Security Federal Corp. · OTC:SFDL
Security Federal — Debt Investor Presentation (November 2019)
32 slides from Security Federal's debt investor presentation, Nov 22, 2019
Slide 1: Subordinated Notes Offering Presentation
Security Federal Corporation Subordinated Notes Offering Presentation November 2019
Slide 2: Forward-Looking Statement Disclaimer
Forward-Looking Statement Disclaimer This presentation includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the financial condition, liquidity, results of o
Slide 3: Terms of the Offered Securities
Terms of the Offered Securities Issuer: Security Federal Corporation Security: Subordinated Debt Principal Amount: $30 million Term: $15 million of 10-NC5 / $15 million of 15-NC10 Fixed 2% for X years Floating at L + 2% thereafter Coupo! Optional Redemption: Redeemable 5 years prior to maturity at p
Slide 4: Investment Highlights
Investment Highlights Experienced Management Team * Senior management has decades of experience in the community banking industry Strong Presencein Attractive Growth Markets + Significant presence in the Aiken, SC and Augusta, GA markets + Branch locations in some of the fastest growing markets of G
Slide 5: Security Federal Bank
Security Federal Bank Corporate Overview Branch Map” + Incorporated in 1922 + Headquartered in Aiken, South Carolina * Traded on OTC Pink (Ticker: SEDLY” + P/TBY: 110.3% + P/LTM EPS: 13.7x + Avg. 3M Daily Volume: 1,147 shares + Eighteen locations across greater Columbia, SC and Augusta, GA areas + G
Slide 6: Aiken, South Carolina Overview
Aiken, South Carolina Overview Located in western South Carolina, about 20 miles northeast of Augusta, GA - Population of around 30,300 residents - Workforce of~12.4K jobs; particularly dominated by office / administrative support, management, and sales occupations (~37% of workforce) - Households i
Slide 7: Columbia, South Carolina Overview
Columbia, South Carolina Overview Columbia, the state capital of South Carolina, is locatedin central South Carolina Population of around 135,000residents, making it South Carolina's largest city Home to the University of South Carolina with a total enrollment of approximately 50,000 students — The
Slide 8: Augusta, Georgia Overview
Augusta, Georgia Overview Augusta, GA Augusta is the second largest city in Georgia, with around 200,000residents Bestknown for hosting The Masters golftournament each spring at Augusta National Golf Club - The Masters brings over 200,000 visitors from across the world each year Augusta is becoming
Slide 9: Executive Team
Executive Team J. Chris Verenes Roy G. Lindburg CEO & Director President & Director Joined in 2002 Joined in 1995 Experience Banking 17 Years S8 Years Previous Washington Group International Keokuk Bancshares Jessica Cummins CFO & Director Joined in 2007 18 Years Elliott Davis Securit ‘Source: S8P G
Slide 10: Board of Directors — Security Federal Corp.
Board of Directors — Security Federal Corp. Timothy Simmons Mr. Timnathy Simmons has served as the Chairman of the board of Security Federal Corp since 2011. Mr. Timathy Simmons, has served as a Director of Security Federal since 1983, and previausly served as President and Chief Executive Officer o
Slide 11: Board of Directors — Security Federal Corp.
Board of Directors — Security Federal Corp. Jessica Cummins Ms. Jessica Cummins has been the Chief Financial Otficer of Security Federal since June of 2014 and has also served as a Director since 2018. Prior to that, she served as Treasurer of Security Federal since joining the Bank in 2007. Prior t
Slide 12: Board of Directors — Security Federal Corp.
Board of Directors — Security Federal Corp. Thomas Moore Mr. Thomas Moore has been a Director of Security Federal since 1990. He is also the owner of TL Moore Consulting LLC, which provides consulting and registered lobbying services for entities primarily located in South Carolina, He was also the
Slide 13: Future Strategic Initiatives
Future Strategic Initiatives = Future GrowthExpectations— Security Federal's consolidated gross loan growth rate from 2015 to 2018is over 9% with a projected loan growth rate for 2019 of 7%. Security Federal expects loan growth to be ina similar range over the next two to five years. = Newly OpenedB
Slide 14: CDFI/ CRA - Security Federal's Story
CDFI/ CRA - Security Federal’s Story CDFI: In September 2010, as a result of the Bank's commitmentto their community, the Bank received national recognition and certification as a Community Development Financial Institution (“CDF”) by the United States Treasury Department's (“UST”) CDF Fund. CDFls s
Slide 15: Historical Growth
Historical Growth (8 in mitions) (8 in milions) $1200 9600 $1,050 cy gost $600 9913 $900 9869 5400 00 9813 $760 | i $300 $600 $200 aisy = 206Y = 2017Y = 2018Y 20197 201eY 2016Y —«-2017Y—sNteY —-2019TD Total Deposits Total Common Equity {8 in milions) (8 in milions) $1 p00 $120 (CAGR 6.1% seis [cacr
Slide 16: Pre-Provision Revenue and Operating Expense Trends
Pre-Provision Revenue and Operating Expense Trends (Sin thousands) Net interest Income se Noninterest Expense Non Interest Income 17.1% 17.9% 18.9% 19.6% 23.9% Non Non Non Non Non $40,000 interest interest interest interest interest income income income income income $35 000 $34,376 $31,581 $30 304
Slide 17: Net Interest Margin Trends
Net Interest Margin Trends Net Interest Income (NI) and Net Interest Margin (NIM) Key Components of Nil and NIM (8 in thousands) —*Loan Yield -@- Securities Vield (FTE) oem Net Interest i NM TE tical ere) “e=Cost of nt. Bearing Dep, ~eCost of Funds $36,000 6.00% 6.00% 5.39% 5.34% 5.24% see 5.21% $30
Slide 18: Interest Rate Sensitivity — Balanced Profile
Interest Rate Sensitivity — Balanced Profile Net Interest Income Sensitivity Profile Interest Rate Scenario 200 100 | Base | 100 200 300 400 Net Interest Incame Change - Next 12 Months 10.3% 3.1% 0.0% -0.3% 0.6% 2.8% 1.7% Net Interest Incame Change - Year 2 14.9% 4.4% 0.0% 1.5% 1.7% = 0.1% 1.7% Econ
Slide 19: Efficiency & Performance
Efficiency & Performance Strong Efficiency ROATCE & ROAA & Efficiency Ratio —t-Noninterest Expense /Avg, Assets See RONTCE: BERN e-Net Operating Expense / Avg, Assets 12.00% 1.00% 90.0% 40% 087% 11.00% 0.88% 85.0% 33% 29% Es 10.00% 0.75% 28% 28% «= 29% = 2.9% 8 gs 2 800% 26% 3 9.00% 0.83% ic s 5 Fey
Slide 20: Deposit Composition
Deposit Composition Deposit Composition Deposit Growth (8 in millions) $900 $850 $800 $750 $700 $650 $600 $550 $500 $450 $400 201ey 201ey 207y 201ey = -2019YTD. Security, Source: S8P Globel Market Ineligence; hank-level YTD financials atthe end of the nine months ended September 30, 2019. 20 Federal
Slide 21: Investment Portfolio
Investment Portfolio Asset Class Breakdo' Portfolio Management Statistics + The securities portfolio, largely consisting of residential mortgage backed securities, government and agency bonds, and municipal- backed securities, has been managedwith a focus on generating strong returns and supplementi
Slide 22: High Quality Lending Platform
High Quality Lending Platform (S in mitions) E Consumer — 5% $700 5% Muttifamily Farm 0.2% $600 $500 $400 Regulatory Loan Compo: $000s) As 8% of PF $300 Balance __Total Capital 1-4 Family Residential $124,285 96.93% NomOwner Occupied CRE 117,862 91.9% Construction & Land Developmert 82572 64.4% $200
