SECURITY FEDERAL CORPORATION AND SUBSIDIARIES
September 30, 2023 | December 31, 2022 | |||||||
(Unaudited) | (Audited) | |||||||
ASSETS: | ||||||||
Cash and Cash Equivalents | $ | 84,223,575 | $ | 28,502,364 | ||||
Certificates of Deposit with Other Banks | 1,100,045 | 1,100,045 | ||||||
Investments: | ||||||||
Available For Sale ("AFS") | 531,421,573 | 550,148,284 | ||||||
Held To Maturity ("HTM") Net of Allowance for Credit Losses of $0 (Fair Value of $166,638,696 and $161,463,573 at September 30, 2023 and December 31, 2022, Respectively) | 174,136,215 | 167,437,616 | ||||||
Total Investments | 705,557,788 | 717,585,900 | ||||||
Loans Receivable, Net: | ||||||||
Held For Sale | 1,053,486 | 913,258 | ||||||
Held For Investment (Net of Allowance for Credit Losses of $12,348,125 and $11,177,753 at September 30, 2023 and December 31, 2022, Respectively) | 596,975,716 | 549,003,912 | ||||||
Total Loans Receivable, Net | 598,029,202 | 549,917,170 | ||||||
Accrued Interest Receivable: | ||||||||
Loans | 1,548,714 | 1,462,039 | ||||||
Investments | 3,848,991 | 3,348,635 | ||||||
Total Accrued Interest Receivable | 5,397,705 | 4,810,674 | ||||||
Operating Lease Right-of-Use ("ROU") Assets | 1,518,473 | 1,860,997 | ||||||
Land Held for Sale | 938,214 | 1,096,614 | ||||||
Premises and Equipment, Net | 28,703,449 | 27,959,793 | ||||||
Federal Home Loan Bank ("FHLB") Stock, at Cost | 921,900 | 650,600 | ||||||
Other Real Estate Owned ("OREO") | — | 119,700 | ||||||
Bank Owned Life Insurance ("BOLI") | 27,787,273 | 27,318,098 | ||||||
Goodwill | 1,199,754 | 1,199,754 | ||||||
Other Assets | 21,952,627 | 19,244,454 | ||||||
Total Assets | $ | 1,477,330,005 | $ | 1,381,366,163 | ||||
LIABILITIES: | ||||||||
Deposit Accounts | $ | 1,186,053,024 | $ | 1,110,085,296 | ||||
Borrowings from Federal Reserve Bank ("FRB") | 69,200,000 | 44,080,000 | ||||||
Other Borrowings | 19,043,445 | 27,588,147 | ||||||
Junior Subordinated Debentures | 5,155,000 | 5,155,000 | ||||||
Subordinated Debentures | 26,500,000 | 26,500,000 | ||||||
Operating Lease Liabilities | 1,559,558 | 1,904,285 | ||||||
Other Liabilities | 10,823,070 | 5,819,807 | ||||||
Total Liabilities | $ | 1,318,334,097 | $ | 1,221,132,535 | ||||
SHAREHOLDERS’ EQUITY: | ||||||||
Senior Non-Cumulative Perpetual Preferred Stock, Series ECIP, $1,000 Par Value; 82,949 Shares Authorized, Issued and Outstanding at September 30, 2023 and December 31, 2022 | $ | 82,949,000 | $ | 82,949,000 | ||||
Common Stock, $0.01 Par Value; 5,000,000 Shares Authorized; 3,455,446 and 3,453,817 Shares Issued and 3,241,813 and 3,252,884 Shares Outstanding at September 30, 2023 and December 31, 2022, Respectively | 34,555 | 34,538 | ||||||
Additional Paid-In Capital ("APIC") | 18,268,955 | 18,230,187 | ||||||
Treasury Stock, at Cost; 213,633 and 200,933 Shares Outstanding at September 30, 2023 and December 31, 2022, Respectively | (4,622,812 | ) | (4,330,712 | ) | ||||
Accumulated Other Comprehensive Loss ("AOCI") | (45,491,780 | ) | (40,778,646 | ) | ||||
Retained Earnings | 107,857,990 | 104,129,261 | ||||||
Total Shareholders' Equity | $ | 158,995,908 | $ | 160,233,628 | ||||
Total Liabilities and Shareholders' Equity | $ | 1,477,330,005 | $ | 1,381,366,163 | ||||
| September 30, 2017 | December 31, 2016 | ||||||
| (Unaudited) | (Audited) | ||||||
| ASSETS: | |||||||
| Cash and Cash Equivalents | $ | 15,158,779 | $ | 9,374,549 | |||
| Certificates of Deposit with Other Banks | 1,350,005 | 2,445,005 | |||||
| Investment and Mortgage-Backed Securities: | |||||||
| Available For Sale | 388,643,233 | 362,059,429 | |||||
| Held To Maturity (Fair Value of $25,568,343 and $25,371,052 at September 30, 2017 and December 31, 2016, Respectively) | 25,337,966 | 25,583,956 | |||||
| Total Investments and Mortgage-Backed Securities | 413,981,199 | 387,643,385 | |||||
| Loans Receivable, Net: | |||||||
| Held For Sale | 1,270,410 | 4,243,907 | |||||
| Held For Investment (Net of Allowance of $8,169,188 and $8,356,231 at September 30, 2017 and December 31, 2016, Respectively) | 374,441,058 | 355,478,939 | |||||
| Total Loans Receivable, Net | 375,711,468 | 359,722,846 | |||||
| Accrued Interest Receivable: | |||||||
| Loans | 936,428 | 1,038,444 | |||||
| Mortgage-Backed Securities | 587,965 | 605,474 | |||||
| Investment Securities | 1,716,518 | 1,407,923 | |||||
| Total Accrued Interest Receivable | 3,240,911 | 3,051,841 | |||||
| Premises and Equipment, Net | 22,865,424 | 21,197,684 | |||||
| Federal Home Loan Bank ("FHLB") Stock, at Cost | 2,473,700 | 2,776,500 | |||||
| Other Real Estate Owned ("OREO") | 1,907,637 | 2,721,214 | |||||
| Bank Owned Life Insurance ("BOLI") | 18,665,893 | 17,101,045 | |||||
| Goodwill | 1,199,754 | 1,199,754 | |||||
| Other Assets | 4,593,887 | 5,447,746 | |||||
| Total Assets | $ | 861,148,657 | $ | 812,681,569 | |||
| LIABILITIES AND SHAREHOLDERS’ EQUITY: | |||||||
| Liabilities: | |||||||
| Deposit Accounts | $ | 701,613,360 | $ | 654,103,278 | |||
| Advance Payments By Borrowers For Taxes and Insurance | 669,491 | 260,580 | |||||
| Advances From FHLB | 41,000,000 | 48,395,000 | |||||
| Other Borrowings | 12,355,812 | 9,338,148 | |||||
| Note Payable | 9,700,000 | 13,000,000 | |||||
| Junior Subordinated Debentures | 5,155,000 | 5,155,000 | |||||
| Senior Convertible Debentures | 6,064,000 | 6,084,000 | |||||
| Other Liabilities | 6,679,470 | 5,233,289 | |||||
| Total Liabilities | $ | 783,237,133 | $ | 741,569,295 | |||
| Shareholders' Equity: | |||||||
| Common Stock, $.01 Par Value; Authorized 5,000,000 Shares; Issued and Outstanding Shares, 3,146,407 and 2,945,474, Respectively | $ | 31,464 | $ | 31,464 | |||
| Additional Paid-In Capital | 12,036,744 | 12,036,744 | |||||
| Treasury Stock, at Cost (200,933 Shares) | (4,330,712 | ) | (4,330,712 | ) | |||
| Unvested Restricted Stock | — | (25,358 | ) | ||||
| Accumulated Other Comprehensive Income | 3,739,788 | 1,180,086 | |||||
| Retained Earnings | 66,434,240 | 62,220,050 | |||||
| Total Shareholders' Equity | $ | 77,911,524 | $ | 71,112,274 | |||
| Total Liabilities and Shareholders' Equity | $ | 861,148,657 | $ | 812,681,569 | |||
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Consolidated Statements of Income (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Interest Income: Loans Investments Other Total Interest Income Interest Expense: Deposits FHLB Advances and Other Borrowed Money Subordinated Debentures Junior Subordinated Debentures Total Interest Expense Net Interest Income Provision for Credit Losses Net Interest Income After Provision for Credit Losses Non-Interest Income: Gain on Sale of Loans Service Fees on Deposit Accounts Commissions From Insurance Agency Trust Income BOLI Income ATM and Check Card Fee Income Grant Income Other Total Non-Interest Income Non-Interest Expense: Compensation and Employee Benefits Occupancy Advertising Depreciation and Maintenance of Equipment FDIC Insurance Premiums Write-down of Land Held for Sale Consulting Debit Card Expenses Data Processing Other Total Non-Interest Expense Income Before Income Taxes Provision for Income Taxes Net Income Net Income Per Common Share (Basic) Cash Dividend Per Share on Common Stock Weighted Average Shares Outstanding (Basic) SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Three Months Ended September 30, 2023 2022 Net Income Other Comprehensive Loss: Unrealized Holding Losses on Investments AFS, Net of Tax Benefit of $(2,099,960) and $(4,263,005) at September 30, 2023 and 2022, Respectively Amortization of Unrealized Losses on Investments AFS Transferred to Investments HTM, Net of Tax Expense of $505 and $757 at September 30, 2023 and 2022, Respectively Other Comprehensive Loss, Net of Tax Comprehensive Loss Nine Months Ended September 30, 2023 2022 Net Income Other Comprehensive Loss: Unrealized Holding Losses on Investments AFS, Net of Tax Benefit of $(1,781,119) and $(15,155,441) at September 30, 2023 and 2022, Respectively Amortization of Unrealized Losses on Investments AFS Transferred to Investments HTM, Net of Tax Expense of $2,127 and $1,376 at September 30, 2023 and 2022, Respectively Other Comprehensive Loss, Net of Tax Comprehensive Income (Loss) SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. Consolidated Statements of Changes in Shareholders' Equity (Unaudited) For the Three and Nine Months Ended September 30, Preferred Stock Common Stock APIC Treasury Stock AOCI (Loss) Retained Earnings Total Balance at December 31, 2021 Net Income Other Comprehensive Loss, Net of Tax Cash Dividends on Common Stock Balance at March 31, 2022 Net Income Other Comprehensive Loss, Net of Tax Preferred Stock issuance Cash Dividends on Common Stock Balance at June 30, 2022 Net Income Other Comprehensive Loss, Net of Tax Cash Dividends on Common Stock Balance at September 30, 2022 Preferred Stock Common Stock APIC Treasury Stock AOCI (Loss) Retained Earnings Total Balance at December 31, 2022 Adoption of ASU 2016-13 Net Income Other Comprehensive Income, Net of Tax Employee Stock Purchase Plan Cash Dividends on Common Stock Balance at March 31, 2023 Net Income Other Comprehensive Loss, Net of Tax Employee Stock Purchase Plan Cash Dividends on Common Stock Balance at June 30, 2023 Net Income Other Comprehensive Loss, Net of Tax Purchase of Treasury Stock Employee Stock Purchase Plan Cash Dividends on Common Stock Balance at September 30, 2023 SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. SECURITY FEDERAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 2023 2022 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 Provision for Credit Losses Earnings on BOLI Gain on Sales of Loans Write-down of Land Held for Sale Loss on Sale of Land Held for Sale Write-down of OREO Gain on Sale of OREO Amortization of Operating Lease ROU Assets Proceeds From Sale of Loans Held For Sale Origination of Loans Held For Sale 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 Investments AFS Proceeds from Paydowns and Maturities of Investments AFS Purchase of Investments HTM Proceeds from Paydowns and Maturities of Investments HTM Purchase of FHLB Stock Redemption of FHLB Stock Increase in Loans Receivable Proceeds from Sale of Land Held for Sale Proceeds from Sale of OREO 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 Purchase of Treasury Stock Issuance of Preferred Stock Proceeds from Employee Stock Purchase Plan Repurchase of Subordinated Debenture Dividends to Common Stock Shareholders Net Cash Provided By Financing Activities Net Increase (Decrease) 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: Other Comprehensive Loss SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 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”) 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, Accounting Standards Adopted in 2023 On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments Accounting Standards Codification (“ASC”) 326. This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. In addition, CECL made changes to the accounting for AFS debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on AFS debt securities if management does not intend to sell and does not believe that it is more likely than not, they will be required to sell. The Company adopted ASC 326 and all related subsequent amendments thereto effective January 1, 2023 using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures. The transition adjustment of the adoption of CECL included an increase in the allowance for credit losses on loans of $784,000, which is presented as a reduction to net loans outstanding, and an increase in the allowance for credit losses on unfunded loan commitments of $1.2 million, which is recorded within "Other Liabilities." The adoption of CECL had an insignificant impact on the Company's investments HTM and investments AFS portfolios. The Company recorded a net decrease to retained earnings of $1.6 million as of January 1, 2023 for the cumulative effect of adopting CECL, which reflects the transition adjustments noted above, net of the applicable deferred tax assets recorded. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable accounting standards (“Incurred Loss”).The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2023. As of December 31, 2022, the Company did not have any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, the Company determined that an allowance for credit losses on investments AFS was not deemed material. The Company elected not to measure an allowance for credit losses for accrued interest receivable and instead elected to reverse interest income on loans or securities that are placed on nonaccrual status, which is generally when the instrument is 90 days past due, or earlier if the Company believes the Allowance for Credit Losses – Held to Management measures expected credit losses on HTM debt securities on a collective basis by major security type. Accrued interest receivable on HTM debt securities totaled $946,000 at September 30, 2023 and was excluded from the All mortgage-backed securities issued by government-sponsored corporations are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The state and local governments securities held by the Company are highly rated by major rating agencies.As a result, no allowance for Allowance for Credit Losses – Available for Sale Securities For investments AFS, management evaluates all securities in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. If the Company has the intent to If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making the assessment, the Company may consider various factors including the extent to which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically related to the Changes in the allowance for credit loss are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance for credit loss when management believes an AFS security is confirmed to be uncollectible or Accrued interest receivable on investments AFS totaled $2.9 million at September 30, 2023 and was excluded from the estimate of credit losses. Loans Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are The accrual of interest is generally discontinued when a loan becomes 90 days past due and is not well collateralized and in the process of collection, or when management believes, after considering economic and business conditions and collection efforts, that the principal or interest will not be collectible in the normal course of business. Past due status is based on contractual terms of the loan. A loan is considered past due when a scheduled payment has not been received 30 days after the contractual due date. All accrued interest is reversed against interest income when a loan is placed on nonaccrual status. Interest received on such loans is accounted for using the cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, there is a sustained period of repayment performance, and future payments are reasonably assured. Allowance for Credit Losses - Loans The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company has identified the following portfolio segments: Real Estate • Construction - Construction loans consist of loans to construct a borrower’s primary or secondary residence or vacant land upon which the owner intends to construct a dwelling at a future date. These loans are typically secured by undeveloped or partially developed land in anticipation of completing construction of a 1-4 family residential property. There is risk these construction and development projects can experience delays and cost overruns exceeding the borrower’s financial ability to complete the project. Such cost overruns can result in foreclosure of partially completed and unmarketable collateral. In addition, construction loans consist of loans to finance land for development of commercial or residential real property and construction of multifamily apartments or other commercial properties. These loans are highly dependent on the supply and demand for commercial real estate as well as the demand for newly constructed residential homes and lots acquired for development. Deterioration in demand could result in decreased collateral values, which could make repayments of outstanding loans difficult for customers. • Residential Mortgage - Residential mortgages consist of loans to purchase or refinance the borrower’s primary dwelling, second residence or vacation home and are often secured by 1-4 family residential property. Significant and rapid declines in real estate values can result in borrowers having debt levels in excess of the current market value of the collateral. • Commercial - Owner occupied commercial mortgages consist of loans to purchase or re-finance owner occupied nonresidential properties. 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. Commercial mortgages secured by owner occupied properties are primarily dependent on the ability of borrowers to achieve business results consistent with those projected at loan origination. While these loans are collateralized by real property in an effort to mitigate risk, it is possible the liquidation of collateral will not fully satisfy the obligation. Non-owner occupied commercial mortgages consist of loans to purchase or refinance investment nonresidential properties. Typically, non-owner occupied commercial real estate loans are secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate. The primary risk associated with non-owner occupied commercial mortgage loans is the ability of the income-producing property that collateralizes the loan to produce adequate cash flow to service the debt. While these loans are collateralized by real property in an effort to mitigate risk, it is possible the liquidation of collateral will not fully satisfy the obligation. Commercial and Agricultural - Commercial business loans consist of loans or lines of credit to finance accounts receivable, inventory or other general business needs, business credit cards, and lease financing agreements for equipment, vehicles, or other assets. The primary risk associated with commercial and industrial and lease financing loans is the ability of borrowers to achieve business results consistent with those projected at origination. Failure to achieve these projections presents risk the Consumer loans • Home equity - Home equity loans consist of home equity lines of credit and other lines of credit secured by first or second liens on the borrower’s primary residence. These loans are secured by both senior and junior liens on the residential real estate and are particularly susceptible to declining collateral values. • Other - Consumer loans consist of loans to finance unsecured home improvements, student loans, automobiles and revolving lines of credit that can be secured or unsecured. The value of the underlying collateral within this class is at risk of potential rapid depreciation which could result in unpaid balances in excess of the collateral. The Company calculates the allowance for credit losses on loans for each pool of loans using a remaining life loss methodology with a two quarter reasonable and supportable forecast period and an immediate reversion period. Management believes that the Company’s historical loss experience provides the best basis for its assessment of expected credit losses on loans to Additionally, the allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or reduce reserve levels and Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting date adjusted for selling costs as appropriate. Allowance for Credit Losses – Unfunded Commitments Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded. The Company records an allowance for credit losses - unfunded commitments unless the commitments to extend credit are unconditionally cancellable, through a charge to provision for unfunded commitments, which is included in the provision for credit losses in the Company’s consolidated income In January 2023, the Company adopted ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”), which eliminated the accounting guidance for troubled debt restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, for public business entities, the guidance requires disclosure of current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20. The Company adopted the guidance using the modified retrospective method. Upon adoption of this guidance, the Company no longer establishes a specific reserve for modifications to borrowers experiencing financial difficulty. Instead, these modifications are included in their respective cohort and a historical loss rate is applied to the current 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: In December 2022, the Financial Accounting Standards Board (“FASB”) issued amendments to extend the period of time preparers can use the reference rate reform relief guidance under ASC Topic 848 from December 31, 2022, to December 31, 2024, to address the fact that all London Interbank Offered Rate ("LIBOR") tenors were not discontinued as of December 31, 2021, and some tenors would not be published until June 2023. The amendments are effective immediately for all entities and are applied prospectively. These Other accounting standards that have been issued or proposed by the 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 by the weighted average number of common shares outstanding. Diluted EPS is computed similar to Three Months Ended September 30, 2023 2022 Income Shares EPS Income Shares EPS Basic EPS Nine Months Ended September 30, 2023 2022 Income Shares EPS Income Shares EPS Basic EPS 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. NOTE 6 - INVESTMENTS, AVAILABLE FOR SALE ("AFS") The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of September 30, 2023 Amortized Gross Unrealized Gross Unrealized Fair Student Loan Pools Small Business Administration (“SBA”) Bonds Tax Exempt Municipal Bonds Taxable Municipal Bonds Mortgage-Backed Securities ("MBS") Total Investments AFS December 31, 2022 Amortized Gross Unrealized Gross Unrealized Fair Student Loan Pools SBA Bonds Tax Exempt Municipal Bonds Taxable Municipal Bonds MBS Total Investments AFS Student Loan Pools are typically 97% guaranteed by the United States government The amortized cost and fair value of September 30, 2023 Investments AFS: Amortized Cost Fair Value One Year or Less After One – Five Years After Five – Ten Years More Than Ten Years MBS AFS Total AFS At September 30, There were no sales of investments AFS during the nine months ended September 30, 2023 and The following September 30, 2023 Less than 12 Months 12 Months or More Total Fair Unrealized Fair Unrealized Fair Unrealized Value Losses Value Losses Value Losses Student Loan Pools SBA Bonds Tax Exempt Municipal Bonds Taxable Municipal Bonds MBS The following table shows the December 31, 2022 Less than 12 Months 12 Months or More Total Fair Unrealized Fair Unrealized Fair Unrealized Value Losses Value Losses Value Losses Student Loan Pools SBA Bonds Tax Exempt Municipal Bonds Taxable Municipal Bonds MBS Investments classified as The Company believes, based on industry analyst reports and credit ratings, that the deterioration in value is attributable to changes in market interest rates and is not in the credit quality of the issuer and therefore, Accrued interest receivable on investments AFS totaled $2.9 million at NOTE 7 - INVESTMENTS, HELD TO MATURITY ("HTM") The Company’s investments HTM portfolio is recorded at amortized cost. The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of September 30, 2023 Amortized Gross Unrealized Gross Unrealized Fair US Treasury Bonds FHLB Bond Student Loan Pools SBA Bonds Taxable Municipal Bonds MBS Total Investments HTM December 31, 2022 Amortized Gross Unrealized Gross Unrealized Fair US Treasury Bonds FHLB Bond Student Loan Pools SBA Bonds Taxable Municipal Bonds MBS Total Investments HTM At September 30, 2023 and December 31, 2022, 60 and 54 individual investments HTM were in a loss position, including 38 and 6 securities that were in a loss position for greater than 12 months, respectively. The Company believes, based on industry analyst reports and credit ratings, that the deterioration in value was attributable to changes in market interest rates and was not in the credit quality of the issuer. The Company has the ability and intent to hold these securities to maturity. The estimate of expected credit losses on investments HTM 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. All mortgage-backed securities issued by government-sponsored corporations are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The state and local governments securities held by the Company are highly rated by major rating agencies. As a result of the analysis, there was no allowance for credit losses recorded for investments HTM as of September 30, 2023. As of September 30, 2023, there were no HTM debt securities that were classified as either nonaccrual or 90 days or more past due and still accruing. Accrued interest receivable on HTM debt securities totaled $946,000 at September 30, 2023 and was excluded from the estimate of credit losses. The following tables show gross unrealized losses, fair value, and September 30, 2023 Less than 12 Months 12 Months or More Total Fair Unrealized Fair Unrealized Fair Unrealized Value Losses Value Losses Value Losses US Treasury Bonds FHLB Bond Taxable Municipal Bonds MBS December 31, 2022 Less than 12 Months 12 Months or More Total Fair Unrealized Fair Unrealized Fair Unrealized Value Losses Value Losses Value Losses US Treasury Bonds FHLB Bond Student Loan Pools Taxable Municipal Bonds MBS At September 30, NOTE 8 - LOANS RECEIVABLE, NET Loans receivable, net, consisted of the following as of the dates indicated below: September 30, 2023 December 31, 2022 Real Estate Loans: Construction Residential Mortgage 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 Receivable, Net The Company uses a risk based approach based on the following credit quality measures when analyzing the loan portfolio: pass, caution, special mention, and substandard. These indicators are used to rate the credit quality of loans for the purposes of determining the Company’s allowance for The Term Loans by Year of Origination 2023 2022 2021 2020 2019 Prior Revolving Total Real Estate - Construction Pass Caution Special Mention Substandard Total Current period gross write-offs Real Estate - Mortgage Pass Caution Special Mention Substandard Total Current period gross write-offs Real Estate - Commercial Pass Caution Special Mention Substandard Total Current period gross write-offs Commercial and Agricultural