loan collateral is included in the FRB discount window availability.

The Company had $24.3 million and $19.2million in other borrowings at September 30, 2024and December 31, 2023, respectively. These borrowings consist of short-term repurchase agreements with certain commercial demand deposit customers for sweep accounts. The repurchase agreements typically mature within one to three days and the interest rate paid on these borrowings floats monthly with money market type rates. The interest rate paid on the repurchase agreements was 1.49% at both September 30, 2024 and December 31, 2023. Collateral pledged by the Company for these repurchase agreements consisted of investments with a combined amortized cost and fair value of $43.7 million and $41.7million at September 30, 2024, and $53.6 million and $44.1 million at December 31, 2023, respectively.

There were no outstanding FHLB advances at September 30, 2024and December 31, 2023. FHLB advances are secured by a blanket collateral agreement with the FHLB by pledging the Company's portfolio of residential first mortgage loans and investment securities. The Company's total pledged collateral for FHLB advances had an amortized cost and fair value of $42.8 million and $41.3 million at September 30, 2024, and $53.6million and $44.1million at December 31, 2023, respectively.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 11 - SUBORDINATED DEBENTURES

Junior Subordinated Debentures

In September 2006, Security Federal Statutory Trust (the "Trust"), issued and sold fixed and floating rate capital securities of the Trust (the "Capital Securities"). The Trust used the net proceeds from the sale of the Capital Securities to purchase a like amount of junior subordinated debentures (the "Debentures") of the Company which are reported on the Consolidated Balance Sheets as junior subordinated debentures. As a result of the discontinuation of LIBOR, effective June 30, 2023, the Capital Securities transitioned from its floating rate of three month LIBOR plus 170 basis points to a replacement floating rate of three month Secured Overnight Financing Rate ("SOFR") as adjusted by the relevant spread adjustment of 0.26161 plus 170 basis points. At September 30, 2024, this was a rate per annum equal to 6.91%. As of December 31, 2023, the Capital Securities accrued and paid distributions at a floating rate of three month LIBOR plus 170 basis points which was a rate per annum equal to 7.35%.

The distribution rate payable on the Capital Securities is cumulative and payable quarterly in arrears. The Capital Securities mature or are mandatorily redeemable upon maturity on December 15, 2036, or upon earlier optional redemption as provided in the indenture. The Company has had the right to redeem the Capital Securities in whole or in part since September 15, 2011.

Subordinated Debentures

In November 2019, the Company sold and issued to certain institutional investors $17.5 million in aggregate principal amount of 5.25% fixed-to-floating rate subordinated notes due 2029 (the "10-Year Notes") and $12.5 million in aggregate principal amount of 5.25% fixed-to-floating rate subordinated notes due 2034 (the "15-Year Notes", and together with the 10-Year Notes, the "Notes").

The 10-Year Notes have a stated maturity of November 22, 2029, and bear interest at a fixed rate of 5.25% per year, from and including November 22, 2019 but excluding November 22, 2024. In accordance with the terms of the 10-Year Notes, from and including November 22, 2024 to but excluding the maturity date or early redemption date, the interest rate on the 10-Year Notes shall reset semi-annually to an interest rate equal to the then-current three-month LIBOR rate plus 369 basis points.

The 15-Year Notes have a stated maturity of November 22, 2034, and bear interest at a fixed rate of 5.25% per year, from and including November 22, 2019 but excluding November 22, 2029. In accordance with the terms of the 15-Year Notes, from and including November 22, 2029 to but excluding the maturity date or early redemption date, the interest rate on the 15-Year Notes shall reset semi-annually to an interest rate equal to the then-current three-month LIBOR rate plus 357 basis points.

As a result of the discontinuation of LIBOR effective June 30, 2023, the Company is currently in the process of determining an appropriate benchmark replacement for LIBOR on the Notes. The Company expects the replacement benchmark to be materially consistent with the three-month LIBOR.

The Notes are payable semi-annually in arrears on June 1 and December 1 of each year commencing June 1, 2020.

The Notes are not subject to redemption at the option of the holder and may be redeemed by the Company only under certain limited circumstances prior to November 22, 2024, with respect to the 10-Year Notes, and November 22, 2029, with respect to the 15-Year Notes. The Company may redeem the 10-Year Notes and the 15-Year Notes at its option, in whole at any time, or in part from time to time, on or after November 22, 2024 and November 22, 2029, respectively. The Notes are unsecured, subordinated obligations of the Company and rank junior in right to payment to the Company's current and future senior indebtedness, and each Note is equal in right to payment with respect to the other Notes.

The Notes have been structured to qualify as Tier 2 capital for the Company under applicable regulatory guidelines. The Company used the net proceeds from the sale of the Notes to fund the redemption of the convertible senior debentures and for general corporate purposes to support future growth.

During the year ended December 31, 2022 the Company repurchased $1.0 million in principal of the 10-Year Notes and $2.5 million in principal of the 15-Year Notes, leaving an aggregate remaining principal balance of $16.5 million and $10.0 million, respectively.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 12 - REGULATORY MATTERS

The Bank, as a state-chartered, federally insured savings bank, is subject to the capital requirements established by the FDIC. Under the FDIC's capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.

The Company is a bank holding company registered with the Federal Reserve. Bank holding companies are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve. For a bank holding company with less than $3.0 billion in assets, the capital guidelines apply on a bank only basis and the Federal Reserve expects the holding company's subsidiary banks to be well-capitalized under the prompt corrective action regulations.

Based on its capital levels at September 30, 2024, the Bank exceeded all regulatory capital requirements as of that date. Consistent with the Bank's goals to operate a sound and profitable organization, it is the Bank's policy to maintain a "well-capitalized" status under the regulatory capital categories of the FDIC. Based on capital levels at September 30, 2024, the Bank was considered "well-capitalized" under applicable regulatory requirements. Management monitors the capital levels to provide for current and future business opportunities and to maintain the Bank's "well-capitalized" status.

The tables below provide the Bank's regulatory capital requirements and actual results at the dates indicated.

	*Actual*		*For Capital Adequacy*		*To Be "Well-Capitalized"*
	*Amount*			*Ratio*		*Amount*		*Ratio*	*Amount*			*Ratio*
September 30, 2024	*(Dollars in thousands)*
Tier 1 Risk-Based Core Capital (To Risk Weighted Assets)	$	155,830			18.0	%	$	52,073		6.0	%		$	69,431	8.0	%
Total Risk-Based Capital (To Risk Weighted Assets)		166,722			19.2	%		69,431		8.0	%			86,789	10.0	%
Common Equity Tier 1 Capital (To Risk Weighted Assets)		155,830			18.0	%		39,055		4.5	%			56,413	6.5	%
Tier 1 Leverage (Core) Capital (To Adjusted Tangible Assets)		155,830			10.3	%		60,708		4.0	%			75,885	5.0	%

December 31, 2023
Tier 1 Risk-Based Core Capital (To Risk Weighted Assets)	$	150,129			18.2	%	$	49,391		6.0	%		$	65,854	8.0	%
Total Risk-Based Capital (To Risk Weighted Assets)		160,457			19.5	%		65,854		8.0	%			82,318	10.0	%
Common Equity Tier 1 Capital (To Risk Weighted Assets)		150,129			18.2	%		37,043		4.5	%			53,506	6.5	%
Tier 1 Leverage (Core) Capital (To Adjusted Tangible Assets)		150,129			9.8	%		61,076		4.0	%			76,345	5.0	%

In addition to the minimum capital requirements, the Bank must maintain a capital conservation buffer, which consists of additional Common Equity Tier 1 capital greater than 2.5% of risk weighted assets above the required minimum levels to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses. At September 30, 2024, the Bank's conservation buffer was 11.2%.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS

GAAP requires the Company to disclose fair value of financial instruments measured at amortized cost on the balance sheet and to measure that fair value using an exit price notion, the price that would be received for an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date under current market conditions. Accounting guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity's own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). The following three levels of inputs may be used to measure fair value:

Level 1 -

Quoted Market Price in Active Markets

Valuation is based upon quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as U.S. Treasuries and money market funds.

Level 2 -

Significant Other Observable Inputs

Valuation is based upon quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments, mortgage-backed securities, municipal bonds, corporate debt securities and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes certain derivative contracts.

Level 3 -

Significant Unobservable Inputs

Valuation is generated from model-based techniques that use at least one significant assumption based on unobservable inputs for the asset or liability, which are typically based on an entity's own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The following is a description of the valuation methodologies used for assets and liabilities recorded at fair value.

