SECURITY FEDERAL CORP (Form: S-1, Received: 07/13/2009 16:29:23)

The information in this prospectus is not complete and may be changed. We cannot sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state or jurisdiction where the offer or sale is not permitted.

Subject to Completion

Preliminary Prospectus dated _______, 2009

PROSPECTUS

$5,000,000 Minimum/$15,000,000 Maximum

SECURITY FEDERAL CORPORATION

[LOGO]

8.0% Convertible Senior Debentures due 2029

Security Federal Corporation is offering an aggregate of up to $15.0 million principal amount of its 8.0% convertible senior debentures due December 1, 2029, which are referred to in this prospectus as the debentures. The debentures will be sold in minimum denominations of $5,000 and increments of $1,000 thereafter, up to a maximum amount of $1.0 million per subscriber. We will not accept subscriptions that would cause any investor to own or control more than 10% of our common stock following completion of this offering, including shares issuable upon the conversion of the debentures, unless this limitation is waived in one or more instances by our board of directors. We will sell debentures only by subscription, on a first priority basis to existing shareholders of record as of _____, 2009 located in the states of South Carolina and Georgia and then to the extent available, to members of the general public located in the states of South Carolina and Georgia. Our directors, director emeritus and executive officers intend to subscribe for approximately $2.7million of debentures in this offering in their capacity as existing shareholders. We may accept or reject any subscription in whole or in part in our sole discretion. Please make subscription checks payable to "Security Federal Corporation." We will not escrow your subscription funds. Subscription funds will be deposited into an account at our subsidiary, Security Federal Bank. You will become a debenture holder when we accept your subscriptions and issue a debenture to you after the completion of the offering. The offering is scheduled to end on _____________, 2009, but we may extend the offering until __________, 2009, at the latest. If subscriptions for a total of at least $5.0 million of debentures are not received by ____________, 2009, no debentures will be sold and subscribers' funds will be refunded promptly, with each subscriber's pro rata share of any interest actually earned on subscription funds. There is no selling agent or underwriter involved in this offering. Our directors, officers and certain employees will offer and sell the debentures on a best-efforts basis without compensation. Once we accept your subscription, you may not revoke it without our consent. We may also terminate the offering at any time.

The debentures are convertible at any time prior to maturity, unless previously redeemed. The debentures are convertible into common stock, par value $.01 per share, of Security Federal Corporation, at a conversion rate of 50 shares of common stock for each $1,000 principal amount of debentures (equivalent to a conversion price of $20.00 per share), subject to adjustment in certain events. On _____, 2009, the last reported sale price of the common stock on the OTC Bulletin Board (symbol "SFDL.OB") was $____ per share. The high bid and low asked prices for the common stock on that date were $____ and $____ per share, respectively. The debentures will not be listed for trading on the OTC Bulletin Board or any securities exchange; consequently it is anticipated the debentures will not be readily marketable. See "Market For Our Common Stock and Dividends."

The debentures will mature on December 1, 2029 and will accrue interest at the rate of 8.0% per annum until maturity or earlier redemption or repayment. Interest on the debentures is payable on June 1 and December 1 of each year, commencing December 1, 2009. The debentures are redeemable, in whole or in part, at the option of Security Federal Corporation at any time on or after December 1, 2019, at a price equal to 100% of the principal amount of the debentures to be purchased plus any accrued and unpaid interest to, but excluding, the date of redemption. The debentures will be unsecured general obligations of Security Federal Corporation ranking equal in right of payment to all of our present and future unsecured indebtedness that is not expressly subordinated. If at any time after the earlier of (i) December 19, 2011 and (ii) the date on which all of the shares of our Series A Preferred Stock have been redeemed by us or transferred by the U.S. Treasury to third parties, we experience a fundamental change, holders may require us to repurchase for cash all or a portion of their debentures at a price equal to 101% of the principal amount of the debentures to be repurchased plus any accrued and unpaid interest to, but excluding, the date of repurchase See "Description of Debentures" beginning on page ____.

Investing in the debentures offered by this prospectus involves risks. See "Risk Factors" beginning on page __ of this prospectus.

The securities offered hereby are not savings accounts or deposits and are not insured by the Federal Deposit Insurance Corporation or any other government agency.

Neither the Securities and Exchange Commission, the Office of Thrift Supervision, nor any federal agency or state securities commission has approved disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

	Price to Public(1)			Proceeds to Security Federal Corporation(1)(2)
Per Debenture		100	%		100	%
Per Minimum Purchase	$	5,000		$	5,000
Total Minimum	$	5,000,000		$	5,000,000
Total Maximum	$	15,000,000		$	15,000,000
Total

(1) Plus accrued interest, if any, from _______, 2009.

(2) Before deducting expenses payable by us, estimated at $____.

The date of this Prospectus is _______, 2009

TABLE OF CONTENTS

WHERE YOU CAN FIND MORE INFORMATION	1
PROSPECTUS SUMMARY	2
RISK FACTORS	6
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA	22
A WARNING ABOUT FORWARD-LOOKING STATEMENTS	24
SECURITY FEDERAL CORPORATION	26
USE OF PROCEEDS	26
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES	27
MARKET FOR OUR COMMON STOCK AND DIVIDENDS	28
CAPITALIZATION	29
DESCRIPTION OF THE DEBENTURES	30
DESCRIPTION OF THE CAPITAL STOCK	42
RESTRICTIONS ON ACQUISITIONS OF STOCK AND RELATED TAKEOVER
DEFENSIVE PROVISIONS	46
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS	48
PLAN OF DISTRIBUTION AND PROCEDURE FOR PURCHASING DEBENTURES	50
LEGAL MATTERS	51
EXPERTS	51

You should rely only on the information contained in or incorporated by reference in this prospectus and any "free writing prospectus" we authorize to be delivered to you. We have not authorized anyone to provide you with additional information or information different from that contained in or incorporated by reference in this prospectus and any such "free writing prospectus." We are offering to sell, and seeking offers to buy, our 8.0% Convertible Senior Debentures due 2029 only in jurisdictions where those offers and sales are permitted. The information contained in or incorporated by reference in this prospectus and any such "free writing prospectus" is accurate only as of their respective dates. Our business, financial condition, results of operations and prospects may have changed since those dates.

This prospectus describes the specific details regarding this offering and the terms and conditions of the debentures being offered hereby, including the principal amount, interest rate and terms and conditions upon which our debentures are convertible into shares of our common stock, and the risks of investing in our debentures and our common stock. To the extent information in this prospectus is inconsistent with any of the documents incorporated by reference into this prospectus, you should rely on this prospectus. You should read this prospectus together with the additional information about us described in the section entitled "Where You Can Find More Information."

As used in this prospectus, the terms "we," "our" and "us" refer to Security Federal Corporation and its consolidated subsidiaries, unless the context indicates otherwise. When we refer to the "Bank" in this prospectus, we are referring to Security Federal Bank, a wholly owned subsidiary of Security Federal Corporation.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may inspect without charge any documents filed by us at the Public Reference Room of the Securities and Exchange Commission or SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain copies of all or any part of these materials from the SEC upon the payment of certain fees prescribed by the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. The SEC also maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. Our filings with the SEC are available to the public through the SEC's website at www.sec.gov.

We have filed with the SEC a registration statement on Form S-1 relating to the securities covered by this prospectus. This prospectus is part of the registration statement and does not contain all of the information in the registration statement. You will find additional information about us in the registration statement. Any statement made in this prospectus concerning a contract or other document of ours is not necessarily complete, and you should read the documents that are filed as exhibits to the registration statement or otherwise filed with the SEC for a more complete understanding of the document or matter. Each such statement is qualified in all respects by reference to the document to which it refers. You may inspect without charge a copy of the registration statement at the SEC's Public Reference Room in Washington D.C., as well as through the SEC's website.

Our recent SEC filings are also available to the public free of charge at our website at www.securityfederalbank.com. Except to the extent it contains the documents specifically incorporated by reference below, the information on our website is not incorporated by reference into the registration statement or the prospectus.

As allowed by the SEC's rules, we "incorporate by reference" certain information that we file with the SEC, which means that we can disclose important information to you by referring you to other documents. The information incorporated by reference is an important part of this prospectus.

We incorporate by reference into this prospectus the documents listed below:

·	Annual Report on Form 10-K for the fiscal year ended March 31, 2009.

Notwithstanding the above, we are not incorporating by reference any documents or information deemed to have been "furnished" and not "filed" in accordance with SEC rules.

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere or incorporated by reference in this prospectus and does not contain all of the information you need to consider in making your investment decision. You should read carefully the entire prospectus and the documents incorporated by reference herein and therein, including the section entitled "Risk Factors" and read our consolidated financial statements and the notes thereto before making an investment decision.

The debentures offered hereby are unsecured obligations of Security Federal Corporation, are not savings accounts, deposits or other obligations of any depository institution or subsidiary of Security Federal Corporation and are not insured by the Federal Deposit Insurance Corporation, also referred to in this document as the FDIC, or any other government agency.

SECURITY FEDERAL CORPORATION

Security Federal Corporation was incorporated under the laws of the State of Delaware in July 1987 for the purpose of becoming the savings and loan holding company for Security Federal Bank, otherwise referred to in this prospectus as the Bank, upon the Bank's conversion from the mutual form of ownership to the stock form of ownership. Effective August 17, 1998, Security Federal Corporation changed its state of incorporation from Delaware to South Carolina. Security Federal Corporation's common stock is quoted on the OTC Bulletin Board under the symbol "SFDL.OB."

We serve our primary market areas, Aiken, Richland and Lexington Counties, South Carolina, and Columbia, County, Georgia, through our 13 retail banking offices. At March 31, 2009, we had total assets of $984.7 million, including loans receivable, net, of $611.1 million, investment and mortgage-backed securities of $314.1 million, deposits of $661.7 million and shareholders' equity of $67.1 million.

Our principal business is accepting deposits from the general public and originating commercial business and real estate loans and, to a lesser extent, residential mortgage loans to enable borrowers to purchase or refinance one- to four-family residential real estate. In addition, we make consumer loans and construction loans on single family residences, multi-family dwellings and commercial real estate, as well as loans for the acquisition, development and construction of residential subdivisions and commercial projects. Additional financial services are provided by three of our wholly owned subsidiaries, Security Federal Insurance, Inc., Security Federal Investments, Inc. and Security Federal Trust, Inc. Effective April 1, 2009, in an effort to streamline costs and lessen the regulatory burden, we plan to merge Security Federal Investments, Inc. and Security Federal Trust, Inc. into the Bank. As a result, the two subsidiaries will cease to exist separately and will instead become departments of the Bank.

Our income is derived primarily from interest and fees earned in connection with our lending activities, and our principal expenses are interest paid on savings deposits and borrowings and operating expenses. Our results of operations are largely dependent upon our net interest income, which is the difference between the interest we receive on our loan portfolio and our securities portfolio and the interest we pay on our deposit accounts and borrowings, and our asset quality.

We have recently achieved significant growth. Our consolidated assets have increased from $586.0 million at March 31, 2005 to $984.7 million at March 31, 2009. Although we expect our growth rate to slow down in light of the current recessionary economy, our long term business strategy is to grow in a reasonable manner through the expansion of our branch network either by purchasing branches from other financial institutions or establishing new branches in suitable locations within our existing market areas. This will permit us to continue to meet the financial services needs of the communities we serve and to take advantage of the projected growth in population and income which management believes will occur in our primary market areas. In addition, our business strategy includes the possible acquisition of other financial services institutions and related companies operating generally within our market areas. Although we have no current written or oral arrangements, commitments or understandings relating to current acquisitions, on an ongoing basis we enter into possible acquisition discussions consistent with our business strategy.

Our executive office is located at 238 Richland Avenue West, Aiken, South Carolina 29801, and our telephone number is (803) 641-3000.

Recent Developments

On December 19, 2008, pursuant to the Troubled Asset Relief Program Capital Purchase Program of the United States Department of the Treasury ("Treasury"), we sold to Treasury 18,000 shares of our Fixed Rate Cumulative Perpetual Preferred Stock, Series A, referred to in this prospectus as the "Series A Preferred Stock", liquidation preference amount $1,000 per share, for an aggregate purchase price of $18.0 million, and concurrently issued to Treasury a ten-year warrant to purchase up to 137,966 shares of our common stock at an exercise price of $19.57 per share. The Series A Preferred Stock is entitled to cumulative dividends at a rate of 5% per annum for the first five years, and 9% per annum thereafter. The issuance of the Series A Preferred Stock and the warrant were completed in a private placement to Treasury exempt from the registration requirements of the Securities Act of 1933. The terms of the Series A Preferred Stock are described under "Description of the Capital Stock—Series A Preferred Stock." The securities purchase agreement between us and Treasury was attached as Exhibit 10.1 to our Current Report on Form 8-K filed on December 23, 2008 and incorporated into this prospectus by reference. See "Where You Can Find More Information."

THE OFFERING

Debentures Offered		Up to $15.0 million aggregate principal amount of 8.0% Convertible Senior Debentures due 2029.
Maturity Date		December 1, 2029
Interest Payment Dates		June 1 and December 1 of each year, commencing December 1, 2009.
Conversion Rights		The debentures are convertible into our common stock at any time prior to maturity, unless previously redeemed. The debentures are convertible into our common stock at a conversion rate of 50 shares of common stock for each $1,000 principal amount of debentures (equivalent to a conversion price of $20.00 per share), subject to adjustment in certain events described herein, unless previously redeemed. See "Description of the Debentures - Conversion Rights."
Optional Redemption by us		The debentures may be redeemed at our option, whole or in part, at any time on or after December 1, 2019 at the redemption price equal to 100% of the principal amount of the debentures to be redeemed, plus accrued and unpaid interest, if any, to but excluding the redemption date. See "Description of the Debentures - Optional Redemption."
Mandatory Redemption		None.
Fundamental change		If at any time after the earlier of (i) December 19, 2011 and (ii) the date on which all of the shares of the Series A Preferred Stock have been redeemed by us or transferred by Treasury to third parties, we undergo a fundamental change (as defined herein), holders may require us to repurchase all or a portion of their debentures at a repurchase price equal to 101% of the principal amount of the debentures to be repurchased plus any accrued and unpaid interest, if any, to, but excluding, the repurchase date. See "Description of the Debentures–Fundamental Change Permits Holders to Require Us to Repurchase Debentures."

Ranking

The debentures will rank:

●	senior in right of payment to all our existing and future subordinated indebtedness, including our $5.2 million of floating rate junior subordinated deferrable interest debentures due 2036;

●	equal in right of payment to all our present and future unsecured indebtedness that is not expressly subordinated; and

●	effectively subordinated to all of our subsidiaries' obligations (including secured and unsecured obligations) and subordinated in right of payment to our secured obligations, to the extent of the assets securing such obligations.

As of March 31, 2009, we had no indebtedness senior or equal in right of payment to the dedentures. While the indenture governing the terms and conditions of the debentures prohibits us from incurring unsecured indebtedness that would be senior in right of payment to the debentures, it does not otherwise prohibit or limit the incurrence of additional indebtedness. Because Security Federal Corporation is a corporation without significant assets, other than its equity interest in the Bank, in a bankruptcy or liquidation proceeding, claims of holders of the debentures may be satisfied solely from the equity interest in the Bank remaining after satisfaction of all claims of creditors of the Bank (including depositors).

Sinking Fund

None.

Covenants

The debentures and the related indenture do not contain any financial maintenance or similar covenants. However, the indenture, among its other provisions, restricts our ability to grant liens, enter into certain transactions with affiliates, dispose of the Bank or its assets, pay dividends on, or repurchase our common stock under certain circumstances, and prohibits us from consolidating or mergin with another entity unless:

●	the other entity assumes our obligations under the indenture,

●	immediately after the merger or consolidation takes effect, we will not be in default and no event which, after notice or lapse of time or both, would become a default, under the indenture, and

●	certain other conditions are met including delivery by us to the indenture trustee of an appropriate opinion of counsel. See "Description of te Debentures - Consolidation, Merger and Sale of Assets."

Rights of Acceleration	If an event of default has occurred and is continuing, the trustee or the holders of at least 25% in pricipal amount of the then outstanding debentures may declare the principal amount of all the debentures, tegether with accrued but unpaid interest thereon, to be immediately due and payable, subject in certain circumstances to rescission or waiver by the holders of at least a majority in principal amount of debentures. See "Description of the Debentures - Events of Default."
Use of Proceeds	We intend to utilize up to $5.0 million of the net proceeds to repay a line of credit with another financial institution. The unsecured line of credit has an interest rate equal to one month LIBOR plus 2.0%. At March 31, 2009 the interest rate was 2.52%. We intend to utilize any remaining net proceeds for general corporate purposes, which may include future acquisitions as well as investments in or extensions of credit to Security Federal Bank and our existing or future subsidiaries. See "Use of Proceeds."
Common Stock Outstanding	At March 31, 2009, there were 2,459,595 shares of Security Federal Corporation common stock issued and outstanding and 18,000 shares of our preferred stock issued and outstanding, all of which consisted of our Series A Preferred Stock, which we issued, along with a ten-year warrant to purchase 137,966 shares of our common stock, to Treasury on December 19, 2008 pursuant to Treasury's Troubled Asset Relief Program Capital Purchase Program. In addition, an aggregate of 100,500 shares of common stock were issuable upon exercise of oustanding stock options at March 31, 2009, none of which had an exercise price less than the market price of the common stock as of that date.
Risk Factors	See "Risk Factors."
Listing	It is not our intention to list the debentures on any securities exchange. Our common stock is quoted on the OTC Bulletin Board under the symbol "SFDL.OB".

RISK FACTORS

An investment in our debentures involves various risks which are particular to us, our industry, and our market area. Before making an investment decision, you should carefully consider the risks and uncertainties described below, together with all of the other information included in this prospectus. In addition to the risks and uncertainties described below, other risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and results of operations. The value or market price of our debentures and the common stock to be issued upon conversion of the debentures could decline due to any of these identified or other risks, and you could lose all or part of your investment.

Risks Relating to Recent Economic Conditions and Governmental Response Efforts

Recently enacted legislation and other measures undertaken by the Treasury, the Federal Reserve and other governmental agencies may not help stabilize the U.S. financial system or improve the housing market.

Emergency Economic Stabilization Act of 2008. On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008 (EESA) which, among other measures, authorized the Treasury Secretary to establish the Troubled Asset Relief Program (TARP). The EESA gives broad authority to the Treasury to purchase, manage, modify, sell and insure the troubled mortgage related assets that triggered the current economic crisis as well as other troubled assets. The EESA includes additional provisions directed at bolstering the economy, including: authority for the Federal Reserve to pay interest on depository institution balances; mortgage loss mitigation and homeowner protection; temporary increase in FDIC insurance coverage from $100,000 to $250,000 through December 31, 2009; and authority for the Securities and Exchange Commission to suspend mark-to-market accounting requirements for any issuer or class for a specific category of transactions.

Pursuant to the TARP, the Treasury has the authority to, among other things, purchase up to $700 billion in mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets.

The EESA followed numerous actions by the Federal Reserve, Congress, Treasury, the Securities and Exchange Commission, and others to address the currently liquidity and credit crisis that has followed the sub-prime meltdown that commenced in 2007. These measures include homeowner relief that encourages loan restructuring and modification; the establishment of significant liquidity and credit facilities for financial institutions and investment banks; the repeated lowering of the federal funds rate; emergency action against short selling practices; a temporary guaranty program for money market funds; the establishment of a commercial paper funding facility to provide back-stop liquidity to commercial paper issuers; coordinated international efforts to address illiquidity and other weaknesses in the banking sector.

In addition, the Internal Revenue Service has issued an unprecedented wave of guidance in response to the credit crisis, including a relaxation of limits on the ability of financial institutions that undergo an ownership change to utilize their pre-change net operating losses and net unrealized built-in losses. The relaxation of these limits may make significantly more attractive the acquisition of financial institutions whose tax basis in their loan portfolios significantly exceeds the fair market value of those portfolios.

Moreover, on October 14, 2008, the FDIC announced the establishment of a TLGP to provide full deposit insurance for all non-interest bearing transaction accounts and guarantees of particular newly issued senior unsecured debt issued by FDIC insured institutions and their holding companies. Under the program, the FDIC will guarantee timely payment of newly issued senior unsecured debt issued on or before October 31, 2009. The guarantee on debt issued before April 1, 2009, will expire no later than June 30, 2012. The guarantee on debt issued on or after April 1, 2009, will expire not later than December 31, 2012. The Bank has elected to participate in the TLGP.

The actual impact that EESA and such related measures undertaken to alleviate the credit crisis, including the extreme levels of volatility and limited credit availability currently being experienced, is unknown. The failure of such measures to help stabilize the financial markets and a continuation or worsening of current financial market conditions could materially and adversely affect our business, financial condition, results of operations, access to credit or the trading price of our common stock.

American Recovery and Reinvestment Act of 2009. On February 17, 2009, President Obama signed The American Recovery and Reinvestment Act of 2009, (ARRA), into law. The ARRA is intended to revive the US economy by creating millions of new jobs while reducing home foreclosures. In addition, the ARRA significantly rewrites the original executive compensation and corporate governance provisions of Section 111 of the EESA, which pertains to financial institutions that have received or will receive financial assistance under TARP or related programs. The specific impact that these measures may have on us is unknown.

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

We are particularly exposed to downturns in the U.S. housing market. Dramatic declines in the housing market over the past year -- with falling home prices, increases in foreclosures, unemployment and under-employment -- have negatively impacted the credit performance of mortgage loans and resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities, major commercial and investment banks, and regional financial institutions such as us. Concerned about the stability of the financial markets and the strength of counterparties, many lenders and institutional investors have reduced or ceased providing funding to borrowers, including funding to other financial institutions. This market turmoil and tightening of credit have led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility, and widespread reduction of business activity generally. The resulting economic pressures on consumers and lack of confidence in the financial markets have adversely affected our business, financial condition and results of operations. We do not expect that the difficult conditions in the financial markets are likely to improve in the near future. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on us and others in the financial institutions industry. In particular, we may face the following risks in connection with these events:

●	We potentially face increased regulation of our industry. Compliance with such regulation may increase our costs and limit our ability to pursue business opportunities.

●	Our ability to assess the creditworthiness of our customers may be impaired if the models and approaches we use to select, manage and underwrite our customers become less predictive of future behaviors.

●

The process we use to estimate losses inherent in our loan and investment portfolios requires difficult, subjective and complex judgments, including forecasts of economic conditions, particularly with respect to how these economic conditions might impair the ability of our borrowers and trust preferred securities issuers to repay their debts. The level of uncertainty concerning economic conditions may adversely affect the accuracy of our estimates which may, in turn, impact the reliability of the process.

●	Competition in our industry could intensify as a result of the increasing consolidation of financial services companies in connection with current market conditions.

We expect to pay significantly higher FDIC premiums because market developments have significantly depleted the FDIC insurance fund and the ratio of reserves to insured deposits has declined.

Current levels of market volatility are unprecedented and could adversely affect our liquidity, results of operations and financial condition.

The capital and credit markets have been experiencing volatility and disruption for more than a year reaching unprecedented levels. In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those issuers' underlying financial strength. If current levels of market disruption and volatility continue or worsen, our ability to access capital may be adversely affected, which in turn could adversely affect our business, financial condition and results of operations.

We may be required to make further increases in our provisions for loan losses and to charge off additional loans in the future, which could adversely affect our results of operations.

For the year ended March 31, 2009 we recorded a provision for loan losses of $2.8 million compared to $895,000 for the year ended March 31, 2008, an increase of $1.9 million. We also recorded net loan charge-offs of $745,000 for the year ended March 31, 2009 compared to $250,000 for the year ended March 31, 2008. We are

experiencing increasing loan delinquencies and credit losses. Generally, our non-performing loans and assets reflect operating difficulties of individual borrowers resulting from weakness in the local economy, however, more recently the deterioration in the general economy has become a significant contributing factor to the increased levels of delinquencies and nonperforming loans. Slower sales and excess inventory in the housing market has been the primary cause of the increase in delinquencies and foreclosures for residential construction and land development loans, which represent 77.0% of our nonperforming assets at March 31, 2009. In addition, slowing housing sales have been a contributing factor to the increase in non-performing loans as well as the increase in delinquencies. At March 31, 2009 our total non-performing loans had increased to $12.9 million or 2.13% of net loan receivable compared to $6.0 million or 1.17% of net loan receivable at March 31, 2008. If current trends in the housing and real estate markets continue, we expect that we will continue to experience higher than normal delinquencies and credit losses. Moreover, if a prolonged recession occurs, we expect that if could severely impact economic conditions in our market areas and that we could experience significantly higher delinquencies and credit losses. As a result, we may be required to make further increases in our provision for loan losses and to charge off additional loans in the future, which could adversely affect our financial condition and results of operations, perhaps materially. exercise of the warrant is not bound by this restriction.

Risks specific to our participation in TARP

Impact on executive compensation. As a participant in the Treasury's CPP, we became subject to the executive compensation requirements under the CPP, the EESA and Treasury regulations. The requirements that apply to us and our named executive officers are as follows:

·	incentive compensation arrangements may not encourage officers to take unnecessary risks;

·	any bonus or incentive compensation paid to an officer based on statements of earnings, gains or other criteria that are later proved to be materially inaccurate must be repaid (known as "clawback"); and

·	payments to an officer upon termination of employment may not exceed 2.99 times the officer's base amount (as defined in Section 280G of the Internal Revenue Code of 1986) (known as a "golden parachute payment").

In addition, our Compensation Committee must identify the features in the named executive officers' compensation arrangements that could lead officers to take unnecessary and excessive risks that could threaten our value. The Committee must also have a meeting at least annually with our senior risk officers to discuss and review the relationship between our risk management policies and practices and named executive officer compensation arrangements.

We became subject to the additional executive compensation limitations in connection with the enactment of ARRA on February 17, 2009. The ARRA amends, among other things, the TARP legislation by directing the Treasury Department to issue regulations implementing strict limitations on compensation paid or accrued by financial institutions, such as us, participating in the TARP. These limitations are to include:

·	a prohibition on any compensation plan that would encourage manipulation of reported earnings;

·	subjecting bonus, incentive and retention payments made to the named executive officers and the next 20 most highly compensated employees to recovery if based on statements of earnings, revenues, gains or other criteria that are later found to be materially inaccurate;

·	a prohibition on making golden parachute payments (in any amount) to the named executive officers and the next five most highly compensated employees for departure from us other than compensation earned for services rendered or accrued benefits; and

·	a prohibition on paying bonus, incentive or retention compensation to the named executive officers, other than certain awards of long-term restricted stock or bonuses payable under existing employment agreements.

In addition, the Board of Directors must adopt a policy regarding excessive or luxury expenditures, such as entertainment or events, office renovations and other activities that are not reasonable expenditures for staff development. We are also required to submit a "say-on-pay" proposal to a non-biding vote of shareholders at future

annual meetings, whereby shareholders vote to approve the compensation of executives as disclosed pursuant to the executive compensation disclosures included in the proxy statement. This proposal will be presented at the 2009 Annual Meeting of Shareholders and is described in our proxy statement under "Proposal 2 - Advisory Vote on Executive Compensation." In addition, there are a number of certifications by the Chief Executive Officer, Chief Financial Officer and Compensation Committee that will be required in connection with these regulations. Finally, the Treasury Department is required to review any bonus, retention awards or other compensation paid to our named executive officers and the next 20 most highly compensated employees to determine if these payments were excessive and negotiate for the reimbursement of any such excess payments.

The ARRA directs the Treasury Department to issue regulations implementing the executive compensation restrictions. Many questions remain regarding the scope of the limitations and the requirements of the ARRA because none of the regulations mandated by the law have been issued to date. Pending the issuance of regulations, we are reviewing the requirements of the ARRA, its impact on compensation, and the effect of its requirements on our compensation arrangements. Actions required by the ARRA and consideration of competitive factors may include changes to the form and amount of compensation paid to our executive officers, including adjustments to base salaries, the reduction or elimination of bonus compensation, issuance of long-term restricted stock awards and modifications to existing agreements.

The securities purchase agreement between us and Treasury limits our ability to pay dividends on and repurchase our common stock.

The securities purchase agreement between us and Treasury provides that prior to the earlier of (i) December 19, 2011 and (ii) the date on which all of the shares of the Series A Preferred Stock have been redeemed by us or transferred by Treasury to third parties, we may not, without the consent of Treasury, (a) increase the cash dividend on our common stock or (b) subject to limited exceptions, redeem, repurchase or otherwise acquire shares of our common stock or preferred stock other than the Series A Preferred Stock or trust preferred securities. In addition, we are unable to pay any dividends on our common stock unless we are current in our dividend payments on the Series A Preferred Stock. These restrictions, together with the potentially dilutive impact of the warrant described in the next risk factor, could have a negative effect on the value of our common stock. Moreover, holders of our common stock are entitled to receive dividends only when, as and if declared by our Board of Directors. Although we have historically paid cash dividends on our common stock, we are not required to do so and our Board of Directors could reduce or eliminate our common stock dividend in the future.

The Series A Preferred Stock impacts net income available to our common shareholders and earnings per common share and the warrant we issued to Treasury may be dilutive to holders of our common stock.

The dividends declared on the Series A Preferred Stock will reduce the net income available to common shareholders and our earnings per common share. The Series A Preferred Stock will also receive preferential treatment in the event of our liquidation, dissolution or winding up. Additionally, the ownership interest of the existing holders of our common stock will be diluted to the extent the warrant we issued to Treasury in conjunction with the sale of the Series A Preferred Stock is exercised. The shares of common stock underlying the warrant represent approximately 5.31% of the shares of our common stock outstanding as of March 31, 2009 (including the shares issuable upon exercise of the warrant in total shares outstanding). Although Treasury has agreed not to vote any of the shares of common stock it receives upon exercise of the warrant, a transferee of any portion of the warrant or of any shares of common stock acquired upon

Risks Related to Our Market and Business

We are subject to extensive regulation that could restrict our activities and impose financial requirements or limitations on the conduct of our business.

We are subject to extensive examinations, supervision and comprehensive regulation by the OTS, the FDIC, and the Federal Reserve Board. Banking regulations are primarily intended to protect depositors' funds, the federal deposit insurance fund and the banking system as a whole, and not shareholders or debt holders. These regulations affect our lending practices, capital structure, investment practices, dividend policy, and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways. These changes could subject us to additional costs, limit the types of financial services and products we may offer and/or

increase the ability of non-banks to offer competing financial services and products, among other things. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on our business, financial condition and results of operations. While we have policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur.

Our compliance with these regulations is costly and may restrict certain activities, including but not limited to, payment of dividends on our common stock, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on deposits, access to capital and brokered deposits and location of banking offices. If we were unable to meet these or other regulatory requirements, our financial condition, liquidity, and results of operations would be materially and adversely affected.

Our federal thrift charter may be eliminated under the Administration’s Financial Regulatory Reform Plan.

The administration has proposed the creation of a new federal government agency, the National Bank Supervisor ("NBS") that would charter and supervise all federally chartered depository institutions, and all federal branches and agencies of foreign banks. It is proposed that the NBS take over the responsibilities of the Office of the Comptroller of the Currency, which currently charters and supervises nationally chartered banks, and responsibility for the institutions currently supervised by the Office of Thrift Supervision, which supervises federally chartered thrift and thrift holding companies, such as Security Federal Corporation and Security Federal Bank. In addition, under the administration's proposal, the thrift charter, under which Security Federal Bank is organized, would be eliminated. If the administration’s proposal is finalized, Security Federal Bank may be subject to a new charter mandated by the NBS. There is no assurance as to how this new charter, or the supervision by the NBS, will affect our operations going forward.

If our allowance for loan losses is not sufficient to cover actual loan losses or if we are required to increase our provision for loan losses, our earnings could be reduced.

We make various assumptions and judgments about the collectibility of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the amount of the allowance for loan losses, we review our loans and the loss and delinquency experience, and evaluate economic conditions. Management recognizes that significant new growth in loan portfolios, new loan products and the refinancing of existing loans can result in portfolios comprised of unseasoned loans that may not perform in a historical or projected manner. If our assumptions are incorrect, the allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, resulting in the need for additions to our allowance through an increase in the provision for loan losses. Material additions to the allowance or increases in our provision for loan losses could have a material adverse effect on our financial condition and results of operations. Our allowance for loan losses was 1.65% of total loans and 78.8% of nonperforming loans at March 31, 2009.

In addition, bank regulators periodically review our allowance for loan losses and may require us to increase our allowance for loan losses or recognize further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by the bank regulators, may have a materially adverse effect on our financial condition and results of operations.

Furthermore, we may elect to increase our provision for loan losses in light of our assessment of economic conditions and other factors from time to time. We may elect to make further increases in our quarterly provision for loan losses in the future, particularly if economic conditions continue to deteriorate, which also could have a materially adverse effect on our financial condition and results of operations.

Our business is subject to general economic risks in Aiken, Richland, and Lexington Counties in South Carolina and Columbia County in Georgia, that could adversely impact our results of operations and financial condition.

