SFDL posts higher Q3 earnings as interest costs ease
Security Federal Corporation reported stronger Q3 results. Net income rose to 3,588 (dollars in thousands) from 2,410 a year ago, and basic EPS increased to $1.01 from $0.62. Net interest income improved to 12,079 (thousands) as deposit and borrowing costs eased; interest expense fell to 8,052 (thousands) from 9,121. The company recorded a $200 thousand reversal of credit loss provisions, supporting earnings.
On the balance sheet, deposits were 1,365,470 (thousands) versus 1,324,033 at year-end, while loans held for investment, net, were 677,070 (thousands) versus 686,550. Available-for-sale securities increased, and accumulated other comprehensive loss improved to (23,173) (thousands), reflecting unrealized gains. Cash and cash equivalents decreased to 51,805 (thousands) from 178,277 as the company redeployed liquidity into securities and other uses. The company paid a $0.15 quarterly common dividend; weighted average basic shares were 3,144,755. Common shares outstanding were 3,123,691 as of November 10, 2025.
Positive
- None.
Negative
- None.
Insights
Q3 earnings improved on lower funding costs and reserve release.
Security Federal posted higher profitability as net interest income reached 12,079 (thousands) and interest expense declined to 8,052 (thousands). A
Balance sheet shifts show deposits at 1,365,470 (thousands) and net loans at 677,070 (thousands), with larger AFS securities and improved AOCL at (23,173) (thousands). Funding from FRB borrowings declined to zero on the balance sheet versus 50,000 at year-end, while liquidity moved into securities.
Key items to watch include credit costs (provision trends) and the trajectory of deposit pricing, which influenced Q3 interest expense. Subsequent filings may provide more detail on margin sustainability.
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark one)
FOR THE QUARTERLY PERIOD ENDED
OR
FOR THE TRANSITION PERIOD:
| FROM: | TO: |
COMMISSION FILE NUMBER:
SECURITY FEDERAL CORPORATION
(Exact name of registrant as specified in its charter)
| | | |||
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
(Address of principal executive office and Zip Code)
(
(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.
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.)
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 | | |||
| | ☒ | Emerging growth company | | |||
| Accelerated filer | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
| Yes | ☐ | No | ☐ |
Indicate by check mark whether the registrant is a shell corporation (defined in Rule 12b-2 of the Exchange Act) Yes
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 10, 2025 | |
| PART I. |
FINANCIAL INFORMATION (UNAUDITED) |
PAGE NO. |
| Item 1. |
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 |
8 |
|
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
29 |
| Item 3. |
Quantitative and Qualitative Disclosures about Market Risk |
38 |
| Item 4. |
Controls and Procedures |
38 |
| PART II. |
OTHER INFORMATION |
|
| Item 1. |
Legal Proceedings |
39 |
| Item 1A. |
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 |
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.
SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Part 1. Financial Information
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 | $ | $ | ||||||
| Certificates of Deposit with Other Banks | ||||||||
| Investments: | ||||||||
| Available For Sale ("AFS") | ||||||||
| 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) | ||||||||
| Total Investments | ||||||||
| Loans Receivable, Net: | ||||||||
| Held For Sale | ||||||||
| Held For Investment (Net of Allowance for Credit Losses of $13,603 and $13,894 at September 30, 2025 and December 31, 2024, Respectively) | ||||||||
| Total Loans Receivable, Net | ||||||||
| Accrued Interest Receivable | ||||||||
| Operating Lease Right-of-Use ("ROU") Assets | ||||||||
| Land Held for Sale | ||||||||
| Premises and Equipment, Net | ||||||||
| Federal Home Loan Bank ("FHLB") Stock, at Cost | ||||||||
| Other Real Estate Owned ("OREO") | ||||||||
| Bank Owned Life Insurance ("BOLI") | ||||||||
| Goodwill | ||||||||
| Other Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES: | ||||||||
| Deposit Accounts | $ | $ | ||||||
| Borrowings from Federal Reserve Bank of Richmond ("FRB") | ||||||||
| Other Borrowings | ||||||||
| Junior Subordinated Debentures | ||||||||
| Subordinated Debentures | ||||||||
| Operating Lease Liabilities | ||||||||
| Other Liabilities | ||||||||
| Total Liabilities | ||||||||
| 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 | ||||||||
| 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 Issued and 3,186,571 Shares Outstanding at December 31, 2024, Respectively | ||||||||
| Additional Paid-In Capital ("APIC") | ||||||||
| Treasury Stock, at Cost; 335,402 and 271,479 Shares Outstanding at September 30, 2025 and December 31, 2024, Respectively | ( | ) | ( | ) | ||||
| Accumulated Other Comprehensive Loss ("AOCL") | ( | ) | ( | ) | ||||
| Retained Earnings | ||||||||
| Total Shareholders' Equity | ||||||||
| Total Liabilities and Shareholders' Equity | $ | $ | ||||||
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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 |
2025 |
2024 |
2025 |
2024 |
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| Interest Income: |
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| Loans |
$ | $ | $ | $ | ||||||||||||
| Taxable Investment Securities |
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| Tax-exempt Investment Securities |
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| Other |
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| Total Interest Income |
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| Interest Expense: |
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| Deposits |
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| FRB and Other Borrowings |
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| Subordinated Debentures |
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| Junior Subordinated Debentures |
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| Total Interest Expense |
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| Net Interest Income |
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| (Reversal of) Provision for Credit Losses |
( |
) | ( |
) | ||||||||||||
| Net Interest Income After (Reversal of) Provision for Credit Losses |
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| Non-Interest Income: |
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| Net Gain on Sale of Investments |
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| Gain on Sale of Loans |
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| Service Fees on Deposit Accounts |
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| Commissions From Insurance Agency |
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| Trust Income |
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| BOLI Income |
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| ATM and Check Card Fee Income |
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| Other |
