UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACTS OF 1934
For the quarterly period ended March 31, 2004
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 0-24648
FSF FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Minnesota 41-1783064
(State or other jurisdiction of incorporation (IRS employer identification no.)
or organization)
201 Main Street South, Hutchinson, Minnesota 55350-2573
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (320) 234-4500
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check 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
Indicate by check whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicated the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date April 30, 2004.
--------------
Class Outstanding
----- -----------
$.10 par value common stock 2,382,398 shares
FSF FINANCIAL CORP. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2004
INDEX
Page
Number
------
PART I - CONSOLIDATED FINANCIAL INFORMATION
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
Item 4. Controls and Procedures 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
FSF FINANCIAL CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
At At
March 31, September 30,
2004 2003
------------------------------------
(in thousands, except share data)
ASSETS
Cash and cash equivalents:
Cash $ 3,260 $ 3,556
Interest-bearing deposits 55,752 77,045
--------- ---------
Total cash and cash equivalents 59,012 80,601
Securities available for sale, at fair value:
Equity securities - 12,009
Mortgage-backed and related securities 42,832 29,923
Debt securities 7,049 12,178
Restricted stock 3,912 4,797
Loans held-for-sale 12,690 17,122
Loans receivable, net 364,760 358,708
Foreclosed real estate 1,016 1,152
Accrued interest receivable 3,472 3,960
Premises and equipment 6,299 6,331
Goodwill 3,883 3,883
Identifiable intangibles 945 1,014
Investment in life insurance 8,564 8,388
Other assets 1,370 1,086
--------- ---------
Total assets $ 515,804 $ 541,152
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits $ 81,910 $ 69,684
Savings accounts 81,252 86,666
Certificates of deposit 222,448 234,665
--------- ---------
Total deposits 385,610 391,015
Federal Home Loan Bank borrowings 72,000 93,000
Advances from borrowers for taxes and insurance 226 233
Other liabilities 5,213 5,717
--------- ---------
Total liabilities 463,049 489,965
Stockholders' equity:
Serial preferred stock, no par value 5,000,000 shares
authorized, no shares issued - -
Common stock, $.10 par value 10,000,000 shares authorized,
4,501,277 and 4,501,277 shares issued 450 450
Additional paid in capital 44,186 43,925
Retained earnings, substantially restricted 39,299 38,643
Treasury stock at cost (2,118,879 and 2,156,540 shares) (30,965) (31,444)
Unearned ESOP shares at cost (-0- and 7,643 shares) - (76)
Unearned MSP stock grants at cost (478) (484)
Accumulated other comprehensive income 263 173
--------- ---------
Total stockholders' equity 52,755 51,187
--------- ---------
Total liabilities and stockholders' equity $ 515,804 $ 541,152
========= =========
See Notes to Unaudited Consolidated Financial Statements
1
FSF FINANCIAL CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
Three Months Six Months
Ended March 31, Ended March 31,
----------------- -----------------
2004 2003 2004 2003
----------------- -----------------
(in thousands, except per share data)
Interest income:
Loans receivable $ 6,574 $ 7,680 $13,425 $15,905
Mortgage-backed and related securities 358 467 721 962
Investment securities 339 410 705 625
----------------- -----------------
Total interest income 7,271 8,557 14,851 17,492
Interest expense:
Deposits 1,676 2,496 3,555 5,192
Borrowed funds 1,000 1,239 2,229 2,562
----------------- -----------------
Total interest expense 2,676 3,735 5,784 7,754
----------------- -----------------
Net interest income 4,595 4,822 9,067 9,738
Provision for loan losses 469 193 728 481
----------------- -----------------
Net interest income after provision for loan losses 4,126 4,629 8,339 9,257
----------------- -----------------
Noninterest income:
Gain on sale of loans- net 645 1,306 1,397 2,432
Gain on sale of available for sale securities 284 -- 284 --
Other service charges and fees 321 393 685 814
Service charges on deposit accounts 524 596 1,185 1,210
Commission income 331 314 625 592
Other 102 106 206 163
----------------- -----------------
Total noninterest income 2,207 2,715 4,382 5,211
----------------- -----------------
Noninterest expense:
Compensation and benefits 2,800 2,799 5,557 5,577
Occupancy and equipment 499 415 971 807
Data processing 250 256 498 490
Professional fees 149 140 291 280
Other 942 1,076 1,762 1,870
----------------- -----------------
Total noninterest expense 4,640 4,686 9,079 9,024
----------------- -----------------
Income before provision for income taxes 1,693 2,658 3,642 5,444
Income tax expense 680 1,038 1,449 2,128
----------------- -----------------
Net income $ 1,013 $ 1,620 $ 2,193 $ 3,316
================= =================
Basic earnings per share $ 0.43 $ 0.72 $ 0.94 $ 1.49
Diluted earnings per share $ 0.41 $ 0.68 $ 0.89 $ 1.41
Cash dividend declared per common share $ 0.35 $ 0.30 $ 0.70 $ 0.60
Comprehensive income $ 1,208 $ 1,510 $ 2,283 $ 3,916
================= =================
See Notes to Unaudited Consolidated Financial Statements
2
FSF FINANCIAL CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Six Months
Ended March 31, Ended March 31,
---------------------- ----------------------
2004 2003 2004 2003
---------------------- ----------------------
(in thousands)
Cash flows from operating activities:
Net income $ 1,013 $ 1,620 $ 2,193 $ 3,316
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation 251 214 495 416
Net amortization of discounts and premiums (11) (24) (62) (90)
Provision for loan losses 469 193 728 481
ESOP and MSP stock compensation expense 170 219 377 436
Amortization of intangibles 34 42 68 85
Net loan fees deferred and amortized (7) (171) (49) (257)
Loans originated for sale (41,024) (81,614) (97,105) (161,423)
