10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

__________________________

FORM 10-K

[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2019
	OR
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period _________ to _________
Commission File Number: 0-16120
SECURITY FEDERAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
South Carolina		57-08580504
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
238 Richland Avenue Northwest, Aiken, South Carolina		29801
(Address of principal executive offices)		(Zip Code)
Registrant's telephone number, including area code:		(803) 641-3000
Securities registered pursuant to Section 12(b) of the Act:		Securities registered pursuant to Section 12(g) of the Act:
None		Common Stock, par value $0.01 per share
		(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES [ ] NO [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    YES [ ]  NO [ X ]

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES [ X ] NO [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES [ X ] NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.       X  

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ X ] Smaller reporting company [ X ] Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. [ ]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES [ ]  NO [ X ]

As of March 20, 2020, there were issued and outstanding 3,252,884 shares of the registrant's Common Stock, which are traded on the over-the-counter market through the OTC "Electronic Bulletin Board" under the symbol "SFDL."  The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the average of the bid and asked price of such stock as of June 30, 2019, was $57.5 million.  (The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the registrant that such person is an affiliate of the registrant.)

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the Registrant's Annual Report to Stockholders for the Year Ended December 31, 2019.  (Part II)

2. Portions of the Registrant's Proxy Statement for the 2020 Annual Meeting of Stockholders.  (Part III)

Forward-Looking Statements

This Form 10-K, including information included or incorporated by reference, contents, and future filings by Security Federal Corporation ("Company") on Form 10-Q, and Form 8-K, and future oral and written statements by the Company and its management may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of the words "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future or conditional verbs such as "may," "will," "should," "would" and "could." Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about, among other things, expectations of the business environment in which we operate, projections of future performance and operations or financial condition, perceived opportunities in the market, potential future credit experience, and statements regarding our mission and vision. These forward-looking statements are based upon current management's expectations and may, therefore, involve risk and uncertainties. Our actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements as a result of a wide variety or range of factors, including, but not limited to:

• the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be affected by deterioration in the housing and commercial real estate markets which may lead to increased losses and non-performing assets in our loan portfolio, and may result in our allowance for loan losses not being adequate to cover actual losses, and require us to materially increase our reserves;

• changes in general economic conditions, either nationally or in our market areas;

• changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources;

• fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas;

• secondary market conditions for loans and our ability to sell loans in the secondary market;

• results of examinations of the Company by the Board of Governors of the Federal Reserve System ("Federal Reserve") and the Bank by the Federal Deposit Insurance Corporation ("FDIC") and the South Carolina State Board of Financial Institutions ("State Board"), or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our reserve for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, or impose additional requirements or restrictions on us, any of which could adversely affect our liquidity and earnings;

• legislative or regulatory changes that adversely affect our business, including the effect of the Dodd-Frank Wall Street Reform and Consumer Protection Act; changes in regulatory policies and principles, or the interpretation of regulatory capital requirements or other rules, including as a result of Basel III;

• our ability to attract and retain deposits;

• our ability to control operating costs and expenses;

• our ability to implement our business strategies;

• the use of estimates in determining the fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation;

• difficulties in reducing risk associated with the loans on our balance sheet;

• staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges;

• disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing;

• our ability to retain key members of our senior management team;

• costs and effects of litigation, including settlements and judgments;

• our ability to manage loan delinquency rates;

• increased competitive pressures among financial services companies;

• changes in consumer spending, borrowing and savings habits;

• the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions;

• our ability to pay dividends on our common stock;

• adverse changes in the securities markets;

i

• inability of key third-party providers to perform their obligations to us;

• changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board ("FASB"), including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; and

• other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services including the potential effects of coronavirus on international trade (including supply chains and export levels), and the other risks described elsewhere in this document.

These developments could have an adverse impact on our financial position and our results of operations.

Any of the forward-looking statements that we make may turn out to be wrong because of the inaccurate assumptions we might make because of the factors set forth above or because of other factors we cannot foresee. Because of these and other uncertainties, our actual future results may be materially different from those expressed in any forward-looking statements made by or on our behalf. Therefore, these factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. We undertake no responsibility to update or revise any of these forward-looking statements.

As used throughout this report, the terms "we," "our," or "us" refer to Security Federal Corporation and our consolidated subsidiary, Security Federal Bank.

Available Information

The Company provides a link on its investor information page at www.securityfederalbank.com to the Securities and Exchange Commission's  ("SEC") website (www.sec.gov) for purposes of providing copies of its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports, as soon as reasonably practicable after we have electronically filed such material with, or furnished such material to, the SEC. Other than an investor’s own internet access charges, these filings are available free of charge at the SEC’s website at www.sec.gov. The information contained on the Company’s website is not included as part of, or incorporated by reference into, this Annual Report on Form 10-K.

ii

PART I

Item 1.  Business

Security Federal Corporation

Security Federal Corporation (the "Company") was incorporated under the laws of the State of Delaware in July 1987 for the purpose of becoming the savings and loan holding company for Security Federal Bank ("Security Federal" or the "Bank") upon the Bank's conversion from mutual to stock form (the "Conversion").  Effective August 17, 1998, the Company changed its state of incorporation from Delaware to South Carolina.  On December 28, 2011, the Company reorganized into a bank holding company in connection with the Bank's conversion from a federally chartered stock savings bank to a South Carolina chartered commercial bank. As a result of the reorganization, the Federal Reserve became the Company's primary federal regulator.

As a South Carolina corporation, the Company is authorized to engage in any activity permitted by South Carolina General Corporation Law.  The Company is a one bank holding company.  Through the bank holding company structure, it is possible to expand the size and scope of the financial services offered beyond those currently offered by the Bank.  The holding company structure also provides the Company with greater flexibility than the Bank would have to diversify its business activities, through existing or newly formed subsidiaries, or through acquisitions or mergers of financial institutions as well as other companies.  There are no current arrangements, understandings or agreements regarding any such acquisition.  Future activities of the Company, other than the continuing operations of Security Federal, will be funded through dividends from Security Federal and through borrowings from third parties.  See "Regulation - Regulation of the Company - Dividends" and "Taxation." Activities of the Company may also be funded through sales of additional securities or income generated by other activities of the Company.  At this time, there are no plans regarding sales of additional securities or other activities.

At December 31, 2019, the Company had assets of $963.2 million, deposits of $771.4 million and shareholders' equity of $91.8 million.

The executive office of the Company is located at 238 Richland Avenue Northwest, Aiken, South Carolina 29801, and its telephone number is (803) 641-3000.

Security Federal Bank

General.  Security Federal is a South Carolina chartered commercial bank headquartered in Aiken, South Carolina.  Security Federal, with 17 branch offices in Aiken, Lexington, Richland and Saluda counties in South Carolina and Columbia and Richmond counties in Georgia, was originally chartered under the name Aiken Building and Loan Association on March 27, 1922.  It received its federal charter and changed its name to Security Federal Savings and Loan Association of Aiken on March 7, 1962, and later changed its name to Security Federal Savings Bank of South Carolina, on November 11, 1986.  Effective April 8, 1996, the Bank changed its name to Security Federal Bank.  The Bank converted from the mutual to the stock form of organization on October 30, 1987.  As mentioned above, effective December 28, 2011, Security Federal converted from a federally chartered stock savings bank to a South Carolina chartered commercial bank. As a result of the conversion to a South Carolina commercial bank, the Bank is regulated by the State Board and the FDIC. The Bank will open its 18th branch office in Augusta, Georgia in 2021.

The principal business of Security Federal is accepting deposits from the general public and originating commercial real estate loans, commercial business loans, consumer loans, as well as mortgage loans to buy or refinance one-to-four family residential real estate.  The Bank also originates construction loans on single-family residences, multi-family dwellings and projects, and commercial real estate, as well as loans for the acquisition, development and construction of residential subdivisions and commercial projects. In addition, the Bank operates Security Federal Trust and Investments, a division of the Bank that offers trust, financial planning and financial management services.

Security Federal has two active wholly owned subsidiaries, Security Federal Insurance, Inc. ("SFINS") and Security Federal Investments, Inc. ("SFINV"). SFINS is an insurance agency subsidiary that offers auto, business, health and home insurance. SFINS also has a wholly owned subsidiary, Collier Jennings Financial Corporation, which has three wholly owned subsidiaries: Security Federal Auto Insurance, The Auto Insurance Store Inc., and Security Federal Premium Pay Plans Inc.  Security Federal Premium Pay Plans Inc. has one wholly owned insurance premium finance subsidiary and also has an ownership interest in four other insurance premium finance subsidiaries. SFINV was formed to hold investment securities and allow for better management of the securities portfolio. Security Federal also has one inactive subsidiary, Security Financial Services Corporation.

1

Security Federal's income is derived primarily from interest and fees earned in connection with its lending activities, and its principal expenses are interest paid on savings deposits and borrowings and operating expenses.

Selected Consolidated Financial Information.  This information is incorporated by reference to pages 7 and 8 of the Company’s 2019 Annual Report to Shareholders (“Annual Report”).

Rate/Volume Analysis.  This information is incorporated by reference to page 19 of the Annual Report.

Yields Earned and Rates Paid.  This information is incorporated by reference to page 20 of the Annual Report.

Lending Activities

General.  Security Federal's principal lending activities are making loans on commercial real estate and one-to-four family residential real estate. The Bank originates fixed rate residential real estate loans for sale in the secondary market and adjustable rate mortgage loans ("ARMS") to be held in its portfolio.  The Bank also originates construction loans on single family residences, multi-family dwellings and commercial real estate, and loans for the acquisition, development and construction of residential subdivisions and commercial projects.   To a lesser extent, the Bank originates consumer loans and commercial business loans.

The loan-to-value ratio, maturity and other provisions of loans made by the Bank reflect its policy of making the maximum loan permissible consistent with applicable regulations, established lending policies and market conditions.  The Bank requires title insurance (or acceptable legal opinions on smaller loans secured by real estate), fire insurance, and flood insurance where applicable, on loans secured by improved real estate.

2

Loan Portfolio Composition.  The following table sets forth information concerning the composition of the Bank's loan portfolio, including loans held for sale, in dollar amounts and in percentages by type of loan, and presents a reconciliation of total loans receivable before net items.

	At December 31,
	2019				2018				2017				2016				2015
	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
	(Dollars in Thousands)
TYPE OF LOAN:
Real estate loans:
Residential real estate	$	67,287	14.2	%	$	72,501	16.2	%	$	71,867	17.7	%	$	72,366	19.5	%	$	70,762	20.7	%
Owner occupied residential construction	23,108		4.9		13,246		3.0		12,440		3.1		9,858		2.6		8,074		2.4
Total residential real estate loans	90,395		19.1		85,747		19.2		84,307		20.8		82,224		22.1		78,836		23.1
Commercial loans:
Commercial business	22,234		4.7		28,087		6.3		26,778		6.6		16,279		4.4		12,514		3.7
Commercial real estate	295,878		62.6		268,688		60.2		228,818		56.4		208,958		56.2		187,934		55.0
Multi-family	7,673		1.6		7,272		1.6		8,996		2.2		13,641		3.7		12,149		3.6
Total commercial loans	325,785		68.9		304,047		68.1		264,592		65.2		238,878		64.3		212,597		62.2
Consumer loans:
Deposit account	665		0.1		491		0.1		647		0.1		400		0.1		487		0.1
Home equity lines	28,531		6.0		27,732		6.2		28,690		7.1		24,615		6.6		24,163		7.1
Consumer first and second mortgages	3,625		0.8		3,954		0.9		4,827		1.2		5,527		1.5		6,959		2.0
Premium finance	2,933		0.6		4,896		1.1		4,904		1.2		4,250		1.1		3,409		1.0
Other	20,577		4.4		19,835		4.4		17,694		4.4		15,876		4.3		15,362		4.5
Total consumer loans	56,331		11.9		56,908		12.7		56,762		14.0		50,668		13.6		50,380		14.7
Total loans	472,511		100.0	%	446,702		100.0	%	405,661		100.0	%	371,770		100.0	%	341,813		100.0	%
Less:
Loans in process	9,957				7,225				6,805				3,526				2,903
Deferred fees and discount	469				252				142				165				62
Allowance for loan losses	9,226				9,171				8,221				8,356				8,275
Total loans receivable	$	452,859			$	430,054			$	390,493			$	359,723			$	330,573

3

The following table sets forth information concerning the composition of the Bank's loan portfolio, including loans held for sale, in dollar amounts and in percentages by type of loan, and presents a reconciliation of total loans receivable before net items.

	At December 31,
	2019				2018				2017				2016				2015
	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
	(Dollars in Thousands)
TYPE OF LOAN:
Fixed rate loans
Residential real estate	$	19,277	4.1	%	$	17,473	3.9	%	$	17,746	4.3	%	$	17,336	4.7	%	$	14,158	4.1	%
Commercial business and commercial real estate	263,146		55.7		264,654		59.2		222,952		55.0		203,032		54.6		180,285		52.7
Consumer	23,978		5.1		25,447		5.7		24,407		6.0		22,310		6.0		22,286		6.5
Total fixed rate loans	$	306,401	64.8		$	307,574	68.9		$	265,105	65.3		$	242,678	65.3		$	216,729	63.4
Adjustable rate loans
Residential real estate	$	71,118	15.1		$	68,274	15.3		$	66,561	16.4		$	64,888	17.5		$	64,678	18.9
Commercial business and commercial real estate	62,639		13.3		39,393		8.8		41,640		10.3		35,846		9.6		32,312		9.5
Consumer	32,353		6.8		31,461		7		32,355		8.0		28,358		7.6		28,094		8.2
Total adjustable rate loans	166,110		35.2		139,128		31.1		140,556		34.7		129,092		34.7		125,084		36.6
Total loans	$	472,511	100.0	%	$	446,702	100.0	%	$	405,661	100.0	%	$	371,770	100.0	%	$	341,813	100.0	%
Less
Loans in process	$	9,957			$	7,225			$	6,805			$	3,526			$	2,903
Deferred fees and discounts	469				252				142				165				62
Allowance for loan losses	9,226				9,171				8,221				8,356				8,275
Total loans receivable	$	452,859			$	430,054			$	390,493			$	359,723			$	330,573

As of December 31, 2019, the total amount of loans due after December 31, 2020, which have predetermined or fixed interest rates was $233.0 million, and the total amount of loans due after that date which have floating or adjustable interest rates was $122.4 million.

4

The following schedule illustrates the maturities of Security Federal's loan portfolio, including loans held for sale, at December 31, 2019.  Mortgages which have adjustable or renegotiable interest rates are shown as maturing in the period when the contract is due.  This schedule does not reflect the effects of possible prepayments or enforcement of due-on-sale clauses.

	Residential Real Estate		Owner Occupied Residential Real Estate Construction		Consumer		Commercial Construction and A&D		Commercial Business and Other Commercial Real Estate		Total Loans
	(In Thousands)
Six months or less (1)	$	3,930	$	16,292	$	9,062	$	19,596	$	16,267	$	65,147
Over six months to one year	210		6,724		572		16,862		27,645		52,013
Over one year to three years	1,125		92		5,778		13,581		71,804		92,380
Over three to five years	1,641		—		9,050		11,152		76,712		98,555
Over five to ten years	1,738		—		9,972		4,935		53,664		70,309
Over ten years	58,642		—		21,897		40		13,528		94,107
Total	$	67,286	$	23,108	$	56,331	$	66,166	$	259,620	$	472,511

__________

(1) Includes demand loans, loans having no stated maturity, overdraft loans and personal line of credit loans.

The commercial construction and acquisition and development ("A&D") loans category includes all loans made to builders to finance the A&D of residential neighborhoods and also any construction loans made to builders to finance the construction of individual one- to four-family residences. Construction loans made to owners to finance the construction of a residence are included in the owner occupied residential real estate construction loan category.

Loan Originations/ Renewals, Purchases and Sales.  The following table shows the loan origination including renewals of previously funded loans, purchase, sale and repayment activities of the Bank for the periods indicated.

	Years Ended December 31,
	2019		2018		2017		2016		2015
	(In Thousands)
Originated/ Renewed:
Adjustable rate - residential real estate	$	25,955	$	24,625	$	21,676	$	19,851	$	14,298
Fixed rate - residential real estate (1)	62,526		42,940		42,069		35,435		24,181
Consumer	23,419		22,268		21,466		18,441		11,540
Commercial business and commercial real estate	257,132		204,940		168,474		190,914		130,241
Total loans originated/ renewed	369,032		294,773		253,685		264,641		180,260
Loans Purchased	57		253		5,500		5,005		—
Less:
Loans Sold:
Fixed rate - residential real estate	59,737		45,345		41,977		33,654		23,583
Adjustable rate- residential real estate	—		—		—		—		—
Fixed rate - commercial real estate	625		—		100		—		—
Transfers to OREO	833		436		581		1,026		4,363
Principal repayments	282,721		208,205		182,636		205,009		160,135
Increase (decrease) in other items, net	3,004		1,480		3,121		807		1,481
Net increase (decrease)	$	22,169	$	39,560	$	30,770	$	29,150	$	(9,302	)

__________

(1) Includes newly originated fixed rate loans held for sale and construction/permanent loans converted to fixed rate loans and sold.

5

In addition to interest earned on loans, the Bank receives loan origination fees or "points" for originating loans.  Loan origination points are a percentage of the principal amount of the loan which are charged to the borrower for the creation of the loan.  The Bank's loan origination fees are generally 1% on conventional residential mortgages, and 0.25% to 1% on commercial real estate loans and commercial business loans.  

Total fee income (including amounts amortized to income as yield adjustments) received by the Bank from loan originations was $845,000 for the year ended December 31, 2019.

Loan origination and commitment fees are volatile sources of income.  These fees vary with the volume and type of loans and commitments made and purchased and with competitive conditions in mortgage markets, which in turn are governed by the demand for and availability of money.

The following table shows deferred mortgage loan origination fees recognized as income by the Bank expressed as a percentage of the dollar amount of total mortgage loans originated (and retained in the Bank's portfolio) and purchased during the periods indicated and the dollar amount of deferred loan origination fees at the end of each respective period.

	Years Ended December 31,
	2019			2018			2017			2016			2015
	(Dollars in Thousands)
Net deferred mortgage loan origination fees earned during the period (1)	$	52		$	21		$	(13	)	$	23		$	23
Mortgage loan origination fees earned as a percentage of total portfolio     mortgage loans originated during the period	0.2		%	0.1		%	(0.06		)%	0.1		%	0.2		%
Net deferred mortgage loan origination fees (costs) in loan portfolio at     end of period	$	46		$	359		$	13		$	(27	)	$	18

__________

(1) Includes amounts amortized to interest income as yield adjustments; does not include fees earned on loans sold.

The Bank also receives other fees and charges related to existing loans, conversion fees, assumption fees, late charges and other fees collected in connection with a change in borrower or other loan modifications.

Security Federal currently sells substantially all conforming fixed rate loans with terms of 15 years or greater in the secondary mortgage market.  These loans are sold in order to provide a source of funds and as one of the strategies available to close the gap between the maturities of the Bank's interest-earning assets and interest-bearing liabilities.  Currently, most fixed rate, long-term mortgage loans are being originated based on Federal National Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation ("Freddie Mac") underwriting standards.

Secondary market sales are made to other banks or institutional investors.  Generally all loans sold to investors are without recourse.  For the past several years, substantially all loans have been sold on a servicing released basis. During the year ended December 31, 2019, Security Federal sold $59.7 million in fixed rate residential loans on a servicing released basis in the secondary market.  Loans closed but not yet settled with banks or other investors, are carried in the Bank's "loans held for sale" portfolio.  At December 31, 2019, the Bank had $4.0 million of loans held for sale.  These loans are fixed rate residential loans that have been originated in the Bank's name and have closed.  Virtually all of these loans have commitments to be purchased by investors and the majority of these loans were price locked with the investors on the same day or shortly after the loan was price locked with the Bank's customers.  Therefore, these loans present very little market risk for the Bank.  The Bank usually delivers loans to, and receives funding from, the investor within 30 days.  Security Federal originates all of its loans held for sale on a "best efforts" basis which means that the Bank suffers no penalty if it is unable to deliver a loan to a potential investor.

Federal law restricts the Bank's permissible lending limits to one borrower to the greater of $500,000 or 15% of unimpaired capital and surplus.  At December 31, 2019, the Bank's legal lending limit under this restriction was $16.6 million.  At that date, the Bank's largest loan relationship to a single borrower was $11.3 million, comprised of three loans for commercial properties. These loans were performing in accordance with their repayment terms at December 31, 2019.  South Carolina law restricts the Bank's permissible lending limits to one borrower to 10% of unimpaired capital unless prior approval is granted by a two-thirds vote of the Board of Directors, in which case the limit is increased to 15% of unimpaired capital.  During 2019, the Board approved an increase in the Bank's lending limit to a single borrower to 15% of unimpaired capital, or $16.6 million for the year ended December 31, 2019.

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Loan Solicitation and Processing.  The Bank actively solicits mortgage loan applications from existing customers, real estate agents, builders, real estate developers and others.  The Bank also receives mortgage loan applications as a result of customer referrals and from walk-in customers. Detailed loan applications are obtained to determine the borrower's creditworthiness and ability to repay.  The more significant items on loan applications are verified through the use of credit reports, financial statements and confirmations. After analysis of the loan application and property or collateral involved, including an appraisal of the property (residential appraisals are obtained through independent fee appraisers), a lending decision is made in accordance with the underwriting guidelines of the Bank. These guidelines are generally consistent with Freddie Mac and Fannie Mae guidelines for residential real estate loans.  With respect to commercial real estate loans, the Bank also reviews the capital adequacy of the business, the income potential of the property, the ability of the borrower to repay the loan and honor its other obligations, and general economic and industry conditions.

Upon receipt of a loan application and all required related information from a prospective borrower, the loan application is submitted for approval or rejection. The residential mortgage loan underwriters approve loans which meet Freddie Mac and Fannie Mae underwriting requirements. The Chairman of the Company, the Chief Executive Officer of the Company and the Bank, the President of the Bank, the Executive Vice President/Business Development, the Senior Vice President/Chief Lending Officer and Senior Vice President/Mortgage Lending individually have the authority to approve loans of $500,000 or less, except as set forth above for conforming conventionally underwritten, single family mortgage loans, which are approved by the underwriters.  Loans in excess of $500,000 and up to $1.0 million require the approval of any three of the following: Chairman of the Company, the Chief Executive Officer of the Company and the Bank, the President of the Bank, the President of the Company, the Executive Vice President/Financial Services, the Executive Vice President/Insurance, Mortgage and Trust Services, the Chief Lending Officer, or the Secretary of the Executive Committee.  Any loan in excess of $1.0 million must be approved by the Bank's Executive Committee, which operates as the Bank's Loan Committee.  The loan approval limits discussed above are the aggregate of all loans to any one borrower or entity, not including loans that are secured by the borrower's primary residence, and are conventionally underwritten.

The general policy of Security Federal is to issue loan commitments to qualified borrowers for a specified term, generally for a period of 45 days or less.  With management approval, commitments may be extended for up to an additional 45 days.  At December 31, 2019, the Bank had $282,000 in outstanding commitments on mortgage loans not yet closed compared to $991,000 at December 31, 2018. Security Federal had outstanding commitments available on all lines of credit (including letters of credit, commercial, undisbursed loans in process, home equity, credit cards and other consumer loans) totaling $108.0 million at December 31, 2019.  See Note 19 of the Notes to Consolidated Financial Statements contained in the Annual Report.

Residential Real Estate Lending.  At December 31, 2019 the Bank had $90.4 million or 19.1% of the Bank's total outstanding loan portfolio in residential real estate loans. These loans can have adjustable or fixed rates and include permanent one- to four-family residential mortgage loans as well as construction loans for single family dwellings to owner-occupants.

Security Federal offers a variety of ARMs which offer adjustable rates of interest, payments, loan balances or terms to maturity which vary according to specified indices.  The Bank's ARMs generally have a loan term of 15 to 30 years with initial rate adjustments every one, three, five or seven years during the term of the loan.  After the initial rate adjustment, the loan rate then adjusts annually.  Most of the Bank's ARMs contain a 200 basis point limit as to the maximum amount of change in the interest rate at any adjustment period and a 500 or 600 basis point limit over the life of the loan. The Bank generally originates ARMs to retain in its portfolio. These loans are generally made consistent with Freddie Mac and Fannie Mae guidelines. 

During the year ended December 31, 2019, the Bank originated $88.5 million in residential real estate loans, 29.3% of which had adjustable interest rates. At December 31, 2019, residential ARMs totaled $71.1 million or 15.1% of the Bank's loan portfolio. At December 31, 2019, the Bank also held approximately $19.3 million or 4.1% of the loan portfolio in longer term fixed rate residential mortgage loans.  Currently, the Bank sells the majority of its longer term fixed rate mortgage loans at origination.

There are unquantifiable risks resulting from possible increased costs to the borrower as a result of periodic repricing.  Despite the benefits of ARMs to the Bank's asset/liability management program, these loans also pose potential additional risks, primarily because as interest rates rise, the underlying payment by the borrower rises, increasing the potential for default.  At the same time, marketability of the underlying property may be adversely affected by higher interest rates.

When making a one- to four-family residential mortgage loan, the Bank evaluates both the borrower's creditworthiness and his or her general ability to make principal and interest payments, and the value of the property that will secure the loan.  The Bank generally makes loans on one- to four-family residential properties in amounts of 95% or less of the appraised value of the collateral.  When loans are made for amounts which exceed 80% of the appraised value of the underlying real estate, the Bank's general policy is to require private mortgage insurance on the portion of the loan in excess of 80% of the appraised value.  In general, the Bank restricts its residential lending to South Carolina and the nearby Evans and Augusta, Georgia market.

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Many of the one- to four-family residential mortgage loans we retain in our portfolio consist of loans that do not satisfy acreage limits, income, credit, conforming loan limits (i.e., jumbo mortgages) or various other requirements imposed by Freddie Mac or Fannie Mae. Some of these loans are also originated to meet the needs of borrowers who cannot otherwise satisfy Freddie Mac or Fannie Mae credit requirements because of personal and financial reasons (i.e., bankruptcy, length of time employed, etc.), and other aspects, which do not conform to their underwriting guidelines. Such borrowers may have higher debt-to-income ratios, or the loans are secured by unique properties in rural markets for which there are no sales of comparable properties to support the value according to secondary market requirements. We may require additional collateral or lower loan-to-value ratios to reduce the risk of these loans. We believe that these loans satisfy the needs of borrowers in our market area. As a result, subject to market conditions, we intend to continue to originate these types of loans. We also retain jumbo loans which exceed the conforming loan limits and therefore, are not eligible to be purchased by Freddie Mac or Fannie Mae.

Construction loans are generally made for periods of six months to one year with either adjustable or fixed rates.  At December 31, 2019, residential construction loans on one- to four-family dwellings to owner-occupants totaled $23.1 million, or 4.9%, of the Bank's loan portfolio. On loans of this type, the Bank seeks to evaluate the financial condition and prior performance of the builder, as well as the borrower's creditworthiness and his or her general ability to make principal and interest payments, and the value of the property that will secure the loan. On construction loans offered to individuals (non-builders), the Bank offers a construction/permanent loan.  The one year construction portion of the loan has a fixed rate ranging currently from 3.25% to 6.25% depending on which ARM program the borrower has chosen for the permanent portion of the loan after the construction period.  The borrower pays interest on the loan during the construction phase.  After construction, the loan then automatically converts, depending on the borrower's upfront selection, to a one year ARM, a three year/one year ARM, or a five year/one year ARM loan in which the borrower will pay principal and interest.  The borrower also has the option, after the construction period only, to convert the loan to a fixed rate residential mortgage loan which the Bank immediately sells on the secondary market on a servicing released basis.

Commercial Real Estate, Commercial Business and Multi-Family Loans.  The commercial business loans originated by the Bank are primarily secured by business equipment, furniture and fixtures, inventory and receivables, or are unsecured. At December 31, 2019, the Bank had $22.2 million, or 4.7% of its total loan portfolio, in commercial business loans.  A total of $827,000, or 3.5% of these loans were unsecured at December 31, 2019.

The commercial real estate loans originated by the Bank are primarily secured by non-residential commercial properties, churches, hotels, residential developments, single family speculative dwellings or pre-sold homes, land lots, income property developments, and undeveloped land.  At December 31, 2019, the Bank had $303.6 million, or 64.2% of its total loan portfolio, in commercial real estate loans and multi-family loans. Also included in commercial real estate loans at December 31, 2019 was $18.6 million in A&D loans with terms of typically two to three years.

Multi-family loans originated by the Bank are primarily secured by commercial residential properties including apartment complexes, condominiums or townhouses, and loans for acquisition and development of, or improvements to multi-family residential properties. At December 31, 2019, the Bank had $7.7 million, or 1.6% of its total loan portfolio, in multi-family loans.

The following table summarizes the Bank's commercial real estate, multi-family, and commercial business loans by geographic market area at December 31, 2019.

	Aiken County, SC		Midlands Area, SC		Metro Augusta, GA		Other		Total
	(In Thousands)
Commercial real estate	$	85,141	$	89,171	$	73,959	$	45,869	$	294,140
Multi-family	3,169		805		3,699		—		7,673
Commercial business	10,170		7,343		4,701		1,758		23,972
Total	$	98,480	$	97,319	$	82,359	$	47,627	$	325,785

Loans secured by commercial real estate are typically written for amortization terms of 10 to 20 years. Commercial loans not secured by real estate are typically based on terms of three to 60 months. Both commercial real estate loans and commercial business loans not secured by real estate can be originated on adjustable or fixed rate terms.  Adjustable rates are tied to the prime rate as quoted in The Wall Street Journal and typically adjust on a daily basis. Since 2009, the Bank has instituted floors of typically 4% to 6% on newly originated adjustable rate commercial business and commercial real estate loans. If ceilings are used, the loan will typically require a balloon payment in 60 months or less. Fixed rate loans on commercial real estate usually require a balloon payment in 36 to 60 months. Fixed rate loans on non-real estate collateral are generally amortizing in five years or less.

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Commercial real estate lending entails significant additional credit risk when compared to residential lending. Commercial real estate loans typically involve large loan balances to single borrowers or groups of related borrowers.  Because payments on loans secured by commercial properties often depend upon the successful operation and management of the properties, repayment of these loans may be affected by adverse conditions in the real estate market or the economy.  In order to minimize the risks associated with this type of loan, the Bank generally limits the maximum loan-to-value ratio for commercial real estate to a range of 65% to 80%, based on appraisals of the property at the time of the loan by appraisers designated by the Bank, and strictly scrutinizes the credit history, financial condition and cash flow of the borrower, the quality of the collateral and the expertise of management of the property securing the loan.

Although the creditworthiness of the business and its principals is of primary consideration, the underwriting process also includes a comparison of the value of the security, if any, in relation to the proposed loan amount. A&D loans secured by improved lots generally involve greater risks than residential mortgage lending because these loans are more difficult to evaluate. If the estimate of value proves to be inaccurate, in the event of default and foreclosure, we may be confronted with a property, the value of which is insufficient to assure full payment.

Commercial business lending generally involves greater risk than residential mortgage lending and involves risks that are different from those associated with lending that is secured by real estate. Real estate lending is generally considered to be collateral based lending with loan amounts based on predetermined loan-to-collateral values, and liquidation of the underlying real estate collateral is viewed as the primary source of repayment in the event of borrower default. Although commercial business loans often have equipment, inventory, accounts receivable or other business assets as collateral, the liquidation of collateral in the event of a borrower default is often not a sufficient source of repayment because accounts receivable may be uncollectible and inventories and equipment may be obsolete or of limited use, among other conditions. Accordingly, the repayment of a commercial business loan depends primarily on the creditworthiness of the borrower (and any guarantors), while liquidation of collateral is a secondary and often insufficient source of repayment. The Bank seeks to minimize these risks by strictly scrutinizing the borrower's current financial condition, ability to pay, past earnings and payment history.  In addition, the current financial condition and payment history of all principals are reviewed.  Typically, the Bank requires the principal or owners of a business to guarantee all loans made to their business by the Bank.  Although the creditworthiness of the business and its principals is of primary consideration, the underwriting process also includes a comparison of the value of the security, if any, in relation to the proposed loan amount.

Consumer Loans.  The Bank originates consumer loans for any personal, family or household purpose, including the financing of home improvements, loans to individuals for residential lots for a future home, automobiles, boats, mobile homes, recreational vehicles and education.  The Bank offers home equity lines of credit.  Home equity loans are secured by mortgage liens on the borrower's principal or second residence. Home equity lines are open end lines of credit where the borrowers pay a minimum of interest only monthly on drawn lines.  The terms are for a maximum period of 20 years and the rate is a variable rate tied to prime and floats monthly.  Margins range from none to 2.5%.  

In 2012, the Bank instituted interest rate floors, which currently range from 3.25% to 4.25%, on new home equity line originations and a maximum loan-to-value ratio of 80%.  At December 31, 2019, the Bank had $28.5 million of home equity lines of credit outstanding and $35.2 million of additional commitments of home equity lines of credit.  The Bank also makes secured and unsecured lines of credit available.  Although consumer loans involve a higher level of risk than one- to four-family residential mortgage loans, they generally provide higher yields and have shorter terms to maturity than one- to four-family residential mortgage loans.  At December 31, 2019, the Bank had $56.3 million, or 11.9% of its loan portfolio, in consumer loans.

The Bank's underwriting standards for consumer loans include a determination of the applicant's payment history on other debts and an assessment of ability to meet existing obligations and payments on the proposed loan.  The stability of the applicant's monthly income is determined by verification of gross monthly income from primary employment, and from any verifiable secondary income.  Although creditworthiness of the applicant is of primary consideration, the underwriting process also includes a comparison of the value of the security, if any, in relation to the proposed loan amount.

The Bank also has a credit card program.  As of December 31, 2019, the Bank had issued 3,042 Mastercard credit cards with total approved credit lines of $9.1 million, of which $2.9 million was outstanding on that date.

Loan Delinquencies and Defaults

General.  The Bank's collection procedures provide that when a real estate loan is approximately 20 days past due, the borrower is contacted by mail and payment is requested.  If the delinquency continues for another 10 days, subsequent efforts are made to contact the delinquent borrower and establish a program to bring the loan current.  In certain instances, the Bank may modify the loan or grant a limited moratorium on loan payments to enable the borrower to reorganize his financial affairs.  If the

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loan continues in a delinquent status for 60 days or more, the Bank generally initiates foreclosure proceedings after the customer has been notified by certified mail.  The Bank institutes the same collection procedure for its commercial real estate loans.  

Delinquent Loans.  The following table sets forth information concerning delinquent loans at December 31, 2019.  

	Real Estate						Non-Real Estate
	Residential			Commercial			Consumer			Commercial Business
	Number	Amount		Number	Amount		Number	Amount		Number	Amount		Total
Loans delinquent for:	(Dollars in Thousands)
30 - 59 days	—	$	—	13	$	3,850	61	$	422	5	$	148	$	4,420
60 - 89 days	4	355		—	—		11	218		2	77		650
90 days and over	2	144		11	1,353		4	82		2	20		1,599
Total delinquent loans	6	$	499	24	$	5,203	76	$	722	9	$	245	$	6,669

Classified Assets.  Federal regulations provide for the classification of loans and other assets such as debt and equity securities considered to be of lesser quality as "substandard," "doubtful" or "loss" assets.  The regulations require commercial banks to classify their own assets and to establish prudent general allowances for loan losses for assets classified "substandard" or "doubtful."  For the portion of assets classified as "loss," an institution is required to either establish specific allowances of 100% of the amount classified or charge off such amount.  In addition, the State Board and/or FDIC may require the establishment of a general allowance for losses based on assets classified as "substandard" and "doubtful" or based on the general quality of the asset portfolio of a Bank.  See "Regulation - Regulation of the Bank."

The Company uses a risk based approach based on the following credit quality measures consistent with regulatory guidelines when analyzing the loan portfolio: pass, caution, special mention, and substandard. These indicators are used to rate the credit quality of loans for the purposes of determining the Company’s allowance for loan losses. Pass loans are loans that are performing and are deemed adequately protected by the net worth of the borrower or the underlying collateral value. These loans are considered to have the least amount of risk in terms of determining the allowance for loan losses. Loans that are graded as substandard are considered to have the most risk. These loans typically have an identified weakness or weaknesses and are inadequately protected by the net worth of the borrower or collateral value. All loans 90 days or more past due are automatically classified in this category. The caution and special mention categories fall in between the pass and substandard grades and consist of loans that do not currently expose the Company to sufficient risk to warrant adverse classification but possess weaknesses.

At December 31, 2019, $8.5 million of the total loan balance was classified "substandard" compared to $14.6 million at December 31, 2018. At December 31, 2019, $16.4 million of the total loan balance was designated as "special mention" compared to $20.4 million at December 31, 2018. At December 31, 2019, $75.7 million of the total loan balance was designated as “caution” compared to $60.6 million at December 31, 2018. The Bank had no loans classified as "doubtful" or "loss" at December 31, 2019 and 2018. According to generally accepted accounting principles, the Bank is required to account for certain loan modifications or restructuring as a “troubled debt restructuring” ("TDRs"). In general, the modification or restructuring of a debt is considered a TDR if the Bank, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that would not otherwise be considered. As of December 31, 2019, there were $825,000 in TDRs compared to $1.4 million at December 31, 2018.  The Bank's classification of assets is consistent with FDIC regulatory classifications.

Non-performing Assets.  Loans are placed on non-accrual status when the collection of principal and/or interest becomes doubtful.  In addition, all loans are placed on non-accrual status when the loan becomes 90 days or more contractually delinquent.  All consumer loans more than 90 days delinquent are charged against the consumer loan allowance for loan losses unless there is adequate collateral which is in the process of being repossessed or foreclosed on. Non-performing loans are reviewed monthly on a loan by loan basis.  Charge-offs, whether partial or in full, associated with these loans will vary based on estimates of recovery for each loan.

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The following table sets forth the amounts and categories of risk elements in the Bank's loan portfolio.

	At December 31,
	2019			2018			2017			2016			2015
	(Dollars in Thousands)
Loans Delinquent 60 to 89 Days:
Residential Real Estate	$	355		$	332		$	—		$	—		$	1,144
Consumer	218			248			85			120			282
Commercial Business	77			106			102			69			—
Commercial Real Estate	—			424			365			256			930
Total	$	650		$	1,110		$	552		$	445		$	2,356
Total as a percentage of total assets	0.07		%	0.12		%	0.06		%	0.05		%	0.29		%
Loans Delinquent 90 or more Days or Non-Accruing Loans:
Residential Real Estate	$	1,520		$	2,085		$	1,949		$	2,488		$	3,307
Consumer	319			1,275			319			242			576
Commercial Business	123			124			109			145			178
Commercial Real Estate	1,474			3,564			3,341			2,640			2,973
Total	$	3,436		$	7,048		$	5,718		$	5,515		$	7,034
Total as a percentage of total assets	0.36		%	0.77		%	0.66		%	0.68		%	0.88		%
TDRs  (1)	$	825		$	1,369		$	4,114		$	4,595		$	6,714
OREO	$	678		$	722		$	1,116		$	2,721		$	4,361
Allowance for loan losses	$	9,226		$	9,171		$	8,221		$	8,356		$	8,275

_______________________

(1) Includes two loans with a combined balance of $36,000 at December 31, 2019 that are also included in the Non-Accruing Loans section of this table.

Non-performing loans decreased $3.6 million or 51.2% to $3.4 million at December 31, 2019 from $7.0 million at December 31, 2018. The largest decrease in non-performing loans was in the non-performing commercial real estate loans category, which decreased $2.1 million or 58.6% to $1.5 million at December 31, 2019 from $3.6 million at December 31, 2018. The balance in non-performing commercial real estate loans at December 31, 2019 consisted of 14 loans to nine borrowers with an average loan balance of $105,000 compared to 18 loans to 15 borrowers with an average loan balance of $198,000 at December 31, 2018.

Non-performing loans within the residential real estate loan category decreased $564,000 or 27.1% to $1.5 million at December 31, 2019 from $2.1 million at December 31, 2018. Non-performing residential real estate loans at December 31, 2019 consisted of 12 loans to 12 borrowers with an average loan balance of $127,000, the largest of which was $341,000, compared to 14 loans to 14 borrowers with an average loan balance of $149,000 at December 31, 2018.

Non-performing consumer loans decreased $955,000 or 75.0% to $319,000 at December 31, 2019 compared to $1.3 million at December 31, 2018. Non-performing consumer loans at December 31, 2019 consisted of 10 loans to 10 borrowers with an average loan balance of $32,000, the largest of which was $68,000, compared to 12 loans to 12 borrowers with an average loan balance of $106,000, the largest of which was $843,000, at December 31, 2018.

At December 31, 2019, there were no accruing loans equal to or more than 90 days delinquent. For the year ended December 31, 2019, the interest income not recognized that would have been recognized with respect to non-accruing loans, had such loans been current in accordance with their original terms and with respect to TDRs, had such loans been current in accordance with their original terms, totaled $468,000 compared to $760,000 for the year ended December 31, 2018. For the year ended December 31, 2019 actual interest recorded on these loans was $54,000 compared to $329,000 for the year ended December 31, 2018.

Troubled Debt Restructurings. The Bank identifies and reviews all loans to be restructured based on an assessment of the borrower's credit status. This assessment is a continuous process that involves a review of the financial statements and prospects for repayment, payment delinquency, non-accrual status, and risk rating.

Not all loan modifications are TDRs. The Bank designates a loan modification as a TDR when the following two conditions are present: the borrower is experiencing financial difficulty, and because of this difficulty, the Bank grants a concession it would not otherwise consider. Typically these concessions involve a change in the interest rate, maturity date or payment amount or some

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combination of each. These concessions rarely result in the forgiveness of principal or interest. TDRs are considered impaired and are initially reported as non-performing loans on non-accrual status. Non-performing TDRs may be returned to accrual status when payment in full of all amounts due under the restructured terms is anticipated and the borrower has demonstrated a sustained payment history which is typically six months.

The Bank did not modify any loans that were considered to be TDRs during the year ended December 31, 2019. The Bank had five loans totaling $825,000 at December 31, 2019 which were TDRs modified in prior years, compared to seven TDRs totaling $1.4 million at December 31, 2018. The five TDRs consisted of four commercial real estate loans to three separate borrowers, the largest of which had a balance of $451,000, and one unsecured consumer loan with a balance of $7,000 at December 31, 2019. The commercial real estate loans were secured primarily by first mortgages on one single family residence and three churches. At December 31, 2019, there were no TDRs in default. The Bank considers any loan 30 days or more past due to be in default. At December 31, 2019 and 2018, the Company had no commitments to extend additional credit to borrowers whose loan terms have been modified in a TDR.

Potential Problem Loans. Potential problem loans include substandard loans that are not already included as non-accrual loans or TDRs and special mention loans where management has become aware of information regarding possible borrower credit issues that could potentially cause doubt about their ability to comply with current repayment terms. At December 31, 2019 and 2018, the Bank had identified $21.4 million and $27.9 million, respectively, of potential problem loans through its internal loan review procedures.

Repossessed Assets.  OREO had a balance of $678,000 at December 31, 2019 and consisted of the following real estate properties: 14 acres of residential land, 5 acres of commercial loan and a commercial strip center located in South Carolina.

Provision for Losses on Loans.  Security Federal recognizes that it will experience credit losses during the course of making loans and that the risk of loss will vary with, among other things, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a secured loan, the quality of the underlying security for the loan.  The Bank seeks to establish and maintain sufficient reserves for estimated losses on specifically identified loans and real estate where such losses can be estimated.  Additionally, general reserves for estimated possible losses are established on specified portions of the Bank's portfolio such as consumer loans and higher risk residential construction mortgage loans based on management's estimate of the potential loss for loans which normally can be classified as higher risk.  Specific and general reserves are based on, among other criteria: (1) the risk characteristics of the loan portfolio, (2) current economic conditions on a local as well as a statewide basis, (3) actual losses experienced historically and (4) the level of reserves for possible losses in the future.  

At December 31, 2019, the allowance for loan losses or reserve was $9.2 million.  In determining the adequacy of the reserve for loan losses, management reviews past experience of loan charge-offs, the level of past due and non-accrual loans, the size and mix of the portfolio, general economic conditions in the market area, and individual loans to identify potential credit problems.  Commercial business, commercial real estate and consumer loans were $382.1 million, or 80.9% of the total loan portfolio, at December 31, 2019.  Although these types of loans carry a higher level of credit risk than conventional residential mortgage loans, the level of reserves reflects management's continuing evaluation of this risk based on the Bank's past loss experience.  At December 31, 2019, the Bank's ratio of loans delinquent more than 60 days to total assets was 0.42%.  The reserve is management's best estimate for offsetting risk for our estimated possible losses. There can be no guarantee that the estimate is adequate or accurate.  

Management believes that reserves for loan losses are at a level adequate to provide for inherent loan losses.  Although management believes that it has considered all relevant factors in its estimation of future losses, future adjustments to reserves may be necessary if conditions change substantially from the assumptions used in making the original estimations.  Regulators will from time to time evaluate the allowance for loan losses which is subject to adjustment based upon the information available to the regulators at the time of their examinations.

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The following table sets forth an analysis of the Bank's allowance for loan losses during the dates indicated.

	Years Ended December 31,
	2019			2018			2017			2016			2015
	(Dollars in Thousands)
Balance at beginning of period	$	9,172		$	8,221		$	8,356		$	8,275		$	8,358
Provision for loan losses	375			925			300			500			—
Charge-offs:
Residential real estate	35			46			212			197			217
Commercial business and commercial real estate	518			385			435			524			773
Consumer	432			225			184			242			527
Total charge-offs	985			656			831			963			1,517
Recoveries:
Residential real estate	6			2			2			11			94
Commercial business and commercial real estate	543			570			319			446			1,186
Consumer	115			110			75			87			154
Total recoveries	664			682			396			544			1,434
Balance at end of period	$	9,226		$	9,172		$	8,221		$	8,356		$	8,275
Net charge-offs (recoveries) to average loans outstanding during the period	0.07		%	(0.01		)%	0.11		%	0.12		%	0.02		%

The following table summarizes the distribution of the Bank's allowance for loan losses at the dates indicated.  The entire allowance is available to absorb losses from all loan categories.

	December 31,
	2019				2018				2017				2016				2015
	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
	(Dollars in Thousands)
Residential Real Estate	$	1,391	15.1	%	$	1,191	13.0	%	$	1,233	15.0	%	$	1,360	16.3	%	$	1,323	16.0	%
Consumer	1,211		13.1		1,204		13.1		1,145		13.9		997		11.9		1,063		12.8
Commercial Business	545		5.9		924		10.1		1,011		12.3		883		10.6		774		9.4
Commercial Real Estate	6,079		65.9		5,853		63.8		4,832		58.8		5,116		61.2		5,115		61.8
Total	$	9,226	100.0	%	$	9,172	100.0	%	$	8,221	100.0	%	$	8,356	100.0	%	$	8,275	100.0	%

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Subsidiaries

At December 31, 2019, Security Federal's net investment in its subsidiaries (including loans to subsidiaries) totaled $11.1 million.  In addition to investments in subsidiaries, federal institutions are permitted to invest an unlimited amount in operating subsidiaries engaged solely in activities which a commercial bank may engage in directly.

Security Federal Insurance, Inc.  SFINS, a wholly owned subsidiary of the Bank, is an insurance agency offering auto, business, health and home insurance, and premium finance.   The operations of SFINS are included in the Company's Consolidated Financial Statements contained in the Annual Report.

Collier Jennings Financial Corporation.  Collier Jennings Financial Corporation is a subsidiary of SFINS, a subsidiary of the Bank, which is described above.  The Company acquired the insurance and insurance premium finance businesses of Collier Jennings Financial Corporation and its subsidiaries, Security Federal Auto Insurance, Inc., The Auto Insurance Store, Inc., and Security Federal Premium Pay Plans, Inc. (the "Collier-Jennings Companies"), effective June 30, 2006.

Security Federal Investments, Inc.  SFINV, a wholly owned subsidiary of the Bank, was formed to hold investment securities and allow for better management of the securities portfolio. The operations of SFINV are included in the Company's Consolidated Financial Statements contained in the Annual Report.

Investment Activities

Investment securities.  The Bank has authority to invest in various types of liquid assets, including U.S. Treasury obligations and securities of various federal agencies, certificates of deposit at insured institutions, mutual funds, bankers' acceptances and federal funds.  The Bank may also invest a portion of its assets in certain commercial paper and corporate debt securities.  See "Regulation - Regulation of the Bank."

As a member of the Federal Home Loan Bank ("FHLB") System, Security Federal must maintain minimum levels of investments that are liquid assets as defined in Federal regulations.  See "Regulation - Regulation of the Bank - Federal Home Loan Bank System."  Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans.

Historically, the Bank has maintained its liquid assets at a level believed adequate to meet requirements of normal daily activities, repayment of maturing debt and potential deposit outflows.  Management regularly reviews and updates cash flow projections to assure that adequate liquidity is provided.

14

The following table sets forth the fair value of the Company's portfolio of securities and other investments, excluding mortgage-backed securities, at the dates indicated.

	December 31,
	2019		2018		2017		2016		2015
	(In Thousands)
Interest bearing deposit at FHLB	$	500	$	311	$	238	$	179	$	490
Certificates of deposits at financial institutions	950		1,200		1,950		2,445		3,445
Total other investments	$	1,450	$	1,511	$	2,188	$	2,624	$	3,935
Investment Securities:
Available for Sale:
FHLB securities	$	—	$	—	$	—	$	998	$	1,932
Federal Farm Credit Bank ("FFCB") bonds	—		—		—		—		1,988
Fannie Mae bonds	—		—		—		—		1,004
Student Loan Pools	40,232		12,886		8,522		—		—
Small Business Administration ("SBA") bonds	111,893		125,447		124,248		101,906		111,417
Tax exempt municipal bonds	47,241		61,330		62,356		71,535		76,066
Taxable municipal bonds	14,840		1,978		1,997		1,991		—
Total securities available for sale	$	214,206	$	201,641	$	197,123	$	176,430	$	192,407
Held to Maturity:
FHLB securities	$	—	$	—	$	1,997	$	—	$	—
Freddie Mac bonds	—		977		986		—		—
Total securities held to maturity	$	—	$	977	$	2,983	$	—	$	—
Total securities (1)	$	214,206	$	202,618	$	200,106	$	176,430	$	192,407
FHLB stock	2,537		2,204		2,932		2,777		2,215
Total securities and FHLB stock (1)	$	216,743	$	204,822	$	203,038	$	179,207	$	194,622

__________

(1)      Does not include mortgage-backed securities. Also excludes trust preferred equity securities previously included in securities available for sale, which are included within "Other Assets"

At December 31, 2019, the Company did not have any investment securities (exclusive of obligations of the U.S. Government and federal agencies) issued by any one entity with a total book value in excess of 10% of its shareholders' equity.SBA bonds are backed by the full faith and credit of the U.S. government and carry a zero percent risk base when calculating risk based assets for regulatory capital purposes. Student Loan Poolsare typically 97% guaranteed by the U.S. government. The FHLB, FFCB, Fannie Mae and Freddie Mac are government sponsored enterprises ("GSEs") and the securities and bonds issued by GSEs are not backed by the full faith and credit of the U.S. government.  

15

The following table sets forth the maturities or repricing of investment securities and FHLB stock, not including mortgage-backed securities, at December 31, 2019, and the weighted average yields of such securities and FHLB stock (calculated on the basis of the cost and effective yields weighted for the scheduled maturity of each security).  Tax equivalent yields on tax exempt municipal bonds are calculated using a 21% tax rate.  Callable securities are shown at their likely call dates based on current interest rates.  The table was prepared using amortized cost.  SBA bonds are based on maturity dates without the effect of scheduled payments or anticipated prepayments.

	Maturing or Repricing																December 31, 2019
	Within One Year				After One But Within Five Years				After Five But Within Ten Years				After Ten Years				Balance Outstanding
	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
	(Dollars in thousands)
Student Loan pools	$	41,088	2.58	%	$	—	—	%	$	—	—	%	$	—	—	%	$	41,088	2.58	%
SBA bonds	106,063		2.74		428		2.63		1,340		3.44		4,097		3.26		111,928		2.77
Tax exempt municipal bonds	—		—		2,679		3.89		33,548		3.08		6,926		4.05		43,153		3.29
Taxable municipal bonds	—		—		995		3.20		13,156		2.56		1,019		2.54		15,170		2.60
FHLB stock (1)	2,536		6.72		—		—		—		—		—		—		2,536		6.72
Total (2)	$	149,687	2.76	%	$	4,102	3.59	%	$	48,044	2.95	%	$	12,042	3.65	%	$	213,875	2.87	%

___________

(1)   FHLB stock has no stated maturity date.

(2)   Excludes mortgage-backed securities with a total amortized cost of $216.6 million and a yield of 2.84%.

For information regarding the market value of the Bank's securities portfolios, see Notes 2 and 3 of the Notes to Consolidated Financial Statements contained in the Annual Report.

Mortgage-backed Securities.  Security Federal has a portfolio of available for sale and held to maturity mortgage-backed securities. Mortgage-backed securities can serve as collateral for borrowings and, through repayments, as a source of liquidity.  Under the Bank's risk-based capital requirement, mortgage-backed securities have a risk weight of 20% (or 0% in the case of Government National Mortgage Association ("Ginnie Mae") securities) compared to the 50% risk weight carried by residential loans.  

The following table sets forth the composition of the mortgage-backed securities available for sale portfolio at fair value and the held to maturity portfolio at amortized cost at the dates indicated.

	December 31,
	2019		2018		2017		2016		2015
	(In Thousands)
Available for sale, at fair value:
Freddie Mac	$	93,346	$	48,771	$	34,931	$	32,084	$	29,973
Fannie Mae	27,051		25,934		23,756		24,219		30,518
Ginnie Mae	63,939		80,232		102,106		109,222		118,539
Private Label	16,102		29,523		26,903		19,736		3,767
Total	$	200,438	$	184,460	$	187,696	$	185,261	$	182,797
Held to maturity, at cost:
Freddie Mac	$	5,155	$	6,256	$	6,857	$	7,836	$	7,604
Fannie Mae	2,827		3,109		1,280		1,436		1,761
Ginnie Mae	11,265		13,274		15,946		16,312		20,508
Total	$	19,247	$	22,639	$	24,083	$	25,584	$	29,873

At December 31, 2019, the Company did not have any mortgage-backed securities (exclusive of obligations of agencies of the U.S. Government) issued by any one entity with a total book value in excess of 10% of shareholders equity.

16

Freddie Mac and Fannie Mae mortgage-backed securities are GSE issued securities.  GSE securities are not backed by the full faith and credit of the U.S. government.  The private label CMO securities are issued by non-governmental real estate mortgage investment conduits, which are also not backed by the full faith and credit of the U.S. government.  Ginnie Mae mortgage-backed securities are backed by the full faith and credit of the U.S. government.

For information regarding the market values of Security Federal's mortgage-backed securities portfolio, see Notes 2 and 3 of the Notes to Consolidated Financial Statements contained in the Annual Report.

The following table sets forth the final maturities or initial repricing, whichever occurs first, and the weighted average yields of the mortgage-backed securities at December 31, 2019.  Not considered in the preparation of the table below is the effect of scheduled payments or anticipated prepayments.  The table is prepared using amortized cost.

	The Earliest of Maturing or Repricing																December 31, 2019
	Less than 1 Year				1 to 5 Years				5 to 10 Years				Over 10 Years				Balance Outstanding
	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
	(Dollars in Thousands)
Fannie Mae	$	2,492	3.55	%	$	1,241	4.59	%	$	1,362	2.76	%	$	24,562	2.92	%	$	29,657	3.04	%
Freddie Mac	4,363		2.66		802		2.98		23,074		2.78		68,382		3.02		96,621		2.95
Ginnie Mae	38,669		2.30		2,088		3.09		8		7.59		33,748		2.70		74,513		2.51
Private Label	10,007		3.37		660		2.47		—		—		5,145		3.52		15,812		3.38
Total	$	55,531	2.58	%	$	4,791	3.38	%	$	24,444	2.78	%	$	131,837	2.94	%	$	216,603	2.84	%

Sources of Funds

Deposit accounts have traditionally been a principal source of the Bank's funds for use in lending and for other general business purposes.  In addition to deposits, the Bank derives funds from loan repayments, cash flows generated from operations (including interest credited to deposit accounts), FHLB of Atlanta advances, borrowings from the Federal Reserve Bank of Atlanta, sales of investment securities, sales of securities under agreements to repurchase, and loan sales.  See "Borrowings" below and Note 10 of the Notes to Consolidated Financial Statements contained in the Annual Report.  Scheduled loan payments are a relatively stable source of funds while deposit inflows and outflows and the related cost of such funds have varied widely.  FHLB of Atlanta advances, borrowings from the Federal Reserve Bank and the sale of securities under agreements to repurchase, referred to as retail repurchase agreements, may be used on a short-term basis to compensate for seasonal reductions in deposits or deposit inflows at less than projected levels and may be used on a longer term basis in support of expanded lending activities.  The availability of funds from loan and investment sales is influenced by general interest rates.  See "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Annual Report.

Deposits.  The Bank attracts both short-term and long-term deposits from the general public by offering a wide assortment of account types and rates. The Bank offers regular savings accounts, checking accounts, various money market accounts, fixed interest rate certificates with varying maturities, negotiated rate $100,000 or above jumbo certificates of deposit ("Jumbo CDs") and individual retirement accounts.

At December 31, 2019, the Bank had $34.6 million in brokered deposits.   The Bank believes that, based on its experience over the past several years, its savings and transaction accounts are stable sources of deposits.

17

The following table sets forth the deposit balances at the dates indicated.

	December 31,
	2019				2018				2017				2016				2015
	Amount		Percent of Total		Amount		Percent of Total		Amount		Percent of Total		Amount		Percent of Total		Amount		Percent of Total
	(Dollars in Thousands)
Interest Rate Range for 2019:
Savings accounts   0% - 1.00%	$	51,125	6.7	%	$	48,392	6.3	%	$	42,927	6.1	%	$	36,523	5.6	%	$	31,192	4.8	%
Checking accounts 0% - 1.98%	260,136		33.7		219,515		28.6		197,435		28.1		171,133		26.1		155,766		23.9
Money market   funds 0% - 1.48%	230,693		29.9		261,136		34.0		231,653		33.0		230,902		35.3		229,017		35.1
Total non-certificates	$	541,954	70.3	%	$	529,043	68.9	%	$	472,015	67.2	%	$	438,558	67.0	%	$	415,975	63.8	%
Certificates:
0.00-1.99%	$	150,764	19.5	%	$	190,867	24.9	%	$	228,982	32.6	%	$	214,903	32.9	%	$	227,235	34.8	%
2.00-2.99%	78,689		10.2		47,587		6.2		1,110		0.2		642		0.1		8,887		1.4
Total certificates	229,453		29.7	%	238,454		31.1	%	230,092		32.8	%	215,545		33.0	%	236,122		36.2	%
Total deposits	$	771,407	100.0	%	$	767,497	100.0	%	$	702,107	100.0	%	$	654,103	100.0	%	$	652,097	100.0	%

The Bank relies upon locally obtained Jumbo CDs to maintain its deposit levels.  At December 31, 2019, Jumbo CDs constituted $144.2 million or 18.7% of the Bank's total deposits. At December 31, 2019, the Bank held $47.4 million in public funds which consisted of $13.5 million in certificates of deposit and $33.9 million in demand deposit accounts.

The following table shows rate and maturity information for the Bank's certificates of deposit as of December 31, 2019.

	0- 1.99%		2.00- 2.99%		Total
Certificate accounts maturing in quarter ending:	(In Thousands)
March 31, 2020	$	30,124	$	14,688	$	44,812
June 30, 2020	23,712		12,624		36,336
September 30, 2020	29,248		12,509		41,757
December 31, 2020	22,786		3,791		26,577
March 31, 2021	15,394		2,523		17,917
June 30, 2021	7,583		2,482		10,065
September 30, 2021	8,664		3,336		12,000
December 31, 2021	1,758		949		2,707
March 31, 2022	1,403		10,300		11,703
June 30, 2022	1,135		659		1,794
September 30, 2022	3,159		193		3,352
December 31, 2022	1,549		339		1,888
Thereafter	4,249		14,296		18,545
Total	$	150,764	$	78,689	$	229,453

18

The following table summarizes the Bank's deposits of $100,000 or more by time remaining until maturity at December 31, 2019.

Maturity Period	Certificates of Deposit		Savings, Checking and Money Market Accounts
	(In Thousands)
Three months or less	$	27,763	$	350,327
Over three through six months	19,687		—
Over six through twelve months	42,120		—
Over twelve months	54,676		—
Total	$	144,246	$	350,327

Borrowings

As a member of the FHLB of Atlanta, the Bank is required to own capital stock in the FHLB of Atlanta and is authorized to apply for advances from the FHLB of Atlanta.  Each FHLB credit program has its own interest rate, which may be fixed or variable, and range of maturities.  The FHLB of Atlanta may prescribe the acceptable uses to which these advances may be utilized as well as limitations on the size of the advances and repayment provisions.  At December 31, 2019, the Bank had $38.1 million in outstanding advances from the FHLB of Atlanta.  See Note 10 of  the Notes to Consolidated Financial Statements contained in the Annual Report for information regarding the maturities and rate structure of the Bank's FHLB advances.  Federal law contains certain collateral requirements for FHLB advances.  See "Regulation - Regulation of the Bank - Federal Home Loan Bank System."

At December 31, 2019, the Bank had $11.6 million in retail repurchase agreements with an average rate of 0.50%.  These repurchase agreements are included in "Other borrowings" in the Consolidated Financial Statements included in the Annual Report and in the table below.

At December 31, 2019, the Company had $5.2 million in junior subordinated debentures.  The debentures accrue and pay distributions quarterly at a floating rate of three-month LIBOR plus 170 points which was equal to 3.59% at December 31, 2019.  The debentures were callable by the Company in September 2011, and quarterly thereafter, with a final maturity date of December 15, 2036.  See Note 12 of the Notes to Consolidated Financial Statements contained in the Annual Report for more information.

On December 1, 2009, the Company issued $6.1 million in convertible senior debentures. The debentures will mature on December 1, 2029 and accrue interest at the rate of 8.0% per annum until maturity or earlier redemption or repayment. Interest on the debentures is payable on June 1 and December 1 of each year, commencing June 1, 2010. The debentures are convertible into the Company's common stock at a conversion price of $20 per share at the option of the holder at any time prior to maturity. The convertible senior debentures are redeemable, in whole or in part, at the option of the Company at any time on or after December 1, 2019, at a price equal to 100% of the principal amount of the debentures to be purchased plus any accrued and unpaid interest to, but excluding, the date of redemption. On January 2, 2020, the Company announced its intention to redeem all of the convertible debentures on March 2, 2020. Subsequent to the announcement, $5.9 million was converted into 295,600 common shares by holders of the debt. The Company redeemed the remaining $132,000 for cash on March 2, 2020. See Notes 13 and 25 of the Notes to Consolidated Financial Statements contained in the Annual Report for more information.

On October 31, 2016, the Company repurchased all 22,000 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series B (“Series B Preferred Stock”) from the United States Department of the Treasury (“U.S. Treasury”) for $21.3 million plus accrued but unpaid interest of $93,000 for a total payment of $21.4 million. In connection with this repurchase, the Company obtained a $14.0 million unsecured term loan from another financial institution. The loan was paid off prior to its maturity date of October 1, 2019. See Note 11 of the Notes to Consolidated Financial Statements contained in the Annual Report for more information.

On November 22, 2019, the Company sold and issued to certain institutional investors $17.5 million in aggregate principal amount of 5.25% fixed-to-floating rate subordinated notes due 2029 (the “10-Year Notes”) and $12.5 million in aggregate principal amount of 5.25% fixed-to-floating rate subordinated notes due 2034 (the “15-Year Notes”, and together with the 10-Year Notes, the “Notes”). The 10-Year Notes have a stated maturity of November 22, 2029, and bear interest at a fixed rate of 5.25% per year, from and including November 22, 2019 but excluding November 22, 2024. From and including November 22, 2024 to but excluding the maturity date or early redemption date, the interest rate shall reset semi-annually to an interest rate equal to the then-current

19

three-month LIBOR rate plus 369 basis points. The 15-Year Notes have a stated maturity of November 22, 2034, and bear interest at a fixed rate of 5.25% per year, from and including November 22, 2019 but excluding November 22, 2029. From and including November 22, 2029 to but excluding the maturity date or early redemption date, the interest rate for the 15-Year Notes shall reset semi-annually to an interest rate equal to the then-current three-month LIBOR rate plus 357 basis points. The Notes are payable semi-annually in arrears on June 1 and December 1 of each year commencing June 1, 2020.

The Company may redeem the 10-Year Notes and the 15-Year Notes at its option, in whole at any time, or in part from time to time, after November 22, 2024 and November 22, 2029, respectively. The Notes are unsecured, subordinated obligations of the Company and rank junior in right to payment to the Company’s current and future senior indebtedness, and each Note is equal in right to payment with respect to the other Notes.  The Company expects to use the net proceeds from the sale of the Notes for general corporate purposes to support future growth. See Note 14 of the Notes to Consolidated Financial Statements contained in the Annual Report for more information.

The following table sets forth the maximum month-end balance and average balance of all borrowings for the periods indicated.

	Years Ended December 31,
	2019		2018		2017		2016		2015
	(In Thousands)
Maximum Balance:
FHLB advances	$	77,158	$	61,618	$	51,680	$	56,500	$	47,300
Other borrowings	15,754		14,258		13,096		12,598		10,340
Note payable	2,363		8,500		13,000		14,000		—
Junior subordinated debentures	5,155		5,155		5,155		5,155		5,155
Subordinated debentures	30,000		—		—		—		—
Senior convertible debentures	6,064		6,064		6,084		6,084		6,084
Average Balance:
FHLB advances	$	45,900	$	42,971	$	45,779	$	40,848	$	37,484
Other borrowings	14,182		13,230		11,517		9,318		8,560
Note payable	675		5,089		11,120		2,369		—
Junior subordinated debentures	5,155		5,155		5,155		5,155		5,155
Subordinated debentures	2,630		—		—		—		—
Senior convertible debentures	6,045		6,064		6,075		6,084		6,084

20

The following table sets forth information as to the Bank's borrowings and the weighted average interest rates thereon at the dates indicated.

	December 31,
	2019			2018			2017			2016			2015
	(Dollars in Thousands)
Balance at Year End:
FHLB advances	$	38,138		$	34,030		$	51,680		$	48,395		$	34,640
Other borrowings	11,580			10,698			11,307			9,338			6,412
Note payable	—			2,363			8,500			13,000			—
Junior subordinated debentures	5,155			5,155			5,155			5,155			5,155
Subordinated debentures	30,000			—			—			—			—
Senior convertible debentures	6,044			6,064			6,064			6,084			6,084
Weighted Average Interest Rate at Year End:
FHLB advances	1.94		%	1.66		%	1.34		%	1.05		%	3.87		%
Other borrowings	0.50			0.25			0.15			0.15			0.15
Note payable	—			4.95			3.95			3.45			—
Junior subordinated debentures	3.59			4.49			2.66			2.21			—
Subordinated debentures	5.25			—			—			—			—
Senior convertible debentures	8.00			8.00			8.00			8.00			—
During Fiscal Year:
FHLB advances	1.94		%	1.49		%	1.21		%	1.71		%	3.52		%
Other borrowings	0.49			0.24			0.15			0.15			0.15
Note payable	5.33			4.56			3.78			3.26			—
Junior subordinated debentures	4.19			3.91			2.93			2.42			2.02
Subordinated debentures	5.25			—			—			—			—
Senior convertible debentures	8.00			8.00			8.00			8.00			8.00

Competition

The Bank serves the counties of Aiken, Lexington, Richland and Saluda, South Carolina, and the counties of Columbia and Richmond, Georgia through its 17 full service branch offices located in Aiken, Ballentine, Clearwater, Columbia, Graniteville, Langley, Lexington, North Augusta, Ridge Spring, Wagener, and West Columbia, South Carolina, and Augusta and Evans, Georgia.

