Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

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;

	•	effects of employment levels, labor shortages, persistent inflation, recessionary pressures, or slowing economic growth;
	•	changes in interest rate levels and the duration of such changes, including actions by the Board of Governors of the Federal Reserve System (the "Federal Reserve") in response thereto, which could adversely affect our revenues, expenses, asset values, cost of capital and liquidity;

•

the impact of inflation and monetary and fiscal policy responses thereto;

•

the effects of a federal government shutdown, debt ceiling standoff, or other fiscal uncertainty;

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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 by regulatory authorities and potential requirements to increase credit loss allowances, write-down or reclassify assets, change our regulatory or capital position, or affect our liquidity and earnings;

•

legislation or regulatory changes, including but not limited to shifts in capital requirements, banking regulation, tax laws, or consumer protection laws;

•

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;

•

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;

•

vulnerabilities in information systems or third-party service providers, including disruptions, breaches, or attacks;

	•	the impact on the Company of the U.S. government's elimination of all employees at the Community Development Financial Institutions Fund;
	•	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 the Community Development Capital Initiative (CDCI) Program;

•

geopolitical developments and international conflicts, including but not limited to tensions or instability in Eastern Europe, the Middle East, and Asia, or the imposition of new or increased tariffs, and trade restrictions, which may disrupt financial markets, global supply chains, energy prices, or economic activity in specific industry sectors;

•

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

•

environmental, social, and governance goals;

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

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

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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, 2024 ("2024 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 the 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 2025 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.

Financial Condition at September 30, 2025 and December 31, 2024

Assets - Total assets increased $244,000 to $1.61 billion at September 30, 2025from $1.61billion at December 31, 2024. This increase was primarily due to an increase in AFS securities, partially offset by a decrease in cash and cash equivalents and HTM securities. Changes in total assets are shown below.

										Increase (Decrease)
Dollars in thousands		September 30, 2025				December 31, 2024				$				%
Cash and Cash Equivalents		$	51,805			$	178,277			$	(126,472	)			(70.9	)%
Certificates of Deposits with Other Banks			1,250				1,250				-				-
AFS Securities			674,281				525,623				148,658				28.3
HTM Securities			114,980				135,200				(20,220	)			(15.0	)
Total Loans Receivable, Net			678,114				687,149				(9,035	)			(1.3	)
Accrued Interest Receivable			5,266				5,374				(108	)			(2.0	)
OREO			45				-				45				-
Operating Lease ROU Assets			1,142				927				215				23.2
Land Held for Sale			702				938				(236	)			(25.2	)
Premises and Equipment, Net			33,192				29,321				3,871				13.2
FHLB Stock			1,083				1,089				(6	)			(0.6	)
BOLI			34,202				28,660				5,542				19.3
Goodwill			1,200				1,200				-				-
Other Assets			14,755				16,765				(2,010	)			(12.0	)
Total Assets		$	1,612,017			$	1,611,773			$	244				0.0	%

Cash and cash equivalents decreased $126.5 million or 70.9% to $51.8 million at September 30, 2025from $178.3 million at December 31, 2024, primarily due to the repayment of borrowings with the Federal Reserve Bank of Richmond ("FRB") during the nine months ended September 30, 2025.

AFS securities increased $148.7 million or 28.3% to $674.3 million at September 30, 2025from $525.6 million at December 31, 2024 due to purchases of AFS securities exceeding sales, maturities and principal paydowns during the nine months ended September 30, 2025. HTM securities decreased $20.2 million to $115.0 million at September 30, 2025, from $135.2 million at December 31, 2024, due to paydowns and maturities exceeding purchases during the nine months ended September 30, 2025. The increase in AFS securities reflects reinvestment of maturing HTM securities into higher-yielding instruments amid a favorable interest rate environment.

Total loans, excluding loans held for sale, decreased $9.5 million, or 1.3%, to $677.1 million at September 30, 2025from $686.6 million at December 31, 2024, primarily reflecting decreases in construction loans and commercial and agricultural loans, partially offset by increases in consumer home equity lines of credit (HELOCs) and residential and commercial real estate loans originated during the nine months ended September 30, 2025. Residential real estate loans increased $19.0 million, or 9.3%, to $222.6 million at September 30, 2025from $203.7million at December 31, 2024. Commercial real estate loans increased $15.1 million, or 5.2%, to $303.7million at September 30, 2025from $288.5 million at December 31, 2024. Additionally, consumer HELOCs increased $2.2 million, or 5.9%, to $40.1 million at September 30, 2025from $37.8 million at December 31, 2024. Offsetting these increases, construction loans decreased $40.7 million, or 37.1%, to $69.2 million at September 30, 2025from $109.9 million at December 31, 2024 while commercial and agricultural loans decreased $5.9 million, or 15.9%, to $31.0million at September 30, 2025from $36.9 million at December 31, 2024. Other consumer loans increased slightly to $24.2 million at September 30, 2025 compared to $23.8 million at December 31, 2024.

At September 30, 2025and 2024, the allowance for credit losses on loans as a percentage of total loans was 1.97% and 1.95%, respectively. Loans past due 30 days or more decreased to $6.9 million, or 1.00% of total loans, at September 30, 2025, compared to $12.6 million, or 1.80% of total loans, at December 31, 2024. The decline in past due balances was primarily as a result of improvements in construction real estate, which decreased from $4.9 million to $2.1 million, and residential real estate, which decreased from $3.3 million to $1.7 million. Past due balances also improved across commercial and agricultural and commercial real estate portfolios. Current loans totaled $683.9 million, compared to $688.0 million at December 31, 2024. This improvement reflects a combination of successful loan repayments, active collection efforts, and generally favorable credit conditions in the Company's lending markets during the nine months ended September 30, 2025.

Loans held for sale increased to $1.0 million at September 30, 2025from $599,000 at December 31, 2024, primarily due to higher residential mortgage originations designated for sale during the nine months ended September 30, 2025. The increase also reflects stronger secondary market demand and seasonal growth in home purchase activity during the summer months, which led to a higher volume of loans being originated with the intent to sell.

Premises and equipment, net increased $3.9 million or 13.2% to $33.2 million at September 30, 2025from $29.3 million at December 31, 2024, as a result of improvements made to existing branches and future branch opportunities.

Other assets decreased $2.0 million or 12.0% to $14.8 million at September 30, 2025from $16.8 million at December 31, 2024, primarily due to a $2.4 million decrease in the deferred tax asset associated with the unrealized loss on our AFS securities portfolio.

Liabilities

Deposit Accounts

Total deposits increased $41.4 million or 3.1% to $1.37 billion at September 30, 2025from December 31, 2024, primarily due to increases in higher cost certificates of deposit and money market accounts, partially offset by a decrease in checking accounts. The growth in certificates of deposits was largely the result of targeted promotions to retain and attract customers amid heightened competition for deposits as market interest rates stabilized, while checking accounts declined as customers sought higher-yield alternatives. The Bank had $24.4 million and $25.8 million in brokered time deposits at September 30, 2025 and December 31, 2024, respectively. A portion of these brokered deposits include call options, giving the Bank the flexibility to redeem them prior to maturity if interest rates decline. In addition, the Bank held $5.7 million and $5.4 million of non-certificate brokered deposits at September 30, 2025and December 31, 2024, respectively.

At September 30, 2025 and December 31, 2024, we did not have any deposit relationship with any individual or entity that was greater than 5% of outstanding deposits. At September 30, 2025, approximately $334.7 million or 24.5%of our $1.37 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

We had no outstanding borrowings from the FRB at September 30, 2025, compared to $50.0 million at December 31, 2024. This decrease was primarily due to our excess liquidity, which reduced the need for borrowed funds.

We also had $23.9million in other borrowings at September 30, 2025, compared to $27.8million and December 31, 2024, 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, 2025and December 31, 2024, the Company had $5.2 million in junior subordinated debentures and $10.0 million in subordinated debentures outstanding. See "Note 11 - Subordinated Debentures" of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report for additional information.

Shareholders' Equity

Shareholders' equity increased $12.4 million or 0.1%, to $194.8 million at September 30, 2025from $182.4 million at December 31, 2024. The increase was primarily attributable to $8.1 million in net income earned during the period and a $7.9 million reduction in accumulated other comprehensive loss (AOCL), driven by unrealized gains on AFS securities as market conditions improved. These increases were partially offset by $1.7 million in common stock dividends paid and $1.2 million in preferred stock dividends paid to shareholders during the nine months ended September 30, 2025.

Results of Operations for the Quarters Ended September 30, 2025 and 2024

Net Income

Net income available to common shareholders increased $1.2 million, or 59.1%, to $3.2million or $1.01 per basic common share for the quarter ended September 30, 2025, compared to $2.0 million or $0.62 per basic common share for the quarter ended September 30, 2024. The increase was the result of an increase in net interest income and a reduction to the provision for credit losses, which were partially offset by an increase in non-interest expense during the third quarter of 2025.

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, 2025 and 2024. 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, 2025 and 2024.

		Quarter Ended September 30,
		2025												2024
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		$	688,046			$	11,032				6.41	%		$	679,895			$	10,594				6.23	%
Taxable Investments			749,076				8,125				4.34				655,196				7,397				4.52
Non-taxable Investments			12,170				130				4.25				12,735				112				3.53
Deposits with other banks			78,077				858				4.39				107,237				1,451				5.41
Total Interest-Earning Assets		$	1,527,369			$	20,145				5.28	%		$	1,455,063			$	19,554				5.38	%
Interest-Bearing Liabilities:
Checking, Savings & Money Market Accounts		$	782,912			$	4,422				2.26	%		$	714,513			$	4,792				2.68	%
Certificates Accounts			330,798				3,312				4.00				276,996				2,962				4.28
Total Interest-Bearing Deposits			1,113,710				7,734				2.78				991,509				7,754				3.13
Other Borrowings (2)			18,151				105				2.31				89,641				923				4.12
Junior Subordinated Debentures			5,155				82				6.37				5,155				95				7.40
Subordinated Debentures			10,000				131				5.25				26,500				348				5.25
Total Interest-Bearing Liabilities		$	1,147,016			$	8,052				2.81	%		$	1,112,805			$	9,120				3.28	%
Net Interest Rate Spread											2.47	%											2.10	%
Tax Equivalent Net Interest Income/Margin						$	12,093				3.17	%						$	10,434				2.87	%
Less: tax equivalent adjustment							14												23
Net Interest Income						$	12,079											$	10,411

(1)	Annualized

(2)	Includes FRB borrowings and repurchase agreements.

Net interest income increased $1.7 million or 16.0% to $12.1 million during the quarter ended September 30, 2025, compared to $10.4 million for the same quarter in 2024 due to increases in both average interest-earning assets and net interest margin. During the quarter ended September 30, 2025, average interest-earning assets increased $72.3 million or 5.0% to $1.53 billion from $1.46 billion for the same quarter in 2024, while average interest-bearing liabilities increased $34.2 million or 3.1% to $1.15 billion for the quarter ended September 30, 2025from $1.11 billion for the comparable quarter in 2024. The Company's net interest margin was 3.17% for the quarter ended September 30, 2025compared to 2.87% for the comparable quarter in 2024. The Company's net interest spread on a tax equivalent basis was 2.47% for the quarter ended September 30, 2025compared to 2.10% for the quarter ended September 30, 2024.

The increase in the net interest margin was the result of several key factors. Primarily, the yield on loans increased by 18 basis points due to a combination of adjustable-rate loan repricing as interest rates increased in the market and the origination of new loans at higher rates. Additionally, the reduction in interest expense on borrowings, particularly a significant decrease in the average balance and cost of FRB borrowings and repurchase agreements, contributed to lower funding costs. Interest expense on deposits decreased slightly as a result of lower rates paid on those deposits. The cost of interest-bearing liabilities and related interest expense declined due to the lower cost and balances of other borrowing types and decreases in deposit rates. The favorable mix of higher-yielding earning assets combined with lower funding costs resulted in an improved net interest spread and net interest margin.

Interest Income

Total tax-equivalent interest income increased $591,000 or 3.0% to $20.1 million for the quarter ended September 30, 2025compared to $19.6 million for the same period in 2024.

