U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
     1934

     For the Fiscal Year Ended June 30, 2002

[ ]  TRANSITION REPORT UNDER 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.
                 (Name of small business issuer in its charter)

DELAWARE                                   35-2085053
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)

9321 Wicker Avenue, St. John, Indiana      46373
(Address of principal executive offices)   (ZIP Code)

         Issuer's telephone number, including area code: (219) 365-4344

        Securities registered pursuant to Section 12 (b) of the Act: None
          Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $0.01 per share
                                (Title of Class)

     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
    -----       -----

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-K contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-K or
any amendment to this Form 10-K.       X
                                   --------

     The issuer's gross revenues for the fiscal year ended June 30, 2002 were
$13,294,000.

     The aggregate market value of the voting and nonvoting common equity held
by nonaffiliates was $27,784,771, based upon the price ($20.35 per share) as
quoted on the Nasdaq SmallCap Market for September 14, 2002. Solely for purposes
of this calculation, the shares held by the directors and officers of the
registrant are deemed to be held by affiliates.

     The number of shares outstanding of the registrant's Common Stock as of
September 14, 2002 was 1,864,191. 74,269 shares were repurchased and held as
treasury stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the 2002 Annual Report to Stockholders and of the Proxy Statement
for the 2002 Annual Meeting of Stockholders are incorporated by reference in
Parts II and II, respectively, of this Form 10-K.

<PAGE>

                                      INDEX

                                     Part I

                                                                            Page

Item 1.   Business.............................................................3
Item 2.   Properties..........................................................32
Item 3.   Legal Proceedings...................................................32
Item 4.   Submission of Matters to a Vote of Security Holders.................32

                                     Part II

Item 5.   Market for Registrant's Common Equity and Related Stockholder
          Matters.............................................................33
Item 6.   Selected Financial Data.............................................33
Item 7.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations...............................................33
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk..........33
Item 8.   Financial Statements and Supplementary Data.........................33
Item 9.   Changes In and Disagreements With Accountants on Accounting and
          Financial Disclosure............................. ..................33

                                    Part III

Item 10.  Directors and Executive Officers of the Registrant..................33
Item 11.  Executive Compensation..............................................33
Item 12.  Security Ownership of Certain Beneficial Owners and Management and
          Related Stockholder Matters.........................................33
Item 13.  Certain Relationships and Related Transactions......................34
Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K....34
<PAGE>

     This report contains certain "forward-looking statements" within the
meaning of the federal securities laws. These statements are not historical
facts, rather they are statements based on Security Financial Bancorp, Inc.'s
current expectations regarding its business strategies, intended results, and
future performance. Forward-looking statements are preceded by terms such as
"expects," "believes," "anticipates," "intends," and similar expressions.

     Management's ability to predict results or the effect of future plans or
strategies is inherently uncertain. Factors that could affect actual results
include interest rate trends; the general economic climate in the market area in
which Security Financial Bancorp, Inc. operates, as well as nationwide; Security
Financial Bancorp, Inc.'s ability to control costs and expenses; competitive
products and pricing; loan delinquency rates; and changes in federal and state
legislation and regulation. These factors should be considered in evaluating the
forward-looking statements, and undue reliance should not be placed on such
statements. Security Financial Bancorp, Inc. assumes no obligation to update any
forward-looking statements.

PART I

ITEM 1. BUSINESS

General

     Security Financial Bancorp, Inc. (Security Financial), headquartered in St.
John, Indiana, was formed in September 1999 as the holding company for Security
Federal Bank & Trust (Security Federal) in connection with the conversion of
Security Federal from a mutual to a stock form of ownership. The conversion was
completed on January 5, 2000 through the sale of 1,938,460 shares of common
stock by Security Financial at a price of $10.00 per share. Security Financial's
primary business activity is the ownership of all of Security Federal's capital
stock. Security Financial is subject to the regulation of the Office of Thrift
Supervision and the Securities and Exchange Commission. Security Financial is
listed on the Nasdaq SmallCap Market under the symbol SFBI.

     Security Federal's principal business is attracting deposits from the
general public and originating 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.
Security Federal also offers insurance products through its wholly owned
insurance agency, The Boulevard, Inc., and trust services through its trust
department. Security Federal is regulated by the Office of Thrift Supervision
and the Federal Deposit Insurance Corporation. Security Federal's deposits are
federally insured by the Federal Deposit Insurance Corporation. Security Federal
is a member of the Federal Home Loan Bank System.

Market Area

     Security Federal is headquartered in St. John, Indiana which is in Lake
County. Security Federal's primary deposit gathering and lending area is
concentrated in the communities surrounding its five banking offices located in
Lake County and one banking office located in Porter County, as well as Cook and
Will Counties in Illinois. Lake and Porter Counties are located in the northwest
corner of Indiana, immediately southeast of Chicago, Illinois. It is
approximately 30 miles from the heart of Lake County to the heart of neighboring
Chicago. Several major highways, truck lines, and railways serve the area,
providing versatility and convenience of transportation. Expanding airport
facilities provide service for corporate and business needs. While primarily a
home to several steel manufacturers, Lake County has a diversified mix of
industry groups, including insurance and financial services, manufacturing,
service, government, and retail. Some of the major employers in the area include
U.S. Steel, NIPSCO Industries, Inc., Whiteco Industries, Porter Memorial
Hospital, Valparaiso University, Valparaiso Community Schools, and McGill
Manufacturing, Avery Graphics, ISPAT/Inland Steel, Jupiter Aluminum, LaSalle
Steel, Post Tribune, The Times, and Walsh & Kelly.


                                       3
<PAGE>

Competition

     Security Federal faces intense competition for the attraction of deposits
and origination of loans in its primary market area. Its most direct competition
for deposits has historically come from the several commercial banks operating
in Security Federal's primary market area and, to a lesser extent, from other
financial institutions, such as brokerage firms, credit unions, and insurance
companies. Security Federal has faced additional significant competition for
investors' funds from short-term money market securities and other corporate and
government securities. Security Federal's competition for loans comes primarily
from the commercial banks and loan brokers operating in its primary market area.
Competition for deposits and the origination of loans may limit Security
Federal's growth in the future.


                                       4
<PAGE>

Lending Activities

     Loan Portfolio Analysis. The following table presents the composition of
Security Federal's loan portfolio at the dates indicated. Security Federal had
no concentration of loans exceeding 10% of total loans receivable other than as
disclosed below.

<TABLE>
<CAPTION>
                                               2002                    2001                   2000                     1999
                                              ------                  ------                 ------                   ------
                                                   Percent                Percent                   Percent                 Percent
                                       Amount     of Total      Amount   of Total      Amount      of Total     Amount     of Total
                                       ------     --------      ------   --------      ------      --------     ------     --------
                                                                        (Dollars in thousands)
<S>                                   <C>           <C>       <C>          <C>        <C>            <C>      <C>           <C>
Real estate loans:
   One-to-four-family (1)             $  44,943      41.98%   $  59,568     52.83%    $  76,050       57.08%  $  86,086      57.44%
   Multi-family and commercial
     real estate                         32,588      30.44       18,509     16.41        18,045       13.54      16,420      10.96
   Construction                           4,407       4.12        1,107       .98           767         .58       6,414       4.28
                                      ---------   --------    ---------   -------     ---------   ---------   ---------   --------
     Total real estate loans             81,938      76.54       79,184     70.22        94,862       71.20     108,920      72.68

Consumer and other loans:
   Automobile                             1,800       1.68        4,709      4.18         9,378        7.04      15,980      10.66
   Home equity and second mortgage       10,287       9.61       13,146     11.66        16,031       12.03      17,478      11.66
   Other                                  1,290       1.20        1,697      1.50         1,118         .84       1,616       1.08
                                      ---------   --------    ---------   -------     ---------   ---------   ---------   --------
     Total consumer and other loans      13,377      12.49       19,552     17.34        26,527       19.91      35,074      23.40

Commercial business loans                11,748      10.97       14,023     12.44        11,837        8.89       5,867       3.92
                                      ---------   --------    ---------   -------     ---------   ---------   ---------   --------

   Total loans                          107,063     100.00%     112,759    100.00%      133,226      100.00%    149,861     100.00%
                                                  ========                =======                 =========               ========

Less:
   Net deferred loan origination fees        95                     126                      84                      76
   Allowance for loan losses              1,479                   1,486                   1,449                   1,469
                                      ---------               ---------               ---------               ---------

     Net loans                        $ 105,489               $ 111,147               $ 131,693               $ 148,316
                                      =========               =========               =========               =========

<CAPTION>
                                              1998
                                             ------
                                                     Percent
                                        Amount      of Total
                                        ------      --------
                                      (Dollars in thousands)
<S>                                   <C>           <C>
Real estate loans:
   One-to-four-family (1)             $ 102,556      56.27%
   Multi-family and commercial
     real estate                         10,133       5.56
   Construction                          12,908       7.08
                                      ---------   --------
     Total real estate loans            125,597      68.91

Consumer and other loans:
   Automobile                            25,059      13.75
   Home equity and second mortgage       20,751      11.39
   Other                                  2,361       1.30
                                      ---------   --------
     Total consumer and other loans      48,171      26.44

Commercial business loans                 8,480       4.65
                                      ---------   --------

   Total loans                          182,248     100.00%
                                                  ========

Less:
   Net deferred loan origination fees       114
   Allowance for loan losses              1,289
                                      ---------

     Net loans                        $ 180,845
                                      ==========
</TABLE>

(1)  Excludes loans held for sale.


                                       5
<PAGE>

     One-to-Four-Family Real Estate Loans. Currently, Security Federal
originates loans secured by one-to-four-family residences located in its primary
market area. In the past, Security Federal purchased ARM loans originated
through correspondent relationships and secured by properties located outside of
its primary market area, many of which Security Federal continues to hold in its
portfolio.

     Security Federal offers a variety of fixed- and adjustable-rate mortgage
loan products. The loan fees charged, interest rates, and other provisions of
Security Federal's mortgage loans are determined by Security Federal on the
basis of its own pricing criteria and market conditions. Generally, all loans
originated by Security Federal conform to secondary market underwriting
standards. Security Federal's fixed-rate loans typically have maturities of 10
to 30 years, although 30-year loans constitute the largest percentage of
originations. Security Federal also offers five- and seven-year balloon
mortgages based on a 30-year amortization schedule. Security Federal's ARM loans
are typically based on a 15-year or 30-year amortization schedule. Interest
rates and payments on Security Federal's ARM loans generally are adjusted
annually after a specified period ranging from three to five years to a rate
typically equal to 2.75% above the one-year constant maturity Treasury index.
Security Federal currently offers ARM loans with initial rates below those that
would prevail under the foregoing computation, determined by Security Federal
based on market factors and competitive rates for loans having similar features
offered by other lenders for such initial periods. The maximum amount by which
the interest rate may be increased or decreased in a given period on Security
Federal's ARM loans is generally 2% per adjustment period and the lifetime
interest rate cap is generally 6% over the initial interest rate of the loan.
Security Federal qualifies the borrower based on the borrower's ability to repay
the ARM loan based on the maximum interest rate at the first adjustment in the
case of one-year ARM loans and based on the initial interest rate in the case of
ARM loans that adjust after three or more years. Security Federal does not
originate negative amortization loans. The terms and conditions of the ARM loans
offered by Security Federal, including the index for interest rates, may vary
from time to time. Security Federal believes that the annual adjustment feature
of its ARM loans also provides flexibility to meet competitive conditions as to
initial rates.

     Borrower demand for ARM loans versus fixed-rate mortgage loans is a
function of the level of interest rates, the expectations of changes in the
level of interest rates, and the difference between the initial interest rates
and fees charged for each type of loan. The relative amount of fixed-rate
mortgage loans and ARM loans that can be originated at any time is largely
determined by the demand for each in a competitive environment. As a result of
the low interest rate environment in recent years, Security Federal has
experienced a strong customer preference for fixed-rate loans.

     The retention of ARM loans in Security Federal's loan portfolio helps
reduce Security Federal's exposure to changes in the interest rates. There are,
however, unquantifiable credit risks resulting from the potential of increased
costs due to changed rates to be paid by the customer. It is possible that,
during periods of rising interest rates, the risk of default on ARM loans may
increase as a result of repricing and the increased costs to the borrower.
Furthermore, because the ARM loans originated by Security Federal generally
provide, as a marketing incentive, for initial rates of interest below the rates
that would apply were the adjustment index used for pricing initially
(discounting), these loans are subject to increased risks of default or
delinquency. Another consideration is that although ARM loans allow Security
Federal to increase the sensitivity of its asset base to changes in interest
rates, the extent of this interest sensitivity is limited by the periodic and
lifetime interest rate adjustment limits. Because of these considerations,
Security Federal has no assurance that yields on ARM loans will be sufficient to
offset increases in Security Federal's cost of funds.

     While fixed-rate, one-to-four-family residential real estate loans are
normally originated with 10- to 30-year terms, such loans typically remain
outstanding for substantially shorter periods. This is because borrowers often
prepay their loans in full upon sale of the property pledged as security or upon
refinancing the original loan. In addition, substantially all mortgage loans in
Security Federal's loan portfolio contain due-on-sale clauses providing that
Security Federal may declare the unpaid amount due and payable upon the sale of
the property securing the loan. Security Federal enforces these due-on-sale
clauses to the extent permitted by law and as business judgment dictates. Thus,
average loan maturity is a function of, among other factors, the level of
purchase and sale activity in the real estate market, prevailing interest rates,
and the interest rates payable on outstanding loans.

     Security Federal requires title insurance insuring the status of its first
lien on real estate secured loans and also requires that the fire and extended
coverage casualty insurance (and, if appropriate, flood insurance) be maintained
in an amount at least equal to the outstanding loan balance.


                                       6
<PAGE>

     Security Federal's residential mortgage loans typically do not exceed 80%
of the appraised value of the property. Security Federal's lending policies
permit Security Federal to lend up to 97% of the appraised value of the
property; however, Security Federal requires private mortgage insurance on the
portion of the principal amount that exceeds 80% of the appraised value of the
property. Security Federal obtains appraisals on all first mortgage real estate
loans from outside appraisers.

     Multi-Family and Commercial Real Estate Loans. Security Federal originates
and purchases mortgage loans for the acquisition, refinancing, and construction
of multi-family and commercial real estate properties. Security Federal began
offering commercial loans in 1996.

     Multi-family and commercial real estate loans are amortizing loans that are
generally originated with fixed interest rates with rates tied to the U.S.
Treasury index but are occasionally originated with variable rates with rates
tied to the prime lending rate. The maximum term for a fixed-rate, multi-family
loan generally is five years. The maximum loan-to-value ratio for a multi-family
or commercial loan is 75%.

     At June 30, 2002, the largest multi-family loan had a committed balance of
$1.1 million and was secured by an apartment building located in Chicago,
Illinois and was performing according to its original terms. This is a loan
participation with a correspondent bank.

     At June 30, 2002, Security Federal's commercial real estate loans were
secured by office, retail, and owner occupied properties, the majority of which
are located in Indiana and Illinois. Security Federal had commitments for two
loans totaling $1.5 million in Colorado. The outstanding balances on these two
loans were $500,000 at June 30, 2002. At June 30, 2002, Security Federal's
largest commercial real estate loan had an outstanding balance of $1.7 million.
The loan is secured by a strip center located in Dyer, Indiana. At June 30,
2002, this loan was performing according to its original terms.

     Multi-family and commercial real estate lending affords Security Federal an
opportunity to receive interest at rates higher than those generally available
from one-to-four-family residential lending. However, loans secured by these
properties usually are greater in amount and are more difficult to evaluate and
monitor and, therefore, involve a greater degree of risk than one-to-four-family
residential mortgage loans. Because payments on loans secured by income
producing properties are often dependent on the successful operation and
management of the properties, repayment of these loans may be affected by
adverse conditions in the real estate market or the economy. Security Federal
seeks to minimize these risks by generally limiting the maximum loan-to-value
ratio to up to 75% for multi-family and commercial real estate loans and by
strictly scrutinizing the financial condition of the borrower, the cash flow of
the project, the quality of the collateral, and the management of the property
securing the loan. Security Federal also generally obtains loan guarantees from
financially capable parties based on a review of personal financial statements.

     Residential Construction Loans. Security Federal originates residential
construction loans to local home builders and to individuals for the
construction and acquisition of personal residences.

     Construction loans to individuals are made on the same terms as Security
Federal's mortgage loans, but provide for the payment of interest only during
the construction phase, which is usually six months, with a contingency for an
additional six months. At the end of the construction phase, the loan converts
to a permanent mortgage loan.

     Before making a commitment to fund a construction loan, Security Federal
requires an appraisal of the property by an independent certified appraiser.
Security Federal also reviews and inspects each project before disbursement of
funds during the term of the construction loan. Loan proceeds are disbursed
through approved title companies after inspection based on the percentage of
completion.

     Construction lending affords Security Federal the opportunity to earn
higher interest rates with shorter terms to maturity relative to single-family
permanent mortgage lending. Construction lending, however, is generally
considered to involve a higher degree of risk than single-family permanent
mortgage lending because of the inherent difficulty in estimating both a
property's value at completion of the project and the estimated cost of the
project. These loans are generally more difficult to evaluate and monitor. If
the estimate of construction cost proves to be inaccurate, Security Federal may
be required to advance funds beyond the amount originally committed to protect
the value of the project. If


                                       7
<PAGE>

the estimate of value upon completion proves to be inaccurate, Security Federal
may be confronted with a project whose value is insufficient to ensure full
repayment. Projects may also be jeopardized by disagreements between borrowers
and builders and by the failure of builders to pay subcontractors. Loans to
builders to construct homes for which no purchaser has been identified carry
more risk because the payoff for the loan depends on the builder's ability to
sell the property before the construction loan is due. It is Security Federal's
general policy to obtain regular financial statements from builders so that it
can monitor their financial strength and ability to repay.

     Consumer and Other Loans. Another significant lending activity of Security
Federal is the origination of consumer and other loans. Security Federal's
consumer and other loans consist primarily of home equity and second mortgage
loans and automobile loans. Most of these loans are made to existing customers.
Security Federal originates fixed and open-end home equity loans. Open-end
equity loans are in the form of lines of credit. Security Federal's home equity
loans have variable interest rates tied to the six-month U.S. Treasury index and
the prime lending rate. Security Federal imposes a maximum loan-to-value ratio
on its home equity loans of 80% after considering both the first and second
mortgage loans. The maximum loan-to-value rate on Security Federal's second
mortgage loans is 80%. Both Security Federal's home equity and second mortgage
loans are limited in term to 120 months. Security Federal's home equity loans
and second mortgages may have greater credit risk than one-to-four-family
residential mortgage loans because they are secured by mortgages subordinated to
an existing first mortgage on the property.

     Security Federal also originates consumer loans secured by automobiles and,
occasionally, boats and other recreational vehicles. Automobile loans are
secured by both new and used cars and light trucks. Both new and used cars are
financed for a period of up to 66 months, and the rate on such loans is fixed
for the term of the loan. In the past, Security Federal also offered indirect
automobile loans. The indirect automobile loans were originated through
automobile dealers located in Indiana and Illinois. These dealers provided
Security Federal applications to finance vehicles sold by their dealerships. At
June 30, 2002, $867,000, or 48.2%, of all automobile loans were indirect
automobile loans. Security Federal no longer offers indirect automobile loans.

     Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans that are unsecured or secured by
rapidly depreciating assets such as automobiles. In such cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss, or depreciation. The remaining deficiency often does not
warrant further substantial collection efforts against the borrower beyond
obtaining a deficiency judgment. In addition, consumer loan collections are
dependent on the borrower's continuing financial stability and thus are more
likely to be adversely affected by job loss, divorce, illness, or personal
bankruptcy. Furthermore, the application of various federal and state laws,
including federal and state bankruptcy and insolvency laws, may limit the amount
that can be recovered on such loans. Such loans may also give rise to claims and
defenses by a consumer loan borrower against an assignee of such loans such as
Security Federal, and a borrower may be able to assert against such assignee
claims and defenses that it has against the seller of the underlying collateral.

     Commercial Business Loans. Security Federal makes commercial business loans
primarily in its market area to a variety of professionals, sole
proprietorships, and small businesses. Security Federal offers a variety of
commercial lending products, including term loans for fixed assets and working
capital, revolving lines of credit, letters of credit, and Small Business
Administration guaranteed loans. Secured commercial business loans are generally
made in amounts up to $500,000, although Security Federal's policy would permit
it to lend up to its legal lending limit of $4.4 million. Unsecured lines of
credit generally are made for up to $250,000. Term loans are generally offered
with fixed rates of interest of up to 5 years. Business lines of credit have
adjustable rates of interest and are subject to annual review and renewal.
Business loans with variable rates of interest adjust on a daily basis and are
generally indexed to the prime rate as published in The Wall Street Journal.


                                       8
<PAGE>

     In making commercial business loans, Security Federal considers the
financial statements of the borrower, Security Federal's lending history with
the borrower, the debt service capabilities of the borrower, the projected cash
flows of the business, and the value of the collateral. Commercial business
loans are generally secured by a variety of collateral, primarily equipment,
assets, and accounts receivable, and are supported by personal guarantees.
Depending on the collateral used to secure the loans, commercial loans are made
in amounts of up to 75% of the adjusted value of the collateral securing the
loan.

     Unlike mortgage loans, which generally are made on the basis of the
borrower's ability to make repayment from his or her employment or other income
and which are secured by real property whose value tends to be more easily
ascertainable, commercial loans are of higher risk and typically are made on the
basis of the borrower's ability to make repayment from the cash flow of the
borrower's business. As a result, the availability of funds for the repayment of
commercial loans may be substantially dependent on the success of the business
itself. Further, any collateral securing such loans may depreciate over time,
may be difficult to appraise, and may fluctuate in value. At June 30, 2002, the
Company had a $7.0 million loan relationship with an insurance company located
in Deerfield, Illinois. The commercial loan is a participation purchased from a
correspondent bank. Because the total loan relationship would exceed Security
Federal's legal lending limit, Security Financial, the holding company, owns
$3.0 million of the participation. At June 30, 2002, the loans at both Security
Federal and Security Financial were performing according to their original
terms.

     Loans to One Borrower. The maximum amount that Security Federal may lend to
one borrower is limited by federal regulations. At June 30, 2002, Security
Federal's regulatory limit on loans to one borrower was $4.4 million. At that
date, Security Federal's largest amount of loans to one borrower, including the
borrower's related interests, was $4.0 million and consisted of four loans.
These loans were performing according to its original terms at June 30, 2002.

     Maturity of Loan Portfolio. The following table presents certain
information at June 30, 2002 regarding the dollar amount of loans maturing in
consolidated portfolio based on their contractual terms to maturity but does not
include potential prepayments. Demand loans, loans having no stated schedule of
repayments and no stated maturity, and overdrafts are reported as becoming due
within one year. Loan balances do not include undisbursed loan proceeds,
unearned discounts, unearned income, and allowance for loan losses.

<TABLE>
<CAPTION>
                                      Multi-Family                           Home Equity
                             One-to-       and                                   and
                              Four-    Commercial                              Second       Other    Commercial     Total
                            Family(1)  Real Estate  Construction Automobile   Mortgage    Consumer    Business      Loans
                            ------     -----------  ------------ ----------   --------    --------    --------      -----
                                                                  (Dollars in thousands)
<S>                        <C>         <C>           <C>          <C>         <C>         <C>         <C>         <C>
Amounts due in:
   One year or less        $     202   $     371     $     436    $    589    $     15    $    658    $   7,936   $  10,207
   More than one year to
     three years                 427       3,536         1,190         917         263         299        2,220       8,852
   More than three years
      to five years            1,578      12,698         2,781         294         620         150        1,430      19,551
   More than five years
      to 10 years              2,360       9,912            --          --       4,213         128          162      16,775
   More than 10 years
      to 20 years              8,679       6,014            --          --       3,676          55           --      18,424
   More than 20 years         31,697          57            --          --       1,500          --           --      33,254
                           ---------   ---------     ---------    --------    --------    --------    ---------   ---------

     Total amount due      $  44,943   $  32,588     $   4,407    $  1,800    $ 10,287    $  1,290    $  11,748   $ 107,063
                           =========   =========     =========    ========    ========    ========    =========   =========
</TABLE>

(1)  Excludes loans held for sale.


