SECURITY FEDERAL CORP

NOTE1 - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form10-Q and accounting principles generally accepted in the United States of America ("GAAP"); therefore, they donot 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. The information included in Security Federal Corporation’s (the “Company”) Form10-K for the year ended* December 31, 2024* (“2024 Form10-K”) should be referred to when reviewing interim financial statements. The unaudited consolidated results of operations for thethree months ended* March 31, 2025* arenot necessarily indicative of the results that* maybe expected for the year ending December**31,* 2025 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.

NOTE2 - 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”). SFINV was formed to hold investment securities and allow for better management of the securities portfolio. SFINS is an insurance agency offering auto, business, and home insurance. All significant intercompany transactions and balances have been eliminated in consolidation.

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 isnot 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.

NOTE3 - 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, 2024* included in our2024 Form10-K. 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. There have beenno significant changes to the application of significant accounting policies since* December 31, 2024*.

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:

On* January 1, 2024,the Company adopted ASU2023*-07, “Segment Reporting (Topic280) - Improvement to Reportable Segment Disclosures”. The Company has determined that all of it's banking divisions and subsidiaries meet the aggregation criteria of ASC280, Segment Reporting, as its current operating model and the adoption didnot have a material effect on its financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting authorities arenot expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

NOTE4 - 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 available to common shareholders by the weighted average number of common shares outstanding. Diluted EPS is computed similar to 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. There wereno stock options outstanding at* March 31, 2025* or2024; therefore, no dilutive options were included in the calculation of diluted EPS for those periods. The following tables include a summary of the Company's basic EPS for the periods indicated.

(1) Net income available to common shareholders

NOTE5 - STOCK-BASED COMPENSATION

Certain officers and directors of the Company participate in incentive and non-qualified stock option plans. Options are granted at exercise pricesnot less than the fair value of the Company’s common stock on the date of the grant. At* March 31, 2025and2024*, the Company hadno options outstanding and there wasno activity during thethree months ended* March 31, 2025and2024*. At those dates, there were 50,000 options available for grants.

8

NOTE6 - INVESTMENTS, AVAILABLE FOR SALE ("AFS")

AFS securities are recorded at fair market value. There wasno allowance for credit losses for AFS securities as of* March 31, 2025* and* December 31, 2024*. The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of AFS securities at the dates indicated were as follows:

Student Loan Pools are typically97% guaranteed by the United States government while SBA bonds are100% backed by the full faith and credit of the United States government. The majority of the Bank's MBS are issued or guaranteed by an agency of the United States government such as the Government National Mortgage Association (“Ginnie Mae,”), or by Government Sponsored Entities ("GSEs"), including the Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corp. (“Freddie Mac.”). Ginnie Mae MBS are backed by the full faith and credit of the United States government, while those issued by GSEs arenot.

The following tables summarize gross unrealized losses and the related fair value, aggregated by investment category and length of time that individual AFS securities have been in a continuous unrealized loss position at the dates indicated.

9

At* March 31, 2025* our AFS investment portfolio consisted of 499 individual AFS securities,372 of which were in an unrealized loss position. At* December 31, 2024*,369 individual AFS securities were in an unrealized loss position. The Company reviews its investment securities portfolio at least quarterly and more frequently when economic conditions warrant, assessing whether an allowance for credit loss is deemed necessary. Management’s evaluation of those securities as of* March 31, 2025* is discussed below.

SBA Bonds - SBA Bonds are fully backed by the U.S. government. At* March 31, 2025*, there were 111 AFS SBA Bonds,56 of which had unrealized losses. These unrealized losses related principally to changes in market interest rates. The contractual terms of the investments donot permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company doesnot intend to sell the investments and it is more likely thannot that the Company willnot be required to sell the investments before recovery of their amortized cost bases, which* maybe maturity, the Company didnot* recognize unrealized losses on these securities during thethree months ended* March 31, 2025*.

