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, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from to
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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
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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 31, 1998: 917,845
Transitional Small Business Disclosure Format (check one): Yes No X
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<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED
INDEX TO FORM 10-QSB
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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, 1998
(unaudited) and September 30, 1997 (audited)......................... 1
Consolidated Statements of Income for the three and nine months
ended June 30, 1998 and 1997 (unaudited)............... 2
Consolidated Statements of Cash Flows for the nine months ended June
30, 1998 and 1997 (unaudited)........................................ 3
Notes to Unaudited Interim Consolidated Financial Statements.........
5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 9
PART II. OTHER INFORMATION
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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..................................... 16
SIGNATURES
</TABLE>
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
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(unaudited) (audited)
(In Thousands)
<S> <C> <C>
Assets
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Cash and cash equivalents.................................................................. $ 1,188 $ 1,194
Interest-bearing time deposits............................................................. 99 99
Investment and mortgage-backed securities available-for-sale............................... 23,949 19,155
Investment and mortgage-backed securities held-to-maturity
(estimated market value of $4,787 in 1998 and $9,067 in 1997)............................ 4,739 9,009
Stock in Federal Home Loan Bank of Seattle, at cost........................................ 900 801
Loans receivable, net...................................................................... 29,568 28,636
Accrued interest receivable................................................................ 571 559
Premises and equipment, net................................................................ 412 443
Other assets............................................................................... 52 56
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Total assets........................................................................... $61,478 $59,952
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Liabilities and Stockholders' Equity
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Liabilities
Deposits................................................................................. 30,681 29,507
Advances from Federal Home Loan Bank..................................................... 15,850 15,700
Advances from borrowers for taxes and insurance.......................................... 50 55
Federal income tax payable .............................................................. 31 155
Deferred income taxes.................................................................... 177 115
Dividends payable........................................................................ 95 95
Accrued expenses and other liabilities................................................... 187 115
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Total liabilities...................................................................... 47,071 45,742
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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;
1,058,000 issued....................................................................... 106 106
Additional paid-in surplus............................................................... 10,077 10,041
Unearned ESOP/MSBP shares................................................................ (737) (809)
Retained earnings, substantially restricted.............................................. 6,660 6,377
Unrealized gain(loss) on securities available-for-sale................................... 167 77
Treasury stock, at cost (119,155 shares)................................................. (1,866) (1,582)
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Total stockholders' equity............................................................. 14,407 14,210
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Total liabilities and stockholders' equity............................................. $61,478 $59,952
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</TABLE>
See notes to unaudited interim consolidated financial statements.
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<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
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1998 1997 1998 1997
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(Unaudited) (Unaudited)
Interest Income: (Dollars in thousands except earnings per share and
dividends declared per share)
<S> <C> <C> <C> <C>
Loans receivable......................................... $ 595 $576 $1,804 $1,688
Mortgage-backed securities............................... 146 133 491 431
Investment securities.................................... 337 242 964 706
Interest bearing time deposits........................... 1 1 4 4
Other.................................................... 10 19 72 46
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Total interest income................................. 1,089 971 3,335 2,875
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Interest expense:
Deposits................................................. 381 357 1,138 1,051
Advances from FHLB of Seattle............................ 231 134 690 354
------ ----- ------ ------
Total interest expense................................ 612 491 1,828 1,405
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Net interest income................................... 477 480 1,507 1,470
Provision for loan losses.................................. 6 - 12 -
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Net interest income after provision for loan losses... 471 480 1,495 1,470
Non-interest income:
Customer service charges................................. 14 11 38 30
Gain on sale of investment and mortgage-backed securities - - 3 2
Other operating income................................... 11 6 32 20
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Total non-interest income............................. 25 17 73 52
Non-interest expense:
Compensation and benefits................................ 137 134 404 399
Occupancy and equipment.................................. 21 23 62 80
FDIC/SAIF deposit insurance premiums..................... 5 4 14 22
Advertising.............................................. 8 6 23 26
Data processing services................................. 24 24 74 72
Loss on sale of premises and equipment................... - - 3 -
Other.................................................... 48 48 168 164
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Total non-interest expense............................ 243 239 748 763
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Income before income taxes............................ 253 258 820 759
Income tax expense......................................... 81 86 271 257
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Net income............................................ $ 172 $ 172 $ 549 $ 502
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Dividends declared per common share........................ $ 0.10 $0.10 $ 0.30 $ 0.30
===== ==== ===== =====
Earnings per common share.................................. $ 0.20 $0.19 $ 0.64 $ 0.53
===== ==== ===== =====
Earnings per common share - assuming dilution.............. $ 0.19 $0.19 $ 0.62 $ 0.52
===== ==== ===== =====
</TABLE>
See notes to unaudited interim consolidated financial statements.
