Security Federal Q2 Earnings Rise Y/Y on Higher Revenues, Lower Costs

Shares of Security Federal Corporation SFDL have declined 1.1% since reporting second-quarter 2025 earnings on July 30. This compares with a broader market pullback, with the S&P 500 index falling 0.6% during the same period. Despite this short-term decline, SFDL shares have gained 1.1% over the past month, lagging behind the S&P 500’s 2% growth.Strong Y/Y Earnings & Revenue GrowthFor the quarter ended June 30, 2025, Security Federal reported net income available to common shareholders of $2.4 million, or 75 cents per share, up from $2.1 million, or 66 cents per share, in the second quarter of 2024. This represents a 10.9% year-over-year increase in net income and a 13.6% increase in EPS. Total revenues, represented by net interest income and non-interest income, also saw healthy growth. Net interest income rose 11.1% to $11.3 million, whereas non-interest income increased 5.7% to $2.6 million.Business Drivers & Performance MetricsNet Interest & Non-Interest IncomeThe company’s net interest income improvement was driven by a 3.3% increase in total interest income to $19.4 million and a 5.8% reduction in total interest expenses to $8.1 million. The increase in interest income was primarily due to a $1.1-million boost from loans and a $258,000 increase from other interest-earning assets. Lower market interest rates and the payoff of Federal Reserve borrowings contributed to the decline in interest expenses.Non-interest income climbed to $2.6 million, largely reflecting a $106,000 increase in rental income and a $62,000 gain on the sale of land. The rental income boost stemmed from a newly acquired multi-tenant property intended for a future branch location.Operating Expenses & ProfitabilityNon-interest expenses increased by $692,000, or 7.2%, to $10.4 million. This rise was primarily attributed to higher salaries and employee benefits, occupancy expenses, debit card processing, and cloud services. These increases were partially offset by declines in advertising and equipment-related expenses.As a result, income before taxes rose 27.1% to $3.5 million. After accounting for a 33.8% rise in income tax provision and increased preferred stock dividends, net income available to common shareholders rose 11.6% to $2.4 million.Credit Quality ImprovementsAs of June 30, 2025, non-performing assets declined to $5.95 million, reflecting a consistent improvement in credit quality. This represents a reduction from $7.12 million (0.46% of total assets) a year earlier on June 30, 2024, and from $7.64 million (0.47%) at the end of 2024. The allowance for credit losses also increased to $14.0 million, or 2.00% of gross loans, up from 1.95% a year ago and 1.98% at year-end 2024. These changes highlight a steady enhancement in asset quality over both the year and the first half of 2025.Balance Sheet & Capital PositionAs of June 30, 2025, total assets stood at $1.63 billion, a 5.3% year-over-year increase. Deposits grew 11.9% year over year to $1.38 billion, while borrowings were significantly reduced 66.7% to $39.6 million, reflecting a strategic deleveraging move. Investment securities rose 6.9% to $707.6 million. Cash and cash equivalents dropped by $36.1 million to $142.2 million due to the repayment of borrowings.Common equity book value per share increased to $34.02 from $29.08 a year earlier. Capital ratios remained strong, with a total risk-based capital ratio of 20.46%, a CET1 capital ratio of 19.20% and a Tier 1 leverage ratio of 10.54%.Management CommentaryManagement emphasized that earnings growth was driven by sound balance sheet management, including net interest margin expansion and prudent cost control. They also highlighted investments made in future growth, notably the acquisition of a multi-tenant property for branch expansion. These initiatives align with the company's strategy to maintain profitability while enhancing its regional footprint.Other DevelopmentsIn the quarter, Security Federal acquired a multi-tenant commercial property, which contributed to the increase in rental income and non-interest income. This property is intended to become a full-service branch, indicating the company’s ongoing efforts to expand its physical presence in key regional markets. No divestitures or restructuring activities were noted in the reporting period.In summary, Security Federal delivered a solid second quarter, marked by revenue growth, improved efficiency and stronger asset quality. Although the stock has slightly lagged the market since the earnings release, its financial results reflect a stable and improving business outlook.Research Chief Names "Single Best Pick to Double"From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Security Federal Corp. 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