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| Total Non-Interest Income |
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| Non-Interest Expense: |
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| Compensation and Employee Benefits |
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| Occupancy |
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| Advertising |
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| Depreciation and Maintenance of Equipment |
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| FDIC Insurance Premiums |
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| Consulting |
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| Debit Card Expense |
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| Data Processing |
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| Cloud Services |
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| Other |
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| Total Non-Interest Expense |
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| Income Before Income Taxes |
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| Provision for Income Taxes |
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| Net Income |
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| Preferred Stock Dividends |
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| Net Income Available to Common Shareholders |
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| Net Income Per Common Share (Basic) |
$ | $ | $ | $ | ||||||||||||
| Cash Dividend Per Share on Common Stock |
$ | $ | $ | $ | ||||||||||||
| Weighted Average Shares Outstanding (Basic) |
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Unaudited)
| Three Months Ended September 30, | ||||||||
| Dollars in thousands | 2025 | 2024 | ||||||
| Net Income | $ | $ | ||||||
| Other Comprehensive Income: | ||||||||
| Unrealized Holding Gains on AFS Investments, Net of Tax of $861.4 thousand and $2.6 million at September 30, 2025 and 2024, Respectively | ||||||||
| Reclassification Adjustment for Gains Included in Net Income, Net of Tax of $9.4 thousand at September 30, 2024 | ( | ) | ||||||
| Amortization of Unrealized Losses on AFS Securities Transferred to HTM, Net of Tax of $358 and $368 at September 30, 2025 and 2024, Respectively | ||||||||
| Other Comprehensive Income, Net of Tax | ||||||||
| Comprehensive Income | $ | $ | ||||||
| Nine Months Ended September 30, | ||||||||
| Dollars in thousands | 2025 | 2024 | ||||||
| Net Income | $ | $ | ||||||
| Other Comprehensive Income: | ||||||||
| Unrealized Holding Gains on AFS Investments, Net of Tax of $2.6 million and $3.0 million at September 30, 2025 and 2024, Respectively | ||||||||
| Reclassification Adjustment for Gains Included in Net Income, Net of Tax of $5.4 thousand and $9.4 thousand at September 30, 2025 and 2024, Respectively | ( | ) | ( | ) | ||||
| Amortization of Unrealized Losses on AFS Securities Transferred to HTM, Net of Tax of $724 and $846 at September 30, 2025 and 2024, Respectively | ||||||||
| Other Comprehensive Income, Net of Tax | ||||||||
| Comprehensive Income | $ | $ | ||||||
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
For the Three and Nine Months Ended September 30, 2025 and 2024
| 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 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||
| Net Income | — | — | — | |||||||||||||||||||||||||||||||||||||
| Other Comprehensive Income, Net of Tax | — | — | — | |||||||||||||||||||||||||||||||||||||
| Employee Stock Purchase Plan | ||||||||||||||||||||||||||||||||||||||||
| Treasury Stock Repurchases | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Cash Dividends on Common Stock | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||
| Net Income | — | — | — | |||||||||||||||||||||||||||||||||||||
| Other Comprehensive Income, Net of Tax | — | — | — | |||||||||||||||||||||||||||||||||||||
| Employee Stock Purchase Plan | — | 498 | — | |||||||||||||||||||||||||||||||||||||
| Treasury Stock Repurchases | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Cash Dividends on Common Stock | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Cash Dividends on Preferred Stock | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||
| Net Income | — | — | — | |||||||||||||||||||||||||||||||||||||
| Other Comprehensive Income, Net of Tax | — | — | — | |||||||||||||||||||||||||||||||||||||
| Treasury Stock Repurchases | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Employee Stock Purchase Plan | ||||||||||||||||||||||||||||||||||||||||
| Cash Dividends on Common Stock | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Cash Dividends on Preferred Stock | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||
| Preferred Stock |
Common Stock |
Treasury Stock |
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| Dollars in thousands |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
APIC |
AOCL |
Retained Earnings | Total |
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| Balance at December 31, 2024 |
$ | $ | $ | ( |
) | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||||
| Net Income |
— | — | — | |||||||||||||||||||||||||||||||||||||
| Other Comprehensive Income, Net of Tax |
— | — | — | |||||||||||||||||||||||||||||||||||||
| Employee Stock Purchase Plan |
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| Treasury Stock Repurchases |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
| Cash Dividends on Common Stock |
— | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Cash Dividends on Preferred Stock |
— | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Balance at March 31, 2025 |
$ | $ | $ | ( |
) | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||||
| Net Income |
— | — | — | |||||||||||||||||||||||||||||||||||||
| Other Comprehensive Income, Net of Tax |
— | — | — | |||||||||||||||||||||||||||||||||||||
| Employee Stock Purchase Plan |
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| Treasury Stock Repurchases |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
| Cash Dividends on Common Stock |
— | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Cash Dividends on Preferred Stock |
— | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2025 |
$ | $ | $ | ( |
) | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||||
| Net Income |
— | — | — | |||||||||||||||||||||||||||||||||||||
| Other Comprehensive Income, Net of Tax |
— | — | — | |||||||||||||||||||||||||||||||||||||
| Employee Stock Purchase Plan |
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| Treasury Stock Repurchases |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
| Cash Dividends on Common Stock |
— | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Cash Dividends on Preferred Stock |
— | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Balance at September 30, 2025 |
$ | $ | $ | ( |
) | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||||
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| Dollars in thousands | 2025 | 2024 | ||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Income | $ | $ | ||||||
| Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: | ||||||||
| Depreciation Expense | ||||||||
| Discount Accretion and Premium Amortization, net | ||||||||
| (Reversal of) Provision for Credit Losses | ( | ) | ||||||
| Earnings on BOLI | ( | ) | ( | ) | ||||
| Gain on Sale of Loans | ( | ) | ( | ) | ||||
| Gain on Sale of Investments | ( | ) | ( | ) | ||||
| Gain on Sale of Land Held for Sale | ( | ) | ||||||
| Amortization of Operating Lease ROU Assets | ||||||||
| Proceeds From Sale of Loans Held For Sale | ||||||||
| Origination of Loans Held For Sale | ( | ) | ( | ) | ||||
| Decrease (Increase) in Accrued Interest Receivable | ( | ) | ||||||
| Change in Other Assets | ( | ) | ||||||
| Change in Lease Liabilities and Other Liabilities | ( | ) | ||||||
| Net Cash Provided By Operating Activities | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of AFS Securities | ( | ) | ( | ) | ||||
| Proceeds from Paydowns and Maturities of AFS Securities | ||||||||
| Proceeds from Sales of AFS Securities | ||||||||
| Purchase of HTM Securities | ( | ) | ( | ) | ||||
| Proceeds from Paydowns and Maturities of HTM Securities | ||||||||
| Purchase of FHLB Stock | ( | ) | ( | ) | ||||
| Redemption of FHLB Stock | ||||||||
| Purchase of BOLI | ( | ) | ||||||
| Net Decrease (Increase) in Loans Receivable | ( | ) | ||||||
| Proceeds from Sale of Land Held for Sale | ||||||||
| Purchase and Improvement of Premises and Equipment | ( | ) | ( | ) | ||||
| Net Cash Used By Investing Activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Increase in Deposit Accounts | ||||||||
| (Decrease) Increase in Other Borrowings, Net | ( | ) | ||||||
| Proceeds from FRB Borrowings | ||||||||
| Repayment of FRB Borrowings | ( | ) | ( | ) | ||||
| Purchases of Treasury Stock | ( | ) | ( | ) | ||||
| Proceeds from Employee Stock Purchase Plan | ||||||||
| Dividends to Common Stock Shareholders | ( | ) | ( | ) | ||||
| Dividends to Preferred Stock Shareholder | ( | ) | ( | ) | ||||
| Net Cash (Used) Provided By Financing Activities | ( | ) | ||||||
| Net (Decrease) Increase in Cash and Cash Equivalents | ( | ) | ||||||
| Cash and Cash Equivalents at Beginning of Period | ||||||||
| Cash and Cash Equivalents at End of Period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash Paid for Interest | $ | $ | ||||||
| Cash Paid for Taxes | ||||||||
| Non-Cash Transactions: | ||||||||
| ROU Asset Lease Renewal | ||||||||
| Transfer of Loans to OREO | ||||||||
| Unrealized Gains on AFS | ||||||||
SEE ACCOMPANYING 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, 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, 2024 included in our 2024 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, 2024.
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:
On January 1, 2024, the Company adopted Accounting Standards Update ("ASU") 2023-07, “Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures”. The Company has determined that all of its banking divisions and subsidiaries meet the aggregation criteria of ASC 280, Segment Reporting, as its current operating model is structured in a manner where banking divisions and subsidiaries serve a similar base of primarily commercial clients utilizing a company-wide offering of similar products and services managed through similar processes and platforms that are collectively reviewed by the Company’s Executive Committee, which has been identified as the chief operating decision maker (“CODM”).
The CODM regularly assesses the performance of the aggregated single operating and reporting segment and decides how to allocate resources based on net income calculated on the same basis as is net income reported in the Company’s consolidated statements of income and other comprehensive income. The CODM is also regularly provided with expense information at a level consistent with that disclosed in the Company’s consolidated statements of income and other comprehensive income. The measure of segment assets is reported on the balance sheet as total consolidated assets.
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
| Three Months Ended September 30, | ||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||
| Dollars and shares in thousands | Income (1) | Shares | EPS | Income (1) | Shares | EPS | ||||||||||||||||||
| Basic EPS | $ | $ | $ | $ | ||||||||||||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||
| Dollars and shares in thousands | Income (1) | Shares | EPS | Income (1) | Shares | EPS | ||||||||||||||||||
| Basic EPS | $ | $ | $ | $ | ||||||||||||||||||||
(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
NOTE 6 - INVESTMENTS, AVAILABLE FOR SALE ("AFS")
AFS securities are recorded at fair market value. There was
| September 30, 2025 | ||||||||||||||||
| Dollars in thousands | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| Student Loan Pools | $ | $ | $ | ( | ) | $ | ||||||||||
| Small Business Administration (“SBA”) Bonds | ( | ) | ||||||||||||||
| Tax Exempt Municipal Bonds | ( | ) | ||||||||||||||
| Taxable Municipal Bonds | ( | ) | ||||||||||||||
| Mortgage-Backed Securities ("MBS") | ( | ) | ||||||||||||||
| Total AFS Securities | $ | $ | $ | ( | ) | $ | ||||||||||
| December 31, 2024 | ||||||||||||||||
| Dollars in thousands | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| Student Loan Pools | $ | $ | $ | ( | ) | $ | ||||||||||
| SBA Bonds | ( | ) | ||||||||||||||
| Tax Exempt Municipal Bonds | ( | ) | ||||||||||||||
| Taxable Municipal Bonds | ( | ) | ||||||||||||||
| MBS | ( | ) | ||||||||||||||
| Total AFS Securities | $ | $ | $ | ( | ) | $ | ||||||||||
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 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, 2025 | ||||||||||||||||||||||||||||||||
| 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 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||
| SBA Bonds | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Tax Exempt Municipal Bonds | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Taxable Municipal Bonds | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| MBS | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
| December 31, 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 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||
| SBA Bonds | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Tax Exempt Municipal Bonds | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Taxable Municipal Bonds | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| MBS | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
At September 30, 2025 our AFS investment portfolio consisted of
Student Loan Pools - At September 30, 2025, there were
SBA Bonds - SBA Bonds are fully backed by the U.S. government. At September 30, 2025, there were
MBS - At September 30, 2025, approximately
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, 2025, we held
Municipal Bonds - At September 30, 2025, there were
Accrued interest receivable on AFS securities totaled $
During the nine months ended September 30, 2025, the Company sold
The amortized cost and fair value of AFS securities at September 30, 2025, 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.
| September 30, 2025 | ||||||||
| Dollars in thousands | Amortized Cost | Fair Value | ||||||
| One Year or Less | $ | $ | ||||||
| After One – Five Years | ||||||||
| After Five – Ten Years | ||||||||
| More Than Ten Years | ||||||||
| MBS | ||||||||
| Total AFS Securities | $ | $ | ||||||
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, 2025 | ||||||||||||||||
| Dollars in thousands | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| Student Loan Pools | $ | $ | $ | $ | ||||||||||||
| SBA Bonds | ||||||||||||||||
| Taxable Municipal Bonds | ( | ) | ||||||||||||||
| MBS | ( | ) | ||||||||||||||
| Total HTM Securities | $ | $ | $ | ( | ) | $ | ||||||||||
| December 31, 2024 | ||||||||||||||||
| Dollars in thousands | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| US Treasury Bonds | $ | $ | $ | ( | ) | $ | ||||||||||
| Student Loan Pools | ||||||||||||||||
| SBA Bonds | ||||||||||||||||
| Taxable Municipal Bonds | ( | ) | ||||||||||||||
| MBS | ( | ) | ||||||||||||||
| Total HTM Securities | $ | $ | $ | ( | ) | $ | ||||||||||
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, 2025 | ||||||||||||||||||||||||
| Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
| Dollars in thousands | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||
| Taxable Municipal Bonds | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||
| MBS | ( | ) | ( | ) | ||||||||||||||||||||
| $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| December 31, 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 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||
| Taxable Municipal Bonds | ( | ) | ( | ) | ||||||||||||||||||||
| MBS | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||
At September 30, 2025 and December 31, 2024,
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, 2025, the Company held both an amortized cost and fair value of $
As a result of the analysis, the allowance for credit losses for HTM securities was not considered to be material as of September 30, 2025. The following table summarizes the amortized cost and credit ratings of our HTM securities that were considered to have greater than zero percent credit loss probability at September 30, 2025.
| Dollars in thousands | Amortized Cost | |||
| Taxable Municipal Bond | ||||
| AA | $ | |||
| Total Taxable Municipal Bond | $ | |||
| Private Label MBS | ||||
| AAA | $ | |||
| Total Private Label MBS | $ | |||
As of September 30, 2025, 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 $
At September 30, 2025, 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 $
At September 30, 2025, HTM securities had a combined book value of $
| Dollars in thousands | Carrying Value | Average Book Yield | ||||||
| HTM Securities: | ||||||||
| Due after one year through five years | $ | % | ||||||
| Due after five years through ten years | % | |||||||
| Due after ten years | % | |||||||
| MBS | % | |||||||
| Total HTM Securities | $ | % | ||||||
NOTE 8 - LOANS RECEIVABLE, NET
Loans receivable, net, consisted of the following as of the dates indicated below:
| Dollars in thousands | September 30, 2025 | December 31, 2024 | ||||||
| Real Estate Loans: | ||||||||
| Construction | $ | $ | ||||||
| Residential | ||||||||
| Commercial | ||||||||
| Commercial and Agricultural Loans | ||||||||
| Consumer Loans: | ||||||||
| Home Equity Lines of Credit ("HELOC") | ||||||||
| Other Consumer | ||||||||
| Total Loans Held For Investment, Gross | ||||||||
| Less: | ||||||||
| Allowance for Credit Losses | ||||||||
| Deferred Loan Fees | ||||||||
| Total Loans Held For Investment, Net | $ | $ | ||||||
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 our 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 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 considered uncollectible and of such little values that their continuance as assets is not warranted.
There were no loans rated as Doubtful or Loss in our loan portfolio as of September 30, 2025.
The following tables present the Company's recorded investment in loans, categorized by credit quality indicators, and total current period gross write-offs by year of origination as of September 30, 2025 and December 31, 2024.
| September 30, 2025 | ||||||||||||||||||||||||||||||||
| Term Loans by Year of Origination | ||||||||||||||||||||||||||||||||
| Dollars in thousands | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving | Total | ||||||||||||||||||||||||
| Construction Real Estate | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Caution | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total Construction Real Estate | ||||||||||||||||||||||||||||||||
| Current Period Gross Write-Offs | ||||||||||||||||||||||||||||||||
| Residential Real Estate | ||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||
| Caution | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total Residential Real Estate | ||||||||||||||||||||||||||||||||
| Current Period Gross Write-Offs | ||||||||||||||||||||||||||||||||
| Commercial Real Estate | ||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||
| Caution | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total Commercial Real Estate | ||||||||||||||||||||||||||||||||
| Current Period Gross Write-Offs | ||||||||||||||||||||||||||||||||
| Commercial and Agricultural | ||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||
| Caution | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total Commercial and Agricultural | ||||||||||||||||||||||||||||||||
| Current Period Gross Write-Offs | ||||||||||||||||||||||||||||||||
| HELOC | ||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||
| Caution | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total HELOC | ||||||||||||||||||||||||||||||||
| Current Period Gross Write-Offs | ||||||||||||||||||||||||||||||||
| Other Consumer | ||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||
| Caution | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total Other Consumer | ||||||||||||||||||||||||||||||||
| Current Period Gross Write-Offs | ||||||||||||||||||||||||||||||||
| Total Loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Total Current Period Gross Write-Offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||||||
| Term Loans by Year of Origination | ||||||||||||||||||||||||||||||||
| Dollars in thousands | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving | Total | ||||||||||||||||||||||||
| Construction Real Estate | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Caution | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total Construction Real Estate | ||||||||||||||||||||||||||||||||
| Current Period Gross Write-Offs | ||||||||||||||||||||||||||||||||
| Residential Real Estate | ||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||
| Caution | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total Residential Real Estate | ||||||||||||||||||||||||||||||||
| Current Period Gross Write-Offs | ||||||||||||||||||||||||||||||||
| Commercial Real Estate | ||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||
| Caution | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total Commercial Real Estate | ||||||||||||||||||||||||||||||||
| Current Period Gross Write-Offs | ||||||||||||||||||||||||||||||||
| Commercial and Agricultural | ||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||
| Caution | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total Commercial and Agricultural | ||||||||||||||||||||||||||||||||
| Current Period Gross Write-Offs | ||||||||||||||||||||||||||||||||
| HELOC | ||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||
| Caution | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total HELOC | ||||||||||||||||||||||||||||||||
| Current Period Gross Write-Offs | ||||||||||||||||||||||||||||||||
| Other Consumer | ||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||
| Caution | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total Other Consumer | ||||||||||||||||||||||||||||||||
| Current Period Gross Write-Offs | ||||||||||||||||||||||||||||||||
| Total Loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Total Current Period Gross Write-Offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
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, 2025 | ||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Residential Real Estate | ||||||||||||||||||||||||
| Commercial Real Estate | ||||||||||||||||||||||||
| Commercial and Agricultural | ||||||||||||||||||||||||
| HELOC | ||||||||||||||||||||||||
| Other Consumer | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Residential Real Estate | ||||||||||||||||||||||||
| Commercial Real Estate | ||||||||||||||||||||||||
| Commercial and Agricultural | ||||||||||||||||||||||||
| HELOC | ||||||||||||||||||||||||
| Other Consumer | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
At September 30, 2025 and December 31, 2024, the Company did not have any loans that were 90 days or more past due and still accruing interest. Our strategy is to work with our borrowers to reach acceptable payment plans while protecting our interests in the existing collateral. In the event an acceptable arrangement cannot be reached, we may have to acquire these properties through foreclosure or other means and subsequently sell, develop, or liquidate them.
The following table shows nonaccrual loans by category at the dates indicated.
| September 30, 2025 | December 31, 2024 | |||||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Residential Real Estate | ||||||||||||||||||||||||
| Commercial Real Estate | ||||||||||||||||||||||||
| Commercial and Agricultural | ||||||||||||||||||||||||
| HELOC | ||||||||||||||||||||||||
| Other Consumer | ||||||||||||||||||||||||
| Total Nonaccrual Loans | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The Company did not recognize any interest income on nonaccrual loans during the nine months ended September 30, 2025 and 2024.
The following table represents the accrued interest receivables written off by reversing interest income during the three and nine months ended September 30, 2025 and 2024:
| For the Three Months Ended September 30, | ||||||||
| Dollars in thousands | 2025 | 2024 | ||||||
| Residential Real Estate | $ | $ | ||||||
| Commercial Real Estate | ||||||||
| HELOC | ||||||||
| Other Consumer | ||||||||
| Total | $ | $ | ||||||
| For the Nine Months Ended September 30, | ||||||||
| Dollars in thousands | 2025 | 2024 | ||||||
| Construction Real Estate | $ | $ | ||||||
| Residential Real Estate | ||||||||
| Commercial Real Estate | ||||||||
| Commercial and Agricultural | ||||||||
| HELOC | ||||||||
| Other Consumer | ||||||||
| Total | $ | $ | ||||||
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, 2025 and 2024:
| Three Months Ended September 30, 2025 | ||||||||||||||||||||||||||||
| Real Estate | Commercial and | Consumer | ||||||||||||||||||||||||||
| Dollars in thousands | Construction | Residential | Commercial | Agricultural | HELOC | Other | Total | |||||||||||||||||||||
| Beginning Balance | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| (Reversal of) Provision for Credit Losses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Charge-Offs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Three Months Ended September 30, 2024 | ||||||||||||||||||||||||||||
| Real Estate | Commercial and | Consumer | ||||||||||||||||||||||||||
| Dollars in thousands | Construction | Residential | Commercial | Agricultural | HELOC | Other | Total | |||||||||||||||||||||
| Beginning Balance | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| (Reversal of) Provision for Credit Losses | ( | ) | ( | ) | ||||||||||||||||||||||||
| Charge-Offs | ( | ) | ( | ) | ||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Nine Months Ended September 30, 2025 | ||||||||||||||||||||||||||||
| Real Estate | Commercial and | Consumer | ||||||||||||||||||||||||||
| Dollars in thousands | Construction | Residential | Commercial | Agricultural | HELOC | Other | Total | |||||||||||||||||||||
| Beginning Balance | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| (Reversal of) Provision for Credit Losses | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Charge-Offs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Nine Months Ended September 30, 2024 | ||||||||||||||||||||||||||||
| Real Estate | Commercial and | Consumer | ||||||||||||||||||||||||||
| Dollars in thousands | Construction | Residential | Commercial | Agricultural | HELOC | Other | Total | |||||||||||||||||||||
| Beginning Balance | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Provision for Credit Losses | ||||||||||||||||||||||||||||
| Charge-Offs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
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, 2025 | December 31, 2024 | ||||||
| Construction Real Estate | $ | $ | ||||||
| Residential Real Estate | ||||||||
| Commercial Real Estate | ||||||||
| Commercial and Agricultural | ||||||||
| HELOC | ||||||||
| Total | $ | $ | ||||||
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 through the measurement methodologies used in estimating the allowance. Consequently, a change to the allowance is generally not recorded upon modification. However, when the Company provides principal forgiveness on certain real estate loans, the amortized cost basis of the asset is written off against the allowance for credit losses. The forgiven amount is deemed uncollectible, resulting in a reduction of both the amortized cost basis and the allowance for credit losses.
