SFDL's Net Income Soars 47% on Strong Loan Growth, Credit Reversal

TL;DR

**SFDL is crushing it with loan growth and a credit reversal, but watch that cash burn from aggressive AFS buys.**

AI Summary

SECURITY FEDERAL CORP (SFDL) reported a robust financial performance for the nine months ended September 30, 2025, with net income surging by 46.87% to $9.384 million from $6.389 million in the prior year. Net interest income also saw a significant increase, rising 13.23% to $34.619 million from $30.574 million. This growth was primarily driven by a 10.26% increase in interest income from loans, reaching $33.280 million, despite a slight decrease in interest income from taxable investment securities. The company also recorded a reversal of provision for credit losses of $200,000, a positive shift from a $1.090 million provision in the same period last year. Total assets remained stable at $1.612 billion, while total liabilities decreased by 0.85% to $1.417 billion. Shareholder's equity increased by 6.80% to $194.791 million, bolstered by higher retained earnings. Cash and cash equivalents, however, significantly decreased by 70.94% to $51.805 million from $178.277 million at December 31, 2024, largely due to substantial purchases of available-for-sale securities totaling $216.715 million.

Why It Matters

SFDL's impressive 47% net income growth and positive credit loss reversal signal strong operational health and effective risk management, which is crucial for investors in the competitive regional banking sector. The substantial increase in shareholder's equity by $12.402 million indicates a growing intrinsic value for shareholders. However, the sharp decline in cash and cash equivalents, driven by aggressive investment in available-for-sale securities, could raise liquidity concerns if not managed carefully, especially in a rising interest rate environment. This strategic shift in asset allocation could impact future earnings stability and competitive positioning against larger, more diversified financial institutions.

Risk Assessment

Risk Level: medium — The company's cash and cash equivalents plummeted by $126.472 million, or 70.94%, from $178.277 million at December 31, 2024, to $51.805 million at September 30, 2025. This significant decrease was primarily due to $216.715 million in purchases of available-for-sale securities, indicating a substantial shift in liquidity management that could expose the company to market volatility.

Analyst Insight

Investors should closely monitor SFDL's liquidity position and the performance of its expanded available-for-sale securities portfolio. While net income growth is strong, the aggressive investment strategy warrants caution; consider if the increased risk from reduced cash is justified by future returns, and evaluate the company's ability to maintain dividend growth given the cash outflow.

Financial Highlights

debt To Equity

7.28

revenue

$55,214,000

operating Margin

N/A

total Assets

$1,612,017,000

total Debt

$140,044,000

net Income

$9,384,000

eps

$2.57

gross Margin

N/A

cash Position

$51,805,000

revenue Growth

+7.14%

Revenue Breakdown

Key Numbers

• $9.384M — Net Income (Increased 46.87% for the nine months ended September 30, 2025, compared to $6.389M in 2024.)
• $34.619M — Net Interest Income (Increased 13.23% for the nine months ended September 30, 2025, from $30.574M in 2024.)
• $200K — Reversal of Provision for Credit Losses (A positive shift from a $1.090M provision in the prior year, boosting profitability.)
• $51.805M — Cash and Cash Equivalents (Decreased 70.94% from $178.277M at December 31, 2024, indicating significant liquidity deployment.)
• $216.715M — Purchase of AFS Securities (Major investment activity contributing to the decrease in cash and cash equivalents.)
• $1.01 — Net Income Per Common Share (Basic) (Increased from $0.62 for the three months ended September 30, 2024, demonstrating improved per-share earnings.)
• $194.791M — Total Shareholders' Equity (Increased 6.80% from $182.389M at December 31, 2024, reflecting retained earnings growth.)

