**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-Q**

 

**(Mark One)**

**ý****                                ****QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended June 30,2004**

 

**or**

 

**o****                                ****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES 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 itscharter)

 

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

 

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

 

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

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date: 4,664,322 shares ofcommon stock, par value $0.01 per share, were outstanding as of August 11,2004.

 

 

----

 

EFC Bancorp, Inc.

 

Form 10-Q

 

For the Quarter Ended June 30, 2004

 

INDEX

 
| PART I.    | FINANCIAL INFORMATION                                                                               |   |
|------------|-----------------------------------------------------------------------------------------------------|--------|
|       |                                                                                                |   |
| Item 1.    | Financial Statements (unaudited)                                                                    |   |
|       |                                                                                                |   |
|       | Consolidated  Balance Sheets at June 30, 2004 and December 31, 2003                       |   |
|       |                                                                                                |   |
|       | Consolidated Statements of Income - For the  Three and Six Months Ended June 30, 2004 and 2003 |   |
|       |                                                                                                |   |
|       | Consolidated Statements of Cash Flows - For  the Six Months Ended June 30, 2004 and 2003       |   |
|       |                                                                                                |   |
|       | Notes to Consolidated Financial Statements                                                          |   |
|       |                                                                                                |   |
| Item 2.    | Management’s Discussion and Analysis of  Financial Condition and Results of Operations         |   |
|       |                                                                                                |   |
| Item 3.    | Quantitative and Qualitative Disclosures About  Market Risk                                         |   |
|       |                                                                                                |   |
| Item 4.    | Controls and Procedures                                                                             |   |
|       |                                                                                                |   |
| PART II:   | OTHER INFORMATION                                                                                   |   |
|       |                                                                                                |   |
| Item 1.    | Legal  Proceedings                                                                                  |   |
|       |                                                                                                |   |
| Item 2.    | Changes  in Securities, Use of Proceeds and Issuer Purchases of Equity Securities                   |   |
|       |                                                                                                |   |
| Item 3.    | Defaults Upon Senior Securities                                                                     |   |
|       |                                                                                                |   |
| Item 4.    | Submission  of Matters to a Vote of Security Holders                                                |   |
|       |                                                                                                |   |
| Item 5.    | Other  Information                                                                                  |   |
|       |                                                                                                |   |
| Item 6.    | Exhibits  and Reports on Form 8-K                                                                   |   |
|       |                                                                                                |   |
| SIGNATURES |                                                                                                |

 

----

 

**PART I. FINANCIAL INFORMATION**

**EFC BANCORP, INC.**

 

Item 1.Financial Statements.

**EFC BANCORP, INC.**

**AND SUBSIDIARIES**

Consolidated Balance Sheets(unaudited)

June 30,2004 and December 31, 2003

 
|                                                                                                                                       |   | **June 30,  2004** |        | **December 31,  2003** |        |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|-------------|-----------------------------|-------------|
| Assets                                                                                                                                     |   |                    |        |                        |        |
| Cash and cash equivalents:                                                                                                                 |   |                    |        |                        |        |
| On hand and in banks                                                                                                                       |   | $                       | 5,725,750   |                        | 5,449,261   |   |
| Interest bearing deposits with financial  institutions                                                                                     |   | 26,491,388              |        | 16,426,727                  |        |
| Total cash and cash equivalents                                                                                                            |   | 32,217,138              |        | 21,875,988                  |        |
|                                                                                                                                       |   |                    |        |                        |        |
| Loans receivable, net                                                                                                                      |   | 760,852,526             |        | 716,883,910                 |        |
| Mortgage-backed securities  available-for-sale, at fair value                                                                              |   | 11,840,862              |        | 10,164,501                  |        |
| Investment securities available-for-sale,  at fair value                                                                                   |   | 85,444,282              |        | 90,656,208                  |        |
| Stock in Federal Home Loan Bank of Chicago,  at cost                                                                                       |   | 11,217,900              |        | 10,877,600                  |        |
| Accrued interest receivable                                                                                                                |   | 4,045,918               |        | 4,009,280                   |        |
| Office properties and equipment, net                                                                                                       |   | 18,794,464              |        | 17,672,562                  |        |
| Real estate held for development                                                                                                           |   | 4,511,345               |        | 4,189,637                   |        |
| Bank owned life insurance                                                                                                                  |   | 18,793,832              |        | 17,986,416                  |        |
| Other assets                                                                                                                               |   | 3,145,132               |        | 2,776,482                   |        |
|                                                                                                                                       |   |                    |        |                        |        |
| Total assets                                                                                                                               |   | $                       | 950,863,399 |                        | 897,092,584 |   |
|                                                                                                                                       |   |                    |        |                        |        |
| Liabilities and Stockholders’ Equity                                                                                                  |   |                    |        |                        |        |
| Liabilities:                                                                                                                               |   |                    |        |                        |        |
| Deposits                                                                                                                                   |   | $                       | 640,858,736 |                        | 596,763,807 |   |
| Borrowed money                                                                                                                             |   | 221,000,000             |        | 211,788,751                 |        |
| Accrued expenses, income taxes payable and  other liabilities                                                                              |   | 9,450,992               |        | 10,294,740                  |        |
|                                                                                                                                       |   |                    |        |                        |        |
| Total liabilities                                                                                                                          |   | 871,309,728             |        | 818,847,298                 |        |
|                                                                                                                                       |   |                    |        |                        |        |
| Minority interest                                                                                                                          |   | (168,769                | )           | (158,666                    | )           |
|                                                                                                                                       |   |                    |        |                        |        |
| Stockholders’ Equity:                                                                                                                 |   |                    |        |                        |        |
| Preferred stock, par value $.01 per share,  authorized 2,000,000 shares; no shares issued                                                  |   | —                  |        | —                      |        |
| Common stock, par value $.01 per share,  authorized 25,000,000 shares; issued   7,491,434 shares                                      |   | 74,914                  |        | 74,914                      |        |
| Additional paid-in capital                                                                                                                 |   | 72,650,058              |        | 72,247,346                  |        |
| Retained earnings, substantially restricted                                                                                                |   | 48,903,481              |        | 46,681,729                  |        |
| Treasury stock, at cost, 2,838,794 and  2,898,763 shares at June 30, 2004 and December 31, 2003,  respectively                   |   | (35,134,873             | )           | (35,598,664                 | )           |
| Unearned employee stock ownership plan  (ESOP), 339,613 and 359,590 shares at June 30, 2004 and  December 31, 2003, respectively |   | (5,078,070              | )           | (5,376,779                  | )           |
| Unearned stock award plan, 4,526 and 6,026  shares at June 30, 2004 and December 31, 2003, respectively                          |   | (50,352                 | )           | (67,039                     | )           |
| Accumulated other comprehensive income  (loss)                                                                                             |   | (1,642,718              | )           | 442,445                     |        |
|                                                                                                                                       |   |                    |        |                        |        |
| Total stockholders’ equity                                                                                                            |   | 79,722,440              |        | 78,403,952                  |        |
|                                                                                                                                       |   |                    |        |                        |        |
| Commitments and contingencies                                                                                                              |   | —                  |        | —                      |        |
|                                                                                                                                       |   |                    |        |                        |        |
| Total liabilities and stockholders’ equity                                                                                            |   | $                       | 950,863,399 |                        | 897,092,584 |   |

 

See accompanying notes to consolidated financial statements.