In some cases, the Company modifies a loan by providing multiple types of concessions. Typically, one concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, an additional concession, such as principal forgiveness, may be provided. As a result, multiple types of modifications, such as a combination of a term extension, principal forgiveness, and interest rate reduction, may be made on the same loan within the current reporting period, each of which must be reported. When the Company determines that a modified loan (or portion thereof) is uncollectible, the uncollectible amount is written off, reducing both the amortized cost basis of the loan and the allowance for credit losses accordingly.
The Company had no modified loans to borrowers experiencing financial difficulty during the nine months ended September 30, 2025 or 2024.
As of September 30, 2025 and 2024, there were
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 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 totaling $
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, 2025 and 2024.
| For the Three Months Ended September 30, | ||||||||
| Allowance for Credit Losses - Unfunded Commitments (Dollars in thousands) | 2025 | 2024 | ||||||
| Beginning Balance | $ | $ | ||||||
| Provision for (reversal of) credit losses on unfunded commitments | ( | ) | ||||||
| Ending Balance | $ | $ | ||||||
| For the Nine Months Ended September 30, | ||||||||
| Allowance for Credit Losses - Unfunded Commitments (Dollars in thousands) | 2025 | 2024 | ||||||
| Beginning Balance | $ | $ | ||||||
| Provision for (reversal of) credit losses on unfunded commitments | ( | ) | ||||||
| Ending Balance | $ | $ | ||||||
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, 2025 | December 31, 2024 | ||||||
| Checking | $ | $ | ||||||
| Money Market | ||||||||
| Savings | ||||||||
| Certificates of Deposit | ||||||||
| Total | $ | $ | ||||||
We had $
Certificates of deposits that met or exceeded the FDIC insurance limit of $250,000 were $
The amounts and scheduled maturities of certificates of deposit at the dates indicated were as follows:
| Dollars in thousands | September 30, 2025 | December 31, 2024 | ||||||
| Within 1 Year | $ | $ | ||||||
| After 1 Year, Within 2 Years | ||||||||
| After 2 Years, Within 3 Years | ||||||||
| After 3 Years, Within 4 Years | ||||||||
| After 4 Years, Within 5 Years | ||||||||
| Thereafter | ||||||||
| Total Certificates of Deposit | $ | $ | ||||||
NOTE 10 - BORROWINGS
The Company had no outstanding borrowings from the FRB at September 30, 2025 compared to $
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, 2025, we had pledged as collateral for these borrowings investment securities with an amortized cost and fair value of $
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 $
The Company had $
There were
NOTE 11 - SUBORDINATED DEBENTURES
Junior Subordinated Debentures
In September 2006, Security Federal Statutory Trust (the "Trust"), a wholly-owned subsidiary of the Company, 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. Effective June 30, 2023, the Capital Securities accrue and pay distributions at a floating rate of three month Secured Overnight Financing Rate ("SOFR") as adjusted by the relevant spread adjustment of
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 $
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. Thereafter, the interest rate would have reset semi-annually to a rate equal to the then-current three-month LIBOR plus
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. From and including November 22, 2029 to but excluding the maturity date or early redemption date, the interest rate for the 15-Year Notes will reset semi-annually to an interest rate equal to the then-current three-month LIBOR rate plus
The 15-Year Notes are unsecured, subordinated obligations of the Company, ranking junior to the Company’s senior indebtedness. The 15-Year Notes are not subject to redemption at the option of the holders. The Company may redeem the 15-Year Notes under limited circumstances prior to 2029. After that date, the Company may redeem the 15-Year Notes, in whole or in part, at its option. At September 30, 2025 and December 31, 2024, we had a remaining balance of $
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.
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, 2025, 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, 2025, 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 table below provides 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, 2025 | (Dollars in thousands) | ||||||||||||||||||||
| Tier 1 Risk-Based Core Capital (To Risk Weighted Assets) | $ | % | $ | % | $ | % | |||||||||||||||
| Total Risk-Based Capital (To Risk Weighted Assets) | % | % | % | ||||||||||||||||||
| Common Equity Tier 1 Capital (To Risk Weighted Assets) | % | % | % | ||||||||||||||||||
| Tier 1 Leverage (Core) Capital (To Adjusted Tangible Assets) | % | % | % | ||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||
| Tier 1 Risk-Based Core Capital (To Risk Weighted Assets) | $ | % | $ | % | $ | % | |||||||||||||||
| Total Risk-Based Capital (To Risk Weighted Assets) | % | % | % | ||||||||||||||||||
| Common Equity Tier 1 Capital (To Risk Weighted Assets) | % | % | % | ||||||||||||||||||
| Tier 1 Leverage (Core) Capital (To Adjusted Tangible Assets) | % | % | % | ||||||||||||||||||
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, 2025, the Bank’s conservation buffer was
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, 2025, 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 Freddie Mac 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.
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, 2025, 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.
