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, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from __________ to __________
Commission File No. 0-27714
Crazy Woman Creek Bancorp Incorporated
(Exact name of registrant as specified 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
----------------------------------------
(Address of principal executive offices)
(307) 684-5591
----------------
(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 May 7, 1999: 885,061
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED
INDEX TO FORM 10-QSB
Page
----
PART I FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Condensed Statements of Financial Condition at
March 31, 1999 (unaudited) and September 30, 1998 (audited) 1
Consolidated Condensed Statements of Income for the three
and six months ended March 31, 1999 and 1998 (unaudited) 2
Consolidated Condensed Statements of Stockholders'
Equity and Comprehensive Income for the six months
ended March 31, 1999 and 1998 (unaudited) 3
Consolidated Condensed Statements of Cash Flows for the
six months ended March 31, 1999 and 1998 (unaudited) 4
Notes to Consolidated Condensed 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 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Condensed Statements of Financial Condition
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
------------- -------------
(unaudited) (audited)
(In thousands, except share and per
Assets share data)
- ------
<S> <C> <C>
Cash and cash equivalents $ 808 $ 1,562
Interest-bearing time deposits 99 99
Investment and mortgage-backed securities available-for-sale 30,269 24,635
Investment and mortgage-backed securities held-to-maturity
(estimated market value of $4,021 at September 30, 1998) -- 3,938
Stock in Federal Home Loan Bank of Seattle, at cost 953 917
Loans receivable, net 30,534 29,986
Accrued interest receivable 580 538
Real estate held in judgment 193 --
Premises and equipment, net 385 398
Income tax receivable 20 39
Other assets 30 42
--------- ---------
Total assets $63,871 $62,154
========= =========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities
Deposits $32,451 $32,913
Advances from Federal Home Loan Bank 16,500 14,650
Advances from borrowers for taxes and insurance 37 64
Deferred income taxes 170 211
Dividends payable 91 91
Accrued expenses and other liabilities 436 189
--------- ---------
Total liabilities 49,685 48,118
--------- ---------
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 106 106
authorized; 1,058,000 issued
Additional paid-in surplus 10,091 10,083
Unearned ESOP/MSBP shares (624) (671)
Retained earnings, substantially restricted 6,912 6,737
Treasury stock, at cost 148,739 shares (2,427) (2,427)
Accumulated other comprehensive income 128 208
--------- ---------
Total stockholders' equity 14,186 14,036
--------- ---------
Total liabilities and stockholders' equity $63,871 $62,154
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
Page 1
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Condensed Statements of Income
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
----------------------- -----------------------
1999 1998 1999 1998
---------- --------- --------- ----------
(Unaudited)
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable $ 598 $ 609 $1,211 $1,208
Mortgage-backed securities 124 165 230 344
Investment securities 312 316 628 642
Interest bearing time deposits 1 1 2 3
Other 34 24 87 49
--------- --------- --------- ---------
Total interest income 1,069 1,115 2,158 2,246
Interest expense:
Deposits 396 375 799 757
Advances from Federal Home Loan Bank 195 229 397 459
--------- --------- --------- ---------
Total interest expense 591 604 1,196 1,216
--------- --------- --------- ---------
Net interest income 478 511 962 1,030
Provision for loan losses -- 6 6 6
--------- --------- --------- ---------
Net interest income after provision for loan losses 478 505 956 1,024
--------- --------- --------- ---------
Non-interest income:
Customer service charges 10 12 20 24
Gain on sale of investment and mortgage-backed
securities -- 3 -- 3
Other operating income 12 12 28 21
--------- --------- --------- ---------
Total non-interest income 22 27 48 48
--------- --------- --------- ---------
Non-interest expense:
Compensation and benefits 135 129 263 267
Occupancy and equipment 23 20 44 41
FDIC/SAIF deposit insurance premiums 5 5 9 9
Advertising 10 7 19 16
Data processing services 26 25 53 50
Loss on sale of premises and equipment -- -- -- 3
Other 69 62 122 119
--------- --------- --------- ---------
Total non-interest expense 268 248 510 505
--------- --------- --------- ---------
Income before income taxes 232 284 494 567
Income tax expense 70 97 150 190
--------- --------- --------- ---------
Net income $ 162 $ 187 $ 344 $ 377
========= ========= ========= =========
Dividends declared per common share $ 0.10 $ 0.10 $ 0.20 $ 0.20
========= ========= ========= =========
Basic earnings per common share $ 0.19 $ 0.21 $ 0.40 $ 0.42
========= ========= ========= =========
Diluted earnings per common share $ 0.19 $ 0.20 $ 0.39 $ 0.41
========= ========= ========= =========
</TABLE>
See notes to consolidated condensed financial statements.
Page 2
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Condensed Statements of
Stockholders' Equity and Comprehensive Income
Six months ended March 31, 1999 and 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
Unearned Accumulated
Additional ESOP/ other Total
Common paid-in MSBP Retained Treasury comprehensive stockholders'
stock capital shares earnings stock income equity
------ --------- ------- -------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1997 $106 $10,042 $ (809) $6,377 $(1,582) $ 77 $14,211
Comprehensive income:
Net income -- -- -- 377 -- -- 377
Unrealized gains on available-for-sale
investment securities, net -- -- -- -- -- 59 59
---------
Total comprehensive income 436
Tax benefit from stock related compensation -- 14 -- -- -- -- 14
ESOP shares committed to be released -- 13 23 -- -- -- 36
MSBP shares vested -- -- 30 -- -- -- 30
Cash dividends declared ($.20 per share) -- -- -- (178) -- -- (178)
------ --------- ------- -------- --------- -------- ---------
Balances at March 31, 1998 $106 $10,069 $(756) $6,576 $(1,582) $ 136 $14,549
====== ========= ======= ======== ========= ======== =========
Balances at September 30, 1998 $106 $10,083 $(671) $6,737 $(2,427) $ 208 $14,036
Comprehensive income:
Net income -- -- -- 344 -- 344
Unrealized gains on available-for-sale
investment securities, net -- -- -- -- -- (135) (135)
Effect of change in classification of
investment securities -- -- -- -- -- 55 55
----------
Total comprehensive income 264
Tax benefit from stock related compensation -- 1 -- -- -- -- 1
ESOP shares committed to be released -- 7 23 -- -- -- 30
MSBP shares vested -- -- 24 -- -- -- 24
Cash dividends declared ($.20 per share) -- -- -- (169) -- -- (169)
------ --------- ------- -------- --------- --------- ----------
Balances at March 31, 1999 $106 $10,091 $ (624) $6,912 $ (2,427) $ 128 $14,186
====== ========= ======= ======== ========== ========= ==========
</TABLE>
See notes to consolidated condensed financial statements.
Page 3
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
March 31,
----------------------------
1999 1998
------------ -----------
(In thousands)
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 344 $ 377
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 6 6
Amortization of premiums and discounts on securities available-for-sale 12 1
Amortization of premiums and discounts on securities held-to-maturity -- 1
Federal Home Loan Bank stock dividends (36) (33)
Depreciation 18 24
Dividends reinvested (35) (26)
Deferred loan origination fees, net 23 4
Gain on sale of securities -- (3)
Loss on sale of premises and equipment -- 3
ESOP shares committed to be released 30 36
MSBP deferred compensation 24 30
Change in:
Accrued interest receivable (42) (29)
Income tax receivable 20 --
Other assets 12 15
Income taxes payable -- (103)
Deferred income taxes -- (13)
Accrued expenses and other liabilities 247 46
---------- -----------
Net cash provided by operating activities 623 336
---------- -----------
Cash flows from investing activities:
Purchases of securities available-for-sale (10,502) (13,164)
Maturities and calls of securities available-for-sale 8,708 8,623
Maturities and calls of securities held-to-maturity -- 2,820
Proceeds from the sale of securities available-for-sale -- 430
Purchase of Federal Home Loan Bank stock -- (49)
Origination of loans receivable (5,985) (4,563)
Repayment of principal on loans receivable 5,215 4,247
Purchase of premises and equipment (5) (6)
---------- -----------
Net cash used by investing activities (2,569) (1,662)
---------- -----------
Cash flows from financing activities:
Net change in deposits (462) 1,121
Advances from Federal Home Loan Bank 15,250 11,950
Repayment of advances from Federal Home Loan Bank (13,400) (11,600)
Net change in advances from borrowers for taxes and insurance (27) (26)
Dividends paid to stockholders (169) (178)
---------- -----------
Net cash provided by financing activities 1,192 1,267
---------- -----------
Net decrease in cash and cash equivalents (754) (59)
Cash and cash equivalents at beginning of period 1,562 1,194
---------- -----------
Cash and cash equivalents at end of period $ 808 $ 1,135
========== ===========
See notes to consolidated condensed financial statements.