Our success depends primarily on the general economic conditions of the states of South Carolina and Georgia and the specific local markets in which we operate. Unlike larger national or other regional banks that are more geographically diversified, we provide banking and financial services to customers located primarily in Aiken, Richland, and Lexington Counties in South Carolina and Columbia County in Georgia. As of March 31, 2009, substantially our entire real estate portfolio consisted of loans secured by properties located in these four counties. The local economic conditions in our market areas have a significant impact on the demand for our products and

services as well as the ability of our customers to repay loans, the value of the collateral securing loans and the stability of our deposit funding sources.

Adverse economic conditions unique to these markets could have a materially adverse effect on our financial condition and results of operations. Further, a significant decline in general economic conditions, caused by inflation, recession, acts of terrorism, outbreak of hostilities or other international or domestic occurrences, unemployment, changes in securities markets, or other factors could impact these state and local markets and, in turn, could result in the following consequences, any of which could hurt our business materially:

·	loan delinquencies may increase;

·	problem assets and foreclosures may increase;

·	demand for our products and services may decline; and

·	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.

Our business activities and credit exposure are primarily concentrated in Aiken, Richland, and Lexington Counties in South Carolina and Columbia County in Georgia. Beginning in 2007 and throughout 2008, the housing market in the United States has experienced significant adverse trends, including accelerated price depreciation in some markets and rising delinquency and default rates. Our construction and land, commercial and multifamily loan portfolios and certain of our other loans have been affected by the downturn in the residential real estate market. During 2008, evidence of this downturn became more apparent in the markets we serve. We anticipate that further declines in the estate markets in our primary market area will hurt our business. As of March 31, 2009, 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 and our ability to recover on defaulted loans by selling the underlying real estate will be diminished, making it more likely that we will suffer losses on defaulted loans. As a result of these trends, we have recently experienced an increase in delinquency and default rates in our primary market areas. These trends if they continue or worsen could cause further credit losses and loan loss provisioning and could adversely affect our earnings 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.

Our loan portfolio is concentrated in loans with a higher risk of loss.

We originate loans collateralized by commercial business and commercial real estate loans, as well as residential mortgage loans primarily within our market areas. Generally, commercial business and commercial real estate loans, have a higher risk of loss than the residential mortgage loans. We had approximately $425.4 million outstanding in these types of higher risk loans at March 31, 2009. These loans have greater credit risk than residential real estate for a number of reasons, including those described below:

Our emphasis on commercial lending may expose us to increased lending risks. Our current business strategy is focused on the expansion of commercial real estate and commercial business lending. These types of lending activities, while potentially more profitable than single-family residential lending, are generally more sensitive to regional and local economic conditions, making loss levels more difficult to predict. Collateral evaluation and financial statement analysis in these types of loans requires a more detailed analysis at the time of loan underwriting and on an ongoing basis. In our primary market of Aiken, Richland, and Lexington Counties in South Carolina and Columbia County in Georgia, the housing market has slowed, with weaker demand for housing, higher inventory levels and longer marketing times. A further downturn in housing, or the real estate market, could increase loan delinquencies, defaults and foreclosures, and significantly impair the value of our collateral and our ability to sell the collateral upon foreclosure. In addition, these loans generally expose a lender to greater risk of non-payment and loss because repayment of the loans often depends on the successful operation of the property and the income stream of the borrowers. Further, these loans typically involve larger loan balances to single borrowers or groups of related borrowers. Also, many of our commercial borrowers have more than one loan outstanding with

us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss. Accordingly, when there are defaults and losses on these types of loans, they are often larger on a per loan basis than those for permanent single-family or consumer loans. A secondary market for most types of commercial real estate and construction loans is not readily liquid, so we have less opportunity to mitigate credit risk by selling part or all of our interest in these loans.

Repayment of our commercial business loans is often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in value. Commercial lending involves risks that are different from those associated with residential and commercial real estate lending. Real estate lending is generally considered to be collateral based lending with loan amounts based on predetermined loan to collateral values and liquidation of the underlying real estate collateral being viewed as the primary source of repayment in the event of borrower default. Our commercial loans are primarily made based on the cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The borrowers' cash flow may be unpredictable, and collateral securing these loans may fluctuate in value. Although commercial business loans are often collateralized by equipment, inventory, accounts receivable, or other business assets, the liquidation of collateral in the event of default is often an insufficient source of repayment because accounts receivable may be uncollectible and inventories may be obsolete or of limited use, among other things. Accordingly, the repayment of commercial business loans depends primarily on the cash flow and credit worthiness of the borrower and secondarily on the underlying collateral provided by the borrower.

Our ability to foreclose on single family home loans may be restricted.

New legislation proposed by Congress may give bankruptcy judges the power to reduce the increasing number of home foreclosures. Bankruptcy judges would be given the authority to restructure mortgages and reduce a borrower's payments. Property owners would be allowed to keep their property while working out their debts. This legislation may restrict our collection efforts on one-to-four family loans. Separately, the administration has announced a voluntary program under the Troubled Asset Relief Program law, which provides for government subsidies for reducing a borrower's interest rate, which a lender would have to match with its own money.

Our real estate lending also exposes us to the risk of environmental liabilities.

In the course of our business, we may foreclose and take title to real estate, and we could be subject to environmental liabilities with respect to these properties. We may be held liable to a governmental entity or to third persons for property damage, personal injury, investigation, and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, as the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. If we ever become subject to significant environmental liabilities, our business, financial condition and results of operations could be materially and adversely affected.

Fluctuations in interest rates could reduce our profitability and affect the value of our assets.

Like other financial institutions, we are subject to interest rate risk. Our primary source of income is net interest income, which is the difference between interest earned on loans and investments and the interest paid on deposits and borrowings. We expect that we will periodically experience imbalances in the interest rate sensitivities of our assets and liabilities and the relationships of various interest rates to each other. Over any period of time, our interest-earning assets may be more sensitive to changes in market interest rates than our interest-bearing liabilities, or vice versa. In addition, the individual market interest rates underlying our loan and deposit products may not change to the same degree over a given time period. In any event, if market interest rates should move contrary to our position, our earnings may be negatively affected. In addition, loan volume and quality, and deposit volume and mix can be affected by market interest rates. Changes in levels of market interest rates could materially adversely affect our net interest spread, asset quality, origination volume and overall profitability.

Interest rates have recently decreased after increasing for several years. The U.S. Federal Reserve increased its target for federal funds rates 17 times, from 1.00% to 5.25% during the period from June 30, 2004 to June 30, 2006. The U.S. Federal Reserve then decreased its target for the federal funds rate by 500 basis points to 0.25% during the period from September 18, 2007 to March 31, 2009. A sustained falling interest rate environment has a

negative impact on margins as we have more interest-earning assets that adjust downward than interest-bearing liabilities that adjust downward.

We principally manage interest rate risk by managing our volume and mix of our earning assets and funding liabilities. In a changing interest rate environment, we may not be able to manage this risk effectively. If we are unable to manage interest rate risk effectively, our business, financial condition and results of operations could be materially harmed.

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

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. We rely on customer deposits and advances from the FHLB, the Federal Reserve Bank of Atlanta ("FRB") and other borrowings to fund our operations. Although we have historically been able to replace maturing deposits and advances if desired, we may not be able to replace such funds in the future if, among other things, our financial condition, the financial condition of the FHLB or FRB, or market conditions change. Our access to funding sources in amounts adequate to finance our activities or the terms of which are acceptable could be impaired by factors that affect us specifically or the financial services industry or economy in general -- 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. 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 financial flexibility will be severely constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. Although we consider our sources of funds adequate for our liquidity needs, we may seek additional debt in the future to achieve our long-term business objectives. Additional borrowings, if sought, may not be available to us or, if available, may not be available on reasonable terms. If additional financing sources are unavailable, or are not available on reasonable terms, our financial condition, results of operations, growth and future prospects could be materially adversely affected. Finally, if we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs.

In addition, if we are unable to redeem the Series A Preferred Stock prior to December 19, 2014, the cost of this capital to us will increase substantially on that date, from 5.0% per annum (approximately $900,000 annually) to 9.0% per annum (approximately $1.6 million annually). Depending on our financial condition at the time, this increase in the annual dividend rate on the Series A Preferred Stock could have a material negative effect on our liquidity.

Our deposit insurance assessments will increase substantially, which will adversely affect our profits.

Our FDIC deposit insurance assessments expense for the year ended March 31, 2009 was $724,000. Deposit insurance assessments will increase in 2009 as a result of recent strains on the FDIC deposit insurance fund resulting from the cost of recent bank failures and an increase in the number of banks likely to fail over the next few years. Effective April 1, 2009, FDIC assessments increased, ranging between 12 and 45 basis points. Additional premiums are charged for institutions that rely on excessive amounts of brokered deposits, including Certificate of Deposit Account Registry Services ("CDARS"), and excessive use of secured liabilities, including FHLB and FRB advances. The FDIC may adjust rates from one quarter to the next, except that no single adjustment can exceed three basis points without a rulemaking proceeding. In May 2009, the FDIC approved a special assessment of five basis points applied to the amount of assets reduced by the amount of Tier 1 capital as of June 30, 2009 (not to exceed 10 basis points of the deposit assessment base). Two additional special assessments, each of the same amount or less than the first special assessment, may be imposed for the third and fourth quarters of 2009. The FDIC has announced that the first of the additional special assessments is likely and the second special assessment is less certain.

We could see declines in our uninsured deposits, which would reduce the funds we have available for lending and other funding purposes.

The FDIC in the fourth quarter of 2008 increased the federal insurance of deposit accounts from $100,000 to $250,000 and provided 100% insurance coverage for noninterest-bearing transaction accounts for participating

members including the Bank. These increases of coverage, with the exception of IRA and certain retirement accounts, are scheduled to expire December 31, 2013. With the increase of bank failures, depositors are reviewing deposit relationships to maximize federal deposit insurance coverage. We may see outflows of uninsured deposits as customers restructure their banking relationships in setting up multiple accounts in multiple banks to maximize federal deposit insurance coverage.

Changes in accounting standards may affect our performance.

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. From time to time there are changes in the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can be difficult to predict and can materially impact how we report and record our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in restating prior period financial statements.

We may elect or be compelled to seek additional capital in the future, but that capital may not be available when it is needed.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. In addition, we may elect to raise additional capital to support our continued growth, both internally and through acquisitions, or we may otherwise elect to raise additional capital. In that regard, a number of financial institutions have recently raised considerable amounts of capital as a result of a deterioration in their results of operations and financial condition arising from the turmoil in the mortgage loan market, deteriorating economic conditions, declines in real estate values and other factors. Should we elect to seek additional capital, we may do so through the issuance of, among other things, our common stock or securities convertible into our common stock.

Our ability to raise additional capital, if needed, will depend on conditions in the capital markets, economic conditions and a number of other factors, many of which are outside our control, and on our financial performance. Accordingly, we cannot assure you of our ability to raise additional capital if needed or on terms acceptable to us. If we cannot raise additional capital when needed, it may have a material adverse effect on our financial condition, results of operations and prospects.

Strong competition within our market areas may limit our growth and may adversely affect our profitability.

The banking and financial services industry is very competitive. Legal and regulatory developments have made it easier for new and sometimes unregulated competitors to compete with us. Consolidation among financial service providers has resulted in fewer very large national and regional banking and financial institutions holding a large accumulation of assets. These institutions generally have significantly greater resources, a wider geographic presence or greater accessibility. Our competitors sometimes are also able to offer more services, more favorable pricing for loans and deposits or greater customer convenience than us. In addition, our competition has grown and includes new banks and other financial services providers that target our existing or potential customers. As consolidation continues, we expect additional institutions to try to exploit our market. Our results of operations depend upon our continued ability to successfully compete in our market areas. The greater resources and deposit and loan products offered by some of our competitors may limit our ability to increase our interest-earning assets.

Technological developments have allowed competitors, including some non-depository institutions, to compete more effectively in local markets and have expanded the range of financial products, services and capital available to our target customers. If we are unable to implement, maintain and use such technologies effectively, we may not be able to offer products or achieve cost-efficiencies necessary to compete in our industry. In addition, some of these competitors have fewer regulatory constraints and lower cost structures.

The level of our commercial real estate loan portfolio may subject us to additional regulatory scrutiny.

The FDIC, the Federal Reserve, the Office of Thrift Supervision and the Office of the Comptroller of the Currency, have promulgated joint guidance on sound risk management practices for financial institutions with concentrations in commercial real estate lending. Under the guidance, a financial institution that, like us, is actively involved in commercial real estate lending should perform a risk assessment to identify concentrations. A financial institution may have a concentration in commercial real estate lending if, among other factors, (i) total reported loans for construction, land acquisition and development, and other land represent 100% or more of total capital or (ii) total reported loans secured by multi-family and non-farm residential properties, loans for construction, land

acquisition and development and other land, and loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related entities, represent 300% or more of total capital. Management should also employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing. We have concluded that we have a concentration in commercial real estate lending under the foregoing standards. While we believe we have implemented policies and procedures with respect to our commercial real estate loan portfolio consistent with this guidance, bank regulators could require us to implement additional policies and procedures consistent with their interpretation of the guidance which could result in additional costs to us.

Our information systems may experience an interruption or breach in security.

We rely heavily on communications and information systems to conduct our business. Any failure, interruption, or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan, and other systems. While we have policies and procedures designed to prevent or limit the effect of the failure, interruption, or security breach of our information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions or security breaches of our information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.

We rely on third-party service providers for much of our communications, information, operating and financial control systems technology. If any of our third-party service providers experience financial, operational or technological difficulties, or if there is any other disruption in our relationships with them, we may be required to locate alternative sources for these services. We may not be able to negotiate terms that are as favorable to us, or obtain services with similar functionality, as found in our existing systems, without the need to expend substantial resources, if at all. Any of these circumstances could have an adverse effect on our business.

We rely on dividends from subsidiaries for most of our revenue.

Security Federal Corporation is a separate and distinct legal entity from its subsidiaries, and receives substantially all of its revenue from dividends from its subsidiaries. These dividends are the principal source of funds to pay dividends on Security Federal Corporation's capital stock and interest and principal on its debt. Various federal and/or state laws and regulations limit the amount of dividends that the Bank may pay to Security Federal Corporation. Also, its right to participate in a distribution of assets upon a subsidiary's liquidation or reorganization is subject to the prior claims of the subsidiary's creditors. In the event the Bank is unable to pay dividends, Security Federal Corporation may not be able to service its debt, pay obligations or pay dividends on its capital stock. The inability to receive dividends from the Bank could have a material adverse effect on our business, financial condition and results of operations.

We are dependent on key individuals and the loss of one or more of these key individuals could limit our growth and adversely affect earnings.

Timothy W. Simmons, our Chief Executive Officer, is a very experienced banker and has long-standing ties to our community. The loss of Mr. Simmons, or other key personnel, could have a negative impact on earnings. The competition for seasoned, experienced, banking personnel is highly competitive in South Carolina and Georgia. The cost of attracting and retaining these individuals could increase in the future, which would negatively impact our operations. Our success depends on our ability to continue to attract, manage and retain other qualified personnel as we grow.

Our recent results may not be indicative of future results, and may not be an adequate measure of the risk of investing in our stock.

We may not be able to sustain our historical growth rate or our recent growth rates in loans and deposits. If we are unable to sustain our growth, this would negatively affect risks related to our earnings and the value of our common stock.

Risks Related to this Offering

Our primary source of funds is dividends from Security Federal Bank, which may limit our ability to pay principal and interest on the debentures and dividends on the Series A Preferred Stock and Our Common Stock.

Security Federal Corporation is a legal entity separate and distinct from Security Federal Bank. As a general business corporation, Security Federal Corporation generally is not restricted in its business activities and operations. The debentures will be direct unsecured obligations of Security Federal Corporation only, and Security Federal Corporation will be solely responsible for the payment of all principal and interest on the debentures. At present, Security Federal Corporation's primary source of revenues is dividends from Security Federal Bank. The debentures are not deposits in, or other obligations of, the Bank and are not insured by any governmental agency. Security Federal Bank's ability to pay dividends or make other capital distributions to Security Federal Corporation is governed by regulations of the Office of Thrift Supervision or OTS. In addition, Security Federal Corporation and Security Federal Bank are "affiliates" for regulatory purposes, and thus are subject to restrictions on loans and other transactions between Security Federal Bank and Security Federal Corporation. The assets of Security Federal Corporation are subject to the claims of all direct creditors (including depositors of Security Federal Bank). The debentures mature on December 1, 2029, and no sinking fund will be created to repay the debentures upon maturity or earlier redemption. See "Market for Our Common Stock and Dividends."

Shares of the Series A Preferred Stock and our common stock are equity interests in Security Federal Corporation and do not constitute indebtedness. As such, the Series A Preferred Stock and our common stock, ranks junior to all indebtedness, including the debentures and other non-equity claims on Security Federal Corporation with respect to assets available to satisfy claims on Security Federal Corporation, including in a liquidation of Security Federal Corporation. Additionally, unlike the debentures or other indebtedness, where principal and interest would customarily be payable on specified due dates, in the case of preferred stock like the Series A Preferred Stock, as with our common stock, (1) dividends are payable only when, as and if authorized and declared by, our Board of Directors and depend on, among other things, our results of operations, financial condition, debt service requirements, other cash needs and any other factors our Board of Directors deems relevant, and (2) as a South Carolina corporation, under South Carolina law we are subject to restrictions on payments of dividends out of lawfully available funds. See "Regulatory Considerations."

There is no limit on our ability to incur future indebtedness and the debentures are structurally subordinated to the indebtedness of the Bank. This may affect your ability to receive payments on the debentures.

The debentures are obligations exclusively of Security Federal Corporation. The debentures rank equal in right of payment to all of Security Federal Corporation's existing and future senior unsecured indebtedness. As of March 31, 2009, Security Federal Corporation had no other indebtedness ranking on a par with the debentures, no secured indebtedness and $5.2 million in subordinated indebtedness consisting of our floating rate junior subordinated deferrable interest debentures. There is no limit, however, on our indebtedness or that of our subsidiaries. Holders of secured indebtedness will have claims with respect to the assets constituting collateral for such indebtedness which will rank prior to the claims of the holders of the debentures. In the event of a default on the debentures, or a bankruptcy, liquidation or reorganization of Security Federal Corporation, any of its secured assets will be available to satisfy the obligation of the secured indebtedness before such assets can be utilized to make any payment on the debentures. To the extent the value of such collateral is insufficient to satisfy the indebtedness it secures, amounts remaining outstanding on such debt would be entitled to share pari passu with the debentures with respect to any of Security Federal Corporation's other assets.

We currently conduct substantially all of our operations through the Bank, which has significant liabilities, including deposits and Federal Home Loan Bank advances, which in the future are expected to increase. Our cash flow and our ability to service our debt, including the debentures, therefore depends upon the earnings of the Bank, and we depend on dividends from the Bank to us.

The Bank is a separate and distinct legal entity. The Bank has no obligation to pay any amounts due on the debentures or to provide us with funds for our payment obligations, whether by dividends, distributions, loans or other payments. In addition, any payment of dividends, distributions, loans or advances by the Bank to us could be subject to statutory or contractual restrictions and taxes on distributions. Accordingly, in a bankruptcy or liquidation proceeding of Security Federal Corporation, claims of holders of the debentures would be satisfied solely from Security Federal Corporation's assets, including its equity interest in the Bank.

Our right to receive any assets of the Bank upon liquidation or reorganization, and, as a result, the right of the holders of the debentures to participate in those assets, will be effectively subordinated to the claims of the Bank's creditors, including depositors, other creditors and preferred stockholders, if any. The debentures do not restrict the ability of the Bank or any future subsidiary to incur additional liabilities. In addition, even if we were a creditor to the Bank or another subsidiary, our rights as a creditor would be subordinate to any security interest in the assets of our subsidiaries and any indebtedness of our subsidiaries senior to indebtedness held by us.

The limited covenants in the indenture will not protect you from a payment default.

The covenants in the indenture are limited, do not protect holders of the debentures in the event of a material adverse change in our financial condition or results of operations and do not limit our ability to incur additional senior indebtedness or general obligations.

The indenture for the debentures does not:

·	require us to maintain any financial ratios or specific levels of net worth, revenues, income, cash flow or liquidity and, accordingly, does not protect holders of the debentures in the event that we experience significant adverse changes in our financial condition or results of operations;

·	limit our subsidiaries' ability to incur indebtedness, which could effectively rank senior to the debentures;

·	limit our ability to incur substantial secured indebtedness that would effectively rank senior to the debentures to the extent of the value of the assets securing the indebtedness;

·	limit our ability to incur indebtedness that is equal in right of payment to the debentures;

·	restrict our subsidiaries' ability to issue securities or otherwise incur indebtedness that would be senior to our equity interests in our subsidiaries;

·	restrict our ability to repurchase or prepay our securities; or

·	restrict our ability to make investments or to repurchase or pay dividends or make other payments in respect of our common stock or other securities ranking junior to the debentures.

Furthermore, the indenture for the debentures contains only limited protections in the event of a change in control. We could engage in many types of transactions, such as certain acquisitions, refinancings or recapitalizations that could substantially affect our capital structure and the value of the debentures. For these reasons, you should not consider the covenants in the indenture as a significant factor in evaluating whether to invest in the debentures.

We may not have the ability to repurchase the debentures in cash upon the occurrence of a fundamental change, as required by the indenture governing the debentures.

Holders of the debentures may have the right to require us to repurchase the debentures upon the occurrence of a fundamental change as described under "Description of the Debentures." We may not have sufficient funds to repurchase the debentures in cash or to make the required repayment at such time or have the ability to arrange necessary financing on acceptable terms Such payments could be significant, and we may not have sufficient funds to make them at such time. Our failure to repurchase the debentures when required would result in an event of default with respect to the debentures.

Some significant restructuring transactions may not constitute a fundamental change, in which case we would not be obligated to offer to repurchase the debentures.

Upon the occurrence of a fundamental change, you may have the right to require us to repurchase the debentures. However, the fundamental change provisions will not afford protection to holders of debentures in the event of certain transactions. For example, any leveraged recapitalization, refinancing, restructuring, or acquisition initiated by us will generally not constitute a fundamental change requiring us to repurchase the debentures. In the event of any such transaction, holders of the debentures will not have the right to require us to repurchase the debentures, even though any of these transactions could increase the amount of our indebtedness, or otherwise adversely affect our capital structure, thereby adversely affecting the holders of debentures.

The conversion rate of the debentures may not be adjusted for all dilutive events.

The conversion rate of the debentures will be subject to adjustment for certain events, including, but not limited to, the issuance of stock dividends on our common stock, the issuance of certain rights or warrants, subdivisions, combinations, distributions of capital stock, indebtedness or assets, cash dividends and certain issuer tender or exchange offers as described under "Description of the Debentures." However, the conversion rate will not be adjusted for other events, such as a third-party tender or exchange offer or an issuance of common stock for cash, that may adversely affect the trading price of the debentures or the common stock. See "The debentures are not expected to have an active market and their price may be volatile. You may be unable to sell your debentures at the price you desire or at all."

Conversion of the debentures will dilute the ownership interest of existing shareholders, including holders who had previously converted their debentures.

The conversion of some or all of the debentures will dilute the ownership interests of existing shareholders. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the debentures may encourage short selling by market participants because the conversion of the debentures could be used to satisfy short positions, or anticipated conversion of the debentures into shares of our common stock could depress the price of our common stock.

If you hold debentures, you will not be entitled to any rights with respect to our common stock, but you will be subject to all changes made with respect to our common stock.

If you hold debentures, you will not be entitled to any rights with respect to our common stock (including, without limitation, voting rights and rights to receive any dividends or other distributions on our common stock), but if you subsequently convert your debentures into common stock, you will be subject to all changes affecting the common stock. You will have rights with respect to our common stock only if and when we deliver shares of common stock to you upon conversion of your debentures and, to a limited extent, under the conversion rate adjustments applicable to the debentures. For example, in the event that an amendment is proposed to our articles of incorporation or bylaws requiring shareholder approval and the record date for determining the shareholders of record entitled to vote on the amendment occurs prior to delivery of common stock to you, you will not be entitled to vote on the amendment, although you will nevertheless be subject to any changes in the powers or rights of our common stock that result from such amendment.

The debentures are not expected to have an active market and their price may be volatile. You may be unable to sell your debentures at the price you desire or at all.

There is no existing trading market for the debentures and it is unlikely that any trading market of the debentures will develop. We have no present intention to have the debentures listed for trading on the OTC Bulletin Board or any securities exchange; consequently it is anticipated the debentures will not be readily marketable. As a result, there can be no assurance that you will be able to sell any of the debentures at a particular time (if at all) or that the prices you receive if or when you sell the debentures will be above their initial offering price. If no active trading market develops, you may not be able to resell your debentures at their fair market value or at all. If an active trading market does develop, this type of trading market may not continue.

We may not be able to refinance the debentures if required or if we so desire.

We may need or desire to refinance all or a portion of the debentures or any other future indebtedness that we incur on or before the maturity of the debentures. There can be no assurance that we will be able to refinance any of our indebtedness on commercially reasonable terms, if at all.

We will retain broad discretion in using the net proceeds from this offering, and might not use the proceeds effectively.

We intend to utilize up to $5.0 million of the net proceeds to repay a line of credit with another financial institution. We intend to utilize any remaining net proceeds for general corporate purposes, which may include future acquisitions as well as investments in or extensions of credit to Security Federal Bank and our other existing or future subsidiaries. Accordingly, our management will retain broad discretion to allocate any remaining net proceeds of this offering. Any remaining net proceeds may be applied in ways with which you and other investors in

the offering may not agree. Moreover, our management may use any remaining proceeds for corporate purposes that may not increase our market value or make us more profitable. In addition, it may take us some time to effectively deploy any remaining proceeds. Until these proceeds are effectively deployed, our return on equity and earnings per share may be negatively impacted. Management's failure to use any remaining net proceeds effectively could have an adverse effect on our business, financial condition and results of operations.

Risks Related to Our Common Stock

The price of our common stock may fluctuate significantly, and this may make it difficult for you to resell the common stock when you want or at prices you find attractive.

We cannot predict how the shares of our common stock will trade in the future. The market price of our common stock will likely continue to fluctuate in response to a number of factors, including the following, most of which are beyond our control, as well as the other factors described in this "Risk Factors" section:

·	actual or anticipated quarterly fluctuations in our operating and financial results;

·	developments related to investigations, proceedings or litigation that involve us;

·	actions of our current shareholders, including sales of common stock by existing shareholders and our directors and executive officers;

·	fluctuations in the stock prices and operating results of our competitors;

·	regulatory developments; and

·	developments related to the financial services industry.

Our shares do not at this time qualify for listing on any national securities exchange, and we cannot assure you that our shares will ever be listed on a national securities exchange. However, the shares are traded on the OTC Bulletin Board and at least one company makes a market in our common stock. Because the shares are not listed on a national securities exchange, a broadly followed, established trading market for our common stock may never develop or be maintained. Furthermore, we cannot assure you that at least one company will continue to make a market in our common stock shares for as long as it is quoted on the OTC Bulletin Board. This limited trading market for our common stock may reduce the market value of the common stock and make it difficult to buy or sell our shares on short notice. The limited trading market could also result in a wider spread between the bid and ask price for the stock, meaning the highest price being offered for shares for sale at any particular time may be further from the lowest price being offered by buyers for the stock at the moment than if the stock were more actively traded (the difference between the bid and ask price being the "spread" for the stock). This could make it more difficult to sell a large number of shares at one time and could mean the sale of a large number of shares at one time could depress the market price. See "Market for Our Common Stock and Dividends." In addition, if we would cease to be quoted on the OTC Bulletin Board, shareholders could find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, our common stock, and the market value of our common stock likely would decline. For these reasons, our common stock may not be appropriate as a short-term investment, and you should be prepared to hold our common stock indefinitely.

The securities purchase agreement between us and Treasury limits our ability to pay dividends on and repurchase our common stock and repurchase our preferred stock or the debentures.

The securities purchase agreement between us and Treasury provides that prior to the earlier of (i) December 19, 2011 and (ii) the date on which all of the shares of the Series A Preferred Stock have been redeemed by us or transferred by Treasury to third parties, we may not, without the consent of Treasury, (a) increase the cash dividend on our common stock or (b) subject to limited exceptions, redeem, repurchase or otherwise acquire shares of our common stock, preferred stock or the debentures other than the Series A Preferred Stock or trust preferred securities. In addition, we are unable to pay any dividends on our common stock unless we are current in our dividend payments on the Series A Preferred Stock. These restrictions, together with the potentially dilutive impact of the warrant described in the next risk factor, could have a negative effect on the value of our common stock. Moreover, holders of our common stock are entitled to receive dividends only when, as and if declared by our Board of Directors. Although we have historically paid cash dividends on our common stock, we are not required to do so and our Board of Directors could reduce or eliminate our common stock dividend in the future.

The Series A Preferred Stock impacts net income available to our common stockholders and earnings per common share, and the warrant we issued to Treasury may be dilutive to holders of our common stock.

The dividends declared on the Series A Preferred Stock will reduce the net income available to common stockholders and our earnings per common share. The Series A Preferred Stock will also receive preferential treatment in the event of liquidation, dissolution or winding up of Security Federal Corporation. Additionally, the ownership interest of the existing holders of our common stock will be diluted to the extent the warrant we issued to Treasury in conjunction with the sale to Treasury of the Series A Preferred Stock is exercised. The shares of common stock underlying the warrant represent approximately 5.3% of the shares of our common stock outstanding as of June 30, 2009 (including the shares issuable upon exercise of the warrant in total shares outstanding). Although Treasury has agreed not to vote any of the shares of common stock it receives upon exercise of the warrant, a transferee of any portion of the warrant or of any shares of common stock acquired upon exercise of the warrant is not bound by this restriction.

Our directors and executive officers could have the ability to influence shareholder actions in a manner that may be adverse to your personal investment objectives; Our articles of incorporation and bylaws, and state and federal laws could discourage hostile acquisition of us.

As of June 30, 2009, our directors and executive officers owned shares of our common stock, which represents approximately 27.3% of our issued and outstanding common stock. Our directors, director emeritus and executive officers intend to purchase approximately $2.7 million of debentures. Additionally, we have issued 28,600 stock options to our directors and executive officers. If our directors and executive officers exercised all of their stock options and converted all of their debentures into common stock, they would own shares upon exercise representing approximately 31.9% of our then outstanding common stock.

Due to their significant ownership interests, our directors and executive officers are able to exercise significant influence over our management and business affairs. For example, using their voting power, the directors and executive officers may be able to influence the outcome of director elections or block significant transactions, such as a merger or acquisition, or any other matter that might otherwise be approved by other shareholders.

This inside ownership and provisions in our articles of incorporation and bylaws may also discourage attempts to acquire Security Federal Corporation including under circumstances where the shareholders might otherwise receive a premium over the market price of our shares, pursue a proxy contest for control of Security Federal Corporation, assume control of Security Federal Corporation by a holder of a large block of common stock, and remove our management, all of which stockholders might think are in their best interests. These provisions include a general prohibition on any person acquiring 15% or more of our outstanding voting stock without the prior approval of the holders of at least two-thirds of the outstanding voting shares or the prior approval of at least two-thirds of the directors then in office. In addition, the business corporation law of South Carolina, the state where Security Federal Corporation is incorporated, provides for certain restrictions on its acquisition. Furthermore, federal law restricts acquisitions of control of savings and loan holding companies such as Security Federal Corporation. See "Restrictions on Acquisition of Stock and Related Takeover Defensive Provisions."

There may be future issuances of additional common stock or other dilution of our equity, which may adversely affect the market price of our common stock.

The issuance of additional shares of Security Federal Corporation's common stock could have a dilutive effect on the market for the common stock, and could adversely affect the market prices of the stock. Following this offering, we will have up to $15.0 million in aggregate principal amount of debentures outstanding which would be convertible into 750,000 shares of common stock and have issued a warrant to purchase 137,966 shares of our common stock to Treasury in connection with our issuance of the Series A Preferred Stock. In addition, there are no restrictions in the indenture preventing us from issuing additional shares of common stock or other securities convertible into or exercisable for common stock. As noted herein, we may pursue acquisitions from time to time consistent with our strategic plan which could be accomplished by the issuance of additional shares of common stock or other securities convertible into or exercisable for such common stock. Our articles of incorporation authorizes the issuance of 5,000,000 shares of common stock of which 2,459,595 shares were issued and outstanding at March 31, 2009. In addition, an aggregate of 100,500 shares of common stock were issuable upon exercise of outstanding stock options at March 31, 2009, none of which had an exercise price less than the market price of the common stock as of that date, and an additional 50,000 shares remain available for issuance pursuant to Security Federal Corporation's stock option plans. The conversion of debentures or other securities or the exercise of

warrants or stock options which have conversion or exercise prices that are less than the then current market price will dilute the ownership interest of our existing common shareholders. Any sales in the public market of our common stock, issuable upon such conversion, could adversely affect prevailing market prices of the outstanding shares of our common stock and the debentures. In addition, the existence of our debentures may encourage short selling or arbitrage trading activity by market participants because the conversion of our debentures could depress the price of our equity securities. See "Use of Proceeds," "Capitalization" and "Description of The Capital Stock."

