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SF

SECURITY FEDERAL CORP (SFDL)·Q2 2025 Earnings Summary

Executive Summary

  • Security Federal delivered solid Q2 2025 results: net income available to common rose 11.6% YoY to $2.4M ($0.75 EPS) on higher net interest income and non-interest income, with no provision for credit losses; sequentially, EPS dipped vs Q1’s $0.81 as non-interest expense rose .
  • Net interest margin improved to 3.02% (vs 2.86% YoY) and net interest spread to 2.29%, driven by loan yield expansion and lower funding costs as FRB borrowings were repaid; deposits grew 4.5% YTD, while borrowings fell 57% YTD .
  • Credit quality strengthened: non-performing assets declined to 0.37% of assets (from 0.47% at 12/31/24), allowance coverage rose to 2.00% of gross loans; no provision recorded in H1 2025 .
  • Dividends remain a steady capital return: regular $0.15 quarterly dividends declared in May and August; a special $0.10 dividend paid in April .
  • Potential stock catalysts: continued NIM improvement, strong capital ratios (CET1 19.20%; total risk-based 20.46%), deposit momentum, and announced plan to deregister with the SEC (reduces cost burden but may affect liquidity/coverage) .

What Went Well and What Went Wrong

What Went Well

  • Net interest income rose 11.1% YoY to $11.3M; NIM expanded to 3.02% on higher loan yields and lower funding costs after retiring FRB borrowings .
  • Non-interest income increased 5.7% YoY to $2.6M, aided by rental income from a newly purchased multi-tenant property and a gain on sale of land .
  • Credit metrics improved: non-performing assets fell to $5.9M (0.37% of assets) and allowance coverage edged up to 2.00% of gross loans; no credit loss provision in H1 .
    • Quote: “As a result of our continued profitability, we are very pleased to provide this additional payment to our shareholders.” – CEO J. Chris Verenes on special dividend .

What Went Wrong

  • Non-interest expense increased 7.2% YoY to $10.4M, driven by higher salaries/benefits, occupancy, debit card and cloud services expenses, partly offset by lower advertising and equipment expense .
  • Sequentially, net income available to common slipped vs Q1 (EPS $0.75 vs $0.81), reflecting higher OpEx despite revenue growth .
  • Investment income headwind: taxable investment yields declined YoY, reducing investment interest income; non-taxable investments’ average balance also dropped .

Financial Results

Quarterly comparison (oldest → newest)

MetricQ4 2024Q1 2025Q2 2025
Total Interest Income ($USD Millions)$20.235 $19.233 $19.449
Net Interest Income ($USD Millions)$11.253 $11.229 $11.312
Non-Interest Income ($USD Millions)$2.847 $2.443 $2.595
Non-Interest Expense ($USD Millions)$9.523 $9.840 $10.361
Net Income ($USD Millions)$3.418 $3.006 $2.790
Net Income to Common ($USD Millions)$3.004 $2.591 $2.375
EPS (Basic, $USD)$0.94 $0.81 $0.75
Net Interest Margin (%)N/AN/A3.02%

Year-over-year comparison

MetricQ2 2024Q2 2025
Total Interest Income ($USD Millions)$18.820 $19.449
Total Interest Expense ($USD Millions)$8.639 $8.137
Net Interest Income ($USD Millions)$10.181 $11.312
Non-Interest Income ($USD Millions)$2.454 $2.595
Non-Interest Expense ($USD Millions)$9.669 $10.361
Net Income ($USD Millions)$2.226 $2.790
EPS (Basic, $USD)$0.66 $0.75
Net Interest Margin (%)2.86% 3.02%

KPIs and Balance Sheet

KPI12/31/20243/31/20256/30/2025
Total Assets ($USD Millions)$1,611.8 $1,584.0 $1,625.2
Deposits ($USD Millions)$1,324.0 $1,345.5 $1,383.2
Borrowings ($USD Millions)$93.0 $39.4 $39.6
NPA ($USD Millions)$7.636 $7.264 $5.954
NPA / Total Assets (%)0.47% 0.46% 0.37%
Allowance / Gross Loans (%)1.98% 1.99% 2.00%
CET1 Ratio (%)18.71% 18.90% 19.20%
Total Risk-Based Capital (%)19.96% 20.16% 20.46%
Tier 1 Leverage Ratio (%)9.88% 10.58% 10.54%
Common Equity Book Value/Share ($)$31.21 $32.57 $34.02

