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 JUNE 30, 2008

(_)  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
            (Exact name of registrant as specified in its charter)

     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)            (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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer or a smaller reporting company.
See definition of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.

     Large accelerated filed  [   ]      Accelerated filer          [   ]
     Non-accelerated filer    [   ]      Smaller reporting company  [ X ]

Indicate by check mark whether the registrant is a shell company (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 value     July 31, 2008                         2,524,406
  $0.01 per share



<PAGE>


                                      INDEX
===============================================================================
PART I.  FINANCIAL INFORMATION (UNAUDITED)                             PAGE NO.

Item 1.  Financial Statements (Unaudited):

          Consolidated Balance Sheets at June 30, 2008 and March 31, 2008   1

          Consolidated Statements of Income for the Three Months Ended
           June 30, 2008 and 2007                                           2

          Consolidated Statements of Shareholders' Equity and
           Comprehensive Income at June 30, 2008 and 2007                   3

          Consolidated Statements of Cash Flows for the Three Months
           Ended June 30, 2008 and 2007                                     4

          Notes to Consolidated Financial Statements                        6

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

Item 3.  Quantitative and Qualitative Disclosures about Market Risk         23

Item 4T. Controls and Procedures                                            23

===============================================================================

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings                                                  24

Item 1A. Risk Factors                                                       24

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds        25

Item 3.  Defaults Upon Senior Securities                                    25

Item 4.  Submission of Matters to a Vote of Security Holders                25

Item 5.  Other Information                                                  25

Item 6.  Exhibits                                                           26

         Signatures                                                         27

===============================================================================


                                 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>


<PAGE>
Part I.  Financial Information
Item 1.  Financial Statements

                    Security Federal Corporation and Subsidiaries
                            Consolidated Balance Sheets

                                                  June 30, 2008  March 31, 2008
                                                  -------------  --------------
Assets:                                            (Unaudited)      (Audited)
Cash And Cash Equivalents                         $  11,012,237   $  10,539,054
Investment And Mortgage-Backed Securities:
 Available For Sale: (Amortized cost of
  $252,999,005 at June 30, 2008 and
  $240,295,683 at March 31, 2008)                   250,990,200     244,157,872
 Held To Maturity: (Fair value of $15,282,840
  at June 30, 2008 and  $20,506,250 at March
  31, 2008)                                          15,155,000      20,154,618
                                                  -------------  --------------
Total Investment And Mortgage-Backed Securities     266,145,200     264,312,490
                                                  -------------  --------------
Loans Receivable, Net:
 Held For Sale                                        3,550,781       2,295,721
 Held For Investment: (Net of allowance of
  $8,246,496 at June 30, 2008 and $8,066,762 at
  March 31, 2008)                                   531,311,109     515,635,984
                                                  -------------  --------------
Total Loans Receivable, Net                         534,861,890     517,931,705
Accrued Interest Receivable:                      -------------  --------------
 Loans                                                1,823,446       1,952,866
 Mortgage-Backed Securities                             897,023         822,379
 Investments                                            586,480         764,746
Premises And Equipment, Net                          21,975,557      21,544,380
Federal Home Loan Bank Stock ("FHLB"), At Cost       11,224,000       9,497,100
Bank Owned Life Insurance                             8,396,559       8,310,813
Repossessed Assets Acquired In Settlement Of Loans      454,790         767,096
Intangible Assets, Net                                  420,000         442,500
Goodwill                                              1,197,954       1,197,954
Other Assets                                          4,380,011       1,947,403
                                                  -------------  --------------
Total Assets                                      $ 863,375,147   $ 840,030,486
                                                  =============  ==============
Liabilities And Shareholders' Equity
Liabilities:
 Deposit Accounts                                 $ 577,327,950   $ 590,850,208
 Advances From FHLB                                 216,610,143     178,234,007
 Other Borrowed Money                                14,582,524      12,784,094
 Advance Payments By Borrowers For Taxes And
  Insurance                                             735,022         620,467
 Mandatorily Redeemable Financial Instrument          1,417,312       1,417,312
 Junior Subordinated Debentures                       5,155,000       5,155,000
 Other Liabilities                                    3,148,236       3,472,985
                                                  -------------  --------------
Total Liabilities                                 $ 818,976,187   $ 792,534,073
                                                  -------------  --------------
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-2,650,441 And
  Outstanding Shares-2,529,706 At June 30, 2008
  And 2,649,027 And 2,532,192 At March 31, 2008          25,939          25,925
 Additional Paid-In Capital                           5,107,563       5,072,086
 Treasury Stock, (At Cost, 120,735 and 116,835
  Shares at June 30, 2008 and March 31, 2008,
  Respectively)                                      (2,859,318)     (2,769,446)
 Accumulated Other Comprehensive Income (Loss)       (1,246,887)      2,395,537
 Retained Earnings, Substantially Restricted         43,371,663      42,772,311
                                                  -------------  --------------
Total Shareholders' Equity                        $  44,398,960   $  47,496,413
                                                  -------------  --------------
Total Liabilities And Shareholders' Equity        $ 863,375,147   $ 840,030,486
                                                  =============   =============

           See accompanying notes to consolidated financial statements.
<PAGE>


<PAGE>
                   Security Federal Corporation and Subsidiaries
                   Consolidated Statements of Income (Unaudited)

                                                    Three Months Ended June 30,
                                                    ---------------------------
                                                        2008          2007
Interest Income:                                      --------      --------
  Loans                                             $8,541,735    $8,791,579
  Mortgage-Backed Securities                         2,395,382     1,541,710
  Investment Securities                                888,901     1,553,520
  Other                                                  5,179        19,596
                                                    ----------    ----------
Total Interest Income                               11,831,197    11,906,405
                                                    ----------    ----------
Interest Expense:
  NOW And Money Market Accounts                        924,090     1,654,839
  Passbook Accounts                                     33,503        41,815
  Certificate Accounts                               3,662,926     3,242,849
  Advances And Other Borrowed Money                  2,011,765     1,898,333
  Junior Subordinated Debentures                        74,119        90,824
                                                    ----------    ----------
Total Interest Expense                               6,706,403     6,928,660
                                                    ----------    ----------
Net Interest Income                                  5,124,794     4,977,745
  Provision For Loan Losses                            225,000       150,000
  Net Interest Income After Provision For           ----------    ----------
    Loan Losses                                      4,899,794     4,827,745
Non-Interest Income:                                ----------    ----------
  Gain On Sale of Investments                          101,405             -
  Gain On Sale Of Loans                                118,683       176,121
  Service Fees On Deposit Accounts                     281,153       327,322
  Income From Cash Value Of Life Insurance              85,746        62,037
  Commissions On Insurance                             168,992       145,673
  Other Agency Income                                   46,937        29,258
  Trust Income                                         105,000        98,775
  Other                                                213,291       221,412
                                                    ----------    ----------
Total Non-Interest Income                            1,121,207     1,060,598
                                                    ----------    ----------
General And Administrative Expenses:
  Salaries And Employee Benefits                     2,784,235     2,570,279
  Occupancy                                            497,320       422,511
  Advertising                                          140,821       102,273
  Depreciation And Maintenance Of Equipment            426,924       319,525
  Federal Deposit Insurance Corporation Insurance
    Premiums                                           155,810        15,327
  Amortization of Intangibles                           22,500        22,500
  Other                                                794,380       799,030
                                                    ----------    ----------
Total General And Administrative Expenses            4,821,990     4,251,445
                                                    ----------    ----------
  Income Before Income Taxes                         1,199,011     1,636,898
  Provision For Income Taxes                           397,106       540,867
                                                    ----------    ----------
Net Income                                          $  801,905    $1,096,031
                                                    ==========    ==========

Basic Net Income Per Common Share                   $     0.32    $     0.42
                                                    ==========    ==========
Diluted Net Income Per Common Share                 $     0.32    $     0.42
                                                    ==========    ==========
Cash Dividend Per Share On Common Stock             $     0.08    $     0.07
                                                    ==========    ==========
Basic Weighted Average Shares Outstanding            2,531,679     2,609,409
                                                    ==========    ==========
Diluted Weighted Average Shares Outstanding          2,532,377     2,618,889
                                                    ==========    ==========

           See accompanying notes to consolidated financial statements.

                                      2
<PAGE>

<PAGE>
<TABLE>
                 Security Federal Corporation and Subsidiaries
    Consolidated Statements of Shareholders' Equity and Comprehensive Income (Unaudited)

                                                                  Accumulated
                                          Additional              Other
                                Common    Paid-In      Treasury   Comprehensive   Retained
                                Stock     Capital       Stock     Income (Loss)   Earnings       Total
                                ------    ---------    --------   ------------    --------      -------

                            <c>       <c>          <c>         <c>           <c>           <c>
Balance At March 31, 2007     $ 25,814  $ 4,850,029   $(651,220)   $(747,316)   $39,215,901   $42,693,208
Net Income                           -            -           -            -      1,096,031     1,096,031
Other Comprehensive Income,
 Net Of Tax:
  Unrealized Holding Losses
  On Securities Available
  For Sale, Net Of Taxes             -            -           -     (931,559)             -      (931,559)
                                                                                               ----------
Comprehensive Income                 -            -           -            -              -       164,472
Purchase Of Treasury Stock
  At Cost, 3,162 shares              -            -     (77,320)           -              -       (77,320)
Employee Stock Purchase Plan        13       25,356           -            -              -        25,369
Stock Compensation Expense           -        2,882           -            -              -         2,882
Cash Dividends                       -            -           -            -       (182,663)     (182,663)
                               -------    ---------     -------    ---------     ----------    ----------
Balance At June 30, 2007      $ 25,827  $ 4,878,267   $(728,540) $(1,678,875)   $40,129,269   $42,625,948
                               =======    =========     =======    =========     ==========    ==========

                                                                  Accumulated
                                          Additional              Other
                                Common    Paid-In      Treasury   Comprehensive   Retained
                                Stock     Capital       Stock     Income (Loss)   Earnings       Total
                                ------    ---------    --------   ------------    --------      -------
Balance At March 31, 2008     $ 25,925  $ 5,072,086 $(2,769,446)  $2,395,537    $42,772,311   $47,496,413
Net Income                           -            -           -            -        801,905       801,905
Other Comprehensive Income,
 Net Of Tax:
  Unrealized Holding Losses
   On Securities Available
   For Sale, Net Of Taxes            -            -           -   (3,579,553)             -    (3,579,553)
  Reclassification Adjustment
   For Gains Included In Net
   Income, Net Of Taxes              -            -           -      (62,871)             -       (62,871)
                                                                                               ----------
Comprehensive Loss                   -            -           -            -              -    (2,840,519)
Purchase Of Treasury Stock
  At Cost, 3,900 shares              -            -     (89,872)           -              -       (89,872)
Employee Stock Purchase Plan
  Purchases                         14       27,629           -            -              -        27,643

Stock Compensation Expense           -        7,848           -            -              -         7,848
Cash Dividends                       -            -           -            -       (202,553)     (202,553)
                               -------    ---------     -------    ---------     ----------    ----------
Balance At June 30, 2008      $ 25,939  $ 5,107,563 $(2,859,318) $(1,246,887)  $ 43,371,663  $ 44,398,960
                               =======    =========   =========    =========     ==========    ==========

     See accompanying notes to consolidated financial statements.