Pass Caution Special Mention Substandard Total Current period gross write-offs Home Equity Lines of Credit Pass Caution Special Mention Substandard Total Current period gross write-offs Other Consumer Pass Caution Special Mention Substandard Total Current period gross write-offs Total Loans The table below December 31, 2022 Pass Caution Special Mention Substandard Total Loans Construction Real Estate Residential Real Estate Commercial Real Estate Commercial and Agricultural Consumer HELOC Other Consumer Total Past Due and The September 30, 2023 30-59 Days 60-89 Days 90 Days or Total Past Total Loans Past Due Past Due More Past Due Due Current Receivable Construction Real Estate Residential Real Estate Commercial Real Estate Commercial and Agricultural Consumer HELOC Other Consumer Total December 31, 2022 30-59 Days 60-89 Days 90 Days or Total Past Total Loans Past Due Past Due More Past Due Due Current Receivable Construction Real Estate Residential Real Estate Commercial Real Estate Commercial and Agricultural Consumer HELOC Other Consumer Total At September 30, The following CECL Incurred Loss September 30, 2023 December 31, 2022 with No Allowance with an Allowance Nonaccrual Loans Nonaccrual Loans Construction Real Estate Residential Real Estate Commercial Real Estate Commercial and Agricultural Consumer HELOC Other Consumer Total Nonaccrual Loans The Company did not recognize any interest income on nonaccrual loans during the nine months ended September 30, 2023. The following table represents the accrued interest receivables written off by reversing interest income during the three and nine months ended September 30, 2023: For the Three Months Ended Construction Real Estate Residential Real Estate Commercial Real Estate Commercial and Agricultural Consumer HELOC Other Consumer Total Loans For the Nine Months Ended Construction Real Estate Residential Real Estate Commercial Real Estate Commercial and Agricultural Consumer HELOC Other Consumer Total Loans Allowance for Credit Losses The following table shows the activity in the allowance for credit losses on loans by category for the three and nine months ended September 30, 2023 under the CECL methodology: Three Months Ended September 30, 2023 Real Estate Consumer 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, 2023 Real Estate Consumer Construction Residential Commercial Agricultural HELOC Other Total Beginning Balance Adjustment to Allowance for Credit Loss on adoption of ASU 2016-13 (Reversal of) Provision for Credit Losses Charge-Offs Recoveries Ending Balance 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. • 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: September 30, 2023 Construction Real Estate Residential Real Estate Commercial Real Estate Commercial and Agricultural Consumer HELOC Total Loans Prior to the adoption of ASC 326 on January 1, 2023, the Company calculated the allowance for loan losses under the Incurred Loss methodology. The following table shows the activity in the allowance for loan losses by category for the three and nine months ended September 30, Three Months Ended September 30, 2022 Real Estate Consumer Construction Residential Commercial Agricultural HELOC Other Total Beginning Balance (Reversal of) Provision for Loan Losses Charge-Offs Recoveries Ending Balance Nine Months Ended September 30, 2022 Real Estate Consumer Construction Residential Commercial Agricultural HELOC Other Total Beginning Balance (Reversal of) Provision for Loan Losses Charge-Offs Recoveries Ending Balance Prior to the adoption of ASU 2016-13, loans were considered impaired when, based on current information Interest payments on impaired loans were typically applied to The table below summarizes the impaired loan Allowance For Loan Losses Loans Receivable December 31, 2022 Individually Evaluated For Impairment Collectively Evaluated For Impairment Total Individually Evaluated For Impairment Collectively Evaluated For Impairment Total Construction Real Estate Residential Real Estate Commercial Real Estate Commercial and Agricultural Consumer HELOC Other Consumer Total December 31, 2022 Recorded Unpaid Principal Related Impaired Loans Investment Balance Allowance Construction Real Estate Residential Real Estate Commercial Real Estate Commercial and Agricultural Consumer HELOC Other Consumer Total Three Months Ended September 30, 2022 Average Recorded Interest Income Impaired Loans Investment Recognized Construction Real Estate Residential Real Estate Commercial Real Estate Commercial and Agricultural Consumer HELOC Other Consumer Total Nine Months Ended September 30, 2022 Average Recorded Interest Income Impaired Loans Investment Recognized Construction Real Estate Residential Real Estate Commercial Real Estate Commercial and Agricultural Consumer HELOC Other Consumer Total Modifications to 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 Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, Upon the The Company had two modified loans with As of September 30, 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 (reversal of) 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, and are discussed in this Note 8. The allowance for credit losses - unfunded commitments of $1.1 million and $0 at September 30, 2023 and December 31, 2022, respectively, is separately classified on the balance sheet within "Other Liabilities." 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, 2023. Three Months Ended September 30, 2023 Allowance for Credit Losses - Unfunded Commitments Beginning Balance Reversal of provision for unfunded commitments Ending Balance Allowance for Credit Losses - Unfunded Commitments Beginning Balance Adjustment to allowance for unfunded commitments for adoption of ASU 2016-13 Reversal of provision for unfunded commitments Ending Balance NOTE 9 - DEPOSITS Deposits outstanding at the dates indicated are summarized below by account type as follows: Deposit Account Type September 30, 2023 December 31, 2022 Checking Money Market Savings Certificates of Deposit Total The Company had $5.0 million in brokered deposits, which are included in checking and money market deposits in the above table, at both September 30, 2023 and December 31, 2022. The Company had $6.5 million and $6.0 million in brokered time deposits, which are included in certificates of deposit in the above table, at September 30, 2023 and December 31, 2022, respectively. In addition, $103,000 and $98,000, in deposit account overdrafts were reclassified to loans at September 30, 2023 and December 31, 2022, respectively. Certificates of deposits that met or exceeded the FDIC insurance limit of $250,000 were $55.2 million and $30.3 million at September 30, 2023 and December 31, 2022, respectively. All deposits that met or exceeded the FDIC insurance limit totaled $305.1 million and $350.1 million at September 30, 2023 and December 31, 2022, respectively. The amounts and scheduled maturities of certificates of deposit at the dates indicated were as follows: September 30, 2023 December 31, 2022 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 Total Certificates of Deposit NOTE 10 - BORROWINGS The Company had $69.2 million in outstanding borrowings under the Federal Reserve Bank Term Funding Program (“BTFP”) with a weighted average borrowing rate of 4.42% at September 30, 2023 compared to $44.1 million in borrowings from the FRB discount window with a weighted average borrowing rate of 4.50% at December 31, 2022. During the first quarter of 2023, the Company elected to participate in the BTFP, allowing the Company to refinance its existing borrowings from the FRB discount window to receive a lower fixed rate. Advances made under the BTFP are for up to one year and will be extended at the one year overnight index swap ("OIS") rate as of the day the advance is made plus 10 basis points. The interest rate will be fixed for the term of the advance on the day the advance is made. To determine the rate, the BTFP will use the fixed OIS rate based on the effective federal funds rate for a one-year maturity. 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, 2023, the Company had pledged as collateral for these borrowings investment securities with an amortized cost and fair value of $368.3 million and $329.4 million, compared to an amortized cost and fair value of $72.6 million and $69.2 million, respectively, at December 31, 2022, respectively. During the third quarter of 2023, the Company entered 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, 2023, the Company had pledged loan collateral for FRB borrowings with an amortized cost and collateral value of $108.6 million and $73.4 million, respectively. The Company had $19.0 million and $27.6 million in other borrowings at September 30, 2023 and December 31, 2022, respectively. 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 September 30, 2023 compared to 0.75% at December 31, 2022. Collateral pledged by the Company for these repurchase agreements consisted of investments with a combined amortized cost and fair value of $44.7 million and $41.2 million at September 30, 2023, and $52.3 million and $49.8 million at December 31, 2022, respectively. There were no outstanding FHLB advances at September 30, 2023 and December 31, 2022. FHLB advances are secured by a blanket collateral agreement with the FHLB by pledging the Company’s portfolio of residential first mortgage loans and investment securities. The Company's pledged collateral for FHLB advances had an amortized cost and fair value of $54.6 million and $44.7 million at September 30, 2023, and $70.1 million and $61.1 million at December 31, 2022, respectively. NOTE 11 - SUBORDINATED DEBENTURES Junior Subordinated Debentures In September 2006, Security Federal Statutory Trust (the "Trust"), 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. The Capital Securities accrue and pay distributions at a floating rate of three month LIBOR plus 170 basis points annually which was equal to 7.37% at September 30, 2023 compared to 6.47% at December 31, 2022. Effective June 30, 2023 as a result of the discontinuation of LIBOR, the Capital Securities transitioned from its floating rate of three month LIBOR plus 170 basis points to a replacement rate of three month Secured Overnight Financing Rate ("SOFR") as adjusted by the relevant spread adjustment of 0.26161. 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 $17.5 million in aggregate principal amount of 5.25% fixed-to-floating rate subordinated notes due 2029 (the “10-Year Notes”) and $12.5 million in aggregate principal amount of 5.25% fixed-to-floating rate subordinated notes due 2034 (the “15-Year Notes”, and together with the 10-Year Notes, the “Notes”). 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. In accordance with the terms of the 10-Year Notes, from and including November 22, 2024 to but excluding the maturity date or early redemption date, the interest rate on the 10-Year Notes shall reset semi-annually to an interest rate equal to the then-current three-month LIBOR rate plus 369 basis points. 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. In accordance with the terms of the 15-Year Notes, from and including November 22, 2029 to but excluding the maturity date or early redemption date, the interest rate on the 15-Year Notes shall reset semi-annually to an interest rate equal to the then-current three-month LIBOR rate plus 357 basis points. As a result of the discontinuation of LIBOR effective June 30, 2023, the Company is currently determining an appropriate benchmark replacement for LIBOR on the Notes. The Company expects the replacement benchmark to be materially consistent with the three-month LIBOR. The Notes are payable semi-annually in arrears on June 1 and December 1 of each year commencing June 1, 2020. The Notes are not subject to redemption at the option of the holder and may be redeemed by the Company only under certain limited circumstances prior to November 22, 2024, with respect to The Notes have been structured to During the year ended December 31, 2022 the Company repurchased $1.0 million in principal of the 10-Year Notes and $2.5 million in principal of the 15-Year Notes, leaving an 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 Based on its capital levels at September 30, The Actual For Capital Adequacy To Be "Well-Capitalized" Amount Ratio Amount Ratio Amount Ratio September 30, 2023 (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, 2022 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 NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS GAAP requires the Company to 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 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. Investment Securities Investments AFS are recorded at fair value on a recurring basis. At September 30, 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 the FHLMC 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 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, 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 Those Other Real Estate Owned Fair value adjustments to OREO are recorded at the Assets measured at fair value on a recurring basis were as follows at September 30, 2023 December 31, 2022 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 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 September 30, 2023 Assets: Level 1 Level 2 Level 3 Total Mortgage Loans Held For Sale Collateral Dependent Loans Land Held for Sale Total December 31, 2022 Assets: Level 1 Level 2 Level 3 Total Mortgage Loans Held For Sale Collateral Dependent Loans OREO Land Held for Sale Total There were no liabilities measured at fair value on a nonrecurring basis at September 30, For Level 3 assets Range of Inputs Level 3 Assets Valuation Technique Significant Unobservable Inputs September 30, 2023 December 31, 2022 Collateral Dependent Loans Appraised Value Discounts to appraised values for estimated holding and/or selling costs or age of appraisal 8% - 13% 8% - 13% For assets and liabilities Cash and Cash Certificates of Deposit with Other Investments HTM—Investments HTM are valued at quoted market prices or dealer quotes. Loans Receivable, FHLB 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 Other Borrowed 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 The following tables provide a summary of the carrying value and estimated fair value of the Company’s financial instruments at September 30, 2023 Carrying Fair Value Amount Level 1 Level 2 Level 3 Financial Assets: Dollars in thousands Cash and Cash Equivalents Certificates of Deposits with Other Banks Investments AFS Investments HTM Loans Receivable, Net FHLB Stock Land Held for Sale Financial Liabilities: Deposits: Checking, Savings & Money Market Accounts Certificates of Deposits Borrowings from FRB Other Borrowed Money Subordinated Debentures Junior Subordinated Debentures December 31, 2022 Carrying Fair Value Amount Level 1 Level 2 Level 3 Financial Assets: Dollars in thousands Cash and Cash Equivalents Certificates of Deposits with Other Banks Investments AFS Investments HTM Loans Receivable, Net FHLB Stock Land Held for Sale 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, Because no active market exists for a significant portion of the 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 The 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. ATM and Check Card Fee Income - Check card fee income represents fees earned when a debit card issued by the 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 Gains/Losses on OREO Sales - Gains/losses on the sale of The following table presents the Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Non-interest income: 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 Grant 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 At September 30, 2023, maturities of operating lease liabilities for future periods were as follows: Remainder of 2023 2024 2025 2026 2027 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 (“Agreement”) with the U.S. Department of 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 Pursuant to the 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 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. 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 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: • potential adverse impacts to economic conditions in our local market areas, other markets where the Company has lending relationships, or other aspects of the Company's business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages and the effects of inflation, a potential recession or slowed economic growth; changes in the interest rate environment, including the recent increases in the Board of Governors of the Federal Reserve System (the “Federal Reserve”) benchmark rate and duration at which such increased interest rate levels are maintained, which could adversely affect our revenues and expenses, the value of assets and obligations, and the availibility and cost of capital and liquidity; • the impact of continuing high inflation and the current and future monetary policies of the Federal Reserve in response thereto; • the effects of any federal government shutdown; • the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for credit losses and provision for credit losses that may be affected by deterioration in the housing and commercial real estate markets which may lead to increased losses and non-performing assets in our loan portfolio, and may result in our allowance for credit losses not being adequate to cover actual losses, and require us to materially increase our allowance for credit losses; • changes in general economic conditions, either nationally or in our market areas; • changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources; • unexpected outflows of uninsured deposits may require us to sell investment securities at a loss; • the transition away from London Interbank Offered Rate ("LIBOR") toward new interest rate benchmarks; • fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in 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; • results of examinations of the Federal Reserve and the Bank by the Federal Deposit Insurance Corporation ("FDIC") and the South Carolina State Board of Financial Institutions, or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our reserve for credit losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, or impose additional requirements or restrictions on us, any of which could adversely affect our liquidity and earnings; • legislative or regulatory changes that adversely affect our business, including changes in banking, securities and tax law, and in regulatory policies and principles, or the interpretation of regulatory capital or other rules; • our ability to attract and retain deposits; • our ability to control operating costs and expenses; • our ability to implement our business strategies; • 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; • disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing; • our ability to attract and retain key members of our senior management team; • costs and effects of litigation, including settlements and judgments; • our ability to manage loan delinquency rates; • 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 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 to us; • changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the FASB, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; • the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, 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, 2022 (“2022 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 our 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 Financial Condition at September 30, 2023 and December 31, 2022 Assets - Total assets increased $96.0 million to $1.48 billion at September 30, 2023 from $1.38 billion at December 31, 2022. This increase was primarily due to increases in cash and cash equivalents, investments HTM and loans receivable, net, which were partially offset by a decrease in investments AFS. Changes in total assets are shown below. Increase (Decrease) September 30, 2023 December 31, 2022 $ % Cash and Cash Equivalents Certificates of Deposits with Other Banks Investments AFS Investments HTM Total Loans Receivable, Net Accrued Interest Receivable OREO Operating Lease ROU Assets Land Held for Sale Premises and Equipment, Net FHLB Stock BOLI Goodwill Other Assets Total Assets Cash and cash equivalents increased Investments HTM increased $6.7 million to $174.1 million at September 30, 2023, from $167.4 million at December 31, 2022, as a result of Total loans receivable, net, which includes loans held for sale, increased $48.1 million or 8.7% to $598.0 million at September 30, 2023 from $549.9 million at December 31, 2022, primarily due to an increase in residential mortgage loans originated during the period. All held for investment loan balances increased during the nine months ended September 30, 2023 except for construction loans, which decreased $11.3 million or 10.0% to $101.5 million at September 30, 2023 from $112.8 million at December 31, 2022. Commercial real estate Premises and equipment, net increased Other assets increased $2.7 million or Liabilities Deposit Accounts Total deposits increased Borrowings The Bank had At both September 30, Shareholders’ Equity Shareholders’ equity decreased $1.2 million or 0.8% to $159.0 million at September 30, 2023 from $160.2 million at December 31, 2022. The decrease was attributable to a $1.6 million adjustment to retained earnings related to the adoption of ASC 326 on January 1, 2023, $1.3 million in dividends paid Results of Operations for the Net Income Net income Net Interest Income The following table compares detailed average balances, Quarter Ended September 30, 2023 2022 (Dollars in thousands) Average Balance Interest Yield/ Rate (1) Average Balance Interest Yield/ Rate (1) Interest-Earning Assets: Loans Receivable, Net Taxable Investments Non-taxable Investments Deposits with other Banks Total Interest-Earning Assets Interest-Bearing Liabilities: Checking, Savings & Money Market Accounts Certificates Accounts Total Interest-Bearing Deposits Other Borrowings (2) Junior Subordinated Debentures Subordinated Debentures Total Interest-Bearing Liabilities Net Interest Rate Spread Tax Equivalent Net Interest Income/Margin Less: tax equivalent adjustment Net Interest Income (1) Annualized (2) Includes FRB borrowings and repurchase agreements. Net interest income Interest Total tax-equivalent interest Interest income on loans increased $2.1 million or 33.2% to $8.4 million for the quarter ended September 30, 2023 from $6.3 million for the third quarter of 2022. The increase was the result of a $79.3 million increase in Interest income from taxable investments increased $3.0 million or 66.1% to Interest income from deposits with other banks increased $609,000 to $703,000 during the quarter ended September 30, 2023, from $94,000 for the third quarter of 2022, due to a $43.8 million increase in the average balance of Interest Expense Total interest expense increased $6.2 million or 536.4% to $7.4 million for the quarter ended September 30, 2023 compared to $1.2 million for the same quarter in 2022 due to an increase in market interest rates combined with a Interest expense on deposits increased $5.4 million to Provision for The amount of the provision On January 1, 2023, the Company adopted Accounting Standards Update 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments Accounting Standards Codification 326, which replaced the incurred loss methodology with the current expected credit loss (“CECL”) methodology. CECL requires an The Company did not record any provision for credit losses under the CECL methodology during the quarter ended September 30, 2023, or any provision for loan losses under the Incurred Loss methodology during the quarter ended September 30, 2022. Net recoveries during the third quarter of 2023 were $15,000 compared to net recoveries of $101,000 in Non-Interest Income Non-interest income decreased $56,000 or 2.5% to $2.2 million for the Non-Interest Expense Non-interest expense increased $646,000 or 7.8% to $8.9 million for the quarter ended September 30, 2023 compared to $8.3 million for the quarter ended September 30, 2022. The Quarter Ended September 30, Increase (Decrease) 2023 2022 $ % Compensation and Employee Benefits Occupancy Advertising Depreciation and Maintenance of Equipment FDIC Insurance Premiums Consulting Debit Card Expense Data Processing Other Total Non-Interest Expense The increase in non-interest expense was primarily due to increases in all non-interest expense line items except for compensation and employee benefits and consulting expense during the Most of the Provision For Income Taxes The provision for income taxes decreased $287,000 or 33.5% to $568,000 for the quarter ended September 30, 2023, from $855,000 for the same Results of Operations for the Nine Net Income Net income Net Interest Income The following table compares detailed average balances, Nine Months Ended September 30, 2023 2022 (Dollars in thousands) Average Balance Interest Yield/ Rate (1) Average Balance Interest Yield/ Rate (1) Interest-Earning Assets: Loans Receivable, Net Taxable Investments Non-taxable Investments Deposits with other Banks Total Interest-Earning Assets Interest-Bearing Liabilities: Checking, Savings & Money Market Accounts Certificates Accounts Total Interest-Bearing Deposits Other Borrowings (2) Junior Subordinated Debentures Subordinated Debentures Total Interest-Bearing Liabilities Net Interest Rate Spread Tax Equivalent Net Interest Income/Margin Less: tax equivalent adjustment Net Interest Income (1) Annualized (2) Includes FRB borrowings and repurchase agreements. Net interest income increased Interest Income Total tax-equivalent interest income increased $17.1 million or 57.9% to $46.7 million for the nine months ended September 30, 2023 compared to $29.6 million for the same period in 2022. Interest income on loans increased $5.3 million or 28.4% to $23.9 million for the nine months ended September 30, 2023 from $18.6 million for the first nine months of 2022. The increase was the result of a $70.7 million increase in the average loan portfolio balance combined with a 62 basis point increase in the average yield on loans receivable AS ADJUSTABLE-RATE LOANS RESET AND NEW LOANS WERE ORIGINATED AT HIGHER MARKET INTEREST RATES. Interest income from taxable investments increased $11.3 million or 116.3% to $21.0 million during the nine months ended September 30, 2023 from $9.7 million for the first nine months of 2022, due to a 217 basis point increase in the average yield to 4.03%, REFLECTING HIGHER MARKET INTEREST RATES, which was partially offset by a $788,000 decrease in the average balance of taxable investments. Tax equivalent interest income from non-taxable investments decreased $511,000 to $575,000 during the nine months ended September 30, 2023, due to a $23.8 million decrease in the average balance of non-taxable investments, partially offset by a 44 basis point increase in the average yield to 3.69%. Interest income from deposits with other banks increased $1.1 million to $1.2 million during the nine months ended September 30, 2023, compared to the same period in 2022, due to a 157 basis point increase in the average yield earned on these assets reflecting higher market rates and, to a lesser extent, a $14.5 million increase in the average balance of these assets. Interest Expense Total interest expense increased $15.0 million or 535.5% to $17.8 million for the nine months ended September 30, 2023, compared to $2.8 million for the same period in 2022, due to an increase in market interest rates combined with a $65.2 million increase in the average Interest expense on deposits increased $12.7 million to $14.2 million for the nine months ended September 30, 2023 from $1.4 million for the first nine months of 2022, due to an increase of 194 basis points in the average cost combined with a $24.1 million increase in the average balance of interest-bearing deposit accounts. Interest expense on FRB and other borrowings increased $2.2 million to $2.3 million during the nine months ended September 30, 2023 compared to the same period in 2022, due to a $44.4 million increase in the average balance of these liabilities combined with an increase of 330 basis points in the average cost of Provision for Credit Losses The Company recorded a $221,000 provision for credit losses for the nine months ended September 30, 2023 and no provision for credit losses of the Non-interest income decreased $846,000 or 11.3% to $6.6 million for the nine months ended September 30, 2023 compared to $7.5 million for the nine months ended September 30, 2022. The decrease was primarily due to a $981,000 decrease in gain on sale of loans reflecting the decline in originations of loans held for sale following recent market interest rate increases. In addition, there was no grant income recorded during the nine months ended September 30, 2023 compared to $171,000 for the nine months ended September 30, 2022. These decreases were partially offset by increases in trust income and Trust income increased Non-Interest Non-interest Nine Months Ended September 30, Increase (Decrease) 2023 2022 $ % Compensation and Employee Benefits Occupancy Advertising Depreciation and Maintenance of Equipment FDIC Insurance Premiums Write-down of Land Held for Sale Consulting Debit Card Expense Data Processing Other Total Non-Interest Expense The increase in non-interest expense was Compensation and employee benefits increased $246,000 or 1.6% to $15.2 million for the nine months ended September 30, FDIC insurance premiums increased Provision For Income Taxes The provision for income taxes decreased $34,000 or 1.9% to $1.8 million for the Liquidity Commitments, Capital Resources, and Impact of Inflation and Changing Prices We actively The Bank's primary sources of funds During the nine months ended September 30, The Bank's liquid assets in the form of cash and cash equivalents, certificates of deposits with other banks and investments AFS totaled $616.5 million at September 30, 2023. Certificates of deposit that are scheduled to mature in less than one year from September 30, 2023 totaled $195.1 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, 2023, Security Federal had liquid assets of $27.0 million. In addition to its operating expenses, Security Federal is responsible for paying any dividends declared, if any, to its shareholders, funds paid for Security Federal stock repurchases, and payments on 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, although there are regulatory restrictions on the ability of the In addition, in June 2023, the At September 30, 2023, 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 SECURITY FEDERAL CORPORATION AND SUBSIDIARIES 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 For the (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, 2023 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 significant changes in our internal control over financial reporting during the quarter ended September 30, 2023 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 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. There have been no material changes in the (a) Not applicable (b) Not applicable (c) The following table summarizes common stock repurchases during the three months ended September 30, 2023: (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. The June 2023 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. None Not applicable (a) Nothing to report. (b) Nothing to report. (c) Nothing to report. 3.1 3.2 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 4.2 10.1 10.2 10.3 10.4 31.1 31.2 32 101 The following materials from Security Federal Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 104 Cover Page Interactive Data File (formatted in Inline XBRL and (1) Filed on June 26, 1998, as an exhibit to the Company’s Proxy Statement and incorporated herein by reference. (2) Filed on January 16, 2015 as an exhibit to the Company’s Current Report on Form 8-K dated January 15, 2015 and incorporated herein by reference. (3) Filed on May 24, 2022 as an exhibit to the Company's Current Report on Form 8-K dated May 18, 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 Statement and incorporated 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. 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. Date: November 13, 2023 By: /s/J. Chris Verenes Date: By: /s/ $ 8,401,769 $ 6,306,312 $ 23,883,621 $ 18,608,294 7,716,956 4,892,385 21,504,681 10,621,563 703,417 94,436 1,204,972 150,699 16,822,142 11,293,133 46,593,274 29,380,556 6,068,893 675,765 14,155,442 1,418,462 862,273 44,386 2,312,602 91,389 349,290 389,375 1,044,915 1,176,875 95,810 49,842 266,550 111,094 7,376,266 1,159,368 17,779,509 2,797,820 9,445,876 10,133,765 28,813,765 26,582,736 — — 221,000 — 9,445,876 10,133,765 28,592,765 26,582,736 135,488 287,081 530,428 1,511,905 318,966 279,909 889,843 809,287 200,278 235,506 548,645 620,779 458,070 363,830 1,297,376 1,084,249 162,737 150,999 469,175 457,202 736,200 687,773 2,288,036 2,109,173 — — — 170,699 156,190 219,289 596,032 702,135 2,167,929 2,224,387 6,619,535 7,465,429 4,962,028 5,019,920 15,226,913 14,981,146 807,286 703,310 2,386,442 2,110,746 256,218 153,460 762,614 693,389 657,278 521,833 1,843,625 1,670,857 153,732 87,858 461,541 284,083 — — — 433,077 167,583 179,318 523,314 513,299 347,980 307,092 1,036,913 917,225 314,329 229,906 942,406 732,497 1,257,359 1,074,988 3,679,256 2,964,759 8,923,793 8,277,685 26,863,024 25,301,078 2,690,012 4,080,467 8,349,276 8,747,087 567,970 854,664 1,774,937 1,808,450 2,122,042 3,225,803 6,574,339 6,938,637 $ 0.65 $ 0.99 $ 2.02 $ 2.13 $ 0.13 $ 0.12 $ 0.39 $ 0.64 3,248,226 3,252,884 3,251,610 3,252,884 Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Interest Income: Loans $ 5,146,669 $ 4,912,317 $ 14,849,109 $ 14,378,826 Mortgage-Backed Securities 1,274,753 1,192,792 3,552,887 3,672,252 Investment Securities 1,324,104 1,042,765 3,729,992 3,245,857 Other 6,295 4,944 34,804 14,057 Total Interest Income 7,751,821 7,152,818 22,166,792 21,310,992 Interest Expense: NOW and Money Market Accounts 151,874 102,321 426,080 309,757 Statement Savings Accounts 10,726 8,984 30,000 25,468 Certificate Accounts 503,505 407,283 1,401,910 1,239,282 FHLB Advances and Other Borrowed Money 164,544 132,889 409,655 561,316 Note Payable 105,762 — 328,613 — Senior Convertible Debentures 121,396 121,680 364,756 365,040 Junior Subordinated Debentures 38,975 31,445 110,863 91,002 Total Interest Expense 1,096,782 804,602 3,071,877 2,591,865 Net Interest Income 6,655,039 6,348,216 19,094,915 18,719,127 Provision For Loan Losses 100,000 — 100,000 — Net Interest Income After Provision For Loan Losses 6,555,039 6,348,216 18,994,915 18,719,127 Non-Interest Income: Gain on Sale of Investment Securities 79,363 360,425 707,902 772,143 Gain on Sale of Loans 373,636 256,918 894,053 657,473 Service Fees on Deposit Accounts 274,717 266,960 776,469 772,341 Commissions From Insurance Agency 172,074 149,529 451,311 441,519 Trust Income 186,000 197,000 554,000 521,000 BOLI Income 788,133 132,000 1,028,133 396,000 Check Card Fee Income 282,686 247,331 838,302 742,583 Grant Income — — — 265,496 Other 205,524 170,519 542,250 504,200 Total Non-Interest Income 2,362,133 1,780,682 5,792,420 5,072,755 Non-Interest Expense: Compensation and Employee Benefits 3,872,102 3,167,112 10,916,386 9,675,430 Occupancy 569,024 502,352 1,661,661 1,469,602 Advertising 120,033 100,251 391,742 343,034 Depreciation and Maintenance of Equipment 569,839 510,645 1,541,460 1,486,060 Federal Deposit Insurance Corporation ("FDIC") Insurance Premiums 64,518 62,163 168,707 322,653 Net Cost (Benefit) of Operation of OREO 105,172 25,991 (96,730 ) (647,990 ) Prepayment Penalties on FHLB Advances — 260,594 — 789,306 Other 1,268,449 1,065,209 3,681,552 3,485,289 Total Non-Interest Expense 6,569,137 5,694,317 18,264,778 16,923,384 Income Before Income Taxes 2,348,035 2,434,581 6,522,557 6,868,498 Provision For Income Taxes 445,133 654,850 1,513,090 1,805,750 Net Income 1,902,902 1,779,731 5,009,467 5,062,748 Preferred Stock Dividends — 110,000 — 330,000 Net Income Available to Common Shareholders $ 1,902,902 $ 1,669,731 $ 5,009,467 $ 4,732,748 Net Income Per Common Share (Basic) $ 0.65 $ 0.57 $ 1.70 $ 1.61 Net Income Per Common Share (Diluted) $ 0.61 $ 0.54 $ 1.61 $ 1.53 Cash Dividend Per Share on Common Stock $ 0.09 $ 0.08 $ 0.27 $ 0.24 Weighted Average Shares Outstanding (Basic) 2,945,474 2,944,001 2,945,215 2,944,001 Weighted Average Shares Outstanding (Diluted) 3,252,436 3,248,526 3,251,666 3,248,474 $ 2,122,042 $ 3,225,803 (5,741,337 ) (13,137,592 ) 1,516 2,270 (5,739,821 ) (13,135,322 ) $ (3,617,779 ) $ (9,909,519 ) $ 6,574,339 $ 6,938,637 (4,719,514 ) (46,736,556 ) 6,380 4,127 (4,713,134 ) (46,732,429 ) $ 1,861,205 $ (39,793,792 ) Three Months Ended September 30, 2017 2016 Net Income $ 1,902,902 $ 1,779,731 Other Comprehensive Loss Unrealized Gains (Losses) on Securities: Unrealized Holding Losses on Securities Available For Sale, Net of Taxes of $(39,600) and $(774,093) at September 30, 2017 and 2016, Respectively (64,802 ) (1,263,332 ) Reclassification Adjustment for Gains Included in Net Income, Net of Taxes of $30,158 and $136,962 at September 30, 2017 and 2016, Respectively (49,205 ) (223,463 ) Amortization of Unrealized Gains on Available For Sale Securities Transferred to Held To Maturity, Net of Taxes of $(14,084) and $(20,270) at September 30, 2017 and 2016, Respectively (23,019 ) (33,128 ) Other Comprehensive Loss (137,026 ) (1,519,923 ) Comprehensive Income $ 1,765,876 $ 259,808 Nine Months Ended September 30, 2017 2016 Net Income $ 5,009,467 $ 5,062,748 Other Comprehensive Income Unrealized Gains on Securities: Unrealized Holding Gains on Securities Available For Sale, Net of Taxes of $1,892,760 and $1,861,700 at September 30, 2017 and 2016, Respectively 3,080,485 3,044,091 Reclassification Adjustment for Gains Included in Net Income, Net of Taxes of $269,003 and $293,415 at September 30, 2017 and 2016, Respectively (438,899 ) (478,728 ) Amortization of Unrealized Gains on Available For Sale Securities Transferred to Held To Maturity, Net of Taxes of $(50,102) and $(55,872) at September 30, 2017 and 2016, Respectively (81,884 ) (91,314 ) Other Comprehensive Income 2,559,702 2,474,049 Comprehensive Income $ 7,569,169 $ 7,536,797 20172023 and 20162022 $ — $ 34,538 $ 18,230,187 $ (4,330,712 ) $ 5,215,107 $ 96,373,405 $ 115,522,525 — — — — — 1,549,031 1,549,031 — — — — (20,222,858 ) — (20,222,858 ) — — — — — (390,346 ) (390,346 ) $ — $ 34,538 $ 18,230,187 $ (4,330,712 ) $ (15,007,751 ) $ 97,532,090 $ 96,458,352 — — — — — 2,163,803 2,163,803 — — — — (13,374,249 ) — (13,374,249 ) 82,949,000 — — — — — 82,949,000 — — — — — (1,301,154 ) (1,301,154 ) $ 82,949,000 $ 34,538 $ 18,230,187 $ (4,330,712 ) $ (28,382,000 ) $ 98,394,739 $ 166,895,752 — — — — — 3,225,803 3,225,803 — — — — (13,135,322 ) — (13,135,322 ) — — — — — (390,346 ) (390,346 ) $ 82,949,000 $ 34,538 $ 18,230,187 $ (4,330,712 ) $ (41,517,322 ) $ 101,230,196 $ 156,595,887 $ 82,949,000 $ 34,538 $ 18,230,187 $ (4,330,712 ) $ (40,778,646 ) $ 104,129,261 $ 160,233,628 — — — — — (1,578,271 ) (1,578,271 ) — — — — — 2,674,100 2,674,100 — — — — 5,577,801 — 5,577,801 — 3 8,411 — — — 8,414 — — — — — (422,917 ) (422,917 ) $ 82,949,000 $ 34,541 $ 18,238,598 $ (4,330,712 ) $ (35,200,845 ) $ 104,802,173 $ 166,492,755 — — — — — 1,778,197 1,778,197 — — — — (4,551,114 ) — (4,551,114 ) — 6 11,903 — — — 11,909 — — — — — (422,986 ) (422,986 ) $ 82,949,000 $ 34,547 $ 18,250,501 $ (4,330,712 ) $ (39,751,959 ) $ 106,157,384 $ 163,308,761 — — — — — 2,122,042 2,122,042 — — — — (5,739,821 ) — (5,739,821 ) — — — (292,100 ) — — (292,100 ) — 8 18,454 — — — 18,462 — — — — — (421,436 ) (421,436 ) $ 82,949,000 $ 34,555 $ 18,268,955 $ (4,622,812 ) $ (45,491,780 ) $ 107,857,990 $ 158,995,908
Common
Stock Unvested Restricted Stock Accumulated
Other
Comprehensive Income Balance at December 31, 2015 $ 22,000,000 $ 31,464 $ (25,358 ) $ 12,028,832 $ (4,330,712 ) $ 4,262,361 $ 57,000,835 $ 90,967,422 Net Income — — — — — — 5,062,748 5,062,748 Other Comprehensive Income, Net of Tax — — — — — 2,474,049 — 2,474,049 Stock Option Compensation Expense — — — 5,976 — — — 5,976 Cash Dividends on Preferred Stock — — — — — — (330,000 ) (330,000 ) Cash Dividends on Common Stock — — — — — — (706,914 ) (706,914 ) Balance at September 30, 2016 $ 22,000,000 $ 31,464 $ (25,358 ) $ 12,034,808 $ (4,330,712 ) $ 6,736,410 $ 61,026,669 $ 97,473,281 Unvested Restricted Stock Accumulated Other Comprehensive Income Balance at December 31, 2016 $ 31,464 $ (25,358 ) $ 12,036,744 $ (4,330,712 ) $ 1,180,086 $ 62,220,050 $ 71,112,274 Net Income — — — — — 5,009,467 5,009,467 Other Comprehensive Income, Net of Tax — — — — 2,559,702 — 2,559,702 Vesting of Restricted Stock — 25,358 — — — — 25,358 Cash Dividends on Common Stock — — — — — (795,277 ) (795,277 ) Balance at September 30, 2017 $ 31,464 $ — $ 12,036,744 $ (4,330,712 ) $ 3,739,788 $ 66,434,240 $ 77,911,524 $ 6,574,339 $ 6,938,637 1,624,483 1,460,975 3,073,976 5,314,299 221,000 — (469,175 ) (457,202 ) (530,428 ) (1,511,905 ) — 433,077 9,459 — 14,700 10,000 (2,326 ) — 342,524 278,336 18,450,690 47,464,791 (18,060,490 ) (44,055,483 ) (587,031 ) (740,945 ) (920,674 ) 326,700 4,813,536 816,535 $ 14,554,583 $ 16,277,815 $ (40,275,444 ) $ (59,674,541 ) 49,327,581 83,769,857 (16,936,251 ) (118,798,583 ) 10,337,617 4,333,488 (696,300 ) (64,800 ) 425,000 — (49,926,075 ) (25,494,867 ) 148,941 — 107,326 — (2,368,139 ) (3,647,767 ) $ (49,855,744 ) $ (119,577,213 ) $ 75,967,728 $ 2,853,782 (8,544,702 ) 12,023,722 346,055,000 202,980,000 (320,935,000 ) (201,980,000 ) (292,100 ) — — 82,949,000 38,785 — — (1,000,000 ) (1,267,339 ) (2,081,846 ) $ 91,022,372 $ 95,744,658 55,721,211 (7,554,740 ) 28,502,364 27,622,851 $ 84,223,575 $ 20,068,111 $ 15,100,087 $ 2,417,879 2,021,315 1,099,000 (4,713,134 ) (46,732,429 ) Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 2017 2016 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 5,009,467 $ 5,062,748 Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: Depreciation Expense 1,101,900 1,053,224 Stock Option Compensation Expense 25,358 5,976 Discount Accretion and Premium Amortization 4,190,700 4,038,220 Provisions for Losses on Loans 100,000 — Earnings on BOLI (374,000 ) (396,000 ) Income Recognized From BOLI Death Benefit (654,133 ) — Gain on Sales of Loans (894,053 ) (657,473 ) Gain on Sales of Mortgage-Backed Securities (250,149 ) (55,958 ) Gain on Sales of Investment Securities (457,752 ) (716,185 ) Gain on Sale of Premises and Equipment (1,900 ) — Gain on Sales of OREO (321,687 ) (841,728 ) Write Down on OREO 68,121 40,000 Amortization of Deferred Loan Costs 127,058 88,054 Proceeds From Sale of Loans Held For Sale 33,301,781 23,896,772 Origination of Loans Held For Sale (29,434,231 ) (24,920,171 ) Decrease (Increase) in Accrued Interest Receivable: Loans 102,016 38,341 Mortgage-Backed Securities 17,509 (14,884 ) Investment Securities (308,595 ) 90,706 Increase in Advance Payments By Borrowers 408,911 379,234 Other, Net 594,400 2,244,880 Net Cash Provided By Operating Activities $ 12,350,721 $ 9,335,756 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Mortgage-Backed Securities Available For Sale ("AFS") $ (42,875,234 ) $ (37,793,135 ) Proceeds from Payments and Maturities of Mortgage-Backed Securities AFS 28,487,010 23,942,058 Proceeds From Sale of Mortgage-Backed Securities AFS 19,003,897 3,082,591 Purchase of Mortgage-Backed Securities Held To Maturity ("HTM") — (1,507,125 ) Proceeds from Payments and Maturities of Mortgage-Backed Securities HTM 2,836,011 3,496,657 Purchase of Investment Securities AFS (75,688,312 ) (30,233,311 ) Proceeds from Payments and Maturities of Investment Securities AFS 17,854,087 18,402,244 Proceeds From Sale of Investment Securities AFS 27,825,020 18,410,863 Purchase of Investment Securities HTM (3,997,750 ) — Proceeds from Payments and Maturities of Investment Securities HTM 1,000,000 — Proceeds From Redemption of Certificates of Deposits with Other Banks 1,095,000 — Purchase of FHLB Stock (5,129,700 ) (5,014,800 ) Redemption of FHLB Stock 5,432,500 4,554,900 Purchase of BOLI (2,000,000 ) — Proceeds From BOLI Death Benefit 1,463,285 — Increase in Loans Receivable (19,680,925 ) (19,976,753 ) Proceeds From Sale of OREO 1,558,891 3,159,524 Purchase and Improvement of Premises and Equipment (2,769,640 ) (1,599,727 ) Proceeds From Sale of Premises and Equipment 1,900 — Net Cash Used By Investing Activities $ (45,583,960 ) $ (21,076,014 ) SECURITY FEDERAL CORPORATION AND SUBSIDIARIESConsolidated Statements of Cash Flows (Unaudited) (Continued) Nine Months Ended September 30, 2017 2016 CASH FLOWS FROM FINANCING ACTIVITIES: Increase (Decrease) in Deposit Accounts $ 47,510,082 $ (1,798,293 ) Proceeds from FHLB Advances 157,576,000 251,755,000 Repayment of FHLB Advances (164,971,000 ) (240,395,000 ) Increase in Other Borrowings, Net 3,017,664 6,185,542 Repayment of Note Payable (3,300,000 ) — Purchase of Senior Convertible Debentures (20,000 ) — Dividends to Preferred Stock Shareholders — (330,000 ) Dividends to Common Stock Shareholders (795,277 ) (706,914 ) Net Cash Provided By Financing Activities $ 39,017,469 $ 14,710,335 Net Increase in Cash and Cash Equivalents 5,784,230 2,970,077 Cash and Cash Equivalents at Beginning of Period 9,374,549 8,381,951 Cash and Cash Equivalents at End of Period $ 15,158,779 $ 11,352,028 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash Paid During The Period For: Interest $ 2,937,283 $ 2,565,836 Income Taxes $ 1,162,000 $ 572,242 Supplemental Schedule of Non Cash Transactions: Transfers From Loans Receivable to OREO $ 491,748 $ 323,730 SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.SECURITY FEDERAL CORPORATION AND SUBSIDIARIES1. Basis of Presentation10-Q10-Q and accounting principles generally accepted in the United States of America ("U.S. 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. Users of financial information produced for interim periods are encouraged to refer to the footnotes contained in the audited consolidated financial statements appearing in Security Federal Corporation’s (the “Company”) 20162022 Annual Report to Shareholders which was filed as an exhibit to our Annual Report on Form 10-K10-K for the year ended December 31, 20162022 (“2016 10-K”202210-K”) when reviewing interim financial statements. The unaudited consolidated results of operations for the three and nine months ended September 30, 20172023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2023 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.2. Principles of Consolidation and Security Financial Services Corporation (“SFSC”). SFINSSFINV was formed during fiscal 2002to hold investment securities and began operating duringallow for better management of the December 2001 quarter andsecurities portfolio. SFINS is an insurance agency offering auto, business, and home insurance. SFINS has a wholly owned subsidiary, Collier Jennings Financial Corporation, which has as subsidiaries Security Federal Auto Insurance, The Auto Insurance Store Inc., and Security Federal Premium Pay Plans Inc. Security Federal Premium Pay Plans Inc. has one wholly owned premium finance subsidiary and also has an ownership interest in four other premium finance subsidiaries. SFSC was formed in 1975 and is currently inactive. All significant intercompany transactions and balances have been eliminated in consolidation.3. Critical Accounting Policies20162022 included in our 20162022 Annual Report to Shareholders. 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.allowance for loan lossescollection of interest is a critical accounting policy that requires the most significant judgments and estimates used in preparation of the consolidated financial statements. The impact of an unexpected and sudden large loss could deplete the allowance and potentially require increased provisions to replenish the allowance, which would negatively affect earnings.doubtful. The Company provides for loan losses usinghas concluded that this policy results in the allowance method. Accordingly, all loan losses are charged to the related allowance and all recoveries are credited to the allowance for loan losses. Additions to the allowance for loan losses are provided by charges to operations based on various factors, which, in management’s judgment, deserve current recognition in estimating possible losses. Such factors considered by management include the fair valuetimely reversal of the underlying collateral, stated guarantees by the borrower (if applicable), the borrower’s ability to repay from other economic resources, growth and compositionuncollectible interest.3. Critical Accounting Policies, ContinuedWhile management uses the best information availablemake evaluations, future adjustments may be necessary if economic conditions differ substantiallyMaturity Securitiesassumptions used in making these evaluations.estimate of credit losses. The estimate of expected credit losses 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 collateralized mortgage obligation ("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. See "Note 7 - Investments, Held to Maturity" with regards to the investments HTM portfolio major security types.loancredit losses is subjectwas recorded on investments HTM at September 30, 2023.periodic evaluations by our bank regulatory agencies, includingsell the Board of Governors of the Federal Reserve System ("Federal Reserve"), the FDIC and the South Carolina Board of Financial Institutions, that may require adjustments to be made to the allowance based upon the information that is available at the time of their examination.The Company values impaired loans at the loan’s fair value ifsecurity or it is probablemore likely than not that the Company will be unablerequired to collect all amounts due accordingsell the security, the security is written down to fair value and the entire loss is recorded in earnings.terms ofsecurity. If the loan agreement atassessment indicates that a credit loss exists, the present value of expected cash flows expected to be collected are compared to the market priceamortized cost basis of the loan, if available,security and any excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income.the valuewhen either of the underlying collateral. Expected cash flowscriteria regarding intent or requirement to sell is met. At September 30, 2023, there was no allowance for credit loss related to the AFS portfolio.requiredreported at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and deferred fees and costs. Accrued interest receivable related to loans is reported in accrued interest receivable on the consolidated balance sheets. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using methods that approximate a level yield without anticipating prepayments.discountedcollected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Accrued interest receivable is excluded from the estimate of credit losses.loan’s effective interest rate. Whenborrower will be unable to service the ultimate collectibility of an impaired loan’s principal is in doubt, wholly or partially, all cash receipts are applied to principal. When this doubt does not exist, cash receipts are applied underdebt consistent with the contractual terms of the loan agreement or lease.interest and then to principal. Oncedetermine the recorded principal balance has been reduced to zero, future cash receipts are applied to interest income to the extent that any interest has been foregone. Further cash receipts are recorded as recoveries of any amounts previously charged off.assumptionsits own internal data to measure historical credit loss experience within the loan pools with similar risk characteristics over an economic cycle. The Company then forecasts the calculated historical loss rates over the calculated remaining life of loans by pool.estimatesinclude adjustments for lending management experience and risk tolerance, loan review and audit results, asset quality and portfolio trends, loan portfolio growth, industry concentrations, trends in determiningunderlying collateral, external factors and economic conditions not already captured.taxes payable or refundablestatements. The allowance for credit losses - unfunded commitments is estimated by loan segment at each balance sheet date under CECL using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for credit losses - unfunded commitments is included in other liabilities on the Company’s consolidated balance sheets.year, deferred income tax liabilities and assets for events recognized differently in its financial statements and income tax returns, and income tax expense. Determining these amounts requires analysis of certain transactions and interpretation of tax laws and regulations. The Company exercises considerable judgment in evaluatingloan balance to arrive at the amount and timing of recognitionquantitative baseline portion of the resulting tax liabilitiesallowance. The difference between the allowance previously determined and assets.the current allowance was not material to the Company’s financial statements.judgments and estimates are reevaluated onamendments did not have a continual basis as regulatory and business factors change. No assurance can be given that either the tax returns submitted by us or the income tax reportedmaterial effect on the Consolidated Financial Statements will not be adjusted by either adverse rulingsCompany's consolidated financial statements.United States Tax Court, changes inFASB or other standards-setting authorities are not expected to have a material impact on the tax code,Company’s consolidated financial position, results of operations or assessments made by the Internal Revenue Service.cash flows.4. Earnings Per Common Share the computation of 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. All of theThere were no stock options outstanding at September 30, 2017 had an exercise price below the average market price during the three2023 or 2022; and nine months ended September 30, 2017. Therefore, thesetherefore, no dilutive options were considered to be dilutive toincluded in the calculation of diluted EPS infor those periods. None of the options outstanding at September 30, 2016 had an exercise price below the average market price during the three or nine month periods ended September 30, 2016. Therefore, these options were not deemed to be dilutive to EPS in those periods.Net income available to common shareholders represents consolidated net income adjusted for preferred dividends declared, accretions of discounts and amortization of premiums on preferred stock issuances and cumulative dividends related to the current dividend period that have not been declared as of period end. The following table provides a reconciliation of net income to net income available to common shareholders for the periods presented: Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Earnings Available To Common Shareholders: Net Income $ 1,902,902 $ 1,779,731 $ 5,009,467 $ 5,062,748 Preferred Stock Dividends — 110,000 — 330,000 Net Income Available To Common Shareholders $ 1,902,902 $ 1,669,731 $ 5,009,467 $ 4,732,748 SECURITY FEDERAL CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements4. Earnings Per Common Share, Continuedand diluted EPS for the periods indicated. $ 2,122,042 3,248,226 $ 0.65 $ 3,225,803 3,252,884 $ 0.99 $ 6,574,339 3,251,610 $ 2.02 $ 6,938,637 3,252,884 $ 2.13 Three Months Ended September 30, 2017 2016 Income Shares Per Share Amounts Income Shares Per Share Amounts Basic EPS $ 1,902,902 2,945,474 $ 0.65 $ 1,669,731 2,944,001 $ 0.57 Effect of Dilutive Securities: Stock Options — 3,762 (0.01 ) — — — Senior Convertible Debentures 75,266 303,200 (0.03) 75,442 304,200 (0.03) Unvested Restricted Stock — — — — 325 — Diluted EPS $ 1,978,168 3,252,436 $ 0.61 $ 1,745,173 3,248,526 $ 0.54 Nine Months Ended September 30, 2017 2016 Income Shares Per Share Amounts Income Shares Per Share Amounts Basic EPS $ 5,009,467 2,945,215 $ 1.70 $ 4,732,748 2,944,001 $ 1.61 Effect of Dilutive Securities: Stock Options — 3,251 (0.01 ) — — — Senior Convertible Debentures 226,149 303,200 (0.08) 226,325 304,200 (0.07) Unvested Restricted Stock — — — — 273 (0.01 ) Diluted EPS $ 5,235,616 3,251,666 $ 1.61 $ 4,959,073 3,248,474 $ 1.53 5. Stock-Based CompensationThe following is a summaryAt September 30, 2023 and 2022, the Company had no options outstanding and there was no activity during the three and nine months ended September 30, 2023 and 2022. At those dates, there were 50,000 options available for grants. Three Months Ended September 30, 2017 2016 Shares Weighted Average Exercise Price Shares Weighted Average Exercise Price Balance, Beginning of Period 19,500 $23.49 25,000 $23.50 Options Forfeited (1,000 ) 24.61 (3,500 ) 23.03 Balance, End of Period 18,500 $23.43 21,500 $23.57 5. Stock-Based Compensation, Continued Nine Months Ended September 30, 2017 2016 Shares Weighted Average Exercise Price Shares Weighted Average Exercise Price Balance, Beginning of Period 21,500 $23.57 29,500 $23.55 Options Forfeited (3,000 ) 24.43 (8,000 ) 23.47 Balance, End of Period 18,500 $23.43 21,500 $23.57 Options Exercisable 18,500 17,800 Options Available For Grant 50,000 50,000 At September 30, 2017, the Company had the following options outstanding:Grant Date Outstanding Options Option Price Expiration Date 10/01/07 2,000 $24.28 10/01/17 01/01/08 12,000 $23.49 01/01/18 05/19/08 2,500 $22.91 05/18/18 07/01/08 2,000 $22.91 07/01/18 SECURITY FEDERAL CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements6. Investment and Mortgage-Backed Securities, Available For Saleinvestment and mortgage-backed securities available for saleinvestments AFS at the dates indicated were as follows: Cost Gains Losses Value $ 53,149,118 $ 93,233 $ (748,230 ) $ 52,494,121 80,809,436 408,529 (3,291,469 ) 77,926,496 21,486,631 108,726 (2,123,259 ) 19,472,098 64,689,585 — (15,278,275 ) 49,411,310 371,796,460 3,408 (39,682,320 ) 332,117,548 $ 591,931,230 $ 613,896 $ (61,123,553 ) $ 531,421,573 Cost Gains Losses Value $ 60,854,658 $ 11,647 $ (1,709,323 ) $ 59,156,982 102,292,600 584,290 (3,246,923 ) 99,629,967 22,536,806 405,341 (1,631,819 ) 21,310,328 65,249,883 — (14,480,144 ) 50,769,739 353,223,361 29,861 (33,971,954 ) 319,281,268 $ 604,157,308 $ 1,031,139 $ (55,040,163 ) $ 550,148,284 
September 30, 2017 Amortized Cost Fair Value Federal Home Loan Mortgage Corporation (“FHLMC”) Bond $ 968,436 $ — $ 2,790 $ 965,646 Small Business Administration (“SBA”) Bonds 123,756,916 1,186,563 139,930 124,803,549 Tax Exempt Municipal Bonds 78,068,936 3,175,211 429,120 80,815,027 Taxable Municipal Bonds 2,017,913 — 5,323 2,012,590 Mortgage-Backed Securities 177,751,622 2,548,619 465,620 179,834,621 State Tax Credit 56,800 — — 56,800 Equity Securities 155,000 — — 155,000 Total Available For Sale $ 382,775,623 $ 6,910,393 $ 1,042,783 $ 388,643,233 December 31, 2016 Amortized Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value FHLB Bonds $ 998,001 $ — $ 1 $ 998,000 SBA Bonds 101,280,921 909,361 284,223 101,906,059 Tax Exempt Municipal Bonds 72,248,915 1,185,753 1,899,519 71,535,149 Taxable Municipal Bonds 2,021,192 — 30,062 1,991,130 Mortgage-Backed Securities 183,657,697 2,575,616 972,222 185,261,091 Equity Securities 250,438 117,562 — 368,000 Total Available For Sale $ 360,457,164 $ 4,788,292 $ 3,186,027 $ 362,059,429 The FHLMC and FHLBsponsored enterprises ("GSEs") and the securities andwhile SBA bonds issued by GSEs are not100% backed by the full faith and credit of the United States government. SBA bondsThe majority of the MBS included in the tables above and below are issued or guaranteed by an agency of the United States government such as Ginnie Mae, or by Government Sponsored Entities ("GSEs"), including Fannie Mae and Freddie Mac. Ginnie Mae MBS are backed by the full faith and credit of the United States government. Includedgovernment, while those issued by GSEs are not. Also included in MBS in the tables above and below in mortgage-backed securities are Government National Mortgage Association ("GNMA") mortgage-backedprivate label CMO securities, which are alsoissued by non-governmental real estate mortgage investment conduits and are not backed by the full faith and credit of the United States government. At September 30, 20172023, the BankCompany held AFS GNMA mortgage-backed securities with an amortized cost and fair value of $93.0$83.1 million and $94.2$75.3 million respectively,in private label CMO securities, compared to an amortized cost and fair value of $107.9$60.1 million and $109.2$53.8 million respectively, at December 31, 2016.Also included in mortgage-backed securities in the tables above and below 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 and2022, respectively. There was no allowance for credit losses recorded on investments AFS as of the United States government. At September 30, 2017 the Bank held AFS private label CMO mortgage-backed securities with both an amortized cost and fair value of $31.2 million compared to an amortized cost and fair value of $20.0 million and $19.7 million, respectively, at December 31, 2016.SECURITY FEDERAL CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements6. Investment and Mortgage-Backed Securities, Available For Sale, Continuedinvestment and mortgage-backed securities available for saleinvestments AFS at September 30, 20172023, 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 mortgage-backed securitiesMBS are not due at a single maturity date, they are disclosed separately, rather than allocated over the maturity groupings set forth in the table below. $ 13,693 $ 13,525 6,593,553 6,546,193 76,090,051 69,654,980 137,437,473 123,089,327 371,796,460 332,117,548 $ 591,931,230 $ 531,421,573 September 30, 2017 Investment Securities: Amortized Cost Fair Value One Year or Less $ 190,589 $ 190,501 After One – Five Years 14,816,156 14,930,955 After Five – Ten Years 47,080,250 47,638,450 More Than Ten Years 142,937,006 146,048,706 Mortgage-Backed Securities 177,751,622 179,834,621 Total Available For Sale $ 382,775,623 $ 388,643,233 20172023, the amortized cost and fair value of investment and mortgage-backed securities available for saleinvestments AFS pledged as collateral for certain deposit accounts, FHLB advances and other borrowings were $97.6$516.2 million and $99.5$461.8 million, respectively, compared to an amortized cost and fair value of $75.3$318.0 million and $76.9$297.0 million respectively, at December 31, 2016.The Bank received $29.3 million 2022, respectively.$6.9 million in gross2022; and therefore, no proceeds from sales, of available for sale securities during the three months ended September 30, 2017 and 2016, respectively. As a result, the Bank recognized gross gains of $241,000 and $360,000, respectively, andor gross losses of $162,000 and $0, respectively, for the samewere recorded during those periods.During the nine months ended September 30, 2017 and 2016, the Bank received $46.8 million and $21.5 million, respectively, in gross proceeds from sales of available for sale securities. As a result, the Bank recognized gross gains of $870,000 and $772,000, respectively, with $162,000 and $0 gross losses recognized for the same periods.tables showtable shows the gross unrealized losses and estimated fair value of investments AFS for which an allowance for credit losses has not been recorded aggregated by investment category and length of time that the individual available for sale securities have been in a continuous unrealized loss position at September 30, 2023. $ 411,097 $ (964 ) $ 45,703,435 $ (747,266 ) $ 46,114,532 $ (748,230 ) 3,492,535 (8,044 ) 39,107,655 (3,283,425 ) 42,600,190 (3,291,469 ) 3,648,687 (71,499 ) 12,414,886 (2,051,760 ) 16,063,573 (2,123,259 ) — — 49,411,310 (15,278,275 ) 49,411,310 (15,278,275 ) 36,969,372 (439,141 ) 289,240,242 (39,243,179 ) 326,209,614 (39,682,320 ) $ 44,521,691 $ (519,648 ) $ 435,877,528 $ (60,603,905 ) $ 480,399,219 $ (61,123,553 ) dates indicated. September 30, 2017 Less than 12 Months 12 Months or More Total FHLMC Bond $ 965,646 $ 2,790 $ — $ — $ 965,646 $ 2,790 SBA Bonds 22,776,378 102,708 6,857,393 37,222 29,633,771 139,930 Tax Exempt Municipal Bonds 6,094,283 73,787 10,341,319 355,333 16,435,602 429,120 Taxable Municipal Bonds 2,012,590 5,323 — — 2,012,590 5,323 Mortgage-Backed Securities 46,108,221 323,710 13,021,339 141,910 59,129,560 465,620 $ 77,957,118 $ 508,318 $ 30,220,051 $ 534,465 $ 108,177,169 $ 1,042,783 SECURITY FEDERAL CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements6. Investmentgross unrealized losses and Mortgage-Backed Securities, Available For Sale, Continued December 31, 2016 Less than 12 Months 12 Months or More Total Fair
ValueUnrealized
Losses Fair
ValueUnrealized
Losses Fair
ValueUnrealized
LossesFHLB Securities $ 998,000 $ 1 $ — $ — $ 998,000 $ 1 SBA Bonds 28,490,243 228,432 8,212,824 55,791 36,703,067 284,223 Tax Exempt Municipal Bonds 47,405,066 1,899,519 — — 47,405,066 1,899,519 Taxable Municipal Bond 1,991,130 30,062 — — 1,991,130 30,062 Mortgage-Backed Securities 62,738,366 916,699 5,600,262 55,523 68,338,628 972,222 $ 141,622,805 $ 3,074,713 $ 13,813,086 $ 111,314 $ 155,435,891 $ 3,186,027 Securitiesestimated fair value of investments AFS aggregated by category and length of time that securities have been in a continuous unrealized loss position at December 31, 2022. $ 24,768,260 $ (637,963 ) $ 30,684,124 $ (1,071,360 ) $ 55,452,384 $ (1,709,323 ) 8,403,975 (120,766 ) 45,969,373 (3,126,157 ) 54,373,348 (3,246,923 ) 8,050,944 (718,645 ) 4,929,289 (913,174 ) 12,980,233 (1,631,819 ) 14,427,796 (3,196,761 ) 36,341,943 (11,283,383 ) 50,769,739 (14,480,144 ) 146,016,464 (11,132,554 ) 170,578,059 (22,839,400 ) 316,594,523 (33,971,954 ) $ 201,667,439 $ (15,806,689 ) $ 288,502,788 $ (39,233,474 ) $ 490,170,227 $ (55,040,163 ) available for saleAFS are recorded at fair market value. At September 30, 20172023 and December 31, 2016, 51.3%2022, 442 and 3.5% of the unrealized losses, representing 28 and 15416 individual AFS securities respectively, consisted of securitieswere in a continuousloss position, including 384 and 211 securities that were in a loss position for greater than 12 months, or more.respectively. The Company has the ability and intent to hold these securities until such time as the value recovers or the securities mature. theseunrealized losses are have not considered other-than-temporary. been recognized into income. The Company reviews its investment securities portfolio at least quarterly and more frequently when economic conditions warrant, assessing whether there is any indication of other-than-temporary impairment (“OTTI”).Factors considered in the review include estimated future cash flows, length of time and extent to which market value has been less than cost, the financial condition and near term prospects of the issuer, and our intent and ability to retain the security to allowan allowance for an anticipated recovery in market value. If the review determines that there is OTTI, then an impairmentcredit loss is recognized in earnings equal to the entire difference between the investment’s cost and its fair valuedeemed necessary.the balance sheet date of the reporting period for which the assessment is made, or the Company may recognize a portion in other comprehensive income. The fair value of investments on which OTTI is recognized then becomes the new cost basis of the investment. There was no OTTI recognized during the nine months ended September 30, 2017.2023 and was excluded from the estimate of credit losses.7. Investment and Mortgage-Backed Securities, HeldNotes to MaturityConsolidated Financial Statementsheld to maturity securitiesinvestments HTM at the datesdate indicated below were as follows: Cost Gains Losses Value $ 34,782,248 $ — $ (587,405 ) $ 34,194,843 1,000,000 — (13,279 ) 986,721 17,510,213 272,590 — 17,782,803 12,689,280 583,741 — 13,273,021 959,701 — (53,531 ) 906,170 107,194,773 — (7,699,635 ) 99,495,138 $ 174,136,215 $ 856,331 $ (8,353,850 ) $ 166,638,696 Cost Gains Losses Value $ 34,511,849 $ — $ (682,198 ) $ 33,829,651 1,000,000 — (1,360 ) 998,640 16,387,997 88,489 (59,090 ) 16,417,396 3,521,293 162,235 — 3,683,528 951,864 — (60,134 ) 891,730 111,064,613 29,194 (5,451,179 ) 105,642,628 $ 167,437,616 $ 279,918 $ (6,253,961 ) $ 161,463,573 September 30, 2017 Amortized Cost Fair Value FHLB Bonds $ 2,000,000 $ — $ 2,040 $ 1,997,960 FHLMC Bonds 997,997 1,707 — 999,704 22,339,969 249,124 18,414 22,570,679 Total Held To Maturity $ 25,337,966 $ 250,831 $ 20,454 $ 25,568,343 December 31, 2016 Amortized Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value Mortgage-Backed Securities (1) $ 25,583,956 $ 63,342 $ 276,246 $ 25,371,052 Total Held To Maturity $ 25,583,956 $ 63,342 $ 276,246 $ 25,371,052 (1) COMPRISED OF MORTGAGE-BACKED SECURITIES OF GSEs OR GNMA7. InvestmentMortgage-Backed Securities, Held to Maturity, Continued $ — $ — $ 34,194,843 $ (587,405 ) $ 34,194,843 $ (587,405 ) 986,721 (13,279 ) — — 986,721 (13,279 ) — — 906,170 (53,531 ) 906,170 (53,531 ) 52,315,812 (1,243,762 ) 47,179,326 (6,455,873 ) 99,495,138 (7,699,635 ) $ 53,302,533 $ (1,257,041 ) $ 82,280,339 $ (7,096,809 ) $ 135,582,872 $ (8,353,850 ) $ 33,829,651 $ (682,198 ) $ — $ — $ 33,829,651 $ (682,198 ) 998,640 (1,360 ) — — 998,640 (1,360 ) 6,520,050 (59,090 ) — — 6,520,050 (59,090 ) 891,730 (60,134 ) — — 891,730 (60,134 ) 88,351,096 (3,145,166 ) 9,334,438 (2,306,013 ) 97,685,534 (5,451,179 ) $ 130,591,167 $ (3,947,948 ) $ 9,334,438 $ (2,306,013 ) $ 139,925,605 $ (6,253,961 ) 2017, the Bank held an amortized cost and fair value of $13.9 million and $14.1 million, respectively, in GNMA mortgage-backed securities classified as held to maturity, which are included in the table above, compared to an amortized cost and fair value of $16.3 million and $16.2 million, respectively, at December 31, 2016. The Company has not invested in any private label mortgage-backed securities classified as held to maturity.At September 30, 2017,2023, the amortized cost and fair value of mortgage-backed securities held to maturityinvestments HTM that were pledged as collateral for certain deposit accounts, FHLB advances and other borrowings were $23.4$96.2 million and $23.7$90.1 million, respectively, compared to an amortized cost and fair value of $23.2$25.3 million and $23.0$24.5 million respectively, at December 31, 2016.2022 respectively.The amortized cost and fair value September 30, 2017 Investment Securities: Amortized Cost Fair Value One – Five Years $ 2,997,997 $ 2,997,664 Mortgage-Backed Securities 22,339,969 22,570,679 Total Held to Maturity $ 25,337,966 $ 25,568,343 The following tables show gross unrealized losses, fair value, and length of time that individual held to maturity securities have been in a continuous unrealized loss position at the dates indicated below. September 30, 2017 Less than 12 Months 12 Months or More Total FHLB Bonds $ 1,997,960 $ 2,040 $ — $ — $ 1,997,960 $ 2,040 889,172 811 1,424,142 17,603 2,313,314 18,414 $ 2,887,132 $ 2,851 $ 1,424,142 $ 17,603 $ 4,311,274 $ 20,454 (1) COMPRISED OF MORTGAGE-BACKED SECURITIES OF GSEs OR GNMA December 31, 2016 Less than 12 Months 12 Months or More Total Fair
ValueUnrealized
Losses Fair
ValueUnrealized
Losses Fair
ValueUnrealized
Losses$ 15,447,596 $ 276,246 $ — $ — $ 15,447,596 $ 276,246 $ 15,447,596 $ 276,246 $ — $ — $ 15,447,596 $ 276,246 (1) COMPRISED OF MORTGAGE-BACKED SECURITIES OF GSEs OR GNMAThe Company’s held to maturity portfolio is recorded at amortized cost. The Company has the ability and intent to hold these securities to maturity.8. Loans Receivable, Net September 30, 2017 December 31, 2016 Residential Real Estate Loans $ 79,106,075 $ 77,979,909 Consumer Loans 56,864,234 50,667,894 Commercial Business Loans 23,496,773 16,279,177 Commercial Real Estate Loans 228,182,149 222,599,294 Total Loans Held For Investment 387,649,231 367,526,274 Loans Held For Sale 1,270,410 4,243,907 Total Loans Receivable, Gross $ 388,919,641 $ 371,770,181 Less: Allowance For Loan Losses 8,169,188 8,356,231 Loans In Process 4,935,647 3,526,064 Deferred Loan Fees 103,338 165,040 13,208,173 12,047,335 Total Loans Receivable, Net $ 375,711,468 $ 359,722,846 $ 101,493,816 $ 112,793,694 159,980,843 110,056,973 256,175,825 252,154,475 34,404,989 30,647,975 33,318,762 31,736,676 24,409,030 23,598,110 609,783,265 560,987,903 12,348,125 11,177,753 459,424 806,238 12,807,549 11,983,991 $ 596,975,716 $ 549,003,912 loancredit losses. Pass loans are 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 loancredit losses. Loans that are graded as substandard are considered to have the most risk. These loans 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. The caution and special mention categories fall in between the pass and substandard grades and consist of loans that do not currently expose the Company to sufficient risk to warrant adverse classification but possess weaknesses.tablesfollowing table presents the Company's recorded investment in loans by credit quality indicators by year of origination as of September 30, 2023. $ 19,418,021 $ 26,601,678 $ 16,516,378 $ 4,725,200 $ 648,158 $ 1,465,033 $ 5,027,869 $ 74,402,337 2,968,429 14,796,433 2,083,717 3,193,709 418,495 416,565 — 23,877,348 — 29,265 — — 921,594 458,064 — 1,408,923 — — 333,376 136,960 1,237,579 97,293 — 1,805,208 22,386,450 41,427,376 18,933,471 8,055,869 3,225,826 2,436,955 5,027,869 101,493,816 — — 1,270 — — — — 1,270 23,244,544 32,870,741 10,942,223 14,632,321 4,096,019 23,193,947 9,576,457 118,556,252 10,537,035 11,122,672 5,868,656 1,699,406 1,617,666 4,237,468 — 35,082,903 1,878,200 158,315 434,467 399,325 — 245,555 — 3,115,862 74,550 — 621,239 — 48,601 2,481,436 — 3,225,826 35,734,329 44,151,728 17,866,585 16,731,052 5,762,286 30,158,406 9,576,457 159,980,843 — — — — — — — — 11,017,973 48,666,315 48,839,955 12,796,698 24,093,992 54,378,489 2,687,505 202,480,927 9,786,032 4,949,460 4,272,692 6,488,251 7,234,125 8,389,414 — 41,119,974 212,500 879,781 455,971 414,263 — 5,784,828 99,811 7,847,154 — 68,176 58,602 — — 4,600,992 — 4,727,770 21,016,505 54,563,732 53,627,220 19,699,212 31,328,117 73,153,723 2,787,316 256,175,825 — — — — — — — — 3,819,756 6,182,554 8,078,460 692,988 379,558 2,558,790 4,153,369 25,865,475 3,416,339 1,529,379 1,732,343 82,772 18,316 217,590 639,351 7,636,090 459,064 40,621 116,875 15,852 11,089 95,193 — 738,694 — — — 1,975 — 65,179 97,576 164,730 7,695,159 7,752,554 9,927,678 793,587 408,963 2,936,752 4,890,296 34,404,989 — — 15,880 — — — — 15,880 — — — — — — 27,331,177 27,331,177 — — — — — — 4,964,475 4,964,475 — — — — — — 401,065 401,065 — — — — — — 622,045 622,045 — — — — — — 33,318,762 33,318,762 — — — — — — 1,488 1,488 5,493,794 4,261,711 1,849,151 859,558 238,942 211,390 4,683,874 17,598,420 2,059,332 2,262,793 1,024,964 547,223 181,936 60,196 282,634 6,419,078 39,199 129,630 — — — — 6,285 175,114 — 60,550 79,324 43,459 16,985 9,885 6,215 216,418 7,592,325 6,714,684 2,953,439 1,450,240 437,863 281,471 4,979,008 24,409,030 — 20,456 13,970 17,036 — — 72,971 124,433 $ 94,424,768 $ 154,610,074 $ 103,308,393 $ 46,729,960 $ 41,163,055 $ 108,967,307 $ 60,579,708 $ 609,783,265 summarizesummarizes the balance within each risk category by loan type, excluding loans held for sale, at September 30, 2017December 31,2022. $ 91,564,058 $ 18,837,894 $ 2,013,824 $ 377,918 $ 112,793,694 84,028,037 22,372,649 887,874 2,768,413 110,056,973 196,063,300 47,821,422 3,270,916 4,998,837 252,154,475 25,383,994 4,593,283 371,071 299,627 30,647,975 25,693,252 5,018,419 401,550 623,455 31,736,676 16,515,206 6,725,317 178,638 178,949 23,598,110 $ 439,247,847 $ 105,368,984 $ 7,123,873 $ 9,247,199 $ 560,987,903 December 31, 2016.September 30, 2017 Residential Real Estate $ 70,517,818 $ 2,020,878 $ 1,378,317 $ 5,189,062 $ 79,106,075 Consumer 52,443,484 1,738,094 254,190 2,428,466 56,864,234 Commercial Business 20,293,905 1,799,445 732,917 670,506 23,496,773 Commercial Real Estate 145,016,591 61,842,493 15,929,625 5,393,440 228,182,149 Total $ 288,271,798 $ 67,400,910 $ 18,295,049 $ 13,681,474 $ 387,649,231 December 31, 2016 Residential Real Estate $ 70,503,057 $ 665,235 $ 1,082,928 $ 5,728,689 $ 77,979,909 Consumer 46,818,650 2,591,860 6,357 1,251,027 50,667,894 Commercial Business 14,731,698 1,002,170 50,081 495,228 16,279,177 Commercial Real Estate 127,068,983 71,927,031 18,153,718 5,449,562 222,599,294 Total $ 259,122,388 $ 76,186,296 $ 19,293,084 $ 12,924,506 $ 367,526,274 SECURITY FEDERAL CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements8.Nonaccrual Loans Receivable, Net, Continuedfollowing tables below present an age analysis of past due balances including loans on non-accrual status, by loan category at the dates indicated. $ 124,822 $ — $ — $ 124,822 $ 101,368,994 $ 101,493,816 855,243 49,507 266,093 1,170,843 158,810,000 159,980,843 1,507,997 145,677 340,906 1,994,580 254,181,245 256,175,825 7,141 1,975 24,639 33,755 34,371,234 34,404,989 181,306 51,663 20,687 253,656 33,065,106 33,318,762 342,780 49,189 87,542 479,511 23,929,519 24,409,030 $ 3,019,289 $ 298,011 $ 739,867 $ 4,057,167 $ 605,726,098 $ 609,783,265 $ — $ — $ 100,472 $ 100,472 $ 112,693,222 $ 112,793,694 1,557,114 — 471,430 2,028,544 108,028,429 110,056,973 2,670,997 89,342 354,406 3,114,745 249,039,730 252,154,475 5,683 2,113 55,468 63,264 30,584,711 30,647,975 199,414 — 74,159 273,573 31,463,103 31,736,676 271,774 78,566 17,321 367,661 23,230,449 23,598,110 $ 4,704,982 $ 170,021 $ 1,073,256 $ 5,948,259 $ 555,039,644 $ 560,987,903 20172023 and December 31, 2016: September 30, 2017 Residential Real Estate $ 206,120 $ — $ 2,551,216 $ 2,757,336 $ 76,348,739 $ 79,106,075 Consumer 865,261 15,856 453,189 1,334,306 55,529,928 56,864,234 Commercial Business 204,739 32,265 217,700 454,704 23,042,069 23,496,773 Commercial Real Estate 2,019,717 17,037 4,298,231 6,334,985 221,847,164 228,182,149 Total $ 3,295,837 $ 65,158 $ 7,520,336 $ 10,881,331 $ 376,767,900 $ 387,649,231 December 31, 2016 Residential Real Estate $ 653,858 $ — $ 2,488,158 $ 3,142,016 $ 74,837,893 $ 77,979,909 Consumer 625,178 119,640 241,571 986,389 49,681,505 50,667,894 Commercial Business 536,492 69,256 145,401 751,149 15,528,028 16,279,177 Commercial Real Estate 1,719,758 256,285 2,639,837 4,615,880 217,983,414 222,599,294 Total $ 3,535,286 $ 445,181 $ 5,514,967 $ 9,495,434 $ 358,030,840 $ 367,526,274 At September 30, 2017 and December 31, 2016,2022, the Company did not have any loans that were 90 days or more past due and still accruing interest. OurThe Company's strategy is to work with ourits borrowers to reach acceptable payment plans while protecting ourits interests in the existing collateral. In the event an acceptable arrangement cannot be reached, we the Company may have to acquire these properties through foreclosure or other means and subsequently sell, develop, or liquidate them.The following table shows non-accrual loans by category at September 30, 2017 compared to December 31, 2016: September 30, 2017 December 31, 2016 $ % Amount Amount Increase (Decrease) Increase (Decrease) Non-accrual Loans: Residential Real Estate $ 2,551,216 0.67 % $ 2,488,158 0.68 % $ 63,058 2.5% Consumer 453,189 0.12 241,571 0.07 $ 211,618 87.6 Commercial Business 217,700 0.06 145,401 0.04 72,299 49.7 Commercial Real Estate 4,298,231 1.12 2,639,837 0.73 1,658,394 62.8 Total Non-accrual Loans $ 7,520,336 1.97 % $ 5,514,967 1.52 % $ 2,005,369 36.4% (1) PERCENT OF TOTAL LOANS HELD FOR INVESTMENT, NET OF DEFERRED FEES AND LOANS IN PROCESS.8. Loans Receivable, Net, Continuedtables showtable shows nonaccrual loans by category at the dates indicated. Nonaccrual Loans Nonaccrual Loans Total $ 234,252 $ — $ 234,252 $ 114,630 1,296,522 — 1,296,522 1,544,762 4,238,537 — 4,238,537 4,281,975 52,886 — 52,886 112,652 420,484 — 420,484 188,540 96,091 — 96,091 28,671 $ 6,338,772 $ — $ 6,338,772 $ 6,271,230 September 30, 2023 $ — — — — — 696 $ 696 September 30, 2023 $ 2,882 6,814 1,461 1,103 66 1,607 $ 13,933 Commercial and $ 2,200,850 $ 3,260,891 $ 4,427,006 $ 1,102,070 $ 654,278 $ 638,230 $ 12,283,325 (55,278 ) 236,084 (117,370 ) (75,644 ) 690 61,518 50,000 — — — — — (53,513 ) (53,513 ) 3,911 31,317 5,016 6,866 11,360 9,843 68,313 $ 2,149,483 $ 3,528,292 $ 4,314,652 $ 1,033,292 $ 666,328 $ 656,078 $ 12,348,125 Commercial and $ 2,323,397 $ 2,124,835 $ 4,804,282 $ 874,092 $ 598,807 $ 452,340 $ 11,177,753 263,737 461,879 (340,492 ) 112,452 107,548 179,070 784,194 (449,432 ) 896,261 (164,187 ) 44,001 (76,130 ) 125,487 376,000 (1,270 ) - - (15,880 ) (1,488 ) (124,433 ) (143,071 ) 13,051 45,317 15,049 18,627 37,591 23,614 153,249 $ 2,149,483 $ 3,528,292 $ 4,314,652 $ 1,033,292 $ 666,328 $ 656,078 $ 12,348,125 • 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. $ 97,292 1,020,423 4,008,101 28,246 338,160 $ 5,492,222 2017 and 2016: Commercial and $ 2,104,386 $ 1,870,696 $ 4,736,314 $ 1,403,818 $ 606,847 $ 475,893 $ 11,197,954 99,612 (17,503 ) 44,664 (117,519 ) (37,681 ) 28,427 — — — — — — (54,192 ) (54,192 ) 15,460 9,678 77,479 1,281 38,190 12,995 155,083 $ 2,219,458 $ 1,862,871 $ 4,858,457 $ 1,287,580 $ 607,356 $ 463,123 $ 11,298,845 Commercial and $ 2,401,196 $ 1,663,423 $ 4,832,440 $ 1,241,828 $ 517,512 $ 430,765 $ 11,087,164 (212,761 ) 161,839 (100,941 ) 19,643 44,068 88,152 — — — — — — (97,884 ) (97,884 ) 31,023 37,609 126,958 26,109 45,776 42,090 309,565 $ 2,219,458 $ 1,862,871 $ 4,858,457 $ 1,287,580 $ 607,356 $ 463,123 $ 11,298,845 Three Months Ended September 30, 2017 Beginning Balance $ 1,450,176 $ 1,122,473 $ 880,642 $ 4,749,341 $ 8,202,632 Provision for Loan Losses 80,766 110,023 (842 ) (89,947 ) 100,000 Charge-Offs (114,869 ) (82,087 ) — (62,482 ) (259,438 ) Recoveries 1,014 15,392 — 109,588 125,994 Ending Balance $ 1,417,087 $ 1,165,801 $ 879,800 $ 4,706,500 $ 8,169,188 Nine Months Ended September 30, 2017 Beginning Balance $ 1,360,346 $ 996,620 $ 882,999 $ 5,116,266 $ 8,356,231 Provision for Loan Losses 241,112 234,342 2,690 (378,144 ) 100,000 Charge-Offs (186,372 ) (123,942 ) (5,889 ) (198,482 ) (514,685 ) Recoveries 2,001 58,781 — 166,860 227,642 Ending Balance $ 1,417,087 $ 1,165,801 $ 879,800 $ 4,706,500 $ 8,169,188 Three Months Ended September 30, 2016 Residential