AFS Investment Securities

AFS securities are recorded at fair value on a recurring basis. At September 30, 2024, the Company's investment portfolio was comprised of student loan pools, government and agency bonds, MBS issued by government agencies or GSEs, private label CMO securities and municipal securities. Fair value measurement is based upon prices obtained from third party pricing services that use independent pricing models which rely on a variety of factors including reported trades, broker/dealer quotes, benchmark yields, economic and industry events and other relevant market information. As a result, these securities are classified as Level 2.

Mortgage Loans Held for Sale

The Company originates fixed rate residential loans on a servicing released basis in the secondary market. Loans closed but not yet settled with the FHLMC or other investors are carried in the Company's loans held for sale portfolio. These loans are fixed rate residential loans that have been originated in the Company's name and have closed. Virtually all these loans have commitments to be purchased by investors and the majority of these loans were locked in by price with the investors on the same day or shortly thereafter that the loan was locked in with the Company's customers. Therefore, these loans present very little market risk for the Company. The Company usually delivers a commitment to, and receives funding from, the investor within 30 days. Commitments to sell these loans to the investor are considered derivative contracts and are sold to investors on a "best efforts" basis. The Company is not obligated to deliver a loan or pay a penalty if a loan is not delivered to the investor. As a result of the short-term nature of these derivative contracts, the fair value of the mortgage loans held for sale in most cases is the same as the value of the loan amount at its origination. These loans are classified as Level 2.

Land Held for Sale

Land held for sale is reported at the lower of the carrying amount or fair value less costs to sell. Fair value is based upon independent market prices, appraised values of the collateral or management's estimation of the value of the collateral less estimated selling costs. The Company records land held for sale as nonrecurring Level 3.

Collateral Dependent Loans

The Company does not record loans held for investment at fair value on a recurring basis. However, from time to time, the Company designates individually evaluated loans with higher risk as collateral dependent loans and an allowance for credit losses is established as necessary. Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses. Under the current expected credit losses, or CECL, methodology for collateral dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for estimated costs to sell, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Fair value is estimated using one of the following methods: fair value of the collateral less estimated costs to sell, discounted cash flows, or market value of the loan based on similar debt. The fair value of the collateral less estimated costs to sell is the most frequently used method. Typically, the Company reviews the most recent appraisal and if it is over 24 months old will request a new third party appraisal. Depending on the particular circumstances surrounding the loan, including the location of the collateral, the date of the most recent appraisal and the value of the collateral relative to the recorded investment in the loan, management may order an independent appraisal immediately or, in some instances, may elect to perform an internal analysis. Specifically, as an example, in situations where the collateral on a nonperforming commercial real estate loan is out of the Company's primary market area, management would typically order an independent appraisal immediately, at the earlier of the date the loan becomes nonperforming or immediately following the determination that the loan is collateral dependent. However, as a second example, on a nonperforming commercial real estate loan where management is familiar with the property and surrounding areas and where the original appraisal value far exceeds the recorded investment in the loan, management may perform an internal analysis whereby the previous appraisal value would be reviewed and adjusted for current conditions including recent sales of similar properties in the area and any other relevant economic trends. These valuations are reviewed at a minimum on a quarterly basis.

Those collateral dependent loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At September 30, 2024, all collateral dependent loans were evaluated based on the fair value of the collateral. Loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. The Company records collateral dependent loans as nonrecurring Level 3.

Other Real Estate Owned

Fair value adjustments to OREO are recorded at the lower of the carrying amount of the loan or the fair value of the collateral, less selling costs. Any write-downs based on the asset's fair value at the date of acquisition are charged to the allowance for credit losses. After foreclosure, management periodically performs valuations such that the real estate is carried at the lower of its new cost basis or fair value, net of estimated costs to sell. Foreclosed assets are recorded as nonrecurring Level 3.

The table below presents the balances of assets measured at fair value on a recurring basis at the dates indicated.

	*September 30, 2024*		December 31, 2023
Dollars in thousands	*Level 1*		*Level 2*			*Level 3*		Level 1	Level 2		Level 3
Student Loan Pools	$	-		$	40,815		$	-	$	-		$	50,366	$	-
SBA Bonds		-			69,894			-		-			76,753		-
Tax Exempt Municipal Bonds		-			6,180			-		-			21,236		-
Taxable Municipal Bonds		-			55,217			-		-			53,115		-
MBS		-			362,097			-		-			336,170		-
Total	$	-		$	534,203		$	-	$	-		$	537,640	$	-

There were no liabilities measured at fair value on a recurring basis at September 30, 2024 or December 31, 2023.

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. The tables below present assets measured at fair value on a nonrecurring basis at the dates indicated, aggregated by the level in the fair value hierarchy within which those measurements fall.

September 30, 2024

Assets (Dollars in thousands):

Level 1

Level 2

Level 3

Total

Mortgage Loans Held For Sale

1,649

Collateral Dependent Loans

4,846

Land Held for Sale

938

Total

1,649

5,784

7,433

	December 31, 2023
Assets (Dollars in thousands):	Level 1		Level 2			Level 3		Total
Mortgage Loans Held For Sale	$	-		$	967		$	-	$	967
Collateral Dependent Loans		-			-			5,210		5,210
Land Held for Sale		-			-			938		938
Total	$	-		$	967		$	6,148	$	7,115

There were no liabilities measured at fair value on a nonrecurring basis at September 30, 2024 or December 31, 2023.

For Level 3 assets measured at fair value on a recurring or non-recurring basis at the dates indicated, the significant unobservable inputs used in the fair value measurements were as follows:

			*Range of Inputs*
Level 3 Assets	*Valuation Technique*	*Significant Unobservable Inputs*	*September 30, 2024*		December 31, 2023
Land Held for Sale	Appraised Value/Comparable Sales	Discounts to appraised values for estimated holding or selling costs			10%	10%
Collateral Dependent Loans	Appraised Value	Discounts to appraised values for estimated holding and/or selling costs or age of appraisal	10%	-	12%	10% - 12%

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For assets and liabilities not presented on the balance sheet at fair value, the following methods are used to determine fair value:

Cash and Cash Equivalents-The carrying amount of these financial instruments approximates fair value. All mature within 90 days and do not present unanticipated credit concerns.

Certificates of Deposit with Other Banks-Fair value is based on market prices for similar assets.

HTM Securities-HTM securities are valued at quoted market prices or dealer quotes.

Loans Receivable, Net-The fair value of loans is estimated using an exit price notion. The exit price notion uses a discounted cash flows technique to calculate the present value of expected future cash flows for a financial instrument and incorporates other factors such as enhanced credit risk, illiquidity risk and market factors that sometimes exist in exit prices in dislocated markets. The credit risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction. The Company's loan portfolio is initially fair valued using a segmented approach. The Company divides its loan portfolio into the following categories: construction, residential mortgage, commercial real estate, other commercial, HELOCs and other consumer loans. The results are then adjusted to account for credit risk as described above. A further credit risk discount must be applied using a discounted cash flow model to compensate for illiquidity risk, based on certain assumptions included within the discounted cash flow model, primarily the use of discount rates that better capture inherent credit risk over the lifetime of a loan. This consideration of enhanced credit risk provides an estimated exit price for the Company's loan portfolio. For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values approximate carrying values.

FHLB Stock-The fair value approximates the carrying value.

Deposits-The fair value of demand deposits, savings accounts, and money market accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposits is estimated by discounting the future cash flows using rates currently offered for deposits of similar remaining maturities.

FHLB Advances and Borrowings from the FRB-Fair value is estimated using discounted cash flows with current market rates for borrowings with similar terms. The Company had no outstanding FHLB advances as of September 30, 2024 or December 31, 2023.

Other Borrowed Money-The carrying value of these short term borrowings approximates fair value.

Subordinated Debentures-The fair value is estimated by discounting the future cash flows using the current rates at which similar debenture offerings with similar terms and maturities would be issued by similar institutions. As discount rates are based on current debenture rates as well as management estimates, the fair values presented may not be indicative of the value negotiated in an actual sale.

Junior Subordinated Debentures-The carrying value of junior subordinated debentures approximates fair value.

The following tables provide a summary of the carrying value and estimated fair value of the Company's financial instruments at the dates indicated presented in accordance with the applicable accounting guidance.

