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Security Federal Corporation Announces Participation In U.S. Treasury’s Community Development Capital Initiative

Security Federal Corporation (“Company”) (OTCBB:SFDL), the holding company for Security Federal Bank, today announced that it was approved to participate in United States Department of the Treasury’s (the “Treasury”) Community Development Capital Initiative (“CDCI”). The CDCI was established by the Treasury to invest lower cost capital in Community Development Financial Institutions (“CDFI”), supporting their efforts to provide credit to small businesses and other qualified customers during this challenging economic period.

In connection with its participation in the CDCI, 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 TARP Capital Purchase Program, for $18.0 million aggregate liquidation 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 as a result of a required match, 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 Series B Preferred Stock to the Treasury. The additional $4.0 million investment from the Treasury was contingent upon the completion of the $4.0 million match through a private offering of common stock.

Participation in the CDCI will provide the Company with $4.0 million in additional capital, along with the $4.0 million from the sale of additional common stock and lowers the cost of capital received from the Treasury. The annual dividend rate on the Series A Preferred Stock was 5% and was to have increased to 9% on February 15, 2014. The annual dividend rate on the Series B Preferred Stock will be 2% for the first eight years from the date of issuance and 9% thereafter if still then outstanding. The Company and Security Federal Bank must maintain eligibility as a community development financial institution (“CDFI”) under Treasury regulations, otherwise, the annual dividend rate on the Series B Preferred Stock will increase to 5% if it is not corrected within 180 days and will further increase to 9% if not corrected after 270 days.

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