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<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1998 1997
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(In Thousands)
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................................................... $ 549 $ 502
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of premiums and discounts on securities available-for-sale............ 3 7
Amortization of premiums and discounts on securities held-to-maturity............. 3 4
Provision for loan losses......................................................... 12 -
Federal Home Loan Bank stock dividend............................................. (50) (25)
Depreciation...................................................................... 37 53
Gain on sale of securities........................................................ (3) (2)
Dividends reinvested.............................................................. (26) -
Loss on sale of premises and equipment............................................ 3 -
ESOP shares committed to be released.............................................. 70 44
MSBP deferred compensation........................................................ 38 44
Change in:
Accrued interest receivable................................................... (12) 48
Other assets.................................................................. 3 7
Federal income taxes payable.................................................. (124) 120
Deferred tax liability........................................................ (14) (10)
Accrued expenses and other liabilities........................................ 71 (137)
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Net cash provided by operating activities.................................. 560 655
Cash flows from investing activities:
Purchases of securities available-for-sale.......................................... (18,752) (8,752)
Maturities and calls of securities available-for-sale............................... 13,719 3,487
Proceeds from the sale of securities available-for-sale............................. 430 3,702
Purchases of securities held-to-maturity - (410)
Maturities and calls of securities held-to-maturity................................. 3,767 833
Proceeds from the sale of securities ............................................... 500 650
Purchase of FHLB stock.............................................................. (49) (138)
Net change in loans receivable...................................................... (943) (1,787)
Purchase of premises and equipment.................................................. (8) (10)
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Net cash used in investing activities............................................. (1,336) (2,425)
</TABLE>
(Continued)
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<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1998 1997
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(In Thousands)
(Unaudited)
<S> <C> <C>
Cash flows from financing activities:
Net change in deposits.............................................................. 1,175 (713)
Net changes in advances from Federal Home Loan Bank................................. 150 4,966
Net change in advances from borrowers for taxes and insurance....................... (4) (10)
Acquisition of treasury stock for MSBP, at cost..................................... - (522)
Acquisition of treasury stock, at cost.............................................. (284) (1,357)
Dividends paid to stockholders...................................................... (267) (283)
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Net cash provided in financing activities......................................... 770 2,081
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Net increase (decrease) in cash and cash equivalents.................................. (6) 311
Cash and cash equivalents at beginning of year........................................ 1,194 451
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Cash and cash equivalents at end of period............................................ $ 1,188 $ 762
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</TABLE>
See notes to unaudited interim consolidated financial statements.
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<PAGE>
Notes to Unaudited Interim Consolidated Financial Statements (Continued)
June 30, 1998
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") for
the Year Ended September 30, 1997.
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, 1998 and 1997 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 pre-existing 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 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.
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<PAGE>
Notes to Unaudited Interim Consolidated Financial Statements (Continued)
June 30, 1998
NOTE 3: RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income (SFAS
130). SFAS 130, which is effective for fiscal years beginning after December 15,
1997, establishes standards for reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements.
Comprehensive income represents the change in equity of a business enterprise
during a period, from transactions and other events from nonowner sources.
Comprehensive income is comprised of net income and other comprehensive income.
