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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 THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002

or

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

For the transition period from                              to                             

Commission File Number 1-13605

EFC BANCORP, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)
  36-4193304
(I.R.S. Employer
Identification No.)

1695 Larkin Avenue, Elgin, Illinois
(Address of principal executive offices)

 

60123
(Zip Code)

(847) 741-3900
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changes since last report)

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

        Yes ý        No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

        Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 4,644,643 shares of common stock, par value $0.01 per share, were outstanding as of August 8, 2002.





EFC Bancorp, Inc.

Form 10-Q

For the Quarter Ended June 30, 2002

INDEX

 
   
  Page
PART I.   FINANCIAL INFORMATION    

Item 1.

 

Financial Statements (unaudited)

 

 

 

 

Consolidated Balance Sheets at June 30, 2002 and December 31, 2001

 

1

 

 

Consolidated Statements of Income—For the Three and Six Months Ended June 30, 2002 and 2001

 

2

 

 

Consolidated Statements of Cash Flows—For the Six Months Ended June, 2002 and 2001

 

3

 

 

Notes to Consolidated Financial Statements

 

4

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

6

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

14

PART II:

 

OTHER INFORMATION

 

15

Item 1.

 

Legal Proceedings

 

15
Item 2.   Changes in Securities and Use of Proceeds   15
Item 3.   Defaults Upon Senior Securities   15
Item 4.   Submission of Matters to a Vote of Security Holders   15
Item 5.   Other Information   15
Item 6.   Exhibits and Reports on Form 8-K   15

SIGNATURES

 

16


PART I. FINANCIAL INFORMATION
EFC BANCORP, INC.


Item 1. Financial Statements.


EFC BANCORP, INC.
AND SUBSIDIARIES

Consolidated Balance Sheets (unaudited)

June 30, 2002 and December 31, 2001

 
  June 30,
2002

  December 31,
2001

 
Assets            
Cash and cash equivalents:            
  On hand and in banks   $ 3,057,437   3,186,966  
  Interest bearing deposits with financial institutions     29,349,048   14,988,324  
Loans receivable, net     572,212,121   537,070,664  
Mortgage-backed securities available-for-sale, at fair value     11,095,729   13,855,715  
Investment securities available-for-sale, at fair value     73,040,370   68,615,462  
Stock in Federal Home Loan Bank of Chicago, at cost     9,131,900   8,891,900  
Accrued interest receivable     3,860,268   3,682,120  
Office properties and equipment, net     12,359,515   10,990,206  
Other assets     17,432,962   12,162,083  
   
 
 
Total assets   $ 731,539,350   673,443,440  
   
 
 
Liabilities and Stockholders' Equity            
Liabilities:            
  Deposits   $ 476,680,551   420,084,289  
  Borrowed money     171,787,924   175,200,000  
  Advance payments by borrowers for taxes and insurance     1,298,518   1,226,614  
  Income taxes payable     196,834   419,125  
  Accrued expenses and other liabilities     9,410,692   7,884,849  
   
 
 
Total liabilities     659,374,519   604,814,877  
   
 
 
Minority interest     (19,953 )  
   
 
 
Stockholders' Equity:            
  Preferred stock, par value $.01 per share, authorized 2,000,000 shares; no shares issued        
  Common stock, par value $.01 per share, authorized 25,000,000 shares; issued 7,491,434 shares     74,914   74,914  
  Additional paid-in capital     71,666,253   71,663,695  
  Treasury stock, at cost, 2,853,791 and 2,884,873 shares at June 30, 2002 and December 31, 2001, respectively     (33,265,474 ) (33,584,554 )
  Unearned employee stock ownership plan (ESOP), 419,521 and 439,498 shares at June 30, 2002 and December 31, 2001, respectively     (6,272,905 ) (6,571,619 )
  Unearned stock award plan, 79,683 and 107,943 shares at June 30, 2002 and December 31, 2001, respectively     (886,474 ) (1,200,866 )
  Retained earnings, substantially restricted     40,081,533   38,015,742  
  Accumulated other comprehensive income     786,937   231,251  
   
 
 
Total stockholders' equity     72,184,784   68,628,563  
   
 
 
Commitments and contingencies        
   
 
 
Total liabilities and stockholders' equity   $ 731,539,350   673,443,440  
   
 
 

See accompanying notes to consolidated financial statements.

1



EFC BANCORP, INC.
AND SUBSIDIARIES

Consolidated Statements of Income (unaudited)

For the three and six months ended June 30, 2002 and 2001

 
  Three months ended
June 30,

  Six months ended
June 30,

 
  2002
  2001
  2002
  2001
Interest income:                  
  Loans secured by real estate   $ 8,533,528   8,216,205   17,211,523   16,280,568
  Other loans     1,236,386   1,079,057   2,412,923   1,969,091
  Mortgage-backed securities available-for-sale     167,499   235,782   353,027   461,217
  Investment securities available-for-sale and interest bearing deposits with financial institutions     1,204,160   1,223,706   2,289,780   2,719,878
   
 
 
 
Total interest income     11,141,573   10,754,750   22,267,253   21,430,754
   
 
 
 
Interest expense:                  
  Deposits     3,420,884   4,244,093   6,784,290   8,506,167
  Borrowed money     2,299,382   2,145,121   4,623,299   4,371,245
   
 
 
 
Total interest expense     5,720,266   6,389,214   11,407,589   12,877,412
   
 
 
 
Net interest income before provision for loan losses     5,421,307   4,365,536   10,859,664   8,553,342
Provision for loan losses     225,000   105,000   450,000   195,000
   
 
 
 
Net interest income after provision for loan losses     5,196,307   4,260,536   10,409,664   8,358,342
   
 
 
 
Noninterest income:                  
  Service fees     430,858   285,504   768,792   521,045
  Insurance and brokerage commissions     79,825   88,149   310,340   183,590
  Information Technology sales and service income, net     438,478     740,880  
  Gain on sale of real estate owned       7,922     7,922
  Other     199,259   17,246   407,998   28,445
   
 
 
 
Total noninterest income     1,148,420   398,821   2,228,010   741,002
   
 
 
 
Noninterest expense:                  
  Compensation and benefits     2,492,944   1,891,840   5,120,533   3,722,893
  Office building, net     542,252   439,693   1,050,693   876,010
  Federal insurance premiums     18,450   22,315   36,958   39,957
  Advertising     118,895   185,763   268,572   315,668
  Data processing     269,907   210,370   451,332   409,882
  NOW/checking account expenses     124,836   77,610   247,415   140,091
  Other     433,333   374,252   855,672   730,605
   
 
 
 
Total noninterest expense     4,000,617   3,201,843   8,031,175   6,235,106
   
 
 
 
Income before income taxes     2,344,110   1,457,514   4,606,499   2,864,238

Income tax expense

 

 

732,308

 

496,480

 

1,445,920

 

1,001,630
   
 
 
 
Income before minority interest     1,611,802   961,034   3,160,579   1,862,608

Minority interest

 

 

(17,152

)


 

2,509

 

   
 
 
 
Net income   $ 1,594,650   961,034   3,163,088   1,862,608
   
 
 
 
Earnings per share:                  
  Basic   $ 0.38   0.23   0.75   0.43
  Diluted     0.36   0.23   0.72   0.43
   
 
 
 

See accompanying notes to consolidated financial statements.

2



EFC BANCORP, INC.
AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)

For the six months ended June 30, 2002 and 2001

 
  2002
  2001
 
Cash flows from operating activities:            
  Net income   $ 3,163,088   1,862,608  
  Adjustment to reconcile net income to net cash provided by operating activities:            
      Amortization of premiums and discounts, net     (57,574 ) 62,511  
      Provision for loan losses     450,000   195,000  
      Stock award plan shares allocated     314,392   317,358  
      ESOP shares committed to be released     298,714   298,714  
      Change in fair value of ESOP shares     2,558   (82,246 )
      Gain on sale of foreclosed real estate       (8,014 )
      Minority interest in subsidiary     (19,953 )  
      Depreciation of office properties and equipment     377,544   377,624  
      Increase in accrued interest receivable and other assets, net     (5,384,547 ) (229,565 )
      Increase in income taxes payable, accrued expenses and other liabilities, net     1,348,305   3,620,069  
   
 
 
Net cash provided by operating activities     492,527   6,414,059  
   
 
 
Cash flows from investing activities:            
  Net increase in loans receivable     (1,630,329 ) (15,875,901 )
  Purchases of loans receivable     (33,961,128 ) (23,707,057 )
  Purchases of mortgage-backed securities available-for-sale       (6,241,618 )
  Principal payments on mortgage-backed securities available-for-sale     2,682,224   2,549,072  
  Maturities of investment securities available-for-sale     12,421,819   18,131,584  
  Purchases of investment securities available-for-sale     (15,800,431 ) (14,826,311 )
  Purchases of office properties and equipment     (1,746,853 ) (361,670 )
  Purchases of stock in the Federal Home Loan Bank of Chicago     (240,000 ) (641,500 )
  Cash investment in majority-owned subsidiary     (420,000 )  
  Proceeds from the sale of foreclosed real estate       4,104,916  
   
 
 
Net cash used in investing activities     (38,694,698 ) (36,868,485 )
   
 
 