Security Federal faces strong competition both in originating loans and in attracting deposits.  Competition in originating loans comes primarily from other commercial banks, federal savings institutions, mortgage bankers and credit unions who also make loans in the Bank's market area, and more recently, financial technology (or “FinTech”) companies. 

The Bank competes for loans principally on the basis of the interest rates and loan fees it charges, the types of loans it makes and the quality of services it provides to borrowers.

The Bank faces substantial competition in attracting deposits from federal savings institutions, commercial banks, money market and mutual funds, credit unions and other investment vehicles.  The ability of the Bank to attract and retain deposits depends on its ability to provide an investment opportunity that satisfies the requirements of investors as to rate of return, liquidity, risk and other factors.  The Bank attracts a significant amount of deposits through its branch offices primarily from the communities in which those branch offices are located.  Therefore, competition for those deposits is principally from federal savings institutions, credit unions and commercial banks located in the same communities. FinTech companies also compete for consumer deposit relationships. The Bank competes for these deposits by offering a variety of deposit accounts at competitive rates, convenient business hours, online/mobile services, and convenient branch locations with interbranch deposit and withdrawal privileges at each.

21

Personnel

At December 31, 2019, the Company employed 228 full-time and 22 part-time employees. The Bank's employees are not represented by any collective bargaining agreement. Management of the Bank considers its relations with its employees to be good.

Executive Officers. The following table sets forth information regarding the executive officers of the Company and the Bank at December 31, 2019.

	Age at December 31,	Position
Name	2019	Company	Bank
J. Chris Verenes	63	Chief Executive Officer	Chief Executive Officer Chairman of the Board
Roy G. Lindburg	59	President	—
Philip R. Wahl	56	—	President
Jessica T. Cummins	39	Chief Financial Officer	Chief Financial Officer

Biographical Information. The following is a description of the principal occupation and employment of the executive officers of the Corporation and the Bank during at least the past five years:

J. Chris Verenes is Chief Executive Officer of the Company and Chairman of the Board and Chief Executive Officer of the Bank, positions he has held since January 1, 2012 and January 1, 2011, respectively.  Prior to that, he served as President of the Bank since 2004.  Before joining the Bank he held a variety of management positions with Washington Group International, from 1996 to 2004.  Prior to his employment by Washington Group International, Mr. Verenes served as Controller for Riegel Textile Corporation, as Director of Control Data and Business and Technology Center, and as Executive Director of the South Carolina Democratic Party.

Roy G. Lindburg was appointed President of the Company effective June 2014. Prior to that, he served as the Chief Financial Officer of the Company and the Bank since January 1995.  He was named Executive Vice President and appointed to the Company's and the Bank's Boards of Directors in 2005. Prior to joining Security Federal, Mr. Lindburg was employed by Keokuk Bancshares/First Community Bank in Keokuk, Iowa from 1986 to 1994. Mr. Lindburg is a Certified Public Accountant.

Philip R. Wahl was appointed President of the Bank effective August 2019. Prior to that, he served as the Bank's Augusta Market President since 2017.  Prior to joining the Bank, Mr. Wahl held a variety of management positions with local and national banks in the Augusta area during his 34 year banking career. Most recently, he was employed by First Community Bank from 2012 to 2016. He currently serves on the Georgia Health Sciences Foundation Board of Trustees and is Chairman of the Board of the Augusta Convention & Visitors Bureau.  

Richard T. Harmon was appointed President of the Bank effective June 2014. Prior to that, he served as the Bank's Chief Lending Officer since 2011. He was appointed to the Company’s and the Bank’s respective Boards of Directors in 2013. Mr. Harmon retired as the Bank's President in August 2019 but continues to serve on the Company's and the Bank's Board of Directors.

Jessica T. Cummins was appointed Chief Financial Officer of the Company and the Bank effective June 2014. Prior to that, she served as the Treasurer of the Bank since 2007. She was appointed to the Company’s and the Bank’s respective Boards of Directors in 2018. Prior to joining the Bank, Ms. Cummins was employed by Elliott Davis LLC in their Financial Services practice, specializing in financial institutions with an emphasis on publicly traded companies. Ms. Cummins is a Certified Public Accountant.

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REGULATION

The following is a brief description of certain laws and regulations which are applicable to the Company and the Bank. Descriptions of laws and regulations here and elsewhere in this Form 10-K do not purport to be complete and are qualified in their entirety by reference to the actual laws and regulations. Legislation is introduced from time to time in the United States Congress or in the South Carolina State Legislature that may affect the operations of the Company and the Bank. In addition, the regulations governing the Company and the Bank may be amended from time to time by the State Board, the FDIC, the Federal Reserve, the SEC and the Consumer Protection Financial Bureau (“CFPB”). Any such legislation or regulatory changes in the future could have an adverse effect on our operations and financial condition. We cannot predict whether any such changes may occur.

As a bank holding company, the Company is subject to examination and supervision by, and is required to file certain reports with, the Federal Reserve. The Company also is subject to the rules and regulations of the SEC under the federal securities laws. The Bank, as a state-chartered commercial bank, is subject to regulation and oversight by the State Board, the applicable provisions of South Carolina law and by the regulations of the State Board adopted thereunder. In some circumstances, the law and regulations of other states can apply. The Bank also is subject to regulation and examination by the FDIC, which insures its deposits to the maximum extent permitted by law.

The laws and regulations affecting depository institutions and their holding companies changed significantly in connection with the enactment of The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”). Among other changes, the Dodd-Frank Act established the CFPB as an independent bureau of the Federal Reserve. The CFPB assumed responsibility for the implementation of the federal financial consumer protection and fair lending laws and regulations and has authority to impose new requirements under these laws. The Bank is subject to consumer protection regulations issued by the CFPB, but as a smaller financial institution, the Bank is generally subject to supervision and enforcement by the FDIC and the State Board with respect to our compliance with federal and state consumer financial protection laws and regulations.

2018 Regulatory Reform

In May 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Act”), was enacted to modify or remove certain financial reform rules and regulations, including some of those implemented under the Dodd-Frank Act. While the Act maintains most of the regulatory structure established by the Dodd-Frank Act, it amends certain aspects of the regulatory framework for depository institutions with assets of less than $10 billion and for large banks with assets of more than $50 billion. Many of these changes could result in meaningful regulatory changes for community banks such as Sound Community Bank, and their holding companies.

The Act, among other matters, expands the definition of qualified mortgages which may be held by a financial institution and simplifies the regulatory capital rules for financial institutions and their holding companies with total consolidated assets of less than $10 billion by instructing the federal banking regulators to establish a single Community Bank Leverage Ratio of between 8 and 10 percent. Effective January 1, 2020, the Community Bank Leverage Ratio is 9.0%. Any qualifying depository institution or its holding company that exceeds that ratio will be considered to have met generally applicable leverage and risk-based regulatory capital requirements and any qualifying depository institution that exceeds the new ratio will be considered to be “well capitalized” under the prompt corrective action rules.

The Act also expands the category of holding companies that may rely on the Small Bank Holding Company and Savings and Loan Holding Company Policy Statement of the Federal Reserve by raising the maximum amount of assets a qualifying holding company may have from $1 billion to $3 billion. A major effect of this change is to exclude such holding companies from the minimum capital requirements of the Dodd-Frank Act. In addition, the Act includes regulatory relief for community banks regarding regulatory examination cycles, call reports, the Volcker Rule (proprietary trading prohibitions), mortgage disclosures and risk weights for certain high-risk commercial real estate loans.

It is difficult at this time to predict when or how any new standards under the Act will ultimately be applied to us or what specific impact the Act and its implementing rules and regulations will have on community banks.

Regulation of the Bank

The Bank is an FDIC-insured, state-chartered commercial bank and is subject to various statutory requirements and rules and regulations promulgated and enforced primarily by the FDIC and the State Board. These statutes, rules, and regulations relate to insurance of deposits, required reserves, allowable investments, loans, mergers, consolidations, issuance of securities, payment of dividends, establishment of branches and other aspects of the business of the Bank. The FDIC has broad authority to prohibit the Bank from engaging in what it determines to be unsafe or unsound banking practices. In addition, federal law imposes a number of restrictions on state-chartered, FDIC-insured banks, and their subsidiaries. These restrictions cover many matters, examples of

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which include prohibitions against engaging as a principal in certain activities and the requirement of prior notification of branch closings. The Bank is not a member of the Federal Reserve System.

The Bank is required to file periodic reports with the FDIC and the State Board and is subject to periodic examinations and evaluations by those regulatory authorities. Based on these evaluations, the regulators may revalue the assets of an institution and require that it establish specific reserves to compensate for the differences between the determined value and the book value of these assets. The FDIC and the State Board may each accept the results of an examination by the other in lieu of conducting an independent examination.

Federal Deposit Insurance Corporation. The Deposit Insurance Fund ("DIF") of the FDIC insures deposits in the Bank up to $250,000 per separately insured deposit ownership right or category and such insurance is backed by the full faith and credit of the United States Government. As insurer, the FDIC imposes deposit insurance premiums (assessments) and is authorized to conduct examinations of and to require reporting by FDIC-insured institutions. For the year ended December 31, 2019, the Bank paid $278,000 in FDIC premiums. The assessment base for these premiums is the Bank’s total average consolidated assets less average tangible capital.

Currently, the FDIC’s base assessment rates are 3 to 30 basis points and are subject to certain adjustments. For institutions with less than $10 billion in assets, rates are determined based on supervisory ratings and certain financial ratios. No institution may pay a dividend if it is in default on its federal deposit insurance assessment.

In addition, federally insured institutions were required to pay a Financing Corporation ("FICO") assessment in order to fund the interest on bonds issued to resolve thrift failures in the 1980's. The final FICO assessments were collected in March 2019. For 2019, the Bank incurred approximately $24,000 in these assessments.

The FDIC may terminate the deposit insurance of any insured depository institution if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC.  It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance if the institution has no tangible capital.  If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC.  Management is not aware of any existing circumstances which would result in termination of the Bank's deposit insurance.

A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of the Bank.  There can be no prediction as to what changes in insurance assessment rates may be made in the future.

Prompt Corrective Action. Federal statutes establish a supervisory framework based on five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. An institution's category depends upon where its capital levels are in relation to relevant capital measures, which include risk-based capital measures, a common equity Tier 1 ("CET1") measure, a leverage ratio measure and certain other factors. The well-capitalized category is described below in "Capital Requirements". An institution that is not well capitalized is subject to certain restrictions on brokered deposits, including restrictions on the rates it can offer on its deposits, generally. Any institution which is neither well capitalized nor adequately capitalized is considered undercapitalized.

Undercapitalized institutions are subject to certain prompt corrective action requirements, regulatory controls and restrictions that become more extensive as an institution becomes more severely undercapitalized. Failure by institutions to comply with applicable capital requirements would, if unremedied, result in progressively more severe restrictions on their activities and lead to enforcement actions, including, but not limited to, the issuance of a capital directive to ensure the maintenance of required capital levels and, ultimately, the appointment of the FDIC as receiver or conservator. Banking regulators will take prompt corrective action with respect to depository institutions that do not meet minimum capital requirements. Additionally, approval of any regulatory application filed for review by the banking agencies may be dependent on compliance with capital requirements.

At December 31, 2019, the Bank was categorized as "well capitalized" under the prompt corrective action regulations of the FDIC. For additional information, see "Capital Requirements" below and Note 16 of the Notes to Consolidated Financial Statements included in the Annual Report.

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Capital Requirements. The Bank is subject to capital adequacy requirements adopted by the FDIC, which establish minimum risk-based ratios for CET1, Tier 1 and total capital, and a minimum leverage ratio and the risk-weightings of assets for purposes of the risk-based capital ratios; require an additional capital conservation buffer over the minimum capital ratios; and define what qualifies as capital for purposes of meeting the capital requirements. These regulations implement the regulatory capital reforms required by the Dodd Frank Act and the “Basel III” requirements.

Under the capital regulations, the minimum capital ratios are: (1) a CET1 capital ratio of 4.5% of risk-weighted assets; (2) a Tier 1 capital ratio of 6.0% of risk-weighted assets; (3) a total risk-based capital ratio of 8.0% of risk-weighted assets; and (4) a leverage ratio (the ratio of Tier 1 capital to average total adjusted assets) of 4.0%.  CET1 generally consists of common stock; retained earnings; accumulated other comprehensive income (“AOCI”) unless an institution elects to exclude AOCI from regulatory capital; and certain minority interests; all subject to applicable regulatory adjustments and deductions. Tier 1 capital generally consists of CET1 and noncumulative perpetual preferred stock. Tier 2 capital generally consists of other preferred stock and subordinated debt meeting certain conditions plus an amount of the allowance for loan and lease losses up to 1.25% of assets. Total capital is the sum of Tier 1 and Tier 2 capital.

In addition to the FDIC’s minimum capital ratios, the Bank is required to maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the minimum risk-based capital ratios in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses. At December 31, 2019, the Bank’s capital conservation buffer was 11.4%.

To be considered well capitalized, a depository institution must have a Tier 1 risk-based capital ratio of at least 8.0%, a total risk-based capital ratio of at least 10.0%, a CET1 capital ratio of at least 6.5% and a leverage ratio of at least 5.0% and not be subject to an individualized order, directive or agreement under which its primary federal banking regulator requires it to maintain a specific capital level. Effective January 1, 2020, a bank that elects to use the Community Bank Leverage Ratio will generally be considered well-capitalized and to have met the risk-based and leverage capital requirements of the capital regulations if it has a leverage ratio greater than 9.0%. To be eligible to elect the Community Bank Leverage Ratio, the bank also must have total consolidated assets of less than $10 billion, off-balance sheet exposures of 25% or less of its total consolidated assets, and trading assets and trading liabilities of 5.0% or less of its total consolidated assets, all as of the end of the most recent quarter.

At December 31, 2019, the Bank met the requirements to be "well capitalized" and met the capital conservation buffer requirement. Management monitors the capital levels of the Bank to provide for current and future business opportunities and to meet regulatory guidelines for “well capitalized” institutions.

The Financial Accounting Standards Board has adopted a new accounting standard for US Generally Accepted Accounting Principles that will be effective for us for our first fiscal year beginning after December 15, 2022. This standard, referred to as Current Expected Credit Loss, or CECL, requires FDIC-insured institutions and their holding companies (banking organizations) to recognize credit losses expected over the life of certain financial assets. CECL covers a broader range of assets than the current method of recognizing credit losses and generally results in earlier recognition of credit losses. Upon adoption of CECL, a banking organization must record a one-time adjustment to its credit loss allowances as of the beginning of the fiscal year of adoption equal to the difference, if any, between the amount of credit loss allowances under the current methodology and the amount required under CECL. For a banking organization, implementation of CECL is generally likely to reduce retained earnings, and to affect other items, in a manner that reduces its regulatory capital. The federal banking regulators (the Federal Reserve and the FDIC) have adopted a rule that gives a banking organization the option to phase in over a three-year period the day-one adverse effects of CECL on its regulatory capital.

The FDIC has the authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution's capital level is or may become inadequate in light of particular risks or circumstances. Management of the Bank believes that, under the current regulations, the Bank will continue to meet its minimum capital requirements in the foreseeable future. For a complete description of the Bank's required and actual capital levels on December 31, 2019, see Note 16 of the Notes to Consolidated Financial Statements included in the Annual Report.

Federal Home Loan Bank System. The Bank is a member of the FHLB of Atlanta, which is one of 11 regional FHLBs that administer the home financing credit function of financial institutions. The FHLBs are subject to the oversight of the Federal Housing Finance Agency and each FHLB serves as a reserve or central bank for its members within its assigned region. The FHLBs are funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System and make loans or advances to members in accordance with policies and procedures established by the Board of Directors of the FHLB, which are subject to the oversight of the Federal Housing Finance Board. All advances from the FHLB of Atlanta are required to be fully secured by sufficient collateral as determined by the FHLB of Atlanta. In addition, all long-term advances are required to provide funds for residential home financing. At December 31, 2019, the Bank had $38.1 million of outstanding advances from the FHLB

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of Atlanta under an available credit facility of $259.2 million, which is limited to available collateral. See "Business - Sources of Funds - Borrowings."

As a member, the Bank is required to purchase and maintain stock in the FHLB of Atlanta. At December 31, 2019, the Bank had $2.5 million in FHLB of Atlanta stock, which was in compliance with this requirement. In past years, the Bank has received substantial dividends on its FHLB of Atlanta stock. These dividend yields have averaged 6.22% for the year ended December 31, 2019; 6.16% for the year ended December 31, 2018 and 4.96% for the year ended December 31, 2017.

The FHLBs continue to contribute to low- and moderately-priced housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have in the past affected adversely the level of FHLB dividends paid and could continue to do so in the future. These contributions could also have an adverse effect on the value of FHLB of Atlanta stock in the future. A reduction in value of the Bank's FHLB of Atlanta stock may result in a decrease in net income and possibly the Bank's capital.

Affiliate Transactions. The Company and the Bank are separate and distinct legal entities. Federal laws strictly limit the ability of banks to engage in certain transactions with their affiliates, including their bank holding companies. Transactions deemed to be "covered transactions" under Section 23A of the Federal Reserve Act and between a subsidiary bank and its parent company or the nonbank subsidiaries of the bank holding company are limited to 10% of the bank subsidiary's capital and surplus and, with respect to the parent company and all such nonbank subsidiaries, to an aggregate of 20% of the bank subsidiary's capital and surplus. Further, covered transactions that are loans and extensions of credit generally are required to be secured by eligible collateral in specified amounts. Federal law also requires that covered transactions and certain other transactions listed in Section 23B of the Federal Reserve Act between a bank and its affiliates be on terms as favorable to the bank as transactions with non-affiliates.

Community Reinvestment Act. The Bank is also subject to the provisions of the Community Reinvestment Act of 1977 ("CRA"), which requires the appropriate federal bank regulatory agency to assess a bank’s performance under the CRA in meeting the credit needs of the community serviced by the Bank, including low and moderate income neighborhoods. The regulatory agency's assessment of a bank's record is made available to the public. Further, a bank’s CRA performance rating must be considered in connection with a bank’s application to, among other things, establish a new branch office that will accept deposits, relocate an existing office or merge or consolidate with, or acquire the assets or assume the liabilities of, a federally regulated financial institution, and in connection with certain applications by a bank holding company, such as bank acquisitions. The Bank received an "outstanding" rating during its most recent CRA examination.

Dividends. Dividends from the Bank constitute the major source of funds for dividends which may be paid by the Company to shareholders. The amount of dividends payable by the Bank to the Company depends upon the Bank's earnings and capital position, and is limited by federal and state laws, regulations and policies, including the capital conservation buffer requirement discussed above. South Carolina banking regulations restrict the amount of dividends that the Bank can pay to the Company, and may require prior approval before declaration and payment of any excess dividend.

The amount of dividends actually paid during any one period will be strongly affected by the Bank's management policy of maintaining a strong capital position. Federal law further provides that no insured depository institution may pay a cash dividend if it would cause the institution to be "undercapitalized," as defined in the prompt corrective action regulations. Moreover, the federal bank regulatory agencies also have the general authority to limit the dividends paid by insured banks if such payments should be deemed to constitute an unsafe and unsound practice.

Activities and Investments of Insured State-Chartered Financial Institutions. Federal law generally limits the activities and equity investments of FDIC-insured, state-chartered banks to those that are permissible for national banks. An insured state bank is not prohibited from, among other things, (i) acquiring or retaining a majority interest in a subsidiary, (ii) investing as a limited partner in a partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the bank's total assets, (iii) acquiring up to 10% of the voting stock of a company that solely provides or reinsures directors', trustees' and officers' liability insurance coverage or bankers' blanket bond group insurance coverage for insured depository institutions, (iv) acting as agent for a customer in many capacities, and (v) acquiring or retaining the voting shares of a depository institution if certain requirements are met.

Federal Reserve System. The Federal Reserve requires that all depository institutions maintain reserves on transaction accounts or non-personal time deposits. These reserves may be in the form of cash or non-interest-bearing deposits with the regional Federal Reserve Bank. Negotiable order of withdrawal ("NOW") accounts and other types of accounts that permit payments or transfers to third parties fall within the definition of transaction accounts and are subject to the reserve requirements, as are any

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non-personal time deposits at a savings bank. As of December 31, 2019, the Bank's deposit with the Federal Reserve Bank and vault cash exceeded its reserve requirements.

Standards for Safety and Soundness. The federal banking regulatory agencies have prescribed, by regulation, guidelines for all insured depository institutions relating to internal controls, information systems and internal audit systems; loan documentation; credit underwriting; interest rate risk exposure; asset growth; asset quality; earnings; and compensation, fees and benefits. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. Each insured depository institution must implement a comprehensive written information security program that includes administrative, technical, and physical safeguards appropriate to the institution’s size and complexity and the nature and scope of its activities. The information security program must be designed to ensure the security and confidentiality of customer information, protect against any unanticipated threats or hazards to the security or integrity of such information, protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer, and ensure the proper disposal of customer and consumer information. Each insured depository institution must also develop and implement a risk-based response program to address incidents of unauthorized access to customer information in customer information systems. If the FDIC determines that an institution fails to meet any of these guidelines, it may require an institution to submit to the FDIC an acceptable plan to achieve compliance.

Environmental Issues Associated with Real Estate Lending. The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), a federal statute, generally imposes strict liability on all prior and present "owners and operators" of sites containing hazardous waste. However, Congress acted to protect secured creditors by providing that the term "owner and operator" excludes a person whose ownership is limited to protecting its security interest in the site. Since the enactment of the CERCLA, this "secured creditor exemption" has been the subject of judicial interpretations which have left open the possibility that lenders could be liable for cleanup costs on contaminated property that they hold as collateral for a loan. To the extent that legal uncertainty exists in this area, all creditors, including the Bank, that have made loans secured by properties with potential hazardous waste contamination (such as petroleum contamination) could be subject to liability for cleanup costs, which costs often substantially exceed the value of the collateral property.

Privacy Standards. The Bank is subject to FDIC regulations implementing the privacy protection provisions of the Gramm-Leach-Bliley Financial Services Modernization Act of 1999. These regulations require the Bank to disclose its privacy policy, including informing consumers of its information sharing practices and informing consumers of their rights to opt out of certain practices.

Bank Secrecy Act / Anti-Money Laundering Laws. The Bank is subject to the Bank Secrecy Act and other anti-money laundering laws and regulations, including the USA PATRIOT Act of 2001. These laws and regulations require the Bank to implement policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing and to verify the identity of their customers. Violations of these requirements can result in substantial civil and criminal sanctions. In addition, provisions of the USA PATRIOT Act require the federal financial institution regulatory agencies to consider the effectiveness of a financial institution’s anti-money laundering activities when reviewing mergers and acquisitions.

Other Consumer Protection Laws and Regulations. The Dodd-Frank Act established the CFPB and empowered it to exercise broad regulatory, supervisory and enforcement authority with respect to both new and existing consumer financial protection laws. The Bank is subject to consumer protection regulations issued by the CFPB, but as a financial institution with assets of less than $10 billion, the Bank is generally subject to supervision and enforcement by the FDIC and the State Board with respect to our compliance with federal and state consumer financial protection laws and regulations.

The Bank is subject to a broad array of federal and state consumer protection laws and regulations that govern almost every aspect of its business relationships with consumers. While the list set forth below is not exhaustive, these include the Truth-in-Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Home Mortgage Disclosure Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Right to Financial Privacy Act, the Home Ownership and Equity Protection Act, the Consumer Leasing Act, the Fair Credit Billing Act, the Homeowners Protection Act, the Check Clearing for the 21st Century Act, laws governing flood insurance, laws governing consumer protections in connection with the sale of insurance, federal and state laws prohibiting unfair and deceptive business practices, and various regulations that implement some or all of the foregoing. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, collecting loans, and providing other services. Failure to comply with these laws and regulations can subject the Bank to various penalties, including but not limited to, enforcement actions, injunctions, fines, civil liability, criminal penalties, punitive damages, and the loss of certain contractual rights.

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Regulation of the Company

General. The Company, as the sole shareholder of the Bank, is a registered bank holding company with the Federal Reserve. Bank holding companies are subject to comprehensive regulation by the Federal Reserve under the Bank Holding Company Act of 1956, as amended ("BHCA"), and the regulations promulgated thereunder. This regulation and oversight is generally intended to ensure that the Company limits its activities to those allowed by law and that it operates in a safe and sound manner without endangering the financial health of the Bank.

As a bank holding company, the Company is required to file with the Federal Reserve semi-annual and periodic reports and such additional information as the Federal Reserve may require and is subject to regular examinations by the Federal Reserve. The Federal Reserve may examine the Company, and any of its subsidiaries, and charge the Company for the cost of the examination. The Federal Reserve also has extensive enforcement authority over bank holding companies, including, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to require that a holding company divest subsidiaries (including its bank subsidiaries). In general, enforcement actions may be initiated for violations of law and regulations and unsafe or unsound practices.

The Bank Holding Company Act. Under the BHCA, the Company is supervised by the Federal Reserve. The Federal Reserve has a policy that a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, the Dodd-Frank Act and earlier Federal Reserve policy provide that a bank holding company should serve as a source of strength to its subsidiary bank by having the ability to provide financial assistance to its subsidiary bank during periods of financial distress to the bank, and should maintain the financial flexibility and capital raising capacity to obtain additional resources for assisting its subsidiary bank. A bank holding company's failure to meet its obligation to serve as a source of strength to its subsidiary banks will generally be considered by the Federal Reserve to be an unsafe and unsound banking practice or a violation of the Federal Reserve's regulations or both. No regulations have yet been proposed by the Federal Reserve to implement the source of strength provisions of the Dodd-Frank Act. The Company and any subsidiaries that it may control are considered "affiliates" within the meaning of the Federal Reserve Act, and transactions between the Bank and affiliates (except subsidiaries of the Bank) are subject to numerous restrictions. With some exceptions, the Company and its subsidiaries, are prohibited from tying the provision of various services, such as extensions of credit, to other services offered by the Company, or by its affiliates.

Acquisitions. The BHCA prohibits a bank holding company, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. Under the BHCA, the Federal Reserve is authorized to approve the ownership of shares by a bank holding company in any company, the activities of which the Federal Reserve has determined to be so closely related to the business of banking or managing or controlling banks as to be a proper incident thereto. The list of activities determined by regulation to be closely related to banking within the meaning of the BHCA includes, among other things: operating a savings institution, mortgage company, finance company, credit card company or factoring company; performing certain data processing operations; providing certain investment and financial advice; underwriting and acting as an insurance agent for certain types of credit-related insurance; leasing property on a full-payout, non-operating basis; selling money orders, travelers' checks and U.S. Savings Bonds; real estate and personal property appraising; providing tax planning and preparation services; and, subject to certain limitations, providing securities brokerage services for customers.

Capital Requirements. As discussed above, pursuant to the Act, effective August 30, 2018, bank holding companies with less than $3.0 billion in consolidated assets are generally no longer subject to the Federal Reserve’s capital regulations, which are essentially the same as the capital regulations applicable to the Bank described under the caption “Capital Requirements” above. If the Company were subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets at December 31, 2019, the Company would have exceeded all regulatory requirements. The Federal Reserve expects a holding company's subsidiary banks to be well capitalized under the prompt corrective action regulations. For additional information, see Note 16 of the Notes to Consolidated Financial Statements included in the Annual Report.

Interstate Banking. The Federal Reserve may approve an application of a bank holding company to acquire control of, or acquire all or substantially all of the assets of, a bank located in a state other than such holding company's home state, without regard to whether the transaction is prohibited by the laws of any state except with respect to the acquisition of a bank that has not been in existence for the minimum time period, not exceeding five years, specified by the law of the host state. The Federal Reserve may not approve an application if the applicant controls or would control more than 10% of the insured deposits in the

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United States or 30% or more of the deposits in the target bank's home state or in any state in which the target bank maintains a branch. Federal law does not affect the authority of states to limit the percentage of total insured deposits in the state that may be held or controlled by a bank holding company to the extent such limitation does not discriminate against out-of-state banks or bank holding companies. Individual states may also waive the 30% state-wide concentration limit contained in the federal law.

The federal banking agencies are authorized to approve interstate merger transactions without regard to whether such transaction is prohibited by the law of any state, unless the home state of one of the banks adopted a law prior to June 1, 1997 which applies equally to all out-of-state banks and expressly prohibits merger transactions involving out-of-state banks. Interstate acquisitions of branches will be permitted only if the law of the state in which the branch is located permits such acquisitions. Interstate mergers and branch acquisitions are also subject to the nationwide and statewide insured deposit concentration amounts described above. De novo interstate branching banks are generally permissible, subject to application requirements.

Dividends. As a South Carolina corporation, the Company is subject to restrictions on the payment of dividends under South Carolina law. In addition, the Company is an entity separate and distinct from its principal subsidiary, Security Federal Bank, and derives substantially all of its revenue in the form of dividends from this subsidiary. Accordingly, the Company is, and will be, dependent upon dividends from the Bank to pay the principal of and interest on its indebtedness, to satisfy its other cash needs and to pay dividends on its common stock. The Company is also subject to certain federal regulatory considerations. The Federal Reserve has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve's view that a bank holding company should pay cash dividends only to the extent that the company's net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the company's capital needs, asset quality and overall financial condition, and that it is inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends. Dividends are also subject to restriction if the capital conservation buffer requirement is not met.

Stock Repurchases. Bank holding companies, except for certain "well-capitalized" and highly rated bank holding companies, are required to give the Federal Reserve prior written notice of any purchase or redemption of its outstanding equity securities if the consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of their consolidated net worth. The Federal Reserve may disapprove a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, Federal Reserve order, or any condition imposed by, or written agreement with, the Federal Reserve.

Federal Securities Laws. The Company’s common stock is registered with the SEC under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  We are subject to information, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act.

The Dodd-Frank Act. Among other requirements, the Dodd-Frank Act requires public companies, like the Company, to (i) provide their shareholders with a non-binding vote (a) at least once every three years on the compensation paid to executive officers and (b) at least once every six years on whether they should have a “say on pay” vote every one, two or three years; (ii) have a separate, non-binding shareholder vote regarding golden parachutes for named executive officers when a shareholder vote takes place on mergers, acquisitions, dispositions or other transactions that would trigger the parachute payments; (iii) provide disclosure inannual proxy materials concerning the relationship between the executive compensation paid and the financial performance of the issuer; and (iv) require companies to disclose the ratio of the Chief Executive Officer's annual total compensation to the median annual total compensation of all other employees. For certain of these changes, the implementing regulations have not been promulgated, so the full impact of the Dodd-Frank Act on public companies cannot be determined at this time.

Sarbanes-Oxley Act of 2002.  As a public company that files periodic reports with the SEC under the Exchange Act, the Company is subject to the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), which addresses, among other issues, corporate governance, auditing and accounting, executive compensation and enhanced and timely disclosure of corporate information. The Sarbanes-Oxley Act represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between a board of directors and management and between a board of directors and its committees. Our policies and procedures have been updated to comply with the requirements of the Sarbanes-Oxley Act.

Jumpstart Our Business Startups ("JOBS") Act. The JOBS Act was signed into law on April 5, 2012 and allows banks and bank holding companies to terminate the registration of a class of securities under Section 12(g) and Section 12(b) of the Exchange Act if such class is held of record by less than 1,200 persons. The Company's Board continues to evaluate the costs and advantages and disadvantages of being an SEC registered company and the effects of deregistering its shares of common stock, including among other things, the resulting decrease in the liquidity of its shares.

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TAXATION

Federal Taxation

General.  The Company and the Bank report their income on a calendar year basis using the accrual method of accounting and are subject to federal income taxation in the same manner as other corporations with some exceptions, including particularly the Bank's reserve for bad debts discussed below.  The following discussion of tax matters is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to the Bank or the Company.

Distributions.  To the extent that the Bank makes "nondividend distributions" to the Company, these distributions will be considered to result in distributions from the balance of its bad debt reserve as of December 31, 1987 (or a lesser amount if the Bank's loan portfolio decreased since December 31, 1987) and then from the supplemental reserve for losses on loans ("Excess Distributions"), and an amount based on the Excess Distributions will be included in the Bank's taxable income.  Nondividend distributions include distributions in excess of the Bank's current and accumulated earnings and profits, distributions in redemption of stock and distributions in partial or complete liquidation.  However, dividends paid out of the Bank's current or accumulated earnings and profits, as calculated for federal income tax purposes, will not be considered to result in a distribution from the Bank's bad debt reserve.  The amount of additional taxable income created from an Excess Distribution is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution.  Thus, if the Bank makes a "nondividend distribution," then approximately one and one-half times the Excess Distribution would be includable in gross income for federal income tax purposes, assuming a 21% corporate income tax rate (exclusive of state and local taxes).  See "Regulation - Regulation of the Bank - Dividends” for limits on the payment of dividends by the Bank.  The Bank does not intend to pay dividends that would result in a recapture of any portion of its tax bad debt reserve.

Net Operating Loss Carryovers. Under the Tax Act, a financial institution may carryforward net operating losses indefinitely. As of December 31, 2019, management determined it is more likely than not that the total deferred tax asset will be realized except for the deferred tax asset associated with state net operating loss carryforwards, and, accordingly, has established a valuation allowance only for this item. The change in the valuation allowance was $23,458.

Dividends-Received Deduction.  The Company may exclude from its income dividends received from the Bank as a wholly-owned subsidiary of the Company that files a consolidated return with the Bank. The corporate dividends-received deduction is 100%, or 80%, in the case of dividends received from corporations with which a corporate recipient does not file a consolidated tax return, depending on the level of stock ownership of the payer of the dividend. Corporations that own less than 20% of the stock of a corporation distributing a dividend may deduct 70% of dividends received or accrued on their behalf.

Audits.  The Company, the Bank and its consolidated subsidiaries have been audited or their books closed without audit by the IRS with respect to consolidated federal income tax returns through December 31, 2019.  See Note 15 of the Notes to Consolidated Financial Statements contained in the Annual Report for additional information regarding income taxes.

State Taxation

South Carolina has adopted the Internal Revenue Code as it relates to commercial banks, effective for taxable years beginning after December 31, 1986.  The Bank is subject to South Carolina income tax at the rate of 4.5%.  The Bank has not been audited by the State of South Carolina during the past five years. The Company's income tax returns have not been audited by federal or state authorities within the last five years.  For additional information regarding income taxes, see Note 15 of the Notes to Consolidated Financial Statements contained in the Annual Report.

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Item 1A. Risk Factors.

An investment in our common stock involves various risks which are particular to Security Federal Corporation, our industry, and our market area. Before making an investment decision, you should carefully consider the risks and uncertainties described below, together with all of the other information included in this report and out filings with the SEC. In addition to the risks and uncertainties described below, other risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition, capital levels, liquidity, cash flows, results of operations and prospects. The market price of our common stock could decline significantly due to any of these identified or other risks, and you could lose some or all of your investment.

Risks Related to our Business

Our business may be adversely affected by downturns in the national economy and in the economies in our market areas.

Our operations are significantly affected by the general economic conditions of the states of South Carolina and Georgia and the specific local markets in which we operate. Our entire real estate portfolio consists primarily of loans secured by properties located in Aiken, Richland, and Lexington Counties in South Carolina and Columbia and Richmond Counties in Georgia. A decline in the economies of these five counties in which we operate, which we consider to be our primary market area, could have a material adverse effect on our business, financial condition, results of operations, and prospects. Weakness in the global economy has adversely affected many businesses operating in our markets that are dependent upon international trade and it is not known how tariffs being imposed on international trade may also affect these businesses. Changes in agreements or relationships between the United States and other countries may also affect these businesses.

The coronavirus outbreak may also have an adverse effect on our customers directly or indirectly, including those engaged in international trade, travel and tourism. These effects could include disruptions or restrictions in our customers’ supply chains or employee productivity, closures of customers' facilities, decreases in demand for customers' products and services or in other economic activities. Their businesses may be adversely affected by quarantines and travel restrictions in countries most affected by the coronavirus. In addition, entire industries such as agriculture, may be adversely impacted due to lower exports caused by reduced economic activity in the affected countries. If our customers are adversely affected, or if the virus leads to a widespread health crisis that impacts U.S. economic growth, our condition and results of operations could be adversely affected, despite having no direct operations in China.

While real estate values and unemployment rates have recently improved, a deterioration in economic conditions in the market areas we serve could result in loan losses beyond that which is provided for in our allowance for loan losses and could result in the following consequences, any of which could have a materially adverse effect on our business, financial condition, or results of operations:

• loan delinquencies, problem assets and foreclosures may increase;

• we may increase our allowance for loan losses;

• demand for our products and services may decline, possibly resulting in a decrease in our total loans or assets;

• collateral for our loans, especially real estate, may decline in value, exposing us to increased risk of loss on existing loans, reducing customers’ borrowing power, and reducing the value of assets and collateral associated with existing loans;

• the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; and

• the amount of our low-cost or noninterest-bearing deposits may decrease

A decline in local economic conditions may have a greater effect on our earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are geographically diverse. Many of the loans in our portfolio are secured by real estate. Deterioration in the real estate markets where collateral for a mortgage loan is located could negatively affect the borrower’s ability to repay the loan and the value of the collateral securing the loan. Real estate values are affected by various other factors, including changes in general or regional economic conditions, governmental rules or policies and natural disasters such as earthquakes. If we are required to liquidate a significant amount of collateral during a period of reduced real estate values, our financial condition and profitability could be adversely affected. Adverse changes in the regional and general economy could reduce our growth rate, impair our ability to collect loans and generally have a negative effect on our financial condition and results of operations.

Our allowance for loan losses may prove to be insufficient to absorb losses in our loan portfolio.

Lending money is a substantial part of our business and each loan carries a certain risk that it will not be repaid in accordance with its terms or that any underlying collateral will not be sufficient to assure repayment. This risk is affected by, among other things:

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• cash flow of the borrower and/or the project being financed;

• the changes and uncertainties as to the future value of the collateral, in the case of a collateralized loan;

• the duration of the loan;

• the character and creditworthiness of a particular borrower; and

• changes in economic and industry conditions.

We maintain an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense, which we believe is appropriate to provide for probable losses in our loan portfolio. The amount of this allowance is determined by our management through periodic reviews and consideration of several factors, including, but not limited to:

• our general reserve, based on our historical default and loss experience and certain macroeconomic factors based on management's expectations of future events;

• our specific reserve, based on our evaluation of impaired loans and their underlying collateral; and

• an unallocated reserve to provide for other credit losses inherent in our portfolio that may not have been contemplated in the other loss factors.

The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes. If our estimates are incorrect, the allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, resulting in the need for additions to our allowance through an increase in the provision for loan losses. Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may increase our loan charge-offs and/or may otherwise require an increase in the allowance for loan losses. Our allowance for loan losses was 2.01% of total loans outstanding and 224.2% of non-performing assets at December 31, 2019.

The Financial Accounting Standards Board has adopted a new accounting standard referred to as Current Expected Credit Loss ("CECL") which will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans and recognize the expected credit losses as allowances for credit losses. This will change the current method of providing allowances for credit losses only when they have been incurred and are probable, which may require us to increase our allowance for loan losses, and may greatly increase the types of data we would need to collect and review to determine the appropriate level of the allowance for credit losses. This accounting pronouncement is applicable to us beginning January 1, 2023. We are evaluating the impact the CECL accounting model will have on our accounting, but expect to recognize a onetime cumulative-effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective. We cannot yet determine the magnitude of any such one-time cumulative adjustment or of the overall impact of the new standard on our financial condition or results of operations. The federal banking regulators, including the Federal Reserve and the FDIC, have adopted a rule that gives a banking organization the option to phase in over a three-year period the day-one adverse effects of CECL on its regulatory capital.

In addition, bank regulatory agencies periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize additional loan charge-offs. Any increases in the provision for loan losses may result in a decrease in net income and may have a material adverse effect on our financial condition, results of operations and capital.

If our non-performing assets increase, our earnings will be adversely affected.

At December 31, 2019, our non-performing assets (which consist of non-accruing loans and OREO) were $4.1 million, or 0.4% of total assets. Our non-performing assets adversely affect our net income in various ways:

• we record interest income only on a cash basis for nonaccrual loans and any non-performing investment securities;

• we do not record interest income for OREO;

• we provide for probable loan losses through a current period charge to the provision for loan losses;

• non-interest expense increases when we write down the value of properties in our OREO portfolio to reflect changing market values or recognize other-than-temporary impairment on non-performing investment securities;

• there are legal fees associated with the resolution of problem assets, as well as carrying costs, such as taxes, insurance, and maintenance fees related to our OREO; and

• the resolution of non-performing assets requires the active involvement of management, which can distract them from more profitable activity.

If additional borrowers become delinquent and do not pay their loans and we are unable to successfully manage our non-performing assets, our losses and troubled assets could increase significantly, which could have a material adverse effect on our financial condition and results of operations.

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Our level of commercial and multifamily real estate loans may expose us to increased lending risks.

At December 31, 2019, commercial and multifamily real estate loans were $303.6 million or 64.8% of our total loan portfolio. The credit risk related to these types of loans is considered to be greater than the risk related to one-to-four-family residential loans because the repayment of commercial and multi-family real estate loans typically is dependent on the successful operation and income stream of the property securing the loan and the value of the real estate securing the loan as collateral, which can be significantly affected by changes in the economy or local market conditions. In addition, some of our commercial real estate loans are not fully amortizing and contain large balloon payments upon maturity. These balloon payments may require the borrower to either sell or refinance the underlying property in order to make the balloon payment, which may increase the risk of default or non-payment. These loans also generally have relatively large balances to single borrowers or related groups of borrowers. Accordingly, if we make any errors in judgment in the collectability of our commercial real estate loans, any resulting charge-offs may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios. Consequently, this could materially adversely affect our future earnings. Finally, if foreclosure occurs on a commercial real estate loan, the holding period for the collateral, if any, typically is longer than for a one-to-four-family residence because the secondary market for most types of commercial and multi-family real estate is not readily liquid, so we have less opportunity to mitigate credit risk by selling part or all of our interest in these assets.

Our construction and land loans are based upon estimates of costs and the value of the completed project.

We originate construction loans on single-family residences, multi-family dwellings and projects, and commercial real estate, as well as loans for the acquisition and development and construction of residential subdivisions and commercial projects. We originate these loans whether or not the collateral property underlying the loan is under contract for sale. At December 31, 2019, commercial construction and A&D loans totaled $66.2 million or 14.0% of our total loan portfolio.

At that date, A&D loans were $18.6 million or 3.9% of our total loan portfolio. At December 31, 2019, included in our commercial real estate loan portfolio was $15.5 million, or 3.3% of our total loan portfolio, in loans for the speculative construction of single family dwellings to builders. At December 31, 2019, our residential loan portfolio included $23.1 million or 4.9% of our total loan portfolio of owner occupied residential construction loans.

Construction and A&D lending involves additional risks when compared with permanent residential lending because funds are advanced upon the collateral for the project based on an estimate of costs that will produce a future value at completion. Because of the uncertainties inherent in estimating construction costs, as well as the market value of the completed project and the effects of governmental regulation on real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the completed project loan-to-value ratio. Changes in the demand, such as for new housing and higher than anticipated building costs, may cause actual results to vary significantly from those estimated. For these reasons, this type of lending also typically involves higher loan principal amounts and is often concentrated with a small number of builders. A downturn in housing, or the real estate market, could increase loan delinquencies, defaults and foreclosures, and significantly impair the value of our collateral and our ability to sell the collateral upon foreclosure. Some of our builders have more than one loan outstanding with us and also have residential mortgage loans for rental properties with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss.

These loans often involve the disbursement of funds with repayment substantially dependent on the success of the ultimate project and the ability of the borrower to sell or lease the property or obtain permanent take-out financing, rather than the ability of the borrower or guarantor to repay principal and interest. If our appraisal of the value of a completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project and may incur a loss. Because construction loans require active monitoring of the building process, including cost comparisons and on-site inspections, these loans are more difficult and costly to monitor. Increases in market rates of interest may have a more pronounced effect on construction loans by rapidly increasing the end-purchasers’ borrowing costs, thereby reducing the overall demand for the project. Properties under construction are often difficult to sell and typically must be completed in order to be successfully sold which also complicates the process of working out problem construction loans. This may require us to advance additional funds and/or contract with another builder to complete construction. Furthermore, in the case of speculative construction loans, there is the added risk associated with identifying an end-purchaser for the finished project. Land loans also pose additional risk because of the lack of income being produced by the property and the potential illiquid nature of the collateral. These risks can also be significantly impacted by supply and demand conditions.

A&D loans pose additional risk because of the lack of income being produced by the property and the potential illiquid nature of the collateral. These risks can be significantly impacted by supply and demand conditions. As a result, this type of lending often involves the disbursement of substantial funds with repayment dependent on the success of the ultimate project and the ability of the borrower to develop, sell or lease the property, rather than the ability of the borrower or guarantor to independently repay principal and interest. There was one non-performing A&D loan with a balance of $17,000 at December 31, 2019. A material

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increase in our non-performing construction and development loans could have a material adverse effect on our financial condition and results of operation.

Repayment of our commercial business loans is often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in value.

At December 31, 2019, $22.2 million or 4.8% of our total loans were commercial business loans. Commercial business lending involves risks that are different from those associated with residential and commercial real estate lending. Real estate lending is generally considered to be collateral based lending with loan amounts based on predetermined loan to collateral values and liquidation of the underlying real estate collateral being viewed as the primary source of repayment in the event of borrower default. Our commercial business loans are primarily made based on the cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The borrowers' cash flow may be unpredictable, and collateral securing these loans may fluctuate in value. Although commercial business loans are often collateralized by equipment, inventory, accounts receivable, or other business assets, the liquidation of collateral in the event of default is often an insufficient source of repayment because accounts receivable may be uncollectible and inventories may be obsolete or of limited use, among other things. Accordingly, the repayment of commercial business loans depends primarily on the cash flow and credit worthiness of the borrower and secondarily on the underlying collateral provided by the borrower.

The level of our commercial real estate loan portfolio may subject us to additional regulatory scrutiny.

The FDIC, the Federal Reserve and the Office of the Comptroller of the Currency, have promulgated joint guidance on sound risk management practices for financial institutions with concentrations in commercial real estate lending. Under the guidance, a financial institution that, like us, is actively involved in commercial real estate lending should perform a risk assessment to identify concentrations. A financial institution may have a concentration in commercial real estate lending if, among other factors, (i) total reported loans for construction, land acquisition and development, and other land represent 100% or more of total capital or (ii) total reported loans secured by multi-family and non-farm residential properties, loans for construction, land acquisition and development and other land, and loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related entities, represent 300% or more of total capital. The particular focus of the guidance is on exposure to commercial real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be at greater risk to conditions in the commercial real estate market (as opposed to real estate collateral held as a secondary source of repayment or as an abundance of caution). The purpose of the guidance is to guide banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations. The guidance states that management should employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing. Regulatory scrutiny of commercial real estate is generally at a ratio of 300% or more. At December 31, 2019, total commercial real estate loans represented 280% of risk based capital plus the excess allowance for loan losses. While we believe we have implemented policies and procedures with respect to our commercial real estate loan portfolio consistent with this guidance, bank regulators could require us to implement additional policies and procedures consistent with their interpretation of the guidance that may result in additional costs to us.

Declines in property values have increased loan-to-value ratios on a significant portion of our one- to four-family loans and home equity lines of credit, which exposes us to greater risk of loss.

Many of our one- to four-family loans and home equity lines of credit are secured by liens on mortgage properties in which the borrowers may have little or no equity because of the declines in home values. Residential loans with high combined loan-to-value ratios will be more sensitive to declining property values than those with lower combined loan-to-value ratios and therefore may experience a higher incidence of default and severity of losses. In addition, if the borrowers sell their homes, they may be unable to repay their loans in full from the sale proceeds. Further, the majority of our home equity lines of credit consist of second mortgage loans. For those home equity lines secured by a second mortgage, it is unlikely that we will be successful in recovering all or a portion of our loan proceeds in the event of default unless we are prepared to repay the first mortgage loan and such repayment and the costs associated with a foreclosure are justified by the value of the property. For these reasons, these loans may experience higher rates of delinquencies, defaults and losses.

Our real estate lending also exposes us to the risk of environmental liabilities.

In the course of our business, we may foreclose and take title to real estate, and we could be subject to environmental liabilities with respect to these properties. We may be held liable to a governmental entity or to third persons for property damage, personal injury, investigation, and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, as the owner or former owner of a contaminated site,

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we may be subject to common law claims by third parties based on damages and costs resulting from environmental contaminationemanating from the property. If we ever become subject to significant environmental liabilities, our business, financial condition and results of operations could be materially and adversely affected.

If our investments in real estate are not properly valued or sufficiently reserved to cover actual losses, or if we are required to increase our valuation reserves, our earnings could be reduced.

We obtain updated valuations in the form of appraisals and broker price opinions when a loan has been foreclosed upon and the property taken in as OREO, and at certain other times during the assets holding period. Our net book value in the loan at the time of foreclosure and thereafter is compared to the updated market value of the foreclosed property less estimated selling costs (fair value). A charge-off is recorded for any excess in the asset's net book value over its fair value. If our valuation process is incorrect, or if the property declines in value after foreclosure, the fair value of our investments in OREO may not be sufficient to recover our net book value in such assets, resulting in the need for additional charge-offs. Additional material charge-offs to our investments in OREO could have a material adverse effect on our financial condition and results of operations. In addition, bank regulators periodically review our OREO and may require us to recognize further charge-offs. Significant charge-offs, as required by such regulators, may have a material adverse effect on our financial condition and results of operations.

We may incur losses on our securities portfolio as a result of changes in interest rates.

Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. These factors include, but are not limited to, rating agency actions in respect of the securities, defaults by, or other adverse events affecting, the issuer or with respect to the underlying securities, and changes in market interest rates and continued instability in the capital markets. Any of these factors, among others, could cause other-than-temporary impairments and realized and/or unrealized losses in future periods and declines in other comprehensive income, which could have a material effect on our business, financial condition and results of operations. The process for determining whether impairment of a security is other-than-temporary usually requires complex, subjective judgments about the future financial performance and liquidity of the issuer and any collateral underlying the security to assess the probability of receiving all contractual principal and interest payments on the security. There can be no assurance that the declines in market value will not result in other-than-temporary impairments of these assets, and would lead to accounting charges that could have a material adverse effect on our net income and capital levels. For the year ended December 31, 2019, we did not incur any other-than-temporary impairments on our securities portfolio.

Changes in interest rates may reduce our net interest income, and may result in higher defaults in a rising rate environment.

As with most financial institutions, our earnings and cash flows are largely dependent upon our net interest income. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies, and in particular, the Federal Reserve Board. In an attempt to help the overall economy, the Federal Reserve kept interest rates low through its targeted Fed Funds rate for a number of years, however, the Federal Reserve steadily increased the targeted Fed Funds rate in 2018 and 2017. Beginning in August 2019 the Federal Reserve has reduced the targeted Fed Funds rate 25 basis points three times to a range of 1.50% to 1.75% at December 31, 2019 in response to some recent weaknesses in economic data and indicated possible further decreases, subject to economic conditions. In a rare emergency move, the Federal Reserve Board further lowered the targeted federal funds rate in March 2020, by a half-point to a range of 1% to 1.25% in response to the evolving risks the coronavirus outbreak poses to the economy. If the Federal Reserve decreases the targeted federal funds rates further, overall interest rates will likely decline, which may negatively impact our net interest income. If the Federal Reserve increases the targeted federal funds rate, overall interest rates will likely rise, which may negatively impact both the housing markets by reducing refinancing activity and new home purchases and the U.S. economic recovery. In addition, deflationary pressures, while possibly lowering our operating costs, could have a significant negative effect on our borrowers, especially our business borrowers, and the values of collateral securing loans, which could negatively affect our financial performance.

We principally manage interest rate risk by managing our volume and mix of our earning assets and funding liabilities. Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but these changes could also affect (i) our ability to originate and/or sell loans and obtain deposits, (ii) the fair value of our financial assets and liabilities, which could negatively impact shareholders’ equity, and our ability to realize gains from the sale of such assets, (iii) our ability to obtain and retain deposits in competition with other available investment alternatives, (iv) the ability of our borrowers to repay adjustable or variable rate loans, and (v) the average duration of our mortgage-backed securities portfolio and other interest-earning assets. In a changing interest rate environment, we may not be able to manage this risk effectively. If we are unable to manage interest rate risk effectively, our business, financial condition and results of operations could be materially affected.

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Changes in interest rates could also have a negative impact on our results of operations by reducing the ability of borrowers to repay their current loan obligations or by reducing our margins and profitability. Our net interest margin is the difference between the yield we earn on our assets and the interest rate we pay for deposits and our other sources of funding. Changes in interest rates-up or down-could adversely affect our net interest margin and, as a result, our net interest income. Although the yield we earn on our assets and our funding costs tend to move in the same direction in response to changes in interest rates, one can rise or fall faster than the other, causing our net interest margin to expand or contract. Our liabilities tend to be shorter in duration than our assets, so they may adjust faster in response to changes in interest rates. As a result, when interest rates rise, our funding costs may rise faster than the yield we earn on our assets, causing our net interest margin to contract until the yields on interest-earning assets catch up.

Changes in the slope of the “yield curve”, or the spread between short-term and long-term interest rates-could also reduce our net interest margin. Normally, the yield curve is upward sloping, meaning short-term rates are lower than long-term rates. Because our liabilities tend to be shorter in duration than our assets, when the yield curve flattens or even inverts, we could experience pressure on our net interest margin as our cost of funds increases relative to the yield we can earn on our assets. Also, interest rate decreases can lead to increased prepayments of loans and mortgage-backed securities as borrowers refinance their loans to reduce borrowing costs. Under these circumstances, we are subject to reinvestment risk as we may have to redeploy such repayment proceeds into lower yielding investments, which would likely hurt our income.

A sustained increase in market interest rates could adversely affect our earnings. As is the case with many banks and savings institutions, our emphasis on increasing the development of core deposits, those deposits bearing no or a relatively low rate of interest with no stated maturity date, has resulted in an increasing percentage of our deposits being comprised of deposits bearing no or a relatively low rate of interest and having a shorter duration than our assets. We would incur a higher cost of funds to retain these deposits in a rising interest rate environment. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected.

In addition, a substantial amount of our loans have adjustable interest rates. As a result, these loans may experience a higher rate of default in a rising interest rate environment. Further, a significant portion of our adjustable rate loans have interest rate floors below which the loan's contractual interest rate may not adjust.  Approximately $166.1 million or 35.2% of our loan portfolio was comprised of adjustable or floating-rate loans at December 31, 2019, and approximately $108.7 million, or 65.5%, of those loans contained interest rate floors, below which the loans' contractual interest rate may not adjust.  At December 31, 2019, the weighted average floor interest rate of these loans was 4.59%.  At that date, approximately $43.5 million, or 40.0%, of these loans were at their floor interest rate. The inability of our loans to adjust downward can contribute to increased income in periods of declining interest rates, although this result is subject to the risks that borrowers may refinance these loans during periods of declining interest rates.  Also, when loans are at their floors, there is a further risk that our interest income may not increase as rapidly as our cost of funds during periods of increasing interest rates which could have a material adverse effect on our results of operations.  

Changes in interest rates also affect the value of our interest-earning assets, including our securities portfolio. Generally, the fair value of fixed-rate securities fluctuates inversely with changes in interest rates. Unrealized gains and losses on securities available for sale are reported as a separate component of equity, net of tax. Decreases in the fair value of securities available for sale resulting from increases in interest rates could have an adverse effect on stockholders’ equity.

Although management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on our results of operations, any substantial, unexpected or prolonged change in market interest rates could have a material adverse effect on our financial condition and results of operations. Also, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our balance sheet. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Asset and Liability Management and Market Risk” included in the Annual Report.

Liquidity risk could impair our ability to fund operations and jeopardize our financial condition, growth and prospects.

Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of loans and investments or other sources could have a substantial negative effect on our liquidity. Our primary sources of liquidity are increases in deposits, advances, as needed, from the FHLB, borrowings, as needed, from the Federal Reserve Bank of Richmond ("FRB") and other borrowings to fund our operations. Although we have historically been able to replace maturing deposits and advances if desired, we may not be able to replace such funds in the future if, among other things, our financial condition, the financial condition of the FHLB or FRB, or market conditions change. Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity as a result of a downturn in the South Carolina or Georgia markets where our loans are concentrated, negative operating results, or adverse regulatory action against us. Our ability to borrow could also be

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impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry in light of the recent turmoil faced by banking organizations or deterioration in credit markets. Deposit flows, calls of investment securities and wholesale borrowings, and the prepayment of loans and mortgage-related securities are also strongly influenced by such external factors as the direction of interest rates, whether actual or perceived, and competition for deposits and loans in the markets we serve. Furthermore, changes to the FHLB's underwriting guidelines for wholesale borrowings or lending policies may limit or restrict our ability to borrow, and could therefore have a significant adverse impact on our liquidity. In addition, the need to replace funds in the event of large-scale withdrawals of brokered deposits could require us to pay significantly higher interest rates on retail deposits or other wholesale funding sources, which would have an adverse impact on our net interest income and net income. A decline in available funding could adversely impact our ability to originate loans, invest in securities, meet our expenses, or to fulfill such obligations as repaying our borrowings or meeting deposit withdrawal demands.

Our financial flexibility will be severely constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. Although we consider our sources of funds adequate for our liquidity needs, we may seek additional debt in the future to achieve our long-term business objectives. Additional borrowings, if sought, may not be available to us or, if available, may not be available on reasonable terms. If additional financing sources are unavailable, or are not available on reasonable terms, our financial condition, results of operations, growth and future prospects could be materially adversely affected. Finally, if we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs. Additionally, collateralized public funds are bank deposits of state and local municipalities. These deposits are required to be secured by certain investment grade securities to ensure repayment, which on the one hand, tends to reduce our contingent liquidity risk by making these funds somewhat less credit sensitive, but on the other hand, reduces standby liquidity by restricting the potential liquidity of the pledged collateral. Although these have historically been a relatively stable source of funds for us, availability depends on the individual municipality's fiscal policies and cash flow needs. At December 31, 2019, $47.4 million of our deposits were public funds.

New or changing tax, accounting, and regulatory rules and interpretations could significantly impact strategic initiatives, results of operations, cash flows, and financial condition.

The financial services industry is extensively regulated. Federal and state banking regulations are designed primarily to protect the deposit insurance funds and consumers, not to benefit our shareholders. These regulations may sometimes impose significant limitations on operations. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on an institution's operations, the classification of assets by the institution and the adequacy of an institution's allowance for loan losses. These bank regulators also have the ability to impose conditions in the approval of merger and acquisition transactions.

The significant federal and state banking regulations that affect us are described in this report under “Business - Regulation” in Item 1 of this Form 10-K. These regulations, along with the currently existing tax, accounting, securities, insurance, and monetary laws, regulations, rules, standards, policies, and interpretations control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures. These laws, regulations, rules, standards, policies, and interpretations are constantly evolving and may change significantly over time. Any new regulations or legislation, change in existing regulations or oversight, whether a change in regulatory policy or a change in a regulator’s interpretation of a law or regulation, could have a material impact on our operations, increase our costs of regulatory compliance and of doing business and/or otherwise adversely affect us and our profitability. Additionally, actions by regulatory agencies or significant litigation against us and may lead to penalties that materially affect us. Further, changes in accounting standards can be both difficult to predict and involve judgment and discretion in their interpretation by us and our independent registered public accounting firm. These changes could materially impact, potentially even retroactively, how we report our financial condition and results of our operations as could our interpretation of those changes. We cannot predict what restrictions may be imposed upon us with future legislation.

Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions.

The USA PATRIOT Act and Bank Secrecy Acts and related regulations require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts and beneficial owners of accounts. Failure to comply with these regulations could result in fines or sanctions. During the last few years, several banking institutions have received large fines for non-compliance with these laws and regulations. While we have developed policies and procedures designed to assist in compliance with these laws and regulations, no assurance can be given that these policies and procedures will be effective in preventing violations of these

37

laws and regulations. If our policies and procedures are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the denial of regulatory approvals to proceed with certain aspects of our business plan, including acquisitions.

Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

Our growth or future losses may require us to raise additional capital in the future, but that capital may not be available when it is needed, or the cost of that capital may be very high.

We are required by federal regulatory authorities to maintain adequate levels of capital to support our operations. We anticipate that our capital resources will satisfy our capital requirements for the foreseeable future. Nonetheless, we may at some point need to raise additional capital to support continued growth or be required by our regulators to increase our capital resources. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial condition and performance. Accordingly, we may not be able to raise additional capital, if needed, on terms that are acceptable to us. If we cannot raise additional capital when needed, our operations could be materially impaired and our financial condition and liquidity could be materially and adversely affected. In addition, if we are unable to raise additional capital when required by our banking regulators, we may be subject to additional adverse regulatory action.

An increase in interest rates, change in the programs offered by governmental sponsored entities ("GSE"), or our ability to qualify for such programs may reduce our mortgage revenues, which would negatively impact our non-interest income.

Our mortgage banking operations provide a portion of our non-interest income.  We generate mortgage revenues primarily from gains on the sale of single-family mortgage loans underwritten pursuant to programs currently offered by Freddie Mac and other non-GSE investors. These entities account for a substantial portion of the secondary market in residential mortgage loans. Any future changes in these programs, our eligibility to participate in such programs, the criteria for loans to be accepted or laws that significantly affect the activity of such entities could, in turn, materially adversely affect the success of our mortgage banking program and, consequently, our results of operations.

Mortgage loan production levels are sensitive to changes in economic conditions and can suffer from decreased economic activity, a slowdown in the housing market or higher interest rates. Generally, any sustained period of decreased economic activity or higher interest rates could adversely affect mortgage originations and, consequently, adversely affect income from mortgage lending activities.

Our results of operations will also be affected by the amount of non-interest expense associated with mortgage banking activities, such as salaries and employee benefits, occupancy, equipment and data processing expense and other operating costs. If we cannot generate a sufficient volume of loans for sale, our results of operations may be adversely affected. In addition, during periods of reduced loan demand, our results of operations may be adversely affected to the extent that we are unable to reduce expenses commensurate with the decline in loan originations. Finally, deteriorating economic conditions may also increase the potential for home buyers to default on their mortgages. In certain of these cases where we have originated loans and sold them to investors, we may be required to repurchase loans or provide a financial settlement to investors if it is proven that the borrower failed to provide full and accurate information on or related to their loan application or for which appraisals have not been acceptable or when the loan was not underwritten in accordance with the loan program specified by the loan investor. If repurchase and indemnity demands increase on loans that we sell from our portfolios, our liquidity, results of operations and financial condition could be adversely affected.

We are subject to certain risks in connection with our use of technology.

Our security measures may not be sufficient to mitigate the risk of a cyber attack. Communications and information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger and virtually all other aspects of our business. Our operations rely on the secure processing, storage, and transmission of confidential and other information in our computer systems and networks. Although we take protective measures and endeavor to modify them as circumstances warrant, the security of our computer systems, software, and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code and cyber attacks that could have a security impact. If one or more of these events occur, this could jeopardize our or our customers' confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations or the operations of our customers or counterparties. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us. We could also suffer significant reputational damage.

38

Security breaches in our internet banking activities could further expose us to possible liability and damage our reputation. Increases in criminal activity levels and sophistication, advances in computer capabilities, new discoveries, vulnerabilities in third party technologies (including browsers and operating systems) or other developments could result in a compromise or breach of the technology, processes and controls that we use to prevent fraudulent transactions and to protect data about us, our customers and underlying transactions. Any compromise of our security could deter customers from using our internet banking services that involve the transmission of confidential information. We rely on standard internet security systems to provide the security and authentication necessary to effect secure transmission of data. Although we have developed and continue to invest in systems and processes that are designed to detect and prevent security breaches and cyber-attacks and periodically test our security, these precautions may not protect our systems from compromises or breaches of our security measures, and could result in losses to us or our customers, our loss of business and/or customers, damage to our reputation, the incurrence of additional expenses, disruption to our business, our inability to grow our online services or other businesses, additional regulatory scrutiny or penalties, or our exposure to civil litigation and possible financial liability, any of which could have a material adverse effect on our business, financial condition and results of operations.

Our security measures may not protect us from system failures or interruptions. While we have established policies and procedures to prevent or limit the impact of systems failures and interruptions, there can be no assurance that such events will not occur or that they will be adequately addressed if they do. In addition, we outsource certain aspects of our data processing and other operational functions to certain third-party providers. While we select third-party vendors carefully, we do not control their actions. If our third-party providers encounter difficulties including those resulting from breakdowns or other disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher transaction volumes, cyber-attacks and security breaches or if we otherwise have difficulty in communicating with them, our ability to adequately process and account for transactions could be affected, and our ability to deliver products and services to our customers and otherwise conduct business operations could be adversely impacted. Replacing these third-party vendors could also entail significant delay and expense. Threats to information security also exist in the processing of customer information through various other vendors and their personnel.

We cannot assure you that such breaches, failures or interruptions will not occur or, if they do occur, that they will be adequately addressed by us or the third parties on which we rely. We may not be insured against all types of losses as a result of third party failures and insurance coverage may be inadequate to cover all losses resulting from breaches, system failures or other disruptions. If any of our third-party service providers experience financial, operational or technological difficulties, or if there is any other disruption in our relationships with them, we may be required to identify alternative sources of such services, and we cannot assure you that we could negotiate terms that are as favorable to us, or could obtain services with similar functionality as found in our existing systems without the need to expend substantial resources, if at all. Further, the occurrence of any systems failure or interruption could damage our reputation and result in a loss of customers and business, could subject us to additional regulatory scrutiny, or could expose us to legal liability. Any of these occurrences could have a material adverse effect on our financial condition and results of operations.

The board of directors oversees the risk management process, including the risk of cybersecurity, and engages with management on cybersecurity issues.

Our business may be adversely affected by an increasing prevalence of fraud and other financial crimes.

As a bank, we are susceptible to fraudulent activity that may be committed against us or our customers which may result in financial losses or increased costs to us or our customers, disclosure or misuse of our information or our customer’s information, misappropriation of assets, privacy breaches against our customers, litigation or damage to our reputation. Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts. Nationally, reported incidents of fraud and other financial crimes have increased. We have also experienced losses due to apparent fraud and other financial crimes. While we have policies and procedures designed to prevent such losses, there can be no assurance that such losses will not occur.

We rely on dividends from Security Federal Bank for substantially all of our revenue.

Security Federal Corporation is a separate and distinct legal entity from our principal subsidiary, Security Federal Bank, and receives substantially all of its revenue in the form of dividends from that subsidiary. Accordingly, Security Federal Corporation is, and will be, dependent upon dividends from Security Federal Bank to pay dividends on Security Federal Corporation's capital stock and interest and principal on its debt. Various federal and/or state laws and regulations, including the capital conservation buffer requirement, limit the amount of dividends that Security Federal Bank may pay to Security Federal Corporation. In the event Security Federal Bank is unable to pay dividends, Security Federal Corporation may not be able to service its debt, pay obligations or pay dividends on its capital stock. The inability of Security Federal Corporation to receive dividends from Security

39

Federal Bank could have a material adverse effect on Security Federal Corporation’s business, financial condition and results of operations.

We are subject to certain risks in connection with our data management or aggregation.

