SECURITIES AND EXCHANGE COMMISSION
                        WASHINGTON, DC  20549
                             FORM 10 - Q
(Mark one)
 (X)  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

          FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005

 ( )  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                     FOR THE TRANSITION PERIOD:

            FROM:                   TO:
                 ------------------    -----------------

                  COMMISSION FILE NUMBER:  0-16120

                    SECURITY FEDERAL CORPORATION

         South Carolina                        57-0858504
 (State or other jurisdiction of            (IRS Employer
  incorporation or organization)            Identification No.)

           1705 WHISKEY ROAD, AIKEN, SOUTH CAROLINA 29801
        (Address of Principal Executive Office And Zip code)

                           (803) 641-3000
        (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

                        YES  [X]         NO  [ ]
                           -------         -------

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

                        YES  [ ]         NO  [X]
                           -------         -------
Indicate by check mark whether the registrant is a shell corporation (defined
in Rule 12b-2 of the Exchange Act).

                        YES  [ ]         NO  [X]
                           -------         -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.

         CLASS:            OUTSTANDING SHARES AT:             SHARES:
       ----------         ------------------------           ---------
  Common Stock, par          October 31, 2005                2,535,176
  value $0.01 per share

<PAGE>


                                  INDEX
----------------------------------------------------------------------------

 PART I.     FINANCIAL INFORMATION (UNAUDITED)                     PAGE NO.

 Item 1.     Financial Statements (Unaudited):

               Consolidated Balance Sheets at September 30,              1
                2005 and March 31, 2005

               Consolidated Statement of Income for the Three            2
                and Six Months Ended September 30, 2005 and 2004

               Consolidated Statements of Shareholders' Equity and       4
                Comprehensive Income at September 30, 2004 and 2005

               Consolidated Statements of Cash Flows for the Six         5
                Months Ended September 30, 2005 and 2004

               Notes to Consolidated Financial Statements                7


Item 2.     Management's Discussion and Analysis of Financial           13
             Condition and Results of Operations

Item 3.     Quantitative and Qualitative Disclosures about Market       19
             Risk

Item 4.     Controls and Procedures                                     19

-----------------------------------------------------------------------------

PART II.    OTHER INFORMATION

Item 1.     Legal Proceedings                                           21

Item 2.     Unregistered Sales of Equity Securities and
             Use of Proceeds                                            21

Item 3.     Defaults Upon Senior Securities                             21

Item 4.     Submission of Matters to Vote of Security Holders           21

Item 5.     Other Information                                           21

Item 6.     Exhibits                                                    21

            Signatures                                                  22

-----------------------------------------------------------------------------

                             SCHEDULES OMITTED

All schedules other than those indicated above are omitted because of the
absence of the conditions under which they are required or because the
information is included in the consolidated financial statements and related
notes.

<PAGE>



Part I.  Financial Information

Item 1.  Financial Statements (Unaudited)

             Security Federal Corporation and Subsidiaries

                      Consolidated Balance Sheets

                                            September 30,         March 31,
                                                 2005               2005
                                            -------------       ------------
Assets:                                       (Unaudited)        (Audited)
 Cash And Cash Equivalents                   $ 11,734,768       $  7,916,488
 Investment And Mortgage-Backed Securities:
   Available For Sale: (Amortized cost of
    $166,124,010 at September 30, 2005 and
    $166,364,642 at March 31, 2005)           164,815,710        164,814,819
   Held To Maturity: (Fair value of
    $75,100,110 at September 30, 2005
    and $74,770,902 at March 31, 2005)         75,996,110         76,260,904
                                            -------------      -------------
 Total Investment And Mortgage-Backed
  Securities                                  240,811,820        241,075,723
                                            -------------      -------------
 Loans Receivable, Net:
  Held For Sale                                 1,738,872          2,277,762
  Held For Investment:(Net of allowance of
   $6,532,667 at September 30, 2005 and
   $6,284,055 at March 31, 2005)              338,032,685        314,611,373
                                            -------------      -------------
  Total Loans Receivable, Net                 339,771,557        316,889,135
                                            -------------      -------------
 Accrued Interest Receivable:
  Loans                                         1,009,041            901,872
  Mortgage-Backed Securities                      526,997            555,933
  Investments                                     865,139            721,744
 Premises And Equipment, Net                    8,664,918          7,914,043
 Federal Home Loan Bank Stock, At Cost          6,402,200          6,234,500
 Repossessed Assets Acquired In
  Settlement Of Loans                              24,370             53,000
 Other Assets                                   3,735,595          3,716,035
                                            -------------      -------------
Total Assets                                $ 613,546,405      $ 585,978,473
                                            =============      =============

Liabilities And Shareholders' Equity
Liabilities:
 Deposit Accounts                           $ 449,667,396      $ 430,287,391
 Advances From Federal Home Loan Bank         116,938,000        112,038,000
 Other Borrowed Money                           6,102,477          5,594,157
 Advance Payments By Borrowers
 For Taxes And Insurance                          743,637            417,410
 Other Liabilities                              2,948,284          2,530,450
                                            -------------      -------------
Total Liabilities                             576,399,794        550,867,408
                                            -------------      -------------
Shareholders' Equity:
 Serial Preferred Stock, $.01 Par
  Value; Authorized Shares - 200,000;
  Issued And Outstanding Shares - None                  -                  -
 Common Stock, $.01 Par Value;
  Authorized Shares - 5,000,000; Issued  -
  2,544,888 And Outstanding Shares -
  2,535,632 At September 30, 2005 And
  2,543,838 And 2,522,127 At March 31, 2005        25,549             25,438
 Additional Paid-In Capital                     4,365,897          4,181,804
 Treasury Stock, (At Cost, 9,712 and
  8,077 Shares, Respectively)                    (200,256)          (165,089)
 Indirect Guarantee Of Employee Stock
  Ownership Trust Debt                           (215,503)          (276,217)
 Accumulated Other Comprehensive
  Income (Loss)                                  (811,669)          (961,504)
 Retained Earnings, Substantially
  Restricted                                   33,982,593         32,306,633
                                            -------------      -------------
 Total Shareholders' Equity                    37,146,611         35,111,065
                                            -------------      -------------
 Total Liabilities And Shareholders'
  Equity                                    $ 613,546,405      $ 585,978,473
                                            =============      =============

See accompanying notes to consolidated financial statements.

                                          1

<PAGE>




                  Security Federal Corporation and Subsidiaries

                  Consolidated Statements of Income (Unaudited)

                                             Three Months Ended September 30,
                                            ---------------------------------
                                                   2005              2004
                                            ---------------     -------------
Interest Income:
 Loans                                      $     5,603,084     $   4,016,449
 Mortgage-Backed Securities                       1,357,721         1,890,851
 Investment Securities                              852,548           328,646
 Other                                               22,060             6,129
                                            ---------------     -------------
Total Interest Income                             7,835,413         6,242,075
                                            ---------------     -------------
Interest Expense:
 NOW And Money Market Accounts                    1,293,353           968,523
 Passbook Accounts                                   44,920            43,569
 Certificate Accounts                             1,340,794           851,749
 Advances And Other Borrowed Money                1,104,785         1,016,367
                                            ---------------     -------------
Total Interest Expense                            3,783,852         2,880,208
                                            ---------------     -------------

Net Interest Income                               4,051,561         3,361,867
 Provision For Loan Losses                          165,000           195,000
 Net Interest Income After Provision        ---------------     -------------
  For Loan Losses                                 3,886,561         3,166,867
                                            ---------------     -------------
Other Income:
 Net Gain On Sale Of Investments                     31,422                 -
 Gain On Sale Of Loans                              118,253           116,398
 Loan Servicing Fees                                 52,191            43,469
 Service Fees On Deposit Accounts                   288,867           311,684
 Other                                              257,949           252,857
                                            ---------------     -------------
Total Other Income                                  748,682           724,408
                                            ---------------     -------------
General And Administrative Expenses:
 Salaries And Employee Benefits                   1,835,356         1,586,088
 Occupancy                                          319,330           269,173
 Advertising                                         43,521            42,903
 Depreciation And Maintenance Of Equipment          258,318           261,098
 FDIC Insurance Premiums                             14,167            14,192
 Other                                              700,962           537,910
                                            ---------------     -------------
Total General And Administrative Expenses         3,171,654         2,711,364
                                            ---------------     -------------

 Income Before Income Taxes                       1,463,589         1,179,911
 Provision For Income Taxes                         513,909           379,905
                                            ---------------     -------------
Net Income                                  $       949,680     $     800,006
                                            ===============     =============

Basic Net Income Per Common Share           $          0.38     $        0.32
                                            ===============     =============
Diluted Net Income Per Common Share         $          0.37     $        0.31
                                            ===============     =============
Cash Dividend Per Share On Common Stock     $          0.04     $        0.03
                                            ===============     =============
Basic Weighted Average Shares Outstanding         2,527,533         2,519,627
                                            ===============     =============
Diluted Weighted Average Shares Outstanding       2,585,543         2,555,774
                                            ===============     =============

See accompanying notes to consolidated financial statements.

                                       2
<PAGE>


                Security Federal Corporation and Subsidiaries

                Consolidated Statements of Income (Unaudited)

                                               Six Months Ended September 30,
                                              --------------------------------
                                                    2005            2004
                                              --------------     -------------
Interest Income:
 Loans                                        $   10,788,206     $   7,851,710
 Mortgage-Backed Securities                        2,751,008         2,769,212
 Investment Securities                             1,672,105         1,651,924
 Other                                                36,287            12,729
                                              --------------     -------------
Total Interest Income                             15,247,606        12,285,575
                                              --------------     -------------
Interest Expense:
 NOW And Money Market Accounts                     2,546,536         1,863,136
 Passbook Accounts                                    89,119            86,968
 Certificate Accounts                              2,553,377         1,622,617
 Advances And Other Borrowed Money                 2,084,022         1,903,137
                                              --------------     -------------
Total Interest Expense                             7,273,054         5,475,858
                                              --------------     -------------

Net Interest Income                                7,974,552         6,809,717
 Provision For Loan Losses                           330,000           390,000
                                              --------------     -------------
 Net Interest Income After Provision For
  Loan Losses                                      7,644,552         6,419,717
                                              --------------     -------------
Other Income:
 Net Gain On Sale Of Investments                      48,962                 -
 Gain On Sale Of Loans                               253,563           238,823
 Loan Servicing Fees                                 100,759            87,106
 Service Fees On Deposit Accounts                    572,064           625,364
 Other                                               463,709           432,070
                                              --------------     -------------
Total Other Income                                 1,439,057         1,383,363
                                              --------------     -------------
General And Administrative Expenses:
 Salaries And Employee Benefits                    3,596,303         3,184,913
 Occupancy                                           631,177           523,708
 Advertising                                          68,990            74,525
 Depreciation And Maintenance Of Equipment           510,119           537,022
 FDIC Insurance Premiums                              28,686            28,897
 Other                                             1,332,503         1,056,077
                                              --------------     -------------
Total General And Administrative Expenses          6,167,778         5,405,142
                                              --------------     -------------

 Income Before Income Taxes                        2,915,831         2,397,938
 Provision For Income Taxes                        1,036,909           795,905
                                              --------------     -------------
Net Income                                    $    1,878,922     $   1,602,033
                                              ==============     =============

Basic Net Income Per Common Share             $         0.74     $        0.64
                                              ==============     =============
Diluted Net Income Per Common Share           $         0.73     $        0.63
                                              ==============     =============
Cash Dividend Per Share On Common Stock       $         0.08     $        0.04
                                              ==============     =============
Basic Weighted Average Shares Outstanding          2,528,961         2,521,144
                                              ==============     =============
Diluted Weighted Average Shares Outstanding        2,570,874         2,559,333
                                              ==============     =============

See accompanying notes to consolidated financial statements.