Real Estate
Consumer Commercial
Business Commercial
Real Estate
TotalBeginning Balance $ 1,462,636 $ 1,115,976 $ 865,867 $ 4,950,735 $ 8,395,214 Provision for Loan Losses 31,415 (155,298 ) 713,276 (589,393 ) — Charge-Offs (137,935 ) (35,312 ) (150,000 ) — (323,247 ) Recoveries 1,228 23,569 11,731 2,616 39,144 Ending Balance $ 1,357,344 $ 948,935 $ 1,440,874 $ 4,363,958 $ 8,111,111 Nine Months Ended September 30, 2016 Residential
Real Estate
Consumer Commercial
Business Commercial
Real Estate
TotalBeginning Balance $ 1,323,183 $ 1,063,153 $ 773,948 $ 5,114,849 $ 8,275,133 Provision for Loan Losses 160,823 (1,501 ) 805,195 (964,517 ) — Charge-Offs (137,935 ) (189,193 ) (150,000 ) (202,618 ) (679,746 ) Recoveries 11,273 76,476 11,731 416,244 515,724 Ending Balance $ 1,357,344 $ 948,935 $ 1,440,874 $ 4,363,958 $ 8,111,111 8. Loans Receivable, Net, ContinuedThe following tables presentrelatedand events, it was probable the Company would be unable to impairedcollect all amounts due in accordance with the original contractual terms of the loan agreements. Impaired loans evaluated individuallyinclude loans on nonaccrual status and collectively for impairment inaccruing troubled debt restructurings. When determining if the allowance for loan losses at the dates indicated: Allowance For Loan Losses September 30, 2017 Residential Real Estate $ — $ 1,417,087 $ 1,417,087 Consumer — 1,165,801 1,165,801 Commercial Business — 879,800 879,800 Commercial Real Estate — 4,706,500 4,706,500 Total $ — $ 8,169,188 $ 8,169,188 Allowance For Loan Losses December 31, 2016 Individually Evaluated For
Impairment Collectively Evaluated For
Impairment
TotalResidential Real Estate $ — $ 1,360,346 $ 1,360,346 Consumer 1,699 994,921 996,620 Commercial Business — 882,999 882,999 Commercial Real Estate 12,590 5,103,676 5,116,266 Total $ 14,289 $ 8,341,942 $ 8,356,231 The following tables present information relatedCompany would be unable to impaired loans evaluated individuallycollect all principal and collectively for impairment in loans receivable at the dates indicated: Loans Receivable September 30, 2017 Residential Real Estate $ 2,260,496 $ 76,845,579 $ 79,106,075 Consumer 224,894 56,639,340 56,864,234 Commercial Business 145,401 23,351,372 23,496,773 Commercial Real Estate 7,259,347 220,922,802 228,182,149 Total $ 9,890,138 $ 377,759,093 $ 387,649,231 Loans Receivable December 31, 2016 Individually Evaluated For
Impairment Collectively Evaluated For
Impairment
TotalResidential Real Estate $ 2,181,740 $ 75,798,169 $ 77,979,909 Consumer 170,552 50,497,342 50,667,894 Commercial Business 145,401 16,133,776 16,279,177 Commercial Real Estate 5,830,341 216,768,953 222,599,294 Total $ 8,328,034 $ 359,198,240 $ 367,526,274 SECURITY FEDERAL CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements8. Loans Receivable, Net, ContinuedLoans for which it is probable that payment of interest and principal will not be madepayments due in accordance with the contractual terms of the loan agreement, the Company considered the borrower’s capacity to pay, which included such factors as the borrower’s current financial statements, an analysis of global cash flow sufficient to pay all debt obligations and an evaluation of secondary sources of repayment, such as guarantor support and collateral value. Non-accrual commercial loans under $200,000 and non-accrual consumer loans under $100,000 were considered immaterial and are considered impaired. Onceexcluded from the impairment review. The tables below include all loans deemed impaired, whether individually assessed for impairment or not. If a loan is identified as individuallywas deemed impaired, management measures the impairment and recordsa specific valuation allowance was allocated, if necessary, so that the loan was reported net, at fair value. Fairthe present value isof estimated future cash flows using one of the following methods:loan’s existing rate or at the fair value of collateral if repayment was expected solely from the collateral less estimated costscollateral.sell, discounted cash flows, or market valueprincipal unless collectability of the principal amount was reasonably assured, in which case interest was recognized on a cash basis.based on similar debt. The fair value ofbalances evaluated individually and collectively for impairment within the collateral less estimated costs to sell is the most frequently used method. Typically, the Company reviews the most recent appraisalallowance for loan losses 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. The average balance of impaired loans was $10.3 million for the three months ended September 30, 2017 compared to $10.6 million for the three months ended September 30, 2016. $ — $ 2,323,397 $ 2,323,397 $ 114,630 $ 112,679,064 $ 112,793,694 — 2,124,835 2,124,835 1,089,308 108,967,665 110,056,973 — 4,804,282 4,804,282 4,281,702 247,872,773 252,154,475 — 874,092 874,092 31,446 30,616,529 30,647,975 — 598,807 598,807 48,792 31,687,884 31,736,676 — 452,340 452,340 — 23,598,110 23,598,110 $ — $ 11,177,753 $ 11,177,753 $ 5,565,878 $ 555,422,025 $ 560,987,903 September 30, 2017 and December 31, 20162022 and for the three and nine months ended September 30, 2017 and 2016.2022 under the Incurred Loss methodology. $ 114,630 $ 114,630 $ — 1,089,308 1,626,308 — 4,281,702 4,281,702 — 31,446 926,446 — 48,792 48,792 — — — — $ 5,565,878 $ 6,997,878 $ — $ 116,495 $ — 1,121,686 — 743,998 — 31,446 — 50,725 — — — $ 2,064,350 $ — $ 117,881 $ — 1,144,363 — 756,394 — 31,446 — 52,643 — — — $ 2,102,727 $ — September 30, 2017 December 31, 2016 Impaired Loans Recorded
InvestmentUnpaid
Principal
Balance
Related
AllowanceWith No Related Allowance Recorded: Residential Real Estate $ 2,260,496 $ 2,720,495 $ — $ 2,181,740 $ 2,263,240 $ — Consumer 224,894 252,704 — 110,114 118,414 — Commercial Business 145,401 995,401 — 145,401 995,401 — Commercial Real Estate 7,259,347 8,740,948 — 5,424,701 7,207,688 — With an Allowance Recorded: Consumer — — — 60,438 60,438 1,699 Commercial Real Estate — — — 405,640 418,654 12,590 Total Residential Real Estate 2,260,496 2,720,495 — 2,181,740 2,263,240 — Consumer 224,894 252,704 — 170,552 178,852 1,699 Commercial Business 145,401 995,401 — 145,401 995,401 — Commercial Real Estate 7,259,347 8,740,948 — 5,830,341 7,626,342 12,590 Total $ 9,890,138 $ 12,709,548 $ — $ 8,328,034 $ 11,063,835 $ 14,289 8. Loans Receivable, Net, Continued Three Months Ended September 30, 2017 2016 Impaired Loans Average
Recorded
InvestmentInterest
Income
Recognized Average
Recorded
InvestmentInterest
Income
RecognizedWith No Related Allowance Recorded: Residential Real Estate $ 2,613,299 $ 2,226 $ 3,319,559 $ — Consumer 240,005 — 128,751 — Commercial Business 145,401 — 296,401 — Commercial Real Estate 7,331,736 44,296 6,180,761 67,380 With an Allowance Recorded: Consumer — — 61,581 772 Commercial Real Estate — — 641,743 28,534 Total Residential Real Estate 2,613,299 2,226 3,319,559 — Consumer 240,005 — 190,332 772 Commercial Business 145,401 — 296,401 — Commercial Real Estate 7,331,736 44,296 6,822,504 95,914 Total $ 10,330,441 $ 46,522 $ 10,628,796 $ 96,686 Nine Months Ended September 30, 2017 2016 Impaired Loans Average
Recorded
InvestmentInterest
Income
RecognizedWith No Related Allowance Recorded: Residential Real Estate $ 2,939,263 $ 25,339 $ 3,469,066 $ 8,282 Consumer 294,002 — 294,714 — Commercial Business 145,401 — 301,881 — Commercial Real Estate 7,517,744 159,584 8,589,845 192,017 With an Allowance Recorded: Consumer — — 62,322 3,470 Commercial Real Estate — — 652,867 28,534 Total Residential Real Estate 2,939,263 25,339 3,469,066 8,282 Consumer 294,002 — 357,036 3,470 Commercial Business 145,401 — 301,881 — Commercial Real Estate 7,517,744 159,584 9,242,712 220,551 Total $ 10,896,410 $ 184,923 $ 13,370,695 $ 232,303 SECURITY FEDERAL CORPORATION AND SUBSIDIARIESNotesConsolidatedBorrowers Experiencing Financial Statements8. Loans Receivable, Net, ContinuedInDifficultycourseestimate of resolving delinquent loans, the Bank may chooseallowance for credit losses is historical loss information, which includes losses from modifications of receivables to restructure the contractual termsborrowers experiencing financial difficulty. An assessment of certain loans. A troubled debt restructuring ("TDR") is a restructuring in which the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession towhether a borrower that it would not otherwise consider (Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 310-40). The concessions grantedis experiencing financial difficulty is made on TDRs generally include terms to reduce the interest rate, extend the term of the debt obligation, or modify the payment structure on the debt obligation. The Bank grants such concessions to reassess the borrower’s financial status and develop a plan for repayment. TDRs included in impaired loans at September 30, 2017 and December 31, 2016 were $4.2 million and $4.6 million, respectively, and the Bank had no commitments at these dates to lend additional funds on these loans.Loans on nonaccrual status at the date of modification are initially classified as nonaccrual TDRs. Loansa modification.accruing status atcertain of its real estate loans. When principal forgiveness is provided, the dateamortized cost basis of concession are initially classified as accruing TDRs ifthe asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is reasonably assuredwritten off, resulting in a reduction of repaymentthe amortized cost basis and performance is expected in accordance with its modified terms. Such loans may be designated as nonaccrual loans subsequenta corresponding adjustment to the allowance for credit losses.date if reasonable doubt existssuch as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. As such multiple types of modifications may have been made on the collection of interest or principal undersame loan within the restructuring agreement. Nonaccrual TDRs are returned to accruing status when therecurrent reporting period each much be reported. The combination is economic substance to the restructuring, there is documented credit evaluationat least two of the borrower's financial condition,following: a term extension, principal forgiveness, and interest rate reduction.remaining balanceCompany's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is reasonably assuredwritten off. Therefore, the amortized cost basis of repayment in accordance with its modified terms,the loan is reduced by the uncollectible amount and the borrower has demonstrated sustained repayment performance in accordanceallowance for credit losses is adjusted by the same amount.thea combined balance of $354,000 at September 30, 2023, compared to two modified terms forloans with a reasonable periodcombined balance of time (generally a minimum of six months)$385,000 at December 31, 2022.BankCompany did not modify any loans that were considered to be TDRsborrowers experiencing financial difficulty during the nine months ended September 30, 2017 and 2016. At 2023 or 2022.2017, two2023 and 2022, there were no loans totaling $611,000 that had previously been restructured as TDRs were inmodified with borrowers experiencing financial difficulty for which there was a payment default neither of which had been restructured within the last 12 months. One of these loans, with a balance of $41,000, defaulted during the nine month period ended September 30, 2017. In comparison, at September 30, 2016, six loans totaling $765,000 that had previously been restructured as TDRs were in default, and three months of the loans, with a balance of $637,000 defaulted during the nine month period ended September 30, 2016.restructuring date. The BankCompany considers any loan 30 days or more past due to be in default. $ 1,108,614 (50,000 ) $ 1,058,614 Nine Months Ended September 30, 2023 $ — 1,213,614 (155,000 ) $ 1,058,614 Our policy $ 468,068,521 $ 510,983,509 393,462,981 348,833,623 92,286,585 108,237,098 232,234,937 142,031,066 $ 1,186,053,024 $ 1,110,085,296 $ 195,098,267 $ 97,163,169 30,066,067 31,550,543 3,514,998 6,465,582 3,450,257 3,177,916 105,348 3,673,856 $ 232,234,937 $ 142,031,066 accrual of interest on loans restructured as a TDR follows relevant supervisory guidance. That is, if a borrower has demonstrated performance under the previous loan terms10-Year Notes, and shows capacity to perform under the restructured loan terms, continued accrual of interest at the restructured interest rate is probable. If a borrower was materially delinquent on payments prior to the restructuring but shows capacity to meet the restructured loan terms, the loan will likely continue as nonaccrual going forward. Lastly, if the borrower does not perform under the restructured terms, the loan is placed on nonaccrual status.We closely monitor these loans and will cease accruing interest on them if management believes that the borrowers may not continue performing based on the restructured note terms. If, after previously being classified as a TDR, a loan is restructured a second time, then that loan is automatically placed on nonaccrual status. Our policy November 22, 2029, with respect to nonperforming loans requires the borrower15-Year Notes. The Company may redeem the 10-Year Notes and the 15-Year Notes at its option, in whole at any time, or in part from time to make a minimumtime, after November 22, 2024 and November 22, 2029, respectively. The Notes are unsecured, subordinated obligations of six consecutive paymentsthe Company and rank junior in accordanceright to payment to the Company’s current and future senior indebtedness, and each Note is equal in right to payment with respect to the modified loan terms before that loan can be placed back on accrual status. In additionother Notes.this payment history,qualify as Tier 2 capital for the borrower must demonstrateCompany 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.abilityaggregate remaining principal balance of $16.5 million and $10.0 million, respectively.continue making payments on the loan prior to restoration of accrual status.Consolidated Financial Statements9. Regulatory Matters$1.0$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. If Security Federal Corporation was subject to regulatory guidelines for bank holding companies with $1.0 billion or more in assets, at September 30, 2017, it would have exceeded all regulatory capital requirements.SECURITY FEDERAL CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements9. Regulatory Matters, Continued2017,2023, the Bank exceeded all regulatory capital requirements as of that date. Consistent with the Bank's goals to operate a sound and profitable organization, it is the Bank's policy to maintain a "well-capitalized" status under the regulatory capital categories of the FDIC. Based on capital levels at September 30, 2017,2023, the Bank was considered to be "well-capitalized" under applicable regulatory requirements. Management monitors the capital levels to provide for current and future business opportunities and to maintain the Bank's "well-capitalized" status.following tables below provide the Company’s and the Bank’s regulatory capital requirements and actual results at the dates indicated below: Actual For Capital Adequacy To Be "Well-Capitalized" (Dollars in Thousands) Amount Ratio Amount Ratio Amount Ratio SECURITY FEDERAL CORP. September 30, 2017 Tier 1 Risk-Based Core Capital
(To Risk Weighted Assets)$ 77,970 15.5% $ 30,227 6.0% N/A N/A Total Risk-Based Capital
(To Risk Weighted Assets)84,289 16.7% 40,303 8.0% N/A N/A Common Equity Tier 1 Capital (To Risk Weighted Assets) 72,970 14.5% 22,670 4.5% N/A N/A Tier 1 Leverage (Core) Capital
(To Adjusted Tangible Assets)77,970 9.1% 34,398 4.0% N/A N/A SECURITY FEDERAL BANK $ 88,802 17.6% $ 30,218 6.0% $ 40,290 8.0% 95,121 18.9% 40,290 8.0% 50,363 10.0% Common Equity Tier 1 Capital (To Risk Weighted Assets) 88,802 17.6% 22,663 4.5% 32,736 6.5% 88,802 10.3% 34,393 4.0% 42,992 5.0% SECURITY FEDERAL CORP. December 31, 2016 Tier 1 Risk-Based Core Capital
(To Risk Weighted Assets)$ 73,787 16.6% $ 26,714 6.0%
N/A
N/ATotal Risk-Based Capital
(To Risk Weighted Assets)79,383 17.8% 35,618 8.0%
N/A
N/ACommon Equity Tier 1 Capital (To Risk Weighted Assets) 68,787 15.4% 20,035 4.5%
N/A
N/ATier 1 Leverage (Core) Capital
(To Adjusted Tangible Assets)73,787 9.1% 32,548 4.0%
N/A
N/ASECURITY FEDERAL BANK Tier 1 Risk-Based Core Capital
(To Risk Weighted Assets)$ 88,139 19.8% $ 26,694 6.0% $ 35,592 8.0% Total Risk-Based Capital
(To Risk Weighted Assets)93,735 21.1% 35,592 8.0% 44,490 10.0% Common Equity Tier 1 Capital (To Risk Weighted Assets) 88,139 19.8% 20,021 4.5% 28,919 6.5% Tier 1 Leverage (Core) Capital
(To Adjusted Tangible Assets)88,139 10.8% 32,587 4.0% 40,734 5.0% SECURITY FEDERAL CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements9. Regulatory Matters, Continued $ 146,670 18.1 % $ 48,674 6.0 % $ 64,899 8.0 % 156,851 19.3 % 64,899 8.0 % 81,124 10.0 % 146,670 18.1 % 36,506 4.5 % 52,730 6.5 % 146,670 10.1 % 58,007 4.0 % 72,509 5.0 % $ 141,452 17.8 % $ 47,714 6.0 % $ 63,619 8.0 % 151,408 19.0 % 63,619 8.0 % 79,523 10.0 % 141,452 17.8 % 35,785 4.5 % 51,690 6.5 % 141,452 10.4 % 54,372 4.0 % 67,965 5.0 % common equity Tier 1 ("CET1"), Tier 1 and total capital ratios,requirements, the Bank now has tomust maintain a capital conservation buffer, consistingwhich consists of additional CET1Common Equity Tier 1 capital greater than 2.5% of risk weighted assets above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases,repurchasing shares, and paying discretionary bonuses based on percentages of retained income that could be utilized for such actions. The new capitalbonuses. At September 30, 2023, the Bank’s conservation buffer requirement beganwas 11.3%.be phased in beginning in January 2016 at 0.625% of risk-weighted assets and increases each year until fully implementedConsolidated Financial Statementsan amount equal to 2.5% of risk weighted assets in January 2019. At September 30, 2017 the Bank’s CET1 capital exceeded the required capital conservation buffer of 1.25%.10. Carrying Amounts and Fair Value of Financial InstrumentsThe Company has adopted accounting guidance which definesdisclose fair value establishes a framework for measuringof financial instruments measured at amortized cost on the balance sheet and to measure that fair value and expands disclosures about fair valueusing 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 generally accepted accounting principles. This guidance applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.Level 1 -has the ability tocan 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.Available for SaleInvestment securities available for saleAFS2017,2023, the Company’s investment portfolio was comprised of student loan pools, government and agency bonds, mortgage-backed securitiesMBS issued by government agencies or GSEs, private label CMO mortgage-backed securities and municipal securities, one state tax credit, and one equity investment.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.SECURITY FEDERAL CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements10. Carrying Amounts and Fair Value of Financial Instruments, Continued of 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.Impaireda loan is considered impairedthe Company designates individually evaluated loans with higher risk as collateral dependent loans and an allowance for loancredit losses is established as necessary. LoansCollateral dependent loans are loans for which itthe repayment is probable that payment of interest and principal will notexpected to be made in accordance withprovided substantially through the contractual termsoperation 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 CECL, 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 agreement are considered impaired. Once a loanbasis based on the shortfall between the fair value of the loan's collateral, which is identified as impaired, management measures the impairment by determiningadjusted for estimated costs to sell, and amortized cost. If the fair value of the collateral forexceeds the loan.amortized cost, no allowance is required.impaired.