                                 3

</TABLE>
<PAGE>


                 Security Federal Corporation and Subsidiaries
                Consolidated Statements of Cash Flows (Unaudited)

                                                    Three Months Ended June 30,
                                                     --------------------------
                                                         2008           2007
                                                        ------         ------
Cash Flows From Operating Activities:
Net Income                                          $  801,905    $ 1,096,031
Adjustments To Reconcile Net Income To Net Cash
Provided (Used) By Operating Activities:
  Depreciation And Amortization Expense                368,771        264,573
  Amortization Of Intangible Assets                     22,500         22,500
  Stock Option Compensation Expense                      7,848          2,882
  Discount Accretion And Premium Amortization          106,619         68,173
  Provisions For Losses On Loans And Real Estate       225,000        150,000
  Gain On Sale of Investments Available For Sale      (120,491)             -
  Loss On Sale of Mortgage-Backed Securities
    Available For Sale                                  19,087              -
  Gain On Sale Of Loans                               (118,683)      (176,121)
  Gain On Sale Of Real Estate                          (13,694)       (13,391)
  Capital Improvements Repossessed Assets              (20,000)             -
  Amortization Of Deferred Fees On Loans               (27,043)       (29,030)
  Proceeds From Sale Of Loans Held For Sale          8,542,717     11,324,649
  Origination Of Loans For Sale                     (9,679,094)   (10,672,758)
  (Increase) Decrease In Accrued Interest Receivable:
    Loans                                              129,420        (70,332)
    Mortgage-Backed Securities                         (74,644)        10,393
    Investments                                        178,266        (43,744)
  Increase In Advance Payments By Borrowers            114,555        166,967
  Other, Net                                          (528,787)      (287,360)
                                                     ---------      ---------
Net Cash Provided (Used) By Operating Activities       (65,748)     1,813,432
                                                     ---------      ---------

Cash Flows From Investing Activities:
  Principal Repayments On Mortgage-Backed
    Securities Available For Sale                   13,840,922      9,730,754
  Purchase Of Investment Securities Available
    For Sale                                        (5,635,679)   (15,579,736)
  Purchase Of Mortgage-Backed Securities
    Available For Sale                             (36,375,912)    (4,982,301)
  Maturities Of Investment Securities Available
    For Sale                                         8,075,718      3,323,609
  Maturities of Investment Securities Held To
    Maturity                                         5,000,000      8,000,000
  Proceeds From Sale of Investment Securities
    Available For Sale                               6,108,615              -
  Proceeds From Sale of Mortgage-Backed Securities
    Available For Sale                               1,277,417              -
  Purchase Of FHLB Stock                            (3,837,500)    (2,355,600)
  Redemption Of FHLB Stock                           2,110,600      1,959,800
  Increase In Loans To Customers                   (15,873,082)   (26,994,431)
  Proceeds From Sale Of Repossessed Assets             346,000         49,000
  Purchase And Improvement Of Premises And Equipment  (799,948)    (1,884,501)
  Purchase Of Bank Owned Life Insurance                (85,746)    (2,262,037)
                                                    ----------     ----------
Net Cash Used By Investing Activities              (25,848,595)   (30,995,443)
                                                    ----------     ----------

Cash Flows From Financing Activities:
  Increase (Decrease) In Deposit Accounts          (13,522,258)    13,222,409
  Proceeds From FHLB Advances                      104,880,000     81,300,000
  Repayment Of FHLB Advances                       (66,503,864)   (65,603,787)
  Net Proceeds Of Other Borrowings                   1,798,430        236,035
  Dividends To Shareholders                           (202,553)      (182,663)
  Purchase Of Treasury Stock                           (89,872)       (77,320)
  Proceeds From Employee Stock Purchases                27,643         25,369
                                                    ----------     ----------
  Net Cash Provided By Financing Activities         26,387,526     28,920,043
                                                    ----------     ----------
                                                                  (Continued)
       See accompanying notes to consolidated financial statements.

                                      4

<PAGE>


                 Security Federal Corporation and Subsidiaries
         Consolidated Statements of Cash Flows (Unaudited)- Continued

                                                    Three Months Ended June 30,
                                                     --------------------------
                                                         2008           2007
                                                        ------         ------
Increase (Decrease) In Cash And Cash Equivalents       473,183       (261,968)
Cash And Cash Equivalents At Beginning Of Period    10,539,054     13,438,129
                                                   -----------    -----------
Cash And Cash Equivalents At End Of Period         $11,012,237    $13,176,161
                                                   ===========    ===========


Supplemental Disclosure Of Cash Flows Information:
Cash Paid During The Period For Interest           $ 6,960,918    $ 6,987,289
Cash Paid During The Period For Income Taxes       $   305,822    $    30,000
Additions To Repossessed Acquired Through
  Foreclosure                                      $    20,000    $    88,976
Increase In Unrealized Net Loss On Securities
  Available For Sale, Net Of Taxes                 $(3,642,424)   $  (931,559)






        See accompanying notes to consolidated financial statements.



                                       5

<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 2008 Annual
Report to Shareholders when reviewing interim financial statements.  The results
of operations for the three month period ended June 30, 2008 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 consolidated financial statements include the accounts of
Security Federal Corporation (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").  Security Federal Corporation has a wholly owned
subsidiary, Security Federal Statutory Trust (the "Trust"), which issued and
sold fixed and floating rate capital securities of the Trust.  However, under
current accounting guidance, the Trust is not consolidated in the Company's
financial statements.  The Bank is primarily engaged in the business of
accepting savings and demand deposits and originating mortgage loans and other
loans to individuals and small businesses for various personal and commercial
purposes.  SFINS, SFINV, and SFT were formed during fiscal 2002 and began
operating during the December 2001 quarter.  SFINS is an insurance agency
offering auto, business, health, and home insurance.  SFINS has a wholly owned
subsidiary, Collier Jennings Financial Corporation which has as subsidiaries
Collier Jennings Inc., The Auto Insurance Store Inc., and Security Federal
Premium Pay Plans Inc. SFINV engages primarily in investment brokerage services.
SFT offers trust, financial planning and financial management services. SFSC is
currently an inactive subsidiary.

3.  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 our financial statements.  Our significant accounting
policies are described in the footnotes to the audited consolidated financial
statements at March 31, 2008 included in our 2008 Annual Report to Stockholders,
which was filed as an exhibit to our Annual Report on Form 10-K for the year
ended March 31, 2008.  Certain accounting policies involve significant judgments
and assumptions by management, which have a material impact on the carrying
value of certain assets and liabilities.  We consider these accounting policies
to be critical accounting policies.  The judgments and assumptions we use are
based on historical experience and other factors, which we believe to be
reasonable under the circumstances.  Because of the nature of the judgments and
assumptions we make, actual results could differ from these judgments and
estimates which could have a material impact on our carrying values of assets
and liabilities and our results of operations.

The Company believes the allowance for loan losses is a critical accounting
policy that requires the most significant judgments and estimates used in
preparation of the 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 borrower (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.

                                        6

<PAGE>


                  Security Federal Corporation and Subsidiaries
              Notes to Consolidated Financial Statements (Unaudited)

3.  Critical Accounting Policies, Continued

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 and 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.


4.  Earnings Per Share

The Company calculates earnings per share ("EPS") in accordance with Statement
of Financial Accounting Standards ("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.

