SECURITIES AND EXCHANGE COMMISSION

                             Washington, DC 20549

                                Form 10 - QSB

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

              For the quarterly period ended September 30, 1998

              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 Number)

                1705 Whiskey Road, Aiken, South Carolina 29801
              (Address of Principal Executive Office) (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

APPLICABLE ONLY TO CORPORATE ISSUERS:  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

            Common Stock                         September 30, 1998

            $0.01 Par Value                         421,060

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                                    INDEX

                         SECURITY FEDERAL CORPORATION

PART I - FINANCIAL INFORMATION (UNAUDITED)           PAGE

Item 1.  Financial Statements (Unaudited):

         Consolidated Balance Sheets                          2

         Consolidated Statements of Income                  3-6

         Consolidated Statement of Shareholders' Equity       7

         Consolidated Statements of Cash Flows              8-9

         Notes to Consolidated Financial Statements       10-13

Item 2.  Management's Discussion and Analysis
          Financial Condition and Results of Operations   14-17

PART II. OTHER INFORMATION

         Other Information                                18-19

         Signatures                                          20

                              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.

                                       1
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                  SECURITY FEDERAL CORPORATION AND SUBSIDIARY
                    CONSOLIDATED BALANCE SHEETS (UNAUDITED)

                                        SEPTEMBER 30, 1998     MARCH 31, 1998
                                        ------------------     --------------
ASSETS
Cash and cash equivalents                 $   5,511,899        $   4,658,681
Investment and mortgage-backed
  securities:
  Available for sale: (Amortized cost
   of $62,305,640 at September 30,           62,770,540           54,597,270
   1998 and $54,475,231 at March 31,
   1998)
  Held to maturity: (Fair value of
   $5,965,899 at September 30, 1998 and       5,870,290            8,215,833
   $8,297,204 at March 31, 1998)
Loans receivable net:
  Held for sale                              1,734,103             1,232,181
  Held for investment: (Net of allowance
   of $1,577,561 at September 30, 1998     141,498,982           136,492,252
   and $1,512,038 at March 31, 1998)
                                         -------------         -------------
                                         $ 143,233,085         $ 137,724,433   
                                         -------------         -------------
Accrued interest receivable:
  Loans                                        698,012               736,201
  Mortgage-backed securities                    56,471                35,694
  Investments                                  779,166               761,405
Premises and equipment, net                  4,015,028             3,827,760
Federal Home Loan Bank stock, at cost        1,259,200             1,348,600
                                         

Real estate acquired in settlement of loans    347,335               165,170
Real estate held for development and sale      590,541               623,779
Other assets                                 3,176,832             2,817,090
                                         -------------         -------------
TOTAL ASSETS                               228,308,399           215,511,916
                                         =============         =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
  Deposit accounts                       $ 188,613,657         $ 181,785,948
  Advances from Federal Home Loan Bank      15,958,000            12,126,000
  Other borrowed money                         224,939               128,933
  Advance payments by borrowers
   for taxes and insurance                     388,168               266,128
  Other liabilities                          4,054,723             3,128,866
                                         -------------         -------------
TOTAL LIABILITIES                          209,239,487           197,435,875
                                         -------------         -------------
STOCKHOLDERS' EQUITY:
  Serial preferred stock, $.01 par value;
   authorized shares - 200,000 issued and
   outstanding, none
  Common stock, $.01 par value; authorized
   shares 5,000,000 issued and outstanding
   shares, 421,060 at September 30, 1998
   and $1,000,000 authorized and issued,         4,211                 4,211
   421,060 at March 31, 1998
  Additional paid-in capital                 3,997,943             3,997,943
   Unrealized net gain on securities
    available for sale, net of income          288,424                75,713
    taxes

   Retained earnings, substantially
    restricted                              14,778,334            13,998,174
                                         -------------         -------------
TOTAL STOCKHOLDERS' EQUITY                  19,068,912            18,076,041
                                         =============         =============
TOTAL LIABILITIES AND STOCKHOLDERS'
 EQUITY                                  $ 228,308,399         $ 215,511,916
                                         =============         =============

See accompanying notes to consolidated financial statements.

                                       2
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                 SECURITY FEDERAL CORPORATION AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

                                                    THREE MONTHS ENDED
                                                       SEPTEMBER 30,
                                                       -------------
                                                    1998            1997
                                                    ----            ----
Interest income:
  Loans                                        $   3,278,212   $  3,354,200
  Mortgage-backed securities                         143,162         83,509
  Investment securities                              845,295        645,433
  Other                                               17,910         19,534
                                               -------------   ------------
       Total interest income                       4,284,579      4,102,676
                                               -------------   ------------
Interest expense:
   NOW and money market accounts                     504,877        288,254
   Passbook accounts                                  73,749         75,831
   Certificate accounts                            1,280,175      1,287,136
   Advances and other borrowed money                 266,103        275,015
                                               -------------   ------------
       Total interest expense                      2,124,904      1,926,236
                                               -------------   ------------