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.impairedcollateral 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, 2017, our impaired2023, all collateral dependent loans were generally evaluated based on the fair value of the collateral. Impaired loansLoans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. The Company records impairedcollateral dependent loans as nonrecurring Level 3. At September 30, 2017 and December 31, 2016,recorded investment in impaired loans was $9.9 million and $8.3 million, respectively.Foreclosed AssetsForeclosed assets are adjusted tolower of the carrying amount of the loan or the fair value upon transfer of the loanscollateral less selling costs. Any write-downs based on the asset’s fair value at the date of acquisition are charged to foreclosed assets. Subsequently, foreclosed assets arethe allowance for credit losses. After foreclosure, management periodically performs valuations such that the real estate is carried at the lower of carrying valueits new cost basis or fair value. Fair value, is based upon independent market prices, appraised valuesnet of the collateral or management’s estimation of the value of the collateral.estimated costs to sell. Foreclosed assets are recorded as nonrecurring Level 3.SECURITY FEDERAL CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements10. Carrying Amounts and Fair Value of Financial Instruments, ContinuedSeptember 30, 2017 and December 31, 2016: September 30, 2017 December 31, 2016 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 FHLB Securities $ — $ — $ — $ — $ 998,000 $ — FHLMC Bond — 965,646 — — $ — — SBA Bonds — 124,803,549 — — 101,906,059 — Tax Exempt Municipal Bonds — 80,815,027 — — 71,535,149 — Taxable Municipal Bonds — 2,012,590 — — 1,991,130 — Mortgage-Backed Securities — 179,834,621 — — 185,261,091 — State Tax Credit — 56,800 — — — — Equity Securities — 155,000 — — 368,000 — Total $ — $ 388,643,233 $ — $ — $ 362,059,429 $ — $ — $ 52,494,121 $ — $ — $ 59,156,982 $ — — 77,926,496 — — 99,629,967 — — 19,472,098 — — 21,310,328 — — 49,411,310 — — 50,769,739 — — 332,117,548 — — 319,281,268 — $ — $ 531,421,573 $ — $ — $ 550,148,284 $ — 20172023 or December 31, 2016.2022.September 30, 2017 and December 31, 2016,the dates indicated, aggregated by the level in the fair value hierarchy within which those measurements fall. September 30, 2017 Assets: Level 1 Level 2 Level 3 Total Mortgage Loans Held For Sale $ — $ 1,270,410 $ — $ 1,270,410 — — 9,890,138 9,890,138 Foreclosed Assets — — 1,907,637 1,907,637 Total $ — $ 1,270,410 $ 11,797,775 $ 13,068,185 December 31, 2016 Assets: Level 1 Level 2 Level 3 Total Mortgage Loans Held For Sale $ — $ 4,243,907 $ — $ 4,243,907 — — 8,313,745 8,313,745 Foreclosed Assets — — 2,721,214 2,721,214 Total $ — $ 4,243,907 $ 11,034,959 $ 15,278,866 (1) IMPAIRED LOANS ARE REPORTED NET OF SPECIFIC RESERVES OF $14,289 AT DECEMBER 31, 2016. THERE WERE NO SPECIFIC RESERVES AT SEPTEMBER 30, 2017. $ — $ 1,053,486 $ — $ 1,053,486 — — 5,492,222 5,492,222 — — 938,214 938,214 $ — $ 1,053,486 $ 6,430,436 $ 7,483,922 $ — $ 913,258 $ — $ 913,258 — — 5,565,878 5,565,878 — — 119,700 119,700 — — 1,096,614 1,096,614 $ — $ 913,258 $ 6,782,192 $ 7,695,450 20172023 or December 31, 2016. and liabilities measured at fair value on a recurring or non-recurring basis at September 30, 2017,the dates indicated, the significant unobservable inputs used in the fair value measurements were as follows: Land Held for Sale Appraised Value/Comparable Sales Discounts to appraised values for estimated holding or selling costs 10% 10% OREO Appraised Value/Comparable Sales Discounts to appraised values for estimated holding or selling costs - 30% Valuation Significant Level 3 Assets Fair Value Technique Unobservable Inputs Range Collateral Dependent Impaired Loans $ 9,890,138 Appraised Value Discount Rates/ Discounts to Appraised Values 0% - 72% Foreclosed Assets $ 1,907,637 Appraised Value/Comparable Sales Discount Rates/ Discounts to Appraised Values 10. Carrying Amounts and Fair Value of Financial Instruments, Continuedthat are not presented on the balance sheet at fair value, the following methods are used to determine the fair value:Equivalents—Equivalents—The carrying amount of these financial instruments approximates fair value. All mature within 90 days and do not present unanticipated credit concerns.Banks—Banks—Fair value is based on market prices for similar assets.Investment Securities Held to Maturity—Securities held to maturityNet—Net—The fair value of loans areis estimated by discountingusing 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 currentfollowing 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 at which similar loans would be made to borrowers with similarthat better capture inherent credit ratings andrisk over the lifetime of a loan. This consideration of enhanced credit risk provides an estimated exit price for the same remaining maturities. As discount rates are based on currentCompany’s loan rates as well as management estimates, theportfolio. For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values presented may not be indicative of the value negotiated in an actual sale.Stock—Stock—The fair value approximates the carrying value. No ready market exists for this stock, and it has no quoted market value; however, redemption of this stock has historically been at par value. Accordingly, par value is deemed to be a reasonable estimate of fair value.Deposits—Advances—Advances and Borrowings from the FRB—Fair value is estimated based onusing discounted cash flows usingwith current market rates for advancesborrowings with similar terms.Money—Money—The carrying value of these short term borrowings approximates fair value.Note Payable—The carrying value of the note payable approximates fair value.Senior Convertible Debentures— Debentures—Debentures—The carrying value of junior subordinated debentures approximates fair value.SECURITY FEDERAL CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements10. Carrying Amounts and Fair Value of Financial Instruments, ContinuedSeptember 30, 2017 and December 31, 2016the dates indicated presented in accordance with the applicable accounting guidance. $ 84,224 $ 84,224 $ — $ — 1,100 — 1,100 — 531,422 — 531,422 — 174,136 — 166,639 — 596,976 — — 574,770 922 922 — — 938 — — 938 $ 953,818 $ 953,818 $ — $ — 232,235 — 229,658 — 69,200 68,729 — — 19,043 19,043 — — 26,500 — 22,791 — 5,155 — 5,155 — September 30, 2017 Carrying Fair Value (In Thousands) Amount Total Level 1 Level 2 Level 3 Financial Assets: Cash and Cash Equivalents $ 15,159 $ 15,159 $ 15,159 $ — $ — Certificates of Deposits with Other Banks 1,350 1,350 — 1,350 — Investment and Mortgage-Backed Securities 413,981 414,212 — 414,212 — Loans Receivable, Net 375,711 374,295 — — 374,295 FHLB Stock 2,474 2,474 2,474 — — Financial Liabilities: Deposits: Checking, Savings & Money Market Accounts $ 463,741 $ 463,741 $ 463,741 $ — $ — Certificate Accounts 237,873 236,225 — 236,225 — Advances from FHLB 41,000 40,775 — 40,775 — Other Borrowed Money 12,356 12,356 12,356 — — Note Payable 9,700 9,700 — 9,700 — Senior Convertible Debentures 6,064 6,064 — 6,064 — Junior Subordinated Debentures 5,155 5,155 — 5,155 — December 31, 2016 Carrying Fair Value (In Thousands) Amount Total Level 1 Level 2 Level 3 Financial Assets: Cash and Cash Equivalents $ 9,375 $ 9,375 $ 9,375 $ — $ — Certificates of Deposits with Other Banks 2,445 2,445 — 2,445 — Investment and Mortgage-Backed Securities 387,643 387,430 — 387,430 — Loans Receivable, Net 359,723 357,457 — — 357,457 FHLB Stock 2,777 2,777 2,777 — — Financial Liabilities: Deposits: Checking, Savings & Money Market Accounts $ 438,559 $ 438,559 $ 438,559 $ — $ — Certificate Accounts 215,545 214,149 — 214,149 — Advances from FHLB 48,395 48,153 — 48,153 — Other Borrowed Money 9,338 9,338 9,338 — — Note Payable 13,000 13,000 — 13,000 — Senior Convertible Debentures 5,155 5,155 — 5,155 — Junior Subordinated Debentures 6,084 6,084 — 6,084 — $ 28,502 $ 28,502 $ — $ — 1,100 — 1,100 — 550,148 — 550,148 — 167,438 — 161,464 — 549,004 — — 528,174 651 651 — — 1,097 — — 1,097 $ 968,054 $ 968,054 $ — $ — 142,031 — 138,382 — 44,080 44,071 — — 27,588 27,588 — — 26,500 — 24,435 — 5,155 — 5,155 — 2017,2023, the BankCompany had $104.4$173.1 million of off-balancein off-balance sheet financial commitments. These commitments are to originate loans and unused consumer lines of credit and credit card lines. Because these obligations are based on current market rates, if funded, the original principal amount is considered to be a reasonable estimate of fair value.Bank’sCompany’s entire holdings of a particular financial instrument.SECURITY FEDERAL CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements10. Carrying Amounts and Fair Value of Financial Instruments, ContinuedBank’sCompany’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 BankCompany 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.11. Accounting and Reporting ChangesThe following is a summary of recent authoritative pronouncements that could affect accounting, reporting, and disclosure of financial information by the Company:May accordance with ASU 2014 the FASB issued guidance to change the recognition of-09, Revenue from Contracts with Customers topic(Topic 606), revenues are recognized when control of the ASC. The core principle of the new guidancepromised goods or services is that an entity should recognize revenue to reflect the transfer of goods and servicestransferred to customers in an amount equal tothat reflects the consideration the entity receives orCompany expects to receive. This guidance also includes expanded disclosure requirementsbe entitled to in exchange for those goods or services. To determine revenue recognition for arrangements that result in an entity providing users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. The guidance will be effective for the Company for reporting periods beginning after December 15, 2017. The Company will apply the guidance using a modified retrospective approach. As a bank holding company, key revenue sources, such as interest income have been identified as out ofdetermines are within the scope of this new guidance. 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.Company’s preliminary analysis suggestsCompany only applies the five-step model to contracts when it is probable that the adoption of this accounting standardentity will collect the consideration it is not expectedentitled to have a material impact onin exchange for the Company’s consolidated financial statements. New accounting guidance relatedgoods or services it transfers to the adoption of this standard continuescustomer. At contract inception, once the contract is determined to be releasedwithin 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.FASB, which could impactCompany is used. The Company earns interchange fees from debit cardholder transactions through the Company’s preliminary analysisMastercard payment network. Interchange fees from cardholder transactions represent a percentage of materialitythe underlying transaction value and may changeare recognized daily, concurrently with the preliminary conclusions reached astransaction processing services provided to the application of this new guidance.In January 2016,cardholder. The performance obligation is satisfied and the FASB amendedfees are earned when the Financial Instruments topiccost of the ASC to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company will apply the guidance by means of a cumulative-effect adjustmenttransaction is charged to the balance sheet as ofcard. Certain expenses directly associated with the beginning ofdebit card are recorded on a net basis with the fiscal year of adoption. The amendments relatedfee income.equity securities without readily determinable fair values will be applied prospectively to equity investments that exist as of the date of adoption of the amendments.customer. The Company does not expect these amendments to charge performance based fees for its trust services and does not currently have a material effectany institutional clients, hedge funds or mutual funds. Although trust income is included within the scope of ASC 606, based on its consolidated financial statements. Management isthe fees charged by the Company, there were no changes in the planning stagesaccounting for trust income. developing processesOREO are included in non-interest expense and proceduresare generally recognized when the performance obligation is complete. This is typically the delivery of control over the property to comply with the disclosures requirements of this ASU, which could impactbuyer at the disclosures the Company makes related to fair value of its financial instruments.In February 2016, the FASB amended the Leases topic of the ASC to revise certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions. The amendments will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The effect of the adoption will depend on leases at time of adoption. Once adopted, we expect to report higher assets and liabilities as a resulteach real estate closing.In March 2016, the FASB amended the Revenue from Contracts with Customers topic of the ASC to clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties. The effective date and impact on the Company's consolidated financial statements for this update are the same as those described in the Revenue from Contracts with Customers topic issued in May 2014 and August 2015 discussed above.11. Accounting and Reporting Changes, ContinuedIn March 2016,FASB issued guidance to simplify several aspectsCompany's non-interest income for the periods indicated. All the Company’s revenue from contracts with customers within the scope of the accountingASC 606 is recognized in non-interest income, except for share-based payment award transactions including the income tax consequences, the classification of awards as either equity or liabilities, and the classificationgains on the statementsale of cash flows. Additionally,OREO, which are included in non-interest expense when applicable. $ 135,488 $ 287,081 $ 530,428 $ 1,511,905 318,966 279,909 889,843 809,287 200,278 235,506 548,645 620,779 458,070 363,830 1,297,376 1,084,249 162,737 150,999 469,175 457,202 736,200 687,773 2,288,036 2,109,173 — — — 170,699 156,190 219,289 596,032 702,135 $ 2,167,929 $ 2,224,387 $ 6,619,535 $ 7,465,429 guidance simplifies two areas specific to entities other than public business entities allowing them apply a practical expedient to estimate the expected term for all awards with performance or service conditions that have certain characteristics and also allowing them to make a one-time election to switch from measuring all liability-classified awards at fair value to measuring them at intrinsic value. The amendments were effective fornine months ended September 30, 2023, the Company for annual periods beginning after December 15, 2016 and interim periods within those annual periods. These amendments did not have a material effect on the Company's consolidated financial statements.In April 2016, the FASB amended the Revenue from Contracts with Customers topic of the ASC to clarify guidance related to identifying performance obligations and accounting for licenses of intellectual property. The effective date and impact on the Company's consolidated financial statements for this guidance are the same as those describedmade cash payments in the Revenue from Contracts with Customers topic issuedamount of $394,000 for operating leases. The lease expense recognized during this period was $394,000 and was recorded in May 2014occupancy expense within the Consolidated Statements of Income. The lease liability had a net decrease of $345,000. At September 30, 2023, the Company had ROU assets of $1.5 million and August 2015 discussed above.In May 2016, the FASB amended the Revenue from Contracts with Customers topica lease liability of the ASC to clarify guidance related to collectability, noncash consideration, presentation of sales tax, and transition. The effective date and impact on the Company's consolidated financial statements for this guidance are the same as those described in the Revenue from Contracts with Customers topic issued in May 2014 and August 2015 discussed above.In June 2016, the FASB issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. The guidance significantly changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted for all entities beginning after December 15, 2018, including interim periods within those fiscal years. The Company is in the process of identifying required changes to the loan loss estimation models and processes and evaluating the impact of this new guidance. Once adopted, we expect our allowance for loan losses to increase, however, until our evaluation is complete the magnitude of the increase will be unknown.In August 2016, the FASB amended the Statement of Cash Flows topic of the ASC to clarify how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect$1.6 million recorded on its consolidated balance sheet compared to ROU assets of $1.9 million and a lease liability of $1.9 million at December 31, 2022. The lease agreements have maturity dates ranging from 2023 through 2028, some of which include options for multiple five or ten year extensions. At September 30, 2023, the remaining weighted average lease term was 3.39 years and the weighted average discount rate used was 3.2%. $ 130,136 522,099 474,766 363,550 147,599 10,371 1,648,521 (88,963 ) $ 1,559,558 statements.In January 2017,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 FASB amendedeconomic effect of the Codification for SEC staff announcements made at recent Emerging Issues Task Force (EITF) meetings. The SEC guidance that specifically relatesCOVID-19 pandemic by providing direct and indirect capital investments in low- and moderate-income community financial institutions.Company’s consolidated financial statements was fromAgreement, the September 2016 meeting, whereCompany agreed to issue and sell 82,949 shares of Preferred Stock for an aggregate purchase price of $82.9 million in cash. This ECIP investment is treated as tier 1 capital. The Preferred Stock bears no dividend for the SEC staff expressed their expectations aboutfirst24 months following the extent of disclosures registrants should make aboutinvestment date. Thereafter, the effectsdividend rate will be adjusted, not higher than 2%, based on the lending growth criteria listed in the Agreement. After the tenth anniversary of the new FASB guidance as well as any amendments issued priorinvestment date, the dividend rate will be fixed based on the average annual amount of lending in years 2 through 10. Dividends will be payable quarterly in arrears on March 15, June 15, September 15, and December 15.adoption, in particular on revenue, leasesthe approval of the appropriate federal banking regulator and credit losses on financial instruments in accordance with Staff Accounting Bulletin Topic 11.M. Entities are required to disclose the effect that recently issued accounting standards will have on their financial statements when adopted in a future period. In cases where a company cannot reasonably estimate the impact of the adoption, then additional qualitative disclosures should be considered.federal banking agencies’ regulatory capital regulations. The Company has adopted the amendments in this guidance and appropriate disclosures have been included in this Note for each recently issued accounting standard.In March 2017, the FASB issued guidance on Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The guidance shortens the amortization period for certain callable debt securities held at a premium. The amendments will be effective for the Company for reporting periods beginning after December 15, 2018. The Company does not expect these amendments to have a material effect on its consolidated financial statements.In May 2017, the FASB amended the requirements in the Compensation-Stock Compensation topic of the ASC related to changes to the terms or conditions of a share-based payment award. The amendments provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. Early adoptionPreferred Stock is permitted. The Company does not expect these amendments to have a material effect on its consolidated financial statements.SECURITY FEDERAL CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements11. Accounting and Reporting Changes, ContinuedIn August 2017, the FASB amended the hedge accounting recognition and presentation requirements in ASC 815 to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. The amendments permit hedge accounting for hedging relationships involving nonfinancial risk and interest rate risk by removing certain limitations in cash flow and fair value hedging relationships. In addition, the amendments require an entity to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. The amendments are effective for reporting periods beginning after December 15, 2018 and early adoption is permitted. The Company does not expect these amendments to have a material effect on its consolidated financial statements.Other accounting standards that have been issued or proposed by the FASB or other standards-setting authorities are not expected to have a material impactreported on the Company’s consolidated financial position, results of operations or cash flows.Consolidated Balance Sheets as Senior Non-Cumulative Perpetual Preferred Stock, Series ECIP.12. Subsequent EventsNonrecognizedNon-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.that requiredrequiring accrual or disclosure.“Safe Harbor”“Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995• • 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; the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be affected by deterioration in the housing and commercial real estate markets which may lead to increased losses and non-performing assets in our loan portfolio, and may result in our allowance for loan losses not being adequate to cover actual losses, and require us to materially increase our allowance for loan losses;changes in general economic conditions, either nationally or in our market areas;changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources;fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas;secondary market conditions for loans and our ability to sell loans in the secondary market;results of examinations of the Company by the Federal Reserve and our bank subsidiary by the FDIC and the South Carolina State Board of Financial Institutions, or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our reserve for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, or impose additional requirements or restrictions on us, any of which could adversely affect our liquidity and earnings;legislative or regulatory changes that adversely affect our business, including the effect of the Dodd-Frank Wall Street Reform and Consumer Protection Act; changes in regulatory policies and principles, or the interpretation of regulatory capital requirements or other rules, including as a result of Basel III;our ability to attract and retain deposits;increases in premiums for deposit insurance;our ability to control operating costs and expenses;our ability to implement our business strategies;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;computer systems on which we depend could fail or experience a security breach;our ability to retain key members of our senior management team;costs and effects of litigation, including settlements and judgments;our ability to manage loan delinquency rates;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 stock;adverse changes in the securities markets;inability of key third-party providers to perform their obligations to us;changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the FASB, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; andother economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and the other risks described elsewhere in this document.Some of these and other factors are discussed in the Company's 2016 Form 10-K under Item 1A, “Risk Factors.” Such developments could have an adverse impact on our consolidated financial position and results of operations.risksfactors could cause our actual results for 20172023 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, 2017 and December 31, 2016AssetsTotal assets increased $48.5 million or 6.0% to $861.1 million at September 30, 2017 from $812.7 million at December 31, 2016. Changes in total assets were primarily concentrated in the following asset categories: Increase (Decrease) September 30, 2017 December 31, 2016 Amount Percent Cash and Cash Equivalents $ 15,158,779 $ 9,374,549 $ 5,784,230 61.7% Certificates of Deposits with Other Banks 1,350,005 2,445,005 (1,095,000 ) (44.8) Investment and Mortgage-Backed Securities – AFS 388,643,233 362,059,429 26,583,804 7.3 Investment and Mortgage-Backed Securities – HTM 25,337,966 25,583,956 (245,990 ) (1.0) Loans Receivable, Net 375,711,468 359,722,846 15,988,622 4.4 OREO 1,907,637 2,721,214 (813,577 ) (29.9) Premises and Equipment, Net 22,865,424 21,197,684 1,667,740 7.9 FHLB Stock 2,473,700 2,776,500 (302,800 ) (10.9) BOLI 18,665,893 17,101,045 1,564,848 9.2 Other Assets 4,593,887 5,447,746 (853,859 ) (15.7) Cash and cash equivalents increased $5.8 million or 61.7% to $15.2 million at September 30, 2017 from $9.4 million at December 31, 2016. Certificates of deposits with other banks decreased $1.1 million or 44.8% to $1.4 million at September 30, 2017. The decrease was due to the maturity and redemption of six of the Bank's lower yield time deposits with other banks during the first nine months of 2017.Investment and mortgage-backed securities available for sale increased $26.6 million or 7.3% to $388.6 million at September 30, 2017 from $362.1 million at December 31, 2016. Investment and mortgage-backed securities held to maturity decreased $246,000 or 1.0% to $25.3 million at September 30, 2017 from $25.6 million at December 31, 2016. The Bank purchased 64 investment and mortgage-backed securities classified as available for sale for $118.6 million and three investment securities classified as held to maturity for $4.0 million during the first nine months of 2017.Loans $ 84,223,575 $ 28,502,364 $ 55,721,211 195.5 % 1,100,045 1,100,045 — — 531,421,573 550,148,284 (18,726,711 ) (3.4 ) 174,136,215 167,437,616 6,698,599 4.0 598,029,202 549,917,170 48,112,032 8.7 5,397,705 4,810,674 587,031 12.2 - 119,700 (119,700 ) (100.0 ) 1,518,473 1,860,997 (342,524 ) (18.4 ) 938,214 1,096,614 (158,400 ) (14.4 ) 28,703,449 27,959,793 743,656 2.7 921,900 650,600 271,300 41.7 27,787,273 27,318,098 469,175 1.7 1,199,754 1,199,754 — — 21,952,627 19,244,454 2,708,173 14.1 $ 1,477,330,005 $ 1,381,366,163 $ 95,963,842 6.9 % $16.0$55.7 million or 4.4%195.5% to $375.7$84.2 million at September 30, 2017 from $359.72023 compared to $28.5 million at December 31, 20162022, as a result of increased deposits and borrowings during the nine months ended September 30, 2023.increased loan originations in all loan categories with the exception of loans held for sale, which decreased $3.0 million or 70.1% to $1.3 million at September 30, 2017 from $4.2 million at December 31, 2016. Consumer loans increased $6.2 million or 12.2% to $56.9 million at September 30, 2017 compared to $50.7 million at December 31, 2016. Commercial business loans increased $7.2 million or 44.3% to $23.5 million at September 30, 2017 from $16.3 million at December 31, 2016. Commercial real estate loans increased $5.6 million or 2.5% to $228.2 million at September 30, 2017 from $222.6 million at December 31, 2016. Residential real estate loans increased $1.1 million or 1.4% to $79.1 million at September 30, 2017 from $78.0 million at December 31, 2016.OREO decreased $814,000 or 29.9% to $1.9 million at September 30, 2017 from $2.7 million at December 31, 2016. The decrease was due to the sale of 11 OREO propertiespurchases exceeding paydowns and maturities during the nine months ended September 30, 2017, with a total book value of $1.22023. Investments AFS decreased $18.7 million offset slightly by the addition of five OREO properties with a book value of $486,000. Ator 3.4% to $531.4 million at September 30, 2017, OREO consisted2023 from $550.1 million at December 31, 2022 as maturities and principal paydowns of investments AFS exceeded purchases during the followingnine months ended September 30, 2023. Investments AFS experienced a $4.7 million decrease in fair value during the nine months ended September 30, 2023.properties: five single-family residences and 27 lots within residential subdivisions located throughout our market areas in South Carolina and Georgia; five parcelsloans increased $4.0 million or 1.6% to $256.2 million at September 30, 2023 from $252.2 million at December 31, 2022. Residential mortgage loans increased $49.9 million or 45.4% to $160.0 million at September 30, 2023 from $110.1 million at December 31, 2022. Consumer home equity lines of commercial land in South Carolina; and two commercial buildings in South Carolina.$1.7$744,000 or 2.7% to $28.7 million at September 30, 2023 from $28.0 million at December 31, 2022 as a result of our newest branch which opened this year as well as improvements to existing branches. 