10-Q 1 g10q-30080a.txt 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002 or |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to _________________. Commission File Number 0-27951 SECURITY FINANCIAL BANCORP, INC. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 35-2085053 -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 9321 WICKER AVENUE, ST. JOHN, INDIANA 46373 -------------------------------------------------------------------------------- (Address of principal executive offices) (219) 365-4344 -------------------------------------------------------------------------------- (Issuer's telephone number) Not Applicable -------------------------------------------------------------------------------- (Former name, former address, and former fiscal year, if changes since last report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X)] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X --- --- State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: as of November 1, 2002, Security Financial had 1,864,191 shares outstanding. 1 SECURITY FINANCIAL BANCORP, INC. FORM 10-Q INDEX

2 PART I--FINANCIAL INFORMATION FOR SECURITY FINANCIAL BANCORP, INC. Item 1. FINANCIAL STATEMENTS. SECURITY FINANCIAL BANCORP, INC. Consolidated Balance Sheets September 30, 2002 and June 30, 2002 (Dollars in thousands, except per share data) (Unaudited)

SECURITY FINANCIAL BANCORP, INC. Consolidated Statements of Income For the Three Months Ended September 30, 2002 and 2001 (Unaudited) (In thousands, except per share data)

SECURITY FINANCIAL BANCORP, INC. Notes to Consolidated Financial Statements (In thousands, except per share data) (1) Organization Security Financial Bancorp Inc. ("Security Financial" or "the Company") was incorporated under the laws of Delaware in September 1999 for the purpose of serving as the holding company of Security Federal Bank & Trust ("Security Federal" or "the Bank") as part of Security Federal's conversion from the mutual to stock form of organization. The conversion, completed on January 5, 2000, resulted in Security Financial issuing a total of 1,938,460 shares of its common stock, par value $.01 per share, at a price of $10 per share. Prior to the conversion, Security Financial had not engaged in any material operations and had no assets or income. Security Financial is currently a savings and loan holding company and is subject to regulation by the Office of Thrift Supervision and the Securities and Exchange Commission. Prior to the conversion, Security Federal was known as Security Federal Bank, a Federal Savings Bank. (2) Accounting Principles The accompanying unaudited financial statements of Security Financial, have been prepared in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of a normal recurring nature) considered necessary for a fair presentation have been included. Operating results for the three months ended September 30, 2002 are not necessarily indicative of the results that may be expected for the current fiscal year. These financial statements should be read in conjunction with the consolidated financial statements included in Security Financial's June 30, 2002 Form 10-K. (3) Earnings per Share The following table presents a reconciliation of the components used to compute basic and diluted earnings per share for the quarters ended September 30, 2002 and 2001: 2002 2001 ---- ---- BASIC Net income $ 125 $ 238 ======= ======== Weighted average common shares outstanding 1,683 1,767 ======= ======== Basic earnings per common share $ .07 $ .13 ======= ======== 7 All options and unearned stock awards were included in the computation of diluted earnings per share for the three months ended September 30, 2002. 2002 2001 ---- ---- Diluted Net income $ 125 $ 238 ======= ======== Weighted average common shares outstanding 1,683 1,767 Diluted effect of stock options and stock awards 26 14 Diluted average common shares 1,709 1,781 ======= ======== Diluted earnings per share $ .07 $ .13 ======= ======== (4) Comprehensive Income

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. The following presents management's discussion and analysis of the results of operations and financial condition of Security Financial as of the dates and for the periods indicated. This discussion should be read in conjunction with the Company's consolidated financial statements and the notes thereto and other financial data appearing elsewhere in the annual report. Forward-Looking Statements This quarterly report contains certain forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Company. These forward-looking statements are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. The Company's 8 ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that could have a material adverse effect on the operations of the Company and the subsidiaries include, but are not limited to, changes in interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. government including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area, and accounting principles and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements. The Company does not undertake--and specifically disclaims any obligation--to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. General The Company is engaged primarily in attracting deposits from the general public and using such deposits to originate loans secured by one-to-four-family residential real estate properties, commercial loans and commercial real estate properties located in its market area and, to a lesser