Cash flows from financing activities:            
  Cash dividends paid     (1,069,900 ) (1,041,412 )
  Purchase of treasury stock     (4,200 ) (1,244,733 )
  Stock options exercised     323,280    
  Net increase in deposits     56,596,262   11,772,919  
  Proceeds from borrowed money     405,298   30,000,000  
  Repayments on borrowed money     (3,817,374 ) (15,000,000 )
   
 
 
Net cash provided by financing activities     52,433,366   24,486,774  
   
 
 
Net increase/(decrease) in cash and cash equivalents     14,231,195   (5,967,652 )
Cash and cash equivalents at beginning of period     18,175,290   27,022,671  
   
 
 
Cash and cash equivalents at end of period   $ 32,406,485   21,055,019  
   
 
 

See accompanying notes to consolidated financial statements.

3



EFC BANCORP, INC.

Notes to Consolidated Financial Statements

Note 1: BASIS OF PRESENTATION

        The accompanying unaudited consolidated financial statements include the accounts of EFC Bancorp, Inc. (the Company), its majority-owned subsidiary, Computer Dynamics Group Inc. (CDGI), its wholly-owned subsidiary, Elgin Financial Savings Bank (the Bank) and its wholly-owned subsidiary, Fox Valley Service Corporation of Elgin. A controlling interest in CDGI was purchased for $420,000 in January 2002. The accompanying financial statements include the operating results of CDGI for the three and six months ended June 30, 2002 since the date of acquisition. Certain amounts for the prior year have been reclassified to conform to the current year presentation.

        In the opinion of the management of the Company, the accompanying consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of the financial position and results of operations for the periods presented. All significant intercompany transactions have been eliminated in consolidation. These interim financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission and therefore certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. It is suggested that the accompanying unaudited consolidated financial statements be read in conjunction with the Company's 2001 Annual Report on Form 10-K. Currently, other than investing in various securities, the Company does not directly transact any material business other than through the Bank. Accordingly, the discussion herein addresses the operations of the Company as they are conducted through the Bank.

Note 2: COMPREHENSIVE INCOME

        The Company's comprehensive income for the three and six month periods ended June 30, 2002 and 2001 are as follows:

 
  Three months ended
June 30,

  Six months ended
June 30,

 
  2002
  2001
  2002
  2001
Net income   $ 1,594,650   961,034   $ 3,163,088   1,862,608
Other comprehensive income, net of tax:                    
  Unrealized holding gains (losses) on securities arising during the period, net of tax effect     752,939   (78,700 )   555,686   512,641
   
 
 
 
  Comprehensive income   $ 2,347,589   882,334   $ 3,718,774   2,375,249
   
 
 
 

        There were no sales of investment securities as of and for the three and six months ended June 30, 2002 and 2001.

Note 3: COMPUTATION OF PER SHARE EARNINGS

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

4



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

 
  Three months ended
June 30,

  Six months ended
June 30,

 
  2002
  2001
  2002
  2001
Basic:                  
Net income   $ 1,594,650   961,034   3,163,088   1,862,608

Weighted average shares outstanding

 

 

4,207,308

 

4,261,903

 

4,193,973

 

4,294,406
   
 
 
 
Basic earnings per share   $ 0.38   0.23   0.75   0.43
   
 
 
 
Diluted:                  
Net income   $ 1,594,650   961,034   3,163,088   1,862,608

Weighted average shares outstanding

 

 

4,207,308

 

4,261,903

 

4,193,973

 

4,294,406
Effect of dilutive stock options outstanding     236,119   7,522   202,536   5,709
   
 
 
 
Diluted weighted average shares outstanding     4,443,427   4,269,425   4,396,509   4,300,115
   
 
 
 
Diluted earnings per share   $ 0.36   0.23   0.72   0.43
   
 
 
 

5



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

        The following analysis discusses changes in the financial condition at June 30, 2002 and results of operations for the three and six months ended June 30, 2002, and should be read in conjunction with the Company's Unaudited Consolidated Financial Statements and the notes thereto, appearing in Part I, Item 1 of this document.

Forward-Looking Statements

        This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and the subsidiaries include, but are not limited to, changes in: interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area and accounting principles and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Company's financial results, is included in the Company's filings with the SEC, including its 2001 Annual Report on Form 10-K.