Key Players & Entities

• SECURITY FEDERAL CORP (company) — registrant
• Security Federal Bank (company) — wholly owned subsidiary
• Security Federal Investments, Inc. (company) — Bank's wholly owned subsidiary
• Security Federal Insurance, Inc. (company) — Bank's wholly owned subsidiary
• Federal Reserve Bank of Richmond (company) — borrowing source
• $9.384 million (dollar_amount) — Net Income for nine months ended September 30, 2025
• $6.389 million (dollar_amount) — Net Income for nine months ended September 30, 2024
• $34.619 million (dollar_amount) — Net Interest Income for nine months ended September 30, 2025
• $200,000 (dollar_amount) — Reversal of Provision for Credit Losses for nine months ended September 30, 2025
• $51.805 million (dollar_amount) — Cash and Cash Equivalents at September 30, 2025

FAQ

Risk Factors

• Interest Rate Sensitivity [medium — financial]: The company's profitability is sensitive to changes in interest rates. Fluctuations in market interest rates can impact net interest income and the fair value of investment securities. For example, a significant increase in interest rates could lead to unrealized losses on the Available-for-Sale (AFS) portfolio, as seen with $31.742 million in gross unrealized losses at September 30, 2025.
• Credit Risk [medium — financial]: While the provision for credit losses was reversed, indicating improved credit quality, the company still holds a significant loan portfolio ($678.114 million net). Any deterioration in borrower creditworthiness could lead to increased loan losses. The allowance for credit losses on loans held for investment was $13.603 million at September 30, 2025.
• Investment Portfolio Valuation [medium — market]: The company holds a substantial investment portfolio, with AFS securities valued at $674.281 million. Changes in market conditions can affect the fair value of these investments, leading to unrealized gains or losses impacting other comprehensive income. A significant portion of these unrealized losses ($30.268 million) have been outstanding for 12 months or more.
• Liquidity Management [medium — operational]: The substantial decrease in cash and cash equivalents from $178.277 million to $51.805 million, driven by the purchase of AFS securities ($216.715 million), highlights a significant deployment of liquidity. While this may be a strategic investment, it necessitates careful monitoring to ensure sufficient liquidity for operational needs and deposit outflows.

Industry Context

Security Federal Corp operates within the community banking sector, characterized by a focus on local markets and relationship-based lending. The industry is currently navigating a dynamic interest rate environment, with rising rates impacting loan demand and investment portfolio valuations. Competition remains robust from larger financial institutions and fintech companies, necessitating a strong focus on customer service and efficient operations.

Regulatory Implications

As a financial institution, Security Federal Corp is subject to stringent regulatory oversight from bodies like the FDIC and state banking authorities. Compliance with capital adequacy requirements, lending regulations, and consumer protection laws is paramount. Changes in regulatory frameworks, such as those related to capital requirements or cybersecurity, could impact operational costs and strategic decisions.

What Investors Should Do

1. Monitor investment portfolio performance and interest rate sensitivity.
2. Analyze the sustainability of net interest income growth.
3. Evaluate the strategic deployment of liquidity.
4. Assess credit quality trends and loan loss provisions.

Key Dates

• 2025-09-30: Nine Months Ended — Reported significant net income growth of 46.87% and a 13.23% increase in net interest income, driven by loan growth and a reversal of credit loss provisions.
• 2025-09-30: Balance Sheet Date — Total assets remained stable, while liabilities decreased slightly, leading to a 6.80% increase in shareholders' equity. Cash and cash equivalents saw a substantial decline due to investment in AFS securities.
• 2024-12-31: Prior Year End — Provided the comparative baseline for asset and liability figures, showing a higher cash position and a provision for credit losses.

Glossary

Available For Sale (AFS)

Securities that are not classified as held-to-maturity or trading securities. They are reported at fair value, with unrealized gains and losses included in other comprehensive income. (A significant portion of SFDL's investment portfolio consists of AFS securities, valued at $674.281 million, impacting the company's financial position through fair value fluctuations.)

Held To Maturity (HTM)

Debt securities that the entity has the intent and ability to hold until maturity. They are reported at amortized cost. (SFDL holds HTM securities valued at $114.980 million. While not marked to market, their fair value ($112.801 million) indicates potential unrealized losses if interest rates rise.)

