SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from to
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Commission File No. 0-27714
Crazy Woman Creek Bancorp Incorporated
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(Exact name of registrant as specified in its charter)
Wyoming 83-0315410
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
106 Fort Street, Buffalo, Wyoming 82834
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(Address of principal executive offices)
(307) 684-5591
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(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Sections
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
Class: Common Stock, par value $.10 per share
Outstanding at April 17, 1998: 954,845
Transitional Small Business Disclosure Format (check one): Yes No X
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<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED
INDEX TO FORM 10-QSB
Page
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PART I FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Statements of Financial Condition at March 31,
1998 (unaudited) and September 30, 1997 (audited)................. 1
Consolidated Statements of Income for the three and six
months ended March 31, 1998 and 1997 (unaudited).................. 2
Consolidated Statements of Cash Flows for the six months
ended March 31, 1998 and 1997 (unaudited)......................... 3
Notes to Unaudited Interim Consolidated Financial
Statements........................................................ 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 8
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings.................................................15
Item 2. Changes in Securities.............................................15
Item 3. Defaults upon Senior Securities...................................15
Item 4. Submission of Matters to a Vote of Security Holders...............15
Item 5. Other Information.................................................16
Item 6. Exhibits and Reports on Form 8-K..................................16
SIGNATURES
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
----------- -------------
(unaudited) (audited)
(In Thousands)
<S> <C> <C>
Assets
Cash and cash equivalents ............................................... $ 1,135 $ 1,194
Interest-bearing time deposits .......................................... 99 99
Investment and mortgage-backed securities available-for-sale ............ 23,383 19,155
Investment and mortgage-backed securities held-to-maturity
(estimated market value of $6,255 in 1998 and $9,067 in 1997) ......... 6,188 9,009
Stock in Federal Home Loan Bank of Seattle, at cost ..................... 883 801
Loans receivable, net ................................................... 28,942 28,636
Accrued interest receivable ............................................. 588 559
Premises and equipment, net ............................................. 422 443
Other assets ............................................................ 41 56
-------- --------
Total assets ........................................................ $ 61,681 $ 59,952
======== ========
Liabilities and Stockholders' Equity
Liabilities
Deposits .............................................................. 30,628 29,507
Advances from Federal Home Loan Bank .................................. 16,050 15,700
Advances from borrowers for taxes and insurance ....................... 29 55
Federal income tax payable ............................................ 39 155
Deferred income taxes ................................................. 132 115
Dividends payable ..................................................... 95 95
Accrued expenses and other liabilities ................................ 161 115
-------- --------
Total liabilities ................................................... 47,134 45,742
-------- --------
Stockholders' equity
Preferred stock, par value $.10 per share, 2,000,000 shares authorized; $ -- $ --
none issued and outstanding
Common stock, par value $.10 per share, 5,000,000 shares authorized;
1,058,000 issued .................................................... 106 106
Additional paid-in surplus ............................................ 10,068 10,041
Unearned ESOP/MSBP shares ............................................. (757) (809)
Retained earnings, substantially restricted ........................... 6,576 6,377
Unrealized gain(loss) on securities available-for-sale ................ 136 77
Treasury stock, at cost (103,155 shares) .............................. (1,582) (1,582)
-------- --------
Total stockholders' equity .......................................... 14,547 14,210
-------- --------
Total liabilities and stockholders' equity .......................... $ 61,681 $ 59,952
======== ========
</TABLE>
See notes to unaudited interim consolidated financial statements.
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<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
---------------- ---------------
1998 1997 1998 1997
------ ------ ------ ------
(Unaudited) (Unaudited)
Interest Income: (Dollars in thousands except earnings per share and dividends
declared per share)
<S> <C> <C> <C> <C>
Loans receivable ........................................ $ 609 $ 560 $1,208 $1,112
Mortgage-backed securities .............................. 165 137 344 298
Investment securities ................................... 316 227 642 464
Interest bearing time deposits .......................... 1 2 3 3
Other ................................................... 24 16 49 27
------ ------ ------ ------
Total interest income ................................ 1,115 942 2,246 1,904
------ ------ ------ ------
Interest expense:
Deposits ................................................ 375 339 757 694
Advances from FHLB of Seattle ........................... 229 118 459 220
------ ------ ------ ------
Total interest expense ............................... 604 457 1,216 914
------ ------ ------ ------
------
Net interest income .................................. 511 485 1,030 990
Provision for loan losses ................................. 6 -- 6 --
------ ------ ------ ------
Net interest income after provision for loan losses .. 505 485 1,024 990
Non-interest income:
Customer service charges ................................ 12 10 24 19
Gain on sale of investment and mortgage-backed securities 3 1 3 2
Other operating income .................................. 12 9 21 16
------ ------ ------ ------
Total non-interest income ............................ 27 20 48 37
Non-interest expense:
Compensation and benefits ............................... 129 140 267 265
Occupancy and equipment ................................. 20 26 41 58
FDIC/SAIF deposit insurance premiums .................... 5 1 9 17
Advertising ............................................. 7 8 16 19
Data processing services ................................ 25 23 50 48
Loss on sale of premises and equipment .................. -- -- 3 --
Other ................................................... 62 50 119 118
------ ------ ------ ------
Total non-interest expense ........................... 248 248 505 525
------ ------ ------ ------
Income before income taxes ........................... 284 257 567 502
Income tax expense ........................................ 97 89 190 172
------ ------ ------ ------
Net income ........................................... $ 187 $ 168 $ 377 $ 330
====== ====== ====== ======
Dividends declared per common share ....................... $ 0.10 $ 0.10 $ 0.20 $ 0.20
====== ====== ====== ======
Earnings per common share ................................. $ 0.22 $ 0.18 $ 0.44 $ 0.34
====== ====== ====== ======
Earnings per common share - assuming dilution ............. $ 0.21 $ 0.18 $ 0.43 $ 0.34
====== ====== ====== ======
</TABLE>
See notes to unaudited interim consolidated financial statements.
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<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
March 31,
1998 1997
------ -----
(In Thousands)
Cash flows from operating activities: (Unaudited)
<S> <C> <C>
Net income ............................................................................... $ 377 $ 330
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of:
Premiums and discounts on securities available-for-sale .............................. 1 8
Premiums and discounts on securities held-to-maturity ................................ 1 2
Provision for loan losses .............................................................. 6 --
Federal Home Loan Bank stock dividend .................................................. (33) (15)
Depreciation ........................................................................... 24 37
Gain on sale of securities ............................................................. (3) (2)
Dividends reinvested ................................................................... (26) --
Loss on sale of premises and equipment ................................................. 3 --
ESOP shares committed to be released ................................................... 49 28
MSBP deferred compensation ............................................................. 30 27
Change in:
Accrued interest receivable ........................................................ (29) 24
Other assets ....................................................................... 15 7
Federal income taxes payable ....................................................... (116) 85
Deferred tax liability ............................................................. (13) (5)
Accrued expenses and other liabilities ............................................. 46 (162)
-------- --------
Net cash provided by operating activities ....................................... 332 364
Cash flows from investing activities:
Purchases of securities available-for-sale ............................................... (13,164) (4,649)
Maturities and calls of securities available-for-sale .................................... 8,623 3,338
Proceeds from the sale of securities available-for-sale .................................. 430 2,539
Maturities and calls of securities held-to-maturity ...................................... 2,320 611
Proceeds from the sale of securities ..................................................... 500 650
Purchase of FHLB stock ................................................................... (49) (43)
Net change in loans receivable ........................................................... (312) (1,723)
Purchase of premises and equipment ....................................................... (6) (10)
-------- --------
Net cash used in investing activities .................................................. (1,658) 713
Cash flows from financing activities:
Net change in deposits ................................................................... 1,121 (1,240)
Net changes in advances from Federal Home Loan Bank ...................................... 350 2,894
Net change in advances from borrowers for taxes and insurance ............................ (26) (25)
Acquisition of treasury stock, at cost ................................................... -- (1,203)
Dividends paid to stockholders ........................................................... (178) (194)
-------- --------
Net cash provided in financing activities .............................................. 1,267 232
-------- --------
Net increase (decrease) in cash and cash equivalents ....................................... (59) 1,309
Cash and cash equivalents at beginning of year ............................................. 1,194 451
-------- --------
Cash and cash equivalents at end of period ................................................. $ 1,135 $ 1,760
======== ========
</TABLE>
See notes to unaudited interim consolidated financial statements.
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<PAGE>
Notes to Unaudited Interim Consolidated Financial Statements
March 31, 1998
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. For further information, the reader should refer to the
Annual Report of Crazy Woman Creek Bancorp Incorporated (the "Corporation").
The accompanying consolidated financial statements include the accounts of the
Corporation and Buffalo Federal Savings Bank (the "Bank"), a wholly owned
subsidiary of the Corporation. All significant intercompany balances and
transactions have been eliminated in consolidation.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentations have been included. The
results of operations for the interim periods ended March 31, 1998 and 1997 are
not necessarily indicative of the results which may be expected for an entire
year or any other period.
NOTE 2: CONVERSION FROM MUTUAL SAVINGS BANK TO STOCK SAVINGS
BANK AND FORMATION OF SAVINGS AND LOAN HOLDING COMPANY
On March 29, 1996, the Bank consummated its conversion from a
federally-chartered mutual savings and loan association to a stock savings bank
pursuant to a Plan of Conversion (the "Conversion") via the issuance of common
stock. In connection with the Conversion, the Corporation sold 1,058,000 shares
of common stock which, after giving effect to offering expenses of $410,000
resulting in net proceeds of $10.13 million ($9.49 million net of ESOP
purchases). Pursuant to the Conversion, the Bank transferred all of its
outstanding shares to its newly organized holding company, the Corporation, in
exchange for 50% of the net proceeds.
Upon consummation of the Conversion, the preexisting liquidation rights of the
depositors of the Bank were unchanged. Specifically, such rights were retained
and will be accounted for by the Bank for the benefit of such depositors in
proportion to their liquidation interest as of the Eligibility Record Date
(November 15, 1994) and Supplemental Eligibility Record Date (December 31,
1995).
- 4 -
<PAGE>
NOTE 3: RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the FASB issued Statement 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." Statement No.
125 provides guidance on accounting for transfers and servicing of financial
assets, recognition and measurement of servicing assets and liabilities,
financial assets subject to repayment, secured borrowings and collateral, and
extinguishment of liabilities.
Statement No. 125 generally requires the Corporation to recognize as separate
assets the rights to service mortgage loans for others, whether the servicing
rights are acquired through purchases or loan originations. Servicing rights are
initially recorded at fair value based upon the present value of estimated
future cash flows. Subsequently, the servicing rights are assessed for
impairment, which is recognized in the statement of earnings in the period the
impairment occurs. For purposes of performing the impairment evaluation, the
related portfolio must be stratified on the basis of certain risk
characteristics including loan type and note rate. Statement No. 125 also
specifies that financial assets subject to prepayment, including loans that can
be contractually prepaid or otherwise settled in such a way that the holder
would not recover substantially all of its recorded investment be measured like
debt securities available for sale or trading securities under Statement No.
115. The Corporation adopted the provisions of Statement No. 125 on January 1,
1997, and such adoption did not have a material effect on the financial position
or operations of the Corporation.
NOTE 4: EARNINGS PER SHARE
SFAS No. 128 "Earnings Per Share" was issued by the FASB in February 1997 and
became effective for the Corporation for all reporting periods beginning with
the interim reporting period ended December 31, 1997. SFAS No. 128 replaces
presentation of primary earnings per share ("EPS") with the presentation of
basic and fully-diluted EPS on the face of the income statement for all entities
with complex capital structures. SFAS No. 128 also requires a reconciliation of
the numerator and the denominator of the basic EPS computation and the numerator
and the denominator of the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing net income available to
common stockholders by the weighted-average number of common shares outstanding
during the period. Additionally, unallocated ESOP shares which are unallocated
and not yet committed to be released (unallocated) and unvested MSBP shares are
excluded from the weighted-average common shares outstanding calculation. At
March 31, 1998, there were 8,001 allocated ESOP shares and 7,236 vested MSBP
shares. The weighted-average common shares outstanding for the six month period
ended March 31, 1998 was computed at 862,948 which is net of weighted-average
unallocated ESOP shares (55,809) and weighted-average unvested MSBP shares
(17,891). The weighted-average common shares outstanding for the six month
period ended March 31, 1997 was calculated at 963,281 shares.