Net interest income                                2,159,675      2,176,440
Provision for loan losses                            150,000        240,000
                                               -------------   ------------
Net interest income after provision for
   loan losses                                     2,009,675      1,936,440
                                               -------------   ------------
Other income:
   Gain on sale of loans                             189,521         71,955
   Loan servicing fees                                79,475         90,053
   Service fees on deposit accounts                  210,373        238,475
   Income from real estate operations                  5,090         16,875
   Other                                             140,681        164,203
                                               -------------   ------------
       Total other income                            625,140        581,561
                                               -------------   ------------
General and administrative expenses:
   Salaries and employee benefits                  1,018,180        833,961
   Occupancy                                         127,735        124,686
   Advertising                                       139,483        107,227
   Depreciation and maintenance of equipment         201,836        218,885
   FDIC insurance premiums                            19,879         19,158
   Amortization of intangibles                       116,310        116,310
   Other                                             443,255        435,702
                                               -------------   ------------
       Total general and administrative
        expenses                                   2,066,678      1,855,929
                                               -------------   ------------

                                                                  (Continued)

                                       3
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                 SECURITY FEDERAL CORPORATION AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


                                                  THREE MONTHS ENDED
                                                     SEPTEMBER 30,
                                                     -------------
                                               1998                  1997
                                               ----                  ----
Income before income taxes                           568,137         662,072
Provision for income taxes                           192,848         228,436
                                               -------------   -------------

Net income                                     $     375,289   $     433,636
                                               =============   =============

Basic net income per common share              $         .89   $        1.04
                                               =============   =============
Diluted net income per common share            $         .89   $        1.03
                                               =============   =============
Cash dividend per share on common stock        $        0.06   $        0.06
                                               =============   =============
Basic weighted average shares outstanding            421,060         417,122
                                               =============   =============
Diluted weighted average shares outstanding          422,677         420,187
                                               =============   =============

                 SECURITY FEDERAL CORPORATION AND SUBSIDIARY
         CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

                                                    THREE MONTHS ENDED
                                                       SEPTEMBER 30,
                                                       -------------
                                                    1998           1997
                                                    ----           ----

Net Income                                     $     375,289   $    433,636
Other comprehensive Income, net of tax
  Unrealized gains (losses) on securities:
     Unrealized holding gains (losses)
       during the period                             235,249         79,407
                                               -------------   ------------
Comprehensive Income                           $     610,538   $    513,043
                                               =============   ============

See accompanying notes to consolidated financial statements.

                                       4
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                 SECURITY FEDERAL CORPORATION AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

                                                     SIX MONTHS ENDED
                                                       SEPTEMBER 30,
                                                       -------------
                                                    1998            1997
                                                    ----            ----
Interest income:
  Loans                                        $   6,310,067   $  6,663,201
  Mortgage-backed securities                         246,005        168,006
  Investment securities                            1,926,481      1,197,307
  Other                                               45,762         38,077
                                               -------------   ------------
       Total interest income                       8,528,315      8,066,591
                                               -------------   ------------
Interest expense:
   NOW and money market accounts                     947,442        493,579
   Passbook accounts                                 148,365        151,823
   Certificate accounts                            2,560,142      2,531,711
   Advances and other borrowed money                 544,959        529,880
                                               -------------   ------------
       Total interest expense                      4,200,908      3,706,993
                                               -------------   ------------
Net interest income                                4,327,407      4,359,598
Provision for loan losses                            300,000        390,000
                                               -------------   ------------
Net interest income after provision for
   Loan losses                                     4,027,407      3,969,598
                                               -------------   ------------
Other income:
   Gain on sale of loans                             287,984        102,085
   Loan servicing fees                               161,917        173,400
   Service fees on deposit accounts                  412,848        434,771
   Income from real estate operations                 72,168         46,915
   Other                                             284,959        244,920
                                               -------------   ------------
       Total other income                          1,219,876      1,002,091
                                               -------------   ------------
General and administrative expenses:
   Salaries and employee benefits                  1,993,316      1,730,787
   Occupancy                                         245,096        237,072
   Advertising                                       239,977        185,998
   Depreciation and maintenance of equipment         395,346        376,465
   FDIC insurance premiums                            39,541         38,592
   Amortization of intangibles                       232,620        232,620
   Other                                             836,966        847,108
                                               -------------   ------------
       Total general and administrative
         expenses                                  3,982,862      3,648,642
                                               -------------   ------------

                                                                  (Continued)

                                       5
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                 SECURITY FEDERAL CORPORATION AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

                                                     SIX MONTHS ENDED
                                                       SEPTEMBER 30,
                                                       -------------
                                                    1998            1997
                                                    ----            ----

Income before income taxes                         1,264,421       1,323,047
Provision for income taxes                           433,734         467,983
                                               -------------   -------------
Net income                                     $     830,687   $     855,064
                                               =============   =============


Basic net income per common share              $        1.97   $        2.05
                                               =============   =============
Diluted net income per common share            $        1.97   $        2.03
                                               =============   =============
Cash dividend per share on common stock        $        0.12   $        0.12
                                               =============   =============
Basic weighted average shares outstanding            421,060         417,122
                                               =============   =============
Diluted weighted average shares outstanding          422,677         420,658
                                               =============   =============


                    SECURITY FEDERAL CORPORATION AND SUBSIDIARY
            CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

                                                     SIX MONTHS ENDED
                                                       SEPTEMBER 30,
                                                       -------------
                                                    1998            1997
                                                    ----            ----

Net Income                                     $     830,687   $    855,064
Other comprehensive Income, net of tax
  Unrealized gains (losses) on securities:
     Unrealized holding gains (losses)
        during the period                            212,711        199,243
                                               -------------   ------------
Comprehensive Income                           $   1,043,398   $  1,054,307
                                               =============   ============