        The Company does not undertake—and specifically disclaims any obligation—to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Comparison of Financial Condition at June 30, 2002 and December 31, 2001

        Total assets at June 30, 2002 were $731.5 million, which represented an increase of $58.1 million, or 8.6%, compared to $673.4 million at December 31, 2001. The increase in total assets was primarily as a result of an increase in loans receivable of $35.1 million, or 6.5%, to $572.2 million at June 30, 2002 from $537.1 million at December 31, 2001. Of the $35.1 million increase, $12.9 million represents net loans purchased. The remaining increase in loans receivable was primarily attributable to strong loan demand during the period. In addition, cash and cash equivalents increased $14.2 million, or 78.3%, to $32.4 million at June 30, 2002 from $18.2 million at December 31, 2001. These increases were partially offset by a decrease in mortgage-backed securities of $2.8 million, or 19.9%, to $11.1 million at June 30, 2002 from $13.9 million at December 31, 2001. The growth in total assets was funded by increases in deposits. Deposits increased $56.6 million to $476.7 million at June 30, 2002 from $420.1 million at December 31, 2001. Stockholders' equity increased by $3.6 million to $72.2 million at June 30, 2002 from $68.6 million at December 31, 2001. The increase in stockholders' equity was primarily the result of the Company's increase in net income during the period, and a $556,000 increase in the Company's accumulated other comprehensive income relating to its available-for-sale investment portfolio, the effect of which was partially offset by dividends paid.

6



Comparison of Operating Results For the Three Months Ended June 30, 2002 and 2001

        General.    The Company's net income increased $634,000, or 65.9%, to $1.6 million for the three months ended June 30, 2002, from $961,000 for the three months ended June 30, 2001.

        Interest Income.    Interest income increased $387,000, or 3.6%, to $11.1 million for the three months ended June 30, 2002, compared with $10.8 million for the same period in 2001. The increase in interest income was primarily due to an increase in average interest-earning assets, which increased by $89.3 million, or 15.1%, to $680.8 million for the three months ended June 30, 2002 from $591.5 million for the comparable period in 2001, offset by a decrease in the average yield on interest-earning assets by 68 basis points to 6.61% for the three months ended June 30, 2002 from 7.29% for the three months ended June 30, 2001.

        Mortgage loan interest income increased by $317,000 for the three months ended June 30, 2002 compared with the same period in 2001. The average balance of mortgage loans increased $50.5 million, while the loan yield decreased by 52 basis points from 7.54% to 7.02%. Interest income from investment securities, mortgage-backed securities and short-term deposits decreased by $88,000 for the three months ended June 30, 2002, compared with the same period in 2001. This decrease resulted from a combination of an increase in average balance of $14.0 million, offset by a 66 basis point decrease in yield from 5.74% for the three months ended June 30, 2001 to 5.08% for the three months ended June 30, 2002. The decrease in yield is largely attributed to the effect of the lower interest rate environment reducing yields on short-term deposits.

        Interest Expense.    Interest expense decreased by $669,000, or 10.5%, to $5.7 million for the three months ended June 30, 2002 from $6.4 million for the three months ended June 30, 2001. This decrease resulted from an increase in the average balance of interest-bearing liabilities, offset by a decrease in the average rate paid on those interest-bearing liabilities. The average balance of interest-bearing liabilities increased by $96.4 million, or 19.0%, to $604.8 million for the three months ended June 30, 2002 from $508.4 million for the three months ended June 30, 2001. This change reflects a $79.9 million increase in the deposit accounts, which is primarily attributable to a $48.3 million increase in money market accounts and a $33.2 million increase in passbook savings accounts, partially offset by a decrease of $6.5 million in certificates of deposits. The remaining $16.5 million increase is attributable to advances from the FHLB-Chicago. The average rate paid on combined deposits and borrowed money decreased by 125 basis points to 3.78% for the three months ended June 30, 2002 from 5.03% for the three months ended June 30, 2001.

        Net Interest Income Before Provision for Loan Losses.    Net interest income before provision for loan losses increased $1.0 million, or 24.2%, to $5.4 million for the three months ended June 30, 2002 from $4.4 million for the comparable period in 2001. The net interest margin as a percent of interest-earning assets increased by 28 basis points to 3.25% for the three months ended June 30, 2002 from 2.97% for the comparable period in 2001.

        Provision for Loan Losses.    The provision for loan losses increased by $120,000, to $225,000 for the three months ended June 30, 2002 from $105,000 in 2001. This increase is primarily due to the growth in the loan portfolio. At June 30, 2002, December 31, 2001 and June 30, 2001, non-performing loans totaled $3.5 million, $2.6 million and $3.1 million, respectively. At June 30, 2002, the ratio of the allowance for loan losses to non-performing loans was 77.1% compared to 87.4% at December 31, 2001 and 63.9% at June 30, 2001. The ratio of the allowance to total loans was 0.47%, 0.42% and 0.40%, at June 30, 2002, December 31, 2001 and June 30, 2001, respectively. Charge-offs totaled $2,000 and $85,000 for the three months ended June 30, 2002 and 2001, respectively. Management periodically calculates an allowance sufficiency analysis based upon the portfolio composition, asset classifications, loan-to-value ratios, potential impairments in the loan portfolio, and other factors.

