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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
or
[ ] 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.
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(Exact name of registrant as specified in its charter)
Delaware 36-4193304
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1695 Larkin Avenue, Elgin, Illinois 60123
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(Address of principal executive offices) (Zip Code)
(847) 741-3900
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(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 X NO
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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: 7,491,434 shares of common
stock, par value $0.01 per share, were outstanding as of May 10, 1998
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EFC Bancorp, Inc.
Form 10-Q
For the Quarter Ended March 31, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I. FINANCIAL INFORMATION............................................... 2
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1998 and
December 31, 1997............................................. 3
Consolidated Statements of Operations--For the Three
Months Ended March 31, 1998 and 1997.......................... 4
Consolidated Statements of Cash Flows--For the Three
Months Ended March 31, 1998 and 1997.......................... 5
Notes to Consolidated Financial Statements.................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............15
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
</TABLE>
1
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PART I FINANCIAL INFORMATION
EFC BANCORP, INC.
MARCH 31, 1998
Item 1. Financial Statements.
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EFC BANCORP, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1998 (unaudited) and December 31, 1997
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
ASSETS 1998 1997
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<S> <C> <C>
Cash and cash equivalents:
On hand and in banks............................................................ $ 2,304,730 1,965,164
Interest bearing deposits with financial institutions........................... 105,282,024 8,133,390
Loans receivable, net............................................................. 260,200,103 246,695,479
Mortgage-backed securities available-for-sale, at fair value...................... 18,642,192 20,163,460
Investment securities available-for-sale, at fair value........................... 51,715,072 45,483,665
Foreclosed real estate............................................................ 98,652 98,652
Stock in Federal Home Loan Bank of Chicago, at cost............................... 2,051,000 2,051,000
Accrued interest receivable....................................................... 1,164,332 1,101,172
Office properties and equipment, net.............................................. 5,535,490 5,389,546
Other assets...................................................................... 1,213,317 781,159
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Total assets...................................................................... $448,206,912 331,862,687
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-------------- -------------
Liabilities and Stockholder's Equity
Liabilities:
Deposits.......................................................................... $279,414,424 270,013,430
Borrowed money.................................................................... 34,000,000 24,000,000
Advance payments by borrowers for taxes and insurance............................. 729,163 423,996
Income taxes payable.............................................................. 1,959,488 1,595,540
Accrued expenses and other liabilities............................................ 99,250,564 3,599,980
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Total liabilities................................................................. 415,353,639 299,632,946
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Stockholder's Equity:
Retained Earnings, substantially restricted..................................... 32,293,933 31,493,996
Accumulated other comprehensive income.......................................... 559,340 735,745
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Total stockholder's equity........................................................ 32,853,273 32,229,741
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Commitments and contingencies..................................................... -- --
Total liabilities and stockholder's equity........................................ $448,206,912 331,862,687
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</TABLE>
See accompanying notes to consolidated financial statements.
3
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EFC BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statement of Operations (unaudited)
For the three months ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Interest income:
Loans secured by real estate......................................................... $ 4,837,622 4,656,192
Other loans.......................................................................... 258,960 206,932
Mortgage-backed securities available-for-sale........................................ 332,452 380,752
Investment securities and mutual funds available-for-sale............................ 1,228,925 778,263
------------ ---------
Total interest income.................................................................. 6,657,959 6,022,139
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Interest expense:
Deposits............................................................................. 3,018,699 2,814,525
Borrowed money....................................................................... 449,916 398,468
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Total interest expense................................................................. 3,468,615 3,212,993
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Net interest income before provision for loan losses................................... 3,189,344 2,809,146
Provision for loan losses.............................................................. 56,000 9,000
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Net interest income after provision for loan losses.................................... 3,133,344 2,800,146
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Noninterest income:
Service fees......................................................................... 148,896 141,648
Real estate and insurance commissions................................................ 13,127 11,947
Gain on sale of foreclosed real estate............................................... -- 7,915
Other................................................................................ 6,924 15,439
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Total noninterest income............................................................... 168,947 176,949
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Noninterest expense:
Compensation and benefits............................................................ 998,809 896,617
Office building, net................................................................. 80,360 95,795
Depreciation and repairs............................................................. 167,442 150,581
Data processing...................................................................... 96,459 73,064
Federal insurance premium............................................................ 40,235 40,235
NOW account operating expenses....................................................... 66,616 58,927
Other................................................................................ 641,470 485,704
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Total noninterest expense.............................................................. 2,091,391 1,800,923
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Earnings before income taxes........................................................... 1,210,900 1,176,172
Income tax expense..................................................................... 410,963 402,010
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Net earnings........................................................................... $ 799,937 774,162
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</TABLE>
See accompanying notes to consolidated financial statements.
4
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EFC BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
For the three months ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net earnings................................................................... $ 799,937 774,162
Adjustment to reconcile net earnings to net cash provided by (used in) operating
activities:
Amortization of premiums and discounts, net...................................... 12,462 (8,196)
Provision for loan losses........................................................ 56,000 9,000
Depreciation of office properties and equipment.................................. 111,191 93,573
Gain on sale of foreclosed real estate........................................... -- (7,915)
Decrease (increase) in accrued interest receivable and other assets, new......... (495,318) 115,073
Increase in income taxes payable, accrued expenses and other liabilities, net.... 2,218,344 1,258,157
------------ -----------
Net cash provided by operating activities.......................................... 2,702,616 2,233,854
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Cash flows from investing activities:
Net increase in loans receivable................................................. (11,658,224) (1,824,173)
Purchases of loans receivable.................................................... (1,902,400) --
Purchases of mortgage-backed securities available-for-sale....................... -- (1,093,097)
Principal payments on mortgage-backed securities available-for-sale.............. 1,513,403 2,222,907
Maturities of investment securities available-for-sale........................... 8,423,034 7,085,798
Purchases of investment securities available-for-sale............................ (14,867,695) (7,558,415)
Purchases of office properties and equipment..................................... (257,135) (480,368)
Proceeds from the sale of foreclosed real estate................................. -- 74,716
------------ ------------
Net cash used in investing activities.............................................. (18,749,017) (1,572,632)
------------ ------------
Cash flows from financing activities:
Conversion proceeds held......................................................... 94,133,607 --
Net increase in deposits......................................................... 9,400,994 4,409,337
Proceeds from borrowed money..................................................... 14,000,000 32,000,000
Repayments on borrowed money..................................................... (4,000,000) (34,000,000)
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Net cash provided by financing activities.......................................... 113,534,601 2,409,337
------------ -----------
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Net increase in cash and cash equivalents.......................................... 97,488,200 3,070,559
Cash and cash equivalents at beginning of period................................... 10,098,554 10,953,010
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Cash and cash equivalents at end of period......................................... $107,586,754 14,023,569
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</TABLE>
See accompanying notes to consolidated financial statements.
5
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ITEM 1. FINANCIAL STATEMENTS, CONTINUED
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) and its wholly-owned subsidiary,
Elgin Financial Center, SB (the Bank) and its wholly-owned subsidiary, Fox
Valley Service Corp.
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. Certain information and
footnote disclosures normally included in financial statements presented in
accordance with generally accepted accounting principles 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 1997 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 Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income, which
is effective for fiscal years beginning after December 15, 1997. This
statement established standards for reporting and displaying comprehensive
income and its components (revenue, expenses, gains and losses) in a full set
of general purpose financial statements. The Company adopted SFAS No.130 on
January 1, 1998. The Company's comprehensive income for the three month
periods ended March 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net income................................................................................ $ 799,937 774,162
Other comprehensive loss, net of tax--unrealized holding losses on securities arising
during the period....................................................................... (176,405) (287,742)
---------- ----------
Comprehensive income...................................................................... $ 623,532 486,420
---------- ----------
---------- ----------
</TABLE>
There were no sales of investment securities as of and for the three
months ended March 31, 1998 and 1997.
6
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Note 3: SUBSEQUENT EVENT -- CONVERSION TO STOCK FORM OF OWNERSHIP
On August 12, 1997, the Board of Directors adopted a Plan of Conversion,
as amended (the Plan) whereby the Bank will convert from a state chartered
savings bank to a state chartered stock savings bank. The Plan has been
approved by the regulatory authorities and the members at a special meeting.
On April 3, 1998, the Savings Bank completed the conversion and the
Company completed the issuance and sale of 6,936,513 shares of its own common
stock (the Transaction), at a price of $10.00 per share, through an initial
public offering (IPO), with the Bank's members receiving all of the shares.
The stock of the Bank was issued to a holding company, EFC Bancorp, Inc. (the
Company) formed in connection with the conversion. The Company also
contributed 554,921 shares of its common stock, from authorized, but unissued
shares, to a charitable foundation (the Foundation) immediately following the
conversion. The Company received gross proceeds from the Transaction of
$69,365,130, before the reduction from gross proceeds of $1,980,000 for
estimated IPO related expenses, which were initially deferred. On the date of
the Transaction, $12,490,054 of deposits and $56,875,076 of nondepository
stock subscription funds were transferred to stockholder's equity and
$37,258,531 of nondepository stock subscription funds were subsequently
returned to subscribers; also subsequent to the Transaction, the ESOP
purchased, through a $8,961,298 loan from the Company and the initial $4,900
contribution from the Bank, 599,314 shares of common stock on the open market.
The Bank established a liquidation account, as of the date of conversion,
in the amount of $31,723,114, equal to its retained earnings as of the date
of the latest consolidated statement of financial condition appearing in the
final prospectus. The Liquidation Account is established to provide a limited
priority claim on the assets of the Bank to qualifying pre-conversion
depositors (Eligible and Supplemental Eligible Account Holders) who continue
to maintain deposits in the Bank after conversion. In the unlikely event of a
complete liquidation of the Bank, and only in such event, each Eligible
Account Holder would then receive from the Liquidation Account a liquidation
distribution based on his proportionate share of the then total remaining
qualifying deposits.
The Company established a Foundation in connection with the conversion.
The amount of shares the Company contributed to the Foundation equaled 8.0%
of the total amount of common stock sold in the Conversion. The Foundation
was formed as a complement to the Bank's existing community activities and is
dedicated to community activities and the promotion of charitable causes.
The Foundation submitted a request to the Internal Revenue Service to be
recognized as a tax-exempt organization and will likely be classified as a
private foundation. The contribution of common stock to the Foundation by the
Company will be tax deductible, subject to an annual limitation based on 10%
of the Company's annual taxable income. The Company, however, will be able
to carry forward any unused portion of the deduction for five years following
the contribution. The Company recognized a $5,549,000 expense for the full
amount of the contribution, offset in part by the $2,053,000 corresponding
tax benefit, during the second quarter of 1998.
Subsequent to the conversion, the Bank may not declare or pay cash
dividends on or
7
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repurchase any of its shares of common stock if the effect thereof would
cause stockholder's equity to be reduced below applicable regulatory capital
maintenance requirements or if such declaration and payment would otherwise
violate regulatory requirements or would reduce the bank's capital level
below the amount then required for the aforementioned Liquidation Account.
Also, capital distribution regulations limit the Bank's ability to make
capital distributions which include dividends, stock redemptions or
repurchases, cash-out mergers, interest payments on certain convertible debt
and other transactions charged to the capital account based on their capital
level and supervisory condition. Federal regulations also preclude any
repurchase of the stock of the Bank or its holding company for one year after
conversion except where compelling and valid business reasons are established
and approved by the FDIC. At March 31, 1998, the Bank has incurred costs
of approximately $969,000 relating to these and other related professional
services. These costs have been deferred and, upon conversion, such costs and
any additional costs were charged against the proceeds from the sale of stock.
8
<PAGE>
PART I: FINANCIAL INFORMATION
EFC BANCORP, INC
MARCH 31, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following analysis discusses changes in the financial condition and
results of operations at and for the three months ended March 31, 1998, and
should be read in conjunction with the Bank's 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 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.
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 March 31, 1998 and December 31, 1997
Total assets at March 31, 1998 were $448.2 million, which represented an
increase of $116.3 million, or 35.0%, compared to $331.9 million at December
31, 1997. The change in assets was primarily due to an increase in loans
receivable and cash and cash equivalents. Loans
9
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receivable, net increased by $13.5 million, or 5.5% , to $260.2 million at
March 31, 1998 as compared to $246.7 million at December 31, 1997. The
increase in loans receivable was attributable to an increase in demand and
the rate environment during the quarter. Cash and cash equivalents increased
by $97.5 million to $107.6 million at March 31, 1998 as compared to $10.1
million at December 31, 1997. This increase was primarily the result of the
stock subscription proceeds received during the last fifteen days of March.
(See note 3 to the unaudited consolidated financial statements.) A total of
$94.1 million of stock subscription proceeds were received by March 31, 1998,
representing a majority of the increase in cash and cash equivalents. The
growth in total assets was funded by increases in savings deposits, borrowed
money and the aforementioned stock subscription proceeds. Savings deposits
increased by $9.4 million, or 3.5%, to $279.4 million at March 31, 1998 as
compared to $270.0 million at December 31, 1997. Borrowed money, representing
FHLB advances, increased by $10.0 million to $34.0 million at March 31, 1998
as compared to $24.0 million at December 31, 1997. Accrued expenses and other
liabilities increased by $95.7 million to a balance of $99.3 million at March
31, 1998 compared to $3.6 million at December 31, 1997. $94.1 million of the
increase resulted from the stock subscription proceeds as previously noted.
Comparison of Operating Results For the Three Months Ended March 31, 1998 and
1997
GENERAL. The Bank's net earnings increased $26,000, or 3.3%, to $800,000
for the three months ended March 31, 1998, from $774,000 for the three months
ended March 31, 1997.
INTEREST INCOME. Interest income increased $636,000, or 10.6%, to $6.7
million for the three months ended March 31, 1998, compared with the same
period in 1997. This increase resulted from a combination of an increase in
average interest-earning assets offset by a decrease in average yield.
Mortgage loan interest income increased by $181,000 for the three months
ended March 31, 1998. The average balance of mortgage loans increased $8.7
million, and loan yield increased by 2 basis points to 8.04% from 8.02%.
Interest income from investment securities and mortgage backed securities
increased by $147,000 for the three months ended March 31, 1998, compared
with the same period in 1997. This increase resulted from a combination of an
increase in average balance of $15.7 million offset by a 75 basis point
decline in yield. Interest income on short term deposits increased by
$255,000 as a result of increases in yield and average balance. The yield on
short term deposits increased by 69 basis points. The related average balance
increased by $31.8 million to $43.1 million for the three months ended March
31, 1998, as compared to $11.3 million for the three months ended March 31,
1997. This increase is directly related to the stock subscription proceeds
received in March, 1998. Overall, the average yield on interest-earning
assets decreased by 53 basis points to 7.15% for the three months ended March
31, 1998 from 7.68% for the three months ended March 31, 1997. The average
balance of interest-earning assets increased by $58.8 million, or 18.7%, to
$372.5 million for the three months ended March 31, 1998 from $313.7 million
for the comparable period in 1997.
INTEREST EXPENSE. Interest expense increased by $256,000, or 8.0%, to
$3.5 million for the three months ended March 31, 1998, from $3.2 million for
the three months ended March 31, 1997. This increase resulted from the
combination of an increase in the average balance of interest-bearing
liabilities, offset by an overall decrease in the average rate paid on those
interest-bearing liabilities. The average balance of interest-bearing
liabilities increased by $24.5 million, or 8.9%, to $301.2 million at March
31, 1998 from $276.7 million at March 31, 1997. This change reflects an $18.2
million increase in the deposit accounts, with the remaining $6.3 million
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increase attributable to advances from the FHLB-Chicago. The average rate
paid on combined deposits and borrowed money decreased by 4 basis points to
4.61% for the three months ended March 31, 1998 from 4.65% for the three
months ended March 31, 1997.
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest
income before provision for loan losses increased $380,000, or 13.5%, to $3.2
million for the three months ended March 31, 1998 from $2.8 million for the
comparable period in 1997. This increase was primarily attributable to a
$34.3 million increase in average interest-earning assets in excess of
average interest-bearing liabilities to $71.3 million for the three months
ended March 31, 1998 from $37.0 million for the same period in 1997. Interest
rate spread declined by 49 basis points from 3.03% for the three months ended
march 31, 1997 to 2.54% for the three months ended March 31, 1998.
