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EFC BANCORP INC
10-Q, 2000-11-13
SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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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 September 30, 2000

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

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

(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)

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    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 / /

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: 4,880,169 shares of common stock, par value $0.01 per share, were outstanding as of November 13, 2000.

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EFC Bancorp, Inc.

Form 10-Q

For the Quarter Ended September 30, 2000

INDEX

				Page
PART I.		FINANCIAL INFORMATION		1
Item 1.		Financial Statements (unaudited)		1
		Consolidated Balance Sheets at September 30, 2000 and December 31, 1999		1
		Consolidated Statements of Income—For the Three and Nine Months Ended September 30, 2000 and 1999		2
		Consolidated Statements of Cash Flows—For the Nine Months Ended September 30, 2000 and 1999		3
		Notes to Consolidated Financial Statements		4
Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations		5
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		11
PART II:		OTHER INFORMATION		12
Item 1.		Legal Proceedings		12
Item 2.		Changes in Securities and Use of Proceeds		12
Item 3.		Defaults Upon Senior Securities		12
Item 4.		Submission of Matters to a Vote of Security Holders		12
Item 5.		Other Information		12
Item 6.		Exhibits and Reports on Form 8-K		12
SIGNATURES				13

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PART I. FINANCIAL INFORMATION
EFC BANCORP, INC.
September 30, 2000

Item 1. Financial Statements.

EFC BANCORP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (unaudited)

September 30, 2000 and December 31, 1999

				September 30, 2000			December 31, 1999
Assets
Cash and cash equivalents:
	On hand and in banks			$	2,414,526		6,839,710
	Interest bearing deposits with financial institutions				19,231,717		15,333,885
Loans receivable, net					451,632,718		396,006,771
Mortgage-backed securities available-for-sale, at fair value					9,971,910		11,882,080
Investment securities available-for-sale, at fair value					62,513,513		61,079,696
Foreclosed real estate					214,930		168,145
Stock in Federal Home Loan Bank of Chicago, at cost					7,410,000		5,760,000
Accrued interest receivable					3,182,864		2,807,426
Office properties and equipment, net					9,057,606		8,640,410
Other assets					2,558,628		2,453,629
Total assets				$	568,188,412		510,971,752
	Liabilities and Stockholders' Equity
Liabilities:
	Deposits			$	362,941,068		323,879,293
	Borrowed money				133,200,000		115,200,000
	Advance payments by borrowers for taxes and insurance				265,284		897,038
	Income taxes payable				616,681		528,421
	Accrued expenses and other liabilities				5,142,909		4,044,911
Total liabilities					502,165,942		444,549,663
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				71,878,322		72,039,597
	Treasury stock, at cost, 2,611,265 and 2,331,184 shares at September 30, 2000 and December 31, 1999, respectively				(30,528,058	)	(27,671,724	)
	Unearned employee stock ownership plan (ESOP), 489,440 and 519,406 shares at September 30, 2000 and December 31, 1999, respectively				(7,318,388	)	(7,766,459	)
	Unearned stock award plan, 179,234 and 222,224 shares at September 30, 2000 and December 31, 1999, respectively				(1,993,979	)	(2,472,242	)
	Retained earnings, substantially restricted				35,039,381		33,469,424
	Accumulated other comprehensive loss				(1,129,722	)	(1,251,421	)
Total stockholders' equity					66,022,470		66,422,089
Commitments and contingencies					—		—
Total liabilities and stockholders' equity				$	568,188,412		510,971,752

See accompanying notes to consolidated financial statements.

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EFC BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Income (unaudited)