extent, consumer and other loans primarily in its market areas and to acquire securities. Security Federal also offers insurance products through its wholly owned insurance agency, The Boulevard, Inc., and trust services through its trust department. The Company's revenues are derived principally from interest earned on loans and securities, gains from sales of first mortgage loans in the secondary market, and fees from other banking-related services. The operations of the Company are influenced significantly by general economic conditions and by policies of financial institution regulatory agencies, primarily the Office of Thrift Supervision and the Federal Deposit Insurance Corporation. The Company's cost of funds is influenced by interest rates on competing investments and general market interest rates. Lending activities and mortgage loan sales volumes are affected by the demand for financing of real estate and other types of loans, which in turn is affected by the interest rates at which such financings may be offered. The Company's net interest income is dependent primarily upon the difference or spread between the average yield earned on loans receivable and securities and the average rate paid on deposits, as well as the relative amounts of such assets and liabilities. The Company, like other thrift institutions, is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different times or on a different basis than its interest-earning assets. The following analysis discusses changes in the financial condition and results of operations at and for the three months ended September 30, 2002 and should be read in conjunction with Security Financial's unaudited consolidated financial statements and the notes thereto, appearing in Part I, Item 1 of this document. 9 COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2002 AND JUNE 30, 2002 Total assets decreased by $2.3 million from $201.2 million at June 30, 2002 to $198.9 million at September 30, 2002. Net loans decreased to $101.6 million at September 30, 2002 from $105.5 million at June 30, 2002, or 3.7%. Residential mortgage loan balances declined by $3.5 million as loans pay down or refinance. These balances do not get replaced by new originations because the Bank sells the majority of the fixed rate long-term mortgages that it originates. Consumer loans declined by $500,000 as loans from the Bank's discontinued indirect lending program pay down. Commercial loan balances were up slightly. Total deposits decreased to $145.9 million at September 30, 2002, from $148.3 million at June 30, 2002, a decrease of $2.4 million. The decrease was caused by a $2.9 million decline in time deposits. Total stockholders' equity at September 30, 2002 was $37.1 million compared to $36.9 million at June 30, 2002. The increase resulted from net income for the three months ended September 30, 2002 of $125,000; a $53,000 increase related to the release of ESOP shares; and a $59,000 increase related to Incentive Plan stock awards earned. The increase was partially offset by a $53,000 decrease in the fair value of securities available for sale, net of taxes. COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 General. Net income for the three-month period ended September 30, 2002 was $125,000 compared to net income of $238,000 for the comparable period in 2001, a decrease of $113,000. The decrease is primarily attributable to a $362,000 decrease in net interest income. This decrease in net interest income was partially offset by a decrease of $180,000 in noninterest expense, a decrease of $35,000 in the loan loss provision, and a $32,000 decrease in income taxes. Interest Income. Interest income for the quarter ended September 30, 2002 was $2.4 million compared to $3.4 million for the quarter ended September 30, 2001, a decrease of $916,000, or 27.2%. The decrease was primarily attributable to a significant decrease in the yield earned on our interest earning assets which decreased to 5.31% for the three-month period ended September 30, 2002 from 7.17% for the three-month period ended September 30, 2001. A decrease in the average balance of interest earning assets to $184.5 million for the three-month period ended September 30, 2002 from $187.7 million for the three-month period ended September 30, 2001, also contributed to the decrease in interest income. Interest Expense. Interest expense for the quarter ended September 30, 2002 was $1.1 million compared to $1.6 million for the quarter ended September 30, 2001, a decrease of $554,000, or 34.2%. The decrease was primarily attributable to a decrease in market interest rates. The Company's interest expense to average interest-earning assets decreased to 2.31% for the quarter ended September 30, 2002 from 3.45% for the quarter ended September 30, 2001. The Company's cost of funds decreased to 2.72% for the quarter ended September 30, 2002 from 3.97% for the quarter ended September 30, 2001. 