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following financial information is derived in part from our audited financial statements for the fiscal years ended March 31, 2005 through 2009. The information is only a summary and you should read it in conjunction with our historical financial statements and related notes contained in the annual and quarterly reports that we have filed with the Securities and Exchange Commission. Some of this historical financial information has also been incorporated into this prospectus by reference. We have listed the documents that we incorporate by reference under the heading "Where You Can Find More Information."

		As Or For The Year Ended March 31,
		2009		2008		2007		2006		2005
Financial Condition Data:

Total Assets	$	984,662	$	840,030	$	738,110	$	658,678	$	585,978
Cash And Cash Equivalents		6,562		10,539		13,438		14,351		7,916
Investment And Mortgage-Backed Securities		314,099		264,312		249,905		238,433		241,076
Total Loans Receivable, Net (1)		611,090		517,932		436,038		375,109		316,889
Deposits		661,714		590,850		523,738		479,229		430,287
Advances From Federal Home Loan Bank		218,998		178,234		153,049		131,363		112,038
Total Shareholders' Equity		67,092		47,496		42,693		37,602		35,111

Income Data:

Total Interest Income	$	48,867	$	49,632	$	42,098	$	32,617	$	25,770
Total Interest Expense		26,321		29,544		23,933		15,969		11,525
Net Interest Income		22,546		20,088		18,165		16,648		14,245
Provision For Loan Losses		2,825		895		600		660		780
Net Interest Income After Provision For Loan Losses		19,721		19,193		17,565		15,988		13,465
Non-Interest Income		4,496		4,489		3,861		2,630		2,524
General And Administrative Expense		20,499		17,322		15,157		13,027		10,773
Income Taxes		1,265		2,080		2,142		1,778		1,711
Net Income		2,453		4,280		4,127		3,813		3,505
Preferred Stock Dividends		272		---		---		---		---
Net Income Available to Common Stock	$	2,181	$	4,280	$	4,127	$	3,813	$	3,505

Per Common Share Data:

Net Income Per Common Share (Basic)	$	0.87	$	1.66	$	1.59	$	1.51	$	1.39
Cash Dividends Declared	$	0.32	$	0.28	$	0.24	$	0.16	$	0.11

	At Or For The Year Ended March 31,
	2009	2008	2007	2006	2005

Key Financial Ratios:

Interest Rate Spread Information:

Average During Period	2.45%	2.44%	2.47%	2.52%	2.44%
End Of Period	2.58%	2.14%	2.51%	2.59%	2.45%

Other Data:

Net Interest Margin (Net Interest Income/Average Earning Assets)	2.63%	2.69%	2.76%	2.79%	2.64%
Average Interest-Earning Assets To Average Interest-Bearing Liabilities	105.80%	106.30%	108.00%	110.25%	109.07%
Common Equity To Total Assets	4.98%	5.65%	5.78%	5.71%	5.99%
Non-Performing Assets Total Assets (2)	1.51%	0.81%	0.15%	0.20%	0.42%
Return On Assets (Ratio Of Net Income To Average Total Assets)	0.24%	0.54%	0.59%	0.62%	0.63%
Return On Common Equity (Ratio Of Net Income To Average Common Equity)	4.72%	9.54%	10.24%	10.27%	10.28%
Common Equity To Assets Ratio (Ratio Of Average Common Equity To Average Total Assets)	5.10%	5.66%	5.78%	6.03%	6.09%
Dividend Pay-Out Ratio On Common Shares	36.59%	16.90%	15.11%	10.67%	7.96%

Bank Regulatory Capital Ratios:

Tier 1 (core) capital (to tangible assets)	7.0%	6.3%	6.2%	6.0%	6.1%
Total risk-based capital (to risk-weighted assets)	12.2%	10.6%	10.7%	10.9%	11.8%
Tier 1 risk-based capital (to risk-weighted assets)	10.9%	9.4%	9.5%	9.7%	10.5%

___________________

(1)	Includes loans held for sale.

(2)	Non-performing assets consist of non-accrual loans and repossessed assets.

A WARNING ABOUT FORWARD-LOOKING STATEMENTS

This prospectus and the documents incorporated into this prospectus by reference contain forward-looking statements, which can be identified by the use of words such as "believes," "expects," "anticipates," "estimates" or similar expressions. Forward-looking statements include:

·	statements of our goals, intentions and expectations;

·	statements regarding our business plans, prospects, growth and operating strategies;

·	statements regarding the quality of our loan and investment portfolios; and

·	estimates of our risks and future costs and benefits.

These forward-looking statements are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:

·	the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write offs;

·	changes in general economic conditions, either nationally or in our market area, that are worse than expected;

·	changes in the levels of general interest rates, deposit interest rates, deposit flows, our net interest margin and funding sources;

·	potential changes in direction, volatility and relative movement (basis risk) of interest rates, which may affect demand for our products and the management and success of our interest rate risk management strategies;

·	fluctuations in the demand for loans, the number of unsold homes and other properties and fluctuations in real estate values in our market areas;

·	a large percentage of our loans are collateralized by residential and commercial real estate, and an adverse change in the residential or commercial real estate market may result in losses and adversely affect our portfolio;

our ability to manage loan delinquency rates, which may be impacted by deterioration in the housing real estate market, that may lead to increased losses and non-performing assets in our loan portfolios, and may result in our allowance for loan losses not being adequate to cover actual losses, and require us to materially increase our reserves;

results of examinations by the OTS, the Federal Deposit Insurance Corporation, or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our reserve for loan losses, write-down assets, or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings;

·	our ability to control operating costs and expenses;

·	the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation;

·	difficulties in reducing risk associated with the loans on our balance sheet;

·	staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our work force and potential associated charges;

·	the network and computer systems on which we depend could fail or experience a security breach;

·	our ability to retain key members of our senior management team;

·	costs and effects of litigation, including settlements and judgments;

·	increased competitive pressures among financial services companies;

·	changes in consumer spending, borrowing, and savings habits;

·	legislative or regulatory changes that adversely affect our business, including changes in the interpretation of regulatory capital or other rules;

·	the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions;

·	adverse changes in the securities markets;

·	inability of key third-party providers to perform their obligations to us;

·	the amount of time to lease excess space in buildings we own;

changes in accounting policies and principles, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, or their application to our business or final audit adjustments, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods;

·	the economic impact of war or terrorist activities; and

·	other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products, and services and the other risks described elsewhere in this prospectus.

Any of the forward-looking statements that we make in this prospectus and the documents incorporated into this prospectus by reference and in other public statements we make may turn out to be wrong because of inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements and you should not rely on such statements.

We caution readers not to place undue reliance on any such forward-looking statements, which are based on information available to us as of the date of this prospectus. The cautionary statements in the ''Risk Factors'' section and elsewhere in this prospectus also identify important factors and possible events which involve risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. If you are interested in purchasing our debentures, you should consider these risk factors carefully, as well as factors discussed elsewhere in this prospectus, before making a decision to invest. We do not intend to, and assume no responsibility for, and specifically disclaim any responsibility for updating any forward-looking statements or publicly announcing future events or developments that affect the forward-looking statements that may be made by us or on our behalf in this prospectus or any of the documents incorporated by reference into this prospectus. These risks could cause our actual results for fiscal 2009 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of, us. Consequently, no forward-looking statement can be guaranteed.

SECURITY FEDERAL CORPORATION

Security Federal Corporation was incorporated under the laws of the State of Delaware in July 1987 for the purpose of becoming the savings and loan holding company for the Bank, upon the Bank's conversion from mutual to the stock form Security Federal Corporation. Effective August 17, 1998, Security Federal Corporation changed its state of incorporation from Delaware to South Carolina.

We serve our primary market areas, Aiken, Richland and Lexington Counties, South Carolina, and Columbia, County, Georgia, through our 13 retail banking offices. At March 31, 2009, we had total assets of $984.7 million, including loans receivable of $611.1 million, investment and mortgage-backed securities of $314.1 million, deposits of $661.7 million and stockholders' equity of $67.1 million.

Our executive office is located at 238 Richland Avenue West, Aiken, South Carolina 29801, and our telephone number is (803) 641-3000.

USE OF PROCEEDS

Net proceeds from the sale of the debentures being offered are estimated to be $5.0 million and $15.0 million at the minimum and maximum of the offering range, respectively, after deducting estimated offering expenses. We intend to utilize up to $5.0 million of the net proceeds to repay a line of credit with another financial institution. The unsecured line of credit has an interest rate equal to one month LIBOR plus 2.00%. At March 31, 2009 the interest rate was 2.52%. Initially, any remaining net proceeds may be invested in short-term securities or deposited in interest-bearing accounts with Security Federal Bank or third parties. Any remaining net proceeds will be available for use by us for general corporate purposes to promote our business strategy including, without limitation, possible future expansion or acquisitions as well as investments in or extensions of credit to our existing or future subsidiaries. Our business strategy is to attain asset growth primarily through de novo branching, branch acquisitions or the possible acquisition of other financial services companies. Although we have no current written or oral arrangements, commitments or understandings relating to acquisitions, on an ongoing basis we enter into, and are currently involved in, possible acquisition discussions consistent with our business strategy. The amount, if any, of net proceeds to be invested in Security Federal Bank is not known at this time. The precise amounts and timing of the application of any remaining net proceeds will depend upon the funding requirements of Security Federal Corporation and Security Federal Bank and the availability and cost of other funds.

Based upon facts and circumstances which may arise following the offering, the Board of Directors may determine to repurchase common stock in the future subject to compliance with the securities purchase agreement between us and Treasury. See "Risk Factors - Risks Related to Our Common Stock - The securities purchase agreement between us and Treasury limits our ability to pay dividends on and repurchase our common stock." These facts and circumstances may include but are not limited to

market and economic factors such as the price at which the common stock is trading in the market, the volume of trading, the attractiveness of other investment alternatives in terms of the rate of return and risk involved in the investment, the ability to increase the book value and/or earnings per share of the remaining outstanding shares, and the effect on our return on equity;

·	the avoidance of dilution to stockholders by not having to issue additional shares to cover the exercise of stock options or to fund employee stock benefit plans; and

·	any other circumstances in which repurchases would be in the best interests of Security Federal Corporation and its stockholders.

Any stock repurchases will be subject to the determination of the Board of Directors that we will be capitalized in excess of all applicable regulatory requirements after any such repurchases, that capital will be adequate taking into account, among other things, our level of non-performing assets and other loans of concern, our current and projected results of operations and asset/liability structure, the economic environment and tax and other regulatory considerations. A stock repurchase program may have the effect of:

·	reducing our overall market value;

·	increasing the overall cost of capital;

·	promoting a temporary demand for common stock; and

·	increasing the percentage of shares outstanding held by stockholders, including management.

As of the date hereof, Security Federal Corporation had repurchased 200,933 shares of its common stock.

CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES

Our consolidated ratios of earnings to fixed charges were as follows for the periods presented:

	Fiscal Year Ended March 31,
	2009	2008	2007	2006	2005

Ratio of earnings to fixed charges:
Including interest on customer deposits	114.1x	121.5x	126.2x	135.0x	145.3x
Excluding interest on customer deposits	326.2x	432.0x	453.4x	476.2x	439.6x

For the purpose of computation, the term "earnings" represents earnings from continuing operations before taxes and interest expense. Fixed charges, excluding interest on customer deposits, represents interest expense on Federal Home Loan Bank advances and other borrowed funds. Fixed charges, including interest on customer deposits, represent all of the foregoing items plus interest on deposits.

MARKET FOR OUR COMMON STOCK AND DIVIDENDS

The table below shows the range of high and low bid prices for Security Federal Corporation common stock for the periods reported. These prices represent actual transactions and do not include retail markups, markdowns or commissions. Our stock is traded on the Over-The-Counter-Bulletin Board under the symbol "SFDL.OB." The stock began trading on the OTC Bulletin Board in October 2003. Market makers include Sterne, Agee, and Leach, Inc., Morgan Keegan and Company, Inc., A.G. Edwards and Sons, Inc., Hill, Thompson, and Magid, and Monroe Securities, Inc. At June 30, 2009, there were 2,461,090 shares of Security Federal Corporation's common stock issued and outstanding.

		Bid Prices				Cash Dividends
		High		Low		Declared

Fiscal 2007 Quarter Ended
June 30	$	25.50	$	22.70	$	0.06
September 30		23.50		22.10		0.06
December 31		24.00		23.00		0.06
March 31		25.00		23.30		0.06

Fiscal 2008 Quarter Ended
June 30		24.75		24.00		0.07
September 30		24.85		24.10		0.07
December 31		24.15		22.75		0.07
March 31		23.00		23.00		0.07

Fiscal 2009 Quarter Ended
June 30		23.05		22.50		0.08
September 30		22.85		20.00		0.08
December 31		20.00		15.75		0.08
March 31		20.00		12.25		-

The stockholders are entitled to dividends when, as and if declared by our Board of Directors, subject to compliance with applicable law. Security Federal Corporation has paid cash dividends on its common stock for every full calendar quarter since paying its first dividend in March 1991. We anticipate we will continue to pay of cash dividends on the common stock, although there can be no assurance as to the amount or timing of future dividends. Funds for the payment by Security Federal Corporation of future cash dividends are expected to be obtained primarily through dividends received by Security Federal Corporation from Security Federal Bank. The declaration and payment of such future dividends will be subject to our operating results and financial condition, general economic conditions, compliance with regulatory requirements and other factors.

Our ability to pay dividends depends primarily on the ability of Security Federal Bank to pay dividends to Security Federal Corporation. Security Federal Bank may not declare or pay a cash dividend on its stock or repurchase shares of its stock if it would cause its regulatory capital to be reduced below the amount required for the liquidation account or to meet applicable regulatory capital requirements. Pursuant to the OTS regulations, Tier 1 associations (associations that before and after the proposed distribution meet or exceed their fully phased-in capital requirements) may make capital distributions during any calendar year equal to 100% of net income for the year-to-date plus 50% of the amount by which the association's total capital exceeds its fully phased-in capital requirement as measured at the beginning of the capital year. However, a Tier 1 association deemed to be in need of more than normal supervision by the OTS may be downgraded to a Tier 2 or Tier 3 association as a result of such a determination. Security Federal Bank is also required to give the OTS 30 days notice prior to the declaration of a dividend. At March 31, 2009, Security Federal Bank would have been permitted under OTS regulations to make capital distributions of up to approximately $12.3 million. Unlike Security Federal Bank, there is no regulatory restriction on the payment of dividends by Security Federal Corporation; however, it is subject to the requirements of South Carolina law. South Carolina law generally prohibits Security Federal Corporation from paying dividends if, after giving effect to a proposed dividend: (1) we would be unable to pay our debts as they become due in the normal course of business, or (2) our total assets would be less than its total liabilities plus the sum that would be

needed to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the dividend.

As a savings and loan holding company, Security Federal Corporation is subject to regulation, supervision and examination by the OTS. For a discussion of elements of the regulatory framework applicable to savings and loan holding companies and their subsidiaries, please refer to our Annual Report on Form 10-K for the fiscal year ended March 31, 2009 and the other documents incorporated herein by reference as described under "Where You Can Find More Information." This regulatory framework is intended primarily for the protection of depositors and the federal deposit insurance fund and not for the protection of security holders, including holders of our common stock and the debentures. As a result of this regulatory framework, our results of operations and financial condition and consequently, our ability to pay dividends, are affected by actions of the OTS and the FDIC, which insures the deposits of our subsidiary federal savings bank, Security Federal Bank.

In addition to the foregoing regulatory restrictions, we are and may in the future become subject to contractual restrictions that would limit or prohibit us from paying dividends on our common stock, including those contained in the securities purchase agreement between us and Treasury, as described under "Description of the Capital Stock - Common Stock- -Restrictions on Dividends and Repurchases Under Agreement with Treasury."

CAPITALIZATION

The following table sets forth our capitalization, including indebtedness, at March 31, 2009 and as adjusted to give effect to the issuance of the debentures offered hereby (assuming that none of the debentures have been converted into shares of Security Federal Corporation common stock). The information set forth below should be read in conjunction with our Consolidated Financial Statements and the Notes to the Consolidated Financial Statement incorporated by reference into this prospectus.

	At March 31, 2009
	Actual		As Adjusted $5.0 million (minimum) (1)		As Adjusted $15.0 million (maximum) (1)
	(In Thousands)

Indebtedness	$	9,942	$	9,942	$	9,942
Convertible Senior Debentures due 2029		--		5,000		15,000
Total Indebtedness		9,942		14,942		24,942

Stockholders' Equity:
Serial preferred stock, $.01 par value - 200,000 shares authorized, 18,000 shares of Series A Preferred Stock outstanding		17,620		17,620		17,620
Warrants issued in connection with Series A Preferred Stock		400		400		400
Common stock, $.01 par value - 5,000,000 shares authorized, 2,459,595 shares issued and outstanding (2)		26		26		26
Additional paid-in capital		5,299		5,299		5,299
Retained earnings		48,078		48,078		48,078
Treasury stock – 200,933 shares, at cost		(4,331)		(4,331)		(4,331)
Total stockholders' equity		67,092		67,092		67,092
Total capitalization	$	77,034		82,034		92,034

________________________

(1)	Reflects the issuance of the debentures offered hereby. In addition, the table assumes the debentures have not been converted into common stock.

(2)	Excludes 50,000 shares reserved for issuance pursuant to Security Federal Corporation's stock option plans, 137,966 reserved for issuance upon exercise of the warrant issued to Treasury, and up to 750,000 shares reserved for issuance upon conversion of the debentures offered hereby.

DESCRIPTION OF THE DEBENTURES

The debentures are to be issued under to an indenture (the "indenture"), between Security Federal Corporation and Wilmington Trust Company as trustee (the "trustee").

The following is a summary of the material terms of the debentures and the indenture. This summary is qualified in its entirety by reference to all of the provisions of the indenture, including the definitions of certain terms used in the indenture. The following summary does not purport to be complete and should be read in conjunction with the indenture. You should carefully review the form of indenture and debentures because they, and not this description, define your rights as holders of the debentures. The form of indenture and the debentures have been filed with the Securities and Exchange Commission as an exhibit to the registration statement of which this prospectus is a part. Copies of the indenture may be obtained as described under "Where You Can Find More Information." The debentures are not savings accounts or deposits and are not insured by the FDIC or any other governmental agency.

General

The debentures will be senior unsecured obligations of Security Federal Corporation, will be limited to an aggregate principal amount of up to $15.0 million and will mature on December 1, 2029. The debentures do not have the benefit of a sinking fund. The debentures will bear interest at the rate per annum shown on the front cover from the date of issuance or from the most recent interest payment date to which interest has been paid or provided for, payable semiannually on June 1 and December 1 of each year, commencing December 1, 2009, to the person in whose name the debenture (or any predecessor debenture) is registered at the close of business on the regular record date for such interest, which shall be May 15 or November 15 (whether or not a business day), as the case may be, next preceding such interest payment date.

The debentures will not be secured by the assets of the Company or any of its subsidiaries, including the Bank, or otherwise and will not have the benefit of a sinking fund for the retirement of principal or interest. The rights of the Company to participate in any distribution of assets of any subsidiary, including the Bank, upon its liquidation or reorganization or otherwise (and thus the ability of holders of the debentures to benefit indirectly from such distribution) are subject to the prior claims of creditors of that subsidiary, including depositors of the Bank. Claims on the Company's subsidiaries by creditors, other than the Company, include substantial obligations with respect to deposit liabilities and other borrowings. Additionally, distributions to the Company by its subsidiaries, whether in liquidation, reorganization or otherwise, will be subject to regulatory restrictions and, under certain circumstances, may be prohibited.

Principal of and premium, if any, and interest on the debentures will be payable by the paying agent, which will initially be the trustee, and the transfer of debentures will be registrable at the offices of the trustee in Wilmington, Delaware. In addition, payment of interest may, at the option of Security Federal Corporation, be made by check mailed to the address of the person entitled thereto as it appears in the security register.

The debentures will be issued only in fully registered form, without coupons, in denominations of $5,000 and $1,000 increments thereof. No service charge will be made for any registration of transfer or exchange of debentures, but Security Federal Corporation may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Because Security Federal Corporation is a holding company, its rights and the rights of its creditors, including the holders of the debentures, to participate in the assets or earnings of any subsidiary through the payment of dividends or otherwise will be subject to the prior claims of the subsidiary's creditors, except to the extent that Security Federal Corporation may itself be a creditor with recognized claims against the subsidiary.

Conversion Rights

The debentures will be convertible into the common stock of Security Federal Corporation at any time up to and including the maturity date (subject to prior redemption by Security Federal Corporation on not less than 30 nor more than 60 days' notice) at the principal amount thereof, initially at the conversion price stated on the cover page hereof (subject to adjustments as described below). The right to convert debentures called for redemption will terminate at the close of business on the redemption date and will be lost if not exercised prior to that time unless

Security Federal Corporation defaults in making the payment due upon redemption. For information as to notices of redemption, see " - Optional Redemption."

The conversion price will be subject to adjustment upon the occurrence of certain events, including:

·	dividends (and other distributions) payable in common stock on any class of capital stock of Security Federal Corporation;

·	the issuance to all holders of common stock of rights, warrants or options entitling them to subscribe for or purchase common stock at less than the current market price (determined as provided in the indenture);

·	subdivisions, combinations and reclassifications of common stock;

·	distributions to all holders of common stock of evidences of indebtedness or assets (including securities, but excluding those dividends, rights, warrants, options and distributions referred to above and dividends and distributions paid exclusively in cash) of Security Federal Corporation;

distributions consisting exclusively of cash (excluding any cash portion of distributions referred to in the immediately preceding bullet point or cash distributed upon a merger or consolidation) to all holders of common stock in an aggregate amount that, combined together with (x) all other such all cash distributions made within the preceding 12 months in respect of which no adjustment has been made and (y) the aggregate of any cash and the fair market value of other consideration payable in respect of any tender offer by Security Federal Corporation or any of its subsidiaries for common stock concluded within the preceding 12 months in respect of which no adjustment has been made, exceeds 10% of Security Federal Corporation's market capitalization (being the product of the current market price of the common stock on the date for the determination of holders of shares of common stock entitled to receive such distribution times the number of shares of common stock then outstanding); and

the purchase of common stock pursuant to a tender offer made by Security Federal Corporation or any of its subsidiaries which involves an aggregate consideration that, together with (x) the aggregate of any cash and the fair market value of consideration payable in any other tender offer by Security Federal Corporation or any of its subsidiaries for common stock expiring within the 12 months preceding such tender offer in respect of which no adjustment has been made and (y) the aggregate amount of any such all-cash distributions referred to in the immediately preceding bullet point above to all holders of common stock within the 12 months preceding the expiration of such tender offer in respect of which no adjustments have been made, exceeds 10% of Security Federal Corporation's market capitalization on the expiration of such tender offer.

In no event will any adjustment of the conversion price be required to be made until cumulative adjustments amount to 1% or more of the conversion price as last adjusted.

In addition to the foregoing adjustments, Security Federal Corporation will be permitted to make such adjustment to the conversion price as it considers to be advisable in order that any event treated for Federal income tax purposes as a dividend or distribution of stock or issuance of rights or warrants will not be taxable to the holders of the common stock.

The indenture does not contain provisions which would afford holders of the debentures protection in the event of a highly leveraged or other transaction involving Security Federal Corporation that may adversely affect holders of the debentures.

In case of certain consolidations or mergers to which Security Federal Corporation is a party or the transfer of substantially all of the assets of Security Federal Corporation, each debenture then outstanding would, without the consent of any holders of debentures, become convertible only into the kind and amount of securities, cash and other property receivable upon the consolidation, merger or transfer by a holder of the number of shares of common stock into which such debenture might have been converted immediately prior to such consolidation, merger or transfer (assuming such holder of common stock failed to exercise any rights of election and received per share the kind and amount of securities, cash and other property received per share by a plurality of nonelecting shares).

Fractional shares of common stock will not be issued upon conversion, but, in lieu thereof, Security Federal Corporation will pay a cash adjustment based upon the market price of the common stock. Debentures surrendered for conversion during the period from the close of business on any regular record date next preceding any interest payment date to the opening of business on such interest payment date (except debentures called for redemption on a redemption date within such period) must be accompanied by payment of an amount equal to the interest thereon which the registered holder is to receive. In the case of any debenture that has been converted after any regular record date but on or before the next interest payment date, interest whose stated maturity is on such interest payment date will be payable on such interest payment date notwithstanding such conversion, and such interest will be paid to the holder of such debenture on such regular record date. Except as described above, no interest on converted debentures will be payable by Security Federal Corporation on any interest payment date subsequent to the date of conversion. No other payment or adjustment for interest or dividends will be made upon conversion.

If at any time Security Federal Corporation makes a distribution of property to its stockholders that would be taxable to such stockholders as a dividend for Federal income tax purposes (i.e., distributions of evidences of indebtedness or assets of Security Federal Corporation, but generally not stock dividends or rights to subscribe for common stock) and pursuant to the antidilution provisions of the indenture, the conversion price of the debentures is reduced, such reduction may be deemed to be the payment of a taxable dividend to holders of debentures. If Security Federal Corporation voluntarily reduces the conversion price for a period of time, holders of the debentures may, in certain circumstances, have taxable income equal to the value of the reduction in the conversion price. holders of debentures could, therefore, have taxable income as a result of an event pursuant to which they received no cash or property that could be used to pay the related income tax.

Fundamental Change Permits Holders to Require Us to Repurchase Debentures

If a fundamental change (as defined below in this section) occurs at any time after the earlier of (i) December 19, 2011 and (ii) the date on which all of the shares of Series A Preferred Stock have been redeemed by us or transferred by Treasury to third parties, you will have the right, at your option, to require us to repurchase for cash any or all of your debentures, or any portion of the principal amount thereof, that is equal to $1,000 or any multiple of $1,000. The price we are required to pay (the "fundamental change repurchase price") is equal to 101% of the principal amount of the debentures to be repurchased plus accrued and unpaid interest, to but excluding the fundamental change repurchase date (unless the fundamental change repurchase date is between a regular record date and the interest payment date to which it relates, in which case we will pay accrued and unpaid interest to the holder of record on such regular record date). The fundamental change repurchase date will be a business day specified by us that is no later than the 35th calendar day following the date of our fundamental change notice as described below. Any debentures repurchased by us will be paid for in cash.

A "fundamental change" will be deemed to have occurred if any of the following occurs after the earlier of (i) December 19, 2011 and (ii) the date on which all of the shares of Series A Preferred Stock have been redeemed by us or transferred by Treasury to third parties:

(1)

a "person" or "group" within the meaning of Section 13(d) of the Securities Exchange Act of 1934, or the Exchange Act, other than us, our subsidiaries or our or their employee benefit plans, has become the direct or indirect "beneficial owner," as defined in Rule 13d-3 under the Exchange Act, of our common equity representing more than 50% of the voting power of our common equity;

(2)

consummation of (A) any recapitalization, reclassification or change of our common stock (other than changes resulting from a subdivision or combination) as a result of which our common stock will be converted into, or exchanged for, stock, other securities, other property or assets or (B) any share exchange, consolidation or merger of us pursuant to which our common stock will be converted into cash, securities or other property or any sale, lease or other transfer in one transaction or a series of transactions of all or substantially all of the consolidated assets of us and our subsidiaries, taken as a whole, to any person other than one of our subsidiaries; provided, however, that a share exchange, consolidation or merger transaction where the holders of more than 50% of all classes of our common equity immediately prior to such transaction own, directly or indirectly, more than 50% of all classes of common equity of the continuing or surviving corporation or transferee or the parent thereof immediately after such event will not constitute a fundamental change;

(3)	continuing directors cease to constitute at least a majority of our board of directors (or, if applicable, a successor person to us); or

(4)	our shareholders approve any plan or proposal for the liquidation or dissolution of us.

A fundamental change as a result of clause (2) above will not be deemed to have occurred, however, if at least 90% of the consideration received or to be received by our common shareholders, excluding cash payments for fractional shares and cash payments in respect of dissenters' or appraisal rights, in connection with the transaction or transactions otherwise constituting the fundamental change consists of shares of common stock traded on a U.S. national securities exchange or which will be so traded or quoted when issued or exchanged in connection with a fundamental change (these securities being referred to as "publicly traded securities") and as a result of this transaction or transactions the debentures become convertible into such publicly traded securities, excluding cash payments for fractional shares and cash payments in respect of dissenters' or appraisal rights.

"Continuing director" means a director who either was a member of our board of directors on the date of this prospectus or who becomes a member of our board of directors subsequent to that date and whose election, appointment or nomination for election by our shareholders, is duly approved by a majority of the continuing directors on our board of directors at the time of such approval, either by a specific vote or by approval of the proxy statement issued by us on behalf of our entire board of directors in which such individual is named as nominee for director.

If after the earlier of (i) December 19, 2011 and (ii) the date on which all of the shares of Series A Preferred Stock have been redeemed by us or transferred by Treasury to third parties a fundamental change occurs, then on or before the 20th day after the occurrence of the fundamental change, we will provide to all holders of the debentures and the trustee and paying agent a notice of the occurrence of the fundamental change and of the resulting repurchase right. Such notice will state, among other things:

·	the events causing the fundamental change;

·	the date of the fundamental change;

·	the last date on which a holder may exercise the repurchase right;

·	the fundamental change repurchase price;

·	the fundamental change repurchase date;

·	the name and address of the paying agent and the conversion agent, if applicable;

·	if applicable, the applicable conversion rate and any adjustments to the applicable conversion rate;

·	if applicable, that the debentures with respect to which a fundamental change repurchase notice has been delivered by a holder may be converted only if the holder withdraws the fundamental change repurchase notice in accordance with the terms of the indenture; and

·	the procedures that holders must follow to require us to repurchase their debentures.

Simultaneously with providing such notice, we will publish a notice containing this information in a newspaper of general circulation in the City of Aiken or publish the information on our website or through such other public medium as we may use at that time.

To exercise the repurchase right, you must deliver, on or before the business day immediately preceding the fundamental change repurchase date, subject to extension to comply with applicable law, the debentures to be repurchased, duly endorsed for transfer, together with a written repurchase notice and the form entitled "Form of Fundamental Change Repurchase Notice" on the reverse side of the debentures duly completed, to the paying agent. Your repurchase notice must state:

·	the certificate numbers of your debentures to be delivered for repurchase;

·	the portion of the principal amount of debentures to be repurchased, which must be $1,000 or a multiple thereof; and

·	that the debentures are to be repurchased by us pursuant to the applicable provisions of the debentures and the indenture.

You may withdraw any repurchase notice (in whole or in part) by a written notice of withdrawal delivered to the paying agent prior to the close of business on the business day prior to the fundamental change repurchase date. The notice of withdrawal must state:

·	the principal amount of the withdrawn debentures;

·	the certificate numbers of the withdrawn debentures; and

·	the principal amount, if any, that remains subject to the repurchase notice, which principal amount must be equal to $1,000 or an integral multiple of $1,000.

We will be required to repurchase the debentures on the fundamental change repurchase date, subject to extension to comply with applicable law. You will receive payment of the fundamental change repurchase price promptly following the fundamental change repurchase date. If the paying agent holds cash sufficient to pay the fundamental change repurchase price of the debentures, immediately following the fundamental change repurchase date, then:

·	the debentures will cease to be outstanding and interest, including defaulted interest, if any, will cease to accrue; and

·	all other rights of the holder will terminate (other than the right to receive the fundamental change repurchase price and previously accrued and unpaid interest upon delivery or transfer of the debentures).

In connection with any repurchase offer pursuant to a fundamental change repurchase notice, we will, if required:

·	comply with the provisions of the tender offer rules under the Exchange Act that may then be applicable; and

·	file a Schedule TO or any other required schedule under the Exchange Act.

No debentures may be repurchased at the option of holders upon a fundamental change if there has occurred and is continuing an event of default other than an event of default that is cured by the payment of the fundamental change repurchase price of the debentures.

The repurchase rights of the holders could discourage a potential acquisition of us. The fundamental change repurchase feature, however, is not the result of management's knowledge of any specific effort to obtain control of us by any means or part of a plan by management to adopt a series of anti-takeover provisions.

The term fundamental change is limited to specified transactions and may not include other events that might adversely affect our financial condition. In addition, the requirement that we offer to repurchase the debentures upon a fundamental change may not protect holders in the event of a highly leveraged transaction, reorganization, merger or similar transaction involving us.

The definition of fundamental change includes a phrase relating to the conveyance, transfer, sale, lease or disposition of "all or substantially all" of our consolidated assets. There is no precise, established definition of the phrase "substantially all" under applicable law. Accordingly, the ability of a holder of the debentures to require us to repurchase its debentures as a result of the conveyance, transfer, sale, lease or other disposition of less than all of our assets may be uncertain.

