ITEM 1. BUSINESS
GENERAL
FSF Financial Corp. is a Minnesota corporation organized in May, 1994 and as of October 6, 1994, became the holding company for First Federal fsb ("First Federal" or the "Bank"). Since becoming an operating subsidiary of the Bank, Homeowners Mortgage Corporation ("HMC"), a mortgage banking subsidiary, has become an integral part of the residential construction lending function. The terms "First Federal", "Bank" and "HMC" are synonymous when used in conjunction with residential lending and residential construction lending. See "Subsidiary Activity".
First Federal's business consists primarily of attracting deposits from the general public and using such deposits, together with borrowings and other funds, to make a variety of loans. At September 30, 2003, First Federal operated 13 retail bank offices in Minnesota. On November 9, 2001, First Federal completed its acquisition of the ING Bank branch facility in the St. Cloud area. See "Item 2
ITEM 2. PROPERTIES
The Bank operates from its main office located at 201 Main Street South, Hutchinson, Minnesota. The Bank owns this 20,000 square foot office facility which it built in 1985/86. The total investment in property and equipment at 201 Main Street South had a net book value of $2.0 million at September 30, 2003.
Additional offices, either owned or leased by the Bank, are set forth below with information regarding net book value of the premises and equipment at such facilities at September 30, 2003.
Year Acquired or Net Book Date Lease Value at Square Location Expires September 30, 2003 Footage - -------------------------------- --------------------------------------------- (Dollars in thousands) 14994 Glazier Avenue Apple Valley, MN 55124 1989 $238 3,000
305 10th Avenue S Buffalo, MN 55313 1999 871 5,620
1002 Greeley Avenue Glencoe, MN 55336 2000 392 1,980
1320 South Frontage Road Hastings, MN 55033 1984 903 15,000
905 Highway 15 South, Frontage Road Hutchinson, MN 55350 1980 180 1,400
6505 Cahill Avenue Inver Grove Heights, MN 55075 1979 215 3,000
501 North Sibley Avenue Litchfield, MN 55355 1978 128 2,400
200 East Frontage Road, Highway 5 Waconia, MN 55387 1985 250 2,400
122 East Second Street Winthrop, MN 55396 2004 (1) 19 950
113 Waite Avenue South Waite Park, MN 56387 2004 (2) 38 700
135 3rd Avenue SW Hutchinson, MN 55350 2007 (3) 2 1,200
1001 Labore Industrial Court Suite E Vadnais Heights, MN 55110 2006 (4) 209 7,748
1113 West Saint Germain Street Saint Cloud, MN 56302 2001 (5) 907 8,360
1. Lease expires in July 2004 with option to renew for one-year terms. The Bank expects to renew the lease. 2. Lease expires in September 2004. 3. Lease expires in April 2007. 4. Lease expires in January 2006. 5. Property acquired on November 9, 2001.
The Bank leases approximately 1,040 square feet of the property in Hastings, Minnesota under an operating lease set to expire April 14, 2004, with annual rents totaling $8,356 in addition to their proportionate share of the operating expenses.
The Agency operates from its main office at 135 3rd Avenue Southeast, Hutchinson, Minnesota and also has an office within the Bank's building in Buffalo, Minnesota. Those facilities are covered by a month to month lease under the terms of an expense sharing agreement.
HMC operates from its main office located at 1001 Labore Industrial Court, Vadnais Heights, Minnesota and also has an office within the Bank's building in Hastings, Minnesota. These facilities are covered by a month to month lease under the terms of an expense sharing agreement.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Corporation and First Federal, from time to time, is a party to legal proceedings in the ordinary course of business when it enforces security interests in loans made by it. The Corporation and First Federal are not engaged in any legal proceedings of a material nature at the present time.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
For additional information relating to the market for the Corporation's common equity and related stockholder matters, see "Corporate Profile and Stock Market Information" in the Registrant's 2003 Annual Report to Stockholders on page 1 and is incorporated herein by reference.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The above captioned information appears under "Selected Financial Data" in the Corporation's 2003 Annual Report to Stockholders on page 2 and is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The above captioned information appears under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Registrant's 2003 Annual Report to stockholders on pages 4 through 14 and is incorporated herein by reference.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The above information appears under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Registrant's 2003 Annual Report to Stockholders on pages 4 through 14 and is incorporated herein by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Corporation and its subsidiaries, together with the report thereon by Crowe Chizek and Company LLC appears in the 2003 Annual Report to Stockholders on pages 15 through 42 and are incorporated herein by reference.