 

1

----

 

**EFC BANCORP, INC.**

**AND SUBSIDIARIES**

 

Consolidated Statements ofIncome (unaudited)

 For the three and six monthsended June 30, 2004 and 2003

 
|                                                                                                |   | **Three  months ended  June 30,** |      | **Six months  ended  June 30,** |      |
|-----------------------------------------------------------------------------------------------------|--------|----------------------------------------|-----------|--------------------------------------|-----------|
|                                                                                                |   | **2004**                               |      | **2003**                             |      | **2004** |   | **2003** |   |
|                                                                                                |   |                                   |      |                                 |      |   |   |   |   |
| Interest income:                                                                                    |   |                                   |      |                                 |      |   |   |   |   |
| Loans secured by real estate                                                                        |   | $                                      | 7,580,268 |                                 | 8,576,037 |   | 15,611,447 |   | 17,190,375 |   |
| Other loans                                                                                         |   | 2,364,366                              |      | 1,587,731                            |      | 4,445,980 |   | 2,985,248 |   |
| Mortgage-backed securities  available-for-sale                                                      |   | 113,304                                |      | 134,755                              |      | 203,117 |   | 308,302 |   |
| Investment securities available-for-sale  and interest bearing deposits with financial institutions |   | 1,174,849                              |      | 1,275,627                            |      | 2,418,786 |   | 2,515,299 |   |
| Total interest income                                                                               |   | 11,232,787                             |      | 11,574,150                           |      | 22,679,330 |   | 22,999,224 |   |
|                                                                                                |   |                                   |      |                                 |      |   |   |   |   |
| Interest expense:                                                                                   |   |                                   |      |                                 |      |   |   |   |   |
| Deposits                                                                                            |   | 3,058,962                              |      | 3,052,728                            |      | 6,041,419 |   | 6,220,630 |   |
| Borrowed money                                                                                      |   | 2,351,862                              |      | 2,305,329                            |      | 4,757,583 |   | 4,578,409 |   |
| Total interest expense                                                                              |   | 5,410,824                              |      | 5,358,057                            |      | 10,799,002 |   | 10,799,039 |   |
|                                                                                                |   |                                   |      |                                 |      |   |   |   |   |
| Net interest income before provision for  loan losses                                               |   | 5,821,963                              |      | 6,216,093                            |      | 11,880,328 |   | 12,200,185 |   |
| Provision for loan losses                                                                           |   | 190,000                                |      | 142,000                              |      | 340,000 |   | 323,250 |   |
| Net interest income after provision for  loan losses                                                |   | 5,631,963                              |      | 6,074,093                            |      | 11,540,328 |   | 11,876,935 |   |
|                                                                                                |   |                                   |      |                                 |      |   |   |   |   |
| Noninterest income:                                                                                 |   |                                   |      |                                 |      |   |   |   |   |
| Service fees                                                                                        |   | 702,973                                |      | 536,297                              |      | 1,285,232 |   | 982,808 |   |
| Insurance and brokerage commissions                                                                 |   | 145,057                                |      | 55,165                               |      | 341,929 |   | 114,029 |   |
| Information technology sales and service  income, net                                               |   | 109,066                                |      | 227,564                              |      | 235,529 |   | 496,254 |   |
| Gain on sale of foreclosed real estate                                                              |   | —                                 |      | —                               |      | — |   | 41,315 |   |
| Gain on sale of office properties and  equipment                                                    |   | —                                 |      | —                               |      | 149,396 |   | — |   |
| Gain on sale of securities                                                                          |   | 201,892                                |      | 526,069                              |      | 249,418 |   | 526,069 |   |
| Gain on sale of loans                                                                               |   | 26,242                                 |      | 156,223                              |      | 261,623 |   | 156,223 |   |
| Bank owned life insurance                                                                           |   | 218,127                                |      | 195,642                              |      | 446,327 |   | 366,132 |   |
| Other                                                                                               |   | 57,313                                 |      | 48,680                               |      | 107,505 |   | 73,229 |   |
| Total noninterest income                                                                            |   | 1,460,670                              |      | 1,745,640                            |      | 3,076,959 |   | 2,756,059 |   |
|                                                                                                |   |                                   |      |                                 |      |   |   |   |   |
| Noninterest expense:                                                                                |   |                                   |      |                                 |      |   |   |   |   |
| Compensation and benefits                                                                           |   | 2,838,643                              |      | 2,662,187                            |      | 5,622,148 |   | 5,321,524 |   |
| Office building, net                                                                                |   | 705,917                                |      | 676,595                              |      | 1,393,235 |   | 1,375,562 |   |
| Federal insurance premiums                                                                          |   | 22,783                                 |      | 21,165                               |      | 45,403 |   | 44,386 |   |
| Advertising                                                                                         |   | 302,842                                |      | 250,485                              |      | 511,012 |   | 433,126 |   |
| Data processing                                                                                     |   | 299,242                                |      | 243,128                              |      | 575,322 |   | 483,996 |   |
| NOW/checking account expenses                                                                       |   | 146,766                                |      | 122,760                              |      | 270,957 |   | 255,772 |   |
| Impairment of goodwill                                                                              |   | 3,967                                  |      | 180,728                              |      | 20,669 |   | 200,319 |   |
| Other                                                                                               |   | 680,629                                |      | 546,085                              |      | 1,298,586 |   | 1,090,522 |   |
| Total noninterest expense                                                                           |   | 5,000,789                              |      | 4,703,133                            |      | 9,737,332 |   | 9,205,207 |   |
|                                                                                                |   |                                   |      |                                 |      |   |   |   |   |
| Income before income taxes and minority  interest                                                   |   | 2,091,844                              |      | 3,116,600                            |      | 4,879,955 |   | 5,427,787 |   |
|                                                                                                |   |                                   |      |                                 |      |   |   |   |   |
| Income tax expense                                                                                  |   | 552,985                                |      | 1,132,994                            |      | 1,377,336 |   | 1,876,935 |   |
|                                                                                                |   |                                   |      |                                 |      |   |   |   |   |
| Income before minority interest                                                                     |   | 1,538,859                              |      | 1,983,606                            |      | 3,502,619 |   | 3,550,852 |   |
|                                                                                                |   |                                   |      |                                 |      |   |   |   |   |
| Minority interest                                                                                   |   | 3,652                                  |      | 49,938                               |      | 10,103 |   | 70,650 |   |
|                                                                                                |   |                                   |      |                                 |      |   |   |   |   |
| Net income                                                                                          |   | $                                      | 1,542,511 |                                 | 2,033,544 |   | 3,512,722 |   | 3,621,502 |   |
|                                                                                                |   |                                   |      |                                 |      |   |   |   |   |
| Earnings per share:                                                                                 |   |                                   |      |                                 |      |   |   |   |   |
|   Basic                                                                                   |   | $                                      | 0.36      |                                 | 0.48      |   | 0.82 |   | 0.86 |   |
|   Diluted                                                                                 |   | 0.34                                   |      | 0.46                                 |      | 0.77 |   | 0.81 |   |

 

See accompanying notes to consolidated financial statements.

 

2

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**EFC BANCORP, INC.**

**AND SUBSIDIARIES**

 

Consolidated Statements ofCash Flows (unaudited)