For the three and nine months ended September 30, 2000 and 1999

				Three Months Ended September 30,					Nine Months Ended September 30,
				2000			1999		2000		1999
Interest income:
	Loans secured by real estate			$	7,779,436		6,404,202		22,279,131		18,140,517
	Other loans				767,443		376,021		2,001,012		1,005,721
	Mortgage-backed securities available-for-sale				206,483		227,151		635,837		747,265
	Investment securities available-for-sale and interest bearing deposits with financial institutions				1,411,957		1,117,847		4,175,277		3,375,313
Total interest income					10,165,319		8,125,221		29,091,257		23,268,816
Interest expense:
	Deposits				4,140,277		3,040,829		11,481,745		8,504,990
	Borrowed money				1,990,650		1,186,800		5,335,542		2,996,940
Total interest expense					6,130,927		4,227,629		16,817,287		11,501,930
Net interest income before provision for loan losses					4,034,392		3,897,592		12,273,970		11,766,886
Provision for loan losses					111,258		45,000		267,000		135,000
Net interest income after provision for loan losses					3,923,134		3,852,592		12,006,970		11,631,886
Noninterest income:
	Service fees				249,032		249,871		699,335		711,193
	Insurance and brokerage commissions				38,240		34,451		116,479		67,671
	Loss on sale of foreclosed real estate				—		—		(7,413	)	—
	Gain on sale of securities				81,309		12,715		150,057		12,715
	Other				17,082		14,949		52,289		36,997
Total noninterest income					385,663		311,986		1,010,747		828,576
Noninterest expense:
	Compensation and benefits				1,616,189		1,516,142		4,735,733		4,361,817
	Office building, net				86,019		88,801		272,402		279,240
	Depreciation and repairs				235,179		205,634		703,519		606,976
	Data processing				128,013		109,953		346,544		307,282
	Federal insurance premium				17,268		40,278		50,412		120,834
	NOW account operating expenses				121,160		68,719		348,753		199,188
	Other				623,960		647,496		2,025,843		1,809,787
Total noninterest expense					2,827,788		2,677,023		8,483,206		7,685,124
Income before income taxes					1,481,009		1,487,555		4,534,511		4,775,338
Income tax expense					523,211		518,107		1,614,428		1,694,021
Net income				$	957,798		969,448		2,920,083		3,081,317
Earnings per share (basic and diluted)				$	0.22		0.20		0.66		0.53

See accompanying notes to consolidated financial statements.

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EFC BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)

For the nine months ended September 30, 2000 and 1999

				2000			1999
Cash flows from operating activities:
	Net income			$	2,920,083		3,081,317
	Adjustment to reconcile net income to net cash provided by operating activities:
		Amortization of premiums and discounts, net			27,409		73,386
		Provision for loan losses			267,000		135,000
		Stock award plan shares allocated			478,263		500,052
		ESOP shares committed to be released			448,071		448,071
		Change in fair value of ESOP shares			(161,275	)	(127,114	)
		Gain on sale of securities			(150,057	)	52,821
		Loss on sale of foreclosed real estate			7,413		—
		Depreciation of office properties and equipment			507,268		420,474
		Decrease in accrued interest receivable and other assets, net			(558,246	)	(201,400	)
		Increase in income taxes payable, accrued expenses and other liabilities, net			599,177		495,753
Net cash provided by operating activities					4,385,106		4,812,824
Cash flows from investing activities:
	Net increase in loans receivable				(21,944,893	)	(34,554,869	)
	Purchases of loans receivable				(34,162,550	)	(26,251,630	)
	Principal payments on mortgage-backed securities available-for-sale				1,933,454		5,171,777
	Maturities of investment securities available-for-sale				4,060,634		11,078,008
	Proceeds from sale of investment securities available for sale				7,063,076		10,012,715
	Purchases of investment securities available-for-sale				(12,258,653	)	(24,113,865	)
	Purchases of office properties and equipment				(924,464	)	(1,940,668	)
	Purchases of stock in the Federal Home Loan Bank of Chicago				(1,650,000	)	(2,110,160	)
	Proceeds from the sale of foreclosed real estate				160,298		83,980
	Net cash used in investing activities				(57,723,098	)	(62,624,712	)
Cash flows from financing activities:
	Cash dividends paid				(1,394,801	)	(1,252,432	)
	Purchase of treasury stock				(2,856,334	)	(20,746,007	)
	Net increase in deposits				39,061,775		39,331,360
	Proceeds from borrowed money				94,000,000		64,200,000
	Repayments on borrowed money				(76,000,000	)	(27,000,000	)
Net cash provided by financing activities					52,810,640		54,532,921
Net decrease in cash and cash equivalents					(527,352	)	(3,278,967	)
Cash and cash equivalents at beginning of period					22,173,595		23,279,906
Cash and cash equivalents at end of period				$	21,646,243		20,000,939

See accompanying notes to consolidated financial statements.

