Security Bancorp : Annual Report 2021

TABLE OF CONTENTS
Page
President's Message ...............................................................................	1
Business of the Company ......................................................................	2
Forward-Looking Statements .................................................................	2
Common Stock Information ..................................................................	3
Financial Highlights ...............................................................................	4
Selected Consolidated Financial Information ........................................	5
Management's Discussion and Analysis of
Financial Condition and Results of Operations ..................................	7
Independent Auditor's Report ................................................................	12
Consolidated Financial Statements ........................................................	14
Notes to Consolidated Financial Statements ..........................................	19
2021 Directors and Officers of Security Bancorp, Inc ...........................	54
2021 Directors and Officers of Security Federal Savings Bank of
McMinnville, TN ..............................................................................	55
Corporate Information ...........................................................................	56
Annual Meeting .....................................................................................	56

President's Message

To Our Stockholders:

On behalf of the Board of Directors, Officers and Employees of Security Bancorp,

Inc. and its wholly-owned subsidiary, Security Federal Savings Bank, we are pleased to present our twenty-fourth Annual Report as a public company.

Net income for the year ended December 31, 2021 was $2.7 million, or $6.95 per share, compared to $2.3 million, or $5.97 per share, in 2020. This $363,000, or

15.9%, increase in net income was primarily due to an increase in fees on loans sold and financial service fees. The Company's consolidated assets totaled $295.7 million at December 31, 2021 compared to $260.8 million a year earlier, representing a 13.4% increase. The increase in assets was primarily attributable to an increase in cash, interest-bearing deposits with banks and investment securities which was funded by an increase in deposits. Total stockholders' equity was $28.0 million at December 31, 2021, compared to $26.3 million for the prior year. During the year ended December 31, 2021, the Company paid its twenty-fourth annual dividend of $1.00 per share.

Income diversification remained a primary focus of the Company during 2021 and we believe that this diversification will continue to enhance the Company's performance in the future. At December 31, 2021, real estate loans represented 73% of the Bank's total loan portfolio. Diversification has also been achieved through the Bank's mortgage and financial services departments which provide additional sources of non-interest income. As a result, the Bank's mortgage department services an off-balance sheet loan portfolio of $97.2 million at December 31, 2021.

Our management team continues to be proud of the quality of our loan portfolio. At December 31, 2021, the Bank had $301,000, or 0.11%, in non-performing assets. We believe that this low level of non-performing assets is indicative of both our disciplined underwriting practices as well as the quality of customers that choose to bank with Security Federal Savings Bank.

After 43 years as an employee of Security Federal Savings Bank, I am announcing my plans to retire as of April 2023. I will continue to serve in an advisory role through 2024, as well as maintain a position on the Board of Directors.

I am pleased to formally announce that the Board of Directors have agreed with my recommendation that Michael D. Griffith, current Executive Vice President, will be my successor and will become President and CEO in April 2023. Mr. Griffith has been an employee of the bank since 2008 and I feel confident that he will continue to lead the bank in a positive direction.

I would like to thank our shareholders, customers, many wonderful employees, and members of the

Board, past and present, for your support. When I took this job in July 1978 I had no idea of the impact it would have on my life. I have truly enjoyed it!

On behalf of the Board of Directors, management and staff, we would like to thank you for your continued loyalty and confidence in us and your investment in Security Bancorp, Inc.

Sincerely,

Joe H. Pugh President and CEO

BUSINESS OF THE COMPANY

Security Bancorp, Inc. ("Company"), a Tennessee corporation, was organized on March 18, 1997 for the

purpose of becoming the holding company for Security Federal Savings Bank of McMinnville, TN ("Bank") upon its conversion from a federal mutual savings bank to a federal stock savings bank

("Conversion"). The Company issued 436,425 shares of common stock at $10.00 per share and on June 30, 1997 the conversion was completed. At December 31, 2021, the Company's total consolidated assets were $295.7 million and had a total consolidated stockholders' equity of $28.0 million. The Company is not engaged in any significant business activity other than holding the stock of the Bank. Accordingly, the information set forth in this report, including financial statements and related data, applies primarily to the Bank.

The Bank was organized in 1960 as a federal savings and loan association. Effective February 11, 2009, the Bank converted to a Tennessee chartered commercial bank and the Company became a bank holding company regulated by the Board of Governors of the Federal Reserve System ("Federal Reserve"). The

Bank's primary regulator is the Tennessee Department of Financial Institutions ("Department") and the Federal Deposit Insurance Corporation ("FDIC"). The Bank's deposits are insured up to applicable limits by the FDIC and the Bank is a member of the Federal Home Loan Bank ("FHLB") System.

The Bank operates as a community-oriented financial institution devoted to serving the needs of its customers in its primary market area of Warren County, Tennessee and contiguous counties. The Bank's business consists primarily of attracting deposits from the general public and using those funds to originate residential real estate loans, acquisition and development loans, commercial business loans, and consumer loans.

FORWARD-LOOKING STATEMENTS

This Annual Report, including information included or incorporated by reference, contains future oral and written statements by the Company and its management may contain, forward-looking statements about the Company and the Bank, which we believe are within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements with respect to anticipated future operating and financial performance, growth opportunities, interest rates acquisition and divestiture opportunities, and synergies, efficiencies, cost savings and funding advantages expected to be realized from prior acquisitions. Words such as "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan," and similar expressions are

intended to identify these forward-looking statements. Forward-looking statements by the Company and its management are based on beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions of management and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise. The important factors we discuss below and elsewhere in this document, as well as other factors discussed under the caption "Management's Discussion and

Analysis of Financial Condition and Results of Operations" included herein, and identified in our filings with the Department, FDIC, Federal Reserve, and those presented by our management from time to time, could cause actual results to differ materially from those indicated by the forward-looking statements made in this Annual Report.

COMMON STOCK INFORMATION

The Company's common stock is traded on the over-the-counter market through the OTC "Electronic Bulletin Board" under the symbol of "SCYT". As of December 31, 2021, there were approximately 200 stockholders of record and 436,425 shares of common stock outstanding (including treasury stock of 65,227 shares). Generally, if the Bank satisfies its regulatory capital requirements, it may make dividend payments up to the limits prescribed in the regulations. However, institutions that have converted to the stock form of ownership may not declare or pay a dividend on, or repurchase any of, its common stock if the effect thereof would cause the regulatory capital of the institution to be reduced below the amount required in accordance with the regulations. To date, the Company has not established a policy of paying regular cash dividends.

The following table sets forth market price range of the Company's common stock for the four quarters of fiscal years 2019, 2020 and 2021.

2019	High	Low	Dividend
First Quarter	$59.00	$56.60	N/A
Second Quarter	57.00	56.70	N/A
Third Quarter	57.00	57.00	1.00/share
Fourth Quarter	59.00	57.00	N/A
2020
First Quarter	59.00	55.00	N/A
Second Quarter	55.00	52.00	N/A
Third Quarter	52.00	52.00	1.00/share
Fourth Quarter	52.00	52.00	N/A
2021
First Quarter	57.00	52.50	N/A
Second Quarter	65.00	57.00	N/A
Third Quarter	105.00	66.00	1.00/share
Fourth Quarter	67.50	67.50	N/A
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