For the six months ended June 30, 2004 and 2003

 
|                                                                                      |   | **2004**    |       | **2003**    |       |
|-------------------------------------------------------------------------------------------|--------|-------------|------------|-------------|------------|
|                                                                                      |   |        |       |        |       |
| Cash flows from operating activities:                                                     |   |        |       |        |       |
| Net income                                                                                |   | $           | 3,512,722  |        | 3,621,502  |   |
| Adjustment to reconcile net income to net  cash provided by operating activities:         |   |        |       |        |       |
| Amortization of premiums and discounts, net                                               |   | 52,013      |       | 54,691      |       |
| Provision for loan losses                                                                 |   | 340,000     |       | 323,250     |       |
| FHLB of Chicago stock dividends                                                           |   | (340,300    | )          | (412,600    | )          |
| Stock award plan shares allocated                                                         |   | 16,687      |       | 254,562     |       |
| ESOP shares committed to be released                                                      |   | 298,709     |       | 298,709     |       |
| Change in fair value of ESOP shares                                                       |   | 402,712     |       | 83,364      |       |
| Depreciation of office properties and  equipment                                          |   | 607,469     |       | 561,530     |       |
| Gain on sale of foreclosed real estate                                                    |   | —      |       | (41,315     | )          |
| Gain on sale of securities                                                                |   | (249,418    | )          | (526,069    | )          |
| Gain on sale of loans receivable                                                          |   | (261,623    | )          | (156,223    | )          |
| Change in minority interest in subsidiary                                                 |   | (10,103     | )          | (70,650     | )          |
| Increase in bank owned life insurance                                                     |   | (382,416    | )          | (321,822    | )          |
| Impairment of goodwill                                                                    |   | 20,669      |       | 200,319     |       |
| (Increase)/decrease in accrued interest  receivable and other assets, net                 |   | 903,672     |       | (55,927     | )          |
| Increase/(decrease) in income taxes  payable, accrued expenses and other liabilities, net |   | (875,860    | )          | 370,483     |       |
|                                                                                      |   |        |       |        |       |
| Net cash provided by operating activities                                                 |   | 4,034,933   |       | 4,183,804   |       |
|                                                                                      |   |        |       |        |       |
| Cash flows from investing activities:                                                     |   |        |       |        |       |
| Net increase in loans receivable                                                          |   | (24,932,787 | )          | (21,458,659 | )          |
| Purchases of loans receivable                                                             |   | (53,815,045 | )          | (48,287,654 | )          |
| Proceeds from the sale of loans receivable                                                |   | 34,700,839  |       | 12,894,951  |       |
| Increase in real estate held for  development                                             |   | (321,708    | )          | (484,315    | )          |
| Purchases of mortgage-backed securities  available-for-sale                               |   | (4,035,625  | )          | (2,549,222  | )          |
| Principal payments on mortgage-backed  securities available-for-sale                      |   | 2,183,531   |       | 3,684,435   |       |
| Maturities of investment securities  available-for-sale                                   |   | 23,252,195  |       | 12,680,478  |       |
| Purchases of investment securities  available-for-sale                                    |   | (24,832,769 | )          | (22,019,838 | )          |
| Proceeds from the sale of investment  securities                                          |   | 3,747,340   |       | 9,397,886   |       |
| Purchases of office properties and  equipment                                             |   | (1,729,371  | )          | (982,481    | )          |
| Investment in bank owned life insurance                                                   |   | (425,000    | )          | (5,000,000  | )          |
| Purchases of stock in the Federal Home Loan  Bank of Chicago                              |   | —      |       | (760,200    | )          |
| Proceeds from the sale of foreclosed real  estate                                         |   | —      |       | 2,027,057   |       |
|                                                                                      |   |        |       |        |       |
| Net cash used in investing activities                                                     |   | (46,208,400 | )          | (60,857,562 | )          |
|                                                                                      |   |        |       |        |       |
| Cash flows from financing activities:                                                     |   |        |       |        |       |
| Net increase in deposits                                                                  |   | 44,094,929  |       | 35,192,799  |       |
| Proceeds from borrowed money                                                              |   | 99,000,784  |       | 44,064,001  |       |
| Repayments on borrowed money                                                              |   | (89,789,536 | )          | (5,040,175  | )          |
| Purchase of treasury stock                                                                |   | (268,963    | )          | (2,244,670  | )          |
| Stock options exercised                                                                   |   | 732,754     |       | 504,760     |       |
| Cash dividends paid                                                                       |   | (1,255,351  | )          | (1,165,043  | )          |
| Net cash provided by financing activities                                                 |   | 52,514,617  |       | 71,311,672  |       |
|                                                                                      |   |        |       |        |       |
| Net increase in cash and cash equivalents                                                 |   | 10,341,150  |       | 14,637,914  |       |
| Cash and cash equivalents at beginning of  period                                         |   | 21,875,988  |       | 32,844,290  |       |
|                                                                                      |   |        |       |        |       |
| Cash and cash equivalents at end of period                                                |   | $           | 32,217,138 |        | 47,482,204 |   |
|                                                                                      |   |        |       |        |       |
| Supplemental disclosures of cash flow  information:                                       |   |        |       |        |       |
|  Cash paid during the period for:                                                    |   |        |       |        |       |
| Interest                                                                                  |   | $           | 10,762,025 |        | 10,838,260 |   |
| Income taxes                                                                              |   | 1,605,000   |       | 1,890,000   |       |
|  Noncash investing activities  -transfer of loans to foreclosed real estate          |   | —      |       | 39,190      |       |

 

See accompanying notes to consolidated financial statements.

 

3

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Item 1. Financial Statements, continued

 

**EFC BANCORP, INC.**

**Notesto Unaudited Consolidated Financial Statements**

 

Note 1: BASIS OF PRESENTATION

 

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

 

In the opinion of the management of the Company, the accompanyingconsolidated financial statements include all normal recurring adjustmentsnecessary for a fair presentation of the financial position and results ofoperations for the periods presented. All significant intercompany transactions have been eliminated inconsolidation.  These interim financialstatements have been prepared according to the rules and regulations of theSecurities and Exchange Commission and therefore certain information andfootnote disclosures normally included in financial statements presented inaccordance with generally accepted U.S. accounting principles 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 2003 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 the Companyas they are conducted through the Bank.

 

Note 2: COMPREHENSIVE INCOME

 

The Company’s comprehensive income for the three and six month periodsended June 30, 2004 and 2003 are as follows:

 
|                                                                                                |   | **Three  months ended  June 30,** |       | **Six months  ended  June 30,** |      |
|-----------------------------------------------------------------------------------------------------|--------|----------------------------------------|------------|--------------------------------------|-----------|
|                                                                                                |   | **2004**                               |       | **2003**                             |      | **2004** |   | **2003** |   |
| Net income                                                                                          |   | $                                      | 1,542,511  |                                 | 2,033,544 |   | $ | 3,512,722 |   | 3,621,502 |   |
| Other comprehensive income, net of tax:                                                             |   |                                   |       |                                 |      |   |   |   |   |
| Unrealized holding gains/(losses) on  securities arising during the period, net of tax effect       |   | (3,011,659                             | )          | 776,414                              |      | (2,085,163 | ) | 725,091 |   |
| Reclassification adjustment for net gain on  sales of securities realized in net income, net of tax |   | (127,192                               | )          | (331,423                             | )         | (157,133 | ) | (331,423 | ) |
|                                                                                                |   |                                   |       |                                 |      |   |   |   |   |
| Comprehensive income (loss)                                                                         |   | $                                      | (1,596,340 | )                                    | 2,478,535 |   | 1,270,426 |   | 4,015,170 |   |
|                                                                                                     |        |                                        |            |                                      |           |  |  |  |  |  |  |

 

4

----

 

Note 2: COMPREHENSIVE INCOME, continued

 

For the three and six month periods ended June 30, 2004 the saleof securities resulted in gains of $201,892 and $249,418, respectively($127,192 and $157,133 net of tax effect). For both the three and six month periods ended June 30, 2003 thesale of securities resulted in a gain of $526,069 ($331,423 net of tax effect).

 

Note 3: COMPUTATION OF PER SHARE EARNINGS

 

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

 

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

 
|                                          |   | **Three  months ended  June 30,** |      | **Six months  ended  June 30,** |      |
|-----------------------------------------------|--------|----------------------------------------|-----------|--------------------------------------|-----------|
|                                          |   | **2004**                               |      | **2003**                             |      | **2004** |   | **2003** |   |
| Basic:                                        |   |                                   |      |                                 |      |   |   |   |   |
| Net income                                    |   | $                                      | 1,542,511 |                                 | 2,033,544 |   | 3,512,722 |   | 3,621,502 |   |
|                                          |   |                                   |      |                                 |      |   |   |   |   |
| Weighted average shares outstanding           |   | 4,281,488                              |      | 4,215,597                            |      | 4,260,528 |   | 4,217,099 |   |
|                                          |   |                                   |      |                                 |      |   |   |   |   |
| Basic earnings per share                      |   | $                                      | 0.36      |                                 | 0.48      |   | 0.82 |   | 0.86 |   |
|                                          |   |                                   |      |                                 |      |   |   |   |   |
| Diluted:                                      |   |                                   |      |                                 |      |   |   |   |   |
|                                          |   |                                   |      |                                 |      |   |   |   |   |
| Net income                                    |   | $                                      | 1,542,511 |                                 | 2,033,544 |   | 3,512,722 |   | 3,621,502 |   |
|                                          |   |                                   |      |                                 |      |   |   |   |   |
| Weighted average shares outstanding           |   | 4,281,488                              |      | 4,215,597                            |      | 4,260,528 |   | 4,217,099 |   |
| Effect of dilutive stock options  outstanding |   | 270,176                                |      | 238,963                              |      | 276,116 |   | 233,487 |   |
| Diluted weighted average shares outstanding   |   | 4,551,664                              |      | 4,454,560                            |      | 4,536,644 |   | 4,450,586 |   |
|                                          |   |                                   |      |                                 |      |   |   |   |   |
| Diluted earnings per share                    |   | $                                      | 0.34      |                                 | 0.46      |   | 0.77 |   | 0.81 |   |

 

Note 4:  STOCK OPTION PLANS

 

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

 