Loans sold 43,368 101,993 102,934 161,375
Gain on available-for-sale securities (284) - (284) -
Gain on sale of loans (645) (1,306) (1,397) (2,432)
(Increase) decrease in:
Accrued interest receivable 504 1,128 488 807
Life insurance (88) (106) (176) (212)
Other assets 154 (48) 243 345
Deferred taxes 118 123 183 (335)
Other liabilities 204 (311) (796) (189)
---------------------- ----------------------
Net cash provided by (used in) operating activities 4,226 21,952 7,840 2,323
---------------------- ----------------------
Cash flows from investing activities:
Loan originations and principal repayments on loans, net (9,754) 8,110 (5,009) 10,504
Purchase of loans - - (2,500) -
Principal repayments on mortgage-related securities
held-to-maturity - - - 2,178
Purchase of available-for-sale securities (15,200) - (26,049) (4,062)
Proceeds from FHLB stock redeemed 490 - 885 -
Proceeds from the sale of available-for-sale securities 20,187 - 20,187 -
Principal repayments and proceeds from maturities of
securities available-for-sale 5,141 6,382 10,215 9,770
Investment in foreclosed real estate (31) (12) (153) (12)
Proceeds from sale of foreclosed real estate 482 128 1,067 250
Purchase of equipment and property improvements (193) (275) (463) (814)
---------------------- ----------------------
Net cash (used in) provided by investing activities $ 1,122 $ 14,333 $ (1,820) $ 17,814
---------------------- ----------------------
See Notes to Unaudited Consolidated Financial Statements
3
FSF FINANCIAL CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Three Months Six Months
Ended March 31, Ended March 31,
-------------------- --------------------
2004 2003 2004 2003
-------------------- --------------------
(in thousands)
Cash flows from financing activities:
Net (decrease) increase in deposits $ 781 $ 433 $ (5,381) $ 21,042
Payments on FHLB advances (6,000) - (21,000) (5,000)
Allocated dividends used to retire debt on ESOP - - 25 -
Net decrease in mortgage escrow funds 103 107 (7) (43)
Treasury stock purchased - (245) (137) (846)
Dividends on common stock (820) 103 (1,537) 525
Proceeds from exercise of stock options 11 (667) 428 (1,316)
-------------------- --------------------
Net cash (used in) provided by financing activities (5,925) (269) (27,609) 14,362
-------------------- --------------------
Net decrease in cash and cash equivalents (577) 36,016 (21,589) 34,499
Cash and cash equivalents
Beginning of period 59,589 13,098 80,601 14,615
-------------------- --------------------
End of period $ 59,012 $ 49,114 $ 59,012 $ 49,114
==================== ====================
Supplemental disclosures of cash flow information:
Cash payments for:
Interest on advances and other borrowed money $ 1,004 $ 1,246 $ 2,228 $ 2,562
Interest on deposits $ 1,688 $ 2,590 $ 3,873 $ 5,647
Income taxes $ 503 $ 1,470 $ 1,042 $ 2,374
Supplemental schedule of non-cash investing and financing activities:
Foreclosed real estate $ 246 $ 149 $ 778 $ 542
Transfer of securities from held-to-maturity to
available -for-sale $ - $ - $ - $ 30,462
Unrealized gain on available-for-sale securities transferred,
net of tax $ - $ - $ - $ 561
See Notes to Unaudited Consolidated Financial Statements
4
FSF FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The unaudited consolidated financial statements as of and for the three
and six months ended March 31, 2004 include the accounts of FSF
Financial Corp. ("the Corporation") and its wholly owned subsidiaries,
Insurance Planners of Hutchinson, Inc. ("the Agency") and First Federal
fsb ("the Bank"). Firstate Services and Homeowners Mortgage Corporation
("HMC") are wholly owned subsidiaries of the Bank. All significant
inter-company accounts and transactions have been eliminated in the
consolidated financial statements, which have been prepared in
conformity with accounting principles generally accepted in the United
States of America.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-Q and therefore,
do not include information or footnotes necessary for a complete
presentation of consolidated financial condition, results of operations
and cash flows in conformity with accounting principles generally
accepted in the United States of America . However, all adjustments
consisting of normal recurring accruals, which in the opinion of
management are necessary for fair presentation of the consolidated
financial statements, have been included. The results of operations for
the three and six month periods ended March 31, 2004 are not
necessarily indicative of the results which may be expected for the
entire fiscal year or any other future period. For further information,
refer to the consolidated financial statements and footnotes thereto
included in the Corporation's Annual Report of Form 10-K for the year
ended September 30, 2003.
NOTE 3 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
For the Three Months ended For the Six Months ended
March 31, March 31,
------------------------------ ------------------------------
2004 2003 2004 2003
------------------------------ ------------------------------
Numerator:
Net income - Numerator for basic earnings
per share and diluted earnings per share--
income available to common stockholders $1,013,000 $1,620,000 $2,193,000 $3,316,000
============================== ==============================
Denominator:
Denominator for basic earnings per share--
weighted-average shares 2,339,806 2,245,727 2,325,061 2,229,707
Effect of dilutive securities:
Stock - based compensation plans 123,351 123,740 133,369 127,889
------------------------------ ------------------------------
Denominator for diluted earnings per share--
adjusted weighted-average shares and
assumed conversions 2,463,157 2,369,467 2,458,430 2,357,596
============================== ==============================
Basic earnings per share $ 0.43 $ 0.72 $ 0.94 $ 1.49
Diluted earnings per share $ 0.41 $ 0.68 $ 0.89 $ 1.41
5
NOTE 4 - STOCK OPTION ACCOUNTING
The Corporation accounts for stock options under the intrinsic value
method of recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations.