10 Net Interest Income. Net interest income decreased to $1.4 million for the three-month period ended September 30, 2002 from $1.7 million, a decrease of $362,000, or 20.7%. The net interest margin decreased to 3.0% from 3.72% during the same periods. The decrease in the net interest margin is primarily attributable to a significant decrease in market interest rates. Provision for Loan Losses. We establish provisions for loan losses, which are charged to operations, at a level management believes is appropriate to reflect probable incurred credit losses in the loan portfolio. In evaluating the level of the allowance for loan losses, we evaluate larger commercial, commercial real estate, and construction loans individually for impairment based upon collateral values, adverse situations that may affect the borrower's ability to repay, and other factors. Smaller balance homogeneous mortgage consumer loans are evaluated independently based upon loss factors derived from historical loss experience, peer group information, and similar factors adjusted for current economic conditions. This evaluation is inherently subjective as is requires estimates that are susceptible to significant revision as more information becomes available or as future events change. Based on our evaluation of these factors, management made provisions of $10,000 and $45,000 for the three months ended September 30, 2002 and 2001, respectively. We used the same methodology and generally similar assumptions in assessing the adequacy of the allowance for both periods. The allowance for loan losses was $1.5 million, or 1.43% of loans outstanding at September 30, 2002, as compared with $1.5 million, or 1.38% of loans outstanding at June 30, 2002. The allowance for loan losses to non-performing loans was 58.7% at September 30, 2002, as compared to 60.1% at June 30, 2002. The level of the allowance is based on estimates and the ultimate losses may vary from the estimates. Management assesses the allowance for loan losses on a monthly basis and makes provisions for loan losses as necessary in order to maintain the adequacy of the allowance. While management uses available information to recognize losses on loans, future loan loss provisions may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require us to recognize additional provisions based on their judgment of information available to them at the time of their examination. The allowance for loan losses as of September 30, 2002 was maintained at a level that represents management's best estimate of probable incurred losses in the loan portfolio. Noninterest Income. Noninterest income was $399,000 for the three months ended September 30, 2002 compared to $397,000 for the three-month period ended September 30, 2001, an increase of $2,000. The increase was primarily attributable to an increase of $17,000 in deposit service charges and an increase of $40,000 from gains on the sale of mortgage loans from secondary market activities. These increases were partially offset by a $30,000 decrease in gains on the sale of real estate owned, a decrease of $7,000 of income on bank owned life insurance, a decrease in loan charges and service fees of $4,000, a decrease in insurance commission income of $4,000, and a $10,000 decrease in other income. Noninterest Expense. Noninterest expense decreased to $1.6 million for the quarter ended September 30, 2002 compared to $1.8 million for the quarter ended September 30, 2001, a decrease of $180,000, or 10.0%. The decrease was primarily attributable to continued decreases in occupancy and equipment expense totaling $64,000, a $45,000 decrease in data processing expense, a $35,000 decrease in legal fees, a $24,000 reduction in compensation and benefits and a $5,000 decrease in advertising expense. Occupancy and equipment decreased primarily due to a significant amount of furniture/equipment becoming fully depreciated. Data processing expense decreased due to a reduction in service bureau costs related to our computer conversion in August 2001 and compensation expense decreased due to a decrease of two full-time equivalent employees and decreases in directors fees. 11 Income Taxes. The Company recorded income tax expense of $39,000 for the quarter ended September 30, 2002. This compares to $71,000 of tax expense being recorded during the quarter ended September 30, 2001. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of funds are deposits and proceeds from principal and interest payments on loans and mortgage-backed securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions, and competition. The Company generally manages the pricing of its deposits to be competitive and to increase core deposit relationships. OTS regulations require the Bank to maintain sufficient liquidity to maintain the Bank's safe and sound operation. The Company's cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Cash flows used in operating activities were $90,000 for the three months ended September 30, 2002. Cash flows provided by operating activities were $512,000 for the three months ended September 30, 2001. Net cash from investing activities consisted primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans and proceeds from maturation and calls of securities. Net cash from financing activities consisted primarily of the activity in deposit and escrow accounts and the purchase of treasury stock. The Company's most liquid assets are cash and cash equivalents. The levels of these assets are dependent on the Company's operating, financing, lending, and investing activities during any given period. At September 30, 2002, cash and cash equivalents totaled $40.4 million. The Company has other sources of liquidity if a need for additional funds arises, including securities maturing within one year and the repayment of loans. The Company may also utilize the sale of securities available for sale, federal funds purchased, and Federal Home Loan Bank advances as a source of funds. At September 30, 2002, the Company had the ability to borrow a total of approximately $23 million from the Federal Home Loan Bank of