                                       6
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                SECURITY FEDERAL CORPORATION AND SUBSIDIARY
               CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
                               (UNAUDITED)

                                        UNREALIZED
                                        NET GAIN
                             ADDITIONAL (LOSS) ON
                             ADDITIONAL SECURITIES
                    COMMON    PAID-IN   AVAILABLE   RETAINED
                    STOCK     CAPITAL    FOR SALE   EARNINGS        TOTAL
                   -----------------------------------------------------------
Beginning balance
March 31, 1998     $ 4,211  $ 3,997,943  $ 75,713  $ 13,998,174  $ 18,076,041

Net income           -----        -----     -----       830,687       830,687

Cash dividend        -----        -----     -----       (50,527)      (50,527)

Exercise of stock    -----        -----     -----         -----         -----
options

Increase in          -----        -----   212,711         -----       212,711
unrealized net
gain on securities
available for
sale, net of tax
                   -----------------------------------------------------------
Ending balance
September 30, 1998 $ 4,211  $ 3,997,943  $288,424  $ 14,778,334  $ 19,068,912 
                   ===========================================================

See accompanying notes to consolidated financial statements.

                                       7
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                 SECURITY FEDERAL CORPORATION AND SUBSIDIARY
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (UNAUDITED)

                                                     SIX MONTHS ENDED
                                                       SEPTEMBER 30,
                                                       -------------
                                                    1998            1997
                                                    ----            ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income                                     $     830,687   $    855,064
Adjustments to reconcile net income to net
cash provided by operating activities:
  Depreciation expense                               311,722        322,415
  Amortization of purchase accounting adjustments    232,620        232,620
  Discount accretion and premium amortization        (13,175)       (15,084)
  Provisions for losses on loans and real estate     300,000        390,000
  Gain on sale of investments                              0              0
  Gain on sale of loans                             (287,984)      (102,085)
  Gain on sale of real estate                       (126,543)       (89,677)
  Amortization of deferred fees on loans            (123,502)       (45,307)
  Proceeds from sale of loans held for sale       13,455,549      5,176,055
  Origination of loans for sale                  (13,669,487)    (5,730,000)
  (Increase) decrease in accrued interest
    Receivable:
      Loans                                           38,189        (30,052)
      Mortgage-backed securities                     (20,777)         1,116
      Investments                                    (17,761)      (162,892)
  Increase (decrease) in advance payments by         122,040        165,249
  borrowers
  Other, net                                         203,345        580,155
                                               -------------   ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES      $   1,234,923   $  1,547,577
                                               -------------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal repayments on mortgage-backed
 securities held to maturity                         473,623        148,436
Principal repayments on mortgage-backed 
 securities                                          274,926              0
available for sale
Purchase of investment securities available
 for sale                                        (14,999,375)   (26,862,547)
Purchase of mortgage-backed securities
 available for sale                               (7,261,743)             0
Maturities of investment securities available
 for sale                                         14,162,829      5,500,000

Maturities of investment securities held to
 maturity                                          1,878,049      2,500,000
Purchase of FHLBB Stock                                    0       (424,600)
Redemption of FHLBB Stock                             89,400              0
(Increase) decrease in loans to customers         (5,640,563)     2,462,377
Investment in real estate held for development      (272,214)      (105,939)
Proceeds from sale of real estate held for
 development                                         377,620        253,920
Proceeds from sale of real estate acquired
 through foreclosure                                 329,545        218,184
Purchase of premises and equipment                  (505,990)      (269,137)
Proceeds from sales of premises and equipment          7,000              0
                                               -------------   ------------
NET CASH USED BY INVESTING ACTIVITIES          $ (11,086,893) $ (16,579,306)
                                               -------------   ------------

                                                                (Continued)
                                       8
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                 SECURITY FEDERAL CORPORATION AND SUBSIDIARY
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (UNAUDITED)
(Continued)
                                                     SIX MONTHS ENDED
                                                       SEPTEMBER 30,
                                                       -------------
                                                    1998            1997
                                                    ----            ----
CASH FLOWS FROM FINANCING ACTIVITIES:
  Increase (decrease)  in deposit accounts     $   6,827,709   $  5,437,944
  Proceeds from FHLBB advances                    56,725,000     59,900,000
  Repayment of FHLBB advances                    (52,893,000)   (51,436,000)
  Proceeds of other borrowings                       135,436              0
  Repayment of other borrowings                      (39,430)       (37,055)
  Dividends to shareholders                          (50,527)       (50,054)
                                               -------------   ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES      $  10,705,188   $ 13,814,835
                                               -------------   ------------
Net increase (decrease) in cash and cash
 equivalents                                         853,218     (1,216,894)
Cash and cash equivalents at beginning of
 period                                            4,658,681      7,903,637
                                               -------------   ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD     $   5,511,899   $  6,686,743
                                               =============   ============

Supplemental disclosure of cash flow information:
  Cash paid during the period for:
    Interest                                   $   3,845,891   $  3,321,574
    Income taxes                               $      16,436   $    316,500
    Additions to real estate acquired through
     foreclosure                               $     457,335   $    164,948 
  Increase in unrealized net gain on securities
   available for sale, net of taxes            $     212,711   $    199,243

See accompanying notes to consolidated financial statements.