September 30, 2024

Carrying

Fair Value

Amount

Total

Level 1

Level 2

Level 3

Financial Assets:

(Dollars in thousands)

Cash and Cash Equivalents

132,376

Certificates of Deposits with Other Banks

2,350

AFS Securities

534,203

HTM Securities

137,851

135,502

Loans Receivable, Net

685,059

681,702

FHLB Stock

1,089

Financial Liabilities:

Deposits:

Checking, Savings & Money Market Accounts

954,434

Certificates of Deposits

302,880

303,396

Borrowings from FRB

65,000

65,042

Other Borrowed Money

24,323

Subordinated Debentures

26,500

23,798

Junior Subordinated Debentures

5,155

December 31, 2023	Carrying		Fair Value
	Amount		Total			Level 1		Level 2	Level 3
Financial Assets:	(Dollars in thousands)
Cash and Cash Equivalents	$	128,284		$	128,284		$	128,284	$	-	$	-
Certificates of Deposits with Other Banks		2,350			2,350			-		2,350		-
AFS Securities		537,640			537,640			-		537,640		-
HTM Securities		163,072			158,540			-		158,540		-
Loans Receivable, Net		621,562			610,410			-		-		610,410
FHLB Stock		922			922			922		-		-
Financial Liabilities:
Deposits:
Checking, Savings & Money Market Accounts	$	964,247		$	964,247		$	964,247	$	-	$	-
Certificates of Deposits		230,750			229,278			-		229,278		-
Borrowings from FRB		119,200			118,926			118,926		-		-
Other Borrowed Money		19,180			19,180			19,180		-		-
Subordinated Debentures		26,500			23,036			-		23,036		-
Junior Subordinated Debentures		5,155			5,155			-		5,155		-

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

At September 30, 2024, the Company had $148.1 million in off-balance sheet financial commitments compared to $161.3 million at December 31, 2023. These commitments are to originate loans and unused consumer lines of credit and credit card lines. Because these obligations are based on current market rates, if funded, the original principal amount is considered a reasonable estimate of fair value. Fair value estimates are made on a specific date, based on relevant market data and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale the Company's entire holdings of a particular financial instrument.

Because no active market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, current interest rates and prepayment trends, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in any of these assumptions used in calculating fair value would also significantly affect the estimates. Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, the Company has significant assets and liabilities that are not considered financial assets or liabilities including deposit franchise values, loan servicing portfolios, deferred tax liabilities, and premises and equipment.

In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates. The Company has used management's best estimate of fair value on the above assumptions. Thus, the fair values presented may not be the amounts which could be realized in an immediate sale or settlement of the instrument. In addition, any income taxes or other expenses that would be incurred in an actual sale or settlement are not taken into consideration in the fair value presented.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 14 - NON-INTEREST INCOME

Revenue Recognition - In accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606), revenues are recognized when control of promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation.

The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services that are promised within each contract and identifies those that contain performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Service Fees on Deposit Accounts - The Company earns fees from its deposit customers for account maintenance, transaction-based and overdraft services. Account maintenance fees consist primarily of account fees and analyzed account fees charged on deposit accounts monthly. The performance obligation is satisfied and the fees are recognized monthly as the service period is completed. Transaction-based fees on deposits accounts are charged to deposit customers for specific services provided to the customer, such as non-sufficient funds fees, overdraft fees, and wire fees. The performance obligation is completed as the transaction occurs and the fees are recognized at the time each specific service is provided to the customer.

ATM and Check Card Fee Income - Check card fee income represents fees earned when a debit card issued by the Company is used. The Company earns interchange fees from debit cardholder transactions through the Mastercard payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged to the card. Certain expenses directly associated with the debit card are recorded on a net basis with the fee income.

Trust Income - Trust income includes monthly advisory fees that are based on assets under management and certain transaction fees that are assessed and earned monthly, concurrently with the investment management services provided to the customer. The Company does not charge performance based fees for its trust services and does not currently have any institutional clients, hedge funds or mutual funds. Although trust income is included within the scope of ASC 606, based on the fees charged by the Company, there were no changes in the accounting for trust income.

Gains/Losses on OREO Sales - Gains/losses on the sale of OREO are included in non-interest expense and are generally recognized when the performance obligation is complete. This is typically the delivery of control over the property to the buyer at the time of each real estate closing.

The following table presents the Company's non-interest income for the periods indicated. All the Company's revenue from contracts with customers within the scope of ASC 606 is recognized in non-interest income, except for gains on the sale of OREO, which are included in non-interest expense when applicable.

	*Three Months Ended September 30,*		*Nine Months Ended September 30,*
Non-interest income (dollars in thousands):	*2024*		*2023*			*2024*		*2023*
Net Gain on Sale of Investments (1)	$	37		$	-		$	37	$	-
Gain on Sale of Loans ⁽¹⁾		210			136			571		530
Service Fees on Deposit Accounts		311			319			935		890
Commissions From Insurance Agency ⁽¹⁾		248			200			604		549
Trust Income		721			458			1,777		1,297
BOLI Income ⁽¹⁾		178			163			524		469
ATM and Check Card Fee Income		761			736			2,363		2,288
Other ⁽¹⁾		159			156			589		596
Total non-interest income	$	2,625		$	2,168		$	7,400	$	6,619

⁽¹⁾ Not within the scope of ASC 606

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 15 - LEASES

The Company has operating leases on six of its branches. During the nine months ended September 30, 2024, the Company made cash payments in the amount of $392,000 for operating leases. The lease expense recognized during this period was $385,000 and was recorded in occupancy expense within the Consolidated Statements of Income. The lease liability had a net decrease of $361,000. At September 30, 2024, the Company had ROU assets of $1.0 million and a lease liability of $1.1 million recorded on its consolidated balance sheet compared to ROU assets of $1.4 million and a lease liability of $1.4 million at December 31, 2023. The lease agreements have maturity dates ranging from 2024 through 2028, some of which include options for multiple five or ten year extensions. At September 30, 2024, the remaining weighted average lease term was 2.50 years and the weighted average discount rate used was 3.2%.

At September 30, 2024, maturities of operating lease liabilities for future periods were as follows:

	Dollars in thousands
Remainder of 2024	$	131
2025		475
2026		364
2027		147
2028		10
Total undiscounted lease payments		1,127
Less: effect of discounting		(46	)
Present value of estimated lease payments (lease liability)	$	1,081

NOTE 16 - PREFERRED STOCK

On May 24, 2022, the Company entered into a Letter Agreement ("Agreement") with the U.S. Department of Treasury under the Emergency Capital Investment Program ("ECIP"). Established by the Consolidated Appropriations Act, 2021, the ECIP was created to encourage low- and moderate-income community financial institutions and minority depository institutions to provide loans, grants, and forbearance for small businesses, minority-owned businesses, and consumers, especially low-income and underserved communities, including counties with persistent poverty, that may be disproportionately impacted by the economic effect of the COVID-19 pandemic by providing direct and indirect capital investments in low- and moderate-income community financial institutions.

Pursuant to the Agreement, the Company agreed to issue and sell 82,949 shares of Preferred Stock for an aggregate purchase price of $82.9 million in cash. This ECIP investment is treated as tier 1 capital. The Preferred Stock bears no dividend for the first 24 months following the investment date. Thereafter, the dividend rate will be adjusted, not higher than 2%, based on the lending growth criteria listed in the Agreement. After the tenth anniversary of the investment date, the dividend rate will be fixed based on the average annual amount of lending in years 2 through 10. Dividends will be payable quarterly in arrears on March 15, June 15, September 15, and December 15. The first dividends were paid on June 15, 2024.

The Preferred Stock may be redeemed at the option of the Company on or after the fifth anniversary of issuance (or earlier in the event of loss of regulatory capital treatment), subject to the approval of the appropriate federal banking regulator and in accordance with the federal banking agencies' regulatory capital regulations. The Preferred Stock is reported on the Consolidated Balance Sheets as Senior Non-Cumulative Perpetual Preferred Stock, Series ECIP.

NOTE 17 - SUBSEQUENT EVENTS

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Management has reviewed all events occurring through the date the consolidated financial statements were available to be issued and determined that there were no subsequent events requiring accrual or disclosure, except as follows.

On October 17, 2024, the Company notified holders that the Company will redeem on November 22, 2024, all of the Company's outstanding 10-Year Notes due November 22, 2029, having an aggregate principal amount of $16,500,000, in accordance with the terms of the 10-Year Notes. The total redemption price will be 100% of the aggregate principal amount of the 10-Year Notes, plus accrued and unpaid interest to, but excluding, the redemption date. The Company will utilize excess cash on hand for the redemption payment.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

When we refer to "Security Federal" in this report, we are referring to Security Federal Corporation. When we refer to the "Bank" in this report, we are referring to Security Federal Bank, the wholly owned subsidiary of Security Federal. As used in this report, the terms "we," "our," "us," and "Company" refer to Security Federal Corporation and its consolidated subsidiary, Security Federal Bank, unless the context indicates otherwise.