                                       9
<PAGE>

     The following table presents the dollar amount of all loans due after June
30, 2003, which have fixed interest rates and have floating or adjustable
interest rates.

<TABLE>
<CAPTION>
                                                       Due After June 30, 2003
                                                ----------------------------------
                                                 Fixed-      Adjustable-
                                                  Rate          Rate        Total
                                                  ----          ----        -----
                                                      (Dollars in thousands)
<S>                                             <C>          <C>         <C>
Amounts due in:
Real estate loans:
   One-to-four-family (1)                       $  21,476    $  23,265   $  44,741
   Multi-family and commercial real estate         10,381       21,836      32,217
   Construction                                        --        3,971       3,971
                                                ---------    ---------   ---------
      Total real estate loans                      31,857       49,072      80,929
                                                ---------    ---------   ---------
Consumer and other loans:
   Automobile                                       1,211           --       1,211
   Home equity and second mortgage                  3,859        6,413      10,272
   Other                                              524          108         632
                                                ---------    ---------   ---------
      Total consumer and other loans                5,594        6,521      12,115
                                                ---------    ---------   ---------
Commercial business loans                           3,004          808       3,812
                                                ---------    ---------   ---------

   Total loans                                  $  40,455    $  56,401   $  96,856
                                                =========    =========   =========
</TABLE>

(1)  Excludes loans held for sale.

     Scheduled contractual principal repayments of loans do not reflect the
actual life of the loans. The average life of a loan is substantially less than
its contractual term because of prepayments. In addition, due-on-sale clauses on
loans generally give Security Federal the right to declare loans immediately due
and payable if, among other things, the borrower sells the real property when
the mortgage and the loan is not repaid. The average life of a mortgage loan
tends to increase, however, when current mortgage loan market rates are
substantially higher than rates on existing mortgage loans and, conversely,
tends to decrease when rates on existing mortgage loans are substantially higher
than current mortgage loan market rates.

     Loan Solicitation and Processing. Security Federal's lending activities
follow written, nondiscriminatory, underwriting standards and loan origination
procedures established by Security Federal's Board of Directors and management.
Loan originations come from a number of sources. The customary sources of loan
originations are loan origination officers, realtors, referrals, and existing
customers. Various executive officers have the authority to approve secured and
unsecured loans as permitted by the Board of Directors. Currently, Mr. Hyland
has authority to approve secured and unsecured loans with balances of up to and
including $500,000 and $250,000, respectively. Larger loans must be approved by
either Mr. Hyland and at least two other members of Security Federal's corporate
loan committee, four members of the corporate loan committee, or the loan
committee of the Board. Any loans exceeding $2.0 million must be approved by the
Board.

     Loan Originations, Purchases, and Sales. Security Federal's mortgage
lending activities are conducted primarily by loan personnel operating at its
full service banking offices. All loans originated by Security Federal are
underwritten by Security Federal pursuant to Security Federal's policies and
procedures. Security Federal originates both adjustable-rate and fixed-rate
mortgage loans. Security Federal's ability to originate fixed- or
adjustable-rate loans is dependent upon the relative customer demand for such
loans, which is affected by the current and expected future level of interest
rates. Security Federal recently has sought to expand its commercial lending to
enhance the yield on its loan portfolio and to encourage business relationships
with the borrowers, including through checking and other accounts and other
loans. Additionally, as part of its mortgage lending activities, Security
Federal purchases whole loans and, to a limited extent, loan participations,
with servicing performed by others.


                                       10
<PAGE>

     In an effort to manage its interest rate risk position, Security Federal
generally sells the fixed-rate mortgage loans with terms in excess of 15 years
that it originates. However, Security Federal has retained and will retain
selected 30-year fixed-rate loans in order to build its loan portfolio and
increase the yield on its interest-earning assets. The sale of loans in the
secondary mortgage market reduces Security Federal's risk that the interest
rates paid to depositors will increase while Security Federal holds long-term
fixed-rate loans in its portfolio. It also allows Security Federal to continue
to fund loans when savings flows decline or funds are not otherwise available.
Security Federal generally sells loans, servicing released without recourse to
various secondary market loan purchasers. Gains, net of origination expense,
from the sale of such loans are recorded at the time of sale. Generally a loan
is committed to be sold and a price for the loan is fixed at the time of
application and the interest rate is accepted by the customer. This eliminates
the risk to Security Federal that a rise in market interest rates will reduce
the value of a mortgage before it can be sold.

     In the past, Security Federal generally retained the servicing rights on
the mortgage loans it sold. Servicing loans for others generally consists of
collecting mortgage payments, maintaining escrow accounts, disbursing payments
to investors, and foreclosure processing. In October 1998, however, Security
Federal sold the servicing rights related to approximately $920.0 million in
loans serviced for others. In August 1999, Security Financial arranged for the
sale of the remaining servicing rights held by Security Federal, relating to
approximately $320.0 million in loans serviced for others. Currently, all loans
sold by Security Federal are sold servicing released.


                                       11
<PAGE>

     The following table presents total loans (including loans held for sale)
originated, purchased, sold, and repaid during the periods indicated.

<TABLE>
<CAPTION>
                                                               For the Year Ended
                                                                    June 30,
                                                           ---------------------------
                                                              2002            2001
                                                              ----            ----
                                                             (Dollars in thousands)
<S>                                                        <C>            <C>
Total loans at beginning of period                         $   112,286    $   132,050

    Originations:
       Real estate:
          One-to-four-family                                    17,217          9,972
          Multi-family and commercial real estate               10,695          2,056
          Construction                                             700            933
                                                           -----------    -----------
              Total real estate                                 28,612         12,961
       Consumer and other:
          Automobile                                               322            493
          Home equity and second mortgage                        2,555          1,554
          Other                                                    494            928
                                                           -----------    -----------
              Total consumer and other                           3,371          2,975
       Commercial business                                       1,100          1,177
                                                           -----------    -----------
          Total loans originated                                33,083         17,113

    Purchases:
       Real estate:
          One-to-four-family                                        --          2,444
          Multi-family and commercial real estate                8,750             --
          Construction                                           3,708             --
                                                           -----------    -----------
              Total real estate                                 12,458          2,444

       Consumer and other:
          Automobile                                                --             --
          Home equity and second mortgage                           --             --
          Other                                                     --             --
                                                           -----------    -----------
              Total consumer and other                              --             --

       Commercial business                                      15,175          9,050
                                                           -----------    -----------
          Total loans purchased                                 27,633         11,494

       Sales and repayments:
          Real estate:
              One-to-four-family                               (31,513)       (28,116)
              Multi-family and commercial real estate           (5,366)        (1,592)
              Construction                                      (1,108)          (593)
                                                           -----------    -----------
                 Total real estate                             (37,987)       (30,301)

       Consumer and other:
          Automobile                                            (3,231)        (5,162)
          Home equity and second mortgage                       (5,414)        (4,439)
          Other                                                   (901)          (349)
                                                           -----------    -----------
              Total consumer and other                          (9,546)        (9,950)

       Commercial business                                     (18,550)        (8,041)
                                                           -----------    -----------
          Total sales and repayments                           (66,083)       (48,292)
                                                           -----------    -----------

       Net change:
          Deferred loan fees                                        31            (42)
          Allowance                                                  7            (37)
                                                           -----------    -----------
                                                                    38            (79)
                                                           -----------    -----------

    Net loan activity                                           (5,329)       (19,764)
                                                           -----------    -----------

    Total loans at end of period                           $   106,957    $   112,286
                                                           ===========    ===========
</TABLE>


                                       12
<PAGE>

     Loan Commitments. Security Federal issues commitments for loans conditioned
upon the occurrence of certain events. Commitments are made in writing on
specified terms and conditions and are typically honored for up to 90 days from
approval. At June 30, 2002, Security Federal had fixed-rate loan commitments
totaling $3.6 million, ranging in rates from 5.75% to 7.50%. Security Federal
had $2.3 million of variable rate loan commitments outstanding at June 30, 2002.

     Loan Fees. In addition to interest earned on loans, Security Federal
receives income from fees in connection with loan originations, loan
modifications, and late payments and for miscellaneous services related to its
loans. Income from these activities varies from period to period depending upon
the volume and type of loans made and competitive conditions.

     Security Federal charges loan origination fees for fixed-rate loans, which
are calculated as a percentage of the amount borrowed. As required by applicable
accounting principles, loan origination fees and discount points in excess of
loan origination costs are deferred and recognized over the contractual
remaining lives of the related loans on a level yield basis. Discounts and
premiums on loans purchased are accreted and amortized in the same manner. At
June 30, 2002, Security Federal had $95,000 of net deferred loan fees. Security
Federal recognized $108,000 and $118,000 of loan fees during the years ended
June 30, 2002 and 2001, respectively, in connection with loan refinancings,
payoffs, sales, and ongoing amortization of outstanding loans.

     Nonperforming Assets and Delinquencies. When a borrower fails to make a
required loan payment, Security Federal attempts to cure the deficiency by
contacting the borrower and seeking the payment. A late notice is mailed after
15 days of delinquency. In most cases, deficiencies are cured promptly. If a
delinquency continues beyond the 30th day of the delinquency, a phone call to
the borrower is usually made by the 45th day of delinquency. On or about the
60th day of delinquency, Security Federal sends a certified letter to the
borrower giving the borrower 30 days in which to cure the delinquency. While
Security Federal generally prefers to work with borrowers to resolve problems,
Security Federal will institute foreclosure or other proceedings after the 90th
day of a delinquency, as necessary, to minimize any potential loss.

     Management informs the Board of Directors monthly of the amount of loans
delinquent more than 60 days, all loans in foreclosure, and all foreclosed and
repossessed property that Security Federal owns.

     Security Federal ceases accruing interest on mortgage loans when, in the
judgment of management, the probability of collection of interest is deemed to
be insufficient to warrant further accrual. Security Federal does not continue
to accrue interest on mortgage loans past due 90 days or more. The amount of
interest foregone on nonaccrual loans was $114,000 during fiscal 2002. The
amount of interest foregone on nonaccrual loans was not material during fiscal
2001.


                                       13
<PAGE>

     The following table presents information with respect to Security Federal's
nonperforming assets at the dates indicated. For the years presented, Security
Federal has had no impaired loans or troubled debt restructurings (which involve
forgiving a portion of interest or principal on any loans or making loans at a
rate materially less than that of market rates).

<TABLE>
<CAPTION>
                                                                                     At June 30,
                                                             ---------------------------------------------------------
                                                                 2002        2001       2000         1999        1998
                                                                 ----        ----       ----         ----        ----
                                                                              (Dollars in thousands)
<S>                                                          <C>         <C>          <C>         <C>         <C>
Nonaccruing loans:
  Real estate:
    One-to-four-family                                       $   1,674   $   1,333    $  1,084    $  1,705    4  2,154
    Multi-family and commercial real estate                        485          --          --          --          --
    Construction                                                    --          --          --          42         277
                                                             ---------   ---------    --------    --------    --------
      Total real estate                                          2,159       1,333       1,084       1,747       2,431
  Consumer and other:
    Automobile                                                     153         258         221         213         220
    Home equity and second mortgage                                 --          93         229         107          87
    Other                                                           34         194         246          40         203
                                                             ---------   ---------    --------    --------    --------
      Total consumer and other                                     187         545         696         360         510
  Commercial business                                              116         116          --          --          --
                                                             ---------   ---------    --------    --------    --------
    Total nonaccruing loans (1)                                  2,462       1,994       1,780       2,107       2,941
  Loans past due 90 days and accruing interest                      --          --          --          --          --
                                                             ---------   ---------    --------    --------    --------
    Total nonperforming loans                                    2,462       1,994       1,780       2,107       2,941
  Real estate owned                                                129         197         347         295         481
                                                             ---------   ---------    --------    --------    --------

    Total nonperforming assets (2)                           $   2,591   $   2,191    $  2,127    $  2,402    $  3,422
                                                             =========   =========    ========    ========    ========

Loan allowance as a percentage of total loans                    1.38%       1.32%       1.09%       0.98%       0.71%
Loan allowance as a percentage of nonperforming loans           60.07       74.52       81.40       69.72       43.83
Total nonperforming loans as a percentage of total loans         2.30        1.77        1.34        1.41        1.61
Total nonperforming assets as a percentage of total assets       1.29        1.07        1.12        1.25        1.19
</TABLE>

(1)  Total nonaccruing loans equals total nonperforming loans.
(2)  Nonperforming assets consist of nonperforming loans, impaired loans, real
     estate owned and other repossessed assets.


                                       14
<PAGE>

     The following table sets forth the delinquencies in Security Federal's loan
portfolio as of the dates indicated.

<TABLE>
<CAPTION>
                                    At June 30, 2002                                At June 30, 2001
                      --------------------------------------------     --------------------------------------------
                           60-89 Days           90 Days or More            60-89 Days            90 Days or More
                      --------------------     -------------------     -------------------    ---------------------
                        Number    Principal     Number    Principal     Number    Principal    Number     Principal
                         of      Balance of      of      Balance of      of      Balance of     of      Balance of
                        Loans       Loans       Loans       Loans       Loans       Loans      Loans       Loans
                        -----       -----       -----       -----       -----       -----      -----       -----
<S>                         <C>  <C>                <C>   <C>               <C>   <C>                <C>  <C>
Real estate:
    One-to-four-family      14   $     520          24    $  1,674           8    $    452            9   $   315
    Multi-family and
      commercial
      real estate           --          --          --          --           1         159           --        --
    Construction            --          --          --          --          --          --           --        --

Consumer and other:
    Automobile               5           7          17         153          14         104           29       315
    Home equity
      and second
      mortgage              --          --          --          --          --          --            6       201
    Other                   --          --           6          34           5          17           37       167
Commercial business          2           6           2         116          --          --            2       116
                     ---------   ---------   ---------    --------    --------    --------    ---------   -------

    Total                   21   $     553          49    $  1,977          28    $    732           83   $ 1,114
                     =========   =========   =========    ========    ========    ========    =========   =======

Delinquent loans to
  total loans                        0.52%                   1.85%                   0.65%                  0.99%
</TABLE>

     Real Estate Owned. Real estate acquired by Security Federal as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned
until sold. When property is acquired, it is recorded at fair market value at
the date of foreclosure, establishing a new cost basis. If the fair value
declines, Security Federal records a valuation allowance through expense. Costs
after acquisition are expensed. At June 30, 2002, Security Federal had $129,000
of real estate owned, consisting of $53,000 of vacant land and the remainder in
residential property.

     Asset Classification. The Office of Thrift Supervision has adopted various
regulations regarding problem assets of savings institutions. The regulations
require that each insured institution review and classify its assets on a
regular basis. In addition, Office of Thrift Supervision examiners have
authority to identify problem assets during examinations and, if appropriate,
require them to be classified.

     There are three classifications for problem assets: substandard, doubtful,
and loss. Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions, and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes specific allowances for loan losses for the full amount
of the portion of the asset classified as loss. All or a portion of general loan
loss allowances established to cover possible losses related to assets
classified substandard or doubtful can be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital. Assets that do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are designated "special mention." Security Federal monitors "special mention"
assets.


                                       15
<PAGE>

     The aggregate amounts of Security Federal's classified and special mention
assets at the dates indicated were as follows:

<TABLE>
<CAPTION>
                                                 At June 30,
                        -----------------------------------------------------------
                             2002        2001       2000         1999        1998
                             ----        ----       ----         ----        ----
                                          (Dollars in thousands)
<S>                     <C>         <C>         <C>         <C>          <C>
Classified assets:
   Loss                 $      --   $      --   $      --   $     210    $     94
   Doubtful                    --          --          --          --          --
   Substandard              3,524       2,073       1,891       2,899       4,020
   Special mention            654         509         825         669         679
</TABLE>

     At June 30, 2002, assets designated substandard consisted of real estate
owned of $129,000, residential mortgage loans totaling $1.7 million, home equity
and second mortgages totaling $211,000, automobile loans totaling $133,000,
commercial loans totaling $1.3 million, and other loans of $40,000. Assets
designated as special mention consisted of $533,000 in residential mortgage
loans, $113,000 of vacant land, $1,000 of home equity and second mortgages, and
$7,000 of automobile loans.

     Allowance for Loan Losses. In originating loans, Security Federal
recognizes that losses will be experienced and that the risk of loss will vary
with, among other things, the type of loan being made, the creditworthiness of
the borrower over the term of the loan, general economic conditions, and in the
case of a secured loan, the quality of the security for the loan. The allowance
method is used in providing for loan losses. Accordingly, all loan losses are
charged to the allowance and all recoveries are credited to it. The allowance
for loan losses is established through a provision for loan losses charged to
operations. The provision for loan losses is for probable incurred credit losses
and is based on management's evaluation of the collectibility of the loan
portfolio, including past loan loss experience, known and inherent risks in the
nature and volume of the portfolio, information about specific borrower
situations and estimated collateral values, and economic conditions.

     At June 30, 2002, Security Federal had an allowance for loan losses of $1.5
million. Although management believes that it uses the best information
available to establish the allowance for loan losses, future adjustments to the
allowance for loan losses may be necessary and results of operations could be
significantly and adversely affected if circumstances differ substantially from
the assumptions used in making the determinations. Furthermore, while Security
Federal believes that it has established its existing allowance for loan losses
as required by accounting principles generally accepted in the United States,
there can be no assurance that regulators, in reviewing Security Federal's loan
portfolio, will not request Security Federal to increase significantly its
allowance for loan losses. In addition, because future events affecting
borrowers and collateral cannot be predicted with certainty, there can be no
assurance that the existing allowance for loan losses is adequate or that
substantial increases will not be necessary should the quality of any loans
deteriorate as a result of the factors discussed above. Any material increase in
the allowance for loan losses may adversely affect Security Federal's financial
condition and results of operations.


                                       16
<PAGE>

     The following table presents an analysis of Security Federal's allowance
for loan losses.

<TABLE>
<CAPTION>
                                                                              Year Ended June 30,
                                                              ----------------------------------------------------
                                                              2002        2001       2000         1999        1998
                                                              ----        ----       ----         ----        ----
                                                                           (Dollars in thousands)
<S>                                                      <C>         <C>         <C>         <C>          <C>
    Allowance for loan losses, beginning of period       $   1,486   $   1,449   $   1,469   $   1,289    $  1,151
    Charge-offs:
       Real estate:
          One-to-four-family                                   (31)        (92)       (119)        (69)       (149)
          Multi-family and commercial real estate               --          --          --          --          --
          Construction                                          --          --          --        (230)         --
       Consumer and other:
          Automobile                                           (79)        (95)         --        (183)       (101)
          Home equity and second mortgage                       --          --          --          --          --
          Other                                                (85)        (49)       (172)       (104)        (82)
       Commercial business                                      --         (28)         --          --         (93)
                                                         ---------   ---------   ---------   ---------    --------
          Total charge-offs                                   (195)       (264)       (291)       (586)       (425)
                                                         ---------   ---------   ---------   ---------    --------
    Recoveries:
       Real estate:
          One-to-four-family                                     2          20           9           1          10
          Multi-family and commercial real estate               --          --          --          --          --
          Construction                                          --          --          --          --          --
       Consumer and other:
          Automobile                                            28          17          --           7           2
          Home equity and second mortgage                       --          --          --          --          --
          Other                                                 23          22          37           8           1
       Commercial business                                      --          62          --          --          --
                                                         ---------   ---------   ---------   ---------    --------
          Total recoveries                                      53         121          46          16          13
                                                         ---------   ---------   ---------   ---------    --------
    Net charge-offs                                           (142)       (143)       (245)       (570)       (412)
    Provision for loans losses                                 135         180         225         750         550
                                                         ---------   ---------   ---------   ---------    --------

    Allowance for loan losses, end of period             $   1,479   $   1,486   $   1,449   $   1,469    $  1,289
                                                         =========   =========   =========   =========    ========

Net charge-offs to average interest-earning loans            0.13%       0.16%       0.17%       0.29%       0.15%
Allowance for loan losses to total loans                     1.38        1.32        1.09        0.98        0.71
Allowance for loan losses to nonperforming loans            60.07       74.52       81.40       69.72       43.83
Net charge-offs to beginning allowance for loan losses       9.56        9.87       16.67       44.22       35.79
</TABLE>


                                       17
<PAGE>

     The following table presents the approximate allocation of the allowance
for loan losses by loan category at the dates indicated. Management believes
that the allowance can be allocated by category only on an approximate basis.
The allocation of the allowance to each category is not necessarily indicative
of future losses and does not restrict the use of the allowance to absorb losses
in any other category.

<TABLE>
<CAPTION>
                                                            At June 30,
                                                            -----------
                     -------------------------------------------------------------------------------------------
                                2002                           2001                          2000
                                ----                           ----                          ----
                     -------------------------------------------------------------------------------------------
                                         Percent                        Percent                       Percent
                                           of                             of                            of
                                          Gross                          Gross                         Gross
                                          Loans                          Loans                         Loans
                              Percent    in Each             Percent    in Each            Percent    in Each
                                 of      Category               of      Category              of      Category
                              Allowance  to Total            Allowance  to Total           Allowance  to Total
                              to Total    Gross              to Total    Gross             to Total    Gross
                     Amount   Allowance   Loans     Amount   Allowance   Loans    Amount   Allowance   Loans
                     ------   ---------   -----     ------   ---------   -----    ------   ---------   -----
<S>                   <C>        <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Real estate loans:
  One-to-four-
   family (1)         $  491     33.20%    41.98%    $  651     43.80%    52.83%   $  662     45.69%    57.08%
  Multi-family and
    commercial
    real estate          539      36.44     30.44       222      14.94     16.41      138       9.52     13.54
  Construction             4       0.27      4.12         1       0.07      0.98       10       0.69      0.58
Consumer loans
  and other:
  Automobile              42       2.84      1.68       167      11.24      4.18      192      13.25      7.04
  Home equity
    and second
    mortgage              11        .74      9.61        30       2.02     11.66       48       3.31     12.03

    Other                 42       2.84      1.20       142       9.56      1.50      192      13.25      0.84
Commercial
  business loans         295      19.95     10.97       211      14.20     12.44      143       9.87      8.89
Unallocated               55       3.72        --        62       4.17        --       64       4.42        --
                      ------     ------    ------    ------    -------   -------   ------    -------   -------

  Total allowance
    for loan
    losses            $1,479     100.0%    100.0%    $1,486    100.00%   100.00%   $1,449    100.00%   100.00%
                      ======     ======    ======    ======    =======   =======   ======    =======   =======

<CAPTION>
                                              At June 30,
                                              -----------
                     ------------------------------------------------------------
                                 1999                          1998
                                 ----                          ----
                     ------------------------------------------------------------
                                          Percent                       Percent
                                            of                            of
                                           Gross                         Gross
                                           Loans                         Loans
                              Percent     in Each            Percent    in Each
                                 of       Category              of      Category
                              Allowance   to Total           Allowance  to Total
                              to Total     Gross             to Total    Gross
                     Amount   Allowance    Loans    Amount   Allowance   Loans
                     ------   ---------    -----    ------   ---------   -----
<S>                   <C>        <C>       <C>       <C>       <C>       <C>
Real estate loans:
  One-to-four-
   family (1)         $  668      45.47%    57.44%   $  593     46.00%    56.24%
  Multi-family and
    commercial
    real estate          342       23.28     10.96      175      13.58      5.56
  Construction             7        0.48      4.28       56       4.34      7.14
Consumer loans
  and other:
  Automobile             243       16.54     10.66      295      22.89     13.74
  Home equity
    and second
    mortgage              50        3.40     11.66       42       3.26     11.38

    Other                  9        0.62      1.08       51       3.96      1.29
Commercial
  business loans          51        3.47      3.92       30       2.32      4.65
Unallocated               99        6.74        --       47       3.65        --
                      ------     -------   -------   ------    -------   -------

  Total allowance
    for loan
    losses            $1,469     100.00%   100.00%   $1,289    100.00%   100.00%
                      ======     =======   =======   ======    =======   =======
</TABLE>

(1)  Excludes loans held for sale.