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

We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects.

Competition for qualified employees and personnel in the banking industry is intense and there are a limited number of qualified persons with knowledge of, and experience in, the community banking industry where Security Federal Bank conducts its business. The process of recruiting personnel with the combination of skills and attributes required to carry out our strategies is often lengthy. Our success depends to a significant degree upon our ability to attract and retain qualified management, loan origination, finance, administrative, marketing and technical personnel and upon the continued contributions of our management and personnel. In particular, our success has been and continues to be highly dependent upon the abilities of key executives, including our Chief Executive Officer, J. Chris Verenes, and certain other employees. In addition, our success has been and continues to be highly dependent upon the services of our directors, many of whom are at or nearing retirement age, and we may not be able to identify and attract suitable candidates to replace such directors.

Item 1B. Unresolved Staff Comments

None.

Item 2.    Properties

At December 31, 2019, Security Federal owned the buildings and land for 12 of its branch offices and the operations center; leased the land and owned the improvements thereon for one of its offices; and leased five of the remaining six offices, including its main office.  The remaining branch, located in Ridge Spring, is owned by the Town of Ridge Spring; however, Security Federal has made some capital improvements to the building, which had a net book value of $30,000 at December 31, 2019. The property related to the offices owned by Security Federal had a depreciated cost (including land) of approximately $19.0 million at December 31, 2019.  At December 31, 2019, the aggregate net book value of leasehold improvements (excluding furniture and equipment) associated with leased premises was $1.5 million.  In addition to the properties related to current Company offices, Security Federal owned five other properties at December 31, 2019.  The five properties consist of (i) two lots owned for potential future branch sites located in Aiken County, South Carolina and Richland County, South Carolina, which had a combined book value of $1.3 million at December 31, 2019, (ii) another lot in Aiken County, South Carolina that will possibly be used for a new Operations Center, which had a book value of $236,000 at December 31, 2019, (iii) a property consisting of land and a building that is located adjacent to our 1705 Whiskey Road office, is currently leased and had a book value of $263,000 at December 31, 2019, and (iv) a property consisting of land and a building located in Augusta, Georgia, which will be a future branch opening in 2021. The building is currently being renovated and had a net book value of $170,000 at December 31, 2019.  The Company also rents the building located at 234 Richland Avenue, which is adjacent to our main office, and then subleases it to another business. See Note 5 of the Notes to Consolidated Financial Statements contained in the Annual Report for additional information.    

Item 3.     Legal Proceedings

The Company is involved as plaintiff or defendant in various legal actions arising in the course of its business.  It is the opinion of management, after consultation with counsel, that the resolution of these legal actions will not have a material adverse effect on the Company's financial condition and results of operations.

Item 4.Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

General. The Company’s stock is traded on the Over-The-Counter-Bulletin Board under the symbol “SFDL.OB.” As of December 31, 2019, the Company had approximately280 shareholders of record, not including shares held in street name, and 2,956,854 outstanding shares of common stock.

Our cash dividend payout policy is reviewed regularly by management and the Board of Directors. Our Board of Directors has declared quarterly cash dividends on our common stock for 117 consecutive quarters. Any dividends declared and paid in the future would depend upon a number of factors, including capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions. No assurances can be given that any dividends will be paid or that, if paid, will not be reduced or eliminated in future periods. Our future payment of dividends may depend, in part, upon receipt of dividends from the Bank, which are restricted by federal regulations.

Stock Repurchases.  The Company had no stock repurchases of its outstanding common stock during the year ended December 31, 2019.

Equity Compensation Plan Information.  The equity compensation plan information presented under subparagraph (d) in Part III, Item 12 of this report is incorporated herein by reference.

Performance Graph. The following graph compares the cumulative total shareholder return on the Company's Common Stock with the cumulative total return on the NASDAQ Composite Index and a peer group of the S&P Regional Bank Index. Total return assumes the reinvestment of all dividends and that the value of Common Stock and each index was $100 on December 31, 2014.

	Period Ending
Index	12/31/2014	12/31/2015	12/31/2016	12/31/2017	12/31/2018	12/31/2019
Security Federal Corporation	$100.00	$123.56	$206.33	$186.75	$170.37	$213.15
NASDAQ Composite	$100.00	$106.96	$116.45	$150.96	$146.67	$200.49
S&P 600 Regional Banks	$100.00	$106.44	$154.13	$150.74	$135.89	$163.84

Source: S&P Global Market Intelligence

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Item 6. Selected Financial Data

The information contained in the section captioned "Selected Consolidated Financial and Other Data" in the Annual Report is incorporated herein by reference.

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations

The information contained in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss from adverse changes in market prices and rates.  Our market risk arises principally from interest rate risk inherent in our lending, investing, deposit and borrowings activities.  Management actively monitors and manages its interest rate risk exposure.  In addition to other risks that we manage in the normal course of business, such as credit quality and liquidity, management considers interest rate risk to be a significant market risk that could potentially have a material effect on our financial condition and result of operations.  The information contained in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations - Asset and Liability Management" in the Annual Report is incorporated herein by reference.

Item 8.  Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm*

Consolidated Balance Sheets at December 31, 2019 and December 31, 2018*

Consolidated Statements of Income For the Years Ended December 31, 2019, 2018 and 2017*

Consolidated Statements of Comprehensive Income For the Years Ended December 31, 2019, 2018 and 2017*

Consolidated Statements of Changes in Shareholders' Equity For the Years Ended December 31, 2019, 2018 and 2017*

Consolidated Statements of Cash Flows For the Years Ended December 31, 2019, 2018 and 2017*

Notes to Consolidated Financial Statements*

* Contained in the Annual Report filed as an exhibit hereto and incorporated herein by reference.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

(a)      Evaluation of Disclosure Controls and Procedures: An evaluation of the Company's disclosure controls and procedures (as defined in Section 13a-15(e) of the Securities Exchange Act of 1934 (the "Act")) was carried out under the supervision and with the participation of the Company's Chief Executive Officer, Chief Financial Officer and several other members of the Company's senior management as of the end of the period covered by this report.  The Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures as currently in effect are effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is (i) accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

(b)      Report of Management on Internal Control over Financial Reporting:  The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The internal control process has been designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

Management conducted an assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2019, utilizing the framework established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the Company's internal control over financial reporting as of December 31, 2019 is effective.

42

Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that accurately and fairly reflect, in reasonable detail, transactions and dispositions of assets; and provide reasonable assurances that: (1) transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States; (2) receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and (3) unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the Company's financial statements are prevented or timely detected.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

This annual report does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.

(c)      Changes in Internal Controls: There have been no changes in the Company's internal control over financial reporting during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information contained under the section captioned "Proposal 1 - Election of Directors" in the Proxy Statement is incorporated herein by reference.

For information regarding the executive officers of the Company and the Bank, see the information contained herein under the section captioned "Item 1.  Business -  Personnel - Executive Officers."

Audit Committee Financial Expert.  The Audit Committee of the Company is composed of Directors Moore (Chairperson), Alexander, Clyburn, Thomas and Simmons. Directors Moore, Clyburn and Alexander are "independent" as defined in the Nasdaq Stock Market listing standards.  The Board of Directors has determined there is no "audit committee financial expert" as defined by the SEC; however, the Board believes that the current members of the Audit Committee are qualified to serve based on their collective experience and background.  

Code of Ethics.  The Board of Directors has adopted a Code of Ethics for the Company's officers (including its senior financial officers), directors and employees.  The Code is applicable to the Company's principal executive officer and senior financial officers.  The Company has posted its Code of Ethics on its website www.securityfederalbank.com.

Delinquent Section 16(a) Reports. None. The information contained under the section captioned "Section 16(a) Beneficial Ownership Reporting Compliance" is included in the Company's Proxy Statement and is incorporated herein by reference.

Item 11. Executive Compensation

The information contained in the section captioned "Executive Compensation" in the Proxy Statement is incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

(a) Security Ownership of Certain Beneficial Owners. The information contained in the section captioned "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement is incorporated herein by reference.

43

(b) Security Ownership of Management. The information contained in the section captioned "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement is incorporated herein by reference.

(c) Changes In Control. The Company is not aware of any arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company.

(d) Equity Compensation Plan Information. There were no securities remaining to be issued under the Company's equity compensation plans as of December 31, 2019.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Related Transactions.  The information contained in the section captioned "Meetings and Committees of the Board of Directors and Corporate Governance Matters - Corporate Governance - Related Party Transactions" in the Proxy Statement is incorporated herein by reference.

Director Independence.  The information contained in the section captioned "Meetings and Committees of the Board of Directors and Corporate Governance Matters - Corporate Governance - Director Independence" in the Proxy Statement is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

The information contained under the section captioned "Auditor" is included in the Company's Proxy Statement and is incorporated herein by reference.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

1. Financial Statements. For a list of the financial statements filed as part of this report see Part II - Item 8.

2. Financial Statement Schedules. All schedules have been omitted as the required information is either inapplicable or contained in the Consolidated Financial Statements or related Notes contained in the Annual Report filed as an exhibit hereto.

3. Exhibit Index:

3.1	Articles of Incorporation, as amended (1)
3.2	Amended and Restated Bylaws (2)
4.1	Form of Stock Certificate of the Company and other instruments defining the rights of security holders, including indentures (3)
4.2	Description of Capital Stock of Security Federal Corporation
10.1	1993 Salary Continuation Agreements (5)
10.2	Amendment One to 1993 Salary Continuation Agreements (6)
10.3	Form of 2006 Salary Continuation Agreement (7)
10.4	Form of Security Federal Split Dollar Agreement (7)
10.5	1999 Stock Option Plan (8)
10.6	2002 Stock Option Plan (9)
10.7	2006 Stock Option Plan (10)
10.8	2008 Equity Incentive Plan (11)
10.9	Form of incentive stock option agreement and non-qualified stock option agreement pursuant to the 2006 Stock Option Plan (10)
10.10	2018 Employee Stock Purchase Plan (12)
10.11	Incentive Compensation Plan (5)
10.12	Form of Compensation Modification Agreement (13)
13	Annual Report to Shareholders
14	Code of Ethics (14)
21	Subsidiaries of Registrant
23.0	Consent of Elliott Davis, LLC
25.0	Form T-1; Statement of Eligibility of Trustee (4)
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
32.0	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
101.0	The following materials from Security Federal Corporation's Annual Report on Form 10-K for the year ended December 31, 2019, formatted in Extensible Business Reporting Language (XBRL): (1) Consolidated Balance Sheets; (2) Consolidated Statements of Income; (3) Consolidated Statements of Comprehensive Income; (4) Consolidated Statements of Changes in Shareholders' Equity; (5) Consolidated Statements of Cash Flows; and (6) Notes to Consolidated Financial Statements

___________

(1) Filed on June 26, 1998, as an exhibit to the Company's Proxy Statement and incorporated herein by reference.

(2) Incorporated herein by reference to the Registrant's Current Report on Form 8-K filed on January 16, 2015.

(3) Filed on August 12, 1987, as an exhibit to the Company's Registration Statement on Form 8-A and incorporated herein by reference.

(4) Filed on July 13, 2009 as an exhibit to the Company's Registration Statement on Form S-1 (File No. 333-160553) and incorporated herein by reference.

(5) Filed on June 28, 1993, as an exhibit to the Company's Annual Report on Form 10-KSB and incorporated herein by reference.

45

(6) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1993 and incorporated herein by reference.

(7) Filed on May 24, 2006 as an exhibit to the Company's Current Report on Form 8-K dated May 18, 2006 and incorporated herein by reference.

(8) Filed on March 2, 2000, as an exhibit to the Company's Registration Statement on Form S-8 (Registration Statement No. 333-31500) and incorporated herein by reference

(9) Filed on January 3, 2003, as an exhibit to the Company's Registration Statement on Form S-8 (Registration Statement No. 333-102337) and incorporated herein by reference.

(10) Filed on August 22, 2006, as an exhibit to the Company's Registration Statement on Form S-8 (Registration Statement No. 333-136813) and incorporated herein by reference.

(11) Filed on November 12, 2008, as an exhibit to the Company's Registration Statement on Form S-8 (Registration Statement No. 333-155295) and incorporated herein by reference.

(12) Filed on March 28, 2018, as an exhibit to the Company's Proxy Statement and incorporated herein by reference.

(13) Filed as an exhibit to the Company's Current Report on Form 8-K filed on December 23, 2008.

(14) The Company elects to satisfy Regulation S-K §229.406(c) by posting its Code of Ethics on its website at www.securityfederalbank.com.

Item 16. Form 10-K Summary

None.

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SIGNATURES

Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SECURITY FEDERAL CORPORATION

Date:  March 20, 2020	/s/ J. Chris Verenes
	J. Chris Verenes
	Chief Executive Officer and Director
	(Duly Authorized Representative)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:	/s/ J. Chris Verenes	March 20, 2020
	J. Chris Verenes
	Chief Executive Officer and Director
	(Principal Executive Officer)
By:	/s/Jessica T. Cummins	March 20, 2020
	Jessica T. Cummins
	Chief  Financial Officer and Director
	(Principal Financial and Accounting Officer)
By:	/s/Roy G. Lindburg	March 20, 2020
	Roy G. Lindburg
	President and Director
By:	/s/Timothy W. Simmons	March 20, 2020
	Timothy W. Simmons
	Chairman of the Board and Director
By:	/s/Frank M. Thomas, Jr.	March 20, 2020
	Frank M. Thomas, Jr.
	Director
By:	/s/Frampton W. Toole III	March 20, 2020
	Frampton W. Toole III
	Director
By:	/s/Richard T. Harmon	March 20, 2020
	Richard T. Harmon
	Director

47

By:	/s/Robert E. Alexander	March 20, 2020
	Robert E. Alexander
	Director
By:		March ___, 2020
	Thomas L. Moore
	Director
By:		March ___, 2020
	William Clyburn
	Director
By:	/s/Harry O. Weeks, Jr.	March 20, 2020
	Harry O. Weeks, Jr.
	Director

48

EX-4.2

Exhibit 4.2

DESCRIPTION OF THE CAPITAL STOCK

The 5,200,000 shares of capital stock authorized by Security Federal Corporation's articles of incorporation are divided into two classes, consisting of 5,000,000 shares of common stock (par value $.01 per share) and 200,000 shares of serial preferred stock (par value $.01 per share). As of March 20, 2020, there were 3,252,884 shares of our common stock issued and outstanding and no shares of our preferred stock issued and outstanding.

Common Stock

General. Each share of common stock has the same relative rights and is identical in all respects with each other share of the common stock. Each holder of common stock is entitled to one vote for each share held on all matters voted upon by stockholders, subject to certain limitations.

Liquidation or Dissolution. In the unlikely event of the liquidation or dissolution of Security Federal Corporation, the holders of the common stock will be entitled to receive - after payment or provision for payment of all debts and liabilities of Security Federal Corporation (including all deposits in the Bank and accrued interest thereon) and after distribution of the liquidation account established in the mutual to stock conversion of Security Federal Bank - all assets of Security Federal Corporation available for distribution, in cash or in kind. If preferred stock is outstanding, the holders thereof may have a priority over the holders of common stock in the event of liquidation or dissolution.

No Preemptive Rights. Holders of the common stock are not entitled to preemptive rights with respect to any shares which may be issued.

Preferred Stock

Our articles of incorporation permit our Board of Directors to authorize the issuance of up to 200,000 shares of preferred stock, par value $0.01, in one or more series, without shareholder action.

EX-13

Exhibit 13

Annual Report to Stockholders

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Selected Consolidated Financial and Other Data

The following table provides selected consolidated financial and operating data of Security Federal Corporation at the dates and for the periods indicated. In conjunction with the data provided in the following tables and in order to more fully understand our historical consolidated financial and operating data, you should also read our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and the accompanying notes included in this report.

	Years Ended December 31,
	2019		2018		2017		2016			2015
Balance Sheet Data at End of Period	(Dollars in Thousands, Except Per Share Data)
Total Assets	$	963,228	$	912,614	$	868,813	$	812,682		$	799,728
Cash and Cash Equivalents	12,536		12,706		10,320		9,375			8,382
Certificates of Deposit with Other Banks	950		1,200		1,950		2,445			3,445
Investment and Mortgage-Backed Securities	433,892		409,894		412,055		387,643			405,387
Total Loans Receivable, Net (1)	452,859		430,054		390,493		359,723			330,573
Deposits	771,407		767,497		702,107		654,103			652,097
Total Shareholders' Equity	91,758		80,518		77,923		71,112			90,967
Income Data
Total Interest Income	$	36,934	$	33,072	$	29,787	$	28,388		$	27,906
Total Interest Expense	8,311		5,449		4,175		3,516			4,199
Net Interest Income	28,623		27,623		25,612		24,872			23,707
Provision For Loan Losses	375		925		300		500			—
Net Interest Income After Provision For Loan Losses	28,248		26,698		25,312		24,372			23,707
Non-Interest Income	9,097		7,669		7,344		6,401			7,007
Non-Interest Expense	27,871		25,590		24,302		22,928			22,531
Income Taxes (2)	1,680		1,570		2,435		1,920			2,067
Net Income	7,794		7,207		5,919		5,925			6,116
Preferred Stock Dividends	—		—		—		(423		)	(440		)
Gain on Redemption of Preferred Stock	—		—		—		660			—
Net Income Available To Common Shareholders	$	7,794	$	7,207	$	5,919	$	6,162		$	5,676
Per Common Share Data
Net Income Per Common Share (Basic)	$	2.64	$	2.44	$	2.01	$	2.09		$	1.93
Cash Dividends	$	0.40	$	0.36	$	0.36	$	0.32		$	0.32

^{(1)    INCLUDES LOANS HELD FOR SALE} 

^{(2)  FOR THE YEAR ENDED DECEMBER 31, 2017, INCLUDES $606,000 FOR THE DEFERRED TAX ASSET WRITEDOWN DUE TO THE COMPREHENSIVE TAX LEGISLATION ENACTED ON DECEMBER 22, 2017, COMMONLY REFERRED TO AS THE TAX CUTS AND JOBS ACT (THE "TAX ACT").}  

7

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Selected Consolidated Financial and Other Data

	Years Ended December 31,
	2019		2018		2017		2016		2015
Other Data
Interest Rate Spread Information:
Average During Period	3.10	%	3.27	%	3.27	%	3.33	%	3.15	%
End of Period	2.86	%	3.33	%	3.19	%	3.18	%	3.15	%
Net Interest Margin (Net Interest Income / Average Earning Assets)	3.26	%	3.38	%	3.34	%	3.40	%	3.23	%
Average Interest-Earning Assets to Average Interest-Bearing Liabilities	116.83	%	116.01	%	113.80	%	115.08	%	114.60	%
Common Equity to Total Assets	9.53	%	8.82	%	8.97	%	8.75	%	8.62	%
Non-Performing Assets to Total Assets (3)	0.43	%	0.85	%	0.79	%	1.01	%	1.42	%
Return on Assets	0.80	%	0.81	%	0.69	%	0.74	%	0.69	%
Return on Common Equity	8.90	%	9.30	%	7.87	%	8.45	%	8.46	%
Average Common Equity to Average Assets Ratio	9.05	%	8.69	%	8.77	%	8.82	%	8.17	%
Dividend Payout Ratio on Common Shares(4)	14.41	%	14.76	%	17.92	%	15.16	%	16.61	%
Number of Full-Service Offices	17		16		15		14		14

^{(3)       NON-PERFORMING ASSETS CONSIST OF NON-ACCRUAL LOANS AND OTHER REAL ESTATE OWNED ("OREO")} 

^{(4) RATIO OF DIVIDENDS PAID ON COMMON SHARES TO NET INCOME AVAILABLE TO COMMON SHAREHOLDERS} 

8

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

General

The following discussion and analysis is presented to provide the reader with an understanding of the financial condition and the results of operations of Security Federal Corporation and its subsidiaries.  The investment and other activities of the parent company, Security Federal Corporation (the “Company”), have had no significant impact on the results of operations for the periods presented in the Consolidated Financial Statements included herein.  Because we conduct all of our material business operations through Security Federal Bank (the "Bank"), a wholly owned subsidiary of the Company, the following discussion of financial results are primarily indicative of the activities of the Bank. The Bank was founded in 1922 as a mutual building and loan association. In 1987, the Bank converted to a federally chartered stock savings bank. On December 28, 2011, the Bank completed a charter conversion from a federally chartered stock savings bank to a South Carolina chartered commercial bank. In connection with this transaction, the Company reorganized from a savings and loan holding company into a bank holding company.

The Bank also has three wholly owned subsidiaries: Security Federal Insurance Inc. (“SFINS”), Security Federal Investments, Inc. ("SFINV"), and Security Financial Services Corporation (“SFSC”).  SFINS is an insurance agency offering auto, business, health, and home insurance. SFINS has a wholly owned subsidiary, Collier Jennings Financial Corporation (“Collier Jennings”), which has three wholly owned subsidiaries: Security Federal Auto Insurance, The Auto Insurance Store Inc., and Security Federal Premium Pay Plans Inc.  Security Federal Premium Pay Plans Inc. has one wholly owned premium finance subsidiary and also has an ownership interest in four other premium finance subsidiaries. SFINV was formed to hold investment securities and allow for better management of the securities portfolio. SFSC is currently inactive.

In addition to the Bank, the Company has another wholly owned subsidiary, Security Federal Statutory Trust (the “Trust”), which issued and sold fixed and floating rate capital securities of the Trust. Under current accounting guidance, however, the Trust is not consolidated in the Company’s financial statements.  Unless the context indicates otherwise, references to the Company shall include the Bank and its subsidiaries.

The principal business of the Bank is accepting deposits from the general public and originating consumer and commercial business loans as well as mortgage loans that enable borrowers to purchase or refinance one-to-four family residential real estate.  The Bank also originates construction loans on single-family residences, multi-family dwellings, and commercial real estate, as well as loans for the acquisition, development and construction of residential subdivisions, and commercial projects. The Bank also provides trust services and it offers property, casualty and health insurance products through its subsidiary, Security Federal Insurance Inc.

The Bank's net income depends primarily on its interest rate spread which is the difference between the average yield earned on its loan and investment portfolios and the average rate paid on its deposits and borrowings. When the rate earned on interest-earning assets equals or exceeds the rate paid on interest-bearing liabilities, this positive interest rate spread will generate net interest income. The Bank’s interest spread is influenced by interest rates, deposit flows, and loan demands.  Levels of non-interest income and operating expense are also significant factors in earnings.

9

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This document, including information included or incorporated by reference, contents, and future filings by the Company on Form 10-K, Form 10-Q, and Form 8-K, and future oral and written statements by the Company and its management may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of the words "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future or conditional verbs such as "may," "will," "should," "would" and "could." Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about, among other things, expectations of the business environment in which we operate, projections of future performance or financial items, perceived opportunities in the market, potential future credit experience, and statements regarding our mission and vision. These forward-looking statements are based upon current management expectations and may, therefore, involve risk and uncertainties.

Our actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements as a result of a wide variety or range of factors, including, but not limited to:

• the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be affected by deterioration in the housing and commercial real estate markets which may lead to increased losses and non-performing assets in our loan portfolio, and may result in our allowance for loan losses not being adequate to cover actual losses, and require us to materially increase our allowance for loan losses;

• changes in general economic conditions, either nationally or in our market areas;

• changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources;

• fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas;

• secondary market conditions for loans and our ability to originate and sell loans in the secondary market;

• results of examinations of the Company by the Board of Governors of the Federal Reserve System ("Federal Reserve") and the Bank by the Federal Deposit Insurance Corporation ("FDIC") and the South Carolina State Board of Financial Institutions, or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our reserve for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, or impose additional requirements or restrictions on us, any of which could adversely affect our liquidity and earnings;

• legislative or regulatory changes that adversely affect our business, including the effect of the Dodd-Frank Wall Street Reform and Consumer Protection Act; changes in regulatory policies and principles, or the interpretation of regulatory capital requirements or other rules, including as a result of Basel III;

• our ability to attract and retain deposits;

• our ability to control operating costs and expenses;

• our ability to implement our business strategies;

• the use of estimates in determining the fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation;

• difficulties in reducing risks associated with the loans on our balance sheet;

• staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges;

• disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing;

10

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

• our ability to retain key members of our senior management team;

• costs and effects of litigation, including settlements and judgments;

• our ability to manage loan delinquency rates;

• increased competitive pressures among financial services companies;

• changes in consumer spending, borrowing and savings habits;

• the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions;

• our ability to pay dividends on our common stock;

• adverse changes in the securities markets;

• inability of key third-party providers to perform their obligations to us;

• changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board ("FASB"), including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; and

• other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services, including the potential effects of coronavirus on international trade (including supply chains and export levels),

• and the other risks described elsewhere in this document.

Some of these and other factors are discussed in our Annual Report on Form 10-K for the year ended December 31, 2019 under Item 1A, “Risk Factors.” Such developments could have an adverse impact on our financial position and our results of operations.

Any of the forward-looking statements that we make may turn out to be inaccurate as a result of our beliefs and assumptions we make in connection with the factors set forth above or because of other unidentified and unpredictable factors. Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements and you should not rely on such statements. The Company undertakes no obligation to publish revised forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date hereof. These risks could cause our actual results for 2020 and beyond to differ materially from those expressed in any forward-looking statements by or on behalf of us, and could negatively affect the Company’s consolidated financial condition and consolidated results of operations, liquidity and stock price performance.

11

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

Critical 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 the Company’s Consolidated Financial Statements.  The significant accounting policies of the Company are described in Note 1 of the Notes to the Consolidated Financial Statements included herein.

Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of certain assets and liabilities; management considers these accounting policies to be critical accounting policies.  The judgments, estimates and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances.  Because of the nature of the judgments, estimates and assumptions made by management, actual results could differ from these judgments, estimates and assumptions, which could have a material impact on the carrying values of assets and liabilities and the results of operations of the Company.

The Company believes the allowance for loan losses is a critical accounting policy that requires the most significant judgments, estimates and assumptions used in preparation of the Consolidated Financial Statements.  The impact of an unexpected large loss could deplete the allowance and potentially require increased provisions to replenish the allowance, which would negatively affect earnings. The Company provides for loan losses using the allowance method.  Accordingly, all loan losses are charged to the related allowance and all recoveries are credited to the allowance for loan losses.  Additions to the allowance for loan losses are provided by charges to operations based on various factors, which, in management’s judgment, deserve current recognition in estimating possible losses.  Such factors considered by management include the fair value of the underlying collateral, stated guarantees by the borrower (if applicable), the borrower’s ability to repay from other economic resources, growth and composition of the loan portfolio, the relationship of the allowance for loan losses to the outstanding loans, loss experience, delinquency trends, and general economic conditions. Management evaluates the carrying value of the loan portfolio monthly and adjusts the allowance accordingly. While management uses the best information available to make evaluations, future adjustments may be necessary if economic conditions differ substantially from the assumptions used in making these evaluations.  The allowance for loan losses is subject to periodic evaluations by bank regulatory agencies that may require adjustments to the allowance based upon the information that is available at the time of their examination. For a further discussion of the Company’s estimation process and methodology related to the allowance for loan losses, see the discussion under the section entitled “Financial Condition” and “Comparison of the Years Ended December 31, 2019 and 2018-Provision for Loan Losses” included herein.

The Company values an impaired loan at the loan’s fair value if it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the original loan agreement at the present value of expected cash flows, the market price of the loan, if available, or the value of the underlying collateral.  Expected cash flows are required to be discounted at the loan’s effective interest rate.  When the ultimate collectibility of an impaired loan’s principal is in doubt, wholly or partially, all payments received are applied to principal.  Once the recorded principal balance has been reduced to zero, any additional payments received are applied to interest income to the extent that any interest has been foregone.  Any additional payments received are recorded as recoveries of any amounts previously charged off. When the repayment of the loan is not in doubt, payments are applied under the contractual terms of the loan agreement first to interest and then to principal.

The Company uses assumptions and estimates in determining income taxes payable or refundable for the current year, deferred income tax liabilities and assets for events recognized differently in its financial statements and income tax returns, and income tax expense. Determining these amounts requires analysis of certain transactions and interpretation of tax laws and regulations.

The Company exercises considerable judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments and estimates are reevaluated on a continual basis as regulatory and business factors change.

No assurance can be given that either the tax returns submitted by the Company or the income tax reported on the Consolidated Financial Statements will not be adjusted by either adverse rulings by the United States Tax Court, changes in the tax code, or assessments made by the Internal Revenue Service.

12

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

Asset and Liability Management

The objective of the Bank’s program of asset and liability management is to limit the Bank’s vulnerability to material and prolonged increases or decreases in interest rates, or "interest rate risk."  As a financial institution, interest rate risk is the Company’s most significant market risk. The earnings and economic value of our shareholders’ equity varies in relation to changes in interest rates and the corresponding impact on the market values of our assets and liabilities. The Bank has an Asset Liability Management Committee (“ALCO”) who monitors the Bank’s asset liability strategy.

The asset/liability management process is designed to achieve relatively stable net interest margins and assure liquidity by coordinating the volumes, maturities or re-pricing opportunities of interest-earning assets, deposits and borrowed funds. It is the responsibility of the ALCO to determine and achieve the most appropriate volume and mix of interest-earning assets and interest-bearing liabilities, as well as ensure an adequate level of liquidity and capital, within the context of corporate performance goals. The ALCO meets regularly to review interest rate risk and liquidity in relation to present and potential market conditions and evaluate funding and balance sheet management strategies to ensure the level of risk is consistent with our asset/liability objectives.

Simulation is the principal tool used by the Bank in its ongoing effort to measure interest rate risk. Simulation involves the use of a financial modeling system that provides reports showing the current and future impact of changes in interest rates, strategies and tactics. The Bank uses two dynamic methods; net interest income (“NII”) simulation and economic value of equity (“EVE”) analysis. The NII simulation models the impact that changes in interest rates will have on our earnings while EVE models the impact those changes will have on the net present value of our asset and liability portfolios. These models take into account our contractual agreements with regard to investments, loans, deposits, and borrowings but also include assumptions surrounding market and customer behavior under different rate scenarios. The assumptions we use are based upon a combination of proprietary and market data that reflect historical results and current market conditions. These assumptions relate to interest rates, prepayments, deposit decay rates and the market value of certain assets and liabilities under the various interest rate scenarios. We use market data to determine prepayments and maturities of loans, investments and borrowings and use our own assumptions on deposit decay rates except for time deposits. Time deposits are modeled to reprice to market rates upon their stated maturities. We also assume that non-maturity deposits can be maintained with rate adjustments not directly proportionate to the change in market interest rates, based upon our historical deposit rates. We have demonstrated in the past that the tiering structure of our deposit accounts during changing rate environments results in relatively lower volatility and less than market rate changes in our interest expense for deposits. These assumptions are based upon our analysis of our customer base, competitive factors, and historical experience. While these models are dependent on the accuracy of the assumptions that underlie the process, we believe that such modeling provides a better illustration of our sensitivity to interest rate risk than does a traditional static gap analysis. These tools provide our ALCO with the capability to estimate and manage the amount of earnings at risk in future periods and in selected interest rate risk environments.

NII Simulation- The Bank’s primary focus is on NII simulation. Using NII simulation, the Bank measures earnings exposure over both a twelve and twenty-four month period under multiple instantaneous rate shock scenarios. The Bank’s policy provides the maximum acceptable negative impact on net interest income and return on assets over each time horizon associated with each respective change in interest rates. Our ALCO monitors compliance with these policy limits and reports them to the Board of Directors quarterly.

13

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following table indicates the NII simulation scenarios modeled and the applicable policy parameters.

Change in Market Rates	Maximum Allowable Change in NII Over		Maximum Allowable Change in ROA Over
(in Basis Points)	12 Months	24 Months	12 Months	24 Months
400	(20)%	(20)%	(40)%	(40)%
300	(15)%	(15)%	(30)%	(30)%
200	(10)%	(10)%	(20)%	(20)%
100	(7.5)%	(7.5)%	(10)%	(10)%
—	—%	—%	—%	—%
(100)	(7.5)%	(7.5)%	(10)%	(10)%
(200)	(10)%	(10)%	(20)%	(20)%
(300)	(15)%	(15)%	(30)%	(30)%
(400)	(20)%	(20)%	(40)%	(40)%

EVE simulation- The EVE analysis serves as an indicator of the extent to which the present value of our capital could change, given potential changes in interest rates. The difference represented by the present value of assets minus the present value of liabilities is defined as the economic value of equity. This measure assumes a static balance sheet and does not incorporate any growth assumptions, but does assume loan prepayments and certain other cash flows occur. It provides a measure of rate risk extending beyond the twelve or twenty - four month time horizon contained in the NII simulation analyses. While an instantaneous and severe shift in interest rates is used in this analysis to provide an estimate of exposure under an extremely adverse scenario, a gradual shift in interest rates would have a much more modest impact. Since EVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in EVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon, i.e., the next fiscal year. Further, EVE does not take into account factors such as future balance sheet growth, changes in product mix, change in yield curve relationships, and changing product spreads that could mitigate the adverse impact of changes in interest rates.

The following table indicates the EVE simulation scenarios modeled and the applicable policy parameters.

Change in Market Rates (In Basis Points)	Maximum Change in Economic Value of Equity
400	(40)%
300	(30)%
200	(20)%
100	(10)%
—	—%
(100)	(10)%
(200)	(20)%
(300)	(30)%
(400)	(40)%

In evaluating the Bank's exposure to interest rate risk, certain shortcomings inherent in the method of analysis described above are considered. No assurance can be given that changing economic conditions and other relevant factors impacting our net interest income will not cause actual occurrences to differ from underlying assumptions. For example, loan repayment rates and withdrawals of deposits will likely differ substantially from the assumptions used in the simulation models in the event of significant changes in interest rates due to the option of borrowers to prepay their loans and the ability of depositors to withdraw funds prior to maturity.   In addition, this analysis does not consider any strategic changes to our balance sheet which management may consider as a result of changes in market conditions.

14

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

Financial Condition - Assets

Total assets increased $50.6 million or 5.5% to $963.2 million at December 31, 2019 from $912.6 million at December 31, 2018.  This increase was primarily due to increases in investments mortgage-backed securities and net loans receivable.

Cash and cash equivalents decreased $170,000 or 1.3% to $12.5 million at December 31, 2019 compared to $12.7 million at December 31, 2018.  Total investments and mortgage-backed securities increased $24.2 million or 5.9% to $433.9 million at December 31, 2019 from $409.7 million at December 31, 2018 as a result of purchases of investment and mortgage-backed securities exceeding maturities, principal paydowns, and securities sold during the year. The Bank purchased 89 investment and mortgage-backed securities for a total purchase price of $190.8 million during the year ended December 31, 2019 compared to purchases of 68 investment and mortgage-backed securities for a total purchase price of $114.6 million during the prior year.

Total net loans receivable increased $22.8 million or 5.3% to $452.9 million at December 31, 2019 from $430.1 million at December 31, 2018 primarily as a result of increases in commercial real estate and residential real estate loans. Commercial real estate loans held for investment increased $27.6 million or 10.0% to $303.6 million at December 31, 2019 from $276.0 million at December 31, 2018. Residential real estate loans held for investment increased $2.4 million or 2.9% to $86.4 million at December 31, 2019 from $84.0 million at December 31, 2018.  During the year ended December 31, 2019, the Bank originated $25.6 million in adjustable rate residential real estate loans (“ARMs”) for investment purposes. Loans held for sale, comprised of fixed rate residential loans, increased $2.2 million or 123.9% to $4.0 million at December 31, 2019 from $1.8 million at December 31, 2018.

At December 31, 2019, the Bank’s residential real estate loans held for investment included $15.3 million in longer term fixed rate residential mortgage loans. Typically, long term, newly originated fixed rate residential real estate loans are not retained in the portfolio but are sold immediately in contrast to ARMs, which are typically retained in the portfolio. The Bank sells all its fixed rate residential loans on a service-released basis. Fixed rate residential loans sold to institutional investors, on a service-released basis totaled $61.9 million during the year ended December 31, 2019, $44.1 million during the year ended December 31, 2018 and $40.8 million during the year ended December 31, 2017.  At December 31, 2019, the Bank held $71.1 million or 78.7% of its residential real estate loans held for investment in ARMs and $19.3 million, or 21.3%, in fixed rate residential loans. The Bank's remaining loan portfolio included $95.0 million of adjustable rate and $287.1 million of fixed rate consumer, commercial business and commercial real estate loans, or 20.1% and 60.8% of total loans, respectively, at December 31, 2019.

During the year ended December 31, 2019, the Bank originated $280.6 million in new and renewed consumer and commercial loans.  The Bank's portfolio of consumer and commercial loans was $382.1 million at December 31, 2019, $361.0 million at December 31, 2018, and $321.4 million at December 31, 2017.  Consumer loans decreased $577,000 or 1.0% to $56.3 million at December 31, 2019 from $56.9 million at December 31, 2018. Commercial business loans decreased $5.9 million or 20.8% to $22.2 million at December 31, 2019 from $28.1 million at December 31, 2018 while commercial real estate loans increased $27.6 million or 10.0% to $303.6 million at December 31, 2019 from $276.0 million at December 31, 2018. Consumer and commercial loans combined were 80.9%, 80.8% and 79.2% of total loans at December 31, 2019, 2018 and 2017, respectively.

Premises and equipment increased $3.0 million or 12.6% to $27.2 million at December 31, 2019 compared to $24.2 million at December 31, 2018. The increase is primarily due to additional capitalized costs related to our two newest branches in the metro Augusta, Georgia area, one of which opened in September 2019 and the second branch is scheduled to open in 2021.

Other assets decreased $1.9 million or 33.8% to $3.7 million at December 31, 2019 compared to $5.6 million at December 31, 2018 primarily due to a $1.4 million decrease in net deferred tax assets. Other comprehensive income representing the net unrealized gain on investment securities available for sale increased $4.5 million during the year ended December 31, 2019 due to a decrease in longer term market rates. The majority of the decrease in net deferred tax assets represents the tax impact of this change.

15

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

Financial Condition - Non-Performing Assets

The Company’s non-performing assets, which consist of non-accrual loans and OREO, decreased $3.7 million or 47.1% to $4.1 million at December 31, 2019 from $7.8 million at December 31, 2018. Non-performing assets represented 0.4% and 0.9% of total assets at December 31, 2019 and 2018, respectively. The following table summarizes our non-performing assets for those periods.

	At December 31, 2019				At December 31, 2018				$			%
	Amount			Percent (1)	Amount			Percent (1)	Change			Change
Loans 90 Days or More Past Due or Non-Accrual Loans:
Residential Real Estate	$	1,520,485		0.3%	$	2,084,870		0.5%	$	(564,385	)	(27.1	)%
Commercial Business	122,605			—	124,458			—	(1,853		)	(1.5	)
Commercial Real Estate	1,474,036			0.3	3,564,494			0.8	(2,090,458		)	(58.6	)
Consumer	319,280			0.1	1,274,673			0.3	(955,393		)	(75.0	)
Total Non-Performing Loans	3,436,406			0.7%	7,048,495			1.6%	(3,612,089		)	(51.2	)%
Other Non-Performing Assets:
OREO	677,740			0.2%	722,422			0.2%	(44,682		)	(6.2	)%
Total Other Non-Performing Assets	677,740			0.2%	722,422			0.2%	(44,682		)	(6.2	)%
Total Non-Performing Assets	$	4,114,146		0.9%	$	7,770,917		1.8%	$	(3,656,771	)	(47.1	)%
Total Non-Performing Assets as a Percentage of Total Assets	0.4		%		0.9		%

^{(1) PERCENT OF GROSS LOANS RECEIVABLE HELD FOR INVESTMENT, NET OF DEFERRED FEES AND LOANS IN PROCESS}  

The largest decrease in non-performing loans was in the non-performing commercial real estate loans category, which decreased $2.1 million or 58.6% to $1.5 million at December 31, 2019 from $3.6 million at December 31, 2018. The balance in non-performing commercial real estate loans at December 31, 2019 consisted of 14 loans to nine borrowers with an average loan balance of $105,000 compared to 18 loans to 15 borrowers with an average loan balance of $198,000 at December 31, 2018.

Non-performing loans within the residential real estate loan category decreased $564,000 or 27.1% to $1.5 million at December 31, 2019 from $2.1 million at December 31, 2018. Non-performing residential real estate loans at December 31, 2019 consisted of 12 loans to 12 borrowers with an average loan balance of $127,000, the largest of which was $341,000, compared to 14 loans to 14 borrowers with an average loan balance of $149,000 at December 31, 2018.

Non-performing consumer loans decreased $955,000 or 75.0% to $319,000 at December 31, 2019 compared to $1.3 million at December 31, 2018. Non-performing consumer loans at December 31, 2019 consisted of 10 loans to 10 borrowers with an average loan balance of $32,000, the largest of which was $68,000, compared to 12 loans to 12 borrowers with an average loan balance of $106,000, the largest of which was $843,000, at December 31, 2018.

The cumulative interest not accrued during the years ended December 31, 2019 and 2018 relating to all non-performing loans totaled $468,000 and $760,000, respectively. Our strategy is to work with our borrowers to reach acceptable payment plans while protecting our interests in the underlying 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 balance of loans in troubled debt restructurings (“TDRs”) decreased $544,000 or 39.8% during the year ended December 31, 2019. The Bank had five TDRs totaling $825,000 at December 31, 2019 compared to seven TDRs totaling $1.4 million at December 31, 2018. The five TDRs consisted of four commercial real estate loans to three separate borrowers, the largest of which had a balance of $451,000 and one unsecured consumer loan with a balance of $7,000 at December 31, 2019. The commercial real estate loans were secured by first mortgages on one single family residence and three churches. At December 31, 2019, two of the TDRs totaling $36,000 were non-accruing.

16

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

All TDRs are reviewed for impairment loss and included in impaired loans until paid off.  At December 31, 2019, the Bank had $3.2 million of impaired loans, including $825,000 in TDRs, compared to $9.4 million of impaired loans, including $1.4 million in TDRs, at December 31, 2018.

OREO decreased $45,000 or 6.2% to $678,000 at December 31, 2019 from $722,000 at December 31, 2018. At December 31, 2019, the balance of OREO consisted of the following real estate properties: 14 acres of residential land, five acres of commercial land, and one commercial strip center located within our market area in South Carolina.

The Bank reviews its loan portfolio and allowance for loan losses on a monthly basis.  Future additions to the Bank's allowance for loan losses are dependent on, among other things, the performance of the Bank's loan portfolio, the economy, changes in real estate values, and interest rates.  There can be no assurance that additions to the allowance will not be required in future periods. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes.

Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the allowance for loan losses. In addition, bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision for possible loan losses or the recognition of further loan charge-offs, based on judgments different than those of management. In addition, if charge-offs in future periods exceed the allowance for loan losses, we will need additional provisions to increase the allowance for loan losses. Any increases in the allowance for loan losses will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on our financial condition and results of operations. Management continually monitors its loan portfolio for the impact of local economic changes.  The ratio of the allowance for loan losses to total loans was 2.01% and 2.10% at December 31, 2019 and 2018, respectively. The Bank closely monitors its past due loans.

Financial Condition - Liabilities and Shareholders Equity

Deposits at the Bank increased $3.9 million or 0.5% to $771.4 million at December 31, 2019 from $767.5 million at December 31, 2018. The majority of the Bank’s deposits are originated within the Bank’s immediate market area. The Bank had brokered time deposits of $34.6 million and $33.1 million at December 31, 2019 and 2018, respectively. 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. In addition, 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. Total deposits at December 31, 2019, excluding brokered time deposits, increased $2.4 million or 0.3% to $736.8 million from $734.4 million at December 31, 2018. Brokered time deposits were 4.5% of total deposits at December 31, 2019 and 4.3% of total deposits at December 31, 2018.

Advances from the FHLB increased $4.1 million or 12.1% to $38.1 million at December 31, 2019 from $34.0 million at December 31, 2018. Other borrowings (non-FHLB advances) increased $881,000 or 8.2% to $11.6 million at December 31, 2019 from $10.7 million at December 31, 2018.  These borrowings consist of short-term repurchase agreements with certain commercial demand deposit customers for sweep accounts. The repurchase agreements typically mature within one to three days and the interest rate paid on these borrowings floats monthly with money market type rates. The interest rate paid on the repurchase agreements was 0.50% at December 31, 2019 compared to 0.25% at December 31, 2018. The Bank has pledged as collateral for these repurchase agreements investment and mortgage-backed securities with amortized costs and fair values of $20.4 million and $20.5 million, respectively, at December 31, 2019 and $16.2 million and $16.5 million, respectively, at December 31, 2018.

In September 2006, Security Federal Statutory Trust issued and sold 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 Sheet as junior subordinated debentures. The Capital Securities accrue and pay distributions at a floating rate of three month LIBOR plus 170 basis points annually which was equal to 3.59% at December 31, 2019. The distribution rate payable on the Capital Securities is cumulative and payable quarterly in arrears. The Capital Securities mature or are mandatorily redeemable upon maturity on December 15, 2036, or upon earlier optional redemption as provided in the indenture. The Company has the right to redeem the Capital Securities in whole or in part.

17

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

In December 2009, the Company issued $6.1 million in convertible senior debentures. The debentures mature on December 1, 2029 and accrue interest at the rate of 8.0% per annum until maturity or earlier redemption or repayment. The debentures are convertible into the Company’s common stock at a conversion price of $20 per share at the option of the holder at any time prior to maturity. Since December 1, 2019, the Company has the right to redeem the debentures, in whole or in part, at the option of the Company, at a price equal to 100% of the principal amount of the debentures to be purchased plus any accrued and unpaid interest to, but excluding, the date of redemption.

On January 2, 2020, the Company announced its intention to redeem all of the convertible debentures on March 2, 2020. Subsequent to the announcement, $5.9 million was converted into 295,600 common shares by holders of the debt. The Company redeemed the remaining $132,000 for cash on March 2, 2020.

In October 2016, the Company obtained a $14.0 million term loan from another financial institution. The Company used the net proceeds from the loan for the sole purpose of financing a portion of the Company's redemption of its Series B Fixed Rate Cumulative Perpetual Preferred Stock ("Series B Preferred Stock"). The Company repaid the remaining balance of the note prior to its maturity date of October 1, 2019. For additional information regarding this loan, refer to Note 11 of the Notes to Consolidated Financial Statements included herein.

On November 22, 2019, the Company sold and issued to certain institutional investors $17.5 million in aggregate principal amount of 5.25% fixed-to-floating rate subordinated notes due 2029 (the “10-Year Notes”) and $12.5 million in aggregate principal amount of 5.25% fixed-to-floating rate subordinated notes due 2034 (the “15-Year Notes”, and together with the 10-Year Notes, the “Notes”). The 10-Year Notes have a stated maturity of November 22, 2029, and bear interest at a fixed rate of 5.25% per year, from and including November 22, 2019 but excluding November 22, 2024. From and including November 22, 2024 to but excluding the maturity date or early redemption date, the interest rate shall reset semi-annually to an interest rate equal to the then-current three-month LIBOR rate plus 369 basis points. The 15-Year Notes have a stated maturity of November 22, 2034, and bear interest at a fixed rate of 5.25% per year, from and including November 22, 2019 but excluding November 22, 2029. From and including November 22, 2029 to but excluding the maturity date or early redemption date, the interest rate for the 15-Year Notes shall reset semi-annually to an interest rate equal to the then-current three-month LIBOR rate plus 357 basis points. The Notes are payable semi-annually in arrears on June 1 and December 1 of each year commencing June 1, 2020.

The Notes are not subject to redemption at the option of the holder and may be redeemed by the Company only under certain limited circumstances prior to November 22, 2024, with respect to the 10-Year Notes, and November 22, 2029, with respect to the 15-Year Notes. The Company may redeem the 10-Year Notes and the 15-Year Notes at its option, in whole at any time, or in part from time to time, after November 22, 2024 and November 22, 2029, respectively. The Notes are unsecured, subordinated obligations of the Company and rank junior in right to payment to the Company’s current and future senior indebtedness, and each Note is equal in right to payment with respect to the other Notes. 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.

For additional information regarding the Notes, refer to Note 14 of the Notes to Consolidated Financial Statements included herein.

Total shareholders' equity increased $11.2 million or 14.0% to $91.8 million at December 31, 2019 from $80.5 million at December 31, 2018. The increase was primarily due to net income of $7.8 million combined with a $4.5 million increase in accumulated other comprehensive income, net of tax. The increase in accumulated other comprehensive income was related to the unrecognized gain in value of investment and mortgage-backed securities during 2019. These increases to shareholders equity were offset by $1.1 million in dividends paid to common shareholders for the year ended December 31, 2019. Book value per common share was $31.01 at December 31, 2019 compared to $27.26 at December 31, 2018.

18

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities.  The table also distinguishes between the changes related to higher or lower outstanding balances and the changes related to the volatility of interest rates.  For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) changes in rate (multiplied by prior year volume); (2) changes in volume (multiplied by prior year rate); and (3) net change (the sum of the prior columns).  For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change attributable to volume and the change attributable to rate. Changes in income are calculated on a tax equivalent basis using a federal income tax rate of 21% for the years ended December 31, 2019 and 2018 and 34% for the year ended December 31, 2017.

	Year Ended December 31, 2019 Compared to Year Ended December 31, 2018								Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
	Volume			Rate			Net		Volume			Rate			Net
	(In Thousands)
Interest-Earning Assets:
Loans: (1)
Residential Mortgage	$	44		$	252		$	296	$	175		$	285		$	460
Other Loans	1,083			387			1,470		2,794			(423		)	2,371
Total Loans	1,127			639			1,766		2,969			(138		)	2,831
Mortgage-Backed Securities (2)	689			532			1,221		(90		)	725			635
Investments (2)	413			349			762		(256		)	(313		)	(569		)
Other Interest-Earning Assets	(15		)	44			29		(4		)	34			30
Total Interest-Earning Assets	$	2,214		$	1,564		$	3,778	$	2,619		$	308		$	2,927
Interest-Bearing Liabilities:
Deposits:
Certificate Accounts	$	262		$	1,403		$	1,665	$	48		$	676		$	724
NOW Accounts	7			53			60		5			11			16
Money Market Accounts	45			791			836		20			544			564
Savings Accounts	5			15			20		6			6			12
Total Deposits	319			2,262			2,581		79			1,237			1,316
Borrowings	47			233			280		(154		)	113			(41		)
Total Interest-Bearing Liabilities	366			2,495			2,861		(75		)	1,350			1,275
Effect on Net Interest Income	$	1,848		$	(931	)	$	917	$	2,694		$	(1,042	)	$	1,652

^{(1)   INTEREST ON NON-ACCRUAL LOANS IS NOT INCLUDED IN INCOME, ALTHOUGH THEIR LOAN BALANCES ARE INCLUDED IN AVERAGE LOANS OUTSTANDING.} 

^{(2)  SECURITIES AVAILABLE FOR SALE ARE COMPUTED USING THEIR HISTORICAL COST.} 

19

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

The following tables present the total dollar amount of interest income on a tax equivalent basis from average interest-earning assets for the periods indicated and the resultant yields, as well as the interest expense on average interest-bearing liabilities expressed both in dollars and rates.

		For the Year Ended December 31,
	Yield/ Rate at	2019						2018
	December 31, 2019	Average Balance		Interest		Annualized Yield/Rate		Average Balance		Interest		Annualized Yield/Rate
		(Dollars In Thousands)
Interest-Earning Assets:
Residential Mortgage	5.16%	$	79,334	$	4,114	5.19	%	$	78,427	$	3,818	4.87	%
Other Loans	5.24%	364,527		20,555		5.64	%	345,263		19,085		5.53	%
Total Loans (1)	5.23%	443,861		24,669		5.56	%	423,690		22,903		5.41	%
Mortgage-Backed Securities(2)	2.89%	224,860		6,658		2.96	%	200,845		5,437		2.71	%
Investments (2) (3)	2.29%	213,492		5,758		2.70	%	197,816		4,996		2.53	%
Other Interest-Earning Assets	1.42%	4,087		102		2.50	%	4,998		73		1.46	%
Total Interest-Earning Assets	3.90%	$	886,300	$	37,187	4.20	%	$	827,349	$	33,409	4.04	%
Interest-Bearing Liabilities:
Certificate Accounts	1.71%	$	256,194	$	4,309	1.68	%	$	234,788	$	2,644	1.13	%
NOW Accounts	0.11%	122,453		137		0.11	%	114,270		77		0.07	%
Money Market Accounts	0.72%	254,723		1,923		0.75	%	244,669		1,087		0.44	%
Savings Accounts	0.16%	50,635		74		0.15	%	46,920		54		0.12	%
Total Interest-Bearing Deposits	0.77%	684,005		6,443		0.94	%	640,647		3,862		0.60	%
Other Borrowings	0.50%	14,182		70		0.49	%	13,230		32		0.24	%
Note Payable	—%	675		36		5.33	%	5,089		232		4.56	%
Junior Subordinated Debt	3.59%	5,155		216		4.19	%	5,155		201		3.90	%
Senior Convertible Debt	8.00%	6,045		483		7.99	%	6,064		484		7.98	%
Subordinated Debt	5.25%	2,630		171		6.50	%	—		—		—	%
FHLB Advances	1.94%	45,900		892		1.94	%	42,970		639		1.49	%
Total Interest-Bearing Liabilities	1.04%	$	758,592	$	8,311	1.10	%	$	713,155	$	5,450	0.76	%
Net Interest Income				$	28,876					$	27,959
Interest Rate Spread	2.86%					3.10	%					3.28	%
Net Yield on Earning Assets (Net Interest Margin)						3.26	%					3.38	%

^{(1)   INTEREST ON NON-ACCRUAL LOANS IS NOT INCLUDED IN INCOME, ALTHOUGH THEIR LOAN BALANCES ARE INCLUDED IN AVERAGE LOANS OUTSTANDING.} 

^{(2)  SECURITIES AVAILABLE FOR SALE ARE COMPUTED USING THEIR HISTORICAL COST.}  

^{(3)  TAX EQUIVALENT BASIS RECOGNIZES THE INCOME TAX SAVINGS WHEN COMPARING TAXABLE AND TAX-EXEMPT ASSETS AND WAS CALCULATED USING AN EFFECTIVE TAX RATE OF 21% FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018. THE TAX-EQUIVALENT ADJUSTMENT RELATES TO THE TAX EXEMPT MUNICIPAL BONDS AND WAS $253,153 AND $337,312 FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018, RESPECTIVELY.} 

20

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

		For the Year Ended December 31,
	Yield/ Rate at	2018						2017
	December 31, 2018	Average Balance		Interest		Annualized Yield/Rate		Average Balance		Interest		Annualized Yield/Rate
		(Dollars In Thousands)
Interest-Earning Assets:
Residential Mortgage	5.11%	$	78,427	$	3,818	4.87	%	$	74,673	$	3,358	4.50	%
Other Loans	5.48%	345,263		19,085		5.53	%	294,756		16,714		5.67	%
Total Loans (1)	5.42%	423,690		22,903		5.41	%	369,429		20,072		5.43	%
Mortgage-Backed Securities(2)	2.87%	200,845		5,437		2.71	%	204,622		4,802		2.35	%
Investments (2) (3)	2.73%	197,816		4,996		2.53	%	207,344		5,565		2.68	%
Other Interest-Earning Assets	2.33%	4,998		73		1.46	%	5,445		43		0.79	%
Total Interest-Earning Assets	4.13%	$	827,349	$	33,409	4.04	%	$	786,840	$	30,482	3.87	%
Interest-Bearing Liabilities:
Certificate Accounts	1.37%	$	234,788	$	2,644	1.13	%	$	229,167	$	1,920	0.84	%
NOW Accounts	0.05%	114,270		77		0.07	%	106,178		61		0.06	%
Money Market Accounts	0.65%	244,669		1,087		0.44	%	235,906		523		0.22	%
Savings Accounts	0.14%	46,920		54		0.12	%	40,496		42		0.10	%
Total Interest-Bearing Deposits	0.67%	640,647		3,862		0.60	%	611,747		2,546		0.42	%
Other Borrowings	0.25%	13,230		32		0.24	%	11,525		20		0.17	%
Note Payable	4.95%	5,089		232		4.56	%	11,107		420		3.78	%
Junior Subordinated Debt	4.49%	5,155		201		3.90	%	5,155		151		2.93	%
Senior Convertible Debt	8.00%	6,064		484		7.98	%	6,075		486		8.00	%
FHLB Advances	1.66%	42,970		639		1.49	%	45,798		552		1.21	%
Total Interest-Bearing Liabilities	0.80%	$	713,155	$	5,450	0.76	%	$	691,407	$	4,175	0.60	%
Net Interest Income				$	27,959					$	26,307
Interest Rate Spread	3.33%					3.28	%					3.27	%
Net Yield on Earning Assets (Net Interest Margin)						3.38	%					3.34	%

^{(1)   INTEREST ON NON-ACCRUAL LOANS IS NOT INCLUDED IN INCOME, ALTHOUGH THEIR LOAN BALANCES ARE INCLUDED IN AVERAGE LOANS OUTSTANDING.} 

^{(2)  SECURITIES AVAILABLE FOR SALE ARE COMPUTED USING THEIR HISTORICAL COST.}  

^{(3)  TAX EQUIVALENT BASIS RECOGNIZES THE INCOME TAX SAVINGS WHEN COMPARING TAXABLE AND TAX-EXEMPT ASSETS AND WAS CALCULATED USING AN EFFECTIVE TAX RATE OF 21% AND 34%  FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017, RESPECTIVELY. THE TAX-EQUIVALENT ADJUSTMENT RELATES TO THE TAX EXEMPT MUNICIPAL BONDS AND WAS $337,312 AND $695,322 FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017, RESPECTIVELY.} 

^. 

^. 

21

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

Comparison of the Years Ended December 31, 2019 and 2018

Net Income

Net income increased $587,000 or 8.1% to $7.8 million or $2.50 per diluted common share for the year ended December 31, 2019, compared to $7.2 million or $2.32 per diluted common share for the year ended December 31, 2018.  The increase in earnings in 2019 was primarily due to increases in net interest income and non-interest income combined with a decrease in the provision for loan losses. These items were partially offset by an increase in non-interest expense.

Net Interest Income

Net interest income increased $1.0 million or 3.6% to $28.6 million for the year ended December 31, 2019, compared to $27.6 million in 2018. Net interest margin on a tax equivalent basis decreased 12 basis points to 3.26% for the year ended December 31, 2019 from 3.38% for the year ended December 31, 2018.  The decrease in net interest margin was primarily the result of increases in average interest bearing liabilities and the average cost of funds, which were partially offset by increases in average interest earning assets and the average yield earned on these assets.

Total average interest-earning assets increased $59.0 million or 7.1% to $886.3 million for the year ended December 31, 2019 from $827.3 million for the year ended December 31, 2018 with a 16 basis point increase in the average yield. Average interest-bearing liabilities increased $45.4 million or 6.4% to $758.6 million for the year ended December 31, 2019 from $713.2 million for the year ended December 31, 2018 with a 34 basis point increase in the average cost. The interest rate spread on a tax equivalent basis decreased 17 basis points to 3.10% for the year ended December 31, 2019 from 3.27% in 2018.

Total interest income increased $3.9 million or 11.7% to $36.9 million for the year ended December 31, 2019, compared to $33.1 million for the year ended December 31, 2018, primarily due to increased interest income from loans. Interest income from loans increased $1.8 million or 7.7% to $24.7 million for the year ended December 31, 2019 compared to $22.9 million for the year ended December 31, 2018. The increase was attributable to a $20.2 million increase in average total loans outstanding combined with a 15 basis point increase in the average yield earned on the Bank’s loans during the year ended December 31, 2019.  

Total tax equivalent interest income on investment securities, mortgage-backed securities, and other investments increased $2.0 million due to an increase of 23 basis points in the average yield earned on these assets combined with a $38.8 million, or 9.6%, increase in the aggregate average balance of these interest earning assets.

Total interest expense increased $2.9 million or 52.5% to $8.3 million for the year ended December 31, 2019, compared to $5.4 million for the year ended December 31, 2018. The largest increase was in interest expense on deposits, which increased $2.6 million or 66.8% to $6.4 million in 2019 compared to $3.9 million in 2018.  Average interest bearing deposits increased $43.4 million or 6.4% to $684.0 million during the year ended December 31, 2019 compared to $640.6 million during 2018, while the average cost of those deposits increased 34 basis points to 0.94% during 2019 from 0.60% in 2018. 

Interest expense on FHLB advances and all other borrowings increased $281,000 or 17.7% to $1.9 million during the year ended December 31, 2019 from $1.6 million during the prior year. The increase was attributable to a $2.1 million, or 2.9% decrease in the average balance of these liabilities combined with an increase of 21 basis points in the average cost to 2.50% in 2019 from 2.19% during 2018.

22

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

Provision for Loan Losses

The provision for loan losses decreased $550,000 to $375,000 for the year ended December 31, 2019 compared to $925,000 for the year ended December 31, 2018 primarily due to the decreases in substandard loans and non-performing assets, which consist of non-performing loans and OREO, during the period. Substandard loans decreased $6.1 million or 41.7%, to $8.5 million at December 31, 2019 from $14.6 million at December 31, 2018. Non-performing assets decreased $3.7 million, or 47.1%, to $4.1 million at December 31, 2019 from $7.8 million at December 31, 2018. Non-performing assets represented 0.43% and 0.85% of total assets at December 31, 2019 and 2018, respectively.

The amount of the provision is determined by management’s on-going monthly analysis of the loan portfolio and the adequacy of the allowance for loan losses. The Company has established policies and procedures for evaluating and monitoring the credit quality of the loan portfolio and for the timely identification of potential problem loans including internal and external loan reviews. The adequacy of the allowance for loan losses is reviewed monthly by the Asset Classification Committee and quarterly by the Board of Directors.

Management’s monthly review of the adequacy of the allowance includes three main components. The first component is an analysis of loss potential in various homogeneous segments of the portfolio based on historical trends and the risk inherent in each category. The historical loss periods used to calculate these ratios can range from one to five years depending on which period is deemed a more relevant indicator of future losses. Currently, management applies a five-year historical loss ratio to each loan category to estimate the inherent loss in these pooled loans.

The second component of management’s monthly analysis is the specific review and evaluation of significant problem credits identified through the Company’s internal monitoring system, including but not limited to classified loans, non-accrual loans and TDRs. These loans are evaluated for impairment and recorded in accordance with accounting guidance. All TDRs and substantially all non-accrual loans are individually for impairment. In accordance with our policy, non-accrual commercial loans with a balance less than $200,000 and non-accrual consumer loans with a balance less than $100,000 are deemed immaterial and therefore excluded from the individual impairment review. For each loan deemed impaired, management calculates a specific reserve for the amount in which the recorded investment in the loan exceeds the fair value. This estimate is based on a thorough analysis of the most probable source of repayment, which is typically liquidation of the collateral.

The third component is an analysis of changes in qualitative factors that may affect the portfolio, including but not limited to: relevant economic trends that could impact borrowers’ ability to repay, industry trends, changes in the volume and composition of the portfolio, credit concentrations, or lending policies and the experience and ability of the staff and Board of Directors. Management also reviews and incorporates certain ratios such as percentage of classified loans, average historical loan losses by loan category, delinquency percentages, and the assignment of percentage targets of reserves in each loan category when evaluating the allowance. Once the analysis is completed, the three components are combined and compared to the allowance amount. Based on this, charges are made to the provision as needed.

Management believes the allowance for loan losses at December 31, 2019, is adequate based on its best estimates of the losses inherent in the loan portfolio, although there can be no guarantee as to these estimates.  In addition, bank regulatory agencies may require additional provisions to the allowance for loan losses based on their judgments and estimates as part of their examination process.  Because the allowance for loan losses is an estimate, there can be no guarantee that actual loan losses will not exceed the allowance for loan losses, or that additional increases in the allowance for loan losses will not be required in the future.

23

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

Non-Interest Income

Non-interest income increased $1.4 million or 18.6% to $9.1 million for the year ended December 31, 2019 from $7.7 million for the year ended December 31, 2018. The largest increases were in gain on sale of investment securities and gain on sale of loans.

Gain on sale of investment securities increased $246,000 or 42.9% to $819,000 during the year ended December 31, 2019 from $573,000 for the same period in 2018. The Company sold 88 available for sale investment securities for a total gross gain of $1.5 million and gross losses of $636,000 during 2019 compared to 28 available for sale investment securities and 1,842 shares of common stock in another company for a total gross gain of $732,000 and gross losses of $159,000, respectively, in 2018.

Gain on sale of loans increased $478,000 or 38.2% to $1.7 million for the year ended December 31, 2019 compared to $1.3 million in 2018 due to an increase in loans sold to investors. The Company sold 290 loans to investors with a total balance of $61.9 million in 2019 compared to 251 loans to investors with a total balance of $44.1 million during 2018.

Income from BOLI increased $139,000 or 25.7% to $679,000 during the year ended December 31, 2019 from $540,000 during the year ended December 31, 2018. During 2019, the Bank recognized $139,000 in death benefits in addition to $540,000 in income related to an increase in the cash surrender value of the BOLI policies. All BOLI income recognized in 2018 was related to an increase in the cash surrender value of the BOLI policies.

Trust income increased $87,000 or 9.0% to $1.1 million during the year ended December 31, 2019 from $974,000 during 2018 due to an increase in assets under management. Check card fee income increased $164,000 or 12.8% to $1.4 million for the year ended December 31, 2019 compared to $1.3 million in 2018 reflecting higher transaction volume.

The Bank received $478,000 and $343,000 in grant income during the years ended December 31, 2019 and 2018, respectively. A portion of the grant income received in 2019 and the majority received in 2018 was awarded by the Bank Enterprise Award (BEA) Program in recognition of the Bank’s investments in distressed communities and its continued commitment to community development. The amount of the award increases as the Bank’s investment in these areas increases, but is also subject to changes in program funding levels from the federal government.

During the year ended December 31, 2018, the U.S. Treasury's Community Development Financial Institutions ("CDFI") Fund awarded the Bank a grant totaling $500,000, in partnership with a local energy company, to assist homeowners in low to moderate income areas by providing low-cost financing for energy efficiency upgrades. The grant income is recognized during the period in which the loans are funded to qualifying applicants. The Bank recognized $245,000 in grant income related to this award during the year ended December 31, 2019, which is included in the total grant income above. At December 31, 2019, $143,000 in income remains to be recognized as these loans are funded.

Other non-interest income including annuity and investment brokerage commissions, bank credit life insurance on loans, and other miscellaneous income increased $177,000 or 18.4% to $1.1 million in 2019 from $961,000 during 2018.

24

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

Non-Interest Expense

Non-interest expense increased $2.3 million or 8.9% to $27.9 million during the year ended December 31, 2019 compared to $25.6 million during 2018.  The increase in non-interest expense was primarily due to increases in compensation and employee benefits expense and depreciation and maintenance expense, which were partially offset by a decrease in FDIC insurance premiums during 2019.

Compensation and employee benefits increased $1.3 million or 8.6% to $16.8 million during the year ended December 31, 2019 from $15.5 million for the year ended December 31, 2018 due to general annual cost of living increases combined with a slight increase in full time employees as a result of our recent expansion in the Augusta market.

Depreciation and maintenance of equipment increased $294,000 or 12.7% to $2.6 million for the year ended December 31, 2019 compared to $2.3 million in 2018 due to additional capital expenses related to our newest branch in Augusta, Georgia, which opened in September 2019.

Net cost of operation of OREO includes all expenses associated with OREO properties, including write-downs in value and gain or loss on sales during the period. For the years ended December 31, 2019 and 2018, the net gain on OREO sales exceeded write-downs and other costs, resulting in net recoveries of $66,000 and $362,000, respectively, from the operation of OREO. The net gain on OREO sales was $185,000 during 2019 compared to $589,000 in 2018. The Company wrote down $22,000 in the value of OREO properties during 2019 compared to $56,000 in 2018.