                                         3

<PAGE>


<TABLE>
                                    Security Federal Corporation and Subsidiaries

              Consolidated Statements of Shareholders' Equity and Comprehensive Income (Unaudited)

                                                                     Accumulated
                                                         Indirect       Other
                                    Additional           Guarantee   Comprehen-
                            Common   Paid-In   Treasury     of       sive Income    Retained
                             Stock   Capital    Stock    ESOP Debt     (Loss)       Earnings       Total
                           -------- ---------- --------  ----------  -----------  -----------  -----------

                        <c>       <c>      <c>       <c>           <c>         <c>          <c>

Balance At March 31, 2004 $ 25,333 $4,013,674  $      -  $ (336,972)  $  689,755  $29,080,125  $33,471,915
Net Income                       -          -         -           -            -    1,602,033    1,602,033
Other Comprehensive Income,
 Net Of Tax:
 Unrealized Holding Losses
   On Securities Available
   For Sale                      -          -         -           -     (482,057)           -     (482,057)
                                                                                                ----------
Comprehensive Income             -          -         -           -            -            -    1,119,976
Decrease In Indirect
 Guarantee Of ESOP Debt          -          -         -      60,755            -            -       60,755
Exercise Of Stock Options       60    109,920         -           -            -            -      109,980
Cash Dividends                   -          -         -           -            -     (126,664)    (126,664)
                          -------- ----------  --------   ---------   ----------  -----------  -----------
Balance At September 30,
 2004                     $ 25,393 $4,123,594  $      -   $(276,217)  $  207,698  $30,555,494  $34,635,762

</TABLE>

<TABLE>

                                                                     Accumulated
                                                         Indirect       Other
                                    Additional           Guarantee   Comprehen-
                            Common   Paid-In   Treasury     of       sive Income    Retained
                             Stock   Capital    Stock    ESOP Debt     (Loss)       Earnings       Total
                           -------- ---------- --------  ----------  -----------  -----------  -----------

                        <c>       <c>      <c>       <c>           <c>         <c>          <c>
Balance At March 31, 2005 $ 25,438 $4,181,804  $(165,089) $ (276,217) $ (961,504) $32,306,633  $35,111,065
Net Income                       -          -          -           -           -    1,878,922    1,878,922
Other Comprehensive Income,
 Net Of Tax:
  Unrealized Holding Gains
    On Securities Available
    For Sale                     -          -          -           -     119,479            -      119,479
  Plus Reclassification
    Adjustments For Gains
    Included In Net Income       -          -          -           -      30,356            -       30,356
                                                                                               -----------
Comprehensive Income             -          -          -           -           -            -    2,028,757
Purchase Of Treasury Stock
 At Cost, 1,635 shares                           (35,167)          -           -            -      (35,167)
Exercise Of Stock Options      111    184,093          -           -           -            -      184,204
Decrease In Indirect Guarantee
 Of ESOP Debt                    -          -          -      60,714           -            -       60,714
Cash Dividends                   -          -          -           -           -     (202,962)    (202,962)
                           ------- ----------  ---------   ---------   ---------  -----------  -----------
Balance At September 30,
 2005                      $25,549 $4,365,897  $(200,256)  $(215,503)  $(811,669) $33,982,593  $37,146,611

</TABLE>

   See accompanying notes to consolidated financial statements.

                                      4

<PAGE>





                  Security Federal Corporation and Subsidiaries

                 Consolidated Statements of Cash Flows (Unaudited)

                                                Six Months Ended September 30,
                                               -------------------------------
                                                      2005            2004
                                               ---------------    ------------
Cash Flows From Operating Activities:
Net Income                                     $    1,878,922     $ 1,602,033
Adjustments To Reconcile Net Income To
Net Cash Provided By Operating Activities:
  Depreciation Expense                                483,323         430,528
  Discount Accretion And Premium
   Amortization                                       539,604         627,920
  Provisions For Losses On Loans And
   Real Estate                                        330,000         390,000
  Gain On Sale Of Loans                              (253,563)       (238,823)
  Gain On Sale Of Mortgage Backed
   Securities Available For Sale                      (48,962)              -
  Loss (Gain) On Sale Of Real Estate                   23,466         (31,773)
  Amortization Of Deferred Fees On Loans              (99,944)        (99,639)
  Proceeds From Sale Of Loans Held For Sale        16,079,996      13,442,690
  Origination Of Loans For Sale                   (15,287,543)    (13,087,306)
  (Increase) Decrease In Accrued Interest
   Receivable:
    Loans                                            (107,169)         42,509
    Mortgage-Backed Securities                         28,936         (24,523)
    Investments                                      (143,395)         41,849
  Increase In Advance Payments By Borrowers           326,227         305,851
  Loss (Gain) On Disposition of Premises
   and Equipment                                          806          (3,325)
  Other, Net                                          367,310        (935,431)
                                               ---------------    ------------
Net Cash Provided (Used) By Operating Activities    4,118,014       2,462,560
                                               ---------------    ------------
Cash Flows From Investing Activities:
  Principal Repayments On Mortgage-Backed
   Securities Available For Sale                   26,938,831      26,013,326
  Principal Repayments On Mortgage-Backed
   Securities Held To Maturity                         10,407          71,484
  Purchase Of Investment Securities
   Available For Sale                             (16,065,257)              -
  Purchase Of Investment Securities
   Held To Maturity                                         -     (11,991,800)
  Purchase Of Mortgage-Backed Securities
   Available For Sale                             (19,373,356)    (37,197,817)
  Maturities Of Investment Securities
   Available For Sale                               4,457,139       9,000,000
  Maturities Of Investment Securities
   Held To Maturity                                         -      12,000,000
  Proceeds From Sale Of Mortgage-Backed
   Securities Available For Sale                    3,797,360               -
  Proceeds From Sale Of Mortgage-Backed
   Securities Held To Maturity                        249,650               -
  Purchase Of FHLB Stock                           (2,307,100)     (2,132,500)
  Redemption Of FHLB Stock                          2,139,400       1,981,100
 (Increase) Decrease In Loans To Customers        (23,722,352)    (19,957,332)
  Proceeds From Sale Of Repossessed Assets             76,148         171,539
  Purchase And Improvement Of Premises
   And Equipment                                   (1,235,004)     (1,699,450)
  Proceeds from Sale of Premises
   And Equipment                                            -           3,325
                                               ---------------    ------------
Net Cash Used By Investing Activities             (25,034,134)    (23,738,125)
                                               ---------------    ------------
Cash Flows From Financing Activities:
  Increase In Deposit Accounts                     19,380,005      18,823,965
  Proceeds From FHLB Advances                      81,095,000      68,328,000
  Repayment Of FHLB Advances                      (76,195,000)    (64,183,000)
  Net Proceeds Of Other Borrowings                    508,320         437,731
  Dividends To Shareholders                          (202,962)       (126,664)
  Purchase Of Treasury Stock                          (35,167)              -
  Proceeds From Exercise of Stock Options             184,204         109,980
                                               ---------------    ------------
Net Cash Provided By Financing Activities          24,734,400      23,390,012
                                               ---------------    ------------
                                                                   (Continued)

                                       5

<PAGE>




               Security Federal Corporation and Subsidiaries

             Consolidated Statements of Cash Flows (Unaudited)

                                                Six Months Ended September 30,
                                               -------------------------------
                                                      2005            2004
                                               ---------------  --------------
Net Increase In Cash And Cash Equivalents            3,818,280      2,114,447
Cash And Cash Equivalents At Beginning
 Of Period                                           7,916,488      6,749,211
                                               ---------------  --------------
Cash And Cash Equivalents At End Of Period     $    11,734,768  $   8,863,658
                                               ===============  ==============
Supplemental Disclosure Of Cash Flows
 Information:
Cash Paid During The Period For Interest       $     7,206,369  $   5,453,627
Cash Paid During The Period For Income Taxes   $       698,195  $   1,257,012
Additions To Repossessed Acquired Through
 Foreclosure                                   $        70,984  $     185,897
Decrease In Unrealized Net Loss (Gain)
 On Securities Available For Sale,
 Net Of Taxes                                  $       149,835  $    (482,057)

See accompanying notes to consolidated financial statements.

                                         6

<PAGE>




               Security Federal Corporation and Subsidiaries

            Notes to Consolidated Financial Statements (Unaudited)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and accounting principles generally
accepted in the United States of America; therefore, they do not include all
disclosures necessary for a complete presentation of financial condition,
results of operations, and cash flows.  Such statements are unaudited but, in
the opinion of management, reflect all adjustments, which are of a normal
recurring nature and necessary for a fair presentation of results for the
selected interim periods.  Users of financial information produced for interim
periods are encouraged to refer to the footnotes contained in the audited
financial statements appearing in Security Federal Corporation's (the
"Company") 2005 Annual Report to Shareholders when reviewing interim financial
statements.  The results of operations for the six-month period ended
September 30, 2005 are not necessarily indicative of the results that may be
expected for the entire fiscal year.  This Quarterly Report on Form 10-Q
contains certain forward-looking statements with respect to the financial
condition, results of operations, and business of the Company.  These
forward-looking statements involve certain risks and uncertainties.  Factors
that may cause actual results to differ materially from those anticipated by
such forward-looking statements include, but are not limited to, changes in
interest rates, the demand for loans, the regulatory environment, general
economic conditions and inflation, and the securities markets.  Management
cautions readers of this Form 10-Q not to place undue reliance on the
forward-looking statements contained herein.