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


                                           For the Quarter Ended
                     ----------------------------------------------------------
                                               June 30, 2008
                     ----------------------------------------------------------
                     Income (Numerator) Amount  Shares (Denominator)  Per Share
                     -------------------------  -------------------   ---------
Basic EPS            $                801,905            2,531,679    $    0.32
Effect of Diluted
Securities:
  Stock Options                             -                  698            -
                      -----------------------    -----------------    ---------
Diluted EPS          $                801,905            2,532,377    $    0.32
                      =======================    =================    =========

                                           For the Quarter Ended
                     ----------------------------------------------------------
                                               June 30, 2007
                     ----------------------------------------------------------
                     Income (Numerator) Amount  Shares (Denominator)  Per Share
                     -------------------------  -------------------   ---------
Basic EPS            $              1,096,031            2,609,409    $    0.42
Effect of Diluted
Securities:
  Stock Options                             -                9,480            -
                      -----------------------    -----------------    ---------
Diluted EPS          $              1,096,031            2,618,889    $    0.42
                      =======================    =================    =========

                                     7
<PAGE>
                  Security Federal Corporation and Subsidiaries
         Notes to Consolidated Financial Statements (Unaudited), Continued

5.  Stock-Based Compensation

Certain officers and directors of the Company participate in an incentive and
non-qualified stock option plan. Options are granted at exercise prices not less
than the fair value of the Company's common stock on the date of the grant. The
following is a summary of the activity under the Company's stock option plans
for the quarter ended June 30, 2008:
                                                                Weighted
                                                                Average
                                                                Exercise
                                              Shares            Price
                                            ----------------------------
Balance, Beginning of Period                   111,100          $ 21.55
  Options granted                                2,500            22.91
  Options exercised                                  -                -
  Options forfeited                                  -                -
                                            ----------
Balance, June 30                               113,600          $ 21.58
                                            ==========

Options Exercisable                             74,100          $ 20.60
                                            ==========
Options Available For Grant                    124,801
                                            ==========

At June 30, 2008, the Company had the following options outstanding:

               Outstanding
Grant Date      Options       Option Price     Expiration Date
----------     -----------    ------------     ---------------
10/19/99        20,100          $16.67         09/30/05 to 09/30/09

09/01/03         3,000          $24.00             08/31/13

12/01/03         3,000          $23.65             11/30/13

01/01/04         6,500          $24.22             12/31/13

03/08/04        13,000          $21.43             03/08/14

06/07/04         2,000          $24.00             06/07/14

01/01/05        20,500          $20.55             12/31/14

01/01/06         6,000          $23.91             01/01/16

08/24/06        14,000          $23.03             08/24/16

05/24/07         2,000          $24.34             05/24/17

07/09/07         1,000          $24.61             07/09/17

10/01/07         2,000          $24.28             10/01/17

01/01/08        18,000          $23.49             01/01/18

05/19/08         2,500          $22.91             05/18/18



                                       8

<PAGE>


                  Security Federal Corporation and Subsidiaries
       Notes to Consolidated Financial Statements (Unaudited), Continued

6.  Fair Value Measurements

Effective April 1, 2008, the Company adopted SFAS No. 157, "Fair Value
Measurements" ("SFAS 157") which provides a framework for measuring and
disclosing fair value under generally accepted accounting principles. SFAS 157
requires disclosures about the fair value of assets and liabilities recognized
in the balance sheet in periods subsequent to initial recognition, whether the
measurements are made on a recurring basis (for example, available-for-sale
investment securities) or on a nonrecurring basis (for example, impaired loans).

SFAS 157 defines fair value as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. SFAS 157 also establishes a fair
value hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value.
The standard describes three levels of inputs that may be used to measure fair
value:

     Level 1
     Quoted prices in active markets for identical assets or liabilities. Level
     1 assets and liabilities include debt and equity securities and derivative
     contracts that are traded in an active exchange market, as well as U.S.
     Treasuries and money market funds.

     Level 2
     Observable inputs other than Level 1 prices such as quoted prices for
     similar assets or liabilities; quoted prices in markets that are not
     active; or other inputs that are observable or can be corroborated by
     observable market data for substantially the full term of the assets or
     liabilities. Level 2 assets and liabilities include debt securities with
     quoted prices that are traded less frequently than exchange-traded
     instruments, mortgage-backed securities, municipal bonds, corporate debt
     securities and derivative contracts whose value is determined using a
     pricing model with inputs that are observable in the market or can be
     derived principally from or corroborated by observable market data. This
     category generally includes certain derivative contracts and impaired
     loans.

     Level 3
     Unobservable inputs that are supported by little or no market activity and
     that are significant to the fair value of the assets or liabilities. Level
     3 assets and liabilities include financial instruments whose value is
     determined using pricing models, discounted cash flow methodologies, or
     similar techniques, as well as instruments for which the determination of
     fair value requires significant management judgment or estimation. For
     example, this category generally includes certain private equity
     investments, retained residual interests in securitizations, residential
     mortgage servicing rights, and highly-structured or long-term derivative
     contracts.

Assets and liabilities measured at fair value on a recurring basis are as
follows as of June 30, 2008:

                       Quoted Market Price In  Significant Other   Significant
                          Active Markets       Observable Inputs   Unobservable
                            (Level 1)              (Level 2)       Inputs
                                                                   (Level 3)
Available-For-Sale        ----------------     --------------      -----------
  Investment And
  Mortgage- Backed
  Securities                $            -      $ 250,990,200      $        -
Mortgage Loans Held
  For Sale                               -          3,550,781               -
                          ----------------     --------------      ----------
Total                       $            -      $ 254,540,981      $        -
                          ================     ==============      ==========
The Company has no liabilities carried at fair value or measured at fair value
on a nonrecurring basis.

                                      9

<PAGE>


                  Security Federal Corporation and Subsidiaries
       Notes to Consolidated Financial Statements (Unaudited), Continued

6.  Fair Value Measurements, Continued

The Company is predominantly an asset based lender with real estate serving as
collateral on a substantial majority of loans. Loans which are deemed to be
impaired are primarily valued on a nonrecurring basis at the fair values of the
underlying real estate collateral. Such fair values are obtained using
independent appraisals, which the Company considers to be level 2 inputs. The
aggregate carrying amount of impaired loans at March 31, 2008 was $3.5 million.

Financial Accounting Standards Board ("FASB") Staff Position No. FAS 157-2
delays the implementation of SFAS 157 until the first quarter of 2009 with
respect to goodwill, other intangible assets, real estate and other assets
acquired through foreclosure and other non-financial assets measured at fair
value on a nonrecurring basis.

The Company has no assets or liabilities whose fair values are measured using
level 3 inputs that require disclosure as of June 30, 2008.

7.  Accounting and Reporting Changes

The following is a summary of recent authoritative pronouncements that could
impact the accounting, reporting, and/or disclosure of financial information by
the Company.

In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations,"
("SFAS 141(R)") which replaces SFAS 141. SFAS 141(R) establishes principles and
requirements for how an acquirer in a business combination recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any controlling interest; recognizes and measures
goodwill acquired in the business combination or a gain from a bargain purchase;
and determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination.

SFAS 141(R) is effective for acquisitions by the Company taking place on or
after April 1, 2009. Early adoption is prohibited. Accordingly, the Company is
required to record and disclose business combinations following existing
accounting guidance until April 1, 2009. The Company will assess the impact of
SFAS 141(R) if and when a future acquisition occurs.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51" ("SFAS 160").
SFAS 160 establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. Before this statement, limited guidance existed for reporting
noncontrolling interests (minority interest). Specifically, SFAS 160 requires
the recognition of a noncontrolling interest (minority interest) as equity in
the consolidated financials statements and separate from the parent's equity.

The amount of net income attributable to the noncontrolling interest will be
included in consolidated net income on the face of the income statement. SFAS
160 clarifies that changes in a parent's ownership interest in a subsidiary that
do not result in deconsolidation are equity transactions if the parent retains
its controlling financial interest. In addition, this statement requires that a
parent recognize gain or loss in net income when a subsidiary is deconsolidated.
Such gain or loss will be measured using the fair value of the noncontrolling
equity investment on the deconsolidation date. SFAS 160 also includes expanded
disclosure requirements regarding the interests of the parent and its
noncontrolling interests. SFAS 160 is effective for the Company on April 1,
2009.   Earlier adoption is prohibited. The Company is currently evaluating the
impact, if any, the adoption of SFAS 160 will have on its financial position,
results of operations and cash flows.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities" ("SFAS 161").  SFAS 161 requires enhanced
disclosures about an entity's derivative and hedging activities and thereby
improving the transparency of financial reporting.  It is intended to enhance
the current disclosure framework in SFAS No. 133 by requiring that objectives
for using derivative instruments be disclosed in terms of underlying risk and
accounting designation. This disclosure better conveys the purpose of derivative
use in terms of the risks that the entity is intending to manage. SFAS 161 is
effective for the Company on April 1, 2009. This pronouncement does not impact
accounting measurements but will result in additional disclosures if the Company
is involved in material derivative and hedging activities at that time.

                                        10

<PAGE>


                 Security Federal Corporation and Subsidiaries
        Notes to Consolidated Financial Statements (Unaudited), Continued

7.  Accounting and Reporting Changes, Continued

In February 2008, the FASB issued FASB Staff Position No. 140-3, "Accounting for
Transfers of Financial Assets and Repurchase Financing Transactions" ("FSP
140-3").  FSP 140-3 provides guidance on accounting for a transfer of a
financial asset and the transferor's repurchase financing of the asset.  This
FSP presumes that an initial transfer of a financial asset and a repurchase
financing are considered part of the same arrangement (linked transaction) under
SFAS No. 140. However, if certain criteria are met, the initial transfer and
repurchase financing are not evaluated as a linked transaction and are evaluated
separately under Statement 140.  FSP 140-3 will be effective for financial
statements issued for fiscal years beginning after November 15, 2008, and
interim periods within those fiscal years and earlier application is not
permitted. Accordingly, this FSP is effective for the Company on April 1, 2009.
The Company is currently evaluating the impact, if any, the adoption of FSP
140-3 will have on its financial position, results of operations and cash flows.

In April 2008, the FASB issued FASB Staff Position No. 142-3, "Determination of
the Useful Life of Intangible Assets" ("FSP 142-3").  This FSP amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under SFAS
No. 142, "Goodwill and Other Intangible Assets".  The intent of this FSP is to
improve the consistency between the useful life of a recognized intangible asset
under SFAS No. 142 and the period of expected cash flows used to measure the
fair value of the asset under SFAS 141(R), "Business Combinations," and other
U.S. generally accepted accounting principles.  This FSP is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years and early adoption is prohibited.
Accordingly, this FSP is effective for the Company on April 1, 2009.  The
Company does not believe the adoption of FSP 142-3 will have a material impact
on its financial position, results of operations or cash flows.

In May, 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles," ("SFAS 162").  SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States (the GAAP hierarchy).  SFAS 162 will be effective 60 days
following the SEC's approval of the Public Company Accounting Oversight Board's
amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles."  The FASB has stated that it does not
expect SFAS 162 will result in a change in current practice. The application of
SFAS 162 will have no effect on the Company's financial position, results of
operations or cash flows.

