## ** **

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**
| **ý** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|---------------------------------------------------------------------------------------------------|

 

**Forthe quarterly period ended March 31, 2004**

 

**or**

 
| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|----------------------------------------------------------------------------------------------------|

 

**For the transition period from                             to                              **

 

**CommissionFile Number 1-13605**

 

**EFC BANCORP, INC.**

(Exact name of registrant asspecified 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 mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.

 

Yes ý   No o

 

Indicate bycheck mark whether the registrant is an accelerated filer (as defined in Rule12(b)-2 of the Exchange Act).

 

Yes o   No ý

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date: 4,617,110 shares ofcommon stock, par value $0.01 per share, were outstanding as of May 10, 2004.

 

 

----

 

EFC Bancorp, Inc.

 

Form 10-Q

 

For the Quarter Ended March 31, 2004

 

INDEX

 
| PART I.    | FINANCIAL INFORMATION                                                                       |                                                                                              |
|------------|---------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------|
|       |                                                                                        |                                                                                              |   |
| Item 1.    | Financial Statements (unaudited)                                                            |                                                                                              |
|       |                                                                                        |                                                                                              |   |
|       |                                                                                        | Consolidated Balance Sheets at  March 31, 2004 and December 31, 2003                    |   |
|       |                                                                                        |                                                                                              |   |
|       |                                                                                        | Consolidated Statements of Income - For the  Three  Months Ended March 31, 2004 and 2003     |   |
|       |                                                                                        |                                                                                              |   |
|       |                                                                                        | Consolidated Statements of Cash Flows - For  the Three  Months Ended March 31, 2004 and 2003 |   |
|       |                                                                                        |                                                                                              |   |
|       |                                                                                        | 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.    | Changes in Securities, Use of Proceeds and  Issuer Purchases of Equity Securities           |                                                                                              |
| Item 3.    | Defaults Upon Senior Securities                                                             |                                                                                              |
| Item 4.    | Submission of Matters to a Vote of Security  Holders                                        |                                                                                              |
| Item 5.    | Other Information                                                                           |                                                                                              |
| Item 6.    | Exhibits and Reports on Form 8-K                                                            |                                                                                              |
|       |                                                                                        |                                                                                              |   |
| SIGNATURES |                                                                                        |

 

----

 

**PARTI. FINANCIAL INFORMATION**

**EFCBANCORP, INC.**

Item 1. FinancialStatements.

**EFC BANCORP, INC.**

**AND SUBSIDIARIES**

Consolidated Balance Sheets (unaudited)

March 31, 2004 and December 31, 2003

 
|                                                                                                                                        |   | **March 31,  2004** |        | **December 31,  2003** |        |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|-------------|-----------------------------|-------------|
| Assets                                                                                                                                      |   |                     |        |                        |        |
| Cash and cash equivalents:                                                                                                                  |   |                     |        |                        |        |
| On hand and in banks                                                                                                                        |   | $                        | 4,645,290   |                        | 5,449,261   |   |
| Interest bearing deposits with financial  institutions                                                                                      |   | 52,532,902               |        | 16,426,727                  |        |
| Total cash and cash equivalents                                                                                                             |   | 57,178,192               |        | 21,875,988                  |        |
|                                                                                                                                        |   |                     |        |                        |        |
| Loans receivable, net                                                                                                                       |   | 713,574,332              |        | 716,883,910                 |        |
| Mortgage-backed securities  available-for-sale, at fair value                                                                               |   | 9,156,847                |        | 10,164,501                  |        |
| Investment securities available-for-sale,  at fair value                                                                                    |   | 80,711,279               |        | 90,656,208                  |        |
| Stock in Federal Home Loan Bank of Chicago,  at cost                                                                                        |   | 11,054,300               |        | 10,877,600                  |        |
| Accrued interest receivable                                                                                                                 |   | 4,079,802                |        | 4,009,280                   |        |
| Office properties and equipment, net                                                                                                        |   | 17,835,433               |        | 17,672,562                  |        |
| Real estate held for development                                                                                                            |   | 4,303,771                |        | 4,189,637                   |        |
| Bank owned life insurance                                                                                                                   |   | 18,178,631               |        | 17,986,416                  |        |
| Other assets                                                                                                                                |   | 1,480,187                |        | 2,776,482                   |        |
|                                                                                                                                        |   |                     |        |                        |        |
| Total assets                                                                                                                                |   | $                        | 917,552,774 |                        | 897,092,584 |   |
|                                                                                                                                        |   |                     |        |                        |        |
| Liabilities and Stockholders’ Equity                                                                                                   |   |                     |        |                        |        |
| Liabilities:                                                                                                                                |   |                     |        |                        |        |
| Deposits                                                                                                                                    |   | $                        | 627,686,901 |                        | 596,763,807 |   |
| Borrowed money                                                                                                                              |   | 196,210,871              |        | 211,788,751                 |        |
| Accrued expenses, income taxes payable and  other liabilities                                                                               |   | 12,804,235               |        | 10,294,740                  |        |
|                                                                                                                                        |   |                     |        |                        |        |
| Total liabilities                                                                                                                           |   | 836,702,007              |        | 818,847,298                 |        |
|                                                                                                                                        |   |                     |        |                        |        |
| Minority interest                                                                                                                           |   | (165,117                 | )           | (158,666                    | )           |
|                                                                                                                                        |   |                     |        |                        |        |
| 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                                                                                                                  |   | 72,489,721               |        | 72,247,346                  |        |
| Retained earnings, substantially restricted                                                                                                 |   | 48,014,287               |        | 46,681,729                  |        |
| Treasury stock, at cost, 2,886,074 and  2,898,763 shares at March 31, 2004 and December 31, 2003,  respectively                   |   | (35,645,860              | )           | (35,598,664                 | )           |
| Unearned employee stock ownership plan  (ESOP), 349,601 and 359,590 shares at March 31, 2004 and  December 31, 2003, respectively |   | (5,227,424               | )           | (5,376,779                  | )           |
| Unearned stock award plan, 5,276 and 6,026  shares at March 31, 2004 and December 31, 2003, respectively                          |   | (58,695                  | )           | (67,039                     | )           |
| Accumulated other comprehensive income                                                                                                      |   | 1,368,941                |        | 442,445                     |        |
|                                                                                                                                        |   |                     |        |                        |        |
| Total stockholders’ equity                                                                                                             |   | 81,015,884               |        | 78,403,952                  |        |
|                                                                                                                                        |   |                     |        |                        |        |
| Commitments and contingencies                                                                                                               |   | —                   |        | —                      |        |
|                                                                                                                                        |   |                     |        |                        |        |
| Total liabilities and stockholders’ equity                                                                                             |   | $                        | 917,552,774 |                        | 897,092,584 |   |

 

See accompanying notes to consolidated financial statements.