2. Principles of Consolidation

The accompanying unaudited consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary, Security Federal Bank
(the "Bank"), and the Bank's wholly owned subsidiaries, Security Federal
Insurance, Inc. ("SFINS"), Security Federal Investments, Inc. ("SFINV"),
Security Federal Trust, Inc. ("SFT"), and Security Financial Services
Corporation ("SFSC").  The Bank is primarily engaged in the business of
accepting savings and demand deposits and originating mortgage and other loans
to individuals and small businesses for various personal and commercial
purposes.  SFINS, SFINV, and SFT were formed during the year ended March 31,
2002 and began operation during the December 2001 quarter.  SFINS is an
insurance agency offering business, health, home and life insurance.  SFINV
engages primarily in investment brokerage services.  SFT offers trust,
financial planning and financial management services.  SFSC is currently
inactive.

3. Loans Receivable, Net

Loans receivable, net, at September 30, 2005 and March 31, 2005 consisted of
the following:

Loans held for sale were $1,738,872 and $2,227,762 at September 30, 2005 and
March 31, 2005, respectively.

                                               September 30,     March 31,

                                                    2005            2005
Loans Held For Investment:                     ------------     ------------
  Residential Real Estate                      $120,157,704     $122,622,347
  Consumer                                       54,416,383       50,844,192
  Commercial Business And Real Estate           180,272,816      162,217,200
                                               ------------     ------------
                                                354,846,903      335,683,739
                                               ------------     ------------
Less:
  Allowance For Possible Loan Loss                6,532,667        6,284,055
  Loans In Process                               10,130,038       14,626,913
  Deferred Loan Fees                                151,513          161,398
                                               ------------     ------------
                                                 16,814,218       21,072,366
                                               ------------     ------------
                                               $338,032,685     $314,611,373
                                               ============     ============

The following is a reconciliation of the allowance for loan losses for the six
months ending:

                                               September 30,    September 30,
                                                   2005             2004
                                               ------------     ------------
Beginning Balance                              $  6,284,055     $  5,763,935
  Provision                                         330,000          390,000
  Charge-offs                                      (121,220)        (190,831)
  Recoveries                                         39,832          120,042
                                               ------------     ------------
Ending Balance                                 $  6,532,667     $  6,083,146
                                               ============     ============

                                        7

<PAGE>



               Security Federal Corporation and Subsidiaries

      Notes to Consolidated Financial Statements (Unaudited), Continued

4. Securities

Investment and Mortgage-Backed Securities, Held to Maturity
-----------------------------------------------------------

The amortized cost, gross unrealized gains, gross unrealized losses, and fair
values of investment and mortgage-backed securities held to maturity are as
follows:

                                          Gross        Gross
September 30, 2005        Amortized    Unrealized    Unrealized
------------------          Cost          Gains        Losses     Fair Value
                        ------------   ----------   ----------   ------------
US Government And
 Agency Obligations     $ 75,996,110   $      310   $  896,310   $ 75,100,110
                        ============   ==========   ==========   ============

March 31, 2005
--------------

US Government And
 Agency Obligations     $ 76,000,847   $        -   $1,504,761   $ 74,496,086
Mortgage-Backed
 Securities                  260,057       14,759            -        274,816
                        ------------   ----------   ----------   ------------
Total                   $ 76,260,904   $   14,759   $1,504,761   $ 74,770,902
                        ============   ==========   ==========   ============

Investment And Mortgage-Backed Securities, Available For Sale
-------------------------------------------------------------

The amortized cost, gross unrealized gains, gross unrealized losses, and fair
values of investment and mortgage-backed securities available for sale are as
follows:

                                          Gross       Gross
September 30, 2005        Amortized    Unrealized   Unrealized
------------------          Cost          Gains       Losses     Fair Value
                        ------------   ----------  -----------  -------------
US Government And
 Agency Obligations     $ 16,972,389   $      579  $    75,779  $  16,897,189
Mortgage-Backed
 Securities              149,048,683      339,732    1,572,832    147,815,583
Stock                        102,938            -            -        102,938
                        ------------   ----------  -----------  -------------
Total                   $166,124,010   $  340,311  $ 1,648,611  $ 164,815,710
                        ============   ==========  ===========  =============

March 31, 2005
--------------

US Government And
 Agency Obligations     $  5,469,678   $    4,648  $    19,063  $   5,455,263
Mortgage-Backed
 Securities              160,894,954      457,081    1,992,479    159,359,556
                        ------------   ----------  -----------  -------------
Total                   $166,364,632   $  461,729  $ 2,011,542  $ 164,814,819
                        ============   ==========  ===========  =============

During the quarter ended September 30, 2005, three mortgage-backed securities
classified as held to maturity were sold.  All three securities have paid down
at least 90% therefore meeting the intent requirement of Statement of
Financial Accounting Standard ("SFAS") No. 115, "Accounting for Certain
Investment in Debt and Equity Securities." Proceeds from the sales totaled
$250,000.

                                        8

<PAGE>




                Security Federal Corporation and Subsidiaries

     Notes to Consolidated Financial Statements (Unaudited), Continued

5. Deposit Accounts

A summary of deposit accounts by type with weighted average rates is as
follows:

                                      September 30, 2005      March 31, 2005
                                     --------------------  ------------------
                                       Balance      Rate     Balance    Rate
Demand Accounts:                     --------------------  ------------------
 Checking                            $ 100,529,798  0.64%  $ 88,169,885  0.65%
 Money Market                          161,145,403  2.97%   164,088,081  2.57%
 Regular Savings                        17,448,054  0.98%    17,743,659  0.98%
                                     -------------         ------------
Total Demand Accounts                  279,123,255  2.01%   270,001,625  1.84%
                                     -------------         ------------
Certificate Accounts:
 0-4.99%                               160,780,091          150,486,280
 5.00-6.99%                              9,764,050            9,799,486
                                     -------------         ------------
Total Certificate Accounts             170,544,141  3.32%   160,285,766  2.92%
                                     -------------         ------------
Total Deposit Accounts               $ 449,667,396  2.00%  $430,287,391  2.24%
                                     =============         ============

6. Advances From Federal Home Loan Bank ("FHLB")

FHLB advances are summarized by year of maturity and weighted average interest
rate in the table below:

                                      September 30, 2005      March 31, 2005
                                     -------------------   ------------------
                                       Balance      Rate     Balance    Rate
Fiscal Year Due:                     -------------------   ------------------
2006                                 $ 35,575,000   4.43%  $ 40,675,000  4.09%
2007                                   18,000,000   2.83%    18,000,000  2.83%
2008                                    5,000,000   3.09%    10,000,000  2.96%
2009                                   25,000,000   3.05%    25,000,000  3.05%
2010                                    5,000,000   3.09%     5,000,000  3.09%
Thereafter                             28,363,000   3.40%    13,363,000  3.21%
                                     ------------          ------------
Total Advances                       $116,938,000   3.52%  $112,038,000  3.41%
                                     ============          ============

These advances are secured by a blanket collateral agreement with the FHLB by
pledging the Bank's portfolio of residential first mortgage loans and
approximately $56.2 million in investment securities at September 30, 2005.
Advances are subject to prepayment penalties.

The following table shows callable FHLB advances as of the dates indicated.
These advances are also included in the above table.  All callable advances
are callable at the option of the FHLB.  If an advance is called, the Bank has
the option to payoff the advance without penalty, re-borrow funds on different
terms, or convert the advance to a three-month floating rate advance tied to
LIBOR.
<PAGE>
<TABLE>

                                       As of September 30, 2005
-----------------------------------------------------------------------------------------------------------
Borrow Date    Maturity Date      Amount      Int. Rate       Type             Call Dates
-----------    -------------    ----------    ---------    -----------    ---------------------------------

              <c>            <c>             <c>        <c>            <c>
11/07/02         11/07/12       5,000,000     3.354%       1 Time Call    11/07/07
10/24/03         10/24/08      10,000,000     2.705%       Multi-call     10/24/06 and quarterly thereafter
12/10/03         12/10/08       5,000,000     2.16%        Multi-call     12/12/05 and quarterly thereafter
02/20/04         02/20/14       5,000,000     3.225%       1 Time Call    02/20/09
04/16/04         04/16/14       3,000,000     3.33%        1 Time Call    04/16/08
09/16/04         09/16/09       5,000,000     3.09%        1 Time Call    09/17/07
06/24/05         06/24/15       5,000,000     3.71%        1 Time Call    06/24/10
06/24/05         06/24/10       5,000,000     3.1816%      1 Time Call    06/26/06
07/22/05         07/22/15       5,000,000     3.79%        1 Time Call    07/22/08

</TABLE>

                                    9

<PAGE>


<TABLE>

                                Security Federal Corporation and Subsidiaries

                       Notes to Consolidated Financial Statements (Unaudited), Continued


                                       As of March 30, 2005
-----------------------------------------------------------------------------------------------------------
Borrow Date    Maturity Date      Amount      Int. Rate       Type             Call Dates
-----------    -------------    ----------    ---------    -----------    ---------------------------------

              <c>            <c>             <c>        <c>            <c>
11/10/00        11/10/05        5,000,000      5.85%        Multi-Call    05/10/05 and quarterly thereafter
09/04/02        09/04/07        5,000,000      2.82%        1 Time Call   09/06/05
11/07/02        11/07/12        5,000,000      3.35%        1 Time Call   11/07/07
10/24/03        10/24/08       10,000,000      2.705%       Multi-Call    10/24/06 and quarterly thereafter
12/10/03        12/10/08        5,000,000      2.16%        Multi-Call    12/12/05 and quarterly thereafter
02/20/04        02/20/14        5,000,000      2.14%        1 Time Call   02/20/09
04/16/04        04/16/14        3,000,000      3.33%        1 Time Call   04/16/08

</TABLE>



7.  Regulatory Matters

The following table reconciles the Bank's shareholders' equity to its various
regulatory capital positions:

                                             September 30,         March 31,
                                                 2005                2005
                                                      (In Thousands)
                                            ---------------------------------
Bank's Shareholders' Equity                 $      36,724       $      34,690
Unrealized Loss (Gain) On Available
 For Sale Of Securities, Net Of Tax                   812                 962
Reduction For Goodwill And Other
 Intangibles                                            -                   -
                                            -------------        ------------
Tangible Capital                                   37,536              35,652
Qualifying Core Deposits And
 Intangible Assets                                      -                   -
                                            -------------        ------------
 Core Capital                                      37,536              35,652
Supplemental Capital                                4,512               4,236
Assets Required To Be Deducted                        (10)                (30)
                                            -------------        ------------
Risk-Based Capital                          $      42,038        $     39,858
                                            =============        ============

The following table compares the Bank's capital levels relative to the
applicable regulatory requirements at September 30, 2005:



<PAGE>
<TABLE>

                                                       (Dollars in Thousands)
                        ----------------------------------------------------------------------------------
                        Amt. Required    % Required    Actual Amt.    Actual %    Excess Amt.   Excess %
                        ----------------------------------------------------------------------------------

                      <c>               <c>         <c>            <c>          <c>           <c>

Tangible Capital         $  12,287          2.0%       $  37,536       6.11%       $  25,249      4.11%
Tier 1 Leverage
 (Core) Capital             24,573          4.0%          37,536       6.11%          12,963      2.11%
Total Risk-Based
 Capital                    28,892          8.0%          42,038      11.64%          13,146      3.64%
Tier 1 Risk-Based
 (Core) Capital             14,437          4.0%          37,536      10.40%          23,099      6.40%

</TABLE>



8.  Earnings Per Share

The Company calculates earnings per share ("EPS") in accordance with SFAS No.
128, "Earnings Per Share." SFAS No. 128 specifies the computation,
presentation and disclosure requirements for EPS for entities with publicly
held common stock or potential common stock such as options, warrants,
convertible securities or contingent stock agreements if those securities
trade in a public market.