Forward-Looking Statements and "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995

Certain matters discussed in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of the words "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future or conditional verbs such as "may," "will," "should," "would" and "could." Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about, among other things, expectations of the business environment in which we operate, projections of future performance or financial items, perceived opportunities in the market, potential future credit experience, and statements regarding our mission and vision. These forward-looking statements are based upon current management expectations and may, therefore, involve risk and uncertainties. Our actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements as a result of a wide variety or range of factors, including, but not limited to:

•

adverse economic conditions in our market areas or other areas where we have lending relationships, due to factors like employment levels, labor shortages, inflation, potential recession, or slowed economic growth;

•

changes in the interest rate environment, including increases or decreases in the Board of Governors of the Federal Reserve System (the "Federal Reserve") benchmark rate, which could adversely affect our revenues, expenses, asset values, cost of capital and liquidity;

•

the impact of inflation and the Federal Reserve monetary policies;

•

the effects of any federal government shutdown;

•

the credit risks of lending activities, including changes in loan delinquencies, write-offs and the allowance for credit losses;

•

fluctuations in the demand for loans, the number of unsold homes, land and real estate values in our market areas;

•

secondary market conditions for loans and our ability to originate loans for sale and sell loans in the secondary market;

•

the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment;

•

results of examinations of the Federal Reserve and the Bank by the Federal Deposit Insurance Corporation ("FDIC") and the South Carolina State Board of Financial Institutions, or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our reserve for credit losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, or impose additional requirements or restrictions on us, any of which could adversely affect our liquidity and earnings;

•

legislative or regulatory changes, including changes in banking, securities and tax law, and in regulatory policies and principles, or the interpretation of regulatory capital or other rules;

•

our ability to attract and retain deposits;

•

our ability to control operating costs and expenses;

•

our ability to implement our business strategies, including expectations regarding key growth initiatives and strategic priorities;

•

the use of estimates in determining the fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation;

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

•

difficulties in reducing risks associated with the loans on our balance sheet;

•

staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges;

•

disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or critical third-party vendors;

•

our ability to attract and retain key members of our senior management team;

•

costs and effects of litigation, including settlements and judgments;

•

increased competitive pressures among financial services companies;

•

changes in consumer spending, borrowing and savings habits;

•

the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions;

•

our ability to pay dividends on our common or preferred stock;

•

the quality and composition of our securities portfolio and the impact of any adverse changes in the securities markets;

•

inability of key third-party providers to perform their obligations;

•

changes in accounting principles, policies, or guidelines, including additional guidance and interpretation on accounting issues;

•

environmental, social, and governance goals;

•

the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, civil unrest and other external events on our business;

•

other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and

•

other risks described elsewhere in this document and in the Company's other reports filed with or furnished to the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2023 ("2023 Form 10-K").

Any of the forward-looking statements that we make in this quarterly report on Form 10-Q and in other public reports and statements we make may turn out to be inaccurate as a result of our beliefs and assumptions we make in connection with the factors set forth above or because of other unidentified and unpredictable factors. Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements and you should not rely on such statements. The Company undertakes no obligation to publish revised forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date hereof. These factors could cause our actual results for 2024 and beyond to differ materially from those expressed in any forward-looking statements by or on behalf of us, and could negatively affect the Company's consolidated financial condition, consolidated results of operations, liquidity and stock price performance.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

Financial Condition at September 30, 2024 and December 31, 2023

Assets - Total assets increased $26.7 million to $1.58 billion at September 30, 2024from $1.55billion at December 31, 2023. This increase was primarily due to increases in loans receivable, net, and cash and cash equivalents, partially offset by decreases in HTM and AFS securities and other assets. Changes in total assets are shown below.

							Increase (Decrease)
Dollars in thousands	September 30, 2024		December 31, 2023			$		%
Cash and Cash Equivalents	$	132,376		$	128,284		$	4,092		3.2	%
Certificates of Deposits with Other Banks		2,350			2,350			-		-
AFS Securities		534,203			537,640			(3,437	)	(0.6	)
HTM Securities		137,851			163,072			(25,221	)	(15.5	)
Total Loans Receivable, Net		686,708			622,529			64,179		10.3
Accrued Interest Receivable		5,791			5,512			279		5.1
Operating Lease ROU Assets		1,048			1,402			(354	)	(25.2	)
Land Held for Sale		938			938			-		-
Premises and Equipment, Net		29,545			28,637			908		3.2
FHLB Stock		1,089			922			167		18.1
BOLI		28,478			27,954			524		1.9
Goodwill		1,200			1,200			-		-
Other Assets		14,750			29,231			(14,481	)	(49.5	)
Total Assets	$	1,576,327		$	1,549,671		$	26,656		1.7	%

Cash and cash equivalents increased $4.1 million or 3.2% to $132.4 million at September 30, 2024compared to $128.3 million at December 31, 2023, primarily as a result of an increase in deposits during the nine months ended September 30, 2024 and the proceeds received from the sales, paydowns and maturities of securities.

AFS securities decreased $3.4 million or 0.6% to $534.2 million at September 30, 2024from $537.6 million at December 31, 2023as sales, maturities and principal paydowns of AFS securities exceeded purchases during the nine months ended September 30, 2024. HTM securities decreased $25.2 million to $137.9 million at September 30, 2024, from $163.1 million at December 31, 2023, as a result of paydowns and maturities exceeding purchases during the nine months ended September 30, 2024.

Total loans receivable, net, including loans held for sale, increased $64.2million or 10.3%to $686.7million at September 30, 2024from $622.5 million at December 31, 2023, primarily due to increases in real estate loans originated during the nine months ended September 30, 2024. Residential mortgage loans increased $27.6 million or 16.0% to $200.5 million at September 30, 2024from $172.9million at December 31, 2023. Commercial real estate loans increased $28.4 million or 10.7% to $293.2million at September 30, 2024from $264.8 million at December 31, 2023. Construction loans increased $10.2million or 9.8% to $114.7 million at September 30, 2024from $104.5 million at December 31, 2023. Additionally, consumer home equity lines of credit increased $1.6 million or 4.8% to $36.1 million at September 30, 2024from $34.5 million at December 31, 2023. Commercial and agricultural loans decreased $2.9 million or 8.6% to $30.4million at September 30, 2024from $33.3 million at December 31, 2023 and other consumer loans decreased slightly to $23.9 million at September 30, 2024compared to $24.5 million at December 31, 2023. Loans held for sale increased to $1.6 million at September 30, 2024from $967,000 at December 31, 2023.

Premises and equipment, net increased $908,000 or 3.2% to $29.5 million at September 30, 2024from $28.6 million at December 31, 2023 as a result of improvements made to existing branches.

Other assets decreased $14.5 million or 49.5% to $14.8 million at September 30, 2024from $29.2 million at December 31, 2023, primarily due to the collection of an outstanding receivable from a matured investment security, which was received in the first quarter of 2024 after being outstanding at the end of 2023.

Liabilities

Deposit Accounts - Total deposits increased $62.3 million or 5.2% to $1.26 billion at September 30, 2024from December 31, 2023, due to increases in higher cost certificates of deposit and money market accounts, partially offset by decreases in checking and savings accounts. The Bank had $25.8 million in brokered time deposits at September 30, 2024 compared to $5.2 million at December 31, 2023. Most of the Bank's deposits are originated within the Bank's immediate market area; however, the Bank uses brokered time deposits to manage interest rate risk because they are accessible in bulk at rates typically only slightly higher than those in our market areas. A portion of these brokered time deposits give the Bank a call option that allows the Bank the choice to redeem them early should rates change. In addition, the Bank had $5.2 million and $5.0 million in other brokered deposits at September 30, 2024and December 31, 2023, respectively. At September 30, 2024, the Bank had no deposit relationships greater than 5% of outstanding deposits, compared to one deposit relationship totaling approximately 5.2% of outstanding deposits at December 31, 2023. At September 30, 2024, approximately $330.6 million or 26.3%of our $1.26 billion deposit portfolio was uninsured. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank's regulatory reporting requirements. For additional details of deposits, see "Note 9 - Deposits" of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.