 

1

----

 

**EFC BANCORP, INC.**

**AND SUBSIDIARIES**

 

Consolidated Statements ofIncome (unaudited)

For the three months ended March 31, 2004 and 2003

 
|                                                                                                |   | **Three  months ended  March 31,** |   |
|-----------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                                                                |   | **2004**                                |   | **2003** |   |
|                                                                                                |   |                                    |   |   |   |
| Interest income:                                                                                    |   |                                    |   |   |   |
| Loans secured by real estate                                                                        |   | 8,031,179                               |   | 8,614,338 |   |
| Other loans                                                                                         |   | 2,081,614                               |   | 1,397,517 |   |
| Mortgage-backed securities  available-for-sale                                                      |   | 89,814                                  |   | 173,547 |   |
| Investment securities available-for-sale  and interest bearing deposits with financial institutions |   | 1,243,937                               |   | 1,239,672 |   |
| Total interest income                                                                               |   | 11,446,544                              |   | 11,425,074 |   |
|                                                                                                |   |                                    |   |   |   |
| Interest expense:                                                                                   |   |                                    |   |   |   |
| Deposits                                                                                            |   | 2,982,458                               |   | 3,167,903 |   |
| Borrowed money                                                                                      |   | 2,405,721                               |   | 2,273,080 |   |
| Total interest expense                                                                              |   | 5,388,179                               |   | 5,440,983 |   |
|                                                                                                |   |                                    |   |   |   |
| Net interest income before provision for  loan losses                                               |   | 6,058,365                               |   | 5,984,091 |   |
| Provision for loan losses                                                                           |   | 150,000                                 |   | 181,250 |   |
| Net interest income after provision for  loan losses                                                |   | 5,908,365                               |   | 5,802,841 |   |
|                                                                                                |   |                                    |   |   |   |
| Noninterest income:                                                                                 |   |                                    |   |   |   |
| Service fees                                                                                        |   | 582,259                                 |   | 446,511 |   |
| Insurance and brokerage commissions                                                                 |   | 196,871                                 |   | 58,864 |   |
| Information technology sales and service  income, net                                               |   | 126,463                                 |   | 268,690 |   |
| Gain on sale of foreclosed real estate                                                              |   | —                                  |   | 41,315 |   |
| Gain on sale of office properties and  equipment                                                    |   | 149,396                                 |   | — |   |
| Gain on sale of securities                                                                          |   | 47,527                                  |   | — |   |
| Gain on sale of loans                                                                               |   | 235,381                                 |   | — |   |
| Bank owned life insurance                                                                           |   | 228,200                                 |   | 170,490 |   |
| Other                                                                                               |   | 50,192                                  |   | 24,549 |   |
| Total noninterest income                                                                            |   | 1,616,289                               |   | 1,010,419 |   |
|                                                                                                |   |                                    |   |   |   |
| Noninterest expense:                                                                                |   |                                    |   |   |   |
| Compensation and benefits                                                                           |   | 2,783,505                               |   | 2,659,336 |   |
| Office building, net                                                                                |   | 687,318                                 |   | 698,966 |   |
| Federal insurance premiums                                                                          |   | 22,620                                  |   | 23,221 |   |
| Advertising                                                                                         |   | 208,171                                 |   | 182,641 |   |
| Data processing                                                                                     |   | 276,081                                 |   | 240,868 |   |
| NOW/checking account expenses                                                                       |   | 124,190                                 |   | 133,013 |   |
| Impairment of goodwill                                                                              |   | 16,701                                  |   | 19,591 |   |
| Other                                                                                               |   | 617,957                                 |   | 544,437 |   |
| Total noninterest expense                                                                           |   | 4,736,543                               |   | 4,502,073 |   |
|                                                                                                |   |                                    |   |   |   |
| Income before income taxes and minority  interest                                                   |   | 2,788,111                               |   | 2,311,187 |   |
|                                                                                                |   |                                    |   |   |   |
| Income tax expense                                                                                  |   | 824,351                                 |   | 743,941 |   |
|                                                                                                |   |                                    |   |   |   |
| Income before minority interest                                                                     |   | 1,963,760                               |   | 1,567,246 |   |
|                                                                                                |   |                                    |   |   |   |
| Minority interest                                                                                   |   | 6,451                                   |   | 20,712 |   |
|                                                                                                |   |                                    |   |   |   |
| Net income                                                                                          |   | 1,970,211                               |   | 1,587,958 |   |
|                                                                                                |   |                                    |   |   |   |
| Earnings per share:                                                                                 |   |                                    |   |   |   |
| Basic                                                                                               |   | 0.46                                    |   | 0.38 |   |
| Diluted                                                                                             |   | 0.43                                    |   | 0.36 |   |

 

See accompanying notes to consolidated financial statements.

 

2

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**EFC BANCORP, INC.**

**AND SUBSIDIARIES**

 

Consolidated Statements ofCash Flows (unaudited)