7



        Noninterest Income.    Noninterest income totaled $1.1 million and $399,000 for the three months ended June 30, 2002 and 2001, respectively. The increase in noninterest income is primarily attributable to increases in service fees of $145,000, information/technology sales and service income of $438,000 related to the Company's majority-owned subsidiary CDGI and an increase of $170,000 in the cash surrender value of the Company's bank owned life insurance.

        Noninterest Expense.    Noninterest expense increased $799,000, to $4.0 million for the three months ended June 30, 2002 from $3.2 million for the comparable period in 2001. Compensation and benefits increased by $601,000. This increase was primarily due to a combination of annual salary increases, the addition of staff and the related compensation and benefits expenses of CDGI. The additional staff expenses are primarily attributed to the opening of the Bank's new Carpentersville, Illinois branch. All other operating expenses, including advertising, audit, data processing, marketing, postage, communications, and other expense increased by a combined $198,000, or 15.1%, to $1.5 million for the three months ended June 30, 2002 from $1.3 million for the three months ended June 30, 2001. Management continues to emphasize the importance of expense management and control while continuing to provide expanded banking services to a growing market base.

        Income Tax Expense.    Income tax expense totaled $732,000 and $496,000 for the three months ended June 30, 2002 and 2001, respectively. The increase was primarily due to an $887,000 increase in earnings before income taxes to $2.3 million for the three months ended June 30, 2002 from $1.5 million for the prior year period. The effective tax rate was 31.2% and 34.1% for the three months ended June 30, 2002 and 2001, respectively. The decrease in the effective tax rate for the three months ended June 30, 2002 is primarily due to the increase in tax exempt income including municipal interest income and an increase in income from bank owned life insurance.

Comparison of Operating Results For the Six Months Ended June 30, 2002 and 2001

        General.    The Company's net income increased $1.3 million, or 69.8%, to $3.2 million for the six months ended June 30, 2002, from $1.9 million for the six months ended June 30, 2001.

        Interest Income.    Interest income increased $836,000, or 3.9%, to $22.3 million for the six months ended June 30, 2002, compared with $21.4 million for the same period in 2001. The increase in interest income was primarily due to an increase in average interest-earning assets, which increased by $85.3 million, or 14.6%, to $671.3 million for the six months ended June 30, 2002 from $586.0 million for the comparable period in 2001, offset by a decrease in the average yield on interest-earning assets by 63 basis points to 6.70% for the six months ended June 30, 2002 from 7.33% for the six months ended June 30, 2001.

        Mortgage loan interest income increased by $931,000 for the six months ended June 30, 2002 compared with the same period in 2001. The average balance of mortgage loans increased $51.3 million, while the loan yield decreased by 42 basis points from 7.57% to 7.15%. Interest income from investment securities, mortgage-backed securities and short-term deposits decreased by $538,000 for the six months ended June 30, 2002, compared with the same period in 2001. This decrease resulted from a combination of an increase in average balance of $7.1 million, offset by a 96 basis point decrease in yield from 5.92% for the six months ended June 30, 2001 to 4.96% for the six months ended June 30, 2002. The decrease in yield is largely attributed to the effect of the lower interest rate environment reducing yields on short-term deposits.

        Interest Expense.    Interest expense decreased by $1.5 million, or 11.4%, to $11.4 million for the six months ended June 30, 2002 from $12.9 million for the six months ended June 30, 2001. This decrease resulted from an increase in the average balance of interest-bearing liabilities, offset by a decrease in the average rate paid on those interest-bearing liabilities. The average balance of interest-bearing liabilities increased by $89.8 million, or 17.7%, to $596.7 million for the six months ended June 30,

8



2002 from $506.9 million for the six months ended June 30, 2001. This change reflects a $73.2 million increase in the deposit accounts, which is primarily attributable to a $54.8 million increase in money market accounts and a $29.9 million increase in passbook savings accounts, partially offset by a decrease of $14.0 million in certificates of deposits. The remaining $16.6 million increase is attributable to advances from the FHLB-Chicago. The average rate paid on combined deposits and borrowed money decreased by 126 basis points to 3.82% for the six months ended June 30, 2002 from 5.08% for the six months ended June 30, 2001.

        Net Interest Income Before Provision for Loan Losses.    Net interest income before provision for loan losses increased $2.3 million, or 27.0%, to $10.9 million for the six months ended June 30, 2002 from $8.6 million for the comparable period in 2001. The net interest margin as a percent of interest-earning assets increased by 37 basis points to 3.30% for the six months ended June 30, 2002 from 2.93% for the comparable period in 2001.