The FASB issued FASB Staff Position No. APB 14-1, "Accounting for Convertible
Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial
Cash Settlement)," ("FSP APB 14-1"). The Staff Position specifies that issuers
of convertible debt instruments that may be settled in cash upon conversion
should separately account for the liability and equity components in a manner
that will reflect the entity's nonconvertible debt borrowing rate when interest
cost is recognized in subsequent periods.  FSP APB 14-1 provides guidance for
initial and subsequent measurement as well as derecognition provisions.  The
Staff Position is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years. Early adoption is not permitted.  The Company is currently analyzing the
effect, if any, the adoption of this Staff Position will have on the Company's
financial position, results of operations or cash flows.

In June, 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, "Determining
Whether Instruments Granted in Share-Based Payment Transactions are
Participating Securities," ("FSP EITF 03-6-1").  The Staff Position provides
that unvested share-based payment awards that contain nonforfeitable rights to
dividends or dividend equivalents are participating securities and must be
included in the earnings per share computation.  FSP EITF 03-6-1 is effective
for financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those years. All prior-period earnings per
share data presented must be adjusted retrospectively. Early application is not
permitted.  The adoption of this Staff Position will have no material effect on
the Company's financial position, results of operations or cash flows.

Other accounting standards that have been issued or proposed by the FASB or
other standards-setting bodies are not expected to have a material impact on the
Company's financial position, results of operations and cash flows.

                                       11
<PAGE>


                 Security Federal Corporation and Subsidiaries
       Notes to Consolidated Financial Statements (Unaudited), Continued

8.  Securities

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
June 30, 2008                    Amortized  Unrealized  Unrealized
-------------                      Cost        Gains      Losses    Fair Value
                                 ---------  ----------  ----------  ----------
FHLB Securities                $28,637,576  $ 106,504   $ 255,322   $28,488,759
Federal Farm Credit Securities  10,699,502     16,292     143,708    10,572,086
FNMA Bonds                       2,000,000          -      34,380     1,965,620
Mortgage-Backed Securities     211,558,989    620,543   2,303,546   209,875,985
Equity Securities                  102,938          -      15,188        87,750
                               -----------    -------   ---------   -----------
Total                         $252,999,005  $ 743,339  $2,752,144  $250,990,200
                               ===========    =======   =========   ===========

                                               Gross      Gross
March 31, 2008                   Amortized  Unrealized  Unrealized
--------------                     Cost        Gains      Losses    Fair Value
                                 ---------  ----------  ----------  ----------
FHLB Securities               $ 31,891,456  $ 625,583   $        - $ 32,517,039
Federal Farm Credit Securities  14,849,646    323,594            -   15,173,240
FNMA Bonds                       2,997,470      7,840            -    3,005,310
Mortgage-Backed Securities     190,454,173  3,023,143      104,283  193,373,033
Equity Securities                  102,938          -       13,688       89,250
                               -----------    -------    ---------  -----------
Total                         $240,295,683 $3,980,160   $  117,971 $244,157,872
                               ===========  =========    =========  ===========

FHLB securities, Federal Farm Credit securities, Federal National Mortgage
Association ("FNMA") FNMA bonds, and FNMA and Federal Home Loan Mortgage
Corporation ("FHLMC") mortgage-backed securities are issued by government-
sponsored enterprises ("GSE's"). GSE's are not backed by the full faith and
credit of the United States government. Included in the tables above in
mortgage-backed securities are Government National Mortgage Association ("GNMA")
mortgage-backed securities, which are backed by the full faith and credit of the
United States government. At June 30, 2008, the bank held an amortized cost and
fair value of $97.5 million and $96.5 million, respectively, in GNMA
mortgage-backed securities included in mortgage-backed securities listed above.

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
June 30, 2008                    Amortized  Unrealized  Unrealized
-------------                      Cost        Gains      Losses     Fair Value
                                 ---------  ----------  ----------   ----------
FHLB Securities                $13,000,000  $  119,390  $    3,120  $13,116,270
Federal Farm Credit Securities   2,000,000      11,570           -    2,011,570
Equity Securities                  155,000           -           -      155,000
                                ----------   ---------   ---------   ----------
Total                          $15,155,000  $  130,960  $    3,120  $15,282,840
                                ==========   =========   =========   ==========

                                               Gross      Gross
March 31, 2008                   Amortized  Unrealized  Unrealized
--------------                     Cost        Gains      Losses     Fair Value
                                 ---------  ----------  ----------   ----------
FHLB Securities                $17,999,618  $  320,072  $        -  $18,319,690
Federal Farm Credit Securities   2,000,000      31,560           -    2,031,560
Equity Securities                  155,000           -           -      155,000
                                ----------   ---------   ---------   ----------
Total                          $20,154,618  $  351,632  $        -  $20,506,250
                                ==========   =========   =========   ==========



                                       12

<PAGE>


                 Security Federal Corporation and Subsidiaries
       Notes to Consolidated Financial Statements (Unaudited), Continued

8.  Securities, Continued

FHLB securities and Federal Farm Credit securities are issued by GSE's. These
enterprises are not backed by the full faith and credit of the United States
government.

9.  Loans Receivable, Net

Loans receivable, net, at June 30, 2008 and March 31, 2008 consisted of the
following:


                                              June 30, 2008    March 31, 2008
                                              -------------    --------------
   Residential Real Estate                    $ 131,835,370    $ 131,863,466
   Consumer                                      66,763,097       66,832,377
   Commercial Business And Real Estate          349,840,672      333,386,661
   Loans Held For Sale                            3,550,781        2,295,721
                                                -----------      -----------
                                                551,989,920      534,378,225
                                                -----------      -----------
Less:

   Allowance For Possible Loan Loss               8,246,496        8,066,762
   Loans In Process                               8,569,191        8,064,728
   Deferred Loan Fees                               312,343          315,030
                                                -----------      -----------
                                                 17,128,030       16,446,520
                                                -----------      -----------
                                              $ 534,861,890    $ 517,931,705
                                                ===========      ===========


                                         13

<PAGE>



                 Security Federal Corporation and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and Results
          of Operations

Safe Harbor Statement

Certain matters in this Quarterly Report on Form 10-Q for the quarter ended June
30, 2008 constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995.  These forward-looking statements
relate to, among others, expectations of the business environment in which the
Company operates, projections of future performance, perceived opportunities in
the market, potential future credit experience, and statements regarding the
Company's mission and vision.  These forward-looking statements are based upon
current management expectations, and may, therefore, involve risks and
uncertainties.  The Company's actual results, performance, or achievements may
differ materially from those suggested, expressed, or implied by forward-looking
statements as a result of a wide range of factors including, but not limited to,
the general business environment, interest rates, the South Carolina real estate
market, the demand for loans, competitive conditions between banks and non-bank
financial services providers, regulatory changes, and other risks detailed in
the Company's reports filed with the SEC, including the Annual Report on Form
10-K for the year ended March 31, 2008.  Forward-looking statements are
effective only as of the date that they are made and the Company assumes no
obligation to update this information

Comparison Of Financial Condition At June 30, 2008 and March 31, 2008

General - Total assets increased $23.3 million or 2.8% to $863.4 million at June
30, 2008 from $840.0 million at March 31, 2008.  The primary reason for the
growth in total assets was a $16.9 million or 3.3% increase in net loans
receivable to $534.9 million and a $6.8 million or 2.8% increase in investment
and mortgage-backed securities- available for sale to $251.0 million.  For the
quarter ended June 30, 2008, the demand for loans was funded with maturities of
investment and mortgage-backed securities- held to maturity of $5.0 million and
an increase in advances from the FHLB of $38.4 million or 21.5% to $216.6
million.

Assets - The increases and decreases in total assets were primarily concentrated
in the following asset categories:

                                                          Increase (Decrease)
                                June 30,    March 31,     ------------------
                                 2008         2008         Amount   Percent
                                -------     --------       ------   -------
Cash And Cash Equivalents    $11,012,237  $10,539,054    $473,183      4.5%
Investment And Mortgage-
  Backed Securities-
  Available For Sale         250,990,200  244,157,872   6,832,328      2.8
Investment And Mortgage-
  Backed Securities-Held
  To Maturity                 15,155,000   20,154,618  (4,999,618)   (24.8)
Loan Receivable, Net         534,861,890  517,931,705  16,930,185      3.3
Premises And Equipment,
  Net                         21,975,557   21,544,380     431,177      2.0
FHLB Stock, At Cost           11,224,000    9,497,100   1,726,900     18.2
Repossessed Assets
  Acquired In
  Settlement of Loans            454,790      767,096    (312,306)   (40.7)
Other Assets                   4,380,011    1,947,403   2,432,608    124.9

Investments and mortgage-backed securities available for sale increased $6.8
million or 2.8% to $251.0 million at June 30, 2008 from $244.2 million at March
31, 2008.  The increase in investments and mortgage-backed securities available
for sale is attributable to additional purchases slightly offset by paydowns on
mortgage-backed securities and calls and maturities on investments.

                                       14

<PAGE>

                  Security Federal Corporation and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and Results
         of Operations, Continued

Loans receivable, net increased $16.9 million or 3.3% to $534.9 million at June
30, 2008 from $517.9 million at March 31, 2008.  Residential real estate loans
decreased $28,000 to $131.8 million at June 30, 2008 from $131.9 million at
March 31, 2008.  Consumer loans remained relatively unchanged at $66.8 million
at June 30, 2008 compared to March 31, 2008, decreasing $69,000 during the
current quarter.  Commercial business and real estate loans increased $16.5
million to $349.8 million at June 30, 2008 from $333.4 million at March 31,
2008.  The increase in commercial and business real estate loans was
attributable to the Company's continued focus on originating this type of
lending.  Loans held for sale increased $1.3 million to $3.6 million at June 30,
2008 from $2.3 million at March 31, 2008.

