SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from __________ to __________
Commission File No. 0-27714
Crazy Woman Creek Bancorp Incorporated
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(Exact name of registrant as specified in its charter)
Wyoming 83-0315410
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
106 Fort Street, Buffalo, Wyoming 82834
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(Address of principal executive offices)
(307) 684-5591
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(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Sections
13 or 15(d) of the Exchange Act during the past 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
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
Class: Common Stock, par value $.10 per share
Outstanding at July 17, 1997: 954,845
Transitional Small Business Disclosure Format (check one): Yes No X
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CRAZY WOMAN CREEK BANCORP INCORPORATED
INDEX TO FORM 10-QSB
Page
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PART I FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Statements of Financial Condition at June 30,
1997 (unaudited) and September 30, 1996 (audited)............ 1
Consolidated Statements of Income for the three and nine
months ended June 30, 1997 and 1996 (unaudited).............. 2
Consolidated Statements of Cash Flows for the nine months
ended June 30, 1997 and 1996 (unaudited)..................... 3
Notes to Unaudited Interim Consolidated Financial
Statements................................................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 7
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings............................................ 15
Item 2. Changes in Securities........................................ 15
Item 3. Defaults upon Senior Securities.............................. 15
Item 4. Submission of Matters to a Vote of Security Holders.......... 15
Item 5. Other Information............................................ 15
Item 6. Exhibits and Reports on Form 8-K............................. 15
SIGNATURES
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
----------- -------------
(unaudited) (audited)
(In Thousands)
<S> <C> <C>
Assets
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Cash and cash equivalents....................................................... $ 762 $ 451
Interest bearing time deposits.................................................. 99 99
Investment and mortgage-backed securities available-for-sale.................... 15,035 13,365
Investment and mortgage-backed securities held-to-maturity
(estimated market value of $9,222 in 1997 and $10,181 in 1996)................ 9,226 10,303
Stock in Federal Home Loan Bank of Seattle, at cost............................. 563 400
Loans receivable, net........................................................... 27,646 25,859
Accrued interest receivable..................................................... 448 496
Premises and equipment, net..................................................... 461 502
Other assets.................................................................... 35 42
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Total assets................................................................ $ 54,275 $ 51,517
======= ========
Liabilities and Stockholders' Equity
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Liabilities
Deposits...................................................................... 28,658 29,371
Advances from Federal Home Loan Bank.......................................... 11,079 6,113
Advances from borrowers for taxes and insurance............................... 43 53
Federal income tax payable ................................................... 135 15
Deferred income taxes......................................................... 120 81
Dividends payable............................................................. 95 106
Accrued expenses and other liabilities........................................ 132 270
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Total liabilities........................................................... 40,262 36,009
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Stockholders' equity
Preferred stock, par value $.10 per share, 2,000,000 shares authorized; $ - $ -
none issued and outstanding.................................................
Common stock, par value $.10 per share, 5,000,000 shares authorized;
954,845 issued and outstanding at June 30, 1997
1,058,000 issued and outstanding at September 30, 1996...................... 106 106
Additional paid-in surplus.................................................... 10,037 10,027
Retained earnings, substantially restricted................................... 6,277 6,058
Unearned compensation relating to Employee Stock Ownership Plan and
Management Stock Bonus Plan, at cost........................................ (1,060) (617)
Unrealized gain(loss) on securities available-for-sale........................ 11 (66)
Treasury stock - 52,900 shares (1997), at cost................................ (1,358) -
------- --------
Total stockholders' equity.................................................. 14,013 15,508
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Total liabilities and stockholders' equity................................. $54,275 $51,517
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</TABLE>
See notes to unaudited interim consolidated financial statements.