This standard specifies computation and presentation requirements for both
basic EPS and, for entities with complex capital structures, diluted EPS.
Basic EPS is computed by dividing net income by the weighted average number of
common shares outstanding.  Diluted EPS is similar to the computation of basic
EPS except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the dilutive
potential common shares had been issued.  The dilutive effect of options
outstanding under the Company's stock option plan is reflected in diluted
earnings per share by application of the treasury stock method.

                                     10

<PAGE>




                 Security Federal Corporation and Subsidiaries

      Notes to Consolidated Financial Statements (Unaudited), Continued

The following table provides a reconciliation of the numerators and
denominators of the basic and diluted EPS computations:

                                     For the Quarter Ended
                     --------------------------------------------------------
                                       September 30, 2005
                     --------------------------------------------------------
                           Income
                     (Numerator) Amount    Shares (Denominator)    Per Share
                     ------------------    --------------------   -----------

Basic EPS            $         949,680                2,527,533   $      0.38
Effect of Diluted
 Securities:
  Stock Options                      -                   48,466        (0.008)
  ESOP                               -                    9,544        (0.002)
                     -----------------     --------------------   -----------
 Diluted EPS         $         949,680                2,585,543   $      0.37
                     =================     ====================   ===========

                                        For the Quarter Ended
                     --------------------------------------------------------
                                         September 30, 2004
                     --------------------------------------------------------
                           Income
                     (Numerator) Amount    Shares (Denominator)    Per Share
                     ------------------    --------------------   -----------

Basic EPS            $         800,006               2,519,627    $      0.32
Effect of Diluted
 Securities:
  Stock Options                      -                  22,417         (0.006)
  ESOP                               -                  13,730         (0.004)
                     -----------------     -------------------    -----------
 Diluted EPS         $         800,006               2,555,774    $      0.31
                     =================     ===================    ===========

                                      For the Six Months Ended
                     --------------------------------------------------------
                                         September 30, 2005
                     --------------------------------------------------------
                           Income
                     (Numerator) Amount    Shares (Denominator)    Per Share
                     ------------------    --------------------   -----------
Basic EPS            $       1,878,922               2,528,961    $      0.74
Effect of Diluted
 Securities:
  Stock Options                      -                  30,670         (0.007)
  ESOP                               -                  11,243         (0.003)
                     -----------------     -------------------    -----------
 Diluted EPS         $       1,878,922               2,570,874    $      0.73
                     =================     ===================    ===========

                                      For the Six Months Ended
                     --------------------------------------------------------
                                         September 30, 2004
                     --------------------------------------------------------
                           Income
                     (Numerator) Amount    Shares (Denominator)    Per Share
                     ------------------    --------------------   -----------
Basic EPS            $       1,602,033               2,521,114    $      0.64
Effect of Diluted
 Securities:
 Stock Options                       -                  26,009         (0.007)

 ESOP                                -                  12,210         (0.003)
                     -----------------     -------------------    -----------
 Diluted EPS         $       1,602,033               2,559,333    $      0.63
                     ==================    ===================    ===========

                                       11

<PAGE>



               Security Federal Corporation and Subsidiaries

      Notes to Consolidated Financial Statements (Unaudited), Continued

9.  Stock-Based Compensation

The Company has a stock-based employee compensation plan which is accounted
for under the recognition and measurement principles of Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations.  No stock-based employee compensation cost is
reflected in net income, as all stock options granted under these plans had an
exercise price equal to the market value of the underlying common stock on the
date of grant.  The following table illustrates the effect on net income and
earnings per share as if the fair value recognition provisions of  SFAS No.
123, "Accounting for Stock-Based Compensation," had been applied to
stock-based employee compensation for the six months and three months ended
September 30, 2005 and 2004, respectively.

                                Three Months Ended       Six Months Ended
                                   September 30,          September 30,
                                 2005         2004      2005         2004
                              ---------   ---------   ----------  ----------
Net income, as reported       $ 949,680   $ 800,006   $1,878,922  $1,602,033
Deduct: Total stock-based
 employee compensation
 expense determined under
 fair value based method
 for all awards, net of
 related tax effect           $ (30,570)  $ (57,124)  $  (61,140) $ (114,248)
Net Income, Pro Forma         $ 919,110   $ 742,882   $1,817,782  $1,487,785
Basic earnings share:
  As Reported                 $    0.38   $    0.32   $     0.74  $     0.64
  Pro Forma                   $    0.36   $    0.30   $     0.72  $     0.59
Diluted earnings share:
  As reported                 $    0.37   $    0.31   $     0.73  $     0.63
  Pro forma                   $    0.36   $    0.29   $     0.71  $     0.58

                                        12

<PAGE>



             Security Federal Corporation and Subsidiaries

        Item 2. Management's Discussion and Analysis of Financial
                   Condition and Results of Operations

Changes in Financial Condition

Total assets of the Company increased $27.6 million or 4.7% to $613.5 million
during the six months ended September 30, 2005 primarily as a result of an
increase of $3.8 million or 48.2% in cash and cash equivalents and an increase
of $22.9 million or 7.2% in net loans receivable.

Residential real estate loans, net of loans in process, increased $2.0 million
or 1.9% during the six months ended September 30, 2005, commercial loans
increased $18.1 million or 11.1%, while consumer loans increased $3.6 million
or 7.0%.  Loans held for sale decreased $489,000 or 21.9% during the same
period.

Repossessed assets decreased $29,000 to $24,000 during the six months ended
September 30, 2005.

Non-accrual loans totaled $1.2 million at September 30, 2005 compared to $2.4
million at March 31, 2005.  The decrease in non- accrual loans is attributable
to collection efforts.  The Bank classifies all loans as non-accrual when they
become 90 days or more delinquent.  At September 30, 2005, the Bank held $1.4
million in impaired loans compared to $1.2 million at March 31, 2005.  The
Bank includes troubled debt restructuring ("TDR") within the meaning of SFAS
No. 114 in impaired loans. At September 30, 2005, the Bank had six loans
totaling $425,000 in TDR's compared to six loans totaling $434,000 at March
31, 2005.  Included in the six loans is a consumer loan TDR of $13,000 secured
by a second mortgage on a residential dwelling, which was over 60 days
delinquent as of September 30, 2005. The other five TDR's consisted of a
commercial loan TDR of $204,000 secured by equipment, two consumer loans
totaling $137,000 secured by residential dwellings, a $18,000 unsecured
commercial loan, and a $54,000 commercial loan secured by two rental
properties, all of which were current as of September 30, 2005.

Deposits increased $19.4 million or 4.5% to $449.7 million during the six
months ended September 30, 2005 as a result of competitive rates offered by
the Bank.  FHLB advances increased  $4.9 million or 4.4% to $116.9 million
during the same period.  Other borrowings, consisting of commercial repurchase
sweep accounts, increased $508,000 or 9.1% to $6.1 million during the
six-month period.

The Board of Directors of the Company declared the 58th and 59th consecutive
quarterly dividend of $.04 and $.04 per share, in April and July 2005,
respectively, which totaled $203,000.  The employee stock ownership trust paid
$61,000 of principal on the employee stock ownership plan loan during the
six-month period.  Unrealized net losses on securities available for sale, net
of tax, decreased $150,000 during the six months ended September 30, 2005 as a
result of slight decrease in interest rates.  The Company's net income for the
six-month period was $1.9 million.  These items, in total, increased
shareholders' equity by $2.0 million or 5.8% during the six months ended
September 30, 2005.  Book value per share was $14.59 at September 30, 2005
compared to $13.92 at March 31, 2005.

Liquidity and Capital Resources

In accordance with Office of Thrift Supervision ("OTS") regulations, the
Company is required to maintain sufficient liquidity to operate in a safe and
sound manner.  The Company's current liquidity level is deemed adequate to
meet the requirements of normal operations, potential deposit outflows, and
loan demand while still allowing for optimal investment of funds and return on
assets.

Loan repayments and maturities of investments are a significant source of
funds, whereas loan disbursements and the purchase of investments are a
primary use of the Company's funds.  During the six months ended September 30,
2005, loan disbursements exceeded loan repayments resulting in a  $22.9
million or 7.2% increase in total net loans receivable.

Deposits and other borrowings are also an important source of funds for the
Company.  During the six months ended September 30, 2005, deposits increased
$19.4 million and FHLB advances increased $4.9 million.  The Bank had $67.1
million in additional borrowing capacity at the FHLB at the end of the period.
At September 30, 2005, the Bank had $123.4 million of certificates of deposit
maturing within one year.  Based on previous experience, the Bank anticipates
a significant portion of these certificates will be renewed.

                                       13

<PAGE>



               Security Federal Corporation and Subsidiaries

         Management's Discussion and Analysis of Financial Condition

                         and Results of Operations

Liquidity and Capital Resources, Continued

Through its operations, the Bank has made contractual commitments to extend
credit in the ordinary course of its business activities.  These commitments
are legally binding agreements to lend money to the Bank's customers at
predetermined interest rates for a specified period of time.  At September 30,
2005, the Bank had $29.7 million in unused consumer lines of credit, including
home equity lines and unsecured lines.  The Bank also had $32.9 million in
unused commercial lines of credit and $1.1 million in letters of credit
committed to customers.  The majority of the $63.7 million will not be drawn
at the same time.  The Bank evaluates each customer's credit worthiness on a
case-by-case basis.  The amount of collateral obtained, if deemed necessary,
by the Bank upon extension of credit, is based on our credit evaluation of the
borrower.  Collateral varies but may include accounts receivable, inventory,
property, plant and equipment, commercial and residential real estate.  The
Bank manages the credit risk on these commitments by reviewing them based on
normal underwriting and risk management processes.