Premises and equipment, net increased $431,000 to $22.0 million at June 30, 2008
from $21.5 million at March 31, 2008.  The majority of the increase was for the
relocation of our Clearwater branch office and for renovations to our Operations
Center in Aiken, South Carolina.

FHLB stock, at cost, increased $1.7 million to $11.2 million at June 30, 2008
from $9.5 million at March 31, 2008.  The increase is attributable to a FHLB
requirement that the Company maintain stock equal to 0.20% of total assets at
June 30, 2008 plus a transaction component, which equals 4.5% of outstanding
advances (borrowings) from the FHLB of Atlanta.

Repossessed assets acquired in settlement of loans decreased $312,000 to
$455,000 at June 30, 2008 from $767,000 at March 31, 2008.  The Company sold two
properties and did not repossess any additional assets during the period. At
June 30, 2008, the balance consisted of the following four properties: two lots
within one subdivision of Aiken, South Carolina; one lot within a subdivision of
Columbia, South Carolina; and a single-family residence in Augusta, Georgia.

Other assets increased $2.4 million to $4.4 million at June 30, 2008 from $2
million at March 31, 2008.  The majority of this increase is the result of an
increase in the deferred tax asset attributable to a decrease in the market
value of available for sale securities.

Liabilities

Deposit Accounts
                                                                   Balance
                                                            ------------------
                     June 30, 2008       March 31, 2008      Increase(Decrease)
                  ------------------   ------------------   -----------------
                              Weighted            Weighted
                     Balance    Rate     Balance    Rate      Amount   Percent
Demand Accounts:   -----------  ----   -----------   ----     -------  -------
Checking          $102,022,969  0.26% $100,585,610  0.47%  $ 1,437,359    1.4 %
Money Market       144,460,586  2.17   143,225,218  2.84     1,235,368    0.9
Regular Savings     16,683,008  0.73    15,966,557  0.97       716,451    4.5
                   -----------  ----   -----------  ----    ----------   ----
Total              263,166,563  1.34   259,777,385  1.87     3,389,178    1.3
                   -----------  ----   -----------  ----    ----------   ----
Certificate Accounts
0.00 - 1.99%         1,444,713                   -           1,444,713  100.0
2.00 - 2.99%        27,920,687          14,047,109          13,873,578   98.8
3.00 - 3.99%        85,174,658          59,526,823          25,647,835   43.1
4.00 - 4.99%        62,347,041          68,149,323          (5,802,282)  (8.5)
5.00 - 5.99%       137,274,288         189,349,568         (52,075,280) (27.5)
                   -----------  ----   -----------  ----    ----------   ----
Total              314,161,387  4.41   331,072,823  4.75   (16,911,436)  (5.1)
                   -----------  ----   -----------  ----    ----------   ----
Total Deposits    $577,327,950  3.01% $590,850,208  3.46% $(13,522,258)  (2.3)%
                   ===========  ====   ===========  ====    ==========   ====

                                        15
<PAGE>


                 Security Federal Corporation and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and Results
          of Operations, Continued

Advances From FHLB - FHLB advances are summarized by year of maturity and
weighted average interest rate in the table below:
                                                                 Balance
                                                             -----------------
                      June 30, 2008       March 31, 2008     Increase(Decrease)
                      -------------       --------------     -----------------
                      Balance   Rate      Balance   Rate     Balance  Percent
                      -------   ----      -------   ----     -------  -------
Fiscal Year Due:
2009               $83,680,000  2.58%  $42,300,000  3.28%  $41,380,000  97.8%
2010                10,000,000  4.88    10,000,000  4.88             -     -
2011                15,000,000  4.87    15,000,000  4.87             -     -
2012                24,700,000  4.56    24,700,000  4.56             -     -
2013                10,000,000  4.76    10,000,000  4.76             -     -
Thereafter          73,230,143  4.28    76,234,007  4.25    (3,003,864) (3.9)
                   -----------         -----------          ----------  ----
Total Advances    $216,610,143  3.75% $178,234,007  4.18%  $38,376,136  21.5%
                   ===========         ===========          ==========  ====

These advances are secured by a blanket collateral agreement with the FHLB by
pledging the Bank's portfolio of residential first mortgage loans and investment
securities with approximate amortized cost and fair value of $146.3 million and
$146.4 million, respectively, at June 30, 2008.  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.

                              As of June 30, 2008
---------------------------------------------------------------------
Borrow     Maturity
  Date       Date      Amount   Int.Rate    Type      Call Dates
---------  --------  ----------  --------   ----      ----------
02/20/04   02/20/14  $5,000,000  3.225%   1 Time Call   02/20/09
06/24/05   06/24/15   5,000,000  3.710%   1 Time Call   06/24/10
07/22/05   07/22/15   5,000,000  3.790%   1 Time Call   07/22/08
11/10/05   11/10/15   5,000,000  4.400%   1 Time Call   11/10/09
11/23/05   11/23/15   5,000,000  3.9325%  Multi-Call    08/25/08 and
                                                         quarterly thereafter
11/29/05   11/29/13   5,000,000  4.320%   1 Time Call   05/29/09
12/14/05   12/14/11   5,000,000  4.640%   1 Time Call   09/14/09
01/12/06   01/12/16   5,000,000  4.450%   1 Time Call   01/12/11
03/01/06   03/03/14   5,000,000  4.720%   1 Time Call   03/03/10
06/02/06   06/02/16   5,000,000  5.160%   1 Time Call   06/02/11
07/11/06   07/11/16   5,000,000  4.800%   Multi-Call    07/11/08 and
                                                         quarterly thereafter
10/25/06   10/25/11   5,000,000  4.830%   1 Time Call   10/27/08
11/29/06   11/29/16   5,000,000  4.025%   Multi-Call    08/29/08 and
                                                         quarterly thereafter
01/19/07   07/21/14   5,000,000  4.885%   1 Time Call   07/21/11
03/09/07   03/09/12   4,700,000  4.286%   Multi-Call    09/09/08 and
                                                         quarterly thereafter
05/24/07   05/24/17   7,900,000  4.375%   Multi-Call    08/27/08 and
                                                         quarterly thereafter
06/29/07   06/29/12   5,000,000  4.945%   1 Time Call   06/29/09
07/25/07   07/25/17   5,000,000  4.396%   Multi-Call    07/25/08 and
                                                         quarterly thereafter
11/16/07   11/16/11   5,000,000  3.745%   Multi-Call    11/17/08 and
                                                         quarterly thereafter
                                       16
<PAGE>


                 Security Federal Corporation and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and Results
          of Operations, Continued

                             As of March 31, 2008
---------------------------------------------------------------------
Borrow     Maturity
  Date       Date        Amount  Int.Rate   Type       Call Dates
---------  --------      ------  --------   ----       ----------
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  3.330%  1 Time Call  04/16/08
06/24/05   06/24/15    5,000,000  3.710%  1 Time Call  06/24/10
07/22/05   07/22/15    5,000,000  3.790%  1 Time Call  07/22/08
11/10/05   11/10/15    5,000,000  4.400%  1 Time Call  11/10/09
11/23/05   11/23/15    5,000,000  3.933%  Multi-Call   05/25/08 and
                                                         quarterly thereafter
11/29/05   11/29/13    5,000,000  4.320%  1 Time Call  05/29/09
12/14/05   12/14/11    5,000,000  4.640%  1 Time Call  09/14/09
01/12/06   01/12/16    5,000,000  4.450%  1 Time Call  01/12/11
03/01/06   03/03/14    5,000,000  4.720%  1 Time Call  03/03/10
06/02/06   06/02/16    5,000,000  5.160%  1 Time Call  06/02/11
07/11/06   07/11/16    5,000,000  4.800%  Multi-Call   07/11/08 and
                                                         quarterly thereafter
10/25/06   10/25/11    5,000,000  4.830%  1 Time Call  10/27/08
11/29/06   11/29/16    5,000,000  4.025%  Multi-Call   05/29/08 and
                                                         quarterly thereafter
01/19/07   07/21/14    5,000,000  4.885%  1 Time Call  07/21/11
03/09/07   03/09/12    4,700,000  4.286%  Multi-Call   06/09/08 and
                                                         quarterly thereafter
05/24/07   05/24/17    7,900,000  4.375%  Multi-Call   05/27/08 and
                                                         quarterly thereafter
06/29/07   06/29/12    5,000,000  4.945%  1 Time Call  06/29/09
07/25/07   07/25/17    5,000,000  4.396%  Multi-Call   07/25/08 and
                                                         quarterly thereafter
11/16/07   11/16/11    5,000,000  3.745%  Multi-Call   11/17/08 and
                                                         quarterly thereafter

Other Borrowings - The Bank had $14.6 million and $12.8 million in other
borrowings (non-FHLB advances) at June 30, 2008 and March 31, 2008,
respectively.  These borrowings consist of short-term repurchase agreements with
certain commercial demand deposit customers for sweep accounts and the current
balance on a revolving line of credit with another financial institution.  At
June 30, 2008 and March 31, 2008, short-term repurchase agreements were $11.6
million and $9.8 million, respectively. The repurchase agreements typically
mature within one to three days and the interest rate paid on these borrowings
floats monthly with money market type rates. At June 30, 2008 and March 31,
2008, the interest rate paid on the repurchase agreements was 2.08% and 3.01%,
respectively.  The Bank had pledged as collateral for these repurchase
agreements investment securities with amortized costs and fair values of $27.0
million and $27.4 million at June 30, 2008.

In December 2007, the Company entered into a line of credit in the amount of
$10.0 million with another financial institution. At June 30, 2008 and March 31,
2008, the balance on the line of credit was $3.0 million.  The unsecured line of
credit has an interest rate equal to one month LIBOR plus 2.5% and matures on
December 1, 2008.