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CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- --------------------------
1997 1996 1997 1996
-------- --------- -------- -------
(Unaudited) (Unaudited)
Interest Income: (Dollars in thousands except earnings per share and dividends
declared per share)
<S> <C> <C> <C> <C>
Loans receivable............................................ $576 $515 $1,688 $1,511
Mortgage-backed securities.................................. 133 162 431 329
Investment securities....................................... 242 188 706 407
Interest bearing time deposits.............................. 1 7 4 24
Other....................................................... 19 24 46 72
---- ---- ------ ------
Total interest income.................................... 971 896 2,875 2,343
---
Interest expense:
Deposits.................................................... 357 344 1,051 1,081
Advances from FHLB of Seattle............................... 134 78 354 174
---- ---- ------- --------
Total interest expense................................... 491 422 1,405 1,088
---
Net interest income...................................... 480 474 1,470 1,255
Provision for loan losses..................................... - - - -
------ ------- ------- --------
Net interest income after provision for loan losses...... 480 474 1,470 1,088
Non-interest income:
Customer service charges.................................... 11 10 30 31
Other operating income...................................... 6 8 22 24
Gain on sale of investment and mortgage-backed securities... - 9 - 30
Gain on sale of other real estate owned..................... - - - 13
----- ---- ------ ------
Total non-interest income................................ 17 27 52 98
Non-interest expense:
Compensation and benefits................................... 134 119 399 330
Occupancy and equipment..................................... 23 22 80 82
FDIC/SAIF deposit insurance premiums........................ 4 16 22 49
Advertising................................................. 6 7 26 25
Data processing services.................................... 24 71 72 126
Loss on sale of investment and mortgage-backed securities... 8 - 7 -
Loss on sale of premises and equipment...................... - 22 - 22
Other....................................................... 40 46 157 114
---- ---- ----- -----
Total non-interest expense............................... 239 303 763 748
---- ---- ----- -----
Income before income taxes............................... 258 198 759 438
Income tax expense............................................ 86 63 257 162
---- ---- ----- -----
Net income............................................... $ 172 $ 135 $ 502 $ 276
===== === ===== =====
Dividends declared per common share........................... $0.10 $0.05 $0.30 $0.05
==== ==== ==== ====
Earnings per common share..................................... $0.19 $0.14 $0.53 $0.28
==== ==== ===== ====
</TABLE>
See notes to unaudited interim consolidated financial statements.
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CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine months Ended
June 30,
1997 1996
------ ------
(In Thousands)
Cash flows from operating activities: (Unaudited)
<S> <C> <C>
Net income............................................................................. $ 502 $ 276
Adjustments to reconcile net income to net cash provided by operating activities
Amortization of premiums and discounts on investment securities available-for sale, net 4 -
Amortization of premiums and discounts on investment securities held-to-maturity, net 7 -
Federal Home Loan Bank stock dividend................................................ (25) (21)
Depreciation......................................................................... 53 58
Gain on sale of securities........................................................... - (30)
Gain on sale of other real estate owned.............................................. - (13)
Loss on disposition of premises and equipment........................................ - 22
ESOP shares committed to be released................................................. 44 -
MSBP deferred compensation........................................................... 44 -
Change in:
Accrued interest receivable...................................................... 48 (53)
Other assets..................................................................... 7 (9)
Federal income taxes payable..................................................... 120 70
Dividends payable................................................................ (10) 53
Accrued expenses and other liabilities........................................... (137) 9
----- ------
Net cash provided by operating activities..................................... 656 362
Cash flows from investing activities:
Net change in interest bearing deposits................................................ - 594
Purchases of investment and mortgage-backed securities available-for-sale.............. (8,752) (10,894)
Maturities of investment and mortgage-backed securities available-for-sale............. 3,487 102
Proceeds from the sale of investment and mortgage-backed securities available-for-sale. 3,702 1,006
Purchases of investment and mortgage-backed securities held-to-maturity................ (410) (6,710)
Maturities of investment and mortgage-backed securities held-to-maturity............... 833 5,507
Proceeds from the sale of investment and mortgage-backed securities held-to-maturity... 650 672
Purchase of FHLB of Seattle stock...................................................... (138) -
Net change in loans receivable......................................................... (1,787) (2,508)
Purchases of premises and equipment.................................................... (10) (51)
Proceeds from sale of other real estate owned.......................................... - 68
----- ------
Net cash used in investing activities................................................ (2,425) (12,214)
</TABLE>
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<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Statements of Cash Flows
(continued)
<TABLE>
<CAPTION>
Nine months Ended
June 30,
1997 1996
------ -----
(In Thousands)
(Unaudited)
Cash flows from financing activities:
<S> <C> <C>
Net change in deposits................................................................. (713) 250
Net changes in advances from Federal Home Loan Bank.................................... 4,966 2,958
Net change in advances from borrowers for taxes and insurance.......................... (10) (4)
Dividends paid to stockholders......................................................... (283) (53)
Acquisition of common stock for MSBP, at cost.......................................... (522) -
Acquisition of treasury stock, at cost................................................. (1,357) -
Sale of common stock, net of offering costs............................................ - 9,504
------ --------
Net cash provided in financing activities............................................ 2,080 12,655
------ --------
Net increase (decrease) in cash and cash equivalents..................................... 311 803
Cash and cash equivalents at beginning of year........................................... 451 268
------ -----
Cash and cash equivalents at end of period............................................... $ 762 $ 1,071
====== =======
</TABLE>
See notes to unaudited interim consolidated financial statements.
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<PAGE>
Notes to Unaudited Interim Consolidated Financial Statements
June 30, 1997
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. For further information, the reader should refer to the
annual report of Crazy Woman Creek Bancorp Incorporated (the "Corporation").
The accompanying consolidated financial statements include the accounts of the
Corporation and Buffalo Federal Savings Bank (the "Bank"), a wholly owned
subsidiary of the Corporation. All significant intercompany balances and
transactions have been eliminated in consolidation.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentations have been included. The
results of operations for the interim periods ended June 30, 1997 and 1996 are
not necessarily indicative of the results which may be expected for an entire
year or any other period.
NOTE 2: CONVERSION FROM MUTUAL SAVINGS BANK TO STOCK SAVINGS
BANK AND FORMATION OF SAVINGS AND LOAN HOLDING COMPANY
On March 29, 1996, the Bank consummated its conversion from a
federally-chartered mutual savings and loan association to a stock savings bank
pursuant to a Plan of Conversion (the "Conversion") via the issuance of common
stock. In connection with the Conversion, the Corporation sold 1,058,000 shares
of common stock which, after giving effect to offering expenses of $410,000
resulting in net proceeds of $10.13 million ($9.49 million net of ESOP
purchases). Pursuant to the Conversion, the Bank transferred all of its
outstanding shares to its newly organized holding company, the Corporation, in
exchange for 50% of the net proceeds.
Upon consummation of the Conversion, the preexisting liquidation rights of the
depositors of the Bank were unchanged. Specifically, such rights were retained
and will be accounted for by the Bank for the benefit of such depositors in
proportion to their liquidation interest as of the Eligibility Record Date
(November 15, 1994) and Supplemental Eligibility Record Date
(December 31, 1995).
NOTE 3: RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the FASB issued Statement 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." Statement No.
125 provides guidance on
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accounting for transfers and servicing of financial assets, recognition and
measurement of servicing assets and liabilities, financial assets subject to
repayment, secured borrowings and collateral, and extinguishment of liabilities.
Statement No. 125 generally requires the Corporation to recognize as separate
assets the rights to service mortgage loans for others, whether the servicing
rights are acquired through purchases or loan originations. Servicing rights are
initially recorded at fair value based upon the present value of estimated
future cash flows. Subsequently, the servicing rights are assessed for
impairment, which is recognized in the statement of earnings in the period the
impairment occurs. For purposes of performing the impairment evaluation, the
related portfolio must be stratified on the basis of certain risk
characteristics including loan type and note rate. Statement No. 125 also
specifies that financial assets subject to prepayment, including loans that can
be contractually prepaid or otherwise settled in such a way that the holder
would not recover substantially all of its recorded investment be measured like
debt securities available for sale or trading securities under Statement No.
115. The Corporation adopted the provisions of Statement No. 125 on January 1,
1997, and such adoption did not have a material effect on the financial position
or operations of the Corporation.
NOTE 5: EARNINGS PER SHARE
Earnings per common share is calculated by dividing net income by the weighted
average number of common shares and common stock equivalents outstanding during
the period. Shares sold in the Conversion are assumed to have been outstanding
for all of fiscal year 1996, for purposes of computing weighted average shares
outstanding. Additionally, unallocated ESOP shares are excluded from the
weighted average common shares outstanding calculation, while allocated shares
are considered to be outstanding. At June 30, 1997, there were 5,715 allocated
ESOP shares. At June 30, 1996, no ESOP shares had been allocated. The weighted
average shares outstanding for the nine month period ended June 30, 19977 was
computed at 954,646 net of weighted average unallocated ESOP shares (59,809).
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
- -------
The Corporation is a unitary savings and loan holding company of the Bank. The
Corporation's assets are comprised of its investment in the Bank, loans to the
Bank's Employee Stock Ownership Plan ("ESOP") and the Bank, and shares held in
three indexed, mutual funds. The Bank operates as a traditional savings
association, attracting deposit accounts from the general public and using those
deposits, together with other funds, primarily to originate and invest in
fixed-rate conventional loans secured by single-family residential real estate.
The Bank also originates home equity, consumer loans and loans secured by
savings accounts. The Bank also invests in mortgage-backed (including Real
Estate Mortgage Investment Conduits ("REMICs"), and short-term U.S. Agency
securities. To a lesser extent, the Bank originates commercial real estate loans
and business loans.
The Bank's net earnings are dependent primarily on its net interest income,
which is the difference between interest income earned on its interest-earning
assets and interest expense paid on interest-bearing liabilities. Net interest
income is determined by (i) the difference between yields earned on
interest-earning assets and rate paid on interest-bearing liabilities (interest
rate spread) and (ii) the relative amounts of interest-earning assets and
interest-bearing liabilities. The Bank's interest rate spread is affected by
regulatory, economic and competitive factors that influence interest rates, loan
demand and deposit flows. To a lesser extent, the Bank's net earnings also are
affected by the level of non-interest income, which primarily consists of
service charges and other operating income. In addition, net earnings are
affected by the level of non-interest (general and administrative) expenses.
FINANCIAL CONDITION
- -------------------
Total assets increased by 5.4% or $2.76 million from $51.52 million at September
30, 1996 to $54.28 million at June 30, 1997. The growth in assets was due in
part to a $1.79 million increase in net loans receivable and a $1.67 million
increase in investment and mortgage-backed securities available for sale. These
increases were somewhat offset by a $1.07 million decrease in investment and
mortgage-backed securities held to maturity.
Total deposits declined by $713,000 from $29.37 million at September 30, 1997 to
$28.66 million at June 30, 1997. The decline in deposits was primarily
attributed to depositor withdrawals. Asset growth and deposit outflows were
primarily funded by additional advances from the Federal Home Loan Bank of
Seattle ("FHLB"). From September 30, 1996 to June 30, 1997, FHLB advances
increased by $4.97 million.
Total stockholders' equity declined by $1.50 million from $15.51 million at
September 30, 1997 to $14.01 million at June 30, 1997 primarily as a result of
stock repurchases. After obtaining regulatory approval, the Corporation
repurchased a total of 103,155 of its common shares in January and April of this
year. The purchases totaled $1.36 million. In addition to these stock
acquisitions, the Bank's restricted stock plan purchased 42,320 shares of the
Corporation's common stock for allocation. The stock plan was approved by
stockholders at a special meeting
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held on October 2, 1996. Stockholders' equity was further reduced by cash
dividends declared during fiscal year 1997. These dividends totaled $0.30 per
share or $282,595.
ASSET QUALITY
- -------------
Non-performing assets totaled $213,000 at June 30, 1997, or 0.4% of total
assets. This compares to $32,000 at September 30, 1996 or 0.1% of total assets.
The increase in non-performing assets was primarily due to the delinquency of
four borrowers; these loans are primarily secured by the homes of such
borrowers. See also "Key Operating Ratios."
RESULTS OF OPERATIONS
- ---------------------
Comparison of Nine Months Ended June 30, 1997 and 1996.
-------------------------------------------------------
Net Income. Net income for the nine months ended June 30, 1997 was reported at
$502,000 compared to net income of $276,000 for the nine months ended June 30,
1996. The primary cause for the significant increase in net income was primarily
attributed to a $8.61 million increase in average earning assets. The increase
in average earning assets was primarily due to net proceeds received from the
Corporation's initial stock offering that was consummated on March 29, 1996.
Furthermore, net income for the nine months ended June 30, 1996 included
approximately $64,000 in one-time charges associated with a change in the Bank's
provider of data processing services and $43,000 in gains from the sale of
investment and mortgage-backed securities and other real estate owned. These
items were not present in 1997's net income.