7.9%14.1% to $22.9$22.0 million at September 30, 20172023 from $21.2$19.2 million at December 31, 2016. The increase was primarily due to additions related to the construction2022.FHLB stock decreased $303,000 or 10.9% to $2.5 million at September 30, 2017 compared to $2.8 million at December 31, 2016 as a result of stock redemptions by the FHLB of Atlanta. The Bank, as a member of the FHLB of Atlanta, is required to acquire and hold shares of capital stock in the FHLB of Atlanta in an amount equal to a membership component, which is 0.09% of total assets, plus a transaction component, which is 4.25% of outstanding advances (borrowings) from the FHLB of Atlanta. As the Bank's total advances have decreased, so has its required investment in FHLB stock.The cash value of BOLI increased $1.6 million or 9.2% to $18.7 million at September 30, 2017 compared to $17.1 million at December 31, 2016 primarily due to the purchase of 15 additional policies for a total of $2.0 million during the first nine months of 2017. BOLI, which earns tax-free yields, is utilized to partially offset the cost of the Company’s employee benefits programs and to provide key person insurance on certain officers of the Company.Other assets decreased $854,000 or 15.7% to $4.6 million at September 30, 2017 from $5.4 million at December 31, 2016. The decrease was primarily the result of a $1.6 million decrease in net deferred taxes, which was related to increased unrealized gains in the investment portfolio. The decrease in net deferred taxes was offset partially by increases of $444,000 and $320,000 in principal payments receivable on investment securities and prepaid assets, respectively, during, the same period.$47.5$76.0 million or 7.3%6.8% to $701.6 million$1.19 billion at September 30, 2017 compared to $654.1 million at 2023 from December 31, 2016. Checking2022 primarily due to increases in higher cost certificates of deposit and certificate deposits accounted for the majority of the growth, increasing $25.2money market accounts, partially offset by decreases in checking and savings accounts. The Bank had $6.5 million and $22.3 million, respectively, during 2017. The balances, weighted average rates and increases and decreases in deposit accounts were as follows at September 30, 2017 and December 31, 2016: September 30, 2017 December 31, 2016 Balance Increase (Decrease) Balance Weighted Rate Balance Weighted Rate Amount Demand Accounts: Checking $ 193,586,490 0.03% $ 171,133,555 0.02% $ 22,452,935 13.1% Money Market 227,880,092 0.23 230,902,038 0.20 (3,021,946 ) (1.3) Statement Savings Accounts 42,273,930 0.11 36,522,989 0.10 5,750,941 15.7 Total $ 463,740,512 0.14% $ 438,558,582 0.12% $ 25,181,930 5.7% Certificate Accounts 0.00 – 0.99% $ 137,325,410 $ 148,370,515 $ (11,045,105 ) (7.4)% 1.00 – 1.99% 99,395,482 66,532,221 32,863,261 49.4 2.00 – 2.99% 1,151,956 641,960 509,996 79.4 Total $ 237,872,848 0.88% $ 215,544,696 0.78% $ 22,328,152 10.4% Total Deposits $ 701,613,360 0.39% $ 654,103,278 0.34% $ 47,510,082 7.3% Included in the certificate accounts above were $31.5 million and $40.3$6.0 million in brokered time deposits at September 30, 20172023 and December 31, 2016, respectively, with a weighted average2022, respectively. Most of the Bank’s deposits are originated within the Bank’s immediate market area; however, the Bank uses brokered time deposits to manage interest rate risk because they are accessible in bulk at rates typically only slightly higher than those in our market areas. A portion of 1.21%these brokered time deposits give the Bank a call option that allows the Bank the choice to redeem them early should rates change. In addition, the Bank had $5.0 million in other brokered deposits at both September 30, 2023 and 1.14%December 31, 2022. At both September 30, 2023 and December 31, 2022, respectively.Advances From FHLBFHLB advancesthe Bank had no deposit relationships greater than 5% of outstanding deposits. At September 30, 2023, approximately $305.1 million or 25.7% of our $1.19 billion deposit portfolio was uninsured. The uninsured amounts are summarized by contractual year of maturityestimates based on the methodologies and weighted average interest rate in the table below: September 30, 2017 December 31, 2016 Increase (Decrease) Year Due: Balance Rate Balance Rate Balance Percent 2017 $ — —% $ 15,395,000 0.76% $ (15,395,000 ) (100.0)% 2018 13,000,000 1.08 18,000,000 1.06 (5,000,000 ) (27.8) 2019 20,500,000 1.39 12,000,000 1.31 8,500,000 70.8 2020 7,500,000 1.58 3,000,000 1.38 4,500,000 150.0 Total Advances $ 41,000,000 1.32% $ 48,395,000 1.05% $ (7,395,000 ) (15.3)% Advances are secured by a blanket collateral agreement with the FHLB pledgingassumptions used for the Bank’s portfolioregulatory reporting requirements. For additional details of residential first mortgage loans and investment securities with an amortized cost and fair value of $74.5 million and $69.5 million at September 30, 2017,respectively, and $73.3 million and $71.1 million at December 31, 2016, respectively.There were no callable FHLB advances at September 30, 2017. Callable advances are callable at the optiondeposits, see “Note 9 – Deposits” of the FHLB. If an advance is called, the Bank has the optionNotes to pay off the advance without penalty, re-borrow funds on different terms, or convert the advance to a three-month floating rate advance tied to LIBOR.Other Consolidated Financial Statements included in Part I. Item 1 of this report.$12.4$69.2 million in borrowings from the Federal Reserve Bank of Atlanta (“FRB”) at September 30, 2023, compared to $44.1 million at December 31, 2022. During the first quarter of 2023, the Bank elected to participate in the Federal Reserve's Bank Term Funding Program (“BTFP”), allowing the Bank to refinance its existing FRB borrowings. The Bank also had $19.0 million in other borrowings (non-FHLB advances) at September 30, 2017, an increase of $3.02023, compared to $27.6 million or 32.3% from $9.3 million at and December 31, 2016. These borrowings consist2022, which consisted of short-term repurchase agreements with certain commercial demand deposit customers for sweep accounts. The repurchase agreements typically mature within oneFor additional information, see “Note 10 – Borrowings” of the Notes to three days and the interest rate paid on these borrowings floats monthly with money market type rates. Consolidated Financial Statements included in Part I. Item 1 of this report.20172023 and December 31, 2016,2022, the interest rateCompany had $5.2 million in junior subordinated debentures and $26.5 million in subordinated debentures outstanding, which are described in more detail in “Note 11 - Subordinated Debentures” of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.onto common shareholders, $292,000 in Company stock repurchases, and a $4.7 increase in accumulated other comprehensive loss, net of tax, during the repurchase agreementsnine months ended September 30, 2023. The increase in net accumulated other comprehensive loss, net of tax, was 0.15%related to the unrecognized loss in fair value of investments AFS during the nine months ended September 30, 2023. The decreases in shareholders' equity were partially offset by year to date net income of $6.6 million.The Bank had pledged as collateral for these repurchase agreements investment and mortgage-backed securities with amortized costs and fair values of $16.9 million and $17.3 million, respectively, at September 30, 2017 and $17.6 million and $17.9 million, respectively, at December 31, 2016.Note PayableOn October 31, 2016, the Company repurchased all 22,000 shares of its Series B Preferred Stock from the United States Department of the Treasury ("Treasury") for $21.4 million. In connection with the funding of this repurchase, the Company obtained a $14.0 million unsecured term loan from another financial institution. The loan accrues and pays interest quarterly at a floating rate of the Wall Street Journal Prime index minus 30 basis points, which was equal to 3.95% at September 30, 2017. The unpaid principal balance is payable in 11 consecutive quarterly payments of $437,500 each, with a balloon payment equal to the entire remaining principal balance due on October 1, 2019. At September 30, 2017, the remaining principal balance on the loan was $9.7 million.The note has the following covenants with which the Bank must maintain compliance: the Bank must maintain a "Well Capitalized" rating in accordance with regulatory standards, a Risk-Based Capital Ratio of not less than 12.00%, a “Modified” Texas Ratio of not more than 30.00%, and an annual return on assets of at least 0.60%. The Bank is also required to maintain a loan loss reserve an amount deemed adequate by all federal and state regulatory authorities. Management of the Bank reviews these covenants quarterly for compliance. At September 30, 2017, the Bank was in compliance with all of these covenants.Junior Subordinated DebenturesOn September 21, 2006, Security Federal Statutory Trust (the Trust), 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. The Capital Securities accrue and pay distributions at a floating rate of three month LIBOR plus 170 basis points annually which was equal to 3.02% at September 30, 2017. 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 the right to redeem the Capital Securities in whole or in part.Convertible DebenturesEffective December 1, 2009, the Company issued $6.1 million in convertible senior debentures. The debentures will mature on December 1, 2029 and accrue interest at the rate of 8.0% per annum until maturity or earlier redemption or repayment. Interest on the debentures is payable on June 1 and December 1 of each year and commenced on June 1, 2010. The debentures are convertible into the Company’s common stock at a conversion price of $20 per share at the option of the holder at any time prior to maturity. The debentures are redeemable, in whole or in part, at the option of the Company at any time on or after December 1, 2019, at a price equal to 100% of the principal amount of the debentures to be purchased plus any accrued and unpaid interest to, but excluding, the date of redemption. The debentures are unsecured general obligations of the Company ranking equal in right of payment to all of our present and future unsecured indebtedness that is not expressly subordinated.EquityShareholders’ equity increased $6.8 million or 9.6% to $77.9 million at September 30, 2017 from $71.1 million at December 31, 2016 primarily due to net income and increased accumulated other comprehensive income, net of tax. The Company’s net income available for common shareholders was $5.0 million for the nine months ended September 30, 2017. Accumulated other comprehensive income, net of tax, comprised primarily of unrealized gains on securities available for sale, net of tax, increased $2.6 million or 216.9% to $3.7 million at September 30, 2017 from $1.2 million at December 31, 2016. The Board of Directors of the Company declared common stock dividends totaling $795,000 during the nine months ended September 30, 2017. Book value per common share was $26.45 at September 30, 2017 compared to $24.14 at December 31, 2016.SECURITY FEDERAL CORPORATION AND SUBSIDIARIESManagement's Discussion and Analysis of Financial Condition and Results of OperationsThree Month PeriodsQuarters Ended September 30, 20172023 and 2016 Available to Common Shareholdersavailable to common shareholders increased $233,000 or 14.0% to $1.9decreased $1.1 million, or $0.6134.2%, to $2.1 million or $0.65 per dilutedbasic common share for the three monthsquarter ended September 30, 20172023, compared to $1.7$3.2 million or $0.54$0.99 per dilutedbasic common share for the three monthsquarter ended September 30, 2016.2022. The increasedecrease in net income available to common shareholders for the three month period was primarily the result of increasesdecreases in net interest income and non-interest income combined with the absence of preferred stock dividends. These items were partially offset by increases in the provision for loan losses andhigher non-interest expense.The net interest spread on a tax equivalent basis decreased four basis points to 3.35% for the three months ended September 30, 2017 from 3.39% for the comparable period in 2016. Net interest income increased $307,000 or 4.8% to $6.7 million during the three months ended September 30, 2017, compared to $6.3 million for the same period in 2016. During the three months ended September 30, 2017, average interest earning assets increased $43.0 million or 5.7% to $798.4 million from $755.4 million for the same period in 2016. Average interest-bearing liabilities increased $48.2 million or 5.5% to $700.7 million for the three months ended September 30, 2017 from $652.5 million for the comparable period in 2016.Interest Incomeassociatedaverage 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, 20172023 and 2016: Three Months Ended September 30, Change in Average Balance Increase (Decrease) in Interest Income 2017 2016 (Dollars in thousands) Average Balance Average Balance Loans Receivable, Net $ 372,993 5.52 % $ 347,681 5.65 % $ 25,312 $ 234 Mortgage-Backed Securities 206,353 2.47 219,616 2.17 $ (13,263 ) 82 216,271 2.80 184,332 2.66 $ 31,939 287 Overnight Time and Certificates of Deposit 2,783 0.90 3,726 0.53 $ (943 ) 1 Total Interest-Earning Assets $ 798,400 3.98 % $ 755,355 3.89 % $ 43,045 $ 604 (1)Annualized(2)Tax2022. 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 anthe effective tax rate of 34%. The tax equivalent adjustment relates to the tax exempt municipal bonds and the state tax credit and was $188,924 and $183,850 for the quarters ended September 30, 20172023 and 2016, respectively.Total tax equivalent2022. $ 600,465 $ 8,402 5.60 % $ 521,143 $ 6,306 4.84 % 694,058 7,558 4.36 741,358 4,550 2.45 20,557 190 3.71 44,685 417 3.73 57,387 703 4.90 13,569 94 2.78 $ 1,372,467 $ 16,853 4.91 % $ 1,320,755 $ 11,367 3.44 % $ 680,025 $ 4,190 2.46 % $ 700,322 $ 540 0.31 % 228,016 1,879 3.30 139,841 136 0.39 908,041 6,069 2.67 840,163 676 0.32 88,215 862 3.91 39,099 44 0.45 5,155 96 7.43 5,155 50 3.87 26,500 349 5.25 29,652 389 5.25 $ 1,027,911 $ 7,376 2.87 % $ 914,069 $ 1,159 0.51 % 2.04 % 2.93 % $ 9,477 2.76 % $ 10,208 3.09 % 31 74 $ 9,446 $ 10,134 increased $604,000decreased $688,000 or 8.2%6.8% to $7.9$9.4 million during the three monthsquarter ended September 30, 20172023, compared to $7.3$10.1 million duringfor the same periodquarter in 2016. This increase was primarily2022. During the result of a $43.0 million or 5.7% increase inquarter ended September 30, 2023, average interest-earning assets combined with an increase of nine basis pointsincreased $51.7 million or 3.9% to $1.37 billion from $1.32 billion for the same quarter in 2022, while average interest-bearing liabilities increased $113.8 million or 12.5% to $1.0 billion for the average yield. Total interest income on loans increased $234,000 or 4.8% to $5.1 million during the three monthsquarter ended September 30, 20172023 from $4.9$914.1 million duringfor the comparable periodquarter in 2016.2022. The increaseCompany's net interest margin was 2.76% for the result of a $25.3 million or 7.3% increase in the average loan portfolio balance, which was partially offset by a 13 basis point decrease in the average yield. Interest income from mortgage-backed securities increased $82,000 or 6.9% to $1.3 million during the three monthsquarter ended September 30, 2017 due2023 compared to an increase of 303.09% for the comparable quarter in 2022. The Company's net interest spread on a tax equivalent basis points inwas 2.04% for the average portfolio yield offset by a $13.3 million or 6.0% decrease in the average balance. Tax equivalent interest income from investment securities increased $287,000 or 23.3% to $1.5 million during the three monthsquarter ended September 30, 2017 due2023 compared to a $31.9 million or 17.3% increase in2.93% for the average balancequarter ended September 30, 2022.ExpenseThe following table compares detailed average balances, cost of funds, and the resulting changes inIncomeexpenseincome increased $5.5 million or 48.3% to $16.9 million for the three monthsquarter ended September 30, 2017 and 2016. Three Months Ended September 30, Change in Average Balance Increase (Decrease) in Interest Expense 2017 2016 (Dollars in thousands) Average Balance Average Balance Now and Money Market Accounts $ 343,898 0.18 % $ 328,233 0.12 % $ 15,665 $ 50 Statement Savings Accounts 41,551 0.10 35,673 0.10 $ 5,878 2 Certificate Accounts 232,619 0.87 222,077 0.73 $ 10,542 96 FHLB Advances and Other Borrowed Money 60,930 1.08 55,272 0.96 $ 5,658 32 Note Payable 10,477 4.04 — — $ 10,477 106 Junior Subordinated Debentures 5,155 3.02 5,155 2.44 $ — 8 Senior Convertible Debentures 6,069 8.00 6,084 8.00 $ (15 ) — Total Interest-Bearing Liabilities $ 700,699 0.63 % $ 652,494 0.49 % $ 48,205 $ 294 (1) AnnualizedTotal interest expense increased $294,000 or 36.3% to $1.1 million during the three months ended September 30, 20172023 compared to $805,000$11.4 million for the same period in 2016.2022.totalthe average loan portfolio balance combined with a 76 basis point increase in the average yield on loans receivable AS ADJUSTABLE-RATE LOAns reset and new loans were originated at higher market interest expense was attributablerates. increases$7.6 million during the quarter ended September 30, 2023, from $4.6 million for the third quarter of 2022, due to a 191 basis point increase in the average yield to 4.36%, reflecting higher market interest rates, paid andwhich was partially offset by a $48.2$47.3 million or 7.4%decrease in the average balance of taxable investments. Tax equivalent interest income from non-taxable investments decreased $227,000 to $190,000 during the quarter ended September 30, 2023 primarily due to a $24.1 million decrease in the average balance of non-taxable investments.interest-bearing liabilities. Interest expense on deposits increased $148,000 or 28.4% to $666,000 during the three months ended September 30, 2017 compared to $519,000 for the same period in 2016. The increase was attributable to an eightthese assets combined with a 212 basis point increase in the average cost of deposit accountsyield earned on these assets due to increased market interest rates.$32.1$113.8 million or 5.5% increase in the average interest-bearingbalance of these liabilities.$618.1$6.1 million for the three monthsquarter ended September 30, 2017compared to $586.0 million2023, from $676,000 for the three months ended September 30, 2016.Interest expense on FHLB advances and other borrowings increased $32,000 or 23.8% to $165,000 during the three months ended September 30, 2017 from $133,000 for the same period in 2016. The increase was attributablethird quarter of 2022, due to an increase of 12235 basis points in the average cost combined with a $5.7$67.9 million or 10.2% increase in the average balance of FHLB advancesinterest-bearing deposit accounts, reflecting growth in higher cost money market and certificate of deposit accounts. Interest expense on FRB and other borrowed moneyborrowings increased $818,000 to $60.9 million during$862,000 for the three monthsquarter ended September 30, 20172023, from $55.3 million$44,000 for the same periodthird quarter of 2022, due to a $49.1 million increase in 2016.LoanCredit Losses is determined by management’s on-going monthly analysis of the loan portfolio and the adequacy of the allowance for loan losses.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 loancredit losses is reviewed monthly by the Asset Classification Committee and quarterly by the Board of Directors. monthly review of the adequacy of the allowance includes three main components. The first component isanalysisestimate of loss potential in various homogeneous segmentscredit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan portfolio basedreceivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. The transition adjustment of the adoption of CECL included an increase in the allowance for credit losses on historical trendsloans of $784,000, which is presented as a reduction to total loans outstanding, and an increase in the risk inherentallowance for credit losses on unfunded loan commitments of $1.2 million, which is recorded within "Other Liabilities." The adoption of CECL had an insignificant impact on the Company's investments HTM and investment AFS portfolios.each loan category. Currently, management applies a four year historical loss ratiothe third quarter of 2022. For additional information of the changes in the allowance for credit losses, see “Note 3 – Summary of Significant Accounting Policies", "Note 6 - Investments, Available for Sale", "Note 7 - Investments, Held to each loan categoryMaturity, and “Note 8 - Loans Receivable" of the Notes to estimate the inherent lossConsolidated Financial Statements included in these pooled loans.The second componentPart I. Item 1 of management’s monthly analysis is the specific review and evaluation of significant problem credits identified through the Company’s internal monitoring system. These loans are evaluated for impairment and recorded in accordance with accounting guidance. For each loan deemed impaired, management calculates a specific reservethis report.amountquarter ended September 30, 2023 compared to $2.2 million for the quarter ended September 30, 2022. The decrease was primarily due to a $152,000 decrease in gain on sale of loans reflecting the decline in originations of loans held for sale following recent market interest rate increases, which was partially offset by a $94,000 increase in trust income during the recorded investment inquarter ended September 30, 2023 when compared to the loan exceeds the fair value. This estimate is based on a thorough analysisquarter ended September 30, 2022. For additional details of the most probable source of repayment, which is typically liquidationchanges in non-interest income, see “Note 14 - Non-Interest Income” of the collateral underlying the loan.Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.third component is an analysis offollowing table summarizes the changes in qualitative factors that may affectnon-interest expense: $ 4,962,028 $ 5,019,920 $ (57,892 ) (1.2 )% 807,286 703,310 103,976 14.8 % 256,218 153,460 102,758 67.0 % 657,278 521,833 135,445 26.0 % 153,732 87,858 65,874 75.0 % 167,583 179,318 (11,735 ) (6.5 )% 347,980 307,092 40,888 13.3 % 314,329 229,906 84,423 36.7 % 1,257,359 1,074,988 182,371 17.0 % $ 8,923,793 $ 8,277,685 $ 646,108 7.8 % portfolio, including but not limited to: relevant economic trends that could impact borrowers’ ability to repay, industry trends, changes in the volume and compositionthird quarter of 2023.portfolio, credit concentrations, or lending policiesincreases in non-interest expenses during the third quarter of 2023 were due to overall growth of the Company, increased operations and the experience and abilityaddition of our newest branch in Augusta, Georgia which opened in April 2023. FDIC insurance premiums increased $66,000 or 75.0% to $154,000 for the staff and Board of Directors. Management also reviews and incorporates certain ratios such as percentage of classified loans, average historical loan losses by loan category, delinquency percentages, and the assignment of percentage targets of reservesquarter ended September 30, 2023, COMPARED TO THE SAME PERIOD IN 2022, due to higher deposit insurance rates applied in each loan category when evaluating the allowance.Once the analysis is completed, the three components are combined and2023 compared to the allowance amount. Based on this, charges are made2022. Other expenses increased $182,000 or 17.0% to the provision as needed.The Company had net charge-offs of $133,000$1.3 million for the quarter ended September 30, 20172023, compared to net charge-offs of $284,000the same period in 2022.three month period in 2016. There2022, due to lower net income before taxes in 2023. Pre-tax net income was $100,000 in provision$2.7 million for loan losses recorded during the quarter ended September 30, 20172023 compared to no provision$4.1 million for the samethird quarter in 2016.table below summarizes activity associated with the allowance for loan lossesCompany’s combined federal and state effective income tax rate was 21.1% and 20.9% for the quarters ended September 30, 20172023 and 2016: Three Months Ended September 30, 2017 2016 Beginning Balance $ 8,202,632 $ 8,395,214 Provision for Loan Losses 100,000 — Charge-offs (259,438) (323,247) Recoveries 125,994 39,144 Ending Balance $ 8,169,188 $ 8,111,111 Allowance For Loan Losses as a % of Gross Loans Receivable, Held For Investment at the End of the Period 2.1% 2.3% Allowance For Loan Losses as a % of Impaired Loans at the End of the Period 82.6% 83.2% Impaired Loans $ 9,890,138 $ 9,751,765 $ 382,610,246 $ 355,786,250 Total Loans Receivable, Net $ 375,711,468 $ 351,818,570 (1) TOTAL LOANS HELD FOR INVESTMENT, NET OF DEFERRED FEES AND LOANS IN PROCESS.