                                       18
<PAGE>

Securities Activities

     Security Financial is permitted under federal law to invest in various
types of liquid assets, including U.S. government obligations, securities of
various federal agencies and of state and municipal governments, deposits at the
Federal Home Loan Bank of Indianapolis, certificates of deposit of federally
insured institutions, certain bankers' acceptances, and federal funds. Within
certain regulatory limits, Security Financial may also invest a portion of its
assets in commercial paper and corporate debt securities. Savings institutions
like Security Financial are also required to maintain an investment in Federal
Home Loan Bank of Indianapolis stock. Security Financial is required under
federal regulations to maintain a minimum amount of liquid assets.

     Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," requires that securities be
categorized as "held to maturity," "trading securities," or "available for
sale," based on management's intent as to the ultimate disposition of each
security. Statement of Financial Accounting Standards No. 115 allows debt
securities to be classified as "held to maturity" and reported in financial
statements at amortized cost only if the reporting entity has the positive
intent and ability to hold those securities to maturity. Securities that might
be sold in response to changes in market interest rates, changes in the
security's prepayment risk, increases in loan demand, or other similar factors
cannot be classified as "held to maturity." Debt and equity securities held for
current resale are classified as "trading securities." These securities are
reported at fair value, and unrealized gains and losses on the securities would
be included in earnings. Security Financial does not currently use or maintain a
trading account. Debt and equity securities not classified as either "held to
maturity" or "trading securities" are classified as "available for sale." These
securities are reported at fair value, and unrealized gains and losses on the
securities are excluded from earnings and reported, net of deferred taxes, as a
separate component of equity. At June 30, 2002, all of Security Financial's
mortgage-backed securities and investment securities were classified as
"available for sale."

     All of Security Financial's securities carry market risk insofar as
increases in market rates of interest may cause a decrease in their market
value. They also carry prepayment risk insofar as they may be called before
maturity in times of low market interest rates, so that Security Financial may
have to invest the funds at a lower interest rate. Security Financial's
investment policy permits engaging in hedging activities directly related to its
mortgage banking activities. Investments are made based on certain
considerations, which include the interest rate, yield, settlement date and
maturity of the investment, Security Financial's liquidity position, and
anticipated cash needs and sources. The effect that the proposed investment
would have on Security Financial's credit and interest rate risk and risk-based
capital is also considered. Security Financial purchases securities to provide
necessary liquidity for day-to-day operations. Security Financial also purchases
securities when investable funds exceed loan demand.

     The following table presents the amortized cost and fair value of Security
Financial's securities, by accounting classification and by type of security, at
the dates indicated.

<TABLE>
<CAPTION>
                                           2002                     2001                      2000
                                  ---------------------    ----------------------     ----------------------
                                  Amortized      Fair      Amortized       Fair       Amortized       Fair
                                    Cost         Value       Cost          Value        Cost          Value
                                    ----         -----       ----          -----        ----          -----
<S>                               <C>           <C>        <C>            <C>         <C>            <C>
Securities available for sale:
  Obligations of U.S. Treasury
    and U.S. government
    securities                    $ 32,766      $32,954    $ 44,447       $44,223     $ 23,776       $23,531
  Equity securities                    515          533          --            --           --            --
Mortgage-backed securities
  available for sale:
  Federal National Mortgage
    Association                        325          333       1,348         1,356        2,543         2,518
  Federal Home Loan Mortgage
    Corporation                        159          160         617           618        1,068         1,048
                                  --------      -------    --------       -------     --------       -------
    Total                              484          493       1,965         1,974        3,611         3,566
                                                -------                   -------                    -------

Net unrealized gains (losses) on
  securities available for sale        215                     (215)                      (290)
                                  --------                 --------                   --------

  Total securities available
    for sale                      $ 33,980      $33,980    $ 46,197       $46,197     $ 27,097       $27,097
                                  ========      =======    ========       =======     ========       =======
</TABLE>


                                       19
<PAGE>

     All of Security Financial's mortgage-backed securities are issued or
guaranteed by agencies of the U.S. government. Accordingly, they carry lower
credit risk than mortgage-backed securities of a private issuer. However,
mortgage-backed securities still carry market risk, the risk that increases in
market interest rates may cause a decrease in market value, and prepayment risk,
the risk that the securities will be repaid before maturity and that Security
Federal will have to reinvest the funds at a lower interest rate.

     At June 30, 2002, Security Financial did not own any securities other than
U.S. government and agency securities, which had an aggregate book value in
excess of 10% of Security Financial's retained earnings at that date.

     The following presents the activity in the mortgage-backed securities and
securities portfolios for the periods indicated.

<TABLE>
<CAPTION>
                                                                   Year Ended June 30,
                                                                  ---------------------
                                                           2002           2001          2000
                                                           ----           ----          ----
                                                                 (Dollars In thousands)
<S>                                                     <C>           <C>           <C>
Mortgage-backed securities (1):
   Mortgage-backed securities, beginning of period      $     1,974   $     3,566   $     3,980
   Purchases                                                     --            --           959
   Sales                                                         --            --            --
   Repayments and prepayments                                (1,481)       (1,646)       (1,428)
   Accretion of discount on securities                           --            --            --
   Increase in unrealized gain                                   --            54            55
                                                        -----------   -----------   -----------
      Net decrease in mortgage-backed securities             (1,481)       (1,592)         (414)
                                                        ------------  ------------  -----------

Mortgage-backed securities, end of period               $       493   $     1,974   $     3,566
                                                        ===========   ===========   ===========

Securities (2):
   Securities, beginning of period                      $    44,223   $    23,531   $    13,893
   Purchases                                                 61,011        53,083        20,624
   Sales                                                         --            --            --
   Maturities and calls                                     (72,323)      (32,846)      (11,092)
   Accretion of discount on securities                          146           434           281
   Increase (decrease) in unrealized gain                       430            21          (175)
                                                        -----------   -----------   -----------
      Net increase in securities                             10,736        20,692         9,638
                                                        -----------   -----------   -----------

Securities, end of period                               $    33,487   $    44,223   $    23,531
                                                        ===========   ===========   ===========
</TABLE>

(1)  All mortgage-backed securities are classified as available for sale.
(2)  All securities are classified as available for sale.

     The following table presents certain information regarding the carrying
value (which equals fair value), weighted average yields, and maturities or
periods to repricing of Security Financial's debt securities at June 30, 2002,
all of which are available for sale.

<TABLE>
<CAPTION>
                               Less Than             One to           After Five to                   After
                               One Year            Five Years           Ten Years          Ten Years            Totals
                           ----------------    ----------------     ---------------     --------------     ---------------
                           Carrying Average   Carrying   Average   Carrying  Average   Carrying  Average   Carrying Average
                             Value   Yield      Value     Yield      Value    Yield      Value    Yield      Value   Yield
                             -----   -----      -----     -----      -----    -----      -----    -----      -----   -----
2002                                                             (Dollars in thousands)
----
<S>                        <C>      <C>        <C>          <C>     <C>         <C>     <C>         <C>    <C>        <C>
Securities available
  for sale:
   Investment securities
     Obligations of the
       U.S. Treasury and
       U.S. government
       agencies            $    --   --%       $12,165      4.30%   $14,199     6.48%   $6,590      7.32%  $32,954    5.85%
Mortgage-backed
  securities                    --   --             69      6.39        117     8.04       307      6.00       493    6.54
                           -------             -------              -------             ------             -------

   Totals                  $    --   --%       $12,234      4.28%   $14,316     6.43%   $6,897      7.00%  $33,447    5.76%
                           =======  ===        =======   =======    =======  =======    ======  ========   =======  ======
</TABLE>


                                       20
<PAGE>

Deposit Activities and Other Sources of Funds

     General. Deposits are the major external source of funds for Security
Federal's lending and other investment activities. In addition, Security Federal
also generates funds internally from loan principal repayments and prepayments
and maturing investment securities. Scheduled loan repayments are a relatively
stable source of funds, while deposit inflows and outflows and loan prepayments
are influenced significantly by general interest rates and money market
conditions. Security Federal may use borrowings from the Federal Home Loan Bank
of Indianapolis to compensate for reductions in the availability of funds from
other sources. Presently, Security Federal has no other borrowing arrangements
aside from Federal Home Loan Bank of Indianapolis advances.

     Deposit Accounts. A majority of Security Federal's depositors reside in
Indiana and Illinois. Security Federal's deposit products include savings
accounts, checking and NOW accounts, certificates of deposit, individual
retirement accounts, and money market accounts. Deposit account terms vary with
the principal differences being the minimum balance deposit, early withdrawal
penalties, and the interest rate. Security Federal reviews its deposit mix and
pricing weekly. Security Federal does not utilize brokered deposits and
currently does not and does not intend to solicit jumbo certificates of deposit
at rates above those available generally in the market.

     Security Federal believes that it is competitive in the interest rates it
offers on its deposit products. Security Federal determines the rates paid based
on a number of factors, including rates paid by competitors, Security Federal's
need for funds and cost of funds, borrowing costs, and movements of market
interest rates. Historically, Security Federal has relied predominately on
certificates of deposit with terms of more than one year.

     In the unlikely event Security Federal is liquidated, depositors will be
entitled to full payment of their deposit accounts before any payment is made to
Security Financial as the sole stockholder of Security Federal.

     The following table indicates the amount of Security Federal's jumbo
certificates of deposit by time remaining until maturity as of June 30, 2002.
Jumbo certificates of deposits have principal balances of $100,000 or more.

<TABLE>
<CAPTION>
                                          2002                     2001                      2000
                                  --------------------     ---------------------      ---------------------
                                              Weighted                  Weighted                   Weighted
        Maturity                               Average                   Average                    Average
         Period                   Amount        Rate       Amount         Rate        Amount         Rate
         ------                   ------        ----       ------         ----        ------         ----
<S>                             <C>               <C>     <C>                <C>    <C>                <C>
Three months or less            $   5,302         3.39%   $    4,771         5.48%  $    4,904         5.37%
Over three through six months       4,820         3.06         4,747         5.40        2,817         5.61
Over six through twelve months      1,620         3.36         2,915         5.11        3,450         6.02
Over twelve months                    979         4.69         1,183         5.46          992         6.09
                                ---------                 ----------                ----------

   Total                        $  12,721         3.32%   $   13,616         5.37%  $   12,163         5.67%
                                =========    =========    ==========   ==========   ==========   ==========
</TABLE>


                                       21
<PAGE>

     The following table presents information concerning average balances and
rates paid on Security Federal's deposit accounts at the dates indicated.

<TABLE>
<CAPTION>
                                                                Year Ended June 30,
                                 --------------------------------------------------------------------------------
                                                  2002                                      2001
                                 ------------------------------------    ----------------------------------------
                                                  Percent                                   Percent
                                                 to Total     Average                      of Total       Average
                                    Average       Average      Rate        Average          Average        Rate
                                    Balance      Deposits      Paid        Balance         Deposits        Paid
                                    -------      --------      ----        -------         --------        ----
<S>                              <C>                <C>         <C>      <C>                <C>             <C>
Savings accounts                 $    43,376         29.20%     1.77%    $    39,670         25.96%         2.37%
Money market accounts                  5,801          3.90      2.12           8,574          5.61          2.73
NOW accounts                           8,415          5.66      1.06           7,686          5.03          1.31
Certificates of deposit               84,534         56.90      4.22          91,637         59.95          5.62
Non-interest-bearing deposits:
   Demand deposits                     6,448          4.34        --           5,269          3.45            --
                                 -----------      --------               -----------      --------

      Total average deposits     $   148,574        100.00%              $   152,836        100.00%
                                 ===========      ========               ===========      ========

<CAPTION>
                                          Year Ended June 30,
                                 --------------------------------------
                                                 2000
                                 --------------------------------------
                                                Percent
                                               of Total         Average
                                  Average       Average          Rate
                                  Balance      Deposits          Paid
                                  -------      --------          ----
<S>                              <C>              <C>             <C>
Savings accounts                 $    45,480       28.17%         2.40%
Money market accounts                  6,377        3.95          2.62
NOW accounts                           7,963        4.93          1.42
Certificates of deposit               95,501       59.14          4.99
Non-interest-bearing deposits:
   Demand deposits                     6,156        3.81            --
                                 -----------    --------

      Total average deposits     $   161,477      100.00%
                                 ===========    ========
</TABLE>

     Deposit Flow. The following table presents the balances, with interest
credited, and changes in dollar amounts of deposits in the various types of
accounts offered by Security Federal between the dates indicated.

<TABLE>
<CAPTION>
                                                                          Year Ended June 30,
                                       -----------------------------------------------------------------------------------
                                                         2002                                      2001
                                       ----------------------------------------   ----------------------------------------
                                                        Percent     Increase                       Percent    Increase
                                          Amount       of Total    (Decrease)         Amount      of Total   (Decrease)
                                          ------       --------    ----------         ------      --------    --------
<S>                                    <C>               <C>       <C>            <C>              <C>        <C>
Savings accounts                       $    45,650        30.78%   $     6,699    $    38,951       26.05%    $    (2,963)
Money market deposits                        8,242         5.56         (1,478)         9,720        6.50           2,147
NOW accounts                                 7,100         4.79          2,629          4,471        2.99          (1,825)
Fixed-rate certificates maturing:
   Within 1 year                            72,801        49.09            706         72,095       48.22           1,945
   After 1 year, but within 2 years          5,128         3.46         (8,395)        13,523        9.05            (368)
   After 2 years, but within 4 years         3,057         2.06           (752)         3,809        2.55          (2,807)
   After 4 years                                42          .03           (512)           554        0.37             (70)
                                       -----------     --------    -----------    -----------     -------     -----------
      Total certificates                    81,028        54.64         (8,953)        89,981       60.19          (1,300)
Non-interest-bearing deposits:
   Demand deposits                           6,273         4.23           (104)         6,377        4.27           1,852
                                       -----------     --------    -----------    -----------     -------     -----------

   Total                               $   148,293       100.00%   $    (1,207)   $   149,500      100.00%    $    (2,089)
                                       ===========     ========    ============   ===========     =======     ===========

<CAPTION>
                                          Year Ended June 30,
                                       -------------------------
                                                 2000
                                       -------------------------
                                                        Percent
                                        Amount         of Total
                                        ------         -------
<S>                                    <C>               <C>
Savings accounts                       $   41,914         27.65%
Money market deposits                       7,573          5.00
NOW accounts                                6,296          4.15
Fixed-rate certificates maturing:
   Within 1 year                           70,150         46.28
   After 1 year, but within 2 years        13,891          9.16
   After 2 years, but within 4 years        6,616          4.36
   After 4 years                              624           .41
                                       ----------    ----------
      Total certificates                   91,281         60.21
Non-interest-bearing deposits:
   Demand deposits                          4,525          2.99
                                       ----------    ----------

   Total                               $  151,589        100.00%
                                       ==========    ==========
</TABLE>


                                       22
<PAGE>

     Time Deposits by Rates and Maturities. The following table presents the
amount of time deposits in Security Federal categorized by rates and maturities
at the dates indicated.

<TABLE>
<CAPTION>
                                 Period to Maturity from June 30, 2002
                ---------------------------------------------------------------------       At
                 Less than      1-2         2-3         3-4        After                 June 30,
                 One Year      Years       Years       Years      4 Years      Total       2001
                 --------      -----       -----       -----      -------      -----       ----
<S>             <C>         <C>         <C>         <C>          <C>         <C>         <C>
0.00 - 2.00%    $   4,060   $      13   $      20   $      --    $     38    $  4,131    $     --
2.01 - 3.00%       46,835       1,151         276          --          --      48,262          --
3.01 - 4.00%        7,341         546       1,058           9          --       8,954       2,563
4.01 - 5.00%        5,420       1,783         656          86           4       7,949      29,583
5.01 - 6.00%        4,686       1,212         264         179          --       6,341      32,040
Over 6.00%          4,459         423         329         180          --       5,391      25,795
                ---------   ---------   ---------   ---------    --------    --------    --------

   Total        $  72,801   $   5,128   $   2,603   $     454    $     42    $ 81,028    $ 89,981
                =========   =========   =========   =========    ========    ========    ========
</TABLE>

     Deposit Activity. The following table presents the deposit activity of
Security Federal for the periods indicated.

<TABLE>
<CAPTION>
                                                                    Year Ended June 30,
                                                            ---------------------------------
                                                            2002           2001          2000
                                                            ----           ----          ----
                                                                  (Dollars In thousands)
<S>                                                      <C>           <C>           <C>
Beginning balance                                        $   149,500   $   151,589   $   165,717
Net deposits (withdrawals) before interest credited           (4,836)       (8,510)      (19,457)
Interest credited                                              3,629         6,421         5,329
                                                         -----------   -----------   -----------
Net increase (decrease) in deposits                           (1,207)       (2,089)      (14,128)
                                                         -----------   -----------   -----------

   Ending balance                                        $   148,293   $   149,500   $   151,589
                                                         ===========   ===========   ===========
</TABLE>

     Borrowings. Security Federal has the ability to use advances from the
Federal Home Loan Bank of Indianapolis to supplement its supply of lendable
funds and to meet deposit withdrawal requirements. The Federal Home Loan Bank of
Indianapolis functions as a central reserve bank providing credit for savings
associations and certain other member financial institutions. As a member of the
Federal Home Loan Bank of Indianapolis, Security Federal is required to own
capital stock in the Federal Home Loan Bank of Indianapolis and is authorized to
apply for advances on the security of the capital stock and certain of its
mortgage loans and other assets, principally securities that are obligations of
or guaranteed by the U.S. government or its agencies, provided certain
creditworthiness standards have been met. Advances are made under several
different credit programs. Each credit program has its own interest rate and
range of maturities. Depending on the program, limitations on the amount of
advances are based on the financial condition of the member institution and the
adequacy of collateral pledged to secure the credit. At June 30, 2002, Security
Federal had the ability to borrow a total of approximately $28.4 million from
the Federal Home Loan Bank of Indianapolis. At that date, Security Federal had
$15.0 million of advances outstanding.

     The following tables presents certain information regarding Security
Federal's use of Federal Home Loan Bank of Indianapolis advances during the
periods and at the dates indicated.

<TABLE>
<CAPTION>
                                                                        Year Ended June 30,
                                                                ---------------------------------
                                                                2002           2001          2000
                                                                ----           ----          ----
                                                                      (Dollars In thousands)
<S>                                                          <C>           <C>           <C>
Maximum amount of advances outstanding at any month end      $    15,000   $    15,000   $     5,000
Approximate average advances outstanding                          15,050         7,320         1,300
Approximate weighted average rate paid on advances                  5.05%         5.04%         6.62%
</TABLE>


                                       23
<PAGE>

<TABLE>
<CAPTION>
                                                     Year Ended June 30,
                                             ---------------------------------
                                             2002           2001          2000
                                             ----           ----          ----
                                                   (Dollars In thousands)
<S>                                       <C>           <C>           <C>
Balance outstanding at end of period      $    15,000   $    15,000   $        --
Weighted average rate paid on advances           5.05%         5.05%          N/A
</TABLE>

Trust Services

     In 1997, Security Federal established a Trust Services department within
Security Federal, which provides trust and investment services to individuals,
partnerships, corporations, and institutions. Security Federal believes that the
trust department allows it to provide investment opportunities and fiduciary
services to both current and prospective customers. Consistent with Security
Federal's operating strategy, Security Federal will continue to emphasize the
growth of its trust service operations to grow assets and increase fee-based
income. Security Federal has implemented several policies governing the
practices and procedures of the trust department, including policies relating to
maintaining confidentiality of trust records, investment of trust property,
handling conflicts of interest, and maintaining impartiality. At June 30, 2002,
the trust department managed 261 accounts with aggregate assets of $7.8 million.
The trust department is monitored by the Board of Directors' Trust Committee.

Personnel

     As of June 30, 2002, Security Federal had 53 full-time employees and 21
part-time employees, none of whom is represented by a collective bargaining
unit. Security Federal believes that its relationship with its employees is
good.

Subsidiary Activities

     Security Financial's sole subsidiary is Security Federal. The following are
descriptions of Security Federal's wholly owned subsidiaries.

     The Boulevard, Inc. The Boulevard, Inc. (Boulevard) was originally formed
in 1970 but later became inactive until 1999. It currently operates as a wholly
owned service corporation of Security Federal. Boulevard is a certified
insurance agent and currently acts as a sub-agent for other insurance agencies,
offering insurance products including property and casualty and life and health
insurance. Boulevard also intends to offer financial services in the near
future.

     Other Subsidiaries. Security Federal has two other wholly owned
subsidiaries: Strategic Financial Corp. and Family Home Service Corp. Strategic
Financial Corp. and Family Home Service Corp. have both been inactive since
1997.

                           REGULATION AND SUPERVISION
General

     As a savings and loan holding company, Security Financial is required by
federal law to file reports with, and otherwise comply with, the rules and
regulations of the Office of Thrift Supervision. Security Federal is subject to
extensive regulation, examination, and supervision by the Office of Thrift
Supervision, as its primary federal regulator, and the Federal Deposit Insurance
Corporation, as the deposit insurer. Security Federal is a member of the Federal
Home Loan Bank System and, with respect to deposit insurance, of the Savings
Association Insurance Fund managed by the Federal Deposit Insurance Corporation.
Security Federal must file reports with the Office of Thrift Supervision and the
Federal Deposit Insurance Corporation concerning its activities and financial
condition in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with, or acquisitions of, other savings
institutions. The Office of Thrift Supervision and/or the Federal Deposit
Insurance Corporation conduct periodic examinations to test Security Federal's
safety and soundness and compliance with various regulatory requirements. This
regulation and supervision establishes a comprehensive framework of activities
in which an institution can engage and is intended primarily for the protection
of the insurance fund and depositors. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan


                                       24
<PAGE>

loss reserves for regulatory purposes. Any change in such regulatory
requirements and policies, whether by the Office of Thrift Supervision, the
Federal Deposit Insurance Corporation, or the Congress, could have a material
adverse impact on Security Financial, Security Federal, and their operations.
Certain of the regulatory requirements applicable to Security Federal and to
Security Financial are referred to below or elsewhere in this report. The
description of statutory provisions and regulations applicable to savings
institutions and their holding companies set forth in this report does not
purport to be a complete description of such statutes and regulations and their
effects on Security Federal and Security Financial.

Holding Company Regulation

     Security Financial is a nondiversified unitary savings and loan holding
company within the meaning of federal law. Under prior law, a unitary savings
and loan holding company, such as Security Financial was not generally
restricted as to the types of business activities in which it may engage,
provided that Security Federal continued to be a qualified thrift lender. See
"Federal Savings Institution Regulation - QTL Test." The Gramm-Leach-Bliley Act
of 1999 provides that no company may acquire control of a savings association
after May 4, 1999 unless it engages only in the financial activities permitted
for financial holding companies under the law or for multiple savings and loan
holding companies as described below. Security Financial will not qualify for
the grandfather and will be limited to such activities. Upon any nonsupervisory
acquisition by Security Financial of another savings institution or savings bank
that meets the qualified thrift lender test and is deemed to be a savings
institution by the Office of Thrift Supervision, Security Financial would become
a multiple savings and loan holding company (if the acquired institution is held
as a separate subsidiary) and would generally be limited to activities
permissible for bank holding companies under Section 4(c)(8) of the Bank Holding
Company Act, subject to the prior approval of the Office of Thrift Supervision,
and certain activities authorized by Office of Thrift Supervision regulation.

