** **

**UNITED STATES****SECURITIESAND 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 March 31,  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 changes since  last report) |

 

Indicate bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90days.                                                  Yes  ý   No  o

 

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

Yes  o   No  ý  

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate thenumber of shares outstanding of each of the issuer’s classes of common stock,as of the latest practicable date: 4,603,101 shares of common stock, par value$0.01 per share, were outstanding as of May 13, 2003.

 

 

----

 

EFC Bancorp, Inc.

 

Form 10-Q

 

For the Quarter Ended March 31, 2003

 

INDEX

 
| PART I.        | FINANCIAL INFORMATION                                                                            |
|----------------|--------------------------------------------------------------------------------------------------|
|           |                                                                                             |
| Item 1.        | Financial Statements (unaudited)                                                                 |
|           |                                                                                             |
|           | Consolidated Balance Sheets at March 31,  2003 and December 31, 2002                        |
|           |                                                                                             |
|           | Consolidated Statements of Income - For the  Three Months Ended March 31, 2003 and 2002     |
|           |                                                                                             |
|           | Consolidated Statements of Cash Flows - For  the Three Months Ended March 31, 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     |
|           |
| CERTIFICATIONS |

 

----

 

**PARTI. FINANCIAL INFORMATION**

**EFC BANCORP, INC.**

 

Item 1.Financial Statements.

**EFCBANCORP, INC.**

**ANDSUBSIDIARIES**

Consolidated Balance Sheets(unaudited)

March 31, 2003 and December 31, 2002

 
|                                                                                                                                       |   | **March 31,  2003** |        | **December  31,  2002** |        |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|-------------|-------------------------|-------------|
| Assets                                                                                                                                     |   |                |        |                    |        |
| Cash and cash equivalents:                                                                                                                 |   |                |        |                    |        |
| On hand and in banks                                                                                                                       |   | $                   | 2,485,681   |                    | 4,277,209   |   |
| Interest bearing deposits with financial institutions                                                                                      |   | 35,748,040          |        | 28,567,081              |        |
| Loans receivable, net                                                                                                                      |   | 620,971,552         |        | 597,038,305             |        |
| Mortgage-backed securities available-for-sale, at fair value                                                                               |   | 16,239,800          |        | 15,255,684              |        |
| Investment securities available-for-sale, at fair value                                                                                    |   | 87,194,841          |        | 87,981,884              |        |
| Foreclosed real estate                                                                                                                     |   | —              |        | 1,985,741               |        |
| Stock in Federal Home Loan Bank of Chicago, at cost                                                                                        |   | 9,621,600           |        | 9,362,200               |        |
| Accrued interest receivable                                                                                                                |   | 3,875,187           |        | 3,887,410               |        |
| Office properties and equipment, net                                                                                                       |   | 17,061,429          |        | 16,796,685              |        |
| Real estate held for development                                                                                                           |   | 3,267,027           |        | 2,934,072               |        |
| Bank owned life insurance                                                                                                                  |   | 12,395,138          |        | 12,246,803              |        |
| Other assets                                                                                                                               |   | 1,917,358           |        | 2,042,852               |        |
|                                                                                                                                       |   |                |        |                    |        |
| Total assets                                                                                                                               |   | $                   | 810,777,653 |                    | 782,375,926 |   |
|                                                                                                                                       |   |                |        |                    |        |
| Liabilities and  Stockholders’ Equity                                                                                                 |   |                |        |                    |        |
| Liabilities:                                                                                                                               |   |                |        |                    |        |
| Deposits                                                                                                                                   |   | $                   | 545,556,860 |                    | 524,189,844 |   |
| Borrowed money                                                                                                                             |   | 179,804,299         |        | 171,778,743             |        |
| Income taxes payable                                                                                                                       |   | 654,168             |        | (40,717                 | )           |
| Accrued expenses and other liabilities                                                                                                     |   | 10,066,701          |        | 11,746,488              |        |
|                                                                                                                                       |   |                |        |                    |        |
| Total liabilities                                                                                                                          |   | 736,082,028         |        | 707,674,358             |        |
|                                                                                                                                       |   |                |        |                    |        |
| Minority interest                                                                                                                          |   | (95,839             | )           | (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                                                                                                                 |   | 71,873,170          |        | 71,834,834              |        |
| Retained earnings, substantially restricted                                                                                                |   | 42,913,461          |        | 41,911,421              |        |
| Treasury stock, at cost, 2,892,833 and 2,854,293 shares at March 31,  2003 and December 31, 2002, respectively                   |   | (35,006,862         | )           | (33,755,940             | )           |
| Unearned employee stock ownership plan (ESOP), 389,555 and 399,544  shares at March 31, 2003 and December 31, 2002, respectively |   | (5,824,842          | )           | (5,974,199              | )           |
| Unearned stock award plan, 40,349 and 51,790 shares at March 31,  2003 and December 31, 2002, respectively                       |   | (448,883            | )           | (576,164                | )           |
| Accumulated other comprehensive income                                                                                                     |   | 1,210,506           |        | 1,261,829               |        |
|                                                                                                                                       |   |                |        |                    |        |
| Total stockholders’ equity                                                                                                            |   | 74,791,464          |        | 74,776,695              |        |
|                                                                                                                                       |   |                |        |                    |        |
| Commitments and contingencies                                                                                                              |   | —              |        | —                  |        |
|                                                                                                                                       |   |                |        |                    |        |
| Total liabilities and stockholders’ equity                                                                                            |   | $                   | 810,777,653 |                    | 782,375,926 |   |

 

See accompanying notes to consolidatedfinancial statements.

 

1

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**EFCBANCORP, INC.**

**ANDSUBSIDIARIES**

 

Consolidated Statements ofIncome (unaudited)

For the three months ended March 31, 2003 and 2002

 
|                                                                                                |   | **Three  months ended  March 31,** |   |
|-----------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                                                |   | **2003**                           |   | **2002** |   |
|                                                                                                |   |                               |   |   |   |
| Interest income:                                                                                    |   |                               |   |   |   |
| Loans secured by real estate                                                                        |   | 8,614,338                          |   | 8,680,080 |   |
| Other loans                                                                                         |   | 1,397,517                          |   | 1,176,538 |   |
| Mortgage-backed securities available-for-sale                                                       |   | 173,547                            |   | 185,528 |   |
| Investment securities available-for-sale and interest bearing  deposits with financial institutions |   | 1,239,672                          |   | 1,085,619 |   |
| Total interest income                                                                               |   | 11,425,074                         |   | 11,127,765 |   |
|                                                                                                |   |                               |   |   |   |
| Interest expense:                                                                                   |   |                               |   |   |   |
| Deposits                                                                                            |   | 3,167,903                          |   | 3,363,406 |   |
| Borrowed money                                                                                      |   | 2,273,080                          |   | 2,323,917 |   |
| Total interest expense                                                                              |   | 5,440,983                          |   | 5,687,323 |   |
|                                                                                                |   |                               |   |   |   |
| Net interest income before provision for loan losses                                                |   | 5,984,091                          |   | 5,440,442 |   |
| Provision for loan losses                                                                           |   | 181,250                            |   | 225,000 |   |
| Net interest income after provision for loan losses                                                 |   | 5,802,841                          |   | 5,215,442 |   |
|                                                                                                |   |                               |   |   |   |
| Noninterest income:                                                                                 |   |                               |   |   |   |
| Service fees                                                                                        |   | 446,511                            |   | 335,850 |   |
| Insurance and brokerage commissions                                                                 |   | 58,864                             |   | 230,516 |   |
| Information technology sales and service income, net                                                |   | 268,690                            |   | 302,401 |   |
| Gain on sale of foreclosed real estate                                                              |   | 41,315                             |   | — |   |
| Bank owned life insurance                                                                           |   | 170,490                            |   | 166,326 |   |
| Other                                                                                               |   | 24,549                             |   | 42,414 |   |
| Total noninterest income                                                                            |   | 1,010,419                          |   | 1,077,507 |   |
|                                                                                                |   |                               |   |   |   |
| Noninterest expense:                                                                                |   |                               |   |   |   |
| Compensation and benefits                                                                           |   | 2,659,336                          |   | 2,627,589 |   |
| Office building, net                                                                                |   | 698,966                            |   | 508,442 |   |
| Federal insurance premiums                                                                          |   | 23,221                             |   | 18,508 |   |
| Advertising                                                                                         |   | 182,641                            |   | 149,677 |   |
| Data processing                                                                                     |   | 240,868                            |   | 181,426 |   |
| NOW/checking account expenses                                                                       |   | 133,013                            |   | 122,578 |   |
| Other                                                                                               |   | 564,028                            |   | 422,339 |   |
| Total noninterest expense                                                                           |   | 4,502,073                          |   | 4,030,559 |   |
|                                                                                                |   |                               |   |   |   |
| Income before income taxes and minority interest                                                    |   | 2,311,187                          |   | 2,262,390 |   |
|                                                                                                |   |                               |   |   |   |
| Income tax expense                                                                                  |   | 743,941                            |   | 713,612 |   |
|                                                                                                |   |                               |   |   |   |
| Income before minority interest                                                                     |   | 1,567,246                          |   | 1,548,778 |   |
|                                                                                                |   |                               |   |   |   |
| Minority interest                                                                                   |   | 20,712                             |   | 19,660 |   |
|                                                                                                |   |                               |   |   |   |
| Net income                                                                                          |   | 1,587,958                          |   | 1,568,438 |   |
|                                                                                                |   |                               |   |   |   |
| Earnings per share:                                                                                 |   |                               |   |   |   |
| Basic                                                                                               |   | 0.38                               |   | 0.38 |   |
| Diluted                                                                                             |   | 0.36                               |   | 0.36 |   |

 

See accompanying notes to consolidatedfinancial statements.

 

2

----

 

**EFCBANCORP, INC.**

**ANDSUBSIDIARIES**

 

Consolidated Statements ofCash Flows (unaudited)

For the three months ended March 31, 2003 and 2002

 
|                                                                                      |   | **2003**    |       | **2002**    |       |
|-------------------------------------------------------------------------------------------|--------|-------------|------------|-------------|------------|
|                                                                                      |   |        |       |        |       |
| Cash flows from operating activities:                                                     |   |        |       |        |       |
| Net income                                                                                |   | $           | 1,587,958  |        | 1,568,438  |   |
| Adjustment to reconcile net income to net cash provided by operating  activities:         |   |        |       |        |       |
| Amortization of premiums and discounts, net                                               |   | 23,233      |       | 38,350      |       |
| Provision for loan losses                                                                 |   | 181,250     |       | 225,000     |       |
| FHLB of Chicago stock dividends                                                           |   | (259,400    | )          | (128,800    | )          |
| Stock award plan shares allocated                                                         |   | 127,281     |       | 157,196     |       |
| ESOP shares committed to be released                                                      |   | 149,357     |       | 149,357     |       |
| Change in fair value of ESOP shares                                                       |   | 38,336      |       | (10,008     | )          |
| Depreciation of office properties and equipment                                           |   | 274,105     |       | 187,562     |       |
| Gain on sale of foreclosed real estate                                                    |   | (41,315     | )          | —      |       |
| Change in minority interest in subsidiary                                                 |   | (20,712     | )          | (37,105     | )          |
| Increase in bank owned life insurance                                                     |   | (148,335    | )          | (147,102    | )          |
| (Increase)/decrease in accrued interest receivable and other assets,  net                 |   | 157,504     |       | (1,343,161  | )          |
| Increase/(decrease) in income taxes payable, accrued expenses and  other liabilities, net |   | (991,099    | )          | 1,281,716   |       |
|                                                                                      |   |        |       |        |       |
| Net cash provided by operating activities                                                 |   | 1,078,163   |       | 1,941,443   |       |
|                                                                                      |   |        |       |        |       |
| Cash flows from investing activities:                                                     |   |        |       |        |       |
| Net (increase)/decrease in loans receivable                                               |   | (8,141,512  | )          | 3,757,071   |       |
| Purchases of loans receivable                                                             |   | (15,962,505 | )          | (17,869,653 | )          |
| Increase in real estate held for development                                              |   | (332,955    | )          | —      |       |
| Purchases of mortgage-backed securities available-for-sale                                |   | (2,549,222  | )          | —      |       |
| Principal payments on mortgage-backed securities available-for-sale                       |   | 1,547,823   |       | 1,488,373   |       |
| Maturities of investment securities available-for-sale                                    |   | 7,530,000   |       | 6,903,565   |       |
| Purchases of investment securities available-for-sale                                     |   | (6,833,043  | )          | (9,269,775  | )          |
| Purchases of office properties and equipment                                              |   | (538,849    | )          | (777,159    | )          |
| 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                                                     |   | (23,253,206 | )          | (16,187,578 | )          |
|                                                                                      |   |        |       |        |       |
| Cash flows from financing activities:                                                     |   |        |       |        |       |
| Net increase in deposits                                                                  |   | 21,367,016  |       | 27,757,124  |       |
| Proceeds from borrowed money                                                              |   | 8,049,304   |       | 405,298     |       |
| Repayments on borrowed money                                                              |   | (23,748     | )          | —      |       |
| Purchase of treasury stock                                                                |   | (1,605,491  | )          | (4,200      | )          |
| Stock options exercised                                                                   |   | 354,569     |       | 172,438     |       |
| Cash dividends paid                                                                       |   | (577,176    | )          | (526,206    | )          |
| Net cash provided by financing activities                                                 |   | 27,564,474  |       | 27,804,454  |       |
|                                                                                      |   |        |       |        |       |
| Net increase in cash and cash equivalents                                                 |   | 5,389,431   |       | 13,558,319  |       |
| Cash and cash equivalents at beginning of period                                          |   | 32,844,290  |       | 18,175,290  |       |
|                                                                                      |   |        |       |        |       |
| Cash and cash equivalents at end of period                                                |   | $           | 38,233,721 |        | 31,733,609 |   |
|                                                                                      |   |        |       |        |       |
| Supplemental disclosures of cash flow information:                                        |   |        |       |        |       |
| Cash paid during the period for:                                                          |   |        |       |        |       |
| Interest                                                                                  |   | $           | 5,523,902  |        | 5,672,455  |   |
| Income taxes                                                                              |   | 25,000      |       | 45,000      |       |