MBS - At* March 31, 2025*, approximately 77% of the AFS MBS held by the Company were issued or guaranteed by an agency of the U.S. government such as Ginnie Mae, or by GSEs, including Fannie Mae and Freddie Mac. At* March 31, 2025*, there were 177 of these securities in an unrealized loss position. These unrealized losses are believed to be caused by the current interest rate environment. The contractual cash flows of those investments are guaranteed by an agency of the U.S. Government. Because the decline in market value is attributable to the current interest rate environment andnot credit quality, and because the Company doesnot intend to sell the investments and it isnot more likely thannot that the Company will be required to sell the investments before recovery of their amortized cost bases, which* maybe maturity, unrealized losses on these securities werenot* recognized into income during thethree months ended* March 31, 2025*.

Also included in AFS MBS are private label collateralized mortgage obligation ("CMO") securities, which are issued by non-governmental real estate mortgage investment conduits and arenot backed by the full faith and credit of the U.S. government. At* March 31, 2025*, we held 60 private label CMO securities with an amortized cost and fair value of$90.0 million and$86.5 million, respectively. At that date,45 of these securities had unrealized losses. Of the 45 securities in a loss position,31 were rated AA or higher by Moody’s, Bloomberg, and/or S&P. In addition, each of the individual securities have credit enhancements further reducing potential realized losses. The unrealized losses on these securities are believed to be caused by the current interest rate environment. Because the decline in market value is attributable to the current interest rate environment andnot credit quality, and because the Company doesnot intend to sell the investments and it isnot more likely thannot that the Company will be required to sell the investments before recovery of their amortized cost bases, which* maybe maturity, unrealized losses werenot* recognized into income during thethree months ended* March 31, 2025*.

Municipal Bonds- At* March 31, 2025* there were five tax exempt municipal securities and 59 taxable municipal securities that had unrealized losses. The Company believes the unrealized losses on these investments were caused by the interest rate environment and donot relate to the underlying credit quality of the issuers. Because the Company doesnot intend to sell the investments and it isnot more likely thannot that the Company will be required to sell the investments before recovery of their amortized cost bases, which* maybe maturity, unrealized losses werenot* recognized into income during thethree months ended* March 31, 2025*. Each of the municipal securities held was rated*“A2”* (Moody’s) or “AA-” (S&P) or better.

Accrued interest receivable on AFS securities totaled$2.5 million at* March 31, 2025* and was excluded from the estimate of credit losses.

The amortized cost and fair value of AFS securities pledged as collateral for certain deposit accounts, FHLB advances, FRB, and other borrowings were $485.3 million and $451.6 million at * March 31, 2025* , and $578.0 million and $535.8 million at * December 31, 2024* , respectively.

There wereno sales of AFS securities during thethree months ended* March 31, 2025* and2024; therefore, no proceeds from sales, gross gains or gross losses were recorded during those periods.

The amortized cost and fair value of AFS securities at* March 31, 2025*, 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 MBS arenot due at a single maturity date, they are disclosed separately, rather than allocated over the maturity groupings below.

10

NOTE7 - INVESTMENTS, HELD TO MATURITY ("HTM")

HTM securities are recorded at amortized cost. The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of HTM securities at the dates indicated were as follows:

The following tables show gross unrealized losses, fair value, and length of time that individual HTM securities have been in a continuous unrealized loss position at the dates indicated.

At both* March 31, 2025* and* December 31, 2024*,47 individual HTM securities were in a loss position, including 36 and 37 securities that were in a loss position for greater than12 months, respectively. We believe, based on industry analyst reports and credit ratings, that the deterioration in value was attributable to changes in market interest rates and wasnot 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 HTM securities 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 arenot 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.

At* March 31, 2025*, the Company held an amortized cost and fair value of$7.7 million and$7.6 million in HTM private label CMO securities, compared to an amortized cost and fair value of$9.0 million and$8.9 million at* December 31, 2024*, respectively. All MBS 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 ofno 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, the allowance for credit losses for HTM securities wasnot considered to be material as of* March 31, 2025*. The following table summarizes the amortized cost and credit ratings of our HTM securities that were considered to have greater than zero percent credit loss probability at* March 31, 2025*.

As of* March 31, 2025*, there wereno HTM securities classified as either nonaccrual or90 days or more past due and still accruing. Accrued interest receivable on HTM securities totaled$659,000 at* March 31, 2025* and was excluded from the estimate of credit losses.