Provision for Credit Losses

An expense recognized by lenders to account for potential loan defaults and uncollectible debts. (A reversal of $200,000 in the provision for credit losses for the nine months ended September 30, 2025, significantly boosted net income compared to a $1.090 million provision in the prior year.)

Accumulated Other Comprehensive Loss (AOCL)

A component of shareholders' equity that includes unrealized gains and losses on available-for-sale securities, foreign currency translation adjustments, and pension plan adjustments. (SFDL's AOCL was a loss of $23.173 million at September 30, 2025, primarily reflecting unrealized losses on its AFS investment portfolio.)

Federal Home Loan Bank (FHLB) Stock

Stock purchased by member institutions from the Federal Home Loan Bank system, which provides liquidity and funding to its members. (SFDL holds $1.083 million in FHLB stock, representing a required investment for accessing FHLB services.)

Year-Over-Year Comparison

Compared to the prior year, Security Federal Corp has demonstrated robust growth in profitability, with net income increasing by 46.87% for the nine months ended September 30, 2025. Net interest income also saw a healthy rise of 13.23%, primarily fueled by increased interest income from loans. A significant positive shift was the reversal of the provision for credit losses, contrasting with a substantial provision in the previous year. Total assets remained relatively stable, but there was a notable decrease in cash and cash equivalents, offset by an increase in shareholders' equity. The company's investment strategy has shifted, with a significant purchase of available-for-sale securities impacting liquidity.

Key Financial Figures

• $0.01 — AT: SHARES: Common Stock, par value $0.01 per share November 10, 2025 3,123,691

Filing Documents

• sfdl20250930_10q.htm (10-Q) — 3440KB
• ex_857326.htm (EX-31.1) — 14KB
• ex_857327.htm (EX-31.2) — 14KB
• ex_857328.htm (EX-32) — 8KB
• 0001437749-25-034089.txt ( ) — 15132KB
• sfdl-20250930.xsd (EX-101.SCH) — 70KB
• sfdl-20250930_cal.xml (EX-101.CAL) — 72KB
• sfdl-20250930_def.xml (EX-101.DEF) — 554KB
• sfdl-20250930_lab.xml (EX-101.LAB) — 453KB
• sfdl-20250930_pre.xml (EX-101.PRE) — 594KB
• sfdl20250930_10q_htm.xml (XML) — 4115KB

Financial Statements (unaudited)

Financial Statements (unaudited): 3 Consolidated Balance Sheets at September 30, 2025 and December 31, 2024 3 Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2025 and 2024 4 Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2025 and 2024 5 Consolidated Statements of Changes in Shareholders' Equity for the Three and Nine Months Ended September 30, 2025 and 2024 6 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2025 and 2024 7

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 8 Item 2.

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

Management's Discussion and Analysis of Financial Condition and Results of Operations 29 Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Quantitative and Qualitative Disclosures about Market Risk 38 Item 4.

Controls and Procedures

Controls and Procedures 38 PART II. OTHER INFORMATION Item 1.

Legal Proceedings

Legal Proceedings 39 Item 1A.

Risk Factors

Risk Factors 39 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 39 Item 3. Defaults Upon Senior Securities 39 Item 4. Mine Safety Disclosures 39 Item 5. Other Information 39 Item 6. Exhibits 40

Signatures

Signatures 41 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. 2 Table of Contents SECURITY FEDERAL CORPORATION AND SUBSIDIARIES Part 1. Financial Information