Historically, the Company's cash flows from operating activities have been
relatively stable.  The cash flow from investing activities have had a trend
of increasing outflows as a result of increases in purchases of
mortgage-backed and investment securities.  The cash flows from financing
activities have had a trend of increased inflows as a result of increases in
FHLB advances.  Management believes that the Company's liquidity will continue
to be supported by the Company's deposit base and borrowing capacity during
the next year.

Critical Accounting Policies

The Company has adopted various accounting policies, which govern the
application of accounting principles generally accepted in the United States
in the preparation of the Company's Consolidated Financial Statements.  The
Company's significant accounting policies are described in the footnotes to
the audited Consolidated Financial Statements included in its Annual Report on
Form 10-K for the year ended March 31, 2005.  Certain accounting policies
involve significant judgments and assumptions by management, which have a
material impact on the carrying value of certain assets and liabilities.
Management considers these accounting policies to be critical accounting
policies.  The judgments and assumptions used by management are based on
historical experience and other factors, which management believes to be
reasonable under the circumstances.  Because of the nature of the judgments
and assumptions made by management, actual results could differ from these
judgments and estimates, which could have a material impact on the Company's
carrying values of assets and liabilities and results of operations.

The allowance for loan losses is a critical accounting policy that requires
the most significant judgements and estimates used in preparation of the
Company's consolidated financial statements.  The Company provides for loan
losses using the allowance method.  Accordingly, all loan losses are charged
to the related allowance and all recoveries are credited to the allowance for
loan losses.  Additions to the allowance for loan losses are provided by
charges to operations based on various factors, which, in Management's
judgment, deserve current recognition in estimating possible losses.  Such
factors considered by Management include the fair value of the underlying
collateral, stated guarantees by the borrow, if applicable, the borrower's
ability to repay from other economic resources, growth and composition of the
loan portfolios, the relationship of the allowance for loan losses to the
outstanding loans, loss experience, delinquency trends, and general economic
conditions.  Management evaluates the carrying value of the loans periodically
and the allowance is adjusted accordingly.  While Management uses the best
information available to make evaluations, future adjustments may be necessary
if economic conditions differ substantially from the assumptions used in
making these evaluations.  Allowance for loan losses are subject to periodic
evaluations by various authorities and may be subject to adjustments based
upon the information that is available at the time of their examination.

The Company values impaired loans at the loan's fair value if it is probable
that the Company will be unable to collect all amounts due according to the
terms of the loan agreement at the present value of expected cash flows, the
market price of the loan, if available, or the value of the underlying
collateral.  Expected cash flows are required to be discounted at the loan's
effective interest rate.  When the ultimate collectibility of an impaired
loan's principal is in doubt, wholly or partially, all cash receipts are
applied to principal.  When this doubt does not exist, cash receipts are
applied under the contractual terms of the loan agreement first to interest
then to principal.  Once the recorded principal balance has been reduced to
zero, future cash receipts are applied to interest income to the extent that
any interest has been foregone.  Further cash receipts are recorded as
recoveries of any amounts previously charged off.

                                        14

<PAGE>



               Security Federal Corporation and Subsidiaries

            Management's Discussion and Analysis of Financial Condition

                         and Results of Operations

Accounting and Reporting Changes

The following is a summary of recent authoritative pronouncements that affect
accounting, reporting, and disclosure of financial information by the Company:

In April 2005, the Securities and Exchange Commission's ("SEC") Office of the
Chief Accountant and its Division of Corporation Finance has released Staff
Accounting Bulletin ("SAB") No. 107 to provide guidance regarding the
application of Financial Accounting Standards Board ("FASB") Statement No. 123
(revised 2004), "Share-Based Payment."  Statement No. 123(R) covers a wide
range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights,
and employee share purchase plans.  SAB 107 provides interpretive guidance
related to the interaction between Statement No. 123(R) and certain SEC rules
and regulations, as well as the staff's views regarding the valuation of
share- based payment arrangements for public companies.  SAB 107 also reminds
public companies of the importance of including disclosures within filings
made with the SEC relating to the accounting for share-based payment
transactions, particularly during the transition to Statement No. 123(R).

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions."  The amendments made by SFAS No. 153 are based on the principle
that exchanges of nonmonetary assets should be measured based on the fair
value of the assets exchanged.  Further, the amendments eliminate the narrow
exception for nonmonetary exchanges of similar productive assets and replace
it with a broader exception for exchanges of nonmonetary assets that do not
have commercial substance.  Previously, APB Opinion No. 29 required that the
accounting for an exchange of a productive asset for a similar productive
asset or an equivalent interest in the same or similar productive asset should
be based on the recorded amount of the asset relinquished.  APB Opinion No. 29
provided an exception to its basic measurement principle (fair value) for
exchanges of similar productive assets.  SFAS No. 153 is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June
15, 2005.  Earlier application is permitted for nonmonetary asset exchanges
occurring in fiscal periods beginning after the date of issuance.  The
provisions of this Statement shall be applied prospectively.  The adoption of
this Statement is not expected to have a material impact on the financial
condition or operating results of the Company.

In December 2004, the FASB issued SFAS No, 123 (revised 2004), "Share-Based
Payments" ("SFAS No. 123(R)").  SFAS No. 123(R) will require companies to
measure all employee stock-based compensation awards using a fair value method
and record such expense in their financial statements.  In addition, the
adoption of SFAS No. 123(R) requires additional accounting and disclosure
related to the income tax and cash flow effects resulting from share-based
payments arrangements.  SFAS No. 123(R) is effective beginning as of the first
interim or annual reporting period beginning after June 15, 2005.  The Company
is currently evaluating the impact that the adoption of SFAS No. 123(R) will
have on its financial position, results of operations and cash flow.

In March 2004, the SEC issued SAB No. 105, "Application of Accounting
Principles to Loan Commitments," to inform registrants of the staff's view
that the fair value of the recorded loan commitments should not consider the
expected future cash flows related to the associated servicing of the future
loan.  The provisions of SAB No. 105 must be applied to the loan commitments
accounted for as derivatives that are entered into after March 31, 2004.  The
Staff will not object to the application of existing accounting practices to
loan commitments accounted for as derivatives that are entered into on or
before March 31, 2004, with appropriate disclosures.  The Company adopted the
provisions of SAB No. 105 on April 1, 2004.  The adoption of SAB No. 105 did
not have a material impact on the Company's financial condition or results of
operations.

In December 2003, the FASB issued FIN No. 46 (revised),  "Consolidation of
Variable Interest Entities" ("FIN No. 46(R)"), which addresses consolidation
by business enterprises of variable interest entities.  FIN No. 46(R) requires
a variable interest entity to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable interest entity's
activities or entitled to receive a majority of the entity's residual returns,
or both.  FIN No. 46(R) also requires disclosure about variable interest
entities that a company is not required to consolidate, but in which it has a
significant variable interest.  FIN No. 46(R) provides guidance for
determining whether an entity qualifies as a variable interest entity by
considering, among other considerations, whether the entity lacks sufficient
equity holders lack adequate decision-making ability.  The consolidation
requirements of FIN No. 46(R) applied immediately to variable interest created
after January 31, 2003.  The consolidation requirements applied to the
Company's existing variable entities in the first reporting ending after March
15, 2004.  Certain of the disclosure requirements applied to all financial
statements issued after December 31, 2003, regardless of when the variable
interest entity was established.  The adoption of FIN No. 46(R) did not have
any impact on the Company's financial position or results of operations.

                                       15

<PAGE>



             Security Federal Corporation and Subsidiaries

          Management's Discussion and Analysis of Financial Condition

                        and Results of Operations

Accounting and Reporting Changes, Continued

In November 2003, the Emerging Issues Task Force ("EITF") reached a consensus
that certain quantitative and qualitative disclosures should be required for
debt and marketable equity securities classified as available-for-sale or
held-to-maturity under SFAS No. 115 and SFAS No. 124 that are impaired at the
balance sheet data but for which other-than-temporary impairments has not been
recognized.  Accordingly the EITF issued EITF No. 03-1, "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments."
This issue addresses the meaning of other-than-temporary impairments and its
application to investments classified as either available-for-sale or
held-to-maturity under SFAS No. 115 and provides guidance on quantitative and
qualitative disclosures.  The disclosure requirements of EITF No. 03-1 are
effective for financial statements for fiscal years ending after June 15,
2004.  The effective date for the measurement and recognition guidance of EITF
No. 03-1 has been delayed.  The FASB staff has issued a proposed
Board-directed FASB Staff Position ("FSP"), FSP EITF 03-1-a, "Implementation
Guidance for the Application of Paragraph 16 of Issue No. 03-1."  The proposed
FSP would provide implementation guidance with respect to debt securities that
are impaired due to interest rates and/or sector spreads and analyzed for
other-than-temporary impairments under the measurement and recognition
requirements of EITF No. 03-1.  The delay of the effective date for the
measurement and recognition requirements of EITF No. 03-1 will be superseded
concurrent with the final issuance of FSP EITF 03-1-a.  Adopting the
disclosure provisions of EITF No. 03-1 did not have any impact on the
Company's financial position or results of operations.

Impact of Inflation and Changing Prices

The consolidated financial statements, related notes, and other financial
information presented herein have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering changes in relative purchasing power over time due to inflation.
Unlike industrial companies, substantially all of the assets and liabilities
of a financial institution are monetary in nature.  As a result, interest
rates generally have a more significant impact on a financial institution's
performance than does inflation.  See "Item 3. Quantitative and Qualitative
Disclosures about Market Risk" for additional discussions of changes in
interest rates.

                                   16

<PAGE>



             Security Federal Corporation and Subsidiaries

         Management's Discussion and Analysis of Financial Condition

                     and Results of Operations

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005
-------------------------------------------------------------------

Net Income

Net income was $950,000 for the three months ended September 30, 2005,
representing an increase in earnings of $150,000 or 18.7% from $800,000 for
the same period in 2004.  The primary reason for the increased earnings was an
increase in net interest income offset partially by an increase in general and
administrative expenses.

Net Interest Income

Net interest income increased $690,000 or 20.5% to $4.1 million during the
three months ended September 30, 2005 as a result of an increase in interest
income offset in part by an increase in interest expense.  Average interest
earning assets increased $49.7 million while average interest-bearing
liabilities increased $41.4 million.  The interest rate spread increased 20
basis points to 2.52% during the three months ended September 30, 2005
compared to the same period in 2004.