</TABLE>
Page 4
<PAGE>
Notes to Consolidated Condensed Financial Statements
March 31, 1999
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
for interim financial information. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements.
For further information, the reader should refer to the Annual Report of Crazy
Woman Creek Bancorp Incorporated (the "Company") for the Year Ended September
30, 1998.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentation have been included. The
results of operations for the three and six months ended March 31, 1999 and 1998
are not necessarily indicative of the results which may be expected for an
entire year or any other period.
The accompanying consolidated financial statements include the accounts of the
Company and Buffalo Federal Savings Bank (the "Bank"), a wholly owned subsidiary
of the Company. All significant intercompany balances and transactions have been
eliminated in consolidation.
The Company may from time to time make written or oral "forward-looking
statements", including statements contained in the Company's filings with the
Securities and Exchange Commission (including this Quarterly Report on Form 10-Q
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, objectives, 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.
Page 5
<PAGE>
Notes to Consolidated Financial Statements
March 31, 1999
NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS
Effective October 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). SFAS 133 establishes accounting
and reporting standards that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the statement
of financial condition as either an asset or liability measured at its fair
value. SFAS 133 requires that changes in the fair value of the derivative
instruments be recognized currently in earnings unless specific hedge accounting
criteria are met. The adoption of SFAS 133 had no impact on the financial
statements of the Company except that it allowed for a one-time reclassification
of the investment portfolio from held-to-maturity to either trading or
available-for-sale. The net effect on the statement of financial condition of
this reclassification was an increase in total assets of $84,000, deferred tax
liabilities of $29,000 and unrealized gains on securities available-for-sale of
$55,000. (See also Note 3: Comprehensive Income).
NOTE 3: COMPREHENSIVE INCOME
Effective October 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income (SFAS 130). SFAS 130 requires companies to report
comprehensive income, which includes 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. There were no reclassification adjustments to other comprehensive
income for holding gains and losses realized during either of the periods.
Unrealized gains/(losses) reported as other comprehensive income during the six
months ending March 31, 1999 and 1998 are net of related income taxes of
$(47,000) and $29,000, respectively.
NOTE 4: EARNINGS PER SHARE
The Company has adopted the provisions of SFAS No. 128, Earnings Per Share. SFAS
No. 128 replaces the presentation of primary and fully diluted earnings per
share ("EPS") with the presentation of basic and diluted EPS. Basic EPS is
computed by dividing net income by the weighted-average number of common shares
outstanding during the period less unvested management stock bonus plan (MSBP)
and unallocated and not yet committed to be released Employee Stock Ownership
Plan (ESOP) shares. Diluted EPS 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.
<TABLE>
<CAPTION>
For the three months ended March 31, 1999
-------------------------------------------------
Average Per-Share
Income Shares Amount
-------------- -------------- -------------
<S> <C> <C> <C>
Basic EPS
Net income available to common stockholders $ 162,000 869,056 $ 0.19
====
Effect of Dilutive Securities
Incremental shares under stock option plan -- 3,427
Incremental shares related to MSBP -- 99
----------- --------
Diluted EPS
Income available to common stockholders plus
assumed conversions $ 162,000 872,582 $ 0.19
=========== ======== ====
</TABLE>
Page 6
<PAGE>
Notes to Consolidated Financial Statements
March 31, 1999
<TABLE>
<CAPTION>
For the three months ended March 31, 1998
------------------------------------------
Average Per-Share
Income Shares Amount
-------- --------- ----------
<S> <C> <C> <C>
Basic EPS
Net income available to common stockholders $187,000 906,442 $ 0.21
====
Effect of Dilutive Securities
Incremental shares under stock option plan -- 20,536
Incremental shares related to MSBP -- 4,085
------- -------
Diluted EPS
Income available to common stockholders plus
assumed conversions $187,000 931,063 $ 0.20
======= ======= ====
</TABLE>
<TABLE>
<CAPTION>
For the six months ended March 31, 1999
------------------------------------------
Average Per-Share
Income Shares Amount
-------- --------- ----------
<S> <C> <C> <C>
Basic EPS
Net income available to common stockholders $344,000 867,987 $ 0.40
====
Effect of Dilutive Securities
Incremental shares under stock option plan -- 5,480
Incremental shares related to MSBP -- 424
------- -------
Diluted EPS
Income available to common stockholders plus
assumed conversions $344,000 873,987 $ 0.39
======= ======= ====
</TABLE>
<TABLE>
<CAPTION>
For the six months ended March 31, 1998
------------------------------------------
Average Per-Share
Income Shares Amount
-------- --------- ----------
<S> <C> <C> <C>
Basic EPS
Net income available to common stockholders $377,000 905,268 $ 0.42
=====
Effect of Dilutive Securities
Incremental shares under stock option plan -- 18,777
Incremental shares related to MSBP -- 3,021
------- -------
Diluted EPS
Income available to common stockholders plus
assumed conversions $377,000 927,067 $ 0.41
======= ======= ====
</TABLE>
Page 7
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
- -------
The Company is a unitary savings and loan holding company of the Bank. The
Company's assets are comprised of its investment in the Bank, loans to the ESOP
and to the Bank, and shares in three mutual funds. The Bank operates as a
traditional savings association, attracting deposit accounts from the general
public and using those deposits, together with other funds, primarily to
originate and invest in fixed-rate conventional loans secured by single-family
residential real estate. The Bank also originates home equity, consumer loans
and loans secured by savings accounts. The Bank invests in mortgage-backed
securities (including Real Estate Mortgage Investment Conduits ("REMICs")),
municipal bonds, and short-term U.S. Agency securities. To a lesser extent, the
Bank originates commercial real estate loans and business loans. The Bank also
utilizes funds obtained from the Federal Home Loan Bank of Seattle ("FHLB") to
purchase investment securities and to originate loans.
The Bank's net earnings are dependent primarily on its net interest income,
which is the difference between interest income earned on its interest-earning
assets and interest expense paid on interest-bearing liabilities. Net interest
income is determined by (i) the difference between yields earned on
interest-earning assets and rate paid on interest-bearing liabilities (interest
rate spread) and (ii) the relative amounts of interest-earning assets and
interest-bearing liabilities. The Bank's interest rate spread is affected by
regulatory, economic and competitive factors that influence interest rates, loan
demand and deposit flows. To a lesser extent, the Bank's net earnings also are
affected by the level of non-interest income, which primarily consists of
service charges and other operating income. In addition, net earnings are
affected by the level of non-interest (general and administrative) expenses.
FINANCIAL CONDITION
- -------------------
At March 31, 1999, assets totaled $63.87 million compared to total assets of
$62.15 million at September 30, 1998. Asset growth was primarily attributed to a
$5.63 million increase in investments securities available-for-sale and the
related $3.94 million decrease in held-to-maturity securities, as a result of
the one time reclassification permitted by SFAS No. 133. Net loans receivable
also increased by $548,000 and cash decreased by $754,000. Real estate held
under judgment increased $193,000 from the repossession of two single family
homes. Deposits decreased by $462,000 from $32.91 million at September 30, 1998
to $32.45 million at March 31, 1999 primarily as a result of a decrease in
passbook savings and Now accounts. Advances from the FHLB increased by $1.85
million to $16.50 million at March 31, 1999, to offset the decrease in deposits
and purchase of investment securities.
At March 31, 1999, stockholders' equity totaled $14.19 million or 22.21% of
total assets compared to $14.04 million or 22.59% of total assets at September
30, 1998. The increase in stockholders' equity was primarily due to continued
earnings. The increase in stockholders' equity was somewhat offset by cash
dividends of $169,000 and a decrease in the market value of investment
securities available-for-sale.
ASSET QUALITY
- -------------
Non-performing assets totaled $302,000 at March 31, 1999, or 0.47% of total
assets. This compares to $225,000 at September 30, 1998 or 0.36% of total
assets. Non-performing loans at March 31, 1999 were comprised of one residential
home loans, four consumer loans and two single family residences held under
judgment.
Page 8
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS
- ---------------------
Comparison of Six Months Ended March 31, 1999 and 1998.
- ------------------------------------------------------
Net Income. Net income for the six months ended March 31, 1999 totaled $344,000
compared to $377,000 for the six months ended March 31, 1998. Net income was
lower in 1999 than in 1998 primarily due to a $68,000 decrease in net interest
income. Federal tax expense was $40,000 lower in 1999 than in 1998 primarily due
to a decrease in net income before tax expense and an increase in non-taxable
investments.
Interest Income. For the six months ended March 31, 1999 interest income totaled
$2.16 million compared to $2.25 million for the six months ended March 31, 1998.
An increase in the volume of average earning assets from $59.71 million for the
six months ended March 31, 1998 to $60.06 million for the same period in 1999
caused interest income to increase by $33,000. A decrease was experienced in the
yield on average earning assets from 7.52% for the six months ended March 31,
1998 to 7.19% for the six months ended March 31, 1999, which attributed to a
$121,000 decrease interest income.
Interest Expense. Total interest expense decreased by $20,000 from $1.22 million
for the six months ended March 31, 1998 to $1.20 million for the same period in
1999. This was primarily a result of a increase in the volume and a decrease in
the cost of average interest-bearing liabilities.
The cost of average interest-bearing deposits increased from 5.05% for the six
months ended March 31, 1998 to 5.23% for the six months ended March 31, 1999,
which caused interest expense for deposits to increase by $27,000. An increase
in the volume of average interest-bearing deposits from $29.96 million for the
six months ended March 31, 1998 to $30.56 million for the six months ended March
31, 1999, resulted in a $15,000 increase in interest expense for deposits.
The cost of average interest-bearing advances from the FHLB decreased from 5.88%
for the six months ended March 31, 1998 to 5.15% for the same period in 1999.
This decrease in the cost of average interest-bearing advances caused a $56,000
decrease in interest expense. Average interest-bearing advances decreased from
$15.61 million for the six months ended March 31, 1998 to $15.41 million for the
six month period ended March 31, 1999, resulting in a $6,000 decrease in
interest expense on FHLB advances.
Net Interest Income. Net interest income decreased by $68,000 from $1.03 million
for the six months ended March 31, 1998 to $962,000 for the six months ended
March 31, 1999. The decrease in net interest income was primarily caused by the
declining interest rates on the investment portfolio and the loan portfolio but
was somewhat offset by the declining cost of liabilities. Although the increase
in average interest-bearing liabilities was similar to the growth in average
interest-earning assets as evidenced by the slight decrease of the ratio of
average interest-earning assets to average interest-bearing liabilities from
130.71% in 1998 to 130.64% in 1999, net interest income decreased.
Net interest margin declined from 3.43% for the six months ended March 31, 1998
to 3.11% for the six months ended March 31, 1999. The decrease in net interest
margin was primarily caused by the cost of average interest-bearing liabilities
decreasing at a slower pace than the yield on average interest earning assets
for the periods covered.
Page 9
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Provisions for Loan Losses. The Company recorded a $6,000 provision for loan
losses for the six months ended March 31, 1999 and 1998. Loan charge-offs for
the six months ended March 31, 1999 totaled $11,000 while recoveries totaled
$16,000. In 1998, loan charge-offs totaled $39,000 while recoveries totaled
$7,000. In determining the provision for loan losses, management analyzes, among
other things, the composition of the Bank's loan portfolio, market conditions
and the Bank's market area. Management has determined that the reserve for loan
losses was adequate to cover any anticipated credit losses. There can be no
assurance that the allowance for losses will be adequate to cover losses which
may in fact be realized in the future and that additional provisions will not be
required.
Total Non-interest Income. Total non-interest income was $48,000 for the six
months ended March 31, 1999 and 1998. Fees generated from service charges
decreased by $4,000, other operating income increased by $7,000 and there were
no sales of investment securities during the six months ended March 31, 1999.
Total Non-interest Expense. Total non-interest expense increased by $4,000 from
$505,000 for the six months ended March 31, 1998 to $509,000 for the six months
ended March 31, 1999. The increase was primarily attributed to small increases
in expenses related to occupancy and equipment, advertising, data processing
services, and other non-interest expenses. There were no significant changes in
the other components of non-interest expense.
Non-interest expense for the six months ended March 31, 1999 does not contain
any direct costs associated with the Company's efforts to upgrade its data
processing systems to address the change to the year 2000. The Company 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
Company, 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 Company.
Provision for Income Taxes. The effective tax rate for the six months ended
March 31, 1999 and 1998 was 30.36% and 33.51%, respectively. The effective tax
rate decreased due to increased investments in non-taxable investments such as
municipal bonds.
Comparison of Three Months Ended March 31, 1999 and 1998.
Net Income. Net income for the three months ended March 31, 1999 totaled
$181,000 compared to $187,000 for the three months ended March 31, 1998. Net
income was lower in 1999 than in 1998 primarily due to a $33,000 decrease in net
interest income, a $5,000 decrease in non-interest income and an increase of
$19,000 in non-interest expense. Net income in 1998 were negatively affected by
a $6,000 provision for loan losses. Federal tax expense was $45,000 lower in
1999 than in 1998 primarily due to a decrease in income before income taxes and
an increase in non-taxable investments.
Interest Income. For the three months ended March 31, 1999, interest income
totaled $1.07 million compared to $1.12 million for the three months ended March
31, 1998. An increase in the volume of average earning assets from $60.11
million for the three months ended March 31, 1998 to $62.12 million for the same
period in 1999 caused interest income to increase by $74,000. A decrease was
experienced in the yield on average earning assets from 7.42% for the three
months ended March 31, 1998 to 6.88% for the three months ended March 31, 1999,
which attributed to a $120,000 decrease in interest income.
Page 10
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Interest Expense. Total interest expense decreased by $13,000 from $604,000 for
the three months ended March 31, 1998 to $591,000 million for the same period in
1999. This was primarily a result of an increase in the volume and a decrease in
the cost of average interest-bearing liabilities.
The cost of average interest-bearing deposits decreased from 4.99% for the three
months ended March 31, 1998 to 4.74% for the three months ended March 31, 1999,
which caused interest expense for deposits to decrease by $20,000. An increase
in the volume of average interest-bearing deposits from $30.06 million for the
three months ended March 31, 1998 to $33.51 million for the three months ended
March 31, 1999, resulted in a $41,000 increase in interest expense for deposits.
The cost of average interest-bearing advances from the FHLB decreased from 5.80%
for the three months ended March 31, 1998 to 5.35% for the same period in 1999.
This decrease in the cost of average interest-bearing advances caused a $17,000
decrease in interest expense. Average interest-bearing advances decreased from
$15.78 million for the three month period ended March 31, 1998 to $14.59 million
for the three month period ended March 31, 1999, resulting in a $17,000 decrease
in interest expense for advances.
Net Interest Income. Net interest income decreased by $33,000 from $511,000 for
the three months ended March 31, 1998 to $478,000 for the three months ended
March 31, 1999. The decrease in net interest income was primarily caused by the
declining interest rates on the investment portfolio and the loan portfolio but
is somewhat offset by the declining cost of liabilities. Although the increase
in average interest-bearing liabilities was similar to the growth in average
interest-earning assets as evidenced by the slight decrease of the ratio of
average interest-earning assets to average interest-bearing liabilities from
131.11% in 1998 to 129.15% in 1999, net interest income decreased.
Net interest margin declined from 3.36% for the three months ended March 31,
1998 to 3.08% for the three months ended March 31, 1999. The decrease in net
interest margin was primarily caused by the cost of average interest-bearing
liabilities decreasing at a slower pace than the yield on average interest
earning assets for the periods covered.