        Provision for Loan Losses.    The provision for loan losses increased by $255,000, to $450,000 for the six months ended June 30, 2002 from $195,000 in 2001. This increase is primarily due to the growth in the loan portfolio. At June 30, 2002, December 31, 2001 and June 30, 2001, non-performing loans totaled $3.5 million, $2.6 million and $3.1 million, respectively. At June 30, 2002, the ratio of the allowance for loan losses to non-performing loans was 77.1% compared to 87.4% at December 31, 2001 and 63.9% at June 30, 2001. The ratio of the allowance to total loans was 0.47%, 0.42% and 0.40%, at June 30, 2002, December 31, 2001 and June 30, 2001, respectively. Charge-offs totaled $2,000 and $85,000 for the six months ended June 30, 2002 and 2001, respectively. Management periodically calculates an allowance sufficiency analysis based upon the portfolio composition, asset classifications, loan-to-value ratios, potential impairments in the loan portfolio, and other factors.

        Noninterest Income.    Noninterest income totaled $2.2 million and $741,000 for the six months ended June 30, 2002 and 2001, respectively. The increase in noninterest income is primarily attributable to increases in service fees of $248,000, insurance and brokerage commissions of $127,000, information/technology sales and service income of $741,000 related to the Company's majority-owned subsidiary CDGI and an increase of $337,000 in the cash surrender value of the Company's bank owned life insurance. The increase in insurance and brokerage commissions is the result of a greater emphasis placed on this area.

        Noninterest Expense.    Noninterest expense increased $1.8 million, to $8.0 million for the six months ended June 30, 2002 from $6.2 million for the comparable period in 2001. Compensation and benefits increased by $1.4 million. This increase was primarily due to a combination of annual salary increases, the addition of staff and the related compensation and benefits expenses of CDGI. The additional staff expenses are primarily attributed to the opening of the Bank's new Carpentersville, Illinois branch. All other operating expenses, including advertising, audit, data processing, marketing, postage, communications, and other expense increased by a combined $398,000, or 15.9%, to $2.9 million for the six months ended June 30, 2002 from $2.5 million for the six months ended June 30, 2001. Management continues to emphasize the importance of expense management and control while continuing to provide expanded banking services to a growing market base.

        Income Tax Expense.    Income tax expense totaled $1.4 million and $1.0 million for the six months ended June 30, 2002 and 2001, respectively. The increase was primarily due to a $1.7 million increase in earnings before income taxes to $4.6 million for the six months ended June 30, 2002 from $2.9 million for the prior year period. The effective tax rate was 31.4% and 35.0% for the six months ended June 30, 2002 and 2001, respectively. The decrease in the effective tax rate for the six months ended June 30, 2002 is primarily due to the increase in tax exempt income including municipal interest income and increase in income from bank owned life insurance.

9



Liquidity and Capital Resources

        The Company's primary source of funding for dividends and periodic stock repurchases has been dividends from the Bank. The Bank's ability to pay dividends and other capital distributions to the Company is generally limited by OTS regulations.

        The Bank's primary sources of funds are savings deposits, proceeds from the principal and interest payments on loans and proceeds from the maturity of securities and borrowings from the FHLB-Chicago. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit outflows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

        The primary investing activities of the Bank are the origination of residential one-to-four-family loans and, to a lesser extent multi-family and commercial real estate, construction and land, commercial and consumer loans and the purchase of mortgage-backed and mortgage-related securities. In addition, the Bank purchases loans, consisting of single-family, multi-family and commercial real estate. Deposit flows are affected by the level of interest rates, the interest rates and products offered by the local competitors, the Bank and other factors.

        In addition to the primary investing activities of the Bank, the Company has repurchased shares of its common stock from time to time in the open market. The Company is in the process of its sixth stock repurchase program, which was previously announced in September 2001. Under this program the Company is authorized to repurchase up to 231,808, or 5.0% of its outstanding common stock. Under this current program, 29,900 shares of the Company's common stock have been repurchased at an average price per share of $12.51. As of June 30, 2002, the Company repurchased a total of 2,853,791 shares of the Company's common stock at an average price per share of $11.64.

        The Bank's most liquid assets are cash and interest-bearing demand accounts. The levels of these assets are dependent on the Bank's operating, financing, lending and investing activities during any given period. At June 30, 2002, cash and interest-bearing demand accounts totaled $32.4 million, or 4.4% of total assets.

        See the "Consolidated Statements of Cash Flows" in the Unaudited Consolidated Financial Statements included in this Form 10-Q for the sources and uses of cash flows for operating, investing and financing activities for the six months ended June 30, 2002 and 2001.

        At June 30, 2002, the Bank exceeded all of its regulatory capital requirements. The following is a summary of the Bank's regulatory capital ratios at June 30, 2002:

Total Capital to Total Assets   9.22 %
Total Capital to Risk-Weighted Assets   13.75 %
Tier I Leverage Ratio   9.26 %
Tier I to Risk-Weighted Assets   13.59 %

At June 30, 2002, the Company had a Total Capital to Total Assets ratio of 9.87%.