No stock-based employee compensation cost is reflected in net income,
as all options granted under those plans had an exercise price equal to
the market value of the underlying common stock on the date of grant.
Statement of Financial Accounting Standards No. 148, Accounting for
Stock-Based Compensation- Transition and Disclosure, is effective for
the interim period beginning after December 15, 2002 and requires
pro-forma net income and earnings per share disclosures on a quarterly
basis. The following table illustrates the effect on net income and
earnings per share as if the company had applied the fair value
recognition provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation, to stock-based employee compensation.
Three Months Six Months
Ended March 31, Ended March 31,
------------------------- -------------------------
2004 2003 2004 2003
------------------------- -------------------------
(in thousands) (in thousands)
Net income, as reported $ 1,013 $ 1,620 $ 2,193 $ 3,316
Deduct:
Total stock-based employee compensation expense
determined under the fair value based method for all
awards, net of related tax effects - - 4 77
------------------------- -------------------------
Pro-forma net income $ 1,013 $ 1,620 $ 2,189 $ 3,239
========================= =========================
Earnings per share:
Basic, as reported $ 0.43 $ 0.72 $ 0.94 $ 1.49
Basic, pro-forma $ 0.43 $ 0.72 $ 0.94 $ 1.45
Diluted, as reported $ 0.41 $ 0.68 $ 0.89 $ 1.41
Diluted, pro-forma $ 0.41 $ 0.68 $ 0.89 $ 1.37
On November 19, 2002, the Corporation awarded 1,250 stock options from the 1994
stock option plan and 20,687 stock options from the 1998 stock option plan. The
awards may be exercised over a ten-year period at an exercise price of $23.00,
the fair value of the Corporation's stock on the date of the option grant. In
addition, 42,212 options were exercised at various prices in the current fiscal
year.
NOTE 5 - EFFECT OF NEW FINANCIAL ACCOUNTING STANDARDS
In March 2004 the Sec issued Staff Accounting Bulletin (SAB) No. 105
"Application of Accounting Principles to Loan Commitments". This SAB
related to FASB Statement No. 133 " Accounting for Derivative
Instruments and Hedging Activities" for valuating loans commitments,
considered to be derivatives, on mortgage loans that well be sold. This
SAB is effective for commitments entered into after April 1, 2004.
In January 2003, the EITF began a project to provide additional
guidance on when a market value decline on debt and marketable equity
securities should be considered other-than-temporary. Currently,
declines in market value that are considered to be other-than-temporary
require that a loss be recognized through the income statement. The
EITF plans to continue its discussions with the intent to issue
additional guidance in determining when a decline is considered
other-than-temporary.
Management continuously monitors emerging issues and accounting
bulletins, some of which could potentially impact the Company's
financial statements.
6
NOTE 6 - COMPREHENSIVE INCOME
Comprehensive income consists of net income and other gains and losses
affecting shareholder's equity that, under generally accepted
accounting principles in the United States of America, is excluded from
net income. For the Corporation, the difference between net income and
comprehensive income consists of the change, for the periods reported,
in unrealized gains and losses on securities available for sale, net of
tax.
At September 30, 2002, the Bank had a total of $33.1 million of
securities that were classified as held-to-maturity. During the quarter
ended December 31, 2002, the Bank transferred all of the securities to
available-for-sale in accordance with SFAS 115 and SFAS 130. In order
to remain within the held-to-maturity classification, the Bank must
have the ability and intent to hold the securities to maturity.
Although the Bank still has the ability to hold the securities to
maturity, the intent to hold the securities to maturity no longer
exists. Based upon a review of interest rates, potential liquidity
needs, interest rate risk characteristics of the securities and other
factors, management has determined that it would be in the best
interest of the Bank to transfer the securities. This will provide
greater flexibility in dealing with changing economic circumstances.
The following table provides information regarding the impact of the transfer on
comprehensive income.
Three Months Six Months
Ended March 31, Ended March 31,
------------------------- -------------------------
2004 2003 2004 2003
------------------------- -------------------------
(in thousands) (in thousands)
Net income $ 1,013 $ 1,620 $ 2,193 $ 3,316
Other comprehensive income
Unrealized holding gains on securities transferred
from held to maturity, net of tax expense - - - 561
Unrealized holding gains (losses) during the period 609 (185) 434 66
Less: Reclassification adjustment for net gains
included in net income (284) - (284) -
Tax (expense) benefit (130) 75 (60) (27)
------------------------- -------------------------
Comprehensive income $ 1,208 $ 1,510 $ 2,283 $ 3,916
========================= =========================
7
FSF FINANCIAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 contains safe harbor
provisions regarding forward-looking statements. When used in this discussion,
the words "believes", "anticipates", "contemplates", "expects" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest rates, risks associated with the effect of integrating newly
acquired businesses, the ability to control costs and expenses and general
economic conditions.
General
The Corporation's total assets at March 31, 2004 and September 30, 2003 totaled
$515.8 million and $541.2 million, respectively. The decrease of $25.4 million
was primarily the result of the repayment of Federal Home Loan Bank ("FHLB")
advances and the reduction of deposits, in particular, certificates of deposit.
Cash and cash equivalents decreased $21.6 million from $80.6 million at
September 30, 2003 to $59.0 million at March 31, 2004, mainly due to payments on
FHLB advances, a reduction in deposits coupled with an increase in loans. The
Corporation utilized this excess liquidity to fund loan originations.
During the quarter ended December 31, 2002, the Corporation transferred all of
its held-to-maturity debt securities and mortgage-backed and related securities
to the available-for-sale category. The net carrying amount of these securities
at the time of transfer was $31.0 million and the unrealized gain, net of income
taxes, was $561,000. During this six months ended March 31, 2004, $26.0 million
of available-for-sale securities were purchased and $20.2 million were sold,
including $12.0 million of equity securities.
Loans held for sale decreased $4.6 million to $12.5 million at March 31, 2004
from $17.1 million at September 30, 2003. As of March 31, 2004, the Bank and HMC
had forward commitments to sell all of their loans held for sale in the
secondary market. Payment for these loans usually occurs within fourteen days of
funding.
Loans receivable increased $6.2 million to $364.9 million at March 31, 2004 from
$358.7 million at September 30, 2003. The balance of consumer loans decreased by
$6.4 million and the one-to-four family loan portfolio decreased by $8.1
million. The decrease in loans was generally the result of prepayments and
refinancing activity due to the lower interest rate environment. Construction
loans increased from $263.2 million at September 30, 2003 to $266.3 million at
March 31, 2004. During that period, the Bank also sold $1.1 million of
agricultural loans to Farmer Mac, an agency of the federal government. These
loans were sold, with servicing retained, in order to allow the Bank to expand
the agricultural lending base without increasing the overall percentage of
agricultural loans.
8
The following table sets forth information on loans originated and purchased for
the periods indicated:
Three Months Six Months
Ended March 31, Ended March 31,
-------------------------- --------------------------
2004 2003 2004 2003
-------------------------- --------------------------
(in thousands) (in thousands)
Loans originated:
One-to-four family residential mortgages $ 14,926 $ 47,940 $ 33,757 $ 118,074
Residential construction 41,832 40,922 99,557 91,267
Land 99 - 4,759 -
Agricultural 24,232 22,778 33,572 31,314
Commercial business & real estate 10,976 10,467 16,585 13,870
Consumer 3,203 16,038 5,770 22,030
-------------------------- --------------------------
Total loans originated 95,268 138,145 194,000 276,555
-------------------------- --------------------------
Loans purchased:
Commercial business - - 2,500 -
-------------------------- --------------------------
Total new loans $ 95,268 $ 138,145 $ 196,500 $ 276,555
========================== ==========================
The following table sets forth the composition of the Bank's loans in dollars
and in percentages of total loans at the dates indicated:
March 31, 2004 September 30, 2003
---------------------------------------------------------------------
Amount % Amount %
---------------------------------------------------------------------
(dollars in thousands)
Residential real estate:
One-to-four family (1) $ 33,363 7.0% $ 41,415 8.5%
Residential construction 266,299 55.5% 263,227 53.9%
Multi-family 7,568 1.6% 7,703 1.6%
---------------------------------------------------------------------
307,230 64.0% 312,345 63.9%
Agricultural loans 60,194 12.5% 57,259 11.7%
Land and commercial real estate 41,077 8.6% 40,831 8.4%
Commercial business 22,536 4.7% 22,961 4.7%
---------------------------------------------------------------------
123,807 25.8% 121,051 24.8%
Consumer loans:
Home equity and second mortgages 22,095 4.6% 22,482 4.6%
Automobile loans 9,822 2.0% 11,550 2.4%
Other 17,028 3.5% 21,272 4.4%
---------------------------------------------------------------------
Total consumer loans 48,945 10.2% 55,304 11.3%
---------------------------------------------------------------------
Total loans 479,982 100.0% 488,700 100.0%
============= ============
Less:
Loans in process (100,441) (110,657)
Deferred fees (382) (512)
Allowance for loan losses (1,708) (1,701)
-------------------- ------------------------
Total loans, net $ 377,450 $ 375,830
==================== ========================
- -------------------------------------------------
1. Includes loans held for sale in the amount of $12.7 million and $17.1
million as of March 31, 2004 and September 30, 2003.
9
In originating loans, the Bank recognizes that credit losses will be experienced
and that the risk of loss will vary with, among other things, the type of loan
being made, the creditworthiness of the borrower over the term of the loan and,
in the case of a secured loan, the quality of the collateral for the loan. The
Bank's management evaluates the need to establish loss allowances against losses
on loans and other assets each quarter based on estimated losses on specific
loans and on any real estate held for sale or investment when a finding is made
that a loss is estimable and probable. Such an evaluation includes a review of
all loans for which full collectibility may not be reasonably assured and
considers, among other matters, the estimated market value of the underlying
collateral of problem loans, prior loss experience, economic conditions and
overall portfolio quality. While management recognizes and charges against the
allowance for loan losses accounts that are determined to be uncollectible,
experience indicates that at any point in time, probable losses may exist in the
loan portfolio which are not specifically identifiable. Therefore, based upon
management's best estimate, an amount may be charged to earnings to maintain the
allowance for loan losses at a level sufficient to recognize probable losses.
Loans are evaluated for impairment in accordance with SFAS 114, including all
loans that are in a troubled debt restructuring involving a modification of
terms, are measured at the present value of expected future cash flows
discounted at the loan's initial effective interest rate. The fair value of the
collateral of an impaired collateral dependent loan or an observable market
price, if one exists, may be used as an alternative to discounting. If the
measure of the impaired loan is less than the recorded investment in the loan,
impairment is recognized through a charge to earnings and a reduction to the
loan balance or an increase in the allowance for loan losses. A loan is
considered impaired when, based on current information and events, it is
probable that the Bank will be unable to collect all amounts due according to
the contractual terms of the loan agreement.
The Bank believes it has established its existing allowance for loan losses in
accordance with GAAP. The allowance for loan losses is evaluated based on a
detailed review of the loan portfolio, historic loan losses, current economic
conditions and other factors. From period to period, the outstanding balance in
various loan categories will increase and decrease thereby increasing or
decreasing the amount of the allowance attributable to particular categories.
Management believes that the resulting level of the allowance for loan losses
reflects probable incurred losses in the loan portfolio. However, there can be
no assurance that banking regulators, in reviewing the Bank's loan portfolio,
will not request the Bank to increase its allowance for loan losses or that a
deteriorating real estate market or other unforeseen economic changes may cause
an increase in allowance for loan losses. This is likely to negatively affect
the Bank's financial condition and earnings.
The following table sets forth information with respect to the Bank's
non-performing assets at the dates indicated:
March 31, September 30,
2004 2003
-----------------------------------
(dollars in thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
Residential construction loans $ 3,977 $ 3,819
Permanent loans secured by one-to-four family units 703 483
Non-residential loans 884 884
Non- mortgage loans:
Commercial and agricultural 660 411
Consumer 355 442
----------------------------------
Total non-accrual loans 6,579 6,039
Foreclosed real estate and real estate held for investment 1,016 1,152
-----------------------------------
Total non-performing assets $ 7,595 $ 7,191
===================================
Total non-performing loans to net loans 1.74% 1.61%
===================================
Total non-performing loans to total assets 1.28% 1.12%
===================================
Total non-performing assets to total assets 1.47% 1.33%
===================================
10
The nonaccrual residential construction loans are comprised of 27 loans. The
outstanding balance of the loans ranges from $3,000 to $474,000. The
loan-to-value ratios of the loans range between 53% and 97%. Each of the loans
has been evaluated for impairment and is carried at the lower of fair value or
cost. There are 5 permanent loans secured by one-to-four family residential
units that range from $29,000 to $296,000. The non-residential loan is a
participation in a commercial real estate loan with another financial
institution. A purchase agreement on the property is being negotiated.
Commercial and agricultural loans are comprised of 21 loans. The outstanding
values of these loans range from $3,600 to $117,000. Each of the loans has been
evaluated for impairment and is carried at the lower of fair value or cost. The
consumer loan total is made up of 17 loans that range from $1,000 to $96,000.
The foreclosed real estate consists of 6 construction loans with balances
between $50,000 and $214,000 and a commercial real estate loan with a balance of
$248,000, all of which are carried at the lower of fair value or cost.
Deposits, after interest credited, decreased $5.4 million from $391.0 million at
September 30, 2003 to $385.6 million at March 31, 2004. Overall cost of funds on
deposits during the period decreased 78 basis points (100 basis points equals
1%) compared with the same six month period in 2003, as a result of the Bank's
attempt to maintain deposit rates consistent with competitors in the market
place. Demand deposits increased $12.2 million or 17.5% from September 30, 2003
to March 31, 2004. Savings account balances decreased 6.2% during the same
period, while certificates of deposit decreased $12.2 million. The Bank utilized
the deposits for liquidity and to reduce Federal Home Loan Bank ("FHLB")
borrowings.
Treasury stock decreased to 2,118,879 shares at March 31, 2004 due to the
exercise of stock options. Treasury shares are used for general corporate
purposes, including the issuance of shares in connection with the exercise of
stock options. Total stockholders' equity increased $1.6 million since September
30, 2003 mainly due to net income, amortization of ESOP shares, an increase in
other comprehensive income coupled with the release of treasury shares. Total
stockholder's equity was reduced by the amount of dividends paid during the
first six months of the fiscal year. Accumulated other comprehensive income
increased as a result of changes in the net unrealized gains and losses on the
available-for-sale securities due to fluctuations in interest rates. Because of
interest rate volatility, the Corporation's accumulated other comprehensive
income could materially fluctuate. Book value per share increased from $22.30 at
September 30, 2003 to $22.54 at March 31, 2004.
11
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
The following table sets forth information with respect to the Corporation's
average balance sheet, interest and dividends earned and paid and related yields
and rates (dollars in thousands):
Three Months Ended March 31,
---------------------------------------------------------------------------
2004 2003
---------------------------------------------------------------------------
Interest Interest
Average Yields & Average Yields &
Balance Interest Rates (1) Balance Interest Rates (1)
---------------------------------------------------------------------------
(dollars in thousands)
Assets:
Loans receivable (2) $ 368,571 $ 6,574 7.13 % $ 408,460 $ 7,680 7.52 %
Mortgage-backed securities 36,711 358 3.90 43,449 467 4.30
Investment securities (3) 78,278 339 1.73 66,857 410 2.45
----------------------- -----------------------
Total interest-earning assets 483,560 7,271 6.01 518,766 8,557 6.60
--------------------- ----------------------
Other assets 30,201 29,273
------------- -------------
Total assets $ 513,761 $ 548,039
============= =============
Liabilities:
Interest-bearing deposits $ 381,958 $ 1,676 1.76 % $ 399,560 $ 2,496 2.50 %
Borrowings 74,176 1,000 5.39 93,000 1,239 5.33
----------------------- -----------------------
Total interest-bearing
liabilities 456,134 2,676 2.35 492,560 3,735 3.03
--------------------- ----------------------
Other liabilities 5,073 6,914
------------- -------------
Total liabilities 461,207 499,474
Stockholders' equity 52,554 48,565
------------- -------------
Total liabilities and stockholders' equity $ 513,761 $ 548,039
============= =============
Net interest income $ 4,595 $ 4,822
========== ==========
Net spread (4) 3.66 % 3.57 %
Net margin (5) 3.80 % 3.70 %
Ratio of average interest-earning assets
to average interest-bearing liabilities 1.06X 1.05X
1. Annualized.
2. Average balances include non-accrual loans and loans held for sale. 3.
Includes interest-bearing deposits in other financial institutions.
4. Net spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
5. Net margin represents net interest income as a percentage of
interest-earning assets.