For the three months ended March 31, 2004 and 2003

 
|                                                                                      |   | **2004**    |       | **2003**    |       |
|-------------------------------------------------------------------------------------------|--------|-------------|------------|-------------|------------|
|                                                                                      |   |        |       |        |       |
| Cash flows from operating activities:                                                     |   |        |       |        |       |
| Net income                                                                                |   | $           | 1,970,211  |        | 1,587,958  |   |
| Adjustment to reconcile net income to net  cash provided by operating activities:         |   |        |       |        |       |
| Amortization of premiums and discounts, net                                               |   | 20,488      |       | 23,233      |       |
| Provision for loan losses                                                                 |   | 150,000     |       | 181,250     |       |
| FHLB of Chicago stock dividends                                                           |   | (176,700    | )          | (259,400    | )          |
| Stock award plan shares allocated                                                         |   | 8,344       |       | 127,281     |       |
| ESOP shares committed to be released                                                      |   | 149,355     |       | 149,357     |       |
| Change in fair value of ESOP shares                                                       |   | 114,248     |       | 38,336      |       |
| Depreciation of office properties and  equipment                                          |   | 302,221     |       | 274,105     |       |
| Gain on sale of foreclosed real estate                                                    |   | —      |       | (41,315     | )          |
| Gain on sale of securities                                                                |   | (47,527     | )          | —      |       |
| Gain on sale of loans                                                                     |   | (235,381    | )          | —      |       |
| Change in minority interest in subsidiary                                                 |   | (6,451      | )          | (20,712     | )          |
| Increase in bank owned life insurance                                                     |   | (192,215    | )          | (148,335    | )          |
| Impairment of goodwill                                                                    |   | 16,701      |       | 19,591      |       |
| Decrease in accrued interest receivable and  other assets, net                            |   | 610,935     |       | 137,913     |       |
| Increase/(decrease) in income taxes  payable, accrued expenses and other liabilities, net |   | 2,624,237   |       | (991,099    | )          |
|                                                                                      |   |        |       |        |       |
| Net cash provided by operating activities                                                 |   | 5,308,466   |       | 1,078,163   |       |
|                                                                                      |   |        |       |        |       |
| Cash flows from investing activities:                                                     |   |        |       |        |       |
| Net increase in loans receivable                                                          |   | (1,517,361  | )          | (8,141,512  | )          |
| Purchases of loans receivable                                                             |   | (20,759,880 | )          | (15,962,505 | )          |
| Proceeds fom the sale of loans                                                            |   | 25,672,200  |       | —      |       |
| Increase in real estate held for  development                                             |   | (114,134    | )          | (332,955    | )          |
| Purchases of mortgage-backed securities  available-for-sale                               |   | —      |       | (2,549,222  | )          |
| Principal payments on mortgage-backed  securities available-for-sale                      |   | 1,012,145   |       | 1,547,823   |       |
| Maturities of investment securities  available-for-sale                                   |   | 23,125,837  |       | 7,530,000   |       |
| Purchases of investment securities  available-for-sale                                    |   | (12,543,717 | )          | (6,833,043  | )          |
| Proceeds from the sale of investment  securities                                          |   | 904,207     |       | —      |       |
| Purchases of office properties and  equipment                                             |   | (465,092    | )          | (538,849    | )          |
| Proceeds from the sale of foreclosed real  estate                                         |   | —      |       | 2,027,057   |       |
|                                                                                      |   |        |       |        |       |
| Net cash provided by (used in) investing  activities                                      |   | 15,314,205  |       | (23,253,206 | )          |
|                                                                                      |   |        |       |        |       |
| Cash flows from financing activities:                                                     |   |        |       |        |       |
| Net increase in deposits                                                                  |   | 30,923,094  |       | 21,367,016  |       |
| Proceeds from borrowed money                                                              |   | 46,000,000  |       | 8,049,304   |       |
| Repayments on borrowed money                                                              |   | (61,577,880 | )          | (23,748     | )          |
| Purchase of treasury stock                                                                |   | (268,963    | )          | (1,605,491  | )          |
| Stock options exercised                                                                   |   | 221,767     |       | 354,569     |       |
| Cash dividends paid                                                                       |   | (618,485    | )          | (577,176    | )          |
| Net cash provided by financing activities                                                 |   | 14,679,533  |       | 27,564,474  |       |
|                                                                                      |   |        |       |        |       |
| Net increase in cash and cash equivalents                                                 |   | 35,302,204  |       | 5,389,431   |       |
| Cash and cash equivalents at beginning of  period                                         |   | 21,875,988  |       | 32,844,290  |       |
|                                                                                      |   |        |       |        |       |
| Cash and cash equivalents at end of period                                                |   | $           | 57,178,192 |        | 38,233,721 |   |
|                                                                                      |   |        |       |        |       |
| Supplemental disclosures of cash flow  information:                                       |   |        |       |        |       |
| Cash paid during the period for:                                                          |   |        |       |        |       |
| Interest                                                                                  |   | $           | 5,442,012  |        | 5,523,902  |   |
| Income taxes                                                                              |   | —      |       | 25,000      |       |

 

See accompanying notes to consolidated financial statements.

 

3

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**EFC BANCORP, INC.**

**Notesto Unaudited Consolidated Financial Statements**

 

Note 1: BASIS OF PRESENTATION

 

The accompanying unaudited consolidated financial statements includethe accounts of EFC Bancorp, Inc. (the Company), its majority-owned subsidiary,Computer Dynamics Group Inc. (CDGI), its wholly-owned subsidiary, EFS Bank (theBank) and its wholly-owned subsidiary, EFS Service Corporation of Elgin.  CDGI is consolidated and a minority interestis recorded for the proportionate interest not owned by the Company.  Certain amounts for the prior year have beenreclassified to conform to the current year presentation.  The Company operates as a single segment.

 

In the opinion of the management of the Company, the accompanyingconsolidated financial statements include all normal recurring adjustmentsnecessary for a fair presentation of the financial position and results ofoperations for the periods presented. All significant intercompany transactions have been eliminated inconsolidation.  These interim financialstatements have been prepared according to the rules and regulations of theSecurities and Exchange Commission and therefore certain information andfootnote disclosures normally included in financial statements presented inaccordance with accounting principles generally accepted in the United Statesof America have been condensed or omitted. The results of operations for the interim periods are not necessarilyindicative of the results to be expected for the full year.  It is suggested that the accompanyingunaudited consolidated financial statements be read in conjunction with theCompany’s 2003 Annual Report on Form 10-K. Currently, other than investing in various securities, the Company doesnot directly transact any material business other than through the Bank.  Accordingly, the discussion herein addressesthe operations of the Company as they are conducted through the Bank.

 

Note 2: COMPREHENSIVE INCOME

 

The Company’s comprehensive income for the three month periods endedMarch 31, 2004 and 2003 are as follows:

 
|                                                                                                           |   | **Three  months ended  March 31,** |      |
|----------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|-----------|
|                                                                                                           |   | **2004**                                |      | **2003** |   |
| Net income                                                                                                     |   | $                                       | 1,970,211 |   | 1,587,958 |   |
| Other comprehensive income, net of tax:                                                                        |   |                                    |      |   |   |
| Unrealized holding gains/(losses) on  securities arising during the period, net of tax effect of $592,350      |   | 926,496                                 |      | (51,323 | ) |
| Reclassification adjustment for net gain on  sales of securities realized in net income, net of tax of $17,585 |   | (29,942                                 | )         | — |   |
|                                                                                                           |   |                                    |      |   |   |
| Comprehensive income                                                                                           |   | $                                       | 2,866,765 |   | 1,536,635 |   |

 

4

----

 

For the three month period ended March 31, 2004 the sale ofsecurities resulted in gains of $47,527 ($29,942 net of tax effect).  There were no sales of investment securitiesas of and for the three months ended March 31, 2003.

 

Note 3: COMPUTATION OF PER SHARE EARNINGS

 

Basic earnings per share is calculated by dividing net income by theweighted average number of common shares outstanding.  Diluted earnings per share is calculated by dividing net incomeby the weighted average number of common shares outstanding adjusted for thedilutive effect of outstanding stock options. ESOP shares are only considered outstanding for earnings per sharecalculations when they are released or committed to be released.

 

Presented below are the calculations for the basic and diluted earningsper share:

 
|                                          |   | **Three  months ended  March 31,** |      |
|-----------------------------------------------|--------|-----------------------------------------|-----------|
|                                          |   | **2004**                                |      | **2003** |   |
| Basic:                                        |   |                                    |      |   |   |
| Net income                                    |   | $                                       | 1,970,211 |   | 1,587,958 |   |
|                                          |   |                                    |      |   |   |
| Weighted average shares outstanding           |   | 4,239,568                               |      | 4,218,617 |   |
|                                          |   |                                    |      |   |   |
| Basic earnings per share                      |   | $                                       | 0.46      |   | 0.38 |   |
|                                          |   |                                    |      |   |   |
| Diluted:                                      |   |                                    |      |   |   |
|                                          |   |                                    |      |   |   |
| Net income                                    |   | $                                       | 1,970,211 |   | 1,587,958 |   |
|                                          |   |                                    |      |   |   |
| Weighted average shares outstanding           |   | 4,239,568                               |      | 4,218,617 |   |
| Effect of dilutive stock options  outstanding |   | 309,071                                 |      | 241,171 |   |
| Diluted weighted average shares outstanding   |   | 4,548,639                               |      | 4,459,788 |   |
|                                          |   |                                    |      |   |   |
| Diluted earnings per share                    |   | $                                       | 0.43      |   | 0.36 |   |

 

Note 4:  STOCK OPTION PLANS

 

TheCompany accounts for the stock-based compensation plans under APB Opinion No.25.  For the stock option program, nocompensation cost is recognized in connection with the granting of stockoptions with an exercise price equal to the fair market value of the stock onthe date of the grant.  For the stockaward plan, the Company uses fixed method of accounting and recordscompensation expense, over the vesting period of the grant, based upon the fairmarket value of the stock at the date of grant.  In accordance with the disclosure requirements of SFAS No. 123,as amended by SFAS No. 148, the following table provides the pro forma effecton net income and earnings per share if the fair value method of accounting forstock-based compensation had been used for all awards:

 

5

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|                                                                                                                                        |   | **For the  Three Months  Ended March 31,** |      |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|-----------|
|                                                                                                                                        |   | **2004**                                        |      | **2003** |   |
|                                                                                                                                        |   |                                            |      |   |   |
| Net income as reported                                                                                                                      |   | $                                               | 1,970,211 |   | $ | 1,587,958 |   |
| Add: Stock-based compensation, net of tax,  included in the determination of net income, as reported                                        |   | 8,344                                           |      | 127,281 |   |
| Deduct: Stock-based compensation, net of  tax, that would have been reported if the fair value based method had been  applied to all awards |   | (26,584                                         | )         | (241,831 | ) |
| Pro forma net income                                                                                                                        |   | $                                               | 1,951,971 |   | $ | 1,473,408 |   |
|                                                                                                                                        |   |                                            |      |   |   |
| Basic earnings per share                                                                                                                    |   |                                            |      |   |   |
| As reported                                                                                                                                 |   | $                                               | 0.46      |   | $ | 0.38 |   |
| Pro forma                                                                                                                                   |   | 0.46                                            |      | 0.35 |   |
|                                                                                                                                        |   |                                            |      |   |   |
| Diluted earnings per share                                                                                                                  |   |                                            |      |   |   |
| As reported                                                                                                                                 |   | $                                               | 0.43      |   | $ | 0.36 |   |
| Pro forma                                                                                                                                   |   | 0.43                                            |      | 0.33 |   |

 

Item 2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations.

 

The following analysis discusses changes in the financial condition atMarch 31, 2004 and results of operations for the three months endedMarch 31, 2004, and should be read in conjunction with the Company’sUnaudited Consolidated Financial Statements and the notes thereto, appearing inPart I, Item 1 of this document.

 

**Forward-LookingStatements**

 

This report contains certain forward-looking statements within themeaning of Section 27A of the Securities Act of 1933, as amended, andSection 21E of the Securities Exchange Act of 1934, as amended. TheCompany intends such forward-looking statements to be covered by the safeharbor provisions for forward-looking statements contained in the Private SecuritiesLitigation Reform Act of 1995, and is including this statement for purposes ofthese safe harbor provisions. Forward-looking statements, which are based oncertain assumptions and describe future plans, strategies and expectations ofthe Company, are generally identified by use of the words “believe,” “expect,”“intend,” “anticipate,” “estimate,” “project,” or similar expressions. TheCompany’s ability to predict results or the actual effect of future plans orstrategies is inherently uncertain. Factors which could have a material adverseeffect on the operations of the Company and the subsidiaries include, but arenot limited to, changes in: interest rates, general economic conditions,legislative/regulatory changes, monetary and fiscal policies of the U.S.Government, including policies of the U.S. Treasury and the Federal ReserveBoard, the quality or composition of the loan or investment portfolios, demandfor loan products, deposit flows, competition, demand for financial services inthe Company’s market area and accounting principles and guidelines. These risksand uncertainties should be considered in evaluating forward-looking statementsand undue 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

 

6

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SEC, including its 2003 Annual Report on Form 10-K.

 

The Company does not undertake - and specifically disclaims anyobligation - to publicly release the result of any revisions which may be madeto any forward-looking statements to reflect events or circumstances after thedate of such statements or to reflect the occurrence of anticipated orunanticipated events.

 

**Comparison ofFinancial Condition at March 31, 2004 and December 31, 2003**

 

Total assets at March 31, 2004 were $917.6 million, whichrepresented an increase of $20.5 million, or 2.3%, compared to $897.1 millionat December 31, 2003. The increase in total assets was primarily a resultof an increase in cash and cash equivalents of $35.3 million, or 161.4%, to$57.2 million at March 31, 2004 from $21.9 million at December 31,2003.  The increase in cash and cashequivalents was primarily attributable to proceeds from an approximately $25.7million fixed rate mortgage loan sale, which occurred in March 2004partially offset by decreases in investment securities, which decreased $10.0million, or 11.0%, to $80.7 million at March 31, 2004 from $90.7 millionat December 31, 2003, loan receivables, which decreased $3.3 million, or0.50%, to $713.6 million at March 31, 2004 from $716.9 million atDecember 31, 2003, and mortgage-backed securities, which decreased $1.0million, or 9.9%, to $9.2 million at March 31, 2004 from $10.2 million atDecember 31, 2003.  Depositsincreased $30.9 million to $627.7 million at March 31, 2004 from $596.8million at December 31, 2003. Borrowed money, primarily representing FHLB advances, decreased $15.6million to $196.2 million at March 31, 2004 from $211.8 million atDecember 31, 2003.  Stockholders’equity increased $2.6 million to $81.0 million at March 31, 2004 from$78.4 million at December 31, 2003. The increase in stockholders’ equity was primarily the result of theCompany’s net income for the three months ended March 31, 2004, and anincrease of $926,000 in the Company’s accumulated other comprehensive incomerelating to the change in fair value of its available-for-sale investmentportfolio.  These increases werepartially offset by stock repurchases totaling $269,000 and dividends paid of$618,000.

 

**Comparison ofOperating Results For the Three Months Ended March 31, 2004 and 2003**

 

***General.***  The Company’s net income increased $382,000,or 24.1%, to $2.0 million for the three months ended March 31, 2004 ascompared to the prior year period.

 

***Interest Income.***  Interest income increased $21,000, or 0.20%,to $11.4 million for the three months ended March 31, 2004, compared tothe same period in 2003.  This increaseresulted from an increase in the average balance of interest-earning assets,partially offset by a decrease in the average rate earned on thoseinterest-earning assets.  The averagebalance of interest-earning assets increased by $106.5 million, or 14.1%, to$863.4 million for the three months ended March 31, 2004 from $756.9million for the comparable period in 2003. The average yield on interest-earning assets decreased by 76 basispoints to 5.39% for the three months ended March 31, 2004 from 6.15% forthe three months ended March 31, 2003.