Interest Income. Interest income totaled $2.88 million for the nine months ended
June 30, 1997 compared to $2.24 million for the nine months ended June 30, 1996.
The increase in interest income was primarily attributed to a significant
increase in average earning assets. From the nine month period ended June 30,
1996 to the nine month period ended June 30, 1997, average earning assets
increased from $42.59 million to $51.21 million primarily as a result of the net
proceeds received from the initial stock offering. This increase in volume
caused interest income to increase by $413,000. During the periods covered, the
yield on earning assets increased from 7.33% to 7.48%.
Interest Expense. Interest expense increased by $150,000 from $1.26 million for
the nine months ended June 30, 1996 to $1.41 million for the nine months ended
June 30, 1997. The increase was primarily due to an increase in average FHLB
advances. Average FHLB advances increased from $4.85 million for the nine month
period ended June 30, 1997 to $8.56 million for the nine month period ended June
30, 1997. The cost of average interest-bearing liabilities for both the periods
covered was 5.08%.
Provisions for Credit Losses. There was no provision made for loan losses for
either of the nine months ended June 30, 1997 or 1996. Loan charge-offs for the
nine months ended June 30, 1997 totaled $5,000 while recoveries total $19,000
thus causing an increase in loan loss reserves of $14,000. There were no credit
losses for the nine months ended June 30, 1996. In determining the provision for
loan losses, management analyzes, among other things, the composition of the
Bank's loan portfolio, market conditions and the Bank's market area. Management
has determined that the reserve for loan losses was adequate to cover any
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anticipated credit losses. There can be no assurance that the allowance for
losses will be adequate to cover losses which may in fact be realized in the
future and that additional provisions will not be required.
Net Interest Income. Net interest income increased by $382,000 from $1.09
million for the nine months ended June 30, 1996 to $1.47 million for the nine
months ended June 30, 1997. As previously indicated, the increase in net income
from 1996 to 1997 was primarily the result of an increase in average earning
assets. For the periods covered, the ratio of average earning assets to average
interest-bearing liabilities increased from 129.44% to 138.92%, respectively.
Total Non-interest Income. Non-interest income declined by $46,000 from $98,000
for the nine months ended June 30, 1996 to $52,000 for the nine months ended
June 30, 1997. The decrease was primarily attributed to a reduction in the
amount of gain from the sale of investment and mortgage-backed securities and
other real estate owned. These gains totaled $43,000 and no such gains were
included in non-interest income for the nine months ended June 30, 1997. No
significant change occurred in the other components of non-interest income for
the periods covered. See also "--Comparison of Three Months Ended June 30, 1997
and 1996 -- Total Non- interest Income."
Total Non-interest Expense. Non-interest expense increased by $15,000 from
$748,000 for the nine months ended June 30, 1996 to $763,000 for the nine months
ended June 30, 1997 primarily as a result of higher compensation expense and
costs associated with being a public company. Compensation expense was $69,000
higher in 1997 than in 1996 due primarily to costs associated with the Bank's
ESOP and Management Stock Bonus Plan ("MSBP)". The increase in compensation
expense was also caused by general employee pay increases and the hiring of an
additional employee.
Other operating expenses increased from $114,000 to $157,000 for the periods
covered primarily as a result of costs associated with being a public company,
particularly costs associated with the preparation and mailing of documents for
the first annual meeting of stockholders. In 1997, costs related to being a
public company totaled approximately $50,000 compared to around $13,000 in 1996.
In 1996, the Bank changed data processing providers. This change resulted in a
$34,000 deconversion charge from the Bank's prior data processing provider and a
$22,000 loss on the abandonment/disposition of equipment and software utilized
with the prior data processing system. Other costs associated with this change
totaled approximately $8,000.
Insurance premiums paid to the Federal Deposit Insurance Corporation (the
"FDIC") declined by $27,000 from $49,000 for the nine months ended June 30, 1996
to $22,000 for the nine months ended June 30, 1997. Losses from the sale of
certain investment and mortgage-backed securities available for sale totaling
$7,000 were included in 1997's non-interest expense.