If a fundamental change were to occur, we may not have enough funds to pay the fundamental change repurchase price. Our ability to repurchase the debentures for cash may be limited by restrictions on our ability to obtain funds for such repurchase through dividends from our subsidiaries, the terms of our then existing borrowing arrangements or otherwise. See "Risk Factors—Risks Related to this Offering—We may not have the ability to repurchase the debentures in cash upon the occurrence of a fundamental change, or to pay cash upon the conversion of debentures." If we fail to repurchase the debentures when required following a fundamental change, we will be in default under the indenture. In addition, we may in the future incur other indebtedness with similar change in control provisions permitting our holders to accelerate or to require us to repurchase our indebtedness upon the occurrence of similar events or on some specific dates.

Ranking

The debentures will be senior unsecured obligations of Security Federal Corporation. The debentures will rank:

senior in right of payment to all our existing and future unsecured indebtedness if the appropriate instruments defining such indebtedness provide that such indebtedness is subordinate in right of payment to the debentures, including our $5.2 million of floating rate junior subordinated deferrable interest debentures due 2036;

·	equal in right of payment to all of our present and future unsecured indebtedness that is not expressly subordinated; and

·	effectively subordinated to all of our subsidiaries' obligations (including secured and unsecured obligation) and subordinated in right of payment to our secured obligations, to the extent of the assets securing each obligations.

Security Federal Corporation may from time to time incur additional indebtedness constituting senior indebtedness. While the indenture prohibits us from incurring unsecured indebtedness that would be senior in right of payment to the debentures, it does not otherwise prohibit or limit the incurrence of additional indebtedness or indebtedness which is collateralized. We may incur substantial additional amounts of indebtedness in the future.

Optional Redemption

The debentures will be redeemable at Security Federal Corporation's option, subject to obtaining any required approval from the government agency having primary regulatory authority over Security Federal Corporation, in whole or from time to time in part, upon not less than 30 nor more than 60 days' notice mailed to each holder of debentures to be redeemed at such holder's address appearing in the security register, on any date on or after December 1, 2019 and prior to maturity at a redemption price equal to 100% of the principal amount, together in the case of any such redemption with accrued interest to the redemption date (subject to the right of holders of record on the relevant regular record date to receive interest due on an interest payment date that is on or prior to the redemption date).

Limitations on Dividends, Redemptions, Etc. Upon a Default

The indenture provides that Security Federal Corporation will not:

·	declare or pay any dividend or make any other distribution on any junior securities, except dividends or distributions payable in junior securities; or

·	purchase, redeem or otherwise acquire or retire for value any junior securities, except junior securities acquired upon conversion thereof into other junior securities; or

·	permit a subsidiary to purchase, redeem or otherwise acquire or retire for value any junior securities;

if, at the time such dividend, distribution, purchase, redemption or other acquisition is effected, a default in the payment of any interest upon any debenture when it becomes due and payable or a default in the payment of the principal of (or premium, if any, on) any debenture at its maturity shall have occurred and be continuing.

The term "junior securities" means:

·	shares of common stock of Security Federal Corporation;

·	shares of preferred stock of Security Federal Corporation;

·	shares of any other class or classes of capital stock of Security Federal Corporation;

·	any other non-debt securities of Security Federal Corporation (whether or not such other securities are convertible into junior securities); or

·	unsecured debt securities of Security Federal Corporation (other than the debentures) as to which, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such debt securities do not rank equal in right of payment with the debentures.

Restrictions on Issuance and Sale of Capital Stock or Dispositions of the Bank

The indenture provides that Security Federal Corporation shall not sell, transfer or otherwise dispose of any shares of the capital stock of the Bank or permit the Bank to issue, sell or otherwise dispose of shares of its capital stock, unless, in either case, the Bank remains a wholly-owned subsidiary of Security Federal Corporation. In addition, the indenture provides that Security Federal Corporation shall not permit the Bank to merge or consolidate with any other entity (other than Security Federal Corporation), unless the surviving entity is the Bank or a wholly owned subsidiary of Security Federal Corporation, or permit the Bank to convey or transfer its properties and assets substantially as an entirety to any person, except to Security Federal Corporation or any wholly owned subsidiary of Security Federal Corporation. The indenture also prohibits the Bank from issuing any of its capital stock, preferred or otherwise, which has a priority or preference senior to any capital stock of the Bank held by Security Federal Corporation. At March 31, 2009, the Bank had 100,000 shares of common stock outstanding and no preferred stock outstanding.

Events of Default

The indenture defines an event of default with respect to the debentures as any one of the following events:

·	certain events of bankruptcy of Security Federal Corporation or receivership of any major depository institution subsidiary (as defined in the Indenture);

·	default for 30 days in payment of interest on any debenture;

·	default in payment of principal of (or premium, if any, on) or the fundamental change repurchase price on any debenture when the same shall become due and payable, whether at stated maturity, by acceleration or otherwise;

·	failure by Security Federal Corporation for 60 days after due notice to remedy a default in performance or the breach of any material representation, covenant or warranty in the indenture;

failure by Security Federal Corporation or any subsidiary to pay indebtedness for money borrowed in an aggregate principal amount exceeding $5.0 million when due or upon the expiration of any applicable period of grace with respect to such principal amount; or acceleration of the maturity of any indebtedness of Security Federal Corporation or any subsidiary for borrowed money in excess of $5.0 million if such failure to pay or acceleration results from a default under the instrument giving rise to, or securing, such indebtedness and is not annulled within 10 days after due notice has been given, unless the validity of such default is contested by Security Federal Corporation in good faith by appropriate proceedings;

the failure of the Bank to meet the criteria required for classification as an "adequately capitalized" insured depository institution under the regulations of the FDIC if such failure is not cured within a period of 90 days from the date of such failure or, if such failure is the result of a change in statute or regulation, such failure is not cured within a period of 180 days from the date of such failure; or

·	at such time as the Bank becomes subject to a statutory or regulatory prohibition against the payment of dividends or other capital distributions and such prohibition is not removed or otherwise made inapplicable within a period of 90 days from the date on which such limitation became effective.

Security Federal Bank is currently the only major depository institution subsidiary of Security Federal Corporation. If any event of default occurs and is continuing, either the Trustee or the holders of not less than 25% in principal amount of the outstanding debentures may declare the principal amount of all debentures to be due and payable immediately, but upon certain conditions such declaration may be rescinded and annulled and past defaults may be waived by the holders of a majority in principal amount of the outstanding debentures on behalf of the holders of all debentures. In case an event of default shall occur and be continuing, the trustee may in its discretion proceed to protect and enforce its rights and the rights of the holders by such appropriate judicial proceedings as the trustee deems most effectual. The indenture does not contain any provisions that would provide protection to holders of the debentures against a sudden and significant decline in credit quality of Security Federal Corporation, resulting from any takeover, recapitalization or similar restructuring of Security Federal Corporation.

The indenture provides that the trustee will give to the holders of the outstanding debentures notice within 90 days after the occurrence of any event of default (or any event which is, or after notice or lapse of time or both would become, an event of default) known to it if uncured or not waived; provided, however, that such notice shall

not be given until at least 60 days after the occurrence of an event of default (or any event which is, or after lapse of time or both would become an event of default) in the performance or breach of any material representation, warranty or covenant in the indenture.

The indenture provides that, subject to the duty of the trustee during default to act with the required standard of care, the trustee will not be under an obligation to exercise any of its rights or powers under the indenture at the request or direction of any of the holders, unless such holders shall have offered to the trustee reasonable security or indemnity. The indenture provides that the holders of a majority in principal amount of the outstanding debentures may direct the time, method and place of conducting any proceeding for any remedy available to the trustee, or exercising any trust or other power conferred on the trustee, provided that the trustee may decline to act if such direction is contrary to law or the indenture and may take other action deemed proper that is not inconsistent with such direction.

The indenture includes a covenant that Security Federal Corporation will file annually with the trustee a certificate of no default, or specifying any default that exists.

Consolidation, Merger and Sales of Assets

Security Federal Corporation, without the consent of the holders of any of the debentures under the indenture, may consolidate with or merge into any other person or convey, transfer or lease its properties and assets substantially as an entirety to any person, provided that:

·	the successor is a person organized and validly existing under the laws of any domestic jurisdiction;

·	the successor person, if other than Security Federal Corporation, assumes Security Federal Corporation's obligations with respect to the debentures and under the indenture,

·	after giving effect to the transaction, no event of default, and no event which, after notice or lapse of time or both would become an event of default, shall have occurred and be continuing; and

·	certain other conditions are met, including delivery by us to the indenture trustee of an appropriate opinion of counsel.

Although these types of transactions are permitted under the indenture, certain of the foregoing transactions could constitute a fundamental change (as defined above) permitting each holder to require us to repurchase the debentures of such holder as described above.

Limitation on Suits

No holder of any debenture shall have the right to institute any proceeding, judicial or otherwise, with respect to the indenture, or for the appointment of a receiver or trustee, or for any other remedy under the indenture, unless:

·	the holder has previously given written notice to the trustee of a continuing event of default;

·	the holders of not less than 25% in principal amount of the outstanding debentures shall have made written request to the trustee to institute proceedings in respect of such event of default;

·	the holder(s) shall have offered to the trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request;

·	the trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and

·	no direction inconsistent with such written request has been given to the trustee during such 60-day period by the holders of a majority in principal amount of the outstanding debentures.

Limitation on Transactions with Affiliates

Security Federal Corporation and its subsidiaries will not directly or indirectly enter into any transaction or series of related transactions with any affiliate of Security Federal Corporation (other than Security Federal Corporation or any wholly-owned subsidiary) unless the transaction or series of related transactions is in writing and on terms that are no less favorable to Security Federal Corporation or the subsidiary, as the case may be, than would

be available in a comparable transaction in an arm's-length dealing with a person that is not an affiliate or, in the absence of comparable transactions, on terms that in good faith would be offered to a person that is not an affiliate.

If a transaction or series of related transactions involves aggregate payments in excess of $1,500,000, Security Federal Corporation must also deliver an officers' certificate to the trustee certifying that the transaction or series of related transactions complies with the preceding paragraph and the transaction or series of related transactions has been approved by a majority of the disinterested directors of Security Federal Corporation.

If a transaction or series of related transactions involving aggregate payments in excess of $2,500,000 or, in the event no members of the board of directors of Security Federal Corporation are disinterested directors with respect to any transaction or series of transactions involving aggregate payments in excess of $1,500,000 then:

in the case of a transaction involving real property, the aggregate rental or sale price of such real property shall be the fair market rental or sale value of such real property as determined by a written opinion from a certified expert with experience in appraising the terms and conditions of the type of transaction or series of transactions for which approval is required; and

in all other cases, Security Federal Corporation delivers to the trustee a written opinion of a certified expert with experience in appraising the terms and conditions of the type of transaction or series of transactions to the effect that the transaction or series of transactions are fair to Security Federal Corporation or such subsidiary from a financial point of view.

The limitations set forth in the paragraph above shall not apply to:

·	transactions entered into pursuant to any agreement in effect on the date of the indenture,

residential mortgage, credit card or other consumer loans to an affiliate who is an officer, director or employee of Security Federal Corporation or any of its subsidiaries provided that such loan is made on terms and conditions consistent with the practices and policies of the Bank as of the date of the indenture, or

·	any indemnification by Security Federal Corporation made pursuant to the indemnification provisions contained in Security Federal Corporation's articles of incorporation or bylaws as of the date of the indenture.

An affiliate of Security Federal Corporation generally includes any executive officer, director or 10% stockholder of Security Federal Corporation or the Bank.

Additional Covenants

The indenture contains a number of additional covenants and other provisions relating to the Corporation and its operations, including the following:

Corporate Existence of the Corporation and its Subsidiaries . Subject to the indenture's requirements regarding consolidation, merger, and sales of assets or a fundamental change (as described herein), Security Federal Corporation is required to do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence, rights (charter and statutory) and franchises of Security Federal Corporation and its subsidiaries; provided, however, that Security Federal Corporation shall not be required to preserve any right or franchise if the board of directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of Security Federal Corporation and the loss thereof is not disadvantageous in any material respect to the holders of the debentures. In addition, the indenture requires that Security Federal Corporation preserve and keep in full force and effect the Bank's status as a wholly owned subsidiary and an insured depository institution and do all things necessary to ensure that deposit accounts of the Bank are insured by the FDIC (or any successor organization) up to the maximum amount permitted by the Federal Deposit Insurance Act and regulations thereunder (or by any succeeding Federal law hereafter enacted).

Maintenance of Insurance. The indenture requires that Security Federal Corporation and its subsidiaries at all times maintain insurance (either in the name of Security Federal Corporation or in the name of the subsidiary) on all of the properties owned by Security Federal Corporation or any subsidiary against loss or damage from hazards

and risks to the person, rights and property of others, to the extent that such insurance is usually carried by corporations similarly situated and engaged in like business; provided, however, that Security Federal Corporation or any subsidiary may maintain a self-insurance program covering minor risks conforming to the practices of similar corporations maintaining self-insurance if adequate reserves, are maintained in connection with such program and if such program is not disadvantageous in any material respect to the holders of debentures.

Limitations on Liens on Bank Stock. The indenture provides that Security Federal Corporation shall not create, assume, incur or suffer to exist any mortgage, pledge, encumbrance, lien or charge of any kind upon the capital stock of the Bank, including as security or collateral for indebtedness, or borrowed money or otherwise.

Books and Records. Under the terms of the indenture, Security Federal Corporation and each subsidiary is required to, at all times, keep proper books of record and accounts in which proper entries shall be made in accordance with generally accepted accounting principles and, to the extent applicable, regulatory accounting.

Maintenance of Office or Agency. Security Federal Corporation will maintain an office or agency in each place of payment where debentures may be presented or surrendered for payment, where debentures may be surrendered for transfer or exchange and where notices and demands to or upon Security Federal Corporation in respect of the debentures and this indenture may be served. Security Federal Corporation will give prompt written notice to the trustee of the location, and of any change in the location, of such office or agency. If at any time Security Federal Corporation shall fail to maintain such office or agency or shall fail to furnish the trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the principal corporate trust office of the trustee, and Security Federal Corporation hereby appoints the trustee its agent to receive all such presentations, surrenders, notices and demands.

Limitation on Indebtedness Senior to Debentures. Notwithstanding any other provision in the indenture, Security Federal Corporation shall not incur any indebtedness which would be senior in right of payment to the debentures; provided, however, this limitation shall not affect Security Federal Corporation's ability to incur indebtedness which is collateralized. Indebtedness means, without duplication, any indebtedness, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements with respect thereto) as to which, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such indebtedness does not rank equal in right of payment with the debentures or representing the balance deferred and unpaid of the purchase price of any property (including pursuant to capital leases), except any such balance that constitutes an accrued expense or trade payable arising in the ordinary course of business (such accrued expenses or trade payables being equal in right of payment to the debentures, if and to the extent any of the foregoing indebtedness would appear as a liability upon a balance sheet prepared on a consolidated basis in accordance with GAAP (but does not include contingent liabilities which appear only in a footnote to a balance sheet), and shall also include, to the extent not otherwise included, the guaranty of items which would be included within this definition.

Payment of Taxes and other Claims. Security Federal Corporation will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon it or upon its income, profits or property and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon its property; provided, however, that Security Federal Corporation shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings or any such tax assessment, charge or claim if not disadvantageous in any material respect to the holders of the debentures.

Notice of Events of Default or Default. Security Federal Corporation will be required to provide the trustee prompt written notice of any event of default or any event that upon notice or the passage of time or both would become an event of default of which the Company has actual knowledge.

Modification and Waiver

Modifications and amendments of the indenture may be made by Security Federal Corporation and the trustee with the consent of the holders of not less than 66-2/3% in principal amount of the outstanding debentures; provided, however, that no such modification or amendment may, without the consent of the holder of each outstanding debenture affected thereby;

·	change the stated maturity of the principal of, or time of payment on any installment of interest on, any debenture;

·	reduce the principal amount of, or interest on, any debenture;

·	change the currency of payment of principal of, or rate of interest on, any debenture;

·	impair the right to institute suit for the enforcement of any payment on or with respect to any debenture;

·	adversely affect the right to convert debentures;

reduce the fundamental change repurchase price of any debenture or amend or modify in any manner adverse to the holders of debentures our obligation to make such payment, whether through an amendment or waiver of provisions in the indenture (including the definitions contained therein) or otherwise;

·	change the ranking of the debentures in a manner adverse to the holders of the debentures;

·	reduce the above-stated percentage of outstanding debentures necessary to modify or amend the indenture; or

·	reduce the percentage of aggregate principal amount of outstanding debentures necessary for waiver of compliance with certain provisions of the indenture or for waiver of certain defaults.

The holders of not less than a majority in principal amount of the outstanding debentures may on behalf of the holders of all of the debentures waive any past default under the indenture, except a default in the payment of principal of (or premium, if any) or interest on any debenture or in respect of a covenant or provision which cannot be modified without the consent of each holder of debentures affected.

Without the consent of any holder, we and the trustee may amend the indenture to:

cure any ambiguity or correct any omission, defect or inconsistency in the indenture, so long as such action will not materially and adversely affect the interests of holders of the debentures; provided that any such amendment made solely to conform the provisions of the indenture to this prospectus supplement will be deemed not to adversely affect the interests of holders of the debentures;

·	provide for the assumption by a successor corporation, partnership, trust or limited liability company of our obligations under the indenture;

·	add guarantees with respect to the debentures;

·	secure the debentures;

·	add to our covenants for the benefit of the holders or surrender any right or power conferred upon us;

·	make any change that does not materially adversely affect the rights of any holder; or

·	comply with any requirement in connection with the qualification of the indenture under the Trust Indenture Act.

The consent of the holders is not necessary under the indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. After an amendment under the indenture becomes effective, we are required to mail to the holders a notice briefly describing such amendment. However, the failure to give such notice to all the holders, or any defect in the notice, will not impair or affect the validity of the amendment.

Discharge

We may satisfy and discharge our obligations under the indenture by delivering to the securities registrar for cancellation all outstanding debentures or by depositing with the trustee or delivering to the holders, as applicable, after the debentures have become due and payable, whether at stated maturity, or any fundamental change repurchase date, or upon conversion or otherwise, cash or shares of common stock sufficient to pay all of the outstanding debentures and paying all other sums payable under the indenture by us. Such discharge is subject to terms contained in the indenture.

The indenture also provides that upon compliance with certain conditions we may omit to comply with the covenant described under the headings "-Restrictions on Issuance and Sale of Capital Stock or Dispositions of the Bank", "-Limitations on Dividends, Redemptions, Etc.", "-Limitation on Transactions with Affiliates", "-Additional Covenants-Corporate Existence of the Corporation and its Subsidiaries", "-Additional Covenants-Limitations on Liens on Bank Stock" and certain other covenants set forth in the indenture and any omission to comply with those covenants will not constitute a default or an event of default with respect to the debentures, which we refer to as a "covenant defeasance."

The conditions include:

depositing with the trustee money and/or U.S. government obligations that, through the payment of interest and principal in accordance with their terms, will provide money in an amount sufficient in the opinion of a nationally recognized firm of independent public accountants to pay and discharge each installment of principal of and interest, if any, on the debentures on the dates such installments of principal and interest are due in accordance with the terms of the indenture and the debentures; and

·	delivering to the trustee an opinion of counsel to the effect that the holders of the debentures will not recognize income, gain or loss for United States federal income tax purposes as a result of the deposit and related covenant defeasance.

Calculations in respect of debentures

Except as otherwise provided above, we will be responsible for making all calculations called for under the debentures. These calculations include, but are not limited to, determinations of the last reported sale prices of our common stock, accrued interest payable on the debentures and the conversion rate of the debentures. We will make all these calculations in good faith and, absent manifest error, our calculations will be final and binding on holders of debentures. We will provide a schedule of our calculations to each of the trustee and the conversion agent, and each of the trustee and conversion agent is entitled to rely conclusively upon the accuracy of our calculations without independent verification. The trustee will forward our calculations to any holder of debentures upon the request of that holder.

Trustee

Wilmington Trust Company is the trustee, security registrar, paying agent and conversion agent. Wilmington Trust Company, in each of its capacities, including without limitation as trustee, security registrar, paying agent and conversion agent, assumes no responsibility for the accuracy or completeness of the information concerning us or our affiliates or any other party contained in this document or the related documents or for any failure by us or any other party to disclose events that may have occurred and may affect the significance or accuracy of such information.

Governing law

The indenture provides that it and the debentures will be governed by, and construed in accordance with, the laws of the State of Delaware.

DESCRIPTION OF THE CAPITAL STOCK

The 5,200,000 shares of capital stock authorized by Security Federal Corporation's articles of incorporation are divided into two classes, consisting of 5,000,000 shares of common stock (par value $.01 per share) and 200,000 shares of serial preferred stock (par value $.01 per share). As of June 30, 2009, there were 2,461,090 shares of our common stock issued and outstanding and 18,000 shares of our preferred stock issued and outstanding, all of which consisted of our Series A Preferred Stock, which we issued, along with a ten-year warrant to purchase 137,966 shares of our common stock, to Treasury on December 19, 2008 pursuant to Treasury's Troubled Asset Relief Program Capital Purchase Program.

Common Stock

General. Each share of common stock has the same relative rights and is identical in all respects with each other share of the common stock. Each holder of common stock is entitled to one vote for each share held on all matters voted upon by stockholders, subject to the limitation discussed under "Restrictions on Acquisitions of Stock and Related Takeover Defensive Provisions - Provisions of Security Federal Corporation's Articles of Incorporation and Bylaws - Limitation on Voting Rights." If Security Federal Corporation issues preferred stock, holders of the preferred stock may also possess voting powers. See "-Series A Preferred Stock - Voting Rights."

Liquidation or Dissolution. In the unlikely event of the liquidation or dissolution of Security Federal Corporation, the holders of the common stock will be entitled to receive - after payment or provision for payment of all debts and liabilities of Security Federal Corporation (including all deposits in the Bank and accrued interest thereon) and after distribution of the liquidation account established in the mutual to stock conversion of Security Federal Bank - all assets of Security Federal Corporation available for distribution, in cash or in kind. If preferred stock is outstanding, the holders thereof may have a priority over the holders of common stock in the event of liquidation or dissolution. See "-Series A Preferred Stock - Liquidation Rights."

No Preemptive Rights . Holders of the common stock are not entitled to preemptive rights with respect to any shares which may be issued.

Restrictions on Dividends and Repurchases Under Agreement with Treasury. The securities purchase agreement we entered into with Treasury in connection with the sale of the Series A Preferred Stock to Treasury provides that prior to the earlier of (i) December 19, 2011 and (ii) the date on which all of the shares of the Series A Preferred Stock have been redeemed by us or transferred by Treasury to third parties, we may not, without the consent of Treasury, (a) increase the cash dividend on our common stock or (b) subject to limited exceptions, redeem, repurchase or otherwise acquire shares of our common stock or preferred stock (other than the Series A Preferred Stock) or trust preferred securities. The securities purchase agreement was attached as Exhibit 10.1 to our Current Report on Form 8-K filed on December 19, 2008 and incorporated herein by reference. See "Where You Can Find More Information." In addition, the terms of the Series A Preferred Stock prohibit us from paying any dividends on our common stock (or on any series of preferred stock then outstanding ranking junior to the Series A Preferred Stock as to the payment of dividends) unless we are current in our dividend payments on the Series A Preferred Stock.

Except as discussed herein, Security Federal Corporation has no present plans for the issuance of the additional authorized shares of common stock or for the issuance of any additional shares of preferred stock. In the future, the authorized but unissued and unreserved shares of common stock will be available for general corporate purposes, including but not limited to possible issuance as stock dividends or stock splits, in future mergers or acquisitions, under a cash dividend reinvestment and stock purchase plan, in a future underwritten or other public offering, or under an employee stock ownership plan. The authorized but unissued shares of preferred stock will similarly be available for issuance in future mergers or acquisitions, in a future underwritten public offering or private placement or for other general corporate purposes. Except as described above or as otherwise required to approve the transaction in which the additional authorized shares of common stock or authorized shares of preferred stock would be issued, no stockholder approval will be required for the issuance of these shares. Accordingly, the Board of Directors of Security Federal Corporation, without stockholder approval, can issue preferred stock with voting and conversion rights which could adversely affect the voting power of the holders of common stock.

Restrictions on Acquisitions . See "Restrictions on Acquisitions of Stock and Related Takeover Defensive Provisions" for a description of certain provisions of Security Federal Corporation's articles of incorporation and

bylaws which may affect the ability of Security Federal Corporation's stockholders to participate in certain transactions relating to acquisitions of control of Security Federal Corporation.

Dividends . See "Market For Our Common Stock and Dividends."

Preferred Stock

Our articles of incorporation permit our Board of Directors to authorize the issuance of up to 200,000 shares of preferred stock, par value $0.01, in one or more series, without shareholder action. The Board of Directors can fix the designation, powers, preferences and rights of each series. Therefore, without approval of the holders of our common stock or the Series A Preferred Stock (except as may be required under the terms of the Series A Preferred Stock (see "-Series A Preferred Stock-Voting Rights") or by the rules of the NASDAQ Stock Market or any other exchange or market on which our securities may then be listed or quoted), our Board of Directors may authorize the issuance of preferred stock with voting, dividend, liquidation and conversion and other rights that could dilute the voting power or other rights or adversely affect the market value of our common stock and may assist management in impeding any unfriendly takeover or attempted change in control. See "-Restrictions on Acquisitions of Stock and Related Takeover Defensive Provisions."

Series A Preferred Stock

This section summarizes specific terms and provisions of the Series A Preferred Stock. The description of the Series A Preferred Stock set forth below is qualified in its entirety by the actual terms of the Series A Preferred Stock. The terms of our Series A Preferred Stock are set forth in the certificate of designation for such stock, which was attached as Exhibit 3.1 to our Current Report on Form 8-K filed on December 23, 2008 and incorporated herein by reference. See "Where You Can Find More Information."

General. The Series A Preferred Stock constitutes a single series of our preferred stock, consisting of 18,000 shares, par value $0.01 per share, having a liquidation preference amount of $1,000 per share. The Series A Preferred Stock has no maturity date. We issued the shares of Series A Preferred Stock to Treasury on December 19, 2008 in connection with the TARP Capital Purchase Program for a purchase price of $18.0 million.

Dividend Rate. Dividends on the Series A Preferred Stock are payable quarterly in arrears, when, as and if authorized and declared by our Board of Directors out of legally available funds, on a cumulative basis on the $1,000 per share liquidation preference amount plus the amount of accrued and unpaid dividends for any prior dividend periods, at a rate of (i) 5% per annum, from the original issuance date to but excluding the first day of the first dividend period commencing after the fifth anniversary of the original issuance date (i.e., 5% per annum from December 19, 2008 to but excluding February 15, 2014), and (ii) 9% per annum, from and after the first day of the first dividend period commencing after the fifth anniversary of the original issuance date (i.e., 9% per annum on and after February 15, 2014). Dividends are payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, commencing on February 15, 2009.

Dividends on the Series A Preferred Stock will be cumulative. If for any reason our Board of Directors does not declare a dividend on the Series A Preferred Stock for a particular dividend period, or if our Board of Directors declares less than a full dividend, we will remain obligated to pay the unpaid portion of the dividend for that period and the unpaid dividend will compound on each subsequent dividend date (meaning that dividends for future dividend periods will accrue on any unpaid dividend amounts for prior dividend periods).

We are not obligated to pay holders of the Series A Preferred Stock any dividend in excess of the dividends on the Series A Preferred Stock that are payable as described above. There is no sinking fund with respect to dividends on the Series A Preferred Stock.

Priority of Dividends . So long as the Series A Preferred Stock remains outstanding, we may not declare or pay a dividend or other distribution on our common stock or any other shares of Junior Stock (other than dividends payable solely in common stock) or Parity Stock (other than dividends paid on a pro rata basis with the Series A Preferred Stock), and we generally may not directly or indirectly purchase, redeem or otherwise acquire any shares of common stock, Junior Stock or Parity Stock unless all accrued and unpaid dividends on the Series A Preferred Stock for all past dividend periods are paid in full.

"Junior Stock" means our common stock and any other class or series of our stock the terms of which expressly provide that it ranks junior to the Series A Preferred Stock as to dividend rights and/or as to rights on liquidation, dissolution or winding up of Security Federal Corporation. We currently have no outstanding class or series of stock constituting Junior Stock other than our common stock.

"Parity Stock" means any class or series of our stock, other than the Series A Preferred Stock, the terms of which do not expressly provide that such class or series will rank senior or junior to the Series A Preferred Stock as to dividend rights and/or as to rights on liquidation, dissolution or winding up of Security Federal Corporation, in each case without regard to whether dividends accrue cumulatively or non-cumulatively. We currently have no outstanding class or series of stock constituting Parity Stock.

Liquidation Rights. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of Security Federal Corporation, holders of the Series A Preferred Stock will be entitled to receive for each share of Series A Preferred Stock, out of the assets of Security Federal Corporation or proceeds available for distribution to our shareholders, subject to any rights of our creditors, before any distribution of assets or proceeds is made to or set aside for the holders of our common stock and any other class or series of our stock ranking junior to the Series A Preferred Stock, payment of an amount equal to the sum of (i) the $1,000 liquidation preference amount per share and (ii) the amount of any accrued and unpaid dividends on the Series A Preferred Stock (including dividends accrued on any unpaid dividends). To the extent the assets or proceeds available for distribution to shareholders are not sufficient to fully pay the liquidation payments owing to the holders of the Series A Preferred Stock and the holders of any other class or series of our stock ranking equally with the Series A Preferred Stock, the holders of the Series A Preferred Stock and such other stock will share ratably in the distribution.

For purposes of the liquidation rights of the Series A Preferred Stock, neither a merger or consolidation of Security Federal Corporation with another entity nor a sale, lease or exchange of all or substantially all of Security Federal Corporation's assets will constitute a liquidation, dissolution or winding up of the affairs of Security Federal Corporation.

Redemption and Repurchases . The terms of the Series A Preferred Stock provide that, subject to the prior approval of the Office of Thrift Supervision, the Series A Preferred Stock is redeemable at our option in whole or in part at a redemption price equal to 100% of the liquidation preference amount of $1,000 per share plus any accrued and unpaid dividends to but excluding the date of redemption (including dividends accrued on any unpaid dividends), provided that any declared but unpaid dividend payable on a redemption date that occurs subsequent to the record date for the dividend will be payable to the holder of record of the redeemed shares on the dividend record date, and provided further that the Series A Preferred Stock may be redeemed prior to the first dividend payment date falling after the third anniversary of the original issuance date (i.e., prior to February 15, 2012) only if (i) we have, or our successor following a business combination with another entity which also participated in the TARP Capital Purchase Program has, raised aggregate gross proceeds in one or more Qualified Equity Offerings of at least the Minimum Amount and (ii) the aggregate redemption price of the Series A Preferred Stock does not exceed the aggregate net proceeds from such Qualified Equity Offerings by us and any successor. A "Qualified Equity Offering" is defined as the sale for cash by Security Federal Corporation (or its successor) of preferred stock or common stock that qualifies as Tier 1 capital under applicable regulatory capital guidelines. The "Minimum Amount" means $4.5 million plus, in the event we are succeeded in a business combination by another entity which also participated in the TARP Capital Purchase Program, 25% of the aggregate liquidation preference amount of the preferred stock issued by that entity to Treasury.

Subsequent to our issuance of the Series A Preferred Stock, on February 17, 2009, President Obama signed the ARRA into law. Among other things, the ARRA provides that subject to consulting with the appropriate federal banking agency (the Office of Thrift Supervision in our case), Treasury must permit repayment of funds provided under the TARP Capital Purchase Program without regard to whether the institution which received the funds has replaced the funds from any other source, and upon repayment of the assistance, Treasury will liquidate warrants issued by the institution at the current market price. Accordingly, the ARRA effectively permits us to currently cause the redemption of the Series A Preferred Stock, without regard to whether we have raised additional capital in a Qualified Equity Offering or otherwise, subject to Treasury's consultation with the Office of Thrift Supervision.

Shares of Series A Preferred Stock that we redeem, repurchase or otherwise acquire will revert to authorized but unissued shares of preferred stock, which may then be reissued by us as any series of preferred stock other than the Series A Preferred Stock.

No Conversion Rights . Holders of the Series A Preferred Stock have no right to exchange or convert their shares into common stock or any other securities.

Voting Rights. The holders of the Series A Preferred Stock do not have voting rights other than those described below, except to the extent specifically required by South Carolina law.