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 need to acquire these properties through foreclosure or other means and subsequently sell, develop or liquidate them.Non-Interest IncomeNon-interest income increased $581,000 or 32.7% to $2.4 million for the three months ended September 30, 2017, compared to $1.8 million for the three months ended September 30, 2016. The following table summarizes the changes in non-interest income: Three Months Ended September 30, 2017 2016 Amounts Percent Gain on Sale of Investment Securities $ 79,363 $ 360,425 $ (281,062 ) (78.0 )% Gain on Sale of Loans 373,636 256,918 116,718 45.4 Service Fees on Deposit Accounts 274,717 266,960 7,757 2.9 Commissions From Insurance Agency 172,074 149,529 22,545 15.1 BOLI Income 788,133 132,000 656,133 497.1 Trust Income 186,000 197,000 (11,000 ) (5.6) Check Card Fee Income 282,686 247,331 35,355 14.3 Other 205,524 170,519 35,005 20.5 Total Non-Interest Income $ 2,362,133 $ 1,780,682 $ 581,451 32.7 % Net gain on sale of investment securities was $79,000 during the quarter ended September 30, 2017, a decrease of $281,000 or 78.0% compared to $360,000 for the same period last year. The decrease resulted from gross losses of $162,000 on the sale of investment securities during the quarter ended September 30, 2017 compared to no gross loss during the third quarter of 2016. Gain on sale of loans increased $117,000 or 45.4% as the dollar volume of loans sold increased due to the increase in originations of loans held for sale.BOLI income increased $656,000 or 497.1% to $788,000 during the quarter ended September 30, 2017 from $132,000 for the same period in 2016. During the third quarter of 2017, the Bank recognized $654,000 in death benefits in addition to $134,000 in income related to accrued interest credited to the cash surrender value underlying the BOLI policies. The Company did not receive any life insurance proceeds during the third quarter of 2016. The entire portion of income recognized in 2016 was related to changes in the cash surrender value of the policies.Non-Interest ExpenseFor the quarter ended September 30, 2017, non-interest expense increased $875,000 or 15.4% to $6.6 million compared to $5.7 million for the same period in 2016. The following table summarizes the changes in non-interest expense: Three Months Ended September 30, Increase (Decrease) 2017 2016 Amounts Percent Compensation and Employee Benefits $ 3,872,102 $ 3,167,112 $ 704,990 22.3% Occupancy 569,024 502,352 66,672 13.3 Advertising 120,033 100,251 19,782 19.7 Depreciation and Maintenance of Equipment 569,839 510,645 59,194 11.6 FDIC Insurance Premiums 64,518 62,163 2,355 3.8 Net Cost of Operation of OREO 105,172 25,991 79,181 304.6 Prepayment Penalties on FHLB Advances — 260,594 (260,594 ) (100.0) Other 1,268,449 1,065,209 203,240 19.1 Total Non-Interest Expense $ 6,569,137 $ 5,694,317 $ 874,820 15.4% Compensation and employee benefits expenses increased $705,000, or 22.3% to $3.9 million for the three months ended September 30, 2017 compared to $3.2 million for the same period last year due to general annual cost of living increases combined with an increase in full time employees.Occupancy expense increased $67,000 or 13.3% due to the addition of our Evans, Georgia branch, which opened in April 2017.SECURITY FEDERAL CORPORATION AND SUBSIDIARIESManagement's Discussion and Analysis of Financial Condition and Results of OperationsThe Company had a net cost of $105,000 from the operation of OREO properties during the quarter ended September 30, 2017 compared to a net cost of $26,000 during the quarter ended September 30, 2016. This amount includes all expenses associated with OREO including write-down in value and gain or loss on sales incurred during each period. The Company had write-downs of $50,000 during the third quarter of 2017 compared to no write-downs for the same period in 2016.The Company did not prepay any FHLB advances during the three months ended September 30, 2017, and, therefore, incurred no prepayment penalties during the period. In comparison, the Company prepaid one FHLB advance during the same three month period in 2016 and incurred a prepayment penalty of $261,000. The Company elected to prepay this higher rate advance in order to reduce interest expense in future periods and improve net interest spread.Other expenses increased $203,000, or 19.1% to $1.3 million for the three month period ended September 30, 2017 compared to $1.1 million for the same period in the prior year. Other expenses include legal, professional and consulting expenses, supplies and other miscellaneous expenses.Provision For Income TaxesThe provision for income taxes decreased $210,000 or 32.0% to $445,000 for the three months ended September 30, 2017 from $655,000 for the same period one year ago. Income before income taxes was $2.3 million for the three months ended September 30, 2017 compared to $2.4 million for the same three month period in 2016. The Company’s combined federal and state effective income tax rate for the current quarter was 19.0% compared to 26.9% for the same quarter one year ago.SECURITY FEDERAL CORPORATION AND SUBSIDIARIESManagement's Discussion and Analysis of Financial Condition and Results of OperationsMonth PeriodsMonths Ended September 30, 20172023 and 2016 Available to Common Shareholdersavailabledecreased $364,000, or 5.3%, to $6.6 million or $2.02 per basic common shareholders increased $277,000 or 5.8% to $5.0 millionshare for the nine months ended September 30, 2017 when2023, compared to the same nine month period in 2016. The increase in net income available to$6.9 million or $2.13 per basic common shareholdersshare for the nine month period was primarily the result of increases in net interest income and non-interest income combined with the absence of preferred stock dividends. These items were partially offset by increases in the provision for loan losses and non-interest expense.Net Interest IncomeThe net interest spread on a tax equivalent basis decreased seven basis points to 3.28% for the nine months ended September 30, 2017 from 3.35% for the comparable period2022. The decrease was primarily due to an increase in 2016. Netnon-interest expense combined with a decrease in non-interest income, partially offset by an increase in net interest income increased $376,000 or 2.0%due to $19.1 million for the nine months ended September 30, 2017. During the nine months ended September 30, 2017,an increase in market interest rates and, to a lesser extent, higher average interest earning assets increased $31.3 million or 4.2% to $781.9 million from $750.7 million for the nine months ended September 30, 2016. Average interest-bearing liabilities also increased by $37.9 million or 5.8% to $687.9 million for the nine months ended September 30, 2017 from $650.0 million for the same period in 2016.associatedaverage 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, 20172023 and 2016: Nine Months Ended September 30, Change in Average Balance Increase (Decrease) in Interest Income 2017 2016 (Dollars in Thousands) Average Balance Average Balance Loans Receivable, Net $ 363,918 5.44 % $ 339,587 5.65 % $ 24,331 $ 470 Mortgage-Backed Securities 203,907 2.32 219,104 2.23 (15,197 ) (119) 207,925 2.74 187,918 2.69 20,007 493 Overnight Time & Certificates of Deposit 6,178 0.75 4,062 0.46 2,116 21 Total Interest-Earning Assets $ 781,928 3.87 % $ 750,671 3.88 % $ 31,257 $ 865 (1)Annualized(2)Tax2022. 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 anthe effective tax rate of 34%. The tax equivalent adjustment relates to the tax exempt municipal bonds and state tax credit and was $550,269 and $540,948 for the nine months ended September 30, 20172023 and 2016, respectively.Total tax equivalent2022. $ 589,100 $ 23,884 5.41 % $ 518,436 $ 18,608 4.79 % 695,495 21,025 4.03 696,283 9,720 1.86 20,802 575 3.69 44,633 1,086 3.25 32,996 1,205 4.87 18,545 151 1.08 $ 1,338,393 $ 46,689 4.65 % $ 1,277,897 $ 29,565 3.08 % $ 674,749 $ 10,246 2.02 % $ 700,580 $ 998 0.19 % 200,626 3,910 2.60 150,670 420 0.37 875,375 14,156 2.16 851,250 1,418 0.22 85,820 2,313 3.59 41,374 91 0.29 5,155 266 6.89 5,155 111 2.87 26,500 1,045 5.25 29,883 1,177 5.25 $ 992,850 $ 17,780 2.39 % $ 927,662 $ 2,797 0.40 % 2.26 % 2.68 % $ 28,909 2.88 % $ 26,768 2.79 % 96 184 $ 28,813 $ 26,584 $865,000$2.2 million or 4.0%8.4% to $22.7$28.8 million during the nine months ended September 30, 2017 from $21.92023, compared to $26.6 million for the same period in 2016. This increase was primarily2022. During the result of a $31.3 million or 4.2% increase in average interest earning assets, which was partially offset by a decline of one basis point in the average yield on interest-earning assets. Total interest income on loans increased $470,000 or 3.3% to $14.8 million during the nine months ended September 30, 20172023, average interest-earning assets increased $60.5 million or 4.7% to $1.34 billion from $14.4 million$1.28 billion for the same period in 2016. The increase was a result of a $24.32022, while average interest-bearing liabilities increased $65.2 million or 7.2% increase in the average loan portfolio7.0% to $363.9 million from $339.6$992.9 million for the same period in 2016, which was partially offset by a decrease of 21 basis points in the average yield on loans. Interest income from mortgage-backed securities decreased $119,000 or 3.3% to $3.6 million for the nine months ended September 30, 20172023 from $3.7$927.7 million for the same period in 2016 as a result of a $15.2 million or 6.9% decrease in the average balance of mortgage-backed securities, which was partially offset by an increase of nine basis points in the average yield. Tax equivalent interest income from investment securities increased $493,000 or 13.0% to $4.3 million for the nine months ended September 30, 2017 from $3.8 million2022. The Company's net interest margin was 2.88% for the same period in 2016 duenine months ended September 30, 2023 compared to 2.79% for the nine months ended September 30, 2022. The Company's net interest spread on a $20.0 million increase intax equivalent basis was 2.26% for the average balancenine months ended September 30, 2023 compared to 2.68% for the nine months ended September 30, 2022.The following table compares detailedbalances,balance of these liabilities.funds,these liabilities. Interest expense on the junior subordinated debentures increased $155,000 due to increased floating interest rates reflecting higher market interest rates.resulting changesnine months ended September 30, 2022. The Company adopted the CECL methodology effective January 1, 2023. The increase in interest expense forthe provision was primarily due to loan growth. Net recoveries during the nine months ended September 30, 20172023 were $10,000 compared to net recoveries of $212,000 during the same period in 2022.2016: Nine Months Ended September 30, Change in Average Balance Increase (Decrease) in Interest Expense 2017 2016 (Dollars in Thousands) Average Balance Average Balance Now and Money Market Accounts $ 340,876 0.17% $ 327,971 0.13 % $ 12,905 $ 116 Statement Savings Accounts 39,796 0.10 33,970 0.10 5,826 5 Certificates Accounts 227,674 0.82 230,563 0.72 (2,889 ) 163 FHLB Advances and Other Borrowed Money 56,486 0.97 46,227 1.62 10,259 (152 ) Note Payable 11,809 3.71 — — 11,809 329 Junior Subordinated Debentures 5,155 2.87 5,155 2.35 — 20 Senior Convertible Debentures 6,079 8.00 6,084 8.00 (5 ) — Total Interest-Bearing Liabilities $ 687,875 0.60 % $ 649,970 0.53 % $ 37,905 $ 481 (1) AnnualizedInterest expenseATM and check card fee income.$481,000$213,000 or 18.5%19.7% to $3.1$1.3 million during the nine months ended September 30, 20172023, compared to $2.6 million for the same period in 2016. The increase in total interest expense was attributable to increases in interest rates paid combined with a $37.9 million or 5.8% increase in the average balance of interest-bearing liabilities. Interest expense on deposits increased $283,000 or 18.0% to $1.9 million during the nine months ended September 30, 2017 compared2022, due to $1.6 million for the same period last year. The increase was attributable to a six basis pointan increase in assets under management. ATM and check card fee income increased $179,000 or 8.5% to $2.3 million during the average cost of deposit accounts combined with a $15.8 million or 2.7% increase in average interest-bearing deposits to $608.3 million for the nine months ended September 30, 20172023, compared to $592.5 million for the nine months ended September 30, 2016.Interest expense on FHLB advances and other borrowings decreased $152,000 or 27.0% to $410,000 during the nine months ended September 30, 2017 from $561,000 during the same period in 20162022, due to a decreasenew interchange service provider that pays the Bank more fees per transaction. For additional details of 65 basis points in the average cost. This decrease was partially offset by a $10.3 million or 22.2% increase in the balance of FHLB advances and other borrowed money to $56.5 million during the nine months ended September 30, 2017 from $46.2 million for the same period last year.Provision for Loan LossesThere was $100,000 in provision for loan losses for the nine months ended September 30, 2017 compared to no provision expense for the same period in 2016. The Company had net charge-offs of $287,000 for the nine months ended September 30, 2017 compared to net charge-offs of $164,000 during the comparable period in 2016. The following table summarizes the changes in non-interest income, see “Note 14 - Non-Interest Income” of the allowance for loan losses for the nine months ended September 30, 2017 and 2016: Nine Months Ended September 30, 2017 2016 Beginning Balance $ 8,356,231 $ 8,275,133 Provision for Loan Losses 100,000 — Charge-offs (514,685) (679,746) Recoveries 227,642 515,724 Ending Balance $ 8,169,188 $ 8,111,111 Incomeincomeexpense increased $720,000$1.6 million or 14.2%6.2% to $5.8$26.9 million for the nine months ended September 30, 2017,2023 compared to $5.1$25.3 million for the nine months ended September 30, 2016.2022. The following table summarizes the changes in the components of non-interest income: Nine Months Ended September 30, Increase (Decrease) 2017 2016 Amounts Percent Gain on Sale of Investment Securities $ 707,902 $ 772,143 $ (64,241 ) (8.3 )% Gain on Sale of Loans 894,053 657,473 236,580 36.0 Service Fees on Deposit Accounts 776,469 772,341 4,128 0.5 BOLI Income 1,028,133 396,000 632,133 159.6 Commissions From Insurance Agency 451,311 441,519 9,792 2.2 Trust Income 554,000 521,000 33,000 6.3 Check Card Fee Income 838,302 742,583 95,719 12.9 Grant Income — 265,496 (265,496 ) (100.0) Other 542,250 504,200 38,050 7.5 Total Non-Interest Income $ 5,792,420 $ 5,072,755 $ 719,665 14.2 % Net gain on sale of investment securitiesexpense: $ 15,226,913 $ 14,981,146 $ 245,767 1.6 % 2,386,442 2,110,746 275,696 13.1 % 762,614 693,389 69,225 10.0 % 1,843,625 1,670,857 172,768 10.3 % 461,541 284,083 177,458 62.5 % — 433,077 (433,077 ) (100.0 )% 523,314 513,299 10,015 2.0 % 1,036,913 917,225 119,688 13.0 % 942,406 732,497 209,909 28.7 % 3,679,256 2,964,759 714,497 24.1 % $ 26,863,024 $ 25,301,078 $ 1,561,946 6.2 % $708,000primarily due to increases in compensation and employee benefits, occupancy expense and other non-interest expenses during the first nine months of 2023, which were partially offset by a decrease in write-downs of land held for sale.2017, a decrease of $64,000 or 8.3%2023, compared to a net gain of $772,000 during the same period last year. The decrease resulted from gross losses of $162,000 on the sale of investment securities during the nine months ended September 30, 2017 compared2022, due to no gross lossgeneral annual cost of living increases, an increase in the number of full time equivalent employees as a result of our newest branch location which opened in Augusta, Georgia, in April 2023, and the overall growth of the Company. Occupancy and other non-interest expenses also increased during the comparable periodfirst nine months of 2016.Gain on sale2023 due to increased operations and the addition of loansour new branch in Augusta, Georgia.$237,000$177,000 or 36.0%62.5% to $894,000$462,000 for the nine months ended September 30, 20172023, compared to $657,000 during the same period in 2016 as the dollar volume of loans sold increased2022, due to increased deposit insurance rates applied in 2023 compared to 2022. increase in originations of loans held for sale.BOLI income increased $656,000 or 497.1% to $1.0 million during the nine months ended September 30, 20172023, from $396,000$1.8 million for the same period in 2016. During2022, due to lower net income before taxes in 2023. Pre-tax net income was $8.3 million for the nine months ended September 30, 2017,2023 compared to $8.7 million for the Bank recognized $654,000 in death benefits in addition to $374,000 infirst nine months of 2022. The Company’s combined federal and state effective income related to accrued interest credited totax rate was 21.3% and 20.7% for the cash surrender value underlying the BOLI policies. The Company did not receive any life insurance proceeds during 2016; all BOLI income recognized was related to changes in the cash surrender valuenine months ended September 30, 2023 and 2022, respectively.These increases were partially offset by a $265,000 decrease in grant income. The Company received a Bank Enterprise Award (“BEA”) grant from the US Treasury in 2016 in recognition of its continued commitment to community development in economically distressed areas. Our commitment to these areas has continued in 2017 and we anticipate receiving another comparable BEA grant later this year.Non-Interest ExpenseFor the nine months ended September 30, 2017, non-interest expense increased $1.3 million or 7.9% to $18.3 million compared to $16.9 million for the same period in 2016. The following table summarizes the changes in the components of non-interest expense: Nine Months Ended September 30, Increase (Decrease) 2017 2016 Amounts Percent Compensation and Employee Benefits $ 10,916,386 $ 9,675,430 $ 1,240,956 12.8 % Occupancy 1,661,661 1,469,602 192,059 13.1 Advertising 391,742 343,034 48,708 14.2 Depreciation and Maintenance of Equipment 1,541,460 1,486,060 55,400 3.7 FDIC Insurance Premiums 168,707 322,653 (153,946 ) (47.7) Net Benefit of Operation of OREO (96,730 ) (647,990 ) 551,260 (85.1) Prepayment Penalties on FHLB Advances — 789,306 (789,306 ) (100.0) Other 3,681,552 3,485,289 196,263 5.6 Total Non-Interest Expense $ 18,264,778 $ 16,923,384 $ 1,341,394 7.9 % Compensation and employee benefits expenses were $10.9 million for the nine months ended September 30, 2017, an increase of $1.2 million or 12.8% from $9.7 million during the same period last year. The increase was due to general annual cost of living increases combined with the addition of several new hires during the nine months ended September 30, 2017. The Company had 223 full time equivalent employees at September 30, 2017 compared to 204 at September 30, 2016.The Company had a net benefit of $97,000 from the operation of OREO properties during the nine months ended September 30, 2017 compared to a net benefit of $674,000 during the nine months ended September 30, 2016. The majority of the prior year net benefit was related to the sale of one OREO property in February 2016, which resulted in a $739,000 gain that offset the cost of operating OREO properties during the nine months ended September 30, 2016.The Company did not prepay any FHLB advances during the nine months ended September 30, 2017, and, therefore, incurred no prepayment penalties during the period. In comparison, the Company prepaid three FHLB advances during the nine months ended September 30, 2016 and incurred prepayment penalties of $789,000. The Company elected to prepay these higher rate advances in order to reduce interest expense in future periods and improve net interest spread.Provision For Income TaxesThe provision for income taxes decreased $293,000 or 16.2% to $1.5 million for the nine months ended September 30, 2017from $1.8 million for the same period in 2016. Income before taxes was $6.5 million and $6.9 million for the nine months ended September 30, 2017 and 2016, respectively. The Company’s combined federal and state effective income tax rate was 23.2% for the nine months ended September 30, 2017 compared to 26.3% for the same period in 2016.SECURITY FEDERAL CORPORATION AND SUBSIDIARIESManagement's Discussion and Analysis of Financial Condition and Results of OperationsLiquidityThe Companyanalyzesanalyze and manages the Bank’smanage 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.are customerinclude deposits, scheduled loan repayments, loan sales, maturingand investment securities repayments, including interest payments, maturities and sales of loans and investment securities, advances from the FHLB.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 of its existing commitments.20172023, loan disbursements exceeded loan repayments resulting in a $16.0$48.1 million or 4.4%8.7% increase in total net loans receivable. DuringAlso, during the nine months ended September 30, 2017,2023, deposits increased $47.5$76.0 million or 7.3% and FHLB advances decreased $7.4 million or 15.3%6.8%. The Bank had $216.0no outstanding FHLB advances at September 30, 2023 with $422.4 million in additionaltotal borrowing capacity at the FHLB at that date. The Bank had $69.2 million of outstanding borrowings from the endBTFP at September 30, 2023, which was collateralized by investments with a fair market value of $329.4 million at that date. The Bank also had a $50.0 million unused Fed Funds facility with Pacific Coast Bankers Bank at September 30, 2023. 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.period. At Bank to pay dividends. 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 $0.13 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 2023 at this rate of $0.13 per share, our average total dividend paid each quarter would be approximately $423,000 based on the number of outstanding shares at September 30, 2017,2023.Bank had $138.9 millionCompany announced that its Board of certificatesDirectors approved a share repurchase program for the purchase of deposit maturing within one year. Based on previous experience,up to three percent, or approximately 97,612 shares, of the Bank anticipates a significant portionCompany’s outstanding common stock as of these certificates will be renewed on maturity.Atthat date. 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, 2017,2023, the Company repurchased 12,700 shares of its common stock at an aggregate cost of $292,000, leaving 84,912 shares available for further repurchase under the June 2023 stock repurchase program at September 30, 2023. 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, Use of Proceeds, and Issuer Purchases of Equity Securities.”17.6%18.1%, 10.3%10.1%, 17.6%18.1%, and 18.9%19.3%, 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 basedrisk-based capital and Tier 1 leverage capital ratios of 6.5%, 10.0%, 8.0% and 5.0%, respectively.The Company also exceeded all regulatory In addition to the minimum capital requirements, withthe Bank must maintain a capital conservation buffer, which consists of additional CET1 Tier 1 leverage-based capital Tier 1 risk- based capitalgreater than 2.5% of risk weighted assets above the required minimum levels to avoid limitations on paying dividends, repurchasing shares, and total risk-based capital ratios of 14.5%, 9.1%, 15.5%, and 16.7%, respectively, at paying discretionary bonuses. At September 30, 2017.Off-Balance Sheet CommitmentsThe Company is a party to financial instruments with off-balance sheet risk in2023 the normal course of business to meet the financing needs of its customers. These financial instruments generally include commitments to originate mortgage, commercial and consumer loans, and involve to varying degrees, elements of credit and interest rate risk in excessBank’s conservation buffer was 11.3%. For additional details, see “Note 12 - Regulatory Matters” of the amount recognizedNotes to Consolidated Financial Statements included in the balance sheet. The Company’s maximum exposure to credit loss in the eventPart I. Item 1 of nonperformance by the borrower is represented by the contractual amountthis report.The following table sets forth the length of time until maturity for unused commitments to extend credit and standby letters of credit at September 30, 2017.(Dollars in thousands) Total Unused Lines of Credit $ 521 $ 3,356 $ 33,095 $ 36,972 $ 66,288 $ 103,260 Standby Letters of Credit — 177 974 1,151 — 1,151 Total $ 521 $ 3,533 $ 34,069 $ 38,123 $ 66,288 $ 104,411 three and nine months ended September 30, 2017,2023, the Bank's interest rate spread, defined as the average yield on interest bearinginterest-earning assets less the average rate paid on interest bearinginterest-bearing liabilities, was 3.35% and 3.28%, respectively.(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, 2017 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. There have been no significant changes in our internal controls over financial reporting during the quarter ended September 30, 2017 that have materially affected or are reasonably likely to affect our internal controls over financial reporting.risk factorsRisk Factors previously disclosed in Item 1A of the Company’s Annual Report onCompany's 2022 Form 10-K for the year ended December 31, 2016.NonePeriod Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Repurchased as Part of Publicly Announced Plan or Program Maximum Number of Shares that May Yet Be Repurchased Under the Plan or Program (1) July 1, 2023 - July 31, 2023 0 0 97,612 August 1, 2023 - August 31, 2023 12,700 $ 23.00 12,700 84,912 September 1, 2023 - September 30, 2023 0 0 84,912 Total for the quarter 12,700 12,700
Defaults Upon Senior Securities3.14.1(3) P(4)4.310.11993 Salary Continuation Agreements (5) P10.2Amendment One to 1993 Salary Continuation Agreements (6) P10.3 (5) 10.4 (5) 10.510.610.710.810.910.1 (6) 10.11Incentive Compensation Plan (5) PSECURITY FEDERAL CORPORATION AND SUBSIDIARIES10.1231.12017,2023, formatted in Inline Extensible Business Reporting Language (XBRL)(iXBRL): (a) Consolidated Balance Sheets; (b) Consolidated Statements of Income; (c) Consolidated Statements of Comprehensive Income;Income (Loss); (d) Consolidated Statements of Changes in Shareholders’ Equity; (e) Consolidated Statements of Cash Flows; and (f) Notes to Consolidated Financial Statements_____________(1)Filed on June 26, 1998, as an exhibit to the Company’s Proxy Statementincorporated herein by reference.included in Exhibit 101) (2)Incorporated by reference to the Company’s Current Report on Form 8-K filed on January 16, 2015.(3)Filed on August 12, 1987, as an exhibit to the Company’s Registration Statement on Form 8-A and incorporated herein by reference.(4)Filed on July 13, 2009 as an exhibit to the Company’s Registration Statement on Form S-1 (File No. 333-160553) and incorporated herein by reference.(5)Filed on June 28, 1993, as an exhibit to the Company’s Annual Report on Form 10-KSB and incorporated herein by reference.(6)Filed as an exhibit to the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 1993 and incorporated herein by reference.(7)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.(8)Filed on March 2, 2000, as an exhibit to the Company's Registration Statement on Form S-8 and incorporated herein by reference(9)Filed on January 3, 2003, as an exhibit to the Company's Registration Statement on Form S-8 and incorporated herein by reference.(10)Filed on August 22, 2006, as an exhibit to the Company's Registration Statement on Form S-8 (Registration Statement No. 333-136813) and incorporated herein by reference.(11)Filed on November 12, 2008, as an exhibit to the Company's Registration Statement on Form S-8 and incorporated herein by reference.(12)Filed on June 18, 2004, as an exhibit to the Company’s Proxy Statement and incorporated herein by reference.(13)Incorporated by reference to the Company's Current Report on Form 8-K filed on December 23, 2008.Notes to Consolidated Financial StatementsSignaturesSECURITY FEDERAL CORPORATIONDate:November 13, 2017 By:SECURITY FEDERAL CORPORATION J. Chris Verenes Chief Executive Officer Duly Authorized Representative November 13, 20172023 Jessica T. CumminsDarrell Rains Jessica T. CumminsDarrell Rains Chief Financial Officer Duly Authorized Representative SECURITY FEDERAL CORPORATION AND SUBSIDIARIESEXHIBIT INDEX101 The following materials from Security Federal Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in Extensible Business Reporting Language (XBRL): (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 Statements52