The table below presents the balances of assets measured at fair value on a recurring basis at the dates indicated.
| September 30, 2025 | December 31, 2024 | |||||||||||||||||||||||
| Dollars in thousands | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
| Student Loan Pools | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| SBA Bonds | ||||||||||||||||||||||||
| Tax Exempt Municipal Bonds | ||||||||||||||||||||||||
| Taxable Municipal Bonds | ||||||||||||||||||||||||
| MBS | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
There were
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, 2025 | ||||||||||||||||
| Assets (Dollars in thousands): | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Mortgage Loans Held For Sale | $ | $ | $ | $ | ||||||||||||
| Collateral Dependent Loans (1) | ||||||||||||||||
| Other Real Estate Owned | ||||||||||||||||
| Land Held for Sale | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| December 31, 2024 | ||||||||||||||||
| Assets (Dollars in thousands): | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Mortgage Loans Held For Sale | $ | $ | $ | $ | ||||||||||||
| Collateral Dependent Loans (1) | ||||||||||||||||
| Land Held for Sale | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
(1) Reported net of specific reserves of $
There were
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, 2025 | December 31, 2024 | ||||||||
| Land Held for Sale | Appraised Value/Comparable Sales | Discounts to appraised values for estimated holding or selling costs | % | % | ||||||||
| Collateral Dependent Loans | Appraised Value | Discounts to appraised values for estimated holding and/or selling costs or age of appraisal | ||||||||||
| OREO | Appraised Value/Comparable Sales | Discounts to appraised values for estimated holding or selling costs | % | n/a | ||||||||
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 or FRB borrowings as of September 30, 2025.
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, 2025 | Carrying | Fair Value | ||||||||||||||||||
| Amount | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||
| Financial Assets: | (Dollars in thousands) | |||||||||||||||||||
| Cash and Cash Equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Certificates of Deposits with Other Banks | ||||||||||||||||||||
| AFS Securities | ||||||||||||||||||||
| HTM Securities | ||||||||||||||||||||
| Loans Receivable, Net | ||||||||||||||||||||
| FHLB Stock | ||||||||||||||||||||
| Financial Liabilities: | ||||||||||||||||||||
| Deposits: | ||||||||||||||||||||
| Checking, Savings & Money Market Accounts | $ | $ | $ | $ | $ | |||||||||||||||
| Certificates of Deposits | ||||||||||||||||||||
| Other Borrowed Money | ||||||||||||||||||||
| Subordinated Debentures | ||||||||||||||||||||
| Junior Subordinated Debentures | ||||||||||||||||||||
| December 31, 2024 | Carrying | Fair Value | ||||||||||||||||||
| Amount | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||
| Financial Assets: | (Dollars in thousands) | |||||||||||||||||||
| Cash and Cash Equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Certificates of Deposits with Other Banks | ||||||||||||||||||||
| AFS Securities | ||||||||||||||||||||
| HTM Securities | ||||||||||||||||||||
| Loans Receivable, Net | ||||||||||||||||||||
| FHLB Stock | ||||||||||||||||||||
| Financial Liabilities: | ||||||||||||||||||||
| Deposits: | ||||||||||||||||||||
| Checking, Savings & Money Market Accounts | $ | $ | $ | $ | $ | |||||||||||||||
| Certificates of Deposits | ||||||||||||||||||||
| Borrowings from FRB | ||||||||||||||||||||
| Other Borrowed Money | ||||||||||||||||||||
| Subordinated Debentures | ||||||||||||||||||||
| Junior Subordinated Debentures | ||||||||||||||||||||
At September 30, 2025, the Company had $
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.
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.
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.
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.
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, when applicable, which are included in non-interest expense.
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| Non-interest income (dollars in thousands): |
2025 |
2024 |
2025 |
2024 |
||||||||||||
| Net Gain on Sale of Investments (1) |
$ | $ | $ | $ | ||||||||||||
| Gain on Sale of Loans (1) |
||||||||||||||||
| Service Fees on Deposit Accounts |
||||||||||||||||
| Commissions From Insurance Agency (1) |
||||||||||||||||
| Trust Income |
||||||||||||||||
| BOLI Income (1) |
||||||||||||||||
| ATM and Check Card Fee Income |
||||||||||||||||
| Other (1) |
||||||||||||||||
| Total non-interest income |
$ | $ | $ | $ | ||||||||||||
| (1) Not within the scope of ASC 606 |
NOTE 15 - LEASES
The Company has operating leases on six of its branches. During the nine months ended September 30, 2025, the Company made cash payments of $
At September 30, 2025, maturities of operating lease liabilities for future periods were as follows:
| Dollars in thousands | ||||
| Remainder of 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total undiscounted lease payments | ||||
| Less: effect of discounting | ( | ) | ||
| Present value of estimated lease payments (lease liability) | $ | |||
NOTE 16 - PREFERRED STOCK
On May 24, 2022, the Company entered into a Letter Agreement (the "initial Agreement”) with the U.S. Department of Treasury ("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 initial Agreement, the Company agreed to issue and sell
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.
On January 10, 2025, the Company entered into an ECIP Securities Purchase Option Agreement (the “Agreement”) with Treasury. Treasury currently owns all
The repurchase option cannot be exercised during the first 10 years unless the Company meets at least one of the following conditions:
| ● | 60% of total loan originations qualify as “Deep Impact Lending” over 16 consecutive quarters, |
| ● | 85% of total loan originations qualify as “Qualified Lending” over 24 consecutive quarters, or |
| ● | The dividend rate on the Preferred Stock is 0.5% or lower at six consecutive reset dates. |
The earliest the Company could satisfy one of the forgoing conditions is June 30, 2026. As of September 30, 2025, the Company has not yet met any of the threshold conditions and the Preferred Stock carried a dividend rate of 2.0%.