                                       9
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                 SECURITY FEDERAL CORPORATION AND SUBSIDIARY
                 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-QSB and therefore do not include all
disclosures necessary for a complete presentation of financial condition,
results of operations and cash flows in conformity with general accepted
accounting principles. Such statements are unaudited but, in the opinion of
management, reflect all adjustments, all of which are of a normal recurring
nature, 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 Annual Report to
Stockholders when reviewing interim financial statements. The results of
operations for the three and six month periods ended September 30, 1998 are
not necessarily indicative of the results, which may be expected for the
entire fiscal year. This Form 10-QSB contains certain forward-looking
statements with respect to the financial condition, results of operations, and
business. 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, changes in the regulatory environment,
changes in general economic conditions and inflation, changes in the
securities market and Year 2000 if not effectively corrected. Management
cautions readers of Form 10-QSB not to place undue reliance on forward-looking
statements contained therein.

2.    PRINCIPLES OF CONSOLIDATION

The accompanying unaudited consolidated financial statements include the
accounts of Security Federal Corporation (the "Company") and its wholly owned
subsidiary, Security Federal Bank (the "Bank"), and its wholly owned
subsidiary Security Financial Services Corporation ("SFSC"). SFSC engages
primarily in investment brokerage services. Also included in consolidation is
a real estate partnership, which the Company purchased from SFSC in December
1995 at fair market value.

3.    LOANS RECEIVABLE, NET

Loans receivable, net, at September 30, 1998 and March 31, 1998, consisted of
the following:

Loans held for sale were $1,734,103 and $1,232,181 at September 30, 1998 and
March 31, 1998 respectively.

Loans held for investment:              September 30, 1998    March 31, 1998
                                        ------------------    --------------
Residential real estate                   $   55,467,637       $  46,450,206
Consumer                                      45,123,957          46,499,200
Commercial real estate                         4,093,370           3,955,462
Commercial business                           44,829,182          44,500,079
                                          --------------       -------------
                                          $  149,514,146       $ 141,404,947
                                          --------------       -------------
Less:
Allowance for possible loan loss          $    1,577,561       $   1,512,038
Loans in process                               6,254,218           3,175,684
Deferred loan fees                               183,385             224,973
                                          --------------       -------------
                                               8,015,164           4,912,695
                                          --------------       -------------
                                          $  141,498,982       $ 136,492,252
                                          ==============       =============

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

                                      September 30, 1998  September 30, 1997
                                      ------------------  ------------------
Beginning balance                         $    1,512,038       $   1,767,483
Provision                                        300,000             390,000
Charge-offs                                     (251,789)           (157,189)
Recoveries                                        17,312              33,785
                                          --------------       -------------
Ending balance                            $    1,577,561       $   2,034,079   
                                          ==============       =============

                                       10
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              SECURITY FEDERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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:

SEPTEMBER 30, 1998
------------------
                                       Gross         Gross
                          Amortized    Unrealized    Unrealized  Fair
                          Cost         Gains         Losses      Value
                        -----------    ----------    ----------  -----------
US Government and agency
obligations             $ 1,994,232    $  9,061      $      0    $ 2,003,293
Mortgage-backed
 securities               3,876,058      86,548             0      3,962,606
                        -----------    --------      --------    -----------
     Total              $ 5,870,290    $ 95,609      $      0    $ 5,965,899
                        ===========    ========      ========    ===========

MARCH 31, 1998
--------------
                                       Gross         Gross
                          Amortized    Unrealized    Unrealized  Fair
                          Cost         Gains         Losses      Value
                        -----------    ----------    ----------  -----------
US Government and agency
obligations             $ 3,863,910    $ 20,664      $ 10,320    $ 3,874,254
Mortgage-backed
 securities               4,351,923      71,492           465      4,422,950
                        -----------    --------      --------    -----------
     Total              $ 8,215,833    $ 92,156      $ 10,785    $ 8,297,204
                        ===========    ========      ========    ===========

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:

SEPTEMBER 30, 1998
------------------
                                       Gross         Gross
                          Amortized    Unrealized    Unrealized  Fair
                          Cost         Gains         Losses      Value
                        -----------    ----------    ----------  -----------
US Government and
agency obligations      $55,326,390    $494,368      $ 28,991    $55,791,767
Mortgage-backed
 securities               6,979,250      10,767        11,244      6,978,773
                        -----------    --------      --------    -----------
     Total              $62,305,640    $505,135      $ 40,235    $62,770,540
                        ===========    ========      ========    ===========
                                       11
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                 SECURITY FEDERAL CORPORATION AND SUBSIDIARY

INVESTMENT AND MORTGAGE-BACKED SECURITIES, AVAILABLE FOR SALE (CONTINUED)

MARCH 31, 1998
--------------
                                       Gross         Gross
                          Amortized    Unrealized    Unrealized  Fair
                          Cost         Gains         Losses      Value
                        -----------    ----------    ----------  -----------
US Government and agency
obligations             $54,475,231    $189,603      $ 67,564    $54,597,270
Mortgage-backed
 securities                       0           0             0              0
                        -----------    --------      --------    -----------
     Total              $54,475,231    $189,603      $ 67,564    $54,597,270
                        ===========    ========      ========    ===========