     A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
institution or savings and loan holding company, without prior written approval
of the Office of Thrift Supervision and from acquiring or retaining control of a
depository institution that is not insured by the Federal Deposit Insurance
Corporation. In evaluating applications by holding companies to acquire savings
institutions, the Office of Thrift Supervision considers the financial and
managerial resources and future prospects of Security Financial and the
institution involved, the effect of the acquisition on the risk to the deposit
insurance funds, the convenience and needs of the community, and competitive
factors.

     The Office of Thrift Supervision may not approve any acquisition that would
result in a multiple savings and loan holding company controlling savings
institutions in more than one state, subject to two exceptions: (i) the approval
of interstate supervisory acquisitions by savings and loan holding companies and
(ii) the acquisition of a savings institution in another state if the laws of
the state of the target savings institution specifically permit such
acquisitions. The states vary in the extent to which they permit interstate
savings and loan holding company acquisitions.

     Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, federal regulations do prescribe such restrictions
on subsidiary savings institutions as described below. Security Federal must
notify the Office of Thrift Supervision 30 days before declaring any dividend to
Security Financial. In addition, the financial impact of a holding company on
its subsidiary institution is a matter that is evaluated by the Office of Thrift
Supervision, and the agency has authority to order cessation of activities or
divestiture of subsidiaries deemed to pose a threat to the safety and soundness
of the institution.

Federal Savings Institution Regulation

     Business Activities. The activities of federal savings institutions are
governed by federal law and regulations. These laws and regulations delineate
the nature and extent of the activities in which federal associations may
engage. In particular, many types of lending authority for federal association
(e.g., commercial, nonresidential real property loans and consumer loans) are
limited to a specified percentage of the institution's capital or assets.


                                       25
<PAGE>

     Capital Requirements. The Office of Thrift Supervision capital regulations
require savings institutions to meet three minimum capital standards: a 1.5%
tangible capital ratio, a 4% leverage ratio (3% for institutions receiving the
highest rating on the CAMELS rating system), and an 8% risk-based capital ratio.
In addition, the prompt corrective action standards discussed below also
establish, in effect, a minimum 2% tangible capital standard, a 4% leverage
ratio (3% for institutions receiving the highest rating on the CAMEL financial
institution rating system), and, together with the risk-based capital standard
itself, a 4% Tier 1 risk-based capital standard. The Office of Thrift
Supervision regulations also require that, in meeting the tangible, leverage,
and risk-based capital standards, institutions must generally deduct investments
in and loans to subsidiaries engaged in activities as principal that are not
permissible for a national bank.

     The risk-based capital standard for savings institutions requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight
factor of 0% to 100%, assigned by the Office of Thrift Supervision capital
regulation based on the risks believed inherent in the type of asset. Core (Tier
1) capital is defined as common stockholders' equity (including retained
earnings), certain noncumulative perpetual preferred stock and related surplus,
and minority interests in equity accounts of consolidated subsidiaries less
intangibles other than certain mortgage servicing rights and credit card
relationships. The components of supplementary capital currently include
cumulative preferred stock, long-term perpetual preferred stock, mandatory
convertible securities, subordinated debt and intermediate preferred stock, the
allowance for loan and lease losses limited to a maximum of 1.25% of
risk-weighted assets and up to 45% of unrealized gains on available-for-sale
equity securities with readily determinable fair market values. Overall, the
amount of supplementary capital included as part of total capital cannot exceed
100% of core capital.

     The capital regulations also incorporate an interest rate risk component.
Savings institutions with "above normal" interest rate risk exposure are subject
to a deduction from total capital for purposes of calculating their risk-based
capital requirements. For the present time, the Office of Thrift Supervision has
deferred implementation of the interest rate risk capital charge. At June 30,
2002, Security Federal met each of its capital requirements.

     The following table presents Security Federal's capital position at June
30, 2002.

<TABLE>
<CAPTION>
                                                                                               Capital
                                                                            Excess     ------------------------
                                              Actual        Required     (Deficiency)    Actual      Required
                                              Capital        Capital        Amount       Percent      Percent
                                              -------        -------        ------       -------      -------
                                                                    (Dollars in thousands)
<S>                                         <C>           <C>           <C>               <C>          <C>
Tier I Capital (to risk-weighted assets)    $  29,590     $    4,623    $   24,967        25.6%        4.0%
Core Capital (to adjusted assets)              29,590          7,940        21,650        14.9         4.0
Total Capital (to risk-weighted assets)        30,949          9,246        21,703        26.8         8.0
</TABLE>

     Prompt Corrective Regulatory Action. The Office of Thrift Supervision is
required to take certain supervisory actions against undercapitalized
institutions, the severity of which depends upon the institution's degree of
undercapitalization. Generally, a savings institution that has a ratio of total
capital to risk weighted assets of less than 8%, a ratio of Tier 1 (core)
capital to risk-weighted assets of less than 4%, or a ratio of core capital to
total assets of less than 4% (3% or less for institutions with the highest
examination rating) is considered to be "undercapitalized." A savings
institution that has a total risk-based capital ratio less than 6%, a Tier 1
capital ratio of less than 3%, or a leverage ratio that is less than 3% is
considered to be "significantly undercapitalized," and a savings institution
that has a tangible capital to assets ratio equal to or less than 2% is deemed
to be "critically undercapitalized." Subject to a narrow exception, the Office
of Thrift Supervision is required to appoint a receiver or conservator for an
institution that is "critically undercapitalized." The regulation also provides
that a capital restoration plan must be filed with the Office of Thrift
Supervision within 45 days of the date a savings institution receives notice
that it is "undercapitalized," "significantly undercapitalized," or "critically
undercapitalized." Compliance with the plan must be guaranteed by any parent
holding company. In addition, numerous mandatory supervisory actions become
immediately applicable to an undercapitalized institution, including, but not
limited to, increased monitoring by regulators and restrictions on growth,
capital distributions, and expansion. The Office of Thrift Supervision could
also take any one of a number of discretionary supervisory actions, including
the issuance of a capital directive and the replacement of senior executive
officers and directors.


                                       26
<PAGE>

     Insurance of Deposit Accounts. Security Federal is a member of the Savings
Association Insurance Fund. The Federal Deposit Insurance Corporation maintains
a risk-based assessment system by which institutions are assigned to one of
three categories based on their capitalization and one of three subcategories
based on examination ratings and other supervisory information. An institution's
assessment rate depends upon the categories to which it is assigned. Assessment
rates for Savings Association Insurance Fund member institutions are determined
semiannually by the Federal Deposit Insurance Corporation and currently range
from zero basis points for the healthiest institutions to 27 basis points for
the riskiest.

     In addition to the assessment for deposit insurance, institutions are
required to make payments on bonds issued in the late 1980s by the Financing
Corporation (FICO) to recapitalize the predecessor to the Savings Association
Insurance Fund. During 2002, FICO payments for Savings Association Insurance
Fund members approximated 2.1 basis points.

     The Federal Deposit Insurance Corporation has authority to increase
insurance assessments. A significant increase in Savings Association Insurance
Fund insurance premiums would likely have an adverse effect on the operating
expenses and results of operations of Security Federal. Management cannot
predict what insurance assessment rates will be in the future.

     Insurance of deposits may be terminated by the Federal Deposit Insurance
Corporation upon a finding that the institution has engaged in unsafe or unsound
practices; is in an unsafe or unsound condition to continue operations; or has
violated any applicable law, regulation, rule, order, or condition imposed by
the Federal Deposit Insurance Corporation or the Office of Thrift Supervision.
The management of Security Federal does not know of any practice, condition, or
violation that might lead to termination of deposit insurance.

     Loans to One Borrower. Federal law provides that savings institutions are
generally subject to the limits on loans to one borrower applicable to national
banks. A savings institution may not make a loan or extend credit to a single or
related group of borrowers in excess of 15% of its unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if secured by specified readily-marketable collateral.

     QTL Test. Federal law requires savings institutions to meet a qualified
thrift lender test. Under the test, a savings association is required to either
qualify as a "domestic building and loan association" under the Internal Revenue
Code or maintain at least 65% of its "portfolio assets" (total assets less: (i)
specified liquid assets up to 20% of total assets; (ii) intangibles, including
goodwill; and (iii) the value of property used to conduct business) in certain
"qualified thrift investments" (primarily residential mortgages and related
investments, including certain mortgage-backed securities) in at least 9 months
out of each 12-month period.

     A savings institution that fails the qualified thrift lender test is
subject to certain operating restrictions and may be required to convert to a
bank charter. As of June 30, 2002, Security Federal met the qualified thrift
lender test. Recent legislation has expanded the extent to which education
loans, credit card loans, and small business loans may be considered "qualified
thrift investments."

     Limitation on Capital Distributions. Office of Thrift Supervision
regulations impose limitations upon all capital distributions by a savings
institution, including cash dividends, payments to repurchase its shares, and
payments to stockholders of another institution in a cash-out merger. Under the
current regulation, an application to and the prior approval of the Office of
Thrift Supervision is required prior to any capital distribution if the
institution does not meet the criteria for "expedited treatment" of applications
under Office of Thrift Supervision regulations (i.e., generally, examination
ratings in the two top categories); the total capital distributions for the
calendar year exceed net income for that year plus the amount of retained net
income for the preceding two years; the institution would be undercapitalized
following the distribution, or the distribution would otherwise be contrary to a
statute, regulation, or agreement with Office of Thrift Supervision. If an
application is not required, the institution must still provide prior notice to
the Office of Thrift Supervision of the capital distribution if, like Security
Federal, it is a subsidiary of a holding company. In the event Security
Federal's capital fell below its regulatory requirements or the Office of Thrift
Supervision notified it that it was in need of more than normal supervision,
Security Federal's ability to make capital distributions could be restricted. In
addition, the Office of Thrift Supervision could prohibit a proposed capital
distribution by any institution, which would otherwise be permitted by the
regulation, if the Office of Thrift Supervision determines that such
distribution would constitute an unsafe or unsound practice.


                                       27
<PAGE>

     Transactions with Related Parties. Security Federal's authority to engage
in transactions with "affiliates" (e.g., any company that controls or is under
common control with an institution, including Security Financial and its
nonsavings institution subsidiaries) is limited by federal law. The aggregate
amount of covered transactions with any individual affiliate is limited to 10%
of the capital and surplus of the savings institution. The aggregate amount of
covered transactions with all affiliates is limited to 20% of the savings
institution's capital and surplus. Certain transactions with affiliates are
required to be secured by collateral in an amount and of a type described in
federal law. The purchase of low quality assets from affiliates is generally
prohibited. The transactions with affiliates must be on terms and under
circumstances, that are at least as favorable to the institution as those
prevailing at the time for comparable transactions with nonaffiliated companies.
In addition, savings institutions are prohibited from lending to any affiliate
which is engaged in activities that are not permissible for bank holding
companies and no savings institution may purchase the securities of any
affiliate other than a subsidiary.

     Security Federal's authority to extend credit to executive officers,
directors, and 10% shareholders ("insiders"), as well as entities such persons
control, is also governed by federal law. Such loans are required to be made on
terms substantially the same as those offered to unaffiliated individuals and
not involve more than the normal risk of repayment. Recent legislation created
an exception for loans made pursuant to a benefit or compensation program that
is widely available to all employees of the institution and does not give
preference to insiders over other employees. The law limits both the individual
and aggregate amount of loans Security Federal may make to insiders based, in
part, on Security Federal's capital position and requires certain board approval
procedures to be followed.

     Enforcement. The Office of Thrift Supervision has primary enforcement
responsibility over savings institutions and has the authority to bring actions
against the institution and all institution-affiliated parties, including
stockholders, and any attorneys, appraisers, and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors to institution of receivership, conservatorship or termination of
deposit insurance. Civil penalties cover a wide range of violations and can
amount to $25,000 per day, or even $1 million per day in especially egregious
cases. The Federal Deposit Insurance Corporation has the authority to recommend
to the Director of the Office of Thrift Supervision that enforcement action to
be taken with respect to a particular savings institution. If action is not
taken by the Director, the Federal Deposit Insurance Corporation has authority
to take such action under certain circumstances. Federal law also establishes
criminal penalties for certain violations.

     Standards for Safety and Soundness. The federal banking agencies have
adopted Interagency Guidelines prescribing Standards for Safety and Soundness.
The guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the Office of Thrift
Supervision determines that a savings institution fails to meet any standard
prescribed by the guidelines, the Office of Thrift Supervision may require the
institution to submit an acceptable plan to achieve compliance with the
standard.

Federal Home Loan Bank System

     Security Federal is a member of the Federal Home Loan Bank System, which
consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank
provides a central credit facility primarily for member institutions. Security
Federal, as a member of the Federal Home Loan Bank, is required to acquire and
hold shares of capital stock in that Federal Home Loan Bank in an amount at
least equal to 1.0% of the aggregate principal amount of its unpaid residential
mortgage loans and similar obligations at the beginning of each year or 1/20 of
its advances (borrowings) from the Federal Home Loan Bank, whichever is greater.
Security Federal was in compliance with this requirement with an investment in
Federal Home Loan Bank stock at June 30, 2002 of $5.3 million.

     The Federal Home Loan Banks are required to provide funds for the
resolution of insolvent thrifts in the late 1980s and to contribute funds for
affordable housing programs. These requirements could reduce the amount of
dividends that the Federal Home Loan Banks pay to their members and could also
result in the Federal Home Loan Banks imposing a higher rate of interest on
advances to their members. If dividends were reduced or interest on future
Federal Home Loan Bank advances increased, Security Federal's net interest
income would likely also be reduced. Recent legislation has changed the
structure of the Federal Home Loan Banks' funding obligations for insolvent
thrifts,


                                       28
<PAGE>

revised the capital structure of the Federal Home Loan Banks, and implemented
entirely voluntary membership for Federal Home Loan Banks. Management cannot
predict the effect that these changes may have with respect to its Federal Home
Loan Bank membership.

Federal Reserve System

     The Federal Reserve Board regulations require savings institutions to
maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The regulations generally provide
that reserves be maintained against aggregate transaction accounts as follows: a
3% reserve ratio is assessed on transaction accounts over $5.5 million to and
including $42.8 million; a 10% reserve ratio is applied above $42.8 million. The
first $5.0 million of otherwise reservable balances (subject to adjustments by
the Federal Reserve Board) are exempted from the reserve requirements. The
accounts are adjusted annually. Security Federal complies with the foregoing
requirements.

                           FEDERAL AND STATE TAXATION

Federal Taxation

     General. Security Financial and Security Federal report their income on a
fiscal year ending June 30, consolidated basis using the accrual method of
accounting. The federal income tax laws apply to Security Financial and Security
Federal in the same manner as to other corporations with some exceptions,
including particularly Security Federal's reserve for bad debts discussed below.
The following discussion of tax matters is intended only as a summary and does
not purport to be a comprehensive description of the tax rules applicable to
Security Federal or Security Financial. Security Federal's federal tax returns
have been either audited or closed under the statute of limitations through tax
year ended June 30, 1996.

     Bad Debt Reserves. For fiscal years beginning before December 31, 1995,
thrift institutions that qualified under certain definitional tests and other
conditions of the Internal Revenue Code of 1986, as amended, were permitted to
use certain favorable provisions to calculate their deductions from taxable
income for annual additions to their bad debt reserve. A reserve could be
established for bad debts on qualifying real property loans, generally secured
by interests in real property improved or to be improved, under the percentage
of taxable income method or the experience method. The reserve for nonqualifying
loans was computed using the experience method.

     Federal legislation enacted in 1996 repealed the reserve method of
accounting for bad debts for tax years beginning after 1995 and required savings
institutions to recapture or take into income certain portions of their
accumulated bad debt reserves. Thrift institutions eligible to be treated as
"small banks," those with assets of $500 million or less, are allowed to use the
experience method that applies to "small banks," while thrift institutions that
are treated as large banks, those with assets exceeding $500 million, are
required to use only the specific charge-off method. As a result, the percentage
of taxable income method of accounting for bad debts is no longer available for
any financial institution.

     A thrift institution required to change its method of computing reserves
for bad debts will treat the change as a change in method of accounting,
initiated by the taxpayer, and having been made with the consent of the Internal
Revenue Service. Any adjustment required to be taken into income with respect to
a change in accounting method generally will be taken into income ratably over a
six-taxable year period, beginning with the first taxable year beginning after
1995, subject to a two-year suspension if the "residential loan requirement" is
satisfied. Under the residential loan requirement provision, the recapture
required by the new legislation will be suspended for each of two successive
taxable years, beginning with Security Federal's 1996 taxable year, in which
Security Federal originates a minimum of certain residential loans based upon
the average of the principal amounts of these loans that Security Federal makes
during its six taxable years preceding its current taxable year.

     Security Federal is required to recapture or take into income over a
six-year period the excess of the balance of its tax bad debt reserves as of
June 30, 1996 over the balance of the reserves as of June 30, 1988. As a result,
Security Federal incurred an additional tax liability of approximately $224,000,
beginning in 1998 over a six-year period.


                                       29
<PAGE>

     Distributions. If Security Federal makes "nondividend distributions" to
Security Financial, they will be considered to have been made from Security
Federal's unrecaptured tax bad debt reserves, including the balance of its
reserves as of June 30, 1988, to the extent of the "nondividend distributions"
and then from Security Federal's supplemental reserve for losses on loans, to
the extent of those reserves, and an amount based on the amount distributed but
not more than the amount of those reserves will be included in Security
Federal's income. Nondividend distributions include distributions in excess of
Security Federal's current and accumulated earnings and profits, as calculated
for federal income tax purposes, distributions in redemption of stock, and
distributions in partial or complete liquidation. Dividends paid out of Security
Federal's current or accumulated earnings and profits will not be so included in
Security Federal's income.

     The amount of additional taxable income triggered by a nondividend is an
amount that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution. Therefore, if Security Federal makes a nondividend
distribution to Security Financial, approximately one and one-half times the
amount of the distribution not in excess of the amount of the reserves would be
includable in income for federal income tax purposes, assuming a 34% federal
corporate income tax rate. Security Federal does not intend to pay dividends
that would result in a recapture of any portion of its bad debt reserves.

     Savings Association Insurance Fund Recapitalization Assessment. Federal
legislation enacted in 1996 levied a 65.7 cent fee on every $100 of thrift
deposits held on March 31, 1995. For financial statement purposes, this
assessment was reported as an expense for the quarter ended September 30, 1996.
The law includes a provision which states that the amount of any special
assessment paid to capitalize the Savings Association Insurance Fund under this
legislation is deductible in the year of payment.

State Taxation

     Indiana imposes an 8.5% franchise tax based on a financial institution's
adjusted gross income as defined by statute. In computing adjusted gross income,
deductions for municipal interest, the bad debt deduction computed using the
reserve method, and pre-1990 net operating losses are disallowed. Security
Federal's state franchise tax returns have not been audited for the past five
tax years.

Utilization of Operating Loss Carryforwards

     Security Federal had generated operating losses, which were used to offset
and recoup tax liabilities from prior periods as allowed by the Internal Revenue
Code. The amount of operating losses not used are carried forward and used to
offset future tax liabilities until the deductions are exhausted. Security
Federal had operating loss carryforwards for Indiana income tax purposes
totalling $417,000 at June 30, 2000. These carryforwards, which expire in 2013,
were fully utilized during fiscal 2001.


                                       30
<PAGE>

                      EXECUTIVE OFFICERS OF THE REGISTRANT

         The following table sets forth certain information regarding the
executive officers of Security Financial Bancorp and Security Federal.

<TABLE>
<CAPTION>
      Name           Age (1)                             Position Held
      ----           -------                             -------------
<S>                   <C>      <C>
John P. Hyland        51       Director, President, and Chief Executive Officer of Security Financial and
                                 Security Federal
Patrick J. Hunt       39       Executive Vice President and Chief Financial Officer of Security Financial and
                                 Security Federal
Joann Duhon           45       Executive Vice President, Retail Banking, of Security Federal
John F. Nicholas      38       Executive Vice President, Business Development and Marketing, of Security Federal
Kevin Dunn            48       Executive Vice President, Consumer and Real Estate Lending, of Security Federal
Joann Halterman       45       Vice President, Human Resources, of Security Federal
Kent R. Huntoon       38       Vice President, The Boulevard, Inc., of Security Federal
</TABLE>

(1)  As of June 30, 2002.

     The executive officers of Security Financial and Security Federal are
elected annually and hold office until their successors have been elected and
qualified or until they are removed or replaced.

Biographical Information

     Below is certain information regarding the directors and executive officers
of Security Federal. Unless otherwise stated, each director and executive
officer has held his or her current occupation for the last five years.

     John P. Hyland has served as President and Chief Executive Officer of
Security Financial and Security Federal since September 1999 and October 1998,
respectively. Prior to joining Security Federal, Mr. Hyland served as Director,
President, and Chief Executive Officer of Southwest Financial Bank and Trust,
Orland Park, Illinois, and as Director and Vice President for Southwest
Financial Corporation, the holding company for Southwest Financial Bank and
Trust.

     Patrick J. Hunt has served as Executive Vice President and Chief Financial
Officer of Security Financial and Security Federal since March 2001. Prior to
joining Security Federal, Mr. Hunt was employed by financial institutions in
positions of Chief Financial Officer, Banking Center President, and Chief
Operating Officer.

     Joann Duhon joined Security Federal in 1996 as Assistant Vice President,
Regional Branch Manager. In July, 1997, Ms. Duhon was appointed Executive Vice
President, Retail Banking. Prior to joining Security Federal, Ms. Duhon was a
Branch Manager for Peoples Bank, East Chicago.

     John F. Nicholas joined Security Federal in May 1996 as a Staff Appraiser
and, in November 1996, was appointed to Assistant Vice President and CRA
Officer. In 1997, Mr. Nicholas was appointed Manager, Residential Construction
Lending. In 1998, Mr. Nicholas was appointed Executive Vice President, Mortgage
Banking. In June 2000, Mr. Nicholas was appointed Executive Vice President of
Business Development. In 2002, Mr. Nicholas was given the additional
responsibility of marketing for Security Federal. Prior to joining Security
Federal, Mr. Nicholas was a real estate appraiser with Richard Adomatis &
Associates.

     Kevin Dunn joined Security Federal in 1996 as an Assistant Vice President.
In May 1998, Mr. Dunn was appointed Interim President and Chief Executive
Officer, a position in which he served until October 1998. Since October 1998,
Mr. Dunn was appointed as Executive Vice President. Since June 2000, Mr. Dunn
has served as Executive Vice President of Consumer and Real Estate Lending.
Prior to joining Security Federal, Mr. Dunn was a Certified Thrift Examiner with
the Office of Thrift Supervision, Central Region.

     Joann Halterman joined Security Federal in 1976 as a Teller. In 1998, Ms.
Halterman was appointed as Assistant Vice President, Human Resources and, in
February 1999, was appointed Vice President, Human Resources/Marketing.


                                       31
<PAGE>

     Kent R. Huntoon joined Security Federal in 1996 as Retail Sales Manager,
Trust Officer and Insurance Manager and Vice President and General Manager of
The Boulevard, Inc., a wholly owned subsidiary of Security Federal. Prior to
joining Security Federal, Mr. Huntoon served as a registered representative of
Prudential Insurance Co. of America.

ITEM 2. PROPERTIES

Properties

     The following table sets forth Security Federal's offices, as well as
certain additional information relating to these offices, as of June 30, 2002.

<TABLE>
<CAPTION>
                                                                   Original          Date of            Net Book
                                                 Lease or         Date Leased         Lease             Value of
           Location                                Owned           or Owned        Expiration         Property (1)
           --------                                -----           --------        ----------         ------------
<S>                                               <C>                <C>              <C>             <C>
Main Office:
     9321 Wicker Avenue
     St. John, Indiana 46373                      Owned              1988             N/A             $  3,535,995

Branch Offices:
     2930 Ridge Road
     Highland, Indiana 46322                      Leased             1997             2019                 204,222

     2090 E. Commercial Avenue
     Lowell, Indiana 46356                        Leased             1997             2012                 111,040

     7007 Calumet Avenue
     Hammond, Indiana 46324                       Owned              1992             N/A                  273,960

     4518 Indianapolis Avenue
     East Chicago, Indiana 46312                  Owned              2000             N/A                  540,260

     552A Indian Boundary Road
     Chesterton, Indiana 46304                    Leased             1997             2007                  15,687
</TABLE>

(1)  Represents the net book value of land, buildings, furniture, fixtures, and
     equipment owned by Security Federal.

ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.


                                       32
<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The information under the sections titled "Stock Listing" and "Price Range
of Common Stock" on page 40 in Security Financial's 2002 Annual Report to
Stockholders is incorporated herein by reference.

ITEM 6. SELECTED FINANCIAL DATA

     The information under the section titled "Selected Consolidated Financial
Data" on pages 2 and 3 in Security Financial's 2002 Annual Report to
Stockholders is incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     The information under the section titled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 4 through 12
in Security Financial's 2002 Annual Report to Stockholders is incorporated
herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The information under the section titled "Market Risk Analysis" on page 12
in Security Financial's 2002 Annual Report to Stockholders is incorporated
herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The consolidated financial statements listed at Item 14 of this Form 10-K
are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information under the sections titled "Proposal 1 - Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in
Security Financial's Proxy Statement for the 2002 Annual Meeting of Stockholders
is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

     The information under the section titled "Executive Compensation" in
Security Financial's Proxy Statement for the 2002 Annual Meeting of Stockholders
is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

     The information under the section titled "Stock Ownership" in Security
Financial's Proxy Statement for the 2002 Annual Meeting of Stockholders is
incorporated herein by reference.


                                       33
<PAGE>

Equity Compensation Plan Information

<TABLE>
<CAPTION>
                                                                                                  Number of
                                                                                                 Securities
                                                                                                  Remaining
                                                                                                Available for
                                                                 Number of                     Future Issuance
                                                             Securities to be     Weighted-     Under Equity
                                                                Issued Upon        Average      Compensation
                                                                 Exercise      Exercise Price       Plans
                                                              of Outstanding   of Outstanding    [Excluding
                                                                 Options,         Options,       Securities
                                                                 Warrants,        Warrants,     Reflected in
                                                                and Rights       and Rights      Column (a)]
                                                                    (a)              (b)             (c)
                                                                    ---              ---             ---
<S>                                                                 <C>          <C>                 <C>
Equity compensation plans approved by security holders              178,559      $     17.16         15,287
Equity compensation plans not approved by security holders               --               --             --
                                                                -----------      -----------    -----------

    Total                                                           178,559      $     17.16         15,287
                                                                ===========      ===========    ===========
</TABLE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information under the section titled "Transactions with Management" in
Security Financial's Proxy Statement for the 2002 Annual Meeting of Stockholders
is incorporated herein by reference.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a)  (1)  The following are filed as a part of this report by means of
               incorporation by reference to Security Financial's 2002 Annual
               Report to Stockholders:

               o    Report of Independent Auditors

               o    Consolidated Statements of Financial Condition as of June
                    30, 2002, 2001, and 2000

               o    Consolidated Statements of Operations for the Years Ended
                    June 30, 2002, 2001, and 2000

               o    Consolidated Statements of Stockholders' Equity for the
                    Years Ended June 30, 2002, 2001, and 2000

               o    Consolidated Statements of Cash Flows for the Years Ended
                    June 30, 2002, 2001, and 2000

               o    Notes to Consolidated Financial Statements

          (2)  All financial statement schedules are omitted because they are
               not required or applicable, or the required information is shown
               in the consolidated financial statements or the notes thereto.

          (3)  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 Certificate 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)


                                       34
<PAGE>

               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)
               13.0      Security Financial Bancorp, Inc. 2002 Annual Report to
                         Stockholders
               21.0      Subsidiary information is incorporated herein by
                         reference to Part I, Item 1, "Business--Subsidiary
                         Activities"
               23.0      Consent of independent auditors (filed herewith)

               --------------------
               (1)       Incorporated 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

          None


                                       35
<PAGE>

CONFORMED

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                       SECURITY FINANCIAL BANCORP, INC.


Date: September 30, 2002               By: /s/ John P. Hyland
                                           ------------------
                                           John P. Hyland
                                           President and Chief Executive Officer

     Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
      Name                          Title                                          Date
      ----                          -----                                          ----
<S>                                 <C>                                      <C>
/s/ John P. Hyland                  President, Chief Executive               September 30, 2002
------------------------------      Officer, and Director
John P. Hyland                      (principal executive officer)

/s/ Patrick J. Hunt                 Executive Vice President and             September 30, 2002
------------------------------      Chief Financial Officer (principal
Patrick J. Hunt                     financial and accounting officer)

/s/ Vincent Cainkar                 Director                                 September 30, 2002
------------------------------
Vincent Cainkar

/s/ Howard O. Cyrus, Sr.            Director                                 September 30, 2002
------------------------------
Howard O. Cyrus, Sr.

/s/ Sheila Donoghue                 Director                                 September 30, 2002
------------------------------
Sheila Donoghue

/s/ Dr. Peter Ferrini               Director                                 September 30, 2002
------------------------------
Dr. Peter Ferrini

/s/ Jay D. Johnson                  Director                                 September 30, 2002
------------------------------
Jay D. Johnson

/s/ Tula Kavadias                   Director                                 September 30, 2002
------------------------------
Tula Kavadias

/s/ Richard J. Lashley              Director                                 September 30, 2002
------------------------------
Richard J. Lashley

/s/ Robert L. Lauer                 Director                                 September 30, 2002
------------------------------
Robert L. Lauer

/s/ John Wm. Palmer                 Director                                 September 30, 2002
------------------------------      Chairman of the Board
John Wm. Palmer                     Security Financial Bancorp

/s/ Philip T. Rueth                 Director and                             September 30, 2002
------------------------------      Corporate Secretary
Philip T. Rueth
</TABLE>
<PAGE>

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
            PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


I, John P. Hyland, President and Chief Executive Officer, certify that:

     1.   I have reviewed this annual report on Form 10-K of Security Financial
          Bancorp, Inc.

     2.   Based on my knowledge, this annual 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 annual report.

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



September 30, 2002       /s/  John P. Hyland
------------------       -------------------
Date                     President and Chief Executive Officer
<PAGE>

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
            PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


I, Patrick J. Hunt, Executive Vice President and Chief Financial Officer,
certify that:

     1.   I have reviewed this annual report on Form 10-K of Security Financial
          Bancorp, Inc.

     2.   Based on my knowledge, this annual 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 annual report.

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



September 30, 2002       /s/  Patrick J. Hunt
------------------       --------------------
Date                     Executive Vice President and Chief Financial Officer

<PAGE>

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following table sets forth certain consolidated summary historical financial
information concerning the financial position of Security Financial Bancorp,
Inc. ("Security Financial" or "the Company") including its subsidiary, Security
Federal Bank & Trust ("Security Federal" or "the Bank"), for the dates
indicated. The financial data is derived in part from and should be read in
conjunction with the consolidated financial statements and related notes of
Security Financial contained later in this annual report.

<TABLE>
<CAPTION>
                                                                        At June 30,
                                                                        -----------
                                              2002           2001           2000            1999           1998
                                              ----           ----           ----            ----           ----
                                                                       (In thousands)
<S>                                       <C>             <C>            <C>            <C>             <C>
SELECTED FINANCIAL DATA:
Total assets                              $   201,192     $   204,917    $   190,046    $   191,495     $   288,078
Cash and cash equivalents                      42,244          26,501          9,854          4,520           8,502
Loans held for sale                             1,468           1,139            357          3,430          49,487
Loans receivable, net                         105,489         111,147        131,693        148,316         180,845
Securities available-for-sale:
     Mortgage-backed securities                   493           1,974          3,566          3,980           6,794
     Investment securities                     33,487          44,223         23,531         13,893          17,055
Deposits                                      148,293         149,500        151,589        165,717         234,376
Total borrowings                               15,000          15,100            200          5,000          31,815
Total equity                                   36,942          38,070         36,486         18,532          19,220

<CAPTION>
                                                                     Year ended June 30,
                                                                     -------------------
                                              2002           2001           2000            1999           1998
                                              ----           ----           ----            ----           ----
                                                                       (In thousands)
<S>                                       <C>             <C>            <C>            <C>             <C>
SELECTED OPERATING DATA:
Total interest income                     $    11,863     $    14,481    $    14,099    $    17,779     $    23,985
Total interest expense                          5,317           6,790          6,222          9,424          15,466
                                          -----------     -----------    -----------    -----------     -----------
     Net interest income                        6,546           7,691          7,877          8,355           8,519
Provision for loan losses                         135             180            225            750             550
                                          -----------     -----------    -----------    -----------     -----------
Net interest income after provision
  for loan losses                               6,411           7,511          7,652          7,605           7,969
                                          -----------     -----------    -----------    -----------     -----------
Noninterest income:
     Loan charges and servicing fees              145             149            154           (516)           (201)
     Gain on sale of loans and
      servicing rights                            200              83            256          1,527           2,138
     Gain on sale of loans transferred
       to held-for-sale                            --              --             --             --           1,632
     Other noninterest income                   1,086             841            518          1,076           1,252
                                          -----------     -----------    -----------    -----------     -----------
         Total noninterest income               1,431           1,073            928          2,087           4,821
                                          -----------     -----------    -----------    -----------     -----------
Noninterest expense:
     Compensation and benefits                  3,242           3,282          3,948          5,754           8,023
     Other noninterest expense                  3,228           3,431          3,654          4,546           5,601
                                          -----------     -----------    -----------    -----------     -----------
         Total noninterest expense              6,470           6,713          7,602         10,300          13,624
                                          -----------     -----------    -----------    -----------     -----------
Income (loss) before income taxes               1,372           1,871            978           (608)           (834)
Income tax provision (benefit)                    421             501             --             --              --
                                          -----------     -----------    -----------    -----------     -----------

     Net income (loss)                    $       951     $     1,370    $       978    $      (608)    $      (834)
                                          ===========     ===========    ===========    ===========     ===========
</TABLE>


                                                                              2.
<PAGE>

<TABLE>
<CAPTION>
                                                                              At June 30,
                                                                              -----------
                                                        2002         2001         2000        1999       1998
                                                        ----         ----         ----        ----       ----
<S>                                                    <C>          <C>          <C>          <C>          <C>
SELECTED OTHER DATA:
Number of:
     Mortgage loans outstanding                         1,110        1,516        2,119        2,445        3,252
     Deposit accounts                                  15,651       16,633       17,018       18,778       20,227
     Full-service offices                                   6            6            6            7            7

<CAPTION>
                                                                  At or for the year ended at June 30,
                                                                  ------------------------------------
                                                        2002         2001         2000        1999       1998
                                                        ----         ----         ----        ----       ----
<S>                                                    <C>          <C>          <C>          <C>          <C>
SELECTED FINANCIAL RATIOS AND
  OTHER DATA:
Performance Ratios:
     Return on assets (1)                                0.47%        0.69%        0.51%       (0.24)%      (0.25)%
     Return on equity (2)                                2.56         3.66         3.53        (3.11)       (4.08)
     Average interest rate spread (3)                    3.08         3.46         3.86         3.46         2.61
     Interest rate spread at year end                    3.02         3.17         4.15         4.03         3.20
     Net interest margin (4)                             3.56         4.16         4.37         3.64         2.76
     Operating (noninterest) expense
       to average total assets                           3.21         3.36         3.96         4.10         4.08
     Efficiency Ratio (5)                               81.11        76.60        86.34        98.64       102.13
     Average interest-earning assets to
       average interest-bearing liabilities            116.85       119.27       114.96       104.47       102.88

Capital Ratios:
     Tangible capital ratio                             14.91        13.92        14.48         9.63         6.69
     Core capital ratio                                 14.91        13.92        14.48         9.63         6.69
     Risk-based capital ratio                           26.77        25.19        23.56        14.94        10.68
     Ratio of average equity to average assets          18.37        18.71        14.53         7.78         6.13
     Tangible book value per share (7)                 $19.82       $19.64       $18.82          N/A          N/A

Asset Quality Ratios:
     Non-performing loans to total loans                 2.30         1.77         1.34         1.41         1.61
     Allowance for loan losses to
       non-performing loans (6)                         60.07        74.52        81.40        69.72        43.83
     Allowance for loan losses to total loans            1.38         1.32         1.09         0.98         0.71
</TABLE>

(1)  Net income divided by average total assets.

(2)  Net income divided by average total equity.

(3)  Difference between weighted average yield on interest-earning assets and
     weighted average cost of interest-bearing liabilities.

(4)  Net interest income as a percentage of average interest-earning assets.

(5)  Noninterest expense divided by the sum of net interest income and
     noninterest income (excluding gain on sale of securities).

(6)  Nonperforming loans consist of nonaccrual loans.

(7)  Tangible book value per share (total stockholders equity divided by common
     shares outstanding) was not applicable for 1998 and 1999 as the holding
     company was not formed until January 2000.


                                                                              3.
<PAGE>

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The Company is engaged primarily in attracting deposits from the general public
and using such deposits to originate one-to-four family residential mortgage
loans; commercial mortgage loans; and, to a lesser extent, consumer and other
loans primarily in its market areas and to acquire securities. The Company's
revenues are derived principally from interest earned on loans and securities
and 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.

Forward-Looking Statements

This Annual Report contains certain forward-looking statements that 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 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.


                                                                              4.
<PAGE>

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.

Comparison of Financial Condition at June 30, 2002 and June 30, 2001

Total assets at June 30, 2002 were $201.2 million compared to $204.9 million at
June 30, 2001, a decrease of $3.7 million, or 1.8%. Net loans declined to $105.5
million at June 30, 2002 from $111.1 million at June 30, 2001. Residential
mortgage loan balances declined by $14.6 million as loans paid down or were
refinanced. These balances were not replaced by new originations because the
Bank sold the majority of the fixed-rate, long-term mortgages that it
originated. Consumer loans declined by $6.2 million primarily due to auto loans
that were paid down from the Bank's discontinued indirect automobile lending
program and financing competition from below-market automobile dealer
incentives. These decreases were partially offset by an increase of $14.1
million in commercial and multi-family real estate loans and a $3.3 million
increase in construction loans. The increases in these loan categories were the
result of participations purchased from correspondent banks.

Total equity at June 30, 2002 was $36.9 million compared to $38.1 million at
June 30, 2001, a decrease of $1.2 million, or 3.2%. The decrease was primarily
attributable to the Company's purchase of 143,803 of its outstanding shares
through its repurchase program, 69,534 (net of 300 forfeited shares) of which
were purchased by the Company's Stock-Based Incentive Plan. The decrease from
the stock repurchases was partially offset by net income of $951,000, the
reduction of unearned Incentive Plan shares of $232,000, the allocation of ESOP
shares totaling $202,000, and the $258,000 increase in value on securities
available-for-sale. The securities available-for-sale changed from an unrealized
loss of $129,000 as of June 30, 2001 to an unrealized gain of $129,000 as of
June 30, 2002.

Comparison of Operating Results for the Years Ended June 30, 2002 and June 30,
2001

General. Net income for the year ended June 30, 2002 was $951,000 compared to
$1.4 million for the year ended June 30, 2001, a decrease of $419,000. The
decrease was primarily the result of a decrease in net interest income of $1.1
million, or 14.3%. The decrease in net interest income was partially offset by
an increase in noninterest income of $358,000, a decrease in noninterest expense
of $243,000, a decrease in income tax expense of $80,000, and a decrease in
provision for loan losses of $45,000.

Interest Income. Interest income for the year ended June 30, 2002 was $11.9
million compared to $14.5 million for the year ended June 30, 2001, a decrease
of $2.6 million, or 18.1%. The decrease was primarily the result of the average
yield on interest-earning assets decreasing to 6.53% for the year ended June 30,
2002 from 7.84% for the year ended June 30, 2001. The decrease in the average
balance of interest earning assets to $181.7 million for the year ended June 30,
2002 from $184.7 million for the year ended June 30, 2001, also contributed to
the decrease in interest income.


                                                                              5.
<PAGE>

Interest Expense. Interest expense for the year ended June 30, 2002 was $5.3
million compared to $6.8 million for the year ended June 30, 2001, a decrease of
$1.5 million, or 21.7%. The decrease was primarily the result of a decrease in
market interest rates. The Company's interest expense to average
interest-earning assets decreased to 2.93% for the year ended June 30, 2002 from
3.68% for the year ended June 30, 2001. Our cost of funds decreased to 3.38% for
the year ended June 30, 2002 to 4.38% for the year ended June 30, 2001,
reflecting a general decrease in interest rates in the year ended June 30, 2002.

Net Interest Income. Net interest income of $6.5 million for the year ended June
30, 2002 reflects a decrease of $1.2 million, or 15.6%, from the same period in
2001. The decrease in net interest income was primarily a result of a decrease
in the net interest margin to 3.60% for the year ended June 30, 2002 from 4.16%
for the year ended June 30, 2001. The decrease in net interest margin is
attributable primarily to a significant decrease in market interest rates,
particularly on the short end of the yield curve and the increased liquidity of
the Company.

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 $135,000 and $180,000 for the years ended June 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 1.38% of loans outstanding at
June 30, 2002, as compared with $1.5 million, or 1.32% of loans outstanding at
June 30, 2001. The allowance for loan losses to non-performing loans was 60.1%
at June 30, 2002, as compared to 74.5% at June 30, 2001. 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 June 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 for the year ended June 30, 2002 was $1.4
million compared to $1.1 million for the year ended June 30, 2001, an increase
of $358,000, or 33.4%. The increase was primarily attributable to $163,000 of
additional income on bank-owned life insurance that was purchased during the
second and third quarters of fiscal 2001, an increase in gains on the sale of
mortgage loans from secondary market activities of $117,000, an increase in


                                                                              6.
<PAGE>

deposit service charges of $67,000, and an increase in gains on the sale of
other real estate owned of $28,000.

Noninterest Expense. Noninterest expense for the year ended June 30, 2002 was
$6.5 million compared to $6.7 million for the year ended June 30, 2001, a
decrease of $243,000, or 3.6%. The primary reasons for the decline were a
reduction of approximately $268,000 in occupancy expense, an $188,000 reduction
in data processing expenses, a $79,000 reduction in advertising expense, a
$40,000 reduction in compensation and benefit expense and an $80,000 reduction
in various other expenses. This was partially offset by an increase of $412,000
in legal expenses, the majority of which related to a shareholder lawsuit
described in previous SEC filings.

Income Taxes. Tax net operating loss carryforwards were fully utilized during
the quarter ended December 31, 2000, causing the Company to begin recognizing
income tax expense. The Company recorded income tax expense of $421,000 for the
year ended June 30, 2002. This compares to $501,000 of income tax expense for
the year ended June 30, 2001. The decline was the result of lower pretax
earnings in 2002.

Comparison of Operating Results for the Years Ended June 30, 2001 and June 30,
2000

General. Net income for the year ended June 30, 2001 was $1.4 million compared
to $978,000 for the year ended June 30, 2000, an increase of $392,000. The
increase was primarily the result of an $889,000, or 11.7%, decrease in
noninterest expense. The decrease in noninterest expense was partially offset by
an increase in income tax expense of $501,000. No income tax expense was
recorded during the fiscal year ended June 30, 2000.

Interest Income. Interest income for the year ended June 30, 2001 was $14.5
million compared to $14.1 million for the year ended June 30, 2000, an increase
of $382,000, or 2.7%. The increase was primarily the result of an increase in
the average balance of interest earning assets to $184.7 million for the year
ended June 30, 2001 from $180.0 million for the year ended June 30, 2000. The
average yield on interest-earning assets increased to 7.84% for the year ended
June 30, 2001 from 7.83% for the year ended June 30, 2000.

Interest Expense. Interest expense for the year ended June 30, 2001 was $6.8
million compared to $6.2 million for the year ended June 30, 2000, an increase
of 568,000, or 9.1%. The increase was primarily the result of an increased
balance of FHLB borrowings and an increase in the cost of funds, from 3.97% for
the year ended June 30, 2000 to 4.38% for the same period in 2001.

Net Interest Income. Net interest income of $7.7 million for the year ended June
30, 2001 reflects a decrease of $186,000, or 2.4%, from the same period in 2000.
The decrease in net interest income was primarily a result of a decrease in the
net interest margin to 4.16% for the year ended June 30, 2001 from 4.37% for the
year ended June 30, 2000.

Provision for Loan Losses. The Company's provision for loan losses for the year
ended June 30, 2001 decreased $45,000 to $180,000 from $225,000 for the year
ended June 30, 2000, primarily due to decreased loan charge-off activity and a
decrease in gross loans outstanding during 2001. The amount of provision and
allowance for estimated losses on loans is influenced by current economic
conditions, actual loss experience, industry trends, and other factors. The


                                                                              7.
<PAGE>

loan loss provision for the year ended June 30, 2001 is indicative of
management's assessment of the adequacy of the allowance for loan losses, given
trends in historical loss experience of the portfolio, and current economic
conditions, as well as the fact that the majority of loans are single-family
residential loans and the loan-to-values are generally less than 80%. Although
management uses the best information available and maintains the allowance for
loan losses at a level it that believes is adequate to provide for probable
incurred losses, future adjustments to the allowance may be necessary due to
economic, operating, regulatory, and other conditions that may be beyond the
Company's control.

Noninterest Income. Noninterest income for the year ended June 30, 2001 was $1.1
million compared to $928,000 for the year ended June 30, 2000, an increase of
$145,000, or 15.6%. The increase was primarily the result of increased insurance
commission income from the Bank's insurance agency subsidiary of $217,000 for
the year ended June 30, 2001 compared to $19,000 for the year ended June 30,
2000 and a $163,000 increase in cash surrender value on $6.0 million of
bank-owned life insurance that was purchased during the 2nd and 3rd quarters of
the 2001 fiscal year. Noninterest income for the year ended June 30, 2000
included a one-time gain of $141,000 on the sale of mortgage servicing rights in
connection with the Company's exit from the mortgage servicing business.

Noninterest expense. Noninterest expense for the year ended June 30, 2001 was
$6.7 million compared to $7.6 million for the year ended June 30, 2000, a
decrease of $889,000, or 11.7%. The primary reasons for the decline were a
reduction of approximately $666,000 in compensation and benefit expense due to a
reduction in full-time equivalents during 2001, a $63,000 reduction in data
processing expenses, a $126,000 decrease in occupancy expense, and a $61,000
decrease in FDIC insurance expense. This was partially offset by an increase of
$81,000 in expenses related to the Bank's insurance agency subsidiary, which is
included in other expense.

Income Taxes. Tax net operating loss carryforwards were fully utilized during
the quarter ended December 31, 2000, causing the Company to begin recognizing
income tax expense. Future periods will be impacted by the recognition of
federal and state income tax at statutory rates and the reversal of a $252,000
valuation allowance against deferred tax assets. The Company recorded income tax
expense of $501,000 for the year ended June 30, 2001. This compares to no income
tax expense being recorded during the previous fiscal year.

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.

Recent legislation repealed the Office of Thrift Supervision ("OTS") minimum
liquidity ratio requirements. OTS regulations now require the Bank to maintain
sufficient liquidity to maintain the Bank's safe and sound operation.


                                                                              8.
<PAGE>

The Company's cash flows are comprised of three primary classifications: cash
flows from operating activities, investing activities, and financing activities.
Cash flows provided by operating activities were $1.4 million, $1.6 million, and
$4.5 million for the years ended June 30, 2002, 2001, and 2000, respectively.
Net cash from investing activities consisted primarily of disbursements for loan
originations and the purchase of securities available-for-sale, offset by
principal collections on loans, proceeds from maturation and calls of
securities. Net cash from financing activities consisted primarily of activity
in deposit accounts and FHLB advances.

The Company's most liquid assets are cash and short-term investments. The levels
of these assets are dependent on the Company's operating, financing, lending,
and investing activities during any given period. At June 30, 2002, cash and
short-term investments totaled $42.2 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 FHLB
advances as a source of funds. At June 30, 2002, the Company had the ability to
borrow a total of approximately $28.4 million from the Federal Home Loan Bank of
Indianapolis. On that date, the Company had $15.0 million of outstanding
advances.