FDIC insurance premiums decreased $194,000 or 69.8% to $84,000 in 2019 compared to $278,000 in 2018 as a result of a small bank credit awarded by the FDIC, which was recognized during the 3rd and 4th quarters of 2019. The Bank has $49,000 in small bank credits on future assessments remaining at December 31, 2019, which may be recognized in future periods.

Other non-interest expenses increased $176,000 or 3.5% to $5.3 million for the year ended December 31, 2019 compared to $5.1 million during 2018. Other expenses include legal, professional, consulting and other miscellaneous expenses.

Provision for Income Taxes

The provision for income taxes increased $110,000 or 7.0% to $1.7 million during the year ended December 31, 2019 compared to $1.6 million for the year ended December 31, 2018 due to higher pre-tax income.  The Company's combined federal and state effective tax rate was 17.7% for 2019 compared to 17.9% for 2018.

Comparison of the Years Ended December 31, 2018 and 2017

A comparison of our operating results for the 2018 and 2017 fiscal years may be found under the heading “Comparison of Operating Results for the Years Ended December 31, 2018 and 2017” contained in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

25

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

Regulatory Capital

The following table reconciles the Bank's shareholders' equity to its various regulatory capital positions.

	December 31,
	2019		2018
	(In Thousands)
Bank’s Shareholders’ Equity (1)	$	102,480	$	90,388
Reduction for Goodwill	1,200		1,200
Tangible Capital	101,280		89,188
Core Capital	101,280		89,188
Supplemental Capital	6,990		6,904
Total Risk-Based Capital	$	108,270	$	96,092

^{(1)  EXCLUDES UNREALIZED (LOSSES) GAINS ON INVESTMENT SECURITIES OF $4.5 MILLION and $(28,000) AT DECEMBER 31, 2019 AND 2018, RESPECTIVELY.} 

The Bank is subject to minimum capital requirements imposed by the FDIC. Based on capital levels at December 31, 2019, the Bank was considered to be well capitalized. At December 31, 2019, the Bank exceeded all regulatory capital requirements with Tier 1 leverage-based capital, Tier 1 risk-based capital, total risk-based capital, and common equity Tier 1 (CET1) capital ratios of 10.4%, 18.2%, 19.4%, and 18.2%, respectively.

CET1 consists of Tier 1 capital less all capital components that are not considered common equity. In addition, Tier 1 capital includes accumulated other comprehensive income (loss), which includes all unrealized gains and losses on available for sale debt and equity securities. In addition to the FDIC’s minimum capital ratios, the Bank is required to maintain a capital conservation buffer consisting of additional CET 1 capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses. At December 31, 2019, the Bank’s capital conservation buffer was 11.4%.

For additional information regarding the Bank's and Company's regulatory capital compliance, see the discussion included in Note 16 of the Notes to Consolidated Financial Statements included herein.

26

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources

Liquidity refers to the ability to generate sufficient cash flows to fund current loan demand, repay maturing borrowings, fund maturing deposit withdrawals, and meet operating expenses.  The Bank's primary sources of funds include deposits, scheduled loan and investment and mortgage-backed securities repayments, including interest payments, maturities and sales of loans and investment and mortgage-backed securities, advances from the FHLB, and cash flow generated from operations.  The need for funds varies among periods depending on funding needs as well as the rate of amortization and prepayment on loans.  The use of FHLB and other advances and borrowings varies depending on loan demand, deposit inflows, and the use of investment leverage strategies to increase net interest income.

The principal use of the Bank's funds is the origination of mortgages and other loans and the purchase of investments and mortgage-backed securities. Originations of new loans and renewals of previously funded loans on loans held for investment were $309.3 million during the year ended December 31, 2019 compared to $249.4 million during the year ended December 31, 2018 and $211.7 million during the year ended December 31, 2017. Purchases of investments and mortgage-backed securities were $190.8 million during the year ended December 31, 2019 compared to $114.8 million during the year ended December 31, 2018 and $166.6 million during the year ended December 31, 2017. Other uses of the Bank's funds during the year ended December 31, 2019 included paying down the note payable and dividend payments to shareholders.

Unused lines of credit on home equity loans, credit cards, and commercial loans amounted to $108.0 million at December 31, 2019.  Home equity loans are made on a floating rate basis with final maturities of 15 to 20 years.  The Bank issues fixed rate credit cards, currently at 9.99%, and variable rate rewards credit cards with a floating rate equal to prime plus 9.99%.  Credit cards are renewed every three years.  In addition to the above commitments, the Bank had undisbursed loans-in-process of $10.0 million at December 31, 2019, which will be disbursed over an average of 90 days.  These commitments to originate loans and future advances of lines of credit are expected to be funded from loan amortizations and prepayments, deposit inflows, maturing investments, and short-term borrowing capacity.

The following table summarizes the length of time until maturity for unused commitments to extend credit and standby letters of credit at December 31, 2019:

(In Thousands)	One Month or Less		After One Through Three Months		After Three Through Twelve Months		Total Within One Year		Over One Year		Total
Unused Lines of Credit	$	1,185	$	5,543	$	38,326	$	45,054	$	62,972	$	108,026
Standby Letters of Credit	389		200		649		1,238		213		1,451
Total	$	1,574	$	5,743	$	38,975	$	46,292	$	63,185	$	109,477

Management believes that future liquidity can be met through the Bank's deposit base, which had a balance of $771.4 million at December 31, 2019, and from investment sales and maturities.

At December 31, 2019, the Bank had $144.2 million outstanding in certificates of deposit of $100,000 or more, referred to as “Jumbo Certificates,” compared to $151.5 million at December 31, 2018.  Brokered deposits totaled $34.6 million at December 31, 2019 compared to $33.1 million at December 31, 2018. Total certificates of deposit scheduled to mature in one year or less at December 31, 2019 totaled $149.5 million.

27

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following table summarizes the maturity schedule of jumbo certificates at December 31, 2019:

	(In Thousands)
Within 3 Months	$	27,763
After 3 Months, Within 6 Months	19,686
After 6 Months, Within 12 Months	42,120
After 12 Months	54,676
	$	144,245

Management’s policy is to maintain deposit rates at levels that are competitive with other local financial institutions. Based on historical experience, we believe that a significant portion of maturing certificates of deposit will remain with the Bank. In addition, at December 31, 2019 the Bank had $259.2 million in unused borrowing capacity at the FHLB.

Historically the Bank’s cash flow from operating activities has been relatively stable.  The cash flows from investing activities vary with sales of investments and with the need to invest excess funds or utilize leverage strategies with the purchase of mortgage-backed and investment securities.  The cash flows from financing activities vary depending on the need for FHLB advances and other borrowings.

Security Federal Corporation is a separate legal entity from Security Federal Bank and must provide for its own liquidity and pay its own operating expenses. Sources of capital and liquidity for Security Federal Corporation include distributions from Security Federal Bank and the issuance of debt or equity securities, although there are regulatory restrictions on the ability of the Security Federal Bank to pay dividends. At December 31, 2019, Security Federal Corporation (on an unconsolidated basis) had liquid assets of $25.7 million.

Off-Balance Sheet Arrangements

In the normal course of business, the Company makes off-balance sheet arrangements, including credit commitments to its customers to meet their financial needs.  These arrangements involve, to varying degrees, elements of credit and interest rate risk not recognized in the consolidated statement of financial condition.  The Bank makes personal, commercial, and real estate lines of credit available to customers and does issue standby letters of credit.

Commitments to extend credit to customers are subject to the Bank’s normal credit policies and are essentially the same as those involved in extending loans to customers.  See Note 19 of the Notes to the Consolidated Financial Statements included herein for additional information.

Impact of Inflation and Changing Prices

The Consolidated Financial Statements, related notes, and other financial information presented herein have been prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) that require the measurement of financial position and operating results in terms of historical dollars without considering changes in relative purchasing power over time due to inflation.  Unlike most industrial companies, substantially all of the assets and liabilities of a financial institution are monetary in nature.  As a result, interest rates generally have a more significant impact on a financial institution's performance than does the effect of inflation.

28

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors

Security Federal Corporation and Subsidiaries

Aiken, South Carolina

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Security Federal Corporation and its Subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes to the consolidated financial statements (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company's auditor since 1998.

/s/ Elliott Davis, LLC

Columbia, South Carolina

March 20, 2020

29

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets	December 31,
	2019			2018
ASSETS:
Cash and Cash Equivalents	$	12,536,311		$	12,705,910
Certificates of Deposit with Other Banks	950,005			1,200,010
Investment and Mortgage-Backed Securities:
Available For Sale ("AFS")	414,644,840			386,100,837
Held To Maturity (Fair Value of $19,805,841 and $23,249,400 at December 31, 2019 and 2018, Respectively)	19,246,935			23,638,013
Total Investments and Mortgage-Backed Securities	433,891,775			409,738,850
Loans Receivable, Net:
Held For Sale	3,990,606			1,781,985
Held For Investment (Net of Allowance of $9,225,574 and $9,171,717 at December 31, 2019 and 2018, Respectively)	448,868,129			428,271,532
Total Loans Receivable, Net	452,858,735			430,053,517
Accrued Interest Receivable:
Loans	1,211,826			1,257,683
Mortgage-Backed Securities	551,214			591,849
Investment Securities	1,635,497			1,877,844
Total Accrued Interest Receivable	3,398,537			3,727,376
Operating Lease Right-of-Use Assets	2,718,676			—
Premises and Equipment, Net	27,219,883			24,174,707
Federal Home Loan Bank ("FHLB") Stock, at Cost	2,536,500			2,204,000
Other Real Estate Owned ("OREO")	677,740			722,442
Bank Owned Life Insurance ("BOLI")	21,501,647			21,237,893
Goodwill	1,199,754			1,199,754
Other Assets	3,737,978			5,649,800
Total Assets	$	963,227,541		$	912,614,259
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Liabilities:
Deposit Accounts	$	771,407,482		$	767,496,707
Advance Payments By Borrowers For Taxes and Insurance	207,582			258,505
Advances From FHLB	38,138,000			34,030,000
Other Borrowings	11,579,819			10,698,429
Note Payable	—			2,362,500
Junior Subordinated Debentures	5,155,000			5,155,000
Senior Convertible Debentures	6,044,000			6,064,000
Subordinated Debentures	30,000,000			—
Operating Lease Liabilities	2,733,531			—
Other Liabilities	6,204,122			6,030,685
Total Liabilities	871,469,536			832,095,826
Commitments (Notes 5 and 19)
Shareholders' Equity:
Common Stock, $.01 Par Value; Authorized 5,000,000 Shares; Issued and Outstanding Shares, 3,157,787 and 2,956,854, Respectively, at December 31, 2019 and 3,154,829 and 2,953,896, Respectively, at December 31, 2018	31,578			31,548
Additional Paid-In Capital	12,308,179			12,235,341
Treasury Stock, at Cost (200,933 Shares)	(4,330,712		)	(4,330,712		)
Accumulated Other Comprehensive Income (Loss)	4,467,527			(27,909		)
Retained Earnings	79,281,433			72,610,165
Total Shareholders' Equity	91,758,005			80,518,433
Total Liabilities and Shareholders' Equity	$	963,227,541		$	912,614,259

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

30

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income	Years Ended December 31,
	2019			2018			2017
Interest Income:
Loans	$	24,669,073		$	22,903,299		$	20,072,107
Mortgage-Backed Securities	6,657,925			5,437,099			4,802,240
Investment Securities	5,504,563			4,658,194			4,869,996
Other	102,550			73,483			42,562
Total Interest Income	36,934,111			33,072,075			29,786,905
Interest Expense:
NOW and Money Market Accounts	2,060,844			1,164,373			584,425
Statement Savings Accounts	73,961			54,173			41,819
Certificate Accounts	4,308,596			2,643,555			1,920,182
FHLB Advances and Other Borrowings	961,947			670,486			571,810
Note Payable	35,515			231,958			419,732
Senior Convertible Debentures	483,520			483,520			486,031
Subordinated Debentures	170,625			—			—
Junior Subordinated Debentures	216,492			201,354			151,302
Total Interest Expense	8,311,500			5,449,419			4,175,301
Net Interest Income	28,622,611			27,622,656			25,611,604
Provision for Loan Losses	375,000			925,000			300,000
Net Interest Income After Provision For Loan Losses	28,247,611			26,697,656			25,311,604
Non-Interest Income:
Gain on Sale of Investment Securities	819,053			573,266			494,146
Gain on Sale of Loans	1,728,741			1,250,530			1,179,837
Service Fees on Deposit Accounts	1,069,470			1,060,159			1,048,345
Commissions From Insurance Agency	674,991			682,367			584,020
Trust Income	1,061,200			974,000			796,000
BOLI Income	678,609			540,000			1,160,133
Check Card Fee Income	1,449,416			1,284,954			1,138,501
Grant Income	478,049			343,078			227,282
Other	1,137,614			960,792			716,019
Total Non-Interest Income	9,097,143			7,669,146			7,344,283
Non-Interest Expense:
Compensation and Employee Benefits	16,838,702			15,504,020			14,375,064
Occupancy	2,354,347			2,228,521			2,180,404
Advertising	796,213			546,799			596,440
Depreciation and Maintenance of Equipment	2,601,104			2,307,555			2,057,038
FDIC Insurance Premiums	84,022			278,287			185,541
Net (Recovery) Cost of Operation of OREO	(65,772		)	(361,513		)	9,729
Other	5,262,101			5,086,386			4,897,871
Total Non-Interest Expense	27,870,717			25,590,055			24,302,087
Income Before Income Taxes	9,474,037			8,776,747			8,353,800
Provision For Income Taxes	1,679,550			1,569,526			1,829,267
Write-Down of Deferred Tax Assets	—			—			606,193
Net Income	7,794,487			7,207,221			5,918,340
Net Income Per Common Share (Basic)	$	2.64		$	2.44		$	2.01
Net Income Per Common Share (Diluted)	$	2.50		$	2.32		$	1.91
Cash Dividend Per Share On Common Stock	$	0.40		$	0.36		$	0.36
Weighted Average Shares Outstanding (Basic)	2,955,737			2,953,446			2,945,918
Weighted Average Shares Outstanding (Diluted)	3,257,937			3,256,646			3,250,069

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

31

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

For the Years Ended December 31, 2019, 2018 and 2017

	2019			2018			2017
Net Income	$	7,794,487		$	7,207,221		$	5,918,340
Other Comprehensive Income (Loss)
Unrealized Gains (Losses) on Securities:
Unrealized Holding Gains (Losses) on Securities Available For Sale, Net of Taxes of $1,675,405; $(1,001,537) and $1,330,097 at December 31, 2019, 2018 and 2017, Respectively	5,133,884			(3,065,211		)	2,161,122
Reclassification Adjustment for Gains Included in Net Income, Net of Taxes of $204,763; $143,317 and $187,775 at December 31, 2019, 2018 and 2017, Respectively	(614,290		)	(429,949		)	(306,371		)
Amortization of Unrealized Gains on Available For Sale Securities Transferred to Held To Maturity, Net of Taxes of $(8,053); $(27,626) and $(62,847) at December 31, 2019, 2018 and 2017, Respectively	(24,158		)	(75,962		)	(102,715		)
Other Comprehensive Income (Loss)	4,495,436			(3,571,122		)	1,752,036
Comprehensive Income	$	12,289,923		$	3,636,099		$	7,670,376

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

32

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders' Equity

For the Years Ended December 31, 2019, 2018 and 2017

	Common Stock		Unvested Restricted Stock			Additional Paid – In  Capital		Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
Balance, December 31, 2016	$	31,464	$	(25,358	)	$	12,036,744	$	(4,330,712	)	$	1,180,086		$	62,220,050		$	71,112,274
Net Income	—		—			—		—			—			5,918,340			5,918,340
Other Comprehensive Income, Net of Tax	—		—			—		—			1,752,036			—			1,752,036
Vesting of Restricted Stock	—		25,358			—		—			—			—			25,358
Stock Options Exercised	75		—			176,100		—			—			—			176,175
Cash Dividends on Common Stock	—		—			—		—			—			(1,060,729		)	(1,060,729		)
Balance, December 31, 2017	$	31,539	$	—		$	12,212,844	$	(4,330,712	)	$	2,932,122		$	67,077,661		$	77,923,454
Net Income	—		—			—		—			—			7,207,221			7,207,221
Other Comprehensive Loss, Net of Tax:	—		—			—		—			(3,571,122		)	—			(3,571,122		)
Reclassification of Stranded Tax Effects	—		—			—		—			611,091			(611,091		)	—
Employee Stock Purchases	4		—			12,192		—			—			—			12,196
Stock Options Exercised	5		—			10,305		—			—			—			10,310
Cash Dividends on Common Stock	—		—			—		—			—			(1,063,626		)	(1,063,626		)
Balance, December 31, 2018	$	31,548	$	—		$	12,235,341	$	(4,330,712	)	$	(27,909	)	$	72,610,165		$	80,518,433
Net Income	—		—			—		—			—			7,794,487			7,794,487
Other Comprehensive Income, Net of Tax	—		—			—		—			4,495,436			—			4,495,436
Employee Stock Purchases	20		—			52,848		—			—			—			52,868
Redemption of Convertible Debentures	10		—			19,990		—			—			—			20,000
Cash Dividends on Common Stock	—		—			—		—			—			(1,123,219		)	(1,123,219		)
Balance, December 31, 2019	$	31,578	$	—		$	12,308,179	$	(4,330,712	)	$	4,467,527		$	79,281,433		$	91,758,005

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

33

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

	For the Years Ended December 31,
	2019			2018				2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	7,794,487		$	7,207,221			$	5,918,340
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:
Depreciation Expense	1,589,671			1,487,734				1,467,402
Stock Option Compensation Expense	—			—				25,358
Discount Accretion and Premium Amortization, Net	5,290,316			5,705,663				5,678,074
Provisions for Loan Losses	375,000			925,000				300,000
Earnings on BOLI	(540,000		)	(540,000		)		(506,000		)
Income Recognized From BOLI Death Benefit	(138,609		)	—				(654,133		)
Gain on Sales of Loans	(1,728,741		)	(1,250,530		)		(1,179,837		)
Loss (Gain) on Sales of Mortgage-Backed Securities ("MBS")	139,390			(139,739		)		(246,212		)
Gain on Sales of Investment Securities	(958,443		)	(204,185		)		(248,469		)
Gain on Sales of Other Investments	—			(229,342		)		—
Gain on Sales of OREO	(184,864		)	(588,720		)		(359,629		)
Write Down on OREO	22,000			56,000				158,121
Amortization of Deferred Costs on Loans	202,684			110,036				159,284
Proceeds From Sale of Loans Held For Sale	61,466,054			46,595,060				43,156,408
Origination of Loans Held For Sale	(61,945,934		)	(44,074,565		)		(40,784,614		)
Decrease (Increase) in Accrued Interest Receivable:
Loans	45,857			(190,026		)		(29,213		)
MBS	40,635			(2,849		)		16,474
Investment Securities	242,347			(177,883		)		(292,038		)
(Decrease) Increase in Advance Payments By Borrowers	(50,923		)	(11,256		)		9,181
Amortization of Operating Lease Right-of-Use ("ROU") Assets	371,836			—			—	—
Other, Net	233,478			(177,273		)		978,912
Net Cash Provided By Operating Activities	12,266,241			14,500,346				13,567,409
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of MBS Available For Sale ("AFS")	(106,828,636		)	(55,486,020		)		(63,945,253		)
Proceeds from Payments and Maturities of MBS AFS	32,283,649			37,491,568				38,559,363
Proceeds from Sale of MBS AFS	61,306,939			18,081,756				20,549,491
Purchase of MBS Held To Maturity ("HTM")	—			(1,989,922		)		(2,917,426		)
Proceeds from Payments and Maturities of MBS HTM	3,165,575			3,119,612				3,892,085
Purchase of Investment Securities AFS	(83,980,247		)	(57,280,900		)		(95,561,763		)
Proceeds from Payments and Maturities of Investment Securities AFS	35,243,895			31,024,291				24,035,102
Proceeds from Sale of Investment Securities AFS	35,174,873			15,198,888				51,788,340
Purchase of Investment Securities HTM	—			—				(3,997,750		)
Proceeds from Payments and Maturities of Investment Securities HTM	1,000,000			2,000,000				1,000,000
Investment in Certificates of Deposits with Other Banks	—			—				(600,005		)
Redemption of Certificates of Deposits with Other Banks	250,005			750,000				1,095,000
Purchase of FHLB Stock	(11,907,800		)	(5,717,400		)		(7,019,800		)
Redemption of FHLB Stock	11,575,300			6,445,300				6,864,400
Purchase of BOLI	—			(1,900,000		)		(2,000,000		)
Proceeds from BOLI Death Benefit	414,855			—				1,463,285
Increase in Loans Receivable	(22,007,081		)	(42,300,871		)		(33,002,340		)
Proceeds from Sale of OREO	1,040,366			1,361,499				2,387,799
Purchase and Improvement of Premises and Equipment	(4,634,847		)	(2,864,597		)		(3,065,662		)
Net Cash Used By Investing Activities	(47,903,154		)	(52,066,796		)		(60,475,134		)

34

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

	For the Years Ended December 31,
	2019			2018			2017
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Deposit Accounts	3,910,775			65,390,088			48,003,341
Proceeds from FHLB Advances	342,223,000			204,923,000			227,436,000
Repayment of FHLB Advances	(338,115,000		)	(222,573,000		)	(224,151,000		)
Repayment of Note Payable, Net	(2,362,500		)	(6,137,500		)	(4,500,000		)
Proceeds from (Repayments of) Other Borrowings, Net	881,390			(608,732		)	1,969,013
Purchase of Senior Convertible Debentures	—			—			(20,000		)
Proceeds from Issuance of Subordinated Debentures	30,000,000			—			—
Proceeds from Employee Stock Options Exercised	—			10,310			176,175
Proceeds from Employee Stock Purchases	52,868			12,196			—
Dividends to Common Stock Shareholders	(1,123,219		)	(1,063,626		)	(1,060,729		)
Net Cash Provided By Financing Activities	35,467,314			39,952,736			47,852,800
Net (Decrease) Increase in Cash and Cash Equivalents	(169,599		)	2,386,286			945,075
Cash and Cash Equivalents at Beginning of Year	12,705,910			10,319,624			9,374,549
Cash and Cash Equivalents at End of Year	$	12,536,311		$	12,705,910		$	10,319,624
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid During the Period For:
Interest	$	7,882,527		$	5,574,723		$	4,128,260
Income Taxes	$	1,764,541		$	1,521,811		$	1,667,673
Supplemental Schedule of Non Cash Transactions:
Transfers from Loans Receivable to OREO	$	832,800		$	435,550		$	580,748
Increase (Decrease) in Unrealized Gains on Securities AFS, Net of Taxes	$	4,495,436		$	(3,571,122	)	$	1,752,036
Initial Recognition of Lease ROU Assets	$	3,090,512		$	—		$	—
Initial Recognition of Lease Liability	$	3,090,512		$	—		$	—
Redemption of Convertible Debentures	$	20,000		$	—		$	—

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

35

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(1) Significant Accounting Policies

The following is a description of the more significant accounting and reporting policies used in the preparation and presentation of the accompanying consolidated financial statements.  All significant intercompany transactions have been eliminated in consolidation.

Basis of Consolidation and Nature of Operations

The accompanying consolidated financial statements include the accounts of Security Federal Corporation (the “Company”) and its wholly owned subsidiary, Security Federal Bank (the “Bank”) and the Bank’s wholly owned subsidiaries, Security Federal Insurance, Inc. (“SFINS”), Security Federal Investments, Inc. ("SFINV") and Security Financial Services Corporation (“SFSC”).  Security Federal Corporation has a wholly owned subsidiary, Security Federal Statutory Trust (the “Trust”), which issued and sold fixed and floating rate capital securities of the Trust.  However, under current accounting guidance, the Trust is not consolidated in the 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.  SFINS is an insurance agency offering auto, business, health and home insurance.  SFINS has a wholly owned subsidiary, Collier Jennings Financial Corporation which has as subsidiaries Security Federal Auto Insurance, The Auto Insurance Store Inc., and Security Federal Premium Pay Plans Inc. Security Federal Premium Pay Plans Inc. has one wholly owned premium finance subsidiary and also has an ownership interest in four other premium finance subsidiaries. SFINV was formed to hold investment securities and allow for better management of the securities portfolio. SFSC is currently inactive.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, interest-bearing balances in other banks, and federal funds sold.  Cash equivalents have original maturities of three months or less.

Investment and Mortgage-Backed Securities

Investment securities, including mortgage-backed securities, are classified in one of three categories: held to maturity, available for sale, or trading.  Management determines the appropriate classification of debt securities at the time of purchase. Investment securities are classified as held to maturity when the Company has the positive intent and ability to hold the securities to maturity.  These securities are recorded at cost and adjusted for amortization of premiums and accretion of discounts over a level yield basis. Callable debt securities held at a premium are amortized until the earliest call date. Prepayment assumptions on mortgage-backed securities are anticipated.

Management classifies investment securities that are not considered to be held to maturity as available for sale.  This type of investment is stated at fair value with unrealized gains and losses, net of tax, reported in a separate component of shareholders' equity (“accumulated other comprehensive income (loss)”).  Gains and losses from sales of investment and mortgage-backed securities available for sale are determined using the specific identification method.  The Company had no investment in trading securities.

Loans Receivable Held for Investment

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal balance adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest is recognized over the term of the loan based on the outstanding loan balance. Fees charged for originating loans, if any, are deferred and offset by the deferral of certain direct expenses associated with loans originated. The net deferred fees are recognized as yield adjustments by applying the interest method.

Allowance for Loan Losses

The Company provides for loan losses using the allowance method.  Accordingly, all loan losses are charged to the related allowance and all recoveries are credited to the allowance for loan losses. Additions to the allowance for loan losses are provided by charges to operations based on various factors, which, in management’s judgment, deserve current recognition in estimating possible losses.  Such factors considered by management include the fair value of the underlying collateral, stated guarantees by the borrower (if applicable), the borrower’s ability to repay from other economic resources, growth and composition of the loan portfolio, the relationship of the allowance for loan losses to the outstanding loans, loss experience, delinquency trends, and general economic conditions. Management evaluates the carrying value of the loans periodically and the allowance is adjusted accordingly.

36

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(1) Significant Accounting Policies, Continued

While management uses the best information available to make evaluations, future adjustments may be necessary if economic conditions differ substantially from the assumptions used in making these evaluations.  The allowance for loan losses is subject to periodic evaluations by bank regulatory agencies that may require adjustments to be made to the allowance based upon the information that is available at the time of their examination.

The Company values impaired loans at the loan’s fair value if it is probable that the Company will be unable to collect all amounts due according to the terms of the loan agreement at the present value of expected cash flows, the market price of the loan, if available, or the value of the underlying collateral less estimated selling costs.  In accordance with our policy, non-accrual commercial loans with a balance less than $200,000 and non-accrual consumer loans with a balance less than $100,000 are deemed immaterial and therefore excluded from the individual impairment review. Expected cash flows are required to be discounted at the loan’s effective interest rate.  When the ultimate collectibility of an impaired loan’s principal is in doubt, wholly or partially, all cash receipts are applied to principal.  When this doubt does not exist, cash receipts are applied under the contractual terms of the loan agreement first to interest and then to principal.  Once the recorded principal balance has been reduced to zero, future cash receipts are applied to interest income to the extent that any interest has been foregone.  Further cash receipts are recorded as recoveries of any amounts previously charged off.

Loans Receivable Held for Sale

Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate.  Net unrealized losses are provided for in a valuation allowance by charges to operations.

Other Real Estate Owned

Other real estate owned represents real estate and other assets acquired through foreclosure or repossession and are initially recorded at the estimated fair value less costs to sell. Subsequent improvements are capitalized. Costs of holding real estate, such as property taxes, insurance, general maintenance and interest expense, are expensed as a period cost. Fair values are reviewed regularly and allowances for possible losses are established when the carrying value of the asset owned exceeds the fair value less estimated costs to sell. Fair values are generally determined by reference to an outside appraisal.

Premises and Equipment

Premises and equipment are carried at cost, net of accumulated depreciation.  Depreciation of premises and equipment is amortized on a straight-line method over the estimated useful life of the related asset.  Estimated lives are 7 to 40 years for buildings and improvements and generally 3 to 10 years for furniture, fixtures and equipment.  Maintenance and repairs are charged to current expense.  The cost of major renewals and improvements are capitalized.

Intangible Assets and Goodwill

The Company's goodwill is a result of the excess of the cost over the fair value of net assets resulting from the Company's acquisition of Collier Jennings Financial Corporation in July 2006. Goodwill is reviewed for impairment annually or whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Intangible assets are amortized over their estimated economic lives using methods that reflect the pattern in which the economic benefits are utilized.  The intangible assets, which consisted of the customer list and employment contracts resulting from the Company’s acquisition of Collier Jennings Financial Corporation, were fully amortized at December 31, 2019.

Income Taxes

Income tax expense or benefit is recognized for the net change during the year in the deferred tax liability or asset.  That amount together with income taxes currently payable is the total amount of income tax expense or benefit for the year.  Deferred taxes are provided for by the differences in financial reporting bases for assets and liabilities compared with their tax bases. Generally, a current tax liability or asset is established for taxes presently payable or refundable and a deferred tax liability or asset is established for future tax items. A valuation allowance, if applicable, is established for deferred tax assets that may not be realized. Tax bad debt reserves in excess of the base year amount (established as taxable years ending March 31, 1988 or later) would create a deferred tax liability.  Deferred income taxes are provided for in differences between the provision for loan losses for financial statement purposes and those allowed for income tax purposes.

37

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(1) Significant Accounting Policies, Continued

The Company adopted accounting guidance which prescribes a threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosures.

There have been no gross amounts of unrecognized tax benefits or interest or penalties related to uncertain tax positions since adoption. There are no unrecognized tax benefits that would, if recognized, affect the effective tax rate. There are no positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next 12 months. Years prior to December 31, 2016 are closed for federal, state and local income tax matters.

Loan Fees and Costs Associated with Originating Loans

Loan fees received, net of direct incremental costs of originating loans, are deferred and amortized over the contractual life of the related loan.  The net fees are recognized as yield adjustments by applying the interest method.  Prepayments are not anticipated.

Interest Income

Interest on loans is accrued and credited to income monthly based on the principal balance outstanding and the contractual rate on the loan. The Company places loans on non-accrual status when they become greater than 90 days delinquent or when, in the opinion of management, full collection of principal or interest is unlikely.  When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received first to principal and then to interest income. The loans are returned to an accrual status when full collection of principal and interest appears likely.

Advertising Expense

Advertising and public relations costs are generally expensed as incurred.  External costs relating to direct mailing costs are expensed in the period in which the direct mailings are sent.  Advertising and public relations costs of $796,000, $547,000, and $596,000 were included in the Company’s results of operations for the years ended December 31, 2019, 2018 and 2017, respectively.

Stock-Based Compensation

The Company accounts for compensation costs under its stock option plans using the fair value method. This method requires the measurement of the cost of employee services received in exchange for an award of equity instruments based upon the fair value of the award on the grant date. The cost of the award is recognized in the income statement over the vesting period of the award.

Net Income Per Common Share

Accounting guidance specifies computation and presentation requirements for both basic net income per common share ("EPS") and, for entities with complex capital structures, diluted EPS.  Basic EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding.  Diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued.  The dilutive effect of options and warrants outstanding is reflected in diluted earnings per share by application of the treasury stock method.

The following tables show the effect of dilutive options on the Company’s net income per common share.

	Year Ended December 31, 2019
	Income		Shares	Per Share
Basic EPS	$	7,794,487	2,955,737	$	2.64
Effect of Dilutive Securities:
Senior Convertible Debentures	362,640		302,200	(0.14		)
Diluted EPS	$	8,157,127	3,257,937	$	2.50

38

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(1) Significant Accounting Policies, Continued

	Year Ended December 31, 2018						Year Ended December 31, 2017
	Income		Shares	Per Share			Income		Shares	Per Share
Basic EPS	$	7,207,221	2,953,446	$	2.44		$	5,918,340	2,945,918	$	2.01
Effect of Dilutive Securities:
Stock Options	—		0	—			—		951	—
Senior Convertible Debentures	362,640		303,200	(0.12		)	301,339		303,200	(0.10		)
Diluted EPS	$	7,569,861	3,256,646	$	2.32		$	6,219,679	3,250,069	$	1.91

There were no stock options outstanding as of December 31, 2019 and 2018; and therefore, no dilutive options in the calculation of diluted EPS for those periods. The average market price used in calculating the assumed number of dilutive shares issued for the year ended December 31, 2017 was $29.05.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of income and expenses during the reporting periods.  Actual results could differ from those estimates.

Recently Issued Accounting Standards

The following is a summary of recent authoritative pronouncements that could affect accounting, reporting, and disclosure of financial information by the Company:

In February 2016, the FASB amended the Leases topic of the ASC to revise certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions. In July 2018, the FASB further amended the Leases Topic of the ASC to make narrow amendments to clarify how to apply certain aspects of the new leases standard. The amendments also give entities another additional and optional method for transition to the new guidance and to provide lessors with a practical expedient. The amendments were effective for reporting periods beginning after December 15, 2018. The Company adopted the new standard and recorded a right-of-use asset and lease liability of $3.1 million effective January 1, 2019. Additional disclosures required by the ASC have been included in "Note 5 - Premises and Equipment, Net and Leases."

In June 2016, the FASB issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. The guidance significantly changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model. The amendments will be effective for the Company for reporting periods beginning after December 15, 2022. Early adoption is permitted. The Company is in the process of identifying required changes to the loan loss estimation models and processes and evaluating the impact of this new guidance. Once adopted, we expect our allowance for loan losses to increase, however, until our evaluation is complete the magnitude of the increase will be unknown.

In March 2017, the FASB issued guidance on Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The guidance shortens the amortization period for certain callable debt securities held at a premium. The amendments were effective for the Company for reporting periods beginning after December 15, 2018. The adoption of these amendments did not have a material effect on its consolidated financial statements.

In June 2018, the FASB amended the Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The amendments expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. Previously, these awards were recorded at the fair value of consideration received or the fair value of the equity instruments issued and was measured as the earlier of the commitment date or date performance was completed. The guidance requires the awards to be measured at the grant-date fair value of the equity instrument. This ASU became effective for reporting periods beginning after December 15, 2018. The adoption of these amendments did not have a material effect on the Company's consolidated financial statements.

39

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(1)    Significant Accounting Policies, Continued

Recently Issued Accounting Standards

In August 2018, the FASB amended the Fair Value Measurement Topic of the ASC to remove, modify, and add certain fair value disclosure requirements based on the concepts in the FASB Concepts Statement, Conceptual Framework for Financial Reporting-Chapter 8: Notes to Financial Statements. The amendments are effective for reporting periods beginning after December 15, 2019. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this guidance and delay adoption of the additional disclosures until their effective date. The Company does not expect these amendments to have a material effect on its consolidated financial statements.

In March 2019, the FASB issued guidance to address concerns by lessors that are not manufacturers or dealers when assessing the fair value of underlying assets under the leases standard discussed above and to clarify that lessees and lessors are exempt from a certain interim disclosure requirement associated with adopting the new standard. The amendments are effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its consolidated financial statements.

In April 2019, the FASB issued guidance to provide entities that have certain financial instruments measured at amortized cost that have credit losses, to irrevocably elect the fair value option in Subtopic 825-10, upon adoption of the June 2016 guidance related to accounting for credit losses and modifying the impairment model for certain debt securities. The fair value option applies to available-for-sale debt securities. This guidance should be applied at adoption on a modified-retrospective basis as a cumulative-effect adjustment to the opening balance of retained earnings in the statement of financial condition. The Company does not expect these amendments to have a material effect on its consolidated financial statements.

In December 2019, the FASB issued guidance simplifying the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, Income Taxes. The amendments also improve consistent application or and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company does not expect the adoption of ASU 2019-12 to have a material impact on its consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting authorities are not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

Risks and Uncertainties

In the normal course of its business, the Company encounters two significant types of risk: economic and regulatory.  There are three main components of economic risk: interest rate risk, credit risk, and market risk.  The Company is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different speeds, or on different bases, than its interest-earning assets.  Credit risk is the risk of default on the Company’s loan portfolio that results from borrowers’ inability or unwillingness to make contractually required payments.  Market risk reflects changes in the value of collateral underlying loans receivable, the valuation of real estate held by the Company, and the valuation of loans held for sale and securities available for sale.  The Company is subject to the regulations of various government agencies.  These regulations can and do change significantly from period to period.  The Company also undergoes periodic examinations by the bank regulatory agencies, which may subject it to further changes with respect to asset valuations, amounts of required loss allowances, and operating restrictions, resulting from the regulators’ judgments based on information available to them at the time of their examination.

Reclassifications

Certain amounts in prior years’ consolidated financial statements have been reclassified to conform to current period classifications.

40

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(2)         Investment and Mortgage-Backed Securities, Available For Sale

The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of investment and mortgage-backed securities available for sale at the dates indicated are as follows:

	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair value
Student Loan Pools	$	41,088,231	$	—	$	856,401	$	40,231,830
Small Business Administration (“SBA”) Bonds	111,927,938		622,105		656,944		111,893,099
Tax Exempt Municipal Bonds	43,153,086		4,088,408		—		47,241,494
Taxable Municipal Bonds	15,169,737		35,359		364,686		14,840,410
Mortgage-Backed Securities	197,356,288		3,664,621		582,902		200,438,007
	$	408,695,280	$	8,410,493	$	2,460,933	$	414,644,840
	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair value
Student Loan Pools	$	12,934,037	$	20,713	$	69,249	$	12,885,501
SBA Bonds	125,777,016		560,352		890,837		125,446,531
Tax Exempt Municipal Bonds	60,141,164		1,518,974		329,769		61,330,369
Taxable Municipal Bonds	1,998,258		3,546		23,919		1,977,885
Mortgage-Backed Securities	185,291,038		1,073,432		1,903,919		184,460,551
	$	386,141,513	$	3,177,017	$	3,217,693	$	386,100,837

Student Loan Poolsare typically 97% guaranteed by the United States government while SBA bonds are 100% backed by the full faith and credit of the United States government. Included in the tables above and below in mortgage-backed securities are Government National Mortgage Association ("GNMA") mortgage-backed securities, which are also backed by the full faith and credit of the United States government.  At December 31, 2019, the Bank held an amortized cost and fair value of $63.2 million and $63.9 million, respectively, in GNMA mortgage-backed securities compared to an amortized cost and fair value of $80.4 million and $80.2 million, respectively, at December 31, 2018. Also included in mortgage-backed securities in the tables above and below are private label collateralized mortgage obligation ("CMO") securities, which are issued by non-governmental real estate mortgage investment conduits and are not backed by the full faith and credit of the United States government.  At December 31, 2019 the Bank held an amortized cost and fair value of $15.8 million and $16.1 million, respectively, in private label CMO mortgage-backed securities, compared to an amortized cost and fair value of $29.7 million and $29.5 million, respectively, at December 31, 2018.

The amortized cost and fair value of investment and mortgage-backed securities available for sale at December 31, 2019 are shown below by contractual maturity.  Expected maturities will differ from contractual maturities because borrowers have the right to prepay obligations with or without call or prepayment penalties. Since mortgage-backed securities are not due at a single maturity date, they are disclosed separately, rather than allocated over the maturity groupings below.

	Amortized Cost		Fair Value
Due in less than one year	$	18,237	$	18,134
Due in one year to five years	6,314,205		6,342,172
Due in five to ten years	57,236,558		57,209,659
Due in ten years or more	147,769,992		150,636,868
Mortgage-Backed Securities	197,356,288		200,438,007
	$	408,695,280	$	414,644,840

41

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(2)         Investment and Mortgage-Backed Securities, Available For Sale, Continued

The amortized cost and fair value of investment and mortgage-backed securities available for sale pledged as collateral for certain deposit accounts, FHLB advances and other borrowings were $171.4 million and $173.1 million, respectively, at December 31, 2019 and $111.8 million and $111.7 million, respectively, at December 31, 2018.

The Bank received $96.5 million, $33.3 million and $72.3 million in gross proceeds from sales of available for sale securities during the years ended December 31, 2019, 2018 and 2017, respectively. As a result, the Bank recognized gross gains of $1.5 million, $732,000 and $1.0 million, respectively, and gross losses of $636,000, $159,000 and $510,000, respectively, during the years ended December 31, 2019, 2018 and 2017.

The tables below summarize gross unrealized losses and the related fair value, aggregated by investment category and length of time that individual available for sale securities have been in a continuous unrealized loss position for the periods indicated.

	December 31, 2019
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Student Loan Pools	$	30,079,497	$	534,048	$	10,152,333	$	322,353	$	40,231,830	$	856,401
SBA Bonds	13,844,666		106,110		47,395,036		550,834		61,239,702		656,944
Taxable Municipal Bonds	13,810,279		364,686		—		—		13,810,279		364,686
Mortgage-Backed Securities	55,326,064		480,958		7,975,863		101,944		63,301,927		582,902
	$	113,060,506	$	1,485,802	$	65,523,232	$	975,131	$	178,583,738	$	2,460,933

	December 31, 2018
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Student Loan Pools	$	8,384,145	$	69,249	$	—	$	—	$	8,384,145	$	69,249
SBA Bonds	59,496,936		479,955		25,054,861		410,882		84,551,797		890,837
Tax Exempt Municipal Bonds	4,585,849		91,281		9,626,613		238,488		14,212,462		329,769
Taxable Municipal Bonds	—		—		980,520		23,919		980,520		23,919
Mortgage-Backed Securities	38,168,598		249,050		81,947,249		1,654,869		120,115,847		1,903,919
	$	110,635,528	$	889,535	$	117,609,243	$	2,328,158	$	228,244,771	$	3,217,693

Securities classified as available-for-sale are recorded at fair market value.  At December 31, 2019 and 2018, 39.6% and 72.4% of the unrealized losses, representing 69 and 92 individual securities, respectively, consisted of securities in a continuous loss position for 12 months or more. The Company has the ability and intent to hold these securities until such time as the value recovers or the securities mature.  The Company believes, based on industry analyst reports and credit ratings, that the deterioration in value is attributable to changes in market interest rates and is not in the credit quality of the issuer and therefore, these losses are not considered other-than-temporary. The Company reviews its investment securities portfolio at least quarterly and more frequently when economic conditions warrant, assessing whether there is any indication of other-than-temporary impairment (“OTTI”).

Factors considered in the Company's review of its investment securities portfolio include estimated future cash flows, length of time and extent to which market value has been less than cost, the financial condition and near term prospects of the issuer, and our intent and ability to retain the security to allow for an anticipated recovery in market value. If the review determines that there is OTTI, then an impairment loss is recognized in earnings equal to the entire difference between the investment’s cost and its fair value at the balance sheet date of the reporting period for which the assessment is made, or the Company may recognize a portion of the impairment in other comprehensive income. The fair value of investments on which OTTI is recognized then becomes the new cost basis of the investment. There was no OTTI recognized during the years ended December 31, 2019, 2018 and 2017.

42

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(3)         Investment and Mortgage-Backed Securities, Held to Maturity

At December 31, 2019, the Company's entire held to maturity portfolio was comprised of mortgage-backed securities. The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of held to maturity securities at December 31, 2019 and 2018 were as follows:

	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Mortgage-Backed Securities (1)	$	19,246,935	$	560,067	$	1,161	$	19,805,841
Total Held To Maturity	$	19,246,935	$	560,067	$	1,161	$	19,805,841
	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
FHLMC Bond	$	998,541	$	—	$	20,564	$	977,977
Mortgage-Backed Securities (1)	22,639,472		78,281		446,330		22,271,423
Total Held To Maturity	$	23,638,013	$	78,281	$	466,894	$	23,249,400

^{(1) COMPRISED OF GSES OR GNMA MORTGAGE-BACKED SECURITIES} 

The Company’s held to maturity portfolio is recorded at amortized cost.  The Company has the ability and intent to hold these securities to maturity. At December 31, 2019, the Bank held an amortized cost and fair value of $11.3 million and $11.6 million, respectively, in GNMA mortgage-backed securities classified as held to maturity compared to an amortized cost and fair value of $13.3 million and $13.1 million, respectively, at December 31, 2018. The Company has not invested in any private label mortgage-backed securities classified as held to maturity.

At December 31, 2019, the amortized cost and fair value of mortgage-backed securities held to maturity that were pledged as collateral for certain deposit accounts, FHLB advances and other borrowings were $17.5 million and $18.0 million, respectively, compared to an amortized cost and fair value of $19.8 million and $19.4 million, respectively, at December 31, 2018. The following tables show gross unrealized losses, fair value and length of time that individual held to maturity securities were in a continuous unrealized loss position at December 31, 2019 and 2018.

	December 31, 2019
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Mortgage-Backed Securities (1)	$	—	$	—	$	820,313	$	1,161	$	820,313	$	1,161
	$	—	$	—	$	820,313	$	1,161	$	820,313	$	1,161
	December 31, 2018
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
FHLMC Bond	$	—	$	—	$	977,977	$	20,564	$	977,977	$	20,564
Mortgage-Backed Securities (1)	—		—		16,855,973		446,330		16,855,973		446,330
	$	—	$	—	$	17,833,950	$	466,894	$	17,833,950	$	466,894

^{(1) COMPRISED OF GSES OR GNMA MORTGAGE-BACKED SECURITIES} 

43

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(4)          Loans Receivable, Net

Loans receivable, net, at December 31, 2019 and 2018 are summarized below.

	December 31,
	2019				2018
	Balance		% of Total Gross Loans		Balance		% of Total Gross Loans
Residential Real Estate Loans	$	86,404,304	18.4	%	$	83,965,416	18.9	%
Consumer Loans	56,331,013		12.0	%	56,907,555		12.8	%
Commercial Business Loans	22,234,189		4.8	%	28,086,686		6.3	%
Commercial Real Estate Loans	303,550,905		64.8	%	275,960,438		62.0	%
Total Loans Held For Investment	468,520,411		100.0	%	444,920,095		100.0	%
Loans Held For Sale	3,990,606				1,781,985
Total Loans Receivable, Gross	472,511,017				446,702,080
Less:
Allowance For Loan Losses	9,225,574				9,171,717
Loans in Process	9,957,140				7,225,271
Deferred Loan Fees	469,568				251,575
	19,652,282				16,648,563
Total Loans Receivable, Net	$	452,858,735			$	430,053,517

The Company uses a risk based approach based on the following credit quality measures when analyzing the loan portfolio: pass, caution, special mention, and substandard. These indicators are used to rate the credit quality of loans for the purposes of determining the Company’s allowance for loan losses. Pass loans are loans that are performing and are deemed adequately protected by the net worth of the borrower or the underlying collateral value. These loans are considered to have the least amount of risk in terms of determining the allowance for loan losses. Loans that are graded as substandard are considered to have the most risk. These loans typically have an identified weakness or weaknesses and are inadequately protected by the net worth of the borrower or collateral value. All loans 90 days or more past due are automatically classified in this category. The caution and special mention categories fall in between the pass and substandard grades and consist of loans that do not currently expose the Company to sufficient risk to warrant adverse classification but possess weaknesses.

The following tables summarize the loan grades used by the Company to measure the credit quality of gross loans receivable, excluding those held for sale, by loan segment at December 31, 2019 and 2018.

December 31, 2019	Pass		Caution		Special Mention		Substandard		Total Loans
Residential Real Estate	$	76,674,539	$	4,612,182	$	1,155,802	$	3,961,781	$	86,404,304
Consumer	44,294,400		9,617,301		624,248		1,795,064		56,331,013
Commercial Business	16,140,592		5,486,393		301,462		305,742		22,234,189
Commercial Real Estate	230,810,756		56,025,352		14,285,015		2,429,782		303,550,905
Total	$	367,920,287	$	75,741,228	$	16,366,527	$	8,492,369	$	468,520,411

December 31, 2018	Pass		Caution		Special Mention		Substandard		Total Loans
Residential Real Estate	$	75,558,544	$	3,369,776	$	958,354	$	4,078,742	$	83,965,416
Consumer	46,948,251		6,899,912		567,682		2,491,710		56,907,555
Commercial Business	22,670,318		4,708,036		339,533		368,799		28,086,686
Commercial Real Estate	204,197,354		45,653,796		18,492,785		7,616,503		275,960,438
Total	$	349,374,467	$	60,631,520	$	20,358,354	$	14,555,754	$	444,920,095

44

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(4)          Loans Receivable, Net, Continued

The following tables present an age analysis of past due balances by category at December 31, 2019 and 2018.

	December 31, 2019
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable
Residential Real Estate	$	—	$	355,290	$	144,209	$	499,499	$	85,904,805	$	86,404,304
Consumer	422,443		217,542		81,736		721,721		55,609,292		56,331,013
Commercial Business	147,959		76,515		20,316		244,790		21,989,399		22,234,189
Commercial Real Estate	3,849,424		—		1,352,716		5,202,140		298,348,765		303,550,905
Total	$	4,419,826	$	649,347	$	1,598,977	$	6,668,150	$	461,852,261	$	468,520,411

	December 31, 2018
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable
Residential Real Estate	$	—	$	332,000	$	497,713	$	829,713	$	83,135,703	$	83,965,416
Consumer	555,798		247,894		1,120,462		1,924,154		54,983,401		56,907,555
Commercial Business	205,613		106,163		18,648		330,424		27,756,262		28,086,686
Commercial Real Estate	1,556,863		424,103		1,634,770		3,615,736		272,344,702		275,960,438
Total	$	2,318,274	$	1,110,160	$	3,271,593	$	6,700,027	$	438,220,068	$	444,920,095

At December 31, 2019 and 2018, the Company did not have any loans that were 90 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 non-accrual loans by category at December 31, 2019 compared to 2018.

	December 31, 2019				December 31, 2018				Decrease
	Amount		Percent (1)		Amount		Percent (1)		$			%
Non-accrual Loans:
Residential Real Estate	$	1,520,485	0.3	%	$	2,084,870	0.5	%	$	(564,385	)	(27.1	)%
Consumer	319,280		0.1		1,274,673		0.3		(955,393		)	(75.0	)
Commercial Business	122,605		—		124,458		—		(1,853		)	(1.5	)
Commercial Real Estate	1,474,036		0.3		3,564,494		0.8		(2,090,458		)	(58.6	)
Total Non-accrual Loans	$	3,436,406	0.7	%	$	7,048,495	1.6	%	$	(3,612,089	)	(51.2	)%

^{(1) PERCENT OF GROSS LOANS RECEIVABLE HELD FOR INVESTMENT, NET OF DEFERRED FEES AND LOANS IN PROCESS.} 

45

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(4)          Loans Receivable, Net, Continued

The following tables show the allowance for loan losses by loan category for the years ended December 31, 2019, 2018 and 2017.

	For the Year Ended December 31, 2019
	Residential Real Estate			Consumer			Commercial Business			Commercial Real Estate			Total
Beginning Balance	$	1,191,443		$	1,203,593		$	923,600		$	5,853,081		$	9,171,717
Provision	227,624			324,394			(392,817		)	215,799			375,000
Charge-Offs	(34,599		)	(432,003		)	(1,132		)	(517,583		)	(985,317		)
Recoveries	6,126			114,865			15,113			528,070			664,174
Ending Balance	$	1,390,594		$	1,210,849		$	544,764		$	6,079,367		$	9,225,574

	For the Year Ended December 31, 2018
	Residential Real Estate			Consumer			Commercial Business			Commercial Real Estate			Total
Beginning Balance	$	1,233,843		$	1,144,815		$	1,011,227		$	4,831,733		$	8,221,618
Provision	2,411			173,235			(55,109		)	804,463			925,000
Charge-Offs	(46,419		)	(224,954		)	(32,518		)	(351,894		)	(655,785		)
Recoveries	1,608			110,497			—			568,779			680,884
Ending Balance	$	1,191,443		$	1,203,593		$	923,600		$	5,853,081		$	9,171,717

	For the Year Ended December 31, 2017
	Residential Real Estate			Consumer			Commercial Business			Commercial Real Estate			Total
Beginning Balance	$	1,360,346		$	996,620		$	882,999		$	5,116,266		$	8,356,231
Provision	82,909			257,180			261,599			(301,688		)	300,000
Charge-Offs	(211,780		)	(184,161		)	(133,371		)	(301,260		)	(830,572		)
Recoveries	2,368			75,176			—			318,415			395,959
Ending Balance	$	1,233,843		$	1,144,815		$	1,011,227		$	4,831,733		$	8,221,618

The following tables summarize the impaired loans evaluated individually and collectively for impairment within the allowance for loan losses and loans receivable balances at December 31, 2019 and 2018.

	Allowance For Loan Losses						Loans Receivable
December 31, 2019	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total		Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	—	$	1,390,594	$	1,390,594	1,086,433		$	85,317,871	$	86,404,304
Consumer	—		1,210,849		1,210,849		184,402		56,146,611		56,331,013
Commercial Business	—		544,764		544,764		64,406		22,169,783		22,234,189
Commercial Real Estate	—		6,079,367		6,079,367		1,894,642		301,656,263		303,550,905
Total	$	—	$	9,225,574	$	9,225,574	$	3,229,883	$	465,290,528	$	468,520,411

46

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(4)          Loans Receivable, Net, Continued

Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment and records the loan at fair value. Fair value is estimated using one of the following methods: fair value of the collateral less estimated costs to sale, discounted cash flows, or market value of the loan based on similar debt. The fair value of the collateral less estimated costs to sell is the most frequently used method. Typically, the Company reviews the most recent appraisal and, if it is over 24 months old, will request a new third party appraisal. Depending on the particular circumstances surrounding the loan, including the location of the collateral, the date of the most recent appraisal and the value of the collateral relative to the recorded investment in the loan, management may order an independent appraisal immediately or, in some instances, may elect to perform an internal analysis. The average balance of total impaired loans was $6.4 million for year ended December 31, 2019 compared to $11.0 million for the year ended December 31, 2018.

The following tables present information related to impaired loans by loan category as of and for the years ended December 31, 2019, 2018 and 2017.

	December 31, 2019
Impaired Loans	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	1,086,433	$	1,086,433	$	—	$	1,322,609	$	—
Consumer	184,402		192,702		—		1,106,795		—
Commercial Business	64,406		959,406		—		71,422		—
Commercial Real Estate	1,894,642		2,066,862		—		3,893,786		54,372
Total
Residential Real Estate	1,086,433		1,086,433		—		1,322,609		—
Consumer	184,402		192,702		—		1,106,795		—
Commercial Business	64,406		959,406		—		71,422		—
Commercial Real Estate	1,894,642		2,066,862		—		3,893,786		54,372
Total	$	3,229,883	$	4,305,403	$	—	$	6,394,612	$	54,372

47

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(4)       Loans Receivable, Net, Continued

	December 31, 2018
Impaired Loans	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	1,700,861	$	1,700,861	$	—	$	1,743,906	$	31,853
Consumer	986,380		994,680		—		502,479		—
Commercial Business	77,206		972,206		—		85,020		—
Commercial Real Estate	5,084,458		6,116,761		—		8,052,817		212,186
With an Allowance Recorded:
Consumer	73,662		73,662		73,662		6,139		—
Commercial Real Estate	1,441,558		1,441,558		665,000		636,387		84,881
Total
Residential Real Estate	1,700,861		1,700,861		—		1,743,906		31,853
Consumer	1,060,042		1,068,342		73,662		508,618		—
Commercial Business	77,206		972,206		—		85,020		—
Commercial Real Estate	6,526,016		7,558,319		665,000		8,689,204		297,067
Total	$	9,364,125	$	11,299,728	$	738,662	$	11,026,748	$	328,920

	December 31, 2017
Impaired Loans	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	1,883,741	$	2,333,741	$	—	$	2,889,065	$	24,273
Consumer	181,617		209,427		—		279,183		—
Commercial Business	100,401		950,401		—		141,940		—
Commercial Real Estate	6,276,547		7,583,847		—		7,483,035		189,373
Total
Residential Real Estate	1,883,741		2,333,741		—		2,889,065		24,273
Consumer	181,617		209,427		—		279,183		—
Commercial Business	100,401		950,401		—		141,940		—
Commercial Real Estate	6,276,547		7,583,847		—		7,483,035		189,373
Total	$	8,442,306	$	11,077,416	$	—	$	10,793,223	$	213,646

48

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(4)       Loans Receivable, Net, Continued

In the course of resolving delinquent loans, the Bank may choose to restructure the contractual terms of certain loans. A troubled debt restructuring ("TDR") is a restructuring in which the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to a borrower that it would not otherwise consider (FASB ASC Topic 310-40).  The concessions granted on TDRs generally include terms to reduce the interest rate, extend the term of the debt obligation, or modify the payment structure on the debt obligation. The Bank grants such concessions to reassess the borrower’s financial status and develop a plan for repayment.  

At the date of modification, TDRs are initially classified as nonaccrual TDRs. They are returned to accruing status when there is economic substance to the restructuring, there is documented credit evaluation of the borrower's financial condition, the remaining balance is reasonably assured of repayment in accordance with its modified terms, and the borrower has demonstrated sustained repayment performance in accordance with the modified terms for a reasonable period of time (generally a minimum of six months).

The Bank had five TDRs with a total balance of $825,000 included in impaired loans at December 31, 2019 compared to seven TDRs totaling $1.4 million at December 31, 2018. There were no TDRs restructured during the years ended December 31, 2019, 2018 and 2017. At December 31, 2019, there were no TDRs in default. At December 31, 2018 and 2017, one previously restructured loan with a balance of $374,000 and two previously restructured loans with a total balance of $610,000, respectively, were in default, none of which had been restructured during the same period. The Bank considers any loan 30 days or more past due to be in default.

Our policy with respect to accrual of interest on loans restructured as a TDR follows relevant supervisory guidance.  That is, if a borrower has demonstrated performance under the previous loan terms and shows capacity to perform under the restructured loan terms, continued accrual of interest at the restructured interest rate is probable.  If a borrower was materially delinquent on payments prior to the restructuring but shows capacity to meet the restructured loan terms, the loan will likely continue as nonaccrual going forward.  Lastly, if the borrower does not perform under the restructured terms, the loan is placed on nonaccrual status.

We will continue to closely monitor these loans and will cease accruing interest on them if management believes that the borrowers may not continue performing based on the restructured note terms.  If, after previously being classified as a TDR, a loan is restructured a second time, then that loan is automatically placed on nonaccrual status.  Our policy with respect to nonperforming loans requires the borrower to become current and then make a minimum of six consecutive payments in accordance with the loan terms before that loan can be placed back on accrual status.  Further, the borrower must show capacity to continue performing into the future prior to restoration of accrual status.

49

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(5)Premises and Equipment, Net and Leases

Premises and equipment, net, are summarized as follows:

	December 31,
	2019			2018
Land	$	7,708,424		$	6,693,927
Buildings and Improvements	25,336,734			23,319,946
Furniture and Equipment	12,748,562			11,878,563
Construction in Progress	1,751,176			1,391,986
Total Premises and Equipment	47,544,896			43,284,422
Less: Accumulated Depreciation	(20,325,013		)	(19,109,715		)
Total Premises and Equipment, Net	$	27,219,883		$	24,174,707

Construction in progress of $1.8 million at December 31, 2019 primarily included building and construction costs associated with our newest branch in Augusta, Georgia, scheduled for opening in 2021. At December 31, 2019 the estimated additional costs to complete and equip the branch were approximately $2.0 million. Depreciation expense on premises and equipment was $1.6 million, $1.5 million and $1.5 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Effective January 1, 2019 the Company adopted ASC 842 “Leases.” Currently, the Company has operating leases on six of its branches that are accounted for under this standard. As a result of this standard, the Company recognized both a right-of-use (ROU) asset and lease liability of $3.1 million effective January 1, 2019. During the year ended December 31, 2019, the Company made cash payments in the amount of $444,000 for operating leases. The lease expense recognized during this period amounted to $458,000 and the lease liability was reduced by $358,000. At December 31, 2019, the Company had ROU assets of $2.7 million and a lease liability of $2.7 million recorded on its consolidated balance sheet. The remaining weighted average lease term is seven years and the weighted average discount rate used is 3.2%.

At December 31, 2019, future undiscounted lease payments for operating leases with initial terms of one year or more were as follows:

Year ended December 31,
2020	435,553
2021	426,040
2022	437,463
2023	449,271
2024	450,657
Thereafter	869,050
Total undiscounted lease payments	3,068,034
Less: effect of discounting	334,503
Present value of estimated lease payments (lease liability)	$	2,733,531

Total rental expense was $460,000, $454,000, and $409,000 for the years ended December 31, 2019, 2018 and 2017, respectively. Five lease agreements with monthly expenses of $7,350, $900, $7,900, $9,950, and $10,600 have multiple renewal options totaling 30, 10, 15, 45, and 20 years, respectively.

50

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(6)         Goodwill

Goodwill was recorded in connection with the Company's acquisition of Collier Jennings Financial Corporation in July 2006. The goodwill balance of $1.2 million remained unchanged at both December 31, 2019 and 2018.In accordance with accounting guidance, the Company evaluates its goodwill on an annual basis. The evaluations were performed as of September 30, 2019 and 2018 for the years ended December 31, 2019 and 2018, respectively. At the time of the evaluations the Company determined that no impairment existed. Therefore, there was no write-down of goodwill for the years ended December 31, 2019 and 2018.

(7)         FHLB Stock

The Bank, as a member of the FHLB of Atlanta, is required to acquire and hold shares of capital stock in the FHLB of Atlanta in an amount equal to a membership component, which was 0.09% of total assets at both December 31, 2019 and 2018, plus a transaction component equal to 4.25% of outstanding advances (borrowings) from the FHLB of Atlanta at December 31, 2019 and 2018.  The Bank is in compliance with this requirement with an investment in FHLB of Atlanta stock of $2.5 million and $2.2 million at December 31, 2019 and 2018, respectively. No readily available market exists for this stock and it has no quoted fair value.  However, because redemption of this stock has historically been at par, it is carried at cost.

(8)         Other Real Estate Owned

The Bank owned $678,000 and $722,000 in OREO at December 31, 2019 and 2018, respectively. Transactions in OREO for the years ended December 31, 2019, 2018 and 2017 are summarized below.

	2019			2018			2017
Balance, beginning of year	$	722,442		$	1,115,671		$	2,721,214
Additions	832,800			435,550			580,748
Sales	(855,502		)	(772,779		)	(2,028,170		)
Write-downs	(22,000		)	(56,000		)	(158,121		)
Balance, end of year	$	677,740		$	722,442		$	1,115,671

There were no mortgage loans collateralized by residential real estate property in the process of foreclosure at December 31, 2019 compared to $320,000 at December 31, 2018.

51

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(9)         Deposits

Deposits outstanding at December 31, 2019 and 2018 are summarized below by account type.

	December 31, 2019				December 31, 2018
	Balance		Weighted Rate	Interest Rate Range	Balance		Weighted Rate	Interest Rate Range
Checking Accounts	$	260,135,924	0.11%	0.00-1.98%	$	219,515,207	0.09%	0.00-1.98%
Money Market Accounts	230,693,518		0.72%	0.00-1.48%	261,136,008		0.65%	0.00-2.23%
Savings Accounts	51,124,806		0.16%	0.00-1.00%	48,391,799		0.14%	0.00-0.14%
Total	$	541,954,248	0.36%	0.00-1.98%	$	529,043,014	0.31%	0.00-2.23%
Certificate Accounts:
0.00 – 0.99%	$	28,599,107			$	70,854,896
1.00 – 1.99%	122,164,536				120,011,938
2.00 – 2.99%	78,689,591				47,586,859
Total	$	229,453,234	1.71%	0.45-2.96%	$	238,453,693	1.37%	0.35-2.86%
Total Deposits	$	771,407,482	0.76%	0.00-2.96%	$	767,496,707	0.64%	0.00-2.86%

Included in the certificates above were $34.6 million and $33.1 million in brokered deposits at December 31, 2019 and 2018, respectively, with a weighted average interest rate of 1.87% and 1.86%, respectively. Of the $34.6 million in brokered deposits at December 31, 2019, $2.0 million mature within one year. At December 31, 2019 and 2018, the Bank had $141,000 and $59,000, respectively, in overdrafts that were reclassified to loans.

The aggregate amount of certificates of deposit with a minimum denomination of $100,000 was $144.2 million and $151.5 million at December 31, 2019 and 2018, respectively. Certificate of deposits that met or exceeded the FDIC insurance limit of $250,000 were $77.5 million and $89.2 million at December 31, 2019 and 2018, respectively.

The amounts and scheduled maturities of all certificates of deposit were as follows at December 31, 2019 and 2018:

	December 31,
	2019		2018
Within 1 Year	$	149,481,000	$	160,771,824
After 1 Year, Within 2 Years	42,689,147		43,330,060
After 2 Years, Within 3 Years	18,737,910		23,990,251
After 3 Years, Within 4 Years	3,272,862		6,358,577
After 4 Years, Within 5 Years	15,272,315		3,488,598
Thereafter	—		514,383
Total Certificates of Deposits	$	229,453,234	$	238,453,693

52

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(10)         Advances From Federal Home Loan Bank and Other Borrowings

Advances from the FHLB are summarized by year of maturity and weighted average interest rate at December 31, 2019 below.

	Amount		Weighted Rate
2020	$	13,138,000	1.88%
2021	25,000,000		1.97%
Total	$	38,138,000	1.94%

These advances are secured by a blanket collateral agreement with the FHLB by pledging the Bank’s portfolio of residential first mortgage loans and investment securities with an amortized cost and fair value of $100.5 million and $96.7 million, respectively, at December 31, 2019 and $79.1 million and $71.4 million, respectively, at December 31, 2018.

FHLB advances are subject to prepayment penalties. During the years ended December 31, 2019, 2018 and 2017, the Bank prepaid no FHLB advances. Callable advances are callable at the option of the FHLB.  If an advance is called, the Bank has the option to pay off the advance without penalty, re-borrow funds on different terms, or convert the advance to a three-month floating rate advance tied to LIBOR. The Bank did not have any callable FHLB advances at December 31, 2019.

At December 31, 2019 and 2018, the Bank had $259.2 million and $236.6 million in additional borrowing capacity, respectively, at the FHLB.

The Bank had $11.6 million and $10.7 million in other borrowings at December 31, 2019 and 2018, respectively.  These borrowings consist of short-term repurchase agreements with certain commercial demand deposit customers for sweep accounts. The repurchase agreements typically mature within one to three days and the interest rate paid on these borrowings floats monthly with money market type rates. At December 31, 2019 and 2018, the interest rate paid on the repurchase agreements was 0.50% and 0.25%, respectively. The maximum amount outstanding at any one month end during the year ended December 31, 2019 was $15.8 million compared to $14.3 million during the year ended December 31, 2018. The Bank had pledged as collateral for these repurchase agreements investment and mortgage-backed securities with amortized costs and fair values of $20.4 million and $20.5 million, respectively, at December 31, 2019 and $16.2 million and $16.5 million, respectively, at December 31, 2018.

(11)         Note Payable

On October 31, 2016, the Company repurchased all 22,000 shares of its Series B Preferred Stock from the United States Department of the Treasury ("Treasury") for a total payment amount of $21.4 million. In connection with this repurchase, the Company obtained a $14.0 million unsecured term loan from another financial institution. The loan accrued and paid interest on a quarterly basis at a floating rate, which was calculated as the previous quarter end Wall Street Journal Prime index minus 30 basis points. The remaining balance of this loan was repaid prior to its maturity date of October 1, 2019.

(12)         Junior Subordinated Debentures

On September 21, 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”), which are reported on the consolidated balance sheet as junior subordinated debentures, generating proceeds of $5.2 million. The Trust loaned these proceeds to the Company to use for general corporate purposes, primarily to provide capital to the Bank.