5.    DEPOSITS
A summary of deposit accounts by type with weighted average rates are as
follows:
                              September 30, 1998          March 31, 1998
                              ------------------          --------------
                                Balance    Rate         Balance       Rate
Demand Accounts:                -------    ----         -------       ----
Checking                     $ 48,572,650  1.16%      $ 47,414,160    1.09%
Money Market                   33,805,373  4.80%        27,902,091    4.67%
Regular Savings                11,855,252  2.46%        12,328,146    2.44%
                             ------------  ----       ------------    ----
Total demand accounts        $ 94,233,275  2.63%      $ 87,644,397    2.42%
                             ------------  ----       ------------    ----
Certificate Accounts:
   0 - 4.99%                 $  3,709,430             $  3,086,511
5.00 - 6.99%                   90,544,879               90,919,998
7.00 - 8.99%                      126,073                  135,042
                             ------------             ------------
Total certificate accounts     94,380,382  5.48%        94,141,551    5.50%
                             ------------  -----      ------------    ----
Total deposit accounts       $188,613,657  4.05%      $181,785,948    4.02%
                             ============  ====       ============    ====

6.    FEDERAL HOME LOAN BANK ADVANCES

Federal Home Loan Bank Advances are summarized by year of maturity and
weighted average interest rate in the table below:

                              September 30, 1998          March 31, 1998
                              ------------------          --------------
Fiscal Year Due                 Balance    Rate         Balance       Rate
---------------                 -------    ----         -------       ----
  1999                       $  1,340,000  6.76%$     $  5,490,000    6.06%
  2000                            528,000  8.70%           528,000    8.70%
  2001                            856,000  8.75%           856,000    8.75%
  2002                                  0     0%                 0       0%
  thereafter                   13,234,000  5.52%         5,252,000    5.80%
                             ------------  ----       ------------    ----
                             $ 15,958,000  5.91%      $ 12,126,000    6.25%
                             ============  ====       ============    ====

                                       12
<PAGE>
<PAGE>
                    SECURITY FEDERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7.    REGULATORY MATTERS

The following table reconciles the Bank's stockholders' equity to its various
regulatory capital positions:
                         (Dollars in thousands)

                               September 30, 1998    March 31, 1998
                               ------------------    --------------
Bank's Stockholders' Equity        $   18,323           $  17,294
Unrealized loss (gain) on
 available for sale
 securities, net of tax                  (288)                (76)
Reduction for goodwill and other
   intangibles                         (1,815)             (2,046)
                                   ----------           ---------
Tangible capital                       16,220              15,172
Qualifying core deposits and
    intangible assets                     726                 789
                                   ----------           ---------
Core capital                           16,946              15,961
Supplemental capital                    1,578               1,512
                                   ----------           ---------
Risk-based capital                 $   18,524           $  17,473
                                   ==========           =========

The following table compares the Bank's capital levels relative to the
applicable regulatory requirements at September 30, 1998. (Dollars in
thousands)

                  Amount    Percent           Actual           Excess
                  Required  Required Amount   Percent  Excess  Percent
                  --------  -------- ------   -------  ------  -------
Tangible capital  $ 4,512     2.0%   $16,220   7.19%  $11,708   5.19%
Tier 1 Leverage     9,503     4.0%    16,946   7.49%    7,893   3.49%
 (Core) capital
Total Risk-based   11,602     8.0%    18,524  12.77%    6,922   4.77%
capital
Tier 1 Risk-based   5,801     4.0%    16,946  11.69%   11,145   7.69%
 (Core) capital

The Bank's regulatory capital amounts and ratios are as follow as of the date
indicated:

                                                             To Be Well
                                             For Capital   Capitalized Under
                                             Adequacy      Prompt Corrective
                           Actual            Purposes      Action Provisions
                       Amount   Ratio     Amount   Ratio   Amount      Ratio
------------------------------------------------------------------------------
(Dollars in thousands)

September 30, 1998

Tier 1 Risk-based
 Core Capital         $16,946   11.7%    $5,801    4.0%    $8,701       6.0%

Risk-based Capital     18,524   12.8     11,602    8.0     14,502      10.0
(to risk weighted assets)

Core Capital           16,946    7.5      9,053    4.0     11,317       5.0
(to adjusted tangible assets)
Tangible Capital       16,220    7.2      4,512    2.0     11,280       5.0
(to tangible assets)

                                       13
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<PAGE>
                  SECURITY FEDERAL CORPORATION AND SUBSIDIARY
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                RESULTS OF OPERATIONS AND FINANCIAL CONDITION

CHANGES IN FINANCIAL CONDITION

Total assets of the Company increased $12.8 million or 5.9% during the six
months ended September 30, 1998, primarily due to increases of $5.5 million in
total net loans receivable, $5.8 million in investment securities, and
$853,000 in cash and cash equivalents.

Real estate acquired in settlement of loans (REO) increased $182,000 while
real estate acquired for development decreased $33,000 during the six-month
period due to sales of real estate.

Deposits increased $6.8 million or 3.8% during the six months ended of
September 1998 as Federal Home Loan Bank (FHLBB) advances grew $3.8 million to
fund the Company's 5.9% growth in assets.

The Board of Directors declared the thirtieth and thirty-first consecutive
quarterly dividend of $.06 per share each in May and August 1998, which
totaled $51,000. Unrealized net gains on securities available for sale
increased $213,000 during the six months ended September 30, 1998. Net income
for the six months was $831,000 for the Company. These items combined to
increase the stockholders' equity by $993,000 or 5.5% during the six months
ended September 30, 1998 and raised book value per share to $45.29 compared to
$42.93 at March 31, 1998.