Provision for Income Taxes. The effective tax rate for the nine months ended
June 30, 1997 and 1996 was 33.86% and 36.99%, respectively.
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Comparison of Three Months Ended June 30, 1997 and 1996
-------------------------------------------------------
General. For the three months ended June 30, 1997, the Corporation posted net
income of $172,000 as compared with net income of $135,000 for the three months
ended June 30, 1996. The increase in net income was primarily attributed to an
increase in average earnings assets and a decline in non-interest expense.
Average earnings assets increased by $2.73 million from $48.96 million for the
three month period ended June 30, 1996 to $51.69 million for the three month
period ended June 30, 1997 primarily as a result of increases in net loans
receivable and investment and mortgage-backed securities available for sale.
These increases were primarily funded through additional advances from the FHLB.
Included in 1996's net income were gains from the sale of investment and
mortgage-backed securities and certain charges related to the Bank's change in
data processing providers. The gains totaled $9,000 while the one-time charges
totaled approximately $64,000.
Interest Income. Total interest income increased by $75,000 from $896,000 for
the three months ended June 30, 1996 to $971,000 for the three months ended June
30, 1997. The increase in interest income was due in part to an increase in
average net loans receivable and average investment securities available for
sale. These increases in volume attributed to an increase in interest income of
approximately $77,000. The increase in interest income caused by these volume
increases was somewhat offset by a decrease in average investment and
mortgage-backed securities held to maturity. These declines in average balances
caused interest income to decrease by $35,000. The balance of the increase in
interest income was attributed to an increase in the yield on earning assets
from 7.31% for the three month period ended June 30, 1996 to 7.51% for the three
month period ended June 30, 1997.
Interest Expense. Total interest expense increased by $69,000 from $422,000 for
the three months ended June 30, 1996 to $491,000 for the three months ended June
30, 1997 as a result of an increase in average FHLB advances. Average FHLB
advances increased from $6.15 million for the three month period ended June 30,
1996 to $9.79 million for the three month period ended June 30, 1997. Also
attributing to the increase in interest expense was the increase in the cost of
interest-bearing liabilities from 4.96% for the nine month period ended June 30,
1996 to 5.16% for the nine month period ended June 30, 1997. See also
"--Comparison of Six Months Ended June 30, 1997 and 1996 -- Total Interest
Expense."
Provision for Credit Losses. There was no loan loss provision made for the three
months ended June 30, 1997 and 1996. See also "--Comparison of Six Months Ended
June 30, 1997 and 1996 -- Provision for Credit Losses."
Net Interest Income. Net interest income increased by $6,000 from $474,000 for
the three months ended June 30, 1996 to $480,000 for the three months ended June
30, 1997. The Corporation experienced a slight increase in net interest income
despite a decline in net interest margin from 3.86% for the nine month period
ended June 30, 1996 to 3.71% for the nine month period ended June 30, 1997. The
decline in net interest margin was primarily due to a drop in the ratio of
average earning assets to interest-bearing liabilities. From the nine month
period ended June 30, 1996 to the nine month period ended June 30, 1997, this
ratio declined from 143.95% to 135.70%. The decline in this ratio was primarily
caused by a greater percentage
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<PAGE>
increase in average interest-bearing liabilities than in average earning assets
for the periods covered. The greater increase in interest-bearing liabilities
was primarily attributed to the replacement of "interest-free" capital with
interest-bearing liabilities during the last six months of fiscal year 1997.
During this period, the Corporation repurchased 145,475 shares of its common
stock for $1.88 million. See also -- "Comparison of Six Months Ended June 30,
1997 and 1996 -- Net Interest Income."
Total Non-Interest Income. Non-interest income declined by $10,000 from $27,000
for the three months ended June 30, 1996 to $17,000 for the three months ended
June 30, 1997. Non-interest income for the three month period ended June 30,
1996 included $9,000 in gains from the sale of investment and mortgage-backed
securities; no such gains were recognized for the same period in 1997. No
significant changes occurred in the other components of non-interest income for
the periods covered. See also "-- Comparison of Six Months Ended March 31 1997,
and 1996 -- Total Non-Interest Expenses."
