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 December 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from __________ to __________
Commission File No. 0-27714
Crazy Woman Creek Bancorp Incorporated
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(Exact name of registrant as specified in its charter)
Wyoming 83-0315410
- --------------------------------------------------------------------------------
(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 January 31, 1999: 909,261
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Condensed Statements of Financial Condition at December 31, 1998
(unaudited) and September 30, 1998 (audited) 1
Consolidated Condensed Statements of Income for the three months ended December
31, 1998 and 1997 (unaudited) 2
Consolidated Condensed Statements of Stockholders' Equity and Comprehensive
Income for the three months ended December 31, 1998 and 1997 (unaudited) 3
Consolidated Condensed Statements of Cash Flows for the three months ended
December 31, 1998 and 1997 (unaudited) 4
Notes to Consolidated Condensed Financial Statements
5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 9
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings.................................................... 14
Item 2. Changes in Securities................................................ 14
Item 3. Defaults upon Senior Securities...................................... 14
Item 4. Submission of Matters to a Vote of Security Holders.................. 14
Item 5. Other Information.................................................... 14
Item 6. Exhibits and Reports on Form 8-K..................................... 15
SIGNATURES
</TABLE>
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Condensed Statements of Financial Condition
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
----------------- ------------------
(unaudited) (audited)
(In thousands)
<S> <C> <C>
Assets
- ------
Cash and cash equivalents....................................................... $ 1,114 $ 1,562
Interest-bearing time deposits.................................................. 99 99
Investment and mortgage-backed securities available-for-sale.................... 29,161 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............................. 935 917
Loans receivable, net........................................................... 30,416 29,986
Accrued interest receivable..................................................... 500 538
Real estate held in judgment.................................................... 67 --
Premises and equipment, net..................................................... 390 398
Income tax receivable........................................................... -- 39
Other assets.................................................................... 19 42
----------------- ------------------
Total assets................................................................ $62,701 $62,154
================== ===================
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities
Deposits...................................................................... $32,760 $32,913
Advances from Federal Home Loan Bank.......................................... 15,100 14,650
Advances from borrowers for taxes and insurance............................... 17 64
Federal income tax payable ................................................... 42 --
Deferred income taxes......................................................... 244 211
Dividends payable............................................................. 91 91
Accrued expenses and other liabilities........................................ 222 189
------------------ -------------------
Total liabilities........................................................... 48,476 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
authorized; 1,058,000 issued................................................ 106 106
Additional paid-in surplus.................................................... 10,087 10,083
Unearned ESOP/MSBP shares..................................................... (647) (671)
Retained earnings, substantially restricted................................... 6,834 6,737
Treasury stock, at cost 148,739 shares (2,427) (2,427)
Accumulated other comprehensive income........................................ 272 208
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Total stockholders' equity.................................................. 14,225 14,036
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Total liabilities and stockholders' equity.................................. $62,701 $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
December 31,
-------------------------------------------
1998 1997
------------------ ------------------
(Unaudited)
(Dollars in thousands except earnings
per share data)
<S> <C> <C>
Interest Income:
Loans receivable $613 $599
Mortgage-backed securities 106 179
Investment securities 316 326
Interest bearing time deposits 1 1
Other 53 25
------------------ ------------------
Total interest income 1,089 1,130
Interest expense:
Deposits 403 382
Advances from Federal Home Loan Bank 202 230
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Total interest expense 605 612
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Net interest income 484 518
Provision for loan losses 6 --
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Net interest income after provision for loan losses 478 518
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Non-interest income:
Customer service charges 10 12
Other operating income 16 10
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Total non-interest income 26 22
------------------ ------------------
Non-interest expense:
Compensation and benefits 128 138
Occupancy and equipment 21 21
FDIC/SAIF deposit insurance premiums 4 5
Advertising 9 9
Data processing services 27 24
Loss on sale of premises and equipment -- 3
Other 53 57
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Total non-interest expense 242 257
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Income before income taxes 262 283
Income tax expense 80 93
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Net income $182 $190
================== ==================
Dividends declared per common share $ 0.10 $ 0.10
================== ==================
Basic earnings per common share $ 0.21 $ 0.21
==================
==================
Diluted earnings per common share $ 0.21 $ 0.21
================== ==================
</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 Three months
ended December 31, 1998 and 1997
(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 $14,211
Comprehensive income:
Net income 190 190
Unrealized gains on available-for-sale
investment securities, net 8 8
-----------
Total comprehensive income 198
Tax benefit from stock related compensation -- 14 -- -- -- -- 14
ESOP shares committed to be released -- 6 11 -- -- -- 17
MSBP shares vested -- -- 15 -- -- -- 15
Cash dividends declared ($.10 per share) -- -- -- (89) -- -- (89)
=========== ============ ======== ========= =========== ============== ===========
Balances at December 31, 1997 $106 $10,062 $ (783) $6,478 $ (1,582) $ 85 $14,366
=========== ============ ======== ========= =========== ============== ===========
Balances at September 30, 1998 $106 $10,083 $ (671) $6,737 $ (2,427) $ 208 $14,036