In addition to meeting a threshold condition, the Company must also comply with the original ECIP terms, maintain its Community Development Financial Institution or Minority Depositor Institution status, and meet applicable legal and regulatory requirements to exercise the option. Although the Company currently meets these eligibility requirements (other than the threshold conditions), there is no assurance it will continue to do so. Based on the Company's evaluation under ASC 820, Fair Value Measurement, the fair value of the agreement was considered to be immaterial.
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.
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; |
||
| • | 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; |
| • |
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; |
| • |
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; |
| • |
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, 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, 2025 from $1.61 billion 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, 2025 from $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, 2025 from $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, 2025 from $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, 2025 from $203.7 million at December 31, 2024. Commercial real estate loans increased $15.1 million, or 5.2%, to $303.7 million at September 30, 2025 from $288.5 million at December 31, 2024. Additionally, consumer HELOCs increased $2.2 million, or 5.9%, to $40.1 million at September 30, 2025 from $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, 2025 from $109.9 million at December 31, 2024 while commercial and agricultural loans decreased $5.9 million, or 15.9%, to $31.0 million at September 30, 2025 from $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, 2025 and 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, 2025 from $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, 2025 from $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, 2025 from $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, 2025 from 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, 2025 and 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 $23.9 million in other borrowings at September 30, 2025, compared to $27.8 million 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, 2025 and 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, 2025 from $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 $3.2 million 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, 2025 from $1.11 billion for the comparable quarter in 2024. The Company's net interest margin was 3.17% for the quarter ended September 30, 2025 compared 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, 2025 compared 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, 2025 compared 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, 2025 from $10.6 million for the third quarter 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 third quarter 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 third quarter 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, 2025 compared 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 third quarter of 2025 compared to net charge-offs of $79,000 during the third quarter 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, 2025 compared 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 third quarter 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, 2025 compared to $2.8 million for the third quarter 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 nine months ended September 30, 2025, compared to $30.7 million for the same nine months in 2024 due to increases in both average interest-earning assets and net interest margin. During the nine months 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 nine months in 2024, while average interest-bearing liabilities increased $19.7 million or 1.8% to $1.13 billion for the nine months ended September 30, 2025 from $1.11 billion for the comparable nine months in 2024. The Company's net interest margin was 3.08% for the nine months ended September 30, 2025 compared to 2.83% for the comparable nine months in 2024. The Company's net interest spread on a tax equivalent basis was 2.37% for the nine months ended September 30, 2025 compared to 2.08% for the nine months ended September 30, 2024.
Interest Income
Total tax-equivalent interest income increased $1.7 million or 3.0% to $58.9 million for the nine months ended September 30, 2025 compared 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 nine months ended September 30, 2025 from $30.2 million for the nine months 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 nine months ended September 30, 2025, from $22.4 million for the first nine months 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 nine months 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 nine months ended September 30, 2025, from $4.1 million for the nine months 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 nine months ended September 30, 2025 compared to $26.5 million for the same nine months 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 nine months ended September 30, 2025, from $21.9 million for the same nine month 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 nine months ended September 30, 2025, from $3.2 million for the nine months 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 nine months ended 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 nine months 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 nine months 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 nine months ended September 30, 2025 compared to $7.4 million for the nine months 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, 2025 compared 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 nine months 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, 2025 compared 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. |
| ● |
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, 2025 with $467.5 million 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 $305.3 million, 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 $50.0 million 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 $683.6 million at September 30, 2025. Certificates of deposit that are scheduled to mature in less than one year from September 30, 2025 totaled $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 $0.15 per 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 $0.15 per 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, 2025 the 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
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 2024 Form 10-K.
For the three months ended September 30, 2025, 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 2.47%.
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, 2025 the 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, 2025 that 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.
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 2024 Form 10-K.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
(a) Not applicable
(b) Not applicable
(c) The following table summarizes common stock repurchases during the three months ended September 30, 2025 :
| 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, 2025 - July 31, 2025 |
- | $ | - | - | 124,041 | |||||||||||
| August 1, 2025 - August 31, 2025 |
60,898 | 30.50 | 60,898 | 63,143 | ||||||||||||
| September 1, 2025 - September 30, 2025 |
- | - | - | 63,143 | ||||||||||||
| Total |
60,898 | 60,898 | ||||||||||||||
| (1) |
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. On August 19, 2024, the Company's Board of Directors announced an additional 100,000 shares available to be purchased under the program. The 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. |
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, 2025, no director 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.
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) |
| 10.5 |
ECIP Securities Purchase Option Agreement dated January 10, 2025, by and between Security Federal Corporation and the U.S. Department of Treasury (7) |
| 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, 2025, formatted in Inline Extensible Business Reporting Language (iXBRL): (a) Consolidated Balance Sheets; (b) Consolidated Statements of Income; (c) Consolidated Statements of Comprehensive Income; (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.
(7) Filed on January 14, 2025, as an exhibit to the Company's Current Report on Form 8-K dated January 10, 2025 and incorporated herein by reference.
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 10, 2025 |
By: |
/s/J. Chris Verenes |
||
| J. Chris Verenes | |||||
| Chief Executive Officer | |||||
| (Duly Authorized Representative) |
| Date: |
November 10, 2025 | By: |
/s/Darrell Rains |
||
| Darrell Rains | |||||
| Chief Financial Officer | |||||
| (Principal Financial Officer) |
FAQ
How did Security Federal (SFDL) perform in Q3 2025?
What drove the year-over-year earnings change for SFDL?
What were SFDL’s deposits and loans at quarter-end?
How did unrealized securities gains/losses affect equity?
What dividends did SFDL pay in the quarter?
How many SFDL shares were outstanding?
What happened to SFDL’s cash position?