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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 Savings Bank (the Bank) and its wholly-owned subsidiary, Fox Valley Service Corp. 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 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 1999 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 nine month periods ended September 30, 2000 and 1999 are as follows:

				Three Months Ended September 30,					Nine Months Ended September 30,
				2000			1999		2000			1999
Net income				$	957,798		969,448		$	2,920,083		3,081,317
Other comprehensive loss, net of tax:
	Unrealized holding gains (losses) on securities arising during the period				516,141		(229,114	)		216,235		(1,320,889	)
Reclassification adjustment for net gain realized in net income, net of tax					(51,225	)	(8,010	)		(94,536	)	(8,010	)
	Comprehensive income			$	1,422,714		732,324		$	3,041,782		1,752,418

For the three and nine month periods ended September 30, 2000 the sale of investment securities resulted in a gain of $81,309 and $150,057 ($51,225 and $94,536 net of tax effect), respectively. For the three and nine month periods ended September 30, 1999 the sale of investment securities resulted in a gain of $12,715 ($8,010 net of tax effect).

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

    The following analysis discusses changes in the financial condition at September 30, 2000 and results of operations for the three and nine months ended September 30, 2000, 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 1999 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 September 30, 2000 and December 31, 1999

    Total assets at September 30, 2000 were $568.2 million, which represented an increase of $57.2 million, or 11.2%, compared to $511.0 million at December 31, 1999. The increase in total assets was primarily as a result of an increase in loans receivable of $55.6 million, or 14.0%, to $451.6 million at September 30, 2000 from $396.0 million at December 31, 1999. Of the $55.6 million increase, $34.2 million was due to loans purchased. The increase in loans receivable was primarily attributable to strong loan demand during the period. The growth in total assets was funded by increases in borrowed money and deposits. Borrowed money, representing FHLB advances, increased by $18.0 million to $133.2 million at September 30, 2000 from $115.2 million at December 31, 1999. Deposits increased $39.0 million to $362.9 million at September 30, 2000 from $323.9 million at December 31, 1999. Stockholders' equity decreased by $400,000 to $66.0 million at September 30, 2000 from $66.4 million at December 31, 1999. The decrease in stockholders' equity was primarily the result of the Company completing its third and fourth stock repurchases since becoming a public company in April, 1998. The third stock repurchase program, a 5.0% repurchase announced on October 1, 1999, was completed January 13, 2000; total shares repurchased were 270,370 and the average price was $10.38 per share. Subsequently, on March 22, 2000, the Company announced the completion of the fourth stock repurchase program; total shares repurchased were 256,851, or 5.0%, of the outstanding shares of common stock and the average price was $10.20. After these transactions, there were 4,880,169 shares

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of common stock issued and outstanding. In addition to the stock repurchases, dividends totaling $0.12 per share were declared during each of the three quarters of 2000.

Comparison of Operating Results for the Three Months Ended September 30, 2000 and 1999

    General.  The Company's net income decreased $11,000, to $958,000 for the three months ended September 30, 2000, from $969,000 for the three months ended September 30, 1999.

    Interest Income.  Interest income increased $2.1 million, or 25.1%, to $10.2 million for the three months ended September 30, 2000, compared with $8.1 million for the same period in 1999. The increase in interest income was primarily due to an increase in average interest-earning assets, which increased by $92.9 million, or 20.5%, to $545.4 million for the three months ended September 30, 2000 from $452.5 million for the comparable period in 1999, and an increase in the average yield on interest-earning assets by 27 basis points to 7.45% for the three months ended September 30, 2000 from 7.18% for the three months ended September 30, 1999.

    Mortgage loan interest income increased by $1.4 million for the three months ended September 30, 2000 compared with the same period in 1999. The average balance of mortgage loans increased $71.7 million, while the loan yield increased by 3 basis points from 7.50% to 7.53%. Interest income from investment securities, mortgage-backed securities and short term deposits increased by $221,000 for the three months ended September 30, 2000, compared with the same period in 1999. This increase resulted from a combination of an increase in average balance of $3.5 million and a 74 basis point increase in yield.

    Interest Expense.  Interest expense increased by $1.9 million, or 45.0%, to $6.1 million for the three months ended September 30, 2000 from $4.2 million for the three months ended September 30, 1999. This increase resulted from the combination of an increase in the average balance of interest-bearing liabilities, and an overall increase in the average rate paid on those interest-bearing liabilities. The average balance of interest-bearing liabilities increased by $95.8 million, or 25.4%, to $472.4 million at September 30, 2000 from $376.6 million at September 30, 1999. This change reflects a $53.5 million increase in the deposit accounts, with the remaining $42.3 million increase attributable to advances from the FHLB-Chicago. The average rate paid on combined deposits and borrowed money increased by 70 basis points to 5.19% for the three months ended September 30, 2000 from 4.49% for the three months ended September 30, 1999. The Company's stock repurchase programs will generally cause interest-bearing liabilities to rise at a greater rate than interest-earning assets due to the reduction in stockholders' equity as a funding source.

    Net Interest Income Before Provision for Loan Losses.  Net interest income before provision for loan losses increased $137,000, or 3.5%, to $4.0 million for the three months ended September 30, 2000 from $3.9 million for the comparable period in 1999. The net interest margin as a percent of interest-earning assets decreased by 49 basis points to 2.96% for the three months ended September 30, 2000 from 3.45% for the comparable period in 1999.

    Provision for Loan Losses.  The provision for loan losses increased by $66,000, to $111,000 for the three months ended September 30, 2000 from $45,000 in 1999. At September 30, 2000, December 31, 1999 and September 30, 1999, non-performing loans totaled $5.0 million, $1.3 million and $1.9 million, respectively. The increase in non-performing loans from $1.3 million to $5.0 million primarily represents one $3.5 million first mortgage loan secured by a commercial office building past due over 90 days at September 30, 2000. At September 30, 2000, the ratio of the allowance for loan losses to non-performing loans was 36.2% compared to 121.7% at December 31, 1999 and 78.7% at September 30, 1999. The ratio of the allowance to total loans was 0.40%, 0.39% and 0.40%, at September 30, 2000, December 31, 1999 and September 30, 1999, respectively. There were no charge-offs for the three months ended September 30, 2000. Charge-offs for the three months ended September 30, 1999

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amounted to $25,000. 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 $386,000 and $312,000 for the three months ended September 30, 2000 and 1999, respectively. The increase in noninterest income is primarily attributable to a gain on sale of securities totaling $81,000 and an increase in insurance and brokerage commission income of $4,000.

    Noninterest Expense.  Noninterest expense increased $151,000, to $2.8 million for the three months ended September 30, 2000 from $2.7 million for the comparable period in 1999. Compensation and benefits increased by $100,000. This increase was primarily due to a combination of annual salary increases, the addition of staff and increases in employee health insurance costs. The additional staff expenses are primarily attributed to the opening of the Bank's two new branches and the hiring of marketing and human resource personnel. All other operating expenses, including advertising, marketing, postage, communications, data processing and other office expense increased by a combined $51,000, or 4.4%, to $1.2 million for the three months ended September 30, 2000 from $1.1 million for the three months ended September 30, 1999. Of this increase, $52,000 is related to NOW account operating expenses, primarily representing increases in data processing and imaging expenses. 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 $523,000 for the three months ended September 30, 2000 compared to $518,000 for the comparable period in 1999. The effective tax rate was 35.3% and 34.8% for the three months ended September 30, 2000 and 1999, respectively.

Comparison of Operating Results For the Nine Months Ended September 30, 2000 and 1999

    General.  The Company's net income decreased $161,000, to $2.9 million for the nine months ended September 30, 2000, from $3.1 million for the nine months ended September 30, 1999.

    Interest Income.  Interest income increased $5.8 million, or 25.0%, to $29.1 million for the nine months ended September 30, 2000, compared with $23.3 million for the same period in 1999. The increase in interest income was primarily due to an increase in average interest-earning assets, which increased by $90.3 million, or 20.8%, to $524.3 million for the nine months ended September 30, 2000 from $434.0 million for the comparable period in 1999, and an increase in the average yield on interest-earning assets by 25 basis points to 7.40% for the nine months ended September 30, 2000 from 7.15% for the nine months ended September 30, 1999.

    Mortgage loan interest income increased by $4.1 million for the nine months ended September 30, 2000. The average balance of mortgage loans increased $75.4 million, while the loan yield decreased 4 basis points from 7.53% to 7.49%. Interest income from investment securities, mortgage-backed securities and short term deposits increased $519,000 for the nine months ended September 30, 2000, compared with the same period in 1999. This increase resulted from a combination of a decrease in the average balance of $953,000 and an 82 basis point increase in yield.

    Interest Expense.  Interest expense increased by $5.3 million, or 46.2%, to $16.8 million for the nine months ended September 30, 2000 from $11.5 million for the nine months ended September 30, 1999. This increase resulted from the combination of an increase in the average balance of interest-bearing liabilities, and an overall increase in the average rate paid on those interest-bearing liabilities. The average balance of interest-bearing liabilities increased by $105.2 million, or 30.3%, to $452.2 million for the nine months ended September 30, 2000 from $347.0 million for the nine months ended September 30, 1999. This change reflects a $58.5 million increase in deposit accounts, with the remaining $46.7 million increase attributed to advances from the FHLB-Chicago. The average rate paid

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on combined deposits and borrowed money increased by 54 basis points to 4.96% for the nine months ended September 30, 2000 from 4.42% for the nine months ended September 30, 1999. The Company's stock repurchase programs will generally cause interest-bearing liabilities to rise at a greater rate than interest-earning assets due to the reduction in stockholders' equity as a funding source.

    Net Interest Income Before Provision for Loan Losses.  Net interest income before provision for loan losses increased $507,000, or 4.3%, to $12.3 million for the nine months ended September 30, 2000 from $11.8 million for the comparable period in 1999. The net interest margin as a percent of interest- earning assets decreased 50 basis points to 3.12% for the nine months ended September 30, 2000 from 3.62% for the comparable period in 1999.

    Provision for Loan Losses.  The provision for loan losses increased by $132,000, to $267,000 for the nine months ended September 30, 2000 from $135,000 in 1999. At September 30, 2000, December 31, 1999 and September 30, 1999, non-performing loans totaled $5.0 million, $1.3 million and $1.9 million, respectively. The increase in non-performing loans from $1.3 million to $5.0 million primarily represents one $3.5 million first mortgage loan secured by a commercial office building past due over 90 days at September 30, 2000. At September 30, 2000, the ratio of the allowance for loan losses to non-performing loans was 36.2% compared to 121.7% at December 31, 1999 and 78.7% at September 30, 1999. The ratio of the allowance to total loans was 0.40%, 0.39% and 0.40% at September 30, 2000, December 31, 1999 and September 30, 1999, respectively. Charge-offs for the nine months ended September 30, 2000 and 1999 amounted to $3,000 and $27,000, 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 $1.0 million and $829,000 for the nine months ended September 30, 2000 and 1999, respectively. The increase in noninterest income is primarily attributed to a gain on sale of securities totaling $150,000 and an increase in insurance and brokerage commissions of $49,000.

    Noninterest Expense.  Noninterest expense increased $798,000, to $8.5 million for the nine months ended September 30, 2000 from $7.7 million for the comparable period in 1999. Compensation and benefits increased by $374,000. This increase is primarily due to a combination of annual salary increases, the addition of staff and increases in employee health insurance costs. The additional staff expenses are primarily attributed to the opening of the Bank's two new branches and the hiring of marketing and human resource personnel. All other operating expenses, including advertising, marketing, postage, communication, data processing and other office expense increased by a combined $424,000, or 12.8%, to $3.7 million for the nine months ended September 30, 2000 from $3.3 million for the nine months ended September 30, 1999. Of this increase, $101,000 is related to media advertising and marketing and $150,000 is related to NOW account operating expenses, primarily representing increases in data processing and imaging expenses. 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 $1.6 million for the nine months ended September 30, 2000 compared to $1.7 million for the comparable period in 1999. The decrease in the provision for income taxes was primarily the result of a decrease of $241,000 in income before income tax expense for the nine months ended September 30, 2000 compared to the nine months ended September 30, 1999. The effective tax rate was 35.6% and 35.5% for the nine months ended September 30, 2000 and 1999, respectively.

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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 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 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.

    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 September 30, 2000, cash and interest-bearing demand accounts totaled $21.6 million, or 3.8% 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 nine months ended September 30, 2000 and 1999.

    At September 30, 2000, the Bank exceeded all of its regulatory capital requirements. The following is a summary of the Bank's regulatory capital ratios at September 30, 2000:

At September 30, 2000, the Company had a Total Capital to Total Assets ratio of 11.62%.

    On September 20, 2000, the Company announced its third quarter dividend of $0.12 per share. The effective date of the dividend was September 30, 2000. Payment of the cash dividend was made on October 10, 2000.

Year 2000

    The Bank did not experience any material disruptions of the systems or software applications due to the start of the Year 2000 nor has the Bank experienced any problems with third party vendors, suppliers or service providers. The Bank developed contingency plans, which were validated by a third party and will be updated periodically during 2000. These plans continue to be maintained and can be implemented, in the unlikely event that any mission critical systems fail. In addition, the Bank did not incur Year 2000 related expenses for the nine months ended September 30, 2000.

Recent Accounting Pronouncements

    The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," in June 1998. SFAS No. 133 standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts. Under the standard, entities are required to carry all derivative instruments in the statement of financial position at fair value. The accounting for changes in the fair value (I.E., gains or losses) of a derivative instrument depends on whether it has been

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designated and qualifies as part of a hedging relationship and, if so, on the reason for holding it. If certain conditions are met, entities may elect to designate a derivative instrument as a hedge of exposures to changes in fair values, cash flows, or foreign currencies. If the hedged exposure is a fair value exposure, the gain or loss on the derivative instrument is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributable to the risk being hedged. If the hedged exposure is a cash flow exposure, the effective portion of the gain or loss on the derivative instrument is reported initially as a component of other comprehensive income (outside earnings) and subsequently reclassified into earnings when the forecasted transaction affects earnings. Any amounts excluded from the assessment of hedge effectiveness as well as the ineffective portion of the gain or loss is reported in earnings immediately. SFAS No. 133 is effective for all quarters of fiscal years beginning after June 15, 1999. Earlier application is encouraged, but is permitted only as of the beginning of any fiscal quarter that begins after the issuance of the statement. This statement should not be applied retroactively to financial statements of prior periods. During June 1999, the FASB issued the Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133 - an amendment of FASB Statement No. 133," ("SFAS 137") that delays SFAS 133 until fiscal years beginning after June 15, 2000. The FASB issued Statement No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an amendment of FASB Statement No. 133" in June 2000, which statement addresses various implementation issues relating to SFAS No. 133. The Company anticipates that the adoption of SFAS No. 133 will not have a material impact on the Company's results of operations.

    Statement of Financial Accounting Standards ("SFAS") No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", was issued by the Financial Accounting Standards Board ("FASB") in September 2000. SFAS No. 140 supercedes and replaces FASB SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". Accordingly, SFAS No. 140 is now the authoritative accounting literature for transfers and servicing of financial assets and extinguishments of liabilities. SFAS No. 140 also includes several additional disclosure requirements in the area of securitized financial assets and collateral arrangements. The provisions of SFAS No. 140 related to transfers of financial assets are to be applied to all transfers of assets occurring after March 31, 2001. The collateral recognition and disclosure provisions in SFAS No. 140 are effective for fiscal years ending after December 15, 2000. The Company anticipates that the adoption of SFAS No. 140 will not have a material impact in the Company's results of operations.

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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 September 30, 2000.

(In Thousands)

    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.

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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 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 (§.249.308 of this Chapter).

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*

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

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SIGNATURES

    Pursuant to the requirements of the 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:		November 13, 2000		By:		/s/ BARRETT J. O'CONNOR    Barrett J. O'Connor President and Chief Executive Officer (Principal executive officer)
Dated:		November 13, 2000		By:		/s/ JAMES J. KOVAC    James J. Kovac Executive Vice President and Chief Financial Officer (Principal financial and accounting officer)

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INDEX
PART I. FINANCIAL INFORMATION EFC BANCORP, INC. September 30, 2000

Item 1. 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.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.
Item 2. Changes in Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K (§.249.308 of this Chapter).

SIGNATURES

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