## **UNITEDSTATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

**ý****                                ****QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**For thequarterly period ended June 30, 2005**

 

**or**

 

**o****                                ****TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**For thetransition period from                   to                  **

 

**CommissionFile Number 1-13605**

 

**EFC BANCORP, INC.**

(Exact name ofregistrant as specified in its charter)

 
| **Delaware**                                                                        | ** ** | **36-4193304**                        |
|-------------------------------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of incorporation or organization)                     | ** ** | (I.R.S. Employer  Identification No.) |
| ** **                                                                          | ** ** | ** **                            |
| **1695  Larkin Avenue, Elgin, Illinois**                                            | ** ** | **60123**                             |
| (Address of  principal executive offices)                                           | ** ** | (Zip Code)                            |
|                                                                                |       |                                  |
| **(847)  741-3900**                                                                 |
| (Registrant’s telephone  number, including area code)                          |
|                                                                                |
| **Not  Applicable**                                                                 |
| (Former name,  former address and former fiscal year, if changed since last report) |

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.                       Yesý   No o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12(b)-2of the Exchange Act).  Yes o   No ý

 

APPLICABLE ONLY TOCORPORATE ISSUERS:

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date: 4,824,300 shares of common stock, par value $0.01 pershare, were outstanding as of August 10, 2005.

 

 

----

 

EFC Bancorp, Inc.

 

Form 10-Q

 

For the QuarterEnded June 30, 2005

 

INDEX

 
| PART I.  | FINANCIAL INFORMATION                                                                               |   |
|---------------|-----------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                |   |
| Item 1.       | Financial Statements (unaudited)                                                                    |   |
|          |                                                                                                |   |
|          | Consolidated Balance Sheets  at June 30, 2005 and December 31, 2004                       |   |
|          |                                                                                                |   |
|          | Consolidated Statements of  Income - For the Three and Six Months Ended June 30, 2005 and 2004 |   |
|          |                                                                                                |   |
|          | Consolidated Statements of  Cash Flows - For the Six Months Ended June 30, 2005 and 2004       |   |
|          |                                                                                                |   |
|          | Notes to Consolidated  Financial Statements                                                         |   |
|          |                                                                                                |   |
| Item 2.       | Management’s Discussion and  Analysis of Financial Condition and Results of Operations         |   |
|          |                                                                                                |   |
| Item 3.       | Quantitative and Qualitative  Disclosures About Market Risk                                         |   |
|          |                                                                                                |   |
| Item 4.       | Controls and Procedures                                                                             |   |
|          |                                                                                                |   |
| PART II: | OTHER INFORMATION                                                                                   |   |
|          |                                                                                                |   |
| Item  1.      | Legal  Proceedings                                                                                  |   |
| Item  2.      | Unregistered  Sales of Equity Securities and Use of Proceeds                                        |   |
| Item  3.      | Defaults  Upon Senior Securities                                                                    |   |
| Item  4.      | Submission  of Matters to a Vote of Security Holders                                                |   |
| Item  5.      | Other  Information                                                                                  |   |
| Item  6.      | Exhibits                                                                                            |   |
|          |                                                                                                |   |
| SIGNATURES    |                                                                                                |

 

----

 

**PART I.FINANCIAL INFORMATION**

**EFCBANCORP, INC.**

 

Item 1. Financial Statements.

**EFCBANCORP, INC.**

**ANDSUBSIDIARIES**

Consolidated BalanceSheets (unaudited)

June 30, 2005and December 31, 2004

 
| ** **                                                                                                                                 | ** ** | **June 30,  2005** | ** **    | **December 31,  2004** | ** **    |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|---------------|-----------------------------|---------------|
| Assets                                                                                                                                     | ** ** | ** **              | ** **    | ** **                  | ** **    |
| Cash  and cash equivalents:                                                                                                                |       |                    |          |                        |          |
| On  hand and in banks                                                                                                                      |       | $                       | 6,699,838     |                        | 5,327,541     |   |
| Interest  bearing deposits with financial institutions                                                                                     |       | 28,742,866              |          | 25,582,585                  |          |
| Total  cash and cash equivalents                                                                                                           |       | 35,442,704              |          | 30,910,126                  |          |
|                                                                                                                                       |       |                    |          |                        |          |
| Loans  receivable, net                                                                                                                     |       | 830,358,053             |          | 807,833,561                 |          |
| Mortgage-backed  securities available-for-sale, at fair value                                                                              |       | 10,200,112              |          | 9,976,804                   |          |
| Investment  securities available-for-sale, at fair value                                                                                   |       | 96,604,032              |          | 92,846,891                  |          |
| Stock  in Federal Home Loan Bank of Chicago, at cost                                                                                       |       | 12,352,400              |          | 12,023,700                  |          |
| Accrued  interest receivable                                                                                                               |       | 4,264,389               |          | 3,996,974                   |          |
| Office  properties and equipment, net                                                                                                      |       | 24,225,779              |          | 24,302,624                  |          |
| Real  estate held for development                                                                                                          |       | 530,942                 |          | 1,544,818                   |          |
| Bank  owned life insurance                                                                                                                 |       | 19,509,234              |          | 19,149,802                  |          |
| Other  assets                                                                                                                              |       | 2,032,106               |          | 1,329,898                   |          |
|                                                                                                                                       |       |                    |          |                        |          |
| Total  assets                                                                                                                              |       | $                       | 1,035,519,751 |                        | 1,003,915,198 |   |
|                                                                                                                                       |       |                    |          |                        |          |
| Liabilities and  Stockholders’ Equity                                                                                                 |       |                    |          |                        |          |
| Liabilities:                                                                                                                               |       |                    |          |                        |          |
| Deposits                                                                                                                                   |       | $                       | 712,809,269   |                        | 671,035,878   |   |
| Borrowed  money                                                                                                                            |       | 219,000,000             |          | 237,000,000                 |          |
| Accrued  expenses, income taxes payable and other liabilities                                                                              |       | 14,522,802              |          | 10,344,521                  |          |
|                                                                                                                                       |       |                    |          |                        |          |
| Total  liabilities                                                                                                                         |       | 946,332,071             |          | 918,380,399                 |          |
|                                                                                                                                       |       |                    |          |                        |          |
| Stockholders’  Equity:                                                                                                                |       |                    |          |                        |          |
| Preferred  stock, par value $.01 per share, authorized 2,000,000 shares; no shares  issued                                                 |       | —                  |          | —                      |          |
| Common  stock, par value $.01 per share, authorized 25,000,000 shares; issued  7,491,434 shares                                            |       | 74,914                  |          | 74,914                      |          |
| Additional  paid-in capital                                                                                                                |       | 73,795,910              |          | 73,237,074                  |          |
| Retained  earnings, substantially restricted                                                                                               |       | 52,554,357              |          | 50,823,162                  |          |
| Treasury  stock, at cost, 2,672,765 and 2,746,921 shares at June 30, 2005 and December 31,  2004, respectively                   |       | (33,276,448             | )             | (34,131,491                 | )             |
| Unearned  employee stock ownership plan (ESOP), 299,659 and 319,636 shares at June 30,  2005 and December 31, 2004, respectively |       | (4,480,649              | )             | (4,779,359                  | )             |
| Unearned  stock award plan, 3,703 and 4,202 shares at June 30, 2005 and December 31,  2004, respectively                         |       | (41,201                 | )             | (46,747                     | )             |
| Accumulated  other comprehensive income                                                                                                    |       | 560,797                 |          | 357,246                     |          |
|                                                                                                                                       |       |                    |          |                        |          |
| Total  stockholders’ equity                                                                                                           |       | 89,187,680              |          | 85,534,799                  |          |
|                                                                                                                                       |       |                    |          |                        |          |
| Commitments  and contingencies                                                                                                             |       | —                  |          | —                      |          |
|                                                                                                                                       |       |                    |          |                        |          |
| Total  liabilities and stockholders’ equity                                                                                           |       | $                       | 1,035,519,751 |                        | 1,003,915,198 |   |

 

See accompanyingnotes to unaudited consolidated financial statements.

 

1

----

 

**EFCBANCORP, INC.**

**ANDSUBSIDIARIES**

 

Consolidated Statementsof Income (unaudited)

For the three andsix months ended June 30, 2005 and 2004

 
| ** **                                                                                           | ** ** | **Three months ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                           | ** ** | **2005**                              | ** ** | **2004**                            | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                                 |       |                                  |       |                                |       |   |   |   |   |
| Interest  income:                                                                                    |       |                                  |       |                                |       |   |   |   |   |
| Loans  secured by real estate                                                                        |       | $                                     | 7,629,351  |                                | 7,580,268  |   | 15,120,533 |   | 15,611,447 |   |
| Other  loans                                                                                         |       | 4,083,012                             |       | 2,364,366                           |       | 7,702,717 |   | 4,445,980 |   |
| Mortgage-backed  securities available-for-sale                                                       |       | 100,585                               |       | 113,304                             |       | 205,645 |   | 203,117 |   |
| Investment  securities available-for-sale and interest bearing deposits with financial  institutions |       | 1,326,211                             |       | 1,174,849                           |       | 2,654,970 |   | 2,418,786 |   |
| Total  interest income                                                                               |       | 13,139,159                            |       | 11,232,787                          |       | 25,683,865 |   | 22,679,330 |   |
|                                                                                                 |       |                                  |       |                                |       |   |   |   |   |
| Interest  expense:                                                                                   |       |                                  |       |                                |       |   |   |   |   |
| Deposits                                                                                             |       | 4,118,301                             |       | 3,058,962                           |       | 7,760,113 |   | 6,041,419 |   |
| Borrowed  money                                                                                      |       | 2,486,840                             |       | 2,351,862                           |       | 5,083,460 |   | 4,757,583 |   |
| Total  interest expense                                                                              |       | 6,605,141                             |       | 5,410,824                           |       | 12,843,573 |   | 10,799,002 |   |
|                                                                                                 |       |                                  |       |                                |       |   |   |   |   |
| Net  interest income before provision for loan losses                                                |       | 6,534,018                             |       | 5,821,963                           |       | 12,840,292 |   | 11,880,328 |   |
| Provision  for loan losses                                                                           |       | 225,000                               |       | 190,000                             |       | 445,000 |   | 340,000 |   |
| Net  interest income after provision for loan losses                                                 |       | 6,309,018                             |       | 5,631,963                           |       | 12,395,292 |   | 11,540,328 |   |
|                                                                                                 |       |                                  |       |                                |       |   |   |   |   |
| Noninterest  income:                                                                                 |       |                                  |       |                                |       |   |   |   |   |
| Service  fees                                                                                        |       | 835,223                               |       | 702,973                             |       | 1,578,093 |   | 1,285,232 |   |
| Insurance  and brokerage commissions                                                                 |       | 255,491                               |       | 145,057                             |       | 383,479 |   | 341,929 |   |
| Information  technology sales and service income, net                                                |       | 90,556                                |       | 109,066                             |       | 183,760 |   | 235,529 |   |
| Gain  on sale of property                                                                            |       | 15,242                                |       | —                              |       | 51,216 |   | 149,396 |   |
| Gain  on sale of securities                                                                          |       | 208,969                               |       | 201,892                             |       | 208,969 |   | 249,418 |   |
| Gain  on sale of loans                                                                               |       | 39,669                                |       | 26,242                              |       | 94,719 |   | 261,623 |   |
| Bank  owned life insurance                                                                           |       | 217,022                               |       | 218,127                             |       | 431,409 |   | 446,327 |   |
| Other                                                                                                |       | 34,264                                |       | 57,313                              |       | 54,550 |   | 107,505 |   |
| Total  noninterest income                                                                            |       | 1,696,436                             |       | 1,460,670                           |       | 2,986,195 |   | 3,076,959 |   |
|                                                                                                 |       |                                  |       |                                |       |   |   |   |   |
| Noninterest  expense:                                                                                |       |                                  |       |                                |       |   |   |   |   |
| Compensation  and benefits                                                                           |       | 3,210,004                             |       | 2,838,643                           |       | 6,462,281 |   | 5,622,148 |   |
| Office  building, net                                                                                |       | 755,163                               |       | 705,917                             |       | 1,515,531 |   | 1,393,235 |   |
| Federal  insurance premiums                                                                          |       | 23,732                                |       | 22,783                              |       | 47,837 |   | 45,403 |   |
| Advertising                                                                                          |       | 249,660                               |       | 302,842                             |       | 466,589 |   | 511,012 |   |
| Data  processing                                                                                     |       | 295,367                               |       | 299,242                             |       | 577,164 |   | 575,322 |   |
| NOW/checking  account expenses                                                                       |       | 138,030                               |       | 146,766                             |       | 295,910 |   | 270,957 |   |
| Intangible  amortization                                                                             |       | 28,506                                |       | 3,967                               |       | 57,012 |   | 20,669 |   |
| Other                                                                                                |       | 766,136                               |       | 680,629                             |       | 1,491,378 |   | 1,298,586 |   |
| Total  noninterest expense                                                                           |       | 5,466,598                             |       | 5,000,789                           |       | 10,913,702 |   | 9,737,332 |   |
|                                                                                                 |       |                                  |       |                                |       |   |   |   |   |
| Income  before income taxes and minority interest                                                    |       | 2,538,856                             |       | 2,091,844                           |       | 4,467,785 |   | 4,879,955 |   |
|                                                                                                 |       |                                  |       |                                |       |   |   |   |   |
| Income  tax expense                                                                                  |       | 766,881                               |       | 552,985                             |       | 1,284,090 |   | 1,377,336 |   |
|                                                                                                 |       |                                  |       |                                |       |   |   |   |   |
| Income  before minority interest                                                                     |       | 1,771,975                             |       | 1,538,859                           |       | 3,183,695 |   | 3,502,619 |   |
|                                                                                                 |       |                                  |       |                                |       |   |   |   |   |
| Minority  interest                                                                                   |       | —                                |       | 3,652                               |       | — |   | 10,103 |   |
|                                                                                                 |       |                                  |       |                                |       |   |   |   |   |
| Net  income                                                                                          |       | $                                     | 1,771,975  |                                | 1,542,511  |   | 3,183,695 |   | 3,512,722 |   |
|                                                                                                 |       |                                  |       |                                |       |   |   |   |   |
| Earnings  per share:                                                                                 |       |                                  |       |                                |       |   |   |   |   |
| Basic                                                                                                |       | $                                     | 0.39       |                                | 0.36       |   | 0.71 |   | 0.82 |   |
| Diluted                                                                                              |       | 0.38                                  |       | 0.34                                |       | 0.68 |   | 0.77 |   |

 

See accompanyingnotes to unaudited consolidated financial statements.

 

2

----

 

**EFCBANCORP, INC.**

**ANDSUBSIDIARIES**

 

Consolidated Statementsof Cash Flows (unaudited)

For the six monthsended June 30, 2005 and 2004

 
| ** **                                                                                 | ** ** | **2005**     | ** ** | **2004**    | ** ** |
|--------------------------------------------------------------------------------------------|------------|--------------|------------|-------------|------------|
|                                                                                       |       |         |       |        |       |
| Cash  flows from operating activities:                                                     |       |         |       |        |       |
| Net  income                                                                                |       | $            | 3,183,695  |        | 3,512,722  |   |
| Adjustment  to reconcile net income to net cash provided by operating activities:          |       |         |       |        |       |
| Amortization  of premiums and discounts, net                                               |       | 37,100       |       | 52,013      |       |
| Provision  for loan losses                                                                 |       | 445,000      |       | 340,000     |       |
| FHLB  of Chicago stock dividends                                                           |       | (328,700     | )          | (340,300    | )          |
| Stock  award plan shares allocated                                                         |       | 5,546        |       | 16,687      |       |
| ESOP  shares committed to be released                                                      |       | 298,709      |       | 298,709     |       |
| Change  in fair value of ESOP shares                                                       |       | 558,836      |       | 402,712     |       |
| Depreciation  of office properties and equipment                                           |       | 762,470      |       | 607,469     |       |
| Gain  on sale of securities                                                                |       | (208,969     | )          | (249,418    | )          |
| Gain  on sale of loans receivable                                                          |       | (94,719      | )          | (261,623    | )          |
| Change  in minority interest in subsidiary                                                 |       | —       |       | (10,103     | )          |
| Increase  in bank owned life insurance                                                     |       | (359,432     | )          | (382,416    | )          |
| Intangible  amortization                                                                   |       | 57,012       |       | 20,669      |       |
| (Increase)  decrease in accrued interest receivable and other assets, net                  |       | (1,158,480   | )          | 903,672     |       |
| Increase  (decrease) in income taxes payable, accrued expenses and other liabilities,  net |       | 4,166,235    |       | (875,860    | )          |
|                                                                                       |       |         |       |        |       |
| Net  cash provided by operating activities                                                 |       | 7,364,303    |       | 4,034,933   |       |
|                                                                                       |       |         |       |        |       |
| Cash  flows from investing activities:                                                     |       |         |       |        |       |
| Net  increase in loans receivable                                                          |       | (22,477,846  | )          | (24,932,787 | )          |
| Purchases  of loans receivable                                                             |       | (10,954,403  | )          | (53,815,045 | )          |
| Proceeds  from the sale of loans receivable                                                |       | 10,557,475   |       | 34,700,839  |       |
| (Increase)  decrease in real estate held for development                                   |       | 1,013,876    |       | (321,708    | )          |
| Purchases  of mortgage-backed securities available-for-sale                                |       | (1,991,712   | )          | (4,035,625  | )          |
| Principal  payments on mortgage-backed securities available-for-sale                       |       | 1,683,864    |       | 2,183,531   |       |
| Maturities  of investment securities available-for-sale                                    |       | 2,465,293    |       | 23,252,195  |       |
| Purchases  of investment securities available-for-sale                                     |       | (8,617,210   | )          | (24,832,769 | )          |
| Proceeds  from the sale of investment securities                                           |       | 2,984,877    |       | 3,747,340   |       |
| Purchases  of office properties and equipment                                              |       | (685,625     | )          | (1,729,371  | )          |
| Investment  in bank owned life insurance                                                   |       | —       |       | (425,000    | )          |
|                                                                                       |       |         |       |        |       |
| Net  cash used in investing activities                                                     |       | (26,021,411  | )          | (46,208,400 | )          |
|                                                                                       |       |         |       |        |       |
| Cash  flows from financing activities:                                                     |       |         |       |        |       |
| Net  increase in deposits                                                                  |       | 41,773,391   |       | 44,094,929  |       |
| Proceeds  from borrowed money                                                              |       | 111,000,000  |       | 99,000,784  |       |
| Repayments  on borrowed money                                                              |       | (129,000,000 | )          | (89,789,536 | )          |
| Purchase  of treasury stock                                                                |       | —       |       | (268,963    | )          |
| Stock  options exercised                                                                   |       | 855,043      |       | 732,754     |       |
| Cash  dividends paid                                                                       |       | (1,438,748   | )          | (1,255,351  | )          |
| Net cash provided by  financing activities                                                 |       | 23,189,686   |       | 52,514,617  |       |
|                                                                                       |       |         |       |        |       |
| Net  increase in cash and cash equivalents                                                 |       | 4,532,578    |       | 10,341,150  |       |
| Cash  and cash equivalents at beginning of period                                          |       | 30,910,126   |       | 21,875,988  |       |
|                                                                                       |       |         |       |        |       |
| Cash  and cash equivalents at end of period                                                |       | $            | 35,442,704 |        | 32,217,138 |   |
|                                                                                       |       |         |       |        |       |
| Supplemental  disclosures of cash flow information:                                        |       |         |       |        |       |
| Cash  paid during the period for:                                                          |       |         |       |        |       |
| Interest                                                                                   |       | $            | 12,749,331 |        | 10,762,025 |   |
| Income  taxes                                                                              |       | 2,150,000    |       | 1,605,000   |       |

 

See accompanyingnotes to unaudited consolidated financial statements.

 

3

----

 

**EFC BANCORP, INC.**

**Notes toUnaudited Consolidated Financial Statements**

 

Note 1: BASIS OFPRESENTATION

 

The accompanyingunaudited consolidated financial statements include the accounts of EFC Bancorp, Inc.(the Company), its wholly-owned subsidiaries, Computer Dynamics Group, Inc.(CDGI), EFS Bank (the Bank) and its wholly-owned subsidiary, EFS ServiceCorporation of Elgin.  The Companyoperates as a single segment.

 

In the opinion of themanagement of the Company, the accompanying consolidated financial statementsinclude all normal recurring adjustments necessary for a fair presentation ofthe financial position and results of operations for the periodspresented.  All significant intercompanytransactions have been eliminated in consolidation.  These interim financial statements have beenprepared according to the rules and regulations of the Securities andExchange Commission and therefore certain information and footnote disclosuresnormally included in annual financial statements presented in accordance withU.S. generally accepted accounting principles have been condensed oromitted.  The preparation of financialstatements in conformity with U.S. GAAP requires the use of estimates andassumptions that affect amounts and disclosures.  Actual results could differ from thoseestimates.  The results of operations forthe interim periods are not necessarily indicative of the results to be expectedfor the full year.  It is suggested thatthe accompanying unaudited consolidated financial statements be read inconjunction with the Company’s 2004 Annual Report on Form 10-K.  Currently, other than investing in varioussecurities, the Company does not directly transact any material business otherthan through the Bank.  Accordingly, thediscussion herein addresses the operations of the Company as they are conductedthrough the Bank.

 

4

----

 

Note 2: COMPREHENSIVEINCOME

 

The Company’scomprehensive income for the three and six month periods ended June 30,2005 and 2004 are as follows:

 
| ** **                                                                                           | ** ** | **Three months ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                           | ** ** | **2005**                              | ** ** | **2004**                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net  income                                                                                          |       | $                                     | 1,771,975  |                                | 1,542,511  |   | 3,183,695 |   | 3,512,722 |   |
| Other  comprehensive income, net of tax:                                                             |       |                                  |       |                                |       |   |   |   |   |
| Unrealized  holding gains/(losses) on securities arising during the period, net of tax  effect       |       | 1,269,447                             |       | (3,011,659                          | )          | 203,551 |   | (2,085,163 | ) |
| Reclassification  adjustment for net gain on sales of securities realized in net income, net of  tax |       | (131,650                              | )          | (127,192                            | )          | (131,650 | ) | (157,133 | ) |
|                                                                                                 |       |                                  |       |                                |       |   |   |   |   |
| Comprehensive  income                                                                                |       | $                                     | 2,909,772  |                                | (1,596,340 | ) | 3,255,596 |   | 1,270,426 |   |

 

Forthe three and six month periods ended June 30, 2005 the sale of securitiesresulted in gains of $208,969 ($131,650 net of tax effect).  For the three and six months ended June 30,2004 the sale of securities resulted in gains of $201,892 and $249,418,respectively ($127,192 and $157,133 net of tax effect).

 

Note 3: COMPUTATION OFPER SHARE EARNINGS

 

Basic earnings per shareis calculated by dividing net income by the weighted average number of commonshares outstanding.  Diluted earnings pershare is calculated by dividing net income by the weighted average number ofcommon shares outstanding adjusted for the dilutive effect of outstanding stockoptions.  ESOP shares are only consideredoutstanding for earnings per share calculations when they are released orcommitted to be released.

 

5

----

 

Presented below are thecalculations for the basic and diluted earnings per share:

 
| ** **                                    | ** ** | **Three months ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
|-----------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                    | ** ** | **2005**                              | ** ** | **2004**                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Basic:                                        | ** ** | ** **                            | ** ** | ** **                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net  income                                   |       | $                                     | 1,771,975  |                                | 1,542,511  |   | 3,183,695 |   | 3,512,722 |   |
|                                          |       |                                  |       |                                |       |   |   |   |   |
| Weighted  average shares outstanding          |       | 4,494,151                             |       | 4,281,488                           |       | 4,470,591 |   | 4,260,528 |   |
|                                          |       |                                  |       |                                |       |   |   |   |   |
| Basic  earnings per share                     |       | $                                     | 0.39       |                                | 0.36       |   | 0.71 |   | 0.82 |   |
|                                          |       |                                  |       |                                |       |   |   |   |   |
| Diluted:                                      |       |                                  |       |                                |       |   |   |   |   |
|                                          |       |                                  |       |                                |       |   |   |   |   |
| Net  income                                   |       | $                                     | 1,771,975  |                                | 1,542,511  |   | 3,183,695 |   | 3,512,722 |   |
|                                          |       |                                  |       |                                |       |   |   |   |   |
| Weighted  average shares outstanding          |       | 4,494,151                             |       | 4,281,488                           |       | 4,470,591 |   | 4,260,528 |   |
| Effect  of dilutive stock options outstanding |       | 200,906                               |       | 270,176                             |       | 185,784 |   | 276,116 |   |
| Diluted  weighted average shares outstanding  |       | 4,695,057                             |       | 4,551,664                           |       | 4,656,375 |   | 4,536,644 |   |
|                                          |       |                                  |       |                                |       |   |   |   |   |
| Diluted  earnings per share                   |       | $                                     | 0.38       |                                | 0.34       |   | 0.68 |   | 0.77 |   |

 

Note 4:  STOCK OPTION PLANS

 

The Company accounts forstock-based compensation plans under APB Opinion No. 25.  For the stock option program, no compensationcost is recognized in connection with the granting of stock options with anexercise price equal to the fair market value of the stock on the date of thegrant.  For the stock award plan, theCompany uses the fixed method of accounting and records compensation expense,over the vesting period of the grant, based upon the fair market value of thestock at the date of grant.  Inaccordance with the disclosure requirements of SFAS No. 123, as amended bySFAS No. 148, the following table provides the pro forma effect on netincome and earnings per share if the fair value method of accounting forstock-based compensation had been used for all awards:

 
| ** **                                                                                                                                  | ** ** | **For the Three Months  Ended June 30,** | ** ** | **For the Six Months  Ended June 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                                                                  | ** ** | **2005**                                      | ** ** | **2004**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                                                  | ** ** | ** **                                    | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net  income as reported                                                                                                                     |       | $                                             | 1,771,975  |                                        | 1,542,511  |   | 3,183,695 |   | 3,512,722 |   |
| Add:  Stock-based compensation, net of tax, included in the determination of net  income, as reported                                       |       | 2,773                                         |       | 8,344                                       |       | 5,546 |   | 16,688 |   |
| Deduct:  Stock-based compensation, net of tax, that would have been reported if the  fair value based method had been applied to all awards |       | (36,875                                       | )          | (36,175                                     | )          | (73,751 | ) | (69,251 | ) |
| Pro  forma net income                                                                                                                       |       | $                                             | 1,737,873  |                                        | 1,514,680  |   | 3,115,490 |   | 3,460,159 |   |
|                                                                                                                                        |       |                                          |       |                                        |       |   |   |   |   |
| Basic  earnings per share                                                                                                                   |       |                                          |       |                                        |       |   |   |   |   |
| As  reported                                                                                                                                |       | $                                             | 0.39       |                                        | 0.36       |   | 0.71 |   | 0.82 |   |
| Pro  forma                                                                                                                                  |       | 0.39                                          |       | 0.35                                        |       | 0.70 |   | 0.81 |   |
|                                                                                                                                        |       |                                          |       |                                        |       |   |   |   |   |
| Diluted  earnings per share                                                                                                                 |       |                                          |       |                                        |       |   |   |   |   |
| As  reported                                                                                                                                |       | $                                             | 0.38       |                                        | 0.34       |   | 0.68 |   | 0.77 |   |
| Pro  forma                                                                                                                                  |       | 0.37                                          |       | 0.33                                        |       | 0.67 |   | 0.76 |   |

 

6

----

 

Note 5:  MERGER AGREEMENT WITH MAF BANCORP, INC.

 

On June 30, 2005,the Company entered into an agreement and plan of reorganization (“MergerAgreement”) with MAF Bancorp, Inc. (“MAF”) pursuant to which the Companyand the Bank will be merged with and into MAF and a subsidiary of MAF (the “Merger”).  Subject to the terms and conditions of theMerger Agreement, each outstanding share of the Company’s common stock will beconverted into the right to receive either .8082 shares of MAF common stock foreach share of Company common stock they hold, or cash in the amount of $34.69without interest, for each such share, or a combination thereof, subject to theelection and allocation procedures detailed in the Merger Agreement.  Approximately 60% of the total considerationwill be paid in MAF common stock and approximately 40% will be paid incash.  The transaction is currentlyexpected to be completed in January 2006, subject to customary closingconditions, regulatory approvals and approval by the holders of a majority ofthe Company’s common stock.  In the eventthe merger is not consummated under certain circumstances, the Company hasagreed to pay MAF a termination fee of $9.0 million.

 

The Merger Agreementincludes terms and conditions which affect the conduct of the Company’sbusiness until the Merger is completed or the Merger Agreement isterminated.  Among other items, theMerger Agreement generally requires the Company to carry on business in itsordinary course consistent with past practice and in accordance with soundbanking practices, and to observe in all material respects its legal andcontractual obligations.  The MergerAgreement generally restricts the ability of the Company to make materialchanges in any aspect of the conduct of its business without the consent of MAFincluding significant capital expenditures, new material lines of business orthe disposition of assets or incurring of obligations outside of the ordinarycourse of business.  The Company believesthat it is in compliance with the obligations under the Merger Agreement in allmaterial respects.

 

Item 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.

 

On June 30, 2005,MAF and the Company announced that they had agreed to a transaction wherby MAFwill acquire the Company in a stock and cash transaction valued atapproximately $177.5 million.  Therespective boards of directors of MAF and the Company EFC approved the MergerAgreement to effectuate the Merger of the two institutions, with MAF to be thesurviving corporation.  Under the termsof the agreement, shareholders of the Company will be entitled to elect toreceive either .8082 shares of MAF stock for each share of Company common stockthey hold, or cash in the amount of $34.69, without interest, for each suchshare, or a combination thereof, subject to the election and allocationprocedures detailed in the Merger Agreement. Approximately 60% of the total consideration will be paid in MAF stockand approximately 40% will be paid in cash. Based on this structure and the current outstanding shares of Companycommon stock, the aggregate merger consideration will include approximately$70.0 million in cash and approximately 2.3 million shares of MAF stock(excluding stock options).  The transactionis currently expected to be completed in January 2006, subject tocustomary closing conditions, regulatory approvals and approval by the holdersof a majority of the Company’s common stock. In the event the merger is not consummated under certain circumstances,the Company has agreed to pay MAF a termination fee of $9.0 

 

7

----

 

million.

 

Set forth below arehighlights and significant items for the second quarter of 2005:

 

•                  The Bank continues to experience margincompression as a result of short-term interest rates increasing at a fasterrate than long-term rates over the last several months;

•                  Diluted earnings per share were $0.38for the quarter and $0.34 for the comparable prior year period;

•                  Net income was $1.8 million for thequarter and $1.5 million for the comparable prior year period; and

•                  Return on average equity was 8.09%for the quarter and 7.62% for the comparable prior year period.

 

The following analysisdiscusses changes in the financial condition at June 30, 2005 and resultsof operations for the three and six months ended June 30, 2005, and shouldbe read in conjunction with the Company’s Unaudited Consolidated FinancialStatements and the notes thereto, appearing in Part I, Item 1 of this document.

 

##### **CriticalAccounting Policy**

##### ** **

Theallowance for loan and lease losses is considered by management to be acritical accounting policy.  Theallowance for loan losses is maintained through provisions for loan lossesbased on management’s on-going evaluation of the risks in its loan portfolio inconsideration of the trends in its loan portfolio, the national and regionaleconomies and the real estate market in the Bank’s primary lending area.  The allowance for loan losses is maintainedat an amount management considers adequate to cover probable losses in itsportfolio, based on information currently known to management.  The Bank’s loan loss allowance determinationalso incorporates factors and analyses which consider the probable principalloss associated with the loans, costs of acquiring the property and securingthe loan through foreclosure or deed in lieu of foreclosure.  While management estimates loan losses usingthe best available information, no assurance can be given that future additionsto the allowance will not be necessary based on changes in economic and realestate market conditions, further information obtained regarding problem loans,identification of additional problem loans and other factors, both within andoutside of management’s control.

 

**Forward-Looking Statements**

 

This report containscertain forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended. The Company intends such forward-lookingstatements to be covered by the safe harbor provisions for forward-lookingstatements contained in the Private Securities Litigation Reform Act of 1995,and is including this statement for purposes of these safe harbor provisions. Forward-lookingstatements, which are based on certain assumptions and describe future plans,strategies and expectations of the Company, are generally identified by use ofthe words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,”or similar expressions.

 

8

----

 

The Company’s ability topredict results or the actual effect of future plans or strategies isinherently uncertain. Factors which could have a material adverse effect on theoperations of the Company and its subsidiaries include, but are not limited to,changes in: interest rates, general economic conditions, legislative/regulatorychanges, monetary and fiscal policies of the U.S. Government, includingpolicies of the U.S. Treasury and the Federal Reserve Board, the quality orcomposition of the loan or investment portfolios, demand for loan products,deposit flows, competition, demand for financial services in the Company’smarket area and accounting principles and guidelines. These risks anduncertainties should be considered in evaluating forward-looking statements andundue reliance should not be placed on such statements. Further informationconcerning the Company and its business, including additional factors thatcould materially affect the Company’s financial results, is included in theCompany’s filings with the SEC, including its 2004 Annual Report on Form 10-K.

 

Forward-lookingstatements also include, with limitation, those statements relating theanticipated effects of the Company’s proposed merger with MAF Bancorp, Inc.  The following factors, among others, couldcause the actual results of the merger to differ materially fromexpectations:  the ability of thecompanies to obtain the required shareholder or regulatory approvals of themerger; the imposition of any regulatory conditions or requirements on themerger; the ability of the companies to consummate the merger; the ability tosuccessfully integrate the companies following the merger, includingintegration of data processing systems and retention of key personnel; amaterially adverse change in the financial condition, operations, or projectedor actual earnings of either company; the ability to fully realize the expectedcost savings and revenues; the ability to realize the expected cost savings andrevenues on a timely basis; and any material change in the local markets inwhich each company operates.

 

The Company does notundertake - and specifically disclaims any obligation - to publicly release theresult of any revisions which may be made to any forward-looking statements toreflect events or circumstances after the date of such statements or to reflectthe occurrence of anticipated or unanticipated events.

 

**Comparison of Financial Conditionat June 30, 2005 and December 31, 2004**

 

Total assets at June 30,2005 were $1.036 billion, which represented an increase of $31.6 million, or3.2%, compared to $1.004 billion at December 31, 2004.  The increase in total assets was primarily aresult of an increase in net loans receivable of $22.6 million, or 2.8%, to$830.4 million at June 30, 2005 from $807.8 million at December 31,2004.  The increase in loans was theresult of increases of $8.4 million in one-to-four family loans, $7.5 millionin multi-family loans, $9.8 million in construction and land loans and $2.9million in home equity loans, the effect of which was offset by a $4.2 milliondecrease in commercial business loans and a $2.1 million decrease in commercialreal estate loans.  This growth isconsistent with management’s overall strategy for the Bank, which includesbranch expansion and competitive pricing of deposit accounts in its localmarket area.  In addition, investmentsecurities increased $3.8 million, or 4.1%, to $96.6 million at June 30,2005 from $92.8 million at December 31, 2004 and cash and cash equivalentsincreased $4.5 million, or 14.7%, to $35.4 million at June 30, 2005 from$30.9 million at December 31, 2004. These increases were partially offset by a decrease in real estate ownedfor development of $1.0 million, or 65.6%, to $531,000 at June 30, 2005from

 

9

----

 

$1.5 million at December 31,2004.  The loan growth was funded byincreases in deposits.  Depositsincreased $41.8 million, or 6.2%, to $712.8 million at June 30, 2005 from$671.0 million at December 31, 2004. Borrowed money, representing FHLB advances, decreased $18.0 million to$219.0 million at June 30, 2005 from $237.0 million at December 31,2004.  Stockholders’ equity increased$3.7 million to $89.2 million at June 30, 2005 from $85.5 million at December 31,2004.  The increase in stockholders’equity was primarily the result of the Company’s net income for the six monthsended June 30, 2005 and an increase of $204,000 in the Company’s accumulatedother comprehensive income relating to the change in fair value of itsavailable-for-sale investment portfolio, which was partially offset bydividends paid.

 

**Comparison of Operating ResultsFor the Three Months Ended June 30, 2005 and 2004**

 

***General.***  The Company’s net income increased $229,000,or 14.9%, to $1.8 million for the three months ended June 30, 2005 ascompared to the prior year period.

 

***InterestIncome.***  Interestincome increased $1.9 million, or 17.0%, to $13.1 million for the three monthsended June 30, 2005, compared to the same period in 2004.  This increase resulted from an increase inthe average balance of interest-earning assets and an increase in the averagerate earned on interest-earning assets. The average yield on interest-earning assets increased by 31 basispoints to 5.49% for the three months ended June 30, 2005 from 5.18% forthe three months ended June 30, 2004. The average balance of interest-earning assets increased by $88.9million, or 10.1%, to $972.0 million for the three months ended June 30,2005 from $883.1 million for the comparable period in 2004.  This increase resulted primarily from anincrease in the average balance of loans receivable of $79.8 million from$751.3 million for the three months ended June 30, 2004 to $831.1 millionfor the three months ended June 30, 2005. In addition, the average balance on investment securities increased$13.5 million from $84.5 million for the three months ended June 30, 2004to $98.0 million for the three months ended June 30, 2005.

 

Mortgage loan interestincome increased by $49,000 for the three months ended June 30, 2005compared with the same period in 2004. The average balance of mortgage loans increased $5.8 million to $569.7million and the mortgage loan yield decreased by 2 basis points from 5.38% to5.36%.  Interest income from other loansincreased $1.7 million for the three months ended June 30, 2005.  This increase resulted from a combination ofan increase in average balance of $74.0 million to $261.4 million, and a 120basis point increase in yield from 5.05% for the three months ended June 30,2004 to 6.25% for the three months ended June 30, 2005.  Interest income from investment securitiesincluding stock in the Federal Home Loan Bank of Chicago, mortgage-backedsecurities and short-term deposits increased $139,000 to $1.4 million for thethree months ended June 30, 2005, compared with the same period in2004.  The average balance increased $9.1million and the yield increased 15 basis points from 4.49% for the three monthsended June 30, 2004 to 4.64% for the three months ended June 30,2005.  The average yields are reported ona tax equivalent basis.

 

***InterestExpense. ***Interestexpense increased by $1.2 million, or 22.1%, to $6.6 million for the three monthsended June 30, 2005, compared to the same period in 2004.  This increase

 

10

----

 

resulted from acombination of an increase in the average balance of interest-bearingliabilities, and an increase in the average rate paid on those interest-bearingliabilities.  The average balance ofinterest-bearing liabilities increased by $85.8 million, or 10.8%, to $881.2million for the three months ended June 30, 2005 from $795.4 million forthe three months ended June 30, 2004. This increase is partially due to deposit growth resulting from theopening of the Company’s ninth full service branch in September 2004.  The increase in interest-bearing liabilitiesreflects a $64.1 million increase in deposit accounts, which is attributable toa $11.3 million increase in passbook savings accounts, a $83.0 million increasein certificates of deposit and a $6.3 million increase in NOW accounts.  These increases were partially offset by adecrease of $36.5 million in money market accounts.  In addition, borrowings increased $21.6million to $225.3 million for the three months ended June 30, 2005 from$203.7 million for the comparable period in 2004.  The average rate paid on deposits increasedby 44 basis points to 2.51% for the three months ended June 30, 2005 from2.07% for the comparable prior year period. The average rate paid on borrowed money decreased by 21 basis points to4.41% for the three months ended June 30, 2005 from 4.62% for the threemonths ended June 30, 2004.

 

***NetInterest Income Before Provision for Loan Losses.***  Net interest income before provision for loanlosses increased $712,000, or 12.2%, to $6.5 million for the three months endedJune 30, 2005 from $5.8 million for the comparable period in 2004.  The average balance of interest-earningassets increased $88.9 million for the three months ended June 30, 2005compared to the comparable prior year period. The increase in interest-earning assets was primarily the result ofincreases in the average balance of other loans of $74.0 million, investmentsecurities of $13.6 million and a $5.8 million increase in mortgage loans.  These increases were partially offset by a$3.8 million decrease in cash and cash equivalents.  The tax equivalent net interest margin as apercent of interest-earning assets increased by 6 basis points to 2.78% for thethree months ended June 30, 2005 from 2.72% for the comparable period in2004.  The Bank continues to experiencemargin compression as a result of the recent interest rate environment.  Increasing the net interest margin isdependent on the Bank’s ability to generate higher-yielding assets andlower-cost deposits.  Managementcontinues to closely monitor the net interest margin.

 

***Provisionfor Loan Losses.*** The provision for loan losses increased by $35,000, to $225,000 for thethree months ended June 30, 2005 from $190,000 in the comparable prioryear period.  The increase in theprovision for loan losses is primarily due to the growth and increased risk inthe loan portfolio based on a greater emphasis placed on commercial lending,which involves a higher degree of risk. Commercial lending increased $13.4 million, or 8.9%, to $164.2 millionat June 30, 2005 from $150.8 million at June 30, 2004.  At June 30, 2005, December 31, 2004and June 30, 2004, non-performing loans totaled $2.9 million, $2.9 millionand $2.5 million, respectively.  At June 30,2005, the ratio of the allowance for loan losses to non-performing loans was170.1% compared to 153.5% at December 31, 2004 and 160.4% at June 30,2004.  The ratio of the allowance tototal loans was 0.59%, 0.56% and 0.54%, at June 30, 2005, December 31,2004 and June 30, 2004, respectively. Net charge-offs for the three months ended June 30, 2005 totaled$60,000.  Net charge-offs for the threemonths ended June 30, 2004 totaled $3,000. Management periodically performs an allowance sufficiency analysis basedupon the portfolio composition, asset classifications, loan-to-value ratios,probable impairments in the loan portfolio, and other factors.

 

11

----

 

***NoninterestIncome. ***Noninterestincome totaled $1.7 million and $1.5 million for the three months ended June 30,2005 and 2004, respectively.  Theincrease in noninterest income is primarily attributable to increases of$132,000 in service fees, $110,000 in insurance and brokerage commissions,$15,000 in gain on sale of property and $13,000 in gain on sale of loans. Theincrease in insurance and brokerage commissions is partially due to the additionof an experienced licensed broker.  Theseincreases were partially offset by a decrease of $19,000 in revenues generatedby CDGI.  The decrease in incomegenerated by CDGI is largely due to a decrease in sales related to a weakerdemand for CDGI’s services.  The increasein service fees is primarily due to the growth in the number of depositaccounts.

 

***NoninterestExpense. ***Noninterestexpense increased $466,000, to $5.5 million for the three months ended June 30,2005 from $5.0 million for the comparable period in 2004.  Of this increase, $371,000 is directlyrelated to compensation and benefits.  Inaddition, expenses relating to office building operations increased $49,000resulting from the costs related to a new branch office placed in service in September 2004and $39,000 relating to professional audit and outsourced internal auditfees.  The increase in these audit feesis directly related to the Company’s compliance with Section 404 of theSarbanes-Oxley Act of 2002 for the fiscal year ending December 31,2005.  The increase in compensation andbenefits is primarily due to a combination of annual salary increases and theaddition of staff.  The additional staffis related to the new branch office opened in September 2004 and theexpansion of the commercial loan department. Management continues to emphasize the importance of expense managementand control while continuing to provide expanded banking services to a growingmarket base.

 

***IncomeTax Expense. ***Incometax expense totaled $767,000 and $553,000 for the three months ended June 30,2005 and 2004, respectively.  Theeffective tax rate was 30.2% and 26.4% for the three months ended June 30,2005 and 2004, respectively.  Theincrease in the effective tax rate is due to an increase in pretax income withlittle or no change in the relative amounts of the permanent differences.  The increase in income tax expense wasprimarily the result of a increase in income before income taxes of $447,000 to$2.5 million for three months ended June 30, 2005 from $2.1 million forthe comparable prior year period.

 

**Comparison of Operating ResultsFor the Six Months Ended June 30, 2005 and 2004**

 

***General.***  The Company’s net income decreased $329,000,or 9.4%, to $3.2 million for the six months ended June 30, 2005 ascompared to the prior year period.

 

***InterestIncome.***  Interestincome increased $3.0 million, or 13.3%, to $25.7 million for the six monthsended June 30, 2005, compared to the same period in 2004.  This increase resulted from an increase inthe average balance of interest-earning assets and an increase in the averageyield earned on interest-earning assets. The average yield on interest-earning assets increased by 15 basispoints to 5.43% for the six months ended June 30, 2005 from 5.28% for thesix months ended June 30, 2004.  Theaverage balance of interest-earning assets increased by $89.3 million, or10.2%, to $962.5 million for the six months ended June 30, 2005 from$873.2 million for the comparable period in 2004.  This increase resulted primarily from anincrease in the average balance of loans receivable of $84.6 million from$738.0 million for the six months ended June 30, 2004 to $822.6 millionfor the six months ended June 30, 2005. In addition, the

 

12

----

 

average balance oninvestment securities increased $13.9 million from $84.9 million for the sixmonths ended June 30, 2004 to $98.8 million for the six months ended June 30,2005.

 

Mortgage loan interestincome decreased by $491,000 for the six months ended June 30, 2005compared with the same period in 2004. The average balance of mortgage loans decreased $205,000 to $566.7million and the mortgage loan yield decreased by 17 basis points from 5.51% to5.34%.  Interest income from other loansincreased $3.3 million for the six months ended June 30, 2005.  This increase resulted from a combination ofan increase in average balance of $84.8 million to $255.9 million, and a 82basis point increase in yield from 5.20% for the six months ended June 30,2004 to 6.02% for the six months ended June 30, 2005.  Interest income from investment securitiesincluding stock in the Federal Home Loan Bank of Chicago, mortgage-backedsecurities and short-term deposits increased $239,000 to $2.9 million for thesix months ended June 30, 2005, compared with the same period in2004.  The average balance increased $4.7million and the yield increased 26 basis points from 4.44% for the six monthsended June 30, 2004 to 4.70% for the six months ended June 30,2005.  The average yields are reported ona tax equivalent basis.

 

***InterestExpense. ***Interestexpense increased by $2.0 million, or 18.9%, to $12.8 million for the sixmonths ended June 30, 2005, compared to the same period in 2004.  This increase resulted from a combination ofan increase in the average balance of interest-bearing liabilities, and anincrease in the average rate paid on those interest-bearing liabilities.  The average balance of interest-bearingliabilities increased by $85.0 million, or 10.8%, to $872.1 million for the sixmonths ended June 30, 2005 from $787.1 million for the six months ended June 30,2004.  This increase is partially due tothe opening of the Company’s ninth full service branch in September 2004.  The increase in interest-bearing liabilitiesreflects a $58.6 million increase in deposit accounts, which is attributable toa $15.2 million increase in passbook savings accounts, a $73.1 million increasein certificates of deposit and a $4.9 million increase in NOW accounts.  These increases were partially offset by adecrease of $34.6 million in money market accounts.  In addition, borrowings increased $26.5million to $228.7 million for the six months ended June 30, 2005 from$202.2 million for the comparable period in 2004.  The average rate paid on deposits increasedby 34 basis points to 2.41% for the six months ended June 30, 2005 from2.07% for the comparable prior year period. The average rate paid on borrowed money decreased by 26 basis points to4.45% for the six months ended June 30, 2005 from 4.71% for the six monthsended June 30, 2004.  The lower ratepaid on borrowed money was partially due to a greater use of overnightborrowings during the six months ended June 30, 2005.

 

***NetInterest Income Before Provision for Loan Losses.***  Net interest income before provision for loanlosses increased $960,000, or 8.1%, to $12.8 million for the six months ended June 30,2005 from $11.9 million for the comparable period in 2004.  The average balance of interest-earningassets increased $89.3 million for the six months ended June 30, 2005compared to the comparable prior year period. The increase in interest-earning assets was primarily the result ofincreases in the average balance of other loans of $84.8 million and investmentsecurities of $14.0 million.  Theseincreases were partially offset by a $10.5 million decrease in cash and cashequivalents.  The tax equivalent netinterest margin as a percent of interest-earning assets decreased by 5 basispoints to 2.76% for the six months ended June 30, 2005 from 2.81% for thecomparable period in 2004.

 

13

----

 

***Provisionfor Loan Losses.*** The provision for loan losses increased by $105,000, to $445,000 for thesix months ended June 30, 2005 from $340,000 in the comparable prior yearperiod.  The increase in the provisionfor loan losses is primarily due to the growth and increased risk in the loanportfolio based on a greater emphasis placed on commercial lending, whichinvolves a higher degree of risk.  Commercial lending increased $13.4 million, or8.9%, to $164.2 million at June 30, 2005 from $150.8 million at June 30,2004.  At June 30, 2005, December 31,2004 and June 30, 2004, non-performing loans totaled $2.9 million, $2.9million and $2.5 million, respectively. At June 30, 2005, the ratio of the allowance for loan losses tonon-performing loans was 170.1% compared to 153.5% at December 31, 2004and 160.4% at June 30, 2004.  Theratio of the allowance to total loans was 0.59%, 0.56% and 0.54%, at June 30,2005, December 31, 2004 and June 30, 2004, respectively.  Net charge-offs for the six months ended June 30,2005 totaled $60,000.  Net charge-offsfor the six months ended June 30, 2004 totaled $15,000.  Management periodically performs an allowancesufficiency analysis based upon the portfolio composition, assetclassifications, loan-to-value ratios, probable impairments in the loanportfolio, and other factors.

 

***NoninterestIncome. ***Noninterestincome totaled $3.0 million and $3.1 million for the six months ended June 30,2005 and 2004, respectively.  Thedecrease in noninterest income is primarily attributed to decreases of $167,000in gain on sale of loans, $98,000 in gain on sale of property, $52,000 inrevenues generated by CDGI and $40,000 in gain on sale of securities.  These decreases were partially offset byincreases of $293,000 in service fees and $42,000 in insurance and brokeragecommissions.  The decrease in incomegenerated by CDGI is largely due to a decrease in sales related to a weakerdemand for CDGI’s services.  The increasein service fees is primarily due to the growth in the number of depositaccounts.

 

***NoninterestExpense. ***Noninterestexpense increased $1.2 million, to $10.9 million for the six months ended June 30,2005 from $9.7 million for the comparable period in 2004.  Of this increase, $840,000 is directlyrelated to compensation and benefits.  Inaddition, expenses relating to office building operations increased $122,000resulting from the costs related to a new branch office placed in service in September 2004and $76,000 relating to professional audit and outsourced internal auditfees.  The increase in these audit feesis directly related to the Company’s compliance with Section 404 of theSarbanes-Oxley Act of 2002 for the fiscal year ending December 31,2005.  The increase in compensation andbenefits is primarily due to a combination of annual salary increases and theaddition of staff.  The additional staffis related to the new branch office opened in September 2004 and theexpansion of the commercial loan department. Management continues to emphasize the importance of expense managementand control while continuing to provide expanded banking services to a growingmarket base.

 

***IncomeTax Expense. ***Incometax expense totaled $1.3 million and $1.4 million for the six months ended June 30,2005 and 2004, respectively.  Theeffective tax rate was 28.7% and 28.2% for the six months ended June 30,2005 and 2004, respectively.  Thedecrease in income tax expense was primarily the result of a decrease in incomebefore income taxes of $412,000 to $4.5 million for six months ended June 30,2005 from $4.9 million for the comparable prior year period.

 

14

----

 

**Liquidity and Capital Resources**

 

TheCompany’s primary source of funding for dividends and periodic stockrepurchases have been dividends from the Bank. The Bank’s ability to pay dividends and other capital distributions tothe Company is generally limited by the Office of Thrift Supervision’sregulations.  Additionally, the MergerAgreement includes a covenant that prohibits the Company from paying any cashdividends exceeding $0.1625 per share, and from paying a dividend for a quarterwhen Company shareholders receiving MAF stock in the Merger would also receivea dividend payment from MAF on the MAF shares received in the Merger.

 

The Bank’s primarysources of funds are savings deposits, proceeds from the principal and interestpayments on loans, proceeds from the maturity of securities and borrowings fromthe FHLB-Chicago. While maturities and scheduled amortization of loans andsecurities are predictable sources of funds, deposit outflows and mortgageprepayments are greatly influenced by general interest rates, economic conditionsand competition.

 

The primary investingactivities of the Bank are the origination and purchase of primarilyresidential one-to-four-family loans, the purchase of mortgage-backedsecurities and, to a lesser extent, multi-family and commercial real estate,construction and land, commercial and consumer loans.  In addition, the Bank purchases loans,secured by single-family, multi-family and commercial real estate.  Deposit flows are affected by the level ofinterest rates, the interest rates and products offered by the localcompetitors and other factors.

 

In addition to theprimary investing activities of the Bank, the Company has repurchased shares ofits common stock from time to time in the open market.  As of June 30, 2005, the Companyrepurchased a total of 3,087,081 shares of the Company’s common stock at anaverage price per share of $12.11 since becoming a public company in 1998.  There currently is no formal repurchase planin place and there were no shares repurchased during the six months ended June 30,2005.

 

The Bank’s most liquidassets are cash and interest-bearing deposits with financial institutions. Thelevels of these assets are dependent on the Bank’s operating, financing,lending and investing activities during any given period.  At June 30, 2005, cash andinterest-bearing deposits with financial institutions totaled $35.4 million, or3.4% of total assets.

 

See the “ConsolidatedStatements of Cash Flows” in the Unaudited Consolidated Financial Statementsincluded in this Form 10-Q for the sources and uses of cash flows foroperating, investing and financing activities for the six months ended June 30,2005 and 2004.

 

15

----

 

At June 30, 2005,the Bank exceeded all of its regulatory capital requirements. The following isa summary of the Bank’s regulatory capital ratios at June 30, 2005:

 
| ** **                                | ** ** | **Actual** | ** ** | **For capital adequacy  purposes** | ** ** | **To be well capitalized under  prompt corrective action** | ** ** |
|-------------------------------------------|------------|------------|------------|------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                                | ** ** | **Amount** | ** ** | **Ratio**                          | ** ** | **Amount**                                                 | ** ** | **Ratio** | ** ** | **Amount** | ** ** | **Ratio** | ** ** |
| June 30,  2005:                      |       |       |       |                               |       |                                                       |       |   |   |   |   |   |   |
| Total  capital (to risk weighted assets)  |       | $          | 81,856,000 |                               | 10.93      | %                                                          | $          | 59,887,000 |   | 8.0 | % | $ | 74,859,000 |   | 10.0 | % |
| Tier  I capital (to risk weighted assets) |       | 81,122,000 |       | 10.84                              |       | 29,944,000                                                 |       | 4.0 |   | 44,915,000 |   | 6.0 |   |
| Tier  I capital (to average assets)       |       | 81,122,000 |       | 7.92                               |       | 41,333,000                                                 |       | 4.0 |   | 51,666,000 |   | 5.0 |   |
|                                           |            |            |            |                                    |            |                                                            |            |  |  |  |  |  |  |  |  |  |

 

At June 30, 2005,the Company had a Total Capital to Total Assets ratio of 8.61%.

 

On June 21, 2005,the Company announced its second quarter dividend of $0.1625 per share.  The dividend was paid on July 12, 2005to stockholders of record on June 30, 2005.

 

##### **FinancialInstruments with Off-Balance Sheet Risk**

 

The Bank is a party tofinancial instruments with off-balance sheet risk in the normal course ofbusiness to meet the financing needs of its customers.  Those financial instruments primarily includecommitments to extend credit. Commitments to extend credit are agreements to lend to a customer solong as there is no violation of any condition established in the contract. TheBank evaluates each customer’s creditworthiness on a case-by-case basis.  The amount of collateral obtained is based onmanagement’s credit evaluation of the customer. The Bank’s exposure to credit loss in the event of nonperformance by thecustomer is represented by the contractual amount of those financialinstruments.  The commitments tooriginate first mortgage loans represent amounts which the Bank plans to fundwithin a period of 30 to 90 days.

 

The Bank’s approved, butunused lines of credit are based on underwriting standards that allow totalborrowings, including the equity line of credit to exceed 80% of the currentappraised value of the customer’s residence. The Bank charges a 1% higher interest rate on home equity lines ofcredit up to 90% of the home’s current appraised value.

 

The Bank’s standbyletters of credit are conditional commitments issued by the Bank to guaranteeperformance of a customer to a third party. The credit risk involved in these transactions is essentially the sameas that involved in extending a loan to a customer in the normal course ofbusiness.  Standby letters of credit arecollateralized by mortgages, savings accounts or liens on business assets.  The fair value of standby letters of creditapproximates the amount of recorded related fees.  The maximum risk of accounting loss for theseitems, which is represented by the total commitment outstanding, totaled $13.5million at June 30, 2005.

 

16

----

 

At June 30, 2005 andDecember 31, 2004, the bank had the following commitments to extendcredit:

 
|                       |   | **June 30,  2005** |      | **December 31,  2004** |   |
|----------------------------|--------|-------------------------|-----------|-----------------------------|--------|
| First  mortgage loans      |   | $                       | 2,380,000 |                        | $      | 8,303,000 |   |
| Construction  loans        |   | 220,000                 |      | 804,000                     |   |
| Unused  lines of credit    |   | 68,815,000              |      | 61,381,000                  |   |
| Standby  letters of credit |   | 13,482,000              |      | 11,476,000                  |   |
|                            |        |                         |           |                             |        |  |  |

 

**Contractual Obligations**

 

TheBank has certain obligations and commitments to make future payments undercontract.  There has been no materialchange in contractual obligations from December 31, 2004.

 

17

----

 

**Recent Accounting Pronouncements**

 

In March 2004, the FASB ratified a consensus onEITF 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Applicationto Certain Investments” (“EITF 03-1”). EITF 03-1 provides guidance for determining when an investment isimpaired, whether the impairment is other than temporary and measuring animpairment loss.  EITF 03-1 alsoincorporates into its consensus the required disclosures about unrealizedlosses on investments announced by the EITF in late 2003 and adds newdisclosure requirements relating to cost-method investments.  The impairment accounting guidance was tobecome effective for reporting periods beginning after June 15, 2004.  The new disclosure requirements are effectivefor annual reporting periods after June 15, 2004.  In September 2004, the FASB delayed theeffective date of EITF 03-1 for measurement and recognition of impairmentlosses until implementation guidance is issued.

 

In December 2004, the FASB issued SFAS No. 123(Revised 2004) (123R), “Share Based Payment, an amendment of FASB Statements No. 123and 95.  SFAS No. 123R will requirecompensation cost relating to share-based payment transactions be recognized inconsolidated financial statements.  In April 2005,the SEC delayed the effective date of 123R to the Company’s fiscal yearbeginning January 1, 2006.  TheCompany has not yet completed its evaluation of the Standard, but anticipatesthat it will not have a material impact on earnings and earnings per sharebeginning with the first quarter of 2006.

 

In March 2005, the SEC staff issued StaffAccounting Bulletin No. 107 (“SAB 107”) regarding the interaction betweenSFAS No. 123R and certain SEC rules and regulations and provides thestaff’s views regarding the valuation of share-based payment arrangements forpublic companies.  SAB 107 providesguidance related to valuation methods (including assumptions such as expectedvolatility and expected term), accounting for certain redeemable financial instrumentsissued under share-based payment arrangements, the classification ofcompensation expense, non-GAAP financial measures, capitalization ofcompensation cost related to share-based payment arrangements, the accountingfor income tax effects of share-based payment arrangements upon adoption ofStatement 123R, the modification of employee share options prior to adoption ofStatement 123R and disclosures in Management’s Discussion and Analysis ofFinancial Condition and results of Operations subsequent to adoption ofStatement 123R.

 

In May 2005, the FASB issued SFAS No. 154, “AccountingChanges and Error Corrections.”  SFAS No. 154changes the accounting for, and reporting of, a change in accounting principleand requires the prospective application to prior period’s financial statementsof voluntary changes in accounting principle and changes required by newaccounting standards when the standard does not include specific transitionprovisions unless it is impracticable to do so. SFAS No. 154 is effective for accounting changes and corrections oferrors in fiscal years beginning after December 15, 2005.  Adoption of this Statement is not expected tohave a material impact on the Company’s consolidated financial statements.

 

18

----

 

**Average Balance Sheet**

 

Thefollowing tables set forth certain information relating to the Bank for thethree and six months ended June 30, 2005 and 2004, respectively.  The average yields and costs are derived bydividing income or expense by the average balance of interest-earning assets orinterest-bearing liabilities, respectively, for the periods shown and reflectannualized yields and costs.  Averagebalances are derived from average monthly balances.  The yields and costs include fees, which areconsidered adjustments to yields.  Taxexempt income has been calculated on a tax equivalent basis using a tax rate of34% and amounted to $210,000 and $193,000 for the three months ended June 30,2005 and 2004 and $429,000 and 382,000 for the six months ended June 30,2005 and 2004, respectively.

 
| ** **                                                        | ** ** | **Three Months Ended  June 30, 2005** | ** ** | **Three Months Ended  June 30, 2004** | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                        | ** ** | **Average**                                | ** ** | ** **                                 | ** ** | ** ** | ** ** | **Average** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **(in thousands)**                                                | ** ** | **Balance**                                | ** ** | **Interest**                               | ** ** | **Yield/Cost** | ** ** | **Balance** | ** ** | **Interest** | ** ** | **Yield/Cost** | ** ** |
| Assets:                                                           |       |                                       |       |                                       |       |   |   |   |   |   |   |   |   |
| Interest  earning assets:                                         |       |                                       |       |                                       |       |   |   |   |   |   |   |   |   |
| Short-term  deposits and FHLB stock                               |       | $                                          | 32,349     |                                       | 209        |   | 2.58 | % | 34,981 |   | 200 |   | 2.29 | % |
| Investment  securities                                            |       | 98,049                                     |       | 1,325                                      |       | 5.40 | % | 84,456 |   | 1,167 |   | 5.52 | % |
| Mortgage-backed  securities                                       |       | 10,489                                     |       | 101                                        |       | 3.84 | % | 12,334 |   | 113 |   | 3.67 | % |
| Mortgage  loans                                                   |       | 569,734                                    |       | 7,629                                      |       | 5.36 | % | 563,913 |   | 7,580 |   | 5.38 | % |
| Other  loans                                                      |       | 261,370                                    |       | 4,085                                      |       | 6.25 | % | 187,406 |   | 2,365 |   | 5.05 | % |
| Total  interest earning assets                                    |       | 971,991                                    |       | 13,349                                     |       | 5.49 | % | 883,090 |   | 11,425 |   | 5.18 | % |
| Noninterest  earning assets                                       |       | 65,397                                     |       |                                       |       |   |   | 56,579 |   |   |   |   |   |
| Total  assets                                                     |       | $                                          | 1,037,388  |                                       |       |   |   |   | 939,669 |   |   |   |   |   |
| Liabilities  and stockholders’ equity                        |       |                                       |       |                                       |       |   |   |   |   |   |   |   |   |
| Interest-bearing  liabilities                                     |       |                                       |       |                                       |       |   |   |   |   |   |   |   |   |
| Deposits:                                                         |       |                                       |       |                                       |       |   |   |   |   |   |   |   |   |
| Money  market accounts                                            |       | $                                          | 103,534    |                                       | 521        |   | 2.01 | % | 140,033 |   | 558 |   | 1.60 | % |
| Passbook  savings accounts                                        |       | 145,025                                    |       | 672                                        |       | 1.85 | % | 133,752 |   | 461 |   | 1.38 | % |
| NOW  Accounts                                                     |       | 46,598                                     |       | 92                                         |       | 0.79 | % | 40,315 |   | 49 |   | 0.48 | % |
| Certificates  of deposit                                          |       | 360,711                                    |       | 2,833                                      |       | 3.14 | % | 277,649 |   | 1,991 |   | 2.87 | % |
| Total  deposits                                                   |       | 655,868                                    |       | 4,118                                      |       | 2.51 | % | 591,749 |   | 3,059 |   | 2.07 | % |
| FHLB  Advances                                                    |       | 225,333                                    |       | 2,487                                      |       | 4.41 | % | 203,667 |   | 2,352 |   | 4.62 | % |
| Total  interest-bearing liabilities                               |       | 881,201                                    |       | 6,605                                      |       | 3.00 | % | 795,416 |   | 5,411 |   | 2.72 | % |
| Noninterest-bearing  liabilities                                  |       | 68,566                                     |       |                                       |       |   |   | 63,324 |   |   |   |   |   |
| Total  liabilities                                                |       | 949,767                                    |       |                                       |       |   |   | 858,740 |   |   |   |   |   |
| Total  stockholders’ equity                                  |       | 87,621                                     |       |                                       |       |   |   | 80,929 |   |   |   |   |   |
| Total  liabilities and stockholders’ equity                  |       | $                                          | 1,037,388  |                                       |       |   |   |   | 939,669 |   |   |   |   |   |
| Net  interest income before provision for loan losses             |       |                                       |       | 6,744                                      |       |   |   |   |   | 6,014 |   |   |   |
| Interest  rate spread                                             |       |                                       |       |                                       |       | 2.49 | % |   |   |   |   | 2.46 | % |
| Net  interest margin as a percent of interest earning assets      |       |                                       |       |                                       |       | 2.78 | % |   |   |   |   | 2.72 | % |
| Ratio  of interest-earning assets to interest-bearing liabilities |       |                                       |       |                                       |       | 110.30 | % |   |   |   |   | 111.02 | % |

 

19

----

 
| ** **                                                        | ** ** | **Six Months Ended  June 30, 2005** | ** ** | **Six Months Ended  June 30, 2004** | ** ** |
|-------------------------------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                        | ** ** | **Average**                              | ** ** | ** **                               | ** ** | ** ** | ** ** | **Average** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **(in thousands)**                                                | ** ** | **Balance**                              | ** ** | **Interest**                             | ** ** | **Yield/Cost** | ** ** | **Balance** | ** ** | **Interest** | ** ** | **Yield/Cost** | ** ** |
| Assets:                                                           |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |
| Interest  earning assets:                                         |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |
| Short-term  deposits and FHLB stock                               |       | $                                        | 30,135     |                                     | 415        |   | 2.75 | % | 39,516 |   | 410 |   | 2.07 | % |
| Investment  securities                                            |       | 98,835                                   |       | 2,666                                    |       | 5.40 | % | 84,855 |   | 2,390 |   | 5.63 | % |
| Mortgage-backed  securities                                       |       | 10,962                                   |       | 206                                      |       | 3.75 | % | 10,896 |   | 203 |   | 3.73 | % |
| Mortgage  loans                                                   |       | 566,720                                  |       | 15,120                                   |       | 5.34 | % | 566,925 |   | 15,612 |   | 5.51 | % |
| Other  loans                                                      |       | 255,858                                  |       | 7,706                                    |       | 6.02 | % | 171,042 |   | 4,447 |   | 5.20 | % |
| Total  interest earning assets                                    |       | 962,510                                  |       | 26,113                                   |       | 5.43 | % | 873,234 |   | 23,062 |   | 5.28 | % |
| Noninterest  earning assets                                       |       | 63,391                                   |       |                                     |       |   |   | 53,310 |   |   |   |   |   |
| Total  assets                                                     |       | $                                        | 1,025,901  |                                     |       |   |   |   | 926,544 |   |   |   |   |   |
| Liabilities  and stockholders’ equity                        |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |
| Interest-bearing  liabilities                                     |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |
| Deposits:                                                         |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |
| Money  market accounts                                            |       | $                                        | 107,104    |                                     | 1,009      |   | 1.88 | % | 141,699 |   | 1,128 |   | 1.59 | % |
| Passbook  savings accounts                                        |       | 146,829                                  |       | 1,302                                    |       | 1.77 | % | 131,632 |   | 903 |   | 1.37 | % |
| NOW  Accounts                                                     |       | 44,524                                   |       | 151                                      |       | 0.68 | % | 39,644 |   | 97 |   | 0.49 | % |
| Certificates  of deposit                                          |       | 345,005                                  |       | 5,298                                    |       | 3.07 | % | 271,893 |   | 3,913 |   | 2.88 | % |
| Total  deposits                                                   |       | 643,462                                  |       | 7,760                                    |       | 2.41 | % | 584,868 |   | 6,041 |   | 2.07 | % |
| FHLB  Advances                                                    |       | 228,666                                  |       | 5,084                                    |       | 4.45 | % | 202,183 |   | 4,758 |   | 4.71 | % |
| Total  interest-bearing liabilities                               |       | 872,128                                  |       | 12,844                                   |       | 2.95 | % | 787,051 |   | 10,799 |   | 2.74 | % |
| Noninterest-bearing  liabilities                                  |       | 66,825                                   |       |                                     |       |   |   | 59,072 |   |   |   |   |   |
| Total  liabilities                                                |       | 938,953                                  |       |                                     |       |   |   | 846,123 |   |   |   |   |   |
| Total  stockholders’ equity                                  |       | 86,948                                   |       |                                     |       |   |   | 80,421 |   |   |   |   |   |
| Total  liabilities and stockholders’ equity                  |       | $                                        | 1,025,901  |                                     |       |   |   |   | 926,544 |   |   |   |   |   |
| Net  interest income before provision for loan losses             |       |                                     |       | 13,269                                   |       |   |   |   |   | 12,263 |   |   |   |
| Interest  rate spread                                             |       |                                     |       |                                     |       | 2.48 | % |   |   |   |   | 2.54 | % |
| Net  interest margin as a percent of interest earning assets      |       |                                     |       |                                     |       | 2.76 | % |   |   |   |   | 2.81 | % |
| Ratio  of interest-earning assets to interest-bearing liabilities |       |                                     |       |                                     |       | 110.36 | % |   |   |   |   | 110.95 | % |

 

20

----

 

Item 3.             Quantitative andQualitative Disclosures About Market Risk.