Whenever dividends have not been paid on the Series A Preferred Stock for six or more quarterly dividend periods, whether or not consecutive, the authorized number of directors of Security Federal Corporation will automatically increase by two and the holders of the Series A Preferred Stock will have the right, with the holders of shares of any other classes or series of Voting Parity Stock outstanding at the time, voting together as a class, to elect two directors (the "Preferred Directors") to fill such newly created directorships at our next annual meeting of shareholders (or at a special meeting called for that purpose prior to the next annual meeting) and at each subsequent annual meeting of shareholders until all accrued and unpaid dividends for all past dividend periods on all outstanding shares of Series A Preferred Stock have been paid in full at which time this right will terminate with respect to the Series A Preferred Stock, subject to revesting in the event of each and every subsequent default by us in the payment of dividends on the Series A Preferred Stock.

Upon any termination of the right of the holders of the Series A Preferred Stock and Voting Parity Stock as a class to vote for directors as described above, the Preferred Directors will cease to be qualified as directors, the terms of office of all Preferred Directors then in office will terminate immediately and the authorized number of directors will be reduced by the number of Preferred Directors which had been elected by the holders of the Series A Preferred Stock and the Voting Parity Stock. Any Preferred Director may be removed at any time, with or without cause, and any vacancy created by such a removal may be filled, only by the affirmative vote of the holders a majority of the outstanding shares of Series A Preferred Stock voting separately as a class together with the holders of shares of Voting Parity Stock, to the extent the voting rights of such holders described above are then exercisable. If the office of any Preferred Director becomes vacant for any reason other than removal from office, the remaining Preferred Director may choose a successor who will hold office for the unexpired term of the office in which the vacancy occurred.

The term "Voting Parity Stock" means with regard to any matter as to which the holders of the Series A Preferred Stock are entitled to vote, any series of Parity Stock (as defined under "—Priority of Dividends") upon which voting rights similar to those of the Series A Preferred Stock have been conferred and are exercisable with respect to such matter. We currently have no outstanding shares of Voting Parity Stock.

In addition to any other vote or consent required by South Carolina law or by our articles of incorporation, the vote or consent of the holders of at least 66 2/3% of the outstanding shares of Series A Preferred Stock, voting as a separate class, is required in order to do the following:

amend our articles of incorporation or the articles of amendment for the Series A Preferred Stock to authorize or create or increase the authorized amount of, or any issuance of, any shares of, or any securities convertible into or exchangeable or exercisable for shares of, any class or series of stock ranking senior to the Series A Preferred Stock with respect to the payment of dividends and/or the distribution of assets on any liquidation, dissolution or winding up of Security Federal Corporation; or

·	amend our articles of incorporation or the articles of amendment for the Series A Preferred Stock in a way that materially and adversely affect the rights, preferences, privileges or voting powers of the Series A Preferred Stock; or

consummate a binding share exchange or reclassification involving the Series A Preferred Stock or a merger or consolidation of Security Federal Corporation with another entity, unless (i) the shares of Series A Preferred Stock remain outstanding or, in the case of a merger or consolidation in which Security Federal Corporation is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (ii) the shares of Series A Preferred Stock remaining outstanding or such preference securities, have such rights, preferences, privileges, voting powers, limitations and restrictions, taken as a whole, as are not materially less favorable than the rights, preferences, privileges, voting powers, limitations and restrictions of the Series A Preferred Stock prior to consummation of the transaction, taken as a whole ;

provided, however, that (1) any increase in the amount of our authorized but unissued shares of preferred stock, and (2) the creation and issuance, or an increase in the authorized or issued amount, of any other series of preferred

stock, or any securities convertible into or exchangeable or exercisable for any other series of preferred stock, ranking equally with and/or junior to the Series A Preferred Stock with respect to the payment of dividends, whether such dividends are cumulative or non-cumulative and the distribution of assets upon our liquidation, dissolution or winding up, will not be deemed to materially and adversely affect the rights, preferences, privileges or voting powers of the Series A Preferred Stock and will not require the vote or consent of the holders of the Series A Preferred Stock.

To the extent holders of the Series A Preferred Stock are entitled to vote, holders of shares of the Series A Preferred Stock will be entitled to one for each share then held.

RESTRICTIONS ON ACQUISITIONS OF STOCK AND

RELATED TAKEOVER DEFENSIVE PROVISIONS

The following discussion is a general summary of the material provisions of Security Federal Corporation's articles of incorporation and bylaws and certain other regulatory provisions, which may be deemed to have an "anti-takeover" effect. Please refer to the articles of incorporation of Security Federal Corporation, which is filed as an exhibit to the registration statement of which this prospectus forms a part, for a detailed description of the provisions summarized below. To obtain a copy of our articles of incorporation, see "Where You Can Find More Information."

Provisions of Security Federal Corporation's Articles of Incorporation and Bylaws

Directors. Certain provisions of Security Federal Corporation's articles of incorporation and bylaws impede changes in majority control of the board of directors. Security Federal Corporation's articles of incorporation provides that the board of directors of Security Federal Corporation shall be divided into three classes, with directors in each class elected for three-year staggered terms. Thus, it would take two annual elections to replace a majority of Security Federal Corporation's Board. Security Federal Corporation's articles of incorporation provides that the size of the board of directors shall range from seven to fifteen directors and may be increased or decreased only by a vote of two-thirds of the board. The articles of incorporation also provides that any vacancy occurring in the board of directors, including a vacancy created by an increase in the number of directors, shall be filled for the remainder of the unexpired term by a majority vote of the directors then in office. Finally, the articles of incorporation impose certain notice and information requirements in connection with the nomination by stockholders of candidates for election to the board of directors or the proposal by stockholders of business to be acted upon at an annual meeting of stockholders.

The articles of incorporation provides that a director may only be removed for cause by the affirmative vote of two-thirds of the shares eligible to vote.

Restrictions on Call of Special Meetings. The articles of incorporation of Security Federal Corporation provides that a special meeting of stockholders may be called only by the chairman of the board, the president, pursuant to a resolution adopted by a majority of the board of directors or as otherwise required by law. Stockholders are not authorized to call a special meeting.

Absence of Cumulative Voting. Security Federal Corporation's articles of incorporation provide that there shall be no cumulative voting rights.

Authorization of Preferred Stock . The articles of incorporation of Security Federal Corporation authorizes 200,000 shares of serial preferred stock, $.01 par value. Security Federal Corporation is authorized to issue preferred stock from time to time in one or more series subject to applicable provisions of law, and the board of directors is authorized to fix the designations, powers, preferences and relative participating, optional and other special rights of such shares, including voting rights (which could be multiple or as a separate class) and conversion rights. In the event of a proposed merger, tender offer or other attempt to gain control of Security Federal Corporation that the board of directors does not approve, it might be possible for the board of directors to authorize the issuance of a series of preferred stock with rights and preferences that would impede the completion of such a transaction. An effect of the possible issuance of preferred stock, therefore, may be to deter a future takeover attempt. The board of directors has no present plans or understandings for the issuance of any additional shares of preferred stock and does not intend to issue any preferred stock except on terms which the board deems to be in the best interests of Security Federal Corporation and its stockholders.

Limitation on Voting Rights. The articles of incorporation of Security Federal Corporation provides that in no event shall any person acquire beneficial ownership of 15% or more of Security Federal Corporation's voting stock unless prior approval by either two-thirds of the outstanding voting stock at a meeting of stockholders called for such approval or by two-thirds of the board of the directors. In addition, no person may acquire 10% or more of the voting stock of Security Federal Corporation without obtaining all required federal or state approvals or offer to acquire beneficial ownership of 10% or more of the voting stock unless the offer has been approved by two-thirds of the board or all required federal or state approvals have been obtained and we have been furnished at the time of filing a complete copy of all notices, submissions, documents and other information filed pursuant to applicable federal and state law and regulations. Beneficial ownership is to be determined pursuant to Rule 13d-3 of the general rules and regulations of the Exchange Act and, in any event, includes shares beneficially owned by any affiliate of such person, shares which such person or his affiliates (as defined in the articles of incorporation) have the right to acquire upon the exercise of conversion rights or options and shares as to which such person and his affiliates have or share investment or voting power but shall not include shares acquired prior to the adoption of these articles of incorporation. These provisions would not affect the ability of any individual to solicit revocable proxies and to vote the shares represented by such proxies. These provisions would also not affect the ability of management to solicit revocable proxies and to vote the shares represented by such proxies.

Procedures for Certain Business Combinations . Security Federal Corporation's articles of incorporation requires that certain business combinations, as defined therein, between Security Federal Corporation (or any majority-owned subsidiary thereof) and a 10% or more stockholder either (1) be approved by at least two-thirds of the total number of outstanding voting shares, voting as a single class, of Security Federal Corporation, and two-thirds of the total number of outstanding voting shares (not including shares held by the 10% stockholder) or (2) be approved by two-thirds of the continuing board of directors ( i.e. , persons serving prior to the 10% stockholder becoming such).

Amendment to Articles of Incorporation and Bylaws. Amendments to Security Federal Corporation's articles of incorporation must be approved by a two-thirds vote of Security Federal Corporation's Board of Directors and also by a majority of the outstanding shares of Security Federal Corporation's voting stock, provided, however, that approval by at least two-thirds of the outstanding voting stock is generally required for certain provisions ( i.e. , provisions relating to preemptive rights, number, classification, election and removal of directors; amendment of bylaws; call of special stockholder meetings; offers to acquire and acquisitions of control; director liability; certain business combinations; power of indemnification; and amendments to provisions relating to the foregoing in the articles of incorporation).

The bylaws may be amended by a vote of two-thirds the board of directors or the affirmative vote of two-thirds of the total votes eligible to be voted at a duly constituted meeting of stockholders.

Other Restrictions on Acquisitions of Stock

South Carolina Anti-Takeover Statute. South Carolina law imposes restrictions on certain transactions between a corporation and certain interested stockholders. South Carolina's "fair price" statute restricts certain business combinations (e.g., mergers and dispositions of assets of a corporation or any subsidiary having an aggregate market value of 10% or more of the total market value of the corporation's outstanding stock) between a corporation and an interested stockholder (e.g., a beneficial owner of 10% or more of the voting power of the outstanding shares of a corporation). The fair price statute generally precludes a corporation from engaging in any business combination with an interested stockholder within two years after the acquisition pursuant to which the stockholder became an interested stockholder, unless (1) either the business combination or the acquisition pursuant to which the interested stockholder became interested was approved by the board of directors before the acquisition, (2) the business combination is approved by the affirmative vote of the holders of a majority of the outstanding shares not beneficially owned by the interested stockholder or his affiliates or associates at a meeting called for that purpose at least two years after the acquisition pursuant to which the interested stockholder became interested, or (3) certain minimum price criteria are satisfied.

South Carolina's "fair price" statue was intended to ensure that all stockholders of a South Carolina corporation would receive comparable prices per share for stock sold to an interested stockholder in a business combination. The statute was designed to eliminate coercive "two-tiered" pricing arrangements to gain control of corporations, whereby a tender offer is initiated as the first step in a business combination, with a higher price per share being offered to those stockholders who initially tender their shares to the potential acquirer, and a lower price to the minority of stockholders who initially elect not to tender their stock. The statute addresses this potential for

unequal treatment of minority stockholders by imposing special voting requirements on business combinations involving an interested stockholder.

Federal Law . Security Federal Bank is a federal savings bank. Acquisitions of control of Security Federal Bank by an individual are governed by the Change in Bank Control Act, and by another company are governed by Section 10 of the Home Owners' Loan Act. The OTS has promulgated regulations under these laws.

The Change in Bank Control Act provides that no person, acting directly or indirectly or through or in concert with one or more other individuals, may acquire control of a federal savings bank, unless the OTS has been given 60 days prior written notice. Similar notice is required to be provided to the OTS by an individual acquiring a similar ownership interest in a savings association holding company. The Home Owners' Loan Act provides that no company may acquire "control" of a savings association without the prior approval of the OTS. Any company that acquires such control becomes a savings and loan holding company subject to registration, examination and regulation by the OTS. In addition, acquisitions of control of a savings association holding company by another company are subject to the approval of the OTS.

Pursuant to OTS regulations, control of a savings institution or its holding company is conclusively deemed to have been acquired by, among other things, the acquisition of more than 25% of any class of voting stock of the institution or its holding company or the ability to control the election of a majority of the directors of an institution or its holding company. Moreover, control is presumed to have been acquired, subject to rebuttal, upon the acquisition of more than 10% of any class of voting stock, or of more than 25% of any class of stock of a savings institution or its holding company, where certain enumerated "control factors" are also present in the acquisition. The OTS may prohibit an acquisition of control if:

·	it would result in a monopoly or substantially lessen competition;

·	the financial condition of the acquiring person might jeopardize the financial stability of the institution; or

·	the competence, experience or integrity of the acquiring person indicates that it would not be in the interest of the depositors or of the public to permit the acquisition of control by such person.

These restrictions do not apply to the acquisition of a savings institution's or its holding company's capital stock by one or more tax-qualified employee stock benefit plans, provided that the plans do not have beneficial ownership of more than 25% of any class of equity security of the savings institution.

CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of certain material U.S. federal income tax considerations of the purchase, ownership and disposition of debentures and the shares of common stock into which the debentures may be converted. This summary is based upon provisions of the Internal Revenue Code of 1986 or the Code, applicable regulations, administrative rulings and judicial decisions in effect as of the date hereof, any of which may subsequently be changed, possibly retroactively, so as to result in U.S. federal income tax consequences different from those discussed below. Except where noted, this summary deals only with a debenture or share of common stock held as a capital asset by a beneficial owner who purchased the debenture on original issuance at its "issue price". This summary does not address all aspects of U.S. federal income taxation and does not deal with all tax consequences that may be relevant to holders in light of their personal circumstances or particular situations, such as:

tax consequences to holders who may be subject to special tax treatment, including dealers in securities or currencies, financial institutions, regulated investment companies, real estate investment trusts, tax-exempt entities, insurance companies, or traders in securities that elect to use a mark-to-market method of accounting for their securities;

·	tax consequences to persons holding debentures or common stock as a part of a hedging, integrated or conversion transaction or a straddle or persons deemed to sell debentures or common stock under the constructive sale provisions of the Code;

·	tax consequences to U.S. holders (as defined below) of debentures or shares of common stock whose "functional currency" is not the U.S. dollar;

·	tax consequences to investors in pass-through entities;

·	alternative minimum tax consequences, if any;

·	any state, local or foreign tax consequences; and

·	estate or gift tax consequences, if any.

If a partnership holds debentures or shares of common stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner in a partnership holding the debentures or shares of common stock, you should consult your tax advisors.

If you are considering the purchase of debentures, you should consult your tax advisors concerning the U.S. federal income tax consequences to you in light of your own specific situation, as well as consequences arising under the laws of any other taxing jurisdiction.

As used herein, the term "U.S. holder" means a beneficial owner of debentures or shares of common stock received upon conversion of the debentures that is, for U.S. federal income tax purposes:

·	an individual citizen or resident of the United States;

·	a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

·	an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

·	a trust, if it

(1)	is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust, or

(2)	has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.

Consequences to U.S. Holders

Interest

Interest paid on the debentures will be taxable as ordinary income.

Redemption

Upon a redemption or repurchase of the debentures, an original holder will recognize gain or loss equal to the difference between the amount of cash received (other than cash received on account of accrued interest which will be taxable as ordinary income) and the holder's tax basis in the debentures received. Such gain or loss will be capital gain or loss, provided that the debentures were held as capital assets, and will be long-term gain or loss if the debentures were held for more than one year.

Sale or Exchange

The sale or exchange of debentures or common stock to or with a person other than Security Federal Corporation will result in the recognition of gain or loss equal to the difference between the consideration received ( i.e. , cash plus the fair market value of other property) and the holder's tax basis in such debentures or common stock. Such gain or loss will be capital gain or loss, if the debentures were held as capital assets, and will be long-term if the holding period for such debentures or common stock exceeds one year.

Conversion into Common Stock

No gain or loss will be realized upon the conversion of debentures into shares of common stock. However, a holder that receives cash in lieu of a fractional share will be treated as having received such fractional share and having exchanged it for cash in a redemption. A holder's basis in common stock received upon the conversion of debentures will equal the adjusted tax basis of the debentures converted, and, provided the debentures are held as capital assets, the holding period of such common stock will include the holding period of the debentures converted.

Adjustment of Conversion Price

Adjustments to the conversion price of the debentures, such as to reflect taxable distributions with respect to the common stock (but generally not for nontaxable stock dividends or stock splits) may be deemed to be a taxable distribution to holders of the debentures. For example, conversion price adjustments incident to a taxable distribution of evidences of indebtedness or certain assets of Security Federal Corporation to holders of its common stock might result in such a taxable distribution. In certain circumstances, the absence of an adjustment in the conversion price of the debentures also may be deemed to be a taxable distribution to the holders of debentures.

Backup Withholding

Holders of debentures may be subject to backup withholding on interest and on the proceeds of any redemption or other disposition of debentures. Generally, backup withholding applies only when the taxpayer fails to furnish or certify a proper taxpayer identification number or when the taxpayer is notified by the Internal Revenue Service that the taxpayer has failed to report payments of interest or dividends properly. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against a U.S. holder's U.S. federal income tax liability, provided the required information is furnished timely to the Internal Revenue Service. Holders should consult their own tax advisors regarding their qualification for exemption from backup withholding and the procedure for obtaining any applicable exemption.

PLAN OF DISTRIBUTION AND PROCEDURE FOR PURCHASING DEBENTURES

We are offering a minimum of $5.0 million and a maximum of $15.0 million in principal amount of debentures. The debentures will be sold directly to the public by directors, executive officers and certain salaried employees of Security Federal Corporation. The debentures will be sold in minimum denominations of $5,000 and increments of $1,000 thereafter, up to a maximum amount of $1.0 million per subscriber. Subscriptions may be made on the order form accompanying this prospectus. We will not accept subscriptions that would cause any investor to own or control more than 10% of our common stock following completion of this offering, including shares issuable upon the conversion of the debentures, unless this limitation is waived in one or more instances by our board of directors. We will sell shares only by subscription, on a first priority basis to existing shareholders of record located in the states of South Carolina and Georgia as of _________________, 2009 and then, to the extent available, to members the general public located in the states of South Carolina and Georgia. Our directors, director emeritus and executive officers intend to subscribe for approximately $2.7 million of debentures in this offering in their capacity as existing shareholders. If there are not enough debentures to satisfy all accepted subscriptions from existing shareholders, $5,000 in debentures will be first allocated among these subscribing shareholders based upon the order in which the subscription was first received. Thereafter, any debentures remaining will be allocated among subscribing shareholders whose subscriptions remain unsatisfied in the same proportion that the unfilled order of each such subscribing shareholder bears to the total unfilled order of all subscribing shareholders. To the extent there are debentures remaining after satisfaction of all accepted subscriptions from existing shareholders, subscriptions from the general public will be satisfied. If debentures are available for accepted subscribers from the general public but there are insufficient debentures to satisfy all of these subscriptions from the general public, debentures will be first allocated so as to permit each subscribing member of the general public, if possible, to purchase $5,000 in debentures based upon the order in which the subscription was first received. After that, remaining debentures will be allocated among subscribers from the general public whose orders remain unsatisfied in the same proportion that the unfilled order of each such subscriber bears to the total unfilled orders of all such subscribers from the general public. All orders are subject to acceptance, in whole or in part, by Security Federal Corporation, must be accompanied by full payment and received prior to the termination of the offering. Security Federal Corporation reserves the right to reject any subscriptions, in whole or in part for any reason whatsoever, prior to release of the subscription funds to it, and may, in its sole discretion, elect to accept subscriptions for a lower number of debentures than is subscribed for by any person. Any payment made in connection with any order that is not accepted will be promptly refunded. Payment for debentures may be made by a check payable to "Security Federal Corporation." We will not escrow your subscription funds. Subscription funds will be deposited into an account at our subsidiary, Security Federal Bank. You will become a debenture holder when we accept your subscriptions and issue a debenture to you after receipt of at least $5.0 million in subscriptions and the completion of the offering. The offering is scheduled to end on _____________, 2009, but we may extend the offering until __________, 2009, at the latest. If subscriptions for a total of at least $5.0 million of debentures is not received by ____________, 2009, no debentures will be sold and subscribers' funds will be refunded promptly, with each subscriber's pro rata share of any interest actually earned on subscription funds. There is no selling agent or underwriter involved in this offering. Our directors officers and certain employees will offer and sell the debentures

on a best-efforts basis without compensation. Once we accept your subscription, you may not revoke it without our consent. We may also terminate the offering at any time.

LEGAL MATTERS

Certain legal matters in connection with the debentures and the shares of common stock issuable upon conversion of the debentures will be passed upon for us by Breyer & Associates PC, McLean, Virginia.

EXPERTS

Our consolidated balance sheets as of March 31, 2009 and March 31, 2008 and the related consolidated statements of income, changes in shareholders' equity and comprehensive income, and cash flows for each of the years in the three year period ended March 31, 2009 have been audited by Elliott Davis LLC, as stated in their report incorporated herein, and have been so included in reliance on the report of this firm given upon their authority as an expert in accounting and auditing.

Exhibit 4.4

SECURITY FEDERAL CORPORATION

WILMINGTON TRUST COMPANY

as Trustee

Indenture

Dated as of _______________, 2009

8.0% Convertible Senior Debentures due 2029

Certain Sections of this Indenture relating to

Sections 310 through 318 of the

Trust Indenture Act of 1939:

Trust Indenture Act Section				Indenture Section

§ 310 (a) (1)				609
(a) (2)				609
(a) (3)				Not Applicable
(a) (4)				Not Applicable
(a) (5)				609
(b)				608; 610
§ 311 (a)				613
(b)				613
§ 312 (a)				701; 702 (a)
(b)				702 (b)
(c)				702 (c)
§ 313 (a)				703 (a)
(a) (4)				101; 703
(b)				703 (a)
(c)				703 (a)
(d)				703 (b)
§ 314 (a)				704
(b)				Not Applicable
(c) (1)				102
(c) (2)				102
(c) (3)				Not Applicable
(d)				Not Applicable
(e)				102
§ 315 (a)				601
(b)				602
(c)				601
(d)				601
(e)				514
§ 316 (a)				101
(a) (1) (A)				502; 512
(a) (1) (B)				513
(a) (2)				Not Applicable
(b)				508
(c)				104 (c)
§ 317 (a) (1)				503
(a) (2)				504
(b)				1003
§ 318 (a)				107

Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture.

TABLE OF CONTENTS

	Page
Recitals of the Company	1

ARTICLE ONE

Definitions and Other Provisions

of General Application

SECTION 101. Definitions
	“Act”	2
	“Affiliate”	2
	“Authenticating Agent”	2
	“Bank”	2
	“Bankruptcy Law”	2
	“Board of Directors”	2
	“Board Resolution”	2
	“Business Day”	2
	“Capital Stock”	2
	“Closing Price”	2
	“Commission”	2
	“Common Stock”	2
	“Company”	3
	“Company Request” or “Company Order”	3
	“Continuing Director”	3
	“Conversion Agent”	3
	“Conversion Price”	3
	“Corporate Trust Office”	3
	“Corporation”	3
	“Date of Issue”	3
	“Default”	3
	“Defaulted Interest”	3
	“Disinterested Director”	3
	“Event of Default”	3
	“Exchange Act”	3
	“Expiration Time”	3
	“FDIC”	3
	“FRB”	3
	“Fundamental Change”	3
	“Fundamental Change Company Notice”	4
	“Fundamental Change Repurchase Date”	4
	“Fundamental Change Repurchase Notice”	4
	“Fundamental Change Repurchase Price”	4
	“Holder"	4
	“Indebtedness”	4
	“indebtedness for money borrowed”	5
	“Indenture”	5
	“Insured Depositary Institution”	5
	“Interest Payment Date”	5

	“Junior Securities”	5
	“Major Depository Institution Subsidiary”	5
	“Maturity”	5
	“OTS”	5
	“Officers' Certificate”	5
	“Opinion of Counsel”	6
	“Outstanding”	6
	“Paying Agent”	6
	“Person”	6
	“Place of Payment”	6
	“Predecessor Security”	6
	“Publicly Traded Securities”	7
	“Purchased Shares”	7
	“Redemption Date”	7
	“Redemption Price”	7
	“Regular Record Date”	7
	“Regulatory Capital”	7
	“Regulatory Capital Requirement”	7
	“Responsible Officer”	7
	“Security”	7
	“Security Register” and “Security Registrar”	7
	“Special Record Date”	7
	“Stated Maturity”	8
	“Subsidiary”	8
	“Trading Day”	8
	“Trustee”	8
	“Trust Indenture Act”	8
	“Vice President”	8
	“Wholly Owned Subsidiary”	8
SECTION 102. Compliance Certificates and Opinions		8
SECTION 103. Form of Documents Delivered to Trustee		9
SECTION 104. Acts of Holders; Record Dates		9
SECTION 105. Notices, Etc., to Trustee and Company		10
SECTION 106. Notice to Holders; Waiver		10
SECTION 107. Conflict with Trust Indenture Act		10
SECTION 108. Effect of Headings and Table of Contents		11
SECTION 109. Successors and Assigns		11
SECTION 110. Separability Clause		11
SECTION 111. Benefits of Indenture		11
SECTION 112. Governing Law		11
SECTION 113. Legal Holidays		11
SECTION 114. Calculations in Respect of Securities		11

ARTICLE TWO

Security Forms

SECTION 201. Forms Generally	12
SECTION 202. Form of Face of Security	12
SECTION 203. Form of Reverse of Security	13

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SECTION 204. Form of Trustee's Certificate of Authentication	17
SECTION 205. Form of Conversion Notice	17
SECTION 206. Form of Fundamental Change Repurchase Notice	18
SECTION 207. Form of Assignment and Transfer	19

ARTICLE THREE

The Securities

SECTION 301. Title and Terms	19
SECTION 302. Ranking	20
SECTION 303. Denominations	20
SECTION 304. Execution, Authentication, Delivery and Dating	20
SECTION 305. Temporary Securities	21
SECTION 306. Registration; Registration of Transfer and Exchange	21
SECTION 307. Mutilated, Destroyed, Lost and Stolen	22
SECTION 308. Payment of Interest; Interest Rights Preserved	22
SECTION 309. Persons Deemed Owners	24
SECTION 310. Cancellation	24
SECTION 311. Computation of Interest	24
SECTION 312. Authentication and Delivery of Original Issue	24

ARTICLE FOUR

Satisfaction and Discharge

SECTION 401. Discharge of Indenture	24
SECTION 402. Deposited Monies to be Held in Trust by Trustee	25
SECTION 403. Paying Agent to Repay Monies Held	25
SECTION 404. Return of Unclaimed Monies	25
SECTION 405. Reinstatement	25

ARTICLE FIVE

Remedies

SECTION 501. Events of Default	26
SECTION 502. Acceleration of Maturity; Rescission and Annulment	28
SECTION 503. Collection of Indebtedness and Suite for Enforcement by Trustee	28
SECTION 504. Trustee May File Proofs of Claim	29
SECTION 505. Trustee May Enforce Claims Without Possession of Securities	29
SECTION 506. Application of Money Collected	29
SECTION 507. Limitation on Suits	30
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest to Convert	30
SECTION 509. Restoration of Rights and Remedies	31
SECTION 510. Rights and Remedies Cumulative	31
SECTION 511. Delay or Omission Not Waiver	31
SECTION 512. Control by Holders	31
SECTION 513. Waiver of Past Defaults	31
SECTION 514. Undertaking for Costs	32
SECTION 515. Waiver of Stay or Extension Laws	32

ARTICLE SIX

The Trustee

SECTION 601. Certain Duties and Responsibilities	32
SECTION 602. Notice of Defaults	33
SECTION 603. Certain Rights of Trustee	34
SECTION 604. Not Responsible for Recitals or Issuance of Securities	35
SECTION 605. May Hold Securities	35
SECTION 606. Money Held in Trust	36
SECTION 607. Compensation and Reimbursement	36
SECTION 608. Disqualification; Conflicting Interests	37
SECTION 609. Corporate Trustee Required; Eligibility	37
SECTION 610. Resignation and Removal; Appointment of Successor	37
SECTION 611. Acceptance of Appointment by Successor	38
SECTION 612. Merger, Conversion, Consolidation or Succession to Business	38
SECTION 613. Preferential Collection of Claims Against company	39
SECTION 614. Appointment of Authenticating Agent	39

ARTICLE SEVEN

Holders’ Lists and Reports

By Trustee and Company

SECTION 701. Company to Furnish Trustee Names and Addresses of Holders	41
SECTION 702. Preservation of Information; Communications to Holders	41
SECTION 703. Reports by Trustee	41
SECTION 704. Reports by Company	41

ARTICLE EIGHT

Consolidation, Merger, Conveyance,

Transfer or Lease

SECTION 801. Company May Consolidate, Etc., Only on Certain Terms	42
SECTION 802. Successor Substituted	42

ARTICLE NINE

Supplemental Indentures

SECTION 901. Supplemental indentures Without Consent of Holders	43
SECTION 902. Supplemental Indentures With Consent of Holders	43
SECTION 903. Execution of Supplemental indentures	44
SECTION 904. Effect of Supplemental Indentures	44
SECTION 905. Conformity with Trust Indenture Act	45
SECTION 906. Reference in Securities to Supplemental Indentures	45
SECTION 907. Notice to Holders of Supplemental Indenture	45

ARTICLE TEN

Covenants

SECTION 1001. Payment of Principal, Premium and Interest	45
SECTION 1002. Maintenance of Office or Agency	45
SECTION 1003. Money for Security to Be Held in Trust	45
SECTION 1004. Payment of Taxes and Other Claims	46
SECTION 1005. Maintenance of Properties	46
SECTION 1006. Corporate Existence of the Company and Subsidiaries	47
SECTION 1007. Insurance	47
SECTION 1008. Limitations on Dividends, Redemptions, Etc.	47
SECTION 1009. Restrictions on Issuance and Sale of Capital Stock or Dispositions of the Bank	48
SECTION 1010. Limitations on Transactions with Affiliates	48
SECTION 1011. Books and Records	48
SECTION 1012. Statement as to Compliance	48
SECTION 1013. Limitation on Indebtedness Senior to Securities	48
SECTION 1014. Notice of Events of Default or Defaults	49
SECTION 1015. Limitation on Liens on Bank	49
SECTION 1016. Compliance with Requirements of Article Fourteen	49
SECTION 1017. Waiver of Certain Covenants	50

ARTICLE ELEVEN

Redemption of Securities

SECTION 1101. Right of Redemption	50
SECTION 1102. Applicability of Article	50
SECTION 1103. Election to Redeem; Notice to Trustee.	50
SECTION 1104. Selection by Trustee of Securities to Be Redeemed	50
SECTION 1105. Notice of Redemption	51
SECTION 1106. Deposit of Redemption Price	51
SECTION 1107. Securities Payable on Redemption Date	51
SECTION 1108. Securities Redeemed in Part	52

ARTICLE TWELVE

Defeasance

SECTION 1201. Defeasance Upon Deposit of Monies or U.S. Government Obligations	52
SECTION 1202. Deposited Monies and U.S. Government Obligations to be Held in Trust	54
SECTION 1203. Repayment to Company	54
SECTION 1204. Inability of Trustee or Paying Agent to Apply Money	54

ARTICLE THIRTEEN

Conversion of Securities

SECTION 1301. Conversion Privilege and Conversion Price	54
SECTION 1302. Exercise of Conversion Privilege	55

SECTION 1303. Fractions of Shares	56
SECTION 1304. Adjustment of Conversion Price	56
SECTION 1305. Notice of Adjustments of Conversion Price	59
SECTION 1306. Notice of Certain Corporate Action	60
SECTION 1307. Company to Reserve Common Stock	60
SECTION 1308. Taxes on Conversions	61
SECTION 1309. Covenant as to Common Stock	61
SECTION 1310. Cancellation of Converted Securities	61
SECTION 1311. Provisions in Case of Consolidation, Merger or Sale of Assets	61
SECTION 1312. Trustee’s Disclaimer	62

ARTICLE FOURTEEN

Fundamental Changes and Repurchases Thereupon

SECTION 1401. Repurchase at Option of Holders Upon a Fundamental Change	62
SECTION 1402. Effect of Fundamental Change Repurchase Price	64
SECTION 1403. Withdrawal of Fundamental Change Repurchase Notice	64
SECTION 1404. Deposit of Fundamental Change Repurchase Price	65
SECTION 1405. Securities Repurchased in Whole or in Part	65
SECTION 1406. Covenant to Comply With Securities Laws Upon Repurchase of Securities	65
SECTION 1407. Repayment to the Company	65

vii

THIS INDENTURE, dated as of ______________, 2009, between SECURITY FEDERAL CORPORATION (the “Company”), a South Carolina corporation having its principal office at 238 Richland Avenue West, Aiken, South Carolina 29801, and WILMINGTON TRUST COMPANY, a Delaware banking corporation, having its corporate trust office at 1100 North Market Street, Wilmington, Delaware 19890-1605 (the “Trustee”).

RECITALS OF THE COMPANY

The Company has duly authorized the creation of an issue of its 8.0% Convertible Senior Debentures due 2029 (herein called the "Securities") of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture.

All things necessary to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows:

ARTICLE ONE

Definitions and Other Provisions

of General Application

SECTION 101. Definitions .

For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:

(1)	the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular;

(2)	all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein;

(3)

all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" or “GAAP” with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted in the United States at the date of such computation; and

(4)	the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.

“Act,” When used with respect to any Holder, has the meaning specified in Section 104.

“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control," when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.

“Authenticating Agent” means any Person authorized by the Trustee pursuant to Section 614 to act on behalf of the Trustee to authenticate Securities.

“Bank” means Security Federal Bank and any successor thereto.

“Bankruptcy Law” has the meaning specified in Section 501.

“Board of Directors” means either the board of directors of the Company or any duly authorized committee of that board.

"Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee.

“Business Day,” when used with respect to any Place of Payment or any other particular location referred to in this Indenture or in the Securities, means, any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in that Place of Payment or particular location are authorized or required by law, regulation or executive order to close.

“Capital Stock” means any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock and, with respect to partnerships, partnership interests (whether general or limited) and any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, such partnership.

“Closing Price” has the meaning specified in Section 1304(8).

“Commission” means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.

“Common Stock” means the shares of common stock, par value $0.01 per share, of the Company as they exist on the date of this Indenture or any other shares of common stock of the Company into which the Common Stock shall be reclassified or changed or, in the event of a merger, consolidation or other similar transaction involving the Company that is otherwise permitted hereunder in which the Company is not the surviving corporation, the common stock, common equity interests, ordinary shares or depositary shares or other certificates representing common equity interests of such surviving corporation or its direct or indirect parent corporation.

“Company” means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person.

“Company Request” or “Company Order” means, respectively, a written request or order signed in the name of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee.

“Continuing Director” means a director who either was a member of the Company’s Board of Directors on ________________, 2009 or who becomes a member of the Company’s Board of Directors subsequent to that date and whose election, appointment or nomination for election by the Company’s shareholders, is duly approved by a majority of the Continuing Directors on our Board of Directors at the time of such approval, either by a specific vote or by approval of the proxy statement issued by the Company on behalf of the Company’s entire Board of Directors in which such individual is named as nominee for director.

“Conversion Agent” means the Trustee or such other office or agency designated by the Company where Securities may be presented for conversion.

“Conversion Price” has the meaning specified in Section 1301.

“Corporate Trust Office” means the office of the Trustee at which, at any particular time, its corporate trust business in Delaware shall be principally administered, which office at the date hereof is located at 1100 North Market Street, Wilmington, Delaware 19890-1605.

“Corporation” means a corporation, association, company, joint-stock company or business trust.

“Date of Issue” as to any Security means the date upon which such Security as originally issued by the Company to the initial purchaser thereof shall be dated, which shall be the date upon which such Security was originally sold to such initial purchaser or designated by the Company Order requesting authentication and delivery thereof.

“Default” means any event that upon notice or the passage of time or both would be an Event of Default.

“Defaulted Interest” has the meaning specified in Section 308.

“Disinterested Director” of any Person means, with respect to any transaction or series of related transactions, a member of the Board of Directors of such Person who does not have any material direct or indirect financial interest in or with respect to such transaction or series of related transactions.

“Event of Default” has the meaning specified in Section 501.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Expiration Time” has the meaning specified in Section 1304(6).

“FDIC” means the Federal Deposit Insurance Corporation or its successor.

“FRB” means the Board of Governors of the Federal Reserve System or its successor.

“Fundamental Change” means the occurrence of any of the following events at any time after the Securities are originally issued:

(1)

a “person” or “group” within the meaning of Section 13(d) of the Exchange Act other than the Company, its Subsidiaries or its or their employee benefit plans becomes the direct or indirect “beneficial owner,” as defined in Rule 13d-3 under the Exchange Act, of the Company’s common equity representing more than 50% of the voting power of the Company’s common equity;

(2)

consummation of (A) any recapitalization, reclassification or change of the Common Stock (other than changes resulting from a subdivision or combination) as a result of which the Common Stock will be converted into, or exchanged for, stock, other securities, other property or assets or (B) any share exchange, consolidation or merger of the Company pursuant to which the Common Stock will be converted into cash, securities or other property or any sale, lease or other transfer in one transaction or a series of transactions of all or substantially all of the consolidated assets of the Company and its Subsidiaries, taken as a whole, to any person other than one of the Company’s Subsidiaries; provided , however, that a transaction where the holders of more than 50% of all classes of the Company’s common equity immediately prior to such transaction own, directly or indirectly, more than 50% of all classes of common equity of the continuing or surviving corporation or transferee or the parent thereof immediately after such event shall not constitute a Fundamental Change;

(3)	Continuing Directors cease to constitute at least a majority of the Company’s Board of Directors; or

(4)	the Company’s shareholders approve any plan or proposal for the liquidation or dissolution of the Company.

Notwithstanding the foregoing, a Fundamental Change as a result of clause (2) above shall not be deemed to have occurred if 90% of the consideration received or to be received by the holders of Common Stock, excluding cash payments for fractional shares and cash payments in respect of dissenters’ or appraisal rights, in the transaction or transactions otherwise constituting the Fundamental Change consists of Publicly Traded Securities and, as a result of such transaction or transactions, the Securities become convertible into such Publicly Traded Securities, excluding cash payments for fractional shares and cash payments in respect of dissenters’ or appraisal rights.

“Fundamental Change Company Notice” has the meaning specified in Section 1401(3).

“Fundamental Change Repurchase Date” has the meaning specified in Section 1401(1).

“Fundamental Change Repurchase Notice” has the meaning specified in Section 1401(2).

“Fundamental Change Repurchase Price” has the meaning specified in Section 1401(1).

“Holder” means a Person in whose name a Security is registered in the Security Register.

“Indebtedness” means any indebtedness, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements with respect thereto) as to which, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such indebtedness does not rank pari passu with, the Securities or representing the balance deferred and unpaid of the purchase price of any property (including pursuant to capital leases), except any such balance that constitutes an accrued expense or trade payable arising in the ordinary course of business (such accrued expenses or trade payables being pari passu in right of payment to the Securities), if and to the extent any of the foregoing indebtedness would appear as a liability upon a balance sheet prepared on a consolidated basis in accordance with GAAP (but does not include contingent liabilities which appear only in a footnote to a balance sheet), and shall also include, to the extent not otherwise included, the guaranty of items which would be included within this definition.

"Indebtedness for money borrowed," when used with respect to the Company, means any obligation of, or any obligation guaranteed by, the Company for the repayment of borrowed money, whether or not evidenced by bonds, debentures, notes or other written instruments.

“Indenture” means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively.

“Insured Depositary Institution” means means a financial institution with deposits insured by, and under the supervision of, the Federal Deposit Insurance Corporation, or any successor agency, as defined in 12 U.S.C. §1813(c)(2) or a similar definition under any succeeding federal law hereinafter enacted.

“Interest Payment Date” means the Stated Maturity of an installment of interest on the Securities.

“Junior Securities” means (1) shares of Common Stock, (2) shares of any other class or classes of capital stock of the Company, (3) any other non-debt securities of the Company (whether or not such other securities are convertible into Junior Securities of the Company), or (4) unsecured debt securities of the Company (other than the Securities) as to which, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such debt securities do not rank pari passu with, the Securities.

“Major Depository Institution Subsidiary” means a Subsidiary that is an Insured Depository Institution and that is or would be a direct or indirect major subsidiary (or other subsidiary deemed to be the equivalent of a major subsidiary) as such term is defined by the FRB from time to time; provided, however, that any Subsidiary that had consolidated quarterly average total assets that were less than 20% of the Company's consolidated quarterly average total assets for the most recently available quarter shall not be deemed to be a Major Depository Institution Subsidiary.

“Maturity,” when used with respect to any Security, means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise.

“OTS” means the Office of Thrift Supervision of the U.S. Department of Treasury or any successor federal agency.

“Officers' Certificate” means a certificate signed by the Chairman of the Board, a Vice Chairman of the Board, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 1012 shall be the principal executive, financial or accounting officer of the Company.

“Opinion of Counsel” means a written opinion of counsel delivered to the Trustee, who may be counsel for the Company, and who shall be acceptable to the Trustee.

“Outstanding,” when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except:

(1)	Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation;

(2)

Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefore satisfactory to the Trustee has been made; and

(3)

Securities which have been paid pursuant to Section 307 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company;

provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer of the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor.

“Paying Agent” means any Person authorized by the Company to pay the principal of (and premium, if any) or interest or the Fundamental Change Repurchase Price on any Securities on behalf of the Company. Initially the Paying Agent shall be the Trustee.

“Person” means any individual, corporation, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof.

“Place of Payment” means, when used with respect to the Securities, the place or places where the principal of (and premium, if any) and interest on such Securities are payable as specified as contemplated by Section 1002. Initially the Place of Payment will be the Corporate Trust Office.

“Predecessor Security” of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 307 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security.

“Publicly Traded Securities” means shares of common equity that are traded or quoted on a U.S. national securities exchange or, with respect to a transaction described in the definition of “Fundamental Change”, that will be so traded or quoted when issued or exchanged in connection with such event.

“Purchased Shares” has the meaning specified in Section 1304(6).

“Redemption Date,” when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture.

“Redemption Price,” when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture.

“Regular Record Date” for the interest payable on any Interest Payment Date means May 15 or November 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date.

“Regulatory Capital” means any form of capital to the extent that such capital may be used to satisfy an applicable Regulatory Capital Requirement, provided that, for purposes of this Indenture, the term Regulatory Capital shall not include any form of Indebtedness.

“Regulatory Capital Requirement” means, with respect to the Bank, the minimum amount of Regulatory Capital required to meet each of the capital requirements generally applicable to federal savings banks under the statutes, regulations and guidance administered, adopted or promulgated, as the case may be, by the FDIC or the OTS or any successor laws or regulations, or such higher amount as the Bank may be required to maintain in order to be considered in compliance with the then-applicable regulations pursuant to an individual order or directive issued by the FDIC, the OTS or any other federal or state financial regulatory agency having jurisdiction over the Bank or pursuant to any agreement or memorandum of understanding between the Bank and any such regulator and, with respect to any other Insured Depository Institution or holding company thereof, any similar requirement imposed by any federal or state regulator having jurisdiction over such entity.

“Responsible Officer” means any vice president, assistant vice president, assistant treasurer, assistant secretary or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and having direct responsibility for the administration of this Indenture, and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer’s knowledge of and familiarity with the particular subject.

“Security” has the meaning stated in the first recital of this Indenture and, more particularly, means any Security or Securities authenticated and delivered under this Indenture.

“Security Register” and “Security Registrar” have the respective meanings specified in Section 306.

“Special Record Date” for the payment of any Defaulted Interest (as defined in Section 308) means a date fixed by the Trustee pursuant to Section 308.

“Stated Maturity” when used with respect to any Security or any installment of interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of interest is due and payable.

“Subsidiary” means a corporation or other entity more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For the purposes of this definition, "voting stock or equity interests" means stock which ordinarily has voting power for the election of directors (or equivalent persons), whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency.

“Trading Day” means each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day on which securities are not traded on the applicable securities exchange or in the applicable securities market.

“Trustee” means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee.

“Trust Indenture Act” or “TIA” means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended.

“Vice President,” when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president."

“Wholly Owned Subsidiary” means any Subsidiary all of whose outstanding Capital Stock (other than directors’ qualifying shares) shall at the time be owned by the Company and/or one or more of its Wholly Owned Subsidiaries.

SECTION 102. Compliance Certificates and Opinions .

Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture the Company shall furnish to the Trustee such certificates and opinions stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, except that, in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirement set forth in this Indenture.

Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include:

(1)	a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;

(2)	a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

(3)	a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and

(4)	a statement as to whether or not, in the opinion of each such individual, such condition or covenant has been complied with.

SECTION 103. Form of Documents Delivered to Trustee.

In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.

Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.

Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.

SECTION 104. Acts of Holders; Record Dates.

(1)

Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by their agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are received by the Trustee and, where it is hereby expressly required, by the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section.

(2)

The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and

date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient.

(3)

The Company may, in the circumstances permitted by the Trust Indenture Act, by Board Resolution fix any day as the record date for the purpose of determining the Holders entitled to give or take any request, demand, authorization, direction, notice, consent, waiver or other action, or to vote on any action, authorized or permitted to be given or taken by Holders. If not set by the Company prior to the first solicitation of a Holder made by any Person in respect of any such action, or, in the case of any such vote, prior to such vote, the record date for any such action or vote shall be the 30th day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 701) prior to such first solicitation or vote, as the case may be. With regard to any record date, only the Holders on such date (or their duly designated proxies) shall be entitled to give or take, or vote on, the relevant action.

(4)	The ownership of Securities shall be proved by the Security Register.

(5)

Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security.

SECTION 105. Notices, Etc., to Trustee and Company .

Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with,

(1)	the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Administration; or

(2)

the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company.

SECTION 106. Notice to Holders; Waiver .

Where this Indenture provides for notice of any event to Holders of Securities by the Company or the Trustee, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each such Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders of Securities is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders of Securities given as provided herein. Any notice mailed to a Holder in the manner herein prescribed shall be conclusively deemed to have been received by such Holder, whether or not such Holder actually receives such notice.

If by reason of the suspension of or irregularities in regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification to Holders of

Securities as shall be made with the approval of the Trustee shall constitute a sufficient notification to such Holders for every purpose hereunder.

Any request, demand, authorization, direction, notice, consent or waiver required or permitted under this Indenture shall be in the English language, except that any published notice may be in an official language of the country of publication.

Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.

SECTION 107. Conflict with Trust Indenture Act .

If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under such Act to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be.

SECTION 108. Effect of Headings and Table of Contents .

The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.

SECTION 109. Successors and Assigns .

All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not.

SECTION 110. Separability Clause .

In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

SECTION 111. Benefits of Indenture .

Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the Holders of Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture.

SECTION 112. Governing Law .

This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws.

SECTION 113. Legal Holidays .

In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security or the last date on which a Holder has the right to convert his Securities shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal (and premium, if any) or conversion of the Securities need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity, or on such last day for conversion, provided that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be.

SECTION 114. Calculations in Respect of Securities .

Except as otherwise provided in this Indenture, the Company shall be responsible for making all calculations called for under the Securities. The Company shall make all such calculations in good faith and, absent manifest error, its calculations shall be final and binding on Holders. The Company upon request will provide a schedule of its calculations to each of the Trustee and the Conversion Agent, if different, and each of the Trustee and Conversion Agent is entitled to rely conclusively and exclusively upon the accuracy of the Company’s calculations without independent verification. The Trustee will deliver a copy of such schedule to any Holder upon the written request of such Holder.

ARTICLE TWO

Security Forms

SECTION 201. Forms Generally .

The Securities, the conversion notice and the Trustee’s certificates of authentication shall be in substantially the forms set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities.

The definitive Securities shall be printed, lithographed or engraved or produced by any combination of these methods on steel engraved borders or may be produced in any other manner permitted by the rules of any securities exchange on which the Securities may be listed, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities.

SECTION 202. Form of Face of Security .

THIS SECURITY IS NOT A DEPOSIT OR SAVINGS ACCOUNT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.

SECURITY FEDERAL CORPORATION

8.0% Convertible Senior Debentures Due 2029

No. _____ CUSIP NO. ___________ U.S. $____________

Security Federal Corporation, a corporation duly organized and validly existing under the laws of the State of South Carolina (herein called the “ Company ”), which term includes any successor corporation under the Indenture referred to on the reverse hereof, for value received hereby promises to pay to ______, or registered assigns, the principal sum of United States Dollars ($_________) on December 1, 2029. Payment of the principal of, and premium if any, and interest on this Security shall be made at the Place of Payment or at the option of the Company, by check mailed to the address of the Holder of this Security specified in the Security Register, or by wire transfer in immediately available funds, in such lawful money of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts.

The issue date of this Security is _____, 2009.

Reference is made to the further provisions of this Security set forth on the reverse hereof, including, without limitation, provisions giving the Holder the right to convert this Security into Common Stock of the Company and to require the Company to repurchase this Security upon certain events, in each case, on the terms and subject to the limitations referred to on the reverse hereof and as more fully specified in the Indenture. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. Capitalized terms used but not defined herein shall have such meanings as are ascribed to such terms in the Indenture.

This Security shall be deemed to be a contract made under the laws of the State of Delaware, and for all purposes shall be construed in accordance with and governed by the laws of said State without regard to principles of conflicts of law.

This Security shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been manually signed by the Trustee or a duly authorized authenticating agent under the Indenture.

IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed.

Dated ________________________________________

SECURITY FEDERAL CORPORATION

By: ______________________________________

Authorized Signatory

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

Dated ________________________________________

WILMINGTON TRUST COMPANY, not in its individual capacity, but solely

as Trustee, certifies that this is one of the Securities described in the within-named Indenture.

By: ______________________________________

Authorized Signatory

SECTION 203. Form of Reverse of Security .

SECURITY FEDERAL CORPORATION

8.0% Convertible Senior Debentures Due 2029

This Security is one of a duly authorized issue of securities of the Company, designated as its 8.0% Convertible Senior Debentures due 2029 (the “Securities”), all issued or to be issued under and pursuant to an Indenture dated as of ______, 2009, ( the “Indenture”), between the Company and Wilmington Trust Company (the “Trustee”), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the Holders of the Securities.

Interest . The Securities will bear interest at a rate of 8.0% per year. The Company will pay interest semi-annually in arrears on June 1 and December 1 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an “Interest Payment Date”). Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that the first Interest Payment Date shall be December 1, 2009.

Interest will be paid to the person in whose name a Security is registered at the close of business on the May 15 or November 15, as the case may be, immediately preceding the relevant Interest Payment Date. Interest on the Notes will be computed on the basis of a 360-day year composed of twelve 30-day months.

Ranking . The Securities rank equally in right of payment with all the Company’s existing and future unsecured senior Indebtedness and are senior in right of payment to all of the Company’s existing and future subordinated Indebtedness, if any. The Securities are effectively subordinated to all debt and other liabilities, including deposits, trade payables and lease obligations, if any, of the Company’s subsidiaries.

Redemption at the Option of the Company . Subject to the terms and conditions of the Indenture, the Company may redeem all or a portion of the Securities at its option prior to maturity, at any time on or after December 1, 2019, at 100% of the principal amount plus accrued and unpaid interest, including Defaulted Interest, if any, to, but excluding, the Redemption Date, which amount will be paid in cash. Unless the Company defaults in the payment of the Redemption Price, interest will cease to accrue on the Securities or portions thereof called for redemption on the applicable Redemption Date.

Repurchase by the Company at the Option of the Holder Upon a Fundamental Change . Except as set forth in the next sentence, the Company is not required to make mandatory redemption or sinking fund payments with respect to the Securities. Subject to the terms and conditions of the Indenture, the Company shall become obligated, at the option of the Holder, to repurchase all or a portion (which is $1,000 or an integral multiple thereof) of the Securities if a Fundamental Change occurs at any time prior to the Stated Maturity at 101% of the principal amount plus accrued and unpaid interest, including Defaulted Interest, if any, to, but excluding, the Fundamental Change Repurchase Date, which amount will be paid in cash.

Withdrawal of Fundamental Change Repurchase Notice . Holders have the right to withdraw, in whole or in part, any Fundamental Change Repurchase Notice, as the case may be, by delivering to the Paying Agent a written notice of withdrawal in accordance with the provisions of the Indenture.

Payment of Fundamental Change Repurchase Price . If cash sufficient to pay the Fundamental Change Repurchase Price of all Securities or portions thereof to be repurchased on a Fundamental Change Repurchase Date is deposited with the Paying Agent on the Fundamental Change Repurchase Date, such Securities will cease to be outstanding and interest will cease to accrue on such Securities (or portions thereof) immediately after such Fundamental Change Repurchase Date, and the Holder thereof shall have no other rights as such (other than the right to receive the Fundamental Change Repurchase Price upon surrender of such Security).

Conversion . Subject to and in compliance with the provisions of the Indenture (including without limitation the conditions of conversion of this Security set forth in Article Thirteen thereof), the Holder hereof has the right, at its option, to convert the principal amount hereof or any portion of such principal which is $1,000 or an integral multiple thereof, into cash and shares of Common Stock, if any, in each case at the Conversion Price. The initial Conversion Price is equal to $20.00 aggregate principal amount of Securities for each share of Common Stock, subject to adjustment in certain events described in the Indenture. No fractional shares will be issued upon any conversion, but an adjustment and payment in cash will be made, as provided in the Indenture, in respect of any fraction of a share which would otherwise be issuable upon the surrender of any Securities for conversion. Securities in respect of which a Holder is exercising its right to require repurchase on a Fundamental Change Repurchase Date may be converted only if such Holder withdraws its election to exercise such right in accordance with the terms of the Indenture.

Defeasance Prior to Maturity . The Indenture contains provisions for defeasance of (i) the entire indebtedness of the Securities or (ii) certain covenants and Events of Default with respect to the Securities, subject to the terms and conditions of the Indenture.

Restrictive Covenants. The Indenture imposes certain limitations on the Company, including limitations on the Company’s ability to create or incur Indebtedness senior to the Securities or issue, transfer, sell or create a lien on the capital stock of the Bank and on the Company’s ability to engage in mergers or consolidations or the conveyance, transfer or lease of all or substantially all of its properties and assets. These limitations are subject to a number of important qualifications and exceptions and reference is made to the Indenture for a more complete description thereof.

If an Event of Default shall occur and be continuing, the principal plus interest, including Defaulted Interest, if any, through such date on all the Securities may be declared due and payable in the manner and with the effect provided in the Indenture.

The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a 66-2/3% in aggregate principal amount of the Outstanding Securities. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Outstanding Securities, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of any provision of or applicable to this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.

As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Security, the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity satisfactory to it, the Trustee shall not have received from the Holders of a majority in principal amount of Outstanding Securities a direction inconsistent with such request, and the Trustee shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of the principal amount, Redemption Price or Fundamental Change Repurchase Price hereof on or after the respective due dates expressed herein.

No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal amount or Redemption Price or Fundamental Change Repurchase Price of, and interest, including Defaulted Interest, if any, on, this Security at the times, place and rate, and in the coin or currency, herein prescribed.

As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in the City of Wilmington, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.

The Securities are issuable only in registered form without coupons in denominations of $5,000 and any integral multiple of $1,000 above that amount, as provided in the Indenture and subject to certain limitations therein set forth. Securities are exchangeable for a like aggregate principal amount of Securities of a different authorized denomination, as requested by the Holder surrendering the same.

No service charge shall be made for any such registration of transfer or exchange, but the Company and the Security Registrar may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.

Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and the Note Registrar and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.

A director, officer, employee or stockholder of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities

This Security will not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.

Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).

Each Holder of a Security covenants and agrees by his or her acceptance thereof to comply with and be bound by the foregoing provisions and by the terms of the Indenture.

This Security is unsecured by any collateral, including the assets of the Company or any of its Subsidiaries or other Affiliates.

All terms used in this Security that are defined in the Indenture shall have the meanings assigned to them in the Indenture.

SECTION 204. Form of Trustee’s Certificate of Authentication .

This is one of the Securities referred to in the within-mentioned Indenture.

Dated ___________________

________________________________________

Not in its individual capacity, but solely as Trustee

By __________________________________________________________

Authorized Officer

SECTION 205. Form of Conversion Notice .

To: SECURITY FEDERAL CORPORATION

The undersigned registered owner of this Security hereby exercises the option to convert this Security, or the portion hereof (which is $1,000 principal amount or an integral multiple thereof) below designated, into cash and shares of Common Stock, if any, in accordance with the terms of the Indenture referred to in this Security, and directs that the check in payment of the cash deliverable upon such conversion for fractional shares, and any Securities representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Security not converted are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto.

Any amount required to be paid to the undersigned on account of interest accompanies this Security.

Dated ________________________________________

____________________________________

Signature(s)

____________________________________

Signature Guarantee*

*Signature(s) must be guaranteed by a participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).

NOTICE: The above signatures of the holder(s) hereof must correspond with the name as written upon the face of the Security in every particular without alteration or enlargement or any change whatever.

Fill in for registration of shares if to be issued, and Notes if to be delivered, other than to and in the name of the registered holder:

____________________________

Name

____________________________

Street Address

____________________________

City, State and Zip Code

(please print name and address)

Principal amount to be converted (if less

than all): $____,000

____________________________

Social Security or other Taxpayer

Identification Number

SECTION 206. Form of Fundamental Change Repurchase Notice .

To: SECURITY FEDERAL CORPORATION

The undersigned registered owner of this Security hereby acknowledges receipt of a notice from Security Federal Corporation (the “Company”) as to the occurrence of a Fundamental Change with respect to the Company and requests and instructs the Company to repay the entire principal amount of this Security, or the portion thereof (which is $1,000 principal amount or an integral multiple thereof) below designated, in accordance with the terms of the Indenture referred to in this Security, to the registered holder hereof.

Dated ________________________________________

__________________________________

Signature(s)

Principal amount to be repaid (if less than all): $_____,000.

____________________________________

Signature Guarantee*

__________________________________

Social Security or other Taxpayer

Identification Number

*Signature(s) must be guaranteed by a participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).

Section 207. Form of Assignment and Transfer

For value received hereby sell(s), assign(s) and transfer(s) unto (Please insert social security or Taxpayer Identification Number of assignee) the within Security, and hereby irrevocably constitutes and appoints attorney to transfer the said Security on the books of the Company, with full power of substitution in the premises.

Dated ________________________________________

____________________________________

Signature(s)

____________________________________

Signature Guarantee*

*Signature(s) must be guaranteed by a participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).

ARTICLE THREE

The Securities

SECTION 301. Title and Terms .

The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to $15,000,000, except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 305, 306, 906, 1108 or 1302.

The Securities shall be known and designated as the “8.0% Convertible Senior Debentures due 2029” of the Company. Their Stated Maturity shall be December 1, 2029, and they shall bear interest at the rate of 8.0% per annum, from the Date of Issue or from the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, payable semi-annually on June 1 and December 1, until the principal thereof is paid or made available for payment.

The principal of (and premium, if any) and interest on the Securities shall be payable at the Corporate Trust Office and at any other office or agency maintained by the Company for such purpose; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register, or upon application by a Holder to the Security Registrar not later than the relevant Record Date for such interest payment, by wire transfer in immediately available funds to such Holder’s account within the United States, which application shall remain in effect until the Holder notifies the Security Registrar to the contrary in writing.

The Securities shall be redeemable as provided in Article Eleven and may be required to be repurchased by the Company under certain circumstances as provided in Article Fourteen.

The Securities shall be convertible as provided in Article Thirteen.

SECTION 302. Ranking .

The Securities constitute a senior unsecured general obligation of the Company, ranking equally in right of payment all of the existing and future senior unsecured and unsubordinated Indebtedness of the Company and ranking senior in right of payment to any existing and future Indebtedness of the Company that is expressly made subordinate to the Securities by the terms of such Indebtedness, including the Company’s Floating Rate Junior Subordinate Deferrable Interest Debentures Due 2036.

SECTION 303. Denominations .

The Securities shall be issuable only in registered form without coupons and only in denominations of $5,000 and $1,000 integral multiple increments thereof.

SECTION 304. Execution, Authentication, Delivery and Dating .

The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile.

Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities.

At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities; and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities as in this Indenture provided and not otherwise.

Each Security shall be dated the date of its authentication.

No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder.

SECTION 305. Temporary Securities .

Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities.

If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at any office or agency of the Company designated pursuant to Section 1002, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute, and upon Company Order the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities.

SECTION 306. Registration; Registration of Transfer and Exchange .

The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 1002 being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided.

Upon surrender for registration of transfer of any Security at an office or agency of the Company designated pursuant to Section 1002 for such purpose, the Company shall execute, and upon Company Order the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations and of a like aggregate principal amount.

At the option of the Holder, and subject to the other provisions of this Section 306 and to Section 310, Securities may be exchanged for other Securities of any authorized denominations and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and upon Company Order the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive.

All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange.

Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing.

No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 305, 906, or 1302 not involving any transfer.

Neither the Company nor the Security Registrar shall not be required (i) to issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities selected for redemption under Section 1104 and ending at the close of business on the day of such mailing, (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part, (iii) exchange or register a transfer of any Security (a) that has been surrendered for conversion or (b) as to which a Fundamental Change Repurchase Notice has been delivered and not withdrawn, except that where such Fundamental Change Repurchase Notice provides that such Security is to be purchased only in part, the Company and the Security Registrar shall be required to exchange or register a transfer of the portion thereof not to be purchased.

SECTION 307. Mutilated, Destroyed, Lost and Stolen Securities .

If any mutilated Security is surrendered to the Trustee, the Company shall execute, and upon Company Order the Trustee shall authenticate and deliver in exchange therefore a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding.

If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute, and upon Company Order the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding.

In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security.

Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.

Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder.

The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.

SECTION 308. Payment of Interest; Interest Rights Preserved .

Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more

Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest.

Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below:

(1)

The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2).

(2)

The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee.

Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security.

In the case of any Security which is converted after any Regular Record Date and on or prior to the next succeeding Interest Payment Date (other than any Security whose Maturity is prior to such Interest Payment Date), interest whose Stated Maturity is on such Interest Payment Date shall be payable on such Interest Payment Date notwithstanding such conversion, and such interest (whether or not punctually paid or duly provided for) shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on such Regular Record Date. Except as otherwise expressly provided in the immediately preceding sentence, in the case of any

Security which is converted, interest whose Stated Maturity is after the date of conversion of such Security shall not be payable.

SECTION 309. Persons Deemed Owners .

Prior due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 308) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.

SECTION 310. Cancellation .

All Securities surrendered for payment, redemption, registration of transfer or exchange or conversion shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities held by the Trustee shall be disposed of in accordance with its procedures (subject to the record retention requirements of the Exchange Act).

SECTION 311. Computation of Interest .

Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months.

SECTION 312. Authentication and Delivery of Original Issue .

Forthwith upon the execution and delivery of this Indenture, or from time to time thereafter, Securities up to the aggregate principal amount of $15,000,000 may be executed by the Company and delivered to the Trustee for authentication, and shall thereupon by authenticated and delivered by the Trustee upon Company Order, without any further action by the Company.

ARTICLE FOUR

Satisfaction and Discharge

SECTION 401. Discharge of Indenture .

When (a) the Company shall deliver to the Trustee for cancellation all Securities theretofore authenticated (other than any Securities that have been destroyed, lost or stolen and in lieu of or in substitution for which other Securities shall have been authenticated and delivered) and not theretofore canceled, or (b) all the Securities not theretofore canceled or delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and the Company shall deposit with the Trustee, in trust, funds sufficient

to pay at maturity or upon redemption of all of the Securities (other than any Securities that shall have been mutilated, destroyed, lost or stolen and in lieu of or in substitution for which other Securities shall have been authenticated and delivered) not theretofore canceled or delivered to the Trustee for cancellation, including principal and interest, including Defaulted Interest, if any, due or to become due to such date of maturity or redemption date, as the case may be, accompanied by a verification report, as to the sufficiency of the deposited amount, from an independent certified accountant or other financial professional satisfactory to the Trustee, and if the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then this Indenture shall cease to be of further effect (except as to (i) remaining rights of registration of transfer, substitution and exchange and conversion of Securities, (ii) rights hereunder of Holders of Securities to receive payments of principal of and interest, including Defaulted Interest, if any, on, the Securities and the other rights, duties and obligations of Holders of Securities, as beneficiaries hereof with respect to the amounts, if any, so deposited with the Trustee and (iii) the rights, obligations and immunities of the Trustee hereunder), and the Trustee, on written demand of the Company accompanied by an Officers’ Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with (upon which the Trustee shall be entitled to conclusively and exclusively rely) and at the cost and expense of the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture; the Company, however, hereby agrees to reimburse the Trustee for any costs or expenses thereafter reasonably and properly incurred by the Trustee and to compensate the Trustee for any services thereafter reasonably and properly rendered by the Trustee in connection with this Indenture or the Securities.

SECTION 402. Deposited Monies to be Held in Trust by Trustee .

Subject to Section 404, all monies deposited with the Trustee pursuant to Section 401 shall be held in trust for the sole benefit of the Holders, and such monies shall be applied by the Trustee to the payment, either directly or through any paying agent (including the Company if acting as its own paying agent), to the holders of the particular Securities for the payment or redemption of which such monies have been deposited with the Trustee, of all sums due and to become due thereon for principal and interest, including Defaulted Interest, if any.

SECTION 403. Paying Agent to Repay Monies Held .

Upon the satisfaction and discharge of this Indenture, all monies then held by any paying agent of the Securities (other than the Trustee) shall, upon written request of the Company, be repaid to it or paid to the Trustee, and thereupon such paying agent shall be released from all further liability with respect to such monies.

SECTION 404. Return of Unclaimed Monies .

Subject to the requirements of applicable law, any monies deposited with or paid to the Trustee for payment of the principal of or interest, including Defaulted Interest, if any, on Securities and not applied but remaining unclaimed by the holders of Securities for two years after the date upon which the principal of or interest, including Defaulted Interest, if any, on such Securities, as the case may be, shall have become due and payable, shall be repaid to the Company by the Trustee on demand and all liability of the Trustee shall thereupon cease with respect to such monies; and the holder of any of the Securities shall thereafter look only to the Company for any payment that such holder may be entitled to collect unless an applicable abandoned property law designates another Person.

SECTION 405. Reinstatement .

If the Trustee or the paying agent is unable to apply any money in accordance with Section 402 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company’s obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 401 until such time as the Trustee or the paying agent is permitted to apply all such money in accordance with Section 402; provided, however, that if the Company makes any payment of interest on or principal of any Security following the reinstatement of its obligations, the Company shall be subrogated to the rights of the holders of such Securities to receive such payment from the money held by the Trustee or paying agent.

ARTICLE FIVE

Remedies

SECTION 501. Events of Default .

“Event of Default,” wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):

(1)

the entry by a court having jurisdiction in the premises of a decree or order for relief in respect of the Company in an involuntary case or proceeding under the Bankruptcy Law, as now or hereafter constituted, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or

(2)	the commencement by the Company of a voluntary case or proceeding under the Bankruptcy Law, as now or hereafter constituted, or the consent by the Company to the entry of a decree or order for relief in an involuntary case or proceeding under any such law; or

(3)

(i) the appointment by the FRB, the FDIC or the OTS (or other competent government agency having primary regulatory authority over any Major Depository Institution Subsidiary) under any applicable federal or state banking, insolvency or other similar law now or hereafter in effect of a receiver, conservator or other similar official for any Major Depository Institution Subsidiary or for all or substantially all of its assets or (ii) the entry of a decree or order in any case or proceeding under any applicable federal or state banking, insolvency or other similar law now or hereafter in effect adjudging any Major Depository Institution Subsidiary insolvent or bankrupt, or appointing any receiver, conservator or other similar official for any Major Depository Institution Subsidiary or for all or substantially all of its assets, or ordering the winding up or liquidation of its affairs; or

(4)

(i) the filing by any Major Depository Institution Subsidiary with the FRB, the FDIC or the OTS (or other competent government agency having primary regulatory authority over any Major Depository Institution Subsidiary) of a notice of voluntary liquidation or other similar action under any applicable federal or state banking, insolvency or other similar law now or hereafter in effect or (ii) the commencement by any Major Depository Institution Subsidiary of any case or proceeding under any applicable federal or state banking, insolvency or other similar law now or hereafter in effect to be adjudicated insolvent or bankrupt or seeking the appointment of a receiver, conservator or other similar official for any Major Depository Institution Subsidiary or for all or substantially all of its assets, or the consent by any Major Depository Institution Subsidiary to the entry of a decree or order in any case or proceeding under the federal or state banking, insolvency or other similar laws adjudging any Major Depository Institution Subsidiary

insolvent or bankrupt, or appointing any receiver, conservator or other similar official for any Major Depository Institution Subsidiary or for all or substantially all of its assets, or ordering the winding up or liquidation of its affairs, or the taking of any corporate action by any Major Depository Institution Subsidiary in furtherance of such action; or

(5)	default in the payment of any interest upon any Security or any amount payable hereunder when the same shall become due and payable, and continuance of such default for a period of 30 days; or

(6)	default in the payment of the principal of (or premium, if any, on) or Fundamental Change Repurchase Price on any Security when the same shall become due and payable, whether at the Stated Maturity thereof, by acceleration or otherwise; or

(7)

Subject to Section 602, default in the performance, or breach, of any material covenant or warranty of the Company contained in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or

(8)

a default under any bond, debenture, note or other evidence of indebtedness for money borrowed by the Company or a Subsidiary or under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company or a Subsidiary (including this Indenture), whether such indebtedness now exists or shall hereafter be created, which default shall have resulted (i) in a failure to pay an aggregate principal amount exceeding $5.0 million of such indebtedness when due or upon the expiration of any applicable grace period with respect thereto or (ii) in such indebtedness in an amount exceeding $5.0 million becoming or, with the giving of notice or lapse of time or both, being declared due and payable prior to the date on which it would otherwise have become due and payable, without such indebtedness having been discharged, or such acceleration having been rescinded or annulled, within a period of 10 days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities a written notice specifying such default and requiring the Company to cause such indebtedness to be discharged or cause such acceleration to be rescinded or annulled and stating that such notice is a "Notice of Default" hereunder; provided, however, that any such default shall not be deemed to have occurred if and so long as the Company shall contest the validity thereof in good faith by appropriate proceedings; or

(9)

the Bank shall at any time become subject to a statutory or regulatory prohibition against the payment of dividends or other capital distributions to the Company and such prohibition is not removed or otherwise made inapplicable within a period of 90 days from the date on which such prohibition first became applicable; or

(10)

the Bank shall fail to meet the criteria required for classification as an “adequately capitalized” Insured Depositary Institution within the meaning of 12 U.S.C. 1831o and any implementing regulations or any successor provisions and such failure is not cured within a period of 90 days from the date of such failure or, if such failure is the result of a change in statute or regulation, such failure is not cured within a period of 180 days from the date of such failure.

As used in this Section 501, the term “Bankruptcy Law” means Title 11, U.S. Code or any similar Federal or state law for the relief of debtors.

SECTION 502. Acceleration of Maturity; Rescission and Annulment .

If an Event of Default occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities may declare the principal of all the Securities to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal shall become immediately due and payable.

At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if:

(1)	the Company has paid or deposited with the Trustee a sum sufficient to pay

(a)	all overdue interest on all Securities;

(b)	the principal of (and premium, if any, on) any Securities which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Securities;

(c)	to the extent that payment of such interest is lawful, interest upon overdue interest at the rate borne by the Securities; and

(d)	all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel;

and

(2)	all Events of Defaults, other than the non-payment of the principal of the Securities which have become due solely by such acceleration, have been cured or waived as provided in Section 513.

No such rescission shall affect any subsequent default or impair any right consequent thereon.

SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee .

The Company covenants that if any of the Events of Default specified in paragraphs (5) or (6) of Section 501 occurs, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal (and premium, if any) and interest, and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal (and premium, if any) and on any overdue interest, at the rate borne by the Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.

If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon such Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities, wherever situated.

If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.

SECTION 504. Trustee May File Proofs of Claim .

In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company (or any other obligor upon the Securities), its property or its creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607.

No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding; provided, however, that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and may be a member of the creditors' committee.

SECTION 505. Trustee May Enforce Claims Without Possession of Securities .

All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered.

SECTION 506. Application of Money Collected .

Any money or property collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money or property on account of principal (or premium, if any) or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:

FIRST: To the payment of all amounts due the Trustee under Section 607; and

SECOND: To the payment of the amounts then due and unpaid for principal of (and premium, if any), the Fundamental Change Repurchase Price, and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively.

THIRD: To the payment of the remainder, if any, to the Company or to such party as a court of competent jurisdiction shall direct.

SECTION 507. Limitation on Suits .

No Holder of any Security shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless

(1)	such Holder has previously given written notice to the Trustee of a continuing Event of Default;

(2)	the Holders of not less than 25% in principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;

(3)	such Holder or Holders have offered to the Trustee satisfactory Indemnity against the costs, expenses and liabilities to be incurred in compliance with such request;

(4)	the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and

(5)	no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities;

it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders.

SECTION 508.

Unconditional Right of Holders to Receive Principal, Premium and Interest and to Convert .

Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any), the Fundamental Change Repurchase Price and (subject to Section 308) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date), and to convert such Security in accordance with Article Thirteen and to institute suit for the enforcement of any such payment and right to convert, and such rights shall not be impaired without the consent of such Holder.

SECTION 509. Restoration of Rights and Remedies .

If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted.

SECTION 510. Rights and Remedies Cumulative .

Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 307, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.

SECTION 511. Delay or Omission Not Waiver .

No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Default shall impair any such right or remedy or constitute a waiver of any such Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.

SECTION 512. Control by Holders .

The Holders of a majority in principal amount of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, provided that

(1)	such direction shall not be in conflict with any rule of law or with the Indenture, and

(2)	the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction; and

(3)	the Trustee need not take any action that might involve it in personal liability or be unduly prejudicial to the Holders of Securities not joining therein (but the Trustee shall have no obligation as to the determination of such undue prejudice).

SECTION 513. Waiver of Past Defaults .

The Holders of not less than a majority in principal amount of the Outstanding Securities may on behalf of the Holders of all the Securities waive any past default hereunder (including an Event of Default) and its consequences, except a default

(1)	in the payment of the principal of (or premium, if any) or the Fundamental Change Repurchase Price or interest on any Security, or

(2)	in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security affected.

Upon any such waiver, such default shall cease to exist, and any default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.

SECTION 514. Undertaking for Costs .

All parties to this Indenture agree, and each Holder of Securities, by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorney’s fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Securities on or after the Stated Maturity (or, in the case of redemption, or on after the Redemption Date or in the case of repayment pursuant to Article Fourteen, on or after the Fundamental Change Repurchase Date).

SECTION 515. Waiver of Stay or Extension Laws .

The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.

ARTICLE SIX

The Trustee

SECTION 601. Certain Duties and Responsibilities .

(1)	Except during the continuance of an Event of Default,

(a)

the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and

(b)

in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and correctness of the opinions expressed therein, upon any statements, certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform on their face to the requirements of this Indenture.

(2)

In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.

(3)	No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:

(a)	this Subsection shall not be construed to limit the effect of Subsection (1) of this Section;

(b)	the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts;

(c)

the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in principal amount of the Outstanding Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; and

(d)

no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.

(4)	Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section and subject to Section 315 and 316 of the TIA.

SECTION 602. Notice of Defaults .

Within 90 days after the occurrence of any event of default hereunder (or any event which is, or after notice or lapse of time or both would become, an Event of Default) the Trustee shall transmit by mail to all Holders of Securities, as their names and addresses appear in the Security Register, notice of such default hereunder known to a Responsible Officer of the Trustee, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of (or premium, if any) or interest on any Security, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive

committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interests of the Holders; and provided, further, that in the case of any event default of the character specified in Sections 501(7) no such notice to Holders of Securities shall be given until at least 60 days after the occurrence thereof.

SECTION 603. Certain Rights of Trustee .

Subject to the provisions of Section 601 and TIA Section 315(a) through 315(d):

(1)

the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, Officer's Certificate, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;

(2)	any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution;

(3)

whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate;

(4)

before the Trustee acts or refrains from acting, the Trustee may consult with counsel and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;

(5)

the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;

(6)

prior to the occurrence of an Event of Default hereunder and after the curing or waiving of all Events of Default, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, Officer's Certificate, or other certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, appraisal, bond, debenture, note, coupon, security, or other paper or document unless requested in writing so to do by the Holders of not less than a majority in aggregate principal amount of the Securities then outstanding; provided that, if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require satisfactory indemnity against such expenses or liabilities as a condition to proceeding; the reasonable expenses of every such examination shall be paid by the Company or, if advanced by the Trustee, shall be repaid by the Company upon demand;

(7)	the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder;

(8)	the Trustee shall not be liable for any action it takes or omits to take in good faith which action or omission it believes to be authorized or within its rights or powers;

(9)	the Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder;

(10)

the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any covenants, conditions or agreements on the part of the Company, except as otherwise set forth herein, but the Trustee may require of the Company full information and advice as to the performance of the covenants, conditions and agreements contained herein and shall be entitled in connection herewith to examine the books, records and premises of the Company;

(11)	the permissive rights of the Trustee to do things enumerated in this Indenture shall not be construed as a duty and the Trustee shall not be answerable for other than its negligence or willful default; and

(12)

except for an Event of Default under Section 501(5) or (6) hereof, or a Default which a Responsible Officer of the Trustee has "actual knowledge", the Trustee shall not be deemed to have notice of or knowledge of any Default or Event of Default unless specifically notified in writing of such event by the Company or the Holders of not less than 25% in aggregate principal amount of the Securities Outstanding; as used herein, the term "actual knowledge" means the actual fact or statement of knowing, without any duty to make any investigation with regard thereto;

(13)

in no event shall the Trustee be responsible or liable for special, indirect, or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action;

(14)

the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder; and

(15)	the Trustee may request that the Company deliver a certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture.

SECTION 604. Not Responsible for Recitals or Issuance of Securities .

The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or

sufficiency of this Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof.

SECTION 605. May Hold Securities .

The Trustee, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 608 and 613, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Security Registrar or such other agent.

SECTION 606. Money Held in Trust .

Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed to in writing with the Company.

SECTION 607. Compensation and Reimbursement .

The Company agrees:

(1)

to pay to the Trustee from time to time reasonable compensation (it being understood and agreed that the fees set forth in the Trustee’s fee agreement or fee schedule are deemed reasonable) for all services rendered by it hereunder, including extraordinary services rendered in connection with or during the continuation of a default hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);

(2)

except as otherwise expressly provided herein, to reimburse each of the Trustee and any predecessor Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by it in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except to the extent any such expense, disbursement or advance may be attributable to its gross negligence or bad faith; and (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except to the extent any such expense, disbursement or advance may be attributable to its gross negligence or bad faith; and

(3)

to indemnify the Trustee and each of its respective directors, officers, agents and employees for, and to hold each of them harmless against, any loss, liability or expense, arising out of or in connection with the acceptance or administration of the trust or trusts or the performance of its duties hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder except to the extent any such loss, liability or expense may be attributable to its own gross negligence or bad faith.

As security for the performance of the obligations of the Company under this Section, the Trustee shall have a lien prior to the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of (or premium, if any) or interest (including Defaulted Interest, if any) on the Securities.

When the Trustee incurs expenses or renders services in connection with an Event of Default described in Section 501(5) and (6), such expenses (including the fees and expense of its counsel) and the compensation for such services are intended to constitute expenses of administration under any Bankruptcy Law.

The provisions of this Section shall survive the termination of this Indenture or the resignation or removal of the Trustee.

SECTION 608. Disqualification; Conflicting Interests .

If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture.

SECTION 609. Corporate Trustee Required; Eligibility .

There shall at all times be a Trustee hereunder that shall be eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined capital and surplus of at least $50,000,000 or is a subsidiary of a corporation that shall be a Person that has a combined capital and surplus of at least $50,000,000 and that unconditionally guarantees the obligations of the Trustee hereunder. If such Trustee or Person publishes reports of condition at least annually, pursuant to law or the requirements of Federal, State, Territorial or District of Columbia supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Trustee or Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.

SECTION 610. Resignation and Removal; Appointment of Successor .

(1)	No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirement of Section 609.

(2)

The Trustee may resign at any time with respect to the Securities by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may (at the sole cost and expense of the Company) petition any court of competent jurisdiction for the appointment of a successor Trustee.

(3)	The Trustee may be removed at any time with respect to the Securities by Act of the Holders of a majority in principal amount of the Outstanding Securities delivered to the Trustee and to the Company.

(4)	If at any time:

(a)	the Trustee shall fail to comply with the provisions of Section 613 or TIA Section 310(b) after written request therefor by the Company or by any Holder of a Security who has been a bona fide Holder of a Security for at least six months, or

(b)	the Trustee shall cease to be eligible under Section 609 and shall fail to resign after written request therefor by the Company or by any Holder of a Security who has been a bona fide Holder of a Security for at least six months, or

(c)

the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company by or pursuant to a Board Resolution may remove the Trustee and appoint a successor Trustee with respect to the Securities, or (ii) subject to TIA Section 315(e), any Holder of a Security who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to the Securities and the appointment of a successor Trustee or Trustees.

(5)

If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause with respect to the Securities of one or more series, the Company, by or pursuant to a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities shall be appointed by the Holders of a majority in principal amount of the outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee with respect to the Securities and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities shall have been so appointed by the Company or the Holders of Securities and accepted appointment in the manner hereinafter provided, any Holder of a Security who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities.

(6)

The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities and each appointment of a successor Trustee in the manner provided for notices to the Holders of Securities in Section 106. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office.

SECTION 611. Acceptance of Appointment by Successor .

Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts.

No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article.

SECTION 612. Merger, Conversion, Consolidation or Succession to Business .

Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities.

SECTION 613. Preferential Collection of Claims Against Company .

If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor).

SECTION 614. Appointment of Authenticating Agent .

The Trustee may appoint an Authenticating Agent or Agents which shall be authorized to act on behalf of the Trustee to authenticate Securities issued upon original issue and upon exchange, registration of transfer, partial conversion or partial redemption or pursuant to Section 306, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Whenever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such references shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section.

Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent.

An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall give notice of such appointment to all Holders in the manner provided in Section 106. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section.

The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 607.

If an appointment is made pursuant to this Section, the Securities may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in the following form:

This is one of the Securities described in the within-mentioned Indenture.

Dated: _________________,

_______________________________________

Not in its individual capacity , but solely as Trustee

By ___________________________________

As Authenticating Agent

By ___________________________________

Authorized Officer

ARTICLE SEVEN

Holders’ Lists and Reports by Trustee and Company

SECTION 701. Company to Furnish Trustee Names and Addresses of Holders .

The Company will furnish or cause to be furnished to the Trustee

(1)	semi-annually, not more than 15 days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date, and

(2)	at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished;

excluding from any such list names and addresses received by the Trustee in its capacity as Security Registrar.

SECTION 702. Preservation of Information; Communication to Holders .

(1)

The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 701 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished.

(2)	The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act.

(3)

Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act.

SECTION 703. Reports by Trustee .

The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto.

SECTION 704. Reports by Company .

The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13

or 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission.

ARTICLE EIGHT

Consolidation, Merger, Conveyance, Transfer or Lease

SECTION 801. Company May Consolidate, Etc., Only on Certain Terms .

The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and the Company shall not permit any Person to consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless:

(1)

in case the Company shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation, partnership or trust, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest on all the Securities and the performance or observance of every covenant of this Indenture on the part of the Company to be performed or observed and shall have provided for conversion rights in accordance with Section 1311;

(2)	immediately after giving effect to such transaction, no Default or Event of Default, shall have happened and be continuing;

(3)

immediately after giving effect to such transaction, each Insured Depository Institution controlled by the entity which is formed by such consolidation, share exchange or business combination or with which the Company is merged, or by the Person which acquired by conveyance or transfer all or substantially all of the properties and assets of the Company, shall be in compliance with all applicable minimum Regulatory Capital Requirements; and

(4)

the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with.

SECTION 802. Successor Substituted .

Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 801, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter,

except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities.

ARTICLE NINE

Supplemental Indentures

SECTION 901. Supplemental Indentures Without Consent of Holders .

Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes:

(1)

to cure any ambiguity or correct any omission, defect or inconsistency contained herein, so long as such action will not materially and adversely affect the interest of the Holders; provided that any such amendment made solely to conform the provisions of the Indenture to the description thereof contained in the Prospectus shall be deemed not to adversely affect the interests of the Holders of the Securities;

(2)	to provide for the assumption by a successor corporation, partnership, trust or limited liability company of the obligations of the Company contained herein;

(3)	to add guarantees with respect to the Securities;

(4)	to secure the Securities;

(5)	to add to the covenants of the Company for the benefit of the Holders of the Securities, or to surrender any right or power herein conferred upon the Company;

(6)	to add or modify any other provision herein with respect to matters or questions arising hereunder which the Company and the Trustee may deem necessary or desirable and which does not materially and adversely affect the rights of any Holder of the Securities; and

(7)	to modify, eliminate or add to the provisions of the Indenture to such extent as shall be necessary to effect the qualification of the Indenture under the Trust Indenture Act, or under any similar federal statute hereafter enacted.

SECTION 902. Supplemental Indentures with Consent of Holders .

With the consent of the Holders of not less than 66-2/3% in principal amount of the Outstanding Securities, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby:

(1)	reduce the principal amount of Outstanding Securities whose Holders are required for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder

their consequences provided for in this Indenture or a supplemental indenture or an amendment to the Indenture;

(2)	reduce the rate or extend the time of payment of any interest, including any Defaulted Interest, on any Security;

(3)	reduce the principal of, or extend the Stated Maturity of, any Security;

(4)	make any change that impairs or adversely affects the conversion rights or Conversion Price of any Security;

(5)	reduce the Fundamental Change Repurchase Price of any Security or amend or modify in any manner adverse to the Holders of Securities the Company’s obligation to make such payments, whether through an amendment or waiver of provisions in the covenants, definitions or otherwise;

(6)	make any Security payable in currency other than that stated in such Security;

(7)	change the ranking of the Securities in any manner that adversely affects the rights of Holders of Securities under the Indenture;

(8)	impair the right of a Holder to receive payment of principal and interest, including any Defaulted Interest, on such Holder’s Securities, or alter the due date therefore or to institute a suit for the enforcement of any payment on or with respect to such Holder’s Securities; or

(9)	modify any of the provisions of Section 902(1) through (8).

It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.

SECTION 903. Execution of Supplemental Indentures .

In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise.

SECTION 904. Effect of Supplemental Indentures .

Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby.

SECTION 905. Conformity with Trust Indenture Act .

Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act.

SECTION 906. Reference in Securities to Supplemental Indentures .

Securities authenticated and delivered after the execution of any supplemental Indenture pursuant to this Article may bear a notation in form satisfactory to the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and upon Company Order authenticated and delivered by the Trustee in exchange for Outstanding Securities.

SECTION 907. Notice to Holders of Supplemental Indentures .

The Company shall cause notice of the execution of any supplemental indenture to be mailed to each Holder, at the address appearing on the Security Register provided for in this Indenture, within 20 days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture.

ARTICLE TEN

Covenants

SECTION 1001. Payment of Principal, Premium and Interest .

The Company will duly and punctually pay the principal of (and premium, if any) and interest on the Securities in accordance with the terms of the Securities and this Indenture.

SECTION 1002. Maintenance of Office or Agency .

The Company will maintain an office or agency in a Place of Payment where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange, where Securities may be surrendered for conversion and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands.

SECTION 1003. Money for Security to Be Held in Trust .

If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of (and premium, if any) or interest on, any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its action or failure so to act.

Whenever the Company shall have one or more Paying Agents, it will, prior to each due date of the principal of (and premium, if any) or interest on, any Securities, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest, so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Paying Agent will promptly notify the Trustee of any default by the Company in the making of any such payment.

The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will:

(1)	hold all sums held by it for the payment of principal of (and premium, if any) or interest on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided;

(2)	give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any such payment of principal (and premium, if any) or interest; and

(3)	at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent.

The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paging Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.

To the fullest extent permitted by applicable law, any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security or the Fundamental Change Repurchase Price and remaining unclaimed for more than two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease.

SECTION 1004. Payment of Taxes and Other Claims .

The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon it or upon its income, profits or property and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon its property; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by

appropriate proceedings or any such tax assessment, charge or claim if not disadvantageous in any material respect to the Holders of Securities.

SECTION 1005. Maintenance of Properties .

The Company will: (a) cause all its properties used or useful in the conduct of its business and that of its Subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company or a Subsidiary from discontinuing the operation and maintenance of any of its properties if such discontinuance is, in the reasonable judgment of the Company or a Subsidiary, desirable in the conduct of its business and not disadvantageous in any material respect to the Holders; and (b) take all appropriate steps to maintain the licenses and permits used in the conduct of the business of the Company and its Subsidiaries; provided, however, that nothing in this subsection shall prevent the Company or a Subsidiary from selling, abandoning or otherwise disposing of any such license or permit if such sale, abandonment or disposition is, in the judgment of the Company or a Subsidiary, desirable in the conduct of its business and not disadvantageous in any material respect to the Holders of the Securities.

SECTION 1006. Corporate Existence of the Company and Subsidiaries .

Subject to Article Eight, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence, rights (charter and statutory) and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any right or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders.

The Company shall preserve and keep in full force and effect the Bank's status as a Wholly Owned Subsidiary and an Insured Depositary Institution and do all things necessary to ensure that the deposit accounts of the Bank are insured by the FDIC or any successor organization up to the maximum amount permitted by the Federal Deposit Insurance Act and regulations thereunder or by any succeeding federal law hereafter enacted.

SECTION 1007. Insurance .

Subject to the right to sell, abandon or otherwise dispose of any building or property whenever in the opinion of the Company the retention thereof is inadvisable or not necessary to the business of the Company and its Subsidiaries, the Company will at all times maintain and cause each of its Subsidiaries to maintain insurance (either in the name of the Company or in the name of its Subsidiary) on all of its or its Subsidiary's properties against loss or damage from hazards and risks to the person, rights and property of others, to the extent that such insurance is usually carried by corporations similarly situated and engaged in a like business; provided, however, that nothing in this Section shall prevent the Company or any subsidiary from maintaining any self-insurance program covering minor risks conforming to the practices of similar corporations maintaining self-insurance if adequate reserves are maintained in connection with such program and if not disadvantageous in any material respect to the Holders.

SECTION 1008. Limitations on Dividends, Redemptions, Etc .

The Company will not (1) declare or pay any dividend or make any other distribution on any Junior Securities of the Company, except dividends or distributions payable in Junior Securities of the Company, or (2) purchase, redeem or otherwise acquire or retire for value any Junior Securities of the Company, except Junior Securities acquired upon conversion thereof into other Junior Securities of the Company, or (3) permit a Subsidiary to purchase, redeem or otherwise acquire or retire for value any Junior Securities of the Company, if, upon giving effect to such dividend, distribution, purchase, redemption or other acquisition, a default in the payment of any interest upon any Security when it becomes due and payable or a default in the payment of the principal of (or premium, if any, on) any Security at its Maturity shall have occurred and be continuing.

SECTION 1009. Restrictions on Issuance and Sale of Capital Stock or Dispositions of the Bank .

The Company shall not sell, transfer or otherwise dispose of any shares of the Capital Stock of the Bank or permit the Bank to issue, sell or otherwise dispose of shares of its Capital Stock unless, in either case, the Bank remains a Wholly Owned Subsidiary. The Company shall not permit the Bank to merge or consolidate with any other Person (other than the Company), unless the surviving entity is the Bank or a Wholly Owned Subsidiary, or permit the Bank to convey or transfer its properties and assets substantially as an entirety to any Person, except to the Company or a Wholly Owned Subsidiary. The Bank shall not issue any Capital Stock of the Bank, preferred or otherwise, which has priority or preference senior to any Capital Stock of the Bank owned directly or indirectly by the Company.

SECTION 1010. Limitations on Transactions with Affiliates

The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, enter into any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or services) with any Affiliate of the Company (other than the Company or any Wholly Owned Subsidiary) unless: (i) such transaction or series of related transactions is in writing on terms that are no less favorable to the Company or such Subsidiary, as the case may be, than would be available in a comparable transaction in an arm's-length dealing with a person that is not such an Affiliate or, in the absence of comparable transactions, on terms that in good faith would be offered to a person that is not an Affiliate; (ii) with respect to any transaction or series of related transactions involving aggregate payments in excess of $1,500,000 or more, the Company delivers an Officers' Certificate to the Trustee certifying that such transaction or series of related transactions complies with clause (i) above and such transaction or series of related transactions has been approved by a majority of the Disinterested Directors of the Board of Directors of the Company and (iii) with respect to any transaction or series of related transactions involving aggregate payments in excess of $2,500,000 or more or, in the event no members of the Board of Directors of the Company are Disinterested Directors with respect to any transaction or series of transactions included in clause (ii) above, (x) in the case of a transaction involving real property, the aggregate rental or sale price of such real property shall be the fair market sale or rental value of such real property as determined in a written opinion by a certified expert with experience in appraising the terms and conditions of the type of transaction or series of transactions for which approval is required, and (y) in all other cases, the Company delivers to the Trustee a written opinion of a certified expert with experience in appraising the terms and conditions of the type of transaction or series of transactions for which approval is required to the effect that the transaction or series of transactions are fair to the Company or such Subsidiary from a financial point of view. The

limitation set forth in this paragraph shall not apply to (i) transactions entered into pursuant to any agreement already in effect on the date of this Indenture, (ii) residential mortgage, credit card and other consumer loans to an Affiliate who is an officer, director or employee of the Company or any of its Subsidiaries provided that such loan is made on terms and conditions consistent with the practices of the Bank as of the date of the Indenture or (iii) any indemnification provisions in the Company's Articles of Incorporation or Bylaws as of the date of the Indenture.

SECTION 1011. Books and Records .

The Company shall, and shall cause each Subsidiary to, at all times keep proper books of record and account in which proper entries shall be made in accordance with generally accepted accounting principles and, to the extent applicable, regulatory accounting principles.

SECTION 1012. Statement as to Compliance .

The Company will deliver to the Trustee, within 120 days after the end of each fiscal year, a written statement signed by the President or a Vice President and by the Treasurer, an Assistant Treasurer, the Controller or an Assistant Controller of the Company, stating, as to each signor thereof, that:

(1)	a review of the activities of the Company during such year and of performance under this Indenture has been made under his or her supervision; and

(2)

to the best of his or her knowledge, based on such review, the Company has fulfilled all the conditions and covenants set forth in Article Ten and any other obligation specifically imposed upon it under this Indenture throughout such year, or, if there has been a default in the fulfillment of any such condition, covenant or obligation, the Company shall deliver to the Trustee as soon as possible, and in any event within five days after the Company becomes aware or should reasonably have become aware of the occurrence of any Default or Event of Default, an Officers' Certificate specifying each such default known to him or her and the nature and status thereof and what action the Company is taking or proposes to take with respect thereto.

SECTION 1013. Limitation on Indebtedness Senior to the Securities .

Notwithstanding any other provision in this Indenture, the Company shall not incur any Indebtedness which would be senior in right of payment to the Securities; provided, however, the limitation set forth in this Section 1013 shall not affect the Company's ability to incur additional Indebtedness or Indebtedness which is collateralized.

SECTION 1014. Notice of a Fundamental Change, Events of Default or Default .

The Company agrees to give the Trustee prompt written notice of any Fundamental Change, Event of Default or Default of which the Company has actual knowledge.

SECTION 1015. Limitation on Liens on Bank .

The Company shall not create, assume, incur or suffer to exist any mortgage, pledge, incumbrance, lien or charge of any kind upon the Capital Stock of the Bank, including its security or collateral for indebtedness or borrowed money or otherwise.

SECTION 1016. Compliance with Requirements of Article Fourteen .

The Company shall comply with the obligations imposed on it under Article Fourteen of this Indenture.

SECTION 1017. Waiver of Certain Covenants .

The Company may except as otherwise required by law omit in any particular instance to comply with any covenant or condition set forth in Sections 1004 to 1015, inclusive, if before or after the time for such compliance the Holders of at least a majority in principal amount of the Securities at the time Outstanding shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such covenant or condition shall remain in full force and effect.

ARTICLE ELEVEN

Redemption of Securities

SECTION 1101. Right of Redemption .

Provided that at the time of first giving of notice of redemption the Company is not in default in the payment of any Indebtedness and that at such time the making of such redemption would not result in a default in any covenant contained in any indenture or other instrument pursuant to which Indebtedness is outstanding, the Company may, at its option, redeem all or from time to time any part of the Securities on any date prior to maturity but not before December 1, 2019 at 100% of the principal to be redeemed plus, any interest accrued on the Securities so redeemed to the Redemption Date, exclusive of installments of interest whose Stated Maturity is on or prior to the Redemption Date, payment of which shall have been made or duly provided for to the registered Holders of Securities on relevant Record Dates in accordance with Section 308.

SECTION 1102. Applicability of Article .

Redemption of Securities at the election of the Company or otherwise, as permitted or required by any provision of this Indenture, shall be made in accordance with such provision and this Article.

SECTION 1103. Election to Redeem; Notice to Trustee .

The election of the Company to redeem any Securities shall be evidenced by a Board Resolution delivered to the Trustee. In case of any redemption at the election of the Company of less than all of the Securities, the Company shall, at least 45 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee) notify the Trustee in writing of such Redemption Date and of the principal amount of Securities to be redeemed.

SECTION 1104. Selection by Trustee of Securities to be Redeemed .

If less than all the Securities are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities not previously called for redemption, pro rata, by lot or by such method as

the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions of the principal of Securities of a denomination larger than $1,000. The portions of the principal of Securities so selected for partial redemption shall be equal to $1,000 or the smallest authorized denomination of the Securities, whichever is greater, or a multiple thereof.

The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Security selected for partial redemption, the principal amount thereof to be redeemed.

For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal of such Security which has been or is to be redeemed.

SECTION 1105. Notice of Redemption .

Notice of redemption shall be given by the Company by first-class mail, postage prepaid mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his or her address appearing in the Security Register.