        On June 12, 2002, the Company announced its second quarter dividend of $0.1325 per share. The dividend was paid on July 9, 2002 to stockholders of record on June 28, 2002.

Recent Accounting Pronouncements

        In July 2001, the FASB issued SFAS No. 141, "Business Combinations"(SFAS No. 141) and SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142). SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. SFAS No. 142 addresses the initial recognition and measurement of intangible

10



assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS No. 142 provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives will not be amortized, but will rather be tested at least annually for impairment. SFAS No. 142 was effective January 1, 2002 for calendar year companies. The adoption of SFAS No. 141 and No. 142 did not have a material impact on the Company's results of operations or financial condition.

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." This Statement is effective for exit or disposal activities that are initiated after December 31, 2002. Adoption of this statement is not expected to have a material effect on the Company's consolidated financial statements.

11



Average Balance Sheet

        The following tables set forth certain information relating to the Bank for the three and six months ended June 30, 2002 and 2001, respectively. The average yields and costs are derived by dividing income or expense by the average balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods shown and reflect annualized yields and costs. Average balances are derived from average monthly balances. The yields and costs include fees, which are considered adjustments to yields. Tax exempt income has been calculated on a tax equivalent basis.

 
  Three Months Ended June 30, 2002
  Three Months Ended June 30, 2001
 
 
  Average
Balance

  Interest
  Yield/Cost
  Average
Balance

  Interest
  Yield/Cost
 
 
  (in thousands)

 
Assets:                            
Interest earning assets:                            
  Short-term deposits and FHLB stock   $ 34,243   176   2.06 % 29,918   301   4.02 %
  Investment securities     71,311   1,143   6.41 % 59,381   941   6.34 %
  Mortgage-backed securities     11,556   167   5.80 % 13,800   236   6.83 %
  Mortgage loans, net     486,124   8,534   7.02 % 435,640   8,216   7.54 %
  Other loans, net     77,556   1,236   6.38 % 52,755   1,085   8.23 %
   
 
     
 
     
    Total interest earning assets     680,790   11,256   6.61 % 591,494   10,779   7.29 %
         
 
     
 
 
Noninterest earning assets     38,902           20,202          
   
         
         
    Total assets   $ 719,692           611,696          
   
         
         
Liabilities and stockholders' equity                            
Interest-bearing liabilities                            
  Deposits:                            
  Money market accounts   $ 115,058   851   2.96 % 66,724   760   4.55 %
  Passbook savings accounts     103,800   630   2.43 % 70,588   575   3.26 %
  NOW Accounts     32,582   85   1.05 % 27,770   85   1.22 %
  Certificates of deposit     181,667   1,855   4.08 % 188,152   2,825   6.00 %
   
 
     
 
     
    Total deposits     433,107   3,421   3.16 % 353,234   4,245   4.81 %
  FHLB Advances     171,700   2,299   5.36 % 155,200   2,145   5.53 %
   
 
     
 
     
  Total interest-bearing liabilities     604,807   5,720   3.78 % 508,434   6,390   5.03 %
         
 
     
 
 
Noninterest-bearing liabilities     43,697           35,541          
   
         
         
    Total liabilities     648,504           543,975          
Total stockholders' equity     71,188           67,721          
   
         
         
  Total liabilities and stockholders' equity   $ 719,692           611,696          
   
         
         
Net interest income before provision for loan losses         5,536           4,389      
         
         
     
Interest rate spread             2.83 %         2.26 %
             
         
 
Net interest margin as a percent of interest earning assets             3.25 %         2.97 %
             
         
 
Ratio of interest-earning assets to interest-bearing liabilities             112.56 %         116.34 %
             
         
 

12


 
  Six Months Ended June 30, 2002
  Six Months Ended June 30, 2001
 
 
  Average
Balance

  Interest
  Yield/Cost
  Average
Balance

  Interest
  Yield/Cost
 
 
  (in thousands)

 
Assets:                            
Interest earning assets:                            
  Short-term deposits and FHLB stock   $ 33,255   334   2.01 % 35,554   793   4.46 %
  Investment securities     70,165   2,178   6.21 % 59,649   1,956   6.56 %
  Mortgage-backed securities     12,179   353   5.80 % 13,300   461   6.94 %
  Mortgage loans, net     481,438   17,212   7.15 % 430,172   16,281   7.57 %
  Other loans, net     74,247   2,413   6.50 % 47,336   1,977   8.35 %
   
 
     
 
     
    Total interest earning assets     671,284   22,490   6.70 % 586,011   21,468   7.33 %
         
