SECURITY FEDERAL CORP SEC 10-K Report

Security Federal Corporation, a South Carolina-based bank holding company, has released its 2024 Form 10-K report, detailing the company's financial and operational performance over the past year. The report provides insights into the company's strategic initiatives, challenges, and future outlook, reflecting its commitment to growth and stability in the banking sector.

Financial Highlights

• Total Interest Income: $77.3 million, reflecting a 19.0% increase from the previous year due to higher interest income on loans and deposits in other banks.
• Net Interest Income: $41.8 million, an increase of 6.6% from 2023, driven by higher interest income despite an increase in interest expense.
• Net Income: $9.8 million, a decrease from $10.2 million in 2023, primarily due to higher provisions for credit losses and non-interest expenses.
• Net Income Available to Common Shareholders: $8.9 million, reflecting a decrease from the previous year due to increased provisions for credit losses and non-interest expenses.
• Net Income Per Common Share (Basic): $2.77, down from $3.14 in 2023, impacted by increased provisions for credit losses and non-interest expenses.

Business Highlights

• Company Overview: Security Federal Corporation operates Security Federal Bank with 19 branch offices across South Carolina and Georgia, offering a range of financial services including commercial real estate loans, consumer loans, and mortgage loans.
• Lending Activities: The bank's principal lending activities include commercial real estate and residential real estate loans, as well as construction loans, consumer loans, and commercial and agricultural business loans.
• Loan Portfolio Composition: As of December 31, 2024, the bank's loan portfolio was primarily composed of commercial real estate loans (41.2%), residential real estate loans (29.1%), and construction real estate loans (15.7%).
• Community Development Financial Institution (CDFI): Security Federal Bank is a certified CDFI, enabling it to receive certain grants from the U.S. Treasury, with annual re-certification based on its lending activities in low to moderate income areas.
• Emergency Capital Investment Program (ECIP): In 2022, the company entered into an agreement with the U.S. Treasury under the ECIP, issuing preferred stock to raise $82.9 million, treated as tier 1 capital.
• Geographical Presence: The bank operates in Aiken, Lexington, Richland, and Saluda counties in South Carolina, and Columbia and Richmond counties in Georgia, providing a strong regional presence.
• Subsidiaries: Security Federal Bank has two active subsidiaries: Security Federal Investments, Inc., which manages investment securities, and Security Federal Insurance, Inc., an insurance agency.
• Human Capital: As of December 31, 2024, the company employed 258 individuals, with a workforce composition of 69% female and 31% male, and 62% of management roles held by women.
• Regulatory Compliance: The bank is subject to various regulations, including those from the FDIC and the State Board, and maintains compliance with capital requirements and safety standards.
• Future Outlook: The company plans to continue expanding its financial services and maintaining a strong capital position to support future growth and operational stability.

Strategic Initiatives

• Liquidity and Capital Resources: The company has focused on enhancing its liquidity and capital resources by increasing deposit levels, which rose by $129.0 million during the year. It also participated in the Federal Reserve Bank's Borrower-in-Need Program to refinance existing borrowings at a lower fixed rate, reducing its outstanding borrowings from $119.2 million to $50.0 million by year-end.
• Investment Portfolio Management: The company has been actively managing its investment portfolio, with proceeds from sales, payments, and maturities of investment securities totaling $113.5 million.
• Capital Management: The company repurchased 44,120 shares of its common stock at an aggregate cost of $1.1 million, leaving 127,066 shares available for further repurchase under the existing stock repurchase program. It also paid $1.8 million in dividends to common shareholders and $926,000 in dividends to preferred shareholders. The company maintained a strong capital position with total shareholders' equity increasing by $10.0 million to $182.4 million, primarily due to net income and a decrease in accumulated other comprehensive loss.
• Future Outlook: The company plans to continue its current practice of paying quarterly cash dividends on common stock, subject to the Board of Directors' discretion. It also intends to maintain competitive deposit rates to retain maturing certificates of deposit and expects to leverage its available lines of credit and liquid assets to meet financial obligations over the next 12 months. The company is exploring opportunities for further share repurchases and capital investments to support its strategic growth objectives.

Challenges and Risks

• Geographic Concentration: Security Federal Corporation faces challenges related to its concentrated geographic operations in South Carolina and Georgia, which may expose it to localized economic downturns.
• Real Estate Loan Risks: The company's reliance on real estate loans, particularly commercial real estate, poses additional risks due to potential fluctuations in property values and economic conditions.
• Macroeconomic Risks: The company identifies several macroeconomic risks, including potential downturns in the national and local economies, inflation, and geopolitical conflicts, which could adversely affect its operations. The risk of increased loan delinquencies and foreclosures is heightened by these economic factors.
• Credit Loss Provisions: The company's allowance for credit losses may be insufficient if economic conditions worsen, leading to increased provisions for credit losses.
• Monetary Policy Changes: Changes in monetary policy, particularly those by the Federal Reserve, could impact the company's financial performance by affecting interest rates and inflation.
• Operational Risks: Operational risks include cybersecurity threats and system failures, which could compromise customer data and disrupt operations. The company acknowledges the increasing sophistication of cyber-attacks and the potential for significant financial and reputational damage.
• Regulatory Risks: Regulatory risks are significant, with potential changes in tax, accounting, and banking regulations that could impact the company's operations and profitability. Compliance with the USA PATRIOT Act and Bank Secrecy Act is critical, and any deficiencies could result in fines or sanctions.
• Liquidity Management: Management highlights the importance of effective liquidity management to support operations and growth. The company must maintain adequate liquidity to meet customer demands and regulatory requirements. The potential need to raise additional capital in the future is noted, with the acknowledgment that market conditions may affect the availability and cost of such capital.
• Interest Rate Fluctuations: Interest rate fluctuations pose a significant market risk, potentially affecting the company's net interest income and the fair value of its securities portfolio. Rising interest rates could lead to increased funding costs and reduced loan demand, impacting profitability. The company employs asset and liability management strategies to mitigate these risks but acknowledges that unexpected rate changes could materially affect its financial condition.

SEC Filing: SECURITY FEDERAL CORP [ SFDL ] - 10-K - Mar. 14, 2025