Provisions for Loan Losses. The Company recorded a $6,000 provision for loan
losses for the three months ended March 31, 1998; no provision was recorded
during the three months ended March 31, 1999. Loan charge-offs for the three
months ended March 31, 1999 totaled $6,000 while recoveries totaled $13,000. In
1998, there were no loan charge-offs while recoveries totaled $4,000. See also
"Comparison of Six Months Ended March 31, 1999 and 1998 - Provision for Loan
Losses."
Total Non-interest Income. Total non-interest income decreased by $5,000 from
$27,000 for the three months ended March 31, 1998 to $22,000 for the three
months ended March 31, 1999 primarily due to an slight decrease in fees
generated from service charges and no gains from the sale of investment
securities in 1999.
Total Non-interest Expense. Total non-interest expense increased by $19,000 from
$248,000 for the three months ended March 31, 1998 to $267,000 for the three
months ended March 31, 1999. The increase was primarily attributed to a slight
increase in compensation, occupancy and equipment, advertising and other
non-interest expenses. There were no significant changes in the other components
of non-interest expense. See also "-- Comparison of Six Months Ended March 31,
1999 and 1998 -- Total Non-interest Expense."
Provision for Income Taxes. The effective tax rate for the three months ended
March 31, 1999 and 1998 was 30.17% and 34.15%, respectively. The effective tax
rate decreased due to increased investments in non-taxable investments such as
municipal bonds.
Page 11
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
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 will
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 will 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 schedule. 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 has completed
its 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 to 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 Bank is unable to
test the Year 2000 readiness of our significant suppliers of utilities and is
relying on the utility companies' internal testing and representation to provide
the required services that drive the Bank's data systems.
Page 12
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
The Company's Renovation phase was substantially completed by February 28, 1999.
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 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 $6,000 was incurred as of March 31, 1999. 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.
CAPITAL COMPLIANCE AND LIQUIDITY
- --------------------------------
Capital Compliance. The following table presents the Bank's compliance with its
regulatory capital requirements:
At March 31, 1999
-------------------------
Percentage
Amount of Assets
------------- -----------
(Dollars in thousands)
GAAP Capital...................................... $ 11,925
Tangible capital.................................. $ 12,004 19.18%
Tangible capital requirement...................... 936 1.50%
--------- -------
Excess............................................ $ 11,068 17.68%
========= =======
Core capital...................................... $ 12,004 19.18%
Core capital requirements......................... 1,875 3.00%
--------- -------
Excess............................................ $ 10,129 16.18%
========= =======
Total risk-based capital (1)...................... $ 12,298 48.77%
Total risk-based capital requirement (1).......... 2,016 8.00%
--------- -------
Excess (1)........................................ $ 10,282 40.77%
========= =======
1) Based on risk-weighted assets of $25,214
Page 13
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Management believes that under current regulations, the Bank will continue to
meet its minimum capital requirements in the foreseeable future. Events beyond
the control of the Bank, such as increased interest rates or a downturn in the
economy in areas in which the Bank operates could adversely affect future
earnings and, as a result, the ability of the Bank to meet its future minimum
capital requirements.
Liquidity. The Bank's liquidity is a measure of its ability to fund loans, pay
withdrawals of deposits, and other cash outflows in an efficient, cost effective
manner. The Bank's primary source of funds are deposits and scheduled
amortization and prepayment of loans. During the past several years, the Bank
has used such funds primarily to fund maturing time deposits, pay savings
withdrawals, fund lending commitments, purchase new investments, and increase
liquidity. The Bank funds its operations internally but supplements with
borrowed funds from the FHLB of Seattle. As of March 31, 1999 such borrowed
funds totaled $16.50 million. Loan payments and maturing investments are greatly
influenced by general interest rates, economic conditions and competition.
The Bank is required under federal regulations to maintain certain specified
levels of "liquid investments," which include certain United States government
obligations and other approved investments. Current regulations require the Bank
to maintain liquid assets of not less than 4% of its net withdrawable accounts
plus short-term borrowings. Those levels may be changed from time to time by the
regulators to reflect current economic conditions. The Bank has generally
maintained liquidity far in excess of regulatory requirements. The Bank's
regulatory liquidity was 63.89% and 66.39% at March 31, 1999 and 1998,
respectively.
The amount of certificate accounts which are scheduled to mature during the
twelve months ending March 31, 2000 is approximately $12.06 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, 1999, the Bank had loan commitments outstanding of $880,000. 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.