Financial Statements

Item 1. Financial Statements Consolidated Balance Sheets September 30, 2025 December 31, 2024 Dollars in thousands, except per share amounts (Unaudited) (Audited) ASSETS: Cash and Cash Equivalents $ 51,805 $ 178,277 Certificates of Deposit with Other Banks 1,250 1,250 Investments: Available For Sale ("AFS") 674,281 525,623 Held To Maturity ("HTM") Net of Allowance for Credit Losses of $ 0 (Fair Value of $ 112,801 and $ 130,902 at September 30, 2025 and December 31, 2024, Respectively) 114,980 135,200 Total Investments 789,261 660,823 Loans Receivable, Net: Held For Sale 1,044 599 Held For Investment (Net of Allowance for Credit Losses of $ 13,603 and $ 13,894 at September 30, 2025 and December 31, 2024, Respectively) 677,070 686,550 Total Loans Receivable, Net 678,114 687,149 Accrued Interest Receivable 5,266 5,374 Operating Lease Right-of-Use ("ROU") Assets 1,142 927 Land Held for Sale 702 938 Premises and Equipment, Net 33,192 29,321 Federal Home Loan Bank ("FHLB") Stock, at Cost 1,083 1,089 Other Real Estate Owned ("OREO") 45 — Bank Owned Life Insurance ("BOLI") 34,202 28,660 Goodwill 1,200 1,200 Other Assets 14,755 16,765 Total Assets $ 1,612,017 $ 1,611,773 LIABILITIES: Deposit Accounts $ 1,365,470 $ 1,324,033 Borrowings from Federal Reserve Bank of Richmond ("FRB") - 50,000 Other Borrowings 23,889 27,809 Junior Subordinated Debentures 5,155 5,155 Subordinated Debentures 10,000 10,000 Operating Lease Liabilities 1,169 959 Other Liabilities 11,543 11,428 Total Liabilities 1,417,226 1,429,384 SHAREHOLDERS' EQUITY: Senior Non-Cumulative Perpetual Preferred Stock, Series ECIP, $ 1,000 Par Value; 82,949 Shares Authorized, Issued and Outstanding at September 30, 2025 and December 31, 2024 82,949 82,949 Common Stock, $ 0.01 Par Value; 5,000,000 Shares Authorized; 3,459,093 Shares Issued and 3,123,691 Shares Outstanding at September 30, 2025 and 3,458,050 Shares Iss

Notes to Consolidated Financial Statements

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, 2024 (" 2024 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, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025 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, bu

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 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, 2025 or 2024 ; 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, 2025 2024 Dollars and shares in thousands Income (1) Shares EPS Income (1) Shares EPS Basic EPS $ 3,173 3,145 $ 1.01 $ 1,995 3,195 $ 0.62 Nine Months Ended September 30, 2025 2024 Dollars and shares in thousands Income (1) Shares EPS Income (1) Shares EPS Basic EPS $ 8,139 3,172 $ 2.57 $ 5,877 3,214 $ 1.83 ( 1 ) Net income available to common shareholders 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, 2025 and 2024 , the Company had no options outstanding and there was no activity during the three and nine month

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 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, 2025 and December 31, 2024 . The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of AFS securities at the dates indicated were as follows: September 30, 2025 Dollars in thousands Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Student Loan Pools $ 85,742 $ 110 $ ( 422 ) $ 85,430 Small Business Administration ("SBA") Bonds 60,181 183 ( 1,826 ) 58,538 Tax Exempt Municipal Bonds 17,713 270 ( 736 ) 17,247 Taxable Municipal Bonds 64,386 — ( 8,855 ) 55,531 Mortgage-Backed Securities ("MBS") 477,102 336 ( 19,903 ) 457,535 Total AFS Securities $ 705,124 $ 899 $ ( 31,742 ) $ 674,281 December 31, 2024 Dollars in thousands Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Student Loan Pools $ 39,670 $ 117 $ ( 203 ) $ 39,584 SBA Bonds 66,491 337 ( 2,402 ) 64,426 Tax Exempt Municipal Bonds 6,746 — ( 688 ) 6,058 Taxable Municipal Bonds 64,530 — ( 11,970 ) 52,560 MBS 389,592 346 ( 26,943 ) 362,995 Total AFS Securities $ 567,029 $ 800 $ ( 42,206 ) $ 525,623 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 the Government National Mortgage Association ("Ginnie Mae,"), or by Government Sponsored Entities ("GSEs"), including the Federal National Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corp. ("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 following tables summarize gross unreal

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements At September 30, 2025 our AFS investment portfolio consisted of 537 individual AFS securities, 377 of which were in an unrealized loss position. At December 31, 2024 , 369 individual AFS securities were in an unrealized loss position. The Company reviews its investment securities

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