Interest income on loans increased $438,000 or 4.1% to $11.0 million for the quarter ended September 30, 2025from $10.6 million for the thirdquarter of 2024. The increase was the result of a $8.2 million increase in the average loan portfolio balance combined with an increase of 18 basis points in the average yield on loans receivable as adjustable-rate loans reset or paid off and new loans were originated at higher market interest rates.

Interest income from taxable investments increased $728,000 or 9.8% to $8.1 million during the quarter ended September 30, 2025, from $7.4 million for the thirdquarter of 2024, due to a $93.9 million increase in the average balance of these investments. Tax equivalent interest income from non-taxable investments increased $18,000 to $130,000 during the quarter ended September 30, 2025 due to an increase of 72 basis points in the average yield earned on non-taxable investments.

Interest income from deposits with other banks decreased $593,000 to $858,000 during the quarter ended September 30, 2025, from $1.5 million for the thirdquarter of 2024, due to a $29.2 million decrease in the average balance of these assets.

Interest Expense

Total interest expense decreased $1.0 million or 11.7% to $8.1 million for the quarter ended September 30, 2025compared to $9.1 million for the same quarter in 2024 primarily due to an $818,000 reduction in interest expense on other borrowings resulting from lower average balances and lower rates. This decline was partially offset by higher interest expense on certificates of deposit as a result of significant growth in average balances, which was partially offset by lower rates paid on these deposits. Additionally, interest expense on checking, savings and money market accounts decreased due to lower rates.

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 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.

The Company recorded a $317,000 reversal to the provision for credit losses on loans and $117,000 in provision for credit losses on unfunded commitments, resulting in a $200,000 net reversal to the provision for credit losses during the quarter ended September 30, 2025, compared to $585,000 in total provision for credit losses during the quarter ended September 30, 2024. The reversal of provision for credit losses on loans in the current quarter reflects stable credit quality and management's determination that the existing allowance for credit losses was adequate based on current portfolio performance, economic conditions, and loan loss expectations. Net charge-offs totaled $88,000 for the thirdquarter of 2025compared to net charge-offs of $79,000 during the thirdquarter of 2024. 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 remained unchanged at $2.6 million for the quarters ended September 30, 2025 and 2024. The most significant fluctuations include a $199,000 increase in other non-interest income, which was offset by a $229,000 decrease in trust income. 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 $1.0 million, or 11.1%, to $10.4 million for the quarter ended September 30, 2025compared to $9.3 million for the quarter ended September 30, 2024. The following table summarizes the changes in non-interest expense:

		Quarter Ended September 30,								Increase (Decrease)
Dollars in thousands		2025				2024				$				%
Compensation and Employee Benefits		$	6,007			$	5,359			$	648				12.1	%
Occupancy			936				800				136				17.0
Advertising			199				254				(55	)			(21.7	)
Depreciation and Maintenance of Equipment			394				297				97				32.7
FDIC Insurance Premiums			172				200				(28	)			(14.0	)
Consulting			216				172				44				25.6
Debit Card Expense			467				388				79				20.4
Data Processing			404				351				53				15.1
Cloud Services			241				299				(58	)			(19.4	)
Other			1,316				1,193				123				10.3
Total Non-Interest Expense		$	10,352			$	9,313			$	1,039				11.2	%

The largest increase in non-interest expense during the thirdquarter of 2025 was compensation and employee benefits expense, which increased $648,000 or 12.1% to $6.0 million for the quarter ended September 30, 2025, compared to $5.4 million during the same period in 2024. These increases were primarily the result of higher staffing levels and additional compensation-related costs to support our growth and operational needs.

Occupancy expense increased $136,000, or 17.0%, due to higher building maintenance, utility costs, and lease-related expenses. Depreciation and maintenance of equipment increased $97,000, or 32.7%, due to higher equipment maintenance costs for the quarter ended September 30, 2025. Debit card expense increased $79,000, or 20.4%, due to higher transaction volumes and increased network processing fees.

Provision For Income Taxes

The provision for income taxes increased 33.8% to $756,000 for the quarter ended September 30, 2025, from $565,000 for the same period in 2024, due to higher pre-tax net income. Pre-tax net income was $3.5 million for the quarter ended September 30, 2025compared to $2.8 million for the thirdquarter of 2024. The Company's combined federal and state effective income tax rate was 21.3% and 23.3% for the quarters ended September 30, 2025 and 2024, respectively.

Results of Operations for the Nine Months Ended September 30, 2025 and 2024

Net Income

Net income available to common shareholders increased $2.3 million, or 38.5%, to $8.1 million or $ 2.57 per basic common share for the nine months ended September 30, 2025, compared to $5.9 million or $1.83 per basic common share for the nine months ended September 30, 2024. The increase was the result of increases in net interest income and non-interest income, as well as a reduction to the provision for credit losses, which were partially offset by increases in non-interest expense and provision for income taxes during the third quarter of 2025.

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 nine months ended September 30, 2025 and 2024. 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 nine months ended September 30, 2025 and 2024.

		Nine Months Ended September 30,
		2025												2024
(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		$	698,671			$	33,280				6.35	%		$	662,539			$	30,183				6.07	%
Taxable Investments			690,042				21,930				4.24				664,149				22,371				4.49
Non-taxable Investments			8,041				226				3.75				17,613				470				3.56
Deposits with other banks			103,492				3,420				4.41				102,556				4,129				5.37
Total Interest-Earning Assets		$	1,500,246			$	58,856				5.23	%		$	1,446,857			$	57,153				5.27	%
Interest-Bearing Liabilities:
Checking, Savings & Money Market Accounts		$	764,029			$	13,214				2.31	%		$	720,659			$	14,273				2.64	%
Certificates Accounts			324,955				9,986				4.10				253,247				7,670				4.04
Total Interest-Bearing Deposits			1,088,984				23,200				2.84				973,906				21,943				3.00
Other Borrowings (2)			24,363				355				1.94				103,260				3,224				4.16
Junior Subordinated Debentures			5,155				245				6.34				5,155				286				7.40
Subordinated Debentures			10,000				394				5.25				26,500				1,044				5.25
Total Interest-Bearing Liabilities		$	1,128,502			$	24,194				2.86	%		$	1,108,821			$	26,497				3.19	%
Net Interest Rate Spread											2.37	%											2.08	%
Tax Equivalent Net Interest Income/Margin						$	34,662				3.08	%						$	30,656				2.83	%
Less: tax equivalent adjustment							43												82
Net Interest Income						$	34,619											$	30,574

(1)	Annualized

(2)	Includes FRB borrowings and repurchase agreements.

Net interest income on a tax equivalent basis increased $4.0 million or 13.1% to $34.7 million during the ninemonths ended September 30, 2025, compared to $30.7 million for the same ninemonths in 2024 due to increases in both average interest-earning assets and net interest margin. During the ninemonths ended September 30, 2025, average interest-earning assets increased $53.4 million or 3.7% to $1.50 billion from $1.45 billion for the first ninemonths in 2024, while average interest-bearing liabilities increased $19.7 million or 1.8% to $1.13 billion for the ninemonths ended September 30, 2025from $1.11 billion for the comparable ninemonths in 2024. The Company's net interest margin was 3.08% for the ninemonths ended September 30, 2025compared to 2.83% for the comparable ninemonths in 2024. The Company's net interest spread on a tax equivalent basis was 2.37% for the ninemonths ended September 30, 2025compared to 2.08% for the ninemonths ended September 30, 2024.

Interest Income

Total tax-equivalent interest income increased $1.7 million or 3.0% to $58.9 million for the ninemonths ended September 30, 2025compared to $57.2 million for the same period in 2024.

Interest income on loans increased $3.1 million or 10.3% to $33.3 million for the ninemonths ended September 30, 2025from $30.2 million for the ninemonths ended September 30, 2024. The increase was the result of a $36.1 million increase in the average loan portfolio balance combined with a 28 basis point increase in the average yield on loans receivable as adjustable-rate loans reset or paid off and new loans were originated at higher market interest rates.

Interest income from taxable investments decreased $441,000 or 2.0% to $21.9 million during the ninemonths ended September 30, 2025, from $22.4 million for the first ninemonths of 2024, due to a 25 basis point decrease in the average yield to 4.24%, which was partially offset by $25.9 million increase in the average balance of taxable investments. Tax equivalent interest income from non-taxable investments decreased $244,000 to $226,000 during the ninemonths ended September 30, 2025 primarily due to a $9.6 million decrease in the average balance of non-taxable investments.

Interest income from deposits with other banks decreased $709,000 to $3.4 million during the ninemonths ended September 30, 2025, from $4.1 million for the ninemonths ended September 30, 2024, due to a 96 basis point decrease in the average yield earned on these assets reflecting lower market interest rates, which was partially offset by a $936,000 increase in the average balance of these assets.

Interest Expense

Total interest expense decreased $2.3 million or 8.7% to $24.2 million for the ninemonths ended September 30, 2025compared to $26.5 million for the same ninemonths in 2024, primarily due to the payoff of borrowings from the FRB combined with a decrease in market interest rates.

Interest expense on deposits increased $1.3 million to $23.2 million for the ninemonths ended September 30, 2025, from $21.9 million for the same ninemonth period in 2024, due to a $115.1 million increase in the average balance of interest-bearing deposits, particularly certificates of deposit accounts, which increased $71.7 million, which was partially offset by a decrease of 16 basis points in the average cost of deposits.

Interest expense on FRB and other borrowings decreased $2.9 million to $355,000 for the ninemonths ended September 30, 2025, from $3.2 million for the ninemonths ended September 30, 2024. This decrease was primarily due to the repayment of FRB borrowings and lower utilization of repurchase agreements, resulting in a $78.9 million decrease in average balances and a 222 basis point reduction in the average cost of these borrowings to 1.94% for the nine months ended September 30, 2025, from 4.16% for the same period in 2024, reflecting lower market interest rates.

Provision for Credit Losses

The Company recorded a $317,000 reversal of provision for credit losses on loans and a $117,000 provision for credit losses on unfunded commitments, resulting in a $200,000 net reversal in the provision for credit losses for the ninemonthsended September 30, 2025, compared to 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. The reversal of provision for credit losses on loans in 2025 reflects stable credit quality, minimal net charge-offs, and management's determination that the existing allowance for credit losses was adequate based on current portfolio performance, economic conditions, and loan loss expectations. Net recoveries totaled $26,000 for the ninemonths ended September 30, 2025, compared to net charge-offs of $165,000 during the nine months ended September 30, 2024. 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 $273,000 or 3.7% to $7.7 million for the ninemonths ended September 30, 2025compared to $7.4 million for the ninemonths ended September 30, 2024, primarily due to a $418,000 increase in other non-interest income, which included a $365,000 increase in rental income and $62,000 gain on sale of land held for sale. During the first quarter of 2025, we purchased a multi-tenant property resulting in an increase to rental income. This property is intended to be the future site of a full-service branch of the Bank.

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 $1.9 million or 6.8% to $30.6 million for the nine months ended September 30, 2025compared to $28.6 million for the nine months ended September 30, 2024. The following table summarizes the changes in non-interest expense:

		Nine Months Ended September 30,								Increase (Decrease)
		2025				2024				$						%
Compensation and Employee Benefits		$	17,661			$	16,425			$	1,236				7.5	%
Occupancy			2,729				2,425				304				12.5
Advertising			609				754				(145	)			(19.2	)
Depreciation and Maintenance of Equipment			1,180				1,297				(117	)			(9.0	)
FDIC Insurance Premiums			523				536				(13	)			(2.4	)
Consulting			587				489				98				20.0
Debit Card Expense			1,401				1,126				275				24.4
Data Processing			1,215				1,029				186				18.1
Cloud Services			719				703				16				2.3
Other			3,929				3,833				96				2.5
Total Non-Interest Expense		$	30,553			$	28,617			$	1,936				6.8	%

The largest increase in non-interest expense was compensation and employee benefits expense, which increased $1.2 million, or 7.5%, to $17.7 million for the ninemonths ended September 30, 2025, compared to $16.4 million during the same period in 2024, as a result of higher staffing levels and additional compensation-related costs to support our growth and operational needs.