The Capital Securities accrue and pay distributions quarterly at a floating rate of three month LIBOR plus 170 basis points which was a rate per annum equal to 3.59% and 4.49%at December 31, 2019 and 2018, respectively. The distribution rate payable on the Capital Securities is cumulative and payable quarterly in arrears.

The Company has the right, subject to events of default, to defer payments of interest on the Capital Securities for a period not to exceed 20 consecutive quarterly periods, provided that no extension period may extend beyond the maturity date of December 15, 2036. The Company has no current intention to exercise its right to defer payments of interest on the Capital Securities. 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.

53

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(13)    Senior Convertible Debentures

Effective December 1, 2009, the Company issued $6.1 million in 8.0% convertible senior debentures with a maturity date of December 1, 2029. Since December 1, 2019, the Company had the right to redeem the debentures, in whole or in part, at the option of the Company, at a price equal to 100% of the principal amount of the debentures to be purchased plus any accrued and unpaid interest to, but excluding, the date of redemption.

(14)Subordinated Debentures

On November 22, 2019, the Company sold and issued to certain institutional investors $17.5 million in aggregate principal amount of 5.25% fixed-to-floating rate subordinated notes due 2029 (the “10-Year Notes”) and $12.5 million in aggregate principal amount of 5.25% fixed-to-floating rate subordinated notes due 2034 (the “15-Year Notes”, and together with the 10-Year Notes, the “Notes”). The 10-Year Notes have a stated maturity of November 22, 2029, and bear interest at a fixed rate of 5.25% per year, from and including November 22, 2019 but excluding November 22, 2024. From and including November 22, 2024 to but excluding the maturity date or early redemption date, the interest rate shall reset semi-annually to an interest rate equal to the then-current three-month LIBOR rate plus 369 basis points. The 15-Year Notes have a stated maturity of November 22, 2034, and bear interest at a fixed rate of 5.25% per year, from and including November 22, 2019 but excluding November 22, 2029. From and including November 22, 2029 to but excluding the maturity date or early redemption date, the interest rate for the 15-Year Notes shall reset semi-annually to an interest rate equal to the then-current three-month LIBOR rate plus 357 basis points. The Notes are payable semi-annually in arrears on June 1 and December 1 of each year commencing June 1, 2020.

The Notes are not subject to redemption at the option of the holder and may be redeemed by the Company only under certain limited circumstances prior to November 22, 2024, with respect to the 10-Year Notes, and November 22, 2029, with respect to the 15-Year Notes. The Company may redeem the 10-Year Notes and the 15-Year Notes at its option, in whole at any time, or in part from time to time, after November 22, 2024 and November 22, 2029, respectively. The Notes are unsecured, subordinated obligations of the Company and rank junior in right to payment to the Company’s current and future senior indebtedness, and each Note is equal in right to payment with respect to the other Notes.

The Notes have been structured to qualify as Tier 2 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.

(15)         Income Taxes

Income tax expense was comprised of the following for the dates indicated below:

	Years Ended December 31,
	2019			2018			2017
Current:
Federal	$	1,437,595		$	1,454,049		$	1,500,337
State	145,412			202,292			209,396
Total Current Tax Expense	1,583,007			1,656,341			1,709,733
Deferred:
Federal	105,960			(79,034		)	736,390
State	(9,417		)	(7,781		)	(10,663		)
Total Deferred Tax Expense (Benefit)	96,543			(86,815		)	725,727
Total Income Tax Expense	$	1,679,550		$	1,569,526		$	2,435,460

54

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(15)         Income Taxes, Continued

The Company's income taxes differ from those computed at the statutory federal income tax rate, as follows:

	Years Ended December 31,
	2019			2018			2017
Tax at Statutory Income Tax Rate	$	1,989,548		$	1,843,117		$	2,840,292
State Tax and Other	100,820			157,417			44,764
Tax Exempt Interest	(291,768		)	(338,497		)	(730,477		)
Life Insurance	(142,508		)	(113,400		)	(394,445		)
Valuation Allowance	23,458			20,889			69,133
Impact of Federal Rate Change on Deferred Taxes	—			—			606,193
Total Income Tax Expense	$	1,679,550		$	1,569,526		$	2,435,460

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2019 and 2018 are presented below. Net deferred tax assets were included in other assets at December 31, 2019 and 2018.

	December 31,
	2019			2018
Deferred Tax Assets:
Deferred Compensation	$	587,322		$	498,764
Provision for Loan Losses	2,000,131			1,978,481
Other Real Estate Owned	—			18,283
Net Fees Deferred for Financial Reporting	76,262			73,892
Net Operating Losses	356,759			333,301
Other	126,492			240,724
Total Gross Deferred Tax Assets	3,146,966			3,143,445
Less: Valuation Allowance	(356,759		)	(333,301		)
Net Deferred Tax Assets	2,790,207			2,810,144
Deferred Tax Liabilities:
FHLB Stock Basis Over Tax Basis	72,208			71,717
Depreciation	585,520			507,601
Prepaid Expenses	35,033			36,837
Unrealized Gain on Securities Available for Sale	1,473,077			10,487
Total Gross Deferred Tax Liability	2,165,838			626,642
Net Deferred Tax Asset	$	624,369		$	2,183,502

The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Deferred tax assets represent the future tax benefit of deductible differences and, if it is more likely than not that a tax asset will not be realized, a valuation allowance is required to reduce the recorded deferred tax assets to net realizable value. As of December 31, 2019, management has determined that it is more likely than not that the total deferred tax asset will be realized except for the deferred tax asset associated with state net operating loss carryforwards, and, accordingly, has established a valuation allowance only for this item. The change in the valuation allowance was approximately $23,000. The Company had state net operating losses attributable to the non-bank entities of $9.0 million and $8.4 million for the years ended December 31, 2019 and 2018, respectively.

Retained earnings at December 31, 2019 included tax bad debt reserves of $2.1 million, for which no provision for federal income tax has been made. If, in the future, these amounts are used for any purpose other than to absorb bad debt losses, including dividends, stock redemptions, or distributions in liquidation, or the Company ceases to be qualified as a bank holding company, they may be subject to federal income tax at the prevailing corporate tax rate.  At December 31, 2019, the Company had no material unrecognized tax benefits or accrued interest and penalties. It is the Company's policy to account for interest and penalties accrued relative to unrecognized tax benefits as a component of income tax expense. Tax returns for 2016 and subsequent years are subject to examination by taxing authorities.

55

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(16)         Regulatory Matters

The Bank, as a state-chartered, federally insured savings bank, is subject to the capital requirements established by the FDIC. Under the FDIC's capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.

The Company is a bank holding company registered with the Federal Reserve. Bank holding companies are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve. For a bank holding company with less than $3.0 billion in assets, the capital guidelines apply on a bank only basis and the Federal Reserve expects the holding company's subsidiary banks to be well-capitalized under the prompt corrective action regulations. If Security Federal Corporation was subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at December 31, 2019, it would have exceeded all regulatory capital requirements with Common Equity Tier 1 ("CET1") capital, Tier 1 leverage-based capital, Tier 1 risk-based capital and total risk-based capital ratios of 15.4%, 9.6%, 16.3% and 23.0%, respectively.

Based on its capital levels at December 31, 2019, 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 December 31, 2019, the Bank was considered to be "well-capitalized" under applicable regulatory requirements. Management monitors the capital levels to provide for current and future business opportunities and to maintain the Bank's "well-capitalized" status.

The tables below provide the Bank’s regulatory capital requirements and actual results at December 31, 2019 and 2018.

	Actual				For Capital Adequacy				To Be Well Capitalized
(Dollars in Thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2019
Tier 1 Risk-Based Core Capital (To Risk Weighted Assets)	$	101,280	18.2	%	$	33,418	6.0	%	$	44,558	8.0	%
Total Risk-Based Capital (To Risk Weighted Assets)	108,270		19.4	%	44,558		8.0	%	55,697		10.0	%
Common Equity Tier 1 Capital (To Risk Weighted Assets)	101,280		18.2	%	25,064		4.5	%	36,203		6.5	%
Tier 1 Leverage (Core) Capital (To Adjusted Tangible Assets)	101,280		10.4	%	39,134		4.0	%	48,917		5.0	%
December 31, 2018
Tier 1 Risk-Based Core Capital (To Risk Weighted Assets)	$	89,188	16.2	%	$	33,005	6.0	%	$	44,007	8.0	%
Total Risk-Based Capital (To Risk Weighted Assets)	96,092		17.5	%	44,007		8.0	%	55,009		10.0	%
Common Equity Tier 1 Capital (To Risk Weighted Assets)	89,188		16.2	%	24,754		4.5	%	35,756		6.5	%
Tier 1 Leverage (Core) Capital (To Adjusted Tangible Assets)	89,188		9.8	%	36,486		4.0	%	45,608		5.0	%

In addition to the minimum capital requirements, the Bank must maintain a capital conservation buffer, consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses. At December 31, 2019 the Bank’s conservation buffer was 11.4%.

56

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(17)Employee Benefit Plans

The Company is participating in a multiple employer defined contribution employee benefit plan covering substantially all employees with six months or more of service.  The Company matches a portion of the employees’ contributions and the plan has a discretionary profit sharing provision.  Total employer contributions were $273,000, $263,000 and $232,000 for the years ended December 31, 2019, 2018 and 2017, respectively.

The Company has an Employee Stock Purchase Plan (“ESPP”).  The ESPP allows employees of the Company to purchase stock quarterly through a payroll deduction at a discount calculated as 15% of the market value with a floor equal to the Company’s book value.  The ESPP, which was approved by stockholders in April 2018, became effective July 1, 2018. Participation in the ESPP is voluntary.  Employees are limited to investing $25,000 or 5% of their annual salary, whichever is lower, during the year.  At December 31, 2019, there were 29 employees participating.

The Company implemented an Incentive Compensation Plan (the "Plan") during the year ended December 31, 2014. Incentive awards are based on the financial and operating performance of the Company as well as other participant specific objectives. The Plan allows employees of the Company to earn up to 7.5 days of their annual salary for successfully completing specific goals established by the participants and their respective supervisors plus an additional 2.5 days of their annual salary if the Company meets an annual predetermined net operating income amount determined by the Board of Directors. The Company also implemented an Incentive Compensation Plan for executive level officers (the "Executive Plan"). Under this plan incentive awards are based on contributions to performance as measured by critical operating and financial ratios, and other participant specific objectives. The Company has to meet the annual predetermined net operating income amount determined by the Board of Directors for any incentive awards to be paid under the Executive Plan. If the Company does not meet the required net income amount, no incentives are paid regardless of the executive's performance on individual objectives or entity wide objectives.

In 2016, the Company implemented a Quarterly Branch Incentive Compensation Plan, and all branch employees were moved from the Plan to the Branch Incentive Plan. This plan is for retail branch employees only and pays incentive on a quarterly basis based on specific performance goals established for each branch location. Participation in all three plans is voluntary. During the years ended December 31, 2019 and 2018, the Company incurred expenses of $100,000 and $240,000, respectively, related to these incentive plans.

Certain officers of the Company participate in a supplemental retirement plan.  These benefits are not qualified under the Internal Revenue Code and they are not funded.  During the years ended December 31, 2019, 2018 and 2017, the Company incurred expenses of $496,000, $396,000, and $318,000, respectively, for this plan.

Certain officers and directors of the Company participate in incentive and non-qualified stock option plans. In 2008, the 2008 Equity Incentive Plan (the "2008 Plan") was approved by stockholders and implemented by the Company. The 2008 Plan provided for the grant of non-qualified and incentive stock options, stock appreciation rights (“SARS”), and restricted stock awards. Under the 2008 Plan, 50,000 shares of common stock were reserved for the issuance of stock options and SARS in addition to 50,000 shares subject to restricted stock awards. Options are granted at exercise prices not less than the fair value of the Company’s common stock on the date of the grant.  The 2008 Plan expired during the year ended December 31, 2018. Since that date, there are no shares available for issuance under this plan for stock options or SARS. There were no stock options granted by the Company during the years ended December 31, 2019, 2018 and 2017.

At December 31, 2019, the Company had no options outstanding.

57

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(17)Employee Benefit Plans, Continued

The following is a summary of the activity under the Company’s incentive and non-qualified stock option plans for the years ended December 31, 2018 and 2017:

	Years Ended December 31,
	2018			2017
	Shares	Weighted Avg. Exercise Price		Shares	Weighted Avg. Exercise Price
Balance, Beginning of Period	4,500	$	22.91	21,500	$	23.57
Options Exercised	450	22.91		7,500	23.49
Options Forfeited	4,050	22.91		9,500	23.95
Balance, End of Period	—	$	—	4,500	$	22.91
Options Exercisable	—	$	—	4,500	$	22.91
Weighted-Average Remaining Life of Exercisable Options	—			0.4 years
Options Available for Grant	—			50,000

During the years ended December 31, 2019 and 2018, no options vested. During the year ended December 31, 2017, 3,300 options with a weighted average exercise price of $23.33 vested. The aggregate intrinsic value of the stock options outstanding and exercisable was $0 at December 31, 2019, 2018 and 2017 and there was no compensation expense related to stock options during those years.  As of December 31, 2019, there was no unrecognized compensation cost related to non-vested stock options.

(18)         Bank Owned Life Insurance

BOLI provides key person life insurance on certain officers of the Company. The cash value of the life insurance policies are recorded as a separate line item in the accompanying balance sheets at $21.5 million and $21.2 million at December 31, 2019 and 2018, respectively.  The earnings portion of the insurance policies grows tax deferred and helps offset the cost of the Company’s benefits programs.  The Company recorded earnings of $540,000, $540,000 and $506,000 for the growth in the cash value of life insurance during the years ended December 31, 2019, 2018 and 2017, respectively. In addition to the earnings above, the Company received $139,000 and $654,000 in death benefits during the years ended December 31, 2019 and 2017, respectively. There were no death benefits received during the year ended December 31, 2018.

(19)         Commitments and Contingencies

In the ordinary course of business, the Company has various outstanding commitments and contingent liabilities that are not reflected in the accompanying consolidated financial statements.  In addition, the Company is a defendant in certain claims and legal actions arising in the ordinary course of business.  In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the consolidated financial condition of the Company.

In conjunction with its lending activities, the Bank enters into various commitments to extend credit and issue letters of credit.  Loan commitments (unfunded loans and unused lines of credit) and letters of credit are issued to accommodate the financing needs of the Bank's customers.  Loan commitments are agreements by the Bank to lend at a future date, so long as there are no violations of any conditions established in the agreement.  Letters of credit commit the Bank to make payments on behalf of customers when certain specified events occur.

Financial instruments where the contract amount represents the Bank's credit risk include commitments under pre-approved but unused lines of credit of $108.0 million and $83.7 million and letters of credit of $1.5 million and $1.6 million at December 31, 2019 and 2018, respectively.

58

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(19)         Commitments and Contingencies, Continued

These loan and letter of credit commitments are subject to the same credit policies and reviews as loans on the balance sheet.  Collateral, both the amount and nature, is obtained based upon management's assessment of the credit risk.  Since many of the extensions of credit are expected to expire without being drawn, the total commitment amounts do not necessarily represent future cash requirements.  

Included in the loan commitments noted above were unused credit card loan commitments of $6.2 million and $5.6 million and undisbursed loans in process of $10.0 million and $7.2 million at December 31, 2019 and 2018, respectively.  The Bank also had $282,000 in outstanding commitments on mortgage loans approved but not yet closed at December 31, 2019 compared to none at December 31, 2018.  These commitments, which are funded subject to certain limitations, extend over varying periods of time with the majority being funded within 45 days.  

At December 31, 2019 and 2018, the Bank had outstanding commitments to sell approximately $4.0 million and $1.8 million of loans, respectively, which encompassed the Bank’s held for sale loans.  The Bank also has commitments to sell mortgage loans not yet closed, on a best efforts basis.  Best efforts means the Bank suffers no penalty if they are unable to deliver the loans to the potential buyers.  The fair value of the Bank’s commitment to originate mortgage loans at committed interest rates and to sell such loans to permanent investors is insignificant.

(20)         Related Party Transactions

Certain directors, executive officers and companies with which they are affiliated are customers of, and have banking transactions with, the Bank in the ordinary course of business. These loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable arms-length transactions. A summary of loan transactions with directors, including their affiliates, and executive officers follows:

	Years Ended December 31,
	2019			2018			2017
Balance, Beginning of Period	$	32,961		$	94,292		$	141,972
New Loans	417,590			674			1,078
Less Loan Payments	(19,035		)	(62,005		)	(48,758		)
Balance, End of Period	$	431,516		$	32,961		$	94,292

Loans to all employees, officers, and directors of the Company, in the aggregate constituted approximately 4.5% and 3.9% of the Company’s total shareholders' equity at December 31, 2019 and 2018, respectively.  Deposits from executive officers and directors of the Company and the Bank and their related interests were approximately $15.9 million at $14.9 million at December 31, 2019 and 2018 and have substantially the same terms, including interest rates, as those prevailing at the time with other non-related depositors.

The Company leased office space from a related party during the years ended December 31, 2019, 2018 and 2017. The lease is with a company in which the related party, who is a director of the Company, has an ownership interest.  The Company incurred rent expense of $87,600, $85,000 and $83,000 for the years ended December 31, 2019, 2018 and 2017, respectively, related to this lease.  Management is of the opinion that the transactions with respect to office rent were made on terms that are comparable to those which would be made with unaffiliated persons.

59

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(21)Security Federal Corporation Condensed Financial Statements (Parent Company Only)

The following is condensed financial information of Security Federal Corporation (Parent Company only).  The primary asset is its investment in the Bank subsidiary and the principal source of income for the Company is equity in undistributed earnings from the Bank.

Condensed Balance Sheet Data

	December 31,
	2019		2018
Assets:
Cash	$	25,685,744	$	3,619,418
Investment in Security Federal Statutory Trust	155,000		155,000
Investment in Security Federal Bank	106,947,285		90,359,718
Accounts Receivable and Other Assets	386,889		14,492
Total Assets	$	133,174,918	$	94,148,628
Liabilities and Shareholders’ Equity:
Accounts Payable and Other Liabilities	$	219,213	$	49,995
Long-term Debt	41,199,000		13,581,500
Shareholders’ Equity	91,756,705		80,517,133
Total Liabilities and Shareholders’ Equity	$	133,174,918	$	94,148,628

Condensed Statements of Income Data

	Years Ended December 31,
	2019			2018			2017
Income:
Equity in Earnings of Security Federal Bank	$	2,092,130		$	1,523,443		$	136,682
Dividend Income from Security Federal Bank	6,400,000			6,400,000			6,400,000
Gain on Sale of Investments	—			—			118,725
Miscellaneous Income	62,390			21,235			15,807
Total Income	8,554,520			7,944,678			6,671,214
Expenses:
Interest Expense	906,152			916,832			1,057,065
Other Expenses	39,331			11,099			14,349
Total Expenses	945,483			927,931			1,071,414
Income Before Income Taxes	7,609,037			7,016,747			5,599,800
Income Tax Benefit	(185,450		)	(190,474		)	(318,540		)
Net Income	$	7,794,487		$	7,207,221		$	5,918,340

60

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(21)Security Federal Corporation Condensed Financial Statements (Parent Company Only), Continued

Condensed Statements of Cash Flow Data

	Years Ended December 31,
	2019			2018			2017
Operating Activities:
Net Income	$	7,794,487		$	7,207,221		$	5,918,340
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:
Equity in Earnings of Security Federal Bank	(2,092,130		)	(1,523,443		)	(136,682		)
Deferred Compensation Expense	—			—			25,358
(Increase) Decrease in Accounts Receivable and Other Assets	(372,398		)	13,666			3,117
Increase (Decrease) in Accounts Payable	169,218			1,635			(33,612		)
Net Cash Provided By Operating Activities	5,499,177			5,699,079			5,776,521
Investing Activities:
Capital Pushdown to Security Federal Bank	(10,000,000		)	—			—
Proceeds from Sale of Investments	—			—			95,438
Net Cash (Used) Provided By Investing Activities	(10,000,000		)	—			95,438
Financing Activities:
Redemption of Convertible Debentures	—			—			(20,000		)
Proceeds from Stock Options Exercised	—			10,310			176,175
Employee Stock Plan Purchases	52,868			12,196			—
Proceeds from Subordinated Debentures	30,000,000			—			—
Repayment of Note Payable	(2,362,500		)	(6,137,500		)	(4,500,000		)
Dividends Paid to Shareholders-Common Stock	(1,123,219		)	(1,063,626		)	(1,060,729		)
Net Cash Provided (Used) By Financing Activities	26,567,149			(7,178,620		)	(5,404,554		)
Net Increase (Decrease) in Cash	22,066,326			(1,479,541		)	467,405
Cash at Beginning of Period	3,619,418			5,098,959			4,631,554
Cash at End of Period	$	25,685,744		$	3,619,418		$	5,098,959

61

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(22)Carrying Amounts and 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 Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1	Valuation is based upon quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as U.S. Treasuries and money market funds.
Level 2	Valuation is based upon quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments, mortgage-backed securities, municipal bonds, corporate debt securities and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes certain derivative contracts.
Level 3	Valuation is generated from model-based techniques that use at least one significant assumption based on unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

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

Investment Securities Available for Sale

Investment securities available for sale are recorded at fair value on a recurring basis. At December 31, 2019, the Company’s investment portfolio was comprised of student loan pools, government and agency bonds, mortgage-backed securities issued by government agencies or GSEs, private label CMO mortgage-backed securities and municipal securities. Fair value measurement is based upon prices obtained from third party pricing services that use independent pricing models which rely on a variety of factors including reported trades, broker/dealer quotes, benchmark yields, economic and industry events and other relevant market information. As such, these securities are classified as Level 2.

Mortgage Loans Held for Sale

The Company originates fixed rate residential loans on a servicing released basis in the secondary market. Loans closed but not yet settled with institutional 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 of these loans have commitments to be purchased by investors and the majority of these loans were locked in by price with the investors on the same day or shortly thereafter that the loan was locked in with the Company’s customers.  Therefore, these loans present very little market risk for the Company.

The Company usually delivers to, and receives funding from, the investor within 30 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 is not obligated to deliver a loan or pay a penalty if a loan is not 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 Level 2.

62

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(22)Carrying Amounts and Fair Value of Financial Instruments, Continued

Impaired Loans

The Company does not record loans held for investment at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established as necessary. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment.

Fair value is estimated using one of the following methods: fair value of the collateral less estimated costs to sell, discounted cash flows, or market value of the loan based on similar debt. The fair value of the collateral less estimated costs to sell is the most frequently used method. Typically, the Company reviews the most recent appraisal and if it is over 24 months old will request a new third party appraisal. Depending on the particular circumstances surrounding the loan, including the location of the collateral, the date of the most recent appraisal and the value of the collateral relative to the recorded investment in the loan, management may order an independent appraisal immediately or, in some instances, may elect to perform an internal analysis. Specifically as an example, in situations where the collateral on a nonperforming commercial real estate loan is out of the Company’s primary market area, management would typically order an independent appraisal immediately, at the earlier of the date the loan becomes nonperforming or immediately following the determination that the loan is impaired. However, as a second example, on a nonperforming commercial real estate loan where management is familiar with the property and surrounding areas and where the original appraisal value far exceeds the recorded investment in the loan, management may perform an internal analysis whereby the previous appraisal value would be reviewed and adjusted for current conditions including recent sales of similar properties in the area and any other relevant economic trends. These valuations are reviewed at a minimum on a quarterly basis.

Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At December 31, 2019, most of the total impaired loans were evaluated based on the fair value of the collateral. Impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. The Company records impaired loans as nonrecurring Level 3. As of December 31, 2019 and 2018, the recorded investment in impaired loans was $3.2 million and $9.4 million, respectively. The average recorded investment in impaired loans was $6.4 million and $11.0 million for the years ended December 31, 2019 and 2018, respectively.

Foreclosed Assets

Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, they are carried at the lower of carrying value or fair value. 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 all foreclosed assets as nonrecurring level 3.

The tables below present the balances of assets measured at fair value on a recurring basis at December 31, 2019 and 2018:

	December 31, 2019						December 31, 2018
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Student Loan Pools	$	—	$	40,231,830	$	—	$	—	$	12,885,501	$	—
SBA Bonds	—		111,893,099		—		—		125,446,531		—
Tax Exempt Municipal Bonds	—		47,241,494		—		—		61,330,369		—
Taxable Municipal Bonds	—		14,840,410		—		—		1,977,885		—
Mortgage-Backed Securities	—		200,438,007		—		—		184,460,551		—
Total	$	—	$	414,644,840	$	—	$	—	$	386,100,837	$	—

There were no liabilities measured at fair value on a recurring basis as of December 31, 2019 and 2018.

63

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(22)Carrying Amounts and Fair Value of Financial Instruments, Continued

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 table below presents assets and liabilities measured at fair value on a nonrecurring basis as of December 31, 2019 and 2018, aggregated by the level in the fair value hierarchy within which those measurements fall. 

	December 31, 2019
Assets	Level 1		Level 2		Level 3		Total
Mortgage Loans Held For Sale	$	—	$	3,990,606	$	—	$	3,990,606
Collateral Dependent Impaired Loans (1)	—		—		3,222,746		3,222,746
Foreclosed Assets	—		—		677,740		677,740
Total	$	—	$	3,990,606	$	3,900,486	$	7,891,092
	December 31, 2018
Assets	Level 1		Level 2		Level 3		Total
Mortgage Loans Held For Sale	$	—	$	1,781,985	$	—	$	1,781,985
Collateral Dependent Impaired Loans (1)	—		—		8,613,570		8,613,570
Foreclosed Assets	—		—		722,442		722,442
Total	$	—	$	1,781,985	$	9,336,012	$	11,117,997

(1) REPORTED NET OF SPECIFIC RESERVES OF $0 AND $738,662 AT DECEMBER 31, 2019 AND 2018, RESPECTIVELY.

There were no liabilities measured at fair value on a nonrecurring basis as of December 31, 2019 and 2018.

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis, the significant unobservable inputs used in the fair value measurements were as follows as of December 31, 2019 and 2018:

	Valuation	Significant	2019	2018
Level 3 Assets	Technique	Unobservable Inputs	Range	Range
Collateral Dependent Impaired Loans	Appraised Value	Discount Rates/ Discounts to Appraised Values	8% - 92%	7% - 97%
Foreclosed Assets	Appraised Value/Comparable Sales	Discount Rates/ Discounts to Appraised Values	18% - 42%	16% - 100%

For assets and liabilities not 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 within 90 days and do not present unanticipated credit concerns.

Certificates of deposits with other banks—Fair value is based on market prices for similar assets.

Investment securities held to maturity—Securities held to maturity are valued at quoted market prices or dealer quotes.

Loans Receivable, Net—The fair value of loans are 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 also 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: commercial real estate, other commercial, residential real estate, consumer and all other loans. The results are then adjusted to account for credit risk as described above. A further credit risk discount must be applied through the use of 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 have no significant change in credit risk, fair values approximate carrying values.

64

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(22)Carrying Amounts and Fair Value of Financial Instruments, Continued

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—Fair value is estimated using discounted cash flows with current market rates for borrowings with similar terms.

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

Note Payable—The carrying value of the note payable approximates fair value.

Senior Convertible Debentures— 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.

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 summarize the carrying value and estimated fair value of the Company’s financial instruments as of December 31, 2019 and 2018 presented in accordance with the applicable accounting guidance.

	December 31, 2019
	Carrying		Fair Value
(In Thousands)	Amount		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and Cash Equivalents	$	12,536	$	12,536	$	12,536	$	—	$	—
Certificates of Deposits with Other Banks	950		950		—		950		—
Investment and Mortgage-Backed Securities	433,892		434,451		—		434,451		—
Loans Receivable, Net	452,859		450,796		—		—		450,796
FHLB Stock	2,537		2,537		2,537		—		—
Financial Liabilities:
Deposits:
Checking, Savings and Money Market Accounts	$	541,954	$	541,954	$	541,954	$	—	$	—
Certificate Accounts	229,453		229,363		—		229,363		—
Advances From FHLB	38,138		38,233		—		38,233		—
Other Borrowed Money	11,580		11,580		11,580		—		—
Subordinated Debentures	30,000		30,000		—		30,000		—
Junior Subordinated Debentures	5,155		5,155		—		5,155		—
Senior Convertible Debentures	6,044		6,044		—		6,044		—

65

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(22)Carrying Amounts and Fair Value of Financial Instruments, Continued

	December 31, 2018
	Carrying		Fair Value
(In Thousands)	Amount		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and Cash Equivalents	$	12,706	$	12,706	$	12,706	$	—	$	—
Certificates of Deposits with Other Banks	1,200		1,200		—		1,200		—
Investment and Mortgage-Backed Securities	409,739		409,350		—		409,350		—
Loans Receivable, Net	430,054		421,379		—		—		421,379
FHLB Stock	2,204		2,204		2,204		—		—
Financial Liabilities:
Deposits:
Checking, Savings and Money Market Accounts	$	529,043	$	529,043	$	529,043	$	—	$	—
Certificate Accounts	238,454		236,103		—		236,103		—
Advances From FHLB	34,030		33,771		—		33,771		—
Other Borrowed Money	10,698		10,698		10,698		—		—
Note Payable	2,363		2,363		—		2,363		—
Junior Subordinated Debentures	5,155		5,155		—		5,155		—
Senior Convertible Debentures	6,064		6,064		—		6,064		—

At December 31, 2019, the Bank had $85.3 million of off-balance sheet financial commitments. These commitments are to originate loans and unused consumer lines of credit and credit card lines.  Because these obligations are based on current market rates, if funded, the original principal is considered to be 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 do not reflect any premium or discount that could result from offering for sale the Bank’s entire holdings of a particular financial instrument.  

Because no active market exists for a significant portion of the Bank’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, current interest rates and prepayment trends, risk characteristics of various financial instruments, and other factors.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.  Changes in any of these assumptions used in calculating fair value would also significantly affect the estimates. Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.  For example, the Bank has significant assets and liabilities that are not considered financial assets or liabilities including deposit franchise values, loan servicing portfolios, deferred tax liabilities, and premises and equipment.

In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates. The Company has used management’s best estimate of fair value on the above assumptions.  Thus, the fair values presented may not be the amounts, which could be realized, in an immediate sale or settlement of the instrument.  In addition, any income taxes or other expenses that would be incurred in an actual sale or settlement are not taken into consideration in the fair value presented.

66

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(23)         Quarterly Financial Data (Unaudited)

Unaudited condensed financial data by quarter for the years ended December 31, 2019 and 2018 is as follows (dollars, except per share data, in thousands):

	Quarter ended
	3/31/2019		6/30/2019		9/30/2019		12/31/2019
Interest Income	$	9,031	$	9,128	$	9,641	$	9,134
Interest Expense	1,774		2,009		2,291		2,237
Net Interest Income	7,257		7,119		7,350		6,897
Provision for Loan Losses	100		—		75		200
Net Interest Income After Provision for Loan Losses	7,157		7,119		7,275		6,697
Non-interest Income	2,196		2,492		2,408		2,000
Non-interest Expense	6,744		7,241		6,989		6,896
Income Before Income Tax	2,609		2,370		2,694		1,801
Provision for Income Taxes	520		486		475		199
Net Income	$	2,089	$	1,884	$	2,219	$	1,602
Basic Net Income Per Common Share	$	0.71	$	0.64	$	0.75	$	0.54
Diluted Net Income Per Common Share	$	0.67	$	0.61	$	0.71	$	0.51
Basic Weighted Average Shares Outstanding	2,954,515		2,955,650		2,956,156		2,956,600
Diluted Weighted Average Shares Outstanding	3,256,715		3,257,850		3,258,356		3,258,800

	Quarter ended
	3/31/2018		6/30/2018		9/30/2018		12/31/2018
Interest Income	$	7,774	$	8,029	$	8,507	$	8,763
Interest Expense	1,169		1,286		1,430		1,565
Net Interest Income	6,605		6,743		7,077		7,198
Provision For Loan Losses	—		—		150		775
Net Interest Income After Provision for Loan Losses	6,605		6,743		6,927		6,423
Non-interest Income	2,044		1,744		2,070		1,811
Non-interest Expense	6,519		6,240		6,418		6,413
Income Before Income Tax	2,130		2,247		2,579		1,821
Provision for Income Taxes	400		427		471		271
Net Income	$	1,730	$	1,820	$	2,108	$	1,550
Basic Net Income Per Common Share	$	0.59	$	0.62	$	0.71	$	0.52
Diluted Net Income Per Common Share	$	0.56	$	0.59	$	0.68	$	0.50
Basic Weighted Average Shares Outstanding	2,953,180		2,953,412		2,953,424		2,953,763
Diluted Weighted Average Shares Outstanding	3,257,532		3,257,017		3,256,624		3,256,963

67

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(24)Non-Interest Income

The Company adopted the provisions of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), on January 1, 2018 and all subsequent ASUs that modified Topic 606. Results for reporting periods beginning after December 31, 2017 are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported in accordance with Topic 605. The following table presents the Company's non-interest income for the years ended December 31, 2019, 2018 and 2017. All of the Company’s revenue from contracts with customers within the scope of ASC 606 is recognized in non-interest income, with the exception of gains on the sale of OREO, which are included in non-interest expense when applicable.

	Year Ended December 31,
	2019		2018		2017
Non-interest income:
Service fees on deposit accounts	$	1,069,470	$	1,060,159	$	1,048,345
Check card fee income	1,449,416		1,284,954		1,138,501
Trust income	1,061,200		974,000		796,000
Insurance commissions (1)	674,991		682,367		584,020
Gain on sale of investment securities, net (1)	819,053		573,266		494,146
Gain on sale of loans, net (1)	1,728,741		1,250,530		1,179,837
BOLI income (1)	678,609		540,000		1,160,133
Grant income (1)	478,049		343,078		227,282
Other non-interest income (1)	1,137,614		960,792		716,019
Total non-interest income	$	9,097,143	$	7,669,146	$	7,344,283
(1) Not within the scope of ASC 606

The Company recognizes revenue as it is earned and noted no impact to its revenue recognition policies as a result of the adoption of ASU 2014-09. The following is a discussion of key revenues within the scope of the new revenue guidance.

Revenue Recognition

In accordance with Topic 606, 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 Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation.

The Company only applies the five-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 Topic 606, the Company assesses the goods or services that are promised within each contract and identifies those that contain performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Deposit Fees

The Bank 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 on a monthly basis.  The performance obligation is satisfied and the fees are recognized on a monthly basis 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.

68

SECURITY FEDERAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(24)Non-Interest Income, Continued

Check Card Fee Income

Check card fee income represents fees earned when a debit card issued by the Bank is used.  The Bank 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.

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 Bank does not charge performance based fees for its trust services and does not currently have any institutional clients, hedge funds or mutual funds. Although trust income is included within the scope of ASC 606, based on the fees charged by the Bank, the Company does not anticipate any changes in the accounting for trust income at this time.  

Gains/Losses on OREO Sales

Gains/losses on the sale of OREO are included in non-interest expense and are generally recognized when the performance obligation is complete. This is typically at delivery of control over the property to the buyer at the time of each real estate closing.

(25)     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. Nonrecognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Management has reviewed all events occurring through the date the financial statements were available to be issued and determined the following subsequent events required disclosure:

On January 2, 2020, the Company announced its intention to redeem all of the convertible debentures on March 2, 2020. Subsequent to the announcement, $5.9 million was converted into 295,600 common shares by holders of the debt. The Company redeemed the remaining $132,000 for cash on March 2, 2020.

The 2019 novel coronavirus (or “COVID-19”) has adversely affected, and may continue to adversely affect economic activity globally, nationally and locally. Following the COVID-19 outbreak in December 2019 and January 2020, market interest rates have declined significantly, with the 10-year Treasury bond falling below 1.00% on March 3, 2020 for the first time. Such events also may adversely affect business and consumer confidence, generally, and the Company and its customers, and their respective suppliers, vendors and processors may be adversely affected. On March 3, 2020, the Federal Open Market Committee reduced the target federal funds rate by 50 basis points to 1.00% to 1.25%. This rate was further reduced to 0% to 0.25% on March 16, 2020.  These reductions in interest rates and other effects of the COVID-19 outbreak may adversely affect the Company’s financial condition and results of operations.

69

SHAREHOLDERS INFORMATION

ANNUAL MEETING

The annual meeting of shareholders will be held at 11:00 a.m. on Thursday, May 21, 2020 at Newberry Hall, 117 Newberry Street SW, Aiken, South Carolina.

STOCK LISTING

The Company’s stock is traded on the Over-The-Counter-Bulletin Board under the symbol “SFDL.”  The stock began trading on the Bulletin Board in October 2003.

PRICE RANGE OF COMMON STOCK

The table below shows the range of high and low bid prices.  These prices represent actual transactions and do not include retail markups, markdowns or commissions.  

	High	Low
Year Ended December 31, 2019
03/31/2019	$31.34	$27.43
06/30/2019	$34.34	$30.78
09/30/2019	$34.80	$32.06
12/31/2019	$35.00	$33.00
Year Ended December 31, 2018
03/31/2018	$32.31	$30.53
06/30/2018	$30.72	$29.96
09/30/2018	$31.81	$29.87
12/31/2018	$31.40	$28.30

As of December 31, 2019, the Company had approximately 280 shareholders of record, not including shares held in street name, and 2,956,854 outstanding shares of common stock.

DIVIDENDS

The first quarterly dividend on the stock was paid to shareholders on March 15, 1991.  Dividends will be paid upon the determination of the Board of Directors that such payment is consistent with the long-term interest of the Company.  The factors affecting this determination include the Company’s current and projected earnings, operating results, financial condition, regulatory restrictions, future growth plans, and other relevant factors. The Company paid $0.08 per share cash dividends each quarter since the first quarter of fiscal 2009 through the last quarter in 2016. During 2017 and 2018, the Company paid $0.09 per share. Since 2019, the Company has paid $0.10 per share cash dividends each quarter.

The ability of the Company to pay dividends depends primarily on the ability of the Bank to pay dividends to the Company.  The Bank may not declare or pay a cash dividend on its stock or repurchase shares of its stock if the offset thereof would be to cause its regulatory capital to be reduced below the amount required to meet applicable regulatory capital requirements.  South Carolina banking regulations restrict the amount of dividends that the Bank can pay to the Company, and may require prior approval before declaration and payment of any excess dividend.  Unlike the Bank, there is no regulatory restriction on the payment of dividends by the Company; however, it is subject to the requirements of South Carolina law.  South Carolina law generally prohibits the Company from paying dividends if, after giving effect to a proposed dividend: (1) the Company would be unable to pay its debts as they become due in the normal course of business, or (2) the Company’s total assets would be less than its total liabilities plus the sum that would be needed to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the dividend. The Federal Reserve also has the authority to prohibit the Company from paying a dividend on its common stock.

CODE OF ETHICS

A copy of the Company’s Code of Ethics may be obtained at the Company’s Internet website at www.securityfederalbank.com.

70

EX-21

Exhibit 21

Subsidiaries of the Registrant

Parent	Subsidiary	State of Incorporation	Percentage of Ownership
Security Federal Corporation	Security Federal Bank	United States	100%
	Security Federal Statutory Trust	South Carolina	100%
Security Federal Bank	Security Federal Insurance, Inc.	South Carolina	100%
	Security Financial Services Corporation	South Carolina	100%
	Security Federal Investments, Inc.	South Carolina	100%

EX-23

Exhibit 23

Consent of Elliott Davis, LLC

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Security Federal Corporation and Subsidiaries

We consent to incorporation by reference in Registration Statement No. 333-31500, 333-102337, 333-136813, 333-155295, and 333-225297 on Form S-8 of Security Federal Corporation and Subsidiaries of our report dated March 20, 2020, relating to our audit of the consolidated financial statements, which appear in this Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K of Security Federal Corporation and Subsidiaries for the year ended December 31, 2019.

/s/ Elliott Davis, LLC

Columbia, South Carolina

March 20, 2020

EX-31.1

Exhibit 31.1

Certification Required

by Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934

I, J. Chris Verenes, certify that:

1. I have reviewed this annual report on Form 10-K of Security Federal Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 20, 2020

/s/J. Chris Verenes

J. Chris Verenes

Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification Required

by Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934

I, Jessica T. Cummins, certify that:

1. I have reviewed this annual report on Form 10-K of Security Federal Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 20, 2020

/s/Jessica T. Cummins

Jessica T. Cummins

Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

OF SECURITY FEDERAL CORPORATION

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with this Annual Report on Form 10-K, that:

1. the report fully complies with the requirements of Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, and

2. the information contained in the report fairly presents, in all material respects, the company's financial condition and results of operations.

/s/J. Chris Verenes	/s/Jessica T. Cummins
J. Chris Verenes	Jessica T. Cummins
Chief Executive Officer	Chief Financial Officer

Dated: March 20, 2020

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Related Party Transactions (Tables)

12 Months Ended

Dec. 31, 2019

Related Party Transactions [Abstract]

Loan transactions with directors, including their affiliates, and executive officers

A summary of loan transactions with directors, including their affiliates, and executive officers follows:

	Years Ended December 31,
	2019			2018			2017
Balance, Beginning of Period	$	32,961		$	94,292		$	141,972
New Loans	417,590			674			1,078
Less Loan Payments	(19,035		)	(62,005		)	(48,758		)
Balance, End of Period	$	431,516		$	32,961		$	94,292

XML

Carrying Amounts and Fair Value of Financial Instruments (Narrative) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Fair Value Disclosures [Abstract]
Investor funding period	30 days
Review period to request a new third party appraisal	24 months
Impaired financing receivable, recorded investment	$ 3,229,883	$ 9,364,125	$ 8,442,306
Impaired financing receivable, average recorded investment	6,394,612	$ 11,026,748	$ 10,793,223
Liabilities, fair value disclosure, recurring	0
Fair value disclosure, off-balance sheet risks, amount, liability	$ 85,300,000

XML

Advances From Federal Home Loan Bank (FHLB) And Other Borrowings (Tables)

12 Months Ended

Dec. 31, 2019

Banking and Thrift [Abstract]

Advances from the FHLB summarized by year of maturity and weighted average interest rate

Advances from the FHLB are summarized by year of maturity and weighted average interest rate at December 31, 2019 below.

	Amount		Weighted Rate
2020	$	13,138,000	1.88%
2021	25,000,000		1.97%
Total	$	38,138,000	1.94%

Callable FHLB advances

XML

Significant Accounting Policies (Change in Fiscal Year) (Details) - USD ($)	3 Months Ended								12 Months Ended
	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Accounting Policies [Abstract]
Interest Income	$ 9,134,000	$ 9,641,000	$ 9,128,000	$ 9,031,000	$ 8,763,000	$ 8,507,000	$ 8,029,000	$ 7,774,000	$ 36,934,111	$ 33,072,075	$ 29,786,905
Interest Expense	2,237,000	2,291,000	2,009,000	1,774,000	1,565,000	1,430,000	1,286,000	1,169,000	8,311,500	5,449,419	4,175,301
Net Interest Income	6,897,000	7,350,000	7,119,000	7,257,000	7,198,000	7,077,000	6,743,000	6,605,000	28,622,611	27,622,656	25,611,604
Provision For Loan Losses	200,000	75,000	0	100,000	775,000	150,000	0	0	375,000	925,000	300,000
Net Interest Income After Provision For Loan Losses	6,697,000	7,275,000	7,119,000	7,157,000	6,423,000	6,927,000	6,743,000	6,605,000	28,247,611	26,697,656	25,311,604
Non-Interest Income	2,000,000	2,408,000	2,492,000	2,196,000	1,811,000	2,070,000	1,744,000	2,044,000	9,097,143	7,669,146	7,344,283
General And Administrative Expenses	6,896,000	6,989,000	7,241,000	6,744,000	6,413,000	6,418,000	6,240,000	6,519,000	27,870,717	25,590,055	24,302,087
Income Before Income Taxes	1,801,000	2,694,000	2,370,000	2,609,000	1,821,000	2,579,000	2,247,000	2,130,000	9,474,037	8,776,747	8,353,800
Provision For Income Taxes	199,000	475,000	486,000	520,000	271,000	471,000	427,000	400,000	1,679,550	1,569,526	1,829,267
Net Income	$ 1,602,000	$ 2,219,000	$ 1,884,000	$ 2,089,000	$ 1,550,000	$ 2,108,000	$ 1,820,000	$ 1,730,000	7,794,487	7,207,221	$ 5,918,340
Net Income Available To Common Shareholders									$ 7,794,487	$ 7,207,221
Net Income Per Common Share (Basic)	$ 0.54	$ 0.75	$ 0.64	$ 0.71	$ 0.52	$ 0.71	$ 0.62	$ 0.59	$ 2.64	$ 2.44	$ 2.01
Net Income Per Common Share (Diluted)	$ 0.51	$ 0.71	$ 0.61	$ 0.67	$ 0.50	$ 0.68	$ 0.59	$ 0.56	2.50	2.32	1.91
Cash Dividend Per Share On Common Stock									$ 0.40	$ 0.36	$ 0.36

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Loans Receivable, Net (Schedule of non-accrual loans by category) (Details) - USD ($)		12 Months Ended
		Dec. 31, 2019	Dec. 31, 2018
Financing Receivable, Past Due [Line Items]
Financing Receivable, Recorded Investment, Nonaccrual Status, Amount		$ 3,436,406	$ 7,048,495
Financing Receivable, Recorded Investment, Nonaccrual Status, Percentage (1)	[1]	0.70%	1.60%
Financing Receivable, Recorded Investment, Nonaccrual Status, Amount, Increase (Decrease)		$ (3,612,089)
Financing Receivable, Recorded Investment, Nonaccrual Status, Percent, Increase (Decrease)		(51.20%)
Residential Real Estate
Financing Receivable, Past Due [Line Items]
Financing Receivable, Recorded Investment, Nonaccrual Status, Amount		$ 1,520,485	$ 2,084,870
Financing Receivable, Recorded Investment, Nonaccrual Status, Percentage (1)	[1]	0.30%	0.50%
Financing Receivable, Recorded Investment, Nonaccrual Status, Amount, Increase (Decrease)		$ (564,385)
Financing Receivable, Recorded Investment, Nonaccrual Status, Percent, Increase (Decrease)		(27.10%)
Commercial Business
Financing Receivable, Past Due [Line Items]
Financing Receivable, Recorded Investment, Nonaccrual Status, Amount		$ 122,605	$ 124,458
Financing Receivable, Recorded Investment, Nonaccrual Status, Percentage (1)	[1]	0.00%	0.00%
Financing Receivable, Recorded Investment, Nonaccrual Status, Amount, Increase (Decrease)		$ (1,853)
Financing Receivable, Recorded Investment, Nonaccrual Status, Percent, Increase (Decrease)		(1.50%)
Commercial Real Estate
Financing Receivable, Past Due [Line Items]
Financing Receivable, Recorded Investment, Nonaccrual Status, Amount		$ 1,474,036	$ 3,564,494
Financing Receivable, Recorded Investment, Nonaccrual Status, Percentage (1)	[1]	0.30%	0.80%
Financing Receivable, Recorded Investment, Nonaccrual Status, Amount, Increase (Decrease)		$ (2,090,458)
Financing Receivable, Recorded Investment, Nonaccrual Status, Percent, Increase (Decrease)		(58.60%)
Consumer
Financing Receivable, Past Due [Line Items]
Financing Receivable, Recorded Investment, Nonaccrual Status, Amount		$ 319,280	$ 1,274,673
Financing Receivable, Recorded Investment, Nonaccrual Status, Percentage (1)	[1]	0.10%	0.30%
Financing Receivable, Recorded Investment, Nonaccrual Status, Amount, Increase (Decrease)		$ (955,393)
Financing Receivable, Recorded Investment, Nonaccrual Status, Percent, Increase (Decrease)		(75.00%)

[1] PERCENT OF GROSS LOANS RECEIVABLE HELD FOR INVESTMENT, NET OF DEFERRED FEES AND LOANS IN PROCESS.

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Stock Issuance and Exchange (Details) - USD ($)			3 Months Ended
	Jul. 31, 2013	Sep. 29, 2010	Mar. 31, 2019	Dec. 31, 2019	Dec. 31, 2018	Feb. 12, 2015
Class of Stock [Line Items]
Shares Issued, Price Per Share						$ 17.22
Stock Issuance, Value		$ 8,000,000
Common Stock Par Value Per Share				$ 0.01	$ 0.01
Payments for Repurchase of Warrants	$ 50,000
Adjustments to Additional Paid in Capital, Warrant Repurchased	$ 350,000
Series A Preferred Stock [Member]
Class of Stock [Line Items]
Preferred Stock, Liquidation Preference, Value		18,000,000
Series B Preferred Stock [Member]
Class of Stock [Line Items]
Preferred Stock, Liquidation Preference, Value		18,000,000
Proceeds from Issuance of Preferred Stock and Preference Stock		4,000,000
Stock Issuance, Value		$ 4,000,000
Management [Member] | Common Stock | Private Placement [Member]
Class of Stock [Line Items]
Stock Issued During Period, Shares, New Issues		400,000
Shares Issued, Price Per Share		$ 10.00
Proceeds from Issuance of Private Placement		$ 4,000,000.0
Prior to February 15, 2014 [Member] | Series A Preferred Stock [Member]
Class of Stock [Line Items]
Preferred Stock, Dividend Rate, Percentage			5.00%
After February 15, 2014 [Member] | Series A Preferred Stock [Member]
Class of Stock [Line Items]
Preferred Stock, Dividend Rate, Percentage			9.00%
During First Eight Years from Date of Issuance [Member] | Series B Preferred Stock [Member]
Class of Stock [Line Items]
Preferred Stock, Dividend Rate, Percentage			2.00%
After First Eight Years from Date of Issuance [Member] | Series B Preferred Stock [Member]
Class of Stock [Line Items]
Preferred Stock, Dividend Rate, Percentage			9.00%

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Security Federal Corporation Condensed Financial Statements (Parent Company Only) (Condensed Statements of Cash Flow Data) (Details) - USD ($)	3 Months Ended								12 Months Ended
	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Operating Activities:
Net Income	$ 1,602,000	$ 2,219,000	$ 1,884,000	$ 2,089,000	$ 1,550,000	$ 2,108,000	$ 1,820,000	$ 1,730,000	$ 7,794,487	$ 7,207,221	$ 5,918,340
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:
Stock Compensation Expense										0	25,358
Net Cash Provided By Operating Activities									12,266,241	14,500,346	13,567,409
Investing Activities:
Increase in Loans Receivable									(22,007,081)	(42,300,871)	(33,002,340)
Net Cash Provided By Investing Activities									(47,903,154)	(52,066,796)	(60,475,134)
Financing Activities:
Repayments of Convertible Debt									0	0	(20,000)
Proceeds from Stock Options Exercised									0	10,310	176,175
Dividends Paid to Shareholders-Common Stock									(1,123,219)	(1,063,626)	(1,060,729)
Net Cash Provided (Used) By Financing Activities									35,467,314	39,952,736	47,852,800
Net Increase (Decrease) in Cash and Cash Equivalents									(169,599)	2,386,286	945,075
Cash and Cash Equivalents at Beginning of Year				12,705,910				10,319,624	12,705,910	10,319,624	9,374,549
Cash And Cash Equivalents At End Of Year	12,536,311				12,705,910				12,536,311	12,705,910	10,319,624
Parent Company [Member]
Operating Activities:
Net Income									7,794,487	7,207,221	5,918,340
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:
Equity in Earnings of Security Federal Bank									(2,092,130)	(1,523,443)	(136,682)
Deferred Compensation Arrangement with Individual, Allocated Share-based Compensation Expense									0
(Increase) Decrease In Accounts Receivable And Other Assets									(372,398)	13,666	3,117
Increase (Decrease) in Accounts Payable									169,218	1,635	(33,612)
Net Cash Provided By Operating Activities									5,499,177	5,699,079	5,776,521
Proceeds from Sale of Other Investments									0
Investing Activities:
Increase in Loans Receivable										0	95,438
Net Cash Provided By Investing Activities									(10,000,000)	0	95,438
Financing Activities:
Repayments of Notes Payable									(2,362,500)	(6,137,500)
Repayments of Convertible Debt									0
Proceeds from Stock Options Exercised									0
Proceeds from Notes Payable									30,000,000	0
Dividends Paid to Shareholders-Common Stock									(1,123,219)	(1,063,626)	(1,060,729)
Net Cash Provided (Used) By Financing Activities									26,567,149	(7,178,620)	(5,404,554)
Net Increase (Decrease) in Cash and Cash Equivalents									22,066,326	(1,479,541)	467,405
Cash and Cash Equivalents at Beginning of Year				$ 3,619,418				$ 5,098,959	3,619,418	5,098,959	4,631,554
Cash And Cash Equivalents At End Of Year	$ 25,685,744				$ 3,619,418				$ 25,685,744	$ 3,619,418	$ 5,098,959

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Loans Receivable, Net (Narrative) (Details)	12 Months Ended
	Dec. 31, 2019 USD ($) payments loan	Dec. 31, 2018 USD ($) loan	Dec. 31, 2017 USD ($) loan
Receivables [Abstract]
Review period to request a new third party appraisal	24 months
Impaired financing receivable, average recorded investment | $	$ 6,394,612	$ 11,026,748	$ 10,793,223
TDRs included in impaired loans | $	$ 825,000	$ 1,369,000.000
Number of Contracts - Troubled Debt Restructurings	5	7
Number of Contracts - loans that had been previously restructured that were in default | loan	0	1	2
Number of Contracts - Troubled Debt Restructurings That Subsequently Defaulted During the Period | loan		0
Nonperforming Loans, Minimum Consecutive Payments | payments	6

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Consolidated Balance Sheets (Parenthetical) - USD ($)	Dec. 31, 2019	Dec. 31, 2018
ASSETS:
Amortized Cost of Investment And Mortgage-Backed Securities Available For Sale	$ 408,695,280	$ 386,141,513
Fair Value of Investment And Mortgage-Backed Securities Held To Maturity	19,805,841	23,249,400
Allowance For Loan Losses	$ 9,225,574	$ 9,171,717
Shareholders' Equity:
Serial Preferred Stock Par Value Per Share	$ 0.01	$ 0.01
Serial Preferred Stock Shares Authorized	200,000	200,000
Serial Preferred Stock Shares Issued	22,000	22,000
Serial Preferred Stock Shares Outstanding	22,000	22,000
Common Stock Par Value Per Share	$ 0.01	$ 0.01
Common Stock Shares Authorized	5,000,000	5,000,000
Common Stock Shares Issued	3,157,787	3,154,829
Common Stock Shares Outstanding	2,956,854	2,953,896
Treasury Stock Shares Held	200,933	200,933

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Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income - USD ($)	Total	Common Stock	Additional Paid-In Capital	Treasury Stock	Accumulated Other Comprehensive Income	Retained Earnings
Nonvested Restricted Stock	$ 0
Balance at at Dec. 31, 2018	80,518,433	$ 31,548	$ 12,235,341	$ (4,330,712)	$ (27,909)	$ 72,610,165
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income	7,794,487
Other Comprehensive Loss, Net of Tax:	4,495,436
Cash Dividends On Common Stock	(1,123,219)
Balance at at Dec. 31, 2019	91,758,005	$ 31,578	$ 12,308,179	$ (4,330,712)	$ 4,467,527	$ 79,281,433
Nonvested Restricted Stock	$ 0

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Stock Issuance and Exchange

12 Months Ended

Dec. 31, 2019

Equity [Abstract]

Stock Issuance and Exchange

Stock Issuance and Exchange

The Company was approved to participate in the Treasury’s Community Development Capital Initiative (“CDCI”) program.  The CDCI was established by the Treasury under the Troubled Asset Relief Program to invest lower cost capital in Community Development Financial Institutions (“CDFI”), supporting their efforts to provide credit to small businesses and other qualified customers in connection with the downturn in the economy.

In connection with its participation in the CDCI, on September 29, 2010, the Company (i) exchanged all $18.0 million (aggregate liquidation preference amount) of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A (“Series A Preferred Stock”), previously sold to the Treasury pursuant to the Capital Purchase Program ("CPP"), for $18.0 million (aggregate liquidation preference amount) of the Company’s newly designated Fixed Rate Cumulative Perpetual Preferred Stock, Series B (the “Series B Preferred Stock”), (ii) sold 400,000 shares of its common stock at $10.00 per share in a private offering to board members of the Company for aggregate gross proceeds of $4.0 million; and (iii) received an additional $4.0 million investment from the Treasury through the sale of an additional $4.0 million (aggregate liquidation preference amount) of its Series B Preferred Stock to the Treasury.  The additional $4.0 million investment from the Treasury was contingent upon the Company’s completion of the $4.0 million separate stock offering for the same amount, as required by the Company’s primary regulator at the time, the Office of Thrift Supervision.  

In conjunction with its participation in the CPP in 2008, the Company sold a warrant to the Treasury to purchase 137,966 shares of the Company’s common stock. The warrant had a 10-year term and was immediately exercisable upon issuance. The warrant remained outstanding after the exchange until its repurchase by the Company in 2013 at a fair market value of $50,000. As a result of the transaction, the warrant was canceled, which reduced warrants outstanding by $400,000 and increased additional paid in capital by $350,000.

Participation in the CDCI provided the Company with $8.0 million in additional capital and lowered the cost of the capital received from the Treasury.  The annual dividend rate on the Series A Preferred Stock was 5% and was scheduled to increase to 9% on February 15, 2014.  The annual dividend rate on the Series B Preferred Stock was 2% for the first eight years from the date of issuance, or until September 19, 2018, and 9% thereafter if still then outstanding.  The annual dividend rate on the Series B Preferred Stock also could be increased if the Company and the Bank did not maintain eligibility as a CDFI under Treasury regulations.

On October 31, 2016, the Company repurchased all 22,000 shares of its Series B Preferred Stock from the Treasury for a repurchase amount of $21.3 million plus accrued interest of $93,000 for a total payment amount of $21.4 million. The repurchase was partially funded through cash on hand and a $14.0 million term loan from another financial institution. As a result of this transaction, the Company received a one-time preferred stock redemption discount of $660,000, which was recognized in net income available to common shareholders during the year ended December 31, 2016.

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Senior Convertible Debentures

12 Months Ended

Dec. 31, 2019

Debt Disclosure [Abstract]

Senior Convertible Debentures

Senior Convertible Debentures

Effective December 1, 2009, the Company issued $6.1 million in 8.0% convertible senior debentures with a maturity date of December 1, 2029. Since December 1, 2019, the Company had the right to redeem the debentures, in whole or in part, at the option of the Company, at a price equal to 100% of the principal amount of the debentures to be purchased plus any accrued and unpaid interest to, but excluding, the date of redemption.

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Employee Benefit Plans

12 Months Ended

Dec. 31, 2019

Postemployment Benefits [Abstract]

Employee Benefit Plans

Employee Benefit Plans

The Company is participating in a multiple employer defined contribution employee benefit plan covering substantially all employees with six months or more of service.  The Company matches a portion of the employees’ contributions and the plan has a discretionary profit sharing provision.  Total employer contributions were $273,000, $263,000 and $232,000 for the years ended December 31, 2019, 2018 and 2017, respectively.

The Company has an Employee Stock Purchase Plan (“ESPP”).  The ESPP allows employees of the Company to purchase stock quarterly through a payroll deduction at a discount calculated as 15% of the market value with a floor equal to the Company’s book value.  The ESPP, which was approved by stockholders in April 2018, became effective July 1, 2018. Participation in the ESPP is voluntary.  Employees are limited to investing $25,000 or 5% of their annual salary, whichever is lower, during the year.  At December 31, 2019, there were 29 employees participating.

The Company implemented an Incentive Compensation Plan (the "Plan") during the year ended December 31, 2014. Incentive awards are based on the financial and operating performance of the Company as well as other participant specific objectives. The Plan allows employees of the Company to earn up to 7.5 days of their annual salary for successfully completing specific goals established by the participants and their respective supervisors plus an additional 2.5 days of their annual salary if the Company meets an annual predetermined net operating income amount determined by the Board of Directors. The Company also implemented an Incentive Compensation Plan for executive level officers (the "Executive Plan"). Under this plan incentive awards are based on contributions to performance as measured by critical operating and financial ratios, and other participant specific objectives. The Company has to meet the annual predetermined net operating income amount determined by the Board of Directors for any incentive awards to be paid under the Executive Plan. If the Company does not meet the required net income amount, no incentives are paid regardless of the executive's performance on individual objectives or entity wide objectives.

In 2016, the Company implemented a Quarterly Branch Incentive Compensation Plan, and all branch employees were moved from the Plan to the Branch Incentive Plan. This plan is for retail branch employees only and pays incentive on a quarterly basis based on specific performance goals established for each branch location. Participation in all three plans is voluntary. During the years ended December 31, 2019 and 2018, the Company incurred expenses of $100,000 and $240,000, respectively, related to these incentive plans.

Certain officers of the Company participate in a supplemental retirement plan.  These benefits are not qualified under the Internal Revenue Code and they are not funded.  During the years ended December 31, 2019, 2018 and 2017, the Company incurred expenses of $496,000, $396,000, and $318,000, respectively, for this plan.

Certain officers and directors of the Company participate in incentive and non-qualified stock option plans. In 2008, the 2008 Equity Incentive Plan (the "2008 Plan") was approved by stockholders and implemented by the Company. The 2008 Plan provided for the grant of non-qualified and incentive stock options, stock appreciation rights (“SARS”), and restricted stock awards. Under the 2008 Plan, 50,000 shares of common stock were reserved for the issuance of stock options and SARS in addition to 50,000 shares subject to restricted stock awards. Options are granted at exercise prices not less than the fair value of the Company’s common stock on the date of the grant.  The 2008 Plan expired during the year ended December 31, 2018. Since that date, there are no shares available for issuance under this plan for stock options or SARS. There were no stock options granted by the Company during the years ended December 31, 2019, 2018 and 2017.

At December 31, 2019, the Company had no options outstanding.

(17)Employee Benefit Plans, Continued

The following is a summary of the activity under the Company’s incentive and non-qualified stock option plans for the years ended December 31, 2018 and 2017:

	Years Ended December 31,
	2018			2017
	Shares	Weighted Avg. Exercise Price		Shares	Weighted Avg. Exercise Price
Balance, Beginning of Period	4,500	$	22.91	21,500	$	23.57
Options Exercised	450	22.91		7,500	23.49
Options Forfeited	4,050	22.91		9,500	23.95
Balance, End of Period	—	$	—	4,500	$	22.91
Options Exercisable	—	$	—	4,500	$	22.91
Weighted-Average Remaining Life of Exercisable Options	—			0.4 years
Options Available for Grant	—			50,000

During the years ended December 31, 2019 and 2018, no options vested. During the year ended December 31, 2017, 3,300 options with a weighted average exercise price of $23.33 vested. The aggregate intrinsic value of the stock options outstanding and exercisable was $0 at December 31, 2019, 2018 and 2017 and there was no compensation expense related to stock options during those years.  As of December 31, 2019, there was no unrecognized compensation cost related to non-vested stock options.

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Loans Receivable, Net

12 Months Ended

Dec. 31, 2019

Receivables [Abstract]

Loans Receivable, Net

Loans Receivable, Net

Loans receivable, net, at December 31, 2019 and 2018 are summarized below.

	December 31,
	2019				2018
	Balance		% of Total Gross Loans		Balance		% of Total Gross Loans
Residential Real Estate Loans	$	86,404,304	18.4	%	$	83,965,416	18.9	%
Consumer Loans	56,331,013		12.0	%	56,907,555		12.8	%
Commercial Business Loans	22,234,189		4.8	%	28,086,686		6.3	%
Commercial Real Estate Loans	303,550,905		64.8	%	275,960,438		62.0	%
Total Loans Held For Investment	468,520,411		100.0	%	444,920,095		100.0	%
Loans Held For Sale	3,990,606				1,781,985
Total Loans Receivable, Gross	472,511,017				446,702,080
Less:
Allowance For Loan Losses	9,225,574				9,171,717
Loans in Process	9,957,140				7,225,271
Deferred Loan Fees	469,568				251,575
	19,652,282				16,648,563
Total Loans Receivable, Net	$	452,858,735			$	430,053,517

The Company uses a risk based approach based on the following credit quality measures when analyzing the loan portfolio: pass, caution, special mention, and substandard. These indicators are used to rate the credit quality of loans for the purposes of determining the Company’s allowance for loan losses. Pass loans are loans that are performing and are deemed adequately protected by the net worth of the borrower or the underlying collateral value. These loans are considered to have the least amount of risk in terms of determining the allowance for loan losses. Loans that are graded as substandard are considered to have the most risk. These loans typically have an identified weakness or weaknesses and are inadequately protected by the net worth of the borrower or collateral value. All loans 90 days or more past due are automatically classified in this category. The caution and special mention categories fall in between the pass and substandard grades and consist of loans that do not currently expose the Company to sufficient risk to warrant adverse classification but possess weaknesses.

The following tables summarize the loan grades used by the Company to measure the credit quality of gross loans receivable, excluding those held for sale, by loan segment at December 31, 2019 and 2018.

December 31, 2019	Pass		Caution		Special Mention		Substandard		Total Loans
Residential Real Estate	$	76,674,539	$	4,612,182	$	1,155,802	$	3,961,781	$	86,404,304
Consumer	44,294,400		9,617,301		624,248		1,795,064		56,331,013
Commercial Business	16,140,592		5,486,393		301,462		305,742		22,234,189
Commercial Real Estate	230,810,756		56,025,352		14,285,015		2,429,782		303,550,905
Total	$	367,920,287	$	75,741,228	$	16,366,527	$	8,492,369	$	468,520,411

December 31, 2018	Pass		Caution		Special Mention		Substandard		Total Loans
Residential Real Estate	$	75,558,544	$	3,369,776	$	958,354	$	4,078,742	$	83,965,416
Consumer	46,948,251		6,899,912		567,682		2,491,710		56,907,555
Commercial Business	22,670,318		4,708,036		339,533		368,799		28,086,686
Commercial Real Estate	204,197,354		45,653,796		18,492,785		7,616,503		275,960,438
Total	$	349,374,467	$	60,631,520	$	20,358,354	$	14,555,754	$	444,920,095

(4)          Loans Receivable, Net, Continued

The following tables present an age analysis of past due balances by category at December 31, 2019 and 2018.

	December 31, 2019
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable
Residential Real Estate	$	—	$	355,290	$	144,209	$	499,499	$	85,904,805	$	86,404,304
Consumer	422,443		217,542		81,736		721,721		55,609,292		56,331,013
Commercial Business	147,959		76,515		20,316		244,790		21,989,399		22,234,189
Commercial Real Estate	3,849,424		—		1,352,716		5,202,140		298,348,765		303,550,905
Total	$	4,419,826	$	649,347	$	1,598,977	$	6,668,150	$	461,852,261	$	468,520,411

	December 31, 2018
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable
Residential Real Estate	$	—	$	332,000	$	497,713	$	829,713	$	83,135,703	$	83,965,416
Consumer	555,798		247,894		1,120,462		1,924,154		54,983,401		56,907,555
Commercial Business	205,613		106,163		18,648		330,424		27,756,262		28,086,686
Commercial Real Estate	1,556,863		424,103		1,634,770		3,615,736		272,344,702		275,960,438
Total	$	2,318,274	$	1,110,160	$	3,271,593	$	6,700,027	$	438,220,068	$	444,920,095

At December 31, 2019 and 2018, the Company did not have any loans that were 90 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 non-accrual loans by category at December 31, 2019 compared to 2018.

	December 31, 2019				December 31, 2018				Decrease
	Amount		Percent (1)		Amount		Percent (1)		$			%
Non-accrual Loans:
Residential Real Estate	$	1,520,485	0.3	%	$	2,084,870	0.5	%	$	(564,385	)	(27.1	)%
Consumer	319,280		0.1		1,274,673		0.3		(955,393		)	(75.0	)
Commercial Business	122,605		—		124,458		—		(1,853		)	(1.5	)
Commercial Real Estate	1,474,036		0.3		3,564,494		0.8		(2,090,458		)	(58.6	)
Total Non-accrual Loans	$	3,436,406	0.7	%	$	7,048,495	1.6	%	$	(3,612,089	)	(51.2	)%

^{(1) PERCENT OF GROSS LOANS RECEIVABLE HELD FOR INVESTMENT, NET OF DEFERRED FEES AND LOANS IN PROCESS.} 

(4)          Loans Receivable, Net, Continued

The following tables show the allowance for loan losses by loan category for the years ended December 31, 2019, 2018 and 2017.

	For the Year Ended December 31, 2019
	Residential Real Estate			Consumer			Commercial Business			Commercial Real Estate			Total
Beginning Balance	$	1,191,443		$	1,203,593		$	923,600		$	5,853,081		$	9,171,717
Provision	227,624			324,394			(392,817		)	215,799			375,000
Charge-Offs	(34,599		)	(432,003		)	(1,132		)	(517,583		)	(985,317		)
Recoveries	6,126			114,865			15,113			528,070			664,174
Ending Balance	$	1,390,594		$	1,210,849		$	544,764		$	6,079,367		$	9,225,574

	For the Year Ended December 31, 2018
	Residential Real Estate			Consumer			Commercial Business			Commercial Real Estate			Total
Beginning Balance	$	1,233,843		$	1,144,815		$	1,011,227		$	4,831,733		$	8,221,618
Provision	2,411			173,235			(55,109		)	804,463			925,000
Charge-Offs	(46,419		)	(224,954		)	(32,518		)	(351,894		)	(655,785		)
Recoveries	1,608			110,497			—			568,779			680,884
Ending Balance	$	1,191,443		$	1,203,593		$	923,600		$	5,853,081		$	9,171,717

	For the Year Ended December 31, 2017
	Residential Real Estate			Consumer			Commercial Business			Commercial Real Estate			Total
Beginning Balance	$	1,360,346		$	996,620		$	882,999		$	5,116,266		$	8,356,231
Provision	82,909			257,180			261,599			(301,688		)	300,000
Charge-Offs	(211,780		)	(184,161		)	(133,371		)	(301,260		)	(830,572		)
Recoveries	2,368			75,176			—			318,415			395,959
Ending Balance	$	1,233,843		$	1,144,815		$	1,011,227		$	4,831,733		$	8,221,618

The following tables summarize the impaired loans evaluated individually and collectively for impairment within the allowance for loan losses and loans receivable balances at December 31, 2019 and 2018.

	Allowance For Loan Losses						Loans Receivable
December 31, 2019	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total		Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	—	$	1,390,594	$	1,390,594	1,086,433		$	85,317,871	$	86,404,304
Consumer	—		1,210,849		1,210,849		184,402		56,146,611		56,331,013
Commercial Business	—		544,764		544,764		64,406		22,169,783		22,234,189
Commercial Real Estate	—		6,079,367		6,079,367		1,894,642		301,656,263		303,550,905
Total	$	—	$	9,225,574	$	9,225,574	$	3,229,883	$	465,290,528	$	468,520,411

(4)          Loans Receivable, Net, Continued

Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment and records the loan at fair value. Fair value is estimated using one of the following methods: fair value of the collateral less estimated costs to sale, discounted cash flows, or market value of the loan based on similar debt. The fair value of the collateral less estimated costs to sell is the most frequently used method. Typically, the Company reviews the most recent appraisal and, if it is over 24 months old, will request a new third party appraisal. Depending on the particular circumstances surrounding the loan, including the location of the collateral, the date of the most recent appraisal and the value of the collateral relative to the recorded investment in the loan, management may order an independent appraisal immediately or, in some instances, may elect to perform an internal analysis. The average balance of total impaired loans was $6.4 million for year ended December 31, 2019 compared to $11.0 million for the year ended December 31, 2018.

The following tables present information related to impaired loans by loan category as of and for the years ended December 31, 2019, 2018 and 2017.

	December 31, 2019
Impaired Loans	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	1,086,433	$	1,086,433	$	—	$	1,322,609	$	—
Consumer	184,402		192,702		—		1,106,795		—
Commercial Business	64,406		959,406		—		71,422		—
Commercial Real Estate	1,894,642		2,066,862		—		3,893,786		54,372
Total
Residential Real Estate	1,086,433		1,086,433		—		1,322,609		—
Consumer	184,402		192,702		—		1,106,795		—
Commercial Business	64,406		959,406		—		71,422		—
Commercial Real Estate	1,894,642		2,066,862		—		3,893,786		54,372
Total	$	3,229,883	$	4,305,403	$	—	$	6,394,612	$	54,372

(4)       Loans Receivable, Net, Continued

	December 31, 2018
Impaired Loans	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	1,700,861	$	1,700,861	$	—	$	1,743,906	$	31,853
Consumer	986,380		994,680		—		502,479		—
Commercial Business	77,206		972,206		—		85,020		—
Commercial Real Estate	5,084,458		6,116,761		—		8,052,817		212,186
With an Allowance Recorded:
Consumer	73,662		73,662		73,662		6,139		—
Commercial Real Estate	1,441,558		1,441,558		665,000		636,387		84,881
Total
Residential Real Estate	1,700,861		1,700,861		—		1,743,906		31,853
Consumer	1,060,042		1,068,342		73,662		508,618		—
Commercial Business	77,206		972,206		—		85,020		—
Commercial Real Estate	6,526,016		7,558,319		665,000		8,689,204		297,067
Total	$	9,364,125	$	11,299,728	$	738,662	$	11,026,748	$	328,920

	December 31, 2017
Impaired Loans	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	1,883,741	$	2,333,741	$	—	$	2,889,065	$	24,273
Consumer	181,617		209,427		—		279,183		—
Commercial Business	100,401		950,401		—		141,940		—
Commercial Real Estate	6,276,547		7,583,847		—		7,483,035		189,373
Total
Residential Real Estate	1,883,741		2,333,741		—		2,889,065		24,273
Consumer	181,617		209,427		—		279,183		—
Commercial Business	100,401		950,401		—		141,940		—
Commercial Real Estate	6,276,547		7,583,847		—		7,483,035		189,373
Total	$	8,442,306	$	11,077,416	$	—	$	10,793,223	$	213,646

(4)       Loans Receivable, Net, Continued

In the course of resolving delinquent loans, the Bank may choose to restructure the contractual terms of certain loans. A troubled debt restructuring ("TDR") is a restructuring in which the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to a borrower that it would not otherwise consider (FASB ASC Topic 310-40).  The concessions granted on TDRs generally include terms to reduce the interest rate, extend the term of the debt obligation, or modify the payment structure on the debt obligation. The Bank grants such concessions to reassess the borrower’s financial status and develop a plan for repayment.  

At the date of modification, TDRs are initially classified as nonaccrual TDRs. They are returned to accruing status when there is economic substance to the restructuring, there is documented credit evaluation of the borrower's financial condition, the remaining balance is reasonably assured of repayment in accordance with its modified terms, and the borrower has demonstrated sustained repayment performance in accordance with the modified terms for a reasonable period of time (generally a minimum of six months).

The Bank had five TDRs with a total balance of $825,000 included in impaired loans at December 31, 2019 compared to seven TDRs totaling $1.4 million at December 31, 2018. There were no TDRs restructured during the years ended December 31, 2019, 2018 and 2017. At December 31, 2019, there were no TDRs in default. At December 31, 2018 and 2017, one previously restructured loan with a balance of $374,000 and two previously restructured loans with a total balance of $610,000, respectively, were in default, none of which had been restructured during the same period. The Bank considers any loan 30 days or more past due to be in default.

Our policy with respect to accrual of interest on loans restructured as a TDR follows relevant supervisory guidance.  That is, if a borrower has demonstrated performance under the previous loan terms and shows capacity to perform under the restructured loan terms, continued accrual of interest at the restructured interest rate is probable.  If a borrower was materially delinquent on payments prior to the restructuring but shows capacity to meet the restructured loan terms, the loan will likely continue as nonaccrual going forward.  Lastly, if the borrower does not perform under the restructured terms, the loan is placed on nonaccrual status.

We will continue to closely monitor these loans and will cease accruing interest on them if management believes that the borrowers may not continue performing based on the restructured note terms.  If, after previously being classified as a TDR, a loan is restructured a second time, then that loan is automatically placed on nonaccrual status.  Our policy with respect to nonperforming loans requires the borrower to become current and then make a minimum of six consecutive payments in accordance with the loan terms before that loan can be placed back on accrual status.  Further, the borrower must show capacity to continue performing into the future prior to restoration of accrual status.

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Repossessed Assets Acquired In Settlement Of Loans

12 Months Ended

Dec. 31, 2019

Other Real Estate, Foreclosed Assets, and Repossessed Assets [Abstract]

Repossessed Assets Acquired in Settlement of Loans

Other Real Estate Owned

The Bank owned $678,000 and $722,000 in OREO at December 31, 2019 and 2018, respectively. Transactions in OREO for the years ended December 31, 2019, 2018 and 2017 are summarized below.

	2019			2018			2017
Balance, beginning of year	$	722,442		$	1,115,671		$	2,721,214
Additions	832,800			435,550			580,748
Sales	(855,502		)	(772,779		)	(2,028,170		)
Write-downs	(22,000		)	(56,000		)	(158,121		)
Balance, end of year	$	677,740		$	722,442		$	1,115,671

There were no mortgage loans collateralized by residential real estate property in the process of foreclosure at December 31, 2019 compared to $320,000 at December 31, 2018.

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Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Reconciliation of net income to net income available to common shareholders

The following tables show the effect of dilutive options on the Company’s net income per common share

The following tables show the effect of dilutive options on the Company’s net income per common share.

	Year Ended December 31, 2019
	Income		Shares	Per Share
Basic EPS	$	7,794,487	2,955,737	$	2.64
Effect of Dilutive Securities:
Senior Convertible Debentures	362,640		302,200	(0.14		)
Diluted EPS	$	8,157,127	3,257,937	$	2.50

(1) Significant Accounting Policies, Continued

	Year Ended December 31, 2018						Year Ended December 31, 2017
	Income		Shares	Per Share			Income		Shares	Per Share
Basic EPS	$	7,207,221	2,953,446	$	2.44		$	5,918,340	2,945,918	$	2.01
Effect of Dilutive Securities:
Stock Options	—		0	—			—		951	—
Senior Convertible Debentures	362,640		303,200	(0.12		)	301,339		303,200	(0.10		)
Diluted EPS	$	7,569,861	3,256,646	$	2.32		$	6,219,679	3,250,069	$	1.91

There were no stock options outstanding as of December 31, 2019 and 2018; and therefore, no dilutive options in the calculation of diluted EPS for those periods. The average market price used in calculating the assumed number of dilutive shares issued for the year ended December 31, 2017 was $29.05.

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Carrying Amounts and Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

Carrying Amounts and Fair Value of Financial Instruments

Carrying Amounts and 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 Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1	Valuation is based upon quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as U.S. Treasuries and money market funds.
Level 2	Valuation is based upon quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments, mortgage-backed securities, municipal bonds, corporate debt securities and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes certain derivative contracts.
Level 3	Valuation is generated from model-based techniques that use at least one significant assumption based on unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

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

Investment Securities Available for Sale

Investment securities available for sale are recorded at fair value on a recurring basis. At December 31, 2019, the Company’s investment portfolio was comprised of student loan pools, government and agency bonds, mortgage-backed securities issued by government agencies or GSEs, private label CMO mortgage-backed securities and municipal securities. Fair value measurement is based upon prices obtained from third party pricing services that use independent pricing models which rely on a variety of factors including reported trades, broker/dealer quotes, benchmark yields, economic and industry events and other relevant market information. As such, these securities are classified as Level 2.

Mortgage Loans Held for Sale

The Company originates fixed rate residential loans on a servicing released basis in the secondary market. Loans closed but not yet settled with institutional 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 of these loans have commitments to be purchased by investors and the majority of these loans were locked in by price with the investors on the same day or shortly thereafter that the loan was locked in with the Company’s customers.  Therefore, these loans present very little market risk for the Company.

The Company usually delivers to, and receives funding from, the investor within 30 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 is not obligated to deliver a loan or pay a penalty if a loan is not 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 Level 2.

(22)Carrying Amounts and Fair Value of Financial Instruments, Continued

Impaired Loans

The Company does not record loans held for investment at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established as necessary. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment.

Fair value is estimated using one of the following methods: fair value of the collateral less estimated costs to sell, discounted cash flows, or market value of the loan based on similar debt. The fair value of the collateral less estimated costs to sell is the most frequently used method. Typically, the Company reviews the most recent appraisal and if it is over 24 months old will request a new third party appraisal. Depending on the particular circumstances surrounding the loan, including the location of the collateral, the date of the most recent appraisal and the value of the collateral relative to the recorded investment in the loan, management may order an independent appraisal immediately or, in some instances, may elect to perform an internal analysis. Specifically as an example, in situations where the collateral on a nonperforming commercial real estate loan is out of the Company’s primary market area, management would typically order an independent appraisal immediately, at the earlier of the date the loan becomes nonperforming or immediately following the determination that the loan is impaired. However, as a second example, on a nonperforming commercial real estate loan where management is familiar with the property and surrounding areas and where the original appraisal value far exceeds the recorded investment in the loan, management may perform an internal analysis whereby the previous appraisal value would be reviewed and adjusted for current conditions including recent sales of similar properties in the area and any other relevant economic trends. These valuations are reviewed at a minimum on a quarterly basis.

Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At December 31, 2019, most of the total impaired loans were evaluated based on the fair value of the collateral. Impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. The Company records impaired loans as nonrecurring Level 3. As of December 31, 2019 and 2018, the recorded investment in impaired loans was $3.2 million and $9.4 million, respectively. The average recorded investment in impaired loans was $6.4 million and $11.0 million for the years ended December 31, 2019 and 2018, respectively.

Foreclosed Assets

Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, they are carried at the lower of carrying value or fair value. 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 all foreclosed assets as nonrecurring level 3.

The tables below present the balances of assets measured at fair value on a recurring basis at December 31, 2019 and 2018:

	December 31, 2019						December 31, 2018
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Student Loan Pools	$	—	$	40,231,830	$	—	$	—	$	12,885,501	$	—
SBA Bonds	—		111,893,099		—		—		125,446,531		—
Tax Exempt Municipal Bonds	—		47,241,494		—		—		61,330,369		—
Taxable Municipal Bonds	—		14,840,410		—		—		1,977,885		—
Mortgage-Backed Securities	—		200,438,007		—		—		184,460,551		—
Total	$	—	$	414,644,840	$	—	$	—	$	386,100,837	$	—

There were no liabilities measured at fair value on a recurring basis as of December 31, 2019 and 2018.

(22)Carrying Amounts and Fair Value of Financial Instruments, Continued

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 table below presents assets and liabilities measured at fair value on a nonrecurring basis as of December 31, 2019 and 2018, aggregated by the level in the fair value hierarchy within which those measurements fall. 

	December 31, 2019
Assets	Level 1		Level 2		Level 3		Total
Mortgage Loans Held For Sale	$	—	$	3,990,606	$	—	$	3,990,606
Collateral Dependent Impaired Loans (1)	—		—		3,222,746		3,222,746
Foreclosed Assets	—		—		677,740		677,740
Total	$	—	$	3,990,606	$	3,900,486	$	7,891,092
	December 31, 2018
Assets	Level 1		Level 2		Level 3		Total
Mortgage Loans Held For Sale	$	—	$	1,781,985	$	—	$	1,781,985
Collateral Dependent Impaired Loans (1)	—		—		8,613,570		8,613,570
Foreclosed Assets	—		—		722,442		722,442
Total	$	—	$	1,781,985	$	9,336,012	$	11,117,997

(1) REPORTED NET OF SPECIFIC RESERVES OF $0 AND $738,662 AT DECEMBER 31, 2019 AND 2018, RESPECTIVELY.

There were no liabilities measured at fair value on a nonrecurring basis as of December 31, 2019 and 2018.

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis, the significant unobservable inputs used in the fair value measurements were as follows as of December 31, 2019 and 2018:

	Valuation	Significant	2019	2018
Level 3 Assets	Technique	Unobservable Inputs	Range	Range
Collateral Dependent Impaired Loans	Appraised Value	Discount Rates/ Discounts to Appraised Values	8% - 92%	7% - 97%
Foreclosed Assets	Appraised Value/Comparable Sales	Discount Rates/ Discounts to Appraised Values	18% - 42%	16% - 100%

For assets and liabilities not 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 within 90 days and do not present unanticipated credit concerns.

Certificates of deposits with other banks—Fair value is based on market prices for similar assets.

Investment securities held to maturity—Securities held to maturity are valued at quoted market prices or dealer quotes.

Loans Receivable, Net—The fair value of loans are 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 also 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: commercial real estate, other commercial, residential real estate, consumer and all other loans. The results are then adjusted to account for credit risk as described above. A further credit risk discount must be applied through the use of 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 have no significant change in credit risk, fair values approximate carrying values.

(22)Carrying Amounts and Fair Value of Financial Instruments, Continued

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—Fair value is estimated using discounted cash flows with current market rates for borrowings with similar terms.

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

Note Payable—The carrying value of the note payable approximates fair value.

Senior Convertible Debentures— 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.

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 summarize the carrying value and estimated fair value of the Company’s financial instruments as of December 31, 2019 and 2018 presented in accordance with the applicable accounting guidance.

	December 31, 2019
	Carrying		Fair Value
(In Thousands)	Amount		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and Cash Equivalents	$	12,536	$	12,536	$	12,536	$	—	$	—
Certificates of Deposits with Other Banks	950		950		—		950		—
Investment and Mortgage-Backed Securities	433,892		434,451		—		434,451		—
Loans Receivable, Net	452,859		450,796		—		—		450,796
FHLB Stock	2,537		2,537		2,537		—		—
Financial Liabilities:
Deposits:
Checking, Savings and Money Market Accounts	$	541,954	$	541,954	$	541,954	$	—	$	—
Certificate Accounts	229,453		229,363		—		229,363		—
Advances From FHLB	38,138		38,233		—		38,233		—
Other Borrowed Money	11,580		11,580		11,580		—		—
Subordinated Debentures	30,000		30,000		—		30,000		—
Junior Subordinated Debentures	5,155		5,155		—		5,155		—
Senior Convertible Debentures	6,044		6,044		—		6,044		—

(22)Carrying Amounts and Fair Value of Financial Instruments, Continued

	December 31, 2018
	Carrying		Fair Value
(In Thousands)	Amount		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and Cash Equivalents	$	12,706	$	12,706	$	12,706	$	—	$	—
Certificates of Deposits with Other Banks	1,200		1,200		—		1,200		—
Investment and Mortgage-Backed Securities	409,739		409,350		—		409,350		—
Loans Receivable, Net	430,054		421,379		—		—		421,379
FHLB Stock	2,204		2,204		2,204		—		—
Financial Liabilities:
Deposits:
Checking, Savings and Money Market Accounts	$	529,043	$	529,043	$	529,043	$	—	$	—
Certificate Accounts	238,454		236,103		—		236,103		—
Advances From FHLB	34,030		33,771		—		33,771		—
Other Borrowed Money	10,698		10,698		10,698		—		—
Note Payable	2,363		2,363		—		2,363		—
Junior Subordinated Debentures	5,155		5,155		—		5,155		—
Senior Convertible Debentures	6,064		6,064		—		6,064		—

At December 31, 2019, the Bank had $85.3 million of off-balance sheet financial commitments. These commitments are to originate loans and unused consumer lines of credit and credit card lines.  Because these obligations are based on current market rates, if funded, the original principal is considered to be 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 do not reflect any premium or discount that could result from offering for sale the Bank’s entire holdings of a particular financial instrument.  

Because no active market exists for a significant portion of the Bank’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, current interest rates and prepayment trends, risk characteristics of various financial instruments, and other factors.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.  Changes in any of these assumptions used in calculating fair value would also significantly affect the estimates. Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.  For example, the Bank has significant assets and liabilities that are not considered financial assets or liabilities including deposit franchise values, loan servicing portfolios, deferred tax liabilities, and premises and equipment.

In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates. The Company has used management’s best estimate of fair value on the above assumptions.  Thus, the fair values presented may not be the amounts, which could be realized, in an immediate sale or settlement of the instrument.  In addition, any income taxes or other expenses that would be incurred in an actual sale or settlement are not taken into consideration in the fair value presented.

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Repossessed Assets Acquired In Settlement Of Loans (Tables)

12 Months Ended

Dec. 31, 2019

Other Real Estate, Foreclosed Assets, and Repossessed Assets [Abstract]

Transactions in repossessed assets

Transactions in OREO for the years ended December 31, 2019, 2018 and 2017 are summarized below.

	2019			2018			2017
Balance, beginning of year	$	722,442		$	1,115,671		$	2,721,214
Additions	832,800			435,550			580,748
Sales	(855,502		)	(772,779		)	(2,028,170		)
Write-downs	(22,000		)	(56,000		)	(158,121		)
Balance, end of year	$	677,740		$	722,442		$	1,115,671

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Loans Receivable, Net (Schedule of Accounts, Notes, Loans and Financing Receivable) (Details) - USD ($)	Dec. 31, 2019	Dec. 31, 2018
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	$ 468,520,411	$ 444,920,095
Loans Held For Sale	3,990,606	1,781,985
Total Loans Receivable, Gross	472,511,017	446,702,080
Allowance For Loan Losses	9,225,574	9,171,717
Loans in Process	9,957,140	7,225,271
Deferred Loan Fees	469,568	251,575
Loans, Allowances, and Fees	19,652,282	16,648,563
Total Loans Receivable, Net	452,858,735	430,053,517
Residential Real Estate Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	86,404,304	83,965,416
Consumer Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	56,331,013	56,907,555
Commercial Business
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	22,234,189	28,086,686
Commercial Real Estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	$ 303,550,905	$ 275,960,438

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Significant Accounting Policies (Premises and Equipment) (Details)	12 Months Ended
	Dec. 31, 2019
Building and Improvements [Member] | Maximum
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	40 years
Building and Improvements [Member] | Minimum
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	7 years
Furniture and Equipment [Member] | Maximum
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	10 years
Furniture and Equipment [Member] | Minimum
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	3 years

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Investment and Mortgage-Backed Securities, Available for Sale (Schedule of Available for Sale Securities) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Debt Securities, Available-for-sale [Line Items]
Amortized Cost of Investment And Mortgage-Backed Securities Available For Sale	$ 408,695,280	$ 386,141,513
Available-for-sale Securities, Gross Unrealized Gains	8,410,493	3,177,017
Available-for-sale Securities, Gross Unrealized Losses	2,460,933	3,217,693
Available-for-sale Securities, Fair Value Disclosure	414,644,840	386,100,837
Proceeds From Sale of Available For Sale Securities Including Mortgage Backed Securities	96,500,000	33,300,000	$ 72,000,000
Available For Sale Securities Pledged as Collateral, Amortized Cost Basis	171,400,000	111,800,000
AFS Securities Pledged as Collateral - Fair Value	173,100,000	111,700,000
Available-for-sale Securities, Gross Realized Gains	1,456,000	732,000	1,004,500
Available-for-sale Securities, Gross Realized Losses	636,000	159,000	$ 510,000
Student loan pools [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost of Investment And Mortgage-Backed Securities Available For Sale	41,088,231	12,934,037
Available-for-sale Securities, Gross Unrealized Gains	0	20,713
Available-for-sale Securities, Gross Unrealized Losses	856,401	69,249
SBA Bonds [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost of Investment And Mortgage-Backed Securities Available For Sale	111,927,938	125,777,016
Available-for-sale Securities, Gross Unrealized Gains	622,105	560,352
Available-for-sale Securities, Gross Unrealized Losses	656,944	890,837
MBS
Debt Securities, Available-for-sale [Line Items]
Amortized Cost of Investment And Mortgage-Backed Securities Available For Sale	197,356,288	185,291,038
Available-for-sale Securities, Gross Unrealized Gains	3,664,621	1,073,432
Available-for-sale Securities, Gross Unrealized Losses	582,902	1,903,919
Nontaxable Municipal Bonds [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost of Investment And Mortgage-Backed Securities Available For Sale	43,153,086	60,141,164
Available-for-sale Securities, Gross Unrealized Gains	4,088,408	1,518,974
Available-for-sale Securities, Gross Unrealized Losses	0	329,769
Taxable Municipal Bonds [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost of Investment And Mortgage-Backed Securities Available For Sale	15,169,737	1,998,258
Available-for-sale Securities, Gross Unrealized Gains	35,359	3,546
Available-for-sale Securities, Gross Unrealized Losses	364,686	23,919
GNMA Mortgage-Backed Securities
Debt Securities, Available-for-sale [Line Items]
Amortized Cost of Investment And Mortgage-Backed Securities Available For Sale	63,200,000	80,400,000
Available-for-sale Securities, Fair Value Disclosure	63,900,000	80,200,000
Mortgage-backed Securities, Issued by Private Enterprises [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost of Investment And Mortgage-Backed Securities Available For Sale	$ 15,800,000	$ 29,700,000

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Advances From Federal Home Loan Bank (FHLB) And Other Borrowings Federal Home Loan Bank Advance Prepayments (Details)	12 Months Ended
	Dec. 31, 2019 USD ($)
Debt Disclosure [Abstract]
Payments of FHLBank Borrowings, Financing Activities	$ 0

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Employee Benefit Plans (Stock Option Plans) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2017	Mar. 31, 2009
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options vested during period, shares	0	3,300
Options vested during period, shares, weighted average exercise price		$ 23.33
Options outstanding and exercisable, instrinsic value	$ 0
Compensation expense related to stock options	0
Unrecognized compensation cost related to non-vested stock options	$ 0
2008 Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved for the issuance	50,000
2008 Equity Incentive Plan [Member] | Stock Options and SARS [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved for the issuance			50,000
2008 Equity Incentive Plan [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved for the issuance			50,000

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Income Taxes (Operating Loss Carryforwards) (Details) - USD ($) $ in Millions	Dec. 31, 2019	Dec. 31, 2018
State and Local Jurisdiction [Member]
Operating Loss Carryforwards [Line Items]
Operating Loss Carryforwards	$ 9.0	$ 8.4

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Deposits (Amounts and scheduled maturities of all certificates of deposit) (Details) - USD ($)	Dec. 31, 2019	Dec. 31, 2018
Banking and Thrift [Abstract]
Time deposits, $250,000 or more	$ 77,500,000	$ 89,200,000
Time Deposits, Fiscal Year Maturity [Abstract]
Within 1 Year	149,481,000	160,771,824
After 1 Year, Within 2 Years	42,689,147	43,330,060
After 2 Years, Within 3 Years	18,737,910	23,990,251
After 3 Years, Within 4 Years	3,272,862	6,358,577
After 4 Years, Within 5 Years	15,272,315	3,488,598
Time Deposit Maturities, after Year Five	0	514,383
Time Deposits	$ 229,453,234	$ 238,453,693

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Premises and Equipment, Net

12 Months Ended

Dec. 31, 2019

Property, Plant and Equipment [Abstract]

Premises and Equipment, Net

Premises and Equipment, Net and Leases

Premises and equipment, net, are summarized as follows:

	December 31,
	2019			2018
Land	$	7,708,424		$	6,693,927
Buildings and Improvements	25,336,734			23,319,946
Furniture and Equipment	12,748,562			11,878,563
Construction in Progress	1,751,176			1,391,986
Total Premises and Equipment	47,544,896			43,284,422
Less: Accumulated Depreciation	(20,325,013		)	(19,109,715		)
Total Premises and Equipment, Net	$	27,219,883		$	24,174,707

Construction in progress of $1.8 million at December 31, 2019 primarily included building and construction costs associated with our newest branch in Augusta, Georgia, scheduled for opening in 2021. At December 31, 2019 the estimated additional costs to complete and equip the branch were approximately $2.0 million. Depreciation expense on premises and equipment was $1.6 million, $1.5 million and $1.5 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Effective January 1, 2019 the Company adopted ASC 842 “Leases.” Currently, the Company has operating leases on six of its branches that are accounted for under this standard. As a result of this standard, the Company recognized both a right-of-use (ROU) asset and lease liability of $3.1 million effective January 1, 2019. During the year ended December 31, 2019, the Company made cash payments in the amount of $444,000 for operating leases. The lease expense recognized during this period amounted to $458,000 and the lease liability was reduced by $358,000. At December 31, 2019, the Company had ROU assets of $2.7 million and a lease liability of $2.7 million recorded on its consolidated balance sheet. The remaining weighted average lease term is seven years and the weighted average discount rate used is 3.2%.

At December 31, 2019, future undiscounted lease payments for operating leases with initial terms of one year or more were as follows:

Year ended December 31,
2020	435,553
2021	426,040
2022	437,463
2023	449,271
2024	450,657
Thereafter	869,050
Total undiscounted lease payments	3,068,034
Less: effect of discounting	334,503
Present value of estimated lease payments (lease liability)	$	2,733,531

Total rental expense was $460,000, $454,000, and $409,000 for the years ended December 31, 2019, 2018 and 2017, respectively. Five lease agreements with monthly expenses of $7,350, $900, $7,900, $9,950, and $10,600 have multiple renewal options totaling 30, 10, 15, 45, and 20 years, respectively.

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Deposits

12 Months Ended

Dec. 31, 2019

Banking and Thrift [Abstract]

Deposits

Deposits

Deposits outstanding at December 31, 2019 and 2018 are summarized below by account type.

	December 31, 2019				December 31, 2018
	Balance		Weighted Rate	Interest Rate Range	Balance		Weighted Rate	Interest Rate Range
Checking Accounts	$	260,135,924	0.11%	0.00-1.98%	$	219,515,207	0.09%	0.00-1.98%
Money Market Accounts	230,693,518		0.72%	0.00-1.48%	261,136,008		0.65%	0.00-2.23%
Savings Accounts	51,124,806		0.16%	0.00-1.00%	48,391,799		0.14%	0.00-0.14%
Total	$	541,954,248	0.36%	0.00-1.98%	$	529,043,014	0.31%	0.00-2.23%
Certificate Accounts:
0.00 – 0.99%	$	28,599,107			$	70,854,896
1.00 – 1.99%	122,164,536				120,011,938
2.00 – 2.99%	78,689,591				47,586,859
Total	$	229,453,234	1.71%	0.45-2.96%	$	238,453,693	1.37%	0.35-2.86%
Total Deposits	$	771,407,482	0.76%	0.00-2.96%	$	767,496,707	0.64%	0.00-2.86%

Included in the certificates above were $34.6 million and $33.1 million in brokered deposits at December 31, 2019 and 2018, respectively, with a weighted average interest rate of 1.87% and 1.86%, respectively. Of the $34.6 million in brokered deposits at December 31, 2019, $2.0 million mature within one year. At December 31, 2019 and 2018, the Bank had $141,000 and $59,000, respectively, in overdrafts that were reclassified to loans.

The aggregate amount of certificates of deposit with a minimum denomination of $100,000 was $144.2 million and $151.5 million at December 31, 2019 and 2018, respectively. Certificate of deposits that met or exceeded the FDIC insurance limit of $250,000 were $77.5 million and $89.2 million at December 31, 2019 and 2018, respectively.

The amounts and scheduled maturities of all certificates of deposit were as follows at December 31, 2019 and 2018:

	December 31,
	2019		2018
Within 1 Year	$	149,481,000	$	160,771,824
After 1 Year, Within 2 Years	42,689,147		43,330,060
After 2 Years, Within 3 Years	18,737,910		23,990,251
After 3 Years, Within 4 Years	3,272,862		6,358,577
After 4 Years, Within 5 Years	15,272,315		3,488,598
Thereafter	—		514,383
Total Certificates of Deposits	$	229,453,234	$	238,453,693

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Premises and Equipment, Net (Tables)

12 Months Ended

Dec. 31, 2019

Property, Plant and Equipment [Abstract]

Premises and equipment, net

Premises and equipment, net, are summarized as follows:

	December 31,
	2019			2018
Land	$	7,708,424		$	6,693,927
Buildings and Improvements	25,336,734			23,319,946
Furniture and Equipment	12,748,562			11,878,563
Construction in Progress	1,751,176			1,391,986
Total Premises and Equipment	47,544,896			43,284,422
Less: Accumulated Depreciation	(20,325,013		)	(19,109,715		)
Total Premises and Equipment, Net	$	27,219,883		$	24,174,707

Future minimum payments under non-cancelable operating leases

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Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Basis of Consolidation and Nature of Operations

Basis of Consolidation and Nature of Operations

The accompanying consolidated financial statements include the accounts of Security Federal Corporation (the “Company”) and its wholly owned subsidiary, Security Federal Bank (the “Bank”) and the Bank’s wholly owned subsidiaries, Security Federal Insurance, Inc. (“SFINS”), Security Federal Investments, Inc. ("SFINV") and Security Financial Services Corporation (“SFSC”).  Security Federal Corporation has a wholly owned subsidiary, Security Federal Statutory Trust (the “Trust”), which issued and sold fixed and floating rate capital securities of the Trust.  However, under current accounting guidance, the Trust is not consolidated in the 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.  SFINS is an insurance agency offering auto, business, health and home insurance.  SFINS has a wholly owned subsidiary, Collier Jennings Financial Corporation which has as subsidiaries Security Federal Auto Insurance, The Auto Insurance Store Inc., and Security Federal Premium Pay Plans Inc. Security Federal Premium Pay Plans Inc. has one wholly owned premium finance subsidiary and also has an ownership interest in four other premium finance subsidiaries. SFINV was formed to hold investment securities and allow for better management of the securities portfolio. SFSC is currently inactive

Cash and Cash Equivalents

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, interest-bearing balances in other banks, and federal funds sold.  Cash equivalents have original maturities of three months or les

Investment and Mortgage-Backed Securities

Investment and Mortgage-Backed Securities

Investment securities, including mortgage-backed securities, are classified in one of three categories: held to maturity, available for sale, or trading.  Management determines the appropriate classification of debt securities at the time of purchase. Investment securities are classified as held to maturity when the Company has the positive intent and ability to hold the securities to maturity.  These securities are recorded at cost and adjusted for amortization of premiums and accretion of discounts over a level yield basis. Callable debt securities held at a premium are amortized until the earliest call date. Prepayment assumptions on mortgage-backed securities are anticipated.

Management classifies investment securities that are not considered to be held to maturity as available for sale.  This type of investment is stated at fair value with unrealized gains and losses, net of tax, reported in a separate component of shareholders' equity (“accumulated other comprehensive income (loss)”).  Gains and losses from sales of investment and mortgage-backed securities available for sale are determined using the specific identification method.  The Company had no investment in trading securitie

Loans Receivable Held for Investment

Loans Receivable Held for Investment

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal balance adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest is recognized over the term of the loan based on the outstanding loan balance. Fees charged for originating loans, if any, are deferred and offset by the deferral of certain direct expenses associated with loans originated. The net deferred fees are recognized as yield adjustments by applying the interest method.

Allowance for Loan Losses

Allowance for Loan Losses

The Company provides for loan losses using the allowance method.  Accordingly, all loan losses are charged to the related allowance and all recoveries are credited to the allowance for loan losses. Additions to the allowance for loan losses are provided by charges to operations based on various factors, which, in management’s judgment, deserve current recognition in estimating possible losses.  Such factors considered by management include the fair value of the underlying collateral, stated guarantees by the borrower (if applicable), the borrower’s ability to repay from other economic resources, growth and composition of the loan portfolio, the relationship of the allowance for loan losses to the outstanding loans, loss experience, delinquency trends, and general economic conditions. Management evaluates the carrying value of the loans periodically and the allowance is adjusted accordingly.

(1) Significant Accounting Policies, Continued

While management uses the best information available to make evaluations, future adjustments may be necessary if economic conditions differ substantially from the assumptions used in making these evaluations.  The allowance for loan losses is subject to periodic evaluations by bank regulatory agencies that may require adjustments to be made to the allowance based upon the information that is available at the time of their examination.

The Company values impaired loans at the loan’s fair value if it is probable that the Company will be unable to collect all amounts due according to the terms of the loan agreement at the present value of expected cash flows, the market price of the loan, if available, or the value of the underlying collateral less estimated selling costs.  In accordance with our policy, non-accrual commercial loans with a balance less than $200,000 and non-accrual consumer loans with a balance less than $100,000 are deemed immaterial and therefore excluded from the individual impairment review. Expected cash flows are required to be discounted at the loan’s effective interest rate.  When the ultimate collectibility of an impaired loan’s principal is in doubt, wholly or partially, all cash receipts are applied to principal.  When this doubt does not exist, cash receipts are applied under the contractual terms of the loan agreement first to interest and then to principal.  Once the recorded principal balance has been reduced to zero, future cash receipts are applied to interest income to the extent that any interest has been foregone.  Further cash receipts are recorded as recoveries of any amounts previously charged off.

Loans Receivable Held for Sale

.

Loans Receivable Held for Sale

Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate.  Net unrealized losses are provided for in a valuation allowance by charges to operations.

Repossessed Assets Acquired in Settlement of Loans

Other Real Estate Owned

Other real estate owned represents real estate and other assets acquired through foreclosure or repossession and are initially recorded at the estimated fair value less costs to sell. Subsequent improvements are capitalized. Costs of holding real estate, such as property taxes, insurance, general maintenance and interest expense, are expensed as a period cost. Fair values are reviewed regularly and allowances for possible losses are established when the carrying value of the asset owned exceeds the fair value less estimated costs to sell. Fair values are generally determined by reference to an outside appraisal.

Premises and Equipment

Premises and Equipment

Premises and equipment are carried at cost, net of accumulated depreciation.  Depreciation of premises and equipment is amortized on a straight-line method over the estimated useful life of the related asset.  Estimated lives are 7 to 40 years for buildings and improvements and generally 3 to 10 years for furniture, fixtures and equipment.  Maintenance and repairs are charged to current expense.  The cost of major renewals and improvements are capitalized.

Intangible Assets and Goodwill

zed.

Intangible Assets and Goodwill

The Company's goodwill is a result of the excess of the cost over the fair value of net assets resulting from the Company's acquisition of Collier Jennings Financial Corporation in July 2006. Goodwill is reviewed for impairment annually or whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Intangible assets are amortized over their estimated economic lives using methods that reflect the pattern in which the economic benefits are utilized.  The intangible assets, which consisted of the customer list and employment contracts resulting from the Company’s acquisition of Collier Jennings Financial Corporation, were fully amortized at December 31, 2019.

Income Taxes

Income Taxes

Income tax expense or benefit is recognized for the net change during the year in the deferred tax liability or asset.  That amount together with income taxes currently payable is the total amount of income tax expense or benefit for the year.  Deferred taxes are provided for by the differences in financial reporting bases for assets and liabilities compared with their tax bases. Generally, a current tax liability or asset is established for taxes presently payable or refundable and a deferred tax liability or asset is established for future tax items. A valuation allowance, if applicable, is established for deferred tax assets that may not be realized. Tax bad debt reserves in excess of the base year amount (established as taxable years ending March 31, 1988 or later) would create a deferred tax liability.  Deferred income taxes are provided for in differences between the provision for loan losses for financial statement purposes and those allowed for income tax purposes.

(1) Significant Accounting Policies, Continued

The Company adopted accounting guidance which prescribes a threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosures.

There have been no gross amounts of unrecognized tax benefits or interest or penalties related to uncertain tax positions since adoption. There are no unrecognized tax benefits that would, if recognized, affect the effective tax rate. There are no positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next 12 months. Years prior to December 31, 2016 are closed for federal, state and local income

Loan Fees and Costs Associated with Originating Loans

Loan Fees and Costs Associated with Originating Loans

Loan fees received, net of direct incremental costs of originating loans, are deferred and amortized over the contractual life of the related loan.  The net fees are recognized as yield adjustments by applying the interest method.  Prepayments are not anticipated.

Interest Income

Interest Income

Interest on loans is accrued and credited to income monthly based on the principal balance outstanding and the contractual rate on the loan. The Company places loans on non-accrual status when they become greater than 90 days delinquent or when, in the opinion of management, full collection of principal or interest is unlikely.  When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received first to principal and then to interest income. The loans are returned to an accrual status when full collection of principal and interest appears likely.

Advertising Expense

Advertising Expense

Advertising and public relations costs are generally expensed as incurred.  External costs relating to direct mailing costs are expensed in the period in which the direct mailings are sent.  Advertising and public relations costs of $796,000, $547,000, and $596,000 were included in the Company’s results of operations for the years ended December 31, 2019, 2018 and 2017, respectively.

Stock-Based Compensation

Stock-Based Compensation

The Company accounts for compensation costs under its stock option plans using the fair value method. This method requires the measurement of the cost of employee services received in exchange for an award of equity instruments based upon the fair value of the award on the grant date. The cost of the award is recognized in the income statement over the vesting period of the award.

Earnings Per Share

Net Income Per Common Share

Accounting guidance specifies computation and presentation requirements for both basic net income per common share ("EPS") and, for entities with complex capital structures, diluted EPS.  Basic EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding.  Diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued.  The dilutive effect of options and warrants outstanding is reflected in diluted earnings per share by application of the treasury stock method.

Use of Estimates

.

Recently Issued Accounting Standards

Recently Issued Accounting Standards

The following is a summary of recent authoritative pronouncements that could affect accounting, reporting, and disclosure of financial information by the Company:

In February 2016, the FASB amended the Leases topic of the ASC to revise certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions. In July 2018, the FASB further amended the Leases Topic of the ASC to make narrow amendments to clarify how to apply certain aspects of the new leases standard. The amendments also give entities another additional and optional method for transition to the new guidance and to provide lessors with a practical expedient. The amendments were effective for reporting periods beginning after December 15, 2018. The Company adopted the new standard and recorded a right-of-use asset and lease liability of $3.1 million effective January 1, 2019. Additional disclosures required by the ASC have been included in "Note 5 - Premises and Equipment, Net and Leases."

In June 2016, the FASB issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. The guidance significantly changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model. The amendments will be effective for the Company for reporting periods beginning after December 15, 2022. Early adoption is permitted. The Company is in the process of identifying required changes to the loan loss estimation models and processes and evaluating the impact of this new guidance. Once adopted, we expect our allowance for loan losses to increase, however, until our evaluation is complete the magnitude of the increase will be unknown.

In March 2017, the FASB issued guidance on Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The guidance shortens the amortization period for certain callable debt securities held at a premium. The amendments were effective for the Company for reporting periods beginning after December 15, 2018. The adoption of these amendments did not have a material effect on its consolidated financial statements.

In June 2018, the FASB amended the Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The amendments expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. Previously, these awards were recorded at the fair value of consideration received or the fair value of the equity instruments issued and was measured as the earlier of the commitment date or date performance was completed. The guidance requires the awards to be measured at the grant-date fair value of the equity instrument. This ASU became effective for reporting periods beginning after December 15, 2018. The adoption of these amendments did not have a material effect on the Company's consolidated financial statements.

(1)    Significant Accounting Policies, Continued

Recently Issued Accounting Standards

In August 2018, the FASB amended the Fair Value Measurement Topic of the ASC to remove, modify, and add certain fair value disclosure requirements based on the concepts in the FASB Concepts Statement, Conceptual Framework for Financial Reporting-Chapter 8: Notes to Financial Statements. The amendments are effective for reporting periods beginning after December 15, 2019. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this guidance and delay adoption of the additional disclosures until their effective date. The Company does not expect these amendments to have a material effect on its consolidated financial statements.

In March 2019, the FASB issued guidance to address concerns by lessors that are not manufacturers or dealers when assessing the fair value of underlying assets under the leases standard discussed above and to clarify that lessees and lessors are exempt from a certain interim disclosure requirement associated with adopting the new standard. The amendments are effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its consolidated financial statements.

In April 2019, the FASB issued guidance to provide entities that have certain financial instruments measured at amortized cost that have credit losses, to irrevocably elect the fair value option in Subtopic 825-10, upon adoption of the June 2016 guidance related to accounting for credit losses and modifying the impairment model for certain debt securities. The fair value option applies to available-for-sale debt securities. This guidance should be applied at adoption on a modified-retrospective basis as a cumulative-effect adjustment to the opening balance of retained earnings in the statement of financial condition. The Company does not expect these amendments to have a material effect on its consolidated financial statements.

In December 2019, the FASB issued guidance simplifying the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, Income Taxes. The amendments also improve consistent application or and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company does not expect the adoption of ASU 2019-12 to have a material impact on its consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting authorities are not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

Risks and Uncertainties

Risks and Uncertainties

In the normal course of its business, the Company encounters two significant types of risk: economic and regulatory.  There are three main components of economic risk: interest rate risk, credit risk, and market risk.  The Company is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different speeds, or on different bases, than its interest-earning assets.  Credit risk is the risk of default on the Company’s loan portfolio that results from borrowers’ inability or unwillingness to make contractually required payments.  Market risk reflects changes in the value of collateral underlying loans receivable, the valuation of real estate held by the Company, and the valuation of loans held for sale and securities available for sale.  The Company is subject to the regulations of various government agencies.  These regulations can and do change significantly from period to period.  The Company also undergoes periodic examinations by the bank regulatory agencies, which may subject it to further changes with respect to asset valuations, amounts of required loss allowances, and operating restrictions, resulting from the regulators’ judgments based on information available to them at the time of the

Reclassifications

lassifications

Certain amounts in prior years’ consolidated financial statements have been reclassified to conform to current period classifications.

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Security Federal Corporation Condensed Financial Statements (Parent Company Only)

12 Months Ended

Dec. 31, 2019

Condensed Financial Information Disclosure [Abstract]

Security Federal Corporation Condensed Financial Statements (Parent Company Only)

Security Federal Corporation Condensed Financial Statements (Parent Company Only)

The following is condensed financial information of Security Federal Corporation (Parent Company only).  The primary asset is its investment in the Bank subsidiary and the principal source of income for the Company is equity in undistributed earnings from the Bank.

Condensed Balance Sheet Data

	December 31,
	2019		2018
Assets:
Cash	$	25,685,744	$	3,619,418
Investment in Security Federal Statutory Trust	155,000		155,000
Investment in Security Federal Bank	106,947,285		90,359,718
Accounts Receivable and Other Assets	386,889		14,492
Total Assets	$	133,174,918	$	94,148,628
Liabilities and Shareholders’ Equity:
Accounts Payable and Other Liabilities	$	219,213	$	49,995
Long-term Debt	41,199,000		13,581,500
Shareholders’ Equity	91,756,705		80,517,133
Total Liabilities and Shareholders’ Equity	$	133,174,918	$	94,148,628

Condensed Statements of Income Data

	Years Ended December 31,
	2019			2018			2017
Income:
Equity in Earnings of Security Federal Bank	$	2,092,130		$	1,523,443		$	136,682
Dividend Income from Security Federal Bank	6,400,000			6,400,000			6,400,000
Gain on Sale of Investments	—			—			118,725
Miscellaneous Income	62,390			21,235			15,807
Total Income	8,554,520			7,944,678			6,671,214
Expenses:
Interest Expense	906,152			916,832			1,057,065
Other Expenses	39,331			11,099			14,349
Total Expenses	945,483			927,931			1,071,414
Income Before Income Taxes	7,609,037			7,016,747			5,599,800
Income Tax Benefit	(185,450		)	(190,474		)	(318,540		)
Net Income	$	7,794,487		$	7,207,221		$	5,918,340

(21)Security Federal Corporation Condensed Financial Statements (Parent Company Only), Continued

Condensed Statements of Cash Flow Data

	Years Ended December 31,
	2019			2018			2017
Operating Activities:
Net Income	$	7,794,487		$	7,207,221		$	5,918,340
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:
Equity in Earnings of Security Federal Bank	(2,092,130		)	(1,523,443		)	(136,682		)
Deferred Compensation Expense	—			—			25,358
(Increase) Decrease in Accounts Receivable and Other Assets	(372,398		)	13,666			3,117
Increase (Decrease) in Accounts Payable	169,218			1,635			(33,612		)
Net Cash Provided By Operating Activities	5,499,177			5,699,079			5,776,521
Investing Activities:
Capital Pushdown to Security Federal Bank	(10,000,000		)	—			—
Proceeds from Sale of Investments	—			—			95,438
Net Cash (Used) Provided By Investing Activities	(10,000,000		)	—			95,438
Financing Activities:
Redemption of Convertible Debentures	—			—			(20,000		)
Proceeds from Stock Options Exercised	—			10,310			176,175
Employee Stock Plan Purchases	52,868			12,196			—
Proceeds from Subordinated Debentures	30,000,000			—			—
Repayment of Note Payable	(2,362,500		)	(6,137,500		)	(4,500,000		)
Dividends Paid to Shareholders-Common Stock	(1,123,219		)	(1,063,626		)	(1,060,729		)
Net Cash Provided (Used) By Financing Activities	26,567,149			(7,178,620		)	(5,404,554		)
Net Increase (Decrease) in Cash	22,066,326			(1,479,541		)	467,405
Cash at Beginning of Period	3,619,418			5,098,959			4,631,554
Cash at End of Period	$	25,685,744		$	3,619,418		$	5,098,959

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Significant Accounting Policies (Earnings Per Share - Reconciliation of net income to net income available to common shareholders) (Details) - USD ($)	3 Months Ended								12 Months Ended
	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Earnings Available To Common Shareholders
Net Income	$ 1,602,000	$ 2,219,000	$ 1,884,000	$ 2,089,000	$ 1,550,000	$ 2,108,000	$ 1,820,000	$ 1,730,000	$ 7,794,487	$ 7,207,221	$ 5,918,340
Income									$ 7,794,487	$ 7,207,221

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Investment and Mortgage-Backed Securities, Available for Sale (Schedule of AFS Securities, Contractual Maturities) (Details) - USD ($)	Dec. 31, 2019	Dec. 31, 2018
Debt Securities, Available-for-sale, Amortized Cost, Fiscal Year Maturity [Abstract]
Less Than One Year, Amortized Cost	$ 18,237
One – Five Years, Amortized Cost	6,314,205
Five – Ten Years, Amortized Cost	57,236,558
After Ten Years, Amortized Cost	147,769,992
Amortized Cost of Investment And Mortgage-Backed Securities Available For Sale	408,695,280	$ 386,141,513
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis	408,695,280
Debt Securities, Available-for-sale, Fair Value, Fiscal Year Maturity [Abstract]
Less Than One Year, Fair Value	18,134
One – Five Years, Fair Value	6,342,172
Five – Ten Years, Fair Value	57,209,659
After Ten Years, Fair Value	150,636,868
Available-for-sale Securities, Fair Value Disclosure	414,644,840	$ 386,100,837
Debt Securities, Available-for-sale, Maturity, without Single Maturity Date, Fair Value	$ 414,644,840

XML

Loans Receivable, Net (Financing Receivable Credit Quality Indicators) (Details) - USD ($)	Dec. 31, 2019	Dec. 31, 2018
Financing Receivable, Credit Quality Indicator [Line Items]
Total	$ 468,520,411	$ 444,920,095
Residential Real Estate
Financing Receivable, Credit Quality Indicator [Line Items]
Total	86,404,304	83,965,416
Consumer
Financing Receivable, Credit Quality Indicator [Line Items]
Total	56,331,013	56,907,555
Commercial Business
Financing Receivable, Credit Quality Indicator [Line Items]
Total	22,234,189	28,086,686
Commercial Real Estate
Financing Receivable, Credit Quality Indicator [Line Items]
Total	303,550,905	275,960,438
Pass [Member]
Financing Receivable, Credit Quality Indicator [Line Items]
Total	367,920,287	349,374,467
Pass [Member] | Residential Real Estate
Financing Receivable, Credit Quality Indicator [Line Items]
Total	76,674,539	75,558,544
Pass [Member] | Consumer
Financing Receivable, Credit Quality Indicator [Line Items]
Total	44,294,400	46,948,251
Pass [Member] | Commercial Business
Financing Receivable, Credit Quality Indicator [Line Items]
Total	16,140,592	22,670,318
Pass [Member] | Commercial Real Estate
Financing Receivable, Credit Quality Indicator [Line Items]
Total	230,810,756	204,197,354
Caution [Member]
Financing Receivable, Credit Quality Indicator [Line Items]
Total	75,741,228	60,631,520
Caution [Member] | Residential Real Estate
Financing Receivable, Credit Quality Indicator [Line Items]
Total	4,612,182	3,369,776
Caution [Member] | Consumer
Financing Receivable, Credit Quality Indicator [Line Items]
Total	9,617,301	6,899,912
Caution [Member] | Commercial Business
Financing Receivable, Credit Quality Indicator [Line Items]
Total	5,486,393	4,708,036
Caution [Member] | Commercial Real Estate
Financing Receivable, Credit Quality Indicator [Line Items]
Total	56,025,352	45,653,796
Special Mention [Member]
Financing Receivable, Credit Quality Indicator [Line Items]
Total	16,366,527	20,358,354
Special Mention [Member] | Residential Real Estate
Financing Receivable, Credit Quality Indicator [Line Items]
Total	1,155,802	958,354
Special Mention [Member] | Consumer
Financing Receivable, Credit Quality Indicator [Line Items]
Total	624,248	567,682
Special Mention [Member] | Commercial Business
Financing Receivable, Credit Quality Indicator [Line Items]
Total	301,462	339,533
Special Mention [Member] | Commercial Real Estate
Financing Receivable, Credit Quality Indicator [Line Items]
Total	14,285,015	18,492,785
Substandard [Member]
Financing Receivable, Credit Quality Indicator [Line Items]
Total	8,492,369	14,555,754
Substandard [Member] | Residential Real Estate
Financing Receivable, Credit Quality Indicator [Line Items]
Total	3,961,781	4,078,742
Substandard [Member] | Consumer
Financing Receivable, Credit Quality Indicator [Line Items]
Total	1,795,064	2,491,710
Substandard [Member] | Commercial Business
Financing Receivable, Credit Quality Indicator [Line Items]
Total	305,742	368,799
Substandard [Member] | Commercial Real Estate
Financing Receivable, Credit Quality Indicator [Line Items]
Total	$ 2,429,782	$ 7,616,503

XML

Advances From Federal Home Loan Bank (FHLB) And Other Borrowings (Other Borrowings) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Short-term Debt [Line Items]
Other Borrowings	$ 11,579,819	$ 10,698,429
Financial Instruments, Owned and Pledged as Collateral, at Amortized Cost	20,400,000	16,200,000
Financial Instruments, Owned and Pledged as Collateral, at Fair Value	$ 20,500,000	16,500,000
Minimum
Short-term Debt [Line Items]
Repurchase agreements, maturity term	1 day
Maximum
Short-term Debt [Line Items]
Repurchase agreements, maturity term	3 days
Securities Sold under Agreements to Repurchase [Member]
Short-term Debt [Line Items]
Short-term Debt, Weighted Average Interest Rate, at Point in Time	0.50%
Short-term Debt, Maximum Month-end Outstanding Amount	$ 15,800,000	$ 14,300,000

XML

Employee Benefit Plans (Activity under the incentive and non-qualified stock option plans) (Details) - $ / shares	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Balance, Beginning of Period, Shares	4,500	21,500
Options Exercised, Shares	450	7,500
Options Forfeited, Shares	4,050	9,500
Balance, End of Period, Shares	0	4,500
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward]
Balance, Beginning of Period, Weighted Avg. Exercise Price	$ 22.91	$ 23.57
Options Exercised, Weighted Avg. Exercise Price	22.91	23.49
Options Forfeited, Weighted Avg. Exercise Price	22.91	23.95
Balance, End of Period, Weighted Avg. Exercise Price	$ 0.00	$ 22.91
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Options Exercisable, Shares	0	4,500
Options Exercisable, Weighted Avg. Exercise Price	$ 0.00	$ 22.91
Weighted-Average Remaining Life of Exercisable Options		5 months
Options Available for Grant	0	50,000

XML

Income Taxes (Deferred tax assets and deferred tax liabilities) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Deferred Tax Assets:
Deferred Compensation	$ 587,322	$ 498,764
Provision for Loan Losses	2,000,131	1,978,481
Other Real Estate Owned	0	18,283
Net Fees Deferred for Financial Reporting	76,262	73,892
Net Operating Losses	356,759	333,301
Other	126,492	240,724
Total Gross Deferred Tax Assets	3,146,966	3,143,445
Less: Valuation Allowance	(356,759)	(333,301)
Net Deferred Tax Assets	2,790,207	2,810,144
Deferred Tax Liabilities:
FHLB Stock Basis Over Tax Basis	72,208	71,717
Depreciation	585,520	507,601
Prepaid Expenses	35,033	36,837
Unrealized Gain on Securities Available for Sale	1,473,077	10,487
Total Gross Deferred Tax Liability	2,165,838	626,642
Net Deferred Tax Asset	624,369	$ 2,183,502
Valuation Allowance, Deferred Tax Asset, Change in Amount	23,458
Bad Debt Reserve for Tax Purposes of Qualified Lender	$ 2,100,000

XML

Deposits (Deposits outstanding by type) (Details) - USD ($)	Dec. 31, 2019	Dec. 31, 2018
Deposits, by Type [Abstract]
Checking Accounts	$ 260,135,924	$ 219,515,207
Money Market Accounts	230,693,518	261,136,008
Savings Accounts	51,124,806	48,391,799
Total	541,954,248	529,043,014
Certificate Accounts	229,453,234	238,453,693
Total Deposits	$ 771,407,482	$ 767,496,707
Weighted Average Rate Domestic Deposit Liabilities [Abstract]
Checking Accounts, Weighted Rate	0.11%	0.09%
Money Market Accounts, Weighted Rate	0.72%	0.65%
Statement Savings Accounts, Weighted Rate	0.16%	0.14%
Total, Weighted Rate	0.36%	0.31%
Certificate Accounts, Weighted Rate	1.71%	1.37%
Total Deposit, Weighted Rate	0.76%	0.64%
Interest Rate Range Domestic Deposit Liabilities [Abstract]
Interest-bearing Domestic Deposit, Brokered	$ 34,600,000	$ 33,100,000
Weighted Average Rate Domestic Deposit, Brokered	1.87%	1.86%
Interest Bearing Domestic Deposit Maturities, Brokered, Next Twelve Months	$ 2,000,000
Time Deposits, $100,000 or More	144,200,000	$ 151,500,000
Overdrafts reclassified to loans	$ 141,000
Minimum
Interest Rate Range Domestic Deposit Liabilities [Abstract]
Interest Rate Domestic Deposit, Checking	0.00%	0.00%
Interest Rate Domestic Deposit, Money Market	0.00%	0.10%
Interest Rate Domestic Deposit, Savings	0.00%	0.00%
Interest Rate Domestic Deposit, Excluding Time Deposits	0.00%	0.00%
Interest Rate Domestic Deposit, Time Deposits	0.05%	0.04%
Interest Rate Domestic Deposit	0.00%	0.00%
Maximum
Interest Rate Range Domestic Deposit Liabilities [Abstract]
Interest Rate Domestic Deposit, Checking	0.20%	0.20%
Interest Rate Domestic Deposit, Money Market	0.50%	0.17%
Interest Rate Domestic Deposit, Savings	0.10%	0.10%
Interest Rate Domestic Deposit, Excluding Time Deposits	0.50%	0.20%
Interest Rate Domestic Deposit, Time Deposits	2.00%	2.52%
Interest Rate Domestic Deposit	2.00%	2.52%
1.00 – 1.99%
Deposits, by Type [Abstract]
Certificate Accounts	$ 122,164,536	$ 120,011,938
1.00 – 1.99% | Minimum
Interest Rate Range Domestic Deposit Liabilities [Abstract]
Interest Rate Domestic Deposit, Time Deposits	0.00%
1.00 – 1.99% | Maximum
Interest Rate Range Domestic Deposit Liabilities [Abstract]
Interest Rate Domestic Deposit, Time Deposits	0.99%
2.00 – 2.99%
Deposits, by Type [Abstract]
Certificate Accounts	$ 78,689,591	47,586,859
2.00 – 2.99% | Minimum
Interest Rate Range Domestic Deposit Liabilities [Abstract]
Interest Rate Domestic Deposit, Time Deposits	2.00%
2.00 – 2.99% | Maximum
Interest Rate Range Domestic Deposit Liabilities [Abstract]
Interest Rate Domestic Deposit, Time Deposits	2.99%
3.00 – 3.99% | Minimum
Interest Rate Range Domestic Deposit Liabilities [Abstract]
Interest Rate Domestic Deposit, Time Deposits	3.00%
3.00 – 3.99% | Maximum
Interest Rate Range Domestic Deposit Liabilities [Abstract]
Interest Rate Domestic Deposit, Time Deposits	3.99%
0.00% - 0.99% [Member]
Deposits, by Type [Abstract]
Certificate Accounts	$ 28,599,107
Interest Rate range 4 [Member]
Deposits, by Type [Abstract]
Certificate Accounts		$ 70,854,896

XML

Quarterly Financial Data (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2019

Quarterly Financial Information Disclosure [Abstract]

Unaudited condensed financial data by quarter

Unaudited condensed financial data by quarter for the years ended December 31, 2019 and 2018 is as follows (dollars, except per share data, in thousands):

	Quarter ended
	3/31/2019		6/30/2019		9/30/2019		12/31/2019
Interest Income	$	9,031	$	9,128	$	9,641	$	9,134
Interest Expense	1,774		2,009		2,291		2,237
Net Interest Income	7,257		7,119		7,350		6,897
Provision for Loan Losses	100		—		75		200
Net Interest Income After Provision for Loan Losses	7,157		7,119		7,275		6,697
Non-interest Income	2,196		2,492		2,408		2,000
Non-interest Expense	6,744		7,241		6,989		6,896
Income Before Income Tax	2,609		2,370		2,694		1,801
Provision for Income Taxes	520		486		475		199
Net Income	$	2,089	$	1,884	$	2,219	$	1,602
Basic Net Income Per Common Share	$	0.71	$	0.64	$	0.75	$	0.54
Diluted Net Income Per Common Share	$	0.67	$	0.61	$	0.71	$	0.51
Basic Weighted Average Shares Outstanding	2,954,515		2,955,650		2,956,156		2,956,600
Diluted Weighted Average Shares Outstanding	3,256,715		3,257,850		3,258,356		3,258,800

	Quarter ended
	3/31/2018		6/30/2018		9/30/2018		12/31/2018
Interest Income	$	7,774	$	8,029	$	8,507	$	8,763
Interest Expense	1,169		1,286		1,430		1,565
Net Interest Income	6,605		6,743		7,077		7,198
Provision For Loan Losses	—		—		150		775
Net Interest Income After Provision for Loan Losses	6,605		6,743		6,927		6,423
Non-interest Income	2,044		1,744		2,070		1,811
Non-interest Expense	6,519		6,240		6,418		6,413
Income Before Income Tax	2,130		2,247		2,579		1,821
Provision for Income Taxes	400		427		471		271
Net Income	$	1,730	$	1,820	$	2,108	$	1,550
Basic Net Income Per Common Share	$	0.59	$	0.62	$	0.71	$	0.52
Diluted Net Income Per Common Share	$	0.56	$	0.59	$	0.68	$	0.50
Basic Weighted Average Shares Outstanding	2,953,180		2,953,412		2,953,424		2,953,763
Diluted Weighted Average Shares Outstanding	3,257,532		3,257,017		3,256,624		3,256,963

XML

Employee Benefit Plans (Tables)

12 Months Ended

Dec. 31, 2019

Postemployment Benefits [Abstract]

Activity under the incentive and non-qualified stock option plans

The following is a summary of the activity under the Company’s incentive and non-qualified stock option plans for the years ended December 31, 2018 and 2017:

	Years Ended December 31,
	2018			2017
	Shares	Weighted Avg. Exercise Price		Shares	Weighted Avg. Exercise Price
Balance, Beginning of Period	4,500	$	22.91	21,500	$	23.57
Options Exercised	450	22.91		7,500	23.49
Options Forfeited	4,050	22.91		9,500	23.95
Balance, End of Period	—	$	—	4,500	$	22.91
Options Exercisable	—	$	—	4,500	$	22.91
Weighted-Average Remaining Life of Exercisable Options	—			0.4 years
Options Available for Grant	—			50,000

Options outstanding

XML

Carrying Amounts and Fair Value of Financial Instruments (Summary of the carrying value and estimated fair value of financial instruments) (Details) - USD ($)	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Financial Assets:
Cash and Cash Equivalents, at Carrying Value	$ 12,536,311	$ 12,705,910	$ 10,319,624	$ 9,374,549
Cash and Cash Equivalents	12,536,311	12,706,000
Certificates of Deposit with Other Banks	950,005	1,200,010
Certificates of Deposits with Other Banks	950,000	1,200,000
Investments	433,891,775	409,738,850
Investment and Mortgage-Backed Securities	434,451,000	409,350,000
Financing Receivable, after Allowance for Credit Loss	452,858,735	430,053,517
Loans Receivable, Net	450,796,000	421,379,000
Federal Home Loan Bank (FHLB) Stock, at Cost	2,536,500	2,204,000
FHLB Stock	2,537,000	2,204,000
Financial Liabilities:
Checking, Savings, And Money Market Accounts	541,954,000	529,043,000
Time Deposits	229,453,234	238,453,693
Certificate Accounts	229,363,000	236,103,000
Advances from Federal Home Loan Banks	38,138,000	34,030,000
Advances From FHLB	38,233,000	33,771,000
Other Borrowed Money	11,580,000	10,698,000
Subordinated Debt Obligations, Fair Value Disclosure	5,155,000	5,155,000
Senior Convertible Debentures	6,044,000	6,064,000
Fair Value, Inputs, Level 1
Financial Assets:
Cash and Cash Equivalents	12,536,311	12,706,000
Certificates of Deposits with Other Banks	0	0
Investment and Mortgage-Backed Securities	0	0
Loans Receivable, Net	0	0
FHLB Stock	2,537,000	2,204,000
Financial Liabilities:
Checking, Savings, And Money Market Accounts	541,954,000	529,043,000
Certificate Accounts	0	0
Advances From FHLB	0	0
Other Borrowed Money	11,580,000	10,698,000
Subordinated Debt Obligations, Fair Value Disclosure	0	0
Senior Convertible Debentures	0	0
Fair Value, Inputs, Level 2 [Member]
Financial Assets:
Cash and Cash Equivalents	0	0
Certificates of Deposits with Other Banks	950,000	1,200,000
Investment and Mortgage-Backed Securities	434,451,000	409,350,000
Loans Receivable, Net	0	0
FHLB Stock	0	0
Financial Liabilities:
Checking, Savings, And Money Market Accounts	0	0
Certificate Accounts	229,363,000	236,103,000
Advances From FHLB	38,233,000	33,771,000
Other Borrowed Money	0	0
Subordinated Debt Obligations, Fair Value Disclosure	5,155,000	5,155,000
Senior Convertible Debentures	6,044,000	6,064,000
Fair Value, Inputs, Level 3
Financial Assets:
Cash and Cash Equivalents	0	0
Certificates of Deposits with Other Banks	0	0
Investment and Mortgage-Backed Securities	0	0
Loans Receivable, Net	450,796,000	421,379,000
FHLB Stock	0	0
Financial Liabilities:
Checking, Savings, And Money Market Accounts	0	0
Certificate Accounts	0	0
Advances From FHLB	0	0
Other Borrowed Money	0	0
Subordinated Debt Obligations, Fair Value Disclosure	0	0
Senior Convertible Debentures	$ 0	$ 0

XML

Deposits (Tables)

12 Months Ended

Dec. 31, 2019

Banking and Thrift [Abstract]

Deposits outstanding by type

Deposits outstanding at December 31, 2019 and 2018 are summarized below by account type.