At June 30, 2002, the Company had outstanding commitments to originate loans of
$5.9 million. 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 June 30, 2002
totaled $72.8 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.

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 June 30, 2002, the Company was in compliance with all applicable capital
requirements. See "Regulation and Supervision - Regulatory Capital Requirements"
and Note 12 of the Notes to Consolidated Financial Statements.


                                                                              9.
<PAGE>

Impact of Accounting Pronouncements

Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. In July
2001, the Financial Accounting Standards Board (FASB) issued SFAS 141, Business
Combinations, which requires that all business combinations be accounted for
under a single method, the purchase method. Use of the pooling-of-interests
method is no longer permitted. SFAS 141 requires that the purchase method be
used for business combinations initiated after June 30, 2001. Since this
accounting standard applies to business combinations initiated after June 30,
2001, it will have no effect on the Company's financial statements unless the
Company enters into a business combination transaction.

In July 2001, the FASB also issued SFAS 142, Goodwill and Other Intangible
Assets, which requires that goodwill no longer be amortized to earnings, but
instead be reviewed for impairment. The amortization of goodwill ceases upon
adoption of SFAS No. 142, which for most companies will be January 1, 2002. This
pronouncement will not have an effect on the Company's financial statements.

In fiscal year 2002, the FASB also issued SFAS No. 143, "Accounting for Asset
Retirement Obligations"; SFAS No. 144, "Accounting for the Impairment and
Disposal of Long-Term Assets"; SFAS No. 145, "Rescission of SFAS Statements No.
4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections"; and SFAS
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities."
The adoption of these pronouncements is not expected to have a material effect
on the Company.

Effect of Inflation and Changing Prices

The consolidated financial statements and related data presented herein have
been prepared in accordance with accounting principles generally accepted in the
United States of America which require the measurement of financial position and
operating results in terms of historical dollars without considering changes in
the relative purchasing power of money over time due to inflation. The primary
impact of inflation on the operations of the Bank is reflected in increased
operating costs. Unlike most industrial companies, virtually all of the assets
and liabilities of a financial institution are monetary in nature. As a result,
interest rates, generally, have a more significant impact on a financial
institution's performance than does inflation. Interest rates do not necessarily
move in the same direction or to the same extent as the prices of goods and
services.

Average Balances, Interest and Average Yields/Cost

The following table presents certain information for the periods indicated
regarding average balances of assets and liabilities as well as the total dollar
amounts of interest income from average interest-earning assets and interest
expense on average interest-bearing liabilities and average yields and costs.
The yields and costs for the periods indicated are derived by dividing income or
expense by the average balances of assets or liabilities, respectively, for the
periods presented. Nonaccruing loans have been included in the average loan
amounts. Average balances were derived from month-end balances. Management does
not believe that the use of month-end balances instead of daily balances causes
any material differences in the information presented.


                                                                             10.
<PAGE>

<TABLE>
<CAPTION>
                                                                             Year ended June 30,
                                                                             -------------------
                                  At June 30, 2002     -------------2002------------    -------------2001-------------
                                  ----------------                  ----                             ----
                                             Average                         Average                          Average
                                             Yield/    Average               Yield/     Average               Yield/
                                 Balance      Rate     Balance    Interest    Rate      Balance    Interest    Rate
                                 -------      ----     -------    --------    ----      -------    --------    ----
<S>                              <C>           <C>     <C>        <C>         <C>       <C>        <C>          <C>
Interest-earning assets:
   Loans
     receivable (1)              $106,957      7.10%   $106,674   $  8,253      7.74%   $125,882   $ 10,423       8.28%
   Mortgage-
     backed securities                493      6.54       1,197         76      6.35       2,946        187       6.35
   Securities (2)                  38,787      5.90      43,457      2,879      6.62      45,095      2,992       6.63
   Other interest-
     earning assets                36,515      1.91      30,340        655      2.16      10,805        879       8.14
                                 --------              --------   --------              --------   --------
       Total interest-
         earning assets           182,752      5.81     181,668     11,863      6.53     184,728     14,481       7.84
   Non-interest-
     earning assets                18,440                20,152                           15,243
                                 --------              --------                         --------

       Total assets              $201,192              $201,820                         $199,971
                                 ========              ========                         ========

Interest-bearing
  liabilities:
   Deposits:
       NOW accounts              $  7,100      1.00%   $  8,415   $     89      1.06%   $  7,686   $    101       1.31%
       Money market
         accounts                   8,242      1.50       5,801        123      2.12       8,574        234       2.73
       Savings
         accounts                  45,650      1.67      43,376        768      1.77      39,668        939       2.37
       Certificates
         of deposit                81,028      3.29      84,534      3,568      4.22      91,637      5,147       5.62
                                 --------              --------   --------              --------   --------
           Total
            deposits              142,020      2.55     142,126      4,548      3.20     147,565      6,421       4.35
   FHLB advances
     and other
     borrowed funds                15,000      5.05      15,050        769      5.11       7,320        369       5.04
                                 --------              --------   --------              --------   --------
       Total interest-
         bearing
          liabilities             157,020      2.79     157,176      5,317      3.38     154,885      6,790       4.38
                                 --------                         --------                         --------
   Noninterest-
     bearing
      liabilities                   7,230                 7,560                            7,674
                                 --------              --------                         --------
       Total liabilities          164,250               164,736                          162,559
   Equity                          36,942                37,084                           37,412
                                 --------              --------                         --------

       Total liabilities
         and equity              $201,192              $201,820                         $199,971
                                 ========              ========                         ========

Net interest income/
  interest rate spread                         3.02%              $  6,546      3.15%              $  7,691       3.46%
                                             ======               ========   =======               ========    =======
Net interest margin/
  interest earning assets                                                       3.38%                             4.16%
                                                                             =======                           =======
Ratio of interest-
  earning assets to
  interest-bearing liabilities                                                115.58%                           119.27%
                                                                             =======                           =======

<CAPTION>
                                      Year ended June 30,
                                      -------------------
                                 -------------2000-------------
                                              ----
                                                       Average
                                 Average               Yield/
                                 Balance    Interest    Rate
                                 -------    --------    ----
<S>                              <C>        <C>          <C>
Interest-earning assets:
   Loans
     receivable (1)              $145,217   $ 11,739       8.08%
   Mortgage-
     backed securities              3,804        252       6.62
   Securities (2)                  23,609      1,552       6.57
   Other interest-
     earning assets                 7,418        556       7.50
                                 --------   --------
       Total interest-
         earning assets           180,048     14,099       7.83
   Non-interest-
     earning assets                10,680
                                 --------

       Total assets              $190,728
                                 ========

Interest-bearing
  liabilities:
   Deposits:
       NOW accounts              $  7,963   $    113       1.42%
       Money market
         accounts                   6,377        167       2.62
       Savings
         accounts                  45,480      1,090       2.40
       Certificates
         of deposit                95,501      4,766       4.99
                                 --------   --------
           Total
            deposits              155,321      6,136       3.95
   FHLB advances
     and other
     borrowed funds                 1,300         86       6.62
                                 --------   --------
       Total interest-
         bearing
          liabilities             156,621      6,222       3.97
                                 --------   --------   --------
   Noninterest-
     bearing
      liabilities                   6,386
                                 --------
       Total liabilities          163,007
   Equity                          27,721
                                 --------

       Total liabilities
         and equity              $190,728
                                 ========

Net interest income/
  interest rate spread                      $  7,877       3.86%
                                            ========    =======
Net interest margin/
  interest earning assets                                  4.37%
                                                        =======
Ratio of interest-
  earning assets to
  interest-bearing liabilities                           114.96%
                                                        =======
</TABLE>

(1)  Includes loans held for sale.
(2)  Includes FHLB stock.


                                                                             11.
<PAGE>

Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on the
interest income and interest expense of Security Federal. The rate column shows
the effects attributable to changes in rate (changes in rate multiplied by prior
volume). The volume column shows the effects attributable to changes in volume
(changes in volume multiplied by prior rate). For purposes of this table,
changes attributable to changes in both rate and volume, which cannot be
segregated, have been allocated proportionately based on the absolute value of
the change due to rate and the change due to volume.

<TABLE>
<CAPTION>
                                                Year ended June 30, 2002               Year ended June 30, 2001
                                                 compared to year ended                 compared to year ended
                                                      June 30, 2001                          June 30, 2000
                                                      -------------                          -------------
                                                   Increase (Decrease)                    Increase (Decrease)
                                                         Due to                                 Due to
                                                         ------                                 ------
                                             Rate        Volume        Total        Rate        Volume        Total
                                             ----        ------        -----        ----        ------        -----
                                                                     (Dollars in thousands)
<S>                                      <C>          <C>          <C>           <C>          <C>          <C>
Interest-earning assets:
    Loans receivable                     $     (653)  $   (1,517)  $   (2,170)   $     279    $   (1,595)  $   (1,316)
    Mortgage-backed securities                   --         (111)        (111)         (10)          (55)         (65)
    Securities                                   24         (137)        (113)          15         1,425        1,440
    Other interest-earning assets              (983)         759         (224)          51           272          323
                                         ----------   ----------   ----------    ---------    ----------   ----------
       Total interest-earning assets         (1,773)        (845)      (2,618)         335            47          382

Interest-bearing liabilities:
    Deposits:
       NOW accounts                             (21)           9          (12)          (8)           (4)         (12)
       Money market accounts                    (45)         (66)        (111)          --            60           67
       Savings accounts                        (253)          82         (171)         (13)         (138)        (151)
       Certificates of deposit               (1,204)        (375)      (1,579)         580          (199)         381
    FHLB advances and other
      borrowed funds                              5          395          400          (25)          308          283
                                         ----------   ----------   ----------    ---------    ----------   ----------
       Total interest-bearing
         liabilities                         (1,518)          45       (1,473)         541            27          568
                                         ----------   ----------   ----------    ---------    ----------   ----------

          Increase (decrease) in
            net interest income          $     (255)  $     (890)  $   (1,145)   $    (206)   $       20   $     (186)
                                         ==========   ==========   ==========    =========    ==========   ==========
</TABLE>

Market Risk Analysis

General. The Company's profitability depends primarily on its net interest
income, which is the difference between the income it receives on its loan and
investment portfolio and its cost of funds, which consists of interest paid on
deposits and borrowings. Net interest income is also affected by the relative
amounts of interest-earning assets and interest-bearing liabilities. When
interest-earning assets equal or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income. The Company's
profitability is also affected by the level of income and expenses. Noninterest
income includes service charges and fees. Noninterest expenses primarily include
compensation and benefits, occupancy and equipment expenses, deposit insurance
premiums, and data processing expenses. The Company's results of operations are
also significantly affected by general economic and competitive conditions,


                                      12.
<PAGE>

particularly changes in market interest rates, government legislation and
regulation, and monetary and fiscal policies.

Qualitative Aspects of 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.

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
June 30, 2002, $67.3 million, or 45.4%, of Security Federal's deposits consisted
of demand, passbook, NOW, and money market accounts. 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 June 30, 2002, $12.1 million, or 36.5%, 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.

In order to encourage institutions to reduce their interest rate risk, the
Office of Thrift Supervision adopted a rule incorporating an interest rate risk
component into the risk-based capital rules. Using data compiled by the Office
of Thrift Supervision, Security Federal receives a report that measures interest
rate risk by modeling the change in net portfolio value over a variety of
interest rate scenarios. This procedure for measuring interest rate risk was
developed by the Office of Thrift Supervision to replace the "gap" analysis,
which is the difference between interest-earning assets and interest-bearing
liabilities that mature or reprice within a specific time period. Net portfolio
value is the present value of expected cash flows from assets, liabilities, and
off-balance-sheet contracts. The calculation is intended to illustrate the
change in net portfolio value that will occur upon an immediate change in
interest rates of at least 200 basis points with no effect given to any steps
that management might take to counter the effect of that interest rate movement.
Under Office of Thrift Supervision regulations, an institution


                                                                             13.
<PAGE>

with a greater than "normal" level of interest rate risk must take a deduction
from total capital for purposes of calculating its risk-based capital. The
Office of Thrift Supervision, however, has delayed the implementation of this
regulation. An institution with a "normal" level of interest rate risk is
defined as one whose "measured interest rate risk" is less than 2.0%.
Institutions with assets of less than $300 million and a risk-based capital
ratio of more than 12.0% are exempt. Security Federal is exempt because of its
asset size and it has greater than 12% risk-based capital. If the proposed
regulation was implemented and applied at June 30, 2002, Security Federal
believes that its level of interest rate risk would not have caused it to be
treated as an institution with greater than "normal" interest rate risk.

Quantitative Aspects of Market Risk. The Company does not maintain a trading
account for any class of financial instrument nor does it purchase high-risk
derivative instruments. Furthermore, the Company has no foreign currency
exchange rate risk or commodity price risk.

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.

<TABLE>
<CAPTION>
                                                                                    NPV as % of
   Change in                                                                 Portfolio Value of Assets
Interest Rates                  Net Portfolio Value                          -------------------------
in Basis Points                 -------------------                         NPV              Basis Point
 (Rate Shock)       Amount           $ Change         % Change             Ratio               Change
 ------------       ------           --------         --------             -----               ------
                              (Dollars in thousands)
<S>              <C>                  <C>                  <C>            <C>                 <C>
     300         $35,389              (2,211)              (5.9)%         17.36%              (71) bp
     200          36,562              (1,038)              (2.8)          17.78               (29) bp
     100          37,302                (298)               (.8)          18.02                (5) bp
  Static          37,600                  --                 --           18.07                --
   (100)          37,268                (332)               (.9)          17.88               (19) bp
</TABLE>

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.

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 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.


                                                                             14.
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS


Board of Directors
Security Financial Bancorp, Inc.
St. John, Indiana


We have audited the accompanying consolidated statements of financial condition
of Security Financial Bancorp, Inc. and its wholly owned subsidiaries as of June
30, 2002 and 2001, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended June 30, 2002. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Security Financial
Bancorp, Inc. and its wholly owned subsidiaries as of June 30, 2002 and 2001 and
the results of their operations and their cash flows for each of the three years
in the period ended June 30, 2002 in conformity with accounting principles
generally accepted in the United States of America.



                                               /s/ Crowe, Chizek and Company LLP

Oak Brook, Illinois
August 21, 2002


                                                                             15.
<PAGE>

                        SECURITY FINANCIAL BANCORP, INC.
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                             June 30, 2002 and 2001
             (Dollars in thousands except shares and per share data)

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

<TABLE>
<CAPTION>
                                                                                  2002          2001
                                                                                  ----          ----
<S>                                                                           <C>           <C>
ASSETS
Cash and due from financial institutions                                      $     5,729   $     4,938
Interest-bearing deposits in financial institutions                                36,515        21,563
                                                                              -----------   -----------
    Cash and cash equivalents                                                      42,244        26,501

Securities available-for-sale                                                      33,980        46,197
Loans held for sale                                                                 1,468         1,139
Loans receivable, net                                                             105,489       111,147
Federal Home Loan Bank stock                                                        5,300         5,300
Cash surrender value of life insurance                                              6,489         6,164
Other real estate owned                                                               129           197
Premises and equipment, net                                                         4,681         5,414
Accrued interest receivable                                                           930         1,505
Other assets                                                                          482         1,353
                                                                              -----------   -----------

    Total assets                                                              $   201,192   $   204,917
                                                                              ===========   ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
    Demand deposits                                                           $     6,273   $     6,377
    Savings                                                                        45,650        38,951
    NOW and money market                                                           15,342        14,191
    Time deposits, $100 and over                                                   12,721        13,616
    Other time deposits                                                            68,307        76,365
                                                                              -----------   -----------
                                                                                  148,293       149,500

Federal Home Loan Bank advance                                                     15,000        15,000
Other borrowed funds                                                                   --           100
Advances from borrowers for taxes and insurance                                       197           428
Accrued interest payable and other liabilities                                        760         1,819
                                                                              -----------   -----------
    Total liabilities                                                             164,250       166,847

Stockholders' equity
    Preferred stock:  $ .01 par value per share, 1,000,000 shares,
      authorized; no shares issued                                                     --            --
    Common stock $.01 par value per share, 4,000,000 shares
      authorized, 1,938,460 shares issued and outstanding                              19            19
    Additional paid-in-capital                                                     18,610        18,636
    Unearned stock awards                                                            (955)           --
    Unearned ESOP shares                                                           (1,293)       (1,396)
    Treasury stock (2002 - 74,269 shares; 2001 - 0 shares)                         (1,459)           --
    Retained earnings                                                              21,891        20,940
    Accumulated other comprehensive income (loss)                                     129          (129)
                                                                              -----------   -----------
       Total stockholders' equity                                                  36,942        38,070
                                                                              -----------   -----------

          Total liabilities and stockholders' equity                          $   201,192   $   204,917
                                                                              ===========   ===========
</TABLE>

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

          See accompanying notes to consolidated financial statements.


                                                                             16.
<PAGE>

                        SECURITY FINANCIAL BANCORP, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    Years ended June 30, 2002, 2001, and 2000
                  (Dollars in thousands except per share data)

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

<TABLE>
<CAPTION>
                                                                     2002            2001          2000
                                                                     ----            ----          ----
<S>                                                               <C>           <C>           <C>
Interest and dividend income
    Loans, including fees                                         $     8,253   $    10,423   $    11,739
    Securities                                                          2,955         3,179         1,804
    Other interest-earning assets                                         655           879           556
                                                                  -----------   -----------   -----------
                                                                       11,863        14,481        14,099

Interest expense
    Deposits                                                            4,548         6,421         6,136
    Federal Home Loan Bank advance and
      other borrowed funds                                                769           369            86
                                                                  -----------   -----------   -----------
                                                                        5,317         6,790         6,222
                                                                  -----------   -----------   -----------

Net interest income                                                     6,546         7,691         7,877

Provision for loan losses                                                 135           180           225
                                                                  -----------   -----------   -----------

Net interest income after provision for loan losses                     6,411         7,511         7,652

Noninterest income
    Service charges and other fees                                        322           255           220
    Increase in cash surrender value of life insurance                    325           162            --
    Loan charges and servicing fees                                       145           149           154
    Gain on sale of loans                                                 200            83           115
    Gain on sale of mortgage servicing rights                              --            --           141
    Gain on sale of other real estate owned                                43            15           105
    Insurance commission income                                           222           217            19
    Other                                                                 174           192           174
                                                                  -----------   -----------   -----------
                                                                        1,431         1,073           928

Noninterest expense
    Compensation and benefits                                           3,242         3,282         3,948
    Occupancy and equipment                                             1,124         1,392         1,518
    SAIF deposit insurance premium                                         28            30            91
    Advertising and promotions                                            105           184           265
    Legal fees                                                            600           188            98
    Data processing                                                       332           520           583
    Other                                                               1,039         1,117         1,099
                                                                  -----------   -----------   -----------
                                                                        6,470         6,713         7,602
                                                                  -----------   -----------   -----------

Income before income taxes                                              1,372         1,871           978

Income tax                                                                421           501            --
                                                                  -----------   -----------   -----------

Net income                                                        $       951   $     1,370   $       978
                                                                  ===========   ===========   ===========

Basic earnings per share                                          $       .56   $       .76   $       .34
Diluted earnings per share                                        $       .55   $       .76   $       .34
</TABLE>

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

          See accompanying notes to consolidated financial statements.


                                                                             17.
<PAGE>

                        SECURITY FINANCIAL BANCORP, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                    Years ended June 30, 2002, 2001, and 2000
                             (Dollars in thousands)

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

<TABLE>
<CAPTION>
                                                                                                 Accumulated
                                                                                                    Other
                                                                                                   Compre-
                                       Additional  Unearned                                        hensive
                              Common     Paid-in     Stock     Unearned   Treasury    Retained     Income      Total
                               Stock     Capital    Awards       ESOP       Stock     Earnings     (Loss)     Equity
                               -----     -------    ------       ----       -----     --------     ------     ------
<S>                          <C>         <C>       <C>         <C>        <C>         <C>        <C>         <C>
Balance at July 1, 1999      $      --   $   --    $     --    $    --    $      --   $18,592    $     (60)  $  18,532

Issuance of common stock,
  net of conversion costs           19   18,559          --     (1,551)          --        --           --      17,027

ESOP shares earned                  --       11          --         52           --        --           --          63

Comprehensive income:
    Net income                      --       --          --         --           --       978           --         978

    Change in unrealized
      loss on securities
      available-for-sale            --       --          --         --           --        --         (114)       (114)
                                                                                                             ---------

       Total comprehensive
         income                                                                                                    864
                             ---------   ------    --------    -------    ---------   -------    ---------   ---------

Balance at June 30, 2000            19   18,570          --     (1,499)          --    19,570         (174)     36,486

ESOP shares earned                  --       66          --        103           --        --           --         169

Comprehensive income:
    Net income                      --       --          --         --           --     1,370           --       1,370

    Change in unrealized
      gain on securities
      available-for-sale            --       --          --         --           --        --           45          45
                                                                                                             ---------

       Total comprehensive
         income                                                                                                  1,415
                             ---------   ------    --------    -------    ---------   -------    ---------   ---------

Balance at June 30, 2001            19   18,636          --     (1,396)          --    20,940         (129)     38,070

ESOP shares earned                  --       99          --        103           --        --           --         202

Purchase of 143,803
  shares of treasury stock          --       --          --         --       (2,771)       --           --      (2,771)

Stock awards issued                 --     (125)     (1,187)        --        1,312        --           --          --

Stock awards earned                 --       --         232         --           --        --           --         232

Comprehensive income
    Net income                      --       --          --         --           --       951           --         951

    Change in unrealized
      gain on securities
      available-for-sale            --       --          --         --           --        --          258         258
                                                                                                             ---------

       Total comprehensive
         income                                                                                                  1,209
                             ---------   ------    --------    -------    ---------   -------    ---------   ---------

Balance at June 30, 2002     $      19   $18,610   $   (955)   $(1,293)   $  (1,459)  $21,891    $     129   $  36,942
                             =========   =======   ========    =======    =========   =======    =========   =========
</TABLE>

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

          See accompanying notes to consolidated financial statements.