5

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|                                                                                                                                        |   | **For the  Three Months  Ended June 30,** |      | **For the  Six Months  Ended June 30,** |      |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|-----------|----------------------------------------------|-----------|
|                                                                                                                                        |   | **2004**                                       |      | **2003**                                     |      | **2004** |   | **2003** |   |
|                                                                                                                                        |   |                                           |      |                                         |      |   |   |   |   |
| Net income as reported                                                                                                                      |   | $                                              | 1,542,511 |                                         | 2,033,544 |   | 3,512,722 |   | 3,621,502 |   |
| Add: Stock-based compensation, net of tax,  included in the determination of net income, as reported                                        |   | 8,344                                          |      | 127,281                                      |      | 16,688 |   | 254,562 |   |
| Deduct: Stock-based compensation, net of  tax, that would have been reported if the fair value based method had been  applied to all awards |   | (36,175                                        | )         | (372,466                                     | )         | (69,251 | ) | (741,578 | ) |
| Pro forma net income                                                                                                                        |   | $                                              | 1,514,680 |                                         | 1,788,359 |   | 3,460,159 |   | 3,134,486 |   |
|                                                                                                                                        |   |                                           |      |                                         |      |   |   |   |   |
| Basic earnings per share                                                                                                                    |   |                                           |      |                                         |      |   |   |   |   |
| As reported                                                                                                                                 |   | $                                              | 0.36      |                                         | 0.48      |   | 0.82 |   | 0.86 |   |
| Pro forma                                                                                                                                   |   | 0.35                                           |      | 0.42                                         |      | 0.81 |   | 0.74 |   |
|                                                                                                                                        |   |                                           |      |                                         |      |   |   |   |   |
| Diluted earnings per share                                                                                                                  |   |                                           |      |                                         |      |   |   |   |   |
| As reported                                                                                                                                 |   | $                                              | 0.34      |                                         | 0.46      |   | 0.77 |   | 0.81 |   |
| Pro forma                                                                                                                                   |   | 0.33                                           |      | 0.40                                         |      | 0.76 |   | 0.70 |   |

 

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

 

Set forth below are significant items that occurred during the secondquarter of 2004:

 

•                  Dilutedearnings per share of $0.34 for the quarter;

•                  Netincome of $1.5 million for the quarter;

•                  Returnon average equity of 7.62% for the quarter;

•                  Increasedthe quarterly dividend to $0.1525 per share from $0.15 for the first quarter2004;

•                  Insuranceand brokerage commissions increased $90,000 to $145,000 from the second quarter2003.

 

The following analysis discusses changes in the financial condition atJune 30, 2004 and results of operations for the three and six months endedJune 30, 2004, and should be read in conjunction with the Company’sUnaudited Consolidated Financial Statements and the notes thereto, appearing inPart I, Item 1 of this document.

 

**Critical AccountingPolicies**

 

The allowance for loan and lease lossesis considered by management to be a critical accounting policy.  The allowance for loan losses is maintainedthrough provisions for loan losses based on management’s on-going evaluation ofthe risks in its loan portfolio in consideration of the trends in its loanportfolio, the national and regional economies and the real estate market inthe Bank’s primary lending area.  Theallowance for loan losses is maintained at an amount management considersadequate to cover probable losses in its portfolio, based on informationcurrently known to management.  TheBank’s loan loss allowance determinations

 

6

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also incorporate factors and analyses which consider theprobable principal loss associated with the loans, costs of acquiring theproperty, securing the loan through foreclosure or deed in lieu offoreclosure.  While management estimatesloan losses using the best available information, no assurance can be giventhat future additions to the allowance will not be necessary based on changesin economic and real estate market conditions, further information obtainedregarding problem loans, identification of additional problem loans and otherfactors, both within and outside of management’s control.

 

**Forward-LookingStatements**

 

This report contains certain forward-looking statements within themeaning of Section 27A of the Securities Act of 1933, as amended, andSection 21E of the Securities Exchange Act of 1934, as amended. TheCompany intends such forward-looking statements to be covered by the safeharbor provisions for forward-looking statements contained in the PrivateSecurities Litigation Reform Act of 1995, and is including this statement forpurposes of these safe harbor provisions. Forward-looking statements, which arebased on certain assumptions and describe future plans, strategies andexpectations of the Company, are generally identified by use of the words“believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” or similarexpressions. The Company’s ability to predict results or the actual effect offuture plans or strategies is inherently uncertain. Factors which could have amaterial adverse effect on the operations of the Company and the subsidiariesinclude, but are not limited to, changes in: interest rates, general economicconditions, legislative/regulatory changes, monetary and fiscal policies of theU.S. Government, including policies of the U.S. Treasury and the FederalReserve Board, the quality or composition of the loan or investment portfolios,demand for loan products, deposit flows, competition, demand for financialservices in the Company’s market area and accounting principles and guidelines.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 2003 Annual Report on Form 10-K.

 

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

 

**Comparison ofFinancial Condition at June 30, 2004 and December 31, 2003**

 

Total assets at June 30, 2004 were $950.9 million, whichrepresented an increase of $53.8 million, or 6.0%, compared to $897.1 millionat December 31, 2003. The increase in total assets was primarily a resultof increases in loans receivable of $44.0 million, or 6.1%, to $760.9 millionat June 30, 2004 from $716.9 million at December 31, 2003, cash andcash equivalents, which increased $10.3 million, or 47.3%, to $32.2 million atJune 30, 2004 from $21.9 million at December 31, 2003,mortgage-backed securities, which increased $1.6 million, or 16.5%, to $11.8million at June 30, 2004 from $10.2 million at December 31, 2003 andbank owned life insurance, which increased $807,000, or 4.5%, to $18.8 millionat June 30, 2004 from $18.0

 

7

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million at December 31, 2003. These increases were partially offset by a decrease in investmentsecurities of $5.3 million, or 5.8%, to $85.4 million at June 30, 2004from $90.7 million at December 31, 2003. The loan growth was funded by increases in deposits and borrowed money.Deposits increased $44.1 million, or 7.4%, to $640.9 million at June 30,2004 from $596.8 million at December 31, 2003.  Borrowed money, primarily representing FHLB advances, increased$9.2 million to $221.0 million at June 30, 2004 from $211.8 million atDecember 31, 2003.  Stockholders’equity increased $1.3 million to $79.7 million at June 30, 2004 from $78.4million at December 31, 2003.  Theincrease in stockholders’ equity was primarily the result of the Company’s netincome for the six months ended June 30, 2004, which was partially offsetby stock repurchases totaling $269,000, dividends paid of $1.3 million and a$2.1 million decrease in the Company’s accumulated other comprehensive incomerelating to the change in fair value of its available-for-sale investmentportfolio.

 

**Comparison ofOperating Results For the Three Months Ended June 30, 2004 and 2003**

 

***General.***  The Company’s net income decreased $491,000,or 24.1%, to $1.5 million for the three months ended June 30, 2004 ascompared to the prior year period.

 

***Interest Income.***  Interest income decreased $341,000, or 3.0%,to $11.2 million for the three months ended June 30, 2004, compared to thesame period in 2003.  This decreaseresulted from a decrease in the average rate earned on interest-earning assets,partially offset by an increase in the average balance of interest-earningassets.  The average yield oninterest-earning assets decreased by 78 basis points to 5.18% for the threemonths ended June 30, 2004 from 5.96% for the three months endedJune 30, 2003.  The decrease inyield is primarily due to the lower overall level of interest rates.  The average balance of interest-earningassets increased by $93.2 million, or 11.8%, to $883.1 million for the threemonths ended June 30, 2004 from $789.9 million for the comparable periodin 2003.  This increase resultedprimarily from an increase in the average balance of loans receivable of $105.1million from $646.2 million for the three months ended June 30, 2003 to$751.3 million for the three months ended June 30, 2004.

 

Mortgage loan interest income decreased by $996,000 for the threemonths ended June 30, 2004 compared with the same period in 2003.  The average balance of mortgage loansincreased $24.9 million to $563.9 million, while the mortgage loan yielddecreased by 98 basis points from 6.36% to 5.38%.  Interest income from other loans increased $777,000 for the threemonths ended June 30, 2004.  Thisincrease resulted from a combination of an increase in average balance of $80.2million to $187.4 million, partially offset by an 87 basis point decrease inyield from 5.92% for the three months ended June 30, 2003 to 5.05% for thethree months ended June 30, 2004. Interest income from investment securities, mortgage-backed securitiesand short-term deposits decreased $122,000 to $1.3 million for the three monthsended June 30, 2004, compared with the same period in 2003.  The average balance decreased $11.9 millionand the yield increased one basis point from 4.48% for the three months endedJune 30, 2003 to 4.49% for the three months ended June 30, 2004.  The average yields are reported on a taxequivalent basis.

 

***InterestExpense. ***Interestexpense increased by $53,000, or 1.0%, to $5.4 million for the three monthsended June 30, 2004, compared to the same period in 2003.  This increase resulted

 

8

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from an increase in the average balance of interest-bearingliabilities, offset by a decrease in the average rate paid on thoseinterest-bearing liabilities.  Theaverage balance of interest-bearing liabilities increased by $91.1 million, or12.9%, to $795.4 million for the three months ended June 30, 2004 from$704.3 million for the three months ended June 30, 2003.  This change reflects a $75.7 millionincrease in deposit accounts, which is attributable to a $16.8 million increasein passbook savings accounts, a $59.9 million increase in certificates ofdeposit and a $5.0 million increase in NOW accounts.  These increases were partially offset by a decrease of $6.0million in money market accounts.  Inaddition, borrowings increased $15.3 million to $203.7 million for the threemonths ended June 30, 2004 from $188.4 million for the comparable periodin 2003.  The average rate paid oncombined deposits and borrowed money decreased by 32 basis points to 2.72% forthe three months ended June 30, 2004 from 3.04% for the three months endedJune 30, 2003.

 

***Net Interest IncomeBefore Provision for Loan Losses.***  Net interest income before provision forloan losses decreased $394,000, or 6.3%, to $5.8 million for the three monthsended June 30, 2004 from $6.2 million for the comparable period in 2003.  The average balance of interest-earningassets increased $93.2 million for the three months ended June 30, 2004compared to the comparable prior year period. The increase in interest-earning assets was primarily the result ofincreases in the average balance of mortgage loans of $24.9 million and an$80.2 million increase in other loans. These increases were partially offset by a $7.5 million decrease ininvestment securities and a $3.1 million decrease in cash and cash equivalents.  The tax equivalent net interest margin as apercent of interest-earning assets decreased by 53 basis points to 2.72% forthe three months ended June 30, 2004 from 3.25% for the comparable periodin 2003.

 

***Provision for LoanLosses.*** The provision for loan losses increased by $48,000, to $190,000 for thethree months ended June 30, 2004 from $142,000 in 2003.  The increase in the provision for loanlosses is primarily due to the increased risk in the loan portfolio based on agreater emphasis placed on commercial lending. At June 30, 2004, December 31, 2003 and June 30, 2003,non-performing loans totaled $2.5 million, $2.8 million and $2.6 million,respectively.  At June 30, 2004,the ratio of the allowance for loan losses to non-performing loans was 160.4%compared to 135.7% at December 31, 2003 and 132.7% at June 30,2003.  The ratio of the allowance tototal loans was 0.54%, 0.52% and 0.53%, at June 30, 2004,December 31, 2003 and June 30, 2003, respectively.  Charge-offs for the three months endedJune 30, 2004 totaled $3,000. There were no charge-offs for the three months ended June 30,2003.  Management periodicallycalculates an allowance sufficiency analysis based upon the portfoliocomposition, asset classifications, loan-to-value ratios, probable impairmentsin the loan portfolio, and other factors.

 

***NoninterestIncome. ***Noninterestincome totaled $1.5 million and $1.7 million for the three months endedJune 30, 2004 and 2003, respectively. The decrease in noninterest income is primarily attributable todecreases of $324,000 in gain on sale of securities, $130,000 in gain on saleof loans, and $118,000 in income generated by Computer Dynamics Group, Inc.(“CDGI”). The decrease in income generated by CDGI is largely due to a decreasein sales related to a weaker demand for technology services.  These decreases were partially offset byincreases of $167,000 in service fees and $90,000 in insurance and brokeragecommissions.  Service fees

 

9

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increased primarily due to the growth in number of depositaccounts.  Insurance and brokeragecommissions increased primarily due to the hiring of three additionalsalespeople during the third quarter of 2003.

 

***NoninterestExpense. ***Noninterestexpense increased $298,000, to $5.0 million for the three months endedJune 30, 2004 from $4.7 million for the comparable period in 2003.  Of this increase, $176,000 was directlyrelated to compensation and benefits, $56,000 is related to data processing,$52,000 is related to advertising and $63,000 is related to professional auditfees.  The increase in compensation andbenefits is primarily due to a combination of annual salary increases and theaddition of staff.  In addition, theCompany recorded a charge of $4,000 for impairment of goodwill related to itsmajority owned subsidiary CDGI for the three months ended June 30, 2004compared to $181,000 recorded for the three months ended June 30,2003.  The Company evaluates goodwillfor impairment on a quarterly basis. 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 $553,000 and $1.1 million for the three months endedJune 30, 2004 and 2003, respectively. The decrease in the provision for income taxes was primarily the resultof a decrease in pretax income of $1.0 million to $2.1 million for three monthsended June 30, 2004 from $3.1 million for the comparable prior yearperiod.  The effective tax rate was26.4% and 36.4% for the three months ended June 30, 2004 and 2003,respectively.  The decrease in theeffective tax rate is due to increases in bank owned life insurance, FNMA/FHLMCpreferred stock and municipal securities, for which income is non-taxable.

 

**Comparison ofOperating Results For the Six Months Ended June 30, 2004 and 2003**

 

***General.***  The Company’s net income decreased $109,000,or 3.0%, to $3.5 million for the six months ended June 30, 2004 ascompared to the prior year period.

 

***Interest Income.***  Interest income decreased $320,000, or 1.4%,to $22.7 million for the six months ended June 30, 2004, compared to thesame period in 2003.  This decreaseresulted from a decrease in the average rate earned on interest-earning assets,partially offset by an increase in the average balance of interest-earningassets.  The average yield oninterest-earning assets decreased by 77 basis points to 5.28% for the sixmonths ended June 30, 2004 from 6.05% for the six months endedJune 30, 2003.  The average balanceof interest-earning assets increased by $99.8 million, or 12.9%, to $873.2million for the six months ended June 30, 2004 from $773.4 million for thecomparable period in 2003.  Thisincrease resulted primarily from an increase in the average balance of loansreceivable of $105.6 million from $632.4 million for the six months endedJune 30, 2003 to $738.0 million for the six months ended June 30,2004.

 

Mortgage loan interest income decreased by $1.6 million for the sixmonths ended June 30, 2004 compared with the same period in 2003.  The average balance of mortgage loansincreased $35.2 million, while the mortgage loan yield decreased by 96 basispoints from 6.47% to 5.51%.  Interestincome from other loans increased $1.5 million for the six months endedJune 30, 2004.  This increaseresulted from a combination of an increase in average balance of $70.4

 

10

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million, partially offset by a 74 basis point decrease in yield from5.94% for the six months ended June 30, 2003 to 5.20% for the six monthsended June 30, 2004.  Interestincome from investment securities, mortgage-backed securities and short-termdeposits decreased $202,000 to $2.6 million for the six months endedJune 30, 2004, compared with the same period in 2003.  The average balance decreased $5.8 millionand the yield decreased 15 basis points from 4.59% for the six months endedJune 30, 2003 to 4.44% for the six months ended June 30, 2004.  The average yields are reported on a taxequivalent basis.

 

***InterestExpense. ***Interestexpense remained unchanged at $10.8 million for the six months endedJune 30, 2004 and 2003.  There wasan increase in the average balance of interest-bearing liabilities, and adecrease in the average rate paid on those interest-bearing liabilities for thesix months ended June 30, 2004 from the six months ended June 30,2003.  The average balance ofinterest-bearing liabilities increased by $97.5 million, or 14.1%, to $787.1million for the six months ended June 30, 2004 from $689.6 million for thesix months ended June 30, 2003. This change reflects a $76.6 millionincrease in deposit accounts, which is attributable to a $19.1 million increasein passbook savings accounts, a $56.4 million increase in certificates ofdeposit and a $5.1 million increase in NOW accounts.  These increases were partially offset by a decrease of $4.0million in money market accounts.  Inaddition, borrowings increased $20.8 million to $202.2 million for the sixmonths ended June 30, 2004 from $181.4 million for the comparable periodin 2003.  The average rate paid oncombined deposits and borrowed money decreased by 39 basis points to 2.74% forthe six months ended June 30, 2004 from 3.13% for the six months endedJune 30, 2003.

 

***Net Interest IncomeBefore Provision for Loan Losses.***  Net interest income before provision forloan losses decreased $320,000, or 2.6%, to $11.9 million for the six monthsended June 30, 2004 from $12.2 million for the comparable period in 2003.  The average balance of interest-earningassets increased $99.8 million for the six months ended June 30, 2004compared to the comparable prior year period. The increase in interest-earning assets was primarily the result of increasesin the average balance of mortgage loans of $35.2 million and a $70.4 millionincrease in other loans.  Theseincreases were partially offset by a $4.8 million decrease in investmentsecurities and a $4.9 million decrease in mortgage-backed securities.  The tax equivalent net interest margin as apercent of interest-earning assets decreased by 45 basis points to 2.81% forthe six months ended June 30, 2004 from 3.26% for the comparable period in2003.