 

Mortgage loan interest income decreased by $583,000 for the threemonths ended March 31, 2004 compared with the same period in 2003.  The average balance of mortgage loans

 

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increased $45.4 million, while the mortgage loan yield decreased by 93basis points from 6.57% to 5.64%. Interest income from other loans increased $683,000 for the three monthsended March 31, 2004.  Thisincrease resulted from a combination of an increase in average balance of $60.7million, partially offset by a 58 basis point decrease in yield from 5.96% forthe three months ended March 31, 2003 to 5.38% for the three months endedMarch 31, 2004.  Interest incomefrom investment securities, mortgage-backed securities and short-term depositsdecreased $79,000 to $1.3 million for the three months ended March 31,2004, compared with the same period in 2003. The average balance increased $376,000 and the yield decreased 31 basispoints from 4.70% for the three months ended March 31, 2003 to 4.39% forthe three months ended March 31, 2004. The average yields are reported on a tax equivalent basis.

 

***InterestExpense. ***Interestexpense decreased by $53,000, or 1.0%, to $5.4 million for the three monthsended March 31, 2004, compared to the same period in 2003.  This decrease resulted from an increase inthe average balance of interest-bearing liabilities, offset by a decrease inthe average rate paid on those interest-bearing liabilities.  The average balance of interest-bearingliabilities increased by $103.9 million, or 15.4%, to $778.7 million for thethree months ended March 31, 2004 from $674.8 million for the three monthsended March 31, 2003.  This changereflects a $77.5 million increase in deposit accounts, which is attributable toa $21.4 million increase in passbook savings accounts, a $53.0 million increasein certificates of deposit and a $5.3 million increase in NOW accounts.  These increases were partially offset by adecrease of $2.2 million in money market accounts.  In addition, borrowings increased $26.3 million to $200.7 millionfor the three months ended March 31, 2004 from $174.4 million for the comparableperiod in 2003.  The average rate paidon combined deposits and borrowed money decreased by 46 basis points to 2.77%for the three months ended March 31, 2004 from 3.23% for the three monthsended March 31, 2003.

 

***Net Interest IncomeBefore Provision for Loan Losses.***  Net interest income before provision forloan losses increased $74,000, or 1.2%, to $6.1 million for the three monthsended March 31, 2004 from $6.0 million for the comparable period in2003.  The average balance ofinterest-earning assets increased $106.5 million for the three months endedMarch 31, 2004 compared to the comparable prior year period.  The increase in interest-earning assets wasprimarily the result of increases in the average balance of mortgage loans of$45.4 million, $60.7 million increase in other loans and an $8.5 millionincrease in cash and cash equivalents. These increases were partially offset by a $7.4 million decrease inmortgage-backed securities.  The taxequivalent net interest margin as a percent of interest-earning assetsdecreased by 39 basis points to 2.89% for the three months ended March 31,2004 from 3.28% for the comparable period in 2003.

 

***Provision for LoanLosses.*** The provision for loan losses decreased by $31,000, to $150,000 for thethree months ended March 31, 2004 from $181,000 in 2003.  At March 31, 2004, December 31,2003 and March 31, 2003, non-performing loans totaled $2.6 million, $2.8million and $1.7 million, respectively. At March 31, 2004, the ratio of the allowance for loan losses tonon-performing loans was 148.9% compared to 135.7% at December 31, 2003and 192.1% at March 31, 2003.  Theratio of the allowance to total loans was 0.55%, 0.52% and 0.54%, atMarch 31, 2004, December 31, 2003 and March 31, 2003, respectively.  Charge-offs for the three months endedMarch 31, 2004 totaled $12,000. There were no charge-offs for the

 

8

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three months ended March 31, 2003.  Management periodically calculates an allowance sufficiencyanalysis based upon the portfolio composition, asset classifications,loan-to-value ratios, probable impairments in the loan portfolio, and otherfactors.

 

***NoninterestIncome. ***Noninterestincome totaled $1.6 million and $1.0 million for the three months endedMarch 31, 2004 and 2003, respectively. The increase in noninterest incomeis primarily attributable to increases of $235,000 in gain on sale of fixedrate mortgage loans, $149,000 in gain on sale of office properties andequipment, $138,000 in insurance and brokerage commissions and $136,000 inservice fees. The gain on sale of loans was the result of repositioning thebalance sheet and favorable market conditions. The gain on sale of property was the result of selling an officebuilding previously occupied by the Bank. Service fees increased primarily due to the offering of an overdraftprivilege account product to our customers. These increases were partially offset by decreases of $142,000 in incomegenerated by Computer Dynamics Group, Inc. (“CDGI”).  The decrease in income generated by CDGI is largely due to adecrease in sales related to a weaker demand for technology services.

 

***NoninterestExpense. ***Noninterestexpense increased $234,000, to $4.7 million for the three months endedMarch 31, 2004 from $4.5 million for the comparable period in 2003.  Of this increase, $124,000 was directlyrelated to compensation and benefits, and $35,000 is related to dataprocessing.  In addition, the Companyincurred a goodwill impairment of $17,000 and $20,000, relating to its majorityowned subsidiary CDGI, for the three months ended March 31, 2004 and 2003,respectively.  The goodwill impairmentis primarily due to a weaker demand for technology services.  Management continues to emphasize theimportance of expense management and control while continuing to provideexpanded banking services to a growing market base.

 

***Income TaxExpense. ***Incometax expense totaled $824,000 and $744,000 for the three months endedMarch 31, 2004 and 2003, respectively. The effective tax rate was 29.6% and 32.2% for the three months endedMarch 31, 2004 and 2003, respectively. The decrease in the effective tax rate is due to increases in bank ownedlife insurance and FNMA/FHLMC preferred stock.

 

**Liquidity and CapitalResources**

 

The Company’s primary source of funding fordividends and periodic stock repurchases have been dividends from theBank.  The Bank’s ability to paydividends and other capital distributions to the Company is generally limitedby OTS regulations.

 

The Bank’s primary sources of funds are savings deposits, proceeds fromthe principal and interest payments on loans and proceeds from the maturity ofsecurities and borrowings from the FHLB-Chicago. While maturities and scheduledamortization of loans and securities are predictable sources of funds, depositoutflows and mortgage prepayments are greatly influenced by general interestrates, economic conditions and competition.

 

The primary investing activities of the Bank are the origination andpurchase of primarily residential one-to-four-family loans and, to a lesserextent multi-family and commercial real

 

9

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estate, construction and land, commercial and consumer loans and thepurchase of mortgage-backed securities. In addition, the Bank purchases loans, secured by single-family,multi-family and commercial real estate. Deposit flows are affected by the level of interest rates, the interestrates and products offered by the local competitors and other factors.

 

In addition to the primary investing activities of the Bank, theCompany has repurchased shares of its common stock from time to time in theopen market.  On January 16, 2004the Company announced the completion of its sixth stock repurchase program,which was previously announced in September 2001.  Under this program the Company repurchased231,808, or 5.0% of its outstanding common stock at an average price per shareof $17.93.  During the three monthsended March 31, 2004, 10,908 shares were purchased at an average price of$24.66.  As of March 31, 2004, theCompany repurchased a total of 3,087,081 shares of the Company’s common stockat an average price per share of $12.11 since becoming a public company in1998.

 

The Bank’s most liquid assets are cash and interest-bearing demandaccounts. The levels of these assets are dependent on the Bank’s operating,financing, lending and investing activities during any given period.  At March 31, 2004, cash andinterest-bearing demand accounts totaled $57.2 million, or 6.2% of totalassets.

 

See the “Consolidated Statements of Cash Flows” in the UnauditedConsolidated Financial Statements included in this Form 10-Q for the sourcesand uses of cash flows for operating, investing and financing activities forthe three months ended March 31, 2004 and 2003.

 

At March 31, 2004, the Bank exceeded all of its regulatory capitalrequirements. The following is a summary of the Bank’s regulatory capitalratios at March 31, 2004:

 

| Total Capital to Total Assets         |   | 8.41  | % |
|---------------------------------------|--------|-------|---|
| Total Capital to Risk-Weighted Assets |   | 11.94 | % |
| Tier I Leverage Ratio                 |   | 8.26  | % |
| Tier I to Risk-Weighted Assets        |   | 11.68 | % |

 

At March 31, 2004, the Company had a Total Capital to Total Assetsratio of 8.83%.

 

On March 19, 2004, the Company announced its first quarterdividend of $0.15 per share.  Thedividend was paid on April 13, 2004 to stockholders of record onMarch 31, 2004.

 

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

 

The Bank is party to financial instruments with off-balance sheet riskin the normal course of business to meet the financing needs of its customers.  Those financial instruments primarilyinclude commitments 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 basedon management’s credit evaluation of the customer.  The Bank’s exposure to credit loss in the event of nonperformanceby the customer is represented by the contractual amount of those financialinstruments.  The commitments tooriginate first mortgage

 

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loans represent amounts, which the Bank plans to fund within a periodof 30 to 90 days.

 

The Bank’s approved, but unused lines of credit are based onunderwriting standards that allow total borrowings, including the equity lineof credit to exceed 80% of the current appraised value of the customer’sresidence.  However, the Bank charges a1% higher interest rate on home equity lines of credit up to 90% of the home’scurrent appraised value.

 

The Bank’s standby letters of credit are conditional commitments issuedby the Bank to guarantee performance of a customer to a third party.  The credit risk involved in these transactionsis essentially the same as that involved in extending a loan to a customer inthe normal course of business.  Standbyletters of credit are collateralized by mortgages, savings accounts or liens onbusiness assets.  The fair value ofstandby letters of credit approximates the amount of recorded related fees,which are not considered material.  Themaximum risk of accounting loss for these items, which is represented by thetotal commitment outstanding, totaled $3.6 million at March 31, 2004.

 

At March 31, 2004 and December 31, 2003, the bank had thefollowing commitments to extend credit:

 
|                      |   | **March 31,  2004** |      | **December 31,  2003** |   |
|---------------------------|--------|--------------------------|-----------|-----------------------------|--------|
| First mortgage loans      |   | $                        | 8,148,000 |                        | $      | 7,306,000 |   |
| Construction loans        |   | 2,873,000                |      | 4,210,000                   |   |
| Unused lines of credit    |   | 44,223,000               |      | 42,342,000                  |   |
| Standby letters of credit |   | 3,644,000                |      | 5,434,000                   |   |
|                           |        |                          |           |                             |        |  |  |

 

**Recent AccountingPronouncements**

 

In January 2003, the FASB issued Interpretation No. 46,“Consolidation of Variable Interest Entities” which provides new accountingguidance on when to consolidate a variable interest entity.  A variable interest entity exists wheneither the total equity investment at risk is not sufficient to permit theentity to finance its activities by itself, or the equity investors lack one ofthree characteristics associated with owning a controlling financialinterest.  Those characteristics includethe direct or indirect ability to make decisions about an entity’s activitiesthrough voting rights or similar rights, the obligation to absorb the expectedloss of an entity if they occur, and the right to receive the expected residualreturn of the entity if they occur.  OnOctober 9, 2003, the FASB issued a deferral to December 31, 2003 ofthe implementation of FIN 46 for variable interest entities in existence priorto February 1, 2003.  The adoptionof this Interpretation did not have a material impact on our consolidatedfinancial statements.  OnDecember 24, 2003, the Financial Accounting Standards Board issued FASBInterpretation No. 46 (revised December 2003), “Consolidation of VariableInterest Entities,” (FIN 46R), which addresses how a business enterprise shouldevaluate whether it has a controlling financial interest in an entity throughmeans other than voting rights and accordingly should consolidate theentity.  FIN 46R replaces FASBInterpretation No. 46, “Consolidation of Variable Interest Entities,” which wasissued on January 17, 2003.  Theimplementation of FIN 46R did not have a material effect on our financialstatements.

 

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In November 2003, theFASB ratified a consensus reached by the Emerging Issues Task Force (“EITF”) inEITF 03-1, “The Meaning of Other-Than-Temporary Impairment and its Applicationto Certain Investments,” which is effective for fiscal years ending afterDecember 15, 2003.  The consensusrequires certain quantitative and qualitative disclosures for debt andmarketable equity securities classified as available-for-sale or held-to-maturityunder SFAS No. 115, “Accounting for Certain Investments in Debt and EquitySecurities” that are impaired at the balance sheet date but for which another-than-temporary impairment has not been recognized.

 

In December 2003, theAmerican Institute of Certified Public Accountants (“AICPA”) released Statementof Position 03-3, “Accounting for Certain Loans or Debt Securities Acquired ina transfer” (“SOP 03-3”).  SOP 03-3addresses the accounting for differences between contractual cash flows andcash flows expected to be collected from an investors initial investment inloans or debt securities acquired in a transfer if those differences areattributable to credit quality.  SOP03-3 is effective for loans acquired in fiscal years beginning after December 31,2004.  Adoption of this Statement is notexpected to have a material impact on the Company’s consolidated financialstatements.

 

In March 2004, theSecurities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No.105, “Application of Accounting Principles to Loan Commitments,” (SAB No.105).  SAB No. 105 applies to allregistrants that issue loan commitments that relate to the origination ofmortgage loans that will be held for sale and applies specifically to loancommitments that are issued after March 31, 2004.  The adoption of SAB No. 105 is not expectedto have a material effect on the Company’s consolidated financial statements.