Net Income
The Corporation recorded net income of $1.0 million for the three months ended
March 31, 2004, as compared to net income of $1.6 million for the three months
ended March 31, 2003. This decrease in net income was $607,000 or 37.5%. The
decrease in net income for second quarter 2004 was primarily the result of a
decrease in net interest income and noninterest income and an increased
provision for loan losses. Net interest income decreased $227,000 in the second
quarter of fiscal 2004, a decrease of 4.7% over second quarter 2003. The
decrease in net interest income was primarily due to a 59 basis point decline in
yields on interest earning assets offset by a 68 basis point reduction on cost
of funds. The mix of the Bank's deposits helped to stabilize its cost of funds
in this lower interest rate environment. Noninterest income was 47.6% and 57.9%
of noninterest expense for the quarters ended March 31, 2004 and 2003,
respectively.
12
Total Interest Income
Total interest income decreased by $1.3 million to $7.2 million for the quarter
ended March 31, 2004 from the comparable 2003 period. The average yield on loans
decreased to 7.13% for the quarter ended March 31, 2004 from 7.52% for the
quarter ended March 31, 2003. During the same period, the average yield on
mortgage-backed securities decreased 40 basis points to 3.90%. The average yield
on investment securities decreased to 1.73% for the three months ended March 31,
2004 from 2.45% for the same period in 2003.
Total Interest Expense
Total interest expense decreased to $2.7 million for the three months ended
March 31, 2004 from $3.7 million for the same period in 2003. The average cost
of deposits decreased 74 basis points to 1.76% for the quarter ended March 31,
2004 from 2.50% for the same period in 2003, as the rates offered by the Bank on
deposits decreased. No assurance can be made that deposits can be maintained in
the future without further increasing the cost of funds if interest rates
increase. The average balance of borrowings decreased $18.8 million to $74.2
million for the three months ended March 31, 2004 from $93.0 million for the
three months ended March 31, 2003. The cost of borrowings increased by 6 basis
points to 5.39% for the quarter ended March 31, 2004 from 5.33% for the same
period in 2003. Borrowings decreased as the Bank utilized repayments of loans
and investments to meet liquidity needs.
Net Interest Income
Net interest income decreased by $227,000 to $4.6 million for the quarter ended
March 31, 2004, from $4.8 million for the same period in 2003. Average
interest-earning assets decreased $35.2 million from $518.8 million for the
quarter ended March 31, 2003 to $483.6 million for the quarter ended March 31,
2004, while the average yield on interest-earning assets decreased from 6.60%
for 2003 to 6.01% for 2004. Average interest-bearing liabilities decreased by
$36.4 million to $456.1 million for the quarter ended March 31, 2004 from $492.6
million for the quarter ended March 31, 2003, while the cost of interest-bearing
liabilities decreased from 3.03% in 2003 to 2.35% in 2004.
Provision for Loan Losses
The Corporation's provision for loan losses was $469,000 for the quarter ended
March 31, 2004, compared to $193,000 for the same period in 2003. The allowance
for loan losses is established through a provision for loan losses charged to
expense. While the Corporation maintains its allowance for losses at a level
which it considers necessary to reflect probable incurred losses, there can be
no assurance that further additions will not be made to the loss allowances or
that such losses will not exceed the estimated amounts. (See Allowance for Loan
Losses table on page 16.)
Noninterest Income
Total noninterest income decreased from $2.7 million for the quarter ended March
31, 2003 to $2.2 million for the quarter ended March 31, 2004. Gain on sale of
loans decreased $661,000 over the same period in 2003 primarily due to a
decrease in the refinancing market and loans that are sold in the secondary
market. Other service charges and fees decreased from $393,000 for the three
months ended March 31, 2003 to $321,000 for the same period ended March 31,
2004, which was mainly attributable to a decrease in servicing and late fees as
the outstanding loan portfolio balance has decreased in the periods compared and
also a reduction in the application fees related to a reduction in loan
originations. Service charges on deposit accounts decreased $72,000. Net gains
on sale of available-for-sale securities totaled $284,000 this quarter as the
Bank sold its equity securities and various debt securities.
Noninterest Expense
Total noninterest expense decreased $46,000 from March 31, 2003 as compared to
the same period in 2004. Compensation and benefits remained at $2.8 million for
the periods compared. Occupancy and equipment expense increased $84,000 over the
periods compared. This increase was mainly attributable to an increase in
amortization and depreciation expense on software and computer updates as the
Bank continues to enhance its data systems. Data processing decreased $6,000 to
$250,000 for the period ended March 31, 2004.
Income Tax Expense
Income taxes decreased to $680,000 for the quarter ended March 31, 2004 from
$1.0 million for the same period in 2003 due to a decrease of $965,000 in pretax
income.
13
COMPARISON OF THE SIX MONTHS ENDED MARCH 31, 2004 AND 2003
The following table sets forth information with respect to the Corporation's
average balance sheet, interest and dividends earned and paid and related yields
and rates (dollars in thousands):
Six Months Ended March 31,
-------------------------------------------------------------------------------
2004 2003
-------------------------------------------------------------------------------
Interest Interest
Average Yields & Average Yields &
Balance Interest Rates (1) Balance Interest Rates (1)
-------------------------------------------------------------------------------
(dollars in thousands)
Assets:
Loans receivable (2) $ 369,872 $ 13,425 7.26 % $ 415,082 $15,905 7.66 %
Mortgage-backed securities 34,609 721 4.17 45,582 962 4.22
Investment securities (3) 90,440 705 1.56 54,404 625 2.30
------------------------ ------------------------
Total interest-earning assets 494,921 14,851 6.00 515,068 17,492 6.79
----------------------- ------------------------
Other assets 30,204 29,523
------------- ------------
Total assets $ 525,125 $ 544,591
============= ============
Liabilities:
Interest-bearing deposits $ 385,309 $ 3,555 1.84 % $ 395,608 $ 5,192 2.62 %
Borrowings 82,246 2,229 5.42 94,401 2,562 5.43
------------------------ ------------------------
Total interest-bearing
liabilities 467,555 5,784 2.47 490,009 7,754 3.16
----------------------- ------------------------
Other liabilities 5,421 7,115
------------- ------------
Total liabilities 472,976 497,124
Stockholders' equity 52,149 47,467
------------- ------------
Total liabilities and stockholders' equity $ 525,125 $ 544,591
============= ============
Net interest income $ 9,667 $ 9,738
=========== ============
Net spread (4) 3.53 % 3.63 %
Net margin (5) 3.66 % 3.78 %
Ratio of average interest-earning assets
to average interest-bearing liabilities 1.06X 1.05X
1. Annualized.
2. Average balances include non-accrual loans and loans held for sale.
3. Includes interest-bearing deposits in other financial institutions.
4. Net spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
5. Net margin represents net interest income as a percentage of
interest-earning assets.