Interest income on loans increased $1.6 million or 39.5% to $5.6 million
during the three months ended September 30, 2005 as a result of the average
loan portfolio balance increasing by $57.0 million and the yield in the loan
portfolio increasing 82 basis points.  Because of a 16 basis point increase in
the yield in the investment portfolio, interest income from investment,
mortgage-backed, and other securities increased $6,700 or 0.3% despite a
decrease in the average balance of the investment portfolio of $11.5 million.
Total interest income increased $1.6 million or 25.5% to $7.8 million for the
three months ended September 30, 2005 from $6.2 million for the same period in
2004.

Total interest expense increased $904,000 or 31.4% to $3.8 million during the
three months ended September 30, 2005 compared to $2.9 million for the same
period one-year earlier.  Interest expense on deposits increased $815,000 or
43.7% during the period as average interest bearing deposits grew $29.5
million compared to the average balance in the three months ended September
30, 2004 while the cost of deposits increased 66 basis points.  Interest
expense on advances and other borrowings increased $88,000 or 8.7% as the cost
of debt outstanding decreased 6 basis points during the 2005 period compared
to 2004 while average total borrowings outstanding increased approximately
$11.9 million.

Provision for Loan Losses

The Bank's provision for loan losses was $165,000 during the three months
ended September 30, 2005 compared to $195,000 for the quarter ended September
30, 2004.  The amount of the provision is determined by management's on-going
monthly analysis of the loan portfolio.  Non-accrual loans, which are loans
delinquent 90 days or more, were $1.2 million at September 30, 2005 compared
to $2.4 million at March 31, 2005.  The decrease in non-accrual loans is a
result of collection efforts.  The ratio of allowance for loan losses to the
Company's total loans was 1.89% at September 30, 2005 compared to 1.94% at
March 31, 2005.  Net charge-offs were $60,000 during the three months ended
September 30, 2005 compared to $33,000 during the same period in 2004.

Other Income

Total other income increased $24,000 or 3.4% to $749,000 during the three
months ended September 30, 2005 compared to $724,000 for the same period a
year ago, primarily as a result of an increase in net gain on sale of
investments.  Gain on sale of loans increased $1,900 or 1.6% to $118,000
during the period as the origination and sale of fixed rate mortgages
increased.  Loan servicing fees increased $8,700 or 20.1% to $52,000 while
service fees on deposit accounts decreased $23,000 or 7.3% to $289,000.  Other
miscellaneous income including credit life insurance commissions, net gain on
sale of repossessed assets, safe deposit rental income, annuity and stock
brokerage commissions, trust fees, and other miscellaneous fees increased
$5,100 or 2.0% to $258,000 during the three months ended September 30, 2005
compared to $253,000 for the same period last year.

                                      17

<PAGE>




               Security Federal Corporation and Subsidiaries

         Management's Discussion and Analysis of Financial Condition

                         and Results of Operations

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005, CONTINUED
------------------------------------------------------------------------------

General and Administrative Expenses

General and administrative expenses increased $460,000 or 17.0% to $3.2
million during the three months ended September 30, 2005 compared to $2.7
million for the same period in 2004.  Salaries and employee benefits expense
increased $249,000 or 15.7%.  Occupancy expense increased $50,000 or 18.6%
primarily as a result of branch renovations, additional office space being
rented and increases in landscaping costs.  Advertising expense increased $600
to $44,000.  Depreciation and maintenance of equipment expense decreased
$2,800 or 1.1% to $258,000 during the quarterly period.  FDIC insurance
premiums remained the same at $14,000 during the quarters ended September 2005
and 2004.  Other miscellaneous expense, consisting of legal, professional, and
consulting expenses, stationery and office supplies, and other sundry
expenses, increased $163,000 or 30.3% to $701,000 for the three months ended
September 30, 2005 compared to the three months ended September 30, 2004.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2005
-----------------------------------------------------------------

Net Income

Net income was $1.9 million for the six months ended September 30, 2005,
representing an increase in earnings of $277,000 or 17.3% from $1.6 million
for the same period in 2004.  The primary reason for the increased earnings
was an increase in net interest income offset partially by an increase in
general and administrative expenses.

Net Interest Income

Net interest income increased $1.2 million or 17.1% to $8.0 million during the
six months ended September 30, 2005 as a result of an increase in interest
income offset in part by an increase in interest expense.  Average interest
earning assets increased $50.5 million while average interest-bearing
liabilities increased $42.8 million.  The interest rate spread increased 12
basis points to 2.51% during the six months ended September 30, 2005 compared
to the same period in 2004.

Interest income on loans increased $2.9 million or 37.4% to $10.8 million
during the six months ended September 30, 2005 as a result of the average loan
portfolio balance increasing by $63.0 million and the yield in the loan
portfolio increasing 66 basis points.  Because of a 19 basis point increase in
the yield in the investment portfolio, interest income from investment,
mortgage-backed, and other securities increased $26,000 or 0.6% despite a
decrease in the average balance of the investment portfolio of $12.5 million.
Total interest income increased $2.9 million or 24.1% to $15.2
million for the six months ended September 30, 2005 from $12.3 million for the
same period in 2004.

Total interest expense increased $1.8 million or 32.8% to $7.3 million during
the six months ended September 30, 2005 compared to $5.5 million for the same
period one-year earlier.  Interest expense on deposits increased $1.6 million
or 45.2% during the period as average interest bearing deposits grew $33.2
million compared to the average balance in the six months ended September 30,
2004 while the cost of deposits increased 64 basis points.  Interest expense
on advances and other borrowings increased $181,000 or 9.5% as the cost of
debt outstanding increased 2 basis points during the 2005 period compared to
2004 while average total borrowings outstanding increased approximately $9.6
million.

Provision for Loan Losses

The Bank's provision for loan losses was $330,000 during the six months ended
September 30, 2005 compared to $390,000 for the quarter ended September 30,
2004.  The amount of the provision is determined by management's on-going
monthly analysis of the loan portfolio.  Non-accrual loans, which are loans
delinquent 90 days or more, were $1.2 million at September 30, 2005 compared
to $2.4 million at March 31, 2005.  The decrease in non-accrual loans is a
result of collection efforts.  The ratio of allowance for loan losses to the
Company's total loans was 1.89% at September 30, 2005 compared to 1.94 % at
March 31, 2005.  Net charge-offs were $82,388 during the six months ended
September 30, 2005 compared to $71,000 during the same period in 2004.

                                     18

<PAGE>




               Security Federal Corporation and Subsidiaries

       Management's Discussion and Analysis of Financial Condition

                        and Results of Operations

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2005, CONTINUED
----------------------------------------------------------------------------

Other Income

Total other income increased $56,000 or 4.0% to $1.4 million during the six
months ended September 30, 2005 compared to the same period a year ago,
primarily as a result of an increase in net gain on sale of investments.  Gain
on sale of loans increased $15,000 or 6.2% to $254,000 during the period as
the origination and sale of fixed rate mortgages increased.  Loan servicing
fees increased $14,000 or 15.7% to $101, 000 while service fees on deposit
accounts decreased $53,000 or 8.5% to $572,000.  Other miscellaneous income
including credit life insurance commissions, net gain on sale of repossessed
assets, safe deposit rental income, annuity and stock brokerage commissions,
trust fees, and other miscellaneous fees increased $32,000 or 7.3% to $464,000
during the six months ended September 30, 2005.

General and Administrative Expenses

General and administrative expenses increased $763,000 or 14.1% to $6.2
million during the six months ended September 30, 2005 compared to $5.4
million for the same period in 2004.  Salaries and employee benefits expense
increased $411,000 or 12.9% to $3.6 million.  Occupancy expense increased
$107,000 or 20.5% to $631,000 primarily as a result of branch renovations,
additional office space being rented and increases in landscaping costs.
Advertising expense decreased $5,500 or 7.4% to $69,000.  Depreciation and
maintenance of equipment expense decreased $27,000 or 5.0% to $510,000 during
the six month period compared to $537,000 for the same period last year.  FDIC
insurance premiums remained the same during the six months ended September 30,
2005 and 2004.  Other miscellaneous expense, consisting of legal,
professional, and consulting expenses, stationery and office supplies, and
other sundry expenses, increased $276,000 or 26.2% to $1.3 million for the six
months ended September 30, 2005 compared to $1.1 million for the six months
ended September 30, 2004.

                                     19

<PAGE>



               Security Federal Corporation and Subsidiaries

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk of loss from adverse changes in market prices and
rates.  The Company's market risk arises principally from interest rate risk
inherent in its lending, investment, deposit and borrowing activities.
Management actively monitors and manages its interest rate risk exposure.
Although the Company manages other risks such as credit quality and liquidity
risk in the normal course of business, management considers interest rate risk
to be its most significant market risk that could potentially have the largest
material effect on the Company's financial condition and results of
operations.  Other types of market risks such as foreign currency exchange
rate risk and commodity price do not arise in the normal course of the
Company's business activities.

The Company's profitability is affected by fluctuations in the market interest
rate.  Management's goal is to maintain a reasonable balance between exposure
to interest rate fluctuations and earnings.  A sudden and substantial increase
or decrease in interest rates may adversely impact the Company's earnings to
the extent that the interest rates on interest-earning assets and
interest-bearing liabilities do not change at the same rate, to the same
extent or on the same basis.  The Company monitors the impact of changes in
interest rates on its net interest income using a test that measures the
impact on net interest income and net portfolio value of an immediate change
in interest rates in 100 basis point increments and by measuring the Bank's
interest sensitivity gap ("Gap").  Net portfolio value is defined as the net
present value of assets, liabilities, and off-balance sheet contracts.  Gap is
the amount of interest sensitive assets repricing or maturing over the next
twelve months compared to the amount of interest sensitive liabilities
maturing or repricing in the same time period.  Recent net portfolio value
reports furnished by the OTS indicate that the Bank's interest rate risk
sensitivity has increased slightly over the past year.

For the three and six month periods ended September 30, 2005, the Bank's
interest rate spread, defined as the average yield on interest bearing assets
less the average rate paid on interest bearing liabilities was 2.52% and
2.51%, respectively.  As of the year ended March 31, 2005, the interest rate
spread was 2.45%. The interest rate spread increased as a result of the growth
of loan receivables.  Loan receivables earn a higher yield than investment
securities.  However, if interest rates were to increase suddenly and
significantly, the Bank's net interest income and net interest spread would be
compressed.