SFAS 130 does not change the classification currently comprising net income.
Other comprehensive income is classified into foreign currency items, minimum
pension liability adjustments and unrealized gains and losses on certain
investments in debt and equity securities. All components of comprehensive
income shall be reported in the period in which they are recognized and be
displayed in the financial statements. The total of other comprehensive income
for a period shall be transferred to a component of equity on a separate
line-item. As such, net unrealized gain (loss) on securities available-for-sale
becomes a component of other comprehensive income upon implementation of SFAS
130. The Company will adopt SFAS 130 in October. 1998.
NOTE 4: EARNINGS PER SHARE
SFAS No. 128 "Earnings Per Share" was issued by the FASB in February 1997 and
became effective for the Corporation for all reporting periods beginning with
the interim reporting period ended December 31, 1997. SFAS No. 128 replaces
presentation of primary earnings per share ("EPS") with the presentation of
basic and fully-diluted EPS on the face of the income statement for all entities
with complex capital structures. SFAS No. 128 also requires a reconciliation of
the numerator and the denominator of the basic EPS computation and the numerator
and the denominator of the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing net income available to
common stockholders by the weighted-average number of common shares outstanding
during the period. Additionally, unallocated ESOP shares which are unallocated
and not yet committed to be released (unallocated) and unvested MSBP shares are
excluded from the weighted-average common shares outstanding calculation. At
June 30, 1998, there were 10,287 allocated ESOP shares and 7,882 vested MSBP
shares. The weighted-average common shares outstanding for the nine month period
ended June 30, 1998 was computed at 858,678 which is net of weighted-average
unallocated ESOP shares and weighted-average unvested MSBP shares. The
weighted-average common shares outstanding for the nine month period ended June
30, 1997 was calculated at 954,656 shares.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or resulted in the issuance
of common stock that would share in the earnings of the entity. Dilutive
potential common shares are added to the weighted-average shares used to compute
basic EPS. The following shows the reconciliation of the numerators and
denominators of the basic and diluted EPS computations:
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<PAGE>
Notes to Unaudited Interim Consolidated Financial Statements (Continued)
June 30, 1998
NOTE 4: EARNINGS PER SHARE (Continued)
<TABLE>
<CAPTION>
For the three month period ended June 30, 1998
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Income Shares Per-Share
(Numerator) (Denominator) Amount
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<S> <C> <C> <C>
Net Income $ 172,000
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Basic EPS
Net income available to
common stockholders 172,000 857,262 $ 0.20
====
Effect of Dilutive Securities
ESOP Shares - -
Stock Options - granted - 25,575
Unvested MSBP shares - 5,088
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Diluted EPS
Income available to common
stockholders plus assumed conversions $ 172,000 887,925 $ 0.19
======= ======= ====
</TABLE>
<TABLE>
<CAPTION>
For the nine month period ended June 30, 1998
---------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
<S> <C> <C> <C>
Net Income $ 549,000
-------
Basic EPS
Net income available to
common stockholders 549,000 858,678 $ 0.64
====
Effect of Dilutive Securities
ESOP Shares - -
Stock Options - granted - 21,260
Unvested MSBP shares 4,095
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Diluted EPS
Income available to common
stockholders plus assumed conversions $ 549,000 884,033 $ 0.62
======= ======= ====
</TABLE>
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<PAGE>
Notes to Unaudited Interim Consolidated Financial Statements (Continued)
June 30, 1998
NOTE 4: EARNINGS PER SHARE (Continued)
<TABLE>
<CAPTION>
For the three month period ended June 30, 1997
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Income Shares Per-Share
Numerator) (Denominator) Amount
---------- ------------- ------
<S> <C> <C> <C>
Net Income $ 172,000
-------
Basic EPS
Net income available to
common stockholders 172,000 884,770 $ 0.19
====
Effect of Dilutive Securities
ESOP Shares - -
Stock Options - granted - 8,793
Unvested MSBP shares - 1,550
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Diluted EPS
Income available to common
stockholders plus assumed conversions $ 172,000 895,113 $ 0.19
======= ======= ====
</TABLE>
<TABLE>
<CAPTION>
For the nine month period ended June 30, 1997
---------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Net Income $ 502,000
-------
Basic EPS
Net income available to
common stockholders 502,000 954,646 $ 0.53
====
Effect of Dilutive Securities
ESOP Shares - -
Stock Options - granted - 5,814
Unvested MSBP shares 685
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-
Diluted EPS
Income available to common
stockholders plus assumed conversions $ 502,000 961,145 $ 0.52
======= ======= ====
</TABLE>
-8-
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
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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 to the Bank, and shares in
three 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")), municipal bonds, and short-term U.S.
Agency securities. To a lesser extent, the Bank originates commercial real
estate loans and business loans. The Bank also utilizes funds obtained from the
Federal Home Loan Bank of Seattle ("FHLB") to purchase investment securities and
to originate 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
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At June 30, 1998, assets totaled $61.48 million compared to total assets of
$59.95 million at September 30, 1997. Asset growth was primarily attributed to a
$4.79 million increase in investments securities available-for-sale and a $
930,000 increase in loans. This increase was somewhat offset by a $4.27 million
decrease in investment securities held-to-maturity. The decline in investment
securities held-to-maturity was primarily caused by maturities and the
Corporation's decision to place the majority of its investment purchases in the
available-for-sale portfolio.
Asset growth was primarily funded by an increase in deposits. Deposits increased
by $1.17 million from $29.51 million at September 30, 1997 to $30.68 million at
June 30, 1998 primarily as a result an increase in business checking and
certificates of deposits. Meanwhile, advances from the FHLB increased by
$150,000 from $15.70 million at September 30, 1997 to $15.85 million at June 30,
1998.
At June 30, 1998, stockholder's equity totaled $14.41 million or 23.43% compared
to $14.21 million or 23.70% of total assets at September 30, 1997. The increase
in stockholder's equity was primarily due to continued earnings and an increase
in the market value of investment securities available-for-sale. The increase in
stockholder's equity was somewhat offset by cash dividends of $284,854 and the
repurchase of outstanding shares pursuant to the Corporation's stock repurchase
program.
ASSET QUALITY
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Non-performing assets totaled $77,000 at June 30, 1998, or 0.13% of total
assets. This compares to $225,000 at September 30, 1997 or 0.38% of total
assets. Non-performing loans were comprised of two residential home loans and
two consumer loans.
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<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS
- ---------------------
Comparison of Nine Months Ended June 30, 1998 and 1997.
- -------------------------------------------------------
Net Income. Net income for the nine months ended June 30, 1998 totaled $549,000
compared to $502,000 for the nine months ended June 30, 1997. Net income was
higher in 1998 than in 1997 primarily due to a $25,000 increase in net interest
income. Also contributing to the increase was a $21,000 increase in non-interest
income and a $15,000 decline in non-interest expense. Net income in 1998 was
negatively affected by a $12,000 provision to loan loss reserves. Federal tax
provisions were $14,000 higher in 1998 than in 1997.
Interest Income. For the nine months ended June 30, 1998, interest income
totaled $3.36 million compared to $2.88 million for the nine months ended June
30, 1997. An increase in the volume of average earning assets from $51.21
million for the nine month period ended June 30, 1997 to $59.89 million for the
same period in 1998 caused interest income to increase by $463,000. A slight
decrease was experienced in the yield on average earning assets from 7.49% for
the nine month period ended June 30, 1997 to 7.43% for the nine month period
ended June 30, 1998.
Interest Expense. Total interest expense increased by $423,000 from $1.41
million for the nine months ended June 30, 1997 to $1.83 million for the same
period in 1998 primarily as a result of an increase in the volume of average
interest-bearing liabilities. This increase in volume resulted in a $240,000
increase in interest expense. An increase in average advances from the FHLB
accounted for $192,000 of the increase caused by a change in volume. Such
average advances increased from $8.56 million for the nine month period ended
June 30, 1997 to $15.69 million for the nine month period ended June 30, 1998.