Net Income
The Corporation recorded net income of $2.2 million for the six months ended
March 31, 2004, as compared to net income of $3.3 million for the six months
ended March 31, 2003. This decrease in net income was $1.1 million or 33.9%. The
decrease in net income for the six-month period was primarily the result of a
decrease in net interest income and noninterest income. Net interest income
decreased $671,000 in the second quarter of fiscal 2004, a decrease of 6.9% over
second quarter 2003. The decrease in net interest income was primarily due to a
79 basis point decline in yields on interest earning assets offset by a 69 basis
point reduction on cost of funds. The mix of the Bank's deposits helped to
stabilize its cost of funds in this lower interest rate environment. Noninterest
income was 48.3% and 57.7% of noninterest expense for the six months ended March
31, 2004 and 2003, respectively.
14
Total Interest Income
Total interest income decreased by $2.6 million to $14.9 million for the six
months ended March 31, 2004 from the comparable 2003 period. The average yield
on loans decreased to 7.26% for the six months ended March 31, 2004 from 7.66%
for the six months ended March 31, 2003. During the same period, the average
yield on mortgage-backed securities decreased 5 basis points to 4.17%. The
average yield on investment securities decreased to 1.56% for the six months
ended March 31, 2004 from 2.30% for the same period in 2003.
Total Interest Expense
Total interest expense decreased to $5.8 million for the six months ended March
31, 2004 from $7.8 million for the same period in 2003. The average cost of
deposits decreased 78 basis points to 1.84% for the six months ended March 31,
2004 from 2.62% for the same period in 2003, as the rates offered by the Bank on
deposits decreased. No assurance can be made that deposits can be maintained in
the future without further increasing the cost of funds if interest rates
increase. The average balance of borrowings decreased $12.2 million to $82.2
million for the six months ended March 31, 2004 from $94.4 million for the six
months ended March 31, 2003. The cost of borrowings decreased by 1 basis point
to 5.42% for the six months ended March 31, 2004 from 5.43% for the same period
in 2003. Borrowings decreased as the Bank utilized repayments of loans and
investments to meet liquidity needs.
Net Interest Income
Net interest income decreased by $671,000 to $9.1 million for the six months
ended March 31, 2004, from $9.7 million for the same period in 2003. Average
interest-earning assets decreased $20.2 million from $515.1 million for the six
months ended March 31, 2003 to $494.9 million for the six months ended March 31,
2004, while the average yield on interest-earning assets decreased from 6.79%
for 2003 to 6.00% for 2004. Average interest-bearing liabilities decreased by
$22.4 million to $467.6 million for the six months ended March 31, 2004 from
$490.0 million for the six months ended March 31, 2003, while the cost of
interest-bearing liabilities decreased from 3.16% in 2003 to 2.47% in 2004.
Provision for Loan Losses
The Corporation's provision for loan losses was $728,000 for the six months
ended March 31, 2004, compared to $481,000 for the same period in 2003. The
allowance for loan losses is established through a provision for loan losses
charged to expense. While the Corporation maintains its allowance for losses at
a level which it considers necessary to reflect probable incurred losses, there
can be no assurance that further additions will not be made to the loss
allowances or that such losses will not exceed the estimated amounts. (See
Allowance for Loan Losses table on page 16).
15
The following table sets forth information with respect to the Bank's allowance
for loan losses at the dates indicated:
For the Six Months
Ended March 31,
----------------------------------------
2004 2003
----------------------------------------
(dollars in thousands)
Average loans outstanding $ 369,872 $ 415,082
----------------------------------------
Allowance balance (beginning of period) $ 1,701 $ 1,681
----------------------------------------
Provision:
Residential and construction 540 143
Land and commercial real estate - 107
Commercial and agricultural business 188 208
Consumer - 23
----------------------------------------
Total provision 728 481
Charge-offs:
Residential and construction 464 153
Land and commercial real estate - 73
Commercial and agricultural business 188 160
Consumer 131 168
----------------------------------------
Total charge-offs 783 554
Recoveries:
Residential and construction 28 -
Land and commercial real estate - -
Consumer 34 51
----------------------------------------
Total recoveries 62 51
----------------------------------------
Net charge-offs 721 503
----------------------------------------
Allowance balance (end of period) $ 1,708 $ 1,659
========================================
Allowance as percent of net loans 0.45% 0.41%
Net loans charged off as a percent of average loans 0.46% 0.13%
Noninterest Income
Total noninterest income decreased from $5.2 million for the six months ended
March 31, 2003 to $4.4 million for the six months ended March 31, 2004. Gain on
sale of loans decreased $1.0 million over the same period in 2003 primarily due
to a decrease in the refinancing market and loans that are sold in the secondary
market. Other service charges and fees decreased from $814,000 for the six
months ended March 31, 2003 to $685,000 for the same period ended March 31,
2004, which was mainly attributable to a decrease in servicing and late fees as
the outstanding loan portfolio balance has decreased in the periods compared and
a reduction in application fees related to a reduction in loan originations.