LIQUIDITY AND CAPITAL RESOURCES

In accordance with Office of Thrift Supervision regulations, the Bank is
required to maintain a liquidity ratio at specified levels, which are subject
to change. Currently, a minimum of 4.0% of the combined total of deposits and
certain borrowings must be maintained in the form of cash or eligible
investments. The Bank's average liquidity during the six months ended
September 30,1998 was approximately 34%. The Bank'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 are a primary use of the Bank's funds.
During the six months ended September 30, 1998, loan disbursements exceeded
loan repayments resulting in a $5.5 million or 4.0% increase in total net loan
receivable.

Deposits and other borrowings are also an important source of funds for the
Bank. During the six months ended September 30, 1998, deposits increased $6.8
million while FHLBB advances increased $3.8 million. At September 30, 1998,
Security Federal had $75.1 million of certificates of deposit maturing within
one year. Based on previous experience, a major portion of these certificates
is expected to be renewed.

Liquidity resources at September 30, 1998 are sufficient to meet outstanding
mortgage loan commitments of $1.3 million and unused lines of credit of $21.1
million. Management believes that the Bank's liquidity needs will continue to
be supported by the Bank's deposit base and borrowing capacity.

ACCOUNTING AND REPORTING CHANGES

In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. Enterprises are required to classify items of "other
comprehensive income" by their nature in the financial statement and display
the balance of other comprehensive income separately in the equity section of
a statement of financial position. Statement 130 is effective for both interim
and annual periods beginning after December 15, 1997. Earlier application is
permitted. Comparative financial statements provided for earlier periods are
required to be reclassified to reflect the provisions of this statement. The
Company adopted Statement 130 effective June 30, 1998.

                                       14
<PAGE>
<PAGE>
                SECURITY FEDERAL CORPORATION AND SUBSIDIARY
                  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
               RESULTS OF OPERATIONS AND FINANCIAL CONDITION

In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. This statement establishes standards for
the way public business companies are to report information about operating
segments in annual financial statements and requires those companies to report
selected information about operating segments in interim financial reports
issued to shareholders. Statement 131 is effective for financial statements
for periods beginning after December 15, 1997. Earlier application is
encouraged. In the initial year of application, comparative information for
earlier years is to be restated, unless it is impractical to do so. Statement
131 need not be applied to interim financial statements in the initial year of
its application, but comparative information for interim periods in the
initial year of application shall be reported in financial statements for
interim periods in the second year of application. This standard does not
materially effect the Company's current method of financial reporting.

In April 1998, the FASB issued SFAS 132, Employers' Disclosures about Pensions
and Other Postretirement Benefits. The new Statement revises the required
disclosures for employee benefit plans, but it does not change the measurement
or recognition of such plans. While the new standard requires some additional
information about benefit plans, it helps preparers of financial statements by
eliminating certain disclosures and by standardizing the disclosures for
pensions and other postretirement benefits to the extent practicable. SFAS 132
supercedes the disclosure requirements in SFAS 87, Employers' Accounting for
Pensions, SFAS 88, Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits, and SFAS 106,
Employers' Accounting for Postretirement Benefits Other than Pensions. The new
disclosures are effective for fiscal years beginning after December 15, 1997.
The adoption of SFAS 132 did not have an impact on the financial statements of
the Company due to the disclosure only requirements.

In June 1998, the FASB issued SFAS 133, Accounting for Derivative Instrument
and Hedging Activities. All derivatives are to be measured at fair value and
recognized in the statement of financial position as assets or liabilities.
The statement is effective for fiscal years and quarters beginning after June 
15,1999. Because the Company has limited use of derivative transactions at
this time, management does not expect that this standard would have a
significant effect on the Company.

In March 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use (SOP 98-1), which provided
guidance as to when it is or is not appropriate to capitalize the cost of
software developed or obtained for internal uses. SOP 98-1 is effective for
financial statements for fiscal years beginning after December 15, 1998 with
early adoption encouraged. The Company does not anticipate that adoption of
SOP 98-1 will have a material effect on its financial statements.

In October 1998, the FASB issued SFAS 134, Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale
by a Mortgage Banking Enterprise. The new statement establishes accounting and
reporting standards for certain activities of mortgage banking enterprises.
The statement is effective for the first quarter beginning after December 15,
1998. The statement will have no effect on the financial statements of the
Bank.

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 most 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 the effect of inflation.

                                       15
<PAGE>
<PAGE>
                 SECURITY FEDERAL CORPORATION AND SUBSIDIARY
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                RESULTS OF OPERATIONS AND FINANCIAL CONDITION

YEAR 2000 CONSIDERATIONS

The Bank recognizes that there is a business risk in computerized systems as
the calendar rolls over into the next century. If the computer systems
misinterpret the date, items such as interest calculations on loans and
deposits will be incorrect. This problem is commonly called the "Year 2000
Problem." A number of computer systems used by the Company in its day-to-day
operations will be affected by this problem. Management has established a
committee (the "Y2K Project Team") which has identified all affected systems
and is currently working to ensure that this event will not disrupt
operations. The Y2K Project Team reports regularly to the Bank's Board of
Directors. The Bank is also working closely with outside computer vendors to
ensure that all software corrections and warranty commitments are obtained and
to arrange mock conversion testing. Testing of the Bank's core processing
systems is scheduled for December 1998. The Bank's contingency plan will be
completed by calendar year end 1998. The Bank's Year 2000 project costs are
not expected to have a material impact on its results of operations, liquidity
or capital resources. The impact of Year 2000 noncompliance by all outside
parties with whom the corporation may transact business cannot be gauged fully
at this time.