Total Non-Interest Expense. Non-interest expense decreased by $64,000 from
$303,000 for the three months ended June 30, 1996 to $239,000 for the three
months ended June 30, 1997. As previously indicated, non-interest expense for
the three months ended June 30, 1996 included approximately $64,000 in one-time
charges related to the Bank's change in data processing providers.
Compensation expenses increased by $15,000 from $119,000 for the three months
ended June 30, 1996 to $134,000 for the three months ended June 30, 1997
primarily as a result of costs associated with the Bank's stock benefit plans
and to general employee pay increases. The increase in compensation expense was
somewhat offset by a $11,000 decline in FDIC insurance premiums for the periods
covered.
Other operating expenses declined slightly from $46,000 for the three months
ended June 30, 1996 to $40,000 for the three months ended June 30, 1997
primarily as a result of a decline in legal fees. Such fees decreased from
$12,000 for the three months ended June 30, 1996 to $8,000 for the three months
ended June 30, 1997. Included in 1997's non-interest expense were losses from
the sale of investment and mortgage-backed securities in the amount of $8,000.
See also "-- Comparison of Six Months Ended June 30, 1997 and 1996 - Total
Non-Interest Expense."
Provision for Income Taxes. The effective tax rate for the three months ended
June 30, 1997 and 1996 was 33.33% and 31.82%, respectively.
- 11 -
<PAGE>
CAPITAL COMPLIANCE AND LIQUIDITY
- --------------------------------
Capital Compliance. The following table presents the Bank's compliance with its
regulatory capital requirements of June 30, 1997.
<TABLE>
<CAPTION>
At June 30, 1997
----------------
Percentage
Amount of Assets
------ ---------
(Dollars in Thousands)
<S> <C> <C>
GAAP Capital..................................... $10,594 19.64%
Tangible capital................................. $10,596 19.64%
Tangible capital requirement..................... 809 1.50%
------- ------
Excess........................................... $ 9,787 18.14%
====== =====
Core capital..................................... $10,596 19.64%
Core capital requirements........................ 1,619 3.00%
------ -----
Excess........................................... $ 8,977 16.64%
====== =====
Total risk-based capital (1)..................... $10,879 48.12%
Total risk-based capital requirement (1)......... 1,809 8.00%
------ ----
Excess (1)....................................... $ 9,070 40.12%
====== =====
</TABLE>
- ------------
(1) Based on risk-weighted assets of $22,607.
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. Increased borrowings were necessary to meet the increased
loan demand.
Liquidity. The Bank's liquidity is a measure of its ability to fund loans, pay
withdrawals of deposits, and other cash outflows in an efficient, cost effective
manner. The Bank's primary source of funds are deposits and scheduled
amortization and prepayment of loans. During the past several years, the Bank
has used such funds primarily to fund maturing time deposits, pay savings
withdrawals, fund lending commitments, purchase new investments, and increase
liquidity. The Bank funds its operations internally but supplements with
borrowed funds from
- 12 -
<PAGE>
the FHLB of Seattle. As of June 30, 1997 such borrowed funds totaled $11.08
million. Loan payments and maturing investments are greatly influenced by
general interest rates, economic conditions and competition.
The Bank is required under federal regulations to maintain certain specified
levels of "liquid investments," which include certain United States government
obligations and other approved investments. Current regulations require the Bank
to maintain liquid assets of not less than 5% of its net withdrawable accounts
plus short-term borrowings. Short-term liquid assets must consist of not less
than 1% of such accounts and borrowings, which amount is also included within
the 5% requirement. Those levels may be changed from time to time by the
regulators to reflect current economic conditions. The Bank has generally
maintained liquidity far in excess of regulatory requirements. The Bank's
regulatory liquidity was 17.95% and 17.90% at June 30, 1997 and 1996,
respectively, and its short term liquidity was 2.97% and 4.36.%, at such dates,
respectively.
The amount of certificate accounts which are scheduled to mature during the
twelve months ending June 30, 1997 is approximately $14.40 million. To the
extent that these deposits do not remain at the Bank upon maturity, the Bank
believes that it can replace these funds with new deposits, excess liquidity,
FHLB advances or outside borrowings. It has been the Bank's experience that a
substantial portion of such maturing deposits remain at the Bank.