PROVISION FOR LOAN LOSSES. The Bank's provision for loan losses
increased by $47,000, to $56,000 for the three months ended March 31, 1998
from $9,000 in 1997. At March 31, 1998 and 1997, non-performing loans totaled
$2.0 million and $713,000, respectively. At March 31, 1998, the ratio of the
allowance for loan losses to non-performing loans was 60.5% compared to 57.7%
at December 31, 1997 and 112.0% at March 31, 1997. The increase in
non-performing loans is primarily due to a $1.2 million first mortgage loan
becoming adversely classified during the third quarter of 1997. The Bank
classified the loan as substandard and non-performing. The ratio of the
allowance to total loans was 0.45%, 0.46% and 0.33%, at March 31, 1998,
December 31, 1997 and March 31, 1997, respectively. There were no charge-offs
for the three months ended March 31, 1998 and 1997. 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 $169,000 and $177,000 for
the three months ended March 31, 1998 and 1997, respectively. The decrease in
noninterest income is primarily attributable to the $8,000 gain on sale of
foreclosed real estate recognized in the first quarter of 1997. There was no
gain on the sale of foreclosed real estate during the three months ended
March 31, 1998.
NONINTEREST EXPENSE. Noninterest expense increased by $290,000, or
16.1%, to $2.1 million for the three months ended March 31, 1998 from $1.8
million for the comparable period in 1997. Compensation and benefits
increased by $102,000, or 11.4%, to $999,000 for the three months ended March
31, 1998 compared to $897,000 for the three months ended March 31, 1997. This
increase was primarily due to a combination of annual salary increases and
the addition of staff during 1997. Other operating expenses, including
advertising, marketing, insurance, postage, communications, data processing
and other office expense increased by a combined $179,000, or 32.1%, to
$738,000 for the three months ended March 31, 1998 compared to $559,000 for
1997. Management continues to emphasize the importance of expense management
and control in order to continue to provide expanded banking services to a
growing market base. The Bank expects noninterest expense to increase after
the conversion. Elgin Financial Foundation was established in conjunction
with the conversion, and was funded with a contribution of authorized but
unissued common stock immediately following the conversion. This contribution
amounted to 8% of the common stock sold. The expense related to the
establishment of the Foundation will be recognized in the second quarter of
1998. In addition, salary and benefits expense may increase in future
quarters as a result of the adoption of
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employee benefit plans, including the ESOP, which has purchased common stock
issued in the conversion, and a stock based incentive plan, if implemented,
for the benefit of directors, officers, and employees.
INCOME TAX EXPENSE. Income tax expense totaled $411,000 for the three
months ended March 31, 1998 compared to $402,000 for the comparable period in
1997. The increase in the provision for income taxes was the result of a
combination of an increase in earnings before income tax expense and a
decrease in the effective income tax rate. The effective income tax rate
decreased to 33.9% for the three months ended March 31, 1998 from 34.2% for
the three months ended March 31, 1997. Earnings before income tax expense
increased by $35,000, or 3.0%, to $1.21 million for the three months ended
March 31, 1998 from $1.18 million for the same period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are savings deposits, proceeds from
the principal and interest payments on loans and proceeds from the maturation
of securities and, to a lesser extent, borrowings from 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. 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.
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 March
31, 1998, cash and interest-bearing demand accounts totaled $107.6 million,
or 24.0% of total assets. This level of cash and cash equivalents was
primarily the result of the stock subscription proceeds received during the
last fifteen days of March. (See note 3 to the unaudited consolidated
financial statements.)
See the "Consolidated Statement 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 three months ended March 31, 1998 and 1997.
At March 31, 1998, the Bank exceeded all of its regulatory capital
requirements. The following is a summary of the Bank's regulatory capital
ratios at March 31, 1998:
<TABLE>
<S> <C>
Total Capital to Total Assets........................................................ 7.33%
Total Capital to Risk-Weighted Assets................................................ 15.08%
Tier I Leverage Ratio................................................................ 8.41%
Tier I to Risk-Weighted Assets....................................................... 14.54%
</TABLE>
12
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Year 2000 Compliance
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed without considering the impact
of the upcoming change in the century. If not corrected, many computer
applications and systems could fail or create erroneous results by or at the
year 2000. The Bank primarily utilizes a third party vendor and such vendor's
proprietary software to process its electronic data. The third party data
processor vendor is in the process of modifying, upgrading or replacing its
computer software applications and systems as necessary to accommodate the
"year 2000" dating changes necessary to permit correct recording of year
dates for 2000 or later years. The Vendor also has engaged various
consultants to review its "year 2000" issues and has begun to implement a
"year 2000" compliance program. The Bank has prepared a "year 2000" Plan and
is in the process of testing internal systems for compliance. The Bank does
not currently have any information concerning the compliance status of its
suppliers and customers. In the event that any of the Bank's significant
suppliers do not successfully and timely achieve "year 2000" compliance, the
Bank's business or operations could be adversely affected. The cost, if any,
that may arise from "year 2000" issues is not currently determinable.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, Earnings per Share (SFAS
No. 128). This Statement established standards for computing and presenting
earnings per share (EPS). Basic EPS excludes dilutions and is computed by
dividing income available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities to issue common stock were
exercised or converted into common stock and is computed similarly to fully
diluted EPS pursuant to APB Opinion No. 15, Earnings per Share. Dual
presentation of basic and diluted earnings per share are required on the face
of the income statements of all public entities with complex capital
structures. This Standard supercedes Opinion No. 15 and is effective for
financial statements issued for periods ending after December 15, 1997. The
Statement was not applicable for the consolidated financial statements for
the quarter ended March 31, 1998, as common stock had yet to be issued. It
will be applicable beginning in the second quarter of 1998 upon completion of
the conversion.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, Disclosure about Segment of an Enterprise
and Related
13
<PAGE>
Information (SFAS No. 131) which establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements. This Statement requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. This Statement supercedes FASB No. 14
Financial Reporting for Segments of a Business Enterprise. Operating segments
are components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources and in assessing performance. The
Company adopted the Statement on January 1, 1998 and it did not have a
material impact on the Company.
In February 1998, the Financial Accounting Standards Board issued
Statement No. 132, Employers' Disclosures about Pension and Other Post
Retirement Benefits -an amendment of FASB Statements No. 87, 88, and 106.
This Statement revises employers' disclosures about pension and other
post-retirement benefit plans, but does not change the measurement or
recognition of these plans. It standardizes the disclosure requirements to
the extent practicable, requires additional information on changes in the
benefit obligations and fair values of plan assets that will facilitate
financial analysis and eliminates certain disclosures that are no longer as
useful as they were when Statements 87, 88, and 106 were issued. This
Statement is effective for fiscal years beginning after December 15, 1997.
The Company adopted the Statement on January 1, 1998 and the disclosure
requirements are not expected to have a material impact on the Company's
financial position or results of operations.
14
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There have been no material changes in information regarding quantitative
and qualitative disclosures about market risk from the information presented
as of December 31, 1997 (in the 1997 Form 10-K) to March 31, 1998.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Bank 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 financial condition
and results of operations of the Bank.
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 (SECTION 249.308 OF THIS CHAPTER).
(a) Exhibits
11.0 Statement re: Computation of Per Share Earnings (not
applicable as the Company did not have stock outstanding
during the Quarter ended March 31, 1998)
27.0 Financial Data Schedule
(b) Reports on Form 8-K
None.
15
<PAGE>
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: May 15, 1998 By: /s/ Barrett J. O'Connor
----------------- -----------------------
Barrett J. O'Connor
President and Chief Executive Officer
(principal executive officer)
Dated: May 15, 1998 By: /s/ James J. Kovac
---------------- ------------------------
James J. Kovac
Senior Vice President and Chief
Financial Officer
(principal financial and accounting
officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,305
<INT-BEARING-DEPOSITS> 105,282
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 70,357
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<ALLOWANCE> 1,182
<TOTAL-ASSETS> 448,207
<DEPOSITS> 279,415
<SHORT-TERM> 2,000
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0
0
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<EXTRAORDINARY> 0
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