Borrowings - The Bank had $65.0 million in borrowings from the Federal Reserve Bank of Atlanta ("FRB") at September 30, 2024, compared to $119.2 million at December 31, 2023. During the first quarter of 2023, the Bank elected to participate in the Federal Reserve's Bank Term Funding Program ("BTFP"), allowing the Bank to refinance its existing FRB borrowings. The Bank also had $24.3million in other borrowings at September 30, 2024, compared to $19.2million and December 31, 2023, which consisted of short-term repurchase agreements with certain commercial demand deposit customers for sweep accounts. For additional information, see "Note 10 - Borrowings" of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.

At both September 30, 2024and December 31, 2023, the Company had $5.2 million in junior subordinated debentures and $26.5 million in subordinated debentures outstanding. Subsequent to the quarter ended September 30, 2024, the Company notified holders that it will redeem on November 22, 2024 all of the Company's outstanding 10-Year Notes due November 22, 2029, having an aggregate principal amount of $16.5 million, in accordance with the terms of the 10-Year Notes. The total redemption price will be 100% of the aggregate principal amount of the 10-Year Notes, plus accrued and unpaid interest to, but excluding, the redemption date. See "Note 11 - Subordinated Debentures" and "Note 17 Subsequent Events" of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report for additional information.

Shareholders' Equity

Shareholders' equity increased $12.7 million or 7.4% to $185.1 million at September 30, 2024from $172.4 million at December 31, 2023. The increase was attributable to $5.9 million of net income and a $9.0 million reduction in accumulated other comprehensive loss, partially offset by $1.4 million in dividends paid to common shareholders, $512,000 in preferred dividends paid, and $829,000 in Company stock repurchases during the nine months ended September 30, 2024.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations for the Quarters Ended September 30, 2024 and 2023

Net Income

Net income available to common shareholders decreased $127,000, or 6.0%, to $2.0million or $0.62 per basic common share for the quarter ended September 30, 2024, compared to $2.1 million or $0.65 per basic common share for the quarter ended September 30, 2023. The decrease in net income available to common shareholders was primarily the result of increases in non-interest expense, the provision for credit losses and preferred stock dividends paid during the third quarter of 2024 compared to the thirdquarter of 2023, partly offset by higher net interest income and non-interest income.

Net Interest Income

The following table compares detailed average balances, average yields on interest-earning assets, average costs of interest-bearing liabilities and the resulting changes in interest income and expense for the three months ended September 30, 2024 and 2023. The average balances were derived from the daily balances throughout the periods indicated. The average yields or costs were calculated by dividing the income or expense by the average balance of the corresponding assets or liabilities. Nonaccrual loans are included in earning assets in the following table. Loan yields have been reduced to reflect the negative impact on our earnings of loans on nonaccrual status. Interest income from non-taxable investments is calculated on a tax equivalent basis, which recognizes the income tax savings when comparing taxable and tax-exempt assets and was calculated using the effective tax rate for the quarters ended September 30, 2024 and 2023.

	Quarter Ended September 30,
	2024		2023
*Dollars in thousands*	Average Balance		Tax Equivalent Interest			Yield/ Rate (1)	Average Balance		Tax Equivalent Interest		Yield/ Rate (1)
Interest-Earning Assets:
Loans Receivable, Net	$	679,895		$	10,594		6.23	%	$	600,465		$	8,402	5.60	%
Taxable Investments		655,196			7,397		4.52			694,058			7,558	4.36
Non-taxable Investments		12,735			112		3.53			20,557			190	3.71
Deposits with other Banks		107,237			1,451		5.41			57,387			703	4.9
Total Interest-Earning Assets	$	1,455,063		$	19,554		5.38	%	$	1,372,467		$	16,853	4.91	%
Interest-Bearing Liabilities:
Checking, Savings & Money Market Accounts	$	714,513		$	4,792		2.68	%	$	680,025		$	4,190	2.46	%
Certificates Accounts		276,996			2,962		4.28			228,016			1,879	3.30
Total Interest-Bearing Deposits		991,509			7,754		3.13			908,041			6,069	2.67
Other Borrowings (2)		89,641			923		4.12			88,215			862	3.91
Junior Subordinated Debentures		5,155			95		7.40			5,155			96	7.43
Subordinated Debentures		26,500			348		5.25			26,500			349	5.25
Total Interest-Bearing Liabilities	$	1,112,805		$	9,120		3.28	%	$	1,027,911		$	7,376	2.87	%
Net Interest Rate Spread							2.10	%						2.04	%
Tax Equivalent Net Interest Income/Margin				$	10,434		2.87	%				$	9,477	2.76	%
Less: tax equivalent adjustment					23								31
Net Interest Income				$	10,411							$	9,446

(1)	Annualized

(2)	Includes FRB borrowings and repurchase agreements.

Net interest income increased $965,000 or 10.2% to $10.4 million during the quarter ended September 30, 2024, compared to $9.4 million for the same quarter in 2023 due to increases in both average interest-earning assets and net interest margin. During the quarter ended September 30, 2024, average interest-earning assets increased $82.6 million or 6.0% to $1.46 billion from $1.37 billion for the same quarter in 2023, while average interest-bearing liabilities increased $84.9 million or 8.3% to $1.11 billion for the quarter ended September 30, 2024from $1.03 billion for the comparable quarter in 2023. The Company's net interest margin was 2.87% for the quarter ended September 30, 2024compared to 2.76% for the comparable quarter in 2023. The Company's net interest spread on a tax equivalent basis was 2.10% for the quarter ended September 30, 2024compared to 2.04% for the quarter ended September 30, 2023.

Interest Income

Total tax-equivalent interest income increased $2.7 million or 16.0% to $19.6 million for the quarter ended September 30, 2024compared to $16.9 million for the same period in 2023.

Interest income on loans increased $2.2 million or 26.1% to $10.6 million for the quarter ended September 30, 2024from $8.4 million for the thirdquarter of 2023. The increase was the result of a $79.4 million increase in the average loan portfolio balance combined with a 63 basis point increase in the average yield on loans receivable as adjustable-rate loans reset and new loans were originated at higher market interest rates.

Interest income from taxable investments decreased $160,000 or 2.1% to $7.4 million during the quarter ended September 30, 2024, from $7.6 million for the thirdquarter of 2023, due to a $38.9 million decrease in the average balance of taxable investments, which was partially offset by a 16 basis point increase in the average yield to 4.52%, reflecting higher market interest rates. Tax equivalent interest income from non-taxable investments decreased $70,000 to $89,000 during the quarter ended September 30, 2024 primarily due to a $7.8 million decrease in the average balance of non-taxable investments, reflecting investment sales during the third quarter of 2024.

Interest income from deposits with other banks increased $748,000 to $1.5 million during the quarter ended September 30, 2024, from $703,000 for the thirdquarter of 2023, due to a $49.8 million increase in the average balance of these assets combined with a 47 basis point increase in the average yield earned on these assets due to increased market interest rates.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

Interest Expense

Total interest expense increased $1.7 million or 23.7% to $9.1 million for the quarter ended September 30, 2024compared to $7.4 million for the same quarter in 2023due to an increase in market interest rates combined with a $84.9 million increase in the average balance of these liabilities.

Interest expense on deposits increased $1.7 million to $7.8 million for the quarter ended September 30, 2024, from $6.1 million for the thirdquarter of 2023, due to an increase of 46 basis points in the average cost combined with an $83.5 million increase in the average balance of interest-bearing deposit accounts, reflecting growth in higher cost money market and certificate of deposit accounts. Interest expense on FRB and other borrowings increased $59,000 to $1.4 million for the quarter ended September 30, 2024, from $1.3 million for the thirdquarter of 2023, due to an increase of four basis points in the average cost of these liabilities, reflecting higher market interest rates, combined with a $1.4 million increase in the average balance of these liabilities.

Provision for Credit Losses

The amount of the provision and the adequacy of the allowance for credit losses for loans and unfunded commitments is determined by management's on-going monthly analysis. The Company has policies and procedures in place for evaluating and monitoring the overall credit quality of the loan portfolio and for timely identification of potential problem loans including internal and external loan reviews. The adequacy of the allowance for credit losses is reviewed monthly by the Asset Classification Committee and quarterly by the Board of Directors.

On January 1, 2023, the Company adopted Accounting Standards Update 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments Accounting Standards Codification 326, which replaced the incurred loss methodology with the CECL methodology. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit.

The Company recorded a $725,000 provision for credit losses on loans and a $145,000 reversal of provision for credit losses on unfunded commitments, resulting in a total provision for credit losses of $580,000 during the quarter ended September 30, 2024, compared to no provision for credit losses during the quarter ended September 30, 2023. The increase in the provision during the three months ended September 30, 2024, was primarily the result of loan growth and, to a less extent, higher charge-offs. Net charge-offs totaled $79,000 for the thirdquarter of 2024compared to a net recovery of $15,000 during the thirdquarter of 2023. For additional information on the changes in the allowance for credit losses, see "Note 6 - Investments, AFS", "Note 7 - Investments, HTM, and "Note 8 - Loans Receivable" of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.

Non-Interest Income

Non-interest income increased $457,000 or 21.1% to $2.6 million for the quarter ended September 30, 2024compared to $2.2 million for the quarter ended September 30, 2023. The increase was due to increases in all non-interest income line items except for service fees on deposit accounts during the quarter ended September 30, 2024 when compared to the quarter ended September 30, 2023. The largest increase came from trust income, which increased $263,000 to $721,000 for the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023. Additional changes in non-interest income for the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023 included a $48,000 increase in commission on insurance, a $74,000 increase in gain on sale of loans and a $37,000 gain on sales of AFS securities, as well as smaller increases in other categories. For additional details of the changes in non-interest income, see "Note 14 - Non-Interest Income" of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.

Non-Interest Expense

Non-interest expense increased $389,000 or 4.4% to $9.3 million for the quarter ended September 30, 2024compared to $8.9 million for the quarter ended September 30, 2023. The following table summarizes the changes in non-interest expense:

	Quarter Ended September 30,		Increase (Decrease)
*Dollars in thousands*	2024		2023			$		%
Compensation and Employee Benefits	$	5,359		$	4,962		$	397		8.0	%
Occupancy		800			808			(8	)	-1.0	%
Advertising		254			256			(2	)	-0.8	%
Depreciation and Maintenance of Equipment		297			657			(360	)	-54.8	%
FDIC Insurance Premiums		200			154			46		29.9	%
Consulting		172			168			4		2.4	%
Debit Card Expense		388			348			40		11.5	%
Data Processing		351			314			37		11.8	%
Cloud Services		299			-			299		0.0	%
Other		1,193			1,257			(64	)	-5.1	%
Total Non-Interest Expense	$	9,313		$	8,924		$	389		4.4	%

Most of the increases in non-interest expenses during the thirdquarter of 2024 were due to the overall growth of the Company, increased operations and the addition of our newest branch in Augusta, Georgia which opened in April 2023. The largest increase in non-interest expense during the thirdquarter of 2024 was compensation and employee benefits expense, which increased $397,000 to $5.4 million for the quarter ended September 30, 2024, compared to $5.0 million during the same period in 2023. Cloud services increased $299,000 due to the reclassification of those expenses from depreciation and maintenance of equipment expense, which decreased $360,000 during the quarter ended September 30, 2024, compared to the same period in 2023.

Provision For Income Taxes

The provision for income taxes increased 28.9% to $732,000 for the quarter ended September 30, 2024, from $568,000 for the same period in 2023, due to higher pre-tax net income. Pre-tax net income was $3.1 million for the quarter ended September 30, 2024compared to $2.7 million for the thirdquarter of 2023. The Company's combined federal and state effective income tax rate was 23.3% and 21.1% for the quarters ended September 30, 2024 and 2023, respectively.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations for the NineMonths Ended September 30, 2024 and 2023

Net Income

Net income available to common shareholders decreased $697,000, or 10.6%, to $5.9 million or $1.83per basic common share for the ninemonths ended September 30, 2024, compared to $6.6 million or $2.02per basic common share for the ninemonths ended September 30, 2023. The decrease in net income was primarily the result of increases in the provision for credit losses, non-interest expense and preferred stock dividends paid, partially offset by increases in net interest income and non-interest income.

Net Interest Income

The following table compares detailed average balances, average yields on interest-earning assets, average costs of interest-bearing liabilities and the resulting changes in interest income and expense for the ninemonths ended September 30, 2024 and 2023. The average balances were derived from the daily balances throughout the periods indicated. The average yields or costs were calculated by dividing the income or expense by the average balance of the corresponding assets or liabilities. Nonaccrual loans are included in earning assets in the following table. Loan yields have been reduced to reflect the negative impact on our earnings of loans on nonaccrual status. Interest income from non-taxable investments is calculated on a tax equivalent basis, which recognizes the income tax savings when comparing taxable and tax-exempt assets and was calculated using the effective tax rate for the ninemonths ended September 30, 2024 and 2023.

	Nine Months Ended September 30,
	2024		2023
(Dollars in thousands)	Average Balance		Tax Equivalent Interest			Yield/ Rate (1)	Average Balance		Tax Equivalent Interest		Yield/ Rate (1)
Interest-Earning Assets:
Loans Receivable, Net	$	662,539		$	30,183		6.07	%	$	589,100		$	23,884	5.41	%
Taxable Investments		664,149			22,371		4.49			695,495			21,025	4.03
Non-taxable Investments		17,613			470		3.56			20,802			575	3.69
Deposits with other Banks		102,556			4,129		5.37			32,996			1,205	4.87
Total Interest-Earning Assets	$	1,446,857		$	57,153		5.27	%	$	1,338,393		$	46,689	4.65	%
Interest-Bearing Liabilities:
Checking, Savings & Money Market Accounts	$	720,659		$	14,273		2.64	%	$	674,749		$	10,246	2.02	%
Certificates Accounts		253,247			7,670		4.04			200,626			3,910	2.60
Total Interest-Bearing Deposits		973,906			21,943		3.00			875,375			14,156	2.16
Other Borrowings (2)		103,260			3,224		4.16			85,820			2,313	3.59
Junior Subordinated Debentures		5,155			286		7.40			5,155			266	6.89
Subordinated Debentures		26,500			1,044		5.25			26,500			1,045	5.25
Total Interest-Bearing Liabilities	$	1,108,821		$	26,497		3.19	%	$	992,850		$	17,780	2.39	%
Net Interest Rate Spread							2.08	%						2.26	%
Tax Equivalent Net Interest Income/Margin				$	30,656		2.83	%				$	28,909	2.88	%
Less: tax equivalent adjustment					82								96
Net Interest Income				$	30,574							$	28,813

(1)	Annualized

(2)	Includes FRB borrowings and repurchase agreements.

Net interest income increased $1.8 million or 6.1% to $30.6 million during the ninemonths ended September 30, 2024, compared to $28.8 million for the same ninemonths in 2023, due to an increase in average interest-earning assets, partially offset by a decline in net interest margin. During the ninemonths ended September 30, 2024, average interest-earning assets increased $108.5 million or 8.1% to $1.45 billion from $1.34 billion for the same ninemonths in 2023, while average interest-bearing liabilities increased $116.0 million or 11.7% to $1.11 billion for the ninemonths ended September 30, 2024from $992.8 million for the comparable ninemonths in 2023. The Company's net interest margin was 2.83% for the ninemonths ended September 30, 2024compared to 2.88% for the comparable ninemonths in 2023, as higher funding costs continued to exert pressure on our net interest margin. The Company's net interest spread on a tax equivalent basis was 2.08%for the ninemonths ended September 30, 2024compared to 2.26% for the ninemonths ended September 30, 2023.

Interest Income

Total tax-equivalent interest income increased $10.5 million or 22.4% to $57.2 million for the ninemonths ended September 30, 2024compared to $46.7 million for the same period in 2023.

Interest income on loans increased $6.3 million or 26.4% to $30.2 million for the ninemonths ended September 30, 2024from $23.9 million for the ninemonths of 2023. The increase was the result of a $73.4 million increase in the average loan portfolio balance combined with a 66 basis point increase in the average yield on loans receivable as adjustable-rate loans reset and new loans were originated at higher market interest rates.

Interest income from taxable investments increased $1.3 million or 6.4% to $22.4 million during the ninemonths ended September 30, 2024, from $21.0 million for the ninemonths of 2023, due to a 46 basis point increase in the average yield to 4.49%, reflecting higher market interest rates, which was partially offset by a $31.3 million decrease in the average balance of taxable investments. Tax equivalent interest income from non-taxable investments decreased $106,000 to $470,000 during the ninemonths ended September 30, 2024 primarily due to a $3.2 million decrease in the average balance of non-taxable investments and a 13 basis point decrease in the average yield.

Interest income from deposits with other banks increased $2.9 million to $4.1 million during the ninemonths ended September 30, 2024, from $1.2 million for the ninemonths of 2023, due to a $69.6 million increase in the average balance of these assets combined with a 50 basis point increase in the average yield earned due to increased market interest rates.