 

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**Average Balance Sheet**

 

The following tables set forth certaininformation relating to the Bank for the three months ended March 31, 2004and 2003, respectively.  The averageyields and costs are derived by dividing income or expense by the averagebalance of interest-earning assets or interest-bearing liabilities,respectively, for the periods shown and reflect annualized yields andcosts.  Average balances are derivedfrom average monthly balances.  Theyields and costs include fees, which are considered adjustments to yields.  Tax exempt income has been calculated on atax equivalent basis using a tax rate of 34% and amounted to $189,000 and$214,000 for the three months ended March 31, 2004 and 2003, respectively.

 
|                                                              |   | **Three  Months Ended  March 31, 2004** |    | **Three  Months Ended  March 31, 2003** |   |
|-------------------------------------------------------------------|--------|----------------------------------------------|---------|----------------------------------------------|--------|
| **(in thousands)**                                                |   | **Average  Balance**                         |    | **Interest**                                 |   | **Yield/Cost** |   | **Average  Balance** |   | **Interest** |   | **Yield/Cost** |   |
| Assets:                                                           |   |                                         |    |                                         |   |   |   |   |   |   |   |   |   |
| Interest earning assets:                                          |   |                                         |    |                                         |   |   |   |   |   |   |   |   |   |
| Short-term deposits and FHLB stock                                |   | $                                            | 44,052  |                                         | 210    |   | 1.91 | % | 34,124 |   | 149 |   | 1.75 | % |
| Investment securities                                             |   | 85,253                                       |    | 1,223                                        |   | 5.74 | % | 87,451 |   | 1,303 |   | 5.96 | % |
| Mortgage-backed securities                                        |   | 9,458                                        |    | 90                                           |   | 3.80 | % | 16,812 |   | 174 |   | 4.13 | % |
| Mortgage loans                                                    |   | 569,937                                      |    | 8,031                                        |   | 5.64 | % | 524,545 |   | 8,614 |   | 6.57 | % |
| Other loans                                                       |   | 154,678                                      |    | 2,082                                        |   | 5.38 | % | 93,936 |   | 1,399 |   | 5.96 | % |
| Total interest earning assets                                     |   | 863,378                                      |    | 11,636                                       |   | 5.39 | % | 756,868 |   | 11,639 |   | 6.15 | % |
| Noninterest earning assets                                        |   | 50,040                                       |    |                                         |   |   |   | 41,920 |   |   |   |   |   |
| Total assets                                                      |   | $                                            | 913,418 |                                         |   |   |   |   | 798,788 |   |   |   |   |   |
| Liabilities and stockholders’ equity                         |   |                                         |    |                                         |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities                                      |   |                                         |    |                                         |   |   |   |   |   |   |   |   |   |
| Deposits:                                                         |   |                                         |    |                                         |   |   |   |   |   |   |   |   |   |
| Money market accounts                                             |   | $                                            | 143,364 |                                         | 570    |   | 1.59 | % | 145,536 |   | 754 |   | 2.07 | % |
| Passbook savings accounts                                         |   | 129,510                                      |    | 442                                          |   | 1.37 | % | 108,063 |   | 478 |   | 1.77 | % |
| NOW Accounts                                                      |   | 38,974                                       |    | 48                                           |   | 0.49 | % | 33,715 |   | 78 |   | 0.92 | % |
| Certificates of deposit                                           |   | 266,137                                      |    | 1,922                                        |   | 2.89 | % | 213,113 |   | 1,858 |   | 3.49 | % |
| Total deposits                                                    |   | 577,985                                      |    | 2,982                                        |   | 2.06 | % | 500,427 |   | 3,168 |   | 2.53 | % |
| FHLB Advances                                                     |   | 200,700                                      |    | 2,406                                        |   | 4.79 | % | 174,367 |   | 2,273 |   | 5.21 | % |
| Total interest-bearing liabilities                                |   | 778,685                                      |    | 5,388                                        |   | 2.77 | % | 674,794 |   | 5,441 |   | 3.23 | % |
| Noninterest-bearing liabilities                                   |   | 54,821                                       |    |                                         |   |   |   | 49,258 |   |   |   |   |   |
| Total liabilities                                                 |   | 833,506                                      |    |                                         |   |   |   | 724,052 |   |   |   |   |   |
| Total stockholders’ equity                                   |   | 79,912                                       |    |                                         |   |   |   | 74,736 |   |   |   |   |   |
| Total liabilities and stockholders’ equity                   |   | $                                            | 913,418 |                                         |   |   |   |   | 798,788 |   |   |   |   |   |
| Net interest income before provision for  loan losses             |   |                                         |    | 6,248                                        |   |   |   |   |   | 6,198 |   |   |   |
| Interest rate spread                                              |   |                                         |    |                                         |   | 2.62 | % |   |   |   |   | 2.92 | % |
| Net interest margin as a percent of  interest earning assets      |   |                                         |    |                                         |   | 2.89 | % |   |   |   |   | 3.28 | % |
| Ratio of interest-earning assets to  interest-bearing liabilities |   |                                         |    |                                         |   | 110.88 | % |   |   |   |   | 112.16 | % |

 

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Item 3.  Quantitativeand Qualitative Disclosures About Market Risk.

 

The Bank’s interest rate sensitivity is monitored by management throughthe use of a Net Portfolio Value Model which generates estimates of the changein the Bank’s net portfolio value (“NPV”) over a range of interest ratescenarios.  NPV is the present value ofexpected cash flows from assets, liabilities, and off-balance sheetcontracts.  The NPV ratio, under anyinterest rate scenario, is defined as the NPV in that scenario divided by themarket value of assets in the same scenario. The model assumes estimated prepayment rates, reinvestment rates anddeposit decay rates.  The SensitivityMeasure is the decline in the NPV ratio, in basis points, caused by a 3%increase or 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 theBank’s NPV as of March 31, 2004.

 
| **Change in  Interest Rates  in Basis Points  (Rate Shock)** |   | **Net Portfolio Value** |   | **NPV as% of Portfolio  Value of Assets** |          |
|--------------------------------------------------------------|--------|-------------------------|--------|-------------------------------------------|---------------|
| **Amount**                                                   |   | **$ Change**            |   | **% Change**                              | **NPV Ratio** |   | **% Change** |
|                                                         |   | **(In  thousands)**     |   |                                      |          |   |   |   |   |
|                                                         |   |                    |   |                                      |          |   |   |   |   |   |   |
|                                                         | +300   |                    | $      | 47,089                                    |          | $ | (38,088 | ) | (44.72 | )% | 5.30 | % | (42.01 | )% |
|                                                         | +200   |                    | 60,973 |                                      | (24,204       | ) | (28.42 | ) | 6.76 |   | (26.04 | ) |
|                                                         | +100   |                    | 75,586 |                                      | (9,591        | ) | (11.26 | ) | 8.24 |   | (9.85 | ) |
|                                                         | Static |                    | 85,177 |                                      | —        |   | — |   | 9.14 |   | — |   |
|                                                         | -100   |                    | 82,504 |                                      | (2,673        | ) | (3.14 | ) | 8.81 |   | (3.61 | ) |
|                                                              |        |                         |        |                                           |               |  |  |  |  |  |  |  |  |  |

 

Certain shortcomings are inherent in the methodology used in the aboveinterest rate risk measurements. Modeling changes in NPV require the making of certain assumptions whichmay or may not reflect the manner in which actual yields and costs respond tochanges in market interest rates.  Inthis regard, the NPV Table presented assumes that the composition of the Bank’sinterest sensitive assets and liabilities existing at the beginning of a periodremains constant over the period being measured and also assumes that aparticular change in interest rates is reflected uniformly across the yieldcurve regardless of the duration to maturity or repricing of specific assetsand liabilities.  Accordingly, althoughthe NPV Table provides an indication of the Bank’s interest rate risk exposureat a particular point in time, such measurements are not intended to and do notprovide a precise forecast of the effect of changes in market interest rates onthe Bank’s net interest income and may differ from actual results.