 

***Provision for LoanLosses.*** The provision for loan losses increased by $17,000, to $340,000 for thesix months ended June 30, 2004 from $323,000 in 2003.  The increase in the provision for loanlosses is primarily due to the increased risk in the loan portfolio based on agreater emphasis placed on commercial lending. At June 30, 2004, December 31, 2003 and June 30, 2003,non-performing loans totaled $2.5 million, $2.8 million and $2.6 million,respectively.  At June 30, 2004,the ratio of the allowance for loan losses to non-performing loans was 160.4%compared to 135.7% at December 31, 2003 and 132.7% at June 30,2003.  The ratio of the allowance tototal loans was 0.54%, 0.52% and 0.53%, at June 30, 2004,December 31, 2003 and June 30, 2003, respectively.  Charge-offs for the six months endedJune 30, 2004 totaled $15,000. There were no charge-offs for the six months ended June 30,2003.  Management periodicallycalculates an allowance sufficiency analysis based upon the portfoliocomposition, asset classifications, loan-to-value ratios, probable impairmentsin the loan portfolio, and other 

 

11

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factors.

 

***NoninterestIncome. ***Noninterestincome totaled $3.1 million and $2.8 million for the six months endedJune 30, 2004 and 2003, respectively. The increase in noninterest incomeis primarily attributable to increases of $302,000 in service fees, $228,000 ininsurance and brokerage commissions, $149,000 in gain on sale of property,which was a building previously occupied by the Bank and a $105,000 in gain onsale of loans.  Service fees increased primarilydue to the growth in number of deposit accounts.  Insurance and brokerage commissions increased primarily due tothe hiring of three additional salespeople during the third quarter of 2003.  These increases were partially offset bydecreases of $261,000 in income generated by CDGI and $277,000 in gain on saleof securities.  The decrease in incomegenerated by CDGI is largely due to a decrease in sales related to a weakerdemand for technology services.

 

***NoninterestExpense. ***Noninterestexpense increased $532,000, to $9.7 million for the six months endedJune 30, 2004 from $9.2 million for the comparable period in 2003.  Of this increase, $301,000 was directlyrelated to compensation and benefits, $91,000 is related to data processing,$78,000 is related to advertising and $90,000 is related to professional auditfees.  The increase in compensation andbenefits is primarily due to a combination of annual salary increases and theaddition of staff.  In addition, theCompany recorded a charge of $21,000 for impairment of goodwill related to itsmajority owned subsidiary CDGI for the six months ended June 30, 2004compared to $200,000 recorded for the six months ended June 30, 2003.  The Company evaluates goodwill forimpairment on a quarterly basis.  Managementcontinues to emphasize the importance of expense management and control whilecontinuing to provide expanded banking services to a growing market base.

 

***Income TaxExpense. ***Incometax expense totaled $1.4 million and $1.9 million for the six months endedJune 30, 2004 and 2003, respectively. The decrease in the provision for income taxes was primarily the resultof a decrease in pretax income of $548,000 to $4.9 million for six months endedJune 30, 2004 from $5.4 million for the comparable prior year period.  The effective tax rate was 28.2% and 34.6%for the six months ended June 30, 2004 and 2003, respectively.  The decrease in the effective tax rate isdue to increases in bank owned life insurance, FNMA/FHLMC preferred stock andmunicipal securities, for which income is non-taxable.

 

**Liquidity and CapitalResources**

 

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

 

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

 

12

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The primary investing activities of the Bank are the origination andpurchase of primarily residential one-to-four-family loans and, to a lesserextent multi-family and commercial real estate, construction and land, commercialand consumer loans and the purchase 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 ofinterest rates, the interest rates and products offered by the localcompetitors and other factors.

 

In addition to the primary investing activities of the Bank, theCompany has repurchased shares of its common stock from time to time in theopen market.  As of June 30, 2004,the Company repurchased a total of 3,087,081 shares of the Company’s commonstock at an average price per share of $12.11 since becoming a public companyin 1998.  There currently is no formalrepurchase plan in place and there were no shares repurchased during the threemonths ended June 30, 2004.

 

The Bank’s most liquid assets are cash and interest-bearing demandaccounts. The levels of these assets are dependent on the Bank’s operating,financing, lending and investing activities during any given period.  At June 30, 2004, cash andinterest-bearing demand accounts totaled $32.2 million, or 3.4% of totalassets.

 

See the “Consolidated Statements of Cash Flows” in the UnauditedConsolidated Financial Statements included in this Form 10-Q for the sourcesand uses of cash flows for operating, investing and financing activities forthe six months ended June 30, 2004 and 2003.

 

At June 30, 2004, the Bank exceeded all of its regulatory capitalrequirements. The following is a summary of the Bank’s regulatory capital ratiosat June 30, 2004:

 
| Total Capital to Total Assets         |   | 7.92  | % |
|---------------------------------------|--------|-------|---|
| Total Capital to Risk-Weighted Assets |   | 10.94 | % |
| Tier I Leverage Ratio                 |   | 8.05  | % |
| Tier I to Risk-Weighted Assets        |   | 10.99 | % |

 

At June 30, 2004, the Company had a Total Capital to Total Assetsratio of 8.38%.

 

On June 15, 2004, the Company announced its second quarterdividend of $0.1525 per share.  Thedividend was paid on July 13, 2004 to stockholders of record onJune 30, 2004.

 

**Financial Instrumentswith Off-Balance Sheet Risk**

 

The Bank is party to financial instruments with off-balance sheet riskin the normal course of business to meet the financing needs of itscustomers.  Those financial instrumentsprimarily include commitments to extend credit.  Commitments to extend credit are agreements to lend to a customerso long as there is no violation of any condition established in the contract.The Bank evaluates each customer’s creditworthiness on a case-by-casebasis.  The amount of collateralobtained is based on management’s credit evaluation of the customer.  The Bank’s exposure to credit loss in theevent of nonperformance by the customer is represented by the contractualamount of those financial instruments. The commitments to originate first mortgage

 

13

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

 

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

 

The Bank’s standby letters of credit are conditional commitments issuedby the Bank to guarantee performance of a customer to a third party.  The credit risk involved in thesetransactions is essentially the same as that involved in extending a loan to acustomer in the normal course of business. Standby letters of credit are collateralized by mortgages, savingsaccounts or liens on business assets. The fair value of standby letters of credit approximates the amount ofrecorded related fees, which are not considered material.  The maximum risk of accounting loss forthese items, which is represented by the total commitment outstanding, totaled$9.4 million at June 30, 2004.

 

At June 30, 2004 and December 31, 2003, the bank had thefollowing commitments to extend credit:

 
|                      |   | **June 30,  2004** |      | **December 31,  2003** |   |
|---------------------------|--------|-------------------------|-----------|-----------------------------|--------|
| First mortgage loans      |   | $                       | 9,932,000 |                        | $      | 7,306,000 |   |
| Construction loans        |   | 2,152,000               |      | 4,210,000                   |   |
| Unused lines of credit    |   | 41,457,000              |      | 42,342,000                  |   |
| Standby letters of credit |   | 9,423,000               |      | 5,434,000                   |   |
|                           |        |                         |           |                             |        |  |  |

 

**ContractualObligations**

 

The Bank has certain obligations andcommitments to make future payments under contract.  There has been no material change in contractual obligations fromDecember 31, 2003.

 

**Recent AccountingPronouncements**

 

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

 

In March 2004, theSecurities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No.105, “Application of Accounting Principles to Loan Commitments,” (SAB No.105).  SAB No. 105 applies to allregistrants that issue loan commitments that relate to the origination ofmortgage loans that will be held for sale and applies specifically to loan

 

14

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commitments that are issued afterMarch 31, 2004.  The adoption ofSAB No. 105 did not have a material effect on the Company’s consolidatedfinancial statements.

 

In March 2004, the FASBreached a consensus on EITF 03-1, “The Meaning of Other-Than-TemporaryImpairment and Its Application to Certain Investments” (“EITF 03-1”).  EITF 03-1 provides guidance for determiningwhen an investment is impaired and whether the impairment is other thantemporary.  EITF 03-1 also incorporatesinto its consensus the required disclosures about unrealized losses oninvestments announced by the EITF in late 2003 and adds new disclosurerequirements relating to cost-method investments.  The impairment accounting guidance is effective for reportingperiods beginning after June 15, 2004 and the new disclosure requirementsfor annual reporting periods ending after June 15, 2004.  We do not expect the adoption of theimpairment guidance contained in EITF 03-1 to have a material impact on ourfinancial position or results of operations.

 

15

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**Average Balance Sheet**

 

The following tables set forth certaininformation relating to the Bank for the three and six months endedJune 30, 2004 and 2003, respectively. The average yields and costs are derived by dividing income or expenseby the average balance of interest-earning assets or interest-bearingliabilities, respectively, for the periods shown and reflect annualized yieldsand costs.  Average balances are derivedfrom average monthly balances.  Theyields and costs include fees, which are considered adjustments to yields.  Tax exempt income has been calculated on atax equivalent basis using a tax rate of 34% and amounted to $192,000 and$200,000 for the three months ended June 30, 2004 and 2003 and $383,000and $414,000 for the six months ended June 30, 2004 and 2003,respectively.

 
|                                                              |   | **Three  Months Ended  June 30, 2004** |    | **Three  Months Ended  June 30, 2003** |   |
|-------------------------------------------------------------------|--------|---------------------------------------------|---------|---------------------------------------------|--------|
| **(in thousands)**                                                |   | **Average  Balance**                        |    | **Interest**                                |   | **Yield/Cost** |   | **Average  Balance** |   | **Interest** |   | **Yield/Cost** |   |
| Assets:                                                           |   |                                        |    |                                        |   |   |   |   |   |   |   |   |   |
| Interest earning assets:                                          |   |                                        |    |                                        |   |   |   |   |   |   |   |   |   |
| Short-term deposits and FHLB stock                                |   | $                                           | 34,981  |                                        | 200    |   | 2.29 | % | 36,898 |   | 184 |   | 2.00 | % |
| Investment securities                                             |   | 84,456                                      |    | 1,167                                       |   | 5.52 | % | 91,951 |   | 1,290 |   | 5.61 | % |
| Mortgage-backed securities                                        |   | 12,334                                      |    | 113                                         |   | 3.67 | % | 14,839 |   | 135 |   | 3.63 | % |
| Mortgage loans                                                    |   | 563,913                                     |    | 7,580                                       |   | 5.38 | % | 538,990 |   | 8,576 |   | 6.36 | % |
| Other loans                                                       |   | 187,406                                     |    | 2,365                                       |   | 5.05 | % | 107,253 |   | 1,589 |   | 5.92 | % |
| Total interest earning assets                                     |   | 883,090                                     |    | 11,425                                      |   | 5.18 | % | 789,931 |   | 11,774 |   | 5.96 | % |
| Noninterest earning assets                                        |   | 56,579                                      |    |                                        |   |   |   | 45,628 |   |   |   |   |   |
| Total assets                                                      |   | $                                           | 939,669 |                                        |   |   |   |   | 835,559 |   |   |   |   |   |
| Liabilities and stockholders’ equity                         |   |                                        |    |                                        |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities                                      |   |                                        |    |                                        |   |   |   |   |   |   |   |   |   |
| Deposits:                                                         |   |                                        |    |                                        |   |   |   |   |   |   |   |   |   |
| Money market accounts                                             |   | $                                           | 140,033 |                                        | 558    |   | 1.60 | % | 145,926 |   | 707 |   | 1.94 | % |
| Passbook savings accounts                                         |   | 133,752                                     |    | 461                                         |   | 1.38 | % | 116,922 |   | 479 |   | 1.64 | % |
| NOW Accounts                                                      |   | 40,315                                      |    | 49                                          |   | 0.48 | % | 35,325 |   | 64 |   | 0.73 | % |
| Certificates of deposit                                           |   | 277,649                                     |    | 1,991                                       |   | 2.87 | % | 217,776 |   | 1,803 |   | 3.31 | % |
| Total deposits                                                    |   | 591,749                                     |    | 3,059                                       |   | 2.07 | % | 515,949 |   | 3,053 |   | 2.37 | % |
| FHLB Advances                                                     |   | 203,667                                     |    | 2,352                                       |   | 4.62 | % | 188,367 |   | 2,305 |   | 4.90 | % |
| Total interest-bearing liabilities                                |   | 795,416                                     |    | 5,411                                       |   | 2.72 | % | 704,316 |   | 5,358 |   | 3.04 | % |
| Noninterest-bearing liabilities                                   |   | 63,324                                      |    |                                        |   |   |   | 54,988 |   |   |   |   |   |
| Total liabilities                                                 |   | 858,740                                     |    |                                        |   |   |   | 759,304 |   |   |   |   |   |
| Total stockholders’ equity                                   |   | 80,929                                      |    |                                        |   |   |   | 76,255 |   |   |   |   |   |
| Total liabilities and stockholders’ equity                   |   | $                                           | 939,669 |                                        |   |   |   |   | 835,559 |   |   |   |   |   |
| Net interest income before provision for  loan losses             |   |                                        |    | 6,014                                       |   |   |   |   |   | 6,416 |   |   |   |
| Interest rate spread                                              |   |                                        |    |                                        |   | 2.46 | % |   |   |   |   | 2.92 | % |
| Net interest margin as a percent of  interest earning assets      |   |                                        |    |                                        |   | 2.72 | % |   |   |   |   | 3.25 | % |
| Ratio of interest-earning assets to  interest-bearing liabilities |   |                                        |    |                                        |   | 111.02 | % |   |   |   |   | 112.16 | % |
|                                                                   |        |                                             |         |                                             |        |  |  |  |  |  |  |  |  |  |  |

 

16

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|                                                              |   | **Six Months  Ended  June 30, 2004** |    | **Six Months  Ended  June 30, 2003** |   |
|-------------------------------------------------------------------|--------|-------------------------------------------|---------|-------------------------------------------|--------|
| **(in thousands)**                                                |   | **Average  Balance**                      |    | **Interest**                              |   | **Yield/Cost** |   | **Average  Balance** |   | **Interest** |   | **Yield/Cost** |   |
| Assets:                                                           |   |                                      |    |                                      |   |   |   |   |   |   |   |   |   |
| Interest earning assets:                                          |   |                                      |    |                                      |   |   |   |   |   |   |   |   |   |
| Short-term deposits and FHLB stock                                |   | $                                         | 39,516  |                                      | 410    |   | 2.07 | % | 35,511 |   | 334 |   | 1.88 | % |
| Investment securities                                             |   | 84,855                                    |    | 2,390                                     |   | 5.63 | % | 89,701 |   | 2,594 |   | 5.78 | % |
| Mortgage-backed securities                                        |   | 10,896                                    |    | 203                                       |   | 3.73 | % | 15,826 |   | 308 |   | 3.90 | % |
| Mortgage loans                                                    |   | 566,925                                   |    | 15,612                                    |   | 5.51 | % | 531,767 |   | 17,190 |   | 6.47 | % |
| Other loans                                                       |   | 171,042                                   |    | 4,447                                     |   | 5.20 | % | 100,595 |   | 2,987 |   | 5.94 | % |
| Total interest earning assets                                     |   | 873,234                                   |    | 23,062                                    |   | 5.28 | % | 773,400 |   | 23,413 |   | 6.05 | % |
| Noninterest earning assets                                        |   | 53,310                                    |    |                                      |   |   |   | 43,774 |   |   |   |   |   |
| Total assets                                                      |   | $                                         | 926,544 |                                      |   |   |   |   | 817,174 |   |   |   |   |   |
| Liabilities and stockholders’ equity                         |   |                                      |    |                                      |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities                                      |   |                                      |    |                                      |   |   |   |   |   |   |   |   |   |
| Deposits:                                                         |   |                                      |    |                                      |   |   |   |   |   |   |   |   |   |
| Money market accounts                                             |   | $                                         | 141,699 |                                      | 1,128  |   | 1.59 | % | 145,731 |   | 1,461 |   | 2.01 | % |
| Passbook savings accounts                                         |   | 131,632                                   |    | 903                                       |   | 1.37 | % | 112,493 |   | 957 |   | 1.70 | % |
| NOW Accounts                                                      |   | 39,644                                    |    | 97                                        |   | 0.49 | % | 34,520 |   | 143 |   | 0.82 | % |
| Certificates of deposit                                           |   | 271,893                                   |    | 3,913                                     |   | 2.88 | % | 215,444 |   | 3,660 |   | 3.40 | % |
| Total deposits                                                    |   | 584,868                                   |    | 6,041                                     |   | 2.07 | % | 508,188 |   | 6,221 |   | 2.45 | % |
| FHLB Advances                                                     |   | 202,183                                   |    | 4,758                                     |   | 4.71 | % | 181,367 |   | 4,578 |   | 5.05 | % |
| Total interest-bearing liabilities                                |   | 787,051                                   |    | 10,799                                    |   | 2.74 | % | 689,555 |   | 10,799 |   | 3.13 | % |
| Noninterest-bearing liabilities                                   |   | 59,072                                    |    |                                      |   |   |   | 52,123 |   |   |   |   |   |
| Total liabilities                                                 |   | 846,123                                   |    |                                      |   |   |   | 741,678 |   |   |   |   |   |
| Total stockholders’ equity                                   |   | 80,421                                    |    |                                      |   |   |   | 75,496 |   |   |   |   |   |
| Total liabilities and stockholders’ equity                   |   | $                                         | 926,544 |                                      |   |   |   |   | 817,174 |   |   |   |   |   |
| Net interest income before provision for  loan losses             |   |                                      |    | 12,263                                    |   |   |   |   |   | 12,614 |   |   |   |
| Interest rate spread                                              |   |                                      |    |                                      |   | 2.54 | % |   |   |   |   | 2.92 | % |
| Net interest margin as a percent of  interest earning assets      |   |                                      |    |                                      |   | 2.81 | % |   |   |   |   | 3.26 | % |
| Ratio of interest-earning assets to  interest-bearing liabilities |   |                                      |    |                                      |   | 110.95 | % |   |   |   |   | 112.16 | % |