Item 4. Controls and Procedures

An evaluation of the Company's disclosure controls and procedures (as defined
in Sections 13a - 15(e) and 15d-15(e) of the Securities Exchange Act of 1934)
was carried out under the supervision and with the participation of the
Company's Chief Executive Officer, Chief Financial Officer and several other
members of the Company's senior management as of the end of the period covered
by this quarterly report.  The Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures as currently in effect are effective in ensuring that the
information required to be disclosed by the Company in the reports it files or
submits under the Act is (i) accumulated and communicated to the Company's
management (including the Chief Executive Officer and Chief Financial Officer)
in a timely manner, and (ii) recorded, processed, summarized and reported
within the time period specified in the Securities and Exchange Commission's
rules and forms.

In the quarter ended September 30, 2005, the Company did not make any
significant changes in, nor take any corrective actions regarding, its
internal controls or other factors that could significantly affect these
controls.

While the Company believes the present design of its disclosure controls and
procedures is effective to achieve its goal, future events affecting its
business may cause the Company to modify its disclosure controls and
procedures.  The Company does not expect that its disclosure controls and
procedures and internal control over financial reporting will prevent all
error and fraud.  A control procedure, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control procedure are met.  Because of the inherent
limitations in all control procedures, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected.  These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
in controls or procedures can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control.  The design of any control procedure is based in part upon certain
assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions; over time, controls become inadequate because of
changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate.  Because of the inherent limitations in a
cost-effective control procedure, misstatements due to error or fraud may
occur and not be detected.

                                   20

<PAGE>




                Security Federal Corporation and Subsidiaries

Part II: Other Information

Item 1    Legal Proceedings
          -----------------

          The Company is not engaged in any legal proceedings of a material
          nature at the present time.  From time to time, the Company is a
          party to legal proceedings in the ordinary course of business
          wherein it enforces its security interest in mortgage loans it has
          made.

Item 2    Unregistered Sales of Equity Securities and Use Of Proceeds
          -----------------------------------------------------------

                                                  (c)Total No.
                                                  of Shares
                                                  Purchased as  (d)Maximum No.
                          (a)Total                Part of       of Shares
                          No. of      (b)Average  Publicly      that May Yet
                          Shares      Price Paid  Announced     Be Purchased
Period                    Purchased   per Share   Plan(1)       Under the Plan
---------------           ---------   ---------   ----------    --------------

July 1 - July 31, 2005          135      $21.50          135       124,665 (1)

August 1 - August 30, 2005      300      $22.00          300       124,365

September 1 - September
  30, 2005                        -           -            -             -
Total                           435      $21.84          435       124,365

(1) On May 17, 2005, the Company's Board of Directors authorized a 5%
repurchase plan, or 126,000 shares of the Company's outstanding common stock.
As of September 30, 2005, 1,635 shares have been repurchased under this
program.

Item 3    Defaults Upon Senior Securities
          ------------------------------

          None

Item 4    Submission Of Matters To A Vote Of Security Holders
          ---------------------------------------------------

          The election of directors was presented for vote to the shareholders
          at the Annual Meeting held July 21, 2005.  Votes for Harry O. Weeks,
          Jr. were as follows: 1,897,350 votes for, 19,301 withheld.  Votes
          for Robert E. Alexander were as follows: 1,897,350 votes for, 19,301
          votes withheld.  Votes for William Clyburn were as follows:
          1,890,797 votes for, 25,854 votes withheld.  Votes for Roy G.
          Lindburg were as follows: 1,894,951 for, 21,700 votes withheld.
          Directors continuing in office are T. Clifton Weeks, Timothy W.
          Simmons, G.L. Toole, III, Robert E. Johnson, Thomas L. Moore, and J.
          Chris Verenes.

Item 5    Other Information
          -----------------

          None

Item 6    Exhibits
          --------

          (a)    Exhibits:

          3.1    Articles Of Incorporation (1)

          3.2    Articles Of Amendment, Dated August 28, 1998, To Articles Of
                 Incorporation

          3.3    Bylaws (2)

         10.1    Executive Compensation Plans And Arrangements:

         10.2    Salary Continuation Agreements (3)

         10.3    Amendment One To Salary Continuation Agreements (4)

         10.4    Stock Option Plan (3)

         10.5    1999 Stock Option Plan (5)

         10.6    2002 Stock Option Plan (6)

         10.7    Form of Incentive Stock Option Award Agreement

                                      21

<PAGE>



                Security Federal Corporation and Subsidiaries

Part II: Other Information, Continued

      10.8   Form of Non-Qualified Stock Option Award Agreement

      10.9   Incentive Compensation Plan (3)

      31.1   Certification of the Chief Executive Officer Pursuant to Section
             302 of the Sarbanes-Oxley Act.

      31.2   Certification of the Chief Financial Officer Pursuant to Section
             302 of the Sarbanes-Oxley Act.

      32     Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act.

(1)   Filed as an exhibit to the Company's June 23, 1998 proxy statement and
      incorporated herein by reference.

(2)   Filed as an exhibit to the Company's Form 8-K filed September 1, 1998
      and incorporated herein by reference.

(3)   Filed as an exhibit to the Company's Annual Report on Form 10-KSB for
      the year ended March 31, 1993 and incorporated herein by reference.

(4)   Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for
      the quarter ended December 30, 1993 and incorporated herein by
      reference.

(5)   Filed as an exhibit to the Company's Registration Statement on Form S-8
      filed March 2, 2002 and incorporated herein by reference.

(6)   Filed as an exhibit to the Company's June 19, 2002 proxy statement and
      incorporated herein by reference.

Signatures

Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to the signed on its behalf by the
undersigned thereunto duly authorized.

                                 SECURITY FEDERAL CORPORATION




Date: November 9, 2005          By:/s/Timothy W. Simmons
                                    -------------------------------
                                    Timothy W. Simmons
                                    President
                                    Duly Authorized Representative



Date: November 9, 2005          By:/s/Roy R. Lindburg
                                    -------------------------------
                                    Roy G. Lindburg
                                    Treasurer/CFO
                                    Duly Authorized Representative


                                         22

<PAGE>




                                 Exhibit 10.7

                  Form of Incentive Stock Option Award Agreement


                                       23

<PAGE>




                            STOCK OPTION AGREEMENT
                        FOR INCENTIVE STOCK OPTIONS
                              PURSUANT TO THE
                        SECURITY FEDERAL CORPORATION
                           2002 STOCK OPTION PLAN


     OPTION for a total of ________________ Shares of common stock, par value
$0.01 per share, of SECURITY FEDERAL CORPORATION (the "Company"), which Option
is intended to qualify as an Incentive Stock Option under Section 422 of the
Internal Revenue Code of 1986, as amended, is hereby granted to ______ (the
"Optionee") at an exercise price determined as provided in, and in all
respects subject to, the terms, definitions and provisions of the 2002 Stock
Option Plan (the "Plan") adopted by the Company, which is incorporated by
reference herein, receipt of which is hereby acknowledged.

     1.   Exercise Price.  This Option shall be exercisable at $_______ for
each Share, being no less than 100 percent of the fair market value of the
common stock of the Company as determined pursuant to the Plan.

     2.   Exercise of Option.

          (a)   Vesting.  This Option shall be exercisable as follows:

                        Years of Employment             Percent
                         After Grant Date             Exercisable
                        ------------------           ------------
                                5                         20
                                6                         40
                                7                         60
                                8                         80
                                9                         100


         (b)    Method of Exercise.  The notice of exercise of this Option
shall be in the form prescribed by the Committee referred to in Section 3 of
the Plan.  The date of exercise is the date on which such notice is received
by the Company.  Such notice shall be accompanied by payment in full of the
Exercise Price for the Option Shares to be purchased upon such exercise.
Payment shall be made (i) in cash, which may be in the form of a check, money
order, cashier's check or certified check, payable to the Company, or (ii) by
delivering shares of Common Stock already owned by the Optionee having a
Market Value equal to the Exercise Price, or (iii) a combination of cash and
such shares.  Promptly after such payment, subject to any withholding that may
be owed by the Optionee, the Company shall issue and deliver to the Optionee
or other person exercising this Option a certificate or certificates
representing the shares of Common Stock so purchased, registered in the name
of the Optionee (or such other person), or, upon request, in the name of the
Optionee (or such other person) and in the name of another in such form of
joint ownership as requested by the Optionee (or such other person) pursuant
to applicable law.

     3.  Nontransferability of Option.  Except as otherwise provided in the
Plan, this Option may not be transferred in any manner otherwise than by will
or the laws of descent or distribution and may be exercised during the
lifetime of the Optionee only by the Optionee. The terms of this Option shall
be binding upon the executors, administrators, heirs, successors and assigns
of the Optionee.

     4.  Term of Option.  Subject to Section 2(a) of this Agreement, this
Option is exercisable through and including the tenth anniversary of the date
of grant; provided, however, that this Option may be exercised during such
term only in accordance with the Plan and this Agreement.

     5.  Termination of Service or Death of the Optionee.  Except as provided
in this Section 5 and Section 6, notwithstanding any other provision of this
Option to the contrary, this Option shall be exercisable only if the Optionee
has not incurred a Termination of Service at the time of such exercise.

                                     24

<PAGE>



     If the Optionee incurs a Termination of Service for any reason excluding
death and Termination of Service for Cause, the Optionee may, but only within
the period of three months (or one year in the case of disability, as defined
in Section 22(e)(3) of the Code) immediately succeeding such Termination of
Service and in no event after the Expiration Date, exercise this Option to the
extent the Optionee was entitled to exercise this Option on the date of
Termination of Service.  If the Optionee incurs a Termination of Service for
Cause, all rights under this Option shall expire immediately upon the giving
to the Optionee of notice of such termination.

     In the event of the death of the Optionee prior to the Optionee's
Termination of Service or during the three-month period referred to in the
immediately preceding paragraph, the person or persons to whom the Option has
been transferred by will or by the laws of descent and distribution may, but
only to the extent the Optionee was entitled to exercise this Option on the
date of the Optionee's death, exercise this Option at any time within one year
following the death of the Optionee, but in no event after the Expiration
Date.  Following the death of the Optionee, the Committee may, in its sole
discretion, as an alternative means of settlement of this Option, elect to pay
to the person to whom this Option is transferred by will or by the laws of
descent and distribution, the amount by which the Market Value per share of
Common Stock on the date of exercise of this Option shall exceed the Exercise
Price per Option Share, multiplied by the number of Option Shares with respect
to which this Option is properly exercised.  Any such settlement of this
Option shall be considered an exercise of this Option for all purposes of this
Option and of the Plan.

     6.  Plan and Plan Interpretations as Controlling.  This Option and the
terms and conditions herein set forth are subject in all respects to the terms
and conditions of the Plan, which are controlling. All determinations and
interpretations made in the discretion of the Committee shall be final and
conclusive upon the Optionee or his legal representatives with regard to any
question arising hereunder or under the Plan.

     7.  Optionee Service.  Nothing in this Option shall limit the right of
the Company or any of its Affiliates to terminate the Optionee's service as a
director, emeritus director, or employee, or otherwise impose upon the Company
or any of its Affiliates any obligation to employ or accept the services of
the Optionee.

                                   Optionee


                                   -----------------------------------

                                   By:
                                      --------------------------------
                                      For the Board of Directors

Date of Grant                      Attest:                             (Seal)
             ----------------              ---------------------------

                                      25

<PAGE>



                                 Exhibit 10.8

              Form of Non-Qualified Stock Option Award Agreement

                                     26

<PAGE>




                           STOCK OPTION AGREEMENT
                      FOR NON-QUALIFIED STOCK OPTIONS
                              PURSUANT TO THE
                       SECURITY FEDERAL CORPORATION
                           2002 STOCK OPTION PLAN

     NON-QUALIFIED STOCK OPTION for a total of _____ Shares of common stock,
par value $0.01 per share, of SECURITY FEDERAL CORPORATION. (the "Company"),
is hereby granted to _________________ (the "Optionee") at an exercise price
determined as provided in, and in all respects subject to, the terms,
definitions and provisions of the 2002 Stock Option Plan (the "Plan") adopted
by the Company, which is incorporated by reference herein, receipt of which is
hereby acknowledged.

     1.   Exercise Price.  This Non-Qualified Stock Option shall be
exercisable at $____ for each Share, being no less than 100 percent of the
fair market value of the common stock of the Company as determined pursuant to
the Plan.

     2.   Exercise of Option.

          (a)  Vesting.  This Non-Qualified Stock Option shall be exercisable
               as follows:

                       Years of Service                 Percent
                       After Grant Date               Exercisable
                     -------------------            --------------
                              5                            20
                              6                            40
                              7                            60
                              8                            80
                              9                            100

          (b)  Method of Exercise.  This Non-Qualified Stock Option shall be
               exercisable by a written notice which shall:

              (i) State the election to exercise the Non-Qualified Stock
Option, the number of Shares with respect to which it is being exercised, the
person in whose name the stock certificate or certificates for such Shares is
to be registered, his address and Social Security Number (or if more than one,
the names, addresses and Social Security Numbers of such persons);

              (ii) Be signed by the person or persons entitled to exercise the
Non-Qualified Stock Option and, if the Non-Qualified Stock Option is being
exercised by any person or persons other than the Optionee, be accompanied by
proof, satisfactory to counsel for the Company, of the right of such person or
persons to exercise the Non-Qualified Stock Option; and

              (iii) Be in writing and delivered in person or by certified mail
to the Treasurer of the Company or any other person designated by the Stock
Option Committee of the Company.

               Payment of the purchase price of any Shares with respect to
               which the Non-Qualified Stock Option is being exercised shall
               be by certified or bank cashier's or teller's check or as
               otherwise provided by the Plan.  The certificate or
               certificates for Shares as to which the Non-Qualified Stock
               Option shall be exercised shall be registered in the name of
               the person or persons designated by the Optionee.

          (c)  Restrictions on exercise.  This Non-Qualified Stock Option may
               not be exercised if the issuance of the Shares upon such
               exercise would constitute a violation of any applicable
               federal or state securities or other law or valid regulation.
               As a condition to the Optionee's exercise of this option, the
               Company may require the person exercising this option to make

                                        27

<PAGE>



               any representation and warranty to the Company as may be
               required by any applicable law or regulation.

     3.  Nontransferability of Non-Qualified Stock Option.  Except as
otherwise provided in the Plan, this Non-Qualified Stock Option may not be
transferred in any manner otherwise than by will or the laws of descent or
distribution and may be exercised during the lifetime of the Optionee only by
the Optionee.  The terms of this Non-Qualified Stock Option shall be binding
upon the executors, administrators, heirs, successors and assigns of the
Optionee.

     4.  Term of Non-Qualified Stock Option.  Subject  to Section 2(a) of this
Agreement, this Non-Qualified Stock Option is exercisable through and
including the tenth anniversary of the date of grant; provided, however, that
this Non-Qualified Stock Option may be exercised during such term only in
accordance with the Plan and this Agreement.

     5.  Plan and Plan Interpretations as Controlling.  This Non-Qualified
Stock Option and the terms and conditions herein set forth are subject in all
respects to the terms and conditions of the Plan, which are controlling. All
determinations and interpretations made in the discretion of the Committee
shall be final and conclusive upon the Optionee or his legal representatives
with regard to any question arising hereunder or under the Plan.

     6.  Optionee Service.  Nothing in this Non-Qualified Stock Option shall
limit the right of the Company or any of its Affiliates to terminate the
Optionee's service as a director, emeritus director, or employee, or otherwise
impose upon the Company or any of its Affiliates any obligation to employ or
accept the services of the Optionee.

                                   Optionee


                                   -----------------------------------

                                   By:
                                      --------------------------------
                                      For the Board of Directors

Date of Grant                      Attest:                             (Seal)
             ----------------              ---------------------------

                                        28

<PAGE>




                              EXHIBIT 31.1

  Certification of the Chief Executive Officer Pursuant to Section 302 of the

                             Sarbanes-Oxley Act


                                      29

<PAGE>




                             Certification

I, Timothy W. Simmons, certify that:

 1.  I have reviewed this Quarterly Report on Form 10-Q of Security Federal
     Corporation;

 2.  Based on my knowledge, this report does not contain any untrue statement
     of a material fact or omit to state a material fact necessary to make the
     statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered
     by this report;

 3.  Based on my knowledge, the financial statements, and other financial
     information included in this report, fairly present in  all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the period  presented in this report;

 4.  The registrant's other certifying officer(s) and I are responsible for
     establishing and maintaining disclosure controls and procedures (as
     defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
     and have:

      a)  Designed such disclosure controls and procedures, or caused such
          disclosure controls and procedures to be designed under our
          supervision, to ensure that material information relating to the
          registrant, including its consolidated subsidiaries, is made known
          to us by others within those entities, particularly during the
          period in which this report is being prepared;

      b)  Evaluated the effectiveness of the registrant's disclosure controls
          and procedures and presented in this report our conclusions about
          the effectiveness of the disclosure controls and procedures as of
          the end of the period covered by this report based on such
          evaluation; and

      c)  Disclosed in this report any change in the registrant's internal
          control over financial reporting that occurred during the
          registrant's most recent fiscal quarter (the registrant's fourth
          fiscal quarter in the case of an annual report) that has materially
          affected, or is reasonably likely to materially affect, the
          registrant's internal control over financial reporting; and

 5.  The registrant's other certifying officer(s) and I have disclosed, based
     on our most recent evaluation of internal control over financial
     reporting, to the registrant's auditors and the audit committee of the
     registrant's board of directors (or  persons performing the equivalent
     functions):

      a)  All significant deficiencies and material weaknesses in the design
          or operation of internal control over financial reporting which are
          reasonably likely to adversely affect the registrant's ability to
          record, process, summarize and report financial information; and

      b)  Any fraud, whether or not material, that involves management or
          other employees who have a significant role in the registrant's
          internal control over financial reporting.

Date: November 9, 2005
                                         /s/Timothy W. Simmons
                                         ----------------------------
                                         Timothy W. Simmons
                                         President and Chief Executive Officer

                                       30
<PAGE>




                              EXHIBIT 31.2

Certification of the Chief Financial Officer Pursuant to Section 302 of the

                           Sarbanes-Oxley Act

                                      31

<PAGE>



                             Certification

I, Roy G. Lindburg, certify that:

 1. I have reviewed this Quarterly Report on Form 10-Q of Security Federal
    Corporation;

 2. Based on my knowledge, this report does not contain any untrue statement
    of a material fact or omit to state a material fact necessary to make the
    statements made, in light of the circumstances under which such statements
    were made, not misleading with respect to the period covered by this
    report;

 3. Based on my knowledge, the financial statements, and other financial
    information included in this report, fairly present in all material
    respects the financial condition, results of operations and cash flows of
    the registrant as of, and for, the period presented in this report;

 4. The registrant's other certifying officer(s) and I are responsible for
    establishing and maintaining disclosure controls and procedures (as
    defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
    and have:

      a)  Designed such disclosure controls and procedures, or caused such
          disclosure controls and procedures to be designed under our
          supervision, to ensure that material information relating to the
          registrant, including its consolidated subsidiaries, is made known
          to us by others within those entities, particularly during the
          period in which this report is being prepared;

      b)  Evaluated the effectiveness of the registrant's disclosure controls
          and procedures and presented in this report our conclusions about
          the effectiveness of the disclosure controls and procedures as of
          the end of the period covered by this report based on such
          evaluation and

      c)  Disclosed in this report any change in the registrant's internal
          control over financial reporting that occurred during the
          registrant's most recent fiscal quarter (the registrant's fourth
          fiscal quarter in the case of an annual report) that has materially
          affected, or is reasonably likely to materially affect, the
          registrant's internal control over financial reporting; and

 5. The registrant's other certifying officer(s) and I have disclosed, based
    on our most recent evaluation of internal control over financial
    reporting, to the registrant's auditors and the audit committee of the
    registrant's board of directors (or  persons performing the equivalent
    functions):

      a)  All significant deficiencies and material weaknesses in the design
          or operation of internal control over financial reporting which are
          reasonably likely to adversely affect the registrant's ability to
          record, process, summarize and report financial information; and

      b)  Any fraud, whether or not material, that involves management or
          other employees who have a significant role in the registrant's
          internal control over financial reporting.

Date: November 9, 2005
                                           /s/Roy G. Lindburg
                                           --------------------------
                                           Roy G. Lindburg
                                           Chief Financial Officer

                                       32
<PAGE>



                               EXHIBIT 32

    Certification Pursuant to Section 906 of the Sarbanes Oxley Act

                                    33

<PAGE>




    CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
                      OF SECURITY FEDERAL CORPORATION
       PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certify, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 and in connection with this Quarterly Report on Form 10-Q that:


      1.  the report fully complies with the requirements of Section 13(a) and
          15(d) of the Securities Exchange Act of 1934, as amended, and

      2.  the information contained in the report fairly presents, in all
          material respects, the company's financial condition and results of
          operations.







/s/Timothy W. Simmons                             /s/Roy G. Lindburg
------------------------------                    ---------------------------
Timothy W. Simmons                                Roy G. Lindburg
Chief Executive Officer                           Chief Financial Officer


Dated: November 9, 2005.


                                      34

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