Occupancy expense increased $304,000, or 12.5%, due to higher building maintenance, utility costs, and lease-related expenses. Debit card expense increased $275,000, or 24.4%, due to higher transaction volumes and increased network processing fees, while data processing expense rose $186,000, or 18.1%, driven by expanded digital banking services and vendor cost increases. These increases were partially offset by decreases in depreciation and maintenance of equipment, which declined $117,000, or 9.0%, due to fewer capitalized equipment replacements and the full depreciation of certain assets, and advertising expense, which decreased $145,000, or 19.2%.

Provision For Income Taxes

The provision for income taxes increased 32.9% to $2.6 million for the nine months ended September 30, 2025, from $1.9 million for the same period in 2024, due to higher pre-tax net income. Pre-tax net income was $11.9 million for the nine months ended September 30, 2025compared to $8.3 million for the nine months ended September 30, 2024. The Company's combined federal and state effective income tax rate was 21.3% and 23.3% for the nine months ended September 30, 2025 and 2024, 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 certified CDFI 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.

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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.

During the first quarter of 2025, an Executive Order was issued directing the CDFI Fund to limit its operations to those necessary to fulfill statutory obligations. The Company, which participates in CDFI programs, is evaluating the potential impact of these actions. The CDFI Fund provides programs and financial incentives intended to support lending and investment in low-to-moderate income communities. While the Company has not experienced any immediate impact, reductions in CDFI funding or program support could limit access to certain grants, awards, or other benefits in future periods. The Company will continue to monitor these developments and assess any potential effects on its operations or financial performance.

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.

Our primary sources of funds include deposits, scheduled loan and investment 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 $154.5 million in unused commitments to extend credit and standby letters of credit at September 30, 2025.

During the nine months ended September 30, 2025, loan repayments exceeded loan disbursements resulting in a $9.5 million decrease in total net loans receivable. Also, during the nine months ended September 30, 2025, deposits increased $41.4 million.

The FHLB of Atlanta has approved a line of credit of up to 25.0% of the Bank's total assets, which, when utilized, is collateralized by a pledge of specific investment securities and/or eligible loans. The Bank had no outstanding FHLB advances at September 30, 2025with $467.5million in total borrowing capacity at the FHLB at that date, subject to collateral requirements. The Company's total pledged collateral for FHLB advances had an amortized cost and fair value of $44.8 million and $36.3 million at September 30, 2025.

We 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, 2025, we had no outstanding borrowings from the FRB discount window, with investment securities pledged as collateral having an amortized cost and fair value of $326.1 million and $305.3million, respectively. The Company participates in 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, 2025, the Company had pledged loan collateral for FRB borrowings with an amortized cost and collateral value of $74.3 million and $60.4 million. Borrowing capacity provided by pledged loan collateral is included in the FRB discount window availability.

The Bank also had a $50.0million unused Fed Funds facility with Pacific Coast Bankers Bank at September 30, 2025.

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 securities totaled $683.6million at September 30, 2025. Certificates of deposit that are scheduled to mature in less than one year from September 30, 2025totaled $296.6 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, 2025, Security Federal had liquid assets of $50.8 million. In addition to its operating expenses, Security Federal is responsible for funding dividend payments to its shareholders, repurchases of its common stock, and payments on its 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; however, there are regulatory restrictions on the Bank's ability to pay dividends to the Company. 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 $0.15per 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 2025 at this rate of $0.15per share, our average total common stock dividend paid each quarter would be approximately $469,000 based on the number of outstanding shares at September 30, 2025.

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 authorized an increase in the repurchase program, adding an additional 100,000 shares to the total shares available for repurchase. 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, 2025, the Company repurchased 60,898 shares of its common stock at an aggregate cost of $1.9 million, leaving 63,143 shares available for further repurchase under the existing stock repurchase program at September 30, 2025. 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."

At September 30, 2025, 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 18.7%, 10.1%, 18.7%, and 19.9%, 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, 2025the Bank's conservation buffer was 11.9%. For additional details, see "Note 12 - Regulatory Matters" of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES