SFDL 10-K & 10-Q changes, risk factors and insider trading

Our operations are significantly affected by the general economic conditions of the states of South Carolina and Georgia and the specific local markets in which we operate. Our entire real estate portfolio consists primarily of loans secured by properties located in Aiken, Richland, and Lexington Counties in South Carolina and Columbia and Richmond Counties in Georgia. Adverse economic conditions in our market areas could impact our growth rate, reduce our customers’ ability to repay loans, and adversely impact our business, financial condition, and results of operations. BroaderBroad economic factors such as inflation, unemployment and money supply fluctuations also may adversely affect our profitability. Trade wars, tariffs, or shifts in trade policies between the United States and other nations could disrupt supply chains, increase costs for businesses, and reduce export opportunities for our customers. These developments may, in turn, negatively impact these businesses and, by extension, our operations and financial performance.

At December 31, 2024,2025, our non-performing assets (which consist of non-accrual loans and other real estate owned ("OREO")) were $7.6$5.8 million, or 0.47%0.36% of total assets. Our non-performing assets adversely affect our net income in various ways:

WhileW hile commercial real estate lending offers the potential for higher returns compared to single-family residential lending, it is more susceptible to fluctuations in regional and local economic conditions, presenting challenges in accurately predicting potential losses. Evaluating collateral and conducting financial statement analysis for these loans requires a more intricate approach during underwriting and continual assessment. At December 31, 2024,2025 , we had $288.5$295.3 million of commercial real estate loans, representing 41.2%43.0% of our total loan portfolio.

Factors beyond our control can significantly influence the fair value of securities in our portfolio and may cause adverse changes to the fair value of these securities. These factors include, but are not limited to, rating agency actions regarding the securities, defaults by, or other adverse events affecting, the issuer or the underlying securities, and changes in market interest rates, as well as continued instability in the capital markets. Any of these factors, among others, could result in realized and/or unrealized losses in future periods and declines in other comprehensive income, which could materially affect on our business, financial condition and results of operations. The process for determining whether the impairmentdecline in fair value is the result of acredit securitylosses isor other-than-temporaryother usuallyfactors requires complex, subjective judgments about the future financial performance and liquidity of the issuer and any collateral underlying the security to assess the probability of receiving all contractual principal and interest payments on the security. There can be no assurance that declines in market value will not result in other-than-temporarycredit impairmentslosses ofon these assets, leading to accounting charges that could have a material adverse effect on our net income and capital levels. For the year endedAt December 31, 2024,2025, wethere didwas notno incurallowance anyfor other-than-temporarycredit impairmentslosses in our securities portfolio.

One such significant change in 2023 was the implementation of the current expected credit loss ("CECL") model, which we adopted on January 1, 2023. Under the CECL model, financial assets carried at amortized cost, such as loans and held-to-maturity debt securities, are presented at the net amount expected to be collected. This forward-looking approach in estimating expected credit losses contrasts starkly with the prior, "incurred loss" model, which delays recognition until a loss is probable. CECL mandates considering historical experience, current conditions, and reasonable forecasts affecting collectability, leading to periodic adjustments of financial asset values. However, this forward-looking methodology, reliant on macroeconomic variables, introduces the potential for increased earnings volatility due to unexpected changes in these indicators between periods. An additional consequence of CECL is an accounting asymmetry between loan-related income, recognized periodically based on the effective interest method, and credit losses, recognized upfront at origination. This asymmetry might create the perception of reduced profitability during loan expansion periods due to the immediate recognition of expected credit losses. Conversely, periods with stable or declining loan levels might seem relatively more profitable as income accrues gradually for loans where losses had been previously recognized.

Security breaches in our internet banking activities could further expose us to liability and reputational harm. Cybersecurity risks are particularly heightened in internet banking. Advances in criminal sophistication, technology, or vulnerabilities in third-party systems could lead to breaches that compromise the security of data and transactions, potentially discouraging customers from using our online services. While we continue to invest in systems and processes to detect and prevent breaches, no system is foolproof. A breach could result in financial losses, reputational harm, regulatory penalties, compliance costs, and legal liabilities, adversely affecting our financial condition and ability to grow our online services.

In addition, our security measures may not fully protect us from system failures or interruptions. While we have policies and procedures to mitigate these risks, we cannot guarantee their effectiveness. We also rely on third-party providers for data processing and operational support. Although we carefully select these providers, we do not control their actions. If a third-party vendor experiences disruptions, cyber-attacks, or fails to meet service standards, it could impair our ability to process transactions, deliver services, or conduct business. Transitioning to alternative vendors could involve significant delays and costs.

We are reliant on our ability to manage data and our ability to aggregate data in an accurate and timely manner to ensure effective risk reporting and management. Our ability to manage data and aggregate data may be limited by the effectiveness of our policies, programs, processes and practices that govern how data is acquired, validated, stored, protected and processed. While we continuously update our policies, programs, processes and practices, manyMany of our data management and aggregation processes are manual and subject to human error or system failure. Failure to manage data effectively and to aggregate data in an accurate and timely manner may limit our ability to manage current and emerging risks, as well as to manage changing business needs.

The investment and other activities of the Company have had no significant impact on the results of operations for the periods presented in the Consolidated Financial Statements included herein. Given that all material business operations are conducted through the Bank, the following discussion of financial results is primarily indicative of the activities of the Bank.

The principal business of the Bank is accepting deposits from the general public and originating consumerconsumer, commercial, and commercialmortgage businessloans, loans as well as mortgageincluding loans that enable borrowers to purchase or refinance one-to-four family residential real estate.properties. The Bank also originates construction loans onfor single-family residences, multi-family dwellings, and commercial real estate, and residential subdivisions, as well as loans for the acquisition,commercial development and construction of residential subdivisions, and commercial projects. The Bank also provides trust services and it offers property and casualty insurance products through its subsidiary, SFINS.

We prepare our consolidated financial statements in accordance with GAAP.U.S. generally accepted accounting principles (“GAAP”). In doing so, we have to make estimates and assumptions. Our critical accounting estimates are those estimates that involve a significant level of uncertainty at the time the estimate was made, and changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. Accordingly, actual results could differ materially from our estimates. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We have reviewed our critical accounting estimates with the audit committee of our Board of Directors.

Total assets increased $62.1$6.3 million or 4.0%0.4% to $1.62 billion at December 31, 2025 from $1.61 billion at December 31, 2024 from $1.55 billion at December 31, 2023.2024. This increase was primarily due to increases in netinvestment loans receivablesecurities and bank owned life insurance ("BOLI"), partially offset by decreases in cash and cash equivalents, partiallynet offsetloans by a decrease in investment securitiesreceivable and other assets.

Cash and cash equivalents increaseddecreased $50.0$102.9 million or 39.0%57.7% to $75.3 million at December 31, 2025 compared to $178.3 million at December 31, 2024 compared to $128.3 million at December 31, 2023,2024, due to increased deposits,investment whilesecurities certificatesand the payoff of depositsFRB withborrowings otherand banksjunior decreasedsubordinated $1.1debentures millionduring orthe 46.8%year to $1.3 million atended December 31, 2024 compared to the prior year end.2025.

Total investment securities decreasedincreased $39.9$115.5 million or 5.7%17.5% to $776.3 million at December 31, 2025 from $660.8 million at December 31, 2024 fromas $700.7purchases millionof atinvestments December 31, 2023 asexceeded maturities, sales and principal paydowns exceeded purchases of investments during the year. The Company purchased $71.9$228.3 million of investment securities during the year ended December 31, 20242025 compared to $66.3$71.9 million during 2023.2024.

Loans receivable, net, including loans held for sale, increaseddecreased $64.6$10.9 million or 10.4%1.6% to $676.2 million at December 31, 2025 from $687.1 million at December 31, 2024 from $622.5 million at December 31, 2023.2024. The increasedecrease was due to a decline in construction loan balances, which was partially offset by growth acrossin all remaining loan categories, except other consumer loans, which declined slightlycategories in 2024 as compared to 2023.2025.

Construction loans decreased $43.4 million or 39.4% to $66.6 million at December 31, 2025 from $109.9 million at December 31, 2024. The decrease in construction loans was partially offset by growth in all other loan categories. The most significant growth occurred in our residential and commercial real estate loan portfolios. Residential mortgage loans held for investment increased $30.8$16.3 million or 17.8%8.0% to $219.9 million at December 31, 2025 from $203.7 million at December 31, 2024 from $172.9 million at December 31, 2023.2024. Commercial real estate loans increased $23.7$6.8 million or 9.0%2.4% to $295.3 million at December 31, 2025, from $288.5 million at December 31, 2024, from $264.8 million at December 31, 2023.2024. Additionally, construction loans increased by $5.4 million, commercial and agricultural loans increased by $3.6$1.0 million, HELOCs by $5.2 million, and HELOCs by $3.3 million. These increases were partially offset by a $677,000 decline in other consumer loans.loans by $21,000.

Loans held for sale, comprised of fixed rate residential loans, totaled $599,000 $3.1 million at December 31, 2025 compared to $599,000 at December 31, 2024 compared to $967,000 at December 31, 2023. . Typically, long-term fixed-rate residential real estate loans, when newly originated, are not retained in the portfolio but are promptly sold, unlike ARM loans, which are generally held in the portfolio. The Bank sells its fixed-rate residential loans on a service-released basis. The total value of fixed-rate residential loans sold to institutional investors on a service-released basis was $39.8 million during the year ended December 31, 2025 , compared to $30.2 million during the year ended December 31, 2024, compared to $21.6 million during the year ended December 31, 2023.2024 .

Other assets decreased $12.5$3.9 million or 42.7%23.2% to $12.9 million at December 31, 2025 from $16.8 million at December 31, 2024 from $29.2 million at December 31, 2023.2024. The decrease was primarily the result of a $10.8$3.5 million decrease in principalthe paymentsnet receivabledeferred onasset investments.associated Thewith higherthe balancechange in themarket prior year was due to the maturityvalue of oneour AFS investment security that matured on December 31, 2023 but payment was not received until the beginning of 2024.securities.

The Bank’s non-performing assets, consisting solely of nonaccrual loans,loans increasedand $811,000OREO, decreased $1.8 million or 11.9%23.5% to $5.8 million at December 31, 2025, from $7.6 million at December 31, 2024, from $6.8 million at December 31, 2023.2024. At December 31, 20242025 and 2023,2024, the Bank did not have any loans that were 90 days or more past due and still accruing interest, or OREO.interest. Non-performing assets represented 0.44%0.36% and 0.49%0.47% of total assets at December 31, 20242025 and 2023,2024, respectively. The ratio of the allowance for credit losses to total loans was 1.97% and 1.98% at both December 31, 20242025 and 2023.2024, respectively.

The increasedecrease in non-performing assets at December 31, 2024,2025, was primarily driven by higherlower levels of non-performing construction, residential real estate, and commercial and agricultural loans. This was partially offset by a decreaseloans in non-performingall commercialcategories realexcept estateother consumer loans when compared to the year ended December 31, 2023.2024. The largest increasedecrease occurred in non-performing construction loans, which increaseddecreased $570,000$977,000 or 65.7%67.9% to $461,000 at December 31, 2025, from $1.4 million at December 31, 2024 , from $868,000 at December 31, 2023.2024. At December 31, 2024,2025, non-performing construction loans consisted of fourthree loans to fourthree borrowers, with an average loan balance of $252,000,$154,000, compared to four loans to four borrowers with an average loan balance of $217,000$252,000 at December 31, 2023.2024.

Non-performing residential real estate loans increaseddecreased $400,000$131,000 or 30.6%7.7% to $1.6 million at December 31, 2025, up from $1.7 million at December 31, 2024, up from $1.3 million at December 31, 2023.2024. Non-performing residential real estate loans at December 31, 2024,2025, consisted of 19 loans to 19 borrowers with an average loan balance of $113,000, the largest of which was $431,000,$83,000, compared to 1619 loans to 1619 borrowers with an average loan balance of $82,000, the largest of which was $291,000,$113,000, at December 31, 2023.2024.

Non-performing commercial andreal agriculturalestate loans increaseddeclined $281,000$399,000 or 562.0%10.9% to $331,000$3.3 million at December 31, 2024,2025, comparedfrom to$3.7 $50,000million at December 31, 2023.2024. At December 31, 2024,2025, non-performing commercial andreal agriculturalestate loans consisted of fivesix loans to fivesix borrowers, with an average loan balance of $66,000,$543,000, compared to threeseven loans to threeseven borrowersborrowers, with an average loan balance of $17,000$523,000 at December 31, 2023.2024.

OffsettingNon-performing thesecommercial increasesand wasagricultural aloans $467,000decreased $138,000 or 11.3% decrease in non-performing commercial real estate loans, which declined41.7% to $3.7 million$193,000 at December 31, 2024,2025, fromcompared $4.1to million$331,000 at December 31, 2023.2024. At December 31, 2024,2025, non-performing commercial realand estateagricultural loans consisted of seven loans to seven borrowers, with an average loan balance of $523,000,$24,000, compared to five loans to five borrowersborrowers, with an average loan balance of $825,000$66,000 at December 31, 2023.2024.

Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the allowance for credit losses. The ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted. In addition, bank regulatory agencies periodically review our allowance for credit losses and may require an increase in the provision for possible loancredit losses or the recognition of further loan charge-offs, based on judgments different than those of management. If charge-offs in future periods exceed the allowance for credit losses, we will need additional provisions to increase the allowance for credit losses. Any increases in the allowance for credit losses will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on our financial condition and results of operations. Management continually monitors its loan portfolio for the impact of local economic changes.

The majority of the Bank’s deposits are originated within the Bank’s immediate market area. Total deposits increased $129.0$47.7 million or 10.8%3.6% to $1.37 billion at December 31, 2025, up from $1.32 billion at December 31, 2024, up from $1.19 billion at December 31, 2023.2024. The increase primarily was the result of ana $78.8$46.6 million or 34.2%10.4% increase in certificates of deposit balances, a $41.6 million or 10.3% increase money market account balances and, to a lesser extent, a $9.3$6.5 million or 2.0%1.3% increase in checking account balances. We believe the majority of the increases in deposits were due to competitive promotional rates for certificates of deposits and money market accounts in addition to a $19.7 million increase in total brokered deposits.accounts.

Total uninsured deposits (those that met or exceeded the FDIC insurance limit of $250,000) weretotaled $365.8$334.4 million and $327.7$365.8 million at December 31, 20242025 and 2023,2024, respectively. TheseThe uninsured amounts are estimates are based on the methodologies and assumptions used for the Bank’sBank's regulatory reporting requirements. CertificatesThe Bank had no deposit relationships greater than 5.0% of outstanding deposits exceedingat the FDIC insurance limit totaled $96.0 million and $50.2 million ateither December 31, 2024 and 2023, respectively. The following table summarizes the maturity schedule of certificates of deposit with a balance of $250,0002025 or more at December 31, 2024:2024.

We had no outstanding FHLB advances at December 31, 20242025 and 2023.2024. We also had no outstanding borrowings from the FRB at December 31, 2025, compared to $50.0 million in outstanding borrowings under the FRB's BTFP with a weighted average borrowing rate of 4.76% at December 31, 2024,2024. comparedThe toCompany $119.2 million at December 31, 2023, with a weighted average borrowing rate of 4.60%. During 2023, weoriginally elected to participate in the BTFP during 2023 to refinance existing FRB discount window borrowings at a lower fixed rate. Advances under thethat program havehad a one-year term and arewere priced at the one year overnight index swap (“OIS”) rate plus 10 basis points on the day the advance iswas made. Effective January 24, 2024, the FRB announced that future advances through the program’sBTFP’s expiration on March 11, 2024, would be set at no lower than the interest rate on reserve balances in effect at the time of the advance. At December 31, 2024,2025, we had pledged investment securities with an amortized cost of $370.2$312.9 million and a fair value of $341.0$293.9 million as collateral for theseFRB borrowings compared to an amortized cost and fair value of $381.0$370.2 million and $350.6a fair value of $341.0 million, respectively, at December 31, 2023,2024, respectively.

Other borrowings increaseddecreased $8.6$2.5 million or 45.0%9.2% to $25.3 million at December 31, 2025 from $27.8 million at December 31, 2024 from $19.2 million at December 31, 2023.2024. These borrowings consist of short-term repurchase agreements with certain commercial demand deposit customers for sweep accounts. The repurchase agreements typically mature within one to three days, and the interest rate paid on these borrowings floats monthly with money-market type rates. The interest rate paid on the repurchase agreements was 1.49% at both December 31, 20242025 and 2023,2024, respectively. We had pledged, as collateral for these repurchase agreements, investment securities with amortized costs and fair values of $36.4 million and $34.4 million at December 31, 2025, and $42.1 million and $39.7 million at December 31, 2024, and $44.7 million and $42.0 million at December 31, 2023, respectively.

AtDuring both2025, the Company redeemed its junior subordinated debentures leaving no remaining balance at December 31, 20242025 andcompared 2023, the Company hadto $5.2 million in junior subordinated debentures outstanding. In addition,outstanding at December 31, 2024,2024. In addition, the Company had $10.0 million in subordinated debentures (“Notes”) outstanding compared toat $26.5 million atboth December 31, 2023.2025 and 2024. During the year ended December 31, 2024, the Company repurchased $16.5 million in principal of the Notes. For additional information, refer to Notes 12 and 13 of the Notes to Consolidated Financial Statements included under "Item 8. Financial Statements and Supplementary Data" in this 20242025 Form 10-K.

Total shareholders' equity increased $10.0$18.1 million or 5.8%9.9% to $200.5 million at December 31, 2025 from $182.4 million at December 31, 2024 from $172.4 million at December 31, 2023.2024. The increase was primarily attributable to net income available to common shareholders of $8.9$13.7 million during 20242025 and a $3.9$10.5 million decrease in accumulated other comprehensive loss, net of tax, related to the unrecognized gain in value of AFS securities during the year ended December 31, 2024.2025. These increases were partially offset by $1.8$2.2 million in dividends paid to common shareholdersshareholders, and$1.7 $926,000million in dividends paid to preferred shareholders.shareholders and $2.3 million paid for share repurchases. Book value per common share was $37.74 at December 31, 2025 compared to $31.21 at December 31, 2024 compared to $27.69 at December 31, 2023.2024.

The following table compares detailed average balances, average yields on interest earninginterest-earning assets, and average costs of interest bearinginterest-bearing liabilities at December 31, 20242025 and 2023.2024. 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 tables. Loan yields have been reduced to reflect the negative impact on our earnings of loans on nonaccrual status.

Net interest income increased $2.6$5.3 million or 6.6%12.8% to $41.8$47.2 million for the year ended December 31, 2024,2025, compared to $39.2$41.8 million in 2023.2024. The increase was due to higher interest income from loans,loans and taxable investment securities combined with a decrease in interest expense on long term debt and non certificate deposit accounts. These were partially offset by lower interest income from deposits in other banks and, to a lesser extent, investments, partially offset byand an increase in interest expense, principallyexpense on deposits.certificate of deposit accounts. The net interest margin on a tax-equivalent basis decreasedincreased four28 basis points to 3.13% for the year ended December 31, 2025 from 2.85% for the year ended December 31, 2024 from 2.89% for the year ended December 31, 2023.2024.

Total average interest-earning assets increased $107.9$41.5 million or 7.9%2.8% to $1.51 billion for the year ended December 31, 2025 from $1.47 billion for the year ended December 31, 20242024, from $1.36 billion for the year ended December 31, 2023, withdespite a 48five basis point increasedecrease in the average yield earned on these assets. Similarly, average interest-bearing liabilities increased $107.1$10.9 million or 10.5%1.0% to $1.14 billion for the year ended December 31, 2025 from $1.13 billion for the year ended December 31, 20242024, from $1.02 billion forwhile the yearaverage ended December 31, 2023, with an increasecost of 62these liabilities decreased 38 basis points into the average cost.2.76%. The interest rate spread on a tax-equivalent basis decreasedincreased 1433 basis points to 2.12%2.45% for the year ended December 31, 20242025 from 2.26%2.12% in 2023.2024.

InterestTotal interest income on deposits with other banks increased $3.3$1.3 million or 121.0%1.7% to $6.1$78.6 million for the year ended December 31, 20242025, compared to $2.8$77.3 million for priorthe year.year Thisended December 31, 2024, as a result of increased interest income on loans and taxable investments. Interest income on loans increased $2.8 million or 6.8% to $44.1 million for the year ended December 31, 2025 compared to $41.3 million for the year ended December 31, 2024. The increase was due to a $67.1$23.0 million increase in the average balance of depositsloans outstanding combined with othera banks.20 Thebasis point increase in the average loan yield earned on these deposits was 5.11% forduring the year ended December 31, 2023, compared to 5.26% in 2023.2025.

Interest expenseincome on FRBdeposits andwith other borrowingsbanks increaseddecreased $686,000$2.0 million or 21.0%31.9% to $4.0$4.2 million duringfor the year ended December 31, 2024,2025, compared to $3.3$6.1 million during thefor prior year. TheThis increasedecrease was attributabledue to both a $7.8$23.2 million or 8.8% increasedecrease in the average balance of borrowingsdeposits andwith aother 41banks. basisThe pointaverage increaseyield earned on these deposits was 4.31% for the year ended December 31, 2025, compared to 5.11% in the average cost of borrowing, which rose to 4.08% in 2024 from 3.67% during 2023.2024.

Non-interest income increased $857,000$1.3 million or 9.1%12.5% to $11.5 million for the year ended December 31, 2025 from $10.2 million for the year ended December 31, 2024 from $9.4 million for the year ended December 31, 2023,2024, with increases occurring in all categories except othergain on sale of investment securities, net and trust income. Increases in gain on sales of loans, trustgrant income, and ATMother andnon-interest checkincome, cardwhich feeincludes incomerental income, were the primary drivers.drivers of the increase in non-interest income.

We received $500,000$1.1 million and $437,000$500,000 in grant income during the years ended December 31, 20242025 and 2023,2024, respectively. TheAll grant income received in 2025 was from a Community Development Financial Institution (“CDFI”) Financial Assistance ("FA") Award, while the grant income received in 2024 included a $220,000 CDFI AssistanceFA Award and $280,000 through the CDFI Fund Bank Enterprise Award ("BEA") program. All grant income received in 2023 was from the BEA program. These grants were allocated to support the Bank's ongoing initiatives in community development financing and service activities within the most economically distressed communities.

Non-interest expense increased $2.2$3.5 million or 6.2%9.1% to $38.1$41.6 million during the year ended December 31, 20242025 compared to $35.9$38.1 million in 2023.2024. This increase was primarily a result of increases in compensation and employee benefits, cloud serviceoccupancy expense, debit card expenses and otherdata non-interestprocessing expense, partially offset by a decreaseexpenses in depreciation and maintenance of equipment expenses.2025.

Debit card expenses increased $125,000$378,000 or 8.7%24.2% to $1.6$1.9 million during the year ended December 31, 20242025 from $1.4$1.6 million in 2023,2024, primarily due higher transaction volumes and rising transaction costs. Occupancy expenses increased $121,000 or 3.8% to $3.3 million in 2024 from $3.2 million in 2023, primarily due to the addition of our newest branch in the second quarter of 2023.

Data processing expenses increased $105,000$230,000 or 8.0%16.3% to $1.4$1.6 million during the year ended December 31, 20242025 andas cloud services expenses increased $218,000 or 30.5% to $932,000 in 2024. These increases were thea result of increases in the cost of services provided by third-party vendors and higher transaction volume when compared to the prior year.

The provision for income taxes increased $469,000$901,000 or 20.5%32.7% to $2.8$3.7 million during the year ended December 31, 20242025 compared to $2.3$2.8 million for the year ended December 31, 2023, despite lower pre-tax income. The increase was primarily2024 due to a $396,000 reduction in income tax expense in 2023 resulting from tax credits associated with the new branch opened during that year, partially offset by an increase in pre-tax net income. The Company's combined federal and state effective income tax rate was 21.9%21.1% for 20242025 compared to 18.3%21.9% for 2023.2024.

Our principal use of funds is the origination of mortgages and other loans, and the purchase of investment securities. The Bank’s liquidity is impacted by the volume of loans sold and principal payments received. During the years ended December 31, 20242025 and 2023,2024, the Bank sold $31.3$39.8 million and $22.1$31.3 million in loans, respectively. During the same periods, the net increasechange in loans outstanding, accounting for originations and principal repayments (excluding loans held for sale), totaledwas $66.5a net decrease $13.6 million and $74.7a net increase of $66.5 million, respectively. Further, purchases of investment securities totaled $228.3 million during 2025 compared to $71.9 million during 2024 compared to $66.3 million during 2023.2024. Other uses of funds in 20242025 included debtrepayment repayment,of FRB borrowings and junior subordinated debentures, property and equipment purchases and improvements, repurchases of common stock and $2.7$3.9 million in dividend payments to common and preferred shareholders.

The Bank’s liquidity has been positively impacted by increases in deposit levels in recent years. During the year ended December 31, 2024,2025, deposits increased by $129.0$47.7 million.million, Ourbringing liquidtotal assetsdeposits into $1.4 billion at year end. At December 31, 2025, the formBank ofhad $75.3 million in cash and cash equivalents, compared to $178.3 million at December 31, 2024. In addition, the Bank held certificates of deposit at other banks and investmentsAFS increasedinvestment securities, which together with cash and cash equivalents amounted to $840.4$740.1 million at December 31, 20242025, up from $831.3$705.2 million at December 31, 2023.2024. Total certificates of deposit scheduled to mature inwithin one year or less totaled $253.1$279.1 million at December 31, 2024.2025. Management’s policy is to maintain deposit rates at levels that are competitive with other local financial institutions. Based on historical experience, we believe that a significant portion of maturing certificates of deposit will remain with the Bank.

Security Federal Corporation is a separate legal entity from the Bank and must provide for its own liquidity and pay its own operating expenses. Sources of capital and liquidity for Security Federal Corporation include distributions from the Bank and the issuance of debt or equity securities, although there are regulatory restrictions on the ability of the Bank to pay dividends. At December 31, 2024,2025, Security Federal Corporation (on an unconsolidated basis) had liquid assets of $33.1$45.0 million. The Company currently expects to continue the current practice of paying quarterly cash dividends on common stock subject to the 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 duringin 20252026 is $0.15$0.16 per share, as approved by our Board of Directors, 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 20252026 at this rate of $0.15$0.16 per share, our average total common stock dividends paid each quarter would be approximately $478,000$498,000 based on the number of our current outstanding shares at December 31, 2024.2025.

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

Assets - Total assets increased $13.5 million$244,000 to $1.63$1.61 billion at JuneSeptember 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.

Cash and cash equivalents decreased $36.1$126.5 million or 20.2%70.9% to $142.2$51.8 million at JuneSeptember 30, 2025 from $178.3 million at December 31, 2024, primarily due to the repayment of borrowings with the Federal Reserve Bank of AtlantaRichmond ("FRB") during the sixnine months ended JuneSeptember 30, 2025.

AFS securities increased $62.6$148.7 million or 11.9%28.3% to $588.2$674.3 million at JuneSeptember 30, 2025 from $525.6 million at December 31, 2024 due to purchases of AFS securities exceeding sales, maturities and principal paydowns during the sixnine months ended JuneSeptember 30, 2025. HTM securities decreased $15.8$20.2 million to $119.4$115.0 million at JuneSeptember 30, 2025, from $135.2 million at December 31, 2024, due to paydowns and maturities exceeding purchases during the sixnine months ended JuneSeptember 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 $1.0$9.5 million, or 0.1%,1.3%, to $699.7$677.1 million at JuneSeptember 30, 2025 from $700.6$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 sixnine months ended JuneSeptember 30, 2025. Residential real estate loans increased $2.4$19.0 million, or 1.2%,9.3%, to $206.0$222.6 million at JuneSeptember 30, 2025 from $203.7 million at December 31, 2024. Commercial real estate loans increased $3.2$15.1 million, or 1.1%,5.2%, to $291.7$303.7 million at JuneSeptember 30, 2025 from $288.5 million at December 31, 2024. Additionally, consumer HELOCs increased $3.0$2.2 million, or 8.0%,5.9%, to $40.9$40.1 million at JuneSeptember 30, 2025 from $37.8 million at December 31, 2024. Offsetting these increases, construction loans decreased $5.2$40.7 million, or 4.8%,37.1%, to $104.7$69.2 million at JuneSeptember 30, 2025 from $109.9 million at December 31, 2024 while commercial and agricultural loans decreased $4.6$5.9 million, or 12.6%,15.9%, to $32.2$31.0 million at JuneSeptember 30, 2025 from $36.9 million at December 31, 2024. Other consumer loans increased slightly to $24.2 million at JuneSeptember 30, 2025 compared to $23.8 million at December 31, 2024.

At JuneSeptember 30, 2025 and 2024, the allowance for credit losses on loans as a percentage of total loans was 2.00%1.97% and 1.95%, and as a percentage of nonperforming loans was 0.85% and 1.07%, respectively. Loans past due 30 days or more decreased to $7.3$6.9 millionmillion, or 1.0%1.00% of total loansloans, at JuneSeptember 30, 2025, compared to $12.6 million, or 1.8%,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 $1.9$2.1 million, and residential real estate, which decreased from $3.3 million to $1.3$1.7 million. Past due balances also improved across commercial and agricultural and commercial real estate portfolios. Current loans totaled $692.3$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 firstnine halfmonths ofended September 30, 2025.

Loans held for sale increased to $2.2$1.0 million at JuneSeptember 30, 2025 from $599,000 at December 31, 2024, primarily due to higher residential mortgage originations designated for sale during the sixnine months ended JuneSeptember 30, 2025. The increase also reflects stronger secondary market demand and seasonal growth in home purchase activity during the spring and early summer months, which led to a higher volume of loans being originated with the intent to sell.

Premises and equipment, net increased $4.1$3.9 million or 13.9%13.2% to $33.4$33.2 million at JuneSeptember 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 $2.1$2.0 million or 12.5%12.0% to $14.7$14.8 million at JuneSeptember 30, 2025 from $16.8 million at December 31, 2024, primarily due to a $1.8$2.4 million decrease in the deferred tax asset associated with the unrealized loss on our AFS securities portfolio.

Total deposits increased $59.2$41.4 million or 4.5%3.1% to $1.38$1.37 billion at JuneSeptember 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 savingschecking accounts. The growth in certificates of deposits was largely driventhe byresult of targeted promotions to retain and attract customers amid heightened competition for deposits as market interest rates stabilized, while savingschecking accounts declined as customers sought higher-yield alternatives. The Bank had $24.4 million and $25.8 million in brokered time deposits at both JuneSeptember 30, 2025 and December 31, 2024.2024, respectively. A portion of these brokered deposits include call options, giving the Bank the flexibility to redeem them earlyprior to maturity if interest rates move favorably.decline. In addition, the Bank held $5.5$5.7 million and $5.4 million of non-certificate brokered deposits at both JuneSeptember 30, 2025 and December 31, 2024.2024, respectively.

At JuneSeptember 30, 2025 and December 31, 2024, we haddid nonot have any deposit relationshipsrelationship with any individual or entity that was greater than 5% of outstanding deposits. At JuneSeptember 30, 2025, approximately $342.6$334.7 million or 24.8%24.5% of our $1.38$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.

We had no outstanding borrowings from the FRB at JuneSeptember 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 $24.4$23.9 million in other borrowings at JuneSeptember 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 JuneSeptember 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 increased $8.9$12.4 million or 4.9%,0.1%, to $191.3$194.8 million at JuneSeptember 30, 2025 from $182.4 million at December 31, 2024. The increase was primarily attributable to $5.0$8.1 million in net income earned during the period and a $5.3$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 $1.3$1.7 million in common stock dividends paid and $415,000$1.2 million in preferred stock dividends paid to shareholders during the sixnine months ended JuneSeptember 30, 2025.

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

Net income available to common shareholders increased $247,000,$1.2 million, or 11.6%,59.1%, to $2.4$3.2 million or $0.75$1.01 per basic common share for the quarter ended JuneSeptember 30, 2025, compared to $2.1$2.0 million or $0.66$0.62 per basic common share for the quarter ended JuneSeptember 30, 2024. The increase was the result of increasesan increase in net interest income and non-interest income, as well as a decreasereduction into the provision for credit losses, which were partially offset by increasesan increase in non-interest expense, provision for income taxes and the payment of preferred stock dividendsexpense during the secondthird quarter of 2025.

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 JuneSeptember 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 JuneSeptember 30, 2025 and 2024.

Net interest income increased $1.1$1.7 million or 11.1%16.0% to $11.3$12.1 million during the quarter ended JuneSeptember 30, 2025, compared to $10.2$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 JuneSeptember 30, 2025, average interest-earning assets increased $72.8$72.3 million or 5.1%5.0% to $1.50$1.53 billion from $1.43$1.46 billion for the same quarter in 2024, while average interest-bearing liabilities increased $33.1$34.2 million or 3.0%3.1% to $1.13$1.15 billion for the quarter ended JuneSeptember 30, 2025 from $1.09$1.11 billion for the comparable quarter in 2024. The Company's net interest margin was 3.02%3.17% for the quarter ended JuneSeptember 30, 2025 compared to 2.86%2.87% for the comparable quarter in 2024. The Company's net interest spread on a tax equivalent basis was 2.29%2.47% for the quarter ended JuneSeptember 30, 2025 compared to 2.12%2.10% for the quarter ended JuneSeptember 30, 2024.

The increase in the net interest margin was the result of several key factors. Primarily, the yield on loans improvedincreased by 2418 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. Although interestInterest expense on certificatesdeposits ofdecreased deposit increasedslightly as a result of a higher average balance andlower rates paid on those deposits,deposits. the overallThe 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 on checking and savings accounts.rates. The favorable mix of higher-yielding earning assets combined with lower overall funding costs resulted in an improved net interest spread and net interest margin.

Total tax-equivalent interest income increased $607,000$591,000 or 3.2%3.0% to $19.5$20.1 million for the quarter ended JuneSeptember 30, 2025 compared to $18.9$19.6 million for the same period in 2024.

Interest income on loans increased $1.1 million$438,000 or 10.7%4.1% to $11.1$11.0 million for the quarter ended JuneSeptember 30, 2025 from $10.0$10.6 million for the secondthird quarter of 2024. The increase was the result of a $42.3$8.2 million increase in the average loan portfolio balance combined with aan 24increase of 18 basis point increasepoints 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 decreasedincreased $583,000$728,000 or 7.8%9.8% to $6.9$8.1 million during the quarter ended JuneSeptember 30, 2025, from $7.5$7.4 million for the secondthird quarter of 2024, due to a 37$93.9 basismillion point decreaseincrease in the average yieldbalance toof 4.16%.these investments. Tax equivalent interest income from non-taxable investments decreasedincreased $137,000$18,000 to $42,000$130,000 during the quarter ended JuneSeptember 30, 2025 primarily due to aan $14.0increase millionof decrease72 basis points in the average balanceyield ofearned on non-taxable investments.

Interest income from deposits with other banks increaseddecreased $257,000$593,000 to $1.4 million$858,000 during the quarter ended JuneSeptember 30, 2025, from $1.2$1.5 million for the secondthird quarter of 2024, due to a $41.8$29.2 million increasedecrease in the average balance of these assets.

Total interest expense decreased $502,000$1.0 million or 5.8%11.7% to $8.1 million for the quarter ended JuneSeptember 30, 2025 compared to $8.6$9.1 million for the same quarter in 2024 primarily due to an $800,000$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 balancesbalances, andwhich slightlywas higherpartially rates.offset by lower rates paid on these deposits. Additionally, interest expense on checking, savings and money market accounts decreased due to lower rates.

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 overall 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 noa $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 JuneSeptember 30, 2025, compared to $175,000$585,000 in total provision for credit losses of $335,000 during the quarter ended JuneSeptember 30, 2024. The absencereversal of aprovision provisionfor credit losses on loans in the current quarter reflects stable credit quality, minimal net charge-offs,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 recoveriescharge-offs totaled $3,000$88,000 for the secondthird quarter of 2025 compared to net charge-offs of $59,000$79,000 during the secondthird 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 incomeexpense increased $141,000$1.0 million, or 5.7%11.1%, to $2.6$10.4 million for the quarter ended JuneSeptember 30, 2025 compared to $2.5$9.3 million for the quarter ended JuneSeptember 30, 2024,2024. primarilyThe duefollowing totable asummarizes $107,000the increasechanges in rental income, which is included in other non-interest expense. During the first quarter of 2025, we purchased a multi-tenant property resulting in an increase to rental income, which is intended to be the future site of a full-service branch.expense:

Non-interest expense increased $692,000$1.9 million or 7.2%6.8% to $10.4$30.6 million for the quarternine months ended JuneSeptember 30, 2025 compared to $9.7$28.6 million for the quarternine months ended JuneSeptember 30, 2024. The following table summarizes the changes in non-interest expense:

The largest increase in non-interest expense during the second quarter of 2025 was compensation and employee benefits expense, which increased $332,000$1.2 million, or 6.0%7.5%, to $5.9$17.7 million for the quarternine months ended JuneSeptember 30, 2025, compared to $5.5$16.4 million during the same period in 2024.2024, Theseas increases were primarily thea result of higher staffing levels and additional compensation-related costs to support our growth and operational needs.

Occupancy expense increased $124,000,$304,000, or 15.3%,12.5%, due to higher building maintenance, utility costs, and lease-related expenses. Debit card expense increased $152,000,$275,000, or 38.2%,24.4%, due to higher transaction volumes and increased network processing fees.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 a $125,000 decreasedecreases in depreciation and maintenance of equipment, which declined $117,000, or 23.8%,9.0%, asdue certainto assetsfewer reachedcapitalized equipment replacements and the full depreciation of certain assets, and equipmentadvertising replacementexpense, activitywhich wasdecreased lower.$145,000, or 19.2%.