The balance of the increase in interest expense for the periods covered was
attributed to an increase in the cost of interest-bearing deposits from 5.08%
for the nine month period ended June 30, 1997 to 5.33% for the nine month period
ended June 30, 1998.
Net Interest Income. Net interest income increased by $37,000 from $1.470
million for the nine months ended June 30, 1997 to $1.507 million for the nine
months ended June 30, 1998. The increase in net interest income was primarily
caused by the growth in average earning assets relative to the increase in
average interest-bearing liabilities. Although the increase in average
interest-bearing liabilities out paced the growth in average earning assets as
evidenced by the decline of the ratio of average earning assets to average
interest-bearing liabilities from 138.92% in 1997 to 130.96% in 1998, net
interest income still increased. A factor contributing to the decline in the
ratio of average earning assets to interest-bearing liabilities was the
Corporation's repurchase of $1.88 million of its common stock in January and
April 1997 and $284,000 in May 1998. The funds lost through repurchases were
primarily replaced by advances from the FHLB.
Net interest margin declined from 3.83% for the nine month period ended June 30,
1997 to 3.36% for the nine month period ended June 30, 1998. The decrease in net
interest margin was primarily caused by the cost of average interest-bearing
liabilities increasing more than the yield on average interest earning assets
for the periods covered.
Provisions for Credit Losses. The Corporation made a $12,000 provision to loan
loss reserves for the nine months ended June 30, 1998; no provisions were made
in 1997. Loan charge-offs for the nine months ended June 30, 1998 totaled
$52,000 while recoveries totaled $23,000. In 1997, loan charge-offs totaled
$5,000 while recoveries totaled $19,000. 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
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.
Total Non-interest Income. Total non-interest income increased by $21,000 from
$52,000 for the nine months
-10-
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
ended June 30, 1997 to $73,000 for the nine months ended June 30, 1998 primarily
due to an increase in fees generated from customer service charges and loan
originations.
Total Non-interest Expense. Total non-interest expense declined by $15,000 from
$763,000 for the nine months ended June 30, 1997 to $748,000 for the nine months
ended June 30, 1998. The decrease was primarily attributed to lower deposit
insurance premiums, occupancy and equipment expenses and a slight reduction in
advertising costs. There were no significant changes in the other components of
non-interest expense.
Non-interest expense for the nine months ended June 30, 1998 does not contain
any direct costs associated with the Corporation's efforts to upgrade its data
processing systems to address the change to the year 2000. The Corporation does
not believe that its costs to comply with the change to the year 2000 will have
a material effect on its financial position or results of operation. However,
despite the best efforts of management to address this issue, the vast number of
external entities that have direct and indirect business relationships with the
Corporation, such as customers, vendors, payment system providers and other
financial institutions, makes it impossible to assure that a failure to achieve
compliance by one or more of these entities would not have a material adverse
impact on the results of operation or financial condition of the Corporation.
The Corporation relies on outside vendors for the maintenance and support of
computer programs and systems. The information is captured on a PC -based local
area network and then processed by a service bureau. The Corporation has
completed the awareness and assessment phases and is operating under a written
Year 2000 Action Plan. The third party vendors are approximately 75% complete
with the renovation phase. The validation phase will begin during the next
quarter.
Provision for Income Taxes. The effective tax rate for the nine months ended
June 30, 1998 and 1997 was 33.05% and 33.86%, respectively.
Comparison of Three Months Ended June 30, 1998 and 1997
- -------------------------------------------------------
General. Net income was $172,000 for both quarters ended June 30, 1998 and June
30, 1997. There was a decrease in net interest income after provision for loan
losses of $9,000 which was offset by a $8,000 increase in non-interest income.
The decrease in net interest income was partially caused by a $6,000 provision
to loan loss reserves.
Interest Income. Interest income increased by $118,000 from $970,000 for the
three months ended June 30, 1997 to $1.09 million for the same period in 1998.
The growth in interest income was primarily the result of an increase in average
earning assets for the periods covered. Average earning assets increased from
$51.69 million for the three month period ended June 30, 1997 to $60.24 million
for the three month period ended June 30, 1998.
Interest Expense. Interest expense increased from $491,000 for the three months
ended June 30, 1997 to $612,000 for the three months ended June 30, 1998
resulting in an increase of $121,000. The increase in interest expense was
primarily attributed to an increase in the volume of interest-bearing
liabilities from $39.58 million for the three month period ended June 30, 1997
to $46.25 million for the same period in 1998. The increase in volume caused
interest expense to go up by $107,000. An increase in the cost of funds from
5.16% to 5.32% for the periods covered also attributed to the increase in
interest expense.
Net Interest Income. Net interest income decreased by $3,000 from $480,000 for
the three months ended June 30, 1997 to $477,000 for the three months ended June
30, 1998. The primary reason for the decrease was due to the fact that income
generated by the growth in earning assets was out paced by the increase in
expense caused by the growth in interest-bearing liabilities. Net interest
margin declined from 3.71% for the three month period ended June 30, 1997 to
3.13% for the same period in 1998. The relatively flat yield curve also
contributed to the
-11-
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Corporation's drop in net interest margin from 1997 to 1998.
Provision for Credit Losses. The Corporation made a $6,000 loan loss provision
for the three months ended June 30, 1998; no loan loss provisions were made for
the three months ended June 30, 1997. See also "--Comparison of Nine Months
Ended June 30, 1998 and 1997 -- Provision for Credit Losses."
Total Non-Interest Income. Total non-interest income improved by $8,000 from
$17,000 for the three months ended June 30, 1997 to $25,000 for the three months
ended June 30, 1998. The improvement was primarily a result of increased fees
from customer service charges and loan originations.
Total Non-Interest Expense. Total non-interest expense increased by $4,000 from
$239,000 for the three months ended June 30, 1997 to $243,000 for the three
months ended June 30, 1998. There were no significant changes in any component
of non-interest expense. See also "--Comparison of Nine Months Ended June 30,
1998 and 1997 -- Total Non-interest Expense."
Provision for Income Taxes. The effective tax rate for the three months ended
June 30, 1998 and 1997 was 32.02% and 33.33%, respectively.
CAPITAL COMPLIANCE AND LIQUIDITY
- --------------------------------
Capital Compliance. The following table presents the Bank's compliance with its
regulatory capital requirements:
<TABLE>
<CAPTION>
At June 30, 1998
----------------
Percentage
Amount of Assets
------ ---------
(Dollars in Thousands)
<S> <C> <C>
GAAP Capital.................................... $11,439
Tangible capital................................ $11,413 18.95%
Tangible capital requirement.................... 906 1.50%
------- -----
Excess.......................................... $10,507 17.44%
====== =====
Core capital.................................... $11,413 18.95%
Core capital requirements....................... 1,806 3.00%
------- -----
Excess.......................................... $ 9,607 15.95%
====== =====
Total risk-based capital (1).................... $11,687 46.93%
Total risk-based capital requirement (1)........ 1,991 8.00%
------- -----
Excess (1)...................................... $ 9,696 38.94%
====== =====
</TABLE>
1) Based on risk-weighted assets of $24,286
-12-
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
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.
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 the FHLB of Seattle. As of June 30, 1998 such borrowed funds
totaled $15.85 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 4% of its net withdrawable accounts
plus short-term borrowings. 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 63.83% and 17.95% at June 30, 1998 and 1997,
respectively. Recent regulatory changes regarding assets eligible for liquidity
caused the significant increase in the Bank's regulatory liquidity ratios from
1997 to 1998, generally, the maturity restrictions were lifted on U.S. Agency
related securities.
The amount of certificate accounts which are scheduled to mature during the
twelve months ending June 30, 1999 is approximately $10.13 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 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, 1998, the Bank had loan commitments outstanding of $372,000. Funds
required to fill these commitments are derived primarily from current excess
liquidity, deposit inflows or loan and investment and mortgage-backed security
repayments.
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.
RECENT ANNOUNCEMENTS
- --------------------
The Corporation, in a press release dated April 9, 1998, announced that it had
received regulatory authorization to repurchase up to 47,742 shares of the
Corporation's common stock. This repurchase program follows the repurchase of
103,155 shares of common stock since the Bank's mutual-to-stock conversion in
March 1996.
The repurchase will be made in open-market transactions over a one-year period
subject to the availability of stock and
-13-
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
pursuant to the terms of the Corporation's repurchase plan. Repurchased shares
will become authorized but unissued shares and will be utilized for general
corporate and other purposes, including the issuance of shares in connection
with the exercise of stock options.
Any repurchase could have an adverse effect on the Corporation's ability to be
listed on the Nasdaq SmallCap Market.
KEY OPERATING RATIOS
- --------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- -----------------------
1998 (1) 1997 (1) 1998 (1) 1997 (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.......................... 1.13% 1.31% 1.20% 1.27%
Return on average equity.......................... 4.79% 4.92% 5.08% 4.38%
Interest rate spread.............................. 1.88% 2.36% 2.08% 2.49%
Net interest margin............................... 3.13% 3.71% 3.34% 3.81%
Noninterest expense to average assets............. 1.59% 1.81% 1.59% 1.95%
Net charge-offs to average outstanding loans...... 0.00% 0.00% 0.01% 0.00%
</TABLE>
<TABLE>
<CAPTION>
At June 30, At September 30,
1998 1997
----------- ----------------
<S> <C> <C>
Nonaccrual and 90 days past due loans............. 77 225
Repossessed real estate.......................... 0 0
Total nonperforming assets...................... 77 225
Allowance for credit losses to nonperforming assets 355.84% 134.22%
Nonperforming loans to total loans................ 0.26% 0.12%
Nonperforming assets to total assets.............. 0.13% 0.38%
Book value per share (2).......................... $15.35 $14.88
</TABLE>
- ----------------
(1) The ratios for the three- and nine-month periods are annualized.
(2) The number of shares outstanding as of June 30, 1998 and September 30, 1997
were 938,845 and 954,845 shares, 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, 1998. 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
-----------------
See "Recent Announcements."
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: August 6, 1998 By: /s/ Deane D. Bjerke
-------------------
Deane D. Bjerke
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 6, 1998 By: /s/ John B. Snyder
------------------
John B. Snyder
Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1998
<CASH> 87
<INT-BEARING-DEPOSITS> 1,101
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 23,949
<INVESTMENTS-CARRYING> 23,766
<INVESTMENTS-MARKET> 4,739
<LOANS> 29,568
<ALLOWANCE> 274
<TOTAL-ASSETS> 61,478
<DEPOSITS> 30,681
<SHORT-TERM> 14,050
<LIABILITIES-OTHER> 540
<LONG-TERM> 1,800
0
0
<COMMON> 106
<OTHER-SE> 14,301
<TOTAL-LIABILITIES-AND-EQUITY> 61,478
<INTEREST-LOAN> 595
<INTEREST-INVEST> 483
<INTEREST-OTHER> 11
<INTEREST-TOTAL> 1,089
<INTEREST-DEPOSIT> 381
<INTEREST-EXPENSE> 612
<INTEREST-INCOME-NET> 477
<LOAN-LOSSES> 6
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 243
<INCOME-PRETAX> 253
<INCOME-PRE-EXTRAORDINARY> 253
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 172
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.19
<YIELD-ACTUAL> 3.17
<LOANS-NON> 77
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 276
<CHARGE-OFFS> 6
<RECOVERIES> 4
<ALLOWANCE-CLOSE> 274
<ALLOWANCE-DOMESTIC> 274
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