         
     
Noninterest earning assets     36,518           20,026          
   
         
         
    Total assets   $ 707,802           606,037          
   
         
         
Liabilities and stockholders' equity                            
Interest-bearing liabilities                            
  Deposits:                            
  Money market accounts   $ 112,693   1,642   2.91 % 57,939   1,309   4.52 %
  Passbook savings accounts     99,780   1,200   2.40 % 69,868   1,172   3.35 %
  NOW Accounts     31,360   157   1.00 % 28,758   169   1.18 %
  Certificates of deposit     178,568   3,786   4.24 % 192,607   5,856   6.08 %
   
 
     
 
     
    Total deposits     422,401   6,785   3.21 % 349,172   8,506   4.87 %
  FHLB Advances     174,283   4,623   5.31 % 157,700   4,371   5.54 %
   
 
     
 
     
    Total interest-bearing liabilities     596,684   11,408   3.82 % 506,872   12,877   5.08 %
         
         
     
Noninterest-bearing liabilities     40,683           31,595          
   
         
         
    Total liabilities     637,367           538,467          
Total stockholders' equity     70,435           67,570          
   
         
         
  Total liabilities and stockholders' equity   $ 707,802           606,037          
   
         
         
Net interest income before provision for loan losses         11,082           8,591      
         
         
     
Interest rate spread             2.88 %         2.25 %
             
         
 
Net interest margin as a percent of interest earning assets             3.30 %         2.93 %
             
         
 
Ratio of interest-earning assets to interest-bearing liabilities             112.50 %         115.61 %
             
         
 

13



Item 3. Quantitative and Qualitative Disclosures About Market Risk.

        The Bank's interest rate sensitivity is monitored by management through the use of a Net Portfolio Value Model which generates estimates of the change in the Bank's net portfolio value ("NPV") over a range of interest rate scenarios. NPV is the present value of expected cash flows from assets, liabilities, and off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The model assumes estimated prepayment rates, reinvestment rates and deposit decay rates. The Sensitivity Measure is the decline in the NPV ratio, in basis points, caused by a 2% increase or decrease in rates, whichever produces a larger decline. The higher the institution's Sensitivity Ratio, the greater its exposure to interest rate risk is considered to be. The following NPV Table sets forth the Bank's NPV as of June 30, 2002.

 
   
   
   
  NPV as % of Portfolio
Value of Assets

 
 
  Net Portfolio Value
 
Change in
Interest Rates
in Basis Points
(Rate Shock)

 
  Amount
  $ Change
  % Change
  NPV Ratio
  % Change
 
 
  (In thousands)

   
   
   
 
+300   $ 44,813   $ (46,347 ) (50.84 )% 6.38 % (47.23 )%
+200     61,164     (29,996 ) (32.90 ) 8.49   (29.78 )
+100     78,535     (12,625 ) (13.85 ) 10.62   (12.16 )
Static     91,160         12.09    
-100     104,316     13,156   14.43   13.57   12.24  
-200     110,097     18,937   20.77   14.19   17.37  
-300     115,881     24,721   27.12   14.80   22.42  

        Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in NPV require the making of certain assumptions which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the NPV Table presented assumes that the composition of the Bank's interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the NPV Table provides an indication of the Bank's interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on the Bank's net interest income and may differ from actual results.

14




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 and Use of Proceeds.

        None.


Item 3.    Defaults Upon Senior Securities.

        None.


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

        None.


Item 5.    Other Information.

        None.


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


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

(b)
Reports on Form 8-K

15



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 the undersigned hereunto duly authorized.

        EFC BANCORP, INC.

Dated:

 

August 14, 2002

 

By:

 

/s/ Barrett J. O'Connor
   
     
        Barrett J. O'Connor
President and Chief Executive Officer
(Principal executive officer)

Dated:

 

August 14, 2002

 

By:

 

/s/ James J. Kovac
   
     
        James J. Kovac
Executive Vice President and Chief
Financial Officer
(Principal financial and accounting officer)

16




QuickLinks

EFC Bancorp, Inc. Form 10-Q For the Quarter Ended June 30, 2002 INDEX
PART I. FINANCIAL INFORMATION EFC BANCORP, INC.
EFC BANCORP, INC. AND SUBSIDIARIES Consolidated Balance Sheets (unaudited) June 30, 2002 and December 31, 2001
EFC BANCORP, INC. AND SUBSIDIARIES Consolidated Statements of Income (unaudited) For the three and six months ended June 30, 2002 and 2001
EFC BANCORP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited) For the six months ended June 30, 2002 and 2001
EFC BANCORP, INC. Notes to Consolidated Financial Statements
PART II. OTHER INFORMATION
SIGNATURES