SUBSEQUENT EVENTS

At its October 1998 Board of Directors meeting, the board of the Company
declared a 2-for-1 stock split of the Company's common stock. The stock split
will be accomplished through a 100 percent stock dividend to be issued on or
about December 15, 1998 to shareholders on record as of November 30, 1998.

RESULTS OF OPERATIONS
---------------------

NET INCOME

Net income was $375,000 and $831,000 for the three and six months ended
September 30, 1998, respectively. These are decreases of $58,000 for the
three-month period and $24,000 for the six-month period, compared to the same
periods in 1997. The reasons for the decreases are increases in general and
administrative expenses and decreases in net interest income, offset partially
by decreases in the provision for loan losses and increases in other income.

NET INTEREST INCOME

Net interest income decreased $17,000 or 0.8% and $32,000 or 0.08% for the
three and six month periods ended September 30, 1998 compared to the same
periods in 1997 due mainly to increases in total interest expense offset in
part by increases in total interest income.

Interest income on loans decreased $76,000 or 2.3% during the quarter and
$353,000 or 5.3% during the six months ended September 30, 1998 due to lower
average total outstanding loan balances and a lower overall yield in the loan
portfolio. Investment, mortgage-backed, and other securities interest income
increased $258,000 and $815,000 during the three and six month periods,
respectively, due primarily to increases in the average balances in the
investment portfolio and also a three basis points increase in yield during
the three month period and a seven basis points increase in yield during the
six months ended September 30, 1998. Total interest income increased $182,000
or 4.4% and $462,000 or 5.7% during the three and six months ended September
30, 1998, respectively.
                                       16
<PAGE>
<PAGE>
                 SECURITY FEDERAL CORPORATION AND SUBSIDIARY
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Total interest expense increased $199,000 or 10.3% during the three months
ended September 30, 1998 while interest expense increased $494,000 or 13.3%
during the six months ended September 30, 1998 compared to the same periods
one year earlier. Interest expense on deposits increased $208,000 and $479,000
during the three and six months ended September 30, 1998, respectively, as
average outstanding interest bearing deposits grew during the periods.
Interest expense on advances and other borrowings declined $9,000 during the
three-month period but grew $15,000 during the six-month period.

PROVISION FOR LOAN LOSSES

Security Federal's provision for loan losses decreased $90,000 for both the
three and six months ended September 30, 1998 compared to the same periods
ended September 30,1997 due to management's analysis of the loan portfolio.
Non-accrual loans, which are loans delinquent 90 days or more, were $2.3
million at September 30, 1998 compared to $2.0 million at March 31, 1998. The
ratio of allowance for loan losses to the Bank's total loans was 1.10% at
September 30, 1998 compared to 1.09% at March 31, 1998. Net charge-off's for
the six months ended September 30, 1998 compared to September 30, 1997 were
$234.000 and $123,000 respectively. Future additions to the Bank's allowance
for loan losses are dependant on, among other things, the performance of the
Bank's loan portfolio, changes in real estate values, interest rates, and the
economy.

OTHER INCOME

Total other income increased $44,000 or 7.5% and $218,000 or 21.7% during the
three and six months ended September 30, 1998 compared to the same periods one
year earlier. Gain on sale of loans increased $118,000 during the quarterly
period and $186,000 for the six months due to increased secondary market
activity. Loan servicing fees decreased $11,000 during both periods due to a
decline in the balance of loans serviced for others. Service fees on deposit
accounts declined $22,000 and $28,000. Income from real estate operations
decreased $12,000 for the September 1998 quarter but increased $25,000 for the
six months ended September 30, 1998 as real estate lot sales slowed during the
September 1998 three-month period. Other miscellaneous income, which consists
of credit life insurance commissions, gain on sale of repossessed assets, safe
deposit rental income, annuity and stock brokerage commissions through
Security Financial Services, and other miscellaneous fees decreased $24,000
during the three month period but increased $40,000 during the six months
ended September 30, 1998.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses increased $211,000 or 11.4% and $334,000
or 9.2% during the three and six months ended September 30, 1998,
respectively, compared to the same periods in 1997 due mainly to increases in
salaries and employee benefits and advertising expenses.

Salaries and employee benefits expenses increased $184,000 or 22.1% and
$263,000 or 15.2% during the three and six month periods. The increases are
attributable to increases in staff in the mortgage loan department as a result
of the increased volume of refinancing in the current low interest rate
environment, an increase in the number of customer contact associates to
improve customer service and normal annual cost of living increases. Occupancy
expense increased $3,000 or 2.5% and $8,000 or 3.4% during the periods.
Advertising increased $32,000 and $54,000 during the three and six months
ending September 30, 1998 as money market accounts and Security Federal as a
local decision making community bank were promoted. Depreciation and
maintenance of equipment expense decreased $17,000 during the quarterly period
but increased $19,000 for the six months ended September 30, 1998. FDIC
insurance premiums increased slightly, by approximately $1,000 during both
periods. Amortization of intangible expense was $116,000 for the three months
in 1997 and 1998 and $233,000 in both six-month periods in 1997 and 1998.
Other miscellaneous expense, encompassing legal, professional, and consulting
expense, stationery and office supplies, and other sundry expenses, increased
$8,000 during the three months ended September 30, 1998 while decreasing
$10,000 during the six months ended September 30, 1998 compared to one year
earlier.