At* March 31, 2025*, the amortized cost and fair value of HTM securities that were pledged as collateral for certain deposit accounts, FHLB advances and FRB and other borrowings were$91.0 million and$94.3 million, compared to an amortized cost and fair value of$89.8 million and$94.1 million at* December 31, 2024* respectively.

11

At* March 31, 2025*, HTM securities had a combined book value of $133.8 million and an average book yield of 4.59%, which was calculated by multiplying the carrying value of each HTM security by its yield and dividing the sum by the total carrying value. The following table includes a summary of the amortized cost and average book yield of HTM securities by contractual maturity at* March 31, 2025*. Since MBS donot have fixed maturity dates, they are disclosed separately.

NOTE8 - LOANS RECEIVABLE, NET

Loans receivable, net, consisted of the following as of the dates indicated below:

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information regarding the borrowers' ability to pay off their loan in accordance with its terms. This information includes, but isnot limited to, current financial and credit documentation, payment history, public information and current economic trends, among other factors. Risk ratings are used to rate the credit quality of loans for the purposes of determining the Bank’s allowance for credit losses. The following definitions are used for credit quality risk ratings:

Pass- 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 credit losses.

Caution - Loans that donot currently expose the Company to sufficient risk to warrant adverse classification but possess weaknesses.

Special Mention - Loans that donot currently expose the Company to sufficient risk to warrant adverse classification but possess more weaknesses than Caution loans.

Substandard - Loans that typically have an identified weakness or weaknesses and are inadequately protected by the net worth of the borrower or collateral value. All loans90 days or more past due are automatically classified in this category.

Doubtful - Loans that have all the weaknesses of Substandard loans and those weaknesses make collection or liquidation highly questionable and improbable based on current conditions and values.

Loss - Loans considered uncollectible and of such little values that their continuance as assets isnot warranted.

12

The following tables present the Company's recorded investment in loans by credit quality indicators by year of origination as of* March 31, 2025* and* December 31, 2024*.

13

14

Past Due and Nonaccrual Loans

The tables below present an age analysis of past due balances by loan category at the dates indicated.

At* March 31, 2025* and* December 31, 2024*, the Company didnot have any loans that were90 days or more past due and still accruing interest. 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*have to acquire these properties through foreclosure or other means and subsequently sell, develop, or liquidate them.

The following table shows nonaccrual loans by category at the dates indicated.

The Company didnot recognize any interest income on nonaccrual loans during thethree months ended* March 31, 2025* and2024.

The following table represents the accrued interest receivables written off by reversing interest income during thethree months ended* March 31, 2025* and2024:

15

Allowance for Credit Losses

The following tables show the activity in the allowance for credit losses on loans by category for thethree months ended* March 31, 2025* and2024:

Allowance for Credit Losses and Collateral Dependent Loans

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:

The following table summarizes the amortized cost of collateral dependent loans at the dates indicated:

16

Modifications to Borrowers Experiencing Financial Difficulty

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 estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

Loan modifications made for borrowers experiencing financial difficulty typically have their impact already factored into the allowance for credit losses through the measurement methodologies used in estimating the allowance. Consequently, a change to the allowance is generallynot recorded upon modification. However, when the Company provides principal forgiveness on certain real estate loans, the amortized cost basis of the asset is written off against the allowance for credit losses. The forgiven amount is deemed uncollectible, resulting in a reduction of both the amortized cost basis and the allowance for credit losses.

In some cases, the Company modifies a loan by providing multiple types of concessions. Typically,one concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, an additional concession, such as principal forgiveness,* maybe provided. As a result, multiple types of modifications, such as a combination of a term extension, principal forgiveness, and interest rate reduction, may*be made on the same loan within the current reporting period, each of which must be reported. When the Company determines that a modified loan (or portion thereof) is uncollectible, the uncollectible amount is written off, reducing both the amortized cost basis of the loan and the allowance for credit losses accordingly.

The Company hadno modified loans to borrowers experiencing financial difficulty during thethree months ended* March 31, 2025* or2024.