All notices of redemption shall state:

(1)	the Redemption Date,

(2)	the Redemption Price,

(3)	if less than all Outstanding Securities are to be redeemed, the identification (and, in the case of partial redemption, the respective principal amounts) of the Securities to be redeemed,

(4)	that on the Redemption Date the Redemption Price will become due and payable upon each such Security, and that interest thereon shall cease to accrue from and after said date, and

(5)	the place where such Securities are to be surrendered for payment of the Redemption Price, which shall be an office or agency of the Company in each Place of Payment.

Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's written request, by the Trustee in the name and at the expense of the Company.

SECTION 1106. Deposit of Redemption Price .

On or prior to 10:00 a.m. at the Place of Payment on any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of, and accrued interest on, all the Securities which are to be redeemed on that date

SECTION 1107. Securities Payable on Redemption Date .

Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest), such Securities shall cease to bear interest. Upon surrender of such Securities for redemption in accordance with said notice, such Securities shall be paid by the Company at the Redemption Price, together with any accrued interest to the Redemption Date. Installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities registered as such on the relevant Record Dates according to their terms and the provisions of Section 308.

If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate borne by the Security.

SECTION 1108. Securities Redeemed in Part .

Any Security which is to be redeemed only in part shall be surrendered at a Place of Payment (with due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his or her attorney duly authorized in writing) and the Company shall execute, and upon Company Order the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denominations as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered.

ARTICLE TWELVE

Defeasance

SECTION 1201. Defeasance Upon Deposit of Moneys or U.S. Government Obligations .

At the Company's option, either (a) the Company shall be deemed to have been Discharged (as defined below) from its obligations with respect to the Securities on the 91st day after the applicable conditions set forth below have been satisfied or (b) the Company shall cease to be under any obligation to comply with any term, provision or condition set forth in Sections 1006, 1008, 1009, 1010, 1012, and 1015 with respect to the Securities at any time after the applicable conditions set forth below have been satisfied:

(1)

the Company shall have irrevocably deposited or caused to be irrevocably deposited with the Trustee, as trust funds and/or obligations in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Securities (i) money in an amount, or (ii) U.S. Government Obligations (as defined below) which through the payment of interest and principal in respect thereof in accordance with their terms, without consideration of any reinvestment thereof, will provide, not later than one day before the due date of any payment, money in an amount, or (iii) a combination of (i) and (ii), sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (upon which the Trustee may conclusively and exclusively rely), to pay and discharge the principal of (and premium, if any), and interest on, the outstanding Securities on the dates such installments of interest or principal and premiums are due;

(2)	such deposit shall not cause the Trustee with respect to the Securities to have a conflicting interest as defined in Section 608 and for purposes of the Trust Indenture Act with respect to the Securities;

(3)	the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that such deposit will not result in an Event of Default under Section 501 or an event which with the giving of notice or lapse of time, or both, would become an Event of Default under Section 501.

(4)

the Company shall have delivered to the Trustee an Officer's Certificate to the effect that no Event of Default or event (including such deposit) which, with notice or lapse of time or both, would become Event of Default with respect to the Securities shall have occurred and be continuing on the date of such deposit and no Event of Default or event which with the giving of notice or lapse of time, or both, would become an Event of Default shall have occurred and be continuing on the 91st day after such date of deposit; and that such deposit shall not result in a breach or violation of or constitute a default under any other agreement or instrument, material to the Company, to which the Company is a party or by which it is bound.

(5)

the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that all conditions precedent herein provided for relating to the defeasance contemplated in this Section 1201 have been complied with and an Opinion of Counsel (or, in lieu of such Opinion of Counsel, the Company has received from, or there has been published by, the Internal Revenue Service a ruling) to the effect that the Holders of the Securities or Security Owners will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit, defeasance or Discharge; and

(6)	if the Securities are to be redeemed, either notice of such redemption shall have been given or the Company shall have given the Trustee irrevocable direction to give notice of such redemption in the name and at the expense of the Company, pursuant to Article Eleven.

"Discharged" means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by, and obligations under, the Securities and to have satisfied all the obligations under this Indenture relating to the Securities (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except (A) the rights of Holders of Securities to receive, from the trust fund described in Section 1201(a) above, payment of the principal of (and premium, if any) and interest on such Securities when such payments are due, (B) the Company's obligations with respect to the Securities under Sections [304, 305, 306, 1002, and 1202] and (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder.

"U.S. Government Obligations" means securities that are (i) direct obligations of the United States for the payment of which its full faith and credit is pledged, or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States, which, in either case under clauses (i) or (ii), are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligation or a specific payment of interest on or principal of any such U.S. Government obligation held by such custodian for the account of the holder of a depository receipt; provided that (except as required by law) such custodian is not

authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt.

SECTION 1202. Deposited Moneys and U.S. Government Obligations to Be Held in Trust .

All moneys and U.S. Government Obligations deposited with the Trustee pursuant to Section 1201 in respect of Securities shall be held in trust and applied by it, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent), as the Trustee may determine, to the Holders of such Securities, of all sums due and to become due thereon for principal (and premium, if any) and interest, if any, but such money need not be segregated from other funds except to the extent required by law.

SECTION 1203. Repayment to Company .

The Trustee and any Paying Agent shall promptly pay or return to the Company upon Company Request any moneys or U.S. Government Obligations held by them at any time that, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are not required for the payment of the principal of (and premium, if any) and interest on the Securities for which money or U.S. Government Obligations have been deposited pursuant to Section 1201.

The provisions of the last paragraph of Section 1003 shall apply to any money held by the Trustee or any Paying Agent under this Article that remains unclaimed for two years after the Maturity of the Securities for which money or U.S. Government Obligations have been deposited pursuant to Section 1201.

SECTION 1204. Inability of Trustee or Paying Agent to Apply Money .

If the Trustee or any Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 1201 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 1201 until such time as the Trustee or any Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Section 1201.

ARTICLE THIRTEEN

Conversion of Securities

SECTION 1301. Conversion Privilege and Conversion Price .

Subject to and upon compliance with the provisions of this Article, at the option of the Holder thereof, any Security or any portion of the principal amount thereof which is $1,000 or an integral multiple of $1,000 may be converted at the principal amount thereof, or of such portion thereof, into fully paid and nonassessable shares (calculated as to each conversion to the nearest 1/100 of a share) of Common Stock of the Company at the Conversion Price, determined as hereinafter provided, in effect at the time of conversion. Such conversion right shall expire at the close of business on one Business Day prior to December 1, 2029. In case a Security or portion thereof is called for redemption at the election of the Company, such conversion right in respect of the Security or portion so called shall expire at the close of business one business day prior to the Redemption Date unless the Company defaults in making the payment due upon redemption.

The price at which shares of Common Stock shall be delivered upon conversion (herein called the "Conversion Price") shall be initially $20.00 per share of Common Stock. The Conversion Price shall be adjusted by the Company in certain instances as provided in this Article Thirteen (with written notice thereof provided by the Company to the Trustee and the Conversion Agent, if different).

SECTION 1302. Exercise of Conversion Privilege .

In order to exercise the conversion privilege, the Holder of any Security to be converted shall surrender such Security, duly endorsed or assigned to the Company or in blank, at any office or agency of the Company maintained for that purpose pursuant to Section 1002, accompanied by written notice of conversion in the form provided on the Security (or such other notice as is acceptable to the Company) at such office or agency that the Holder elects to convert such Security or, if less than the entire principal amount thereof is to be converted, the portion thereof to be converted. Securities surrendered for conversion during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date (except in the case of Securities or portions thereof which have been called for redemption on a Redemption Date within such period) shall be accompanied by payment in cash, or by certified check or by official bank check in New York Clearing House funds or other funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of Securities being surrendered for conversion. Subject to the provisions of Section 308 relating to the payment of Defaulted Interest by the Company, the interest payment with respect to a Security called for redemption on a Redemption Date during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date shall be payable on such Interest Payment Date to the Holder of such Security at the close of business on such Regular Record Date notwithstanding the conversion of such Security after such Regular Record Date and prior to such Interest Payment Date, and the Holder converting such Security need not include a payment of such interest payment amount upon surrender of such Security for conversion. Except as provided in the preceding sentence and subject to the final paragraph of Section 308, no payment or adjustment shall be made upon any conversion on account of any interest accrued on the Securities surrendered for conversion or on account of any dividends on the Common Stock issued upon conversion.

Securities shall be deemed to have been converted immediately prior to the close of business on the day of surrender of such Securities for conversion in accordance with the foregoing provisions, and at such time the rights of the Holders of such Securities as Holders shall cease, and the Person or Persons entitled to receive the Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such Common Stock at such time. As promptly as practicable on or after the conversion date, the Company shall issue and shall deliver at such office or agency a certificate or certificates for the number of full shares of Common Stock issuable upon conversion, together with payment in lieu of any fraction of a share, as provided in Section 1303.

In the case of any Security which is converted in part only, upon such conversion the Company shall execute, and upon Company Order the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Company, a new Security or Securities of authorized denominations in aggregate principal amount equal to the unconverted portion of the principal amount of such Security.

SECTION 1303. Fractions of Shares .

No fractional shares of Common Stock shall be issued upon conversion of Securities. If more than one Security shall be surrendered for conversion at one time by the same Holder, the number of full shares which shall be issuable upon conversion thereof shall be computed on the basis of the aggregate principal amount of the Securities (or specified portions thereof), the Company shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the daily Closing Price per share of Common Stock (consistent with Section 1304(8) below) at the close of business on the day of conversion.

SECTION 1304. Adjustment of Conversion Price .

(1)

In case the Company shall pay or make a dividend or other distribution on any class of capital stock of the Company in Common Stock, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this paragraph (1), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company.

(2)

In case the Company shall issue rights, options or warrants to all holders of its Common Stock (not being available on an equivalent basis to Holders of the Securities upon conversion) entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share (determined as provided in paragraph (8) of this Section) of the Common Stock on the date fixed for the determination of stockholders entitled to receive such rights, options or warrants (other than pursuant to a dividend reinvestment plan), the Conversion Price in effect at the opening of business on the day following the date fixed for such determination shall be reduced by multiplying such Conversion Price by a fraction of

which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such current market price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or purchase, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this paragraph (2), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not issue any rights, options or warrants in respect of shares of Common Stock held in the treasury of the Company.

(3)

In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective.

(4)

In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness or assets (including securities, but excluding any rights, options or warrants referred to in paragraph (2) of this Section, any dividend or distribution paid exclusively in cash and any dividend or distribution referred to in paragraph (1) of this Section), the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution by a fraction of which the numerator shall be the current market price per share (determined as provided in paragraph (8) of this Section) of the Common Stock on the date fixed for such determination less the then fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution filed with the Trustee) of the portion of the assets or evidences of indebtedness so distributed applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such adjustment to become effective immediately prior to the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such distribution. In any case in which this paragraph (4) is applicable, paragraph (2) of this Section shall not be applicable.

(5)

In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding any cash that is distributed upon a merger or consolidation to which Section 1311 applies or as part of a distribution referred to in paragraph (4) of this Section) in an aggregate amount that, combined together with (1) the aggregate amount of any other distributions to all holders of its Common Stock made exclusively in cash within the 12 months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to this paragraph (5) has been made and (2) the aggregate of any cash plus the fair

market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) of consideration payable in respect of any tender offer by the Company or any of its subsidiaries for all or any portion of the Common Stock concluded within the 12 months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to paragraph (6) of this Section has been made, exceeds 10% of the product of the current market price per share of the Common Stock on the date for the determination of holders of shares of Common Stock entitled to receive such distribution times the number of shares of Common Stock outstanding on such date, then, and in each such case, immediately after the close of business on such date for determination, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the date fixed for determination of the stockholders entitled to receive such distribution by a fraction (i) the numerator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section) of the Common Stock on the date fixed for such determination less an amount equal to the quotient of (x) the excess of such combined amount over such 10% and (y) the number of shares of Common Stock outstanding on such date for determination and (ii) the denominator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section) of the Common Stock on such date for determination.

(6)

In case a tender offer made by the Company or any Subsidiary for all or any portion of the Common Stock shall expire and such tender offer (as amended upon the expiration thereof) shall require the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares (as defined below)) of an aggregate consideration having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) that combined together with (1) the aggregate of the cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution), as of the expiration of such tender offer, of consideration payable in respect of any other tender offer, by the Company or any Subsidiary for all or any portion of the Common Stock expiring within the 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to this paragraph (6) has been made and (2) the aggregate amount of any distributions to all holders of the Company's Common Stock made exclusively in cash within 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to paragraph (5) of this Section has been made, exceeds 10% of the product of the current market price per share of the Common Stock (determined as provided in paragraph (8) of this Section) as of the last time (the "Expiration Time") tenders could have been made pursuant to such tender offer (as it may be amended) times the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to close of business on the date of the Expiration Time by a fraction (i) the numerator of which shall be equal to (A) the product of (i) the current market price per share of the Common Stock (determined as provided in paragraph (8) of this Section) on the date of the Expiration Time and (ii) the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time less (B) the amount of cash plus the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares, and (ii) the denominator of which shall be equal to the product of (A) the current market price per share of the Common Stock (determined

as provided in paragraph (8) of this Section) as of the Expiration Time and (B) the number of shares of Common Stock outstanding (including any tendered shares) as of the Expiration Time less the number of all shares validly tendered and not withdrawn as of the Expiration Time (the shares deemed so accepted up to any such maximum, being referred to as the "Purchased Shares").

(7)

The reclassification of Common Stock into securities including securities other than Common Stock (other than any reclassification upon a consolidation or merger to which Section 1311 applies) shall be deemed to involve (i) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be "the date fixed for the determination of stockholders entitled to receive such distribution" and the "date fixed for such determination" within the meaning of paragraph (4) of this Section), and (ii) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective" or "the day upon which such, combination becomes effective," as the case may be, and "the day. upon which such subdivision or combination becomes effective" within the meaning of paragraph (3) of this Section).

(8)

For the purpose of any computation under paragraphs (2), (4), (5) and (6) of this Section, the current market price per share of Common Stock on any date shall be deemed to be the average of the daily Closing Prices for the 5 consecutive Trading Days selected by the Company commencing not more than 20 Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex" date with respect to the issuance or distribution requiring such computation. The "Closing Price" for each Trading Day shall be the reported last sale price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the OTC Bulletin Board or the principal national securities exchange on which the Common Stock is then listed or admitted to trading or, if not listed or admitted to trading on the OTC Bulletin Board or any national securities exchange, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Company for that purpose. For purposes of this paragraph, the term "'ex' date," when used with respect to any issuance or distribution, shall mean the first date on which the Common Stock trades regular way on such exchange or in such market without the right to receive such issuance or distribution.

(9)

No adjustment in the Conversion Price shall be required unless such adjustment (plus any adjustments not previously made by reason of this paragraph (9)) would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this paragraph (9) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this paragraph (9) shall be made to the nearest cent.

(10)

The Company may make such reductions in the Conversion Price, in addition to those required by paragraphs (1), (2), (3), (4), (5) and (6) of this Section, as it considers to be advisable in order to avoid or diminish any income tax to any holders of shares of Common Stock resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for stock or from any event treated as such for Federal income tax purposes or for any other

reasons. The Company shall have the power to resolve any ambiguity or correct any error in this paragraph (10) and its actions in so doing shall be final and conclusive.

SECTION 1305. Notice of Adjustments of Conversion Price .

Whenever the Conversion Price is adjusted as herein provided:

(1)

The Company shall compute the adjusted conversion price in accordance with Section 1304 and shall prepare a certificate signed by the Treasurer of the Company setting forth the adjusted conversion price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed at each office or agency maintained for the purpose of conversion of Securities pursuant to Section 1002 and provided to the Trustee and the Conversion Agent, if different; and

(2)

a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall forthwith be required, and as soon as practicable after it is required, such notice shall be mailed by the Company to all Holders at their last addresses as they shall appear in the Security Register.

SECTION 1306. Notice of Certain Corporate Action .

(1)

In case:

(a)	the Company shall declare a dividend (or any other distribution) on its Common Stock payable otherwise than in cash out of its earned surplus; or

(b)	the Company shall authorize the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any other rights; or

(c)

of any reclassification of the Common Stock of the Company (other than a subdivision or combination of its outstanding shares of Common Stock), or of any consolidation, merger or share exchange to which the Company is a party and for which approval of any stockholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company; or

(d)	of the voluntary or involuntary dissolution, liquidation or winding up of the Company;

then the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of Securities pursuant to Section 1002 (with copies to the Trustee and the Conversion Agent, if different), and shall cause to be mailed to all Holders of Securities at their last addresses as they shall appear in the Security Register, at least 20 days (or 10 days in any case specified in clause (a) or (b) above) prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for

securities, cash or other property deliverable upon such reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up. Neither the failure to give such notice nor any defect therein shall affect the legality or validity of the proceedings described in clauses (1) through (4) of this Section. If at the time the Trustee shall not be the conversion agent, a copy of such notice shall also forthwith be filed by the Company with the Trustee.

SECTION 1307. Company to Reserve Common Stock .

The Company shall at all times reserve and keep available out of its authorized but unissued Common Stock, for the purpose of effecting the conversion of Securities, the full number of shares of Common Stock then issuable upon the conversion of all outstanding Securities.

SECTION 1308. Taxes on Conversions .

The Company will pay any and all taxes that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Securities pursuant hereto. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the Holder of the Security or Securities to be converted, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid.

SECTION 1309. Covenant as to Common Stock .

The Company covenants that all shares of Common Stock which may be issued upon conversion of Securities will upon issue be fully paid and nonassessable and, except as provided in Section 1308, the Company will pay all taxes, liens and charges with respect to the issue thereof.

SECTION 1310. Cancellation of Converted Securities .

All Securities delivered for conversion shall be delivered to the Trustee to be canceled by or at the direction of the Trustee, which shall dispose of the same as provided in Section 310.

SECTION 1311. Provisions in Case of Consolidation, Merger or Sale of Assets .

In case of any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company) or any sale or transfer of all or substantially all of the assets of the Company, the Person formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, shall execute and deliver to the Trustee a supplemental indenture providing that the Holder of each Security then outstanding shall have the right thereafter, during the period such Security shall be convertible as specified in Section 1301, to convert such Security only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of Common Stock of the Company into which such Security might have been converted immediately prior to such consolidation, merger, sale or transfer, assuming such holder of Common Stock of the Company is not a Person with which the Company consolidated or into which the Company merged or which merged into the Company or to which such sale or transfer was made, as the case may be ("constituent Person"), or an Affiliate of a constituent Person, and failed to exercise his

rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer (provided that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer is not the same for each share of Common Stock of the Company held immediately prior to such consolidation, merger, sale or transfer by Persons other than a constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("non-electing share"), then for the purpose of this Section the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). Such supplemental indenture shall provide for adjustments which, for events subsequent to the effective date of such supplemental indenture, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. The above provisions of this Section shall similarly apply to successive consolidations, mergers, sales or transfers.

SECTION 1312. Trustee’s Disclaimer .

Neither the Trustee nor any Conversion Agent shall at any time be under any duty or responsibility to any Holder of any Security to determine whether any facts exist which may require any adjudgment of the Conversion Price, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same, it being understood and agreed that the Company shall be solely responsible for the calculation of the Conversion Price at all times. Neither the Trustee nor any Conversion Agent shall be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock or of any securities or property, which may at any time be issued or delivered upon the conversion of any Security; and neither the Trustee nor any Conversion Agent makes any representation with respect thereto. Neither the Trustee nor any Conversion Agent shall be responsible for any failure of the Company to make any cash payment or to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property upon the surrender of any Security for the purpose of conversion, or, except as expressly herein provided, to comply with any of the covenants of the Company contained in Article Ten or this Article Thirteen.

ARTICLE FOURTEEN

Fundamental Changes and Repurchases Thereupon

SECTION 1401. Repurchase at Option of Holders Upon a Fundamental Change .

(1)

If a Fundamental Change occurs at any time prior to the Maturity of the Securities, then each Security Holder shall have the right, at such Holder’s option, to require the Company to repurchase all of such Holder’s Securities or any portion thereof that is a multiple of $1,000, on a Business Day specified by the Company that is no later than the 35th calendar day after the date of the Fundamental Change Company Notice (as defined below), subject to extension to comply with applicable law (the “ Fundamental Change Repurchase Date ”), at a repurchase price equal to 101% of the principal amount thereof, together with accrued and unpaid interest thereon, to, but excluding, the Fundamental Change Repurchase Date (the “ Fundamental Change Repurchase Price ”); provided, however, that if Securities are repurchased pursuant to this Section 1401 between a regular Record Date and any Interest Payment Date, the interest, including Defaulted Interest, if any, payable in respect of such Interest Payment Date to which such Record Date relates, shall be payable to the Holders of record as of the corresponding Record Date.

(2)

Repurchases of Securities under this Section 1401 shall be made, at the option of a Holder of the Securities thereof, upon delivery to the Trustee (or other Paying Agent appointed by the Company) by a Holder, prior to the close of business on the Business Day immediately preceding the Fundamental Change Repurchase Date, subject to extension to comply with applicable law, of a duly completed notice (the “ Fundamental Change Repurchase Notice ”) in the form set forth on the reverse of the Securities or otherwise specifying:

(a)	the certificate numbers of Securities to be delivered for repurchase;

(b)	the portion of the principal amount of Securities to be repurchased, which must be $1,000 or an integral multiple thereof; and

(c)	that the Securities are to be repurchased by the Company pursuant to the applicable provisions of the Securities and the Indenture.

Delivery of the Securities to the Trustee (or other Paying Agent appointed by the Company) may occur at any time after delivery of the Fundamental Change Repurchase Notice (together with all necessary endorsements) at the applicable Corporate Trust Office of the Trustee (or other Paying Agent appointed by the Company), such delivery being a condition to receipt by the Holder of the Fundamental Change Repurchase Price therefor, provided that such Fundamental Change Repurchase Price shall be so paid pursuant to this Section 1401 only if the Securities so delivered to the Trustee (or other Paying Agent appointed by the Company) shall conform on its face to the description thereof in the related Fundamental Change Repurchase Notice.

Notwithstanding anything herein to the contrary, any Holder delivering to the Trustee (or other Paying Agent appointed by the Company) the Fundamental Change Repurchase Notice contemplated by this Section 1401 shall have the right to withdraw such Fundamental Change Repurchase Notice at any time prior to the close of business on the Business Day immediately preceding the Fundamental Change

Repurchase Date by delivery of a written notice of withdrawal to the Trustee (or other Paying Agent appointed by the Company) in accordance with Section 1403 below.

The Trustee (or other Paying Agent appointed by the Company) shall promptly notify the Company of the receipt by it of any Fundamental Change Repurchase Notice or written notice of withdrawal thereof.

(3)

On or before the 20th day after the occurrence of a Fundamental Change, the Company shall provide to all Holders of record of the Securities and the Trustee and Paying Agent a notice (the “Fundamental Change Company Notice”) of the occurrence of such Fundamental Change and of the repurchase right at the option of the Holders arising as a result thereof. Such mailing shall be by first class mail. Simultaneously with providing such Fundamental Change Company Notice, the Company shall publish a notice containing the information included therein once in a newspaper of general circulation in The City of Aiken or publish such information on the Company’s website or through such other public medium as the Company may use at such time.

Each Fundamental Change Company Notice shall specify:

(a)	the events causing the Fundamental Change and the date of the Fundamental Change;

(b)	the last date on which a Holder may exercise the repurchase right;

(c)	the Fundamental Change Repurchase Price;

(d)	the Fundamental Change Repurchase Date;

(e)	the name and address of the Paying Agent and the Conversion Agent, if applicable;

(f)	if applicable, the applicable Conversion Rate and any adjustments to the applicable Conversion Rate;

(g)	if applicable, that the Securities with respect to which a Fundamental Change Repurchase Notice has been delivered by a Holder may be converted only if the Holder withdraws the Fundamental Change Repurchase Notice in accordance with Section 1403; and

(h)	the procedures that Holders must follow to require the Company to repurchase their Securities.

No failure of the Company to give the foregoing notices and no defect therein shall limit any Holder’s repurchase rights or affect the validity of the proceedings for the repurchase of the Securities pursuant to this Section 1401.

(4)

There shall be no repurchase of any Securities pursuant to this Section 1401 if there has occurred (prior to, on or after, as the case may be, the giving, by the Holders of such Securities, of the required Fundamental Change Repurchase Notice) and is continuing an Event of Default (other than a default that is cured by the payment of the Fundamental Change Repurchase Price with respect to such Securities). The Paying Agent will promptly return to the respective Holders thereof any Securities (i) with respect to which a Fundamental Change Repurchase Notice has been withdrawn in compliance with this Indenture, or (ii) held by it during the continuance of an

Event of Default (other than a default that is cured by the payment of the Fundamental Change Repurchase Price with respect to such Securities) in which case, upon such return, the Fundamental Change Repurchase Notice with respect thereto shall be deemed to have been withdrawn.

(5)	The Securities to be repurchased pursuant to this Section 1401 shall be paid for in cash.

SECTION 1402. Effect of Fundamental Change Repurchase Price .

Upon receipt by the Paying Agent of the Fundamental Change Repurchase Notice specified in Section 1401(1), the Holder of the Security in respect of which such Fundamental Change Repurchase Notice was given shall (unless such Fundamental Change Repurchase Notice is withdrawn as specified in the following two paragraphs) thereafter be entitled to receive solely the Fundamental Change Repurchase Price with respect to such Security. Such Fundamental Change Repurchase Price shall be paid to such Holder, subject to receipt of funds by the Paying Agent, promptly following the later of (x) the Fundamental Change Repurchase Date with respect to such Security (provided the conditions in Section 1401(1) have been satisfied) and (y) the time of delivery of such Security to the Paying Agent by the Holder thereof in the manner required by Section 1401(2).

SECTION 1403. Withdrawal of Fundamental Change Repurchase Notice .

(1)

A Fundamental Change Repurchase Notice may be withdrawn by means of a written notice of withdrawal delivered to the Paying Agent and the Trustee in accordance with the Fundamental Change Company Notice at any time prior to the close of business on the Business Day immediately preceding the Fundamental Change Repurchase Date, specifying:

(a)	the principal amount of the Securities with respect to which such notice of withdrawal is being submitted;

(b)	the certificate numbers of the withdrawn Securities; and

(c)	the principal amount of such Securities that remains subject to the original Fundamental Change Repurchase Notice, which portion must be in principal amounts of $1,000 or an integral multiple of $1,000.

SECTION 1404. Deposit of Fundamental Change Repurchase Price .

Prior to 10:00 a.m. (local time in The City of New York) on the Fundamental Change Repurchase Date, the Company shall deposit with the Trustee or with the Paying Agent (or, if the Company or a Subsidiary or an Affiliate of either of them is acting as the Paying Agent, shall segregate and hold in trust as provided herein) an amount of money (in immediately available funds if deposited on such Business Day) sufficient to pay the Fundamental Change Repurchase Price, of all the Securities or portions thereof that are to be repurchased as of the Fundamental Change Repurchase Date. The Company shall promptly notify the Trustee in writing of the amount of any deposits of cash made pursuant to this Section 1404. If the Paying Agent holds cash sufficient to pay the Fundamental Change Repurchase Price of any Security for which a Fundamental Change Repurchase Notice has been tendered and not withdrawn in accordance with this Indenture as of the close of business on the Fundamental Change Repurchase Date, then immediately following the Fundamental Change Repurchase Date, (a) such Security will cease to be outstanding and interest will cease to accrue thereon

and (b) all other rights of the Holder in respect thereof will terminate (other than the right to receive the Fundamental Change Repurchase Price and previously accrued and unpaid interest, including Defaulted Interest, if any, upon delivery or transfer of such Security).

SECTION 1405. Securities Repurchased in Whole or in Part .

Any Security that is to be repurchased, whether in whole or in part, shall be surrendered at the office of the Paying Agent (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the

Holder thereof or such Holder’s attorney duly authorized in writing) and the Company shall execute, and upon Company Order the Trustee shall authenticate and deliver to the Holder of such Security, without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder in aggregate principal amount equal to, and in exchange for, the portion of the principal amount of the Security so surrendered which is not repurchased.

SECTION 1406. Covenant to Comply With Securities Laws Upon Repurchase of Securities .

In connection with any offer to repurchase Securities under Section 1401 ( provided that such offer or repurchase constitutes an “issuer tender offer” for purposes of Rule 13e-4 (which term, as used herein, includes any successor provision thereto) under the Exchange Act at the time of such offer or repurchase), the Company shall (i) comply with Rule 13e-4 and Rule 14e-1 under the Exchange Act, (ii) file the related Schedule TO (or any successor schedule, form or report) under the Exchange Act, and (iii) otherwise comply with all Federal and state securities laws so as to permit the rights and obligations under Section 1401 to be exercised in the time and in the manner specified in Section 1401.

SECTION 1407. Repayment to the Company .

To the fullest extent permitted by applicable law, the Trustee and the Paying Agent shall return to the Company any cash that remains unclaimed, together with interest, including Defaulted Interest if any, or dividends if any, thereon, held by them for the payment of the Fundamental Change Repurchase Price; provided that to the extent that the aggregate amount of cash deposited by the Company pursuant to Section 1404 exceeds the aggregate Fundamental Change Repurchase Price of the Securities or portions thereof which the Company is obligated to repurchase as of the Fundamental Change Repurchase Date, then as soon as practicable following the Fundamental Change Repurchase Date, the Trustee or the Paying Agent, as the case may be, shall return any such excess to the Company.

This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written.

SECURITY FEDERAL CORPORATION

By ________________________________

Attest:

_______________________________

WILMINGTON TRUST COMPANY

By ________________________________

Attest:

________________________________

	Large accelerated filer o	Accelerated filer o
	Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company x

Title of each class of securities to be registered	Amount to be registered	Proposed maximum offering price per share	Proposed maximum aggregate offering price (1)	Amount of registration fee
8.0% Convertible Senior Debentures Due 2029	$15,000,000	100%	$15,000,000	$837
Common Stock, par value $.01 per share	750,000 shares	(2)	(2)	N/A (2)

		Amount(1)
*	Registrant's Legal Fees and Expenses	$
*	Registrant's Accounting Fees and Expenses
*	Trustee Fees and Expenses
*	Printing, Postage and Mailing, EDGAR
*	Filing Fees
*	Blue Sky legal fees and filing fees
*	Certificate Printing
*	Other
*	Total	$

	SECURITY FEDERAL CORPORATION



	/s/Timothy W. Simmons
	By: Timothy W. Simmons
	President, Chief Executive Officer and Director

Delaware	51-0055023
(Jurisdiction of incorporation of organization if not a U.S. national bank)	(I.R.S. Employer Identification No.)

	Very truly yours,

	/s/Breyer & Associates PC

	Breyer &Associates PC

(Exact name of obligor as specified in its charter)
South Carolina	57-08580504
(State or other jurisdiction or incorporation or organization)	(I.R.S. Employer Identification No.)

		claims, adverse to his interest therein, and to prepare and give certificates of title for any lands or premises in the State of Delaware, or elsewhere.
	(3)	To act as factor, agent, broker or attorney in the receipt, collection, custody, investment and management of funds, and the purchase, sale, management and disposal of property of all descriptions, and to prepare and execute all papers which may be necessary or proper in such business.

		and whenever this Corporation is so appointed by any person, corporation, court, officer or authority such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity, it shall not be required to give bond with surety, but its capital stock shall be taken and held as security for the performance of the duties devolving upon it by such appointment.
	(10)	And for its care, management and trouble, and the exercise of any of its powers hereby given, or for the performance of any of the duties which it may undertake or be called upon to perform, or for the assumption of any responsibility the said Corporation may be entitled to receive a proper compensation.


		with the provisions of section (b) of this Article Fourth ), to be distributed to the holders of Preferred Stock in the event of voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding-up, of the Corporation, the holders of the Common Stock shall be entitled to receive all of the remaining assets of the Corporation, tangible and intangible, of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively.
	(3)	Except as may otherwise be required by law or by the provisions of such resolution or resolutions as may be adopted by the Board of Directors pursuant to section (b) of this Article Fourth , each holder of Common Stock shall have one vote in respect of each share of Common Stock held on all matters voted upon by the stockholders.

		which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options or otherwise.

	(5)	"Affiliate" and "Associate" shall have the respective meanings given those terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1981.


T TO:		Security Federal Corporation 238 Richland Avenue West Aiken, SC 29801



$
Principal Amount of Debentures Subscribed for (at least $5,000) (funds must be enclosed)						Please indicate form of ownership desired (individual, joint tenants with right of survivorship, tenants in common, trust corporation, partnership, custodian, etc.)

Name or Names of Subscribers (Please Print)						Name or Names of Subscribers (Please Print)


Signature of Subscriber(s)						Signature of Subscriber(s)


Date						Date


Social Security Number or Federal Taxpayer Identification Number						Social Security Number or Federal Taxpayer Identification Number

Street (Residence) Address:


						Home Phone Number



City, State and Zip Code						Business Phone Number


Email Address						Cellular Phone Number



Signature of Subscriber						Signature of Subscriber


Printed Name						Printed Name


Social Security or Employer Identification No.						Social Security or Employer Identification No.