                                       17
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<PAGE>
               SECURITY FEDERAL CORPORATION AND SUBSIDIARY
                             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 Bank 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 Changes in Securities and Use of Proceeds
       ----------------------------------------
 
       Not applicable.

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 shareholders at the
       Annual  Meeting on July 21, 1998.  Votes for Gasper L. Toole III were
       as follows:  335,280  votes for,  14,225  votes withheld.  Votes for
       Thomas L. Moore were as follows: 335,080 votes for, 14,425 votes
       withheld. Continuing  as directors were Timothy W. Simmons, T. Clifton
       Weeks, Dr. Robert E. Alexander, William Clyburn, and Harry O. Weeks Jr.

       The votes for the approval of the change in the state of incorporation
       of the Company from Delaware to South Carolina were as follows: 334,615
       votes for, 13,690 votes against, 1,200 votes abstained. The votes for
       the ratification of an amendment to the Company's corporate charter to
       increase the number of authorized shares of common stock from $1
       million to $5 million were as follows: 334,515 votes for, 13,790 votes
       against, 1,200 votes abstained.

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

       None

Item 6 Exhibits and Reports on Form 8-K
       --------------------------------

       On September 1, 1998, the Company filed a current report on Form 8-K to
       report the consummation of its reincorporation form Delaware to South
       Carolina.

       Exhibits:

       3.1    Articles of Incorporation*
       3.2    Articles of Amendment, dated August 28, 1998, to Articles of
              Incorporation
       3.3    Bylaws**
       10     Executive Compensation Plans and Arrangements:
              Salary Continuation Agreements ***
              Amendment One to Salary Continuation Agreements ****
              Stock Option Plan ***
              Incentive Compensation Plan ***

       27     Financial Data Schedule
                                                               (Continued)

                                       18
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<PAGE>
                 SECURITY FEDERAL CORPORATION AND SUBSIDIARY
                              OTHER INFORMATION

(Continued)

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

  ** Filed as an exhibit to the Company's Form 8-K dated August 31, 1998 and
     incorporated herein by reference.

 *** Filed on June 28, 1993, as an exhibit to the Company's Annual Report on
     Form 10-KSB pursuant to Section 12(g) of the Securities Exchange Act of
     1934. All of such previously filed documents are hereby incorporated
     herein by reference in accordance with Item 601 of Regulation S-B.

**** Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for
     the quarter ended September 30, 1993 pursuant to Section 12(g) of the
     Securities Exchange Act of 1934. All of such previously filed documents
     are hereby incorporated herein by reference in accordance with Item 601
     of Regulation S-B.

                                       19
<PAGE>
<PAGE>
                 SECURITY FEDERAL CORPORATION AND SUBSIDIARY

                                 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 13, 1998            By: /s/ Roy G. Lindburg
       ----------------------           ------------------------------------
                                        Roy G. Lindburg
                                        Treasurer/CFO
                                        Duly Authorized Representative


                                       20
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<PAGE>
                                                                Exhibit 3.2

                          STATE OF SOUTH CAROLINA
                             SECRETARY OF STATE

                           ARTICLES OF AMENDMENT

Pursuant to Section 3-10-106 of the 1976 South Carolina Code, as amended, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:

1.   The name of the corporation is Security Federal Corporation.

2.   On July 21, 1998, the corporation adopted the following Amendment(s) to
the first sentence of the first paragraph of Article VI of the Articles of
Incorporation.  The text of the amendment is as follows (the remainder of
Article VI of the Articles of Incorporation is unchanged):

          "The aggregate number of shares of all classes of capital stock
          which the Corporation has authority to issue is five million two
          hundred thousand (5,200,000), of which five million (5,000,000)
          shall be common stock, par value $.01 per share, amounting in the
          aggregate to fifty thousand dollars ($50,000), and of which two
          hundred thousand (200,000) shall be serial preferred stock, par
          value $.01 per share, amounting in the aggregate to two thousand
          dollars ($2,000)."

3.   The manner, if not set forth in the amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the
Amendment shall be effected, is as follows:  Not applicable.

4.   Complete either a or b, whichever is applicable.

     a.   [X]  Amendment(s) adopted by shareholder action

          At the date of adoption of the Amendment(s), the number of
          outstanding shares of each voting group entitled to vote separately
          on the Amendment, and the vote of such shares was:

          Voting group:                           Holders of Common Stock,
                                                 $0.01 par value per share
          Number of shares outstanding:           421,060
          Number of votes entitled to be cast:    421,060
          Number of votes represented at meeting: 349,505
          Number of undisputed shares voted:      FOR - 334,515
                                                  AGAINST - 13,790

    b.    [ ]  The amendment was duly adopted by the incorporators or board of
          directors without shareholder approval pursuant to Section
          33-6-102(d) and 33-10-105 of the 1976 South Carolina Code, as
          amended, and shareholder action was not required.

5.   Unless a delayed date is specified, the effective date of these Articles
of Amendment shall be the date of acceptance for filing by the Secretary of
State (see Section 33-1-230(b)):  Not applicable.

                                *      *      *

                                       1
<PAGE>
<PAGE>
     IN WITNESS WHEREOF, the undersigned, duly authorized, has executed this
instrument on this 28th day of August 1998.

                              SECURITY FEDERAL CORPORATION

                              /s/Timothy W. Simmons
                              ------------------------------------------
                              Timothy W. Simmons
                              President

                                       2
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