Mandatorily Redeemable Financial Instrument - On June 30, 2006, the Company
recorded a $1.4 million mandatorily redeemable financial instrument as a result
of the acquisition of the Collier-Jennings Companies.  The shareholder of the
Collier-Jennings Companies received cash and was issued stock in the Company to
settle the acquisition.  The Company will release the shares to the shareholder
of the Collier-Jennings Companies over a three-year period.  The stock is
mandatorily redeemable by the shareholder of the Collier-Jennings Companies in
cumulative increments of 20% per year for a five-year period at the greater of
$26 per share or one and one-half times the book value of the Company's stock.
At June 30, 2008, the shareholder had not elected to redeem any of the shares.

Junior Subordinated Debentures - On September 21, 2006, Security Federal
Statutory Trust (the "Trust"), a wholly-owned subsidiary of the Company, issued
and sold fixed and floating rate capital securities of the Trust (the "Capital
Securities"), which are reported on the consolidated balance sheet as junior
subordinated debentures, generating proceeds of $5.0 million. The Trust loaned
these proceeds to the Company to use for general corporate purposes, primarily
to provide capital to the Bank. The debentures qualify as Tier 1 capital under
Federal Reserve Board guidelines.

The Capital Securities accrue and pay distributions annually at a rate per annum
equal to a blended rate of 5.68% at June 30, 2008.  One-half of the Capital
Securities issued in the transaction has a fixed rate of 6.88% and the remaining
half has a floating rate of three-month LIBOR plus 170 basis points, which was
4.48% at June 30, 2008. The distribution rate payable on the Capital Securities
is cumulative and payable quarterly in arrears.

                                       17

<PAGE>


                 Security Federal Corporation and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and Results
          of Operations, Continued

The Company has the right, subject to events of default, to defer payments of
interest on the Capital Securities for a period not to exceed 20 consecutive
quarterly periods, provided that no extension period may extend beyond the
maturity date of December 15, 2036. The Company has no current intention to
exercise its right to defer payments of interest on the Capital Securities.

The Capital Securities mature or are mandatorily redeemable upon maturity on
December 15, 2036, and or upon earlier optional redemption as provided in the
indenture. The Company has the right to redeem the Capital Securities in whole
or in part, on or after September 15, 2011. The Company may also redeem the
capital securities prior to such dates upon occurrence of specified conditions
and the payment of a redemption premium.

Equity - Shareholders' equity decreased $3.1 million or 6.5% to $44.4 million at
June 30, 2008 from $47.5 million at March 31, 2008. Accumulated other
comprehensive income (loss), net of tax, decreased $3.6 million to a loss of
$1.2 million at June 30, 2008.  The Company's net income for the three-month
period was $802,000.  The Board of Directors of the Company declared the 70th
consecutive quarterly dividend, which was $0.08 per share, in April 2008, and
totaled $203,000.  Book value per share was $17.55 at June 30, 2008 and $18.76
at March 31, 2008.

COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2008
AND 2007
-------------------------------------------------------------------------------
Net Income - Net income decreased $294,000 or 26.8% to $802,000 for the three
months ended June 30, 2008 compared to $1.1 million for the three months ended
June 30, 2007. The decrease in net income is primarily the result of the Federal
Reserve's recent decrease in interest rates in conjunction with the Company's
decision to increase the provision for loan losses and an increase in general
and administrative expenses attributable to costs associated with the Company's
recent expansion. These factors were offset slightly by an increase in
non-interest income.

Net Interest Income - Net interest income increased $147,000 or 3.0% to $5.1
million during the three months ended June 30, 2008, compared to $5.0 million
for the same period in 2007, as a result of a decrease in interest expense
offset in part by a decrease in interest income.  During the three months ended
June 30, 2008, average interest earning assets increased $87.4 million to $797.6
million while average interest-bearing liabilities increased $89.3 million to
$752.2 million.  The interest rate spread decreased 16 basis points to 2.37%
during the three months ended June 30, 2008 compared to the same period in 2007.

The recent precipitous decrease in the prime interest rate continued to
negatively impact the Company's margin during the quarter ended June 30, 2008.
Net interest margin decreased 23 basis points to 2.57% as of June 30, 2008 from
2.80% for the comparable quarter in the previous year.

Interest Income - Total interest income decreased $75,000 or 0.6% to $11.8
million during the three months ended June 30, 2008 from $11.9 million for the
same period in 2007.  Total interest income on loans decreased $250,000 or 2.8%
to $8.5 million during the three months ended June 30, 2008 as a result of the
yield in the loan portfolio decreasing 139 basis points offset by the average
loan portfolio balance increasing $80.3 million.  Interest income from
mortgage-backed securities increased $854,000 or 55.4% as a result of a 21 basis
point increase in yield and a $65.4 million increase in the average balance of
the portfolio.  Interest income from investment securities decreased $665,000 or
42.8% as a result of a decrease in average balance of the investment securities
portfolio offset slightly by an increase in the yield.

                                      18

<PAGE>


                 Security Federal Corporation and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and Results
          of Operations, Continued

The following table compares detailed average balances, associated yields, and
the resulting changes in interest income for the three months ended June 30,
2008 and 2007:

                                        Three Months Ended June 30,
                              ------------------------------------------------
                                 2008                2007
                              ------------       ------------
                                                             Increase(Decrease)
                                                               In Interest And
                             Average             Average       Dividend Income
                             Balance Yield       Balance Yield    From 2007
                             ------- -----       ------- -----    ---------
Loans Receivable, Net   $527,101,104  6.48% $446,807,518  7.87%   $(249,844)
Mortgage-Backed
  Securities             199,929,297  4.79   134,517,110  4.58      853,672
Investment Securities     69,564,979  5.11   127,450,266  4.88     (664,619)
Other                        987,149  2.10     1,403,243  5.59      (14,417)
Total Interest-Earning   -----------  ----   -----------  ----     --------
  Assets                $797,582,529  5.93% $710,178,137  6.71%   $ (75,208)
                         ===========  ====   ===========  ====     ========

Interest Expense - Total interest expense decreased $222,000 or 3.2% to $6.7
million during the three months ended June 30, 2008 compared to $6.9 million for
the same period one-year earlier.  The decrease in total interest expense is
attributable to the decreases in interest rates and interest-bearing deposits
offset slightly by an increase in other borrowings.  Interest expense on
deposits decreased $319.0 million or 6.5% to $462.1 million during the period as
average interest bearing deposits grew $59.7 million to $545.4 million compared
to $485.7 million for the three months ended June 30, 2007 while the cost of
deposits decreased 68 basis points to 3.39%.  Interest expense on advances and
other borrowings increased $113,000 or 6.0% as the cost of debt outstanding
decreased 42 basis points during the 2008 period compared to 2007 while average
total borrowings outstanding increased approximately $29.6 million.  Interest
expense on junior subordinated debentures was $74,000 for the three months ended
June 30, 2008 compared to $91,000 for the same period one year ago while the
average balance remained constant at $5.2 million for the three months ended
June 30, 2008 and 2007.

The following table compares detailed average balances, cost of funds, and the
resulting changes in interest expense for the three months ended June 30, 2008
and 2007:
                                     Three Months Ended June 30,
                        ----------------------------------------------------
                               2008                   2007
                        ---------------       ---------------
                                                                  Increase
                                                                 (Decrease)In
                         Average               Average         Interest Expense
                         Balance  Yield        Balance  Yield     From 2007
                         -------  -----        -------  -----     ----------
Now And Money Market
  Accounts             $206,443,306  1.79%   $207,334,992  3.19%  $ (730,749)
Passbook Accounts        16,414,938   0.82     17,117,174  0.98       (8,312)
Certificate Accounts    322,502,428   4.54    261,200,638  4.97      420,077
FHLB Advances And Other
  Borrowed Money        201,686,231   3.99    172,121,258  4.41      113,432
Junior Subordinated
  Debentures              5,155,000   5.75      5,155,000  7.05      (16,705)
Total Interest-Bearing   ----------   ----    -----------  ----     --------
  Liabilities          $752,201,903   3.57%  $662,929,062  4.18%  $ (222,257)
                        ===========   ====    ===========  ====     ========

                                          19
<PAGE>

                 Security Federal Corporation and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and Results
          of Operations, Continued

Provision for Loan Losses - The amount of the provision is determined by
Management's on-going monthly analysis of the loan portfolio.  Management uses
multiple methods to measure the estimate of the adequacy of the allowance for
loan losses.  These methods incorporate percentage of classified loans,
five-year averages of historical loan losses in each loan category and current
economic trends, and the assignment of percentage targets of reserves in each
loan category.  The Company considers subjective factors such as changes in
local and national economic conditions, industry trends, the composition and
volume of the loan portfolio, credit concentrations, lending policies, and the
experience and ability of the staff and Board of Directors.

Problems associated with deteriorating asset quality continued to plague the
industry during the quarter as a result of the sub prime lending and credit
crisis. Although the Company did not participate in sub prime lending, it was
indirectly impacted by these events and the general condition of the national
economy.  Additions to the allowance for loan losses were $225,000 for the
quarter ended June 30, 2008 compared to $150,000 for the same quarter in the
prior year. This increase reflects the Company's concern for deteriorating
economic conditions in the local economy coupled with an increase in
non-performing assets within its loan portfolio.

The following table details selected activity associated with the allowance for
loan losses for the three months ended June 30, 2008 and 2007:

                                      June 30, 2008      June 30, 2007
                                      -------------      -------------
Beginning Balance                      $ 8,066,762        $ 7,296,791
  Provision                                225,000            150,000
  Charge-offs                              (50,186)           (29,120)
  Recoveries                                 4,920             13,021
                                      -------------      -------------
Ending Balance                         $ 8,246,496        $ 7,430,692
                                      =============      =============

Allowance For Loan Losses As A
   Percentage Of Gross Loans Receivable
   And Loans Held For Sale At The End
   Of The Period                              1.52%              1.58%
Allowance For Loan Losses As A
   Percentage Of Impaired Loans At
   The End Of The Period                    241.87%            721.79%
Impaired Loans                           3,409,465          1,029,475
Nonaccrual Loans And 90 Days Or More
   Past Due Loans As A Percentage Of
   Gross Loans Receivable And Loans
   Held For Sale At The End Of The
   Period                                     1.24%              0.39%
Loans Receivable, Net                 $534,861,890       $462,347,074

Non-performing assets, which consisted of 47 non-accrual loans and four
repossessed properties, increased $385,000 to $7.2 million at June 30, 2008 from
$6.8 million at March 31, 2008. Despite the increase in non-performing assets,
the Company maintained relatively low and stable trends related to net
charge-offs. Annualized net charge-offs as a percent of gross loans were 0.03%
at June 30, 2008 compared to 0.02% at March 31, 2008 and 0.01% at June 30, 2007.
In addition, non-performing assets comprised less than 1% of total assets at
June 30, 2008 and March 31, 2008, respectively.