                                                                             18.
<PAGE>

                        SECURITY FINANCIAL BANCORP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    Years ended June 30, 2002, 2001, and 2000
                             (Dollars in thousands)

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

<TABLE>
<CAPTION>
                                                                           2002           2001          2000
                                                                           ----           ----          ----
<S>                                                                     <C>           <C>           <C>
Cash flows from operating activities
    Net income                                                          $       951   $     1,370   $       978
    Adjustments to reconcile net income to net cash from
      operating activities
       Depreciation                                                             496           629           640
       Provision for loan losses                                                135           180           225
       Gain on sale of other real estate owned                                  (43)          (15)         (105)
       Origination and purchase of loans held for sale                      (16,060)       (9,828)       (1,440)
       Proceeds from sales of loans held for sale                            15,931         9,129         1,551
       Change in mortgage loan servicing rights                                  --            --           (61)
       Gain on sale of loans from secondary market activities                  (200)          (83)         (115)
       Gain on sale of mortgage servicing rights                                 --            --          (141)
       Amortization of mortgage loan servicing rights                            --            --           156
       Proceeds from sales of mortgage servicing rights                          --            --         4,044
       Accretion of discount on securities                                     (146)         (434)         (281)
       ESOP expense                                                             202           169            63
       Stock awards expenses                                                    232            --            --
       Increase in cash surrender value of life insurance                      (325)         (163)           --
       Change in accrued interest receivable                                    575          (305)         (166)
       Change in accrued interest payable                                       (43)           70           (31)
       Change in other assets                                                   699           362          (273)
       Change in other liabilities                                           (1,016)          469          (519)
                                                                        -----------   -----------   -----------
          Net cash from operating activities                                  1,388         1,550         4,525

Cash flows from investing activities
    Change in certificates of deposit in other financial institutions            --         7,000        (7,000)
    Proceeds from maturities and calls of securities
      available-for-sale                                                     72,323        32,846        11,092
    Principal payments on securities available-for-sale                       1,481         1,646         1,318
    Purchase of securities available-for-sale                               (61,011)      (53,083)      (21,583)
    Change in loans                                                           5,502        20,071        18,443
    Investment in life insurance                                                 --        (6,001)           --
    Proceeds from sale of premises and equipment                                325            --            --
    Purchase of premises and equipment                                          (88)         (560)         (357)
    Proceeds from sale of other real estate                                     132           430         1,085
                                                                        -----------   -----------   -----------
       Net cash from investing activities                                    18,664         2,349         2,998

Cash flows from financing activities
    Change in deposits                                                       (1,207)       (2,089)      (14,128)
    Proceeds from stock issuance, net                                            --            --        17,027
    Change in advance payments by borrowers for
      taxes and insurance                                                      (231)          (63)         (288)
    Proceeds from advances from Federal Home Loan Bank
      and other borrowings                                                       --        15,000           200
    Repayments of advances from Federal Home Loan Bank
      and other borrowings                                                     (100)         (100)       (5,000)
    Purchase of treasury stock                                               (2,771)           --            --
                                                                        -----------   -----------   -----------
       Net cash from financing activities                                    (4,309)       12,748        (2,189)
                                                                        -----------   -----------   -----------
</TABLE>

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

                                   (Continued)


                                                                             19.
<PAGE>

                        SECURITY FINANCIAL BANCORP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    Years ended June 30, 2002, 2001, and 2000
                             (Dollars in thousands)

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

<TABLE>
<CAPTION>
                                                                           2002           2001          2000
                                                                           ----           ----          ----
<S>                                                                     <C>           <C>           <C>
Net change in cash and cash equivalents                                 $    15,743   $    16,647   $     5,334

Cash and cash equivalents at beginning of year                               26,501         9,854         4,520
                                                                        -----------   -----------   -----------

Cash and cash equivalents at end of year                                $    42,244   $    26,501   $     9,854
                                                                        ===========   ===========   ===========

Supplemental disclosures of cash flow information
    Cash paid during the year for
       Interest                                                         $     5,360   $     6,720   $     6,253
       Income taxes                                                             420           711           272

    Transfer from loans to other real estate                                     21           295         1,032
</TABLE>

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

          See accompanying notes to consolidated financial statements.


                                                                             20.
<PAGE>

                        SECURITY FINANCIAL BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2002, 2001, and 2000
               (Table amounts in thousands except per share data)

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business: The accompanying consolidated financial statements include
the accounts of Security Financial Bancorp, Inc. ("the Company") and its wholly
owned subsidiary, Security Federal Bank, a Federal Savings Bank ("the Bank").
The Boulevard, Inc.; Strategic Financial Corporation; and Family Home Service
Corporation, Inc. are all wholly owned subsidiaries of the Bank. All significant
intercompany transactions and balances are eliminated in consolidation.

The Bank is a federally chartered stock savings bank and a member of the Federal
Home Loan Bank ("FHLB") system. The Bank maintains insurance on savings accounts
with the Savings Association Insurance Fund ("SAIF") of the Federal Deposit
Insurance Corporation.

The Bank is engaged in the business of residential, commercial, and consumer
lending to customers located primarily in northwest Indiana and Will and Cook
Counties, Illinois. These communities are the source of substantially all of the
Bank's deposit and lending activities. Mortgage loans originated for resale are
originated primarily through its retail banking locations. The Boulevard, Inc.
sells insurance and brokerage services. Strategic Financial Corporation and
Family Home Service Corporation, Inc. are both inactive.

Use of Estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates. The allowance for loan losses, fair value of
loans held for sale, and fair value of financial instruments are particularly
subject to change.

Statement of Cash Flows: For purposes of reporting cash flows, cash and cash
equivalents is defined to include the Company's cash on hand, due from financial
institutions, and short-term interest-bearing deposits in financial
institutions. The Company reports net cash flows for customer loan transactions,
deposit transactions, and deposits made with other financial institutions.

Securities: Securities are classified as available-for-sale since the Company
may decide to sell those securities for changes in market interest rates,
liquidity needs, changes in yields on alternative investments, and for other
reasons. They are carried at fair value. Unrealized gains and losses on
securities available-for-sale are charged or credited to a valuation allowance,
which is included as a separate component of equity, net of taxes. Realized
gains and losses on disposition are based on the net proceeds and the adjusted
carrying amount of the securities sold, using the specific identification
method. FHLB stock is carried at cost.

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

                                   (Continued)


                                                                             21.
<PAGE>

                        SECURITY FINANCIAL BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2002, 2001, and 2000
               (Table amounts in thousands except per share data)

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loans Held for Sale: Loans intended for sale in the secondary market are carried
at the lower of cost or estimated market value in the aggregate.

Loans Receivable: Loans receivable are stated at unpaid principal balances, less
the allowance for loan losses and net of deferred loan origination fees and
discounts.

Recognition of Interest Income on Loans: Interest income on loans is recognized
over the term of the loans based on the principal balance outstanding.

Loan Origination Fees, Commitment Fees, and Related Costs: Loan fees and certain
direct loan origination costs are deferred, and the net fee or cost is
recognized as an adjustment to interest income using the interest method over
the contractual life of the loans, adjusted for estimated prepayments based on
the Company's historical prepayment experience.

Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable incurred credit losses, increased by the provision for
loan losses and decreased by charge-offs less recoveries. Management estimates
the allowance balance required using past loan loss experience, the nature and
volume of the portfolio, information about specific borrower situations and
estimated collateral values, economic conditions, and other factors. Allocations
of the allowance may be made for specific loans, but the entire allowance is
available for any loan that, in management's judgment, should be charged off.
Loan losses are charged against the allowance when management believes the
uncollectibility of a loan balance is confirmed

A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature,
such as residential mortgage, consumer, and credit card loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate or at the fair
value of collateral if repayment is expected solely from the collateral.

Other Real Estate Owned: Real estate properties acquired through or in lieu of
loan foreclosures are initially recorded at the lower of cost or fair value,
less estimated selling expenses, at the date of foreclosure. Costs relating to
improvement of property are capitalized, whereas costs relating to the holding
of property are expensed.

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

                                   (Continued)


                                                                             22.
<PAGE>

                        SECURITY FINANCIAL BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2002, 2001, and 2000
               (Table amounts in thousands except per share data)

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes: The Company records income tax expense based on the amount of
taxes due on its tax return, plus deferred taxes computed based on the expected
future tax consequences of temporary differences between the carrying amounts
and tax bases of assets and liabilities, using enacted tax rates. A valuation
allowance has been recorded to reduce deferred tax assets to the amount expected
to be realized.

Employee Stock Ownership Plan: The cost of shares issued to the ESOP but not yet
allocated to participants is presented in the consolidated balance sheet as a
reduction of stockholders' equity. Compensation expense is recorded based on the
market price of the shares as they are committed to be released for allocation
to participant accounts. The difference between the market price and the costs
of shares committed to be released is recorded as an adjustment to paid-in
capital. Dividends on allocated ESOP shares are recorded as a reduction of
retained earnings; dividends on unallocated ESOP shares are reflected as a
reduction of debt.

Shares are considered outstanding for earnings per share calculations as they
are committed to be released; unallocated shares are not considered outstanding.

Earnings Per Common Share: Earnings per share reflect the earnings available to
common stockholders for the year divided by the weighted average number of
common shares outstanding during the year. Diluted earnings per common share
includes the dilutive effect of additional potential common shares issuable
under stock options.

Loss Contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will have
a material effect on the financial statements.

Premises and Equipment: Land is carried at cost. Buildings; leasehold
improvements; and furniture, fixtures, and equipment are carried at cost, less
accumulated depreciation. Premises and equipment are depreciated using the
straight-line method over the estimated useful lives of the related assets,
which range from three to forty years. Maintenance and repairs are expensed and
improvements are capitalized.

Comprehensive Income: Comprehensive income consists of net income and unrealized
gains and losses on securities available-for-sale.

Reclassifications: Certain reclassifications were made to the prior year
financial statements to conform to the 2002 presentation.

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

                                   (Continued)


                                                                             23.
<PAGE>

                        SECURITY FINANCIAL BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2002, 2001, and 2000
               (Table amounts in thousands except per share data)

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

NOTE 2 - SECURITIES

The amortized cost and fair value of securities available-for-sale are as
follows as of June 30:

<TABLE>
<CAPTION>
                                                                   Gross          Gross
                                                   Amortized    Unrealized     Unrealized         Fair
                                                     Cost          Gains         Losses           Value
                                                     ----          -----         ------           -----
<S>                                              <C>            <C>            <C>            <C>
2002
----
     U.S. Government and federal agencies        $    32,766    $       228    $       (40)   $    32,954
     Equity securities                                   515             18             --            533
     Mortgage-backed securities and
       collateralized mortgage obligation -
       issued by FHLMC and FNMA                          484             10             (1)           493
                                                 -----------    -----------    -----------    -----------

                                                 $    33,765    $       256    $       (41)   $    33,980
                                                 ===========    ===========    ===========    ===========

2001
----
     U.S. Government and federal agencies        $    44,447    $        88    $      (312)   $    44,223
     Mortgage-backed securities and
       collateralized mortgage obligation -
       issued by FHLMC and FNMA                        1,965             14             (5)         1,974
                                                 -----------    -----------    -----------    -----------

                                                 $    46,412    $       102    $      (317)   $    46,197
                                                 ===========    ===========    ===========    ===========
</TABLE>

Amortized cost and fair value of debt securities available-for-sale by
contractual maturity are shown below. Expected maturities may differ from
contractual maturities because borrowers may call or prepay obligations.

<TABLE>
<CAPTION>
                                                                              --------June 30, 2002------
                                                                                      -------------
                                                                                Amortized         Fair
                                                                                  Cost            Value
                                                                                  ----            -----
<S>                                                                            <C>            <C>
Due in one to five years                                                       $    12,122    $    12,165
Due in six to ten years                                                             14,024         14,199
Due after ten years                                                                  6,620          6,590
Mortgage-backed securities                                                             484            493
                                                                               -----------    -----------

                                                                               $    33,250    $    33,447
                                                                               ===========    ===========
</TABLE>

There were no sales of securities during 2002, 2001, or 2000.

At June 30, 2002, securities with an amortized cost of $33,281 and a carrying
value of $33,487 contained call features at the option of the issuers.

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

                                   (Continued)


                                                                             24.
<PAGE>

                        SECURITY FINANCIAL BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2002, 2001, and 2000
               (Table amounts in thousands except per share data)

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

NOTE 3 - LOANS RECEIVABLE, NET

Loans receivable at June 30 are summarized as follows:

<TABLE>
<CAPTION>
                                                                                 2002            2001
                                                                                 ----            ----
<S>                                                                          <C>             <C>
Mortgage loans
    Secured by one-to-four-family residences                                 $     44,943    $     59,568
    Secured by commercial and multi-family properties                              32,588          18,509
Construction loans                                                                  4,407           1,107
Automobile loans                                                                    1,800           4,709
Home equity and second mortgage loans                                              10,287          13,146
Commercial loans                                                                   11,748          14,023
Other consumer loans                                                                1,290           1,697
                                                                             ------------    ------------
                                                                                  107,063         112,759
Net deferred loan origination fees                                                    (95)           (126)
Allowance for loan losses                                                          (1,479)         (1,486)
                                                                             ------------    ------------

                                                                             $    105,489    $    111,147
                                                                             ============    ============
</TABLE>

Activity in the allowance for loan losses is summarized as follows for the years
ended June 30:

<TABLE>
<CAPTION>
                                                                   2002           2001            2000
                                                                   ----           ----            ----
<S>                                                             <C>            <C>            <C>
Balance at beginning of year                                    $     1,486    $     1,449    $     1,469
Provision charged to income                                             135            180            225
Charge-offs                                                            (195)          (264)          (291)
Recoveries on loans previously charged off                               53            121             46
                                                                -----------    -----------    -----------

    Balance at end of year                                      $     1,479    $     1,486    $     1,449
                                                                ===========    ===========    ===========
</TABLE>

There were no loans considered impaired as of or for the years ended June 30,
2002, 2001, and 2000.

Nonaccrual loans for which interest has been reduced totaled approximately
$2,462,000 and $1,994,000 at June 30, 2002 and 2001.

The Company's lending activities have been concentrated primarily in Lake and
Porter Counties, Indiana and Cook County, Illinois. The largest portion of the
Company's loans are originated for the purpose of enabling borrowers to purchase
residential and real estate property secured by first liens on such property. At
June 30, 2002, approximately 42% of the Company's loans were secured by
owner-occupied, one-to-four-family residential property. The Company requires
collateral on all loans and generally maintains loan-to-value ratios of 80% or
less.

The Bank had lending transactions with directors and executive officers of the
Company and the Bank, which totaled approximately $443,000 and $307,000 at June
30, 2002 and 2001.

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

                                   (Continued)


                                                                             25.
<PAGE>

                        SECURITY FINANCIAL BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2002, 2001, and 2000
               (Table amounts in thousands except per share data)

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

NOTE 4 - PREMISES AND EQUIPMENT, NET

Premises and equipment at June 30 are summarized as follows:

<TABLE>
<CAPTION>
                                                                                  2002            2001
                                                                                  ----            ----
<S>                                                                            <C>            <C>
Cost
    Land                                                                       $       446    $       771
    Buildings and leasehold improvements                                             5,253          5,255
    Furniture, fixtures, and equipment                                               3,125          3,111
                                                                               -----------    -----------
                                                                                     8,824          9,137
         Less accumulated depreciation                                               4,143          3,723
                                                                               -----------    -----------

                                                                               $     4,681    $     5,414
                                                                               ===========    ===========
</TABLE>

NOTE 5 - DEPOSITS

At June 30, 2002, scheduled maturities of certificates of deposit are as
follows:

<TABLE>
<S>                                                             <C>
2003                                                            $    72,801
2004                                                                  5,128
2005                                                                  2,603
2006                                                                    454
2007 and thereafter                                                      42
                                                                -----------

                                                                $    81,028
                                                                ===========
</TABLE>

NOTE 6 - BORROWED FUNDS

The $15,000,000 FHLB advance has a fixed rate of 5.05% and matures January 8,
2004. On January 8, 2002, the FHLB had the option to convert the entire advance
to an adjustable rate repricing quarterly at three-month LIBOR plus 200 basis
points. The advance was not converted to an adjustable rate on this date.

All FHLB securities owned by the Bank and all mortgage loans and mortgage-backed
securities not otherwise pledged are pledged to the Federal Home Loan Bank of
Indianapolis to secure advances. In addition, the Bank has an undrawn line of
credit for $5,000,000 as of June 30, 2002 and 2001 with the Federal Home Loan
Bank of Indianapolis. This line matures on June 5, 2003, has a variable interest
rate, and is also secured by the collateral listed above.

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

                                   (Continued)


                                                                             26.
<PAGE>

                        SECURITY FINANCIAL BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2002, 2001, and 2000
               (Table amounts in thousands except per share data)

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

NOTE 7 - EMPLOYEE BENEFITS

The Bank is part of a noncontributory multi-employer defined benefit pension
plan covering substantially all of its employees. The plan is administered by
the trustees of the Financial Institutions Retirement Fund ("FIRF"). Benefits of
the plan are funded through payments to FIRF, which does not report relative
plan assets and actuarial liabilities of the individual participating financial
institutions. In November 2000, the Board of Directors amended the Plan to
reduce the future benefit accrual rate. For the year ended June 30, 2002, no
expense was recorded as no payment was required to be made to FIRF. Pension
expense totaled $119,000 and $268,000 for the years ended June 30, 2001 and
2000.

The Bank maintains a 401(k) profit sharing plan covering substantially all
employees. The plan allows participant salary deferrals into the plan, as well
as contributions made at the discretion of the Board of Directors. The Bank made
no contributions to the plan for 2002, 2001, and 2000.

NOTE 8 - EMPLOYEE STOCK OWNERSHIP PLAN

In 2000, the Company adopted an employee stock ownership plan ("ESOP") for the
benefit of substantially all employees. The ESOP borrowed $1,550,760 from the
Company and used those funds to acquire 155,076 shares of the Company's stock at
$10 per share.

Shares issued to the ESOP are allocated to ESOP participants based on principal
and interest repayments made by the ESOP on the loan from the Company. The loan
is secured by shares purchased with the loan proceeds and will be repaid by the
ESOP with funds from the Company's discretionary contributions to the ESOP and
earnings on ESOP assets. Principal payments are scheduled to occur over a
fifteen-year period. However, in the event the Company's contributions exceed
the minimum debt service requirements, additional principal payments will be
made.

During 2002, 2001, and 2000, 10,338, 10,338 and 5,169 shares of stock with an
average fair value of $19.50, $16.37, and $12.09 were committed to be released,
resulting in ESOP compensation expense of $202,000, $169,000, and $63,000,
respectively.

Shares held by the ESOP at June 30 are as follows:

<TABLE>
<CAPTION>
                                                                   2002            2001           2000
                                                                   ----            ----           ----
<S>                                                             <C>            <C>            <C>
Allocated shares                                                     25,845         15,507          5,169
Unallocated shares                                                  129,231        139,569        149,907
                                                                -----------    -----------    -----------

    Total ESOP shares                                               155,076        155,076        155,076
                                                                ===========    ===========    ===========

Fair value of unallocated shares                                $     2,565    $     2,424    $     2,117
                                                                ===========    ===========    ===========
</TABLE>

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

                                   (Continued)


                                                                             27.
<PAGE>

                        SECURITY FINANCIAL BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2002, 2001, and 2000
               (Table amounts in thousands except per share data)

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

NOTE 9 - OTHER STOCK-BASED COMPENSATION PLANS

The Company has a stock option plan under the terms of which 193,846 shares of
the Company's common stock were reserved for issuance. The options become
exercisable on a cumulative basis in equal installments over a five-year period
from the date of grant. The options expire ten years from the date of grant.

A summary of the status of the Company's stock option plan and changes are
presented below:

<TABLE>
<CAPTION>
                                                                                       Weighted-
                                                                        Number          Average
                                                                          of           Exercise
                                                                        Options          Price
                                                                        -------          -----
<S>                                                                      <C>          <C>
Outstanding at July 1, 2000                                                   --      $      --
Granted                                                                  161,614          16.88
Exercised                                                                     --             --
Forfeited                                                                     --
                                                                      ----------

Outstanding at June 30, 2001                                             161,614          16.88
Granted                                                                   17,445          19.78
Exercised                                                                     --             --
Forfeited                                                                   (500)         16.88
                                                                      ----------

Outstanding at June 30, 2002                                             178,559          17.16
                                                                      ==========

<CAPTION>
                                                                         2002             2001
                                                                         ----             ----
<S>                                                                      <C>           <C>
Options exercisable at end of year                                        31,823             --
Weighted-average fair value of options granted during year                 $7.12          $6.86
Average remaining option term                                            9 years       10 years
</TABLE>

The Company applies APB Opinion 25 and related Interpretations in accounting for
its stock option plan. Accordingly, no compensation cost has been recognized at
the date of grant. Had compensation cost been determined based on the fair value
at the grant dates for awards under the plan consistent with the method of SFAS
No. 123, Accounting for Stock-Based Compensation, the Company's net income and
earnings per share would have been reduced to the pro forma amounts in the table
below. For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period.

<TABLE>
<CAPTION>
                                                               2002             2001             2000
                                                               ----             ----             ----
<S>                                                        <C>               <C>              <C>
Net income as reported                                     $     951         $  1,370         $     978
Pro forma net income                                             718            1,370               978
Earnings per share as reported
    Basic                                                        .56              .76               .34
    Diluted                                                      .55              .76               .34
Pro forma earnings per share
    Basic                                                        .42              .76               .34
    Diluted                                                      .41              .76               .34
</TABLE>

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

                                   (Continued)


                                                                             28.
<PAGE>

                        SECURITY FINANCIAL BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2002, 2001, and 2000
               (Table amounts in thousands except per share data)

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

NOTE 9 - OTHER STOCK-BASED COMPENSATION PLANS (Continued)

The Black-Scholes option pricing valuation model was used in estimating the fair
value of the options. Option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its stock options.

<TABLE>
<CAPTION>
Date of grant                                                      November 27, 2001   June 26, 2001
<S>                                                                          <C>             <C>
Options granted                                                               17,445         161,614
Estimated fair value of stock options granted:                                 $7.12           $6.86
    Assumptions used:
         Risk-free interest rate                                               4.25%           5.28%
         Expected option life                                                7 years         7 years
         Expected stock price volatility                                      22.97%          25.13%
         Expected dividend yield                                               0.00%           0.00%
</TABLE>

The Company adopted a Management Recognition and Retention Plan ("MRP"). In June
2001, the Board of Directors awarded 66,834 shares of the Company's common stock
to directors and key employees at an average price of $16.88 per share. Three
hundred of these shares were forfeited in 2002 and reallocated to treasury
stock. These shares vest over a five-year period. In September 2001, the Company
contributed $1.3 million which allowed the MRP to acquire 66,834 shares of
common stock to fund awards. In November 2001, the Company contributed $57,000
to fund an additional award of 3,000 shares to directors at an average price of
$19.78 per share. These shares also vest over a five-year period. MRP
compensation expense totaled $232,000 for the year ended June 30, 2002. There
was no compensation recorded in the years ended 2001 and 2000.

NOTE 10 - INCOME TAXES

Income tax expense for the years ended June 30 is summarized as follows:

<TABLE>
<CAPTION>
                                                                     2002            2001          2000
                                                                     ----            ----          ----
<S>                                                               <C>            <C>            <C>
Federal
    Current                                                       $     389      $     696      $     327
    Deferred                                                            (41)           (28)            88
State
    Current                                                              73             85             --
Change in valuation allowance for
  deferred tax assets                                                    --           (252)          (415)
                                                                  ---------      ---------      ---------

    Income tax                                                    $     421      $     501      $      --
                                                                  =========      =========      =========
</TABLE>

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

                                   (Continued)


                                                                             29.
<PAGE>

                        SECURITY FINANCIAL BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2002, 2001, and 2000
               (Table amounts in thousands except per share data)

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

NOTE 10 - INCOME TAXES (Continued)

Income tax differed from the amounts computed by applying the federal income tax
rate at June 30 to income before income taxes as a result of the following:

<TABLE>
<CAPTION>
                                                                     2002         2001             2000
                                                                     ----         ----             ----
<S>                                                               <C>            <C>            <C>
Income taxes at statutory rate of 34%                             $     466      $     636      $     333
State income taxes, net of federal benefit                               40             80             56
Other items, net                                                        (85)            37             26
Decrease in valuation allowance                                          --           (252)          (415)
                                                                  ---------      ---------      ---------

    Income tax                                                    $     421      $     501      $      --
                                                                  =========      =========      =========
</TABLE>

The components of the net deferred taxes as of June 30 are as follows:

<TABLE>
<CAPTION>
                                                                                   2002            2001
                                                                                   ----            ----
<S>                                                                              <C>            <C>
Allowance for loan losses                                                        $     586      $     589
Deferred loan fees                                                                      37             50
Deferred compensation plans                                                             50             51
Unrealized loss on securities available-for-sale                                        --             86
Other, net                                                                              76             46
                                                                                 ---------      ---------
                                                                                       749            822
Bad debt recapture                                                                     (75)          (112)
Unrealized gain on securities available-for-sale                                       (86)            --
Other, net                                                                             (66)           (57)
                                                                                 ---------      ---------
                                                                                      (227)          (169)
                                                                                 ---------      ---------

                                                                                 $     522      $     653
                                                                                 =========      =========
</TABLE>

Retained earnings at June 30, 2002, 2001, and 2000 includes approximately
$2,935,000 of bad debt deductions for tax years prior to 1987 for which no
deferred federal income tax liability has been recorded. This deferred federal
income tax liability would approximate $998,000. Tax legislation passed in
August 1996 requires all thrift institutions to deduct a provision for bad debts
for tax purposes based on the actual loss experience and recapture the excess
bad debt reserve accumulated in the tax years after 1987.