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<PAGE>
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or resulted in the issuance
of common stock that would share in the earnings of the entity. Dilutive
potential common shares are added to the weighted-average shares used to compute
basic EPS. The following shows the reconciliation of the numerators and
denominators of the basic and diluted EPS computations:
<TABLE>
<CAPTION>
For the three month period ended March 31, 1998
-----------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Net Income $187,000
--------
Basic EPS
Net income available to
common stockholders 187,000 864,122 $0.22
====
Effect of Dilutive Securities
ESOP Shares - -
Stock Options - granted - 20,443
Unvested MSBP shares - 4,063
-------- -------
Diluted EPS
Income available to common
stockholders plus assumed conversions $187,000 888,628 $0.21
======= ======= ====
</TABLE>
<TABLE>
<CAPTION>
For the six month period ended March 31, 1998
---------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Net Income $377,000
--------
Basic EPS
Net income available to
common stockholders 377,000 862,948 $0.44
====
Effect of Dilutive Securities
ESOP Shares - -
Stock Options - granted - 19,909
Unvested MSBP shares - 3,935
-------- -------
Diluted EPS
Income available to common
stockholders plus assumed conversions $377,000 886,792 $0.43
======= ======= ====
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
For the three month period ended March 31, 1997
-----------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Net Income $168,000
--------
Basic EPS
Net income available to
common stockholders 168,000 928,710 $0.18
====
Effect of Dilutive Securities
ESOP Shares - -
Stock Options - granted - 8,437
Unvested MSBP shares - 1,531
------- -------
Diluted EPS
Income available to common
stockholders plus assumed conversions $168,000 938,678 $0.18
======= ======= ====
</TABLE>
<TABLE>
<CAPTION>
For the six month period ended March 31, 1997
---------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Net Income $330,000
Basic EPS
Net income available to
common stockholders 330,000 963,281 $0.34
====
Effect of Dilutive Securities
ESOP Shares - -
Stock Options - granted - 4,164
Unvested MSBP shares - 218
------- -------
Diluted EPS
Income available to common
stockholders plus assumed conversions $330,000 967,663 $0.34
======= ======= ====
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
- -------
The Corporation is a unitary savings and loan holding company of the Bank. The
Corporation's assets are comprised of its investment in the Bank, loans to the
Bank's Employee Stock Ownership Plan ("ESOP") and the Bank, and shares in three
mutual funds. The Bank operates as a traditional savings association, attracting
deposit accounts from the general public and using those deposits, together with
other funds, primarily to originate and invest in fixed-rate conventional loans
secured by single-family residential real estate. The Bank also originates home
equity, consumer loans and loans secured by savings accounts. The Bank also
invests in mortgage-backed (including Real Estate Mortgage Investment Conduits
("REMICs"), and short-term U.S. Agency securities. To a lesser extent, the Bank
originates commercial real estate loans and business loans. The Bank also
utilizes funds obtained from the Federal Home Loan Bank of Seattle ("FHLB") to
purchase investment securities and to originate loans.
The Bank's net earnings are dependent primarily on its net interest income,
which is the difference between interest income earned on its interest-earning
assets and interest expense paid on interest-bearing liabilities. Net interest
income is determined by (i) the difference between yields earned on
interest-earning assets and rate paid on interest-bearing liabilities (interest
rate spread) and (ii) the relative amounts of interest-earning assets and
interest-bearing liabilities. The Bank's interest rate spread is affected by
regulatory, economic and competitive factors that influence interest rates, loan
demand and deposit flows. To a lesser extent, the Bank's net earnings also are
affected by the level of non-interest income, which primarily consists of
service charges and other operating income. In addition, net earnings are
affected by the level of non-interest (general and administrative) expenses.
FINANCIAL CONDITION
- -------------------
At March 31, 1998, assets totaled $61.68 million compared to total assets of
$60.00 million at September 30, 1997. Asset growth was primarily attributed to a
$4.22 million increase in investments securities available-for-sale. This
increase was somewhat offset by a $2.82 million decrease in investment
securities held-to-maturity. The decline in investment securities
held-to-maturity was primarily caused by maturities and the Corporation's
decision to place the majority of its investment purchases in the
available-for-sale portfolio.
Asset growth was primarily funded by an increase in deposits. Deposits increased
by $1.12 million from $29.51 million at September 30, 1997 to $30.63 million at
March 31, 1998 primarily as a result an increase in business checking and
certificates of deposits. Meanwhile, advances from the FHLB increased by
$350,000 from $15.70 million at September 30, 1997 to $16.05 million at March
31, 1998.
At March 31, 1998, stockholder's equity totaled $14.55 million or 23.58%
compared to $14.21 million or 23.70% of total assets at September 30, 1997. The
increase in stockholder's equity was primarily due to continued earnings and an
increase in the market value of investment securities available-for-sale. The
increase in stockholder's equity was somewhat offset by $.10 per share cash
dividends declared in December 1997 and in March 1998.
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<PAGE>
ASSET QUALITY
- -------------
Non-performing assets totaled $54,000 at March 31, 1998, or 0.09% of total
assets. This compares to $225,000 at September 30, 1997 or 0.38% of total
assets. Non-performing loans were comprised of one residential home loan and
three consumer loans.
RESULTS OF OPERATIONS
- ---------------------
Comparison of Six Months Ended March 31, 1998 and 1997.
-------------------------------------------------------
Net Income. Net income for the six months ended March 31, 1998 totaled $377,000
compared to $330,000 for the six months ended March 31, 1997. Net income was
higher in 1998 than in 1997 primarily due to a $40,000 increase in net interest
income. Also contributing to the increase was a $9,000 increase in non-interest
income and a $20,000 decline in non-interest expense. Net income in 1998 was
negatively affected by a $6,000 provision to loan loss reserves. Federal tax
provisions were $18,000 higher in 1998 than in 1997.
Interest Income. For the six months ended March 31, 1998 interest income totaled
$2.25 million compared to $1.90 million for the six months ended March 31, 1997.
An increase in the volume of average earning assets from $50.97 million for the
six month period ended March 31, 1997 to $59.71 million for the same period in
1998 caused interest income to increase by $318,000. A slight increase in the
yield on average earning assets from 7.47% for the six month period ended March
31, 1997 to 7.52% for the six month period ended March 31, 1998 also help
increase interest income by $24,000.
Interest Expense. Total interest expense increased by $302,000 from $914,000 for
the six months ended March 31, 1997 to $1.22 million for the same period in 1998
primarily as a result of an increase in the volume of average interest-bearing
liabilities. This increase in volume resulted in a $253,000 increase in interest
expense. An increase in average advances from the FHLB accounted for $212,000 of
the increase caused by a change in volume. Such average advances increased from
$7.95 million for the six month period ended March 31, 1997 to $15.61 million
for the six month period ended March 31, 1998. The balance of the increase in
interest expense for the periods covered was attributed to an increase in the
cost of interest-bearing deposits from 5.04% for the six month period ended
March 31, 1997 to 5.34% for the six month period ended March 31, 1998.
Provisions for Credit Losses. The Corporation made a $6,000 provision to loan
loss reserves for the six months ended March 31, 1997; no provision were made in
1997. Loan charge-offs for the six months ended March 31, 1998 totaled $39,000
while recoveries totaled $7,000. In 1997, loan charge-offs totaled $5,000 while
recoveries also totaled $5,000. In determining the provision for loan losses,
management analyzes, among other things, the composition of the Bank's loan
portfolio, market conditions and the Bank's market area. Management has
determined that the reserve for loan losses was adequate to cover any
anticipated credit losses. There can be no assurance that the allowance for
losses will be adequate to cover losses which may in fact be realized in the
future and that additional provisions will not be required.
- 9 -
<PAGE>
Net Interest Income. Net interest income increased by $40,000 from $990,000 for
the six months ended March 31, 1997 to $1.03 million for the six months ended
March 31, 1998. The increase in net interest income was primarily caused by the
growth in average earning assets relative to the increase in average
interest-bearing liabilities. Although the increase in average interest-bearing
liabilities out paced the growth in average earning assets as evidenced by the
decline the ratio of average earning assets to average interest-bearing
liabilities from 140.60% in 1997 to 131.04% in 1998, net interest income still
increased by $66,0000. The Corporation was able to maintain a positive interest
rate spread despite the mismatch in the growth of average earning assets
compared to average interest-bearing liabilities. A factor contributing to the
decline in the ratio of average earning assets to interest-bearing liabilities
was the Corporation's repurchase of $1.88 million of its common stock in January
and April 1997. The funds lost through repurchases were primarily replaced by
interest-bearing advances from the FHLB.
Net interest margin declined from 3.89% for the six month period ended March 31,
1997 to 3.45% for the six month period ended March 31, 1998. The decrease in net
interest margin was primarily caused by a disproportionate increase in the yield
on average earning assets compared to the increase in the cost of average
interest-bearing liabilities; the increase in the cost of average
interest-bearing liabilities increased more than the yield on average interest
earning assets for the periods covered.
Total Non-interest Income. Total non-interest income increased by $9,000 from
$37,000 for the six months ended March 31, 1997 to $48,000 for the six months
ended March 31, 1998 primarily due to an increase in fees generated from
customer service charges and loan originations.
Total Non-interest Expense. Total non-interest expense declined by $20,000 from
$525,000 for the six months ended March 31, 1997 to $505,000 for the six months
ended March 31, 1998. The decrease was primarily attributed to lower deposit
insurance premiums, occupancy and equipment expenses and a slight reduction in
advertising costs. There was no significant changes in the other components of
non-interest expense.
Non-interest expense for the six months ended March 31, 1998 does not contain
any direct costs associated with the Corporation's efforts to upgrade its data
processing systems to address the change to the year 2000. The Corporation does
not believe that its costs to comply with the change to the year 2000 will have
a material effect on its financial position or results of operation. However,
despite the best efforts of management to address this issue, the vast number of
external entities that have direct and indirect business relationships with the
Corporation, such as customers, vendors, payment system providers and other
financial institutions, makes it impossible to assure that a failure to achieve
compliance by one or more of these entities would not have a material adverse
impact on the results of operation or financial condition of the Corporation.
Provision for Income Taxes. The effective tax rate for the six months ended
March 31, 1998 and 1997 was 33.51% and 34.26%, respectively.
Comparison of Three Months Ended March 31, 1998 and 1997
--------------------------------------------------------
General. For the three month period ended March 31, 1998, the Corporation posted
net income of $187,000 compared to $168,000 for the three month period ended
March 31, 1997. The increase in net income was primarily attributed to a $26,000
increase in net interest income and a $7,000 increase in non-interest income.
These increases were partially offset by a $6,000 provision to loan loss
reserves.
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<PAGE>
Interest Income. Interest income increased by $173,000 from $942,000 for the six
months ended March 31, 1997 to $1.12 million for the same period in 1998. The
growth in interest income was primarily the result of an increase in average
earning assets for the periods covered. Average earning assets increased from
$50.58 million for the three month period ended March 31, 1997 to $60.11 million
for the three month period ended March 31, 1998.
Interest Expense. Interest expense increased from $457,000 for the three months
ended March 31, 1997 to $604,000 for the three months ended March 31, 1998
resulting in an increase of $137,000. The increase in interest expense was
primarily attributed to an increase in the volume of interest-bearing
liabilities from $36.49 million for the three month period ended March 31, 1997
to $45.94 million for the same period in 1998. The increase in volume caused
interest expense to go up by $124,000. An increase in the cost of funds from
5.01% to 5.27% for the periods covered also attributed to the increase in
interest expense.
Provision for Credit Losses. The Corporation made a $6,000 loan loss provision
for the three months ended March 31, 1998; no loan loss provisions were made for
the three months ended March 31, 1997. See also "--Comparison of Six Months
Ended March 31, 1998 and 1997 -- Provision for Credit Losses."
Net Interest Income. Net interest income increase by $26,000 from $485,000 for
the three months ended March 31, 1997 to $511,000 for the three months ended
March 31, 1998. The primary reason for the increase was due to the fact that
income generated by the growth in earning assets out paced the increase in
expense caused by the growth in interest-bearing liabilities. The Corporation
was able to increase net interest income despite a drop in net interest margin
for the periods covered. Net interest margin declined from 3.84% for the three
month period ended March 31, 1997 to 3.40% for the same period in 1998. Today's
relatively flat yield curve has also contributed to the Corporation's drop in
net interest margin from 1997 to 1998.
Total Non-Interest Income. Total non-interest income improved by $7,000 from
$20,000 for the three months ended March 31, 1997 to $27,000 for the three
months ended March 31, 1998. The improvement was primarily a result of increased
fees from customer service charges and loan originations.
Total Non-Interest Expense. The was no change in non-interest expense from the
three months ended March 31, 1997 to the three months ended March 31, 1998.
Compensation expense was $11,000 higher in 1997 than in 1998 due to management
bonuses paid in 1997. There were no significant changes in the other components
of non-interest income. See also "--Comparison of Six Months Ended March 31,
1998 and 1997 -- Total Non-interest Expense."
Provision for Income Taxes. The effective tax rate for the three months ended
March 31, 1998 and 1997 was 34.15% and 34.63%, respectively.
- 11 -
<PAGE>
CAPITAL COMPLIANCE AND LIQUIDITY
- --------------------------------
Capital Compliance. The following table presents the Bank's compliance with its
regulatory capital requirements of March 31, 1998.
At March 31, 1998
-----------------
Percentage
Amount of Assets
------ ---------
(Dollars in Thousands)
GAAP Capital ........................... $11,228
Tangible capital ....................... $11,220 18.56%
Tangible capital requirement ........... 907 1.50%
------- -----
Excess ................................. $10,313 17.06%
======= =====
Core capital ........................... $11,220 18.56%
Core capital requirements .............. 1,813 3.00%
------- -----
Excess ................................. $ 9,407 15.56%
======= =====
Total risk-based capital (1) ........... $11,496 47.34%
Total risk-based capital requirement (1) 1,943 8.00%
------- -----
Excess (1) ............................. $ 9,553 39.34%
======= =====
- ------------
(1) Based on risk-weighted assets of $24,286.
Management believes that under current regulations, the Bank will continue to
meet its minimum capital requirements in the foreseeable future. Events beyond
the control of the Bank, such as increased interest rates or a downturn in the
economy in areas in which the Bank operates could adversely affect future
earnings and, as a result, the ability of the Bank to meet its future minimum
capital requirements.
- 12 -
<PAGE>
Liquidity. The Bank's liquidity is a measure of its ability to fund loans, pay
withdrawals of deposits, and other cash outflows in an efficient, cost effective
manner. The Bank's primary source of funds are deposits and scheduled
amortization and prepayment of loans. During the past several years, the Bank
has used such funds primarily to fund maturing time deposits, pay savings
withdrawals, fund lending commitments, purchase new investments, and increase
liquidity. The Bank funds its operations internally but supplements with
borrowed funds from the FHLB of Seattle. As of March 31, 1998 such borrowed
funds totaled $16.05 million. Loan payments and maturing investments are greatly
influenced by general interest rates, economic conditions and competition.
The Bank is required under federal regulations to maintain certain specified
levels of "liquid investments," which include certain United States government
obligations and other approved investments. Current regulations require the Bank
to maintain liquid assets of not less than 4% of its net withdrawable accounts
plus short-term borrowings. Those levels may be changed from time to time by the
regulators to reflect current economic conditions. The Bank has generally
maintained liquidity far in excess of regulatory requirements. The Bank's
regulatory liquidity was 66.39% and 11.17% at March 31, 1998 and 1997,
respectively. Recent changes regulatory changes regarding assets eligible for
liquidity caused the significant increase in the Bank's regulatory liquidity
ratios from 1997 to 1998, generally, the maturity restrictions were lifted on
U.S. Agency related securities.
The amount of certificate accounts which are scheduled to mature during the
twelve months ending March 31, 1999 is approximately $12.33 million. To the
extent that these deposits do not remain at the Bank upon maturity, the Bank
believes that it can replace these funds with deposits, excess liquidity, FHLB
advances or outside borrowings. It has been the Bank's experience that a
substantial portion of such maturing deposits remain at the Bank.
At March 31, 1998, the Bank had loan commitments outstanding of $883,000. Funds
required to fill these commitments are derived primarily from current excess
liquidity, deposit inflows or loan and investment and mortgage-backed security
repayments.
IMPACT OF INFLATION AND CHANGING PRICES
- ---------------------------------------
The consolidated financial statements of the Corporation and notes thereto,
presented elsewhere herein, have been prepared in accordance with GAAP, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of the Corporation's operations. Unlike most industrial
companies, nearly all the assets and liabilities of the Corporation are
financial. As a result, interest rates have a greater impact on the
Corporation's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services.
- 13 -
<PAGE>
RECENT ANNOUNCEMENTS
- --------------------
The Corporation, in a press release dated April 9, 1998, announced that it had
received regulatory authorization to repurchase up to 47,742 shares of the
Corporation's common stock. This repurchase program follows the repurchase of
103,155 shares of common stock since the Bank's mutual-to-stock conversion in
March 1996.
The repurchase will be made in open-market transactions over a one-year period
subject to the availability of stock and pursuant to the terms of the
Corporation's repurchase plan. Repurchased shares will become authorized but
unissued shares and will be utilized for general corporate and other purposes,
including the issuance of shares in connection with the exercise of stock
options.
Any repurchase could have an adverse effect on the Corporation's ability to be
listed on the Nasdaq SmallCap Market.
KEY OPERATING RATIOS
- --------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
--------------------- -------------------------
1998 (1) 1997 (1) 1998 (1) 1997 (1)
-------- -------- -------- --------
(Dollars in Thousands, (Dollars in Thousands,
except per share data) except per share data)
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Return on average assets............................. 1.22% 1.30% 1.24% 1.27%
Return on average equity............................. 5.15% 4.63% 5.23% 4.38%
Interest rate spread................................. 2.15% 2.44% 2.43% 2.43%
Net interest margin.................................. 3.40% 3.76% 3.45% 3.81%
Noninterest expense to average assets................ 1.62% 1.92% 1.66% 2.02%
Net charge-offs to average outstanding loans......... 0.00% 0.00% 0.01% 0.00%
</TABLE>
<TABLE>
<CAPTION>
At March 31, At September 30,
1998 1997
<S> <C> <C>
Nonaccrual and 90 days past due loans................ 54 225
Repossessed real estate............................. 0 0
Total nonperforming assets......................... 54 225
Allowance for credit losses to nonperforming assets.. 240.34% 134.22%
Nonperforming loans to total loans................... 0.09% 0.12%
Nonperforming assets to total assets................. 0.19% 0.38%
Book value per share (2)............................. $15.23 $14.88
</TABLE>
- ----------------
(1) The ratios for the three- and six-month periods are annualized.
(2) The number of shares outstanding as of March 31, 1998 and September 30,
1997 were 954,845 shares. These include shares purchased by the ESOP.
- 14 -
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
Neither the Corporation nor the Bank was engaged in any legal
proceeding of a material nature at March 31, 1998. From time to time,
the Corporation is a party to legal proceedings in the ordinary course
of business wherein it enforces its security interest in loans.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On January 22, 1998, the Corporation held its annual meeting of
stockholders and the following items were presented:
Election of Directors Greg L. Goddard and Douglas D. Osborn for terms
of three years ending 2001 and the ratification of the appointment of
KPMG Peat Marwick, LLP as the Corporation's auditors for the 1998
fiscal year.
Votes were as follows:
For Against Withheld
--- ------- --------
Greg L. Goddard 669,377 5,760 -
Douglas D. Osborn 661,325 13,012 -
Ratification of
Peat Marwick 670,376 3,911 850
- 15 -
<PAGE>
Item 5. Other Information
-----------------
See "Recent Announcements."
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 27 - Financial Disclosure Schedule (in electronic
filing only)
(b) Reports on Form 8-K
None.
- 16 -
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRAZY WOMAN CREEK BANCORP INCORPORATED
Date: April 17, 1998 By: /s/ Deane D. Bjerke
-------------------------------------------------
Deane D. Bjerke
President and
Chief Executive Officer
(Principal Executive Officer)
Date: April 17, 1998 By: /s/ Dalen C. Slater
-------------------------------------------------
Dalen C. Slater
Senior Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS INFORMATION EXTRACTED FROM THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF CRAZY WOMAN CREED BANCORP INCORPORATED
FOR THE QUARTER ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 73
<INT-BEARING-DEPOSITS> 1,062
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 23,383
<INVESTMENTS-CARRYING> 21,378
<INVESTMENTS-MARKET> 6,255
<LOANS> 28,942
<ALLOWANCE> 276
<TOTAL-ASSETS> 61,681
<DEPOSITS> 30,628
<SHORT-TERM> 14,250
<LIABILITIES-OTHER> 456
<LONG-TERM> 1,800
0
0
<COMMON> 106
<OTHER-SE> 14,441
<TOTAL-LIABILITIES-AND-EQUITY> 61,681
<INTEREST-LOAN> 609
<INTEREST-INVEST> 481
<INTEREST-OTHER> 25
<INTEREST-TOTAL> 1,115
<INTEREST-DEPOSIT> 375
<INTEREST-EXPENSE> 604
<INTEREST-INCOME-NET> 511
<LOAN-LOSSES> 6
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 248
<INCOME-PRETAX> 284
<INCOME-PRE-EXTRAORDINARY> 284
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 187
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.21
<YIELD-ACTUAL> 3.40
<LOANS-NON> 54
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 302
<CHARGE-OFFS> 39
<RECOVERIES> 7
<ALLOWANCE-CLOSE> 276
<ALLOWANCE-DOMESTIC> 276
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