Service charges on deposit accounts decreased $25,000. Net gains on sale of
available-for-sale securities totaled $284,000 for the six-month period as the
Bank sold its equity securities and various debt securities.
Noninterest Expense
Total noninterest expense increased $55,000 from March 31, 2003 as compared to
the same period in 2004. Compensation and benefits remained at $5.6 million for
the periods compared. Occupancy and equipment expense increased $169,000 over
the periods compared. This increase was mainly attributable to an increase in
amortization and depreciation expense on software and computer updates as the
Bank continues to enhance its data systems. Data processing increased $8,000 to
$498,000 for the six months ended March 31, 2004.
Income Tax Expense
Income taxes decreased to $1.4 million for the six months ended March 31, 2004
from $2.1 million for the same period in 2003 due to a decrease of $1.8 million
in pretax income.
16
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's primary sources of funds are deposits, borrowings, principal
and interest payments on loans, investments and mortgage-backed securities,
sales of mortgage loans and funds provided by operations. While scheduled
payments on loans, mortgage-backed securities and short-term investments are
relatively predictable sources of funds, deposit flows and early loan repayments
are greatly influenced by general interest rates, economic conditions and
competition.
The amount of certificate accounts that are scheduled to mature during the
twelve months ending March 31, 2005 is approximately $177.3 million. To the
extent that these deposits do not remain upon maturity, the Bank believes that
it can replace these funds with new deposits, excess liquidity and FHLB advances
or outside borrowings. It has been the Bank's experience that substantial
portions of such maturing deposits remain at the Bank.
The following table presents, as of March 31, 2004, the Company's significant
fixed and determinable contractual obligations by payment date. The payment
amount represents those amounts contractually due to the recipient and does not
include any unamortized premiums or discounts or other similar carrying amount
adjustments.
(in thousands)
----------------------------------------------------------
One One to Over
Year or Three Three
Less Years Years Total
----------------------------------------------------------
Long-Term Debt
FHLB borrowings $ - $ 10,000 $ 62,000 $ 72,000
==========================================================
Other Contractual Obligations
Non-cancelable operating leases $ 364 $ 696 $ 104 $ 1,164
Unused lines of credit 44,228 - - $ 44,228
Standby letters of credit 252 - - $ 252
Development letters of credit 5,819 - - $ 5,819
Commitments to sell loans 15,503 - - $ 15,503
Commitments to extend credit 2,993 - - $ 2,993
Commitments to purchase available-for-sale
mortgage-backed and related securities 6,373 - - $ 6,373
Commitments to purchase available-for-sale
debt securities 10,000 - - $ 10,000
OTS regulations require the Bank to maintain core capital of 4.0% of assets, of
which 2.0% must be tangible equity capital, excluding goodwill. The Bank is also
required to maintain risk-based capital equal to 8.0% of total risk-based
assets. The Bank's regulatory capital exceeded its tangible equity, tier 1
(risk-based), tier 1 (core) and risk-based capital requirements by 7.4%, 9.3%,
4.9% and 5.8%, respectively.
Management believes that under current regulations, the Bank will continue to
meet its minimum capital requirements in the foreseeable future. Events beyond
the control of the Bank, such as increased interest rates or a downturn in the
economy in areas in which the Bank operates, could adversely affect future
earnings and, as a result, the ability of the Bank to meet its future minimum
capital requirements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from the information regarding market risk
disclosed under the heading "Asset and Liability Management" in the
Corporation's Annual Report for the year ended September 30, 2003.
17
CONTROLS AND PROCEDURES
The Company's management evaluated, with the participation of the Company's
Chief Executive Officer and Chief Financial Officer, the effectiveness of the
Company's disclosure controls and procedures, as of the end of the period
covered by this report. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms.
There were no changes in the Company's internal control over financial reporting
that occurred during the Company's last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
18
ITEM 1. LEGAL PROCEEDINGS
Neither the Corporation nor any of its subsidiaries were engaged in
any legal proceedings of a material nature at March 31, 2004. From
time to time, the Corporation is a party to legal proceedings in the
ordinary course of business wherein it enforces its security interest
in loans.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
(a) Not applicable. (b) Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report.
3.1 Articles of Incorporation of FSF Financial Corp. *
3.2 Bylaws of FSF Financial Corp. *
4.0 Stock Certificate of FSF Financial Corp. *
10.1 Form of Employment Agreement with Donald A. Glas,
George B. Loban and Richard H. Burgart *
10.2 First Federal fsb Management Stock Plan **
10.3 FSF Financial Corp. 1996 Stock Option Plan **
10.4 FSF Financial Corp. 1998 Stock Compensation Plan ***
31.0 Rule 13a-14(a) Certifications
32.0 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
(i) The Company furnished a current report on Form 8-K on January
21, 2004 pursuant to items 7 and 12 to report operating results
for the quarter ended December 31, 2003.
- --------------------------------------------------------------------------------
* Incorporated herein by reference into this document from the Exhibits to
Form S-1, Registration Statement initially filed with the Commission on
June 1, 1994. Registration No. 33-79570.
** Incorporated herein by reference into this document from the Registrant's
Proxy Statement for the Annual Meeting of Stockholders held on January 17,
1996 and filed with the Commission on December 13, 1995.
*** Incorporated herein by reference into this document from the Registrant's
Proxy Statement for the Annual Meeting of Stockholders held on January 20,
1998 and filed with the Commission on December 10, 1997.
19
FSF FINANCIAL CORP. AND SUBSIDIARIES
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 thereunto duly authorized.
FSF FINANCIAL CORP.
Date: May 3, 2004 By: /s/Donald A. Glas
-----------------------
Donald A. Glas
Chief Executive Officer
Date: May 3, 2004 By: /s/Richard H. Burgart
-----------------------
Richard H. Burgart
Chief Financial Officer
20