As of* March 31, 2025and2024*, there wereno loans modified with borrowers experiencing financial difficulty for which there was a payment default within12 months of the restructuring date. The Company considers any loan30 days or more past due to be in default.

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 isnot unconditionally cancellable (i.e., commitment cannot be canceled at any time). The allowance for credit losses - unfunded commitments is adjusted through the provision for 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. The allowance for credit losses - unfunded commitments totaling$749,000 at both* March 31, 2025* and* December 31, 2024*, 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 thethree andthree months ended* March 31, 2025* and2024.

17

NOTE9 - DEPOSITS

Deposits outstanding at the dates indicated are summarized below by account type as follows:

We had $5.4 millionin non-certificate brokered deposits at both* March 31, 2025* and* December 31, 2024*, which are included in checking and money market deposits above. We also had $25.8 million in brokered certificates of deposit with a weighted average interest rate of 4.50% at both* March 31, 2025* and* December 31, 2024*. In addition, $114,000 and $55,000, in deposit account overdrafts were reclassified to loans at* March 31, 2025* and* December 31, 2024*, respectively.

Certificates of deposits that met or exceeded the FDIC insurance limit of*$250,000* were $74.8 million and $50.2 million at* March 31, 2025* and* December 31, 2024*, respectively. All deposits that met or exceeded the FDIC insurance limit totaled $341.3 million and $365.8 million at* March 31, 2025* and* December 31, 2024*, respectively.

The amounts and scheduled maturities of certificates of deposit at the dates indicated were as follows:

NOTE10 - BORROWINGS

The Company hadno outstanding borrowings under the FRB discount window at* March 31, 2025* compared to$50.0 million in outstanding borrowings under the Federal Reserve Bank Term Funding Program (“BTFP”) with a weighted average borrowing rate of 4.76% at* December 31, 2024*. During2023, the Company elected to participate in the BTFP to refinance existing FRB discount window borrowings at a lower fixed rate. Advances under the program had aone-year term and were priced at theone-year overnight index swap (“OIS”)rate plus 10 basis points on the day the advance was made. Effective* January 24, 2024,the FRB announced that future advances through the BTFP’s expiration on March 11, 2024,would be set atno* lower than the interest rate on reserve balances in effect at the time of the advance.

Depository institutions* mayborrow from the FRB discount window for periods as long as90* days, and borrowings are prepayable and renewable by the borrower daily. At* March 31, 2025*, we had pledged as collateral for these borrowings investment securities with an amortized cost and fair value of$362.8 million and$337.3 million, compared to an amortized cost and fair value of$370.2 million and$341.0 million at* December 31, 2024*, respectively.

During2023, 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* March 31, 2025*, the Company had pledged loan collateral for FRB borrowings with an amortized cost and collateral value of $77.6 million and $61.2 million at* March 31, 2025*, and $93.5 million and $65.5 million at* December 31, 2024*, respectively. Borrowing capacity provided by pledged loan collateral is included in the FRB discount window availability.

The Company had$24.2 million and$27.8 million in other borrowings at* March 31, 2025* and* December 31, 2024*, respectively. These borrowings consist of short-term repurchase agreements with certain commercial demand deposit customers for sweep accounts. The repurchase agreements typically mature withinone tothree days and the interest rate paid on these borrowings floats monthly with money market type rates. The interest rate paid on the repurchase agreements was 1.49% at both* March 31, 2025* and* December 31, 2024*. Collateral pledged by the Company for these repurchase agreements consisted of investments with a combined amortized cost and fair value of$44.2 million and$42.0 million at* March 31, 2025*, and$42.1 million and$39.7 million at* December 31, 2024*, respectively.

There wereno outstanding FHLB advances at* March 31, 2025* and* December 31, 2024*. FHLB advances are secured by a blanket collateral agreement with the FHLB by pledging the Company’s portfolio of residentialfirst mortgage loans and investment securities. The Company's total pledged collateral for FHLB advances had an amortized cost and fair value of$46.4 million and$37.8 million at* March 31, 2025*, and$39.3 million and$48.1 million at* December 31, 2024*, respectively.

18

NOTE11 - SUBORDINATED DEBENTURES

Junior Subordinated Debentures

In* September 2006,Security Federal Statutory Trust (the "Trust"), a wholly-owned subsidiary of the Company, 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. Effective June 30, 2023,the Capital Securities accrue and pay distributions at a floating rate ofthree* month Secured Overnight Financing Rate ("SOFR") as adjusted by the relevant spread adjustment of 0.26161 plus 170 basis points, which was equal to a rate per annum of 6.26% at* March 31, 2025*, and 6.32% at * December 31, 2024*.

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 due2029* (the*“10*-Year Notes”) and $12.5 million in aggregate principal amount of 5.25% fixed-to-floating rate subordinated notes due2034 (the*“15*-Year Notes”, and together with the10-Year Notes, the “Notes”).

The10-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, 2019but excluding November 22, 2024.Thereafter, the interest rate would have reset semi-annually to a rate equal to the then-currentthree*-month LIBOR plus 369 basis points. In* November 2024,the Company redeemed the10*-Year Notes, which had an aggregate principal balance of $16.5 million.

The15-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, 2019but excluding November 22, 2029.From and including November 22, 2029to but excluding the maturity date or early redemption date, the interest rate for the15*-Year Notes will reset semi-annually to an interest rate equal to the then-currentthree-month LIBOR rate plus 357 basis points. The Notes are payable semi-annually in arrears on* June 1and December 1of each year, commencing June 1, 2020.*

The15-Year Notes are unsecured, subordinated obligations of the Company, ranking junior to the Company’s senior indebtedness. The15-Year Notes arenot subject to redemption at the option of the holders. The Company* mayredeem the15*-Year Notes under limited circumstances prior to2029. After that date, the Company* mayredeem the15*-Year Notes, in whole or in part, at its option. At* March 31, 2025* and* December 31, 2024*, we had a remaining balance of $10.0 million on the15-Year Notes.

The Notes have been structured to qualify as Tier2 capital for the Company 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.

19

NOTE12 - 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 of1956, as amended, and the regulations of the Federal Reserve. For a bank holding company with less than*$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.

Based on its capital levels at* March 31, 2025*, 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* March 31, 2025*, the Bank was considered "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.

The tables below provide the Bank’s regulatory capital requirements and actual results at the dates indicated.

In addition to the minimum capital requirements, the Bank must maintain a capital conservation buffer, which consists of additional Common Equity Tier1 capital greater than2.5% of risk weighted assets above the required minimum levels to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses. At* March 31, 2025*, the Bank’s conservation buffer was 12.2%.

NOTE13 - FAIR VALUE OF FINANCIAL INSTRUMENTS

GAAP requires the Company to disclose fair value of financial instruments measured at amortized cost on the balance sheet and to measure that fair value using 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 current market conditions. Accounting guidance emphasizes that fair value is a market-based measurement,not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels1 and2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level3 of the hierarchy). The followingthree levels of inputs* may*be used to measure fair value:

The following is a description of the valuation methodologies used for assets and liabilities recorded at fair value.

AFS Investment Securities

AFS securities are recorded at fair value on a recurring basis. At* March 31, 2025*, the Company’s investment portfolio was comprised of student loan pools, government and agency bonds, MBS issued by government agencies or GSEs, private label CMO securities and municipal securities. Fair value measurement is based upon prices obtained fromthird 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 Level2.

20

Mortgage Loans Held for Sale

The Company originates fixed rate residential loans on a servicing released basis in the secondary market. Loans closed butnot yet settled with Freddie Mac 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 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. The Company usually delivers a commitment to, and receives funding from, the investor within30 days. Commitments to sell these loans to the investor are considered derivative contracts and are sold to investors on a “best efforts" basis. The Company isnot obligated to deliver a loan or pay a penalty if a loan isnot delivered to the investor. As a result of the short-term nature of these derivative contracts, the fair value of the mortgage loans held for sale in most cases is the same as the value of the loan amount at its origination*.* These loans are classified as Level2.

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 Level3.