Slide 23: Historical Loan Composition
Historical Loan Composition Security Federal Bank Loan Composition Since 2015 Loan Composition Balance ‘kofTotal Balance ‘ef Total Balance “of Total Balance of Total Balance‘ of Total Construction $95,032 10.9% $1260 11.0% s624M 15.7% $6124 13.9% s52519 11.4% 1-4 Fail 1243468 98.7% 125053 34.0% 1254
Slide 24: Asset Quality and Reserve Coverage
Asset Quality and Reserve Coverage NPLs/ Total Loans NCOs/ Avg. Loans 5.00% 0.40% 4.00% | 363% 0.30% 3.00% 0.20% eam 0.18% 2.00% 0.10% 1.00% 0.00% 0.00% 0.10% aisy = 2016Y. ITY. = NBY = -201SYTD aisy = 2016Y.—2017Y, = 2018Y = -2019YTD Loan Loss Reserves! NPLs‘) Loan Loss Reserves/ Total Loans 250% 3
Slide 25: Asset Quality Detail
Asset Quality Detail * Total non-accrual loans of $4.1 million at September 30, 2019 - Multifamil Owner Occ Loan #1: Multifamily Constr &Land. €&| CRE —Censumer Book Balance $997k Dev 41% 09% 0.8% Borrower is delinquent and in the process of foreclosure. The 31% Bank is exploring the possibilty of s
Slide 26: Bank Level Regulatory Capital Ratios
Bank Level Regulatory Capital Ratios 16.00% 26.00% 14.00% zao0% | 746% 1200% | 11.03% — 4p.a9%% soa 20.00% "9.78% 10.00% 9.27% 17.00% 8.00% 14.00% 6.00% 11.00% 2uisy = By = I7Y zoey = 2N19YTD 2uisy = 2016Y = 2mI7Y = 2018Y §—-019YTD Tier 1 Risk Based Ratio Total Risk Based Ratio 26.00% 29.00% zon | 7
Slide 27: Holding Company Senior Convertible Notes
Holding Company Senior Convertible Notes = In December 2009, Security Federalissued 8.00% senior convertible debentures due in 2029 during the financial crisis = Security Federal proactively eliminated the risk of possibly being forced to issue highly dilutive common equity at then-prevailing market
Slide 28: PT Score Comparison — S.C. Banks $600MM to $1.5B
PT Score Comparison — S.C. Banks $600MM to $1.5B Asset Overall Assets Capital Quality Earnings Liquidity Sensitivity © PT (MMs) Risk Risk Risk Risk Risk Score Conway National Bank Conway 1,225 4 a 7 8 4 33 First Commurity Bank Lexington 1115 26 39 7 14 20 116 GrandSouth Bank Greenville 864 40 60 26
Slide 29: Interest Coverage and Double Leverage
Interest Coverage and Double Leverage Without with (in thousands) Conversion Conversion Interest Coverage 201820198 2019E Consolidated Pre-Tax Earnings Consolidated Pre-Tax Income e777 10,231 10,231 Trust Preferred Debt Interest Expense 201 201 201 Convertible Senior Debt Interest Expense 484 484 5
Slide 30: Pro Forma Capital Structure and Regulatory Capital Ratios
Pro Forma Capital Structure and Regulatory Capital Ratios AtJune 30, 2019 $5,155 Note: Assumes all $30 million of subordinated debt proceeds aD $7,266 Pro Forma $5,155 $84,770 $30,000 $7,266 = Common Equity Tier 1 Capital = Additional Tier 1 Capital = Subordinated Debt = ALLL Common Equity Before Ad
Slide 31: Consolidated Balance Sheet
Consolidated Balance Sheet Assets Cash & Bal. Due tram Dep. Inst $ 187 $ 11,820 1227 «$ 13,906 $ 14,743 Fed Funds Sold & Reverse Repos i - - - - Securtties 407,602 390,419 414,986 412,098 459,660 Cash and Cash Equivalents 19429 02,289 7,266 426,004 74408 Investment in Non-Bank Subs 4 5 - ai — Gross
Slide 32: Consolidated Income Statement
Consolidated Income Statement Year-Ended December 31, Year-to-Date 2016 2017 2019 Non-FTE Total Interest Income 27,908 28,388 29,787 33,072 27,801 Interest Expense: Deposits 2.272 2.112 2.546 3,862 4.834 Debt and Borrowed Funds 1,927 1,404 1,629 1,587 1241 Total Interest Expense 4,199 3,516 4,475 5,
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