 

The Bank’s interest ratesensitivity is monitored by management through the use of a Net Portfolio ValueModel which generates estimates of the change in the Bank’s net portfolio value(“NPV”) over a range of interest rate scenarios.  NPV is the present value of expected cashflows from assets, liabilities, and off-balance sheet contracts.  The NPV ratio, under any interest ratescenario, is defined as the NPV in that scenario divided by the market value ofassets in the same scenario.  The modelassumes estimated prepayment rates, reinvestment rates and deposit decayrates.  The Sensitivity Measure is thedecline in the NPV ratio, in basis points, caused by a 3% increase or 2%decrease in rates, whichever produces a larger decline.  The higher the institution’s SensitivityRatio, the greater its exposure to interest rate risk is considered to be.  The following NPV Table sets forth the Bank’sNPV as of June 30, 2005.  Theseresults are not materially different from the results as of December 31,2004.

 
| **Change  in  Interest Rates  in Basis Points** | ** ** | **Net Portfolio Value** | ** ** | **NPV as % of Portfolio  Value of Assets** | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|--------------------------------------------|------------|
| **(Rate  Shock)**                               | ** ** | **Amount**              | ** ** | **$ Change**                          | ** ** | **% Change** | ** ** | **NPV Ratio** | ** ** | **% Change** | ** ** |
| ** **                                      | ** ** | **(In thousands)**      | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                            |       |                    |       |                                       |       |   |   |   |   |   |   |
| +300                                            |       |                    | $          | 47,393                                     |       | $ | (40,266 | ) | (45,93 | )% | 4.76 | % | (44.20 | )% |
| +200                                            |       |                    | 59,907     |                                       | (27,752    | ) | (31.66 | ) | 5.87 |   | (31.18 | ) |
| +100                                            |       |                    | 76,776     |                                       | (10,883    | ) | (12.42 | ) | 7.33 |   | (14.07 | ) |
| Static                                          |       |                    | 87,659     |                                       | —     |   | — |   | 8.53 |   | — |   |
| -100                                            |       |                    | 111,332    |                                       | 23,673     |   | 27.01 |   | 10.17 |   | 19.23 |   |
| -200                                            |       |                    | 111,167    |                                       | 23,508     |   | 26.82 |   | 10.18 |   | 19.34 |   |
|                                                 |            |                         |            |                                            |            |  |  |  |  |  |  |  |  |  |

 

Certain shortcomings areinherent in the methodology used in the above interest rate riskmeasurements.  Modeling changes in NPVrequire the making of certain assumptions which may or may not reflect themanner in which actual yields and costs respond to changes in market interestrates.  In this regard, the NPV Tablepresented assumes that the composition of the Bank’s interest sensitive assetsand liabilities existing at the beginning of a period remains constant over theperiod being measured and also assumes that a particular change in interestrates is reflected uniformly across the yield curve regardless of the durationto maturity or repricing of specific assets and liabilities.  Accordingly, although the NPV Table providesan indication of the Bank’s interest rate risk exposure at a particular pointin time, such measurements are not intended to and do not provide a preciseforecast of the effect of changes in market interest rates on the Bank’s netinterest income and may differ from actual results.

 

Item 4.  Controls and Procedures

 

The Company’s management,including the Company’s principal executive officer and principal financialofficer, have evaluated the effectiveness of the Company’s “disclosure controlsand procedures,” as such term is defined in Rule 13a-15(e) promulgatedunder the Securities Exchange Act of 1934, as amended, (the “Exchange Act”).  Based upon their

 

21

----

 

evaluation, the principalexecutive officer and principal financial officer concluded that, as of the endof the period covered by this report, the Company’s disclosure controls andprocedures were effective for the purpose of ensuring that the informationrequired to be disclosed in the reports that the Company files or submits underthe Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms, and (2) is accumulated and communicatedto the Company’s management, including its principal executive and principalfinancial officers, as appropriate to allow timely decisions regarding requireddisclosure.  In addition, based on thatevaluation, no change in the Company’s internal control over financialreporting occurred during the quarter ended June 30, 2005 that hasmaterially affected, or is reasonably likely to materially affect, the Company’sinternal control over financial reporting.

 

22

----

 

**PART II.  OTHER INFORMATION**

 
| Item 1. |   | Legal Proceedings.                                                                                                                                                                                                                                                                                                                 |
|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                                               |
|    |   | The Company is not  involved in any pending legal proceedings other than routine legal  proceedings occurring in the ordinary course of business. Such routine legal  proceedings, in the aggregate, are believed by management to be immaterial to  the Company’s financial condition, results of operations and cash flows. |
|    |   |                                                                                                                                                                                                                                                                                                                               |
| Item 2. |   | Unregistered Sales of  Equity Securities and Use of Proceeds.                                                                                                                                                                                                                                                                      |
|    |   |                                                                                                                                                                                                                                                                                                                               |
|    |   | None.                                                                                                                                                                                                                                                                                                                              |
|    |   |                                                                                                                                                                                                                                                                                                                               |
| Item 3. |   | Defaults Upon Senior  Securities.                                                                                                                                                                                                                                                                                                  |
|    |   |                                                                                                                                                                                                                                                                                                                               |
|    |   | None.                                                                                                                                                                                                                                                                                                                              |
|    |   |                                                                                                                                                                                                                                                                                                                               |
| Item 4. |   | Submission of Matters  to a Vote of Security Holders.                                                                                                                                                                                                                                                                              |
|    |   |                                                                                                                                                                                                                                                                                                                               |
|    |   | None.                                                                                                                                                                                                                                                                                                                              |
|    |   |                                                                                                                                                                                                                                                                                                                               |
| Item 5. |   | Other Information.                                                                                                                                                                                                                                                                                                                 |
|    |   |                                                                                                                                                                                                                                                                                                                               |
|    |   | None.                                                                                                                                                                                                                                                                                                                              |
|    |   |                                                                                                                                                                                                                                                                                                                               |
| Item 6. |   | Exhibits                                                                                                                                                                                                                                                                                                                           |
|    |   |                                                                                                                                                                                                                                                                                                                               |
|    |   | (a)                                                                                                                                                                                                                                                                                                                                |   | Exhibits |
|    |   |                                                                                                                                                                                                                                                                                                                               |   |   |
|    |   |                                                                                                                                                                                                                                                                                                                               |   |   2.1 |   | Agreement and Plan of  Reorganization, dated June 29, 2005, by and between MAF Bancorp, Inc.  and EFC Bancorp, In. (1) |
|    |   |                                                                                                                                                                                                                                                                                                                               |   |   3.1 |   | Certificate of  Incorporation of EFC Bancorp, Inc. (2) |
|    |   |                                                                                                                                                                                                                                                                                                                               |   |   3.2 |   | Bylaws of EFC Bancorp, Inc.  (2) |
|    |   |                                                                                                                                                                                                                                                                                                                               |   |   4.0 |   | Specimen Stock  Certificate of EFC Bancorp, Inc. (2) |
|    |   |                                                                                                                                                                                                                                                                                                                               |   | 10.1 |   | Letter of Understanding  (Joseph E. Stanczak) |
|    |   |                                                                                                                                                                                                                                                                                                                               |   | 10.2 |   | Letter of Understanding  (Leo M. Flanagan, Jr.) |
|    |   |                                                                                                                                                                                                                                                                                                                               |   | 10.3 |   | Letter of Understanding  (Sandra L. Sommers) |
|    |   |                                                                                                                                                                                                                                                                                                                               |   | 10.4 |   | Letter of Understanding  (R. Scott Reining) |
|    |   |                                                                                                                                                                                                                                                                                                                               |   | 10.5 |   | Letter of Understanding  (Barrett J. O’Connor) |
|    |   |                                                                                                                                                                                                                                                                                                                               |   | 10.6 |   | Letter of Understanding  (Eric J. Wedeen) |
|    |   |                                                                                                                                                                                                                                                                                                                               |   | 10.7 |   | Letter of Understanding  (Randy C. Blackburn) |
|    |   |                                                                                                                                                                                                                                                                                                                               |   | 10.8 |   | Letter of Understanding  (Glenn J. Kozeluh) |
|    |   |                                                                                                                                                                                                                                                                                                                               |   | 10.9 |   | Letter of Understanding  (Stephen P. DuBois) |
|    |   |                                                                                                                                                                                                                                                                                                                               |   | 10.10 |   | Letter of Understanding  (Peter A. Traeger) |
|    |   |                                                                                                                                                                                                                                                                                                                               |   | 10.11 |   | Letter of Understanding  (Eric J. Fernandez) |
|    |   |                                                                                                                                                                                                                                                                                                                               |   | 10.12 |   | Letter of Understanding  (Larry M. Narum) |
|    |   |                                                                                                                                                                                                                                                                                                                               |   | 10.13 |   | Letter of Understanding  (Randolph W. Brittain) |
|    |   |                                                                                                                                                                                                                                                                                                                               |   | 10.14 |   | Letter of Understanding  (Thomas I. Anderson) |
|    |   |                                                                                                                                                                                                                                                                                                                               |   | 10.15 |   | Letter of Understanding  (James A. Alpeter) |
|    |   |                                                                                                                                                                                                                                                                                                                               |   | 10.16 |   | Letter of Understanding  (James J. Kovac) |
|    |   |                                                                                                                                                                                                                                                                                                                               |   | 10.17 |   | Form of Affiliate  Letter (1) |

 

23

----

 
|   |   |   |   | 11.0 |   | Statement re:  Computation of Per Share Earnings Incorporated herein by reference to Note 3  to the unaudited consolidated financial statements. |
|--------|--------|--------|--------|------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |   | 31.1 |   | Rule 13a-14(a)/15d-14(a) Certification  of Chief Executive Officer                                                                     |
|   |   |   |   | 31.2 |   | Rule 13a-14(a)/15d-14(a) Certification  of Chief Financial Officer                                                                     |
|   |   |   |   | 32.1 |   | Certification of Chief  Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350                                    |

 

----

(1)                                  Incorporatedby reference to the Exhibits filed with the Current Report on Form 8-K,and any amendments thereto, filed with the SEC on July 1, 2005.

(2)                                  Incorporatedherein by reference from the Exhibits filed with the Registration Statement on Form S-1and any amendments thereto. Initially filed with the Securities and ExchangeCommission (“SEC”) on October 24, 1997.

 

24

----

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned hereunto dulyauthorized.

 
|   | EFC BANCORP, INC.                             |   |
|--------|-----------------------------------------------|--------|
|   |                                          |   |
|   |                                          |   |
| Dated: | August 12, 2005                          |   | By: | /s/ Barrett J. O’Connor |   |
|   | Barrett J. O’Connor                      |   |
|   | Chief Executive Officer                       |   |
|   | (Principal executive  officer)                |   |
|   |                                          |
| Dated: | August 12, 2005                          |   | By: | /s/ Eric J. Wedeen |   |
|   | Eric J. Wedeen                                |
|   | Senior Vice President  and Chief              |
|   | Financial Officer                             |
|   | (Principal financial  and accounting officer) |
|        |                                               |        |  |  |  |  |  |  |

 

25

----