 

17

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Item 3.             Quantitative and QualitativeDisclosures About Market Risk.

 

The Bank’s interest rate sensitivity is monitored by management throughthe use of a Net Portfolio Value Model which generates estimates of the changein the Bank’s net portfolio value (“NPV”) over a range of interest ratescenarios.  NPV is the present value ofexpected cash flows from assets, liabilities, and off-balance sheetcontracts.  The NPV ratio, under anyinterest rate scenario, is defined as the NPV in that scenario divided by themarket value of assets in the same scenario. The model assumes estimated prepayment rates, reinvestment rates anddeposit decay rates.  The SensitivityMeasure is the decline in the NPV ratio, in basis points, caused by a 3%increase or 1% decrease in rates, whichever produces a larger decline.  The higher the institution’s SensitivityRatio, the greater its exposure to interest rate risk is considered to be.  The following NPV Table sets forth theBank’s NPV as of June 30, 2004.

 
| **Change in  Interest Rates  in Basis Points** |   | **Net  Portfolio Value** |   | **NPV as% of  Portfolio  Value of Assets** |   |
|------------------------------------------------|--------|--------------------------|--------|--------------------------------------------|--------|
| **(Rate Shock)**                               |   | **Amount**               |   | **$ Change**                               |   | **% Change** |   | **NPV Ratio** |   | **% Change** |   |
|                                           |   | **(In  thousands)**      |   |                                       |   |   |   |   |   |
|                                           |   |                     |   |                                       |   |   |   |   |   |   |   |
| +300                                           |   | $                        | 45,766 |                                       | $      | (35,692 | ) | (43.82 | )% | 4.96 | % | (41.37 | )% |
| +200                                           |   | 58,763                   |   | (22,695                                    | )      | (27.86 | ) | 6.28 |   | (25.77 | ) |
| +100                                           |   | 71,575                   |   | (9,883                                     | )      | (12.13 | ) | 7.54 |   | (10.87 | ) |
| Static                                         |   | 81,458                   |   | —                                     |   | — |   | 8.46 |   | — |   |
| -100                                           |   | 78,730                   |   | (2,728                                     | )      | (3.35 | ) | 8.15 |   | (3.66 | ) |
|                                                |        |                          |        |                                            |        |  |  |  |  |  |  |  |  |

 

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

 

Item 4.  Controls and Procedures

 

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

 

18

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Item 4. Controls and Procedures, continued

 

evaluation, the principal executive officer and principal financialofficer concluded that, as of the end of the period covered by this report, theCompany’s disclosure controls and procedures were effective for the purpose ofensuring that the information required to be disclosed in the reports that theCompany files or submits under the Exchange Act with the Securities andExchange Commission (the “SEC”) (1) is recorded, processed, summarized andreported within the time periods specified in the SEC’s rules and forms, and (2)is accumulated and communicated to the Company’s management, including itsprincipal executive and principal financial officers, as appropriate to allowtimely decisions regarding required disclosure.  In addition, based on that evaluation, no change in the Company’sinternal control over financial reporting occurred during the quarter endedJune 30, 2004 that has materially affected, or is reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

 

19

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**PART II. OTHER INFORMATION**

 
| Item 1. |   | Legal Proceedings.                                                                                                                                                                                                                                                                                                                       |
|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                                                     |
|    |   | The Company is not involved in any pending legal proceedings other  than routine legal proceedings occurring in the ordinary course of  business.  Such routine legal  proceedings, in the aggregate, are believed by management to be immaterial to  the Company’s financial condition, results of operations and cash flows. |
|    |   |                                                                                                                                                                                                                                                                                                                                     |
| Item 2. |   | Changes in Securities, Use of Proceeds and  Issuer Purchases of Equity Securities.                                                                                                                                                                                                                                                       |
|    |   | None.                                                                                                                                                                                                                                                                                                                                    |
|    |   |                                                                                                                                                                                                                                                                                                                                     |
| Item 3. |   | Defaults Upon Senior Securities.                                                                                                                                                                                                                                                                                                         |
|    |   | None.                                                                                                                                                                                                                                                                                                                                    |
|    |   |                                                                                                                                                                                                                                                                                                                                     |
| Item 4. |   | Submission of Matters to a Vote of Security  Holders.                                                                                                                                                                                                                                                                                    |
|    |   |                                                                                                                                                                                                                                                                                                                                     |
|    |   | For information regarding the results of the Company’s annual meeting  held on April 20, 2004, please see the Company’s March 31, 2004  Form 10-Q filed on May 12, 2004.                                                                                                                                             |
|    |   |                                                                                                                                                                                                                                                                                                                                     |
| Item 5. |   | Other Information.                                                                                                                                                                                                                                                                                                                       |
|    |   | None.                                                                                                                                                                                                                                                                                                                                    |
|    |   |                                                                                                                                                                                                                                                                                                                                     |
| Item 6. |   | Exhibits and Reports on Form 8-K.                                                                                                                                                                                                                                                                                                        |
|    |   |                                                                                                                                                                                                                                                                                                                                     |
|    |   | (a)                                  Exhibits                                                                                                                       |
|    |   |                                                                                                                                                                                                                                                                                                                                     | 3.1 |   | Certificate of Incorporation of EFC Bancorp, Inc. * |
|    |   |                                                                                                                                                                                                                                                                                                                                     | 3.2 |   | Bylaws of EFC Bancorp, Inc. * |
|    |   |                                                                                                                                                                                                                                                                                                                                     | 4.0 |   | Specimen Stock Certificate of EFC Bancorp, Inc. * |
|    |   |                                                                                                                                                                                                                                                                                                                                     | 11.0 |   | Statement re: Computation of Per Share Earnings Incorporated herein  by reference to Note 3 to the unaudited consolidated financial statements. |
|    |   |                                                                                                                                                                                                                                                                                                                                     | 31.1 |   | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
|    |   |                                                                                                                                                                                                                                                                                                                                     | 31.2 |   | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
|    |   |                                                                                                                                                                                                                                                                                                                                     | 32.1 |   | Certification of Chief Executive Officer and Chief Financial Officer  pursuant to 18 U.S.C. Section 1350 |

 

----

|   |   | * | Incorporated herein by reference from the Exhibits filed with the  Registration Statement on Form S-1 and any amendments thereto.  Initially filed with the Securities and  Exchange Commission (“SEC”) on October 24, 1997. |
|--------|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

20

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|   |   | (b)    | Reports on Form 8-K                                                                                                                                                                                                                      |
|--------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                     |
|   |   |   | On May 3, 2004, EFC Bancorp, Inc. furnished a Current Report on Form  8-K announcing its financial results for the quarter ended March 31,  2004.                                                                                   |
|   |   |   |                                                                                                                                                                                                                                     |
|   |   |   | On June 2, 2004, EFC Bancorp, Inc. furnished a Current Report on  Form 8-K announcing that beginning June 2, 2004 the Company will make  available and distribute to analysts and prospective investors a slide  presentation. |

 

21

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**SIGNATURES**

 

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

 

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

 

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