Interest Expense

Total interest expense increased $8.7 million or 49.0% to $26.5 million for the ninemonths ended September 30, 2024compared to $17.8 million for the same ninemonths in 2023due to an increase in market interest rates combined with a $98.5 million increase in the average balance of these liabilities.

Interest expense on deposits increased $7.8 million to $21.9 million for the ninemonths ended September 30, 2024, from $14.2 million for the ninemonths of 2023, due to an increase of 84 basis points in the average cost combined with a $98.5 million increase in the average balance of interest-bearing deposit accounts, reflecting growth in higher-cost money market and certificate of deposit accounts. Interest expense on FRB and other borrowings increased $929,000 to $4.6 million for the ninemonths ended September 30, 2024, from $3.6 million for the ninemonths of 2023, due to a $17.4 million increase in the average balance of these liabilities combined with an increase of 29 basis points in the average cost.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

Provision for Credit Losses

The Company recorded a $1.2 million provision for credit losses on loans and a $110,000 reversal of provision for credit losses on unfunded commitments, resulting in a total provision for credit losses of $1.1 million during the ninemonths ended September 30, 2024, compared to a $376,000 provision for credit losses on loans and a $155,000 reversal of provision for credit losses on unfunded commitments, resulting in a total provision for credit losses of $221,000 during the ninemonths ended September 30, 2023. The increase in the provision during the ninemonths ended September 30, 2024, was primarily the result of loan growth and higher net charge-offs. Net charge-offs totaled $165,000 for the first ninemonths of 2024 compared to a net recovery of $10,000 during the first ninemonths of 2023. For additional information on the changes in the allowance for credit losses, see "Note 6 - Investments, AFS", "Note 7 - Investments, HTM, and "Note 8 - Loans Receivable" of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.

Non-Interest Income

Non-interest income increased $780,000 or 11.8% to $7.4 million for the ninemonths ended September 30, 2024compared to $6.6 million for the ninemonths ended September 30, 2023. The increase was primarily due to a $480,000 increase in trust income. Additional changes in non-interest income for the ninemonths ended September 30, 2024compared to the ninemonths ended September 30, 2023included a $55,000 increase in commissions on insurance and a $75,000 increase in ATM and check card fee income, as well as smaller increase in other categories. For additional details of the changes in non-interest income, see "Note 14 - Non-Interest Income" of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.

Non-Interest Expense

Non-interest expense increased $1.8 million or 6.5% to $28.6 million for the ninemonths ended September 30, 2024compared to $26.9 million for the ninemonths ended September 30, 2023. The following table summarizes the changes in non-interest expense:

	Nine Months Ended September 30,		Increase (Decrease)
	2024		2023			$		%
Compensation and Employee Benefits	$	16,425		$	15,227		$	1,198		7.9	%
Occupancy		2,425			2,386			39		1.6	%
Advertising		754			763			(9	)	(1.2	)%
Depreciation and Maintenance of Equipment		1,297			1,844			(547	)	(29.7	)%
FDIC Insurance Premiums		536			462			74		16.0	%
Consulting		489			523			(34	)	(6.5	)%
Debit Card Expense		1,126			1,037			89		8.6	%
Data Processing		1,029			942			87		9.2	%
Cloud Services		703			-			703		0.0	%
Other		3,833			3,679			154		4.2	%
Total Non-Interest Expense	$	28,617		$	26,863		$	1,754		6.5	%

Most of the increases in non-interest expenses during the ninemonths of 2024 were due to overall growth of the Company, increased operations and the addition of our newest branch in Augusta, Georgia which opened in April 2023. The largest increase in non-interest expense during the ninemonths of 2024 was compensation and employee benefits expense, which increased $1.2 million to $16.4 million for the ninemonths ended September 30, 2024, compared to $15.2 million during the same period in 2023. In addition, cloud services increased $703,000 due to the reclassification of those expenses from depreciation and maintenance of equipment expense, which decreased $547,000 during the ninemonths ended September 30, 2024, compared to the same period in 2023. Other expenses increased $154,000 or 4.2% to $3.8 million for the ninemonths ended September 30, 2024, compared to the same period in 2023.

Provision For Income Taxes

The provision for income taxes increased $103,000 or 5.8% to $1.9 million for the ninemonths ended September 30, 2024, up from $1.8 million for the same period in 2023. The Company's combined federal and state effective income tax rate was 22.7% and 21.3% for the ninemonths ended September 30, 2024 and 2023, respectively.

Other

The U.S. Department of the Treasury's Community Development Financial Institutions ("CDFI") Fund released a revised CDFI Certification Application on December 7, 2023. On June 20, 2024, the CDFI announced an extension to the recertification filing deadline that now requires applications to be submitted by December 31, 2025. The Company is currently in the process of evaluating the revised Certification Application requirements and completing its recertification as a CDFI. Being a CDFI certified institution offers several benefits, including, among others:

●

Access to Funding: CDFI certification provides access to various funding opportunities, including grants, loans, and investment capital from the CDFI Fund, a part of the U.S. Department of the Treasury. This funding can assist the Bank in expanding its services and reach more underserved communities.

●

Tax Incentives: CDFIs may be eligible for tax credits, such as the New Markets Tax Credit, which can attract private investment to low-income communities by providing investors with tax credits for investments made in economically distressed areas.

●

Enhanced Credibility: Certification enhances the credibility and reputation of the Bank, signaling to investors and customers that the institution is committed to community development and financial inclusion.

●

Technical Assistance: CDFIs can receive technical assistance from the CDFI Fund and other organizations, which can help them improve their operations, develop new products, and implement best practices.

●

Regulatory Benefits: Some regulatory benefits, such as exemptions or modifications to certain banking regulations, may be available to CDFIs, making it easier for them to serve their target markets.

Overall, CDFI certification can significantly enhance an institution's ability to serve its community and achieve its mission of promoting economic growth and financial inclusion in underserved areas. No assurance can be given as to whether the Company will receive approval of its certification to continue as a CDFI.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

Liquidity Commitments, Capital Resources, and Impact of Inflation and Changing Prices

We actively analyze and manage liquidity with the objective of maintaining an adequate level of liquidity and to ensure the availability of sufficient cash flows to support loan growth, fund deposit withdrawals, fund operations, and satisfy other financial commitments. See the "Consolidated Statements of Cash Flows" contained in Item 1 - Financial Statements, herein.

The Bank's primary sources of funds include deposits, scheduled loan and investment securities repayments, including interest payments, maturities and sales of loans and investment securities, advances from the FRB, and cash flow generated from operations. The sources of funds, together with retained earnings and equity, are used to make loans, acquire investment securities and other assets, and fund continuing operations. While maturities and the scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage repayments are greatly influenced by the level of interest rates, economic conditions, and competition. Management believes that the Company's current liquidity position and its forecasted operating results are sufficient to fund all its existing commitments. The Bank had $148.1 million in unused commitments to extend credit and standby letters of credit at September 30, 2024.

During the nine months ended September 30, 2024, loan disbursements exceeded loan repayments resulting in a $64.7 million increase in total net loans receivable. Also, during the nine months ended September 30, 2024, deposits increased $62.3 million. The Bank had no outstanding FHLB advances at September 30, 2024with $443.8million in total borrowing capacity at the FHLB at that date. The Bank had $65.0 million of outstanding borrowings from the FRB discount window at September 30, 2024, which was collateralized by investments with a fair market value of $361.4 million at that date. The Bank also had a $50.0million unused Fed Funds facility with Pacific Coast Bankers Bank at September 30, 2024. Subject to market conditions, we expect to utilize these borrowing facilities from time to time in the future to fund loan originations and deposit withdrawals, to satisfy other financial commitments, repay maturing debt and to take advantage of investment opportunities to the extent feasible.

The Bank's liquid assets in the form of cash and cash equivalents, certificates of deposits with other banks and AFS investments totaled $640.9million at September 30, 2024. Certificates of deposit that are scheduled to mature in less than one year from September 30, 2024totaled $222.0 million. Historically, the Bank has been able to retain a significant amount of its deposits as they mature.

Security Federal is a separate legal entity from the Bank and must provide for its own liquidity. At September 30, 2024, Security Federal had liquid assets of $50.3 million. In addition to its operating expenses, Security Federal is responsible for paying any dividends declared, if any, to its shareholders, funds paid for Security Federal stock repurchases, and payments on trust-preferred securities and subordinated debentures held at the Company level. Security Federal's main source of funds are dividends or capital distributions from the Bank, although there are regulatory restrictions on the ability of the Bank to pay dividends. We currently expect to continue our current practice of paying quarterly cash dividends on our common stock subject to our Board of Directors' discretion to modify or terminate this practice at any time and for any reason without prior notice. Our current quarterly common stock dividend rate is $0.14per share which we believe is a dividend rate per share which enables us to balance our multiple objectives of managing and investing in the Bank, and returning a substantial portion of our cash to our shareholders. Assuming continued payment during 2024 at this rate of $0.14per share, our average total dividend paid each quarter would be approximately $484,000 based on the number of outstanding shares at September 30, 2024.