 

Item 4.  Controls and Procedures

 

The Company’s management, including the Company’s principal executiveofficer and principal financial officer, have evaluated the effectiveness ofthe Company’s “disclosure controls and procedures,” as such term is defined inRule 13a-15(e) promulgated under the Securities Exchange Act of 1934, asamended, (the “Exchange Act”).  Basedupon their

 

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evaluation, the principal executive officer and principal financialofficer concluded that, as of the end of the period covered by this report, theCompany’s disclosure controls and procedures were effective for the purpose ofensuring that the information required to be disclosed in the reports that theCompany files or submits under the Exchange Act with the Securities andExchange Commission (the “SEC”) (1) is recorded, processed, summarized andreported within the time periods specified in the SEC’s rules and forms, and(2) is accumulated and communicated to the Company’s management, including itsprincipal executive and principal financial officers, as appropriate to allowtimely decisions regarding required disclosure.  In addition, based on that evaluation, no change in the Company’sinternal control over financial reporting occurred during the quarter endedMarch 31, 2004 that has materially affected, or is reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

 

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**PART II. OTHER INFORMATION**

 

Item 1.                                                             Legal Proceedings.

 

The Company is not involved in any pending legal proceedings other thanroutine 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 financialcondition, results of operations and cash flows.

 

Item 2.                                                             Changes in Securities, Use ofProceeds and Issuer Purchases of Equity Securities.

 
| **Period**                                                            |   | **Total  Number of  Shares (or Units)  Purchased** |   | **Average  Price  Paid per Share  (or Unit)** |   | **Total  Number of  Shares (or Units)  Purchased as Part of  Publicly Announced  Plans or Programs** |   | **Maximum  Number (or  Approximate Dollar  Value) of Shares (or  Units) that May Yet  Be Purchased Under  the Plans or Programs** |   |
|-----------------------------------------------------------------------|--------|----------------------------------------------------|--------|-----------------------------------------------|--------|------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------|--------|
| Month #1:   January 1, 2004 through January 31, 2004   |   | 10,908                                             |   | $                                             | 24.66  |                                                                                                 | 10,908 |                                                                                                                              |   | (1) |
| Month #2:   February 1, 2004 through February 29, 2004 |   |                                               |   |                                          |   |                                                                                                 |   |                                                                                                                              |   |
| Month #3:   March 1, 2004 through March 31, 2004       |   |                                               |   |                                          |   |                                                                                                 |   |                                                                                                                              |   |
| Total                                                                 |   | 10,908                                             |   | $                                             | 24.66  |                                                                                                 | 10,908 |                                                                                                                              |   |   |

 

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(1) On January 16, 2004,the Company announced the completion of the plan to repurchase 5.0% of theoutstanding common stock, which was announced on September 27, 2001.  The total shares repurchased were 231,808 atan average price of $17.93.

 

Item 3.                                                             Defaults Upon Senior Securities.

 

None.

 

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Item 4.                                                             Submission of Matters to a Vote ofSecurity Holders.

 

The annual meeting of shareholders was held April 20, 2004.  Directors whose terms continued are asfollows: Leo M. Flanagan, Jr. (2005), Peter A. Traeger (2005), James A. Alpeter(2005), Thomas I. Anderson (2006), Barrett J. O’Connor (2006) and Larry M.Narum (2006).  The following proposalswere voted on by the stockholders.

 
| **PROPOSAL**                                                                                                                  |   | **FOR**   |   | **WITHHELD** |   | **ABSTAIN** |   | **BROKER  NON-VOTES** |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|-----------|--------|--------------|--------|-------------|--------|-----------------------|--------|
|                                                                                                                          |   |      |   |         |   |        |   |                  |   |
| 1) Election of Directors – nominees for  three year term                                                                 |   |      |   |         |   |        |   |                  |   |
| James J. Kovac                                                                                                                |   | 4,006,955 |   | 115,068      |   | N/A         |   | N/A                   |   |
| Randolph W. Brittain                                                                                                          |   | 3,996,996 |   | 125,027      |   | N/A         |   | N/A                   |   |
| Eric J. Fernandez                                                                                                             |   | 3,714,216 |   | 407,807      |   | N/A         |   | N/A                   |   |
|                                                                                                                          |   |      |   |         |   |        |   |                  |   |
| 2) Approval of appointment of KPMG LLP as  the Company’s Independent Auditors for the Year ending December 31, 2004 |   | 3,988,419 |   | 44,814       |   | 88,790      |   |                  |   |

 

Item 5.                                                             Other Information.

 

None.

 

Item 6.                                                             Exhibits and Reports on Form 8-K.

 
| (a)    | Exhibits |                                                                                                                                            |
|--------|----------|-------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 3.1      | Certificate of Incorporation of EFC Bancorp, Inc. *                                                                                             |
|   | 3.2      | Bylaws of EFC Bancorp, Inc. *                                                                                                                   |
|   | 4.0      | Specimen Stock Certificate of EFC Bancorp, Inc. *                                                                                               |
|   | 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                                   |

 

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*                                         Incorporatedherein by reference from the Exhibits filed with the Registration Statement onForm S-1 and any amendments thereto. Initially filed with the Securities and Exchange Commission (“SEC”) onOctober 24, 1997.

 

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(b)                                 Reports on Form 8-K

 

On January 9, 2004, EFC Bancorp, Inc. furnished a Current Reporton Form 8-K announcing the Company’s annual meeting of stockholders will beheld on April 20, 2004.

 

On January 20, 2004 EFC Bancorp, Inc. furnished a Current Reporton Form 8-K announcing the completion of its plan to repurchase 5.0 % of theCompany’s outstanding common stock.

 

On February 4, 2004, EFC Bancorp, Inc. furnished a Current Reporton Form 8-K announcing its financial results for the quarter endedDecember 31, 2003.

 

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the Registrant has duly caused this report to be signed on its behalf by theundersigned hereunto duly authorized.

 

 
|   | EFC BANCORP, INC.                            |
|--------|----------------------------------------------|
|   |                                         |   |
|   |                                         |   |
| Dated: | May 12, 2004                                 |   | By: | /s/ Barrett J. O’Connor |   |
|   | Barrett J. O’Connor                     |
|   | Chief Executive Officer                      |
|   | (Principal executive officer)                |
|   |                                         |   |
| Dated: | May 12, 2004                                 |   | By: | /s/ Eric J. Wedeen |   |
|   | Eric J. Wedeen                               |
|   | Senior Vice President and Chief              |
|   | Financial Officer                            |
|   | (Principal financial and accounting officer) |
|        |                                              |  |  |  |  |  |

 

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