SECURITY FEDERAL CORP

Previous wording

Total assets decreased$6.6 million to$1.54 billion at June 30, 2024 from$1.55 billion at December 31, 2023. This decrease was primarily due to decreases in HTM and AFS securities and other assets, partially offset by an increase in loans receivable, net. Changes in total assets are shown below.

Current wording

**Assets -**Total assets increased$26.7 million to$1.58 billion at September 30, 2024 from$1.55 billion at December 31, 2023. This increase was primarily due to increases in loans receivable, net, and cash and cash equivalents, partially offset by decreases in HTM and AFS securities and other assets. Changes in total assets are shown below.

Previous wording

Cash and cash equivalents increased$10.1 million or 7.8% to$138.4 million at June 30, 2024 compared to$128.3 million at December 31, 2023, primarily as a result of an increase in deposits during thesix months ended June 30, 2024 and the proceeds received from the sales, paydowns and maturities of securities.

Current wording

Cash and cash equivalents increased$4.1 million or 3.2% to$132.4 million at September 30, 2024 compared to$128.3 million at December 31, 2023, primarily as a result of an increase in deposits during thenine months ended September 30, 2024 and the proceeds received from the sales, paydowns and maturities of securities.

Previous wording

AFS securities decreased$18.2 million or 3.4% to$519.4 million at June 30, 2024 from$537.6 million at December 31, 2023 as maturities and principal paydowns of AFS securities exceeded purchases during thesix months ended June 30, 2024. HTM securities decreased$20.5 million to$142.6 million at June 30, 2024, from$163.1 million at December 31, 2023, as a result of paydowns and maturities exceeding purchases during the six months ended June 30, 2024.

Current wording

AFS securities decreased$3.4 million or 0.6% to$534.2 million at September 30, 2024 from$537.6 million at December 31, 2023 as sales, maturities and principal paydowns of AFS securities exceeded purchases during thenine months ended September 30, 2024. HTM securities decreased$25.2 million to$137.9 million at September 30, 2024, from$163.1 million at December 31, 2023, as a result of paydowns and maturities exceeding purchases during the nine months ended September 30, 2024.

Previous wording

Total loans receivable, net, including loans held for sale, increased$32.7 million or 5.2% to$655.2 million at June 30, 2024 from$622.5 million at December 31, 2023, primarily due to increases in residential mortgage loans and construction loans originated during thesix months ended June 30, 2024. Residential mortgage loans increased$22.4 million or 13.0% to$195.3 million at June 30, 2024 from$172.9 million at December 31, 2023. Construction loans increased$11.2 million or 10.7% to$115.7 million at June 30, 2024 from$104.5 million at December 31, 2023. Additionally, consumer home equity lines of credit increased$1.8 million or 5.3% to$36.3 million at June 30, 2024 from$34.5 million at December 31, 2023, and other consumer loans increased slightly to $24.7 million at June 30, 2024 compared to$24.5 million at December 31, 2023. Conversely, commercial real estate loans decreased$582,000 or 0.2% to$264.2 million at June 30, 2024 from$264.8 million at December 31, 2023, and commercial and agricultural loans decreased$3.3 million or 10.0% to$30.0 million at June 30, 2024 from$33.3 million at December 31, 2023. Loans held for sale increased$1.2 million or 121.4% to$2.1 million at June 30, 2024 from$967,000 at December 31, 2023.

Current wording

Total loans receivable, net, including loans held for sale, increased$64.2 million or 10.3% to$686.7 million at September 30, 2024 from$622.5 million at December 31, 2023, primarily due to increases in real estate loans originated during thenine months ended September 30, 2024. Residential mortgage loans increased$27.6 million or 16.0% to$200.5 million at September 30, 2024 from$172.9 million at December 31, 2023. Commercial real estate loans increased$28.4 million or 10.7% to$293.2 million at September 30, 2024 from$264.8 million at December 31, 2023. Construction loans increased$10.2 million or 9.8% to$114.7 million at September 30, 2024 from$104.5 million at December 31, 2023. Additionally, consumer home equity lines of credit increased$1.6 million or 4.8% to$36.1 million at September 30, 2024 from$34.5 million at December 31, 2023. Commercial and agricultural loans decreased$2.9 million or 8.6% to$30.4 million at September 30, 2024 from$33.3 million at December 31, 2023 and other consumer loans decreased slightly to $23.9 million at September 30, 2024 compared to$24.5 million at December 31, 2023. Loans held for sale increased to$1.6 million at September 30, 2024 from$967,000 at December 31, 2023.

Previous wording

Premises and equipment, net increased$1.1 million or 3.9% to$29.8 million at June 30, 2024 from$28.6 million at December 31, 2023 as a result of improvements made to existing branches.

Current wording

Premises and equipment, net increased$908,000 or 3.2% to$29.5 million at September 30, 2024 from$28.6 million at December 31, 2023 as a result of improvements made to existing branches.

Previous wording

Other assets decreased $11.9 million or 40.8% to $17.3 million at June 30, 2024 from $29.2 million at December 31, 2023, primarily due to the collection of an outstanding receivable from a matured investment security, which was received in the first quarter of 2024 after being outstanding at the end of 2023.

Current wording

Other assets decreased $14.5 million or 49.5% to $14.8 million at September 30, 2024 from $29.2 million at December 31, 2023, primarily due to the collection of an outstanding receivable from a matured investment security, which was received in the first quarter of 2024 after being outstanding at the end of 2023.

Previous wording

**Deposit Accounts -**Total deposits increased$41.2 million or 3.4% to$1.24 billion at June 30, 2024 from December 31, 2023, primarily due to increases in higher cost certificates of deposit and money market accounts, partially offset by decreases in checking and savings accounts. The Bank had$6.5 million in brokered time deposits at both June 30, 2024 and December 31, 2023. 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 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$5.2 million and $5.0 million in other brokered deposits at June 30, 2024 and December 31, 2023, respectively. At June 30, 2024, the Bank had no deposit relationships greater than 5% of outstanding deposits, compared to one deposit relationship totaling approximately 5.2% of outstanding deposits at December 31, 2023. At June 30, 2024, approximately$345.9 million or 28.0% of our$1.24 billion deposit portfolio was uninsured. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements. For additional details of deposits, see “Note 9 – Deposits” of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.

Current wording

**Deposit Accounts -**Total deposits increased$62.3 million or 5.2% to$1.26 billion at September 30, 2024 from December 31, 2023, due to increases in higher cost certificates of deposit and money market accounts, partially offset by decreases in checking and savings accounts. The Bank had$25.8 million in brokered time deposits at September 30, 2024 compared to $5.2 million at December 31, 2023. 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 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$5.2 million and $5.0 million in other brokered deposits at September 30, 2024 and December 31, 2023, respectively. At September 30, 2024, the Bank had no deposit relationships greater than 5% of outstanding deposits, compared to one deposit relationship totaling approximately 5.2% of outstanding deposits at December 31, 2023. At September 30, 2024, approximately$330.6 million or 26.3% of our$1.26 billion deposit portfolio was uninsured. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements. For additional details of deposits, see “Note 9 – Deposits” of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.

Previous wording

**Borrowings -**The Bank had $65.0 million in borrowings from the Federal Reserve Bank of Atlanta (“FRB”) at June 30, 2024, compared to $119.2 million at December 31, 2023. 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$22.0 million in other borrowings at June 30, 2024, compared to$19.2 million and December 31, 2023, which consisted of short-term repurchase agreements with certain commercial demand deposit customers for sweep accounts. For additional information, see “Note 10 – Borrowings” of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.

Current wording

**Borrowings -**The Bank had $65.0 million in borrowings from the Federal Reserve Bank of Atlanta (“FRB”) at September 30, 2024, compared to $119.2 million at December 31, 2023. 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$24.3 million in other borrowings at September 30, 2024, compared to$19.2 million and December 31, 2023, which consisted of short-term repurchase agreements with certain commercial demand deposit customers for sweep accounts. For additional information, see “Note 10 – Borrowings” of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.

Previous wording

Shareholders’ equity increased$3.5 million or 2.0% to$175.9 million at June 30, 2024 from$172.4 million at December 31, 2023. The increase was attributable to$3.9 million of net income and a$1.3 reduction in accumulated other comprehensive loss, partially offset by$452,000 in dividends paid to common shareholders, $97,000 in preferred dividends paid, and$670,000 in Company stock repurchases during thesix months ended June 30, 2024.

Current wording

Shareholders’ equity increased$12.7 million or 7.4% to$185.1 million at September 30, 2024 from$172.4 million at December 31, 2023. The increase was attributable to$5.9 million of net income and a$9.0 million reduction in accumulated other comprehensive loss, partially offset by $1.4 million in dividends paid to common shareholders, $512,000 in preferred dividends paid, and$829,000 in Company stock repurchases during thenine months ended September 30, 2024.

Previous wording

Net income available to common shareholders increased $351,000, or 19.7%, to$2.1 million or$0.66 per basic common share for the quarter ended June 30, 2024, compared to$1.8 million or$0.55 per basic common share for the quarter ended June 30, 2023. The increase in net income was the result of increases in net interest income and non-interest income combined with lower provision for credit losses during thesecond quarter of 2024 compared to thesecond quarter of 2023, partly offset by higher non-interest expense.

Current wording

Net income available to common shareholders decreased $127,000, or 6.0%, to$2.0 million or$0.62 per basic common share for the quarter ended September 30, 2024, compared to$2.1 million or$0.65 per basic common share for the quarter ended September 30, 2023. The decrease in net income available to common shareholders was primarily the result of increases in non-interest expense, the provision for credit losses and preferred stock dividends paid during thethird quarter of 2024 compared to thethird quarter of 2023, partly offset by higher net interest income and non-interest income.

Previous wording

Net interest income increased $1.1 million or 11.6% to $10.2 million during the quarter ended June 30, 2024, compared to $9.1 million for the same quarter in 2023. During the quarter ended June 30, 2024, average interest-earning assets increased $80.8 million or 6.0% to $1.43 billion from $1.35 billion for the same quarter in 2023, while average interest-bearing liabilities increased $90.6 million or 9.0% to $1.1 billion for the quarter ended June 30, 2024 from $1.0 billion for the comparable quarter in 2023. The Company's net interest margin was 2.86% for the quarter ended June 30, 2024 compared to 2.72% for the comparable quarter in 2023. The Company's net interest spread on a tax equivalent basis was 2.12% for the quarter ended June 30, 2024 compared to 2.06% for the quarter ended June 30, 2023.

Current wording

Net interest income increased $965,000 or 10.2% to $10.4 million during the quarter ended September 30, 2024, compared to $9.4 million for the same quarter in 2023 due to increases in both average interest-earning assets and net interest margin. During the quarter ended September 30, 2024, average interest-earning assets increased $82.6 million or 6.0% to $1.46 billion from $1.37 billion for the same quarter in 2023, while average interest-bearing liabilities increased $84.9 million or 8.3% to $1.11 billion for the quarter ended September 30, 2024 from $1.03 billion for the comparable quarter in 2023. The Company's net interest margin was 2.87% for the quarter ended September 30, 2024 compared to 2.76% for the comparable quarter in 2023. The Company's net interest spread on a tax equivalent basis was 2.10% for the quarter ended September 30, 2024 compared to 2.04% for the quarter ended September 30, 2023.

Previous wording

Interest income on loans increased almost $2.0 million or 24.2% to $10.0 million for the quarter ended June 30, 2024 from $8.1 million for thesecond quarter of 2023. The increase was the result of a $64.9 million increase in the average loan portfolio balance combined with a 66 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.

Current wording

Interest income on loans increased $2.2 million or 26.1% to $10.6 million for the quarter ended September 30, 2024 from $8.4 million for thethird quarter of 2023. The increase was the result of a $79.4 million increase in the average loan portfolio balance combined with a 63 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.

Previous wording

Interest income from taxable investments increased $616,000 or 9.0% to $7.5 million during the quarter ended June 30, 2024, from $6.9 million for thesecond quarter of 2023, due to a 57 basis point increase in the average yield to 4.53%, reflecting higher market interest rates, which was partially offset by a $34.2 million decrease in the average balance of taxable investments. Tax equivalent interest income from non-taxable investments decreased $8,000 to $179,000 during the quarter ended June 30, 2024 primarily due to a $1.0 million decrease in the average balance of non-taxable investments, which was partially offset by a two basis point increase in the average yield.

Current wording

Interest income from taxable investments decreased $160,000 or 2.1% to $7.4 million during the quarter ended September 30, 2024, from $7.6 million for thethird quarter of 2023, due to a $38.9 million decrease in the average balance of taxable investments, which was partially offset by a 16 basis point increase in the average yield to 4.52%, reflecting higher market interest rates. Tax equivalent interest income from non-taxable investments decreased $70,000 to $89,000 during the quarter ended September 30, 2024 primarily due to a $7.8 million decrease in the average balance of non-taxable investments, reflecting investment sales during the third quarter of 2024.

Previous wording

Interest income from deposits with other banks increased $701,000 to $1.2 million during the quarter ended June 30, 2024, from $467,000 for thesecond quarter of 2023, due to a $51.1 million increase in the average balance of these assets combined with a 29 basis point increase in the average yield earned on these assets due to increased market interest rates.

Current wording

Interest income from deposits with other banks increased $748,000 to $1.5 million during the quarter ended September 30, 2024, from $703,000 for thethird quarter of 2023, due to a $49.8 million increase in the average balance of these assets combined with a 47 basis point increase in the average yield earned on these assets due to increased market interest rates.

Previous wording

Total interest expense increased $2.2 million or 34.4% to $8.6 million for the quarter ended June 30, 2024 compared to $6.4 million for the same quarter in 2023 due to an increase in market interest rates combined with a $90.6 million increase in the average balance of these liabilities.

Current wording

Total interest expense increased $1.7 million or 23.7% to $9.1 million for the quarter ended September 30, 2024 compared to $7.4 million for the same quarter in 2023 due to an increase in market interest rates combined with a $84.9 million increase in the average balance of these liabilities.

Previous wording

Interest expense on deposits increased $2.1 million to $7.3 million for the quarter ended June 30, 2024, from $5.2 million for thesecond quarter of 2023, due to an increase of 64 basis points in the average cost combined with a $96.1 million increase in the average balance of interest-bearing deposit accounts, reflecting growth in higher cost money market and certificate of deposit accounts. Interest expense on FRB and other borrowings increased $67,000 to $890,000 for the quarter ended June 30, 2024, from $823,000 for thesecond quarter of 2023, due to an increase of 55 basis points in the average cost of these liabilities, reflecting higher market interest rates, which was partially offset by a $5.5 million decrease in the average balance of these liabilities.

Current wording

Interest expense on deposits increased $1.7 million to $7.8 million for the quarter ended September 30, 2024, from $6.1 million for thethird quarter of 2023, due to an increase of 46 basis points in the average cost combined with an $83.5 million increase in the average balance of interest-bearing deposit accounts, reflecting growth in higher cost money market and certificate of deposit accounts. Interest expense on FRB and other borrowings increased $59,000 to $1.4 million for the quarter ended September 30, 2024, from $1.3 million for thethird quarter of 2023, due to an increase of four basis points in the average cost of these liabilities, reflecting higher market interest rates, combined with a $1.4 million increase in the average balance of these liabilities.

Previous wording

The Company recorded a $175,000 provision for credit losses on loans and no provision for credit losses on unfunded commitments during the quarter ended June 30, 2024, compared to a $161,000 provision for credit losses on loans and a $60,000 provision for credit losses on unfunded commitments, resulting in a total provision for credit losses of $221,000 during the quarter ended June 30, 2023. Net charge-offs totaled $59,000 for thesecond quarter of 2024 compared to $5,000 during thesecond quarter of 2023. For additional information of the changes in the allowance for credit losses, see "Note 6 - Investments, AFS", "Note 7 - Investments, HTM, and “Note 8 - Loans Receivable" of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.

Current wording

The Company recorded a $725,000 provision for credit losses on loans and a $145,000 reversal of provision for credit losses on unfunded commitments, resulting in a total provision for credit losses of $580,000 during the quarter ended September 30, 2024, compared to no provision for credit losses during the quarter ended September 30, 2023. The increase in the provision during the three months ended September 30, 2024, was primarily the result of loan growth and, to a less extent, higher charge-offs. Net charge-offs totaled $79,000 for thethird quarter of 2024 compared to a net recovery of $15,000 during thethird quarter of 2023. For additional information on the changes in the allowance for credit losses, see "Note 6 - Investments, AFS", "Note 7 - Investments, HTM, and “Note 8 - Loans Receivable" of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.

Previous wording

Non-interest income increased $203,000 or 9.0% to $2.5 million for the quarter ended June 30, 2024 compared to $2.3 million for the quarter ended June 30, 2023. The increase was due to increases in all non-interest income line items except for insurance commissions during the quarter ended June 30, 2024 when compared to the quarter ended June 30, 2023. The largest increase in non-interest income was in trust income, which increased $77,000 to $534,000 for the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023. Additional changes in non-interest income for the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023 included a $58,000 increase in other income, a $30,000 increase in gain on sale of loans and a $30,000 increase in ATM and check card fee income, as well as smaller increases in other categories. For additional details of the changes in non-interest income, see “Note 14 - Non-Interest Income” of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.

Current wording

Non-interest income increased $457,000 or 21.1% to $2.6 million for the quarter ended September 30, 2024 compared to $2.2 million for the quarter ended September 30, 2023. The increase was due to increases in all non-interest income line items except for service fees on deposit accounts during the quarter ended September 30, 2024 when compared to the quarter ended September 30, 2023. The largest increase came from trust income, which increased $263,000 to $721,000 for the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023. Additional changes in non-interest income for the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023 included a $48,000 increase in commission on insurance, a $74,000 increase in gain on sale of loans and a $37,000 gain on sales of AFS securities, as well as smaller increases in other categories. For additional details of the changes in non-interest income, see “Note 14 - Non-Interest Income” of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.

Previous wording

Non-interest expense increased $759,000 or 8.5% to $9.7 million for the quarter ended June 30, 2024 compared to $8.9 million for the quarter ended June 30, 2023. The following table summarizes the changes in non-interest expense:

Current wording

Non-interest expense increased $389,000 or 4.4% to $9.3 million for the quarter ended September 30, 2024 compared to $8.9 million for the quarter ended September 30, 2023. The following table summarizes the changes in non-interest expense:

Previous wording

Most of the increases in non-interest expenses during thesecond quarter of 2024 were due to the overall growth of the Company, increased operations and the addition of our newest branch in Augusta, Georgia which opened in April 2023. The largest increase in non-interest expense during thesecond quarter of 2024 was compensation and employee benefits expense, which increased $500,000 to $5.5 million for the quarter ended June 30, 2024, compared to $5.0 million during the same period in 2023. Other expenses increased $304,000 or 24.8% to $1.5 million for the quarter ended June 30, 2024, compared to $1.2 million during the same period in 2023.