In June 2023, the Company announced that its Board of Directors approved a share repurchase program for the purchase of up to three percent, or approximately 97,612 shares, of the Company's outstanding common stock as of that date. On August 19, 2024 the Company's Board of Directors announced an additional 100,000 shares available to be purchased under the program. In general, stock-repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders. During the quarter ended September 30, 2024, the Company repurchased 2,500 shares of its common stock at an aggregate cost of $60,000, leaving 35,276 shares available for further repurchase under the existing stock repurchase program at September 30, 2024. The repurchase program does not obligate the Company to purchase any particular number of shares. For additional information, see Part II, Item 2 - "Unregistered Sales of Equity Securities and Use of Proceeds."

Additionally, Security Federal Corporation will redeem all of the Company's outstanding 10-Year Notes, having an aggregate principal amount of $16.5 million, on November 22, 2024. The total redemption price will be 100% of the aggregate principal amount of the 10-Year Notes, plus accrued and unpaid interest to, but excluding, the redemption date. The Company will utilize excess cash on hand for the redemption payment

At September 30, 2024, the Bank exceeded all regulatory capital requirements with Common Equity Tier 1 Capital (CET1), Tier 1 leverage-based capital, Tier 1 risk-based capital, and total risk-based capital ratios of 18.0%, 10.3%, 18.0%, and 19.2%, respectively. To be categorized as "well capitalized" under the prompt corrective action provisions the Bank must maintain minimum CET1, total risk based capital, Tier 1 risk-based capital and Tier 1 leverage capital ratios of 6.5%, 10.0%, 8.0% and 5.0%, respectively. In addition to the minimum capital requirements, the Bank must maintain a capital conservation buffer, which consists of additional CET1 capital greater than 2.5% of risk weighted assets above the required minimum levels to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses. At September 30, 2024the Bank's conservation buffer was 11.2%. For additional details, see "Note 12 - Regulatory Matters" of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk of loss from adverse changes in market prices and rates. The Company's market risk arises principally from interest rate risk inherent in its lending, investment, deposit and borrowing activities. Management actively monitors and manages its interest rate risk exposure. Although the Company manages other risks such as credit quality and liquidity risk in the normal course of business, management considers interest rate risk to be its most significant market risk that could potentially have the largest material effect on the Company's financial condition and results of operations. Other types of market risks such as foreign currency exchange rate risk and commodity price do not arise in the normal course of the Company's business activities.

The Company's profitability is affected by fluctuations in the market interest rate. Management's goal is to maintain a reasonable balance between exposure to interest rate fluctuations and earnings. A sudden and substantial increase or decrease in interest rates may adversely impact the Company's earnings to the extent that the interest rates on interest-earning assets and interest-bearing liabilities do not change at the same rate, to the same extent or on the same basis. The Company monitors the impact of changes in interest rates on its net interest income using a test that measures the impact on net interest income and net portfolio value of an immediate change in interest rates in 100 basis point increments. Net portfolio value is defined as the net present value of assets, liabilities, and off-balance sheet contracts. There were no material changes in information concerning market risk from the information provided in the Company's 2023 Form 10-K.

For the nine months ended September 30, 2024, the Bank's interest rate spread, defined as the average yield on interest-earning assets less the average rate paid on interest-bearing liabilities, was 2.08%.

Item 4. Controls and Procedures

(a)

Evaluation of Disclosure Controls and Procedures: An evaluation of the Company's disclosure controls and procedures (as defined in Rule 13a - 15(e) of the Securities Exchange Act of 1934 ("Act")) was carried out under the supervision and with the participation of the Company's Chief Executive Officer, Chief Financial Officer and several other members of the Company's senior management as of the end of the period covered by this quarterly report. The Company's Chief Executive Officer and Chief Financial Officer concluded that at September 30, 2024the Company's disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is (i) accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time period specified in the Securities and Exchange Commission's rules and forms.

(b)

Changes in Internal Control over Financial Reporting: There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2024that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The Company does not expect that its disclosure controls and procedures will prevent all error and or fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Part II: Other Information

Item 1 Legal Proceedings

The Company is not engaged in any legal proceedings of a material nature at the present time. From time to time, the Company is a party to legal proceedings in the ordinary course of business wherein it enforces its security interest in mortgage loans it has made.

Item 1A Risk Factors

There have been no material changes in the Risk Factors previously disclosed in Item 1A of the Company's 2023 Form 10-K.

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not applicable

(b) Not applicable

Period	Total Number of Shares Purchased		Average Price Paid Per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs (1)
July 1, 2024 - July 31, 2024		-		$	-		-	37,776
August 1, 2024 - August 31, 2024		2,500		$	24.00		2,500	135,276
September 1, 2024 - September 30, 2024		-		$	-		-	135,276
Total		2,500					2,500

On June 23, 2023, the Company announced that its Board of Directors approved a share repurchase program for the purchase of up to three percent, or approximately 97,612 shares, of the Company's outstanding common stock as of that date. The June 2023 repurchase program does not have a set expiration date and will expire upon repurchase of the full amount of authorized shares. The repurchase program may be suspended, terminated or modified at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate.

(1)

On August 19, 2024 the Company's Board of Directors announced an additional 100,000 shares available to be purchased under the program.

Item 3 Defaults Upon Senior Securities

None

Item 4 Mine Safety Disclosures

Not applicable

Item 5 Other Information

(a) Nothing to report.

(b) Nothing to report.

(c) Trading Plans. During the three months ended September 30, 2024, nodirector or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Item 6 Exhibits

3.1	Articles of Incorporation, as amended (1)
3.2	Amended and Restated Bylaws (2)
3.3	Certificate of Designations Senior Non-Cumulative Perpetual Preferred Stock, Series ECIP (3)
4.1	Form of Stock Certificate of the Company and other instruments defining the rights of security holders, including indentures (4)
4.2	Form of Certificate for Senior Non-Cumulative Perpetual Preferred Stock, Series ECIP (3)
10.1	Form of 2006 Salary Continuation Agreement (5)
10.2	Form of Security Federal Split Dollar Agreement (5)
10.3	2018 Employee Stock Purchase Plan (6)
10.4	Letter Agreement, dated May 24, 2022 between Security Federal Corporation and the U.S. Department of Treasury,with respect to the issuance of Senior Non-Cumulative Perpetual Preferred Stock, Series ECIP (3)
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
101	The following materials from Security Federal Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in Inline Extensible Business Reporting Language (iXBRL): (a) Consolidated Balance Sheets; (b) Consolidated Statements of Income; (c) Consolidated Statements of Comprehensive Income (Loss); (d) Consolidated Statements of Changes in Shareholders' Equity; (e) Consolidated Statements of Cash Flows; and (f) Notes to Consolidated Financial Statements
104	Cover Page Interactive Data File (formatted in Inline XBRL and included in Exhibit 101)

(1) Filed on June 26, 1998, as an exhibit to the Company's Proxy Statement and incorporated herein by reference.

(2) Filed on January 10, 2024, as an exhibit to the Company's Current Report on Form 8-K dated January 4, 2024 and incorporated herein by reference.

(3) Filed on June 8, 2022 as an exhibit to the Company's Current Report on Form 8-K dated May 24, 2022 and incorporated herein by reference.

(4) Filed on August 12, 1987, as an exhibit to the Company's Registration Statement on Form 8-A and incorporated herein by reference.

(5) Filed on May 24, 2006 as an exhibit to the Company's Current Report on Form 8-K dated May 18, 2006 and incorporated herein by reference.

(6) Filed on March 28, 2018, as an exhibit to the Company's Proxy Statement dated March 20, 2018 and incorporated herein by reference.

Table of Contents

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			SECURITY FEDERAL CORPORATION



Date:	November 8, 2024	By:	/s/J. Chris Verenes
			J. Chris Verenes
			Chief Executive Officer
			(Duly Authorized Representative)

Date:	November 8, 2024	By:	/s/Darrell Rains
			Darrell Rains
			Chief Financial Officer
			(Principal Financial Officer)

Sharing and Personal Tools

Please select the service you want to use:

Back

View original format