Non-Interest Income - Non-interest income remained relatively unchanged at $1.1
million for the three months ended June 30, 2008, increasing $61,000 or 5.7%
from the same period one year ago.  The following table provides a detailed
analysis of the changes in the components of non-interest income:






                            Three Months Ended June 30,     Increase (Decrease)
                            ---------------------------     -------------------
                                      2008        2007       Amounts    Percent
                                     ------      ------      -------    -------
Gain On Sale Of Investments       $ 101,405    $      -    $ 101,405     100.0%
Gain On Sale Of Loans               118,683     176,121      (57,438)    (32.6)
Service Fees On Deposit Accounts    281,153     327,322      (46,169)    (14.1)
Income From Cash Value Of
  Life Insurance                     85,746      62,037       23,709      38.2
Commissions On Insurance            168,992     145,673       23,319      16.0
Other Agency Income                  46,937      29,258       17,679      60.4
Trust Income                        105,000      98,775        6,225       6.3
Other                               213,291     221,412       (8,121)     (3.7)
                                 ----------  ----------    ---------     -----
Total Non-Interest Income        $1,121,207  $1,060,598    $  60,609       5.7%
                                 ==========  ==========    =========     =====


                                        20

<PAGE>


                 Security Federal Corporation and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and Results
          of Operations, Continued

Gain on sale of investments was $101,405 for the three months ended June 30,
2008, compared to no gain in the same period one year earlier. The gain resulted
from the sale of seven investments during the three month period. No securities
were sold during the same quarter of the previous year. Gain on sale of loans
decreased $57,000 to $119,000 during the three months ended June 30, 2008
compared to the same period one year ago as a result of a decrease in the
origination and sale of fixed rate residential mortgage loans. Service fees on
deposit accounts decreased $46,000 to $281,000 for the quarter ended June 30,
2008 compared to the same quarter in 2007 as a result of a decrease in deposit
account balances. Commissions on insurance and other agency income increased
$41,000 to $167,000 for the quarter ended June 30, 2008 compared to the same
quarter in 2007 as a result of the growth and expansion of the insurance
subsidiary.  Other miscellaneous income including credit life insurance
commissions, safe deposit rental income, annuity and stock brokerage
commissions, trust fees, and other miscellaneous fees, decreased $8,000 to
$213,000 during the three months ended June 30, 2008 compared to the same period
one year ago.

General And Administrative Expenses - General and administrative expenses
increased $571,000 or 13.4% to $4.8 million for the three months ended June 30,
2008 from $4.3 million for the same period one year ago.  The following table
provides a detailed analysis of the changes in the components of general and
administrative expenses:

                            Three Months Ended June 30,     Increase (Decrease)
                            ---------------------------     -------------------
                                      2008        2007       Amounts    Percent
                                     ------      ------      -------    -------
Salaries And Employee Benefits   $2,784,235  $2,570,279   $  213,956     8.32%
Occupancy                           497,320     422,511       74,809    17.7
Advertising                         140,821     102,273       38,548    37.7
Depreciation And Maintenance
   Of Equipment                     426,924     319,525      107,399    33.6
FDIC Insurance Premiums             155,810      15,327      140,483   916.6
Amortization of Intangibles          22,500      22,500            -       -
Other                               794,380     799,030       (4,650)   (0.6)
Total General And                 ---------   ---------     --------   ------
  Administrative Expenses        $4,821,990  $4,251,445   $  570,545    13.4%
                                  =========   =========     ========   ======

Salary and employee benefits increased $214,000 or 8.3% to $2.8 million for the
three months ended June 30, 2008 from $2.6 million for the same period one year
ago and occupancy increased $75,000 or 17.7% to 497,000 for the three months
ended June 30, 2008 from $423,000 for the same period one year ago. The increase
in salary and employee benefits as well as occupancy is a result of increased
personnel and property costs related to the Company's recent expansion into two
new market areas: Richland and Lexington Counties in South Carolina and Columbia
County, Georgia. Depreciation and maintenance expense increased $107,000 or
33.6% to $427,000 for the three months ended June 30, 2008 from $320,000 for the
same period one year ago primarily as a result of the Company's recent expansion
and additional locations.

FDIC insurance premiums increased $140,000 or 916.6% to $156,000 for the three
month period ended June 30, 2008 when compared to the same period a year ago.
Prior to the quarter ended June 30, 2008, the Bank was benefiting from a
One-Time Credit assessment made available by the Federal Deposit Insurance
Reform Act of 2005. The credit assessment amount was applied to reduce the
Bank's quarterly deposit insurance assessments. The Bank exhausted this credit
during the quarter ended June 30, 2008. Advertising expense increased $39,000 or
37.7% to $141,000 for the three months ended June 30, 2008 from $102,000 for the
same period one year ago.  The increase is attributable to the Company using
more print media advertising to attract deposit customers.  Overall,
non-interest expenses increased $571,000 or 13.4% for the three months ended
June 30, 2008 when compared to the same period one year ago.

Provision For Income Taxes - Provision for income taxes decreased $144,000 or
26.6% to $397,000 for the three months ended June 30, 2008 from $541,000 for the
same period one year ago.  Income before income taxes was $1.2 million and $1.6
million for the three months ended June 30, 2008 and 2007, respectively.  The
Company's combined federal and state effective income tax rate for the current
quarter was 33.1% compared to 33.0% for the same quarter one year ago.

                                        21

<PAGE>


                 Security Federal Corporation and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and Results
          of Operations, Continued

Liquidity Commitments, Capital Resources, and Impact of Inflation and Changing
Prices

Liquidity - The Company actively analyzes and manages the Bank's liquidity with
the objective of maintaining an adequate level of liquidity and to ensure the
availability of sufficient cash flows to support loan growth, fund deposit
withdrawals, fund operations, and satisfy other financial commitments.  See the
"Consolidated Statements of Cash Flows" contained in Item 1 - Financial
Statements, herein.

The primary sources of funds are customer deposits, loan repayments, loan sales,
maturing investment securities, and advances from the FHLB.  The sources of
funds, together with retained earnings and equity, are used to make loans,
acquire investment securities and other assets, and fund continuing operations.
While maturities and the scheduled amortization of loans are a predictable
source of funds, deposit flows and mortgage repayments are greatly influenced by
the level of interest rates, economic conditions, and competition.  Management
believes that the Company's current liquidity position and its forecasted
operating results are sufficient to fund all of its existing commitments.

During the three months ended June 30, 2008 loan disbursements exceeded loan
repayments resulting in a $16.9 million or 3.3% increase in total net loans
receivable.  During the three months ended June 30, 2008, deposits decreased
$13.5 million and FHLB advances increased $38.4 million.  The Bank had $28.0
million in additional borrowing capacity at the FHLB at the end of the period
and $7.0 million borrowing capacity on a line of credit with another financial
institution.  At June 30, 2008, the Bank had $297.6 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.

The Company has plans to expand its branch network, which could cause earnings
to level off or decline for a period of time.  The leveling off or decline in
earnings will be attributed the lag that exists from the time a branch is built
to when it becomes profitable.  In the next twelve months, we anticipate
investing $2.0 to $3.0 million in land, buildings, and equipment. In the next
twenty-four months we anticipate investing $5.0 million to $6.0 million in land,
buildings, and equipment. The anticipated costs could be affected by increased
construction costs, weather delays, economic conditions and/or other
uncertainties.

Off-Balance Sheet Commitments - The Company is a party to financial instruments
with off-balance sheet risk in the normal course of business to meet the
financing needs of its customers.  These financial instruments generally include
commitments to originate mortgage, commercial and consumer loans, and involve to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the balance sheet.  The Company's maximum exposure to
credit loss in the event of nonperformance by the borrower is represented by the
contractual amount of those instruments.  Since some commitments may expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.  The Company uses the same credit policies
in making commitments as it does for on-balance sheet instruments.  Collateral
is not required to support commitments.

The following table sets forth the length of time until maturity for unused
commitments to extend credit and standby letters of credit at June 30, 2008.

                                   After     After
                                   One       Three              Greater
                          Within   Through   Through   Within   Than
                          One      Three     Twelve    One      One
(Dollars in thousands)    Month    Months    Months    Year     Year     Total
                          -----    ------    ------    ------   ------  -------
Unused lines of credit   $1,424   $ 4,740   $34,367   $40,531  $40,596  $81,127
Standby letters of credit     3        21       480       504       28      532
                          -----    ------    ------    ------   ------  -------
Total                    $1,427   $ 4,761   $34,847   $41,035  $40,624  $81,659
                          =====    ======    ======    ======   ====== =======

                                       22

<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.  The
Bank has rated favorably compared to thrift peers concerning interest rate
sensitivity.

For the three months ended June 30, 2008, 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 2.37%.  For the year ended March 31,
2008, the interest rate spread was 2.44%.  The Federal Reserve's recent interest
rate decreases resulted in lower yields on adjustable rate assets while intense
competition in the marketplace continued to affect interest rates paid on
deposit accounts. In addition, the Bank's liabilities tend to re-price at a more
gradual rate than its assets.

Item 4T. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures:  An evaluation of the
Company's disclosure controls and procedures (as defined in Rule 13a - 15(e) of
the Securities Exchange Act of 1934 ("Act")) 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 at
June 30, 2008 the Company's disclosure controls and procedures were 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.

(b) Changes in Internal Controls: In the quarter ended June 30, 2008, 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.

                                     23

<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 1A  Risk Factors
         ------------
There have been no material changes in the risk factors previously disclosed in
the Company's Annual Report on Form 10-K for the year ended March 31, 2008
except that the following risk factors are added to those previously contained
in the Form 10-K:

Our business is subject to general economic risks that could adversely impact
our results of operations and financial condition.

  * Changes in economic conditions, particularly a further economic slowdown in
    Aiken, Richland, and Lexington Counties in South Carolina and Columbia
    County in Georgia, could hurt our business.

Our business is directly affected by market conditions, trends in industry and
finance, legislative and regulatory changes, and changes in governmental
monetary and fiscal policies and inflation, all of which are beyond our control.
In 2007, the housing and real estate sectors experienced an economic slowdown
that has continued into 2008.  Further deterioration in economic conditions, in
particular within our primary market area real estate markets, could result in
the following consequences, among others, any of which could hurt our business
materially:

    o loan delinquencies may increase;
    o problem assets and foreclosures may increase;
    o demand for our products and services may decline; and
    o collateral for loans made by us, especially real estate, may decline in
      value, in turn reducing a customer's borrowing power and reducing the
      value of assets and collateral securing our loans.

  * Downturns in the real estate markets in our primary market area could hurt
    our business.

Our business activities and credit exposure are primarily concentrated in Aiken,
Richland, and Lexington Counties in South Carolina and Columbia County in
Georgia.  While we do not have any sub-prime loans, our construction and land
loan portfolios, our commercial and multifamily loan portfolios and certain of
our other loans have been affected by the downturn in the residential real
estate market.  We anticipate that further declines in the estate markets in our
primary market area will hurt our business.  As of June 30, 2008, substantially
all of our loan portfolio consisted of loans secured by real estate located in
Aiken, Richland, and Lexington Counties in South Carolina and Columbia County in
Georgia.  If real estate values continue to decline the collateral for our loans
will provide less security.  As a result, our ability to recover on defaulted
loans by selling the underlying real estate will be diminished, and we would be
more likely to suffer losses on defaulted loans.  The events and conditions
described in this risk factor could therefore have a material adverse effect on
our business, results of operations and financial condition.

  * We may suffer losses in our loan portfolio despite our underwriting
    practices.

We seek to mitigate the risks inherent in our loan portfolio by adhering to
specific underwriting practices.   Although we believe that our underwriting
criteria are appropriate for the various kinds of loans we make, we may incur
losses on loans that meet our underwriting criteria, and these losses may exceed
the amounts set aside as reserves in our allowance for loan losses.

Recent negative developments in the financial industry and credit markets may
continue to adversely impact our financial condition and results of operations.


Negative developments beginning in the latter half of 2007 in the sub-prime
mortgage market and the securitization markets for such loans, together with
substantially increased oil prices and other factors, have resulted in
uncertainty in the financial markets in general and a related general economic
downturn, which have continued in 2008.

                                      24

<PAGE>

                 Security Federal Corporation and Subsidiaries

Part II: Other Information, Continued

Many lending institutions, including us, have experienced substantial declines
in the performance of their loans, including construction and land loans,
multifamily loans, commercial loans and consumer loans.  Moreover, competition
among depository institutions for deposits and quality loans has increased
significantly. In addition, the values of real estate collateral supporting many
construction and land, commercial and multifamily and other commercial loans and
home mortgages have declined and may continue to decline. Bank and holding
company stock prices have been negatively affected, as has the ability of banks
and holding companies to raise capital or borrow in the debt markets compared to
recent years. These conditions may have a material adverse effect on our
financial condition and results of operations.  In addition, as a result of the
foregoing factors, there is a potential for new federal or state laws and
regulations regarding lending and funding practices and liquidity standards, and
bank regulatory agencies are expected to be very aggressive in responding to
concerns and trends identified in examinations, including the expected issuance
of formal enforcement orders.  Negative developments in the financial industry
and the impact of new legislation in response to those developments could
restrict our business operations, including our ability to originate or sell
loans, and adversely impact our results of operations and financial condition.

Liquidity risk could impair our ability to fund operations and jeopardize our
financial condition.

Liquidity is essential to our business. An inability to raise funds through
deposits, borrowings, the sale of loans and other sources could have a
substantial negative effect on our liquidity. Our access to funding sources in
amounts adequate to finance our activities or the terms of which are acceptable
to us could be impaired by factors that affect us specifically or the financial
services industry or economy in general. Factors that could detrimentally impact
our access to liquidity sources include a decrease in the level of our business
activity as a result of a downturn in the markets in which our loans are
concentrated or adverse regulatory action against us. Our ability to borrow
could also be impaired by factors that are not specific to us, such as a
disruption in the financial markets or negative views and expectations about the
prospects for the financial services industry in light of the recent turmoil
faced by banking organizations and the continued deterioration in credit
markets.

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

                                                      (c)Total    (d)Maximum
                                                      Number of    Number of
                                                       Shares       Shares
                                                      Purchased     that May
                                                      as Part of    Yet Be
                              Number of  (b)Average   Publicly     Purchased
                              Shares     Price Paid   Announced    Under the
   Period                     Purchased  per Share     Program     Program

April 1-April 30, 2008          700        $22.94         700        8,465
May 1-May 31, 2008            1,000         23.06       1,000        7,465
June 1-June 30, 2008          2,200         23.07       2,200        5,265
                          ----------------------------------------------------
Total                         3,900        $23.04       3,900        5,265
                          ====================================================

In May 2004, the Company's Board of Directors authorized a 5% repurchase plan,
or 126,000 shares of the Company's outstanding common stock.  As of June 30,
2008, 120,735 shares have been repurchased under this program.  The Company
repurchased 3,900 shares of its outstanding Common Stock during the three months
ended June 30, 2008.

Item 3  Defaults Upon Senior Securities
        -------------------------------
        None

Item 4  Submission Of Matters To A Vote Of Security Holders
        ---------------------------------------------------
        None

Item 5  Other Information
        -----------------
        None


                                     25

<PAGE>


                 Security Federal Corporation and Subsidiaries

Part II: Other Information, Continued

Item 6   Exhibits
         --------
         3.1   Articles Of Incorporation, as amended (1)
         3.2   Bylaws (2)
         4     Instruments defining the rights of security holders, including
                indentures (3)
         10.1  1993 Salary Continuation Agreements (4)
         10.2  Amendment One to 1993 Salary Continuation Agreement (5)
         10.3  Form of 2006 Salary Continuation Agreement(6)
         10.4  1999 Stock Option Plan (2)
         10.5  1987 Stock Option Plan (4)
         10.6  2002 Stock Option Plan (7)
         10.7  2004 Employee Stock Purchase Plan (8)
         10.8  Incentive Compensation Plan (4)
         10.9  Form of Security Federal Bank Salary Continuation Agreement (9)
         10.10 Form of Security Federal Split Dollar Agreement (9)
         10.11 2008 Equity Incentive Plan (10)
         14    Code of Ethics (11)
         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 on June 26, 1998, as an exhibit to the Company's Proxy Statement
          and incorporated herein by reference.
(2)      Filed on March 2, 2000, as an exhibit to the Company's Registration
          Statement on Form S-8 and incorporated herein by reference.
(3)      Filed on August 12, 1987, as an exhibit to the Company's Registration
          Statement on Form 8-A and incorporated herein by reference.
(4)      Filed on June 28, 1993, as an exhibit to the Company's Annual Report
          on Form 10-KSB and incorporated herein by reference.
(5)      Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB
          for the quarter ended September 30, 1993 and incorporated herein by
          reference.
(6)      Filed on May 24, 2006 as an exhibit to the Company's Current Report on
          Form 8-K dated May 18, 2006 and incorporated herein by reference.
(7)      Filed on June 19, 2002, as an exhibit to the Company's Proxy Statement
          and incorporated herein by reference.
(8)      Filed on June 18, 2004, as an exhibit to the Company's Proxy Statement
          and incorporated herein by reference.
(9)      Filed on May 24, 2006 as an exhibit to the Current Report on Form 8-K
          and incorporated herein by reference.
(10)     Filed on June 20, 2008, as an exhibit to the Company's Proxy Statement
          and incorporated herein by reference.
(11)     Filed on June 27, 2008 as an exhibit to the Company's Annual Report on
          Form 10-K and incorporated herein by reference.


                                      26

<PAGE>



                  Security Federal Corporation and Subsidiaries

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: August 14, 2008                 By:/s/Timothy W. Simmons
      ---------------                    --------------------------------
                                           Timothy W. Simmons
                                           President
                                           Duly Authorized Representative


Date: August 14, 2008                 By:/s/Roy G. Lindburg
      ---------------                    --------------------------------
                                           Roy G. Lindburg
                                           CFO
                                           Duly Authorized Representative








                                       27

<PAGE>






                                       EXHIBIT 31.1

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











                                        28

<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: August 14, 2008


                                          /s/Timothy W. Simmons
                                          ---------------------------
                                          Timothy W. Simmons
                                          President and Chief Executive Officer

                                      29
<PAGE>









                                  EXHIBIT 31.2

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








                                        30

<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: August 14, 2008

                                           /s/Roy G. Lindburg
                                           ---------------------------------
                                           Roy G. Lindburg
                                           Chief Financial Officer

                                      31

<PAGE>










                                   EXHIBIT 32

       Certification Pursuant to Section 906 of the Sarbanes Oxley Act









                                      32

<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


Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section
1350), each of the undersigned hereby certifies in his capacity as an officer of
Security Federal Corporation (the "Company") and in connection with the
Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2008 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 as
       of the dates and for the periods presented in the financial statements
       included in the Report.




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


Dated: August 14, 2008




                                        33

<PAGE>