Current wording

Most of the increases in non-interest expenses during thethird quarter of 2024 were due to the overall growth of the Company, increased operations and the addition of our newest branch in Augusta, Georgia which opened in April 2023. The largest increase in non-interest expense during thethird quarter of 2024 was compensation and employee benefits expense, which increased $397,000 to $5.4 million for the quarter ended September 30, 2024, compared to $5.0 million during the same period in 2023. Cloud services increased $299,000 due to the reclassification of those expenses from depreciation and maintenance of equipment expense, which decreased $360,000 during the quarter ended September 30, 2024, compared to the same period in 2023.

Previous wording

The provision for income taxes increased 20.9% to $565,000 for the quarter ended June 30, 2024, from $468,000 for the same period in 2023, due to higher net income before taxes in the 2024 period. Pre-tax net income was $2.8 million for the quarter ended June 30, 2024 compared to $2.2 million for thesecond quarter of 2023. The Company’s combined federal and state effective income tax rate was 20.3% and 20.8% for the quarters ended June 30, 2024 and 2023, respectively.

Current wording

The provision for income taxes increased 28.9% to $732,000 for the quarter ended September 30, 2024, from $568,000 for the same period in 2023, due to higher pre-tax net income. Pre-tax net income was $3.1 million for the quarter ended September 30, 2024 compared to $2.7 million for thethird quarter of 2023. The Company’s combined federal and state effective income tax rate was 23.3% and 21.1% for the quarters ended September 30, 2024 and 2023, respectively.

Previous wording

Results of Operations for the Six Months Ended June 30, 2024 and 2023

Current wording

Results of Operations for the Nine Months Ended September 30, 2024 and 2023

Previous wording

Net income available to common shareholders decreased $571,000, or 12.8%, to$3.9 million or$1.20 per basic common share for thesix months ended June 30, 2024, compared to$4.5 million or$1.37 per basic common share for thesix months ended June 30, 2023. The decrease in net income was primarily the result of higher provisions for credit losses and non-interest expense, partially offset by increases in net interest income and non-interest income.

Current wording

Net income available to common shareholders decreased $697,000, or 10.6%, to$5.9 million or$1.83 per basic common share for thenine months ended September 30, 2024, compared to$6.6 million or$2.02 per basic common share for thenine months ended September 30, 2023. The decrease in net income was primarily the result of increases in the provision for credit losses, non-interest expense and preferred stock dividends paid, partially offset by increases in net interest income and non-interest income.

Previous wording

The following table compares detailed average balances, average yields on interest-earning assets, average costs of interest-bearing liabilities and the resulting changes in interest income and expense for thesix months ended June 30, 2024 and 2023. The average balances were derived from the daily balances throughout the periods indicated. The average yields or costs were calculated by dividing the income or expense by the average balance of the corresponding assets or liabilities. Nonaccrual loans are included in earning assets in the following table. Loan yields have been reduced to reflect the negative impact on our earnings of loans on nonaccrual status. Interest income from non-taxable investments is calculated on a tax equivalent basis, which recognizes the income tax savings when comparing taxable and tax-exempt assets and was calculated using the effective tax rate for thesix months ended June 30, 2024 and 2023.

Current wording

The following table compares detailed average balances, average yields on interest-earning assets, average costs of interest-bearing liabilities and the resulting changes in interest income and expense for thenine months ended September 30, 2024 and 2023. The average balances were derived from the daily balances throughout the periods indicated. The average yields or costs were calculated by dividing the income or expense by the average balance of the corresponding assets or liabilities. Nonaccrual loans are included in earning assets in the following table. Loan yields have been reduced to reflect the negative impact on our earnings of loans on nonaccrual status. Interest income from non-taxable investments is calculated on a tax equivalent basis, which recognizes the income tax savings when comparing taxable and tax-exempt assets and was calculated using the effective tax rate for thenine months ended September 30, 2024 and 2023.

Previous wording

Net interest income increased $796,000 or 4.1% to $20.2 million during thesix months ended June 30, 2024, compared to $19.4 million for the samesix months in 2023. During thesix months ended June 30, 2024, average interest-earning assets increased $121.7 million or 9.2% to $1.44 billion from $1.32 billion for the samesix months in 2023, while average interest-bearing liabilities increased $132.0 million or 13.5% to $1.11 billion for thesix months ended June 30, 2024 from $974.8 million for the comparablesix months in 2023. The Company's net interest margin was 2.80% for thesix months ended June 30, 2024 compared to 2.94% for the comparablesix months in 2023, as higher funding costs continued to exert pressure on our net interest margin. The Company's net interest spread on a tax equivalent basis was 2.07% for thesix months ended June 30, 2024 compared to 2.39% for thesix months ended June 30, 2023.

Current wording

Net interest income increased $1.8 million or 6.1% to $30.6 million during thenine months ended September 30, 2024, compared to $28.8 million for the same nine months in 2023, due to an increase in average interest-earning assets, partially offset by a decline in net interest margin. During thenine months ended September 30, 2024, average interest-earning assets increased $108.5 million or 8.1% to $1.45 billion from $1.34 billion for the same nine months in 2023, while average interest-bearing liabilities increased $116.0 million or 11.7% to $1.11 billion for thenine months ended September 30, 2024 from $992.8 million for the comparable nine months in 2023. The Company's net interest margin was 2.83% for thenine months ended September 30, 2024 compared to 2.88% for the comparable nine months in 2023, as higher funding costs continued to exert pressure on our net interest margin. The Company's net interest spread on a tax equivalent basis was 2.08% for thenine months ended September 30, 2024 compared to 2.26% for thenine months ended September 30, 2023.

Previous wording

Interest income on loans increased $4.1 million or 26.5% to $19.6 million for thesix months ended June 30, 2024 from $15.5 million for thesix months of 2023. The increase was the result of a $70.5 million increase in the average loan portfolio balance combined with a 68 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.

Current wording

Interest income on loans increased $6.3 million or 26.4% to $30.2 million for thenine months ended September 30, 2024 from $23.9 million for thenine months of 2023. The increase was the result of a $73.4 million increase in the average loan portfolio balance combined with a 66 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.

Previous wording

Interest income from taxable investments increased $1.5 million or 11.2% to $15.0 million during thesix months ended June 30, 2024, from $13.5 million for thesix months of 2023, due to a 61 basis point increase in the average yield to 4.48%, reflecting higher market interest rates, which was partially offset by a $27.6 million decrease in the average balance of taxable investments. Tax equivalent interest income from non-taxable investments decreased $27,000 to $357,000 during thesix months ended June 30, 2024 primarily due to a $847,000 decrease in the average balance of non-taxable investments and a 12 basis point decrease in the average yield.

Current wording

Interest income from taxable investments increased $1.3 million or 6.4% to $22.4 million during thenine months ended September 30, 2024, from $21.0 million for thenine months of 2023, due to a 46 basis point increase in the average yield to 4.49%, reflecting higher market interest rates, which was partially offset by a $31.3 million decrease in the average balance of taxable investments. Tax equivalent interest income from non-taxable investments decreased $106,000 to $470,000 during thenine months ended September 30, 2024 primarily due to a $3.2 million decrease in the average balance of non-taxable investments and a 13 basis point decrease in the average yield.

Previous wording

Interest income from deposits with other banks increased $2.2 million to $2.7 million during thesix months ended June 30, 2024, from $502,000 for thesix months of 2023, due to a $79.6 million increase in the average balance of these assets combined with a 47 basis point increase in the average yield earned due to increased market interest rates.

Current wording

Interest income from deposits with other banks increased $2.9 million to $4.1 million during thenine months ended September 30, 2024, from $1.2 million for thenine months of 2023, due to a $69.6 million increase in the average balance of these assets combined with a 50 basis point increase in the average yield earned due to increased market interest rates.

Previous wording

Total interest expense increased $7.0 million or 67.0% to $17.4 million for thesix months ended June 30, 2024 compared to $10.4 million for the samesix months in 2023 due to an increase in market interest rates combined with a $132.0 million increase in the average balance of these liabilities.

Current wording

Total interest expense increased $8.7 million or 49.0% to $26.5 million for thenine months ended September 30, 2024 compared to $17.8 million for the same nine months in 2023 due to an increase in market interest rates combined with a $98.5 million increase in the average balance of these liabilities.

Previous wording

Interest expense on deposits increased $6.1 million to $14.2 million for thesix months ended June 30, 2024, from $8.1 million for thesix months of 2023, due to an increase of 106 basis points in the average cost combined with a $106.4 million increase in the average balance of interest-bearing deposit accounts, reflecting growth in higher cost money market and certificate of deposit accounts. Interest expense on FRB and other borrowings increased $850,000 to $2.3 million for thesix months ended June 30, 2024, from $1.5 million for thesix months of 2023, due to a $25.5 million increase in the average balance of these liabilities combined with an increase of 75 basis points in the average cost.

Current wording

Interest expense on deposits increased $7.8 million to $21.9 million for thenine months ended September 30, 2024, from $14.2 million for thenine months of 2023, due to an increase of 84 basis points in the average cost combined with a $98.5 million increase in the average balance of interest-bearing deposit accounts, reflecting growth in higher-cost money market and certificate of deposit accounts. Interest expense on FRB and other borrowings increased $929,000 to $4.6 million for thenine months ended September 30, 2024, from $3.6 million for thenine months of 2023, due to a $17.4 million increase in the average balance of these liabilities combined with an increase of 29 basis points in the average cost.

Previous wording

The Company recorded a $475,000 provision for credit losses on loans and a $35,000 provision for credit losses on unfunded commitments, resulting in a total provision for credit losses of $510,000 during thesix months ended June 30, 2024, compared to a $326,000 provision for credit losses on loans and a $105,000 reversal of provision for credit losses on unfunded commitments, resulting in a total provision for credit losses of $221,000 during thesix months ended June 30, 2023. The increase in the provision during the six months ended June 30, 2024, was primarily the result of loan growth and higher net charge-offs. Net charge-offs totaled $86,000 for the firstsix months of 2024 compared to $5,000 during the firstsix months of 2023. For additional information of the changes in the allowance for credit losses, see "Note 6 - Investments, AFS", "Note 7 - Investments, HTM, and “Note 8 - Loans Receivable" of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.

Current wording

The Company recorded a $1.2 million provision for credit losses on loans and a $110,000 reversal of provision for credit losses on unfunded commitments, resulting in a total provision for credit losses of $1.1 million during thenine months ended September 30, 2024, compared to a $376,000 provision for credit losses on loans and a $155,000 reversal of provision for credit losses on unfunded commitments, resulting in a total provision for credit losses of $221,000 during thenine months ended September 30, 2023. The increase in the provision during thenine months ended September 30, 2024, was primarily the result of loan growth and higher net charge-offs. Net charge-offs totaled $165,000 for the first nine months of 2024 compared to a net recovery of $10,000 during the first nine months of 2023. For additional information on the changes in the allowance for credit losses, see "Note 6 - Investments, AFS", "Note 7 - Investments, HTM, and “Note 8 - Loans Receivable" of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.

Previous wording

Non-interest income increased $324,000 or 7.3% to $4.8 million for thesix months ended June 30, 2024 compared to $4.5 million for thesix months ended June 30, 2023. The increase was primarily due to a $217,000 increase in trust income during thesix months ended June 30, 2024 when compared to thesix months ended June 30, 2023. Additional changes in non-interest income for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 included a $54,000 increase in service fees and deposit accounts and a $50,000 increase in ATM and check card fee income, as well as smaller increase in other categories, partially offset by a $34,000 decrease in gain on sale of loans. For additional details of the changes in non-interest income, see “Note 14 - Non-Interest Income” of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.

Current wording

Non-interest income increased $780,000 or 11.8% to $7.4 million for thenine months ended September 30, 2024 compared to $6.6 million for thenine months ended September 30, 2023. The increase was primarily due to a $480,000 increase in trust income. Additional changes in non-interest income for thenine months ended September 30, 2024 compared to thenine months ended September 30, 2023 included a $55,000 increase in commissions on insurance and a $75,000 increase in ATM and check card fee income, as well as smaller increase in other categories. For additional details of the changes in non-interest income, see “Note 14 - Non-Interest Income” of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.

Previous wording

Non-interest expense increased $1.4 million or 7.6% to $19.3 million for thesix months ended June 30, 2024 compared to $17.9 million for thesix months ended June 30, 2023. The following table summarizes the changes in non-interest expense:

Current wording

Non-interest expense increased $1.8 million or 6.5% to $28.6 million for thenine months ended September 30, 2024 compared to $26.9 million for thenine months ended September 30, 2023. The following table summarizes the changes in non-interest expense:

Previous wording

Most of the increases in non-interest expenses during thesix months of 2024 were due to overall growth of the Company, increased operations and the addition of our newest branch in Augusta, Georgia which opened in April 2023. The largest increase in non-interest expense during thesix months of 2024 was compensation and employee benefits expense, which increased $801,000 to $11.1 million for thesix months ended June 30, 2024, compared to $10.3 million during the same period in 2023. In addition, other expenses increased $623,000 or 25.7% to $3.0 million for thesix months ended June 30, 2024, compared to the same period in 2023.

Current wording

Most of the increases in non-interest expenses during thenine months of 2024 were due to overall growth of the Company, increased operations and the addition of our newest branch in Augusta, Georgia which opened in April 2023. The largest increase in non-interest expense during thenine months of 2024 was compensation and employee benefits expense, which increased $1.2 million to $16.4 million for thenine months ended September 30, 2024, compared to $15.2 million during the same period in 2023. In addition, cloud services increased $703,000 due to the reclassification of those expenses from depreciation and maintenance of equipment expense, which decreased $547,000 during thenine months ended September 30, 2024, compared to the same period in 2023. Other expenses increased $154,000 or 4.2% to $3.8 million for thenine months ended September 30, 2024, compared to the same period in 2023.

Previous wording

The provision for income taxes decreased $61,000 or 5.1% to $1.1 million for thesix months ended June 30, 2024, down from $1.2 million for the same period in 2023, due to lower net income before taxes in the 2024 period. The Company’s combined federal and state effective income tax rate was 22.4% and 21.3% for thesix months ended June 30, 2024 and 2023, respectively.

Current wording

The provision for income taxes increased $103,000 or 5.8% to $1.9 million for thenine months ended September 30, 2024, up from $1.8 million for the same period in 2023. The Company’s combined federal and state effective income tax rate was 22.7% and 21.3% for thenine months ended September 30, 2024 and 2023, respectively.

Previous wording

The Bank's primary sources of funds include deposits, scheduled loan and investment securities repayments, including interest payments, maturities and sales of loans and investment securities, advances from the 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 its existing commitments. The Bank had$154.8 million in unused commitments to extend credit and standby letters of credit at June 30, 2024.

Current wording

The Bank's primary sources of funds include deposits, scheduled loan and investment securities repayments, including interest payments, maturities and sales of loans and investment securities, advances from the 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 its existing commitments. The Bank had$148.1 million in unused commitments to extend credit and standby letters of credit at September 30, 2024.

Previous wording

During thesix months ended June 30, 2024, loan disbursements exceeded loan repayments resulting in a $32.7 million or 5.2% increase in total net loans receivable. Also, during thesix months ended June 30, 2024, deposits increased $41.2 million or 3.4%. The Bank had no outstanding FHLB advances at June 30, 2024 with$436.5 million in total borrowing capacity at the FHLB at that date. The Bank had $65.0 million of outstanding borrowings from the FRB discount window at June 30, 2024, which was collateralized by investments with a fair market value of $256.8 million at that date. The Bank also had a$50.0 million unused Fed Funds facility with Pacific Coast Bankers Bank at June 30, 2024. 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.

Current wording

During thenine months ended September 30, 2024, loan disbursements exceeded loan repayments resulting in a $64.7 million increase in total net loans receivable. Also, during thenine months ended September 30, 2024, deposits increased $62.3 million. The Bank had no outstanding FHLB advances at September 30, 2024 with$443.8 million in total borrowing capacity at the FHLB at that date. The Bank had $65.0 million of outstanding borrowings from the FRB discount window at September 30, 2024, which was collateralized by investments with a fair market value of $361.4 million at that date. The Bank also had a$50.0 million unused Fed Funds facility with Pacific Coast Bankers Bank at September 30, 2024. 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.

Previous wording

The Bank's liquid assets in the form of cash and cash equivalents, certificates of deposits with other banks and AFS investments totaled$633.5 million at June 30, 2024. Certificates of deposit that are scheduled to mature in less than one year from June 30, 2024 totaled$199.2 million. Historically, the Bank has been able to retain a significant amount of its deposits as they mature.

Current wording

The Bank's liquid assets in the form of cash and cash equivalents, certificates of deposits with other banks and AFS investments totaled$640.9 million at September 30, 2024. Certificates of deposit that are scheduled to mature in less than one year from September 30, 2024 totaled$222.0 million. Historically, the Bank has been able to retain a significant amount of its deposits as they mature.

Previous wording

Security Federal is a separate legal entity from the Bank and must provide for its own liquidity. At June 30, 2024, Security Federal had liquid assets of$50.0 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 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$0.14 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 2024 at this rate of$0.14 per share, our average total dividend paid each quarter would be approximately $484,000 based on the number of outstanding shares at June 30, 2024.

Current wording

Security Federal is a separate legal entity from the Bank and must provide for its own liquidity. At September 30, 2024, Security Federal had liquid assets of$50.3 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 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$0.14 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 2024 at this rate of$0.14 per share, our average total dividend paid each quarter would be approximately $484,000 based on the number of outstanding shares at September 30, 2024.

Previous wording

In June 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. In general, stock-repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders. During the quarter ended June 30, 2024, the Company repurchased 29,180 shares of its common stock at an aggregate cost of $670,000, leaving 37,776 shares available for further repurchase under the June 2023 stock repurchase program at June 30, 2024. 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 and Use of Proceeds.”

Current wording

In June 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. On August 19, 2024 the Company's Board of Directors announced an additional 100,000 shares available to be purchased under the program. 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, 2024, the Company repurchased 2,500 shares of its common stock at an aggregate cost of $60,000, leaving 35,276 shares available for further repurchase under the existing stock repurchase program at September 30, 2024. 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 and Use of Proceeds.”