**UNITED STATESSECURITIES 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** |
|                                                                                                                                                                                                                                                                                                                                                                                     |   |   |
| **For the quarterly period ended  September 30, 2003**                                                                                                                                                                                                                                                                                                                              |
| **or**                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                     |
| **o**                                                                                                                                                                                                                                                                                                                                                                                    |   | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                                                                                                                                                                                     |
| **For the transition period from                              to                              ** |
|                                                                                                                                                                                                                                                                                                                                                                                     |
| **Commission File Number 1-13605**                                                                                                                                                                                                                                                                                                                                                       |

** **

| **EFC BANCORP, INC.**                                                               |
|-------------------------------------------------------------------------------------|
| (Exact name of registrant 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 mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.                                                                                                                                                                                    Yes  ý   No  o

 

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

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate thenumber of shares outstanding of each of the issuer’s classes of common stock,as of the latest practicable date: 4,579,171 shares of common stock, par value$0.01 per share, were outstanding as of November 12, 2003.

 

 

----

 

EFC Bancorp, Inc.

 

Form 10-Q

 

For the Quarter Ended September 30, 2003

 

INDEX

 
| PART I.    | FINANCIAL INFORMATION                                                                        |                                                                                                       |
|------------|----------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------|
|       |                                                                                         |                                                                                                       |
| Item 1.    | Financial Statements (unaudited)                                                             |                                                                                                       |
|       |                                                                                         |                                                                                                       |
|       |                                                                                         | Consolidated Balance Sheets at  September 30, 2003 and December 31, 2002                         |   |
|       |                                                                                         |                                                                                                       |   |
|       |                                                                                         | Consolidated Statements of Income - For the  Three and  Nine Months Ended September 30, 2003 and 2002 |   |
|       |                                                                                         |                                                                                                       |   |
|       |                                                                                         | Consolidated Statements of Cash Flows - For  the Nine  Months Ended September 30, 2003 and 2002       |   |
|       |                                                                                         |                                                                                                       |   |
|       |                                                                                         | 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 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 and Reports on Form 8-K                                                             |                                                                                                       |
|       |                                                                                         |
| SIGNATURES |                                                                                         |                                                                                                       |
|            |                                                                                              |                                                                                                            |  |  |

 

2

----

 

**PART I. FINANCIAL INFORMATION**

**EFC BANCORP, INC.**

** **

Item 1.Financial Statements.

**EFC BANCORP, INC.**

**AND SUBSIDIARIES**

Consolidated Balance Sheets(unaudited)

September 30, 2003 and December 31, 2002

 
|                                                                                                                                           |   | **September 30,  2003** |        | **December 31,  2002** |        |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|-------------|-----------------------------|-------------|
| Assets                                                                                                                                         |   |                         |        |                        |        |
| Cash and cash equivalents:                                                                                                                     |   |                         |        |                        |        |
| On hand and in banks                                                                                                                           |   | $                            | 5,085,545   |                        | 4,277,209   |   |
| Interest bearing deposits with financial institutions                                                                                          |   | 19,035,025                   |        | 28,567,081                  |        |
| Total cash and cash equivalents                                                                                                                |   | 24,120,570                   |        | 32,844,290                  |        |
|                                                                                                                                           |   |                         |        |                        |        |
| Loans receivable, net                                                                                                                          |   | 700,036,380                  |        | 597,048,785                 |        |
| Mortgage-backed securities available-for-sale, at fair value                                                                                   |   | 11,816,948                   |        | 15,255,684                  |        |
| Investment securities available-for-sale, at fair value                                                                                        |   | 89,670,384                   |        | 87,981,884                  |        |
| Foreclosed real estate                                                                                                                         |   | 39,109                       |        | 1,985,741                   |        |
| Stock in Federal Home Loan Bank of Chicago, at cost                                                                                            |   | 10,690,400                   |        | 9,362,200                   |        |
| Accrued interest receivable                                                                                                                    |   | 3,752,001                    |        | 3,887,410                   |        |
| Office properties and equipment, net                                                                                                           |   | 17,275,263                   |        | 16,796,685                  |        |
| Real estate held for development                                                                                                               |   | 3,757,902                    |        | 2,934,072                   |        |
| Bank owned life insurance                                                                                                                      |   | 17,781,013                   |        | 12,246,803                  |        |
| Other assets                                                                                                                                   |   | 2,669,187                    |        | 2,032,372                   |        |
|                                                                                                                                           |   |                         |        |                        |        |
| Total assets                                                                                                                                   |   | $                            | 881,609,157 |                        | 782,375,926 |   |
|                                                                                                                                           |   |                         |        |                        |        |
| Liabilities  and Stockholders’ Equity                                                                                                     |   |                         |        |                        |        |
| Liabilities:                                                                                                                                   |   |                         |        |                        |        |
| Deposits                                                                                                                                       |   | $                            | 590,155,718 |                        | 524,189,844 |   |
| Borrowed money                                                                                                                                 |   | 201,797,598                  |        | 171,778,743                 |        |
| Accrued expenses, income taxes payable and other liabilities                                                                                   |   | 13,242,640                   |        | 11,705,771                  |        |
|                                                                                                                                           |   |                         |        |                        |        |
| Total liabilities                                                                                                                              |   | 805,195,956                  |        | 707,674,358                 |        |
|                                                                                                                                           |   |                         |        |                        |        |
| Minority interest                                                                                                                              |   | (156,392                     | )           | (75,127                     | )           |
|                                                                                                                                           |   |                         |        |                        |        |
| 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                                                                                                                     |   | 71,967,721                   |        | 71,834,834                  |        |
| Retained earnings, substantially restricted                                                                                                    |   | 45,562,570                   |        | 41,911,421                  |        |
| Treasury stock, at cost, 2,912,263 and 2,854,293 shares at  September 30, 2003 and December 31, 2002, respectively                   |   | (35,725,032                  | )           | (33,755,940                 | )           |
| Unearned employee stock ownership plan (ESOP), 369,578 and 399,544  shares at September 30, 2003 and December 31, 2002, respectively |   | (5,526,135                   | )           | (5,974,199                  | )           |
| Unearned stock award plan, 17,467 and 51,790 shares at  September 30, 2003 and December 31, 2002, respectively                       |   | (194,321                     | )           | (576,164                    | )           |
| Accumulated other comprehensive income                                                                                                         |   | 409,876                      |        | 1,261,829                   |        |
|                                                                                                                                           |   |                         |        |                        |        |
| Total stockholders’ equity                                                                                                                |   | 76,569,593                   |        | 74,776,695                  |        |
|                                                                                                                                           |   |                         |        |                        |        |
| Commitments and contingencies                                                                                                                  |   | —                       |        | —                      |        |
|                                                                                                                                           |   |                         |        |                        |        |
| Total liabilities and stockholders’ equity                                                                                                |   | $                            | 881,609,157 |                        | 782,375,926 |   |

 

See accompanying notes to consolidatedfinancial statements.

 

1

----

 

**EFC BANCORP, INC.**

**AND SUBSIDIARIES**

 

Consolidated Statements ofIncome (unaudited)