Page 14
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
KEY OPERATING RATIOS
- --------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
---------------------------------- -----------------------------------
1999 (1) 1998(1) 1999 (1) 1998 (1)
--------------- --------------- --------------- ---------------
(Dollars in thousands, except per share data)
(Unaudited)
<S> <C> <C> <C> <C>
Return on average assets.......................... 1.14% 1.22% 1.16% 1.24%
Return on average equity.......................... 5.05% 5.14% 5.10% 5.23%
Interest rate spread.............................. 1.96% 2.15% 1.96% 2.18%
Net interest margin............................... 3.08% 3.36% 3.11% 3.43%
Non-interest expense to average assets............ 1.70% 1.62% 1.63% 1.66%
Net charge-offs to average outstanding loans...... (0.02)% (0.03)% (0.04)% 0.09%
</TABLE>
<TABLE>
<CAPTION>
At March 31, At September 31,
1999 1998
---------------------------------
<S> <C> <C>
Nonaccrual and 90 days past due loans............. $ 109 $ 225
Repossessed real estate, held under judgment...... 193 0
Total nonperforming assets...................... 302 225
Allowance for loan losses to nonperforming
assets.......................................... 97.58% 134.22%
Nonperforming loans to total loans................ 0.99% 0.79%
Nonperforming assets to total assets.............. 0.47% 0.36%
Book value per share (2).......................... $15.60 $15.44
</TABLE>
- ----------------
(1) The ratios for the three- and six-month periods are annualized.
(2) The number of shares outstanding as of March 31, 1999 and September 30,
1998 were 909,261. These include shares purchased by the ESOP.
Page 15
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
Neither the Company nor the Bank was engaged in any legal
proceeding of a material nature at March 31, 1999. From time
to time, the Company 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 28, 1999, the Company held its annual meeting of
stockholders and the following items were presented:
Election of Directors Richard Reimann and Sandra K. Todd for terms of
three years ending 2002 and the ratification of the appointment of KPMG
LLP as the Company's auditors for the 1999 fiscal year.
Votes were as follows:
For Against Withheld
--- ------- --------
Richard Reimann 513,891 -- 11,961
Sandra K. Todd 513,891 -- 11,961
Ratification of KPMG LLP 515,474 10,141 237
Item 5. Other Information
-----------------
The Company announced that the board of directors has authorized the
repurchase up to 45,463 shares (5%) of the Company's common stock. This
repurchase program follows the repurchase of 148,739 shares of common
stock since Buffalo Federal'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 Company'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 Company's ability to be listed on the
Nasdaq SmallCap Market
Page 16
<PAGE>
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.
Page 17
<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: May 7, 1999 By:/s/Deane D. Bjerke
--------------------------------------------
Deane D. Bjerke
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 7, 1999 By:/s/John B. Snyder
--------------------------------------------
John B. Snyder
Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 86
<INT-BEARING-DEPOSITS> 722
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30,269
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 30,534
<ALLOWANCE> 294
<TOTAL-ASSETS> 63,890
<DEPOSITS> 32,451
<SHORT-TERM> 11,200
<LIABILITIES-OTHER> 436
<LONG-TERM> 5,300
0
0
<COMMON> 106
<OTHER-SE> 14,098
<TOTAL-LIABILITIES-AND-EQUITY> 63,890
<INTEREST-LOAN> 1,211
<INTEREST-INVEST> 860
<INTEREST-OTHER> 87
<INTEREST-TOTAL> 2,158
<INTEREST-DEPOSIT> 799
<INTEREST-EXPENSE> 1,196
<INTEREST-INCOME-NET> 962
<LOAN-LOSSES> 6
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 510
<INCOME-PRETAX> 494
<INCOME-PRE-EXTRAORDINARY> 150
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 344
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.39
<YIELD-ACTUAL> 3.11
<LOANS-NON> 109
<LOANS-PAST> 0
<LOANS-TROUBLED> 21
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 284
<CHARGE-OFFS> 11
<RECOVERIES> 21
<ALLOWANCE-CLOSE> 294
<ALLOWANCE-DOMESTIC> 294
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