Collateral Dependent Loans

The Company doesnot record loans held for investment at fair value on a recurring basis. However, from time to time, the Company designates individually evaluated loans with higher risk as collateral dependent loans and an allowance for credit losses is established as necessary. Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. These loans donot share common risk characteristics and arenot included within the collectively evaluated loans for determining the allowance for credit losses. Under the current expected credit losses, or CECL, methodology 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 basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for estimated costs to sell, and amortized cost. If the fair value of the collateral exceeds the amortized cost,no allowance is required.

Fair value is estimated usingone 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 over24 months old will request a newthird 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* mayorder an independent appraisal immediately or, in some instances, mayelect 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 collateral dependent. However, as asecond* 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.

Those collateral dependent loansnot requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At* March 31, 2025*, all collateral dependent loans were evaluated based on the fair value of the collateral. Loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. The Company records collateral dependent loans as nonrecurring Level3.

The table below presents the balances of assets measured at fair value on a recurring basis at the dates indicated.

There wereno liabilities measured at fair value on a recurring basis at* March 31, 2025* or* December 31, 2024*.

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 the dates indicated, aggregated by the level in the fair value hierarchy within which those measurements fall.

There wereno liabilities measured at fair value on a nonrecurring basis at* March 31, 2025* or* December 31, 2024*.

21

For Level3 assets measured at fair value on a recurring or non-recurring basis at the dates indicated, the significant unobservable inputs used in the fair value measurements were as follows:

For assets and liabilitiesnot presented on the balance sheet at fair value, the following methods are used to determine fair value:

Cash and Cash Equivalents—The carrying amount of these financial instruments approximates fair value. All mature within90 days and donot present unanticipated credit concerns.

Certificates of Deposit with Other Banks—Fair value is based on market prices for similar assets.

HTM Securities—HTM securities are valued at quoted market prices or dealer quotes.

Loans Receivable, Net—The fair value of loans is estimated using 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 following 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 that better capture inherent credit risk over the lifetime of a loan. This consideration of enhanced credit risk provides an estimated exit price for the Company’s loan portfolio. For variable-rate loans that reprice frequently and haveno significant change in credit risk, fair values approximate carrying values.

FHLB Stock—The fair value approximates the carrying value.

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 Advances and Borrowings from the FRB—Fair value is estimated using discounted cash flows with current market rates for borrowings with similar terms. The Company hadno outstanding FHLB advances as of* March 31, 2025* or* December 31, 2024*.

Other Borrowed Money—The carrying value of these short term borrowings approximates fair value.

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 Debentures—The carrying value of junior subordinated debentures approximates fair value.

The following tables provide a summary of the carrying value and estimated fair value of the Company’s financial instruments at the dates indicated presented in accordance with the applicable accounting guidance.

22

At* March 31, 2025*, the Company had$152.7 million in off-balance sheet financial commitments compared to $152.1 million at* December 31, 2024.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 a reasonable estimate of fair value. Fair value estimates are made on a specific date, based on relevant market data and information about the financial instrument. These estimates donot* reflect any premium or discount that could result from offering for sale the Company’s entire holdings of a particular financial instrument.

Becauseno active market exists for a significant portion of the Company’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 arenot considered financial instruments. For example, the Company has significant assets and liabilities that arenot considered financial assets or liabilities including deposit franchise values, loan servicing portfolios, deferred tax liabilities, and premises and equipment.

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 havenot 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 arenot taken into consideration in the fair value presented.

NOTE14 - NON-INTEREST INCOME

**Revenue Recognition -**In accordance with ASU2014-09, Revenue from Contracts with Customers (Topic606), revenues are recognized when control of promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic606, the Company performs the followingfive 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.

The Company only applies thefive-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic606, 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.

**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.

**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 the customer. The Company doesnot charge performance based fees for its trust services and doesnot currently have any institutional clients, hedge funds or mutual funds. Although trust income is included within the scope of ASC606, based on the fees charged by the Company, there wereno changes in the accounting for trust income.

**ATM and Check Card Fee Income -**Check card fee income represents fees earned when a debit card issued by the Company is used. The Company earns interchange fees from debit cardholder transactions through the Mastercard payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged to the card. Certain expenses directly associated with the debit card are recorded on a net basis with the fee income.