	December 31, 2019				December 31, 2018
	Balance		Weighted Rate	Interest Rate Range	Balance		Weighted Rate	Interest Rate Range
Checking Accounts	$	260,135,924	0.11%	0.00-1.98%	$	219,515,207	0.09%	0.00-1.98%
Money Market Accounts	230,693,518		0.72%	0.00-1.48%	261,136,008		0.65%	0.00-2.23%
Savings Accounts	51,124,806		0.16%	0.00-1.00%	48,391,799		0.14%	0.00-0.14%
Total	$	541,954,248	0.36%	0.00-1.98%	$	529,043,014	0.31%	0.00-2.23%
Certificate Accounts:
0.00 – 0.99%	$	28,599,107			$	70,854,896
1.00 – 1.99%	122,164,536				120,011,938
2.00 – 2.99%	78,689,591				47,586,859
Total	$	229,453,234	1.71%	0.45-2.96%	$	238,453,693	1.37%	0.35-2.86%
Total Deposits	$	771,407,482	0.76%	0.00-2.96%	$	767,496,707	0.64%	0.00-2.86%

Amounts and scheduled maturities of all certificates of deposit

The amounts and scheduled maturities of all certificates of deposit were as follows at December 31, 2019 and 2018:

	December 31,
	2019		2018
Within 1 Year	$	149,481,000	$	160,771,824
After 1 Year, Within 2 Years	42,689,147		43,330,060
After 2 Years, Within 3 Years	18,737,910		23,990,251
After 3 Years, Within 4 Years	3,272,862		6,358,577
After 4 Years, Within 5 Years	15,272,315		3,488,598
Thereafter	—		514,383
Total Certificates of Deposits	$	229,453,234	$	238,453,693

XML

Loans Receivable, Net (Schedule of loans evaluated individually for impairment and collectively evaluated for impairment in the allowance for loan losses) (Details) - USD ($)	Dec. 31, 2019	Dec. 31, 2018
Financing Receivable, Allowance for Credit Loss [Line Items]
Individually Evaluated For Impairment	$ 0	$ 738,662
Collectively Evaluated For Impairment	9,225,574	8,433,055
Total	9,225,574	9,171,717
Financing Receivable, Individually Evaluated for Impairment	3,229,883	9,364,125
Financing Receivable, Collectively Evaluated for Impairment	465,290,528	435,555,970
Total	468,520,411	444,920,095
Residential Real Estate
Financing Receivable, Allowance for Credit Loss [Line Items]
Individually Evaluated For Impairment	0	0
Collectively Evaluated For Impairment	1,390,594	1,191,443
Total	1,390,594	1,191,443
Financing Receivable, Individually Evaluated for Impairment	1,086,433	1,700,861
Financing Receivable, Collectively Evaluated for Impairment	85,317,871	82,264,555
Total	86,404,304	83,965,416
Consumer
Financing Receivable, Allowance for Credit Loss [Line Items]
Individually Evaluated For Impairment	0	73,662
Collectively Evaluated For Impairment	1,210,849	1,129,931
Total	1,210,849	1,203,593
Financing Receivable, Individually Evaluated for Impairment	184,402	1,060,043
Financing Receivable, Collectively Evaluated for Impairment	56,146,611	55,847,512
Total	56,331,013	56,907,555
Commercial Business
Financing Receivable, Allowance for Credit Loss [Line Items]
Individually Evaluated For Impairment	0	0
Collectively Evaluated For Impairment	544,764	923,600
Total	544,764	923,600
Financing Receivable, Individually Evaluated for Impairment	64,406	77,206
Financing Receivable, Collectively Evaluated for Impairment	22,169,783	28,009,480
Total	22,234,189	28,086,686
Commercial Real Estate
Financing Receivable, Allowance for Credit Loss [Line Items]
Individually Evaluated For Impairment	0	665,000
Collectively Evaluated For Impairment	6,079,367	5,188,081
Total	6,079,367	5,853,081
Financing Receivable, Individually Evaluated for Impairment	1,894,642	6,526,015
Financing Receivable, Collectively Evaluated for Impairment	301,656,263	269,434,423
Total	$ 303,550,905	$ 275,960,438

XML

Unvested Restricted Stock (Details) - $ / shares	12 Months Ended
	Dec. 31, 2019	Feb. 12, 2015
Earnings Per Share [Abstract]
Stock Issued During Period, Shares, Restricted Stock Award, Net of Forfeitures	1,473
Shares Issued, Price Per Share		$ 17.22

XML

Carrying Amounts and Fair Value of Financial Instruments (Fair value measurements, recurring basis) (Details) - USD ($)	Dec. 31, 2019	Dec. 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities, Available For Sale	$ 414,644,840	$ 386,100,837
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities, Available For Sale	0
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities, Available For Sale	414,644,840	386,100,837
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities, Available For Sale	0
Student loan pools [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities, Available For Sale	0
Student loan pools [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities, Available For Sale	40,231,830	12,885,501
Student loan pools [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities, Available For Sale	0
Taxable Municipal Bonds [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities, Available For Sale	0
Taxable Municipal Bonds [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities, Available For Sale	14,840,410	1,977,885
Taxable Municipal Bonds [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities, Available For Sale	0
Collateralized Mortgage Backed Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities, Available For Sale	0
Collateralized Mortgage Backed Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities, Available For Sale	200,438,007	184,460,551
Collateralized Mortgage Backed Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities, Available For Sale	0
Nontaxable Municipal Bonds [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities, Available For Sale	0
Nontaxable Municipal Bonds [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities, Available For Sale	47,241,494	61,330,369
Nontaxable Municipal Bonds [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities, Available For Sale	0
SBA Bonds [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities, Available For Sale	0
SBA Bonds [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities, Available For Sale	111,893,099	$ 125,446,531
SBA Bonds [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities, Available For Sale	$ 0

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Premises and Equipment, Net (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 47,544,896	$ 43,284,422
Less: Accumulated Depreciation	(20,325,013)	(19,109,715)
Total Premises and Equipment, Net	27,219,883	24,174,707
Depreciation Expense	1,589,671	1,500,000	$ 1,500,000
Land [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	7,708,424	6,693,927
Building and Improvements [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	25,336,734	23,319,946
Furniture and Equipment [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	12,748,562	11,878,563
Construction in Progress [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 1,751,176	$ 1,391,986

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Consolidated Balance Sheets - USD ($)	Dec. 31, 2019	Dec. 31, 2018
ASSETS:
Cash and Cash Equivalents	$ 12,536,311	$ 12,705,910
Certificates of Deposit with Other Banks	950,005	1,200,010
Investment and Mortgage-Backed Securities:
Available For Sale: (Amortized Cost of $420,876,924 and $430,241,854 at December 31, 2014 and 2013, Respectively)	414,644,840	386,100,837
Held To Maturity: (Fair Value of $69,965,869 and $34,122,925 at March 31, 2012 and 2011, Respectively)	19,246,935	23,638,013
Investments	433,891,775	409,738,850
Held For Sale	3,990,606	1,781,985
Loans and Leases Receivable, Net Amount	448,868,129	428,271,532
Total Loans Receivable, Net	452,858,735	430,053,517
Accrued Interest Receivable:
Loans	1,211,826	1,257,683
Mortgage-Backed Securities	551,214	591,849
Investment Securities	1,635,497	1,877,844
Total Accrued Interest Receivable	3,398,537	3,727,376
Premises and Equipment, Net	27,219,883	24,174,707
Federal Home Loan Bank (FHLB) Stock, at Cost	2,536,500	2,204,000
Other Real Estate Owned (OREO)	677,740	722,442
Bank Owned Life Insurance (BOLI)	21,501,647	21,237,893
Goodwill	1,199,754	1,199,754
Other Assets	3,737,978	5,649,800
Total Assets	963,227,541	912,614,259
Liabilities:
Deposit Accounts	771,407,482	767,496,707
Advances From FHLB	38,138,000	34,030,000
Other Borrowings	11,579,819	10,698,429
Other Notes Payable, Noncurrent	0	2,362,500
Junior Subordinated Debentures	5,155,000	5,155,000
Advance Payments By Borrowers For Taxes and Insurance	207,582	258,505
Senior Convertible Debentures	6,044,000	6,064,000
Other Liabilities	6,204,122	6,030,685
Total Liabilities	871,469,536	832,095,826
Commitments (Notes 5 and 19)
Shareholders' Equity:
Common Stock, $.01 Par Value; Authorized 5,000,000 Shares; Issued And Outstanding Shares, 3,144,934 And 2,944,001, Respectively, At March 31, 2012 And 2011	31,578	31,548
Additional Paid-In Capital	12,308,179	12,235,341
Treasury Stock, At Cost (200,933 Shares At March 31, 2012 And 2011, Respectively)	(4,330,712)	(4,330,712)
Nonvested Restricted Stock	0	0
Accumulated Other Comprehensive Income (Loss)	4,467,527	(27,909)
Retained Earnings	79,281,433	72,610,165
Total Shareholders' Equity	91,758,005	80,518,433
Total Liabilities and Shareholders' Equity	$ 963,227,541	$ 912,614,259

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Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Statement of Comprehensive Income [Abstract]
Taxes on Unrealized Holding Gains On Securities Available For Sale	$ 1,675,405	$ (1,001,537)	$ 1,330,097
Taxes on Reclassification Adjustment For Gains Included In Net Income	$ 204,763	$ 143,317	$ 187,775

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SUBORDINATED DEBENTURES (Notes)

12 Months Ended

Dec. 31, 2019

SUBORDINATED DEBENTURES [Abstract]

Subordinated Borrowings Disclosure [Text Block]

Junior Subordinated Debentures

On September 21, 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”), which are reported on the consolidated balance sheet as junior subordinated debentures, generating proceeds of $5.2 million. The Trust loaned these proceeds to the Company to use for general corporate purposes, primarily to provide capital to the Bank.

The Capital Securities accrue and pay distributions quarterly at a floating rate of three month LIBOR plus 170 basis points which was a rate per annum equal to 3.59% and 4.49%at December 31, 2019 and 2018, respectively. The distribution rate payable on the Capital Securities is cumulative and payable quarterly in arrears.

The Company has the right, subject to events of default, to defer payments of interest on the Capital Securities for a period not to exceed 20 consecutive quarterly periods, provided that no extension period may extend beyond the maturity date of December 15, 2036. The Company has no current intention to exercise its right to defer payments of interest on the Capital Securities. 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.

(14)Subordinated Debentures

On November 22, 2019, the Company sold and issued to certain institutional investors $17.5 million in aggregate principal amount of 5.25% fixed-to-floating rate subordinated notes due 2029 (the “10-Year Notes”) and $12.5 million in aggregate principal amount of 5.25% fixed-to-floating rate subordinated notes due 2034 (the “15-Year Notes”, and together with the 10-Year Notes, the “Notes”). The 10-Year Notes have a stated maturity of November 22, 2029, and bear interest at a fixed rate of 5.25% per year, from and including November 22, 2019 but excluding November 22, 2024. From and including November 22, 2024 to but excluding the maturity date or early redemption date, the interest rate shall reset semi-annually to an interest rate equal to the then-current three-month LIBOR rate plus 369 basis points. The 15-Year Notes have a stated maturity of November 22, 2034, and bear interest at a fixed rate of 5.25% per year, from and including November 22, 2019 but excluding November 22, 2029. From and including November 22, 2029 to but excluding the maturity date or early redemption date, the interest rate for the 15-Year Notes shall reset semi-annually to an interest rate equal to the then-current three-month LIBOR rate plus 357 basis points. The Notes are payable semi-annually in arrears on June 1 and December 1 of each year commencing June 1, 2020.

The Notes are not subject to redemption at the option of the holder and may be redeemed by the Company only under certain limited circumstances prior to November 22, 2024, with respect to the 10-Year Notes, and November 22, 2029, with respect to the 15-Year Notes. The Company may redeem the 10-Year Notes and the 15-Year Notes at its option, in whole at any time, or in part from time to time, after November 22, 2024 and November 22, 2029, respectively. The Notes are unsecured, subordinated obligations of the Company and rank junior in right to payment to the Company’s current and future senior indebtedness, and each Note is equal in right to payment with respect to the other Notes.

The Notes have been structured to qualify as Tier 2 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.

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Bank Owned Life Insurance

12 Months Ended

Dec. 31, 2019

Investments, All Other Investments [Abstract]

Bank Owned Life Insurance

Bank Owned Life Insurance

BOLI provides key person life insurance on certain officers of the Company. The cash value of the life insurance policies are recorded as a separate line item in the accompanying balance sheets at $21.5 million and $21.2 million at December 31, 2019 and 2018, respectively.  The earnings portion of the insurance policies grows tax deferred and helps offset the cost of the Company’s benefits programs.  The Company recorded earnings of $540,000, $540,000 and $506,000 for the growth in the cash value of life insurance during the years ended December 31, 2019, 2018 and 2017, respectively. In addition to the earnings above, the Company received $139,000 and $654,000 in death benefits during the years ended December 31, 2019 and 2017, respectively. There were no death benefits received during the year ended December 31, 2018.

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Unvested Restricted Stock (Notes)

12 Months Ended

Dec. 31, 2019

Earnings Per Share [Abstract]

Unvested Restricted Stock [Text Block]

(21)    Unvested Restricted Stock Issuance

On February 12 2015, the Company issued 1,473 shares of restricted stock at $17.22 per share to the Company’s Chief Executive Officer (“CEO”). The issuance was in lieu of annual incentive pay for the 2014 Incentive Plan year. Based on restrictions set forth in our agreement with Treasury as part of the Company’s participation in the CDCI program, the CEO was not permitted to receive cash incentive pay. The shares cliff vested at the end of two years in February 2017. All dividends were held in an escrow account until that date. There were no shares of restricted stock issued by the Company during the years ended December 31, 2019 and 2018.

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Investment and Mortgage-Backed Securities, Available for Sale (Tables)

12 Months Ended

Dec. 31, 2019

Investments, Debt and Equity Securities [Abstract]

Schedule of Available for Sale Securities

The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of investment and mortgage-backed securities available for sale at the dates indicated are as follows:

	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair value
Student Loan Pools	$	41,088,231	$	—	$	856,401	$	40,231,830
Small Business Administration (“SBA”) Bonds	111,927,938		622,105		656,944		111,893,099
Tax Exempt Municipal Bonds	43,153,086		4,088,408		—		47,241,494
Taxable Municipal Bonds	15,169,737		35,359		364,686		14,840,410
Mortgage-Backed Securities	197,356,288		3,664,621		582,902		200,438,007
	$	408,695,280	$	8,410,493	$	2,460,933	$	414,644,840
	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair value
Student Loan Pools	$	12,934,037	$	20,713	$	69,249	$	12,885,501
SBA Bonds	125,777,016		560,352		890,837		125,446,531
Tax Exempt Municipal Bonds	60,141,164		1,518,974		329,769		61,330,369
Taxable Municipal Bonds	1,998,258		3,546		23,919		1,977,885
Mortgage-Backed Securities	185,291,038		1,073,432		1,903,919		184,460,551
	$	386,141,513	$	3,177,017	$	3,217,693	$	386,100,837

Schedule of Available For Sale Securities, Contractual Maturities

	Amortized Cost		Fair Value
Due in less than one year	$	18,237	$	18,134
Due in one year to five years	6,314,205		6,342,172
Due in five to ten years	57,236,558		57,209,659
Due in ten years or more	147,769,992		150,636,868
Mortgage-Backed Securities	197,356,288		200,438,007
	$	408,695,280	$	414,644,840

Schedule of Temporarily Impaired Securities, Fair Value and Unrealized Losses

The tables below summarize gross unrealized losses and the related fair value, aggregated by investment category and length of time that individual available for sale securities have been in a continuous unrealized loss position for the periods indicated.

	December 31, 2019
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Student Loan Pools	$	30,079,497	$	534,048	$	10,152,333	$	322,353	$	40,231,830	$	856,401
SBA Bonds	13,844,666		106,110		47,395,036		550,834		61,239,702		656,944
Taxable Municipal Bonds	13,810,279		364,686		—		—		13,810,279		364,686
Mortgage-Backed Securities	55,326,064		480,958		7,975,863		101,944		63,301,927		582,902
	$	113,060,506	$	1,485,802	$	65,523,232	$	975,131	$	178,583,738	$	2,460,933

	December 31, 2018
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Student Loan Pools	$	8,384,145	$	69,249	$	—	$	—	$	8,384,145	$	69,249
SBA Bonds	59,496,936		479,955		25,054,861		410,882		84,551,797		890,837
Tax Exempt Municipal Bonds	4,585,849		91,281		9,626,613		238,488		14,212,462		329,769
Taxable Municipal Bonds	—		—		980,520		23,919		980,520		23,919
Mortgage-Backed Securities	38,168,598		249,050		81,947,249		1,654,869		120,115,847		1,903,919
	$	110,635,528	$	889,535	$	117,609,243	$	2,328,158	$	228,244,771	$	3,217,693

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Quarterly Financial Data (Unaudited)

12 Months Ended

Dec. 31, 2019

Quarterly Financial Information Disclosure [Abstract]

Quarterly Financial Data (Unaudited)

23)         Quarterly Financial Data (Unaudited)

Unaudited condensed financial data by quarter for the years ended December 31, 2019 and 2018 is as follows (dollars, except per share data, in thousands):

	Quarter ended
	3/31/2019		6/30/2019		9/30/2019		12/31/2019
Interest Income	$	9,031	$	9,128	$	9,641	$	9,134
Interest Expense	1,774		2,009		2,291		2,237
Net Interest Income	7,257		7,119		7,350		6,897
Provision for Loan Losses	100		—		75		200
Net Interest Income After Provision for Loan Losses	7,157		7,119		7,275		6,697
Non-interest Income	2,196		2,492		2,408		2,000
Non-interest Expense	6,744		7,241		6,989		6,896
Income Before Income Tax	2,609		2,370		2,694		1,801
Provision for Income Taxes	520		486		475		199
Net Income	$	2,089	$	1,884	$	2,219	$	1,602
Basic Net Income Per Common Share	$	0.71	$	0.64	$	0.75	$	0.54
Diluted Net Income Per Common Share	$	0.67	$	0.61	$	0.71	$	0.51
Basic Weighted Average Shares Outstanding	2,954,515		2,955,650		2,956,156		2,956,600
Diluted Weighted Average Shares Outstanding	3,256,715		3,257,850		3,258,356		3,258,800

	Quarter ended
	3/31/2018		6/30/2018		9/30/2018		12/31/2018
Interest Income	$	7,774	$	8,029	$	8,507	$	8,763
Interest Expense	1,169		1,286		1,430		1,565
Net Interest Income	6,605		6,743		7,077		7,198
Provision For Loan Losses	—		—		150		775
Net Interest Income After Provision for Loan Losses	6,605		6,743		6,927		6,423
Non-interest Income	2,044		1,744		2,070		1,811
Non-interest Expense	6,519		6,240		6,418		6,413
Income Before Income Tax	2,130		2,247		2,579		1,821
Provision for Income Taxes	400		427		471		271
Net Income	$	1,730	$	1,820	$	2,108	$	1,550
Basic Net Income Per Common Share	$	0.59	$	0.62	$	0.71	$	0.52
Diluted Net Income Per Common Share	$	0.56	$	0.59	$	0.68	$	0.50
Basic Weighted Average Shares Outstanding	2,953,180		2,953,412		2,953,424		2,953,763
Diluted Weighted Average Shares Outstanding	3,257,532		3,257,017		3,256,624		3,256,963

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Junior Subordinated Debentures

12 Months Ended

Dec. 31, 2019

Debt Disclosure [Abstract]

Junior Subordinated Debentures

Junior Subordinated Debentures

On September 21, 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”), which are reported on the consolidated balance sheet as junior subordinated debentures, generating proceeds of $5.2 million. The Trust loaned these proceeds to the Company to use for general corporate purposes, primarily to provide capital to the Bank.

The Capital Securities accrue and pay distributions quarterly at a floating rate of three month LIBOR plus 170 basis points which was a rate per annum equal to 3.59% and 4.49%at December 31, 2019 and 2018, respectively. The distribution rate payable on the Capital Securities is cumulative and payable quarterly in arrears.

The Company has the right, subject to events of default, to defer payments of interest on the Capital Securities for a period not to exceed 20 consecutive quarterly periods, provided that no extension period may extend beyond the maturity date of December 15, 2036. The Company has no current intention to exercise its right to defer payments of interest on the Capital Securities. 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.

(14)Subordinated Debentures

On November 22, 2019, the Company sold and issued to certain institutional investors $17.5 million in aggregate principal amount of 5.25% fixed-to-floating rate subordinated notes due 2029 (the “10-Year Notes”) and $12.5 million in aggregate principal amount of 5.25% fixed-to-floating rate subordinated notes due 2034 (the “15-Year Notes”, and together with the 10-Year Notes, the “Notes”). The 10-Year Notes have a stated maturity of November 22, 2029, and bear interest at a fixed rate of 5.25% per year, from and including November 22, 2019 but excluding November 22, 2024. From and including November 22, 2024 to but excluding the maturity date or early redemption date, the interest rate shall reset semi-annually to an interest rate equal to the then-current three-month LIBOR rate plus 369 basis points. The 15-Year Notes have a stated maturity of November 22, 2034, and bear interest at a fixed rate of 5.25% per year, from and including November 22, 2019 but excluding November 22, 2029. From and including November 22, 2029 to but excluding the maturity date or early redemption date, the interest rate for the 15-Year Notes shall reset semi-annually to an interest rate equal to the then-current three-month LIBOR rate plus 357 basis points. The Notes are payable semi-annually in arrears on June 1 and December 1 of each year commencing June 1, 2020.

The Notes are not subject to redemption at the option of the holder and may be redeemed by the Company only under certain limited circumstances prior to November 22, 2024, with respect to the 10-Year Notes, and November 22, 2029, with respect to the 15-Year Notes. The Company may redeem the 10-Year Notes and the 15-Year Notes at its option, in whole at any time, or in part from time to time, after November 22, 2024 and November 22, 2029, respectively. The Notes are unsecured, subordinated obligations of the Company and rank junior in right to payment to the Company’s current and future senior indebtedness, and each Note is equal in right to payment with respect to the other Notes.

The Notes have been structured to qualify as Tier 2 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.

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Investment and Mortgage-Backed Securities, Held to Maturity

12 Months Ended

Dec. 31, 2019

Investments, Debt and Equity Securities [Abstract]

Investment and Mortgage-Backed Securities, Held to Maturity

Investment and Mortgage-Backed Securities, Held to Maturity

At December 31, 2019, the Company's entire held to maturity portfolio was comprised of mortgage-backed securities. The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of held to maturity securities at December 31, 2019 and 2018 were as follows:

	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Mortgage-Backed Securities (1)	$	19,246,935	$	560,067	$	1,161	$	19,805,841
Total Held To Maturity	$	19,246,935	$	560,067	$	1,161	$	19,805,841
	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
FHLMC Bond	$	998,541	$	—	$	20,564	$	977,977
Mortgage-Backed Securities (1)	22,639,472		78,281		446,330		22,271,423
Total Held To Maturity	$	23,638,013	$	78,281	$	466,894	$	23,249,400

^{(1) COMPRISED OF GSES OR GNMA MORTGAGE-BACKED SECURITIES} 

The Company’s held to maturity portfolio is recorded at amortized cost.  The Company has the ability and intent to hold these securities to maturity. At December 31, 2019, the Bank held an amortized cost and fair value of $11.3 million and $11.6 million, respectively, in GNMA mortgage-backed securities classified as held to maturity compared to an amortized cost and fair value of $13.3 million and $13.1 million, respectively, at December 31, 2018. The Company has not invested in any private label mortgage-backed securities classified as held to maturity.

At December 31, 2019, the amortized cost and fair value of mortgage-backed securities held to maturity that were pledged as collateral for certain deposit accounts, FHLB advances and other borrowings were $17.5 million and $18.0 million, respectively, compared to an amortized cost and fair value of $19.8 million and $19.4 million, respectively, at December 31, 2018. The following tables show gross unrealized losses, fair value and length of time that individual held to maturity securities were in a continuous unrealized loss position at December 31, 2019 and 2018.

	December 31, 2019
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Mortgage-Backed Securities (1)	$	—	$	—	$	820,313	$	1,161	$	820,313	$	1,161
	$	—	$	—	$	820,313	$	1,161	$	820,313	$	1,161
	December 31, 2018
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
FHLMC Bond	$	—	$	—	$	977,977	$	20,564	$	977,977	$	20,564
Mortgage-Backed Securities (1)	—		—		16,855,973		446,330		16,855,973		446,330
	$	—	$	—	$	17,833,950	$	466,894	$	17,833,950	$	466,894

^{(1) COMPRISED OF GSES OR GNMA MORTGAGE-BACKED SECURITIES}

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FHLB Stock

12 Months Ended

Dec. 31, 2019

Federal Home Loan Banks [Abstract]

FHLB Stock

FHLB Stock

The Bank, as a member of the FHLB of Atlanta, is required to acquire and hold shares of capital stock in the FHLB of Atlanta in an amount equal to a membership component, which was 0.09% of total assets at both December 31, 2019 and 2018, plus a transaction component equal to 4.25% of outstanding advances (borrowings) from the FHLB of Atlanta at December 31, 2019 and 2018.  The Bank is in compliance with this requirement with an investment in FHLB of Atlanta stock of $2.5 million and $2.2 million at December 31, 2019 and 2018, respectively. No readily available market exists for this stock and it has no quoted fair value.  However, because redemption of this stock has historically been at par, it is carried at cost.

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Advances From Federal Home Loan Bank (FHLB) And Other Borrowings (Advances from the FHLB summarized by year of maturity and weighted average interest rate) (Details) - USD ($)	Dec. 31, 2019	Dec. 31, 2018
Federal Home Loan Bank, Advances, Fiscal Year Maturity [Abstract]
Due in Next Twelve Months	$ 13,138,000
Due in Year Three	25,000,000
Advances From FHLB	$ 38,138,000	$ 34,030,000
Federal Home Loan Bank, Advances, Maturities Summary, Average Interest Rate of Amounts Due [Abstract]
Weighted Rate of Amounts Due within One Year of Balance Sheet Date	1.88%
Weighted Rate, Two to Three Years from Balance Sheet Date	1.97%
Federal Home Loan Bank, Advances, Weighted Rate	1.94%
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures [Abstract]
Federal Home Loan Bank, Advances, Collateral Pledged, Amortized Cost	$ 100,500,000	79,100,000
Federal Home Loan Bank, Advances, Collateral Pledged, Fair Value	$ 96,700,000	$ 71,400,000

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Regulatory Matters (Regulatory capital amounts and ratios) (Details) - Security Federal Bank [Member]	Dec. 31, 2018
Tier 1 Risk-Based Core Capital (To Risk Weighted Assets)
For Capital Adequacy, Ratio	6.00%
To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	8.00%
Total Risk-Based Capital (To Risk Weighted Assets)
For Capital Adequacy, Ratio	8.00%
To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	10.00%
Tier 1 Leverage (Core) Capital (To Adjusted Tangible Assets)
For Capital Adequacy, Ratio	4.00%
To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	5.00%

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Income Taxes (Income tax expense) (Details) - USD ($)	3 Months Ended								12 Months Ended
	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Current Income Tax Expense (Benefit), Continuing Operations [Abstract]
Federal									$ 1,437,595	$ 1,454,049	$ 1,500,337
State									145,412	202,292	209,396
Total Current Tax Expense									1,583,007	1,656,341	1,709,733
Deferred Income Tax Expense (Benefit), Continuing Operations [Abstract]
Federal									105,960	(79,034)	736,390
State									(9,417)	(7,781)	(10,663)
Total Deferred Tax Expense (Benefit)									96,543	(86,815)	725,727
Total Income Tax Expense	$ 199,000	$ 475,000	$ 486,000	$ 520,000	$ 271,000	$ 471,000	$ 427,000	$ 400,000	$ 1,679,550	$ 1,569,526	1,829,267
Tax Cuts and Jobs Act, Change in Tax Rate, Deferred Tax Asset, Income Tax Expense											$ 2,435,460

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FHLB Stock (Details) - USD ($)	Dec. 31, 2019	Dec. 31, 2018
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Federal Home Loan Bank (FHLB) Stock, at Cost	$ 2,536,500	$ 2,204,000
Federal Home Loan Bank of Atlanta [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Federal Home Loan Bank Stock, Membership Component, Percent of Total Assets	0.09%	0.09%
Federal Home Loan Bank Stock, Transaction Component, % of Outstanding Advances	4.30%
Federal Home Loan Bank (FHLB) Stock, at Cost		$ 2,200,000

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Stock Warrants (Details) - USD ($)	Jul. 31, 2013	Dec. 31, 2008
Class of Warrant or Right [Line Items]
Payments for Repurchase of Warrants	$ 50,000
Adjustments to Additional Paid in Capital, Warrant Repurchased	$ 350,000
US Department of Treasury Capital Purchase Program [Member]
Class of Warrant or Right [Line Items]
Class of Warrant or Right, Number of Securities Called by Each Warrant or Right		137,966

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Junior Subordinated Debentures (Details) - Junior Subordinated Debt [Member] - Capital Securities [Member] $ in Millions		12 Months Ended
	Sep. 21, 2006 USD ($)	Dec. 31, 2019 QuarterlyPeriods	Dec. 31, 2018
Debt Instrument [Line Items]
Proceeds from Issuance of Subordinated Long-term Debt | $	$ 5.2
Annual Distribution Rate		4.49%
Floating basis spread on variable rate		1.70%	1.70%
Debt Instrument, Rights to Defer Interest Payments, Consecutive Quarterly Periods | QuarterlyPeriods		20

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Significant Accounting Policies (Narrative) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Accounting Policies [Abstract]
Cash Equivalents, Original Maturity Period, Maximum	3 months
Loans and Leases Receivable, Placed on Nonaccrual Status, Period Delinquent	90 days
Advertising	$ 796,213	$ 546,799	$ 596,440

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Investment and Mortgage-Backed Securities, Held to Maturity (Schedule of investment and mortgage-backed securities held to maturity) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Schedule of Held-to-maturity Securities [Line Items]
Debt Securities, Held-to-maturity, Continuous Unrealized Loss Position, Less than 12 Months, Fair Value	$ 0
Held to maturity, gross unrealized gains	560,067	$ 78,281
Held to maturity, gross unrealized losses	1,161	466,894
Held To Maturity, Amortized Cost	19,246,935	23,638,013
Fair Value of Investment And Mortgage-Backed Securities Held To Maturity	19,805,841	23,249,400
Debt Securities, Held-to-maturity, Restricted [Extensible List]	17,500,000
Debt Securities, Held-to-maturity, Continuous Unrealized Loss Position, Less than 12 Months, Accumulated Loss	0
Debt Securities, Held-to-maturity, Continuous Unrealized Loss Position, 12 Months or Longer, Fair Value	820,313
Debt Securities, Held-to-maturity, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss	1,161
Debt Securities, Held-to-maturity, Unrealized Loss Position, Fair Value	820,313
Debt Securities, Held-to-maturity, Unrealized Loss Position, Accumulated Loss	1,161
Held to maturity pledged as collateral, fair value	18,000,000	19,800,000
US Government Agencies Debt Securities [Member]
Schedule of Held-to-maturity Securities [Line Items]
Fair Value of Investment And Mortgage-Backed Securities Held To Maturity	11,600,000	13,100,000
Debt Securities, Held-to-maturity	11,300,000
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Schedule of Held-to-maturity Securities [Line Items]
Debt Securities, Held-to-maturity, Continuous Unrealized Loss Position, Less than 12 Months, Fair Value	0	0
Held to maturity, gross unrealized gains	560,067	78,281
Held to maturity, gross unrealized losses	1,161	446,330
Fair Value of Investment And Mortgage-Backed Securities Held To Maturity	19,805,841	22,271,423
Debt Securities, Held-to-maturity	19,246,935	22,639,472
Debt Securities, Held-to-maturity, Continuous Unrealized Loss Position, Less than 12 Months, Accumulated Loss	0	0
Debt Securities, Held-to-maturity, Continuous Unrealized Loss Position, 12 Months or Longer, Fair Value	820,313	16,855,973
Debt Securities, Held-to-maturity, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss	1,161	446,330
Debt Securities, Held-to-maturity, Unrealized Loss Position, Fair Value	820,313	16,855,973
Debt Securities, Held-to-maturity, Unrealized Loss Position, Accumulated Loss	$ 1,161	446,330
US Government-sponsored Enterprises Debt Securities [Member]
Schedule of Held-to-maturity Securities [Line Items]
Held to maturity, gross unrealized gains		0
Held to maturity, gross unrealized losses		20,564
Fair Value of Investment And Mortgage-Backed Securities Held To Maturity		977,977
Debt Securities, Held-to-maturity		$ 998,541

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Intangible Assets and Goodwill (Changes in intangible assets and goodwill) (Details) - USD ($)	Dec. 31, 2019	Dec. 31, 2018
Intangible Assets, Net (Including Goodwill) [Abstract]
Goodwill	$ 1,199,754	$ 1,199,754

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Carrying Amounts and Fair Value of Financial Instruments (Significant unobservable inputs used in the fair value measurements) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Investment Securities, Available For Sale	$ 414,644,840	$ 386,100,837
Impaired Loans | Fair Value, Nonrecurring [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair Value Measurements, Valuation Processes, Description	Appraised Value
Significant Unobservable Inputs	Discount Rates/ Discounts to Appraised Values
Foreclosed Assets | Fair Value, Nonrecurring [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair Value Measurements, Valuation Processes, Description	Appraised Value/Comparable Sales
Significant Unobservable Inputs	Discount Rates/ Discounts to Appraised Values
Minimum | Impaired Loans | Fair Value, Nonrecurring [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Significant Unobservable Inputs, Percentage Range	7.00%	0.00%
Minimum | Foreclosed Assets | Fair Value, Nonrecurring [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Significant Unobservable Inputs, Percentage Range	16.00%	13.00%
Maximum | Impaired Loans | Fair Value, Nonrecurring [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Significant Unobservable Inputs, Percentage Range	97.00%	98.00%
Maximum | Foreclosed Assets | Fair Value, Nonrecurring [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Significant Unobservable Inputs, Percentage Range	100.00%	100.00%

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Loans Receivable, Net (Past Due Financing Receivables) (Details) - USD ($)	Dec. 31, 2019	Dec. 31, 2018
Financing Receivable, Past Due [Line Items]
Total Past Due	$ 6,668,150	$ 6,700,027
Current	461,852,261	438,220,068
Total	468,520,411	444,920,095
Residential Real Estate
Financing Receivable, Past Due [Line Items]
Total Past Due	499,499	829,713
Current	85,904,805	83,135,703
Total	86,404,304	83,965,416
Consumer
Financing Receivable, Past Due [Line Items]
Total Past Due	721,721	1,924,154
Current	55,609,292	54,983,401
Total	56,331,013	56,907,555
Commercial Business
Financing Receivable, Past Due [Line Items]
Total Past Due	244,790	330,424
Current	21,989,399	27,756,262
Total	22,234,189	28,086,686
Commercial Real Estate
Financing Receivable, Past Due [Line Items]
Total Past Due	5,202,140	3,615,736
Current	298,348,765	272,344,702
Total	303,550,905	275,960,438
Financial Asset, 30 to 59 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Total Past Due	4,419,826	2,318,274
Financial Asset, 30 to 59 Days Past Due [Member] | Residential Real Estate
Financing Receivable, Past Due [Line Items]
Total Past Due	0	0
Financial Asset, 30 to 59 Days Past Due [Member] | Consumer
Financing Receivable, Past Due [Line Items]
Total Past Due	422,443	555,798
Financial Asset, 30 to 59 Days Past Due [Member] | Commercial Business
Financing Receivable, Past Due [Line Items]
Total Past Due	147,959	205,613
Financial Asset, 30 to 59 Days Past Due [Member] | Commercial Real Estate
Financing Receivable, Past Due [Line Items]
Total Past Due	3,849,424	1,556,863
Financial Asset, 60 to 89 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Total Past Due	649,347	1,110,160
Financial Asset, 60 to 89 Days Past Due [Member] | Residential Real Estate
Financing Receivable, Past Due [Line Items]
Total Past Due	355,290	332,000
Financial Asset, 60 to 89 Days Past Due [Member] | Consumer
Financing Receivable, Past Due [Line Items]
Total Past Due	217,542	247,894
Financial Asset, 60 to 89 Days Past Due [Member] | Commercial Business
Financing Receivable, Past Due [Line Items]
Total Past Due	76,515	106,163
Financial Asset, 60 to 89 Days Past Due [Member] | Commercial Real Estate
Financing Receivable, Past Due [Line Items]
Total Past Due	0	424,103
Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Total Past Due	1,598,977	3,271,593
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Residential Real Estate
Financing Receivable, Past Due [Line Items]
Total Past Due	144,209	497,713
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Consumer
Financing Receivable, Past Due [Line Items]
Total Past Due	81,736	1,120,462
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial Business
Financing Receivable, Past Due [Line Items]
Total Past Due	20,316	18,648
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial Real Estate
Financing Receivable, Past Due [Line Items]
Total Past Due	$ 1,352,716	$ 1,634,770

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Related Party Transactions (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Management [Member]
Loans and Leases Receivable, Related Parties [Roll Forward]
Balance, Beginning of Period	$ 32,961	$ 94,292	$ 141,972
New Loans	417,590	674	1,078
Less Loan Payments	(19,035)	(62,005)	(48,758)
Balance, End of Period	431,516	32,961	$ 94,292
Related Party Deposit Liabilities	$ 15,900,000	$ 14,900,000
All Employees, Officers and Directors [Member]
Loans and Leases Receivable, Related Parties [Roll Forward]
Loans and Leases Receivable, Related Party, Aggregate as Percent of Equity	4.50%	3.90%
Director and Officer [Member]
Loans and Leases Receivable, Related Parties [Roll Forward]
Related Party Transaction, Expenses from Transactions with Related Party	$ 88,000

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Security Federal Corporation Condensed Financial Statements (Parent Company Only) (Condensed Statements of Income Data) (Details) - USD ($)	3 Months Ended								12 Months Ended
	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Income:
SEC Schedule, 12-04, Cash Dividends Paid to Registrant, Subsidiaries and Equity Method Investees									$ 6,400,000	$ 6,400,000	$ 6,400,000
Interest Income	$ 9,134,000	$ 9,641,000	$ 9,128,000	$ 9,031,000	$ 8,763,000	$ 8,507,000	$ 8,029,000	$ 7,774,000	36,934,111	33,072,075	29,786,905
Miscellaneous Income	2,000,000	2,408,000	2,492,000	2,196,000	1,811,000	2,070,000	1,744,000	2,044,000	9,097,143	7,669,146	7,344,283
Expenses:
Interest Expense	2,237,000	2,291,000	2,009,000	1,774,000	1,565,000	1,430,000	1,286,000	1,169,000	8,311,500	5,449,419	4,175,301
Other Expenses									5,262,101	5,086,386	4,897,871
Income Before Income Taxes	1,801,000	2,694,000	2,370,000	2,609,000	1,821,000	2,579,000	2,247,000	2,130,000	9,474,037	8,776,747	8,353,800
Income Tax Benefit	199,000	475,000	486,000	520,000	271,000	471,000	427,000	400,000	1,679,550	1,569,526	1,829,267
Net Income	$ 1,602,000	$ 2,219,000	$ 1,884,000	$ 2,089,000	$ 1,550,000	$ 2,108,000	$ 1,820,000	$ 1,730,000	7,794,487	7,207,221	5,918,340
Net Income Available To Common Shareholders									7,794,487	7,207,221
Parent Company [Member]
Income:
Equity in Earnings of Security Federal Bank									2,092,130	1,523,443	136,682
Interest Income									0	0	118,725
Miscellaneous Income									62,390	21,235	15,807
Total Income									8,554,520	7,944,678	6,671,214
Expenses:
Interest Expense									906,152	916,832	1,057,065
Other Expenses									39,331	11,099	14,349
Total Expenses									945,483	927,931	1,071,414
Income Before Income Taxes									7,609,037	7,016,747	5,599,800
Income Tax Benefit									(185,450)	(190,474)	(318,540)
Net Income									$ 7,794,487	$ 7,207,221	$ 5,918,340

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Loans Receivable, Net (Summary of loans restructured as Troubled Debt Restructurings) (Details)	12 Months Ended
	Dec. 31, 2018 loan
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Contracts - Troubled Debt Restructurings That Subsequently Defaulted During the Period	0

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Quarterly Financial Data (Unaudited) (Details) - USD ($)	3 Months Ended								12 Months Ended
	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Quarterly Financial Information Disclosure [Abstract]
Interest Income	$ 9,134,000	$ 9,641,000	$ 9,128,000	$ 9,031,000	$ 8,763,000	$ 8,507,000	$ 8,029,000	$ 7,774,000	$ 36,934,111	$ 33,072,075	$ 29,786,905
Interest Expense	2,237,000	2,291,000	2,009,000	1,774,000	1,565,000	1,430,000	1,286,000	1,169,000	8,311,500	5,449,419	4,175,301
Net Interest Income	6,897,000	7,350,000	7,119,000	7,257,000	7,198,000	7,077,000	6,743,000	6,605,000	28,622,611	27,622,656	25,611,604
Provision For Loan Losses	200,000	75,000	0	100,000	775,000	150,000	0	0	375,000	925,000	300,000
Net Interest Income After Provision For Loan Losses	6,697,000	7,275,000	7,119,000	7,157,000	6,423,000	6,927,000	6,743,000	6,605,000	28,247,611	26,697,656	25,311,604
Non-Interest Income	2,000,000	2,408,000	2,492,000	2,196,000	1,811,000	2,070,000	1,744,000	2,044,000	9,097,143	7,669,146	7,344,283
Non-interest Expense	6,896,000	6,989,000	7,241,000	6,744,000	6,413,000	6,418,000	6,240,000	6,519,000	27,870,717	25,590,055	24,302,087
Income Before Income Taxes	1,801,000	2,694,000	2,370,000	2,609,000	1,821,000	2,579,000	2,247,000	2,130,000	9,474,037	8,776,747	8,353,800
Provision For Income Taxes	199,000	475,000	486,000	520,000	271,000	471,000	427,000	400,000	1,679,550	1,569,526	1,829,267
Net Income	$ 1,602,000	$ 2,219,000	$ 1,884,000	$ 2,089,000	$ 1,550,000	$ 2,108,000	$ 1,820,000	$ 1,730,000	7,794,487	7,207,221	$ 5,918,340
Net Income Available To Common Shareholders									$ 7,794,487	$ 7,207,221
Net Income Per Common Share (Basic)	$ 0.54	$ 0.75	$ 0.64	$ 0.71	$ 0.52	$ 0.71	$ 0.62	$ 0.59	$ 2.64	$ 2.44	$ 2.01
Net Income Per Common Share (Diluted)	$ 0.51	$ 0.71	$ 0.61	$ 0.67	$ 0.50	$ 0.68	$ 0.59	$ 0.56	$ 2.50	$ 2.32	$ 1.91
Weighted Average Shares Outstanding (Basic)	2,956,600	2,956,156	2,955,650	2,954,515	2,953,763	2,953,424	2,953,412	2,953,180	2,955,737	2,953,446	2,945,918
Weighted Average Shares Outstanding (Diluted)	3,258,800	3,258,356	3,257,850	3,256,715	3,256,963	3,256,624	3,257,017	3,257,532	3,257,937	3,256,646	3,250,069

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Security Federal Corporation Condensed Financial Statements (Parent Company Only) (Tables)

12 Months Ended

Dec. 31, 2019

Condensed Financial Information Disclosure [Abstract]

Condensed Balance Sheet Data

Condensed Balance Sheet Data

	December 31,
	2019		2018
Assets:
Cash	$	25,685,744	$	3,619,418
Investment in Security Federal Statutory Trust	155,000		155,000
Investment in Security Federal Bank	106,947,285		90,359,718
Accounts Receivable and Other Assets	386,889		14,492
Total Assets	$	133,174,918	$	94,148,628
Liabilities and Shareholders’ Equity:
Accounts Payable and Other Liabilities	$	219,213	$	49,995
Long-term Debt	41,199,000		13,581,500
Shareholders’ Equity	91,756,705		80,517,133
Total Liabilities and Shareholders’ Equity	$	133,174,918	$	94,148,628

Condensed Statements of Income Data

Condensed Statements of Income Data

	Years Ended December 31,
	2019			2018			2017
Income:
Equity in Earnings of Security Federal Bank	$	2,092,130		$	1,523,443		$	136,682
Dividend Income from Security Federal Bank	6,400,000			6,400,000			6,400,000
Gain on Sale of Investments	—			—			118,725
Miscellaneous Income	62,390			21,235			15,807
Total Income	8,554,520			7,944,678			6,671,214
Expenses:
Interest Expense	906,152			916,832			1,057,065
Other Expenses	39,331			11,099			14,349
Total Expenses	945,483			927,931			1,071,414
Income Before Income Taxes	7,609,037			7,016,747			5,599,800
Income Tax Benefit	(185,450		)	(190,474		)	(318,540		)
Net Income	$	7,794,487		$	7,207,221		$	5,918,340

Condensed Statements of Cash Flow Data

Condensed Statements of Cash Flow Data

	Years Ended December 31,
	2019			2018			2017
Operating Activities:
Net Income	$	7,794,487		$	7,207,221		$	5,918,340
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:
Equity in Earnings of Security Federal Bank	(2,092,130		)	(1,523,443		)	(136,682		)
Deferred Compensation Expense	—			—			25,358
(Increase) Decrease in Accounts Receivable and Other Assets	(372,398		)	13,666			3,117
Increase (Decrease) in Accounts Payable	169,218			1,635			(33,612		)
Net Cash Provided By Operating Activities	5,499,177			5,699,079			5,776,521
Investing Activities:
Capital Pushdown to Security Federal Bank	(10,000,000		)	—			—
Proceeds from Sale of Investments	—			—			95,438
Net Cash (Used) Provided By Investing Activities	(10,000,000		)	—			95,438
Financing Activities:
Redemption of Convertible Debentures	—			—			(20,000		)
Proceeds from Stock Options Exercised	—			10,310			176,175
Employee Stock Plan Purchases	52,868			12,196			—
Proceeds from Subordinated Debentures	30,000,000			—			—
Repayment of Note Payable	(2,362,500		)	(6,137,500		)	(4,500,000		)
Dividends Paid to Shareholders-Common Stock	(1,123,219		)	(1,063,626		)	(1,060,729		)
Net Cash Provided (Used) By Financing Activities	26,567,149			(7,178,620		)	(5,404,554		)
Net Increase (Decrease) in Cash	22,066,326			(1,479,541		)	467,405
Cash at Beginning of Period	3,619,418			5,098,959			4,631,554
Cash at End of Period	$	25,685,744		$	3,619,418		$	5,098,959

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income tax expense

Income tax expense was comprised of the following for the dates indicated below:

	Years Ended December 31,
	2019			2018			2017
Current:
Federal	$	1,437,595		$	1,454,049		$	1,500,337
State	145,412			202,292			209,396
Total Current Tax Expense	1,583,007			1,656,341			1,709,733
Deferred:
Federal	105,960			(79,034		)	736,390
State	(9,417		)	(7,781		)	(10,663		)
Total Deferred Tax Expense (Benefit)	96,543			(86,815		)	725,727
Total Income Tax Expense	$	1,679,550		$	1,569,526		$	2,435,460

Income tax reconciliation

	Years Ended December 31,
	2019			2018			2017
Tax at Statutory Income Tax Rate	$	1,989,548		$	1,843,117		$	2,840,292
State Tax and Other	100,820			157,417			44,764
Tax Exempt Interest	(291,768		)	(338,497		)	(730,477		)
Life Insurance	(142,508		)	(113,400		)	(394,445		)
Valuation Allowance	23,458			20,889			69,133
Impact of Federal Rate Change on Deferred Taxes	—			—			606,193
Total Income Tax Expense	$	1,679,550		$	1,569,526		$	2,435,460

Deferred tax assets and deferred tax liabilities

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2019 and 2018 are presented below. Net deferred tax assets were included in other assets at December 31, 2019 and 2018.

	December 31,
	2019			2018
Deferred Tax Assets:
Deferred Compensation	$	587,322		$	498,764
Provision for Loan Losses	2,000,131			1,978,481
Other Real Estate Owned	—			18,283
Net Fees Deferred for Financial Reporting	76,262			73,892
Net Operating Losses	356,759			333,301
Other	126,492			240,724
Total Gross Deferred Tax Assets	3,146,966			3,143,445
Less: Valuation Allowance	(356,759		)	(333,301		)
Net Deferred Tax Assets	2,790,207			2,810,144
Deferred Tax Liabilities:
FHLB Stock Basis Over Tax Basis	72,208			71,717
Depreciation	585,520			507,601
Prepaid Expenses	35,033			36,837
Unrealized Gain on Securities Available for Sale	1,473,077			10,487
Total Gross Deferred Tax Liability	2,165,838			626,642
Net Deferred Tax Asset	$	624,369		$	2,183,502

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Regulatory Matters

12 Months Ended

Dec. 31, 2019

Banking and Thrift [Abstract]

Regulatory Matters

Regulatory Matters

The Bank, as a state-chartered, federally insured savings bank, is subject to the capital requirements established by the FDIC. Under the FDIC's capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.

The Company is a bank holding company registered with the Federal Reserve. Bank holding companies are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve. For a bank holding company with less than $3.0 billion in assets, the capital guidelines apply on a bank only basis and the Federal Reserve expects the holding company's subsidiary banks to be well-capitalized under the prompt corrective action regulations. If Security Federal Corporation was subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at December 31, 2019, it would have exceeded all regulatory capital requirements with Common Equity Tier 1 ("CET1") capital, Tier 1 leverage-based capital, Tier 1 risk-based capital and total risk-based capital ratios of 15.4%, 9.6%, 16.3% and 23.0%, respectively.

Based on its capital levels at December 31, 2019, 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 December 31, 2019, the Bank was considered to be "well-capitalized" under applicable regulatory requirements. Management monitors the capital levels to provide for current and future business opportunities and to maintain the Bank's "well-capitalized" status.

The tables below provide the Bank’s regulatory capital requirements and actual results at December 31, 2019 and 2018.

	Actual				For Capital Adequacy				To Be Well Capitalized
(Dollars in Thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2019
Tier 1 Risk-Based Core Capital (To Risk Weighted Assets)	$	101,280	18.2	%	$	33,418	6.0	%	$	44,558	8.0	%
Total Risk-Based Capital (To Risk Weighted Assets)	108,270		19.4	%	44,558		8.0	%	55,697		10.0	%
Common Equity Tier 1 Capital (To Risk Weighted Assets)	101,280		18.2	%	25,064		4.5	%	36,203		6.5	%
Tier 1 Leverage (Core) Capital (To Adjusted Tangible Assets)	101,280		10.4	%	39,134		4.0	%	48,917		5.0	%
December 31, 2018
Tier 1 Risk-Based Core Capital (To Risk Weighted Assets)	$	89,188	16.2	%	$	33,005	6.0	%	$	44,007	8.0	%
Total Risk-Based Capital (To Risk Weighted Assets)	96,092		17.5	%	44,007		8.0	%	55,009		10.0	%
Common Equity Tier 1 Capital (To Risk Weighted Assets)	89,188		16.2	%	24,754		4.5	%	35,756		6.5	%
Tier 1 Leverage (Core) Capital (To Adjusted Tangible Assets)	89,188		9.8	%	36,486		4.0	%	45,608		5.0	%

In addition to the minimum capital requirements, the Bank must maintain a capital conservation buffer, consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses. At December 31, 2019 the Bank’s conservation buffer was 11.4%.

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Related Party Transactions

12 Months Ended

Dec. 31, 2019

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

Certain directors, executive officers and companies with which they are affiliated are customers of, and have banking transactions with, the Bank in the ordinary course of business. These loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable arms-length transactions. A summary of loan transactions with directors, including their affiliates, and executive officers follows:

	Years Ended December 31,
	2019			2018			2017
Balance, Beginning of Period	$	32,961		$	94,292		$	141,972
New Loans	417,590			674			1,078
Less Loan Payments	(19,035		)	(62,005		)	(48,758		)
Balance, End of Period	$	431,516		$	32,961		$	94,292

Loans to all employees, officers, and directors of the Company, in the aggregate constituted approximately 4.5% and 3.9% of the Company’s total shareholders' equity at December 31, 2019 and 2018, respectively.  Deposits from executive officers and directors of the Company and the Bank and their related interests were approximately $15.9 million at $14.9 million at December 31, 2019 and 2018 and have substantially the same terms, including interest rates, as those prevailing at the time with other non-related depositors.

The Company leased office space from a related party during the years ended December 31, 2019, 2018 and 2017. The lease is with a company in which the related party, who is a director of the Company, has an ownership interest.  The Company incurred rent expense of $87,600, $85,000 and $83,000 for the years ended December 31, 2019, 2018 and 2017, respectively, related to this lease.  Management is of the opinion that the transactions with respect to office rent were made on terms that are comparable to those which would be made with unaffiliated persons.

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Consolidated Statements of Income - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Interest Income:
Loans	$ 24,669,073	$ 22,903,299	$ 20,072,107
Mortgage-Backed Securities	6,657,925	5,437,099	4,802,240
Investment Securities	5,504,563	4,658,194	4,869,996
Other	102,550	73,483	42,562
Total Interest Income	36,934,111	33,072,075	29,786,905
Interest Expense:
NOW and Money Market Accounts	2,060,844	1,164,373	584,425
Statement Savings Accounts	73,961	54,173	41,819
Certificate Accounts	4,308,596	2,643,555	1,920,182
FHLB Advances and Other Borrowings	961,947	670,486	571,810
Interest Expense, Other	35,515	231,958	419,732
Senior Convertible Debentures	483,520	483,520	486,031
Junior Subordinated Debentures	216,492	201,354	151,302
Total Interest Expense	8,311,500	5,449,419	4,175,301
Net Interest Income	28,622,611	27,622,656	25,611,604
Provision for Loan Losses	(375,000)	(925,000)	(300,000)
Net Interest Income After Provision For Loan Losses	28,247,611	26,697,656	25,311,604
Non-Interest Income:
Gain on Sale of Investment Securities	819,053	573,266	494,146
Gain on Sale of Loans	1,728,741	1,250,530	1,179,837
Service Fees on Deposit Accounts	1,069,470	1,060,159	1,048,345
Commissions From Insurance Agency	674,991	682,367	584,020
Trust Income	1,061,200	974,000	796,000
BOLI Income	678,609	540,000	1,160,133
Check card revenue	1,449,416	1,284,954	1,138,501
Grant Revenue	478,049	343,078	227,282
Other	1,137,614	960,792	716,019
Total Non-Interest Income	9,097,143	7,669,146	7,344,283
Non-Interest Expense:
Compensation and Employee Benefits	16,838,702	15,504,020	14,375,064
Occupancy	2,354,347	2,228,521	2,180,404
Advertising	796,213	546,799	596,440
Depreciation and Maintenance of Equipment	2,601,104	2,307,555	2,057,038
FDIC Insurance Premiums	84,022	278,287	185,541
Net (Recovery) Cost of Operation of OREO	(65,772)	(361,513)	9,729
Payments of FHLBank Borrowings, Financing Activities	0
Other	5,262,101	5,086,386	4,897,871
Total Non-Interest Expense	27,870,717	25,590,055	24,302,087
Income Before Income Taxes	9,474,037	8,776,747	8,353,800
Provision For Income Taxes	1,679,550	1,569,526	1,829,267
income tax expense excluding adjustment		1,569,526
Write down of deferred tax asset	0	0	606,193
Net Income	7,794,487	7,207,221	$ 5,918,340
Net Income Available To Common Shareholders	$ 7,794,487	$ 7,207,221
Net Income Per Common Share (Basic)	$ 2.64	$ 2.44	$ 2.01
Net Income Per Common Share (Diluted)	2.50	2.32	1.91
Cash Dividend Per Share On Common Stock	$ 0.40	$ 0.36	$ 0.36
Weighted Average Shares Outstanding (Basic)	2,955,737	2,953,446	2,945,918
Weighted Average Shares Outstanding (Diluted)	3,257,937	3,256,646	3,250,069

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Consolidated Statements of Cash Flows - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$ 7,794,487	$ 7,207,221	$ 5,918,340
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:
Depreciation Expense	1,589,671	1,500,000	1,500,000
Stock Option Compensation Expense		0	25,358
Discount Accretion and Premium Amortization, Net	5,290,316	5,705,663	5,678,074
Provisions for Loan Losses	375,000	925,000	300,000
Earnings on BOLI	(540,000)	(540,000)	(506,000)
BOLI death benefits	(138,609)	0	(654,133)
Gain on Sales of Loans	(1,728,741)	(1,250,530)	(1,179,837)
Loss (Gain) on Sales of Mortgage-Backed Securities (MBS)	139,390	(139,739)	(246,212)
Gain on Sales of Investment Securities	(958,443)	(204,185)	(248,469)
Gain (Loss) on Sale of Other Investments		(229,342)
Gain on Sales of OREO	(184,864)	(588,720)	(359,629)
Write Down on OREO	22,000	56,000	158,121
Amortization of Deferred Costs on Loans	202,684	110,036	159,284
Proceeds From Sale of Loans Held For Sale	61,466,054	46,595,060	43,156,408
Origination of Loans Held For Sale	(61,945,934)	(44,074,565)	(40,784,614)
Decrease (Increase) in Accrued Interest Receivable:
Loans	45,857	(190,026)	(29,213)
MBS	40,635	(2,849)	16,474
Investment Securities	242,347	(177,883)	(292,038)
(Decrease) Increase in Advance Payments By Borrowers	(50,923)	(11,256)	9,181
Other, Net	233,478	(177,273)	978,912
Net Cash Provided By Operating Activities	12,266,241	14,500,346	13,567,409
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Maturities, Prepayments and Calls of Held-to-maturity Securities	1,000,000	2,000,000	1,000,000
Payments for Other Deposits	0	0	(600,005)
Purchase of MBS Available For Sale (AFS)	(106,828,636)	(55,486,020)	(63,945,253)
Proceeds from Maturities, Prepayments and Calls of MBS AFS	32,283,649	37,491,568	38,559,363
Purchase of MBS Held To Maturity (HTM)	0	(1,989,922)	(2,917,426)
Purchase of Investment Securities AFS	(83,980,247)	(57,280,900)	(95,561,763)
Proceeds from Payments and Maturities of Investment Securities AFS	35,243,895	31,024,291	24,035,102
Maturities of Investment Securities Held To Maturity	3,165,575	3,119,612	3,892,085
Proceeds from Sale of Investment Securities AFS	35,174,873	15,198,888	51,788,340
Payments to Acquire Held-to-maturity Securities	0	0	3,997,750
Proceeds From Sale of Mortgage-Backed Securities AFS	61,306,939	18,081,756	20,549,491
Redemption of Certificates of Deposits with Other Banks	250,005	750,000	1,095,000
Purchase of FHLB Stock	(11,907,800)	(5,717,400)	(7,019,800)
Redemption of FHLB Stock	11,575,300	6,445,300	6,864,400
Payment to Acquire Life Insurance Policy, Investing Activities	0	(1,900,000)	(2,000,000)
Proceeds from Life Insurance Policy	414,855	0	1,463,285
Increase in Loans Receivable	(22,007,081)	(42,300,871)	(33,002,340)
Proceeds from Sale of OREO	1,040,366	1,361,499	2,387,799
Purchase and Improvement of Premises and Equipment	(4,634,847)	(2,864,597)	(3,065,662)
Net Cash Used By Investing Activities	(47,903,154)	(52,066,796)	(60,475,134)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Deposit Accounts	3,910,775	65,390,088	48,003,341
Proceeds from FHLB Advances	342,223,000	204,923,000	227,436,000
Repayment of FHLB Advances	(338,115,000)	(222,573,000)	(224,151,000)
Proceeds from (Repayments of) Notes Payable	(2,362,500)	(6,137,500)	(4,500,000)
Proceeds from (Repayments of) Other Debt	881,390	(608,732)	1,969,013
Repayments of Convertible Debt	0	0	(20,000)
Proceeds from Stock Options Exercised	0	10,310	176,175
Dividends to Common Stock Shareholders	(1,123,219)	(1,063,626)	(1,060,729)
Net Cash Provided By Financing Activities	35,467,314	39,952,736	47,852,800
Net (Decrease) Increase in Cash and Cash Equivalents	(169,599)	2,386,286	945,075
Cash and Cash Equivalents at Beginning of Year	12,705,910	10,319,624	9,374,549
Cash And Cash Equivalents At End Of Year	12,536,311	12,705,910	10,319,624
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest	7,882,527	5,574,723	4,128,260
Income Taxes	1,764,541	1,521,811	1,667,673
Supplemental Schedule of Non Cash Transactions:
Transfers from Loans Receivable to OREO	832,800	435,550	580,748
Increase (Decrease) in Unrealized Gains on Securities AFS, Net of Taxes	$ 4,495,436	$ (3,571,122)	$ 1,752,036

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Loans Receivable, Net (Schedule of Allowance for Loan Losses) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Accounts Receivable, Allowance for Credit Loss [Roll Forward]
Beginning Balance	$ 9,171,717	$ 8,221,618	$ 8,356,231
Provision For Loan Losses	375,000	925,000	300,000
Charge-Offs	(985,317)	(655,785)	(830,572)
Recoveries	664,174	680,884	395,959
Ending Balance	9,225,574	9,171,717	8,221,618
Residential Real Estate
Accounts Receivable, Allowance for Credit Loss [Roll Forward]
Beginning Balance	1,191,443	1,233,843	1,360,346
Provision For Loan Losses	227,624	2,411	82,909
Charge-Offs	(34,599)	(46,419)	(211,780)
Recoveries	6,126	1,608	2,368
Ending Balance	1,390,594	1,191,443	1,233,843
Consumer
Accounts Receivable, Allowance for Credit Loss [Roll Forward]
Beginning Balance	1,203,593	1,144,815	996,620
Provision For Loan Losses	324,394	173,235	257,180
Charge-Offs	(432,003)	(224,954)	(184,161)
Recoveries	114,865	110,497	75,176
Ending Balance	1,210,849	1,203,593	1,144,815
Commercial Business
Accounts Receivable, Allowance for Credit Loss [Roll Forward]
Beginning Balance	923,600	1,011,227	882,999
Provision For Loan Losses	(392,817)	(55,109)	261,599
Charge-Offs	(1,132)	(32,518)	(133,371)
Recoveries	15,113	0	0
Ending Balance	544,764	923,600	1,011,227
Commercial Real Estate 1 [Member]
Accounts Receivable, Allowance for Credit Loss [Roll Forward]
Beginning Balance	5,853,081	4,831,733	5,116,266
Provision For Loan Losses	215,799	804,463	(301,688)
Charge-Offs	(517,583)	(351,894)	(301,260)
Recoveries	528,070	568,779	318,415
Ending Balance	$ 6,079,367	$ 5,853,081	$ 4,831,733

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Commitments and Contingencies (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Commitments, Period of Time to Provide Funding	45 days
Loans and Leases Receivable, Commitments to Purchase or Sell	$ 4,000,000	$ 1,800,000
Unused lines of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Unused Commitments to Extend Credit	108,000,000	83,700,000
Commitments for Letters of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Unused Commitments to Extend Credit	1,500,000	1,600,000
Unused Credit Card Loan Commitments [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Unused Commitments to Extend Credit	6,200,000	5,571,000
Commitments to Extend Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Unused Commitments to Extend Credit	$ 300,000	$ 0

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Security Federal Corporation Condensed Financial Statements (Parent Company Only) (Condensed Balance Sheet Data) (Details) - USD ($)	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
ASSETS:
Cash	$ 12,536,311	$ 12,705,910	$ 10,319,624	$ 9,374,549
Investment Securities, Available For Sale	414,644,840	386,100,837
Total Assets	963,227,541	912,614,259
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Other Notes Payable, Noncurrent	0	2,362,500
Junior Subordinated Debentures	5,155,000	5,155,000
Senior Convertible Debentures	6,044,000	6,064,000
Stockholders' Equity Attributable to Parent	91,758,005	80,518,433
Total Liabilities and Shareholders' Equity	963,227,541	912,614,259
Parent Company [Member]
ASSETS:
Cash	25,685,744	3,619,418	$ 5,098,959	$ 4,631,554
Investment in Security Federal Statutory Trust	155,000	155,000
Investment In Security Federal Bank	106,947,285	90,359,718
Accounts Receivable And Other Assets	386,889	14,492
Total Assets	133,174,918	94,148,628
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Accounts Payable And Other Liabilities	219,213	49,995
Stockholders' Equity Attributable to Parent	91,756,705	80,517,133
Total Liabilities and Shareholders' Equity	$ 133,174,918	$ 94,148,628

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Loans Receivable, Net (Impaired Financing Receivables) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Financing Receivable, Impaired [Line Items]
Impaired financing receivable, related allowance	$ 0	$ 738,662	$ 0
Impaired financing receivable, recorded investment	3,229,883	9,364,125	8,442,306
Impaired financing receivable, unpaid principal balance	4,305,403	11,299,728	11,077,416
Impaired financing receivable, average recorded investment	6,394,612	11,026,748	10,793,223
Impaired financing receivable, interest income, accrual method	54,372	328,920	213,646
Residential Real Estate
Financing Receivable, Impaired [Line Items]
Impaired financing receivable, with no related allowance, recorded investment	1,086,433	1,700,861	1,883,741
Impaired financing receivable, with no related allowance, unpaid principal balance	1,086,433	1,700,861	2,333,741
Impaired financing receivable, with no related allowance, average recorded investment	1,322,609	1,743,906	2,889,065
Impaired financing receivable, with no related allowance, interest income, accrual method	0	31,853	24,273
Impaired financing receivable, related allowance	0	0	0
Impaired financing receivable, recorded investment	1,086,433	1,700,861	1,883,741
Impaired financing receivable, unpaid principal balance	1,086,433	1,700,861	2,333,741
Impaired financing receivable, average recorded investment	1,322,609	1,743,906	2,889,065
Impaired financing receivable, interest income, accrual method	0	31,853	24,273
Consumer Loans
Financing Receivable, Impaired [Line Items]
Impaired financing receivable, with no related allowance, recorded investment	184,402	986,380	181,617
Impaired financing receivable, with no related allowance, unpaid principal balance	192,702	994,680	209,427
Impaired financing receivable, with no related allowance, average recorded investment	1,106,795	502,479	279,183
Impaired financing receivable, with no related allowance, interest income, accrual method	0	0	0
Impaired financing receivable, with related allowance, recorded investment		73,662
Impaired financing receivable, with related allowance, unpaid principal balance		73,662
Impaired financing receivable, related allowance	0	73,662	0
Impaired financing receivable, with related allowance, average recorded investment		6,139
Impaired financing receivable, with related allowance, interest income, accrual method		0
Impaired financing receivable, recorded investment	184,402	1,060,042	181,617
Impaired financing receivable, unpaid principal balance	192,702	1,068,342	209,427
Impaired financing receivable, average recorded investment	1,106,795	508,618	279,183
Impaired financing receivable, interest income, accrual method	0	0	0
Commercial Business
Financing Receivable, Impaired [Line Items]
Impaired financing receivable, with no related allowance, recorded investment	64,406	77,206	100,401
Impaired financing receivable, with no related allowance, unpaid principal balance	959,406	972,206	950,401
Impaired financing receivable, with no related allowance, average recorded investment	71,422	85,020	141,940
Impaired financing receivable, with no related allowance, interest income, accrual method	0	0	0
Impaired financing receivable, related allowance	0	0	0
Impaired financing receivable, recorded investment	64,406	77,206	100,401
Impaired financing receivable, unpaid principal balance	959,406	972,206	950,401
Impaired financing receivable, average recorded investment	71,422	85,020	141,940
Impaired financing receivable, interest income, accrual method	0	0	0
Commercial Real Estate
Financing Receivable, Impaired [Line Items]
Impaired financing receivable, with no related allowance, recorded investment	1,894,642	5,084,458	6,276,547
Impaired financing receivable, with no related allowance, unpaid principal balance	2,066,862	6,116,761	7,583,847
Impaired financing receivable, with no related allowance, average recorded investment	3,893,786	8,052,817	7,483,035
Impaired financing receivable, with no related allowance, interest income, accrual method	54,372	212,186	189,373
Impaired financing receivable, with related allowance, recorded investment		1,441,558
Impaired financing receivable, with related allowance, unpaid principal balance		1,441,558
Impaired financing receivable, related allowance	0	665,000	0
Impaired financing receivable, with related allowance, average recorded investment		636,387
Impaired financing receivable, with related allowance, interest income, accrual method		84,881
Impaired financing receivable, recorded investment	1,894,642	6,526,016	6,276,547
Impaired financing receivable, unpaid principal balance	2,066,862	7,558,319	7,583,847
Impaired financing receivable, average recorded investment	3,893,786	8,689,204	7,483,035
Impaired financing receivable, interest income, accrual method	$ 54,372	$ 297,067	$ 189,373