 

See accompanying notes to consolidatedfinancial statements.

 

3

----

 

**EFC BANCORP, INC.**

**Notes to UnauditedConsolidated Financial Statements**

 

Note 1: BASIS OF PRESENTATION

 

Theaccompanying unaudited consolidated financial statements include the accountsof EFC Bancorp, Inc. (the Company), its majority-owned subsidiary, ComputerDynamics Group Inc. (CDGI), its wholly-owned subsidiary, EFS Bank (the Bank)and its wholly-owned subsidiary, EFS Service Corporation of Elgin.  The Company purchased an 80% interest in CDGIfor $420,000 in January 2002.  Theaccompanying financial statements include the operating results of CDGI sincethe date of acquisition.  CDGI isconsolidated and a minority interest is recorded for the proportionate interestnot owned by the Company.  Certainamounts for the prior year have been reclassified to conform to the currentyear presentation.

 

In the opinionof the management of the Company, the accompanying consolidated financialstatements include all normal recurring adjustments necessary for a fairpresentation of the financial position and results of operations for theperiods presented.  All significantintercompany transactions have been eliminated in consolidation.  These interim financial statements have beenprepared according to the rules and regulations of the Securities and ExchangeCommission and therefore certain information and footnote disclosures normallyincluded in financial statements presented in accordance with accountingprinciples generally accepted in the United States of America have beencondensed or omitted.  The results ofoperations for the interim periods are not necessarily indicative of theresults to be expected for the full year. It is suggested that the accompanying unaudited consolidated financialstatements be read in conjunction with the Company’s 2002 Annual Report on Form10-K.  Currently, other than investingin various securities, the Company does not directly transact any materialbusiness other than through the Bank. Accordingly, the discussion herein addresses the operations of theCompany as they are conducted through the Bank.

 

Note 2: COMPREHENSIVE INCOME

 

The Company’scomprehensive income for the three month periods ended March 31, 2003 and 2002are as follows:

 
|                                                                                  |   | **Three  months ended  March 31,** |      |
|---------------------------------------------------------------------------------------|--------|------------------------------------|-----------|
|                                                                                  |   | **2003**                           |      | **2002** |   |
| Net income                                                                            |   | $                                  | 1,587,958 |   | 1,568,438 |   |
| Other comprehensive income, net of tax:                                               |   |                               |      |   |   |
| Unrealized holding losses on securities  arising during the period, net of tax effect |   | (51,323                            | )         | (197,253 | ) |
|                                                                                  |   |                               |      |   |   |
| Comprehensive income                                                                  |   | $                                  | 1,536,635 |   | 1,371,185 |   |

 

4

----

 

There were nosales of investment securities as of and for the three months endedMarch 31, 2003 and 2002.

 

Note 3: COMPUTATION OF PER SHARE EARNINGS

 

Basic earningsper share is calculated by dividing net income by the weighted average numberof common shares outstanding. Diluted earnings per share is calculated bydividing net income by the weighted average number of common shares outstandingadjusted for the dilutive effect of outstanding stock options.  ESOP shares are only considered outstandingfor earnings per share calculations when they are released or committed to bereleased.

 

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

 
|                                          |   | **Three  months ended  March 31,** |      |
|-----------------------------------------------|--------|------------------------------------|-----------|
|                                          |   | **2003**                           |      | **2002** |   |
| Basic:                                        |   |                               |      |   |   |
| Net income                                    |   | $                                  | 1,587,958 |   | 1,568,438 |   |
|                                          |   |                               |      |   |   |
| Weighted average shares outstanding           |   | 4,218,617                          |      | 4,180,489 |   |
|                                          |   |                               |      |   |   |
| Basic earnings per share                      |   | $                                  | 0.38      |   | 0.38 |   |
|                                          |   |                               |      |   |   |
| Diluted:                                      |   |                               |      |   |   |
|                                          |   |                               |      |   |   |
| Net income                                    |   | $                                  | 1,587,958 |   | 1,568,438 |   |
|                                          |   |                               |      |   |   |
| Weighted average shares outstanding           |   | 4,218,617                          |      | 4,180,489 |   |
| Effect of dilutive stock options  outstanding |   | 241,171                            |      | 159,270 |   |
| Diluted weighted average shares outstanding   |   | 4,459,788                          |      | 4,339,759 |   |
|                                          |   |                               |      |   |   |
| Diluted earnings per share                    |   | $                                  | 0.36      |   | 0.36 |   |

 

Note 4: STOCK OPTION PLANS

 

The fair valueof each option granted is estimated on the grant date using the Black-Scholesoption-pricing model.

 
|                           |   | **2003** |   | **2002** |   |
|--------------------------------|--------|----------|--------|----------|--------|
|                           |   |     |   |     |   |
| Dividend yield                 |   | 2.83     | %      | —   |   |
| Risk-free interest rate        |   | 3.83     | %      | —   |   |
| Weighted average expected life |   | 10 yrs.  |   | —   |   |
| Expected volatility            |   | 17.0     | %      | —   |   |

 

5

----

 

The per sharefair value of options granted for the three months ended March 31, 2003 totaled$3.72.  There were no options granted in2002.

 

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

 
|                                                                                                                                        |   | **For the  Three Months Ended  March 31,** |      |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|-----------|
|                                                                                                                                        |   | **2003**                                   |      | **2002** |   |
|                                                                                                                                        |   |                                       |      |   |   |
| Net income as reported                                                                                                                      |   | $                                          | 1,587,958 |   | $ | 1,568,438 |   |
| Add: Stock-based compensation, net of tax,  included in the determination of net income, as reported                                        |   | 127,281                                    |      | 157,196 |   |
| Deduct: Stock-based compensation, net of  tax, that would have been reported if the fair value based method had been  applied to all awards |   | (241,831                                   | )         | (269,291 | ) |
| Pro forma net income                                                                                                                        |   | $                                          | 1,473,408 |   | $ | 1,456,343 |   |
|                                                                                                                                        |   |                                       |      |   |   |
| Basic earnings per share                                                                                                                    |   |                                       |      |   |   |
| As reported                                                                                                                                 |   | $                                          | 0.38      |   | $ | 0.38 |   |
| Pro forma                                                                                                                                   |   | 0.35                                       |      | 0.35 |   |
|                                                                                                                                        |   |                                       |      |   |   |
| Diluted earnings per share                                                                                                                  |   |                                       |      |   |   |
| As reported                                                                                                                                 |   | $                                          | 0.36      |   | $ | 0.36 |   |
| Pro forma                                                                                                                                   |   | 0.33                                       |      | 0.34 |   |

 

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

 

The following analysis discusses changes inthe financial condition at March 31, 2003 and results of operations for thethree months ended March 31, 2003, and should be read in conjunction with theCompany’s Unaudited Consolidated Financial Statements and 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 of 1933, asamended, and Section 21E of the Securities Exchange Act of 1934, as amended.The Company intends such forward-looking statements to be covered by the safeharbor provisions for forward-looking statements contained in the PrivateSecurities Litigation Reform Act of 1995, and is including this statement forpurposes of these safe harbor 

 

6

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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 and fiscalpolicies of the U.S. Government, including policies of the U.S. Treasury andthe Federal Reserve Board, the quality or composition of the loan or investmentportfolios, demand for loan products, deposit flows, competition, demand forfinancial services in the Company’s market area and accounting principles andguidelines. These risks and uncertainties should be considered in evaluatingforward-looking statements and undue reliance should not be placed on suchstatements. Further information concerning the Company and its business,including additional factors that could materially affect the Company’sfinancial results, is included in the Company’s filings with the SEC, includingits 2002 Annual Report on Form 10-K.

 

The Companydoes not undertake - and specifically disclaims any obligation - to publiclyrelease the result of any revisions which may be made to any forward-lookingstatements to reflect events or circumstances after the date of such statementsor to reflect the occurrence of anticipated or unanticipated events.

 

**Comparison of Financial Condition at March31, 2003 and December 31, 2002**

 

Total assetsat March 31, 2003 were $810.8 million, which represented an increase of $28.4million, or 3.6%, compared to $782.4 million at December 31, 2002. The increasein total assets was primarily a result of an increase in loans receivable of$24.0 million, or 4.0%, to $621.0 million at March 31, 2003 from $597.0 millionat December 31, 2002.  The increase inloans receivable was primarily attributable to strong loan demand and loanpurchases during the period.  Inaddition, cash and cash equivalents increased $5.4 million, or 16.4%, to $38.2million at March 31, 2003 from $32.8 million at December 31, 2002 and mortgage-backedsecurities increased $984,000, or 6.5%, to $16.2 million at March 31, 2003 from$15.3 million at December 31, 2002. These increases were partially offset by a decrease in foreclosed realestate of $2.0 million from December 31, 2002 to March 31, 2003.  This property was sold in January 2003resulting in a gain of approximately $41,000. The growth in total assets was funded by increases in deposits andborrowed money.  Deposits increased$21.4 million to $545.6 million at March 31, 2003 from $524.2 million atDecember 31, 2002.  Borrowed money,representing FHLB advances, increased $8.0 million to $179.8 million at March31, 2003 from $171.8 million at December 31, 2002.   Stockholders’ equity remained unchanged at $74.8 million atMarch 31, 2003 compared to December 31, 2002. Increases in stockholders’ equity resulting primarily from the Company’snet income for the three months ended March 31, 2003, were offset by stockrepurchases and dividends paid.

 

**Comparison of Operating Results For the ThreeMonths Ended March 31, 2003 and 2002**

 

***General.***  The Company’s net income increased $20,000,or 1.2%, to $1.6 million for the three months ended March 31, 2003 as comparedto the prior year period.

 

7

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***Interest Income.***  Interest income increased $297,000, or 2.7%,to $11.4 million for the three months ended March 31, 2003, compared with $11.1million 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 $95.1million, or 14.4%, to $756.9 million for the three months ended March 31, 2003from $661.8 million for the comparable period in 2002. The average yield oninterest-earning assets decreased by 68 basis points to 6.15% for the threemonths ended March 31, 2003 from 6.83% for the three months ended March 31,2002.

 

Mortgage loaninterest income decreased by $66,000 for the three months ended March 31, 2003compared with the same period in 2002. The average balance of mortgage loans increased $47.8 million, while themortgage loan yield decreased by 71 basis points from 7.28% to 6.57%. Interestincome from other loans increased $221,000 for the three months ended March 31,2003. This increase resulted from a combination of an increase in averagebalance of $23.0 million, partially offset by a 73 basis point decrease inyield from 6.69% for the three months ended March 31, 2002 to 5.96% for thethree months ended March 31, 2003. Interest income from investment securities, mortgage-backed securitiesand short-term deposits increased by $186,000 for the three months ended March31, 2003, compared with the same period in 2002. This increase resulted from acombination of an increase in average balance of $23.7 million, offset by a 36basis point decrease in yield from 5.04% for the three months ended March 31,2002 to 4.68% for the three months ended March 31, 2003.  The decrease in yield is largely attributedto the effect of the lower interest rate environment reducing yields onshort-term deposits.  The average yieldsare reported on a tax equivalent basis.

 

***InterestExpense. ***Interestexpense decreased by $246,000, or 4.3%, to $5.4 million for the three monthsended March 31, 2003 from $5.7 million for the three months ended March 31,2002.  This decrease resulted from anincrease in the average balance of interest-bearing liabilities, offset by adecrease in the average rate paid on those interest-bearing liabilities. Theaverage balance of interest-bearing liabilities increased by $86.2 million, or14.7%, to $674.8 million for the three months ended March 31, 2003 from $588.6million for the three months ended March 31, 2002.  This increase is partially attributed to the opening of a newbranch office in July 2002.  This changereflects an $88.7 million increase in the deposit accounts, which isattributable to a $35.2 million increase in money market accounts, a $12.3million increase in passbook savings accounts, a $37.6 million increase incertificates of deposit and a increase of $3.6 million in NOW accounts.  These increases were partially offset by a$2.5 million decrease in advances from the FHLB - Chicago.  The average rate paid on combined depositsand borrowed money decreased by 64 basis points to 3.23% for the three monthsended March 31, 2003 from 3.87% for the three months ended March 31, 2002.

 

***Net Interest IncomeBefore Provision for Loan Losses.***  Net interest income before provision forloan losses increased $544,000, or 10.0%, to $6.0 million for the three monthsended March 31, 2003 from $5.4 million for the comparable period in 2002.  The tax equivalent net interest margin as apercent of interest-earning assets decreased by 11 basis points to 3.28% forthe three months ended March 31, 2003 from 3.39% for the comparable period in2002.

 

8

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***Provision for LoanLosses.*** The provision for loan losses decreased by $44,000, to $181,000 for thethree months ended March 31, 2003 from $225,000 in 2002.  At March 31, 2003, December 31, 2002 andMarch 31, 2002, non-performing loans totaled $1.7 million, $2.4 million and$3.5 million, respectively.  At March31, 2003, the ratio of the allowance for loan losses to non-performing loanswas 192.1% compared to 131.1% at December 31, 2002 and 69.9% at March 31,2002.  The ratio of the allowance tototal loans was 0.54%, 0.53% and 0.45%, at March 31, 2003, December 31, 2002and March 31, 2002, respectively.  Therewere no charge-offs for the three months ended March 31, 2003 and 2002.  Management periodically calculates anallowance sufficiency analysis based upon the portfolio composition, assetclassifications, loan-to-value ratios, probable impairments in the loanportfolio, and other factors.

 

***NoninterestIncome. ***Noninterestincome totaled $1.0 million and $1.1 million for the three months ended March31, 2003 and 2002, respectively. The decrease in noninterest income isprimarily attributable to decreases in insurance and brokerage commissions of$172,000 and information/technology sales and service income of $34,000 relatedto the Company’s majority-owned subsidiary CDGI, which were partially offset byincreases of $111,000 in service fees and $41,000 in gain on sale of foreclosedreal estate.  The decrease in insuranceand brokerage commissions is partially due to the lower interest rateenvironment.

 

***NoninterestExpense. ***Noninterestexpense increased $472,000, to $4.5 million for the three months ended March 312003 from $4.0 million for the comparable period in 2002.  Of this increase, $191,000 is related tooffice building operations resulting from the costs related to the two newbranch offices placed in service over the last year.  In addition, expenses relating to advertising and informationtechnology increased a combined $93,000 to $183,000 and $241,000 for the threemonths ended March 31, 2003, respectively from $150,000 and $181,000 for thecomparable period in 2002, respectively. The increase in advertising expense is partially attributed to theBank’s name change, which occurred in 2002. Management continues to emphasize the importance of expense managementand control while continuing to provide expanded banking services to a growingmarket base.

 

***Income TaxExpense. ***Incometax expense totaled $744,000 and $714,000 for the three months ended March 31,2003 and 2002, respectively.  Thisslight increase was primarily due to a $49,000 increase in earnings beforeincome taxes.  The effective tax ratewas 32.2% and 31.5% for the three months ended March 31, 2003 and 2002,respectively.

 

**Liquidity and Capital Resources**

 

The Company’s primary source of funding for dividends and periodicstock repurchases has been dividends from the Bank.  The Bank’s ability to pay dividends and other capitaldistributions to the Company is generally limited by OTS regulations.

 

The Bank’sprimary sources of funds are savings deposits, proceeds from the principal andinterest payments on loans and proceeds from the maturity of securities andborrowings from the FHLB-Chicago. While maturities and scheduled amortizationof loans and securities are predictable sources of funds, deposit outflows andmortgage prepayments are greatly influenced by general interest rates, economicconditions and competition.

 

9

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The primaryinvesting activities of the Bank are the origination of residentialone-to-four-family loans and, to a lesser extent multi-family and commercialreal estate, construction and land, commercial and consumer loans and thepurchase of mortgage-backed securities. In addition, the Bank purchases loans, secured by single-family,multi-family and commercial real estate. Deposit flows are affected by the level of interest rates, the interestrates and products offered by the local competitors and other factors.

 

In addition tothe primary investing activities of the Bank, the Company has repurchasedshares of its common stock from time to time in the open market.  The Company is currently authorized torepurchase shares pursuant to its sixth stock repurchase program, which waspreviously announced in September 2001. Under this program the Company is authorized to repurchase up to231,808, or 5.0% of its outstanding common stock.  Under this current program, 171,700 shares of the Company’scommon stock have been repurchased at an average price per share of$17.07.  During the three months endedMarch 31, 2003, 85,300 shares were purchased at an average price of$18.82.  As of March 31, 2003, theCompany repurchased a total of 3,026,973 shares of the Company’s common stockat an average price per share of $11.94.

 

The Bank’smost liquid assets are cash and interest-bearing demand accounts. The levels ofthese assets are dependent on the Bank’s operating, financing, lending andinvesting activities during any given period. At March 31, 2003, cash and interest-bearing demand accounts totaled$38.2 million, or 4.7% of total assets.

 

See the“Consolidated Statements of Cash Flows” in the Unaudited Consolidated FinancialStatements included in this Form 10-Q for the sources and uses of cash flowsfor operating, investing and financing activities for the three months endedMarch 31, 2003 and 2002.

 

At March 31,2003, the Bank exceeded all of its regulatory capital requirements. Thefollowing is a summary of the Bank’s regulatory capital ratios at March 31,2003:

 

| Total Capital to Total Assets         |   | 8.78  | % |
|---------------------------------------|--------|-------|---|
| Total Capital to Risk-Weighted Assets |   | 12.68 | % |
| Tier I Leverage Ratio                 |   | 8.76  | % |
| Tier I to Risk-Weighted Assets        |   | 12.47 | % |

 

At March 31, 2003, the Companyhad a Total Capital to Total Assets ratio of 9.22%.

 

On March 19,2003, the Company announced its first quarter dividend of $0.14 per share.  The dividend was paid on April 8, 2003 tostockholders of record on March 31, 2003.

 

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

 

The Bank isparty to financial instruments with off-balance sheet risk in the normal courseof business to meet the financing needs of its customers.  Those financial instruments primarilyinclude commitments to extend credit. Commitments to extend credit are agreements to lend to a customer solong as there is no violation of any condition established in the contract. 

 

10

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The Bank evaluates eachcustomer’s creditworthiness 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’sapproved, but unused lines of credit are based on underwriting standards thatgenerally do not allow total borrowings, including the equity line of credit toexceed 80% of the current appraised value of the customer’s residence.  However, the Bank offers home equity linesof credit up to 90% of the home’s current appraised value at a 1% higherinterest rate.

 

The Bank’sstandby letters of credit are conditional commitments issued by the Bank toguarantee performance of a customer to a third party.  The credit risk involved in these transactions is essentially thesame as that involved in extending a loan to a customer in the normal course ofbusiness.  Standby letters of credit arecollateralized by mortgages, savings accounts or liens on business assets.  The fair value of standby letters of creditapproximates the amount of recorded related fees, which are not consideredmaterial.  The maximum risk ofaccounting loss for these items, which is represented by the total commitment outstanding,totaled $4.9 million at March 31, 2003.

 

At March 31,2003 and December 31, 2002, the bank had the following commitments:

 
|                      |   | **March 31,  2003** |       | **December  31,  2002** |   |
|---------------------------|--------|---------------------|------------|-------------------------|--------|
| First mortgage loans      |   | $                   | 10,682,000 |                    | $      | 11,965,000 |   |
| Construction loans        |   | 1,644,000           |       | 808,000                 |   |
| Unused lines of credit    |   | 34,782,000          |       | 32,666,000              |   |
| Standby letters of credit |   | 4,947,000           |       | 4,927,000               |   |
|                           |        |                     |            |                         |        |  |  |

 

**Recent Accounting Pronouncements**

 

In June 2002,the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit orDisposal Activities.”  This statementaddresses financial accounting and reporting for costs associated with exit ordisposal activities and nullifies Emerging Task Force (EITF) Issue No. 94-3,“Liability Recognition for Certain Employee Termination Benefits and OtherCosts to Exit an Activity (including Certain Costs Incurred in aRestructuring).”  This Statement iseffective for exit or disposal activities that are initiated after December 31,2002.  Adoption of this statement did nothave a material effect on the Company’s consolidated financial statements.

 

In December2002, the FASB issued Statement 148, “Accounting for Stock-Based Compensation —Transition and Disclosure” (FAS 148). FAS 148 amends FAS 123, “Accounting for Stock-Based Compensation, toprovide alternative methods of transition for a voluntary change to the fairvalue based method of accounting for stock-based employee compensation.  In addition, this Statement amends thedisclosure requirements of FAS 123 to require prominent disclosures in both theannual and interim financial statements about the method of accounting forstock-based employee compensation and the effect of the method used 

 

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on reported results.  The Company has included the new disclosureson Note 4 of the Notes to Consolidated Financial Statements.

 

In November2002, the FASB issued Interpretation No. 45 (‘FIN 45”), an interpretation ofFASB Statement Nos. 5, 57 and 107, “Guarantor’s Accounting and DisclosureRequirements for Guarantees, Including Indirect Guarantees of Indebtedness ofOthers.”  This interpretation expandsthe disclosures to be made by a guarantor in its interim and annual financialstatements about its obligations under certain guarantees and requires theguarantor to recognize a liability for the fair value of an obligation assumedunder a guarantee.  FIN 45 clarifies therequirements of SFAS No. 5, “Accounting for Contingencies,” relating toguarantees.  In general, FIN 45 appliesto contracts or indemnification agreements that contingently require the guarantorto make payments to the guaranteed party based on changes in an underlyinginstrument that is related to an asset, liability, or equity security of theguaranteed party.  Certain guaranteecontracts are excluded from both the disclosure and recognition requirements ofthis interpretation, including, among others, guarantees relating to employeecompensation, residual value guarantees under capital lease arrangements,commercial letters of credit, loan commitments, subordinated interests in aspecial purpose entity, and guarantees of a company’s own futureperformance.  Other guarantees aresubject to the disclosure requirements of FIN 45 but not to the recognitionprovisions and include, among others, a guarantee accounted for as a derivativeinstrument under SFAS No. 133, “Accounting for Derivative Instruments andHedging Activities” a parent’s guarantee of debt owed to a third party by itssubsidiary or vice versa, and a guarantee which is based on performance notprice.  The disclosure requirements ofFIN 45 are effective for the Company as of December 31, 2002, and requiredisclosure of the nature of the guarantee, the maximum potential amount of thefuture payments that the guarantor could be required to make under theguarantee, and the amount of the liability, if any, for the guarantor’sobligation under the guarantee.  Therecognition requirements of FIN 45 are to be applied prospectively toguarantees issued or modified after December 31, 2002.  The adoption of this Statement did not havea material effect on the Company’s consolidated financial statements.

 

In January2003, the FASB issued Interpretation No. 46, “Consolidation of VariableInterest Entities” which provides new accounting guidance on when toconsolidate a variable interest entity. A variable interest entity exists when either the total equityinvestment at risk is not sufficient to permit the entity to finance itsactivities by itself, or the equity investors lack one of three characteristicsassociated with owning a controlling financial interest.  Those characteristics include the direct orindirect ability to make decisions about an entity’s activities through votingrights or similar rights, the obligation to absorb the expected loss of anentity if they occur, and the right to receive the expected residual return ofthe entity if they occur.  We do notexpect that the adoption of this Interpretation will have any impact on ourconsolidated financial statements.

 

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**AverageBalance Sheet**

 

The following tables set forth certain information relating to the Bankfor the three months ended March 31, 2003 and 2002, respectively.  The average yields and costs are derived bydividing income or expense by the average balance of interest-earning assets orinterest-bearing liabilities, respectively, for the periods shown and reflectannualized yields and costs.  Averagebalances are derived from average monthly balances.  The yields and costs include fees, which are consideredadjustments to yields.  Tax exemptincome has been calculated on a tax equivalent basis using a tax rate of 34%and amounted to $214,000 and $173,000 for the three months ended March 31, 2003and 2002, respectively.

 
|                                                              |   | **Three  Months Ended********March 31,  2003** |    | **Three  Months Ended********March 31,  2002** |   |
|-------------------------------------------------------------------|--------|------------------------------------------------|---------|------------------------------------------------|--------|
| **(in thousands)**                                                |   | **Average  Balance**                           |    | **Interest**                                   |   | **Yield/Cost** |   | **Average  Balance** |   | **Interest** |   | **Yield/Cost** |   |
|                                                              |   |                                           |    |                                           |   |   |   |   |   |   |   |   |   |
| Assets:                                                           |   |                                           |    |                                           |   |   |   |   |   |   |   |   |   |
| Interest earning assets:                                          |   |                                           |    |                                           |   |   |   |   |   |   |   |   |   |
| Short-term deposits and FHLB stock                                |   | $                                              | 34,124  |                                           | 149    |   | 1.75 | % | 32,267 |   | 158 |   | 1.95 | % |
| Investment securities                                             |   | 87,451                                         |    | 1,303                                          |   | 5.96 | % | 69,020 |   | 1,090 |   | 6.32 | % |
| Mortgage-backed securities                                        |   | 16,812                                         |    | 174                                            |   | 4.13 | % | 12,801 |   | 186 |   | 5.80 | % |
| Mortgage loans                                                    |   | 524,545                                        |    | 8,614                                          |   | 6.57 | % | 476,753 |   | 8,680 |   | 7.28 | % |
| Other loans                                                       |   | 93,936                                         |    | 1,399                                          |   | 5.96 | % | 70,938 |   | 1,187 |   | 6.69 | % |
| Total interest earning assets                                     |   | 756,868                                        |    | 11,639                                         |   | 6.15 | % | 661,779 |   | 11,301 |   | 6.83 | % |
| Noninterest earning assets                                        |   | 41,920                                         |    |                                           |   |   |   | 34,097 |   |   |   |   |   |
| Total assets                                                      |   | $                                              | 798,788 |                                           |   |   |   |   | 695,876 |   |   |   |   |   |
|                                                              |   |                                           |    |                                           |   |   |   |   |   |   |   |   |   |
| Liabilities and stockholders’ equity                         |   |                                           |    |                                           |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities                                      |   |                                           |    |                                           |   |   |   |   |   |   |   |   |   |
| Deposits:                                                         |   |                                           |    |                                           |   |   |   |   |   |   |   |   |   |
| Money market accounts                                             |   | $                                              | 145,536 |                                           | 754    |   | 2.07 | % | 110,327 |   | 791 |   | 2.87 | % |
| Passbook savings accounts                                         |   | 108,063                                        |    | 478                                            |   | 1.77 | % | 95,760 |   | 570 |   | 2.38 | % |
| NOW Accounts                                                      |   | 33,715                                         |    | 78                                             |   | 0.92 | % | 30,139 |   | 71 |   | 0.95 | % |
| Certificates of deposit                                           |   | 213,113                                        |    | 1,858                                          |   | 3.49 | % | 175,469 |   | 1,931 |   | 4.40 | % |
| Total deposits                                                    |   | 500,427                                        |    | 3,168                                          |   | 2.53 | % | 411,695 |   | 3,363 |   | 3.27 | % |
| FHLB Advances                                                     |   | 174,367                                        |    | 2,273                                          |   | 5.21 | % | 176,866 |   | 2,324 |   | 5.26 | % |
| Total interest-bearing liabilities                                |   | 674,794                                        |    | 5,441                                          |   | 3.23 | % | 588,561 |   | 5,687 |   | 3.87 | % |
| Noninterest-bearing liabilities                                   |   | 49,258                                         |    |                                           |   |   |   | 37,689 |   |   |   |   |   |
| Total liabilities                                                 |   | 724,052                                        |    |                                           |   |   |   | 626,250 |   |   |   |   |   |
| Total stockholders’ equity                                   |   | 74,736                                         |    |                                           |   |   |   | 69,626 |   |   |   |   |   |
| Total liabilities and stockholders’ equity                   |   | $                                              | 798,788 |                                           |   |   |   |   | 695,876 |   |   |   |   |   |
| Net interest income before provision for  loan losses             |   |                                           |    | 6,198                                          |   |   |   |   |   | 5,614 |   |   |   |
| Interest rate spread                                              |   |                                           |    |                                           |   | 2.92 | % |   |   |   |   | 2.96 | % |
| Net interest margin as a percent of  interest earning assets      |   |                                           |    |                                           |   | 3.28 | % |   |   |   |   | 3.39 | % |
| Ratio of interest-earning assets to  interest-bearing liabilities |   |                                           |    |                                           |   | 112.16 | % |   |   |   |   | 112.44 | % |

 

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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 samescenario.  The model assumes estimatedprepayment rates, reinvestment rates and deposit decay rates.  The Sensitivity Measure is the decline inthe NPV ratio, in basis points, caused by a 2% increase or decrease in rates,whichever produces a larger decline. The higher the institution’s Sensitivity Ratio, the greater its exposureto interest rate risk is considered to be. The following NPV Table sets forth the Bank’s NPV as of March 31, 2003.

 

| **Change in  Interest Rates  in Basis Points** |   | **Net Portfolio  Value** |   | **NPV as %  of Portfolio  Value of Assets** |   |
|------------------------------------------------|--------|--------------------------|--------|---------------------------------------------|--------|
| **(Rate  Shock)**                              |   | **Amount**               |   | **$ Change**                                |   | **% Change** |   | **NPV Ratio** |   | **% Change** |   |
|                                           |   | **(In  thousands)**      |   |                                        |   |   |   |   |   |
|                                           |   |                     |   |                                        |   |   |   |   |   |   |   |
| +300                                           |   | $                        | 51,199 |                                        | $      | (34,892 | ) | (40.53% | ) | 6.52 | % | (37.31% | ) |
| +200                                           |   | 64,685                   |   | (21,406                                     | )      | (24.86 | ) | 8.09 |   | (22.21 | ) |
| +100                                           |   | 76,893                   |   | (9,198                                      | )      | (10.68 | ) | 9.45 |   | (9.13 | ) |
| Static                                         |   | 86,091                   |   | —                                      |   | — |   | 10.40 |   | — |   |
| -100                                           |   | 87,805                   |   | 1,714                                       |   | 1.97 |   | 10.48 |   | 0.77 |   |
| -200                                           |   | 83,574                   |   | (2,517                                      | )      | (2.95 | ) | 9.91 |   | (4.71 | ) |
| -300                                           |   | 77,396                   |   | (8,695                                      | )      | (10.10 | ) | 9.15 |   | (12.02 | ) |
|                                                |        |                          |        |                                             |        |  |  |  |  |  |  |  |  |

 

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 presentedassumes that the composition of the Bank’s interest sensitive assets andliabilities existing at the beginning of a period remains constant over the periodbeing measured 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

 

(a)  Evaluation of disclosure controls andprocedures.  The Company maintainscontrols and procedures designed to ensure that information required to bedisclosed in the reports that the Company files or submits under the SecuritiesExchange Act of 1934 is recorded, processed, summarized and reported within thetime periods specified in the rules and forms of the

 

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Securities and Exchange Commission.  Based upon their evaluation of thosecontrols and procedures performed within 90 days of the filing date of thisreport, the chief executive officer and the chief financial officer of theCompany concluded that the Company’s disclosure controls and procedures wereadequate.

 

(b)  Changes in internal controls.  The Company made no significant changes inits internal controls or in other factors that could significantly affect thesecontrols subsequent to the date of the evaluation of those controls by thechief executive officer and chief financial officer.

 

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# **PART II.  OTHER INFORMATION**

 

Item 1.                                                             LegalProceedings.

 

The Company isnot involved in any pending legal proceedings other than routine legalproceedings occurring in the ordinary course of business.  Such routine legal proceedings, in theaggregate, are believed by management to be immaterial to the Company’sfinancial condition, results of operations and cash flows.

 

Item 2.                                                             Changesin Securities and Use of Proceeds.

 

None.

 

Item 3.                                                             DefaultsUpon Senior Securities.

 

None.

 

Item 4.                                                             Submissionof Matters to a Vote of Security Holders.

 

The annualmeeting of the stockholders was held April 22, 2003.  The following proposals were voted on by the stockholders.

 
| **PROPOSALS** |                                                                                                                                                                                                              | **FOR** |      | **WITHHELD** |   | **ABSTAIN** |   | **BROKER  NON-VOTES** |   |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|-----------|--------------|--------|-------------|--------|-----------------------|--------|
|          |                                                                                                                                                                                                              |    |      |         |   |        |   |                  |   |   |
| 1)            | Election of Directors – nominees for three  year term                                                                                                                                                        |    |      |         |   |        |   |                  |   |   |
|          | Thomas I. Anderson                                                                                                                                                                                                |    | 4,329,260 |         | 43,306 |        | N/A    |                  | N/A    |   |
|          | Barrett J. O’Connor                                                                                                                                                                                          |    | 4,355,070 |         | 17,496 |        | N/A    |                  | N/A    |   |
|          | Larry M. Narum                                                                                                                                                                                                    |    | 4,347,387 |         | 25,179 |        | N/A    |                  | N/A    |   |
|          | Directors whose terms continued are as  follows:  James J. Kovac (2004),  Vincent C. Norton (2004), Ralph W. Helm (2004), Leo M. Flanagan, Jr. (2005),  Peter A. Traeger (2005) and James A. Alpeter (2005). |    |      |         |   |        |   |                  |   |   |
|          |                                                                                                                                                                                                              |    |      |         |   |        |   |                  |   |   |
| 2)            | Approval of appointment of KPMG LLP as the  Company’s Independent Auditors for the Year ending December 31, 2003                                                                                             |    | 4,344,566 |         | 16,259 |        | 11,741 |                  | N/A    |   |

 

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Item 5.                                                             OtherInformation.

 

None.

 

Item 6.                                                             Exhibitsand 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. |
|   | 99.1                 |   | Certification  of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|   | 99.2                 |   | Certification  of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| (b)    | Reports on  Form 8-K |
|   | None.                |

 

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| * | 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. |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned hereunto duly authorized.

 

 
|   | EFC BANCORP, INC.                                                                                    |
|--------|------------------------------------------------------------------------------------------------------|
|   |                                                                                                 |
|   |                                                                                                 |
| Dated: | May 14, 2003                                                                                         |   | By: | /s/ Barrett  J. O’Connor |   |
|   | Barrett J.  O’Connor                                                                            |
|   | President  and Chief Executive Officer  (Principal executive officer)                                |
|   |                                                                                                 |
| Dated: | May 14, 2003                                                                                         |   | By: |   /s/ James J. Kovac |   |
|   | James J.  Kovac                                                                                      |
|   | Executive  Vice President and Chief  Financial Officer  (Principal financial and accounting officer) |
|        |                                                                                                      |  |  |  |  |  |

 

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**Certifications**

 

I, Barrett J, O’Connor, certifythat:

 

1.               I have reviewed this quarterly report onForm 10-Q of EFC Bancorp, Inc.;

 

2.               Based on my knowledge, this quarterlyreport does not contain any untrue statement of a material fact or omit tostate a material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.               Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this quarterly report;

 

4.               The registrant’s other certifyingofficers and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)for the registrant and we have:

 

a)              designed such disclosure controls andprocedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this quarterly reportis being prepared;

 

b)             evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c)              presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5.               The registrant’s other certifyingofficers and I have disclosed, based on our most recent evaluation, to theregistrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent function):

 

a)              all significant deficiencies in thedesign or operation of internal controls which could adversely affect theregistrant’s ability to record, process, summarize and report financial dataand have identified for the registrant’s auditors any material weaknesses ininternal controls; and

 

b)             any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls; and

 

19

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6.               The registrant’s other certifyingofficers and I have indicated in this quarterly report whether or not therewere significant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

 
| By:                       | /s/ Barrett  J. O’Connor |   |
|---------------------------|-------------------------------|--------|
| Barrett J.  O’Connor |
| Chief  Executive Officer  |
| May 14, 2003              |

 

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I, James J. Kovac, certifythat:

 

1.               I have reviewed this quarterly report onForm 10-Q of EFC Bancorp, Inc.;

 

2.               Based on my knowledge, this quarterlyreport does not contain any untrue statement of a material fact or omit tostate a material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.               Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this quarterly report;

 

4.               The registrant’s other certifyingofficers and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)for the registrant and we have:

 

a.               designed such disclosure controls andprocedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this quarterly reportis being prepared;

 

b.              evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c.               presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5.               The registrant’s other certifyingofficers and I have disclosed, based on our most recent evaluation, to theregistrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent function):

 

a.               all significant deficiencies in thedesign or operation of internal controls which could adversely affect theregistrant’s ability to record, process, summarize and report financial dataand have identified for the registrant’s auditors any material weaknesses ininternal controls; and

 

b.              any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls; and

 

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6.               The registrant’s other certifyingofficers and I have indicated in this quarterly report whether or not therewere significant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

 
| By:                      | /s/ James J.  Kovac |   |
|--------------------------|---------------------|--------|
| James J.  Kovac          |
| Chief  Financial Officer |
| May 14, 2003             |

 

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