For the three and nine months ended September 30, 2003 and 2002

 
|                                                                                                |   | **Three  months ended  September 30,** |      | **Nine  months ended  September 30,** |      |
|-----------------------------------------------------------------------------------------------------|--------|---------------------------------------------|-----------|--------------------------------------------|-----------|
|                                                                                                |   | **2003**                                    |      | **2002**                                   |      | **2003** |   | **2002** |   |
|                                                                                                |   |                                        |      |                                       |      |   |   |   |   |
| Interest income:                                                                                    |   |                                        |      |                                       |      |   |   |   |   |
| Loans secured by real estate                                                                        |   | $                                           | 8,258,392 |                                       | 8,589,699 |   | 25,448,767 |   | 25,867,869 |   |
| Other loans                                                                                         |   | 1,744,170                                   |      | 1,377,223                                  |      | 4,729,418 |   | 3,790,146 |   |
| Mortgage-backed securities available-for-sale                                                       |   | 107,310                                     |      | 124,541                                    |      | 415,612 |   | 477,568 |   |
| Investment securities available-for-sale and interest bearing  deposits with financial institutions |   | 1,202,610                                   |      | 1,129,267                                  |      | 3,717,910 |   | 3,419,047 |   |
| Total interest income                                                                               |   | 11,312,482                                  |      | 11,220,730                                 |      | 34,311,707 |   | 33,554,630 |   |
|                                                                                                |   |                                        |      |                                       |      |   |   |   |   |
| Interest expense:                                                                                   |   |                                        |      |                                       |      |   |   |   |   |
| Deposits                                                                                            |   | 3,017,886                                   |      | 3,449,025                                  |      | 9,238,516 |   | 10,233,315 |   |
| Borrowed money                                                                                      |   | 2,372,350                                   |      | 2,313,926                                  |      | 6,950,759 |   | 6,937,225 |   |
| Total interest expense                                                                              |   | 5,390,236                                   |      | 5,762,951                                  |      | 16,189,275 |   | 17,170,540 |   |
|                                                                                                |   |                                        |      |                                       |      |   |   |   |   |
| Net interest income before provision for loan losses                                                |   | 5,922,246                                   |      | 5,457,779                                  |      | 18,122,432 |   | 16,384,090 |   |
| Provision for loan losses                                                                           |   | 140,000                                     |      | 225,000                                    |      | 463,250 |   | 675,000 |   |
| Net interest income after provision for loan losses                                                 |   | 5,782,246                                   |      | 5,232,779                                  |      | 17,659,182 |   | 15,709,090 |   |
|                                                                                                |   |                                        |      |                                       |      |   |   |   |   |
| Noninterest income:                                                                                 |   |                                        |      |                                       |      |   |   |   |   |
| Service fees                                                                                        |   | 572,810                                     |      | 406,442                                    |      | 1,555,618 |   | 1,108,588 |   |
| Insurance and brokerage commissions                                                                 |   | 136,292                                     |      | 59,919                                     |      | 250,322 |   | 370,259 |   |
| Information technology sales and service income, net                                                |   | 146,628                                     |      | 243,355                                    |      | 642,882 |   | 984,234 |   |
| Gain on sale of foreclosed real estate                                                              |   | —                                      |      | —                                     |      | 41,315 |   | — |   |
| Gain on sale of securities                                                                          |   | 290,385                                     |      | —                                     |      | 816,454 |   | — |   |
| Gain on sale of loans                                                                               |   | —                                      |      | 200,409                                    |      | 156,223 |   | 200,409 |   |
| Bank owned life insurance                                                                           |   | 234,543                                     |      | 178,137                                    |      | 600,675 |   | 514,726 |   |
| Other                                                                                               |   | 102,626                                     |      | 53,290                                     |      | 175,855 |   | 124,700 |   |
| Total noninterest income                                                                            |   | 1,483,284                                   |      | 1,141,552                                  |      | 4,239,344 |   | 3,302,916 |   |
|                                                                                                |   |                                        |      |                                       |      |   |   |   |   |
| Noninterest expense:                                                                                |   |                                        |      |                                       |      |   |   |   |   |
| Compensation and benefits                                                                           |   | 2,740,615                                   |      | 2,586,407                                  |      | 8,062,139 |   | 7,706,939 |   |
| Office building, net                                                                                |   | 683,434                                     |      | 607,876                                    |      | 2,058,996 |   | 1,658,569 |   |
| Federal insurance premiums                                                                          |   | 21,669                                      |      | 19,206                                     |      | 66,055 |   | 56,164 |   |
| Advertising                                                                                         |   | 160,877                                     |      | 181,981                                    |      | 594,003 |   | 450,553 |   |
| Data processing                                                                                     |   | 220,938                                     |      | 229,200                                    |      | 704,934 |   | 680,533 |   |
| NOW/checking account expenses                                                                       |   | 177,093                                     |      | 155,282                                    |      | 432,866 |   | 402,697 |   |
| Other                                                                                               |   | 561,355                                     |      | 452,324                                    |      | 1,852,196 |   | 1,307,996 |   |
| Total noninterest expense                                                                           |   | 4,565,981                                   |      | 4,232,276                                  |      | 13,771,189 |   | 12,263,451 |   |
|                                                                                                |   |                                        |      |                                       |      |   |   |   |   |
| Income before income taxes and minority interest                                                    |   | 2,699,549                                   |      | 2,142,055                                  |      | 8,127,337 |   | 6,748,555 |   |
|                                                                                                |   |                                        |      |                                       |      |   |   |   |   |
| Income tax expense                                                                                  |   | 889,286                                     |      | 727,242                                    |      | 2,766,221 |   | 2,173,162 |   |
|                                                                                                |   |                                        |      |                                       |      |   |   |   |   |
| Income before minority interest                                                                     |   | 1,810,263                                   |      | 1,414,813                                  |      | 5,361,116 |   | 4,575,393 |   |
|                                                                                                |   |                                        |      |                                       |      |   |   |   |   |
| Minority interest                                                                                   |   | 10,615                                      |      | 34,377                                     |      | 81,265 |   | 36,885 |   |
|                                                                                                |   |                                        |      |                                       |      |   |   |   |   |
| Net income                                                                                          |   | $                                           | 1,820,878 |                                       | 1,449,190 |   | 5,442,381 |   | 4,612,278 |   |
|                                                                                                |   |                                        |      |                                       |      |   |   |   |   |
| Earnings per share:                                                                                 |   |                                        |      |                                       |      |   |   |   |   |
| Basic                                                                                               |   | $                                           | 0.43      |                                       | 0.34      |   | 1.29 |   | 1.10 |   |
| Diluted                                                                                             |   | 0.41                                        |      | 0.32                                       |      | 1.22 |   | 1.04 |   |

 

See accompanying notes to consolidatedfinancial statements.

 

2

----

 

**EFC BANCORP, INC.**

**AND SUBSIDIARIES**

 

Consolidated Statements ofCash Flows (unaudited)

For the nine months ended September 30, 2003 and 2002

 
|                                                                              |   | **2003**     |       | **2002**    |       |
|-----------------------------------------------------------------------------------|--------|--------------|------------|-------------|------------|
|                                                                              |   |         |       |        |       |
| Cash flows from operating activities:                                             |   |         |       |        |       |
| Net income                                                                        |   | $            | 5,442,381  |        | 4,612,278  |   |
| Adjustment to reconcile net income to net cash provided by operating  activities: |   |         |       |        |       |
| Amortization of premiums and discounts, net                                       |   | 75,318       |       | (8,633      | )          |
| Provision for loan losses                                                         |   | 463,250      |       | 675,000     |       |
| FHLB of Chicago stock dividends                                                   |   | (568,000     | )          | (353,800    | )          |
| Stock award plan shares allocated                                                 |   | 381,843      |       | 471,588     |       |
| ESOP shares committed to be released                                              |   | 448,064      |       | 448,071     |       |
| Change in fair value of ESOP shares                                               |   | 132,887      |       | 20,917      |       |
| Depreciation of office properties and equipment                                   |   | 855,482      |       | 591,328     |       |
| Gain on sale of foreclosed real estate                                            |   | (41,315      | )          | —      |       |
| Gain on sale of securities                                                        |   | (816,454     | )          | —      |       |
| Gain on sale of loans                                                             |   | (156,223     | )          | (200,409    | )          |
| Change in minority interest in subsidiary                                         |   | (81,265      | )          | (54,330     | )          |
| Increase in bank owned life insurance                                             |   | (534,210     | )          | (455,246    | )          |
| Goodwill impairment                                                               |   | 226,669      |       | —      |       |
| (Increase)/decrease in accrued interest receivable and other assets,  net         |   | (186,375     | )          | (1,524,419  | )          |
| Increase in income taxes payable, accrued expenses and other  liabilities, net    |   | 1,510,496    |       | 695,135     |       |
|                                                                              |   |         |       |        |       |
| Net cash provided by operating activities                                         |   | 7,152,548    |       | 4,917,480   |       |
|                                                                              |   |         |       |        |       |
| Cash flows from investing activities:                                             |   |         |       |        |       |
| Net (increase)/decrease in loans receivable                                       |   | (32,964,799  | )          | 5,106,839   |       |
| Purchases of loans receivable                                                     |   | (83,263,883  | )          | (51,143,896 | )          |
| Proceeds fom the sale of loans                                                    |   | 12,894,951   |       | 13,217,497  |       |
| Increase in real estate held for development                                      |   | (823,830     | )          | (2,900,268  | )          |
| Purchases of mortgage-backed securities available-for-sale                        |   | (2,549,222   | )          | (5,130,634  | )          |
| Principal payments on mortgage-backed securities available-for-sale               |   | 5,738,497    |       | 4,147,334   |       |
| Maturities of investment securities available-for-sale                            |   | 25,465,274   |       | 19,547,992  |       |
| Purchases of investment securities available-for-sale                             |   | (42,909,565  | )          | (32,111,658 | )          |
| Proceeds from the sale of investment securities                                   |   | 15,349,744   |       | —      |       |
| Purchases of office properties and equipment                                      |   | (1,334,060   | )          | (2,585,064  | )          |
| Investment in bank owned life insurance                                           |   | (5,000,000   | )          | (780,000    | )          |
| Purchases of stock in the Federal Home Loan Bank of Chicago                       |   | (760,200     | )          | —      |       |
| Cash used in acquisition of majority-owned susidiary                              |   | —       |       | (420,000    | )          |
| Proceeds from the sale of foreclosed real estate                                  |   | 2,027,057    |       | —      |       |
|                                                                              |   |         |       |        |       |
| Net cash used in investing activities                                             |   | (108,130,036 | )          | (53,051,858 | )          |
|                                                                              |   |         |       |        |       |
| Cash flows from financing activities:                                             |   |         |       |        |       |
| Net increase in deposits                                                          |   | 65,965,874   |       | 72,397,558  |       |
| Proceeds from borrowed money                                                      |   | 91,070,325   |       | 609,750     |       |
| Repayments on borrowed money                                                      |   | (61,051,470  | )          | (3,978,088  | )          |
| Purchase of treasury stock                                                        |   | (2,514,270   | )          | (51,325     | )          |
| Stock options exercised                                                           |   | 545,178      |       | 562,668     |       |
| Cash dividends paid                                                               |   | (1,761,869   | )          | (1,626,153  | )          |
| Net cash provided by financing activities                                         |   | 92,253,768   |       | 67,914,410  |       |
|                                                                              |   |         |       |        |       |
| Net increase/(decrease) in cash and cash equivalents                              |   | (8,723,720   | )          | 19,780,032  |       |
| Cash and cash equivalents at beginning of period                                  |   | 32,844,290   |       | 18,175,290  |       |
|                                                                              |   |         |       |        |       |
| Cash and cash equivalents at end of period                                        |   | $            | 24,120,570 |        | 37,955,322 |   |
|                                                                              |   |         |       |        |       |
| Supplemental disclosures of cash flow information:                                |   |         |       |        |       |
| Cash paid during the period for:                                                  |   |         |       |        |       |
| Interest                                                                          |   | $            | 16,241,964 |        | 17,218,166 |   |
| Income taxes                                                                      |   | 2,340,000    |       | 2,140,000   |       |
| Noncash investing activities - transfer of loans to foreclosed real  estate       |   | 39,190       |       | —      |       |