Quarterly Results of Operations on page 42 of the Annual Report is incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
On May 9, 2003, Larson, Allen, Weishair & Co., LLP ("Larson Allen"), Certified Public Accountants, resigned as the Company's independent auditors and the Company appointed Crowe Chizek and Company LLC ("Crowe Chizek") as its new independent auditors. The decision to change accountants was approved by the Company's Board of Directors. Larson Allen's reports on the Company's consolidated financial statements for the two fiscal years ended September 30, 2002 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. In connection with audits of the two fiscal years ended September 30, 2002 and any subsequent interim period preceding the date hereof, there were no disagreements or reportable events between the Company and Larson Allen on any matters of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which, if not resolved to the satisfaction of Larson Allen, would have caused them to make a reference to the subject matter of the disagreements or reportable events in connection with their reports. During the two most recent fiscal years and the subsequent interim period to the date hereof, the Company did not consult with Crowe Chizek regarding the application of accounting principals to any transaction or as to any accounting, auditing or financial reporting issues.
ITEM 9A.
ITEM 9A. 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.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The information contained under the sections captioned "Section 16(a) Beneficial Ownership Reporting Compliance" and "Proposal I--Election of Directors" and "Biographical Information" in the 2003 Proxy Statement (the "Proxy Statement") are incorporated herein by reference.
The Company has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. A copy of the Company's Code of Ethics will be furnished, without charge, to any person who requests such copy by writing to the Secretary, FSF Financial Corp., 201 Main Street South, Hutchinson, Minnesota 55350.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the section captioned "Director and Executive Compensation" in the Proxy Statement is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by reference to the section captioned "Voting Securities and Principal Holders Thereof--Security Ownership of Certain Beneficial Owners" of the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by reference to the sections captioned "Voting Securities and Principal Holders Thereof--Security Ownership of Certain Beneficial Owners" and "Proposal I - Election of Directors" of the Proxy Statement.
(c) Management of the Company knows of no arrangements, including any pledge by any person of securities of the Company, in which the operation may, at a subsequent date result in a change in control of the Corporation.
(d) EQUITY COMPENSATION PLAN INFORMATION
(1) Not applicable.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to the section captioned "Certain Relationships and Related Transactions" in the Proxy Statement.
PART IV
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information called for by this item as incorporated herein by reference to the Section entitled Audit Fees and All Other Fees in the Proxy Statement.
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
(1) The consolidated statements of financial condition of the Corporation and subsidiaries as of September 30, 2003 and 2002 and the related consolidated statements of operations, comprehensive income, changes in stockholders' equity and cash flows for the three fiscal years ended September 30, 2003, together with the related notes and the independent auditors' report of Crowe Chizek and Company LLC, independent certified public accountants, are incorporated by reference to pages 15 through 42 of the 2003 Annual Report to Stockholders.
(2) Financial Schedules The Company is filing herewith the Report of its Independent Auditor on its Consolidated Financial Statements for the fiscal years ended September 30, 2002 and 2001, which has been excluded from its Annual Report to Stockholders for the fiscal year ended September 30, 2003 in accordance with Note 1 to Rule 14a-3(b)(1).
(3) Exhibits (a) The following exhibits are filed as part of this report.
- -------------------------------------------------------------------------------- * 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.
Larson Allen SM
CPAs, Consultants & Advisors www.larsonallen.com
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders FSF Financial Corp. and Subsidiaries Hutchinson, Minnesota
We have audited the accompanying consolidated statements of financial condition of FSF Financial Corp. and Subsidiaries ("the Corporation") as of September 30, 2002 and the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for each of the two fiscal years in the period ended September 30, 2002. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Corporation as of September 30, 2002 and the consolidated results of their operations and their cash flows for each of the fiscal years in the two-year period ended September 30, 2002, in conformity with accounting principles generally accepted in the United State of America.
/s/Larson, Allen, Weishair & Co., LLP
Larson, Allen, Weishair & Co., LLP Austin, Minnesota October 26, 2002
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) 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.
Dated: December 18, 2003 By: /s/ Donald A. Glas --------------------------------- Donald A. Glas Co-Chair of the Board and Chief Executive Officer (Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: