SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One):
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] For the fiscal year ended September 30, 1998,
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|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to .
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Commission File No. 0-27714
CRAZY WOMAN CREEK BANCORP INCORPORATED
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(Name of Small Business Issuer in Its Charter)
Wyoming 83-0315410
- --------------------------------------- ------------------
(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 (Zip Code)
Issuer's Telephone Number, Including Area Code: (307) 684-5591
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
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(Title of Class)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 __.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $4,420,000
As of December 17, 1998, there were issued and outstanding 909,261
shares of the registrant's Common Stock.
The Registrant's voting stock trades on the Nasdaq SmallCap Market
under the symbol "CRZY." The aggregate market value of the voting stock held by
non-affiliates of the registrant, based on the average bid and asked price of
the registrant's Common Stock on December 17, 1998, was $9,386,060 ($12.0625 per
share based on 778,119 shares of Common Stock outstanding).
Transition Small Business Disclosure Format (check one)
YES __ NO X
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the Fiscal Year ended
September 30, 1998. (Parts I, II, and IV)
2. Portions of the Proxy Statement for the Annual Meeting of Stockholders.
(Part III)
<PAGE>
ITEM I
Crazy Woman Creek Bancorp Incorporated (the "Company") may from time to
time make written or oral "forward-looking statements", including statements
contained in the Company's fillings with the Securities and Exchange Commission
(including this Annual Report on Form 10-KSB and the exhibits thereto), in its
reports to stockholders and in other communications by the Company, which are
made in good faith by the Company pursuant to the "safe harbor" provision of the
Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such
as statements of the Company's plans, objective, expectations, estimates and
intentions, that are subject to change based of various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objective, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economy in which the Company conducts operations;
the effects of, and changes in, trade, monetary and fiscal policies and laws,
including interest rate policies of the board of governors of the federal
reserve system, inflation, interest rates, market and monetary fluctuations; the
timely development of and acceptance of new products and services of the Company
and the perceived overall value of these products and services by users,
including the features, pricing and quality compared to competitors' products
and services; the willingness of users to substitute competitors' products and
services for the Company's products and services; the success of the Company in
gaining regulatory approval of its products and services, when required; the
impact of changes in financial services' laws and regulations (including laws
concerning taxes, banking, securities and insurance); technological changes;
acquisitions; changes in consumer spending and saving habits; and the success of
the Company at managing the risks resulting from these factors.
The Company cautions that the listed factors are not exclusive. The
Company does not undertake to update any forward-looking statement, whether
written or oral, that may be made from time to time by or on behalf of the
Company.
Business of the Company
The Company is a Wyoming corporation organized in December 1995 at the
direction of Buffalo Federal Savings Bank (the "Bank") to acquire all of the
capital stock that the Bank issued upon its conversion from the mutual to stock
form of ownership on March 29, 1996. The Company is a unitary savings and loan
holding company which, under existing laws, generally is not restricted in the
types of business activities in which it may engage provided that the Bank
retains a specified amount of its assets in housing-related investments. The
Company does not conduct any active business other than the investment in mutual
funds. The Company does not employ any persons other than officers but utilizes
the support staff of the Bank from time to time.
Business of the Bank
The Bank attracts deposits from the general public and uses such
deposits primarily to originate fixed-rate loans secured by first mortgages on
one-to-four-family residences in its market area. The Bank also originates
consumer loans, commercial loans and loans secured by savings accounts. The
principal sources of funds for the Bank's lending activities are deposits, the
amortization, repayment, and maturity of loans and FHLB advances. Principal
sources of income are interest on loans, mortgage-backed securities and
investment securities and the principal expense is interest paid on deposits and
FHLB advances.
The Bank's primary market area consists of all of Johnson County,
Wyoming. The Bank also attracts customers from the Banner/Story area which is
located in southern Sheridan County. The Johnson County economy has its roots in
the agriculture and mining industries. Agriculture continues to play a major
role in overall Johnson County revenues, most notably in the cattle and sheep
industries. In fact, Johnson County has the largest concentration of sheep among
all of the counties in Wyoming. Mining has steadily declined as an employment
sector in Johnson County, a reflection of the general decline of the U.S. oil
and gas industry over the past decade. Most of the non-agricultural employment
in Johnson County is found in and around Buffalo, primarily within service
industries, state and local government, and retail trade. The largest employer
in the Johnson County is the public school system, followed by the Johnson
County Memorial Hospital. Tourism also provides a major boost to jobs in
services and retail
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<PAGE>
trade in Johnson County, as Buffalo is located at the edge of the Big Horn
National Forest and the area is a popular destination for people seeking outdoor
recreation. The three-way junction of Interstate 90 and 25 and State Highway 16
also brings a large number of travelers through Buffalo.
Buffalo, the largest town in Johnson County, has a population estimated
at 3,800 (approximately 54 percent of the county population resides in the
Buffalo area). Because Johnson County is primarily a rural area where most of
the land is used for agricultural purposes, Buffalo acts as somewhat of a hub
for commerce in Johnson County. Economic growth in the Bank's market area
remains dependent upon the local economy. In addition, the deposit and loan
activity of the Bank is significantly affected by economic conditions in its
market area.
Competition
The Bank is the only savings and loan association in its primary market
area. There are, however, two commercial banks headquartered in the primary
market area and a branch of a larger out-of-area commercial bank and a branch of
a credit union. The Bank believes it is a primary source of residential mortgage
loans in the community. The Bank has competition from all three banks in
originating residential mortgage loans along with some competition from a few
out of area mortgage bankers. All of the competition sells the majority of their
residential mortgage loans on the secondary market, while Buffalo Federal has
been traditionally placing mortgage loan originations in their portfolio.
There is also extensive competition for deposits. Based on data
provided periodically by the Office of Thrift Supervision ("OTS"), Buffalo
Federal has been able to maintain a market share of approximately 22% of the
total deposits in financial institutions in the community. Insurance companies
and securities dealers offer further competition for deposits. The competition
for deposits is expected to continue in the future.
3
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Lending Activities
Analysis of Loan Portfolio. The following table sets forth information
concerning the composition of the Bank's loan portfolio in dollar amounts and in
percentages of the total loan portfolio (before deductions for loans in process,
net deferred loan origination fees and allowance for loan losses) as of the
dates indicated.
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------
1998 1997
------------------------- ------------------------
Percent Percent
Amount of Total Amount of Total
------ -------- ------ --------
(In Thousands)
<S> <C> <C> <C> <C>
Type of Loans:
One-to-four-family $23,162 75.45% $21,826 74.79%
Residential construction 331 1.08 404 1.38
Multi-family 443 1.44 457 1.57
Commercial real estate(1) 3,110 10.13 2,470 8.46
Commercial 203 0.66 358 1.23
Consumer:
Automobile 1,136 3.70 1,191 4.08
Home equity/Line of credit 1,465 4.77 1,658 5.68
Share 276 0.90 247 0.85
Other 573 1.87 573 1.96
------ ----- ------ -----
Total consumer 3,450 11.24 3,669 12.57
------ ----- ------ -----
Total loans 30,699 100.00% 26,365 100.00%
------ ====== ------ ======
Less:
Loans in process.................................... (271) (95)
Net deferred loan origination fees................. (158) (151)
Allowance for loan losses........................... (284) (302)
------- ------
Total loans, net...................................... $29,986 $28,636
====== ======
</TABLE>
- -------------------
(1) Includes agricultural real estate loans.
Origination, Purchase and Sale of Loans. The following table sets forth
the Bank's loan originations and loan sales and principal repayments for the
periods indicated.
Year Ended September 30,
---------------------------
1998 1997
---- ----
(In Thousands)
Total gross loans receivable
at beginning of period $ 29,184 $ 26,365
====== ======
Loans originated:
One-to-four-family $ 6,730 $ 5,769
Commercial real estate 1,609 630
Construction 801 758
Commercial 229 422
Consumer 2,173 2,426
------ ------
Total loans originated $ 11,542 $ 10,005
------ ------
Loans sold:
Total loans sold $ -- $ --
------ ------
Principal Repayments:
Loan principal repayments $ 10,027 $ 7,186
------ ------
Net loan activity $ 1,515 $ 2,819
------ ------
Total gross loans receivable at
end of period $ 30,699 $ 29,184
====== ======
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Loan Maturity Tables. The following table sets forth the maturity of
Buffalo Federal's loan portfolio at September 30, 1998. The table does not
include prepayments or scheduled principal repayments. Prepayments and scheduled
principal repayments on loans totaled $10.0 million and $7.2 million, for the
years ended September 30, 1998 and 1997, respectively. Adjustable-rate mortgage
loans are shown as maturing based on contractual maturities.
<TABLE>
<CAPTION>
Commercial
1-4 Multi- Real
Family family Estate Construction Business Consumer Total
------- ------- ---------- ------------ -------- -------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Non-performing loans ........ $ 115 $ -- $ 68 $ -- $ -- $ 73 $ 256
------ ----- ------ ----- ---- ------ ------
Amounts Due:
Within 3 months ............. -- 195 -- 331 29 664 1,219
3 months to 1 Year .......... 326 -- 615 -- 3 455 1,399
After 1 year:
1 to 3 years ............ 637 -- 69 -- 90 939 1,735
3 to 5 years............. 1,652 -- 958 -- 81 3,717
5 to 10 years ........... 4,789 9 224 -- -- 200 5,222
10 to 20 years .......... 14,953 239 476 -- -- 93 15,761
Over 20 years ........... 690 -- 700 -- -- -- 1,390
------ ----- ------ ----- ---- ------ ------
Total due after one year .... 22,721 248 2,427 -- 171 2,258 27,825
------ ----- ------ ----- ---- ------ ------
Total amount due ............ 23,162 443 3,110 331 203 30,699
------ ----- ------ ----- ---- ------ ------
Less:
Allowance for loan loss ..... 130 11 62 2 12 67 284
Loans in process ............ -- -- 209 62 -- -- 271
Deferred loan fees .......... 158 -- -- -- -- -- 158
------ ----- ------ ----- ---- ------ ------
Loans receivable, ....... $22,874 $ 432 $ 2,839 $ 267 $ 191 $ 3,383 $29,986
====== ===== ====== ===== ==== ====== ======
</TABLE>
The next table sets forth at September 30, 1998, the dollar amount of
all loans due one year after September 30, 1999 which ----- have fixed interest
rates and have floating or adjustable interest rtes.
Floating or
Fixed Adjustable
Rates Rates Total
----- ------------ -----
(In Thousands)
One-to-four-family.......... $22,608 $ 113 $22,721
Multi-family................ 248 - 248
Commercial real estate...... 2,427 - 2,427
Commercial.................. 171 - 171
Consumer.................... 1,982 276 2,258
------ ------ ------
Total................... $27,436 $ 389 $27,825
====== ====== ======
5
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One-to-Four-Family Residential Loans. The Bank's primary lending
activity consists of the origination of one-to-four-family residential mortgage
loans secured by property located in the Bank's primary market area. The Bank
generally originates one-to-four-family residential mortgage loans in amounts up
to 80% of the lesser of the appraised value or selling price of the mortgaged
property. Loans in excess of 80% of the lesser of the appraised value or selling
price of property require private mortgage insurance for the borrower. The
Bank's strategy is to originate for its portfolio adjustable-rate loans, and
five-year balloon loans as well as 20-year or less fixed-rate loans for
retention in its portfolio. The Bank intends to broker, for a third party, loans
with maturities of greater than 20 years for a one percent fee. During 1998, one
loan at $175,000 was brokered to a third party with $1,750 of fee income
recognized.
The Bank offers adjustable-rate loans using primarily a one-year
constant maturity treasury interest rate index. During fiscal 1998, the Bank did
not originate any adjustable rate loans. Interest rates charged on mortgage
loans are competitively priced based on market conditions and the Bank's cost of
funds. Generally, the Bank's standard underwriting guidelines for mortgage loans
conform to secondary market guidelines. It is the current policy of the Bank to
primarily remain a portfolio lender. At September 30, 1998, the Bank serviced
loans for others totaling $74,000.
Loan originations are generally obtained from existing customers,
members of the local community, and referrals from realtors, past customers and
contractors within the Bank's lending area. Mortgage loans originated and held
by the Bank in its portfolio generally include due-on-sale clauses which provide
the Bank with the contractual right to deem the loan immediately due and payable
in the event that the borrower transfers ownership of the property without the
Bank's consent.
The Bank originates five-year balloon mortgage loans with a 30-year
amortization period. Management believes that balloon loans have a pricing
characteristic that helps offset the detrimental affect that rising rates could
have on net interest income. At September 30, 1998, balloon mortgages totaled
$1.82 million, or 5.93% of the Bank's loan portfolio.
Residential Construction Loans. Residential construction loans are made
on one-to-four-family residential properties to the individuals who will be the
owners and occupants upon completion of construction. These loans are made on a
short term basis and permanent long-term financing is available to these
borrowers. No principal payments are required during the construction period,
however, interest is due monthly. The maximum loan-to-value ratio is 80%. If
permanent financing is obtained from the Bank, these loans are made on terms
similar to those of the Bank's single family residential loans and may be
amortized over terms of up to 30 years.
In addition to loans originated for the construction of a residence for
which the ultimate purchaser has been identified, the Bank on a limited basis
originates speculative loans to residential builders who have established
business relationships with the Bank. These speculative loans are typically made
for a 12 month period and require interest only payments during the term of the
loan. In underwriting such loans, the Bank considers the number of units that
the builder has on a speculative bid basis that remain unsold. The Bank's
experience during the past four years has been that most speculative loans are
repaid well within the 12 month period. Speculative loans are generally
originated with a loan-to-value ratio that does not exceed 80%. At September 30,
1998, there were no speculative construction loans.
Construction lending is generally considered to involve a higher degree
of credit risk than long-term financing of residential properties. The Bank's
risk of loss on a construction loan is dependent largely upon the accuracy of
the initial estimate of the property's value at completion of construction or
development and the estimated cost of construction. If the estimate of
construction cost and the marketability of the property upon completion of the
project prove to be inaccurate, the Bank may be compelled to advance additional
funds to complete the development. Furthermore, if the estimate of value proves
to be inaccurate, the Bank may be confronted, at or prior to the maturity of the
loan, with a property with a value that is insufficient to assure full
repayment. For speculative loans originated to builders, the ability of the
builder to sell completed dwelling units will depend, among other things, on
demand, pricing and availability of comparable properties, and economic
conditions.
Commercial Real Estate Loans. In order to serve its community and
enhance yields on its assets, the Bank originates loans secured by commercial
real estate. The commercial real estate loans
6
<PAGE>
originated by the Bank have generally been made to individuals, small
businesses, and partnerships. They are primarily secured by first mortgages on a
motel and restaurant, office buildings and other properties located in its
primary market area. The Bank benefits from originating such loans due to higher
origination fees and shorter term maturities. Buffalo Federal's commercial real
estate loans are fixed-rate and balloon loans with terms of 20 years or less,
with loan-to-value ratios not exceeding 75%.
Loans secured by commercial real estate generally involve a greater
degree of risk than residential mortgage loans and carry larger loan balances.
This increased credit risk is a result of several factors, including the
concentration of principal in a limited number of loans and borrowers, the
effects of general economic conditions on income producing properties, and the
increased difficulty of evaluating and monitoring these types of loans.
Furthermore, the repayment of loans secured by commercial real estate is
typically dependent upon the successful operation of the related real estate
project. If the cash flow from the project is reduced, the borrower's ability to
repay the loan may be impaired. See also "--Non-performing and Problem Assets --
Classified Assets." To minimize these risks, Buffalo Federal generally limits
loans of this type to its market area and to borrowers with which it has
substantial experience or who are otherwise well known to the Bank. The Bank's
underwriting procedures require verification of the borrower's credit history,
income, financial statements, banking relationships, credit references, and
income projections for the property. It is the Bank's current practice to obtain
personal guarantees from all principals obtaining this type of loan. The Bank
also obtains appraisals on each property in accordance with applicable
regulations and appraisal policies. All appraisals on commercial real estate are
reviewed by the Bank's management.
Agricultural Loans. Buffalo Federal engages in lending on improved farm
land with no dwelling, building lots and building acreage sites. These
properties must have good road access. The loan-to-value ratio for this type of
loan is 75% or less with a maximum loan term of 15 years.
Buffalo Federal also engages in loans for improved farm land with
dwelling. The loan-to-value ratio for this type of loan is 75% or less with a
maximum term of 20 years. These loans can be set up with payment of intervals of
interest collected semi-annually and principal annually as well as monthly
principal and interest payments. As of September 30, 1998, agricultural land
loans constituted approximately $810,000, or 2.63% of the Bank's loan portfolio.
Agricultural land loans are included in the commercial real estate loan total.
See also "-- Commercial Real Estate Loans."
Multi-Family Loans. The Bank also makes multi-family loans, including
loans on apartment complexes located in the Bank's primary market area.
Multi-family loans generally provide higher interest rates than can be obtained
from single-family mortgage loans. Multi-family lending, however, entails
significant additional risks compared with one-to-four-family residential
lending. For example, multi-family loans typically involve larger loan balances
to single borrowers or groups of related borrowers, the payment experience on
such loans typically is dependent on the successful operation of the real estate
project, and these risks can be significantly impacted by supply and demand
conditions in the market for multi-family residential units and commercial
office, retail and warehouse space.
Consumer Loans. The Bank's consumer loans consist of home equity loans
secured by second mortgages on single-family residences in the Bank's market
area, automobiles, demand loans secured by savings accounts at the Bank, student
loans and other loans. The Bank has increased its emphasis on consumer lending
in recent years, including new and used automobile loans, to provide a wide
range of financial services to the Bank's customers while increasing the Bank's
portfolio yields.
The Bank makes second mortgage loans secured by the borrower's
residence. These loans, combined with the first mortgage loan, which usually is
from the Bank, generally are limited to 80% of the appraised value of the
residence.
The Bank generally makes savings account loans for up to 90% of the
balance of the account. The interest rate on these loans generally is indexed to
the rate paid on the secured savings account, and interest is due at maturity.
These loans are payable on demand, and the account must be pledged as collateral
to secure the loan.
7
<PAGE>
Consumer loans generally involve more risk than first mortgage loans.
Repossessed collateral for a defaulted loan may not provide an adequate source
of repayment of the outstanding loan balance as a result of damage, loss or
depreciation, and the remaining deficiency often does not warrant further
substantial collection efforts against the borrower. In addition, loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be adversely affected by job loss, divorce, illness or
personal bankruptcy. Further, the application of various federal and state laws,
including federal and state bankruptcy and insolvency laws, may limit the amount
which can be recovered. These loans may also give rise to claims and defenses by
a borrower against the Bank and a borrower may be able to assert against the
Bank claims and defenses which it has against the seller of the underlying
collateral. In underwriting consumer loans, the Bank considers the borrower's
credit history, an analysis of the borrower's income, expenses and ability to
repay the loan and the value of the collateral.
Commercial Loans. The Bank on occasion will originate commercial loans,
primarily to existing customers. At September 30, 1998, commercial loans
consisted primarily of small business loans (primarily secured by livestock,
office equipment, and machinery).
Loan Approval Authority, Underwriting and Fees. The Bank's Loan
Committee, which consists of the three senior officers, has authority to approve
loans up to $125,000. Loans in excess of $125,000 require approval by the Board
of Directors. Individual loan officers have lending authority for consumer loans
up to $20,000.
Upon receipt of a completed loan application from a prospective
borrower, a credit report is ordered, income and certain other information is
verified and, if necessary, additional financial information is requested. An
appraisal of the real estate intended to be used as security for the proposed
loan is obtained. Appraisals are conducted by four independent appraisers which
have been approved by the Bank. The Bank makes construction/permanent loans on
individual properties. Funds advanced during the construction phase are held in
a loan-in-process account and disbursed based upon various stages of completion
in accordance with the results of inspection reports that are based upon
physical inspection of the construction by a loan officer. For real estate
loans, the Bank requires a title commitment. Borrowers must also obtain fire and
casualty insurance (for loans on property located in a flood zone, flood
insurance is required) prior to the closing of the loan.
The Bank receives fees in connection with loan originations, loan
modifications, late payments and changes of property ownership and for
miscellaneous services related to its loans. Loan origination fees are
calculated as a percentage of the loan principal. The Bank typically receives
fees of up to 2 points (one point being equivalent to 1% of the principal amount
of the loan) in connection with the origination of fixed-rate and
adjustable-rate residential mortgage loans. The excess, if any, of loan
origination fees over direct loan origination expenses is deferred and credited
into income over the contractual life of the loan using the level-yield method.
If a loan is prepaid, refinanced or sold, all remaining deferred fees with
respect to such loan are taken into income at such time.
Loan Commitments. The Bank issues verbal commitments to prospective
borrowers on all approved real estate loans. Generally, the commitment requires
acceptance within 60 days of the date of issuance. At September 30, 1998, the
Bank had $821,000 of commitments to cover originations and $271,000 in
undisbursed funds for loans in process. Management believes that virtually all
of the Bank's commitments will be funded.
Loans-to-One Borrower. Regulations limit loans-to-one borrower in an
amount equal to 15% of unimpaired capital and unimpaired surplus of the Bank.
The Bank is authorized to lend up to an additional 10% of unimpaired capital and
unimpaired surplus if the loan is fully secured by readily marketable
collateral. The Bank's maximum loan-to-one borrower limit was approximately
$1.72 million at September 30, 1998.
At September 30, 1998, the Bank's largest amount of loans to one
borrower were all performing residential and commercial real estate loans
aggregating approximately $790,000, secured by single-family residential and
commercial properties located in the Bank's primary market area.
8
<PAGE>
Non-Performing and Problem Assets
Loan Delinquencies. The Bank's collection procedures provide that when
a mortgage loan is 30 days past due, a notice of nonpayment is sent. If the
payment is still delinquent after 60 days, the customer will receive a letter
and/or telephone call and may receive a visit from a representative of the Bank.
If the delinquency continues, similar subsequent efforts are made to eliminate
the delinquency. If the loan continues in a delinquent status until 90 days past
due and no repayment plan is in effect, a notice of right to cure default is
mailed to the customer giving 30 additional days to bring the account current
before foreclosure is commenced. The loan committee meets regularly to determine
when foreclosure proceedings should be initiated and the customer is notified
when foreclosure has been commenced. At September 30, 1998, loans past due 30 to
89 days totaled $522,000.
Loans are reviewed on a monthly basis and are generally placed on a
non-accrual status when the loan becomes more than 90 days delinquent or when,
in the opinion of management, the collection of additional interest is doubtful.
Interest accrued and unpaid at the time a loan is placed on non-accrual status
is charged against interest income. Subsequent interest payments, if any, are
either applied to the outstanding principal balance or recorded as interest
income, depending on the assessment of the ultimate collectibility of the loan.
Non-Performing Assets. The following table sets forth information
regarding non-accrual loans, real estate owned, and certain other repossessed
assets and loans.
At September 30,
---------------------
1998 1997
---- ----
(In Thousands)
Loans accounted for on a non-accrual basis:
One-to-four-family ...................... $ 115 $ 101
Commercial real estate .................. 68 70
Construction ............................ -- --
Commercial .............................. -- 32
Consumer ................................ 73 22
---- ----
Total Non-performing loans ................ 256 225
---- ----
Real estate owned (REO) ................... -- --
---- ----
Other non-performing assets ............... -- --
---- ----
Total non-performing assets ............... $ 256 $ 225
==== ====
Total non-performing loans to net loans ... 0.86% 0.79%
==== ====
Total non-performing assets to total assets 0.41% 0.38%
==== ====
Interest income that would have been recorded on loans accounted for on
a non-accrual basis under the original terms of such loans was immaterial for
the year ended September 30, 1998. Amounts included in the Bank's interest
income for the year ended September 30, 1998 were, likewise, immaterial.
Classified Assets. OTS regulations provide for a classification system
for problem assets of insured institutions which covers all problem assets.
Under this classification system, problem assets of insured institutions are
classified as "substandard," "doubtful," or "loss." An asset is considered
substandard if it is inadequately protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any. Substandard assets
include those characterized by the "distinct possibility" that the insured
institution will sustain "some loss" if the deficiencies are not corrected.
Assets classified as doubtful have all of the weaknesses inherent in those
classified substandard, with the added characteristic that the weaknesses
present make "collection or liquidation in full," on the basis of currently
existing facts, conditions, and values, "highly questionable and improbable."
Assets classified as loss are those considered "uncollectible" and of such
little value that their continuance as assets without the establishment of a
specific loss reserve is not warranted. Assets may be designated "special
mention"
9
<PAGE>
because of potential weaknesses that do not currently warrant classification in
one of the aforementioned categories.
When an insured institution classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as loss, it is required either to establish a specific allowance
for losses equal to 100% of that portion of the asset so classified or to charge
off such amount. An institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS, which may order the establishment of additional general or specific loss
allowances. A portion of general loss allowances established to cover the
possible losses related to assets classified as substandard or doubtful may be
included in determining an institution's regulatory capital, while specific
valuation allowances for loan losses generally do not qualify as regulatory
capital.
At September 30, 1998, the Bank had $63,000 of assets classified as
special mention (which consisted of one home loan and three small dollar
consumer loans). The Bank had $408,000 of assets classified as substandard
(which consisted of six home loans, one restaurant/convenience store and six
small dollar consumer loans). Furthermore, the Bank had $4,800 of assets
classified as doubtful or loss (which consisted of two consumer loans).
Foreclosed Real Estate. Real estate acquired by the Bank as a result of
foreclosure or by deed in lieu of foreclosure is classified as REO until it is
sold. When property is acquired, it is recorded at the fair value at the date of
foreclosure less estimated costs of disposition. At September 30, 1998, the Bank
had no repossessed assets.
Allowances for Loan Losses. It is management's policy to provide for
unidentified losses on loans in its loan portfolio. A provision for loan losses
is charged to operations based on management's evaluation of the potential
losses that may be incurred in the Bank's loan portfolio. Such evaluation, which
includes a review of all loans of which full collectibility of interest and
principal may not be reasonably assured, considers the Bank's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, estimated value of any underlying
collateral and current economic conditions.
The amount of provisions recorded in future periods may be
significantly greater or less than the provisions taken in the past. The
allowance for loan losses, as a ratio of total net loans was 0.92% at September
30, 1998.
Management will continue to review the entire loan portfolio to
determine the extent, if any, to which further additional loss provisions may be
deemed necessary. 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 for losses will not be required.
Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of the Bank's allowance for loan losses by loan category and the
percent of loans in each category to total loans receivable for the periods
indicated. The portion of the loan loss allowance allocated to each loan
category does not represent the total available for future losses that may occur
within the loan category because the total loan loss allowance is a valuation
reserve applicable to the entire loan portfolio.
10
<PAGE>
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------
1998 1997
---------------------- ------------------------
Percent of Percent of
Loans to Loans to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
At end of period allocated to:
One- to four-family........... $130 75.45% $ 145 74.79%
Multi-family.................. 11 1.44 4 1.57
Commercial real estate........ 62 10.13 40 8.46
Construction.................. 2 1.08 5 1.38
Commercial.................... 12 0.66 10 1.23
Consumer...................... 67 11.24 98 12.57
------ ------ ------ ------
Total allowance............... $ 284 100.00% $ 302 100.00%
====== ====== ====== ======
</TABLE>
Analysis of the Allowance for Loan Losses. The following table sets
forth information with respect to the Bank's allowance for loan losses at the
dates indicated:
Year Ended September 30,
-----------------------
1998 1997
---- ----
(Dollars in Thousands)
Total loans outstanding.................. $30,699 $29,184
====== ======
Allowance for loan losses (at
beginning of period)................... $ 302 $ 276
Provision for loan losses................ 18 --
Net charge-offs (recoveries):
One-to-four-family..................... 2 (12)
Commercial real estate................. -- --
Commercial ............................ (37) (9)
Consumer .............................. (1) (5)
---- ----
Net charge-offs (recoveries)......... 36 (26)
---- ----
Allowance for loan losses
(at end of period) $ 284 $ 302
====== ======
Allowance for loan losses to total
loans, net............................. 0.92% 1.04%
==== ====
Net charge-offs (recoveries) to
loans receivable, net.................. 0.12% (0.09)%
==== ====
11
<PAGE>
Investment Activities
General. Buffalo Federal is required under federal regulations to
maintain a minimum amount of liquid assets which may be invested in specified
short-term securities and certain other investments. See also " -- Bank
Regulation -- Federal Home Loan Bank System." The Bank has maintained a
liquidity portfolio in excess of regulatory requirements. Liquidity levels may
be increased or decreased depending upon the yields on investment alternatives
and upon management's judgment as to the attractiveness of the yields then
available in relation to other opportunities and its expectation of future yield
levels, as well as management's projections as to the short-term demand for
funds to be used in the Bank's loan origination and other activities. At
September 30, 1998, the Bank's investment portfolio policy allowed investments
in only U.S. Treasury obligations, U.S. Agency securities, mortgage-backed
securities, municipal securities, federally-insured certificates of deposit,
federal funds, FHLMC stock and FHLB overnight and term deposits. Investment
decisions are made by the Bank's Investment Committee, which is comprised of the
three senior officers. Two of the three committee members must agree on all
decisions. The Board of Directors may authorize additional investments.
In 1997, the Board of Directors of the Company authorized the
investment in quality mutual funds. At September 30, 1998, the Company had a
total investment of $1.00 million in three different mutual funds. The market
value of these funds was $1.10 million at that date. The Board of Directors has
established a maximum initial investment limit of $1.00 million in such funds.
The mutual funds purchased by the Company invest in equity securities and
accordingly, the mutual funds are subject to market risk including potential
loss of principal.
Mortgage-Backed Securities. Primarily to supplement lending activities,
Buffalo Federal invests in residential mortgage-backed securities.
Mortgage-backed securities can serve as collateral for borrowings and, through
repayments, as a source of liquidity.
Mortgage-backed securities represent a participation interest in a pool
of single-family mortgages, the principal and interest payments on which are
passed from the mortgage originators, through intermediaries (generally
quasi-governmental agencies) that pool and repackage the participation interests
in the form of securities, to investors such as the Bank. Such
quasi-governmental agencies, which guarantee the payment of principal and
interest to investors, primarily include the Federal Home Loan Mortgage
Corporation ("FHLMC"), Government National Mortgage Association ("GNMA"), and
Federal National Mortgage Association ("FNMA"). Pass-through certificates
typically are issued with stated principal amounts, and the securities are
backed by pools of mortgages that have loans with interest rates and maturities
that are within a specified range. The underlying pool of mortgages can be
composed of either fixed-rate mortgage loans or ARM loans. Mortgage-backed
securities are generally referred to as mortgage participation certificates or
pass-through certificates. As a result, the interest rate risk characteristics
of the underlying pool of mortgages, (i.e., fixed-rate or adjustable-rate) as
well as prepayment risk, are passed on to the certificate holder. The life of a
mortgage-backed pass-through security is equal to the life of the underlying
mortgages. Mortgage-backed securities issued by FHLMC, FNMA and GNMA make up a
majority of the pass-through market.
Mortgage-backed securities provide for monthly payments of principal
and interest and generally have contractual maturities ranging from five to 30
years. However, due to expected repayment terms being significantly less than
the underlying mortgage loan pool contractual maturities, the estimated lives of
these securities could be significantly shorter.
The Bank also purchases mortgage-backed securities issued by government
agencies which are currently qualified under the Internal Revenue Code, as
amended (the "Code") as REMICs. REMICs have been developed in response to
investor concerns regarding the uncertainty of cash flows associated with the
prepayment option of the underlying mortgagor and are typically issued by
governmental agencies, governmental sponsored enterprises and special purpose
entities, such as trusts, corporations or partnerships, established by financial
institutions or other similar institutions. Some REMIC instruments are most like
traditional debt instruments because they have stated principal amounts and
traditionally defined interest-rate terms. Purchasers of certain other REMIC
instruments are entitled to the excess, if any, of the issuer's cash inflows,
including reinvestment earnings, over the cash outflows for debt service and
administrative expenses. These mortgage related instruments may include
instruments designated as
12
<PAGE>
residual interests, which represent an equity ownership interest in the
underlying collateral, subject to the first lien of the investors in the other
classes of the REMIC. Certain residual REMIC interests may be riskier than many
regular REMIC interests to the extent that they could result in the loss of a
portion of the original investment. Moreover, cash flows from residual interests
are very sensitive to prepayments and, thus, contain a high degree of
interest-rate risk.
At September 30, 1998, all of the Bank's investment in REMICs consisted
of regular interests and did not include any residual interests or interest-only
or principal-only securities. As a matter of policy, the Bank does not invest in
residuals or interest-only and principal-only securities. The REMICs held by the
Bank at September 30, 1998 consisted solely of fixed-rate tranches. The
securities are backed by mortgages on one-to-four-family residential real estate
and have contractual maturities up to 30 years. The securities are PACs (Planned
Amortization Classes) and are designed to provide a specific principal and
interest cash-flow.
At September 30, 1998, the Bank had REMICs with an aggregate carrying
amount (including discounts and premiums) of $2.30 million, of which none were
privately issued.
During periods of rising mortgage interest rates, if the coupon rates
of the underlying mortgages are less than that of the prevailing market interest
rates offered for mortgage loans, refinancings generally decrease and slow the
prepayment of the underlying mortgages and the related securities. Conversely,
during periods of falling mortgage interest rates, if the coupon rates of the
underlying mortgages exceed the prevailing market interest rates offered for
mortgage loans, refinancing generally increases and accelerates the prepayment
of the underlying mortgages and the related securities. Under such
circumstances, the Bank may be subject to reinvestment risk because to the
extent that the Bank's mortgage-related securities amortize or prepay faster
than anticipated, the Bank may not be able to reinvest the proceeds of such
repayments and prepayments at a comparable rate.
Structured Notes. The Bank maintains in its investment portfolio a
structured note issued by the FNMA. This note represents an obligation of the
FNMA to repay principal and interest that fluctuates in accordance with an
interest formula tied to the Ten-year Constant Maturity Treasuries ("CMT"). The
interest rate floor on the note is 5%. The note, with an amortized cost of
$500,000 and a market value of $504,000 at September 30, 1998 has a maturity
date of April 21, 2000. The Bank invested in this note (an "inverse floater") to
hedge against falling interest rates.
Investments in such notes and bonds entail certain risks not associated
with investments in a conventional debt security. If the interest rate on a note
is indexed, the change in the interest rate may result in an interest rate that
is less than that payable on a conventional fixed-rate debt security issued at
the same time. Moreover, the secondary market for such notes is affected by
factors independent of the creditworthiness of the issuer and the value of the
index, including other interest rates, the volatility of the index to which the
notes are tied, time remaining to maturity, and the amount of such notes
outstanding. The value of the index to which interest on the notes is tied may
depend on a number of interrelated factions, including, economical, financial,
and political events over which the issuer has no control. Structured notes may
also expose institutions to greater interest rate risk due to the presence of
imbedded call options as well as interest rate caps and floors.
13
<PAGE>
Investment Securities Portfolio. The following table sets forth the
amortized cost of the Company's investment securities portfolio, securities
available for sale portfolio, short-term investments and FHLB stock at the dates
indicated. At September 30, 1998, the market value of the Company's investment
securities held to maturity was $4.02 million and securities available for sale
portfolio was $24.64 million.
At September 30,
----------------------
1998 1997
------- -------
(In Thousands)
Investment securities held to maturity:
U.S. Agency securities.................... $ 845 $ 4,742
Municipal securities...................... 572 623
Mortgage-backed securities:
GNMA.................................... 996 1,392
FNMA.................................... 543 722
FHLMC................................... 982 1,530
------ ------
Total investment securities held
to maturity........................... 3,938 9,009
------ ------
Investment securities available for sale: (1)
U.S. Agency securities ................... 16,287 11,501
Municipal securities...................... 1,085 --
Mortgage-backed securities:
GNMA.................................... 2,745 2,354
FHLMC................................... 872 2,022
REMIC's................................. 2,300 2,560
Investment in mutual funds(2).............. 1,032 601
------ ------
Total securities available for sale..... 24,321 19,038
------ ------
Interest-bearing deposits.................. 99 99
FHLB stock................................. 917 802
------ ------
Total................................... $29,275 $28,948
====== ======
- -------------------
(1) Amounts shown at amortized cost, but carried at fair value.
(2) Includes three mutual funds held as available for sale.
14
<PAGE>
The following table sets forth information regarding the scheduled
maturities, carrying value, market value and weighted average yields for the
Bank's investment securities at September 30, 1998
<TABLE>
<CAPTION>
As of September 30, 1998
-------------------------------------------------------------------------------------------------------
Five More Total
One Year or Less One to Five Years to Ten Years than Ten Years Investment Securities
------------------- ------------------ ----------------- ----------------- --------------------------
Amortized Average Amortized Average Amortized Average Amortized Average Amortized Average Market
Cost Yield Cost Yield Cost Yield Cost Yield Cost Yield Value
---- ----- ---- ----- ---- ----- ---- ----- ---- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities held
to maturity:
U. S. Agency securities.... $ 345 5.31% $ 500 5.00% $ -- --% $ -- --% $ 845 5.13% $ 849
Municipal securities....... 135 4.50 355 4.94 82 7.00 -- 572 5.26 584
Mortgage-backed securities
and other pass-throughs.... -- -- 40 7.50 227 8.41 2,254 6.93 2,521 7.07 2,589
Securities available for -- -- 500 6.51 15,287 6.70 5,202 5.82 20,989 6.48 21,229
sale(1)..................
REMICs available for sale.. -- -- -- 2,300 6.63 2,300 6.63 2,307
---- ----- ------ ----- ------ ------
Total.................... $ 480 5.23% $1,395 6.73% $15,596 6.73% $9,756 6.63% $27,227 6.48% $27,558
==== ==== ===== ==== ====== ==== ===== ==== ====== ==== ======
</TABLE>
- -------------------
(1) Includes U.S. Agency securities and mortgage-backed securities but does not
include investment in mutual funds.
15
<PAGE>
Sources of Funds
General. Deposits are the major external source of the Bank's funds for
lending and other investment purposes. Buffalo Federal derives funds from
amortization and prepayment of loans and, to a lesser extent, maturities of
investment securities, borrowings, maturities of mortgage-backed securities and
operations. Scheduled loan principal repayments are a relatively stable source
of funds, while deposit inflows and outflows and loan prepayments are
significantly influenced by general interest rates and market conditions.
Buffalo Federal also utilizes FHLB advances to meet liquidity and investing
needs.
Deposits. Deposits are attracted principally from within the Bank's
primary market area through the offering of a selection of deposit instruments
including regular savings accounts, money market accounts, NOW accounts, and
term certificate accounts. The Bank also offers IRA accounts. Deposit account
terms vary according to the minimum balance required, the time period the funds
must remain on deposit, and the interest rate, among other factors.
The interest rates paid by the Bank on deposits are set weekly at the
direction of senior management. The Bank determines the interest rate to offer
the public on new and maturing accounts by reviewing the market interest rates
offered by competitors and the national market. The Bank reviews, weekly, the
interest rates being offered by other financial institutions within its primary
market area.
Passbook savings, business checking, money market and NOW accounts
constituted $12.49 million, or 37.93%, of the Bank's deposit portfolio at
September 30, 1998. Certificates of deposit (or time deposits) constituted
$20.43 million, or 62.07% of the deposit portfolio of which $6.98 million, or
21.20% of the deposit portfolio were certificates of deposit with balances of
$100,000 or more. As of September 30, 1998, the Bank had no brokered deposits.
Time Deposits by Rate. The following table sets forth the time deposits
in the Bank classified by interest rate as of the dates indicated.
At September 30,
-----------------------
1998 1997
---- ----
(In Thousands)
Interest Rate
4.01 - 5.00%............. 1,301 226
5.01 - 6.00%............. 15,067 14,249
6.01 - 7.00%............. 4,031 3,980
7.01 - 8.00%............. 29 127
------- ------
Total......... $ 20,428 $ 18,582
======== ========
Time Deposits Maturity Schedule. The following table sets forth the
amount and maturities of time deposits at September 30, 1998.
<TABLE>
<CAPTION>
Amount Due
---------------------------------------------------------------------------------------
After
September 30, September 30, September 30, September 30,
Interest Rate 1999 2000 2001 2002 Total
- ------------- ------------- ------------- ------------- ------------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
4.01-5.00%........................ $ 1,301 $ -- $ -- $ -- $ 1,301
5.01-6.00%........................ 11,724 2,362 846 135 15,067
6.01-7.00%........................ 2,584 975 392 80 4,031
7.01-8.00%........................ 29 -- -- -- 29
------ ----- ----- --- ------
Total.................... $15,638 $3,337 $1,238 $ 215 $20,428
======= ===== ===== === ======
</TABLE>
16
<PAGE>
Jumbo Certificates of Deposit. The following table indicates the amount
of the Bank's certificates of deposit of $100,000 or more by time remaining
until maturity as of September 30, 1998.
Certificates
Maturity Period of Deposit
- --------------- ----------
(In Thousands)
Within three months........................ $ 1,812
More than three through six months......... 1,574
More than six through twelve months........ 2,974
Over twelve months......................... 617
------
Total................................... $ 6,977
======
Savings Deposit Activity. The following table sets forth the savings
activities of the Bank for the periods indicated:
Year Ended
September 30,
----------------------
1998 1997
-------- --------
(In Thousands)
Net increase (decrease)
before interest credited................ $ 1,868 $(1,288)
Interest credited......................... 1,539 1,423
------ ------
Net increase in savings deposits.......... $ 3,407 $ 135
======= ======
Borrowings. The Bank may obtain advances from the FHLB of Seattle to
supplement its supply of lendable funds. Advances from the FHLB of Seattle are
typically secured by a pledge of the Bank's stock in the FHLB of Seattle and a
portion of the Bank's first mortgage loans and certain other assets. The Bank
utilizes short-term FHLB advances primarily to fund loan originations and as a
hedge against interest rates whereby funds from advances are invested in
callable government agencies with terms to maturity of three to ten years. Each
FHLB credit program has its own interest rate, which may be fixed or variable,
and a range of maturities. The Bank, if the need arises, may also access the
Federal Reserve Bank discount window to supplement its supply of lendable funds
and to meet deposit withdrawal requirements. At September 30, 1998, the Bank had
$14.65 million of borrowings from the FHLB of Seattle that consisted of $12.35
million in fixed-rate advances with rates of 5.45% to 6.38%, and $2.30 million
in putable advances with rates of 4.77% to 5.39%. FHLB advances have been
utilized by the Bank to fund loan demand and to purchase investment securities.
The Bank has used FHLB advances to fund the purchase of investment and
mortgage-backed securities with the goal of earning income on the interest rate
differential between the rate earned on the investment securities and the rate
paid on the FHLB advances.
The following table sets forth information concerning only short-term
borrowings (those maturing within one year or less) the Bank had during the
periods indicated.
Year ended September 30,
---------------------------------
1998 1997
------------ ------------
Short-term FHLB advances:
Average balance outstanding $ 15,413,000 $ 8,094,000
Maximum amount outstanding at any
month-end during the period $ 14,550,000 $ 13,500,000
Weighted average interest rate
during the period 5.75% 5.68%
Total short-term borrowings at end
of period $ 11,050,000 $ 13,500,000
17
<PAGE>
Personnel
At September 30, 1998 the Bank had ten full-time and two part-time
employees. None of the Bank's employees are represented by a collective
bargaining group. The Bank believes that its relationship with its employees is
good.
Regulation
Set forth below is a brief description of certain laws which relate to
the regulation of the Bank and the Company. The description does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.
Bank Regulation
General. As a federally chartered, Savings Association Insurance Fund
(SAIF) insured savings association, the Bank is subject to extensive regulation
by the OTS and the Federal Deposit Insurance Corporation (FDIC). Lending
activities and other investments must comply with various federal statutory and
regulatory requirements. The Bank is also subject to certain reserve
requirements promulgated by the Board of Governors of the Federal Reserve System
("Federal Reserve System").
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that they find in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
law, especially in such matters as the ownership of savings accounts and the
form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such regulations, whether by the OTS, the FDIC or the
United States Congress could have a material adverse impact on the Company and
the Bank and their operations.
Insurance of Deposit Accounts. The Bank's deposit accounts are insured
by the SAIF to a maximum of $100,000 for each insured member (as defined by law
and regulation). If an institution has no tangible capital, the FDIC has the
authority, should it initiate proceedings to terminate an institution's deposit
insurance, to suspend the insurance of any such institution. However, if a
savings association has positive capital when it includes qualifying intangible
assets, the FDIC cannot suspend deposit insurance unless capital declines
materially, the institution fails to enter into and remain in compliance with an
approved capital plan or the institution is operating in an unsafe or unsound
manner.
Regardless of an institution's capital level, insurance of deposits may
be terminated by the FDIC upon a finding that the institution has engaged in
unsafe or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or the institution's primary regulator. The
management of the Bank is unaware of any practice, condition or violation that
might lead to termination of its deposit insurance.
The FDIC charges an annual assessment for the insurance of deposits
based on the risk a particular institution poses to its deposit insurance fund.
Under this system as of September 30, 1998, SAIF members paid within a range of
0 cents to 27 cents per $100 of domestic deposits, depending upon the
institution's risk classification. This risk classification is based on an
institution's capital group and supervisory subgroup assignment.
18
<PAGE>
Pursuant to the Economic Growth and Paperwork Reduction Act of 1996
(the "Act"), the Bank pays, in addition to any insurance premium paid as a
member of the SAIF, an amount equal to approximately 6.4 basis points toward the
retirement of the Financing Corporation bonds ("Fico Bonds") issued in the
1980's to assist in the recovery of the savings and loan industry. A member of
the Bank Insurance Fund ("BIF"), by contrast, will pay, in addition to their
normal deposit insurance premium, approximately 1.3 basis points. In 1998, the
Bank paid insurance premiums and FICO payments of $19,000. Beginning no later
than January 1, 2000, the rate paid to retire the Fico Bonds will be equal for
members of the BIF and the SAIF. The Act also provides for the merging of the
BIF and the SAIF by January 1, 1999 provided there are no financial institutions
still chartered as savings associations at that time. Should the insurance funds
be merged before January 1, 2000, the rate paid by all members of this new fund
to retire the Fico Bonds would be equal.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) core capital equal to at least 3% of total
adjusted assets and (3) risk-based capital equal to 8% of total risk-weighted
assets.
Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), plus purchased mortgage servicing rights
valued at the lower of the maximum percentage established by the OTS or the
amount includable in core capital. Core capital is defined as common
stockholders' equity (including retained earnings), noncumulative perpetual
preferred stock and minority interests in the equity accounts of consolidated
subsidiaries, and qualifying supervisory goodwill, less nonqualifying intangible
assets.
The OTS requires a core capital ratio of at least 3% for those savings
associations in the strongest financial and managerial condition. All other
savings associations are required to maintain minimum core capital of at least
4% of total adjusted assets, with a maximum core capital ratio requirement of
5%. In determining the required minimum core capital ratio, the OTS assesses the
quality of risk management and the level of risk in each savings association on
a case-by-case basis.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital (which is defined as core capital plus
supplementary capital) of 8% of risk-weighted assets. The components of
supplementary capital include, among other items, cumulative perpetual preferred
stock, perpetual subordinated debt, mandatory convertible subordinated debt,
intermediate-term preferred stock and the portion of the allowance for loan
losses not designated for specific loan losses. The portion of the allowance for
loan and lease losses includable in supplementary capital is limited to a
maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is
limited to 100% of core capital. A savings association must calculate its
risk-weighted assets by multiplying each asset and off-balance sheet item by
various risk factors as determined by the OTS, which range from 0% for cash to
100% for delinquent loans, property acquired through foreclosure, commercial
loans and other assets.
19
<PAGE>
Set forth below is information regarding the Bank's regulatory capital
at September 30, 1998.
Percent of
Amount Adjusted Assets
------ ---------------
(In Thousands)
GAAP Capital $11,764
Tangible Capital:
Regulatory requirement 914 1.50%
Actual capital 11,601 19.09%
------ -----
Excess 10,687 17.59%
Core Capital:
Regulatory requirement 1,825 3.00%
Actual capital 11,601 19.09%
------ -----
Excess 9,776 16.09%
Risk-Based Capital:
Regulatory Requirement 2,090 8.00%
Actual capital 11,844 45.50%
------ -----
Excess 9,794 37.50%
Net Portfolio Value. In order to encourage associations to reduce their
interest rate risk, the OTS adopted a rule incorporating an interest rate risk
("IRR") component into the risk-based capital rules. Using data from the Bank's
quarterly reports to the OTS, the Bank receives a report which measures interest
rate risk by modeling the change in the Net Portfolio Value ("NPV") over a
variety of interest rate scenarios. NPV is the present value of expected cash
flows from assets, liabilities and off-balance sheet contracts. The calculation
is intended to illustrate the change in NPV that will occur in the event of an
immediate change in interest rates of at least 200 basis points with no effect
given to any steps which management might take to counter the effect of that
interest rate movement. Under the OTS regulations, an institution with a greater
than "normal" level of interest rate risk will be subject to a deduction from
total capital for purposes of calculating its risk-based capital. Institutions
with assets of less than $300 million and a risk-based capital ratio of more
than 12.0% are exempt. The Bank meets these qualifications and therefore is
exempt. Assuming this proposed rule was in effect at September 30, 1998 and the
Bank was not exempt from the rule, the Bank's level of interest rate risk would
have caused it to be treated as an institution with greater than "normal"
interest rate risk. This would have resulted in a reduction in the risk-based
capital ratio from the September 30, 1998 calculation of 45.50% to 41.71%, which
is in excess of the required minimum of 8.00%. Utilizing the NPV measurement
concept, at September 30, 1998, this would have resulted in a $3.26 million, or
18.53% decrease in the Bank's NPV, assuming a 200 basis point increase in
interest rates with no effect given to steps management may take to counter the
effect of that interest rate movement.
The following table is provided by the OTS and illustrates the change
in NPV at September 30, 1998, based on OTS assumptions, that will occur in the
event of an immediate change in interest rates with no effect given to any steps
which management might take to counter the effect of that interest rate
movement.
20
<PAGE>
<TABLE>
<CAPTION>
Net Portfolio as % of
Net Portfolio Value Portfolio Value of Assets
--------------------------------------------- --------------------------------
Basis Point ("bp")
Change in Rates $ Amount $ Change(1) % Change NPV Ratio (2) Change(3)
- --------------------- ------------ --------------- ------------- ------------------ ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
400 bp 7,836 (6,564) (46) 13.90% (865)bp
300 bp 9,469 (4,932) (34) 16.26% (629)bp
200 bp 11,144 (3,257) (23) 18.53% (402)bp
100 bp 12,803 (1,598) (11) 20.64% (191)bp
0 bp 14,401 22.55%
(100) bp 15,925 1,525 11 24.26% 171 bp
(200) bp 17,533 3,133 22 25.97% 342 bp
(300) bp 19,315 4,914 34 27.76% 521 bp
(400) bp 21,146 6,745 47 29.50% 695 bp
</TABLE>
- -----------------
(1) Represents the increase (decrease) of the estimated NPV at the indicated
change in interest rates compared to the NPV assuming no change in interest
rates.
(2) Calculated as the estimated NPV divided by the portfolio value of total
assets ("PV"). The Bank's PV is the estimated present value of total
assets. The PV of the Bank as of September 30, 1998, assuming no changes in
interest rates, was $63.86 million.
(3) Calculated as the increase (decrease) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio assuming no
change in interest rates.
Under the OTS interest rate risk capital rule, those institutions with
greater than "normal" levels of interest rate risk will be subject to an
interest rate risk component in calculating their risk-based capital ratio. An
institution with a "normal" level of interest rate risk is defined as one whose
"Measured Interest Rate Risk" is less than 2.0%.
The following table is provided by the OTS and is based on the
calculations in the above table. It sets forth the IRR capital component that
will be deducted from risk-based capital in determining the level of risk-based
capital. At September 30, 1998, the change in NPV as a percentage of portfolio
value of total assets is negative 5.10%, which is greater than negative 2.0%,
indicating that the Bank has a greater than "normal" level of interest rate
risk. As mentioned earlier, the Bank is exempt from any additional capital
requirements; however, had the Bank been subject to the IRR capital component,
its IRR capital component at September 30, 1998 would be approximately $990,000.
September 30, September 30,
1998 1997
------------- -------------
RISK MEASURES: 200 BP RATE SHOCK:
Pre-Shock NPV Ratio: NPV as % of PV of Assets..... 22.55% 20.09%
Exposure Measure: Post-Shock NPV Ratio............ 18.53% 17.21%
Sensitivity Measure: Change in NPV Ratio.......... (402)bp (288)bp
CALCULATION OF CAPITAL COMPONENT:
Change in NPV as % of PV of Assets................ (5.10)% (3.64)%
Interest Rate Risk Capital Component ($000) (1)... -- --
- -------------------
(1) No amounts are shown on the interest rate risk capital component line
because the Bank is exempt from the IRR capital component.
21
<PAGE>
Certain shortcomings are inherent in the methodology used in the above
table. Modeling changes in NPV requires the making of certain assumptions that
may tend to oversimplify the manner in which actual yields and costs respond to
changes in market interest rates. First, the models assume that the composition
of the Bank's interest sensitive assets and liabilities existing at the
beginning of a period remains constant over the period being measured. Second,
the models assume that a particular change in interest rates is reflected
uniformly across the yield curve regardless of the duration to maturity or
repricing of specific assets and liabilities. Accordingly, although the NPV
measurements do provide an indication of the Bank's interest rate risk exposure
at a particular point in time, such measurements are not intended to provide a
precise forecast of the effect of changes in market interest rates on the Bank's
net interest income. Furthermore, in times of decreasing interest rates, the
value of fixed-rate assets could increase in value and the lag in repricing of
interest rate sensitive assets could be expected to have a positive effect on
the Bank.
Management believes that the NPV method of assessing the Bank's
exposure to interest rate risk and potential reductions in net interest income
is a useful tool for measuring risk. Management also believes that strategies
employed to respond to changing interest rate environments can have a
significant impact upon the net value of assets and extent of earnings
fluctuations. Also, management believes that a strong equity capital position
and existence of the corporate authority to raise additional capital as
necessary act as valuable tools to absorb interest rate risk.
Dividend and Other Capital Distribution Limitations. OTS regulations
require the Bank to give the OTS 30 days advance notice of any proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends to the Company. In
addition, the Bank may not declare or pay a cash dividend on its capital stock
if the effect thereof would be to: (i) cause the Bank to be undercapitalized
(i.e., not meet any one of its minimum regulatory capital requirements); or (ii)
reduce the regulatory capital of the Bank below the amount required for the
liquidation account to be established pursuant to the Bank's Plan of Conversion.
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to shareholders of another institution in
a cash-out merger and other distributions charged against capital. The rule
establishes three tiers of institutions, based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory notice. As of
September 30, 1998 the Bank was a Tier 1 institution.
In the event the Bank's capital fell below its fully phased-in
requirement or the OTS notified it that it was in need of more than normal
supervision, the Bank would become a Tier 2 or Tier 3 institution and, as a
result, its ability to make capital distributions could be restricted. Tier 2
associations, which are associations that before and after the proposed
distribution meet their current minimum capital requirements, may only make
capital distributions of up to 75% of net income over the most recent four
quarter period. Tier 3 associations, which are associations that do not meet
current minimum capital requirements, that propose to make any capital
distribution, and Tier 2 associations that propose to make a capital
distribution in excess of the noted safe harbor level, must obtain OTS approval
prior to making such distribution. In addition, the OTS could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice.
Qualified Thrift Lender Test. Savings institutions must meet a
Qualified Thrift Lender ("QTL") test. If the Bank maintains an appropriate level
of Qualified Thrift Investments ("QTIs") (primarily residential mortgages and
related investments, including certain mortgage-related securities)
22
<PAGE>
and otherwise qualifies as a QTL, it will continue to enjoy full borrowing
privileges from the FHLB of Seattle. The required percentage of QTIs is 65% of
portfolio assets (defined as all assets minus intangible assets, property used
by the institution in conducting its business and liquid assets equal to 10% of
total assets). Certain assets are subject to a percentage limitation of 20% of
portfolio assets. In addition, savings associations may include shares of stock
of the Federal Home Loan Banks ("FHLBs"), FNMA and FHLMC as qualifying QTIs.
Compliance with the QTL test is determined on a monthly basis in nine out of
every 12 months. As of September 30, 1998, the Bank was in compliance with its
QTL requirement with 75.86% of its assets invested in QTIs.
Transactions With Affiliates. Generally, restrictions on transactions
with affiliates require that transactions between a savings association or its
subsidiaries and its affiliates be on terms as favorable to the Bank as
comparable transactions with non-affiliates. In addition, certain of these
transactions are restricted to an aggregate percentage of the Bank's capital and
collateral in specified amounts must usually be provided by affiliates to
receive loans from the Bank. Affiliates of the Bank include the Company and any
company which would be under common control with the Bank. In addition, a
savings association may not lend to any affiliate engaged in activities not
permissible for a bank holding company or acquire the securities of any
affiliate that is not a subsidiary. The OTS has the discretion to treat
subsidiaries of savings associations as affiliates on a case-by-case basis.
Liquidity Requirements. All savings associations are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings associations. At September 30, 1998, the Bank's liquidity
ratio was 61.08%. Monetary penalties may be imposed upon associations for
violations of liquidity requirements.
Federal Home Loan Bank System. The Bank is a member of the FHLB of
Seattle, which is one of 12 regional FHLBs that administer the home financing
credit function of savings associations and other financial institutions. Each
FHLB serves as a reserve or central bank for its members within its assigned
region. It is funded primarily from proceeds derived from the sale of
consolidated obligations of the FHLB System. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the Board of
Directors of the FHLB.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Seattle in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year. At September 30, 1998, the Bank had $917,100 in FHLB
stock, which was in compliance with this requirement. The FHLB imposes various
limitations on advances such as limiting the amount of certain types of real
estate related collateral to 35% of a member's total assets and limiting total
advances to a member. At September 30, 1998, this limit was approximately $21.75
million for the Bank.
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future. For the year ended September 30, 1998, dividends paid by the FHLB
of Seattle to the Bank totaled $67,000.
Federal Reserve System. The Federal Reserve System requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve System may be used
to satisfy the liquidity requirements that are imposed by the OTS. At September
30, 1998, the Bank's total transaction accounts were below the minimum level for
which the Federal Reserve System requires a reserve.
23
<PAGE>
Savings associations have authority to borrow from the Federal Reserve
System "discount window," but Federal Reserve System policy generally requires
savings associations to exhaust all other sources before borrowing from the
Federal Reserve System. The Bank had no borrowings from the Federal Reserve
System at September 30, 1998.
Community Reinvestment. Under the Community Reinvestment Act ("CRA"),
as implemented by OTS regulations, a savings association has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low-and moderate-income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the OTS, in connection with its examination of a savings institution,
to assess the institution's record of meeting the credit needs of its community
and to take such record into account in its evaluation of certain applications
by such institution. Current law requires public disclosure of an institution's
CRA rating and requires the OTS to provide a written evaluation of an
institution's CRA performance utilizing a four-tiered descriptive rating system
in lieu of the existing five-tiered numerical rating system. The OTS reported
that Buffalo Federal had a "satisfactory record of meeting community credit
needs," in its examination dated September 8, 1997.
Company Regulation
General. The Company is a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Company is required to
register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over the
Company and its non-savings association subsidiaries, should such subsidiaries
be formed, which also permits the OTS to restrict or prohibit activities that
are determined to be a serious risk to the subsidiary savings association. This
regulation and oversight is intended primarily for the protection of the
depositors of the Bank and not for the benefit of stockholders of the Company.
The Company is required to file certain reports with, and otherwise comply with,
the rules and regulations of the OTS and the Securities and Exchange Commission
("SEC").
QTL Test. As a unitary savings and loan holding company, the Company
generally will not be subject to activity restrictions, provided the Bank
satisfies the QTL test. If the Company acquires control of another savings
association as a separate subsidiary, it would become a multiple savings and
loan holding company. The activities of the Company and any of its subsidiaries
(other than the Bank or any other SAIF-insured savings association) would become
subject to restrictions applicable to bank holding companies and those
activities specified by the OTS as permissible for a multiple savings and loan
holding company unless such other associations each also qualify as a QTL or
were acquired in a supervised acquisition.
Restrictions on Acquisitions. The Company must obtain approval from the
OTS before acquiring control of any other SAIF-insured association. Such
acquisitions are generally prohibited if they result in a multiple savings and
loan holding company controlling savings associations in more than one state.
However, such interstate acquisitions are permitted based on specific state
authorization or in a supervisory acquisition of a failing savings association.
Federal law generally provides that no "person," acting directly or
indirectly or through or in concert with one or more other persons, may acquire
"control," as that term is defined in OTS regulations, of a federally insured
savings institution without giving at least 60 days written notice to the OTS
and providing the OTS an opportunity to disapprove the proposed acquisition. In
addition, no company may acquire control of such an institution without prior
OTS approval.
Restriction on Repurchases of Stock. The Company has the authority to
repurchase stock, subject to statutory and regulatory requirements. Unless
approved by the OTS, the Company, pursuant to OTS policy, is prohibited from
repurchasing any shares of its common stock for three years following the Bank's
mutual-to-stock conversion ("Conversion") except (i) for an offer to all
stockholders on a pro rata basis, or (ii) for the repurchase of qualifying
shares of a director. Notwithstanding the foregoing and except as provided
below, beginning one year following the completion of the Conversion, the
Company may repurchase its common stock so long as: (i) the repurchases within
the following two years are part of an open-market program not involving greater
24
<PAGE>
than 5% of its outstanding capital stock during a twelve-month period; (ii) the
repurchases do not cause the Bank to become "undercapitalized" within the
meaning of the OTS prompt correction action regulation; and (iii) the Company
provides to the Regional Director of the OTS no later than ten days prior to the
commencement of a repurchase program written notice containing a full
description of the program to be undertaken and such program is not disapproved
by the Regional Director.
Federal Securities Law. The Company's common stock is registered with
the SEC under the Exchange Act. The Company is subject to the information, proxy
solicitation, insider trading restrictions, and other requirements under the
Exchange Act.
Item 2. Description of Property
- ---------------------------------
(a) Properties.
The Company owns no real property but utilizes the office owned by the
Bank. The Bank owns and operates from its office located at 106 Fort Street,
Buffalo, Wyoming 82834. The Bank has a total investment in office property and
equipment of $827,000 with a net book value of $397,000 at September 30, 1998.
(b) Investment Policies.
See "Item 1. Business" above for a general description of the Bank's
investment policies and any regulatory or Board of Directors' percentage of
assets limitations regarding certain investments. All of the Bank's investment
policies are reviewed and approved by the Board of Directors of the Bank, and
such policies, subject to regulatory restrictions (if any), can be changed
without a vote of stockholders. The Bank's investments are primarily acquired to
produce income, and to a lesser extent, possible capital gain.
(1) Investments in Real Estate or Interests in Real Estate. See "Item
1. Business -- Lending Activities," "Item 1. Business -- Regulation of the
Bank," and "Item 2. Description of Property. (a) Properties" above.
(2) Investments in Real Estate Mortgages. See "Item 1. Business --
Lending Activities" and "Item 1. Business -- Regulation of the Bank."
(3) Investments in Securities of or Interests in Persons Primarily
Engaged in Real Estate Activities. See "Item 1. Business -- Lending Activities,"
"Item 1. Business -- Regulation of the Bank," and "Item 1. Business --
Subsidiary Activity."
(c) Description of Real Estate and Operating Data.
Not Applicable.
Item 3. Legal Proceedings
- ---------------------------
The Company, from time to time, is a party to ordinary routine
litigation, which arises in the normal course of business, such as claims to
enforce liens, condemnation proceedings on properties in which the Bank holds
security interests, claims involving the making and servicing of real property
loans, and other issues incident to the business of the Company. In the opinion
of management, currently there are no such claims or lawsuits that would have a
material adverse effect on the Company's results of operations or financial
condition.
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
Not applicable.
PART II
25
<PAGE>
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- --------------------------------------------------------------------------------
Matters
- -------
The information contained under the section captioned "Stock Market
Information" in the Company's Annual Report to Stockholders for the fiscal year
ended September 30, 1998 (the "Annual Report"), is incorporated herein by
reference.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
The required information is contained in the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Annual Report and is incorporated herein by reference.
Item 7. Financial Statements
- ------------------------------
The Company's consolidated financial statements required herein are
contained in the Annual Report and are incorporated herein by reference.
Item 8. Changes in and Disagreements With Accountants on Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure
- --------------------
Not Applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
- --------------------------------------------------------------------------------
with Section 16(b) of the Exchange Act
- --------------------------------------
The information contained under the sections captioned "Filing of
Beneficial Ownership Reports" and "Information with Respect to Nominees for
Director, Directors Continuing in Office, and Executive Officers" in the
Company's definitive proxy statement for the Company's Annual Meeting of
Stockholders (the "Proxy Statement") is incorporated herein by reference.
Item 10. Executive Compensation
- --------------------------------
The information contained under the section captioned "Director and
Executive Officer Compensation" in the Proxy Statement is incorporated herein by
reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the section captioned "Voting Securities and
Principal Holders Thereof" in the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the section captioned "Information with Respect
to Nominees for Director, Directors Continuing in Office, and
Executive Officers" in the Proxy Statement.
(c) Management of the Company knows of no arrangements, including
any pledge by any person of securities of the Company, the operation of which
may at a subsequent date result in a change in control of the Registrant.
Item 12. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by
reference to the section captioned "Certain Relationships and Related
Transactions" and "Voting Securities and Principal Holders Thereof" in the Proxy
Statement.
26
<PAGE>
Item 13. Exhibits, List and Reports on Form 8-K
- ------------------------------------------------
(a) Exhibits are either attached as part of this Report or incorporated herein
by reference.
3.1 Articles of Incorporation of Crazy Woman Creek Bancorp
Incorporated*
3.2 Bylaws of Crazy Woman Creek Bancorp Incorporated*
10.1 Form of Employment Contract with Crazy Woman Creek Bancorp
Incorporated*
10.2 Stock Option Plan**
10.3 Management Stock Bonus Plan**
11 Statement regarding computation of earnings per share (see Note 1
to the Notes to Consolidated Financial Statements in the Annual
Report)
13 Annual Report to Stockholders for the fiscal year ended September
30, 1998.
21 Subsidiaries of the Registrant (See "Item 1. Business of the
Company" and "--Business of the Bank".)
23 Consent of Independent Accountants.
27 Financial Data Schedule (in electronic filing only)
(b) Reports on Form 8-K.
None.
- -------------------
* Incorporated by reference to the Registrant's Registration Statement on
Form SB-2 (33-80557) declared effective by the Commission on February 12,
1996.
** Incorporated by reference to the Registrant's Proxy Statement filed with
the Commission on December 27, 1996.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
CRAZY WOMAN CREEK BANCORP INCORPORATED
By: /s/ Deane D. Bjerke
----------------------------------
Deane D. Bjerke
President and Chief Executive
Officer
(Duly Authorized Representative)
In accordance with the requirement of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf of
the Registrant in the capacities and on the dates indicated.
/s/Deane D. Bjerke /s/John B. Snyder
- ------------------------------------- -------------------------------------
Deane D. Bjerke John B. Snyder
President and Chief Executive Officer Vice President and Chief Financial
(Principal Executive Officer) Officer
Dated: December 17, 1998 (Principal Financial and Accounting
Officer)
Dated: December 17, 1998
/s/Richard Reimann /s/Douglas D. Osborn
- ------------------------------------- -------------------------------------
Richard Reimann Douglas D. Osborn
Chairman of the Board Director
Dated: December 17, 1998 Dated: December 17, 1998
/s/Greg L. Goddard /s/Thomas J. Berry
- ------------------------------------- -------------------------------------
Greg L. Goddard Thomas J. Berry
Director Director
Dated: December 17, 1998 Dated: December 17, 1998
/s/Sandra K. Todd
- -------------------------------------
Sandra K. Todd
Director
Dated: December 17, 1998
28
EXHIBIT 13
<PAGE>
CRAZY WOMAN CREEK BANCORP
INCORPORATED
-------------------------
1998 ANNUAL REPORT
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED
1998 ANNUAL REPORT
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Letter to Stockholders............................................. 1
Corporate Profile and Stock Market Information..................... 2
Financial Highlights............................................... 3
Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 4
Independent Auditors' Report ..................................... 12
Consolidated Balance Sheets........................................ 13
Consolidated Statements of Income.................................. 14
Consolidated Statements of Stockholders' Equity.................... 15
Consolidated Statements of Cash Flows.............................. 16
Notes to Consolidated Financial Statements......................... 17
<PAGE>
[CRAZY WOMAN CREEK BANCORP LETTERHEAD]
To Our Stockholders:
I am proud to present our third annual report after the completion of our mutual
to stock conversion in 1996. Since the conversion, the officers, directors, and
staff have been dedicated to achieving goals leading to the enhancement of
shareholder value. The continued payment of dividends and an additional
repurchase of 5% of the outstanding shares are examples of the Board and
management's efforts to enhance returns.
The goals set by management for fiscal year 1998 included increasing deposits
and loan originations. Both goals were reached. An addition of $3.40 million in
deposits represents a 12% increase. Our loan portfolio increased from $28.64
million to $29.99 million. Net earnings for the fiscal year ending September 30,
1998 were $712,400 compared to $690,895 in fiscal 1997. Total assets were $62.15
million compared to $59.95 million at the end of fiscal year 1997. Basic
earnings per share was $.79 at the end of the fiscal year.
During fiscal year 1998, a concentrated effort by the Board and management has
occurred to stay on schedule and to be technologically prepared in response to
the Year 2000 date change. Testing during 1998 on the main system server has
been successful, and total compliance is expected by June 30, 1999.
The officers and directors of Crazy Woman Creek Bancorp Incorporated are looking
forward to the challenges that will be presented during fiscal year 1999. In
addition to issues relating to the Year 2000, the industry is experiencing the
prospects of declining interest margins, lower income levels, and the continued
slowing of the world economy. The focus of management will be to continue
increasing loan originations and growing deposits. The development of products
and services will continue to be emphasized to benefit our customers and serve
the financial needs of the community.
I wish to personally invite all stockholders to our annual meeting that is
scheduled on January 20th at 3:00 P.M. at our office in Buffalo, Wyoming.
Sincerely,
/s/Deane D. Bjerke
- ------------------
Deane D. Bjerke
President
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED
Corporate Profile
Crazy Woman Creek Bancorp Incorporated (the "Company") is the parent company of
Buffalo Federal Savings Bank ("Buffalo Federal" or the "Bank"). The Company is a
savings and loan holding company which, under existing laws, is not restricted
in the types of activities in which it can engage. At the present time, since
the Company does not conduct any significant business, the Company does not
intend to employ any persons other than officers but utilizes the support staff
and facilities of the Bank from time to time.
Buffalo Federal is a federally-chartered stock savings bank headquartered in
Buffalo, Wyoming, which was originally chartered in 1932 under the name "Buffalo
Building and Loan Association." Deposits are insured up to the maximum allowable
by federal law. The Bank is a community oriented savings institution offering a
variety of financial services to meet the needs of the communities that it
serves. Buffalo Federal conducts its business from its office in Buffalo,
Wyoming.
Buffalo Federal attracts deposits from the general public and uses such
deposits, together with borrowings and other funds, primarily to originate and
fund loans secured by first mortgages on owner-occupied, one-to-four family
residences in its market area. The Bank also makes home equity loans, loans
secured by deposits, automobile loans and personal loans and invests in
municipal obligations, mortgage-backed securities, and other investments.
Stock Market Information
Since its initial public offering in March 1996, the Company's common stock has
been traded on the Nasdaq SmallCap Market under the symbol "CRZY." The following
table reflects the stock price highs and lows for each quarter during the last
two years as reported by Nasdaq as well as cash dividends declared during the
periods.
HIGH LOW DIVIDENDS
---- --- ---------
July 1, 1998 - September 30, 1998 $17.38 $ 12.50 $0.10
April 1, 1998 - June 30, 1998 20.00 16.63 0.10
January 1, 1998 - March 31, 1998 17.25 15.13 0.10
October 1, 1997 - December 31, 1997 15.68 14.75 0.10
July 1, 1997 - September 30, 1997 15.13 13.25 0.10
April 1, 1997 - June 30, 1997 13.75 13.00 0.10
January 1, 1997 - March 31, 1997 14.25 11.88 0.10
October 1, 1996 - December 31, 1996 12.00 11.25 0.10
Quotations reflect inter-dealer prices without retail mark-up, mark-down or
commission, and may not represent actual transactions. The number of
shareholders of record of common stock as of December 17, 1998, was
approximately 237. This does not reflect the number of persons or entities who
held stock in nominee or "street" name through various brokerage firms. At
December 17, 1998, there were 909,261 shares outstanding.
The Company's ability to pay dividends to stockholders is dependent in part upon
the dividends it receives from the Bank. The Bank may not declare or pay a cash
dividend on any of its stock if the effect thereof would cause the Bank's
regulatory capital to be reduced below (1) the amount required for the
liquidation account established in connection with the Bank's conversion from
mutual to stock form, or (2) the regulatory capital requirements imposed by the
Office of Thrift Supervision ("OTS").
-2-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands except per share date)
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
At or For the Year Ended September 30, 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loan receivable, net $29,986 $28,636 $25,859 $23,006 $22,503
Mortgage-backed securities, held to maturity 2,521(4) 3,644 4,228 3,148 2,473
Investment securities, held to maturity 1,417(4) 5,365 6,075 6,806 5,385
Investment and mortgage-backed
securities, available for sale 24,635 19,155 13,365 (1) 2,230 2,276
Total assets 62,153 59,952 51,517 (1) 37,510 35,751
Deposits 32,913 29,506 29,371 28,209 38,980
FHLB advances 14,650 15,700 6,113 3,183 1,095
Total stockholders' equity 14,036 14,210 15,508 (1) 5,857 5,449
Interest income 4,420 3,940 3,274 (1) 2,722 2,505
Interest expense 2,448 1,983 1,702 1,455 1,143
Net interest income 1,973 1,957 1,572 1,267 1,362
Provision for loan losses (loan loss benefit) 18 - - 42 (10)
Net income 712 691 355 (2) 352 502
- -------------------------------------------------------------------------------------------------------------------------
OTHER SELECTED DATA
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
At or For the Year Ended September 30, 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
Performance Ratios:
Return on average assets (net income
divided by average total assets) (2) 1.16% 1.28% 0.80% 0.96% 1.48%
Return on average equity (net income
divided by average equity) (1) (2) 4.96% 4.74% 3.07% 6.10% 9.39%
Average interest-earning assets to average
interest-bearing liabilities (1) 130.65% 136.86% 133.47% 117.59% 117.23%
Net interest income after provision for
loan losses, to average earning assets 3.25% 3.71% 3.47% 3.35% 4.04%
Net interest rate spread 2.03% 2.32% 2.26% 2.84% 3.53%
Average equity to average assets ratio
(average equity divided by average
total assets) (1) 23.46% 27.07% 25.50% 15.76% 15.74%
Equity to assets at period end (1) 22.59% 23.70% 30.10% 15.61% 15.24%
Non-performing assets to total assets 0.41% 0.38% 0.06% 0.33% 0.38%
Non-performing loans to net loans 0.86% 0.79% 0.12% 0.30% 0.08%
Allowance for loan losses, REO and other
repossessed assets to non-performing
assets 110.66% 134.22% 862.50% 223.58% 151.09%
Allowance for loan losses to total
loans, net 0.92% 1.04% 1.06% 1.18% 0.91%
Net charge-offs (recoveries) to loans receivable 0.12% (0.09%) (0.01%) (0.11%) 0.41%
Basic earnings per share (3) $ 0.79 $ 0.73 $ 0.36 n/a n/a
Diluted earnings per share (3) $ 0.77 $ 0.73 n/a n/a n/a
Book value per share (3) $ 15.44 $ 14.88 $ 14.66 n/a n/a
</TABLE>
- -------------------------------------
(1) The change in fiscal 1996 is primarily due to the conversion from a mutual
to a stock company in March 1996.
(2) Includes a one time assessment in fiscal year 1996 of $ 186,569 to
recapitalize the SAIF.
(3) There were no shares outstanding prior to the consummation of the Company's
initial public offering on March 29, 1996.
(4) As of October 1, 1998 all securities will be classified as available for
sale. The company has elected early implementation of Statement of
Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative
Instruments and Hedging Activities" - See discussion of SFAS 133 in
"Management Discussion and Analysis of Financial Condition and Results of
Operations - Financial Condition"
-3-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company was formed in 1995 and acquired control of the Bank through
a mutual-to-stock conversion that was consummated on March 29, 1996. The
Company'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'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. For the year ended September 30, 1998, the Bank's interest income
was $4.42 million, or approximately 97.9% of gross earnings (e.g., interest
income and non-interest income). The Bank's interest rate spread is affected by
regulatory, economic and competitive factors that influence interest rates, loan
demand and deposit flows. For the year ended September 30, 1998, the Bank's net
interest rate spread was 2.03%. 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.
The operations of the Bank and the entire thrift industry are
significantly affected by prevailing economic conditions, competition and the
monetary and fiscal policies of the federal government and governmental
agencies. Lending activities are influenced by the demand for and supply of
housing, competition among lenders, the level of interest rates and the
availability of funds. Deposit flows and costs of funds are influenced by
prevailing market rates of interest, primarily on competing investments, account
maturities, and the levels of personal income and savings in the Bank's market
area.
Asset/Liability Management and Interest Rate Risk
An asset or liability is interest rate sensitive within a specific time
period if it will mature or reprice within that time period. If the Bank's
assets mature or reprice more quickly or to a greater extent than its
liabilities, the Bank's net portfolio value and net interest income would tend
to increase during periods of rising interest rates but decrease during periods
of falling interest rates. If the Bank's assets mature or reprice more slowly or
to a lesser extent than its liabilities, the Bank's net portfolio value and net
interest income would tend to decrease during periods of rising interest rates
but increase during periods of falling interest rates. The Bank's policy has
been to mitigate the interest rate risk inherent in the historical savings
institution business of originating long-term loans funded by short-term
deposits by pursuing certain strategies designed to decrease the vulnerability
of its earnings to material and prolonged changes in interest rates.
The Bank is subject to significant interest rate risk as a result of its
historical emphasis on the origination for portfolio of fixed-rate one to four
family mortgage loans. In order to improve the Bank's interest rate sensitivity,
however, management has attempted to shorten the maturities of the Bank's assets
and lengthen the maturities of its liabilities, while maintaining asset quality.
This strategy has been implemented by (i) emphasizing the origination for
portfolio of 15-and 20-year fixed-rate mortgage loans; (ii) brokering 30-year
fixed-rate mortgage loans for a third party and receiving a commission; (iii)
offering adjustable rate home equity and shorter-term installment loans; (iv)
emphasizing the solicitation and retention of core deposits and lengthening the
average maturity of deposits by adopting a tiered pricing program for its
certificates of deposit (offering higher rates on longer term certificates); (v)
purchasing for its own portfolio adjustable-rate mortgage-backed securities,
(vi) investing in short- and intermediate-term investment securities, (vii)
emphasizing the origination of adjustable-rate mortgage loans; (viii) managing
deposit interest rates; and (ix) utilizing FHLB advances to facilitate growth
and lengthen liabilities. These measures, while significant, may only partially
offset the Bank's interest rate risk. Furthermore, the Bank believes it has
sufficient capital to accept a certain degree of interest rate risk.
-4-
<PAGE>
To monitor the Bank's interest rate risk, the Bank also utilizes
quarterly reports by the OTS which measure the Bank's interest rate risk by
modeling the change in the Bank's net portfolio value ("NPV") over a variety of
interest rate scenarios. NPV is defined as the present value of expected cash
flows from assets, liabilities and off-balance sheet contracts. Based on the
September 30, 1998 report the Bank had a greater than "normal" level of interest
rate risk. See also "- Impact of Inflation and Changing Prices."
The Bank's Board of Directors is responsible for revising the Bank's
asset and liability policies. The Bank's management is responsible for
administering the policies and determinations of the Board of Directors with
respect to the Bank's asset and liability goals and strategies.
Analysis of Net Interest Income
Average Balances, Interest, Yields and Rates. The following table sets
forth certain information relating to the Company's average balance sheet and
reflects the average yield on assets and average cost of liabilities for the
periods indicated and the average yields earned and rates paid. Such yields and
costs are derived by dividing income or expense by the average balance of assets
or liabilities, respectively, for the periods presented. Average balances are
derived from month-end balances. Management does not believe that the use of
month-end balances instead of daily average balances has caused any material
differences in the information presented. When interest-earning assets
approximate or exceed interest-bearing liabilities, any positive interest rate
spread will generate net interest income.
<TABLE>
<CAPTION>
At September 30, Year Ended September 30,
----------------- ---------------------------------------------------------------------
1998 1998 1997
----------------- --------------------------------- ---------------------------------
Average Average Average Average
Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
----------------- --------- --------- ----------- --------- --------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) 8.04 % $29,202 $ 2,412 8.26 % $27,469 $ 2,277 8.29 %
Mortgage-backed securities 8.37 3,061 211 6.89 3,982 264 6.63
Investment securities (2) 14.11 3,294 200 6.07 6,449 384 5.95
Securities available for sale 6.21 23,619 1,530 6.48 14,396 976 6.78
Other interest-earning assets 7.31 881 67 7.60 523 39 7.46
--------- --------- --------- ---------
Total interest-earning assets 7.43 60,057 4,420 7.36 52,819 3,940 7.46
--------- --------- --------- ---------
Non-interest-earning assets 1,094 1,042
========= =========
Total assets $61,151 $53,861
========= =========
Interest-bearing liabilities
Interest checking 3.60 7,593 301 3.96 6,395 248 3.88
Time deposits/passbook 5.05 22,964 1,238 5.39 22,105 1,175 5.32
--------- --------- --------- ---------
Total deposit accounts 4.68 30,557 1,539 5.04 28,500 1,423 4.99
FHLB advances 6.20 15,413 908 5.89 10,094 560 5.55
--------- --------- --------- ---------
Total interest-bearing 5.15 45,970 2,447 5.33 38,594 1,983 5.14
liabilities --------- --------- --------- ---------
Non-interest-bearing liabilities
832 685
--------- ---------
Total liabilities $46,802 $39,279
--------- ---------
Total stockholders' equity 14,349 14,582
========= =========
Total liabilities and stockholders' equity $61,151 $53,861
========= -------- ========= --------
Net interest income $ 1,973 $ 1,957
========= =========
Interest rate spread 2.03 % 2.32 %
======== ========
Net interest margin 3.29 % 3.71 %
======== ========
Ratio of average interest-earning assets
to average interest-bearing liabilities 130.64 % 136.86 %
======== ========
</TABLE>
- ---------------------------------
(1) Average balances include non-accrual loans, and are net of reserve for loan
losses and deferred loan fees.
(2) Also includes interest-bearing deposits in other financial institutions.
-5-
<PAGE>
Rate/Volume Analysis. The table following sets forth certain
information regarding changes in interest income and interest expense of the
Bank for the periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (changes in average volume multiplied by old rate); (ii)
changes in rates (changes in rate multiplied by old average volume); (iii)
changes in rate-volume (changes in rate multiplied by the change in average
volume).
<TABLE>
<CAPTION>
Year ended September 30,
1998 vs. 1997
Increase (Decrease) Due to
Rate/
Volume Rate Volume Net
--------- -------- --------- --------
In Thousands
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable $ 144 $ (8) $ (1) $ 135
Mortgage-backed securities (61) 10 (2) (53)
Investment securities (188) 8 (4) (184)
Securities available for sale 625 (43) (28) 554
Other interest-earning assets 26 1 1 28
--------- -------- --------- --------
Total interest-earning assets $ 546 $ (32) $ (34) $ 480
========= ======== ========= ========
Interest expense
Deposit accounts $ 103 $ 12 $ 1 $ 116
FHLB advances 295 35 18 348
--------- -------- --------- --------
Total interest-bearing
liabilities $ 398 $ 47 $ 19 $ 464
========= ======== ========= ========
Net change in net interest income $ 148 $ (79) $ (53) $ 16
========= ======== ========= ========
</TABLE>
Financial Condition
The Company's assets increased by $2.20 million from $59.95 million at
September 30, 1997 to $62.15 million at September 30, 1998. The growth in assets
was primarily attributed to an increase in net loans receivable and in
investment and mortgage-backed securities available for sale. Asset growth was
primarily funded through a $3.40 million increase in deposits.
The Company's net investment in mortgage-backed and investment
securities available for sale increased by $5.49 million from $19.15 million at
September 30, 1997 to $24.64 million at September 30, 1998. Meanwhile,
investment and mortgage-backed securities held to maturity decreased by $5.07
million. As of October 1, 1998 all securities will be classified as available
for sale. The Company has elected early implementation of Statement of Financial
Accounting Standards (SFAS) No. 133 "Accounting for Derivative Instruments and
Hedging Activities". The statement establishes accounting and reporting
standards for all, existing and new, derivative instruments, including certain
derivative instruments embedded in other contracts and hedging activities. A
derivative instrument is an investment to mitigate the inherent interest rate
risk embedded in a fixed rate financial instrument, by offsetting the instrument
with a hedged non-monetary contract or guarantee of a certain return in a rising
or falling rate environment. SFAS 133 has no impact on the financial statements
except that it also allows for the reclassification of the investment portfolio
from held-to-maturity to either trading or available-for-sale. The net effect on
the balance sheet was an increase in total assets of $83,696, deferred tax
liability of $ $28,457 and unrealized gains on securities available for sale of
$55,239.
The Company continues to experience loan growth. From September 30,
1997 to September 30, 1998 net loans receivable increased from $28.64 million to
$29.99 million, representing an increase of $1.35 million or 4.71%. Residential
real estate loans accounted for 92.6% of the growth in loans while the balance
of the growth occurred in commercial real estate, consumer and commercial loans.
-6-
<PAGE>
Deposits increased by $3.40 million from $29.51 million at September
30, 1997 to $32.91 million at September 30, 1998. Interest-bearing checking
accounts (NOW and money market checking) increased by $1.28 million while
passbook and certificates of deposits increased by $2.03 million. Business
checking showed a increase of $90,000 for period. This increase in deposits was
primarily used to pay down FHLB advances (see following paragraph), fund loan
originations and to purchase investment and mortgage backed securities available
for sale.
The Company decreased its level of borrowings from the FHLB of Seattle
from $15.70 million at September 30, 1997 to $14.65 million at September 30,
1998. This represents a decrease of $1.05 million. The decrease in FHLB advances
was primarily paid down with the increase in deposits. The Company utilizes FHLB
advances to take advantage of investment opportunities with the goal of earning
income on the interest rate differential between the yield earned on the
investments and the rate paid on the FHLB advances.
Total stockholders' equity declined by $174,000 from $14.21 million at
September 30, 1997 to $14.04 million at September 30, 1998 primarily as a result
of stock repurchases. After obtaining regulatory approval, the Company
repurchased a total of 47,700 shares of its common stock in June, July and
August of 1998. The purchases totaled $828,000. Stockholders' equity was further
reduced by cash dividends declared during fiscal year 1998. These dividends
totaled $0.40 per share or $352,923.
Non-performing Assets
Non-performing assets totaled $256,000 at September 30, 1998 or 0.41%
of total assets compared to $225,000 at September 30, 1997 or 0.38% of total
assets. Non-performing assets are primarily comprised of loans secured by
residential real estate. Included in non-performing loans, is a $70,000 loan
secured by a convenience/restaurant facility and $48,000 in consumer loans. At
September 30, 1998, the Company did not have any repossessed properties.
Comparison of Results of Operations for the Years Ended September 30, 1998 and
1997
Net Income. For the year ended September 30, 1998 the Company posted
net income of $712,000 or basic earnings per share of $.79 compared to net
income of $691,000 or basic earnings per share of $.73 for the year ended
September 30, 1997. Net income was higher in 1998 than in 1997 primarily as a
result of other non-interest income. Net income was also higher in 1998 because
average earning assets were higher in 1998 than in 1997. Average earning assets
were higher in 1998 because of the increase in investments in mortgages and
investment securities.
Net Interest Income. Net interest income increased by $16,000 from
$1.96 million for the year ended September 30, 1997 to $1.97 million for the
year ended September 30, 1998. The increase in net interest income was primarily
attributed to an increase in the volume of interest earning assets to interest
bearing liabilities. The ratio of interest earning assets to interest bearing
liabilities decreased from 136.86% for the twelve month period ended September
30, 1997 to 130.64% for the same period in 1998. Also contributing to the small
increase in net interest income was a decrease in the interest rate spread from
2.32% for the twelve month period ended September 30, 1997 to 2.03% for the
twelve month period ended September 30, 1998.
Interest Income. Total interest income increased by $480,000 from $3.94
million for the year ended September 30, 1997 to $4.42 million for the year
ended September 30,1998.
The increase in interest income was primarily caused by an increase in
the volume of average interest earning assets from 1997 to 1998. For the twelve
month period ended September 30, 1997 average interest earning assets totaled
$52.82 million compared to $60.06 million for the same period in 1998. This
increase in volume caused interest income to increase by $546,000 for the
periods covered.
-7-
<PAGE>
A decrease in the yield on average earning assets from 7.46% for the twelve
month period ended September 30, 1997 to 7.36% for the same period in 1998
caused interest income to decrease by approximately $32,000.
Interest Expense. Interest expense increased by $465,000 from $1.98
million for the year ended September 30, 1997 to $2.45 million for the year
ended September 30, 1998 primarily as a result of an increase in interest
bearing deposits and FHLB advance and an increase in the cost of these funds.
Average interest bearing deposits increased by $2,057,000 from September 30,
1997 to September 30, 1998 contributing to the $116,000 increase in interest
expense. A increase in the cost of interest bearing deposits from 4.99% for the
twelve month period ended September 30, 1997 to 5.04% for the twelve month
period ended September 30, 1998 helped increase interest expense by
approximately $12,000.
Average FHLB advances increased from $10.09 million for the twelve
month period ended September 30, 1997 to $15.41 million for the twelve month
period ended September 30, 1998. This increase in volume caused interest expense
to increase by $295,000. A slight increase in the cost of FHLB advances from
5.55% in 1997 to 5.89% 1998 accounted for a $35,000 increase in interest
expense.
The total cost of average interest bearing liabilities was 5.33% for 1998 and
5.14% for 1997.
Provision for Loan Losses. A provision for loan losses of $18,000 was
taken during 1998 and no provisions for loan losses were made in 1997. In 1998,
recoveries totaled $14,000 while charge-offs totaled $50,000. Loan charge-offs
were greater than recoveries in 1998 resulting in a net decrease to loan loss
reserves of $18,000. Management's periodic evaluation of the adequacy of the
allowance is based on factors such as the Bank's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, estimated value of any underlying collateral,
current and prospective economic conditions, and independent appraisals. Any
increase or decrease in the provision for loan losses has a corresponding
negative or positive effect on net income. At September 30, 1998, the allowance
represented 0.92% of net loans receivable as compared to 1.04% of loans
receivable at September 30, 1997.
Assessment of the adequacy of the allowance for loan losses involves
subjective judgments regarding future events, and thus, there can be no
assurance that additional provisions for loan losses will not be required in
future periods.
Non-Interest Income. Non-interest income increased by $32,000 from
$64,000 for the year ended September 30, 1997 to $96,000 for the year ended
September 30, 1998 primarily due to loan fees, service charges and gains on sale
of investment securities. Customer service charges increased by $8,000 as a
result of deposit account overdrafts. Other operating income increased by
$13,000 as a result of fees associated with the loan portfolio. These fees
increased due to the volume of refinancing and loan modifications. In 1998,
securities gains totaled $3,000. Meanwhile in 1997, losses on the sale of
investment securities totaled $8,000.
Non-Interest Expense. The Company experienced a $8,000 increase in
non-interest expense from $989,000 for the year ended September 30, 1997 to
$997,000 for the year ended September 30, 1998. Compensation and benefit expense
was $7,000 higher in 1998 than in 1997 primarily as a result of costs associated
with the Bank's ESOP and Management Stock Bonus Plan ("MSBP"). General pay
increases in 1998 also caused compensation expense to increase.
Insurance premiums paid to the Federal Deposit Insurance Corporation
(the "FDIC") declined by $8,000 from $27,000 for the year ended September 30,
1997 to $19,000 for the year ended September 30, 1998 due to a drop in the
premium charged by the FDIC. Also included in 1997's non-interest expense were
$4,000 in losses resulting from the abandonment of obsolete equipment. Other
operating expenses and advertising expense were $16,000 higher in 1998 than in
1997.
-8-
<PAGE>
Income Taxes. The effective tax rates for 1998 and 1997 were 32.42% and
33.10%, respectively. There is no state income tax imposed on the Company.
Liquidity and Capital Resources
The Bank is required to maintain minimum levels of liquid assets as
defined by OTS regulations. This requirement, which varies from time to time
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short term borrowings. The required liquidity ratio currently is
5.0% and the Bank's liquidity ratio average was 61.08% at September 30, 1998
compared to 13.14% at September 30, 1997. Recent regulatory changes regarding
assets eligible for liquidity caused the significant increase in the Bank's
regulatory liquidity ratios from 1997 to 1998. Specifically, the maturity
restrictions were lifted on U.S. Agency related securities. The ratio for
September 30, 1997 under these new regulations would have been 73.47%.
The Bank's primary sources of funds are deposits, prepayment and
amortization of loans and mortgage-backed securities, maturities of investment
securities, earnings from operations, and advances from the FHLB of Seattle.
While scheduled principal repayments are greatly influenced by general interest
rates, economic conditions, competition and other factors, the Bank manages the
pricing of its deposits to maintain desired levels and invests in short-term
interest-earning assets, which provide liquidity to meet its lending
requirements.
During the years ended September 30, 1998 and 1997, the Bank had
positive net cash flows of $780,000 and $737,000 from operating activities and
$1.21 million and $7.46 million from financing activities, respectively. The
Company, however, experienced negative net cash flows of $1.62 million and $7.46
million, respectively, from investing activities.
The primary investing activity of the Bank is the origination of
fixed-rate mortgages with maturities of less than 20 years and the purchase of
investment securities. During fiscal 1998 and 1997, the Bank originated mortgage
loans in the amounts of $11.54 million and $10.01 million, respectively. The
proceeds from new deposits were used to fund such investment activities as the
origination of loans and the purchase of investment securities available for
sale.
Net income, adjusted for the non-cash and non-operating items, was the
primary source of cash flows from operating activities in both fiscal 1998 and
1997.
During fiscal 1998 and 1997, investing activities used $1.62 million
and $7.46 million, respectively, primarily to purchase investment securities and
to fund the origination of loans. This use of cash was offset somewhat by
maturities and calls of investment securities and the repayment of principal on
loans.
Changes in cash flows from financing activities during these periods
have primarily been related to changes in deposits, borrowings, dividends paid
and stock repurchases in 1998. The primary financing activities of the Bank are
the attraction of deposits and borrowing funds from the FHLB of Seattle. During
fiscal year 1998, deposits increased $3.40 million. The Bank also supplements
its deposits with advances from the FHLB of Seattle to manage interest rate risk
and to take advantage of investment opportunities with the goal of earning
income on the interest rate differential between the yield earned on the
investments and the rate paid on the advances. During fiscal year 1998, FHLB
advances decreased by $1.05 million. The net of the increase in deposits and the
decrease in FHLB advances were used to purchase investment securities and to
fund loan originations. Generally, the cost of advances is greater than the cost
of deposits. The Bank anticipates that it will have sufficient funds available
to meet its current commitments. At September 30, 1998, the Bank had commitments
to originate loans of $821,000. Certificates of deposit
-9-
<PAGE>
and State of Wyoming deposits which are scheduled to mature in less than one
year at September 30, 1998 totaled $15.63 million. Based on historical
experience, management believes that a significant portion of such deposits will
remain with the Bank.
Year 2000
The Year 2000 problem exists because many computer programs use only
the last two digits to refer to a year. This convention could affect
date-sensitive calculations that treat "00" as the year 1900, rather that 2000.
An additional issue is that 1900 was not a leap year, whereas the year 2000 is.
Therefore, some programs may not properly provide for February 29, 2000. This
anomaly could result is miscalculations when processing critical date-sensitive
information after December 31, 1999.
The following discussion of the implications of the Year 2000 problem
for the Company contains numerous forward-looking statements based on inherently
uncertain information. The cost of the project and the date on which the Company
plans to complete the internal Year 2000 modifications are based on management's
best estimates, which were derived utilizing a number of assumptions of future
events including the continued availability of internal and external resources,
third party modifications and other factors. However, there can be no guarantee
that these estimates will be achieved and actual results could differ. Moreover,
although management believes it will be able to make the necessary modifications
in advance, there can be no guarantees that failure to modify the systems would
not have a material adverse affect on the Company.
In addition, the Company places a high degree of reliance on its third
party processor and computer systems of other financial institutions. Although
the Company is assessing the readiness of these other parties and preparing
contingency plans, there can be no guarantee that the failure of these other
parties to modify their systems in advance of December 31, 1999 would not have a
material adverse affect on the Company.
During fiscal 1998, the Company adopted a Year 2000 Action Plan (the
"Plan") and established a Year 2000 Committee (the "Committee"). The objectives
of the Plan and the Committee are to prepare the Company for the new millennium.
As recommended by the Federal Financial Institutions Examination Council
("FFIEC"), the Plan encompasses the following phases: Awareness, Assessment,
Renovation, Validation and Implementation. These phases will enable the Company
to identify risks, develop an action plan, perform adequate testing and complete
certification that its processing systems will be Year 2000 ready. Execution of
the Plan is currently on target. The Company is currently in the Renovation
phase, which includes program changes, hardware and software upgrades and system
replacements, if necessary. Concurrently, the Company is also addressing some
issues related to subsequent phases. Prioritization of the most critical
applications has been addressed, along with contract and service agreements. The
primary operating software for the Company is obtained and maintained by an
external service center (the "Service Center"). The Company has maintained
ongoing contact with the Service Center so that modification of the software for
the Year 2000 readiness is a top priority and is expected to be accomplished,
though there is no assurance, by June 30, 1999. The Service Center is completed
with their Renovation phase and is in the process of the Validation phase. The
Company has contacted all other major vendors and suppliers regarding their Year
2000 state of readiness. Each of these third parties has delivered written
assurance to the Company that they expect the be Year 2000 compliant prior to
the Year 2000. These third parties also supply, at least quarterly, an update of
their progress. The Company has contacted all material customers and
non-information technology suppliers (i.e., utility systems, telephone systems
and security systems), regarding their Year 2000 state of readiness. The
Renovation phase is targeted for completion by December 31, 1998. The Validation
phase involves testing of changes to hardware and software, accompanied by
monitoring and testing with vendors. The Validation phase is targeted for
completion by June 30, 1999. The Implementation phase is
-10-
<PAGE>
to certify that systems are Year 2000 ready, along with assurances that any new
systems are compliant on a going-forward basis. The Implementation phase is
targeted for completion by September 30, 1999.
Costs will be incurred due to the replacement of non-compliant
computers and software. The Company does not anticipate that the related overall
costs will be material in any single year. In total, the Company estimated that
its cost for compliance will amount to approximately $15,000 over the three year
period from 1998-2000, of which approximately $2,000 was incurred as of
September 30, 1998. The Company does not separately track the internal personnel
costs incurred for the Year 2000 compliance. No assurance can be given that the
Year 2000 Compliance Plan will be completed successfully by the Year 2000, in
which event the Company could incur significant costs. If the Service Center is
unable to resolve the potential problem in time, the Company would likely
experience significant data processing delays, mistakes or failures. These
delays, mistakes or failures could have a significant adverse impact on the
financial statements of the Company.
One of the guidelines from the FFIEC is to establish a Contingency Plan
for all possible Year 2000 failures. During fiscal 1998, the Company adopted a
Year 2000 Contingency Plan. The objective of the Contingency Plan is to prepare
for any Year 2000 failures. These failures could result from internal software
and hardware, the Service Center, and/or third parties (utilities, telephone,
suppliers, and other banks). The Contingency Plan is continually being revised
based on new information and updates on the Year 2000 conversions of third
parties and other vendors.
Impact of Inflation and Changing Prices
The financial statements of the Company and notes thereto, presented
elsewhere herein, have been prepared in accordance with generally accepted
accounting principles, 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 and due to inflation. The
impact of inflation is reflected in the increased cost of the Company's
operations. Unlike most industrial companies, nearly all the assets and
liabilities of the Company are monetary.
As a result, interest rates have a greater impact on the Company'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 price
of goods and services.
The Company's subsidiary, the Bank, is a traditional thrift that
primarily originates and holds long-term home loans. These loans are primarily
funded with short-term deposits. Because of this mismatch, the Bank's financial
condition and results of operations may be adversely affected by a sudden and
prolonged increase in interest rates. See also "-Asset/Liability and Interest
Rate Risk."
-11-
<PAGE>
KPMG Peat Marwick LLP
1000 First Interstate Center
401 N. 31st Street
P.O. Box 7108
Billings, MT 59103
Independent Auditors' Report
The Board of Directors and Stockholders
Crazy Woman Creek Bancorp Incorporated:
We have audited the accompanying consolidated balance sheets of Crazy Woman
Creek Bancorp Incorporated and subsidiary as of September 30, 1998 and 1997, and
the related consolidated statements of income, stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Crazy Woman Creek
Bancorp Incorporated and subsidiary as of September 30, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Billings, Montana
October 23, 1998
-12-
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 1998 and 1997
<TABLE>
<CAPTION>
Assets 1998 1997
------ ------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 1,561,535 1,193,775
Interest bearing deposits 99,000 99,000
Investment and mortgage-backed securities
available-for-sale 24,635,379 19,154,984
Investment and mortgage-backed securities held-to-
maturity (estimated market value of $4,021,391 at
September 30, 1998 and $9,066,836 at September 30, 3,937,696 9,009,175
1997, respectively)
Stock in Federal Home Loan Bank of Seattle, at cost 917,100 801,500
Loans receivable, net 29,986,223 28,636,220
Accrued interest receivable 538,459 558,782
Premises and equipment, net 397,538 443,323
Income tax receivable 38,597 --
Other assets 42,120 55,518
------------ ------------
$ 62,153,647 59,952,277
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits $ 32,913,120 29,506,343
Advances from Federal Home Loan Bank 14,650,000 15,700,000
Advance payments by borrowers for taxes and insurance 64,438 54,388
Income taxes payable -- 155,103
Deferred income taxes 210,706 115,346
Dividends payable 90,926 95,485
Accrued expenses and other liabilities 188,728 115,273
------------ ------------
Total liabilities 48,117,918 45,741,938
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 105,800 105,800
Additional paid-in capital 10,083,224 10,041,629
Unearned ESOP/MSBP shares (670,711) (809,272)
Retained earnings 6,736,570 6,377,093
Unrealized gain on securities available-for-sale, net 207,612 77,007
Treasury stock at cost, 148,739 and 103,155 shares
at September 30, 1998 and 1997, respectively (2,426,766) (1,581,918)
------------ ------------
Total stockholders' equity 14,035,729 14,210,339
------------ ------------
$ 62,153,647 59,952,277
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-13-
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Statements of Income
Years ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Interest income:
Loans receivable $2,412,177 2,277,142
Mortgage-backed securities 635,229 589,004
Investment securities 1,243,968 1,001,049
Interest bearing deposits 4,900 5,047
Other 124,030 68,471
---------- ----------
Total interest income 4,420,304 3,940,713
Interest expense:
Deposits 1,539,445 1,422,732
Advances from Federal Home Loan Bank 908,274 560,672
---------- ----------
Total interest expense 2,447,719 1,983,404
---------- ----------
Net interest income 1,972,585 1,957,309
Provision for loan losses 18,000 --
---------- ----------
Net interest income after provision for loan losses 1,954,585 1,957,309
---------- ----------
Non-interest income:
Customer service charges 49,881 41,803
Other operating income 43,034 30,015
Gain (loss) on sale of securities, net 3,417 (7,875)
---------- ----------
Total non-interest income 96,332 63,943
---------- ----------
Non-interest expense:
Compensation and benefits 533,883 526,865
Occupancy and equipment 88,753 101,091
FDIC/SAIF deposit insurance premiums 18,552 26,703
Advertising 36,446 40,184
Data processing services 99,866 94,195
Other 219,317 199,493
---------- ----------
Total non-interest expense 996,817 988,531
---------- ----------
Income before income taxes 1,054,100 1,032,721
Income tax expense 341,700 341,826
---------- ----------
Net income $ 712,400 690,895
========== ==========
Basic earnings per share $ 0.79 0.73
========== ==========
Diluted earnings per share $ 0.77 0.73
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-14-
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
Unearned Unrealized
Additional ESOP/ securities Total
Common paid-in MSBP Retained gain Treasury stockholders'
stock capital shares earnings (loss), net stock equity
---------- ----------- -------------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1996 $ 105,800 10,027,393 (617,143) 6,057,879 (65,921) -- 15,508,008
Repurchase of 103,155 shares of common stock -- -- -- -- -- (1,879,222) (1,879,222)
MSBP shares granted -- -- (297,304) -- -- 297,304 --
ESOP shares committed to be released -- 14,236 45,714 -- -- -- 59,950
MSBP shares vested -- -- 59,461 -- -- -- 59,461
Change in net unrealized gain (loss) on
securities available-for-sale -- -- -- -- 142,928 -- 142,928
Net income -- -- -- 690,895 -- -- 690,895
Cash dividends declared ($.40 per share) -- -- -- (371,681) -- -- (371,681)
--------- ---------- -------- --------- ------- ---------- -----------
Balance at September 30, 1997 105,800 10,041,629 (809,272) 6,377,093 77,007 (1,581,918) 14,210,339
Repurchase of 47,700 shares of common stock -- -- -- -- -- (827,979) (827,979)
Tax benefit from stock related compensation -- 13,507 -- -- -- -- 13,507
Stock options exercised (2,116 shares) -- -- -- -- -- 24,863 24,863
3,386 MSBP shares forfeited -- -- 41,732 -- -- (41,732) --
ESOP shares committed to be released -- 28,088 45,715 -- -- -- 73,803
MSBP shares vested -- -- 51,114 -- -- -- 51,114
Change in net unrealized gain (loss) on securities 130,605
available-for-sale -- -- -- -- 130,605
Net income -- -- -- 712,400 -- -- 712,400
Cash dividends declared ($.40 per share) -- -- -- (352,923) -- -- (352,923)
--------- ---------- -------- --------- ------- ---------- -----------
Balance at September 30, 1998 $ 105,800 10,083,224 (670,711) 6,736,570 207,612 (2,426,766) 14,035,729
========= ========== ======== ========= ======= ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-15-
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 712,400 690,895
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 18,000 --
Amortization of:
Premiums and discounts on securities
held-to-maturity, net 4,777 5,673
Premiums and discounts on securities
available-for-sale, net 5,685 7,822
Federal Home Loan Bank stock dividend (67,100) (38,600)
Depreciation 51,037 65,675
Loss (gain) on sale of securities (3,417) 7,875
Dividends reinvested (31,291) (2,060)
Deferred loan origination fees, net 6,793 5,623
Loss on sale of premises and equipment 2,877 3,542
ESOP shares committed to be released 73,803 59,950
MSBP compensation expense 51,114 59,461
Change in:
Accrued interest receivable 20,323 (63,032)
Other assets 13,398 (12,854)
Income taxes payable (193,700) 140,150
Deferred income taxes 41,585 (39,208)
Accrued expenses and other liabilities 73,455 (154,108)
------------ ------------
Net cash provided by operating activities 779,739 736,804
------------ ------------
Cash flows from investing activities:
Purchases of securities available-for-sale (25,352,022) (17,384,000)
Proceeds from maturities, calls and prepayments of
securities available-for-sale 18,118,582 5,627,186
Proceeds from sales of securities available-for-sale 1,979,955 6,169,448
Purchases of securities held-to-maturity -- (410,000)
Proceeds from maturities and calls of securities
held-to-maturity 5,066,702 1,697,797
Purchase of Fedeal Home Loan Bank stock (48,500) (363,000)
Origination of loans receivable (11,542,319) (10,005,257)
Repayment of principal on loans receivable 10,167,523 7,222,174
Purchases of premises and equipment (8,129) (10,485)
------------ ------------
Net cash used in investing activities (1,618,208) (7,456,137)
------------ ------------
Cash flows from financing activities:
Net increase in deposits 3,406,777 135,358
Advances from Federal Home Loan Bank 11,650,000 14,800,000
Repayment of advances from Federal Home Loan Bank .. (12,700,000) (5,213,438)
Net change in advances from borrowers for taxes
and insurance 10,050 961
Exercise of stock options 24,863 --
Repurchase of common stock (827,979) (1,879,222)
Dividends paid to stockholders (357,482) (381,996)
------------ ------------
Net cash provided by financing activities 1,206,229 7,461,663
------------ ------------
Net increase in cash and cash equivalents 367,760 742,330
Cash and cash equivalents at beginning of year 1,193,775 451,445
------------ ------------
Cash and cash equivalents at end of year $ 1,561,535 1,193,775
============ ============
Cash paid during the year for:
Interest $ 2,416,000 1,474,000
Income taxes 494,000 241,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-16-
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
(1) Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the accounts
of Crazy Woman Creek Bancorp Incorporated (the Holding Company) and its
wholly-owned subsidiary, Buffalo Federal Savings Bank (BFSB). The Holding
Company and BFSB are herein referred to collectively as "the Company."
All significant intercompany balances and transactions have been
eliminated in consolidation.
BFSB provides services to customers in the Buffalo, Wyoming area. BFSB
offers a variety of deposit products to its customers while concentrating
its lending activities on real estate loans. These real estate lending
activities focus primarily on the origination of loans secured by one- to
four-family residential real estate but also include the origination of
multi-family, commercial real estate and home equity loans. BFSB is
subject to competition from other financial service providers and is also
subject to the regulations of certain federal and state agencies and
undergoes periodic examinations by those regulatory authorities.
Basis of Presentation
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and income and expenses
for the period. Actual results could differ significantly from those
estimates.
Material estimates that are particularly susceptible to significant
change in the near-term relate to the determination of the allowance for
loan losses. Management believes that the allowance for loan losses is
adequate, however, future additions to the allowance may be necessary
based on changes in factors affecting the borrowers' ability to repay. In
addition, various regulatory agencies, as an integral part of their
examination process, periodically review the allowance for loan losses.
Such agencies may require BFSB to recognize additions to the allowance
based on their judgments about information available to them at the time
of their examination.
Conversion to Stock Ownership
Crazy Woman Creek Bancorp Incorporated was formed in December 1995, and
is the holding company and owner of 100 percent of the common stock of
BFSB, a federally chartered stock savings bank. On March 29, 1996, BFSB
completed its conversion from a mutual to a federally-chartered capital
stock savings bank at which time the Holding Company issued 1,058,000
shares of common stock at $10 per share realizing $9,491,809 after
deducting stock offering expense of $448,191. The Employee Stock
Ownership Plan (the ESOP) borrowed $640,000 from the Holding Company to
purchase 64,000 of these shares. The Holding Company contributed
$5,065,904 of the net offering proceeds to BFSB.
Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
cash, daily interest demand deposits, amounts due from banks and
interest-bearing deposits with banks with original maturities of three
months or less to be cash equivalents.
-17- (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
Investment and Mortgage-Backed Securities
Investment and mortgage-backed securities available-for-sale include securities
that management intends to use as part of its overall asset/liability management
strategy and that may be sold in response to changes in interest rates and
resultant prepayment risk and other related factors. Securities
available-for-sale are carried at fair value and unrealized gains and losses
(net of related tax effects) are excluded from earnings and reported as a
separate component of stockholders' equity. Investment securities and
mortgage-backed securities, other than those designated as available-for-sale or
trading, are comprised of debt securities for which the Company has positive
intent and ability to hold to maturity and are carried at cost. Management
determines the appropriate classification of investment and mortgage-backed
securities as either available-for-sale or held-to-maturity at the purchase
date.
The carrying value of debt securities held-to-maturity is adjusted for
amortization of premiums and accretion of discounts using the level-yield method
over the estimated lives of the securities. Upon realization, gains and losses
from the sale of securities are included in earnings using the specific
identification method.
Stock in Federal Home Loan Bank Member institutions of the Federal Home Loan
Bank (FHLB) System are required to hold common stock of its district FHLB
according to predetermined formulas. FHLB provides a source of borrowed funds
for its member institutions which are secured by this FHLB stock.
Loans Receivable
Loans receivable are stated at unpaid principal balances, less net deferred loan
origination fees. Loans are placed on nonaccrual status when collection of
principal or interest is considered doubtful (generally loans past due 90 days
or more). Interest income previously accrued on these loans, but not yet
received, is reversed in the current period. Interest subsequently recovered is
credited to income in the period collected.
The allowance for loan losses is based on management's evaluation of the
adequacy of the allowance, including an assessment of known and inherent risks
in the portfolio, review of individual loans for adverse situations that may
affect the borrower's ability to repay, the estimated value of any underlying
collateral, and consideration of current economic conditions.
Additions to the allowance arise from charges to operations through the
provision for loan losses or from the recovery of amounts previously charged
off. The allowance is reduced by loan charge-offs. Loans are charged off when
management believes there has been permanent impairment of their carrying
values.
The Company also provides an allowance for losses on specific loans which are
deemed to be impaired. Groups of small balance homogeneous basis loans
(generally the Company's consumer loans) are evaluated for impairment
collectively. A loan is considered impaired when, based upon current information
and events, it is probable that the Company will be unable to collect, on a
timely basis, all principal and interest according to the contractual terms of
the loan's original agreement. When a specific loan is determined to be
impaired, the allowance for possible loan losses is increased through a charge
to expense for the amount of the impairment. For all non-consumer loans,
impairment is measured based on the value of the underlying collateral. The
value of the underlying collateral is determined by reducing the
-18- (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
collateral's estimated current value by anticipated selling costs. The Company
recognizes interest income on impaired loans only to the extent that cash
payments are received.
Loan Origination Fees and Related Costs
Loan origination fees and certain direct loan origination costs are deferred,
and the net fee or cost is recognized as interest income using the level-yield
method over the contractual life of the loans, adjusted for prepayments based on
actual prepayment experience. Amortization of deferred loan origination fees and
costs are suspended during periods in which the related loan is on nonaccrual
status.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using straight-line and accelerated methods over the
estimated useful lives of 39 years for the building and 5 to 7 years for
furniture, fixtures and equipment.
Long-Lived Assets
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or circumstances indicate the carrying amount of the
asset may not be recoverable. An impairment loss is recognized if the sum of the
expected future cash flows is less than the carrying amount of the asset. No
assets were identified as impaired as of September 30, 1998 or 1997.
Income Taxes
The Holding Company and BFSB have elected to file separate Federal income tax
returns.
Deferred tax assets and liabilities are recognized for the estimated future
consequences attributable to differences between the financial statement
carrying amounts of assets and liabilities and their respective tax bases. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in tax expense in the period that includes the enactment date.
Stock-Based Compensation
Compensation cost for stock-based compensation to employees is measured at the
grant date using the intrinsic value method. Under the intrinsic value method,
compensation cost is the excess of the market price of the stock at the grant
date over the amount an employee must pay to ultimately acquire the stock and is
recognized as compensation expense over any related service period.
Net Income Per Share
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share." SFAS No. 128 revises the manner in which earnings per
share (EPS) is calculated by replacing the presentation of primary and fully
diluted EPS with a presentation of basic and diluted EPS. Fiscal 1998 EPS have
been presented in accordance with SFAS No. 128 and all prior periods presented
have been restated to conform with SFAS No. 128.
-19- (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
Basic earnings per common share is calculated by dividing net income by the
weighted average number of common shares outstanding during the period less
unvested management stock bonus plan and unallocated ESOP shares. Diluted
earnings per common share is calculated by dividing net income by the weighted
average number of common shares used to compute basic EPS plus the incremental
amount of potential common stock determined by the treasury stock method.
Reclassifications
Certain reclassifications have been made to the fiscal 1997 financial statements
to conform with the fiscal 1998 presentation.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, "Reporting Comprehensive Income" which the Company will be required to
adopt on October 1, 1998. SFAS No. 130 requires companies to report
comprehensive income. Comprehensive income will include net income, as well as
other changes in stockholders' equity that result from transactions and economic
events other than those with stockholders. The Company's only significant
element of comprehensive income is unrealized gains and losses on
available-for-sale securities.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Management of the Company is currently assessing the effect, if any, on its
financial statements of implementing SFAS No. 133. The Company will be required
to adopt the standard on October 1, 1999.
(2) Investment and Mortgage-Backed Securities Available-for-Sale
The amortized cost, unrealized gains and losses, and estimated fair values of
investment and mortgage-backed securities available-for-sale at September 30 are
as follows:
Gross Gross Estimated
Amortized unrealized unrealized fair
1998 cost gains losses value
----------------------------------------------------
U.S. agency obligations $ 16,286,927 168,270 -- 16,455,197
Municipal securities 1,084,511 13,732 -- 1,098,243
Mutual funds 1,032,100 68,120 -- 1,100,220
Mortgage-backed securities:
GNMA certificates 2,744,944 24,669 (729) 2,768,884
FHLMC certificates 872,359 33,903 - 906,262
REMIC certificates 2,299,974 9,114 (2,515) 2,306,573
------------ ------------ ---------- -----------
5,917,277 67,686 (3,244) 5,981,719
------------ ------------ ---------- -----------
$ 24,320,815 317,808 (3,244) 24,635,379
============ ============ ========== ===========
-20- (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
Gross Gross Estimated
Amortized unrealized unrealized fair
1997 cost gains losses value
--------------------------------------------------
U.S. agency obligations $ 11,501,113 56,109 (5,776) 11,551,446
Mutual funds 601,310 58,592 -- 659,902
Mortgage-backed securities:
GNMA certificates 2,354,571 7,683 (9,349) 2,352,905
FHLMC certificates 2,021,778 7,945 (2,309) 2,027,414
REMIC certificates $ 2,559,535 4,448 (666) 2,563,317
------------- --------- ---------- ------------
6,935,884 20,076 (12,324) 6,943,636
------------- --------- ---------- ------------
$ 19,038,307 134,777 (18,100) 19,154,984
============= ========= ========== ============
The REMICs consist of seven certificates which are backed by the FNMA or the
FHLMC.
Maturities of securities available-for-sale (other than equity securities) at
September 30, 1998 are shown below. Mortgage-backed securities are included in
this maturity schedule based on current estimates of their expected average
lives.
Estimated
Amortized Fair
Cost Value
------------ -----------
Due within one year $ 12,743,659 12,833,879
Due after one year through five years 6,612,932 6,725,576
Due after five years through ten years 3,427,612 3,459,585
Due after ten years 504,512 516,119
------------- -----------
$ 23,288,715 23,535,159
============= ===========
Gross realized gains on the sale of investment and mortgage-backed securities
available-for-sale were $3,417 during the year ended September 30, 1998. Gross
realized gains and losses on the sale of investment and mortgage-backed
securities available-for-sale were $2,481 and $10,356, respectively, during the
year ended September 30, 1997.
The Company has not entered into any interest rate swaps, options or future
contracts. All of the U.S. agency obligations and municipal securities at
September 30, 1998 have call features.
-21- (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
(3) Investment and Mortgage-Backed Securities Held-to-Maturity
The amortized cost, unrealized gains and losses, and estimated fair
values of investment and mortgage-backed securities held-to-maturity at
September 30 are summarized as follows:
Gross Gross Estimated
Amortized unrealized unrealized fair
1998 cost gains losses value
---------------------------------------------------
U.S. agency obligations $ 845,000 3,888 -- 848,888
Municipal securities 571,632 12,162 (1) 583,793
Mortgage-backed securities:
FNMA certificates 542,469 14,270 -- 556,739
GNMA certificates 996,320 28,545 -- 1,024,865
FHLMC certificates 982,275 24,831 -- 1,007,106
----------- ----------- ---------- -----------
2,521,064 67,646 -- 2,588,710
----------- ----------- ---------- -----------
$ 3,937,696 83,696 (1) 4,021,391
=========== =========== ========== ============
Gross Gross Estimated
Amortized unrealized unrealized fair
1997 cost gains losses value
-------------------------------------------------
U.S. agency obligations $ 4,742,420 8,178 (22,416) 4,728,182
Municipal securities 622,609 6,024 (658) 627,975
Mortgage-backed securities:
FNMA certificates 722,409 19,363 -- 741,772
GNMA certificates 1,392,151 37,731 -- 1,429,882
FHLMC certificates 1,529,586 10,392 (953) 1,539,025
----------- ------------ ----------- -----------
3,644,146 67,486 (953) 3,710,679
----------- ------------ ----------- -----------
$ 9,009,175 81,688 (24,027) 9,066,836
=========== =========== =========== ===========
Maturities of securities held-to-maturity at September 30, 1998 are shown below.
Mortgage-backed securities are included in this maturity schedule based on
current estimates of their expected average lives.
Estimated
Amortized Fair
Cost Value
---------- ----------
Due within one year $ 480,000 480,748
Due after one year through five years 3,457,696 3,540,643
---------- ----------
$ 3,937,696 4,021,391
========== ==========
-22- (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
No gains or losses were realized on the sale of investment and mortgage-backed
securities held-to-maturity during the years ended September 30, 1998 and 1997.
Amortized cost of the securities sold in fiscal 1998 and 1997 was approximately
$500,000 and $650,000, respectively. Such sales were appropriately considered
maturities for purposes of classification on the statements of cash flows.
Municipal securities with an amortized cost of $201,633 and a market value of
$207,857 have call features.
(4) Loans Receivable, Net
Loans receivable, net at September 30 are summarized as follows:
1998 1997
---------- -----------
Real estate mortgage loans, including commercial
real estate $ 26,233,858 24,415,049
Consumer loans 1,647,654 1,695,977
Home equity loans 1,465,238 1,652,850
Agricultural loans 900,963 847,667
Commercial loans 109,437 252,744
Savings account and other loans 341,622 319,837
----------- ----------
30,698,772 29,184,124
Less:
Loans in process 271,388 95,214
Allowance for loan losses 283,757 302,079
Net deferred loan origination fees 157,404 150,611
-----------------------
$ 29,986,223 28,636,220
========== ===========
Adjustable rate mortgages included in the loans receivable balance above were
approximately $113,000 and $217,000 at September 30, 1998 and 1997,
respectively.
Real estate loans serviced for others were approximately $74,000 and $77,000 at
September 30, 1998 and 1997, respectively.
First mortgage loans pledged as collateral for public funds or for other funds
on deposit with BFSB approximated $6,338,000 and $5,098,000 at September 30,
1998 and 1997, respectively.
A summary of activity in the allowance for loan losses is as follows:
1998 1997
-------- ---------
Balance at beginning of year $ 302,079 275,588
Provision 18,000 --
Losses charged against the allowance (50,674) (4,108)
Recoveries of amounts previously charged off 14,352 30,599
------- ---------
Balance at end of year $ 283,757 302,079
======= =========
-23- (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
Renegotiated loans for which interest has been reduced totaled approximately
$21,000 and $52,000 at September 30, 1998 and 1997, respectively. The resulting
impact on interest income is nominal.
BFSB is not committed to lend additional funds to debtors whose loans have been
modified. BFSB's impaired loans, which include those loans currently reported as
nonaccrual, amounted to approximately $256,000 and $225,000 at September 30,
1998 and 1997, respectively, and were not subject to a specific allowance for
loan losses because of the estimated net realizable value of loan collateral,
guarantees and other factors.
(5) Accrued Interest Receivable
Accrued interest receivable at September 30 is summarized as follows:
1998 1997
-------- ----------
Investment securities $ 268,639 285,597
Mortgage-backed securities 46,132 56,088
Loans receivable 223,688 217,097
-------- ----------
$ 538,459 558,782
======== ==========
(6) Premises and Equipment
Premises and equipment at September 30 is summarized as follows:
1998 1997
-------- ----------
Land and building $ 502,078 507,395
Furniture, fixtures and equipment 324,721 418,048
-------- ----------
826,799 925,443
Less accumulated depreciation 429,261 482,120
-------- ----------
$ 397,538 443,323
======== ==========
(7) Deposits
Deposits at September 30 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
1998 weighted ------------------------- ------------------------
average rate Amount Percent Amount Percent
----------------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
NOW accounts and MMDA 3.00 to 4.75% $ 8,586,816 26.1% $ 7,213,639 24.4%
Passbook savings 3.75 to 3.92 3,898,287 11.8 3,710,601 12.6
Certificates of deposit, by
interest rate 4.01 to 5.00 1,300,661 4.0 225,789 .8
5.01 to 6.00 15,066,448 45.8 14,248,859 48.3
6.01 to 7.00 4,031,456 12.2 3,980,021 13.5
7.01 to 8.00 29,452 .1 127,434 .4
------------ ------- ---------- -------
20,428,017 62.1 18,582,103 63.0
------------ ------- ---------- -------
Total deposits 4.99% $ 32,913,120 100.0% $ 29,506,343 100.0%
============ ======= ========== =======
</TABLE>
-24- (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
Certificates of deposit and savings accounts of $100,000 or greater were
approximately $7,000,000 and $4,700,000 at September 30, 1998 and 1997,
respectively. Amounts in excess of $100,000 are not insured by a federal agency.
Certificates of deposit at September 30, 1998 are scheduled to mature as
follows:
Due in:
One year or less $ 15,633,771
Greater than one year through three years 4,578,964
Greater than three years through five years 215,282
------------
$ 20,428,017
============
Interest expense on deposits for the years ended September 30 is summarized as
follows:
1998 1997
------------ ------------
NOW accounts and MMDA $ 300,856 248,047
Certificates of deposit and savings 1,238,589 1,174,685
------------ ------------
$ 1,539,445 1,422,732
============ ============
Accrued interest payable on deposits (included in accrued expenses and other
liabilities) was approximately $146,000 and $115,000 at September 30, 1998 and
1997, respectively.
(8) Advances From Federal Home Loan Bank
Advances from the Federal Home Loan Bank at September 30 are summarized as
follows:
1998 1997
---------- ----------
5.45% to 6.38% Fixed Rate Advances, interest payable
monthly $ 12,350,000 14,700,000
4.77% to 5.39% Putable Advances, put option
exercisable quarterly, interest payable monthly
2,300,000 1,000,000
---------- ----------
$ 14,650,000 15,700,000
========== ==========
At September 30, 1998, BFSB had a Cash Management Advance note with a maximum
allowable advance of $3,023,000 maturing on June 10, 1999. There was no
outstanding balance as of September 30, 1998 or 1997. BFSB did receive advances
under the Cash Management Advance note of $1,750,000 and $1,400,000 during the
years ended September 30, 1998 and 1997, respectively which were fully repaid
prior to September 30, 1998 and 1997.
-25- (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
Principal payments on advances from Federal Home Loan Bank subsequent to
September 30, 1998 are as follows:
Year ending September 30 Amount
-----------
1999 $ 11,050,000
2000 400,000
2001 1,900,000
Thereafter 1,300,000
-----------
$ 14,650,000
===========
These advances are collateralized by the Federal Home Loan Bank stock held by
the Company.
The weighted average interest rate on these advances was 5.67% and 5.81% at
September 30, 1998 and 1997, respectively.
(9) Income Taxes
Federal income tax expense for the years ended September 30 is summarized as
follows:
1998 1997
----------- -----------
Current $ 313,622 381,034
Deferred 28,078 (39,208)
----------- -----------
Total $ 341,700 341,826
=========== ===========
Income tax expense for the years ended September 30 differs from "expected"
income tax expense (computed by applying the Federal corporate income tax rate
of 34% to income before income taxes) as follows:
1998 1997
---------- ----------
Computed "expected" tax expense $ 358,394 351,125
Decrease resulting from tax exempt interest (12,018) (9,669)
Other 4,676 370
---------- ---------
$ 341,700 341,826
========== =========
-26- (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
Temporary differences between the financial statement carrying amounts and the
tax bases of assets and liabilities that give rise to significant portions of
deferred tax assets and liabilities at September 30 are as follows:
1998 1997
--------- ---------
Deferred tax assets:
Deferred loan fees $ 14,311 26,514
Allowance for loan losses 96,478 102,707
--------- ---------
Gross deferred tax assets 110,789 129,221
--------- ---------
Deferred tax liabilities:
FHLB stock dividends 171,904 149,090
Tax bad debt reserve in excess of base year
amount 39,499 52,665
Prepaid deposit insurance premium 3,140 3,142
Unrealized gain on securities
available-for-sale, net 106,952 39,670
--------- ---------
Gross deferred tax liabilities 321,495 244,567
--------- ---------
Net deferred tax liability $ 210,706 115,346
========= =========
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the existence of, or generation of, taxable income in the periods
which those temporary differences are deductible. Management considers the
scheduled reversal of deferred tax liabilities, taxes paid in carryback years,
projected future taxable income, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and estimates of
future taxable income over the periods which the deferred tax assets are
deductible, at September 30, 1998 and 1997, management believes it is more
likely than not that the Company will realize the benefits of these deductible
differences.
Retained earnings at September 30, 1998 includes approximately $398,000 which is
essentially income offset by percentage of income bad debt deductions for income
tax purposes prior to 1988 (the "Base Year Reserve"). This amount is treated as
a permanent difference and deferred taxes are not recognized unless it appears
that the amount will be reduced and thereby result in taxable income in the
foreseeable future. Under current tax regulations, management does not foresee
any changes in its business or operations which would result in a recapture of
the Base Year Reserve into taxable income. A deferred tax liability has been
recognized by BFSB for the amount of the tax bad debt reserve in excess of the
Base Year Reserve. The August 1996 tax legislation also requires this excess to
be recaptured and included in taxable income over a six year period.
-27- (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
(10) Employee Benefit Plans
Retirement Plan. BFSB has a non-contributory defined contribution
retirement plan for all eligible employees. The retirement plan provides
for a discretionary Bank contribution. BFSB elected to make no
contribution to the retirement plan during the years ended September 30,
1998 and 1997.
Employee Stock Ownership Plan (ESOP). Effective January 1, 1996 the
Company's Board of Directors approved the adoption of an ESOP covering
substantially all employees. The ESOP purchased 64,000 shares of the
Holding Company's common stock for $10 per share in connection with the
conversion to stock ownership. The ESOP borrowed $640,000 from the
Holding Company to fund the purchase, evidenced by a note receivable
recorded by the Holding Company and secured by the common stock purchased
by the ESOP. The terms of the note require quarterly principal payments
of approximately $11,400, bearing interest at prime (8.50% at September
30, 1998 and 1997), maturing February 2010. Contributions of cash or
common stock are made from BFSB to the ESOP, the form of which is at the
discretion of the Board of Directors. For financial reporting purposes,
the unearned ESOP compensation is classified as a reduction of
consolidated stockholders' equity and amounts paid to the Holding Company
for interest have been eliminated in consolidation.
BFSB records compensation expense equal to the fair value of shares at
the date such shares are committed to be released. Shares are committed
to be released on a straight-line basis over the term of the note
receivable recorded by the Holding Company. Shares committed to be
released are allocated to participant accounts after the end of each
fiscal year. For the years ended September 30, 1998 and 1997, ESOP
principal and interest payments of approximately $93,000 and $96,000,
respectively, were funded by Bank contributions of approximately $67,000
and $70,000, respectively, to the ESOP. The remainder of the ESOP
payments was funded by dividends on both allocated and unallocated ESOP
shares. 4,571 shares were committed to be released to participant
accounts during each of the years ended September 30, 1998 and 1997 and
the fair value of the remaining shares to be released in future years was
approximately $618,000 at September 30, 1998. BFSB recognized
compensation expense relating to the ESOP of $71,049 and $59,950 during
the years ended September 30, 1998 and 1997, respectively. The dividends
on the unallocated ESOP shares are not recorded as cash dividends paid in
the consolidated statements of stockholders' equity.
Management Stock Bonus Plan (MSBP). On October 2, 1996, the Company's
Board of Directors approved the MSBP. The terms of the MSBP provide for
the award of up to 42,320 shares of common stock to certain officers and
directors. Deferred compensation is recorded at the date of the stock
award based on the fair value of the shares granted. Vesting in the grant
occurs in five equal, annual installments and the related deferred
compensation is expensed over the same period. For financial reporting
purposes the unearned deferred compensation balance is classified as a
reduction of consolidated stockholders' equity. Officers, directors and
employees awarded shares retain voting rights and, if dividends are paid,
dividend privileges during the vesting period. During the year ended
September 30, 1997, BFSB purchased 42,320 shares for the MSBP. On October
2, 1996, 24,122 shares were granted to officers and directors. During the
year ended September 30, 1998, 3,386 of unvested shares were forfeited.
BFSB recognized compensation expense for the MSBP of $51,114 and $59,461
for the years ended September 30, 1998 and 1997, respectively.
-28- (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
Stock Option Plan. On October 2, 1996, the Company's Board of Directors approved
the Stock Option Plan ("Stock Option Plan"). The terms of the Stock Plan provide
for the granting of up to 105,800 shares of common stock to certain officers and
directors. The Stock Option Plan provides for the granting of both incentive and
non-incentive stock options. The terms of the options may not exceed 10 years
from the date the options are granted. Incentive stock options granted to
stockholders with more than 10% of the total combined voting power of all
classes of stock of the Company shall be granted at an option price of not less
than 110% of the fair market value at the grant date, and the term of the option
may not exceed 5 years from the date of the grant.
Changes in shares issuable under options granted for the years ended September
30, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------------------ -----------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
-------------- --------------- ---------- ----------
<S> <C> <C> <C> <C>
Balance September 30, 1996 - $ - - $ -
Granted 74,060 11.75 - -
---------- --------- ---------- ---------
Balance September 30, 1997 74,060 11.75 - -
Became exercisable - - 5,289 11.75
Granted 2,116 13.25 - -
Exercised (2,116) (11.75) (2,116) (11.75)
Canceled (8,464) (11.75) - -
---------- --------- ---------- ---------
Balance September 30, 1998 65,596 $ 11.80 3,173 $ 11.75
========== ========= ========== =========
</TABLE>
The per share weighted-average fair value of stock options granted during 1998
and 1997 was $2.55 and $2.05, respectively, determined on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
1998 expected dividend yield of 4%, risk-free interest rate of 4.73%, volatility
ratio of .21, and expected life of 10 years; 1997 expected dividend yield of 4%,
risk-free interest rate of 6.10%, volatility ratio of .13, and an expected life
of 10 years.
-29- (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
The Company applies Accounting Principles Bulletin Opinion No. 25 in accounting
for its grants of options and no compensation cost has been recognized for its
stock options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options as determined above, the Company's net income and net income per share
for the years ended September 30, 1998 and 1997 would have been as follows:
1998 1997
--------- ---------
Net income: As reported $ 712,400 690,895
Pro forma 690,785 665,121
========= =========
Basic earnings per share: As reported $ .79 .73
Proforma .77 .71
========= =========
Diluted earnings per share: As reported .77 .73
Pro forma .75 .70
========= =========
Severance Agreements. Effective April 1996, BFSB entered into severance
agreements with its executive officers. Such agreements have a term of three
years and provide for payments to be made to the officers equal to three times
average annual salary for the previous five years, in the event BFSB experiences
a change in control. A change in control is defined as (1) a sale of more than
25% of the assets of BFSB or the Holding Company; (2) any merger or
recapitalization whereby BFSB or the Holding Company is not the surviving
entity; (3) a change in control as determined by the OTS; or (4) acquisition
directly or indirectly of 25% or more of the voting stock of BFSB or the Holding
Company by an individual, entity or group.
(11) Earnings Per Share
The following table sets forth the compilation of basic and diluted earnings per
share for the years ended September 30:
<TABLE>
<CAPTION>
1998 1997
-------- ----------
<S> <C> <C>
Number of shares on which basic earnings per share is calculated:
Average outstanding shares during the fiscal year 901,151 943,028
Add: Incremental shares under stock option plans 18,505 7,456
Incremental shares related to MSBP 3,449 1,415
-------- ----------
Number of shares on which diluted earnings per share is calculated
923,105 951,974
======== ==========
Net income applicable to common stockholders $ 712,400 690,895
======== ==========
Basic earnings per share $ .79 .73
======== ==========
Diluted earnings per share $ .77 .73
======== ==========
</TABLE>
-30- (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
(12) Regulatory Capital
BFSB is required to meet three capital requirements: a tangible capital
requirement equal to not less than 1.5% of tangible assets (as defined in the
regulations), a core capital requirement, comprised of tangible capital adjusted
for supervisory goodwill and other defined factors, equal to not less than 3.0%
of tangible assets, and a risk-based capital requirement equal to at least 8.0%
of all risk-weighted assets. For risk-weighting, selected assets are given a
risk assignment of 0% to 100%. BFSB's total risk-weighted assets at September
30, 1998 and 1997 were approximately $26,119,000 and $24,347,000, respectively.
The following table presents, as of September 30, the extent to which BFSB
exceeds, in dollars and percent, the minimum capital requirements:
<TABLE>
<CAPTION>
Regulatory Capital
(dollars rounded to thousands)
-------------------------------------------------------
1998
Approximate
Actual Requirement Excess
----------------- ------------------- ------------
<S> <C> <C> <C>
Tangible capital:
Dollar amount $ 11,601,000 914,000 10,687,000
Percentage of tangible assets 19.1% 1.5% 17.6%
Core capital:
Dollar amount $ 11,601,000 1,825,000 9,776,000
Percent of adjusted tangible assets
19.1% 3.0% 16.1%
Risk-based capital:
Dollar amount $ 11,884,000 2,090,000 9,794,000
Percent of risk-weighted assets 45.5% 8.0% 37.5%
</TABLE>
<TABLE>
<CAPTION>
Regulatory Capital
(dollars rounded to thousands)
-------------------------------------------------------
1997
Approximate
Actual Requirement Excess
----------------- ------------------- ------------
<S> <C> <C> <C>
Tangible capital:
Dollar amount $ 10,794,000 889,000 9,905,000
Percentage of tangible assets 18.2% 1.5% 16.7%
Core capital:
Dollar amount $ 10,794,000 1,777,000 9,017,000
Percent of adjusted tangible assets
18.2% 3.0% 15.2%
Risk-based capital:
Dollar amount $ 11,096,000 1,948,000 9,148,000
Percent of risk-weighted assets 45.6% 8.0% 37.6%
</TABLE>
-31- (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
Failure to comply with applicable regulatory capital requirements can result in
capital directives from the director of the Office of Thrift Supervision (OTS),
restrictions on growth, and other limitations on a savings bank's operations.
Consolidated stockholders' equity differs from BFSB's tangible, core, and
risk-based capital at September 30 as a result of the following (dollars rounded
to thousands):
1998 1997
----------- ----------
Consolidated stockholders' equity $ 14,036,000 14,210,000
Holding Company net assets (2,272,000) (3,378,000)
----------- ----------
BFSB capital 11,764,000 10,832,000
Unrealized gains on certain available-for-sale
securities (163,000) (38,000)
----------- ----------
Tangible and core capital 11,601,000 10,794,000
Allowance for loan losses (limited to 1.25% of
risk-weighted assets) 283,000 302,000
----------- ----------
Risk-based capital $ 11,884,000 11,096,000
=========== ==========
In accordance with OTS regulations, at the time of conversion, BFSB restricted a
portion of retained earnings by establishing a liquidation account. The
liquidation account will be maintained for the benefit of eligible holders who
continue to maintain their accounts in BFSB after the conversion. The
liquidation account will be reduced annually to the extent that eligible account
holders have reduced their qualifying deposits. Subsequent increases will not
restore an eligible account holder's interest in the liquidation account. In the
event of a complete liquidation of BFSB, and only in such an event, each account
holder will be entitled to receive a distribution from the liquidation account
in an amount proportionate to the adjusted qualifying account balances then
held.
In addition, savings banks that before and after proposed dividend distributions
meet or exceed their fully phased-in capital requirements, may make capital
distributions with prior notice to the OTS during any calendar year up to 100%
of year-to-date net income plus 50% of the amount in excess of their fully
phased-in capital requirements as of the beginning of the calendar year.
However, the OTS may impose greater restrictions if an institution is deemed to
be in need of more than normal supervision. BFSB currently exceeds its fully
phased-in capital requirements and has been assessed as "well-capitalized" under
the regulatory guidelines.
(13) Financial Instruments With Off-Balance-Sheet Risk
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and involve, to varying degrees, elements of credit risk.
-32- (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Company uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.
Financial instruments outstanding at September 30, 1998 whose contract amounts
represent credit risk are fixed-rate commitments to extend credit totaling
approximately $821,000. These commitments generally contain a termination date
of 30 days from the date the commitment is approved.
(14) Fair Value of Financial Instruments
The Company is required to disclose the fair value of financial
instruments, whether recognized or not recognized on the balance sheet. A
financial instrument is defined as cash, evidence of an ownership
interest in an entity, or a contract that both imposes a contractual
obligation on one entity to deliver cash or another financial instrument
to a second entity.
Quoted market prices are used for fair value when available, but do not
exist for some of the Company's financial instruments, primarily loans,
time deposits and FHLB advances. The fair value of these instruments has
been derived from the OTS Net Portfolio Value Model (OTS Model). The OTS
Model primarily employs the static discounted cash flow method which
estimates the fair value of loans and time deposits by discounting the
cash flows the instruments are expected to generate by the yields
currently available to investors on instruments of comparable risk and
duration. Therefore, to calculate present value, the OTS Model makes
assumptions about the size and timing of expected cash flows and
appropriate discount rates. Different assumptions could materially change
these instruments' estimated values.
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
Financial Assets. Due to the liquid nature of the instruments, the
carrying value of cash and cash equivalents and interest-bearing
deposits approximates fair value. For all investment and
mortgage-backed securities, the fair value is based upon quoted
market prices. The fair value of loans receivable was obtained
from the OTS Model. The fair value of accrued interest receivable
approximates book value as the Company expects contractual receipt
in the short-term. The fair value of FHLB stock approximates
redemption value.
Financial Liabilities. The fair value of NOW and demand accounts
and non-term savings deposits approximates book values as these
deposits are payable on demand. The fair value of time deposits
was obtained from the OTS Model. The fair value of FHLB advances
was obtained from the OTS Model. The fair value of accrued
expenses and other liabilities approximates book value as the
Company expects payment in the short-term.
Off-Balance Sheet. Commitments made to extend credit represent
commitments for loan originations, the majority of which are
contracted for immediate sale and therefore no fair value
adjustment is necessary.
-33- (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
Limitations. Fair value estimates are made at a specific point in
time, based on relevant market information and information about
the financial instrument. These estimates do not reflect any
premium or discount that could result from offering for sale at
one time the Company's entire holdings of a particular instrument.
Because no market exists for a portion of the Company's financial
instruments, fair value estimates are based on judgments regarding
comparable market interest rates, future expected loss experience,
current economic conditions, risk characteristics of various
financial instruments, and other factors. These estimates are
subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on existing on- and
off-balance-sheet financial instruments without attempting to
estimate the value of anticipated future business and the value of
assets and liabilities that are not considered financial
instruments. Significant assets and liabilities that are not
considered financial instruments include deferred tax assets and
liabilities and premises and equipment. In addition, the tax
effect of the difference between the fair value and carrying value
of financial instruments can have a significant effect on fair
value estimates and have not been considered in the estimates
presented herein.
The approximate book value and fair value of the Company's financial instruments
as of September 30 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------------------- ------------------------------------
Book value Fair value Book value Fair value
----------------- ------------------ ------------------ ---------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 1,562,000 1,562,000 1,194,000 1,194,000
Interest-bearing deposits 99,000 99,000 99,000 99,000
Investment and mortgage-backed
securities
available-for-sale 24,635,000 24,635,000 19,155,000 19,155,000
Investment and mortgage-backed
securities held-to-maturity
3,938,000 4,021,000 9,009,000 9,067,000
Stock in Federal Home Loan Bank
917,000 917,000 802,000 802,000
Loans receivable, net 29,986,000 28,144,000 28,636,000 28,997,000
Accrued interest receivable 538,000 538,000 559,000 559,000
Liabilities:
Deposits 32,913,000 33,060,000 29,506,000 29,514,000
Advances from Federal Home
Loan Bank 14,650,000 14,713,000 15,700,000 15,685,000
Accrued expenses and other
liabilities 189,000 189,000 115,000 115,000
============ =============== =============== ===============
</TABLE>
-34- (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
(15) Holding Company Information (Condensed)
The summarized financial information for Crazy Woman Creek Bancorp
Incorporated is presented below. Intercompany balances and transactions
are noted parenthetically.
Condensed Balance Sheets
<TABLE>
<CAPTION>
September 30,
------------------------------------
1998 1997
------------ ----------
Assets
------
<S> <C> <C>
Cash (NOW account with BFSB) $ 68,486 89,864
Investment in subsidiary 12,029,599 11,056,696
Loan to BFSB 674,000 2,174,000
Loan to ESOP 525,714 571,429
Investment securities available-for-sale - mutual funds 1,100,220 659,902
Income taxes receivable 10,800 -
Other assets 11,809 1,333
------------- ------------
Total assets $ 14,420,628 14,553,224
============= ============
Liabilities and Stockholders' Equity
Income taxes payable $ - 1,200
Deferred tax liability 23,161 19,921
Dividends payable 90,926 95,485
Other liabilities 4,801 2,000
Stockholders' equity:
Common stock 105,800 105,800
Additional paid-in capital 10,083,224 10,041,629
Unearned ESOP/MSBP shares (670,711) (809,272)
Retained earnings 6,736,570 6,377,093
Unrealized gain on securities available-for-sale, net 207,612 77,007
Treasury stock (2,160,755) (1,357,639)
------------- ------------
Total stockholders' equity 14,301,740 14,434,618
------------- ------------
Total liabilities and stockholders' equity $ 14,420,628 14,553,224
============= ============
</TABLE>
BFSB has acquired 21,584 shares of Holding Company common stock which is
reflected as treasury stock in the accompanying consolidated financial
statements.
-35- (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
Condensed Statements of Income
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------
1998 1997
---------- -------------
<S> <C> <C>
Dividends on mutual funds $ 31,290 2,060
Interest income (ESOP loan and loan to BFSB) 134,460 245,041
Management fee to BFSB (27,600) (27,600)
Other operating expenses (36,822) (54,208)
--------- ----------
Income before equity in undistributed earnings of subsidiary and
income taxes 101,328 165,293
Equity in undistributed earnings of subsidiary 645,572 581,702
--------- ----------
Income before income taxes 746,900 746,995
Income taxes 34,500 56,100
--------- ----------
Net income $ 712,400 690,895
========= ==========
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Cash flows
Year Ended September 30,
-----------------------------
1998 1997
-------------- ------------
<S> <C> <C>
Net income $ 712,400 690,895
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed earnings of subsidiary (645,572) (581,702)
Dividends reinvested (31,290) (2,060)
Decrease in income taxes (9,500) (3,400)
Increase in other liabilities 301 2,000
Increase on other assets (10,476) (1,333)
--------- ----------
Net cash provided by operating activities 15,863 104,400
--------- ----------
Cash flows from investing activities:
Principal payments on loan to BFSB 1,500,000 2,250,000
Principal payments on ESOP note receivable 45,715 45,714
Investment in mutual funds (399,500) (599,250)
--------- ----------
Net cash provided by investing activities 1,146,215 1,696,464
--------- ---------
Cash flows from financing activities:
Repurchase of common stock (827,979) (1,357,639)
Exercise of stock options 24,863 -
Cash dividends paid (380,340) (407,594)
------------ -------------
Net cash used in financing activities (1,183,456) (1,765,233)
------------ -------------
Net increase (decrease) in cash (21,378) 35,631
Cash at beginning of year 89,864 54,233
------------ -------------
Cash at end of year $ 68,486 89,864
============= =============
</TABLE>
-36-
<PAGE>
Corporate Office
Crazy Woman Creek Bancorp Incorporated and Buffalo Federal Savings Bank
106 Fort Street
Buffalo, Wyoming 82834-1889
(307) 684-5591
Board of Directors of Crazy Woman Creek Bancorp Incorporated
Richard Reimann Greg L. Goddard
Chairman of the Board
Deane D. Bjerke Douglas D. Osborn
Thomas J. Berry Sandra K. Todd
Executive Officers
Deane D. Bjerke Arnold R. Griffith, Jr.
President and Chief Executive Officer Senior Vice President
John B. Snyder
Vice President and Chief Financial Officer
Professional Advisors
Corporate Counsel Special Counsel
Kirven and Kirven Mailzia, Spidi, Sloane & Fisch, P.C.
104 Fort Street One Franklin Square
Buffalo, WY 82834 1301 K Street, N.W., Suite 700 East
Washington, D.C. 20005
Independent Auditors Transfer Agent and Registrar
KPMG Peat Marwick LLP American Securities Transfer & Trust
1000 First Interstate Center Incorporated
401 North 31st Street 1825 Lawrence Street, Suite 444
Billings, MT 59103 Denver, CO 80202
Form 10-KSB
Crazy Woman Creek Bancorp Incorporated's Annual Report for the year ended
September 30, 1998 filed with the Securities and Exchange Commission on Form
10-KSB, excluding exhibits, is available without charge upon written request.
For a copy of the Form 10-KSB or any other investor information, please write or
call the Corporate Secretary at the Company's Corporate Office in Buffalo,
Wyoming. The Annual Meeting of Stockholders will be held on January 20, 1999 at
3:00 p.m. at the Company's main office located at 106 Fort Street, Buffalo,
Wyoming.
EXHIBIT 23
<PAGE>
KPMG Peat Marwick LLP
1000 First Interstate Center
401 N. 31st Street
P.O. Box 7108
Billings, MT 59103
Independent Accountants' Consent
--------------------------------
The Board of Directors
Crazy Woman Creek Bancorp Incorporated
We consent to incorporation by reference in the registration statement (No.
333-53543) of Crazy Woman Creek Bancorp Incorporated of our report dated October
23, 1998 relating to the consolidated balance sheets of Crazy Woman Creek
Bancorp Incorporated and subsidiary as of September 30, 1998 and 1997 and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years then ended, which report appears in the September 30, 1998 annual
report on Form 10-KSB of Crazy Woman Creek Bancorp Incorporated.
/s/KPMG Peat Marwick LLP
Billings, Montana
November 15, 1998
Member Firm of
KPMG International
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF CRAZY WOMAN CREEK BANCORP
INCORPORATED FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 67
<INT-BEARING-DEPOSITS> 1,593
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,635
<INVESTMENTS-CARRYING> 3,938
<INVESTMENTS-MARKET> 4,021
<LOANS> 29,986
<ALLOWANCE> 284
<TOTAL-ASSETS> 62,154
<DEPOSITS> 32,913
<SHORT-TERM> 11,050
<LIABILITIES-OTHER> 555
<LONG-TERM> 3,600
0
0
<COMMON> 106
<OTHER-SE> 13,930
<TOTAL-LIABILITIES-AND-EQUITY> 62,154
<INTEREST-LOAN> 2,412
<INTEREST-INVEST> 1,884
<INTEREST-OTHER> 124
<INTEREST-TOTAL> 4,420
<INTEREST-DEPOSIT> 1,539
<INTEREST-EXPENSE> 2,448
<INTEREST-INCOME-NET> 1,973
<LOAN-LOSSES> 18
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 997
<INCOME-PRETAX> 1,054
<INCOME-PRE-EXTRAORDINARY> 1,054
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 712
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.77
<YIELD-ACTUAL> 3.28
<LOANS-NON> 256
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 302
<CHARGE-OFFS> 51
<RECOVERIES> 33
<ALLOWANCE-CLOSE> 284
<ALLOWANCE-DOMESTIC> 284
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