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

                                   (Continued)


                                                                             30.
<PAGE>

                        SECURITY FINANCIAL BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2002, 2001, and 2000
               (Table amounts in thousands except per share data)

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

NOTE 11 - EARNINGS PER SHARE

The following table presents a reconciliation of the components used to compute
basic and diluted earnings per share for the years ended June 30, 2002 and 2001
and the period from January 5, 2000 to June 30, 2000:

<TABLE>
<CAPTION>
                                                                   2002           2001             2000
                                                                   ----           ----             ----
<S>                                                             <C>            <C>            <C>
Basic earnings per share
    Net income as reported                                      $       951    $     1,370    $       978
    Earnings prior to conversion to a stock form
      of ownership                                                       --             --           (363)
                                                                -----------    -----------    -----------

    Net income available to common stockholders                 $       951    $     1,370    $       615
                                                                ===========    ===========    ===========

    Weighted average common shares outstanding                        1,710          1,794          1,786
                                                                ===========    ===========    ===========

         Basic earnings per share                               $       .56    $       .76    $       .34
                                                                ===========    ===========    ===========

Earnings per share assuming dilution
    Net income available to common stockholders                 $       951    $     1,370    $       615
                                                                ===========    ===========    ===========

    Weighted average common shares outstanding                        1,710          1,794          1,786
    Add dilutive effect of assumed exercises:
         Stock options                                                   18             --             --
         Stock awards                                                     5             --             --
                                                                -----------    -----------    -----------

    Weighted average common and dilutive                              1,733          1,794          1,786
                                                                ===========    ===========    ===========

         Diluted earnings per share                             $       .55    $       .76    $       .34
                                                                ===========    ===========    ===========
</TABLE>

Options to purchase 17,445 shares of common stock and 3,000 stock awards at an
average price of $19.78 per share were outstanding at June 30, 2002 but were not
included in the computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the common stock and
the options were, therefore, antidilutive.

NOTE 12 - REGULATORY CAPITAL

The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory--and possibly additional discretionary--actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet

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

                                   (Continued)


                                                                             31.
<PAGE>

                        SECURITY FINANCIAL BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2002, 2001, and 2000
               (Table amounts in thousands except per share data)

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

NOTE 12 - REGULATORY CAPITAL (Continued)

specific capital guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth below) of
total and Tier I capital (as defined in the regulations) to risk-weighted assets
(as defined) and of Tier I capital (as defined) to average assets (as defined).
Management believes, as of June 30, 2002, that the Bank meets all of the capital
adequacy requirements to which it is subject.

As of June 30, 2002, the most recent notification from the Office of Thrift
Supervision categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. There are no conditions or events since
that notification that management believes have changed the Bank's category.

The Bank's actual and required capital amounts and rates are presented below (in
thousands):

<TABLE>
<CAPTION>
                                                                                            Requirement
                                                                                             to Be Well
                                                                 Requirement              Capitalized Under
                                                                 for Capital              Prompt Corrective
                                       Actual                 Adequacy Purposes           Action Provisions
                                       ------                 -----------------           -----------------
                                 Amount         Ratio        Amount          Ratio        Amount         Ratio
                                 ------         -----        ------          -----        ------         -----
<S>                           <C>               <C>        <C>                <C>      <C>               <C>
As of June 30, 2002
   Total Capital (to risk-
     weighted assets)         $    30,949       26.8%      $     9,246        8.0%     $    11,558       10.0%
   Tier 1 Capital (to risk-
     weighted assets)              29,590       25.6             4,623        4.0            6,935        6.0
   Core Capital (to
     adjusted assets)              29,590       14.9             7,940        4.0            9,925        5.0

As of June 30, 2001
   Total Capital (to risk-
     weighted assets)         $    29,129       25.2%      $     9,250        8.0%     $    11,563       10.0%
   Tier 1 Capital (to risk-
     weighted assets)              27,923       24.1             4,625        4.0            6,938        6.0
   Core Capital (to
     adjusted assets)              27,923       13.9             8,026        4.0           10,032        5.0
</TABLE>

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

                                   (Continued)


                                                                             32.
<PAGE>

                        SECURITY FINANCIAL BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2002, 2001, and 2000
               (Table amounts in thousands except per share data)

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

NOTE 13 - COMMITMENTS AND CONTINGENCIES

The Company has the following commitments outstanding at June 30:

<TABLE>
<CAPTION>
                                                                                  2002            2001
                                                                                  ----            ----
<S>                                                                             <C>             <C>
Commitments to fund loans                                                       $  5,908        $  3,546
Unused lines of credit                                                            12,343           4,103
Letters of credit                                                                     22           1,780
Commitments to sell loans and loan pools                                           1,468           1,139
</TABLE>

Since certain commitments to make loans and lines of credit to fund loans in
process expire without being used, the amounts do not necessarily represent
future cash commitments. In addition, commitments used to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. The Company's exposure to credit loss in
the event of nonperformance by the other party to these financial instruments is
represented by the contractual amount of these instruments. The Company follows
the same credit policy to make such commitments as is followed for those loans
recorded on the consolidated balance sheet.

As of June 30, 2002, fixed rate commitments to fund loans amounted to
approximately $3,569,000. The interest rates on fixed rate commitments ranged
from 5.75% to 7.50%. Since loan commitments may expire without being used, the
amounts do not necessarily represent future cash commitments.

Three of the Bank's branch facilities are leased under noncancelable lease
agreements, which expire between 2002 and 2019. In addition to the monthly rent,
the Bank is charged its proportionate share of taxes and maintenance.

The future minimum commitments under the noncancelable leases at June 30 were:

<TABLE>
<S>                                                             <C>
2003                                                            $   230
2004                                                                232
2005                                                                234
2006                                                                237
2007                                                                239
Thereafter                                                          760
                                                                -------

                                                                $ 1,932
                                                                =======
</TABLE>

Rent expense approximated $236,000, $242,000, and $293,000 for the years ended
June 30, 2002, 2001, and 2000.

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

                                   (Continued)


                                                                             33.
<PAGE>

                        SECURITY FINANCIAL BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2002, 2001, and 2000
               (Table amounts in thousands except per share data)

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

NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS

The following table shows the estimated fair values and the related carrying
values of the Company's financial instruments at June 30, 2002 and 2001. Items
that are not financial instruments are not included.

<TABLE>
<CAPTION>
                                         -------------------------------June 30,----------------------------
                                                                        --------
                                                        2002                              2001
                                                        ----                              ----
                                             Carrying          Estimated        Carrying          Estimated
                                              Amount          Fair Value         Amount          Fair Value
                                              ------          ----------         ------          ----------
<S>                                         <C>              <C>               <C>               <C>
Financial assets
   Cash and cash equivalents                $   42,244       $   42,244        $   26,501        $   26,501
   Securities available-for-sale                33,980           33,980            46,197            46,197
   FHLB stock                                    5,300            5,300             5,300             5,300
   Loans held for sale                           1,468            1,468             1,139             1,139
   Loans receivable, net                       105,489          110,810           111,147           108,194
   Accrued interest receivable                     930              930             1,505             1,505

Financial liabilities
   Demand deposits                          $   (6,273)      $   (6,273)       $   (6,377)       $   (6,377)
   Savings, NOW, and MMDA
     deposits                                  (60,992)         (60,992)          (53,142)          (53,142)
   Time deposits                               (81,028)         (81,492)          (89,981)          (90,730)
   FHLB advances                               (15,000)         (14,950)          (15,000)          (14,392)
   Other borrowed funds                             --               --              (100)             (100)
   Advances from borrowers for
     taxes and insurance                          (197)            (197)             (428)             (428)
   Accrued interest payable                        (55)             (55)              (98)              (98)
</TABLE>

For purposes of the above disclosures of estimated fair value, the following
assumptions were used as of June 30, 2002 and 2001. The estimated fair value for
cash, cash equivalents, and certificates of deposit at other financial
institutions is considered to approximate cost. The estimated fair value for
securities available-for-sale is based on quoted market values for the
individual securities or for equivalent securities. The estimated fair value of
stock in FHLB is considered to approximate cost. The estimated fair value of
loans held for sale is based on quoted market values for equivalent loans. The
estimated fair value for loans receivable is based on estimates of the rate the
Company would charge for similar loans at June 30, 2002 and 2001, applied for
the estimated time period until the loan is assumed to reprice or be paid.

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

                                   (Continued)


                                                                             34.
<PAGE>

                        SECURITY FINANCIAL BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2002, 2001, and 2000
               (Table amounts in thousands except per share data)

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

NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

The estimated fair value for demand, savings, NOW, and MMDA deposits and
advances from borrowers for taxes and insurance is based on their carrying
value. The estimated fair value for time deposits, FHLB advances, and borrowed
funds is based on estimates of the rate the Company would pay on such deposits
and borrowed funds at June 30, 2002 and 2001, applied for the time period until
maturity. The estimated fair values for other financial instruments and
off-balance-sheet loan commitments approximate cost at June 30, 2002 and 2001
and are not considered significant to this presentation.

While these estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that were the Company to have
disposed of such items at June 30, 2002 and 2001, the estimated fair values
would necessarily have been achieved at that date, since market values may
differ depending on various circumstances. Also, the use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts. The estimated fair values at June 30, 2002 and
2001 should not necessarily be considered to apply at subsequent dates.

In addition, other assets and liabilities of the Company that are not defined as
financial instruments are not included in the above disclosures, such as
property and equipment. Also, non-financial instruments typically not recognized
in the financial statements nevertheless may have value but are not included in
the above disclosures. These include, among other items, the estimated earnings
power of core deposit accounts, the earnings potential of loan servicing rights
related to the Bank's loan portfolio, the trained work force, customer goodwill,
and similar items.

NOTE 15 - OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) components and related taxes were as follows:

<TABLE>
<CAPTION>
                                                                   2002            2001           2000
                                                                   ----            ----           ----
<S>                                                             <C>            <C>            <C>
Unrealized holding gains (losses) on securities
  available-for-sale                                            $       430    $        75    $      (230)
Tax effect                                                             (172)           (30)           116
                                                                -----------    -----------    -----------

Other comprehensive income (loss)                               $       258    $        45    $      (114)
                                                                ===========    ===========    ===========
</TABLE>

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

                                   (Continued)


                                                                             35.
<PAGE>

                        SECURITY FINANCIAL BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2002, 2001, and 2000
               (Table amounts in thousands except per share data)

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

NOTE 16 - PARENT COMPANY FINANCIAL STATEMENTS

Presented below are the condensed statements of financial condition, income, and
cash flows for Security Financial Bancorp, Inc.

                   CONDENSED STATEMENTS OF FINANCIAL CONDITION
                             June 30, 2002 and 2001

<TABLE>
<CAPTION>
                                                                                     2002              2001
                                                                                     ----              ----
<S>                                                                               <C>             <C>
ASSETS
Cash and cash equivalents                                                         $      2,275    $      4,076
Securities available-for-sale                                                               --           3,985
Loans receivable, net                                                                    4,402           1,466
Investment in bank subsidiary                                                           29,719          27,800
Accrued interest receivable and other assets                                               588             798
                                                                                  ------------    ------------

     Total assets                                                                 $     36,984    $     38,125
                                                                                  ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities                                                                 $         42    $         55
Stockholders' equity                                                                    36,942          38,070
                                                                                  ------------    ------------

     Total liabilities and stockholders' equity                                   $     36,984    $     38,125
                                                                                  ============    ============
</TABLE>

                         CONDENSED STATEMENTS OF INCOME

                     Years ended June 30, 2002 and 2001 and
                   the period January 5, 2000 to June 30, 2000

<TABLE>
<CAPTION>
                                                                       2002          2001              2000
                                                                       ----          ----              ----
<S>                                                               <C>             <C>              <C>
Interest income                                                   $       358     $        591     $       295

Expenses
  Legal expenses                                                          547              128              32
  Other expenses                                                          270              261             115
                                                                  -----------     ------------     -----------

Income (loss) before income taxes and equity
  in undistributed earnings of bank subsidiary                           (459)             202             148

Income tax expense (benefit)                                             (170)              80              59
                                                                  -----------     ------------     -----------

Income (loss) before equity in undistributed
  earnings of bank subsidiary                                            (289)             122              89

Equity in undistributed earnings of bank subsidiary                     1,240            1,248             526
                                                                  -----------     ------------     -----------

Net income                                                        $       951     $      1,370     $       615
                                                                  ===========     ============     ===========
</TABLE>

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

                                   (Continued)


                                                                             36.
<PAGE>

                        SECURITY FINANCIAL BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2002, 2001, and 2000
               (Table amounts in thousands except per share data)

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

NOTE 16 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)

                       CONDENSED STATEMENTS OF CASH FLOWS
                     Years ended June 30, 2002 and 2001 and
                   the period January 5, 2000 to June 30, 2000

<TABLE>
<CAPTION>
                                                                     2002             2001             2000
                                                                     ----             ----             ----
<S>                                                              <C>              <C>             <C>
Cash flows from operating activities
     Net income                                                  $        951     $      1,370    $        615
     Adjustments to reconcile net income to net
       cash from operating activities
         Equity in undistributed earnings of
           bank subsidiary                                             (1,240)          (1,248)           (526)
         Change in
              Other assets                                                199             (583)           (213)
              Other liabilities                                           (13)               8              48
                                                                 ------------     ------------    ------------
                  Net cash from operating activities                     (103)            (453)            (76)

Cash flows from investing activities
     Purchase of securities available-for-sale                             --           (3,994)         (2,000)
     Proceeds from maturities and calls of
       securities available-for-sale                                    3,994            2,000              --
     Net change in loans receivable                                    (2,921)              57          (1,523)
     Change in certificates of deposit in other
       financial institutions                                              --            5,000          (5,000)
     Purchase of subsidiary bank stock                                     --               --          (8,513)
                                                                 ------------     ------------    ------------
         Net cash from investing activities                             1,073            3,063         (17,036)

Cash flows from financing activities
     Purchase of treasury stock                                        (2,771)              --              --
     Proceeds from stock issuance, net of costs                            --               --          18,578
                                                                 ------------     ------------    ------------
         Net cash from financing activities                            (2,771)              --          18,578
                                                                 ------------     ------------    ------------

Net change in cash and cash equivalents                                (1,801)           2,610           1,466

Cash and cash equivalents at beginning of period                        4,076            1,466              --
                                                                 ------------     ------------    ------------

Cash and cash equivalents at end of period                       $      2,275     $      4,076    $      1,466
                                                                 ============     ============    ============
</TABLE>

--------------------------------------------------------------------------------
                                   (Continued)


                                                                             37.
<PAGE>

                        SECURITY FINANCIAL BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2002, 2001, and 2000
               (Table amounts in thousands except per share data)

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

NOTE 17 - CONVERSION

On January 5, 2000, the Bank completed its conversion from a federally chartered
mutual savings bank to a federal stock savings bank. The conversion was
accomplished through the amendment of the Bank's charter to stock form; the
formation of Security Financial Bancorp, Inc. ("the Company"), which acquired
100% of the Bank's outstanding common stock upon the conversion of the Bank from
mutual to stock form; and the sale of the Company's common stock in an amount
equal to the pro forma market value of the Bank after giving effect to the
conversion.

At the time of conversion, the Bank established a liquidation account in an
amount equal to its total net worth as of the latest statement of financial
condition appearing in the final prospectus. The liquidation account will be
maintained for the benefit of eligible depositors who continue to maintain their
accounts at the Bank after the conversion. The liquidation account will be
reduced annually to the extent that eligible depositors have reduced their
qualifying deposits. Subsequent increases will not restore an eligible account
holder's interest in the liquidation account. In the event of a complete
liquidation, each eligible depositor will be entitled to receive a distribution
from the liquidation account in an amount proportionate to the current adjusted
qualifying balances for accounts then held. The liquidation account balance is
not available for payment of dividends.

The Bank may not declare or pay cash dividends on or repurchase any of its
shares of capital stock if the effect thereof would cause its net worth to be
reduced below applicable regulatory requirements or the amount of the
liquidation accounts of such a declaration and payment would otherwise violate
regulatory requirements.

NOTE 18 - QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 Net                     Earnings     Earnings
                                                  Interest    Interest          Net      Per Share    Per Share
                                                   Income      Income         Income     Basic (a)   Diluted (a)
                                                   ------      ------         ------     -----       -------
<S>                                              <C>          <C>          <C>          <C>          <C>
2002
----
     First quarter                               $   3,364    $   1,746    $     238    $     .13    $     .13
     Second quarter (b)                              3,048        1,639           96          .06          .06
     Third quarter                                   2,806        1,626          317          .19          .19
     Fourth quarter                                  2,645        1,535          300          .18          .18

2001
----
     First quarter                               $   3,518    $   1,984    $     369    $     .21    $     .21
     Second quarter                                  3,565        1,918          271          .15          .15
     Third quarter                                   3,660        1,848          347          .19          .19
     Fourth quarter                                  3,675        1,941          383          .21          .21
</TABLE>

(a)  Earnings per share for the quarters and full years have each been
     calculated separately. Accordingly, quarterly amounts may not add to the
     annual amounts because of differences in the average common shares
     outstanding during each period.
(b)  Net income and earning per share were affected by an increase in legal fees
     related to one-time settlement of a shareholder lawsuit. The net effect of
     this item was to decrease net income by $287,000 and earnings per share by
     $.17.

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


                                                                             38.
<PAGE>

                             DIRECTORS AND OFFICERS


                         Directors of Security Financial
                                  Bancorp, Inc.
                                  -------------

Vincent Cainkar
    Attorney

Howard O. Cyrus, Sr.
    Owner and Real Estate Broker, Cyrus Realtors, Inc.

Sheila Donoghue
    President, Kerry Capital Corp.

Dr. Peter Ferrini
    Retired Oral Surgeon

John P. Hyland
    President and Chief Executive Officer
    Security Financial Bancorp, Inc. and  Security Federal
    Bank & Trust

Jay D. Johnson
    President, Lakeshore Capital, Inc.
    Managing Partner, Hyatt Johnson Capital, LLC

Tula Kavadias
    Attorney and Sole Proprietor, Tula Kavadias and
    Associates

Richard J. Lashley
    Managing Member,
    PL Capital, LLC

Robert L. Lauer
    Vice Chairman of the Board -
      Security Financial Bancorp
    Vice President of Investments and Assistant
    Branch Manager, A.G.
    Edwards & Sons, Inc.

John Wm. Palmer
    Chairman of Board - Security Financial Bancorp
    Managing Member,
    PL Capital, LLC

Philip T. Rueth
    Secretary - Security Financial Bancorp
    Certified Public Accountant,
    Partner of Steiber, Rueth & Co.


                              Directors of Security
                              Federal Bank & Trust
                              --------------------

Vincent Cainkar
    Attorney

Mary Beth Bonaventura
    Chairman of the Board - Security
      Federal Bank & Trust
    Senior Judge, Lake Superior Court Juvenile
    Division

Howard O. Cyrus, Sr.
    Owner and Real Estate Broker, Cyrus Realtors,
    Inc.

Sheila Donoghue
    President, Kerry Capital Corp.

Dr. Peter Ferrini
    Retired Oral Surgeon

John P. Hyland
    President and Chief Executive Officer
    Security Financial Bancorp, Inc. and Security
    Federal Bank & Trust

Jay D. Johnson
    President, Lakeshore Capital, Inc.
    Managing Partner, Hyatt Johnson Capital, LLC

Tula Kavadias
    Attorney and Sole Proprietor, Tula Kavadias and
    Associates

Richard J. Lashley
    Managing Member,
    PL Capital, LLC

Robert L. Lauer
    Vice President of Investments and Assistant
    Branch Manager, A.G.
    Edwards & Sons, Inc.

John Wm. Palmer
    Managing Member,
    PL Capital, LLC
    Chairman of Board - Security Financial Bancorp

Lawrence R. Parducci
    Vice Chairman of the Board
    Pharmacist, Consultant and Pharmacy
    Insurance Solicitor, Fagar Pharmacy

Philip T. Rueth
    Certified Public Accountant,
    Partner of Steiber, Rueth & Co.

Robert A. Vellutini
    Vice President of Investments,
    A.G. Edwards & Sons, Inc.


                         Principal Officers of Security
                             Financial Bancorp, Inc.
                             -----------------------

John P. Hyland
    President and Chief Executive Officer

Patrick J. Hunt
    Executive Vice President and Chief
      Financial Officer

Philip T. Rueth
    Corporate Secretary

                         Principal Officers of Security
                              Federal Bank & Trust
                              --------------------

John P. Hyland
    President and Chief Executive Officer

Patrick J. Hunt
    Executive Vice President and
    Chief Financial Officer

John F. Nicholas
    Executive Vice President, Business Development
    and Marketing

Kevin Dunn
    Executive Vice President, Consumer and Real
    Estate Lending

Joann Gonzalez-Duhon
    Executive Vice President and Asst. Secretary, Retail
    Operations

Joann Halterman
    Vice President and Asst. Secretary, Human
    Resources

Kent R. Huntoon
    Vice President and General Manager of The
    Boulevard, Inc.

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


                                                                             39.
<PAGE>

                       INVESTOR AND CORPORATE INFORMATION

Annual Meeting

The annual meeting of stockholders will be held at 9:00 a.m. central time, on
December 18, 2002 at the main office of the Company located at 9321 Wicker
Avenue, St. John, Indiana 46373.

Stock Listing

Security Financial Bancorp, Inc. common stock is traded on the NASDAQ SmallCap
Market under the symbol "SFBI."

Price Range of Common Stock

The high and low per share price of the common stock for each quarter since the
common stock began trading on January 5, 2000 was as follows:

<TABLE>
<CAPTION>
                                                          High               Low
                                                          ----               ---
<S>                                                    <C>              <C>
2000
   Third quarter                                       $   12.00        $     9.00
   Fourth quarter                                          14.56             11.94

2001
   First quarter                                           17.50             14.00
   Second quarter                                          16.75             14.50
   Third quarter                                           16.81             15.75
   Fourth quarter                                          17.37             16.25

2002
   First quarter                                           19.05             17.43
   Second quarter                                          20.70             18.25
   Third quarter                                           20.75             18.11
   Fourth quarter                                          20.00             19.10
</TABLE>

The stock price information set forth in the table above was provided by the
National Association of Securities Dealers, Inc. Automated Quotation System. The
closing sale price of Security Financial Bancorp, Inc.'s common stock on June
30, 2002 was $19.85.

At September 14, 2002, there were 1,864,191 shares of Security Financial
Bancorp, Inc. common stock outstanding (including unallocated ESOP shares).

Stockholders and General Inquiries            Transfer Agent

John F. Nicholas                              Registrar and Transfer Company
Security Financial Bancorp, Inc.              10 Commerce Drive
9321 Wicker Avenue                            Cranford, NJ 07016
St. John, Indiana 46373                       1-800-368-5948
(219) 365-4344

Annual and Other Reports

A copy of the Security Financial Bancorp, Inc.'s Annual Report on Form 10-K
without exhibits for the year ended June 30, 2002, as filed with the Securities
and Exchange Commission, may be obtained without charge by contacting John
Nicholas, Security Financial Bancorp, Inc., 9321 Wicker Avenue, St. John,
Indiana 46373.

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


                                                                             40.
<PAGE>

                                OFFICE LOCATIONS


Main Office
-----------

     9321 Wicker Avenue
     St. John, Indiana  46373


Branch Offices
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     Chesterton
     552A Indian Boundry Road
     Chesterton, Indiana 46304

     East Chicago
     4518 Indianapolis Blvd.
     East Chicago, Indiana 46312

     Hammond
     7007 Calumet Avenue
     Hammond, Indiana 46324

     Highland
     2930 Ridge Road
     Highland, Indiana 46322

     Lowell
     2090 East Commercial Avenue
     Lowell, Indiana 46356


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