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Premises and Equipment, Net (Future minimum payments under non-cancelable operating leases) (Details)	12 Months Ended
	Dec. 31, 2019 USD ($) lease_agreement	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract]
Total rental expense	$ 460,000	$ 454,000	$ 409,000
Number of operating lease agreements | lease_agreement	5
Lease One [Member]
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract]
Monthly rent expense	$ 7,350
Operating lease renewal option	30 years
Lease Two [Member]
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract]
Monthly rent expense	$ 900
Operating lease renewal option	10 years
Lease Three [Member]
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract]
Monthly rent expense	$ 9,950
Operating lease renewal option	45 years
Lease Four [Member]
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract]
Monthly rent expense	$ 10,600
Operating lease renewal option	20 years
Lease Five [Member] [Domain]
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract]
Monthly rent expense	$ 7,900
Operating lease renewal option	15 years

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Carrying Amounts and Fair Value of Financial Instruments (Fair value measurements, nonrecurring basis) (Details) - USD ($)		Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment Securities, Available For Sale		$ 414,644,840	$ 386,100,837
Impaired financing receivable, related allowance		0	738,662	$ 0
Other Real Estate Owned (OREO)		677,740	722,442	$ 1,115,671	$ 2,721,214
LIABILITIES, FAIR VALUE, NONRECURRING			0
Fair Value, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
ASSETS FAIR VALUE, NONRECURRING		7,891,092	11,117,997
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
ASSETS FAIR VALUE, NONRECURRING		0	0
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
ASSETS FAIR VALUE, NONRECURRING		3,990,606	1,781,985
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
ASSETS FAIR VALUE, NONRECURRING		3,900,486	9,336,012
Mortgage Loans Held For Sale | Fair Value, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
ASSETS FAIR VALUE, NONRECURRING		3,990,606	1,781,985
Mortgage Loans Held For Sale | Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
ASSETS FAIR VALUE, NONRECURRING		0	0
Mortgage Loans Held For Sale | Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
ASSETS FAIR VALUE, NONRECURRING		3,990,606
Mortgage Loans Held For Sale | Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
ASSETS FAIR VALUE, NONRECURRING		0	0
Collateral Dependent Impaired Loans (1) | Fair Value, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired financing receivable, related allowance		0	738,662
ASSETS FAIR VALUE, NONRECURRING	[1]	3,222,746	8,613,570
Collateral Dependent Impaired Loans (1) | Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
ASSETS FAIR VALUE, NONRECURRING	[1]	0	0
Collateral Dependent Impaired Loans (1) | Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
ASSETS FAIR VALUE, NONRECURRING	[1]	0	0
Collateral Dependent Impaired Loans (1) | Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
ASSETS FAIR VALUE, NONRECURRING	[1]	3,222,746	8,613,570
Foreclosed Assets | Fair Value, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
ASSETS FAIR VALUE, NONRECURRING		677,740	722,442
Foreclosed Assets | Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
ASSETS FAIR VALUE, NONRECURRING		0	0
Foreclosed Assets | Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
ASSETS FAIR VALUE, NONRECURRING		$ 0	$ 0

[1] (22) Carrying Amounts and Fair Value of Financial InstrumentsGAAP 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 Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).Level 1Valuation is based upon quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as U.S. Treasuries and money market funds.Level 2Valuation is based upon quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments, mortgage-backed securities, municipal bonds, corporate debt securities and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes certain derivative contracts.Level 3Valuation is generated from model-based techniques that use at least one significant assumption based on unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.The following is a description of the valuation methodologies used for assets and liabilities recorded at fair value.Investment Securities Available for SaleInvestment securities available for sale are recorded at fair value on a recurring basis. At December 31, 2019, the Company’s investment portfolio was comprised of student loan pools, government and agency bonds, mortgage-backed securities issued by government agencies or GSEs, private label CMO mortgage-backed securities and municipal securities. Fair value measurement is based upon prices obtained from third party pricing services that use independent pricing models which rely on a variety of factors including reported trades, broker/dealer quotes, benchmark yields, economic and industry events and other relevant market information. As such, these securities are classified as Level 2.Mortgage Loans Held for SaleThe Company originates fixed rate residential loans on a servicing released basis in the secondary market. Loans closed but not yet settled with institutional 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 of these loans have commitments to be purchased by investors and the majority of these loans were locked in by price with the investors on the same day or shortly thereafter that the loan was locked in with the Company’s customers. Therefore, these loans present very little market risk for the Company.The Company usually delivers to, and receives funding from, the investor within 30 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 is not obligated to deliver a loan or pay a penalty if a loan is not 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 Level 2.(22) Carrying Amounts and Fair Value of Financial Instruments, ContinuedImpaired LoansThe Company does not record loans held for investment at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established as necessary. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment.Fair value is estimated using one of the following methods: fair value of the collateral less estimated costs to sell, discounted cash flows, or market value of the loan based on similar debt. The fair value of the collateral less estimated costs to sell is the most frequently used method. Typically, the Company reviews the most recent appraisal and if it is over 24 months old will request a new third party appraisal. Depending on the particular circumstances surrounding the loan, including the location of the collateral, the date of the most recent appraisal and the value of the collateral relative to the recorded investment in the loan, management may order an independent appraisal immediately or, in some instances, may elect to perform an internal analysis. Specifically as an example, in situations where the collateral on a nonperforming commercial real estate loan is out of the Company’s primary market area, management would typically order an independent appraisal immediately, at the earlier of the date the loan becomes nonperforming or immediately following the determination that the loan is impaired. However, as a second example, on a nonperforming commercial real estate loan where management is familiar with the property and surrounding areas and where the original appraisal value far exceeds the recorded investment in the loan, management may perform an internal analysis whereby the previous appraisal value would be reviewed and adjusted for current conditions including recent sales of similar properties in the area and any other relevant economic trends. These valuations are reviewed at a minimum on a quarterly basis.Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At December 31, 2019, most of the total impaired loans were evaluated based on the fair value of the collateral. Impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. The Company records impaired loans as nonrecurring Level 3. As of December 31, 2019 and 2018, the recorded investment in impaired loans was $3.2 million and $9.4 million, respectively. The average recorded investment in impaired loans was $6.4 million and $11.0 million for the years ended December 31, 2019 and 2018, respectively. Foreclosed AssetsForeclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, they are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral less estimated selling costs. The Company records all foreclosed assets as nonrecurring level 3.The tables below present the balances of assets measured at fair value on a recurring basis at December 31, 2019 and 2018: December 31, 2019 December 31, 2018 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3Student Loan Pools$— $40,231,830 $— $— $12,885,501 $—SBA Bonds— 111,893,099 — — 125,446,531 —Tax Exempt Municipal Bonds— 47,241,494 — — 61,330,369 —Taxable Municipal Bonds— 14,840,410 — — 1,977,885 —Mortgage-Backed Securities— 200,438,007 — — 184,460,551 —Total$— $414,644,840 $— $— $386,100,837 $—There were no liabilities measured at fair value on a recurring basis as of December 31, 2019 and 2018. (22) Carrying Amounts and Fair Value of Financial Instruments, ContinuedThe Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. The table below presents assets and liabilities measured at fair value on a nonrecurring basis as of December 31, 2019 and 2018, aggregated by the level in the fair value hierarchy within which those measurements fall. December 31, 2019Assets Level 1 Level 2 Level 3 TotalMortgage Loans Held For Sale$— $3,990,606 $— $3,990,606Collateral Dependent Impaired Loans (1)— — 3,222,746 3,222,746Foreclosed Assets— — 677,740 677,740Total$— $3,990,606 $3,900,486 $7,891,092 December 31, 2018Assets Level 1 Level 2 Level 3 TotalMortgage Loans Held For Sale$— $1,781,985 $— $1,781,985Collateral Dependent Impaired Loans (1)— — 8,613,570 8,613,570Foreclosed Assets— — 722,442 722,442Total$— $1,781,985 $9,336,012 $11,117,997(1) REPORTED NET OF SPECIFIC RESERVES OF $0 AND $738,662 AT DECEMBER 31, 2019 AND 2018, RESPECTIVELY.There were no liabilities measured at fair value on a nonrecurring basis as of December 31, 2019 and 2018. For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis, the significant unobservable inputs used in the fair value measurements were as follows as of December 31, 2019 and 2018: Valuation Significant 2019 2018Level 3 Assets Technique Unobservable Inputs Range RangeCollateral Dependent Impaired Loans Appraised Value Discount Rates/ Discounts to Appraised Values 8% - 92% 7% - 97%Foreclosed Assets Appraised Value/Comparable Sales Discount Rates/ Discounts to Appraised Values 18% - 42% 16% - 100%For assets and liabilities not 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 within 90 days and do not present unanticipated credit concerns.Certificates of deposits with other banks—Fair value is based on market prices for similar assets.Investment securities held to maturity—Securities held to maturity are valued at quoted market prices or dealer quotes.Loans Receivable, Net—The fair value of loans are 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 also 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: commercial real estate, other commercial, residential real estate, consumer and all other loans. The results are then adjusted to account for credit risk as described above. A further credit risk discount must be applied through the use of 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 have no significant change in credit risk, fair values approximate carrying values. (22) Carrying Amounts and Fair Value of Financial Instruments, ContinuedFHLB 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—Fair value is estimated using discounted cash flows with current market rates for borrowings with similar terms.Other Borrowed Money—The carrying value of these short term borrowings approximates fair value.Note Payable—The carrying value of the note payable approximates fair value.Senior Convertible Debentures— 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.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 summarize the carrying value and estimated fair value of the Company’s financial instruments as of December 31, 2019 and 2018 presented in accordance with the applicable accounting guidance. December 31, 2019 Carrying Fair Value(In Thousands)Amount Total Level 1 Level 2 Level 3Financial Assets: Cash and Cash Equivalents$12,536 $12,536 $12,536 $— $—Certificates of Deposits with Other Banks950 950 — 950 —Investment and Mortgage-Backed Securities433,892 434,451 — 434,451 —Loans Receivable, Net452,859 450,796 — — 450,796FHLB Stock2,537 2,537 2,537 — — Financial Liabilities: Deposits: Checking, Savings and Money Market Accounts$541,954 $541,954 $541,954 $— $— Certificate Accounts229,453 229,363 — 229,363 —Advances From FHLB38,138 38,233 — 38,233 —Other Borrowed Money11,580 11,580 11,580 — —Subordinated Debentures30,000 30,000 — 30,000 —Junior Subordinated Debentures5,155 5,155 — 5,155 —Senior Convertible Debentures6,044 6,044 — 6,044 —

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Subsequent Events Securities Sold Subsequent Event Disclosures (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Subsequent Event [Line Items]
Gain on Sale of Investment Securities	$ 819,053	$ 573,266	$ 494,146
Payments of FHLBank Borrowings, Financing Activities	0
Gains (Losses) on Sales of Other Real Estate	$ 184,864	$ 588,720	$ 359,629

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Carrying Amounts and Fair Value of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

Fair value measurements, recurring basis

sets measured at fair value on a recurring basis at December 31, 2019 and 2018:

	December 31, 2019						December 31, 2018
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Student Loan Pools	$	—	$	40,231,830	$	—	$	—	$	12,885,501	$	—
SBA Bonds	—		111,893,099		—		—		125,446,531		—
Tax Exempt Municipal Bonds	—		47,241,494		—		—		61,330,369		—
Taxable Municipal Bonds	—		14,840,410		—		—		1,977,885		—
Mortgage-Backed Securities	—		200,438,007		—		—		184,460,551		—
Total	$	—	$	414,644,840	$	—	$	—	$	386,100,837	$	—

Fair value measurements, nonrecurring basis

The table below presents assets and liabilities measured at fair value on a nonrecurring basis as of December 31, 2019 and 2018, aggregated by the level in the fair value hierarchy within which those measurements fall. 

	December 31, 2019
Assets	Level 1		Level 2		Level 3		Total
Mortgage Loans Held For Sale	$	—	$	3,990,606	$	—	$	3,990,606
Collateral Dependent Impaired Loans (1)	—		—		3,222,746		3,222,746
Foreclosed Assets	—		—		677,740		677,740
Total	$	—	$	3,990,606	$	3,900,486	$	7,891,092
	December 31, 2018
Assets	Level 1		Level 2		Level 3		Total
Mortgage Loans Held For Sale	$	—	$	1,781,985	$	—	$	1,781,985
Collateral Dependent Impaired Loans (1)	—		—		8,613,570		8,613,570
Foreclosed Assets	—		—		722,442		722,442
Total	$	—	$	1,781,985	$	9,336,012	$	11,117,997

Significant unobservable inputs used in the fair value measurements

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis, the significant unobservable inputs used in the fair value measurements were as follows as of December 31, 2019 and 2018:

	Valuation	Significant	2019	2018
Level 3 Assets	Technique	Unobservable Inputs	Range	Range
Collateral Dependent Impaired Loans	Appraised Value	Discount Rates/ Discounts to Appraised Values	8% - 92%	7% - 97%
Foreclosed Assets	Appraised Value/Comparable Sales	Discount Rates/ Discounts to Appraised Values	18% - 42%	16% - 100%

Summary of the carrying value and estimated fair value of financial instruments

The following tables summarize the carrying value and estimated fair value of the Company’s financial instruments as of December 31, 2019 and 2018 presented in accordance with the applicable accounting guidance.

	December 31, 2019
	Carrying		Fair Value
(In Thousands)	Amount		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and Cash Equivalents	$	12,536	$	12,536	$	12,536	$	—	$	—
Certificates of Deposits with Other Banks	950		950		—		950		—
Investment and Mortgage-Backed Securities	433,892		434,451		—		434,451		—
Loans Receivable, Net	452,859		450,796		—		—		450,796
FHLB Stock	2,537		2,537		2,537		—		—
Financial Liabilities:
Deposits:
Checking, Savings and Money Market Accounts	$	541,954	$	541,954	$	541,954	$	—	$	—
Certificate Accounts	229,453		229,363		—		229,363		—
Advances From FHLB	38,138		38,233		—		38,233		—
Other Borrowed Money	11,580		11,580		11,580		—		—
Subordinated Debentures	30,000		30,000		—		30,000		—
Junior Subordinated Debentures	5,155		5,155		—		5,155		—
Senior Convertible Debentures	6,044		6,044		—		6,044		—

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Regulatory Matters (Tables)

12 Months Ended

Dec. 31, 2019

Banking and Thrift [Abstract]

Regulatory capital amounts and ratios

The tables below provide the Bank’s regulatory capital requirements and actual results at December 31, 2019 and 2018.

	Actual				For Capital Adequacy				To Be Well Capitalized
(Dollars in Thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2019
Tier 1 Risk-Based Core Capital (To Risk Weighted Assets)	$	101,280	18.2	%	$	33,418	6.0	%	$	44,558	8.0	%
Total Risk-Based Capital (To Risk Weighted Assets)	108,270		19.4	%	44,558		8.0	%	55,697		10.0	%
Common Equity Tier 1 Capital (To Risk Weighted Assets)	101,280		18.2	%	25,064		4.5	%	36,203		6.5	%
Tier 1 Leverage (Core) Capital (To Adjusted Tangible Assets)	101,280		10.4	%	39,134		4.0	%	48,917		5.0	%
December 31, 2018
Tier 1 Risk-Based Core Capital (To Risk Weighted Assets)	$	89,188	16.2	%	$	33,005	6.0	%	$	44,007	8.0	%
Total Risk-Based Capital (To Risk Weighted Assets)	96,092		17.5	%	44,007		8.0	%	55,009		10.0	%
Common Equity Tier 1 Capital (To Risk Weighted Assets)	89,188		16.2	%	24,754		4.5	%	35,756		6.5	%
Tier 1 Leverage (Core) Capital (To Adjusted Tangible Assets)	89,188		9.8	%	36,486		4.0	%	45,608		5.0	%

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Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income tax expense was comprised of the following for the dates indicated below:

	Years Ended December 31,
	2019			2018			2017
Current:
Federal	$	1,437,595		$	1,454,049		$	1,500,337
State	145,412			202,292			209,396
Total Current Tax Expense	1,583,007			1,656,341			1,709,733
Deferred:
Federal	105,960			(79,034		)	736,390
State	(9,417		)	(7,781		)	(10,663		)
Total Deferred Tax Expense (Benefit)	96,543			(86,815		)	725,727
Total Income Tax Expense	$	1,679,550		$	1,569,526		$	2,435,460

(15)         Income Taxes, Continued

The Company's income taxes differ from those computed at the statutory federal income tax rate, as follows:

	Years Ended December 31,
	2019			2018			2017
Tax at Statutory Income Tax Rate	$	1,989,548		$	1,843,117		$	2,840,292
State Tax and Other	100,820			157,417			44,764
Tax Exempt Interest	(291,768		)	(338,497		)	(730,477		)
Life Insurance	(142,508		)	(113,400		)	(394,445		)
Valuation Allowance	23,458			20,889			69,133
Impact of Federal Rate Change on Deferred Taxes	—			—			606,193
Total Income Tax Expense	$	1,679,550		$	1,569,526		$	2,435,460

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2019 and 2018 are presented below. Net deferred tax assets were included in other assets at December 31, 2019 and 2018.

	December 31,
	2019			2018
Deferred Tax Assets:
Deferred Compensation	$	587,322		$	498,764
Provision for Loan Losses	2,000,131			1,978,481
Other Real Estate Owned	—			18,283
Net Fees Deferred for Financial Reporting	76,262			73,892
Net Operating Losses	356,759			333,301
Other	126,492			240,724
Total Gross Deferred Tax Assets	3,146,966			3,143,445
Less: Valuation Allowance	(356,759		)	(333,301		)
Net Deferred Tax Assets	2,790,207			2,810,144
Deferred Tax Liabilities:
FHLB Stock Basis Over Tax Basis	72,208			71,717
Depreciation	585,520			507,601
Prepaid Expenses	35,033			36,837
Unrealized Gain on Securities Available for Sale	1,473,077			10,487
Total Gross Deferred Tax Liability	2,165,838			626,642
Net Deferred Tax Asset	$	624,369		$	2,183,502

The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Deferred tax assets represent the future tax benefit of deductible differences and, if it is more likely than not that a tax asset will not be realized, a valuation allowance is required to reduce the recorded deferred tax assets to net realizable value. As of December 31, 2019, management has determined that it is more likely than not that the total deferred tax asset will be realized except for the deferred tax asset associated with state net operating loss carryforwards, and, accordingly, has established a valuation allowance only for this item. The change in the valuation allowance was approximately $23,000. The Company had state net operating losses attributable to the non-bank entities of $9.0 million and $8.4 million for the years ended December 31, 2019 and 2018, respectively.

Retained earnings at December 31, 2019 included tax bad debt reserves of $2.1 million, for which no provision for federal income tax has been made. If, in the future, these amounts are used for any purpose other than to absorb bad debt losses, including dividends, stock redemptions, or distributions in liquidation, or the Company ceases to be qualified as a bank holding company, they may be subject to federal income tax at the prevailing corporate tax rate.  At December 31, 2019, the Company had no material unrecognized tax benefits or accrued interest and penalties. It is the Company's policy to account for interest and penalties accrued relative to unrecognized tax benefits as a component of income tax expense. Tax returns for 2016 and subsequent years are subject to examination by taxing authorities.

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

In the ordinary course of business, the Company has various outstanding commitments and contingent liabilities that are not reflected in the accompanying consolidated financial statements.  In addition, the Company is a defendant in certain claims and legal actions arising in the ordinary course of business.  In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the consolidated financial condition of the Company.

In conjunction with its lending activities, the Bank enters into various commitments to extend credit and issue letters of credit.  Loan commitments (unfunded loans and unused lines of credit) and letters of credit are issued to accommodate the financing needs of the Bank's customers.  Loan commitments are agreements by the Bank to lend at a future date, so long as there are no violations of any conditions established in the agreement.  Letters of credit commit the Bank to make payments on behalf of customers when certain specified events occur.

Financial instruments where the contract amount represents the Bank's credit risk include commitments under pre-approved but unused lines of credit of $108.0 million and $83.7 million and letters of credit of $1.5 million and $1.6 million at December 31, 2019 and 2018, respectively.

(19)         Commitments and Contingencies, Continued

These loan and letter of credit commitments are subject to the same credit policies and reviews as loans on the balance sheet.  Collateral, both the amount and nature, is obtained based upon management's assessment of the credit risk.  Since many of the extensions of credit are expected to expire without being drawn, the total commitment amounts do not necessarily represent future cash requirements.  

Included in the loan commitments noted above were unused credit card loan commitments of $6.2 million and $5.6 million and undisbursed loans in process of $10.0 million and $7.2 million at December 31, 2019 and 2018, respectively.  The Bank also had $282,000 in outstanding commitments on mortgage loans approved but not yet closed at December 31, 2019 compared to none at December 31, 2018.  These commitments, which are funded subject to certain limitations, extend over varying periods of time with the majority being funded within 45 days.  

At December 31, 2019 and 2018, the Bank had outstanding commitments to sell approximately $4.0 million and $1.8 million of loans, respectively, which encompassed the Bank’s held for sale loans.  The Bank also has commitments to sell mortgage loans not yet closed, on a best efforts basis.  Best efforts means the Bank suffers no penalty if they are unable to deliver the loans to the potential buyers.  The fair value of the Bank’s commitment to originate mortgage loans at committed interest rates and to sell such loans to permanent investors is insignificant.

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Significant Accounting Policies

12 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Significant Accounting Policies

e following is a description of the more significant accounting and reporting policies used in the preparation and presentation of the accompanying consolidated financial statements.  All significant intercompany transactions have been eliminated in consolidation.

Basis of Consolidation and Nature of Operations

The accompanying consolidated financial statements include the accounts of Security Federal Corporation (the “Company”) and its wholly owned subsidiary, Security Federal Bank (the “Bank”) and the Bank’s wholly owned subsidiaries, Security Federal Insurance, Inc. (“SFINS”), Security Federal Investments, Inc. ("SFINV") and Security Financial Services Corporation (“SFSC”).  Security Federal Corporation has a wholly owned subsidiary, Security Federal Statutory Trust (the “Trust”), which issued and sold fixed and floating rate capital securities of the Trust.  However, under current accounting guidance, the Trust is not consolidated in the 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.  SFINS is an insurance agency offering auto, business, health and home insurance.  SFINS has a wholly owned subsidiary, Collier Jennings Financial Corporation which has as subsidiaries Security Federal Auto Insurance, The Auto Insurance Store Inc., and Security Federal Premium Pay Plans Inc. Security Federal Premium Pay Plans Inc. has one wholly owned premium finance subsidiary and also has an ownership interest in four other premium finance subsidiaries. SFINV was formed to hold investment securities and allow for better management of the securities portfolio. SFSC is currently inactive.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, interest-bearing balances in other banks, and federal funds sold.  Cash equivalents have original maturities of three months or less.

Investment and Mortgage-Backed Securities

Investment securities, including mortgage-backed securities, are classified in one of three categories: held to maturity, available for sale, or trading.  Management determines the appropriate classification of debt securities at the time of purchase. Investment securities are classified as held to maturity when the Company has the positive intent and ability to hold the securities to maturity.  These securities are recorded at cost and adjusted for amortization of premiums and accretion of discounts over a level yield basis. Callable debt securities held at a premium are amortized until the earliest call date. Prepayment assumptions on mortgage-backed securities are anticipated.

Management classifies investment securities that are not considered to be held to maturity as available for sale.  This type of investment is stated at fair value with unrealized gains and losses, net of tax, reported in a separate component of shareholders' equity (“accumulated other comprehensive income (loss)”).  Gains and losses from sales of investment and mortgage-backed securities available for sale are determined using the specific identification method.  The Company had no investment in trading securities.

Loans Receivable Held for Investment

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal balance adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest is recognized over the term of the loan based on the outstanding loan balance. Fees charged for originating loans, if any, are deferred and offset by the deferral of certain direct expenses associated with loans originated. The net deferred fees are recognized as yield adjustments by applying the interest method.

Allowance for Loan Losses

The Company provides for loan losses using the allowance method.  Accordingly, all loan losses are charged to the related allowance and all recoveries are credited to the allowance for loan losses. Additions to the allowance for loan losses are provided by charges to operations based on various factors, which, in management’s judgment, deserve current recognition in estimating possible losses.  Such factors considered by management include the fair value of the underlying collateral, stated guarantees by the borrower (if applicable), the borrower’s ability to repay from other economic resources, growth and composition of the loan portfolio, the relationship of the allowance for loan losses to the outstanding loans, loss experience, delinquency trends, and general economic conditions. Management evaluates the carrying value of the loans periodically and the allowance is adjusted accordingly.

(1) Significant Accounting Policies, Continued

While management uses the best information available to make evaluations, future adjustments may be necessary if economic conditions differ substantially from the assumptions used in making these evaluations.  The allowance for loan losses is subject to periodic evaluations by bank regulatory agencies that may require adjustments to be made to the allowance based upon the information that is available at the time of their examination.

The Company values impaired loans at the loan’s fair value if it is probable that the Company will be unable to collect all amounts due according to the terms of the loan agreement at the present value of expected cash flows, the market price of the loan, if available, or the value of the underlying collateral less estimated selling costs.  In accordance with our policy, non-accrual commercial loans with a balance less than $200,000 and non-accrual consumer loans with a balance less than $100,000 are deemed immaterial and therefore excluded from the individual impairment review. Expected cash flows are required to be discounted at the loan’s effective interest rate.  When the ultimate collectibility of an impaired loan’s principal is in doubt, wholly or partially, all cash receipts are applied to principal.  When this doubt does not exist, cash receipts are applied under the contractual terms of the loan agreement first to interest and then to principal.  Once the recorded principal balance has been reduced to zero, future cash receipts are applied to interest income to the extent that any interest has been foregone.  Further cash receipts are recorded as recoveries of any amounts previously charged off.

Loans Receivable Held for Sale

Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate.  Net unrealized losses are provided for in a valuation allowance by charges to operations.

Other Real Estate Owned

Other real estate owned represents real estate and other assets acquired through foreclosure or repossession and are initially recorded at the estimated fair value less costs to sell. Subsequent improvements are capitalized. Costs of holding real estate, such as property taxes, insurance, general maintenance and interest expense, are expensed as a period cost. Fair values are reviewed regularly and allowances for possible losses are established when the carrying value of the asset owned exceeds the fair value less estimated costs to sell. Fair values are generally determined by reference to an outside appraisal.

Premises and Equipment

Premises and equipment are carried at cost, net of accumulated depreciation.  Depreciation of premises and equipment is amortized on a straight-line method over the estimated useful life of the related asset.  Estimated lives are 7 to 40 years for buildings and improvements and generally 3 to 10 years for furniture, fixtures and equipment.  Maintenance and repairs are charged to current expense.  The cost of major renewals and improvements are capitalized.

Intangible Assets and Goodwill

The Company's goodwill is a result of the excess of the cost over the fair value of net assets resulting from the Company's acquisition of Collier Jennings Financial Corporation in July 2006. Goodwill is reviewed for impairment annually or whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Intangible assets are amortized over their estimated economic lives using methods that reflect the pattern in which the economic benefits are utilized.  The intangible assets, which consisted of the customer list and employment contracts resulting from the Company’s acquisition of Collier Jennings Financial Corporation, were fully amortized at December 31, 2019.

Income Taxes

Income tax expense or benefit is recognized for the net change during the year in the deferred tax liability or asset.  That amount together with income taxes currently payable is the total amount of income tax expense or benefit for the year.  Deferred taxes are provided for by the differences in financial reporting bases for assets and liabilities compared with their tax bases. Generally, a current tax liability or asset is established for taxes presently payable or refundable and a deferred tax liability or asset is established for future tax items. A valuation allowance, if applicable, is established for deferred tax assets that may not be realized. Tax bad debt reserves in excess of the base year amount (established as taxable years ending March 31, 1988 or later) would create a deferred tax liability.  Deferred income taxes are provided for in differences between the provision for loan losses for financial statement purposes and those allowed for income tax purposes.

(1) Significant Accounting Policies, Continued

The Company adopted accounting guidance which prescribes a threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosures.

There have been no gross amounts of unrecognized tax benefits or interest or penalties related to uncertain tax positions since adoption. There are no unrecognized tax benefits that would, if recognized, affect the effective tax rate. There are no positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next 12 months. Years prior to December 31, 2016 are closed for federal, state and local income tax matters.

Loan Fees and Costs Associated with Originating Loans

Loan fees received, net of direct incremental costs of originating loans, are deferred and amortized over the contractual life of the related loan.  The net fees are recognized as yield adjustments by applying the interest method.  Prepayments are not anticipated.

Interest Income

Interest on loans is accrued and credited to income monthly based on the principal balance outstanding and the contractual rate on the loan. The Company places loans on non-accrual status when they become greater than 90 days delinquent or when, in the opinion of management, full collection of principal or interest is unlikely.  When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received first to principal and then to interest income. The loans are returned to an accrual status when full collection of principal and interest appears likely.

Advertising Expense

Advertising and public relations costs are generally expensed as incurred.  External costs relating to direct mailing costs are expensed in the period in which the direct mailings are sent.  Advertising and public relations costs of $796,000, $547,000, and $596,000 were included in the Company’s results of operations for the years ended December 31, 2019, 2018 and 2017, respectively.

Stock-Based Compensation

The Company accounts for compensation costs under its stock option plans using the fair value method. This method requires the measurement of the cost of employee services received in exchange for an award of equity instruments based upon the fair value of the award on the grant date. The cost of the award is recognized in the income statement over the vesting period of the award.

Net Income Per Common Share

Accounting guidance specifies computation and presentation requirements for both basic net income per common share ("EPS") and, for entities with complex capital structures, diluted EPS.  Basic EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding.  Diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued.  The dilutive effect of options and warrants outstanding is reflected in diluted earnings per share by application of the treasury stock method.

The following tables show the effect of dilutive options on the Company’s net income per common share.

	Year Ended December 31, 2019
	Income		Shares	Per Share
Basic EPS	$	7,794,487	2,955,737	$	2.64
Effect of Dilutive Securities:
Senior Convertible Debentures	362,640		302,200	(0.14		)
Diluted EPS	$	8,157,127	3,257,937	$	2.50

(1) Significant Accounting Policies, Continued

	Year Ended December 31, 2018						Year Ended December 31, 2017
	Income		Shares	Per Share			Income		Shares	Per Share
Basic EPS	$	7,207,221	2,953,446	$	2.44		$	5,918,340	2,945,918	$	2.01
Effect of Dilutive Securities:
Stock Options	—		0	—			—		951	—
Senior Convertible Debentures	362,640		303,200	(0.12		)	301,339		303,200	(0.10		)
Diluted EPS	$	7,569,861	3,256,646	$	2.32		$	6,219,679	3,250,069	$	1.91

There were no stock options outstanding as of December 31, 2019 and 2018; and therefore, no dilutive options in the calculation of diluted EPS for those periods. The average market price used in calculating the assumed number of dilutive shares issued for the year ended December 31, 2017 was $29.05.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of income and expenses during the reporting periods.  Actual results could differ from those estimates.

Recently Issued Accounting Standards

The following is a summary of recent authoritative pronouncements that could affect accounting, reporting, and disclosure of financial information by the Company:

In February 2016, the FASB amended the Leases topic of the ASC to revise certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions. In July 2018, the FASB further amended the Leases Topic of the ASC to make narrow amendments to clarify how to apply certain aspects of the new leases standard. The amendments also give entities another additional and optional method for transition to the new guidance and to provide lessors with a practical expedient. The amendments were effective for reporting periods beginning after December 15, 2018. The Company adopted the new standard and recorded a right-of-use asset and lease liability of $3.1 million effective January 1, 2019. Additional disclosures required by the ASC have been included in "Note 5 - Premises and Equipment, Net and Leases."

In June 2016, the FASB issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. The guidance significantly changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model. The amendments will be effective for the Company for reporting periods beginning after December 15, 2022. Early adoption is permitted. The Company is in the process of identifying required changes to the loan loss estimation models and processes and evaluating the impact of this new guidance. Once adopted, we expect our allowance for loan losses to increase, however, until our evaluation is complete the magnitude of the increase will be unknown.

In March 2017, the FASB issued guidance on Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The guidance shortens the amortization period for certain callable debt securities held at a premium. The amendments were effective for the Company for reporting periods beginning after December 15, 2018. The adoption of these amendments did not have a material effect on its consolidated financial statements.

In June 2018, the FASB amended the Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The amendments expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. Previously, these awards were recorded at the fair value of consideration received or the fair value of the equity instruments issued and was measured as the earlier of the commitment date or date performance was completed. The guidance requires the awards to be measured at the grant-date fair value of the equity instrument. This ASU became effective for reporting periods beginning after December 15, 2018. The adoption of these amendments did not have a material effect on the Company's consolidated financial statements.

(1)    Significant Accounting Policies, Continued

Recently Issued Accounting Standards

In August 2018, the FASB amended the Fair Value Measurement Topic of the ASC to remove, modify, and add certain fair value disclosure requirements based on the concepts in the FASB Concepts Statement, Conceptual Framework for Financial Reporting-Chapter 8: Notes to Financial Statements. The amendments are effective for reporting periods beginning after December 15, 2019. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this guidance and delay adoption of the additional disclosures until their effective date. The Company does not expect these amendments to have a material effect on its consolidated financial statements.

In March 2019, the FASB issued guidance to address concerns by lessors that are not manufacturers or dealers when assessing the fair value of underlying assets under the leases standard discussed above and to clarify that lessees and lessors are exempt from a certain interim disclosure requirement associated with adopting the new standard. The amendments are effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its consolidated financial statements.

In April 2019, the FASB issued guidance to provide entities that have certain financial instruments measured at amortized cost that have credit losses, to irrevocably elect the fair value option in Subtopic 825-10, upon adoption of the June 2016 guidance related to accounting for credit losses and modifying the impairment model for certain debt securities. The fair value option applies to available-for-sale debt securities. This guidance should be applied at adoption on a modified-retrospective basis as a cumulative-effect adjustment to the opening balance of retained earnings in the statement of financial condition. The Company does not expect these amendments to have a material effect on its consolidated financial statements.

In December 2019, the FASB issued guidance simplifying the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, Income Taxes. The amendments also improve consistent application or and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company does not expect the adoption of ASU 2019-12 to have a material impact on its consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting authorities are not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

Risks and Uncertainties

In the normal course of its business, the Company encounters two significant types of risk: economic and regulatory.  There are three main components of economic risk: interest rate risk, credit risk, and market risk.  The Company is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different speeds, or on different bases, than its interest-earning assets.  Credit risk is the risk of default on the Company’s loan portfolio that results from borrowers’ inability or unwillingness to make contractually required payments.  Market risk reflects changes in the value of collateral underlying loans receivable, the valuation of real estate held by the Company, and the valuation of loans held for sale and securities available for sale.  The Company is subject to the regulations of various government agencies.  These regulations can and do change significantly from period to period.  The Company also undergoes periodic examinations by the bank regulatory agencies, which may subject it to further changes with respect to asset valuations, amounts of required loss allowances, and operating restrictions, resulting from the regulators’ judgments based on information available to them at the time of their examination.

Reclassifications

Certain amounts in prior years’ consolidated financial statements have been reclassified to conform to current period classifications.

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Document and Entity Information - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2019	Mar. 20, 2020	Jun. 30, 2019
Document and Entity Information [Abstract]
Entity Registrant Name	Security Federal Corporation
Document Type	10-K
Document Period End Date	Dec. 31, 2019
Amendment Flag	false
Entity Central Index Key	0000818677
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		3,252,884
Entity Public Float			$ 57.5
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	FY
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Shell Company	false

XML

Consolidated Statements of Comprehensive Income - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Statement of Comprehensive Income [Abstract]
Net Income	$ 7,794,487	$ 7,207,221	$ 5,918,340
Other Comprehensive Income:
Reclassification Adjustment for Gains Included in Net Income, Net of Taxes of $204,763; $143,317 and $187,775 at December 31, 2019, 2018 and 2017, Respectively	(614,290)	(429,949)	(306,371)
Unrealized Holding Gains (Losses) on Securities Available For Sale, Net of Taxes of $1,675,405; $(1,001,537) and $1,330,097 at December 31, 2019, 2018 and 2017, Respectively	(5,133,884)	3,065,211	(2,161,122)
Amortization of Unrealized Gains on AFS Securities Transferred to HTM	(24,158)	(75,962)	(102,715)
Other Comprehensive Income (Loss)	4,495,436	(3,571,122)	1,752,036
Comprehensive Income	$ 12,289,923	$ 3,636,099	$ 7,670,376

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Loans Receivable, Net (Tables)

12 Months Ended

Dec. 31, 2019

Receivables [Abstract]

Schedule of Accounts, Notes, Loans and Financing Receivable

Loans receivable, net, at December 31, 2019 and 2018 are summarized below.

	December 31,
	2019				2018
	Balance		% of Total Gross Loans		Balance		% of Total Gross Loans
Residential Real Estate Loans	$	86,404,304	18.4	%	$	83,965,416	18.9	%
Consumer Loans	56,331,013		12.0	%	56,907,555		12.8	%
Commercial Business Loans	22,234,189		4.8	%	28,086,686		6.3	%
Commercial Real Estate Loans	303,550,905		64.8	%	275,960,438		62.0	%
Total Loans Held For Investment	468,520,411		100.0	%	444,920,095		100.0	%
Loans Held For Sale	3,990,606				1,781,985
Total Loans Receivable, Gross	472,511,017				446,702,080
Less:
Allowance For Loan Losses	9,225,574				9,171,717
Loans in Process	9,957,140				7,225,271
Deferred Loan Fees	469,568				251,575
	19,652,282				16,648,563
Total Loans Receivable, Net	$	452,858,735			$	430,053,517

Financing Receivable Credit Quality Indicators

The following tables summarize the loan grades used by the Company to measure the credit quality of gross loans receivable, excluding those held for sale, by loan segment at December 31, 2019 and 2018.

December 31, 2019	Pass		Caution		Special Mention		Substandard		Total Loans
Residential Real Estate	$	76,674,539	$	4,612,182	$	1,155,802	$	3,961,781	$	86,404,304
Consumer	44,294,400		9,617,301		624,248		1,795,064		56,331,013
Commercial Business	16,140,592		5,486,393		301,462		305,742		22,234,189
Commercial Real Estate	230,810,756		56,025,352		14,285,015		2,429,782		303,550,905
Total	$	367,920,287	$	75,741,228	$	16,366,527	$	8,492,369	$	468,520,411

December 31, 2018	Pass		Caution		Special Mention		Substandard		Total Loans
Residential Real Estate	$	75,558,544	$	3,369,776	$	958,354	$	4,078,742	$	83,965,416
Consumer	46,948,251		6,899,912		567,682		2,491,710		56,907,555
Commercial Business	22,670,318		4,708,036		339,533		368,799		28,086,686
Commercial Real Estate	204,197,354		45,653,796		18,492,785		7,616,503		275,960,438
Total	$	349,374,467	$	60,631,520	$	20,358,354	$	14,555,754	$	444,920,095

Past Due Financing Receivables

The following tables present an age analysis of past due balances by category at December 31, 2019 and 2018.

	December 31, 2019
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable
Residential Real Estate	$	—	$	355,290	$	144,209	$	499,499	$	85,904,805	$	86,404,304
Consumer	422,443		217,542		81,736		721,721		55,609,292		56,331,013
Commercial Business	147,959		76,515		20,316		244,790		21,989,399		22,234,189
Commercial Real Estate	3,849,424		—		1,352,716		5,202,140		298,348,765		303,550,905
Total	$	4,419,826	$	649,347	$	1,598,977	$	6,668,150	$	461,852,261	$	468,520,411

	December 31, 2018
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable
Residential Real Estate	$	—	$	332,000	$	497,713	$	829,713	$	83,135,703	$	83,965,416
Consumer	555,798		247,894		1,120,462		1,924,154		54,983,401		56,907,555
Commercial Business	205,613		106,163		18,648		330,424		27,756,262		28,086,686
Commercial Real Estate	1,556,863		424,103		1,634,770		3,615,736		272,344,702		275,960,438
Total	$	2,318,274	$	1,110,160	$	3,271,593	$	6,700,027	$	438,220,068	$	444,920,095

Schedule of Financing Receivables, Non Accrual Status

The following table shows non-accrual loans by category at December 31, 2019 compared to 2018.

	December 31, 2019				December 31, 2018				Decrease
	Amount		Percent (1)		Amount		Percent (1)		$			%
Non-accrual Loans:
Residential Real Estate	$	1,520,485	0.3	%	$	2,084,870	0.5	%	$	(564,385	)	(27.1	)%
Consumer	319,280		0.1		1,274,673		0.3		(955,393		)	(75.0	)
Commercial Business	122,605		—		124,458		—		(1,853		)	(1.5	)
Commercial Real Estate	1,474,036		0.3		3,564,494		0.8		(2,090,458		)	(58.6	)
Total Non-accrual Loans	$	3,436,406	0.7	%	$	7,048,495	1.6	%	$	(3,612,089	)	(51.2	)%

^{(1) PERCENT OF GROSS LOANS RECEIVABLE HELD FOR INVESTMENT, NET OF DEFERRED FEES AND LOANS IN PROCESS.}

Schedule of Credit Losses Related to Financing Receivables, Current and Noncurrent

The following tables show the allowance for loan losses by loan category for the years ended December 31, 2019, 2018 and 2017.

	For the Year Ended December 31, 2019
	Residential Real Estate			Consumer			Commercial Business			Commercial Real Estate			Total
Beginning Balance	$	1,191,443		$	1,203,593		$	923,600		$	5,853,081		$	9,171,717
Provision	227,624			324,394			(392,817		)	215,799			375,000
Charge-Offs	(34,599		)	(432,003		)	(1,132		)	(517,583		)	(985,317		)
Recoveries	6,126			114,865			15,113			528,070			664,174
Ending Balance	$	1,390,594		$	1,210,849		$	544,764		$	6,079,367		$	9,225,574

	For the Year Ended December 31, 2018
	Residential Real Estate			Consumer			Commercial Business			Commercial Real Estate			Total
Beginning Balance	$	1,233,843		$	1,144,815		$	1,011,227		$	4,831,733		$	8,221,618
Provision	2,411			173,235			(55,109		)	804,463			925,000
Charge-Offs	(46,419		)	(224,954		)	(32,518		)	(351,894		)	(655,785		)
Recoveries	1,608			110,497			—			568,779			680,884
Ending Balance	$	1,191,443		$	1,203,593		$	923,600		$	5,853,081		$	9,171,717

	For the Year Ended December 31, 2017
	Residential Real Estate			Consumer			Commercial Business			Commercial Real Estate			Total
Beginning Balance	$	1,360,346		$	996,620		$	882,999		$	5,116,266		$	8,356,231
Provision	82,909			257,180			261,599			(301,688		)	300,000
Charge-Offs	(211,780		)	(184,161		)	(133,371		)	(301,260		)	(830,572		)
Recoveries	2,368			75,176			—			318,415			395,959
Ending Balance	$	1,233,843		$	1,144,815		$	1,011,227		$	4,831,733		$	8,221,618

Allowance for Credit Losses on Financing Receivables

The following tables summarize the impaired loans evaluated individually and collectively for impairment within the allowance for loan losses and loans receivable balances at December 31, 2019 and 2018.

	Allowance For Loan Losses						Loans Receivable
December 31, 2019	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total		Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	—	$	1,390,594	$	1,390,594	1,086,433		$	85,317,871	$	86,404,304
Consumer	—		1,210,849		1,210,849		184,402		56,146,611		56,331,013
Commercial Business	—		544,764		544,764		64,406		22,169,783		22,234,189
Commercial Real Estate	—		6,079,367		6,079,367		1,894,642		301,656,263		303,550,905
Total	$	—	$	9,225,574	$	9,225,574	$	3,229,883	$	465,290,528	$	468,520,411

(4)          Loans Receivable, Net, Continued

Impaired Financing Receivables

The following tables present information related to impaired loans by loan category as of and for the years ended December 31, 2019, 2018 and 2017.

	December 31, 2019
Impaired Loans	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	1,086,433	$	1,086,433	$	—	$	1,322,609	$	—
Consumer	184,402		192,702		—		1,106,795		—
Commercial Business	64,406		959,406		—		71,422		—
Commercial Real Estate	1,894,642		2,066,862		—		3,893,786		54,372
Total
Residential Real Estate	1,086,433		1,086,433		—		1,322,609		—
Consumer	184,402		192,702		—		1,106,795		—
Commercial Business	64,406		959,406		—		71,422		—
Commercial Real Estate	1,894,642		2,066,862		—		3,893,786		54,372
Total	$	3,229,883	$	4,305,403	$	—	$	6,394,612	$	54,372

(4)       Loans Receivable, Net, Continued

	December 31, 2018
Impaired Loans	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	1,700,861	$	1,700,861	$	—	$	1,743,906	$	31,853
Consumer	986,380		994,680		—		502,479		—
Commercial Business	77,206		972,206		—		85,020		—
Commercial Real Estate	5,084,458		6,116,761		—		8,052,817		212,186
With an Allowance Recorded:
Consumer	73,662		73,662		73,662		6,139		—
Commercial Real Estate	1,441,558		1,441,558		665,000		636,387		84,881
Total
Residential Real Estate	1,700,861		1,700,861		—		1,743,906		31,853
Consumer	1,060,042		1,068,342		73,662		508,618		—
Commercial Business	77,206		972,206		—		85,020		—
Commercial Real Estate	6,526,016		7,558,319		665,000		8,689,204		297,067
Total	$	9,364,125	$	11,299,728	$	738,662	$	11,026,748	$	328,920

	December 31, 2017
Impaired Loans	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	1,883,741	$	2,333,741	$	—	$	2,889,065	$	24,273
Consumer	181,617		209,427		—		279,183		—
Commercial Business	100,401		950,401		—		141,940		—
Commercial Real Estate	6,276,547		7,583,847		—		7,483,035		189,373
Total
Residential Real Estate	1,883,741		2,333,741		—		2,889,065		24,273
Consumer	181,617		209,427		—		279,183		—
Commercial Business	100,401		950,401		—		141,940		—
Commercial Real Estate	6,276,547		7,583,847		—		7,483,035		189,373
Total	$	8,442,306	$	11,077,416	$	—	$	10,793,223	$	213,646

Troubled Debt Restructurings on Financing Receivables

In the course of resolving delinquent loans, the Bank may choose to restructure the contractual terms of certain loans. A troubled debt restructuring ("TDR") is a restructuring in which the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to a borrower that it would not otherwise consider (FASB ASC Topic 310-40).  The concessions granted on TDRs generally include terms to reduce the interest rate, extend the term of the debt obligation, or modify the payment structure on the debt obligation. The Bank grants such concessions to reassess the borrower’s financial status and develop a plan for repayment.  

At the date of modification, TDRs are initially classified as nonaccrual TDRs. They are returned to accruing status when there is economic substance to the restructuring, there is documented credit evaluation of the borrower's financial condition, the remaining balance is reasonably assured of repayment in accordance with its modified terms, and the borrower has demonstrated sustained repayment performance in accordance with the modified terms for a reasonable period of time (generally a minimum of six months).

The Bank had five TDRs with a total balance of $825,000 included in impaired loans at December 31, 2019 compared to seven TDRs totaling $1.4 million at December 31, 2018. There were no TDRs restructured during the years ended December 31, 2019, 2018 and 2017. At December 31, 2019, there were no TDRs in default. At December 31, 2018 and 2017, one previously restructured loan with a balance of $374,000 and two previously restructured loans with a total balance of $610,000, respectively, were in default, none of which had been restructured during the same period. The Bank considers any loan 30 days or more past due to be in default.

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Subsequent Events

12 Months Ended

Dec. 31, 2019

Subsequent Events [Abstract]

Subsequent Events

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. Nonrecognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Management has reviewed all events occurring through the date the financial statements were available to be issued and determined the following subsequent events required disclosure:

On January 2, 2020, the Company announced its intention to redeem all of the convertible debentures on March 2, 2020. Subsequent to the announcement, $5.9 million was converted into 295,600 common shares by holders of the debt. The Company redeemed the remaining $132,000 for cash on March 2, 2020.

The 2019 novel coronavirus (or “COVID-19”) has adversely affected, and may continue to adversely affect economic activity globally, nationally and locally. Following the COVID-19 outbreak in December 2019 and January 2020, market interest rates have declined significantly, with the 10-year Treasury bond falling below 1.00% on March 3, 2020 for the first time. Such events also may adversely affect business and consumer confidence, generally, and the Company and its customers, and their respective suppliers, vendors and processors may be adversely affected. On March 3, 2020, the Federal Open Market Committee reduced the target federal funds rate by 50 basis points to 1.00% to 1.25%. This rate was further reduced to 0% to 0.25% on March 16, 2020.  These reductions in interest rates and other effects of the COVID-19 outbreak may adversely affect the Company’s financial condition and results of operations.

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Investment and Mortgage-Backed Securities, Available for Sale

12 Months Ended

Dec. 31, 2019

Investments, Debt and Equity Securities [Abstract]

Investment and Mortgage-Backed Securities, Available for Sale

At December 31, 2019, the Bank held an amortized cost and fair value of $63.2 million and $63.9 million, respectively, in GNMA mortgage-backed securities compared to an amortized cost and fair value of $80.4 million and $80.2 million, respectively, at December 31, 2018. Also included in mortgage-backed securities in the tables above and below are private label collateralized mortgage obligation ("CMO") securities, which are issued by non-governmental real estate mortgage investment conduits and are not backed by the full faith and credit of the United States government.  At December 31, 2019 the Bank held an amortized cost and fair value of $15.8 million and $16.1 million, respectively, in private label CMO mortgage-backed securities, compared to an amortized cost and fair value of $29.7 million and $29.5 million, respectively, at December 31, 2018.

Investment and Mortgage-Backed Securities, Available For Sale

The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of investment and mortgage-backed securities available for sale at the dates indicated are as follows:

	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair value
Student Loan Pools	$	41,088,231	$	—	$	856,401	$	40,231,830
Small Business Administration (“SBA”) Bonds	111,927,938		622,105		656,944		111,893,099
Tax Exempt Municipal Bonds	43,153,086		4,088,408		—		47,241,494
Taxable Municipal Bonds	15,169,737		35,359		364,686		14,840,410
Mortgage-Backed Securities	197,356,288		3,664,621		582,902		200,438,007
	$	408,695,280	$	8,410,493	$	2,460,933	$	414,644,840
	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair value
Student Loan Pools	$	12,934,037	$	20,713	$	69,249	$	12,885,501
SBA Bonds	125,777,016		560,352		890,837		125,446,531
Tax Exempt Municipal Bonds	60,141,164		1,518,974		329,769		61,330,369
Taxable Municipal Bonds	1,998,258		3,546		23,919		1,977,885
Mortgage-Backed Securities	185,291,038		1,073,432		1,903,919		184,460,551
	$	386,141,513	$	3,177,017	$	3,217,693	$	386,100,837

Student Loan Poolsare typically 97% guaranteed by the United States government while SBA bonds are 100% backed by the full faith and credit of the United States government. Included in the tables above and below in mortgage-backed securities are Government National Mortgage Association ("GNMA") mortgage-backed securities, which are also backed by the full faith and credit of the United States government.  At December 31, 2019, the Bank held an amortized cost and fair value of $63.2 million and $63.9 million, respectively, in GNMA mortgage-backed securities compared to an amortized cost and fair value of $80.4 million and $80.2 million, respectively, at December 31, 2018. Also included in mortgage-backed securities in the tables above and below are private label collateralized mortgage obligation ("CMO") securities, which are issued by non-governmental real estate mortgage investment conduits and are not backed by the full faith and credit of the United States government.  At December 31, 2019 the Bank held an amortized cost and fair value of $15.8 million and $16.1 million, respectively, in private label CMO mortgage-backed securities, compared to an amortized cost and fair value of $29.7 million and $29.5 million, respectively, at December 31, 2018.

The amortized cost and fair value of investment and mortgage-backed securities available for sale at December 31, 2019 are shown below by contractual maturity.  Expected maturities will differ from contractual maturities because borrowers have the right to prepay obligations with or without call or prepayment penalties. Since mortgage-backed securities are not due at a single maturity date, they are disclosed separately, rather than allocated over the maturity groupings below.

	Amortized Cost		Fair Value
Due in less than one year	$	18,237	$	18,134
Due in one year to five years	6,314,205		6,342,172
Due in five to ten years	57,236,558		57,209,659
Due in ten years or more	147,769,992		150,636,868
Mortgage-Backed Securities	197,356,288		200,438,007
	$	408,695,280	$	414,644,840

(2)         Investment and Mortgage-Backed Securities, Available For Sale, Continued

The amortized cost and fair value of investment and mortgage-backed securities available for sale pledged as collateral for certain deposit accounts, FHLB advances and other borrowings were $171.4 million and $173.1 million, respectively, at December 31, 2019 and $111.8 million and $111.7 million, respectively, at December 31, 2018.

The Bank received $96.5 million, $33.3 million and $72.3 million in gross proceeds from sales of available for sale securities during the years ended December 31, 2019, 2018 and 2017, respectively. As a result, the Bank recognized gross gains of $1.5 million, $732,000 and $1.0 million, respectively, and gross losses of $636,000, $159,000 and $510,000, respectively, during the years ended December 31, 2019, 2018 and 2017.

The tables below summarize gross unrealized losses and the related fair value, aggregated by investment category and length of time that individual available for sale securities have been in a continuous unrealized loss position for the periods indicated.

	December 31, 2019
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Student Loan Pools	$	30,079,497	$	534,048	$	10,152,333	$	322,353	$	40,231,830	$	856,401
SBA Bonds	13,844,666		106,110		47,395,036		550,834		61,239,702		656,944
Taxable Municipal Bonds	13,810,279		364,686		—		—		13,810,279		364,686
Mortgage-Backed Securities	55,326,064		480,958		7,975,863		101,944		63,301,927		582,902
	$	113,060,506	$	1,485,802	$	65,523,232	$	975,131	$	178,583,738	$	2,460,933

	December 31, 2018
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Student Loan Pools	$	8,384,145	$	69,249	$	—	$	—	$	8,384,145	$	69,249
SBA Bonds	59,496,936		479,955		25,054,861		410,882		84,551,797		890,837
Tax Exempt Municipal Bonds	4,585,849		91,281		9,626,613		238,488		14,212,462		329,769
Taxable Municipal Bonds	—		—		980,520		23,919		980,520		23,919
Mortgage-Backed Securities	38,168,598		249,050		81,947,249		1,654,869		120,115,847		1,903,919
	$	110,635,528	$	889,535	$	117,609,243	$	2,328,158	$	228,244,771	$	3,217,693

Securities classified as available-for-sale are recorded at fair market value.  At December 31, 2019 and 2018, 39.6% and 72.4% of the unrealized losses, representing 69 and 92 individual securities, respectively, consisted of securities in a continuous loss position for 12 months or more. The Company has the ability and intent to hold these securities until such time as the value recovers or the securities mature.  The Company believes, based on industry analyst reports and credit ratings, that the deterioration in value is attributable to changes in market interest rates and is not in the credit quality of the issuer and therefore, these losses are not considered other-than-temporary. The Company reviews its investment securities portfolio at least quarterly and more frequently when economic conditions warrant, assessing whether there is any indication of other-than-temporary impairment (“OTTI”).

Factors considered in the Company's review of its investment securities portfolio include estimated future cash flows, length of time and extent to which market value has been less than cost, the financial condition and near term prospects of the issuer, and our intent and ability to retain the security to allow for an anticipated recovery in market value. If the review determines that there is OTTI, then an impairment loss is recognized in earnings equal to the entire difference between the investment’s cost and its fair value at the balance sheet date of the reporting period for which the assessment is made, or the Company may recognize a portion of the impairment in other comprehensive income. The fair value of investments on which OTTI is recognized then becomes the new cost basis of the investment. There was no OTTI recognized during the years ended December 31, 2019, 2018 and 2017.

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Intangible Assets and Goodwill

12 Months Ended

Dec. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets and Goodwill

Goodwill

Goodwill was recorded in connection with the Company's acquisition of Collier Jennings Financial Corporation in July 2006. The goodwill balance of $1.2 million remained unchanged at both December 31, 2019 and 2018.In accordance with accounting guidance, the Company evaluates its goodwill on an annual basis. The evaluations were performed as of September 30, 2019 and 2018 for the years ended December 31, 2019 and 2018, respectively. At the time of the evaluations the Company determined that no impairment existed. Therefore, there was no write-down of goodwill for the years ended December 31, 2019 and 2018.

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Advances From Federal Home Loan Bank (FHLB) And Other Borrowings

12 Months Ended

Dec. 31, 2019

Banking and Thrift [Abstract]

Advances From Federal Home Loan Bank (FHLB) And Other Borrowings

Advances From Federal Home Loan Bank and Other Borrowings

Advances from the FHLB are summarized by year of maturity and weighted average interest rate at December 31, 2019 below.

	Amount		Weighted Rate
2020	$	13,138,000	1.88%
2021	25,000,000		1.97%
Total	$	38,138,000	1.94%

These advances are secured by a blanket collateral agreement with the FHLB by pledging the Bank’s portfolio of residential first mortgage loans and investment securities with an amortized cost and fair value of $100.5 million and $96.7 million, respectively, at December 31, 2019 and $79.1 million and $71.4 million, respectively, at December 31, 2018.

FHLB advances are subject to prepayment penalties. During the years ended December 31, 2019, 2018 and 2017, the Bank prepaid no FHLB advances. Callable advances are callable at the option of the FHLB.  If an advance is called, the Bank has the option to pay off the advance without penalty, re-borrow funds on different terms, or convert the advance to a three-month floating rate advance tied to LIBOR. The Bank did not have any callable FHLB advances at December 31, 2019.

At December 31, 2019 and 2018, the Bank had $259.2 million and $236.6 million in additional borrowing capacity, respectively, at the FHLB.

The Bank had $11.6 million and $10.7 million in other borrowings at December 31, 2019 and 2018, respectively.  These borrowings consist of short-term repurchase agreements with certain commercial demand deposit customers for sweep accounts. The repurchase agreements typically mature within one to three days and the interest rate paid on these borrowings floats monthly with money market type rates. At December 31, 2019 and 2018, the interest rate paid on the repurchase agreements was 0.50% and 0.25%, respectively. The maximum amount outstanding at any one month end during the year ended December 31, 2019 was $15.8 million compared to $14.3 million during the year ended December 31, 2018. The Bank had pledged as collateral for these repurchase agreements investment and mortgage-backed securities with amortized costs and fair values of $20.4 million and $20.5 million, respectively, at December 31, 2019 and $16.2 million and $16.5 million, respectively, at December 31, 2018.

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Bank Owned Life Insurance (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Investments, All Other Investments [Abstract]
Payment to Acquire Life Insurance Policy, Investing Activities	$ 0	$ 1,900,000	$ 2,000,000
Bank Owned Life Insurance (BOLI)	21,501,647	21,237,893
Life Insurance, Corporate or Bank Owned, Change in Value	540,000	540,000	506,000
BOLI death benefits	$ 138,609	$ 0	$ 654,133

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Senior Convertible Debentures (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 01, 2009
Debt Instrument [Line Items]
Senior Convertible Debentures	$ 6,044,000	$ 6,064,000
Senior Convertible Debt [Member] | Senior Convertible Debentures issued December 1, 2009 [Member]
Debt Instrument [Line Items]
Senior Convertible Debentures			$ 6,100,000
Interest rate per year			8.00%
Debt Instrument, Redemption Price, Percentage	100.00%

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Advances From Federal Home Loan Bank (FHLB) And Other Borrowings (Callable FHLB advances) (Details) - USD ($)	Dec. 31, 2019	Dec. 31, 2018
Schedule of Federal Home Loan Bank Advances [Line Items]
Advances From FHLB	$ 38,138,000	$ 34,030,000
Amount of Additional Borrowing Capacity	$ 259,200,000	$ 236,600,000

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Employee Benefit Plans (Retirement Benefits) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Postemployment Benefits [Abstract]
Defined contribution plan, requisite service period	6 months
Defined contribution plan, employer contributions	$ 273,000	$ 263,000	$ 232,000
Supplemental retirement plan, expense	$ 496,000	396,000	$ 318,000
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum Days Earned For Bonus	7 days 12 hours
Minimum Days Earned for Bonus	2 days 12 hours
Accrued Bonuses	$ 100,050	$ 240,000
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Employee Stock Purchase Plan, purchase discount of the market value	15.00%
Employee Stock Purchase Plan, maximum annual employee purchase amount	$ 25,000
Employee Stock Purchase Plan, maximum annual employee purchase amount as a percent of annual salary	5.00%

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Income Taxes (Income tax reconciliation) (Details) - USD ($)	3 Months Ended								12 Months Ended
	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Income Tax Disclosure [Abstract]
Tax at Statutory Income Tax Rate									$ 1,989,548	$ 1,843,117	$ 2,840,292
State Tax and Other									100,820	157,417	44,764
Tax Exempt Interest									(291,768)	(338,497)	(730,477)
Effective Income Tax Rate Reconciliation, Nondeductible Expense, Life Insurance, Amount									(142,508)	(113,400)	(394,445)
Valuation Allowance									23,458	20,889	69,133
Effective Income Tax Rate Reconciliation, Change in Enacted Tax Rate, Amount									0	0	606,193
Total Income Tax Expense	$ 199,000	$ 475,000	$ 486,000	$ 520,000	$ 271,000	$ 471,000	$ 427,000	$ 400,000	$ 1,679,550	$ 1,569,526	1,829,267
Tax Cuts and Jobs Act, Change in Tax Rate, Deferred Tax Asset, Income Tax Expense											$ 2,435,460

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Repossessed Assets Acquired In Settlement Of Loans (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Other Real Estate and Other Assets Repossessed [Roll Forward]
Balance, beginning of year	$ 722,442	$ 1,115,671	$ 2,721,214
Additions	832,800	435,550	580,748
Sales	(855,502)	(772,779)	(2,028,170)
Write-downs	(22,000)	(56,000)	(158,121)
Balance, end of year	$ 677,740	$ 722,442	$ 1,115,671

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Significant Accounting Policies (Earnings Per Share - Effects of dilutive options and warrants) (Details) - USD ($)	3 Months Ended								12 Months Ended
	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Basic EPS
Income									$ 7,794,487	$ 7,207,221
Shares	2,956,600	2,956,156	2,955,650	2,954,515	2,953,763	2,953,424	2,953,412	2,953,180	2,955,737	2,953,446	2,945,918
Per Share Amounts	$ 0.54	$ 0.75	$ 0.64	$ 0.71	$ 0.52	$ 0.71	$ 0.62	$ 0.59	$ 2.64	$ 2.44	$ 2.01
Effect of Diluted Securities:
Senior Convertible Debentures									302,200	303,200
Senior Convertible Debentures (per Share)									$ (0.14)	$ (0.12)
Diluted EPS
Income									$ 8,157,127	$ 7,569,861
Shares	3,258,800	3,258,356	3,257,850	3,256,715	3,256,963	3,256,624	3,257,017	3,257,532	3,257,937	3,256,646	3,250,069
Per Share Amounts	$ 0.51	$ 0.71	$ 0.61	$ 0.67	$ 0.50	$ 0.68	$ 0.59	$ 0.56	$ 2.50	$ 2.32	$ 1.91
Dilutive Securities, Effect on Basic Earnings Per Share, Dilutive Convertible Securities									$ 362,640	$ 362,640
Weighted Average [Member]
Diluted EPS
Share Price											$ 29.05

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Investment and Mortgage-Backed Securities, Available for Sale (Schedule of Temporarily Impaired Securities, Fair Value and Unrealized losses) (Details)	Dec. 31, 2019 USD ($) security	Dec. 31, 2018 USD ($) security
Debt Securities, Available-for-sale [Line Items]
Investment Securities, Available For Sale	$ 414,644,840	$ 386,100,837
Amortized Cost of Investment And Mortgage-Backed Securities Available For Sale	408,695,280	386,141,513
Debt Securities, Available-for-sale, Unrealized Loss Position [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	113,060,506	110,635,528
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	65,523,232	117,609,243
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	178,583,738	228,244,771
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Unrealized Losses	1,485,802	889,535
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Unrealized Losses	975,131	2,328,158
Available-for-sale Securities, Continuous Unrealized Loss Position, Unrealized Losses	$ 2,460,933	$ 3,217,693
Number of individual securities available for sale that are in unrealized continuous loss positions for twelve months or more | security	69	92
Percent of unrealized losses for securities in a continuous loss position for 12 months or more	39.60%	72.40%
Mortgage-backed Securities, Issued by Private Enterprises [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost of Investment And Mortgage-Backed Securities Available For Sale	$ 15,800,000	$ 29,700,000
GNMA Mortgage-Backed Securities
Debt Securities, Available-for-sale [Line Items]
Investment Securities, Available For Sale	63,900,000	80,200,000
Amortized Cost of Investment And Mortgage-Backed Securities Available For Sale	63,200,000	80,400,000
SBA Bonds [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost of Investment And Mortgage-Backed Securities Available For Sale	111,927,938	125,777,016
Debt Securities, Available-for-sale, Unrealized Loss Position [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	13,844,666	59,496,936
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	47,395,036	25,054,861
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	61,239,702	84,551,797
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Unrealized Losses	106,110	479,955
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Unrealized Losses	550,834	410,882
Available-for-sale Securities, Continuous Unrealized Loss Position, Unrealized Losses	656,944	890,837
Tax Exempt Municipal Bonds
Debt Securities, Available-for-sale, Unrealized Loss Position [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value		4,585,849
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value		9,626,613
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value		14,212,462
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Unrealized Losses		91,281
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Unrealized Losses		238,488
Available-for-sale Securities, Continuous Unrealized Loss Position, Unrealized Losses		329,769
MBS
Debt Securities, Available-for-sale [Line Items]
Amortized Cost of Investment And Mortgage-Backed Securities Available For Sale	197,356,288	185,291,038
Debt Securities, Available-for-sale, Unrealized Loss Position [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	55,326,064	38,168,598
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	7,975,863	81,947,249
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	63,301,927	120,115,847
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Unrealized Losses	480,958	249,050
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Unrealized Losses	101,944	1,654,869
Available-for-sale Securities, Continuous Unrealized Loss Position, Unrealized Losses	582,902	1,903,919
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Debt Securities, Available-for-sale [Line Items]
Investment Securities, Available For Sale	$ 414,644,840	$ 386,100,837