At June 30, 1997, the Bank had loan commitments outstanding of $493,000 and
$979,000 in commitments to purchase a short-term REMIC and an adjustable-rate
mortgage-backed security. Funds required to fill these commitments are derived
primarily from current excess liquidity, deposit inflows or loan and investment
and mortgage-backed security repayments. FHLB advances may be used to fund these
commitments, if necessary.
IMPACT OF INFLATION AND CHANGING PRICES
- ---------------------------------------
The consolidated financial statements of the Corporation and notes thereto,
presented elsewhere herein, have been prepared in accordance with GAAP, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of the Corporation's operations. Unlike most industrial
companies, nearly all the assets and liabilities of the Corporation are
financial. As a result, interest rates have a greater impact on the
Corporation's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services.
- 13 -
<PAGE>
KEY OPERATING RATIOS
- --------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1997 (1) 1996 (1) 1997 (1) 1996 (1)
-------- -------- -------- --------
(Dollars in Thousands, (Dollars in Thousands,
except per share data) except per share data)
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Return on average assets............................. 1.31% 1.08% 1.27% 0.84%
Return on average equity............................. 4.92% 3.49% 4.38% 3.60%
Interest rate spread................................. 2.36% 2.42% 2.49% 2.25%
Net interest margin.................................. 3.71% 3.86% 3.81% 3.41%
Noninterest expense to average assets................ 1.81% 2.42% 1.95% 2.28%
Net charge-offs to average outstanding loans......... 0.00% 0.00% 0.00% 0.00%
</TABLE>
<TABLE>
<CAPTION>
At June 30, At September 30,
1997 1996
------------ ----------------
<S> <C> <C>
Nonaccrual and 90 days past due loans................ 213 32
Repossessed real estate............................. 0 0
Total nonperforming assets......................... 213 32
Allowance for credit losses to nonperforming assets.. 136.15% 862.50%
Nonperforming loans to total loans................... 0.76% 0.12%
Nonperforming assets to total assets................. 0.39% 0.06%
Book value per share (2)............................. $14.68 $14.66
</TABLE>
- ----------------
(1) The ratios for the three- and three-month periods are annualized.
(2) The number of shares outstanding as of June 30, 1997 and September 30,
1996 were 954,845 and 1,058,000, respectively. These include shares
purchased by the ESOP.
- 14 -
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
Neither the Corporation nor the Bank was engaged in any legal
proceeding of a material nature at June 30, 1997. 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
---------------------
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
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 27 - Financial Disclosure Schedule
(in electronic filing only)
(b) Reports on Form 8-K
None.
- 15 -
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
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.
CRAZY WOMAN CREEK BANCORP INCORPORATED
Date: July 17, 1997 By: /s/ Deane D. Bjerke
-------------------
Deane D. Bjerke
President and
Chief Executive Officer
(Principal Executive Officer)
Date: July 17, 1997 By: /s/ Dalen C. Slater
-------------------
Dalen C. Slater
Senior Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 46
<INT-BEARING-DEPOSITS> 786
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,035
<INVESTMENTS-CARRYING> 15,019
<INVESTMENTS-MARKET> 9,222
<LOANS> 27,646
<ALLOWANCE> 290
<TOTAL-ASSETS> 54,275
<DEPOSITS> 28,658
<SHORT-TERM> 9,279
<LIABILITIES-OTHER> 525
<LONG-TERM> 1,800
0
0
<COMMON> 106
<OTHER-SE> 13,907
<TOTAL-LIABILITIES-AND-EQUITY> 54,275
<INTEREST-LOAN> 1,688
<INTEREST-INVEST> 1,137
<INTEREST-OTHER> 50
<INTEREST-TOTAL> 2,875
<INTEREST-DEPOSIT> 1,051
<INTEREST-EXPENSE> 1,405
<INTEREST-INCOME-NET> 1,470
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (7)
<EXPENSE-OTHER> 756
<INCOME-PRETAX> 759
<INCOME-PRE-EXTRAORDINARY> 759
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 502
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.53
<YIELD-ACTUAL> 3.83
<LOANS-NON> 213
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 276
<CHARGE-OFFS> 5
<RECOVERIES> 19
<ALLOWANCE-CLOSE> 290
<ALLOWANCE-DOMESTIC> 290
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