The following table presents the Company's non-interest income for the periods indicated. All the Company’s revenue from contracts with customers within the scope of ASC606 is recognized in non-interest income, except for gains on the sale of OREO, which are included in non-interest expense when applicable.

(1) Not within the scope of ASC 606

23

NOTE15 - LEASES

The Company has operating leases onsix of its branches. During thethree months ended* March 31, 2025*, the Company made cash payments in the amount of$131,000 for operating leases. The lease expense recognized during this period was$129,000 and was recorded in occupancy expense within the Consolidated Statements of Income. The lease liability had a net decrease of$124,000. At* March 31, 2025*, the Companyhad ROU assets of$806,000 and operating lease liabilities of$835,000 recorded on its consolidated balance sheet compared to ROU assets of$927,000 and operating lease liabilities of$959,000 at* December 31, 2024*. The lease agreements have maturity dates ranging from2025 through2028, some of which include options for multiplefive orten year extensions. At* March 31, 2025*, the remaining weighted average lease term was 2.12 years and the weighted average discount rate used was 3.2%.

At* March 31, 2025*, maturities of operating lease liabilities for future periods were as follows:

NOTE16 - PREFERRED STOCK

On* May 24, 2022,the Company entered into a Letter Agreement (the "initial Agreement”) with the U.S. Department of Treasury ("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 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 economic effect of the COVID-19 pandemic by providing direct and indirect capital investments in low- and moderate-income community financial institutions.

Pursuant to the initial Agreement, the Company agreed to issue and sell 82,949 shares of preferred stock ("Preferred Stock") to Treasury for an aggregate purchase price of $82.9 million in cash. This ECIP investment is treated as tier1 capital. The Preferred Stock boreno dividends for thefirst 24 months following the investment date, with thefirst dividends being paid on* June 15, 2024at a rate of 2.0%. Thereafter, the annual dividend rate will be adjusted,not higher than2.0%,* based on the lending growth criteria listed in the initial Agreement. After thetenth anniversary of the investment date, the dividend rate will be fixed based on the average annual amount of lending in yearstwo through10. Dividends are payable quarterly in arrears on* March 15,** June 15,** September 15,and December 15.*

The Preferred Stock* maybe redeemed at the option of the Company on or after thefifth* anniversary of issuance (or earlier in the event of loss of regulatory capital treatment), subject to the approval of the appropriate federal banking regulator and in accordance with the federal banking agencies’ regulatory capital regulations. The Preferred Stock is reported on the Consolidated Balance Sheets as Senior Non-Cumulative Perpetual Preferred Stock, Series ECIP.

On* January 10, 2025,the Company entered into an ECIP Securities Purchase Option Agreement (the “Agreement”) with Treasury. Treasury currently owns all 82,949 shares of the Company’s Preferred Stock, issued on May 24, 2022,under the ECIP. The Agreement gives the Company the option to repurchase all of the Preferred Stock at any time during thefirst* 15 years following the original issuance. The purchase price is based on a formula using the present value of the Preferred Stock plus any unpaid dividends. Based on current market conditions, the Company expects the repurchase price to be significantly discounted from the face value.

The repurchase option cannot be exercised during thefirst 10 years unless the Company meets at leastone of the following conditions:

The earliest the Company could satisfyone of the forgoing conditions is* June 30, 2026.As of March 31, 2025,*the Company has not yet met any of the threshold conditions and the Preferred Stock carries a dividend rate of 2.0%.

In addition to meeting a threshold condition, the Company must also comply with the original ECIP terms, maintain its Community Development Financial Institution or Minority Depositor Institution status, and meet applicable legal and regulatory requirements to exercise the option. Although the Company currently meets these eligibility requirements (other than the threshold conditions), there isno assurance it will continue to do so.

NOTE17 - 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. Non-recognized subsequent events are events that provide evidence about conditions that didnot exist at the date of the balance sheet but arose after that date. Management has reviewed all events occurring through the date the consolidated financial statements were available to be issued and determined that there wereno subsequent events requiring accrual or disclosure.

24