Indianapolis. On that date, the Company had $15 million of outstanding advances. At September 30, 2002, the Company had outstanding commitments to originate loans of $8.6 million. Of this total, $7.9 million had fixed rates and $700,000 had not locked in a rate yet. These loans are to be secured by properties located in its market area. The Company anticipates that it will have sufficient funds available to meet its current loan commitments. Loan commitments have, in recent periods, been funded through liquidity or through FHLB borrowings. Certificates of deposit that are scheduled to mature in one year or less from September 30, 2002 totaled $70.7 million. Management believes, based on past experience, that a significant portion of such deposits will remain with the Company. Based on the foregoing, in addition to the Company's high level of core deposits and capital, the Company considers its liquidity and capital resources sufficient to meet its outstanding short-term and long-term needs. 12 Liquidity management is both a daily and long-term responsibility of management. The Company adjusts its investments in liquid assets based upon management's assessment of (i) expected loan demand, (ii) expected deposit flows, (iii) yields available on interest-earning deposits and investment securities, and (iv) the objectives of its asset/liability management program. Excess liquid assets are invested generally in interest-earning overnight deposits and short- and intermediate-term U.S. government and agency obligations and mortgage-backed securities of short duration. If the Company requires funds beyond its ability to generate them internally, it has additional borrowing capacity with the Federal Home Loan Bank of Indianapolis. The Bank is subject to various regulatory capital requirements imposed by the OTS. At September 30, 2002, the Company was in compliance with all applicable capital requirements. Security Federal's actual and required capital amounts and rates are presented below (in thousands).

IMPACT OF ACCOUNTING PRONOUNCEMENTS In October of 2002, the Financial Accounting Standards Board ("FASB") released a new statement, SFAS No. 147 entitled "Acquisitions of Certain Financial Institutions," allowing financial institutions meeting certain criteria to reclassify unidentifiable intangible asset balances to goodwill and cease amortization beginning as of January 1, 2002. This pronouncement is not expected to have an impact on the Company's financial statements. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. In an attempt to manage its exposure to changes in interest rates, management monitors Security Federal's interest rate risk. The Board of Directors reviews at least quarterly Security Federal's interest rate risk position and profitability. The Board of Directors also reviews Security Federal's portfolio, formulates investment strategies, and oversees the timing and implementation of transactions to ensure attainment of Security Federal's objectives in the most effective manner. In addition, the Board reviews on a quarterly basis Security Federal's asset/liability position, including simulations of the effect on Security Federal's capital of various interest rate scenarios. In managing its asset/liability mix, Security Federal, depending on the relationship between long- and short-term interest rates, market conditions, and consumer preference, often places more emphasis on managing short-term net interest margin than on better matching the interest rate sensitivity of its assets and liabilities in an effort to enhance net interest income. Management believes that the increased net interest income resulting from a mismatch in the maturity of its asset and liability portfolios can, during periods of declining or stable interest rates, provide high enough returns to justify the increased exposure to sudden and unexpected increases in interest rates. 14 The Board has taken a number of steps to manage Security Federal's vulnerability to changes in interest rates. First, Security Federal uses customer service and marketing efforts to increase Security Federal's non-certificate accounts. At September 30, 2002, $67.8 million, or 46%, of Security Federal's deposits consisted of demand, NOW, money market accounts, and savings. Security Federal believes that these accounts represent "core" deposits, which are generally somewhat less interest rate sensitive than other types of deposit accounts. Second, while Security Federal continues to originate 30-year, fixed-rate residential loans, all such loans are sold in the secondary market. Currently, over 49% of Security Federal's loans carry adjustable interest rates. Finally, Security Federal has focused a significant portion of its investment activities on securities with terms of five years or less. At September 30, 2002, $8.5 million, or 23%, of Security Federal's securities had terms to maturity of five years or less based on their carrying value in addition to Security Federal's mortgage-backed securities, which provide for regular principal repayments. The Office of Thrift Supervision provides the Company with the information presented in the following table. It presents the change in the Company's net portfolio value at June 30, 2002 that would occur upon an immediate change in interest rates based on Office of Thrift Supervision assumptions, but without effect to any steps that management might take to counteract that change. The June 30, 2002 information is the most recent data available as of the filing date.

The Office of Thrift Supervision uses certain assumptions in assessing the interest rate risk of savings associations. These assumptions relate to interest rates, loan prepayment rates, deposit decay rates, and the market values of certain assets under differing interest rate scenarios, among others. Based upon the model at June 30, 2002, the effect of an immediate 300 basis point increase or 100 basis point decrease would have a negative impact on the net portfolio value. Due to the level of interest rates at June 30, 2002, the OTS did not model an additional 200 or 300 basis point decrease in rates. As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as 15 adjustable rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, if interest rates change, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating the table. Item 4. CONTROLS AND PROCEDURES (a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed within 90 days of the filing date of this report, the Chief Executive Officer and the Chief Financial Officer of the Company concluded that the Company's disclosure controls and procedures were adequate. (b) CHANGES IN INTERNAL CONTROLS. The Company made no significant changes in its internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of those controls by the Chief Executive Officer and Chief Financial Officer. 16 PART II--OTHER INFORMATION FOR SECURITY FINANCIAL BANCORP, INC. Item 1. LEGAL PROCEEDINGS. Security Financial is not a party to any pending legal proceedings. Periodically, there have been various claims and lawsuits involving Security Federal, such as claims to enforce liens, condemnation proceedings on properties in which Security Federal holds security interests, claims involving the making and servicing of real property loans, and other issues incident to Security Federal's business. Security Federal is not a party to any pending legal proceedings that it believes would have a material adverse effect on the financial condition or operations of Security Federal. Item 2. CHANGES IN SECURITIES. None. Item 3. DEFAULTS UPON SENIOR SECURITIES. None. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. Item 5. OTHER INFORMATION. None. Item 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 3.1 Certificate of Incorporation of Security Financial Bancorp, Inc. (1) 3.2 Amended Bylaws of Security Financial Bancorp, Inc. (6) 4.0 Form of Stock Certificates of Security Financial Bancorp, Inc. (1) 10.1 ESOP Loan Documents (2) 10.2 Employment Agreement between Security Federal Bank & Trust and John P. Hyland (2) 10.3 Employment Agreement between Security Financial Bancorp, Inc. and John P. Hyland (2) 17 10.4 Security Federal Bank & Trust Employee Severance Compensation Plan (2) 10.5 Security Financial Bancorp, Inc. Supplemental Executive Retirement Plan (3) 10.6 Security Financial Bancorp, Inc. 2000 Stock-Based Incentive Plan (4) 10.7 Employment Agreement between Security Financial Bancorp, Inc. and Security Federal Bank & Trust and Patrick J. Hunt (5) ------------------------------------------------- (1) Incorporate herein by reference from the exhibits to Form SB-2, Registration Statement and amendments thereto, initially filed on September 20, 1999, Registration No. 333-87397. (2) Incorporated herein by reference from the exhibits to the Form 10-QSB for the quarter ended March 31, 2000, filed May 12, 2000. (3) Incorporated herein by reference from the exhibits to the Form 10-KSB for the year ended June 30, 2000, filed September 28, 2000. (4) Incorporated herein by reference from the Company's Definitive Proxy Statement for the 2000 Annual Meeting of Stockholders, filed September 19, 2000. (5) Incorporated herein by reference from the exhibits to the Form 10-QSB for the quarter ended March 31, 2001, filed May 15, 2001. (6) Incorporated herein by reference from the exhibits to the Form 10-KSB for the year ended June 30, 2001, filed September 28, 2001. (b) Reports on Form 8-K. On September 6, 2002, the Company filed a Current Report on Form 8-K reporting the date of its annual meeting. The press release announcing the date of the annual meeting was attached as an exhibit to the Form 8-K. 18 SIGNATURES In accordance with the requirements of the Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SECURITY FINANCIAL BANCORP, INC. Date: November 14, 2002 By: /s/ John P. Hyland ------------------ John P. Hyland President and Chief Executive Officer Date: November 14, 2002 By: /s/ Patrick J. Hunt ------------------- Patrick J. Hunt Executive Vice President and Chief Financial Officer 19 CERTIFICATION I, John P. Hyland, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Security Financial Bancorp, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of the internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect the internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ John P. Hyland ------------------------------------- John P. Hyland Chief Executive Officer and President (principal executive officer) CERTIFICATION I, Patrick J. Hunt, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Security Financial Bancorp, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of the internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect the internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Patrick J. Hunt ----------------------------------- Patrick J. Hunt Executive Vice President, Chief Financial Officer

SECURITY FINANCIAL BANCORP INC 10-Q