Segment Breakdown

  • Not applicable: management evaluates as a single aggregated operating/reportable segment per ASC 280 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per common share ($)Q2 2025 (paid ~Jun 15)N/A$0.15 Maintained regular payout
Dividend per common share ($)Q3 2025 (paid ~Sep 15)$0.15 (prior quarter) $0.15 Maintained
Special dividend ($)Apr 15, 2025N/A$0.10 New one-time payment
SEC reporting statusAnnounced Aug 21, 2025N/AIntends to file Form 15 by Dec 31, 2025; deregistration 90 days after filing New strategic action

No quantitative revenue/expense/tax rate guidance was provided in Q2 materials .

Earnings Call Themes & Trends

  • No Q2 2025 earnings call transcript was available; analysis below leverages the press release and 10-Q MD&A [List: 0 transcripts].
TopicPrevious Mentions (Q4’24 and Q1’25)Current Period (Q2’25)Trend
Net Interest MarginQ4: NII +7.8% YoY; higher rates lifted interest income . Q1: NII +12.5% YoY; interest expense down on FRB payoff .NIM 3.02% vs 2.86% YoY; spread 2.29% .Improving
Funding costs/FRB borrowingsQ4: Borrowings decreased; redeemed 10-year notes . Q1: FRB borrowings down to $39.4M .FRB borrowings fully repaid; other borrowings $24.4M .Lower funding cost/risks
Deposits competitionQ4: Deposits +10.8% YoY . Q1: +$21.5M QoQ .Deposits +$59.2M YTD; shift to CDs/money market .Growing, mix toward higher-cost
Credit qualityQ4: NPA 0.47% . Q1: NPA 0.46% .NPA 0.37%; ACL 2.00%; no provision H1 .Improving
Technology/cloud servicesQ4: Cloud services expense up . Q1: OpEx up; offset by lower advertising/equipment .OpEx up on cloud, debit card, occupancy .Elevated OpEx run-rate
Regulatory/ECIPQ1: ECIP preferred dividends at 2.0% commence; option agreement noted .ECIP preferred dividends continued; option fair value immaterial .Stable capital support

Management Commentary

  • Drivers of margin expansion: “Yield on loans improved by 24 basis points… reduction in interest expense on borrowings… overall cost of interest-bearing liabilities declined… resulted in an improved net interest spread and net interest margin.” (MD&A) .
  • Strategic capital return: “As a result of our continued profitability, we are very pleased to provide this additional payment to our shareholders.” – CEO J. Chris Verenes (special dividend) .
  • Balance sheet positioning: deposits growth in CDs/money market amid competition; FRB borrowings repaid; capital ratios remain well above well-capitalized thresholds .

Q&A Highlights

  • No earnings call transcript was filed or available; there are no Q&A disclosures to summarize [List: 0 transcripts].

Estimates Context

  • S&P Global consensus coverage appears limited for SFDL; Primary EPS Consensus Mean and Revenue Consensus Mean were unavailable for upcoming quarters; thus, no beat/miss determination vs Street can be made at this time. Values retrieved from S&P Global.*

Where estimates are unavailable, we recommend monitoring bank call reports and company-issued quarterly financials for intra-quarter trajectory .

Key Takeaways for Investors

  • Margin tailwinds: loan repricing plus lower funding costs from FRB repayment drove NIM expansion; sustained deposit growth supports earning asset base .
  • Credit strength: NPA ratio improved to 0.37%; no H1 provision; ACL at 2.00% positions the bank well against potential macro softness .
  • Expense discipline watch: elevated cloud, debit card, and occupancy expenses pressured OpEx; monitor run-rate to assess EPS trajectory into H2 .
  • Capital and dividends: CET1 19.20% and total RBC 20.46% underpin continued $0.15 quarterly dividend capacity; special dividend underscores confidence .
  • Balance sheet mix: investments rose (+$46.8M YTD), loans modestly down; deposit mix tilting to higher-cost CDs/money markets—rate path will influence NIM .
  • Corporate action: announced SEC deregistration may reduce compliance costs but could impact liquidity, coverage, and investor base—adjust portfolio sizing accordingly .
  • Near-term trading: with limited Street coverage, catalysts are company-driven (NIM, credit trends, dividends, deregistration timeline); watch quarterly data releases and deposit betas for direction .