Security Federal Corporation

What they do

Security Federal Bank is a South Carolina-chartered commercial bank headquartered in Aiken, South Carolina, with 19 branch offices in Aiken, Lexington, Richland and Saluda counties in South Carolina and Columbia and Richmond counties in Georgia. The Company is a one-bank holding company and has been a Certified Community Development Financial Institution since 2010, lending in low-to-moderate income census tracts and receiving related Treasury grants. Two wholly owned Bank subsidiaries hold investment securities and offer auto, business and home insurance. At December 31, 2025, the Company reported loans receivable, net, of $673.1 million and deposits of $1.4 billion.

Revenue drivers

• Net interest income — Full-year 2025 net interest income was $47.2 million, up 12.8% from the prior year, driven by higher interest income on loans and lower interest expense on borrowings.
• Non-interest income — Full-year 2025 non-interest income was $11.5 million, up 12.5%, led by a $620,000 increase in grant income and a $548,000 increase in rental income.
• CDFI grant awards — The Bank received $1.2 million in CDFI Financial Assistance awards during 2025 versus $220,000 during 2024; it also received $280,000 under the CDFI Bank Enterprise Award program in 2024.
• Rental income from bank premises — A multi-tenant property purchased in the first quarter of 2025 generated additional rental income and is intended to become a full-service branch.

Recent performance

Fourth-quarter 2025 net income available to common shareholders was $3.9 million, or $1.24 per common share, versus $3.0 million, or $0.94 per share, in the fourth quarter of 2024. Full-year 2025 net income available to common shareholders was $12.0 million, or $3.80 per common share, up $3.3 million from $8.9 million, or $2.77 per share, in 2024. Fourth-quarter net interest income rose 11.5% to $12.6 million as total interest expense fell 19.3% to $7.2 million while interest income declined 2.2% to $19.8 million. Non-interest income increased 35.4% to $3.9 million, and the quarter included a $35,000 reversal of provision for credit losses versus a $280,000 provision a year earlier. Non-interest expense rose 16.0% to $11.1 million on higher salaries, employee benefits and debit card expenses.

Strategy

The Company operates as a one-bank holding company and states that the structure provides flexibility to diversify through existing or new subsidiaries or through acquisitions, though it discloses no current arrangements or agreements regarding any acquisition. It relies on Security Federal Bank's continuing operations, third-party borrowings, and potentially securities sales to fund future holding company activities, with no current plans for securities sales. The Bank pursues CDFI re-certification annually, making a required percentage of loans by dollar and number in its low-to-moderate income Target Market, and uses Treasury grants to fund community development lending. In the first quarter of 2025 it purchased a multi-tenant property intended to be the future site of a full-service branch. In 2022 it issued 82,949 shares of preferred stock for $82.9 million under the Treasury's ECIP, treated as tier 1 capital.

Risks

• Interest rate sensitivity — Changes in the Federal Reserve benchmark rate could adversely affect revenues, expenses, asset values, cost of capital and liquidity, and fourth-quarter 2025 results already reflected lower market interest rates.
• CDFI program dependence — Grant income contributed to the 2025 increase in non-interest income, and the 10-Q risk factors cite the impact of the U.S. government's elimination of all employees at the Community Development Financial Institutions Fund.
• Credit risk in lending — The Company identifies the credit risks of lending activities, including changes in loan delinquencies and write-offs and the allowance for credit losses, among its risk factors.
• Regulatory examination and capital requirements — Examinations by the Federal Reserve, FDIC and South Carolina State Board of Financial Institutions could require increased credit loss allowances, asset write-downs, changes to the regulatory capital position, or restrictions on deposits and borrowings.

Outlook

The earnings release attributes the 2025 increase in net income available to common shareholders to higher net interest income and non-interest income and lower provisions for credit losses, partly offset by higher non-interest expense. The Company cites the new building purchased in 2025 as the source of increased rental income and the future site of a full-service branch. It discloses no acquisition arrangements, no plans for additional securities sales, and no specific earnings or balance sheet guidance.