 

See accompanying notes to consolidatedfinancial statements.

 

3

----

 

Item 1. Financial Statements, continued

 

**EFC BANCORP, INC.**

**Notes to Unaudited Consolidated FinancialStatements**

 

Note 1: BASIS OF PRESENTATION

 

The accompanying unaudited consolidatedfinancial statements include the accounts of EFC Bancorp, Inc. (the Company),its majority-owned subsidiary, Computer Dynamics Group Inc. (CDGI), itswholly-owned subsidiary, EFS Bank (the Bank) and its wholly-owned subsidiary, EFSService Corporation of Elgin.  TheCompany purchased an 80% interest in CDGI for $420,000 inJanuary 2002.  The accompanyingfinancial statements include the operating results of CDGI since the date ofacquisition.  CDGI is consolidated and aminority interest is recorded for the proportionate interest not owned by theCompany.  Certain amounts for the prioryear have been reclassified to conform to the current year presentation.  The Company operates as a single segment.

 

In the opinion of the management of theCompany, the accompanying consolidated financial statements include all normalrecurring adjustments necessary for a fair presentation of the financialposition and results of operations for the periods presented.  All significant intercompany transactionshave been eliminated in consolidation. These interim financial statements have been prepared according to therules and regulations of the Securities and Exchange Commission and thereforecertain information and footnote disclosures normally included in financialstatements presented in accordance with accounting principles generallyaccepted in the United States of America have been condensed or omitted.  The results of operations for the interimperiods are not necessarily indicative of the results to be expected for thefull year.  It is suggested that theaccompanying unaudited consolidated financial statements be read in conjunctionwith the Company’s 2002 Annual Report on Form 10-K.  Currently, other than investing in various securities, the Companydoes not directly transact any material business other than through theBank.  Accordingly, the discussionherein addresses the operations of the Company as they are conducted throughthe Bank.

 

Note 2: COMPREHENSIVE INCOME

 

The Company’s comprehensive income for thethree and nine month periods ended September 30, 2003 and 2002 are asfollows:

 
|                                                                                          |   | **Three  months ended  September 30,** |      | **Nine  months ended  September 30,** |      |
|-----------------------------------------------------------------------------------------------|--------|---------------------------------------------|-----------|--------------------------------------------|-----------|
|                                                                                          |   | **2003**                                    |      | **2002**                                   |      | **2003** |   | **2002** |   |
| Net income                                                                                    |   | $                                           | 1,820,878 |                                       | 1,449,190 |   | $ | 5,442,381 |   | 4,612,278 |   |
| Other comprehensive income, net of tax:                                                       |   |                                        |      |                                       |      |   |   |   |   |
| Unrealized holding gains/(losses) on  securities arising during the period, net of tax effect |   | (1,577,044                                  | )         | 716,014                                    |      | (851,953 | ) | 1,271,700 |   |
| Reclassification adjustment for net gain on  sales of securities realized in net income       |   | (182,943                                    | )         | —                                     |      | (514,366 | ) | — |   |
|                                                                                          |   |                                        |      |                                       |      |   |   |   |   |
| Comprehensive income                                                                          |   | $                                           | 60,891    |                                       | 2,165,204 |   | $ | 4,076,062 |   | $ | 5,883,978 |   |
|                                                                                               |        |                                             |           |                                            |           |  |  |  |  |  |  |  |

 

4

----

 

For the three and nine month periods endedSeptember 30, 2003 the sale of securities resulted in gains of $290,385and $816,454, respectively ($182,943 and $514,366 net of tax effect).  There were no sales of investment securitiesas of and for the three and nine months ended September 30, 2002.

 

Note 3: COMPUTATION OF PER SHARE EARNINGS

 

Basic earnings per share is calculated bydividing net income by the weighted average number of common sharesoutstanding.  Diluted earnings per shareis calculated by dividing net income by the weighted average number of commonshares outstanding adjusted for the dilutive effect of outstanding stockoptions.  ESOP shares are onlyconsidered outstanding for earnings per share calculations when they arereleased or committed to be released.

 

Presented below are the calculations for thebasic and diluted earnings per share:

 
|                                          |   | **Three  months ended  September 30,** |      | **Nine  months ended  September 30,** |      |
|-----------------------------------------------|--------|---------------------------------------------|-----------|--------------------------------------------|-----------|
|                                          |   | **2003**                                    |      | **2002**                                   |      | **2003** |   | **2002** |   |
| Basic:                                        |   |                                        |      |                                       |      |   |   |   |   |
| Net income                                    |   | $                                           | 1,820,878 |                                       | 1,449,190 |   | 5,442,381 |   | 4,612,278 |   |
|                                          |   |                                        |      |                                       |      |   |   |   |   |
| Weighted average shares outstanding           |   | 4,205,803                                   |      | 4,240,404                                  |      | 4,213,292 |   | 4,209,620 |   |
|                                          |   |                                        |      |                                       |      |   |   |   |   |
| Basic earnings per share                      |   | $                                           | 0.43      |                                       | 0.34      |   | 1.29 |   | 1.10 |   |
|                                          |   |                                        |      |                                       |      |   |   |   |   |
| Diluted:                                      |   |                                        |      |                                       |      |   |   |   |   |
|                                          |   |                                        |      |                                       |      |   |   |   |   |
| Net income                                    |   | $                                           | 1,820,878 |                                       | 1,449,190 |   | 5,442,381 |   | 4,612,278 |   |
|                                          |   |                                        |      |                                       |      |   |   |   |   |
| Weighted average shares outstanding           |   | 4,205,803                                   |      | 4,240,404                                  |      | 4,213,292 |   | 4,209,620 |   |
| Effect of dilutive stock options  outstanding |   | 243,877                                     |      | 236,356                                    |      | 234,472 |   | 206,074 |   |
| Diluted weighted average shares outstanding   |   | 4,449,680                                   |      | 4,476,760                                  |      | 4,447,764 |   | 4,415,694 |   |
|                                          |   |                                        |      |                                       |      |   |   |   |   |
| Diluted earnings per share                    |   | $                                           | 0.41      |                                       | 0.32      |   | 1.22 |   | 1.04 |   |

 

Note 4: STOCK OPTION PLANS

 

The Companyaccounts for the stock-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 fixed method of accounting and records compensation expense, overthe vesting period of the grant, based upon the fair market value of the stockat the date of grant.  In accordancewith the disclosure requirements of SFAS No. 123, as amended by SFAS No. 148,the following table provides the pro forma effect on net income and earningsper share if the fair value method of accounting for stock-based compensationhad been used for all awards:

 

5

----

 
|                                                                                                                                        |   | **For the  Three Months  Ended September 30,** |      | **For the  Nine Months  Ended September 30,** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|-----------|----------------------------------------------------|--------|
|                                                                                                                                        |   | **2003**                                            |      | **2002**                                           |   | **2003** |   | **2002** |   |
|                                                                                                                                        |   |                                                |      |                                               |   |   |   |   |   |
| Net income as reported                                                                                                                      |   | $                                                   | 1,820,878 |                                               | $      | 1,449,190 |   | $ | 5,442,381 |   | $ | 4,612,278 |   |
| Add: Stock-based compensation, net of tax,  included in the determination of net income, as reported                                        |   | 127,281                                             |      | 157,196                                            |   | 381,843 |   | 471,588 |   |
| Deduct: Stock-based compensation, net of  tax, that would have been reported if the fair value based method had been  applied to all awards |   | (245,185                                            | )         | (269,291                                           | )      | (732,202 | ) | (807,872 | ) |
| Pro forma net income                                                                                                                        |   | $                                                   | 1,720,974 |                                               | $      | 1,337,095 |   | $ | 5,092,022 |   | $ | 4,275,994 |   |
|                                                                                                                                        |   |                                                |      |                                               |   |   |   |   |   |
| Basic earnings per share                                                                                                                    |   |                                                |      |                                               |   |   |   |   |   |
| As reported                                                                                                                                 |   | $                                                   | 0.43      |                                               | $      | 0.34 |   | $ | 1.29 |   | $ | 1.10 |   |
| Pro forma                                                                                                                                   |   | 0.40                                                |      | 0.32                                               |   | 1.21 |   | 1.02 |   |
|                                                                                                                                        |   |                                                |      |                                               |   |   |   |   |   |
| Diluted earnings per share                                                                                                                  |   |                                                |      |                                               |   |   |   |   |   |
| As reported                                                                                                                                 |   | $                                                   | 0.41      |                                               | $      | 0.32 |   | $ | 1.22 |   | $ | 1.04 |   |
| Pro forma                                                                                                                                   |   | 0.38                                                |      | 0.30                                               |   | 1.14 |   | 0.97 |   |

 

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

 

The following analysis discusses changes inthe financial condition at September 30, 2003 and results of operationsfor the three and nine months ended September 30, 2003, and should be readin conjunction with the Company’s Unaudited Consolidated Financial Statementsand the notes thereto, appearing in Part I, Item 1 of this document.

 

**Forward-LookingStatements**

 

This report contains certain forward-lookingstatements within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934,as amended. The Company intends such forward-looking statements to be coveredby the safe harbor provisions for forward-looking statements contained in thePrivate Securities Litigation Reform Act of 1995, and is including thisstatement 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. The Company’s ability to predict results or the actualeffect of future plans or strategies is inherently uncertain. Factors whichcould have a material adverse effect on the operations of the Company and thesubsidiaries include, but are not limited to, changes in: interest rates,general economic conditions, legislative/regulatory changes, monetary andfiscal policies of the U.S. Government, including policies of the U.S. Treasuryand the Federal Reserve Board, the quality or composition of the loan orinvestment portfolios, demand for loan products, deposit flows, competition,demand for financial services in the Company’s market area and accountingprinciples and guidelines. These risks and uncertainties should be consideredin evaluating forward-looking statements and undue reliance should not beplaced on such statements. Further

 

6

----

 

information concerning the Company and itsbusiness, including additional factors that could materially affect theCompany’s financial results, is included in the Company’s filings with the SEC,including its 2002 Annual Report on Form 10-K.

 

The Company does not undertake - andspecifically disclaims any obligation - to publicly release the result of anyrevisions which may be made to any forward-looking statements to reflect eventsor circumstances after the date of such statements or to reflect the occurrenceof anticipated or unanticipated events.

 

**Comparisonof Financial Condition at September 30, 2003 and December 31, 2002**

 

Total assets at September 30, 2003 were$881.6 million, which represented an increase of $99.2 million, or 12.7%,compared to $782.4 million at December 31, 2002. The increase in totalassets was primarily a result of an increase in loans receivable of $103.0million, or 17.3%, to $700.0 million at September 30, 2003 from $597.0million at December 31, 2002.  Theincrease in loans receivable was primarily attributable to strong loan demand andloan purchases during the period.  Inaddition, stock in Federal Home Loan Bank of Chicago increased $1.3 million, or14.2%, to $10.7 million at September 30, 2003 from $9.4 million atDecember 31, 2002, and bank owned life insurance increased $5.6 million,or 45.2%, to $17.8 million at September 30, 2003 from $12.2 million atDecember 31, 2002.  This increasewas due to an investment of $5.0 million made in May 2003.  These increases were partially offset bydecreases in cash and cash equivalents of $8.7 million, or 26.6%, to $24.1million at September 30, 2003 from $32.8 million at December 31,2002, decreases in mortgage-backed securities of $3.5 million, or 22.5% to$11.8 at September 30, 2003 from $15.3 million at December 31, 2002and by the sale of foreclosed real estate of $1.9 million from December 31,2002 to September 30, 2003.  Thisproperty was sold in January 2003 resulting in a gain of approximately$41,000.  The growth in total assets wasfunded by increases in deposits and borrowed money.  Deposits increased $66.0 million to $590.2 million atSeptember 30, 2003 from $524.2 million at December 31, 2002.  Borrowed money, primarily representing FHLBadvances, increased $30.0 million to $201.8 million at September 30, 2003from $171.8 million at December 31, 2002. Stockholders’ equity increased $1.8 million to $76.6 million atSeptember 30, 2003 from $74.8 million at December 31, 2002.  The increase in stockholders’ equity wasprimarily the result of the Company’s net income for the nine months endedSeptember 30, 2003, which was partially offset by an $852,000 decrease inthe Company’s accumulated other comprehensive income relating to the change infair value of its available-for-sale investment portfolio, stock repurchasestotaling $2.5 million and dividends paid of $1.8 million.

 

**Comparisonof Operating Results For the Three Months Ended September 30, 2003 and2002**

 

***General.***  The Company’s net income increased $372,000,or 25.7%, to $1.8 million for the three months ended September 30, 2003 ascompared to the prior year period.

 

***Interest Income.***  Interest income increased $92,000, or 1.0%,to $11.3 million for the three months ended September 30, 2003, comparedwith $11.2 million for the same period in 2002.  This increase resulted from an increase in the average balance ofinterest-earning assets,

 

7

----

 

partially offset by a decrease in the averagerate earned on those interest-earning assets. The average balance of interest-earning assets increased by $122.2million, or 17.4%, to $825.8 million for the three months endedSeptember 30, 2003 from $703.6 million for the comparable period in2002.  The average yield oninterest-earning assets decreased by 91 basis points to 5.57% for the threemonths ended September 30, 2003 from 6.48% for the three months endedSeptember 30, 2002.

 

Mortgage loan interest income decreased by$331,000 for the three months ended September 30, 2003 compared with thesame period in 2002.  The averagebalance of mortgage loans increased $75.4 million, while the mortgage loanyield decreased by 119 basis points from 7.10% to 5.91%.  Interest income from other loans increased$367,000 for the three months ended September 30, 2003. This increaseresulted from a combination of an increase in average balance of $41.8 million,partially offset by a 100 basis point decrease in yield from 6.52% for thethree months ended September 30, 2002 to 5.52% for the three months endedSeptember 30, 2003.  Interestincome from investment securities, mortgage-backed securities and short-term depositsincreased $56,000 to $1.3 million for the three months ended September 30,2003, compared with the same period in 2002. The average balance increased $5.1 million and the yield increased fourbasis points from 4.25% for the three months ended September 30, 2002 to4.29% for the three months ended September 30, 2003.  The average yields are reported on a taxequivalent basis.

 

***InterestExpense. ***Interestexpense decreased by $373,000, or 6.5%, to $5.4 million for the three monthsended September 30, 2003 from $5.8 million for the three months endedSeptember 30, 2002.  This decreaseresulted from an increase in the average balance of interest-bearingliabilities, offset by a decrease in the average rate paid on thoseinterest-bearing liabilities.  Theaverage balance of interest-bearing liabilities increased by $111.5 million, or17.8%, to $737.2 million for the three months ended September 30, 2003from $625.7 million for the three months ended September 30, 2002.  This increase is partially attributed to theopening of a new branch office in July 2002.  This change reflects a $92.8 million increase in the depositaccounts, which is attributable to a $22.0 million increase in money marketaccounts, a $25.4 million increase in passbook savings accounts, a $40.7million increase in certificates of deposit and a $4.7 million increase in NOWaccounts.  In addition, borrowingsincreased $18.7 million to $190.4 million for the three months endedSeptember 30, 2003 from $171.7 million for the comparable period in2002.  The average rate paid on combineddeposits and borrowed money decreased by 76 basis points to 2.92% for the threemonths ended September 30, 2003 from 3.68% for the three months endedSeptember 30, 2002.

 

***Net Interest IncomeBefore Provision for Loan Losses.***  Net interest income before provision forloan losses increased $464,000, or 8.5%, to $5.9 million for the three monthsended September 30, 2003 from $5.5 million for the comparable period in2002.  The average balance ofinterest-earning assets increased $122.2 million for the three months endedSeptember 30, 2003 compared to the comparable prior year period.  The increase in interest-earning assets wasprimarily the result of an increase in the average balance of mortgage loans of$75.4 million and a $41.8 million increase in other loans.  The tax equivalent net interest margin as apercent of interest-earning assets decreased by 25 basis points to 2.96% forthe three months ended September 30, 2003 from 3.21% for the comparableperiod in 2002.

 

8

----

 

***Provision for LoanLosses.*** The provision for loan losses decreased by $85,000, to $140,000 for thethree months ended September 30, 2003 from $225,000 in 2002.  At September 30, 2003, December 31,2002 and September 30, 2002, non-performing loans totaled $2.9 million,$2.4 million and $2.1 million, respectively. Nonperforming assets decreased $1.5 million to $2.9 million atSeptember 30, 2003 from $4.4 million at December 31, 2002, largelydue to the sale of foreclosed real estate in January 2003.  At September 30, 2003, the ratio of theallowance for loan losses to non-performing loans was 126.1% compared to 131.1%at December 31, 2002 and 136.5% at September 30, 2002.  The ratio of the allowance to total loanswas 0.51%, 0.53% and 0.52%, at September 30, 2003, December 31, 2002and September 30, 2002, respectively. There were no charge-offs for the three months ended September 30,2003 and 2002.  Management periodicallycalculates an allowance sufficiency analysis based upon the portfoliocomposition, asset classifications, loan-to-value ratios, probable impairmentsin the loan portfolio, and other factors.

 

***NoninterestIncome. ***Noninterestincome totaled $1.5 million and $1.1 million for the three months endedSeptember 30, 2003 and 2002, respectively. The increase in noninterestincome is primarily attributable to increases of $290,000 in gain on sale ofsecurities, $166,000 in service fees and $76,000 in insurance and brokeragecommissions.  The gain on sale ofsecurities was the result of repositioning the balance sheet and favorablemarket conditions.  Service feesincreased primarily due to the offering of an overdraft privilege accountproduct to our customers.  Theseincreases were partially offset by decreases of $97,000 in income generated byComputer Dynamics Group, Inc. (“CDGI”) and $200,000 in gain on sale ofloans.  The decrease in income generatedby CDGI is largely due to a decrease in sales related to a weaker demand fortechnology services.

 

***NoninterestExpense. ***Noninterestexpense increased $334,000, to $4.6 million for the three months endedSeptember 30, 2003 from $4.2 million for the comparable period in2002.  Of this increase, $154,000 wasdirectly related to compensation and benefits, and $76,000 is related to officebuilding operations resulting from the costs related to the two new branchoffices placed in service over the last year. In addition, the Company incurred a goodwill impairment of $26,000,relating to its majority owned subsidiary CDGI, for the three months endedSeptember 30, 2003.  The goodwillimpairment is 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 $889,000 and $727,000 for the three months endedSeptember 30, 2003 and 2002, respectively.  This increase was primarily due to a $557,000 increase inearnings before income taxes.  Theeffective tax rate was 32.9% and 34.0% for the three months endedSeptember 30, 2003 and 2002, respectively.  The decrease in the effective tax rate is partially due to theincrease in bank owned life insurance.

 

**Comparisonof Operating Results For the Nine Months Ended September 30, 2003 and 2002**

 

***General.***  The Company’s net income increased $830,000,or 18.0%, to $5.4 million for

 

9

----

 

the nine months ended September 30, 2003as compared to the prior year period.

 

***Interest Income.***  Interest income increased $757,000, or 2.3%,to $34.3 million for the nine months ended September 30, 2003, comparedwith $33.6 million for the same period in 2002.  This increase resulted from an increase in the average balance ofinterest-earning assets, partially offset by a decrease in the average rateearned on those interest-earning assets. The average balance of interest-earning assets increased by $108.9million, or 16.0%, to $790.9 million for the nine months endedSeptember 30, 2003 from $682.0 million for the comparable period in2002.  The average yield oninterest-earning assets decreased by 77 basis points to 5.89% for the ninemonths ended September 30, 2003 from 6.66% for the nine months endedSeptember 30, 2002.

 

Mortgage loan interest income decreased by$419,000 for the nine months ended September 30, 2003 compared with thesame period in 2002.  The averagebalance of mortgage loans increased $58.7 million, while the mortgage loanyield decreased by 88 basis points from 7.15% to 6.27%.  Interest income from other loans increased$939,000 for the nine months ended September 30, 2003. This increaseresulted from a combination of an increase in average balance of $31.5 million,partially offset by a 74 basis point decrease in yield from 6.52% for the ninemonths ended September 30, 2002 to 5.78% for the nine months endedSeptember 30, 2003.  Interestincome from investment securities, mortgage-backed securities and short-termdeposits increased by $237,000 for the nine months ended September 30,2003, compared with the same period in 2002. This increase resulted from acombination of an increase in average balance of $18.6 million, offset by a 33basis point decrease in yield from 4.82% for the nine months endedSeptember 30, 2002 to 4.49% for the nine months ended September 30,2003.  The decrease in yield is largelyattributed to the effect of the lower interest rate environment reducing yieldson investment securities.  The averageyields are reported on a tax equivalent basis.

 

***InterestExpense. ***Interestexpense decreased by $981,000, or 5.7%, to $16.2 million for the nine monthsended September 30, 2003 from $17.2 million for the nine months endedSeptember 30, 2002.  This decreaseresulted from an increase in the average balance of interest-bearingliabilities, offset by a decrease in the average rate paid on thoseinterest-bearing liabilities. The average balance of interest-bearingliabilities increased by $99.0 million, or 16.3%, to $705.4 million for thenine months ended September 30, 2003 from $606.4 million for the ninemonths ended September 30, 2002. This increase is partially attributed to the opening of a new branchoffice in July 2002.  This changereflects an $88.1 million increase in the deposit accounts, which isattributable to a $29.4 million increase in money market accounts, a $16.9million increase in passbook savings accounts, a $38.1 million increase incertificates of deposit and a $3.7 million increase in NOW accounts.  In addition, borrowings increased $11.0million to $184.4 million for the nine months ended September 30, 2003from $173.4 million for the comparable period in 2002.  The average rate paid on combined depositsand borrowed money decreased by 72 basis points to 3.06% for the nine monthsended September 30, 2003 from 3.78% for the nine months endedSeptember 30, 2002.

 

***Net Interest IncomeBefore Provision for Loan Losses.***  Net interest income before provision forloan losses increased $1.7 million, or 10.6%, to $18.1 million for the ninemonths ended September 30, 2003 from $16.4 million for the comparableperiod in 2002.  The average

 

10

----

 

balance of interest-earning assets increased$108.9 million for the nine months ended September 30, 2003 compared tothe comparable prior year period.  Theincrease in interest-earning assets was primarily the result of an increase inthe average balance of mortgage loans of $58.7 million and a $31.5 million increasein other loans.  The tax equivalent netinterest margin as a percent of interest-earning assets decreased by 15 basispoints to 3.16% for the nine months ended September 30, 2003 from 3.31%for the comparable period in 2002.

 

***Provision for LoanLosses.*** The provision for loan losses decreased by $212,000, to $463,000 for thenine months ended September 30, 2003 from $675,000 in 2002.  At September 30, 2003, December 31,2002 and September 30, 2002, non-performing loans totaled $2.9 million,$2.4 million and $2.1 million, respectively. Nonperforming assets decreased $1.5 million to $2.9 million atSeptember 30, 2003 from $4.4 million at December 31, 2002, largelydue to the sale of foreclosed real estate in January 2003.  At September 30, 2003, the ratio of theallowance for loan losses to non-performing loans was 126.1% compared to 131.1%at December 31, 2002 and 136.5% at September 30, 2002.  The ratio of the allowance to total loanswas 0.51%, 0.53% and 0.52%, at September 30, 2003, December 31, 2002and September 30, 2002, respectively. There were no charge-offs for the nine months ended September 30,2003 and $3,000 for the comparable period in 2002.  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 $4.2 million and $3.3 million for the nine months endedSeptember 30, 2003 and 2002, respectively. The increase in noninterestincome is primarily attributable to increases of $816,000 in gain on sale ofsecurities and $447,000 in service fees. The gain on sale of securities was the result of repositioning thebalance sheet and favorable market conditions. Service fees increased primarily due to the offering of an overdraftprivilege account product to our customers. These increases were partially offset by decreases of $341,000 in incomegenerated by Computer Dynamics Group, Inc. (“CDGI”) and $120,000 in insuranceand brokerage commissions.  The decreasein income generated by CDGI is largely due to a decrease in sales related to aweaker demand for technology services. The decrease in insurance and brokerage commissions is partially due tothe lower interest rate environment.

 

***NoninterestExpense. ***Noninterestexpense increased $1.5 million, to $13.8 million for the nine months endedSeptember 30, 2003 from $12.3 million for the comparable period in2002.  Of this increase, $355,000 wasdirectly related to compensation and benefits, $400,000 is related to officebuilding operations resulting from the costs related to the two new branchoffices placed in service over the last year. In addition, expenses relating to advertising increased $143,000 to$594,000 for the nine months ended September 30, 2003 from $451,000 forthe comparable period in 2002.  Theincrease in advertising expense is primarily attributed to the Bank’s namechange, which occurred in 2002.  Inaddition, the Company incurred a goodwill impairment of $227,000, relating toits majority owned subsidiary CDGI, for the nine months endedSeptember 30, 2003. The goodwill impairment is primarily due to a weakerdemand for technology services. Management continues to emphasize the importance of expense managementand control while continuing to provide expanded banking services to a growingmarket base.

 

11

----

 

***Income TaxExpense. ***Incometax expense totaled $2.8 million and $2.2 million for the nine months endedSeptember 30, 2003 and 2002, respectively.  This increase was primarily due to a $1.4 million increase inearnings before income taxes.  The effectivetax rate was 34.0% and 32.2% for the nine months ended September 30, 2003and 2002, respectively.  The increase inthe effective tax rate is partially due to a reduction in the municipal bondinvestment portfolio and the goodwill impairment related to CDGI.

 

**Liquidityand Capital Resources**

 

The Company’s primary source offunding for dividends and periodic stock repurchases has been dividends fromthe Bank.  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 aresavings deposits, proceeds from the principal and interest payments on loansand proceeds from the maturity of securities and borrowings from theFHLB-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, economicconditions and competition.

 

The primary investing activities of the Bankare the origination and purchase of primarily residential one-to-four-familyloans and, to a lesser extent multi-family and commercial real estate,construction and land, commercial and consumer loans and the purchase ofmortgage-backed securities.  Inaddition, the Bank purchases loans, secured by single-family, multi-family andcommercial real estate.  Deposit flowsare affected by the level of interest rates, the interest rates and productsoffered by the local competitors and other factors.

 

In addition to the primary investingactivities of the Bank, the Company has repurchased shares of its common stockfrom time to time in the open market. The Company is currently authorized to repurchase shares pursuant to itssixth stock repurchase program, which was previously announced inSeptember 2001.  Under this programthe Company is authorized to repurchase up to 231,808, or 5.0% of itsoutstanding common stock.  Under thiscurrent program, 218,900 shares of the Company’s common stock have beenrepurchased at an average price per share of $17.54.  During the three months ended September 30, 2003, 14,000shares were purchased at an average price of $19.26.  As of September 30, 2003, the Company repurchased a total of3,074,173 shares of the Company’s common stock at an average price per share of$12.05 since becoming a public company in 1998.

 

The Bank’s most liquid assets are cash andinterest-bearing demand accounts. The levels of these assets are dependent onthe Bank’s operating, financing, lending and investing activities during anygiven period.  At September 30,2003, cash and interest-bearing demand accounts totaled $24.1 million, or 2.7%of total assets.

 

See the “Consolidated Statements of CashFlows” in the Unaudited Consolidated Financial Statements included in this Form10-Q for the sources and uses of cash flows for

 

12

----

 

operating, investing and financing activitiesfor the nine months ended September 30, 2003 and 2002.

 

At September 30, 2003, the Bank exceededall of its regulatory capital requirements. The following is a summary of the Bank’sregulatory capital ratios at September 30, 2003:

 

| Total Capital to Total Assets         |   | 8.33  | % |
|---------------------------------------|--------|-------|---|
| Total Capital to Risk-Weighted Assets |   | 11.77 | % |
| Tier I Leverage Ratio                 |   | 8.32  | % |
| Tier I to Risk-Weighted Assets        |   | 11.70 | % |

 

At September 30, 2003, the Company had aTotal Capital to Total Assets ratio of 8.69%.

 

On September 16, 2003, the Companyannounced its third quarter dividend of $0.1450 per share.  The dividend was paid on October 7,2003 to stockholders of record on September 30, 2003.

 

**FinancialInstruments with Off-Balance Sheet Risk**

 

The Bank is party to financial instrumentswith off-balance sheet risk in the normal course of business to meet thefinancing needs of its customers.  Thosefinancial instruments primarily include commitments to extend credit.  Commitments to extend credit are agreementsto lend to a customer so long as there is no violation of any conditionestablished in the contract. The Bank evaluates each customer’screditworthiness on a case-by-case basis. The amount of collateral obtained is based on management’s creditevaluation of the customer.  The Bank’sexposure to credit loss in the event of nonperformance by the customer isrepresented by the contractual amount of those financial instruments.  The commitments to originate first mortgageloans represent amounts, which the Bank plans to fund within a period of 30 to90 days.

 

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

 

The Bank’s standby letters of credit areconditional commitments issued by the Bank to guarantee performance of acustomer to a third party.  The creditrisk involved in these transactions is essentially the same as that involved inextending a loan to a customer in the normal course of business.  Standby letters of credit are collateralizedby mortgages, savings accounts or liens on business assets.  The fair value of standby letters of creditapproximates the amount of recorded related fees, which are not consideredmaterial.  The maximum risk ofaccounting loss for these items, which is represented by the total commitmentoutstanding, totaled $4.6 million at September 30, 2003.

 

13

----

 

At September 30, 2003 andDecember 31, 2002, the bank had the following commitments to extendcredit:

 
|                      |   | **September 30,  2003** |       | **December 31,  2002** |   |
|---------------------------|--------|------------------------------|------------|-----------------------------|--------|
| First mortgage loans      |   | $                            | 12,009,000 |                        | $      | 11,965,000 |   |
| Construction loans        |   | 4,670,000                    |       | 808,000                     |   |
| Unused lines of credit    |   | 38,179,000                   |       | 32,666,000                  |   |
| Standby letters of credit |   | 4,558,000                    |       | 4,927,000                   |   |
|                           |        |                              |            |                             |        |  |  |

 

**RecentAccounting Pronouncements**

 

In June 2002, the FASBissued SFAS No. 146, “Accounting for Costs Associated with Exit or DisposalActivities.”  This statement addressesfinancial accounting and reporting for costs associated with exit or disposal activitiesand nullifies Emerging Task Force (EITF) Issue No. 94-3, “Liability Recognitionfor Certain Employee Termination Benefits and Other Costs to Exit an Activity(including Certain Costs Incurred in a Restructuring).”  This Statement is effective for exit ordisposal activities that are initiated after December 31, 2002.  Adoption of this statement did not have amaterial effect on the Company’s consolidated financial statements.

 

In December 2002, the FASBissued Statement 148, “Accounting for Stock-Based Compensation – Transition andDisclosure” (FAS 148).  FAS 148 amendsFAS 123, “Accounting for Stock-Based Compensation, to provide alternativemethods of transition for a voluntary change to the fair value based method ofaccounting for stock-based employee compensation.  In addition, this Statement amends the disclosure requirements ofFAS 123 to require prominent disclosures in both the annual and interimfinancial statements about the method of accounting for stock-based employeecompensation and the effect of the method used on reported results.  Adoption of this statement did not have amaterial effect on the Company’s consolidated financial statements.

 

In January 2003, the FASB issuedInterpretation No. 46, “Consolidation of Variable Interest Entities” whichprovides new accounting guidance on when to consolidate a variable interestentity.  A variable interest entityexists when either the total equity investment at risk is not sufficient topermit the entity to finance its activities by itself, or the equity investorslack one of three characteristics associated with owning a controllingfinancial interest.  Thosecharacteristics include the direct or indirect ability to make decisions aboutan entity’s activities through voting rights or similar rights, the obligationto absorb the expected loss of an entity if they occur, and the right toreceive the expected residual return of the entity if they occur.  On October 9, 2003, the FASB issued adeferral to December 31, 2003 of the implementation of FIN 46 for variableinterest entities in existence prior to February 1, 2003.  We do not expect that the adoption of thisInterpretation will have a material impact on our consolidated financialstatements.

 

In April 2003, the FASB issued SFASNo.149, “Amendment of Statement 133 on Derivative Instruments and HedgingActivities.”  This Statement amends andclarifies accounting for derivative instruments, including certain derivativeinstruments embedded in other contracts,

 

14

----

 

and for hedging activities.  This Statement is effective for contractsentered into or modified after June 30, 2003 and for hedging relationshipsdesignated after June 30, 2003. Adoption of this Statement did not have a material impact on ourconsolidated financial statements.

 

In May 2003, the FASB issued SFAS No.150, “Accounting for Certain Financial Instruments with Characteristics of bothLiabilities and Equity.”  This Statementwould require that certain financial instruments with characteristics of bothliabilities and equity be classified on the consolidated balance sheets asliabilities.  The Statement is effectivefor financial instruments entered into or modified after May 31, 2003, andotherwise is effective at the beginning of the first interim period beginningafter June 15, 2003.  OnOctober 29, 2003, the FASB deferred the application of certainrequirements of SFAS No. 150.  Adoptionof this Statement did not have a material impact on our consolidated financialstatements.

 

15

----

 

** **

**AverageBalance Sheet**

 

**                                               **The following tables set forth certaininformation relating to the Bank for the three and nine months endedSeptember 30, 2003 and 2002, respectively.  The average yields and costs are derived by dividing income orexpense by the average balance of interest-earning assets or interest-bearingliabilities, respectively, for the periods shown and reflect annualized yieldsand costs.  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 $196,000 and$182,000 for the three months ended September 30, 2003 and 2002, and$610,000 and $529,000 for the nine months ended September 30, 2003 and2002, respectively.

 
|                                                              |   | **Three  Months Ended  September 30, 2003** |    | **Three  Months Ended  September 30, 2002** |   |
|-------------------------------------------------------------------|--------|--------------------------------------------------|---------|--------------------------------------------------|--------|
| **(in  thousands)**                                               |   | **Average  Balance**                             |    | **Interest**                                     |   | **Yield/Cost** |   | **Average  Balance** |   | **Interest** |   | **Yield/Cost** |   |
| Assets:                                                           |   |                                             |    |                                             |   |   |   |   |   |   |   |   |   |
| Interest earning assets:                                          |   |                                             |    |                                             |   |   |   |   |   |   |   |   |   |
| Short-term deposits and FHLB stock                                |   | $                                                | 44,510  |                                             | 202    |   | 1.81 | % | 47,170 |   | 219 |   | 1.86 | % |
| Investment securities                                             |   | 83,181                                           |    | 1,195                                            |   | 5.75 | % | 76,195 |   | 1,092 |   | 5.73 | % |
| Mortgage-backed securities                                        |   | 12,534                                           |    | 107                                              |   | 3.42 | % | 11,802 |   | 124 |   | 4.22 | % |
| Mortgage loans                                                    |   | 559,186                                          |    | 8,259                                            |   | 5.91 | % | 483,823 |   | 8,590 |   | 7.10 | % |
| Other loans                                                       |   | 126,390                                          |    | 1,745                                            |   | 5.52 | % | 84,625 |   | 1,378 |   | 6.52 | % |
| Total interest earning assets                                     |   | 825,801                                          |    | 11,508                                           |   | 5.57 | % | 703,615 |   | 11,403 |   | 6.48 | % |
| Noninterest earning assets                                        |   | 51,559                                           |    |                                             |   |   |   | 40,119 |   |   |   |   |   |
| Total assets                                                      |   | $                                                | 877,360 |                                             |   |   |   |   | 743,734 |   |   |   |   |   |
| Liabilities and stockholders’ equity                         |   |                                             |    |                                             |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities                                      |   |                                             |    |                                             |   |   |   |   |   |   |   |   |   |
| Deposits:                                                         |   |                                             |    |                                             |   |   |   |   |   |   |   |   |   |
| Money market accounts                                             |   | $                                                | 148,128 |                                             | 642    |   | 1.73 | % | 126,082 |   | 865 |   | 2.74 | % |
| Passbook savings accounts                                         |   | 125,827                                          |    | 462                                              |   | 1.47 | % | 100,433 |   | 574 |   | 2.29 | % |
| NOW Accounts                                                      |   | 36,991                                           |    | 68                                               |   | 0.74 | % | 32,264 |   | 84 |   | 1.04 | % |
| Certificates of deposit                                           |   | 235,894                                          |    | 1,846                                            |   | 3.13 | % | 195,231 |   | 1,926 |   | 3.95 | % |
| Total deposits                                                    |   | 546,840                                          |    | 3,018                                            |   | 2.21 | % | 454,010 |   | 3,449 |   | 3.04 | % |
| FHLB Advances                                                     |   | 190,367                                          |    | 2,372                                            |   | 4.98 | % | 171,700 |   | 2,314 |   | 5.39 | % |
| Total interest-bearing liabilities                                |   | 737,207                                          |    | 5,390                                            |   | 2.92 | % | 625,710 |   | 5,763 |   | 3.68 | % |
| Noninterest-bearing liabilities                                   |   | 63,047                                           |    |                                             |   |   |   | 44,669 |   |   |   |   |   |
| Total liabilities                                                 |   | 800,254                                          |    |                                             |   |   |   | 670,379 |   |   |   |   |   |
| Total stockholders’ equity                                   |   | 77,106                                           |    |                                             |   |   |   | 73,355 |   |   |   |   |   |
| Total liabilities and stockholders’ equity                   |   | $                                                | 877,360 |                                             |   |   |   |   | 743,734 |   |   |   |   |   |
| Net interest income before provision for  loan losses             |   |                                             |    | 6,118                                            |   |   |   |   |   | 5,640 |   |   |   |
| Interest rate spread                                              |   |                                             |    |                                             |   | 2.65 | % |   |   |   |   | 2.80 | % |
| Net interest margin as a percent of  interest earning assets      |   |                                             |    |                                             |   | 2.96 | % |   |   |   |   | 3.21 | % |
| Ratio of interest-earning assets to  interest-bearing liabilities |   |                                             |    |                                             |   | 112.02 | % |   |   |   |   | 112.45 | % |

 

16

----

 
|                                                              |   | **Nine  Months Ended  September 30, 2003** |    | **Nine  Months Ended  September 30, 2002** |   |
|-------------------------------------------------------------------|--------|-------------------------------------------------|---------|-------------------------------------------------|--------|
| **(in  thousands)**                                               |   | **Average  Balance**                            |    | **Interest**                                    |   | **Yield/Cost** |   | **Average  Balance** |   | **Interest** |   | **Yield/Cost** |   |
| Assets:                                                           |   |                                            |    |                                            |   |   |   |   |   |   |   |   |   |
| Interest earning assets:                                          |   |                                            |    |                                            |   |   |   |   |   |   |   |   |   |
| Short-term deposits and FHLB stock                                |   | $                                               | 38,511  |                                            | 536    |   | 1.85 | % | 37,894 |   | 552 |   | 1.95 | % |
| Investment securities                                             |   | 87,528                                          |    | 3,789                                           |   | 5.77 | % | 72,175 |   | 3,385 |   | 6.25 | % |
| Mortgage-backed securities                                        |   | 14,728                                          |    | 415                                             |   | 3.76 | % | 12,053 |   | 478 |   | 5.28 | % |
| Mortgage loans                                                    |   | 540,907                                         |    | 25,449                                          |   | 6.27 | % | 482,233 |   | 25,868 |   | 7.15 | % |
| Other loans                                                       |   | 109,193                                         |    | 4,732                                           |   | 5.78 | % | 77,706 |   | 3,801 |   | 6.52 | % |
| Total interest earning assets                                     |   | 790,867                                         |    | 34,921                                          |   | 5.89 | % | 682,061 |   | 34,084 |   | 6.66 | % |
| Noninterest earning assets                                        |   | 46,369                                          |    |                                            |   |   |   | 37,718 |   |   |   |   |   |
| Total assets                                                      |   | $                                               | 837,236 |                                            |   |   |   |   | 719,779 |   |   |   |   |   |
|                                                              |   |                                            |    |                                            |   |   |   |   |   |   |   |   |   |
| Liabilities and stockholders’ equity                         |   |                                            |    |                                            |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities                                      |   |                                            |    |                                            |   |   |   |   |   |   |   |   |   |
| Deposits:                                                         |   |                                            |    |                                            |   |   |   |   |   |   |   |   |   |
| Money market accounts                                             |   | $                                               | 146,530 |                                            | 2,103  |   | 1.91 | % | 117,156 |   | 2,506 |   | 2.85 | % |
| Passbook savings accounts                                         |   | 116,937                                         |    | 1,419                                           |   | 1.62 | % | 99,997 |   | 1,774 |   | 2.37 | % |
| NOW Accounts                                                      |   | 35,344                                          |    | 211                                             |   | 0.79 | % | 31,662 |   | 241 |   | 1.02 | % |
| Certificates of deposit                                           |   | 222,261                                         |    | 5,506                                           |   | 3.30 | % | 184,122 |   | 5,712 |   | 4.14 | % |
| Total deposits                                                    |   | 521,072                                         |    | 9,239                                           |   | 2.36 | % | 432,937 |   | 10,233 |   | 3.15 | % |
| FHLB Advances                                                     |   | 184,367                                         |    | 6,950                                           |   | 5.03 | % | 173,423 |   | 6,938 |   | 5.33 | % |
| Total interest-bearing liabilities                                |   | 705,439                                         |    | 16,189                                          |   | 3.06 | % | 606,360 |   | 17,171 |   | 3.78 | % |
| Noninterest-bearing liabilities                                   |   | 55,765                                          |    |                                            |   |   |   | 42,011 |   |   |   |   |   |
| Total liabilities                                                 |   | 761,204                                         |    |                                            |   |   |   | 648,371 |   |   |   |   |   |
| Total stockholders’ equity                                   |   | 76,032                                          |    |                                            |   |   |   | 71,408 |   |   |   |   |   |
| Total liabilities and stockholders’ equity                   |   | $                                               | 837,236 |                                            |   |   |   |   | 719,779 |   |   |   |   |   |
| Net interest income before provision for  loan losses             |   |                                            |    | 18,732                                          |   |   |   |   |   | 16,913 |   |   |   |
| Interest rate spread                                              |   |                                            |    |                                            |   | 2.83 | % |   |   |   |   | 2.88 | % |
| Net interest margin as a percent of  interest earning assets      |   |                                            |    |                                            |   | 3.16 | % |   |   |   |   | 3.31 | % |
| Ratio of interest-earning assets to  interest-bearing liabilities |   |                                            |    |                                            |   | 112.11 | % |   |   |   |   | 112.48 | % |

 

17

----

 

Item 3.             Quantitative and QualitativeDisclosures About Market Risk.

 

The Bank’s interest rate sensitivity ismonitored by management through the use of a Net Portfolio Value Model whichgenerates 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 cash flows from assets,liabilities, and off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is defined as the NPVin that scenario divided by the market value of assets in the same scenario.  The model assumes estimated prepaymentrates, reinvestment rates and deposit decay rates.  The Sensitivity Measure is the decline in the NPV ratio, in basispoints, caused by a 2% increase or decrease in rates, whichever produces alarger decline.  The higher theinstitution’s Sensitivity Ratio, the greater its exposure to interest rate riskis considered to be.  The following NPVTable sets forth the Bank’s NPV as of September 30, 2003.

 
| **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                                                         |       | $                        | 51,308       |                                       | $            | (29,503 | ) | (36.51 | )% | 5.95 | % | (33.82 | %) |
| +200                                                         |       | 65,075                   |         | (15,736                                    | )            | (19.47 | ) | 7.43 |   | (17.35 | ) |
| +100                                                         |       | 75,310                   |         | (5,501                                     | )            | (6.81 | ) | 8.48 |   | (5.67 | ) |
| Static                                                       |       | 80,811                   |         | —                                     |         | — |   | 8.99 |   | — |   |
| -100                                                         |       | 74,074                   |         | (6,737                                     | )            | (8.34 | ) | 8.23 |   | (8.45 | ) |
| -200                                                         |       | 65,396                   |         | (15,415                                    | )            | (19.08 | ) | 7.27 |   | (19.13 | ) |
| -300                                                         |       | 57,749                   |         | (23,062                                    | )            | (28.54 | ) | 6.42 |   | (28.59 | ) |
|                                                              |            |                          |              |                                            |              |  |  |  |  |  |  |  |  |

 

Certain shortcomings are inherent in themethodology used in the above interest rate risk measurements.  Modeling changes in NPV require the makingof certain assumptions which may or may not reflect the manner in which actualyields and costs respond to changes in market interest rates.  In this regard, the NPV Table presented assumesthat the composition of the Bank’s interest sensitive assets and liabilitiesexisting at the beginning of a period remains constant over the period beingmeasured and also assumes that a particular change in interest rates isreflected uniformly across the yield curve regardless of the duration tomaturity 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’sprincipal executive officer and principal financial officer, have evaluated theeffectiveness of the Company’s “disclosure controls and procedures,” as suchterm is defined in Rule 13a-15(e) promulgated under the Securities Exchange Actof 1934, as amended, (the “Exchange Act”). Based upon their

 

18

----

 

evaluation, the principal executive officerand principal financial officer concluded that, as of the end of the periodcovered by this report, the Company’s disclosure controls and procedures wereeffective for the purpose of ensuring that the information required to bedisclosed in the reports that the Company files or submits under the ExchangeAct with the Securities and Exchange Commission (the “SEC”) (1) is recorded,processed, summarized and reported within the time periods specified in theSEC’s rules and forms, and (2) is accumulated and communicated to the Company’smanagement, including its principal executive and principal financial officers,as appropriate to allow timely decisions regarding required disclosure.  In addition, based on that evaluation, nochange in the Company’s internal control over financial reporting occurredduring the quarter ended September 30, 2003 that has materially affected,or is reasonably likely to materially affect, the Company’s internal controlover financial reporting.

 

19

----

 

**PARTII.  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. |   | Changes in  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 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  Footnote 3 on page 5 of this document. |
|    |   |                                                                                                                                                                                                                                                                                                                                     | 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 |
|    |   |                                                                                                                                                                                                                                                                                                                                     |   |   |
|    |   | (b)                                                                                                                                                                                                                                                                                                                                      | Reports on  Form 8-K |
|    |   |                                                                                                                                                                                                                                                                                                                                     |   |
|    |   |                                                                                                                                                                                                                                                                                                                                     | On  July 31, 2003, the EFC Bancorp, Inc. furnished a Current Report on Form  8-K announcing its financial results for the quarter ended June 30,  2003. |
|    |   |                                                                                                                                                                                                                                                                                                                                     |   |
|    |   |                                                                                                                                                                                                                                                                                                                                     | On  August 8, 2003, the EFC Bancorp, Inc. furnished a Current Report on Form  8-K announcing that it has been named to the FSB 100. |

 

----

|   |   | * | Incorporated  herein by reference from the Exhibits filed with the Registration Statement  on Form S-1 and any amendments thereto. Registration Statement No. 333-38637  filed with the Securities and Exchange Commission (“SEC”) on October 24,  1997. |
|--------|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

20

----

 

**SIGNATURES**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the Registrant has duly caused this report tobe signed on its behalf by the undersigned hereunto duly authorized.

 

 
|   |                    |                                                   | EFC BANCORP, INC. |
|--------|-------------------------|--------------------------------------------------------|-------------------|
|   |                    |                                                   |              |
|   |                    |                                                   |              |
| Dated: | November 13,  2003 |                                                   | By:               | /s/ Barrett  J. O’Connor |   |
|   |                    | Barrett J.  O’Connor                              |
|   |                    | President  and Chief Executive Officer                 |
|   |                    | (Principal  executive officer)                         |
|   |                    |                                                   |
| Dated: | November 13,  2003 |                                                   | By:               | /s/ James J.  Kovac |   |
|   |                    | James J.  Kovac                                        |
|   |                    | Executive  Vice President and Chief  Financial Officer |
|   |                    | (Principal  financial and accounting officer)          |
|        |                         |                                                        |                   |  |  |  |

 

21

----