Zacks Investment Research has initiated coverage of Security Federal Corporation (SFDL Quick QuoteSFDL - Free Report) with an “Outperform” recommendation, citing the company’s resilient fundamentals, solid earnings trajectory and strong balance sheet that position it for sustainable long-term growth.

Security Federal has demonstrated sustained profitability expansion despite a challenging environment. For the first half of 2025, net income rose 28% year over year to $5 million, lifting earnings per share to $1.56 from $1.20. The bank’s ability to translate higher revenues into bottom-line growth reflects disciplined balance sheet management and operational efficiency.

Net interest income advanced 11.8% year over year to $22.5 million in the first half of 2025, supported by expanding loan yields and lower funding costs. With deposits growing 4.5% to $1.38 billion and borrowings declining more than half, Security Federal’s funding mix now tilts toward lower-cost, more stable sources.

A hallmark of Security Federal’s performance is its improving asset quality. Non-performing assets declined to 0.37% of total assets, while the company recorded no provision for credit losses in the first half of 2025. With an allowance for credit losses at 2% of gross loans, the bank continues to strengthen investor confidence in its conservative risk posture.

The research report highlights several key factors that may drive Security Federal’s growth. The company’s capital strength remains a core differentiator. Book value per share climbed 9% to $34.02 by mid-2025, while the common equity Tier 1 and Tier 1 leverage ratios stood comfortably above regulatory requirements at 19.2% and 10.5%, respectively. This robust capital position provides ample flexibility for dividends, reinvestment and potential expansion, supporting valuation upside for investors.

The company continues to diversify beyond traditional lending. Non-interest income rose 5.5% year over year in the first half of 2025, driven by rental income from a new multi-tenant property and gains from land sales. Its 19 full-service branches across South Carolina and Georgia, complemented by trust, investment and insurance services, add resilience to the franchise and deepen customer relationships. This geographic and service diversification reduces cyclicality and enhances competitive positioning in a consolidating regional banking landscape.

However, potential investors should consider certain risks outlined in the report. While fundamentals remain strong, Zacks notes that rising operating expenses, higher preferred dividends and sluggish loan growth may affect profitability. Heavy reliance on investment securities and exposure to regional economic conditions also warrant caution. Nonetheless, Security Federal’s capital strength, earnings momentum and diversified revenue streams provide a solid buffer against these challenges.

Shares of Security Federal trade at 0.90X trailing book value and 9.8X earnings, both well below the industry and sector averages. With capital growth, earnings resilience and an improving risk profile, Zacks believes that the stock offers attractive upside potential relative to its peers.

For a comprehensive analysis of Security Federal's financial health, growth initiatives and market positioning, you are encouraged to view the full Zacks research report. This in-depth report offers a comprehensive analysis of the company's operational strategies, financial performance, and the potential risks and opportunities that lie ahead.

Read the full Research Report on Security Federal here>>>

Note: Our initiation of coverage on Security Federal, which has a modest market capitalization of $96 million, aims to equip investors with the information needed to make informed decisions in this promising but inherently risky segment of the market.