SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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/x/ Soliciting Material Pursuant to ss. 240a-12
SECURITY FINANCIAL BANCORP, INC.
(Name of Registrant as Specified in Its Charter)
FINANCIAL EDGE FUND, LP
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
/x/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(2) Aggregate number of securities to which transaction applies:
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pursuant to Exchange Act 0-11:
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(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee as provided by Exchange Act Rule
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AN IMPORTANT MESSAGE
FOR FELLOW STOCKHOLDERS OF SECURITY FINANCIAL BANCORP, INC.
FROM THE PL CAPITAL GROUP
August 29, 2000
Dear Fellow Security Financial Security Stockholder:
The PL Capital Group1 owns 168,000 shares of Security Financial Bancorp, Inc.
(approximately 8.7% of Security Financial's outstanding stock). As one of
Security Financial's largest stockholders, we are very concerned about Security
Financial's financial performance. We have repeatedly communicated our concerns
to Security Financial's Board of Directors and management and we have also
requested that we be placed on Security Financial's Board of Directors, without
success.
THE PL CAPITAL GROUP'S GOAL IS TO ELECT TWO BOARD MEMBERS WHO INTEND TO STRONGLY
ENCOURAGE SECURITY FINANCIAL'S BOARD AND MANAGEMENT TO:
1. SIGNIFICANTLY REDUCE SECURITY FINANCIAL'S OVERHEAD EXPENSES--THE COMPANY'S
EXPENSE RATIOS ARE AMONG THE WORST IN THE THRIFT INDUSTRY
Security Financial spent $1.77 million on operating expenses in the most recent
quarter ended June 30, 2000. To put this in perspective, Security Financial's
operating expenses to asset ratio in the second quarter was 3.72% (annualized),
one of the worst ratios in the thrift industry in the United States (the average
thrift in the U.S. had a 1.80% overhead expense ratio and the average thrift in
Indiana had a 2.23% overhead expense ratio, based upon available data). If
Security Financial reduced its operating expense to asset ratio to 2.23% (the
average for Indiana thrifts), the Company would have earned $.59 per share
(pretax), rather than the $.22 per share (pretax) it reported, in the second
quarter ended June 30, 2000.
2. AGGRESSIVELY REPURCHASE THE COMPANY'S COMMON STOCK
As of June 30, 2000, the Company had equity capital of $36.5 million and total
assets of $190 million, a tangible equity to asset ratio of 19%. Since the
average thrift in the U.S. has a 6% tangible equity to asset ratio, we believe
that Security Financial has excess capital. While a strong capital base is
important, the PL Capital Group believes that well-run thrifts typically manage
their capital to a level of 5-8%, thereby maximizing return on equity for the
benefit of its stockholders.
Having excess capital is typical for recently converted thrifts, most of which
are overcapitalized upon conversion. (The Company converted from mutual
ownership to public ownership in January, 2000.) The two basic ways most thrifts
address this situation are by some combination of: (1) shrinking the equity base
by repurchasing stock in the open market and paying dividends, and (2) growing
the asset base of the Company through acquisitions of other banks, opening new
locations and/or purchasing assets.
In Security Financial's case, we do not believe the Company has evidenced an
ability to operate profitably in its existing locations and lines of business,
therefore we are against any aggressive expansion of the Company's existing
franchise, either geographically or into new lines of business. In our view, the
Company's primary strategy to address its overcapitalization should be to
aggressively repurchase its common stock in the open market. We are also opposed
to Security Financial pursuing an acquisition strategy or purchasing assets
(such as investment securities) as a way to grow out of its overcapitalized
situation, for the same reasons noted above.
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1 The PL Capital Group consists of various investment entities and individuals
that beneficially own, as of August 29, 2000, an aggregate of 168,000 shares,
representing approximately 8.7% of Security Financial's outstanding common
stock. The PL Capital Group consists of PL Capital, LLC; Financial Edge Fund,
LP; Financial Edge/Strategic Fund, LP; Richard Lashley; John Palmer and Beth
Lashley.
3. ENCOURAGE SECURITY FINANCIAL'S BOARD OF DIRECTORS TO REMAIN ALERT TO
OPPORTUNITIES TO MERGE WITH A LARGER, MORE PROFITABLE FINANCIAL INSTITUTION
Although it is our belief that Security Financial's Board and management should
currently focus on maximizing the Company's earnings and book value per share
through the steps outlined above, we believe one of the primary long term
obligations of the Board of Directors is to monitor opportunities for the
Company to be acquired by a larger, more profitable financial institution if
such a transaction provides superior stockholder value (compared to a strategy
of remaining independent) and meets the needs of its customers and employees.
As of August 29, 2000, Security Financial's stock price was $16.33 per share.
This represents 87% of Security Financial's June 30, 2000 tangible book value
per share of $18.80. Over time, Security Financial's tangible book value will
increase if Security Financial remains profitable and it pursues a strategy of
acquiring common stock in the open market at a discount to tangible book value.
Since most thrifts such as Security Financial are typically valued, in an
acquisition, at an amount at least equal to tangible book value, we believe an
acquisition of the Company has to be considered by the Board of Directors. (We
note that most thrift acquisitions are typically made at a premium to tangible
book value, in large part reflecting the inherent value of thrift deposits,
which are typically an attractive, lower cost of funding for the acquiring
institution, compared to raising funds in the open market.)
Because of our concerns, we have filed proxy materials with the SEC in
connection with Security Financial's upcoming Annual Meeting of Stockholders,
scheduled for October 19, 2000. We intend to use those materials to solicit
proxies from fellow Security Financial stockholders to elect two members of the
PL Capital Group, Richard Lashley and John Palmer, to Security Financial's Board
of Directors. Our director nominees have substantial experience and expertise in
the banking industry in a variety of capacities, including significant knowledge
of Security Financial and the Indiana and Illinois banking markets.
WE BELIEVE SECURITY FINANCIAL'S STOCKHOLDERS WOULD BENEFIT FROM HAVING
ADDITIONAL OUTSIDE STOCKHOLDERS ON SECURITY FINANCIAL'S BOARD
You will receive a proxy statement from Security Financial's management and
Board, and you will be asked to return that proxy card.
We encourage you NOT to vote your shares until you receive and review our proxy
materials.
If you have any questions or need further assistance please contact our proxy
solicitor, Richard Grubaugh at Beacon Hill Partners, Inc., 90 Broad Street, New
York, NY 10004, (800) 755-5001; or us at PL Capital, LLC at the address and
phone numbers noted in our letterhead above.
Thank you for your consideration.
Sincerely,
John Wm. Palmer Richard Lashley
Principal Principal
PL Capital, LLC PL Capital, LLC
Oak Brook, Illinois Chatham, New Jersey
This letter is not a solicitation of your proxy; the PL Capital Group intends to
solicit proxies from you through delivery to you of a proxy statement with
accompanying proxy card. We strongly encourage you to read our proxy statement,
which is available for free at the SEC's website (www.sec.gov). Our proxy
statement contains information important to your decision. A copy of our proxy
statement will also be sent directly to you. In addition, copies of our recent
Schedule 13-D filings are available for free on the SEC's website; those filings
contain additional information regarding the members of the PL Capital Group.
You may also contact us directly to obtain free copies.