Comprehensive income:
Net income 182 182
Unrealized gains on available-for-sale
investment securities, net 9 9
Effect of change in classification of
investment securities 55 55
-----------
Total comprehensive income 246
ESOP shares committed to be released -- 4 12 -- -- -- 16
MSBP shares vested -- -- 12 -- -- -- 12
Cash dividends declared ($.10 per share) -- -- -- (85) -- -- (85)
=========== ============ ======== ========= =========== ============== ===========
Balances at December 31, 1998 $106 $10,087 $ (647) $6,834 $ (2,427) $ 272 $14,225
=========== ============ ======== ========= =========== ============== ===========
</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>
Three Months Ended
December 31,
-------------------
1998 1997
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(In thousands)
<S> <C> <C>
Cash flows from operating activities: (Unaudited)
Net income $ 182 $ 190
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 6 --
Amortization of premiums and discounts on securities available-for-sale 5 1
Federal Home Loan Bank stock dividends (18) (17)
Depreciation 8 12
Dividends reinvested (26) (22)
Deferred loan origination fees, net 13 3
Loss on sale of premises and equipment -- 3
ESOP shares committed to be released 16 17
MSBP deferred compensation 12 15
Change in:
Accrued interest receivable 38 25
Other assets 23 25
Income taxes payable 81 (38)
Accrued expenses and other liabilities 33 8
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Net cash provided by operating activities 372 222
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Cash flows from investing activities:
Purchases of securities available-for-sale (6,545) (6,997)
Maturities and calls of securities available-for-sale 6,075 4,166
Maturities and calls of securities held-to-maturity -- 1,670
Purchase of Federal Home Loan Bank stock -- (49)
Origination of loans receivable (3,349) (1,865)
Repayment of principal on loans receivable 2,834 1,759
Purchase of premises and equipment -- (3)
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Net cash used in investing activities (985) (1,319)
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Cash flows from financing activities:
Net change in deposits (153) 1,001
Advances from Federal Home Loan Bank 4,250 5,850
Repayment of advances from Federal Home Loan Bank (3,800) (6,100)
Net change in advances from borrowers for taxes and insurance (47) (44)
Dividends paid to stockholders (85) (89)
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Net cash provided by financing activities 165 618
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Net decrease in cash and cash equivalents (448) (479)
Cash and cash equivalents at beginning of period 1,562 1,194
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Cash and cash equivalents at end of period $ 1,114 $ 715
======= =======
</TABLE>
See notes to consolidated condensed financial statements.
Page 4
<PAGE>
Notes to Consolidated Condensed Financial Statements
December 31, 1998
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed 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 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
"Company") for the year ended September 30, 1998.
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 three months ended December 31, 1998 and 1997 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, objective, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economy in which the Company conducts operations;
the effects of, and changes in, trade, monetary and fiscal policies and laws,
including interest rate policies of the board of governors of the federal
reserve system, inflation, interest rates, market and monetary fluctuations; the
timely development of and acceptance of new products and services of the Company
and the perceived overall value of these products and services by users,
including the features, pricing and quality compared to competitors' products
and services; the willingness of users to substitute competitors' products and
services for the Company's products and services; the success of the Company in
gaining regulatory approval of its products and services, when required; the
impact of changes in financial services' laws and regulations (including laws
concerning taxes, banking, securities and insurance); technological changes;
acquisitions; changes in consumer spending and saving habits; and the success of
the Company at managing the risks resulting from these factors.
The Company cautions that the listed factors are not exclusive. The Company does
not undertake to update any forward-looking statement, whether written or oral,
that may be made from time to time by or on behalf of the Company.
Page 5
<PAGE>
Notes to Consolidated Condensed Financial Statements
December 31, 1998
NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS
Effective October 1, 1998, the Company adopted the provision 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 balance
sheet as either an asset or liability measured at its fair value. SFAS 133
requires that changes in the derivatives fair value 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
balance sheet 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. Comprehensive income will include net income, as well as
other changes in stockholders' equity that result from transactions and economic
events other than those with stockholders. The Company's only significant
element of comprehensive income is unrealized gains and losses on
available-for-sale securities. There were no reclassification adjustments to
other comprehensive income for holding gains and losses realized during either
of the periods. Unrealized gains reported as other comprehensive income during
the three months ending December 31, 1998 and 1997 are net of related income
taxes of $4,600 and $4,100, respectively.
NOTE 5: EARNINGS PER SHARE
The Company has adopted the provision of SFAS 128, Earnings Per Share. SFAS No.
128 replaces 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 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.
Page 6
<PAGE>
Notes to Consolidated Condensed Financial Statements
December 31, 1998
<TABLE>
<CAPTION>
For the three months ended December 31, 1998
--------------------------------------------
Average Per-Share
Income Shares Amount
------------------- -----------
<S> <C> <C> <C>
Basic EPS
Net income available to common stockholders $182,000 870,297 $ 0.21
====
Effect of Dilutive Securities
Incremental shares under stock option plan -- 7,316
Incremental shares related to MSBP -- 786
------- -------
Diluted EPS
Income available to common stockholders plus
assumed conversions $182,000 878,399 $ 0.21
======== ======= ====
</TABLE>
<TABLE>
<CAPTION>
For the three months ended December 31, 1997
--------------------------------------------
Average Per-Share
Income Shares Amount
-------- -------- ---------
<S> <C> <C> <C>
Basic EPS
Net income available to common stockholders $190,000 904,085 $ 0.21
====
Effect of Dilutive Securities
Incremental shares under stock option plan -- 16,989
Incremental shares related to MSBP -- 3,468
-------- ------
Diluted EPS
Income available to common stockholders plus
assumed conversions $190,000 924,542 $ 0.21
======== ======= ====
</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
Bank's Employee Stock Ownership Plan ("ESOP") and to the Bank, and shares in
three mutual funds. The Bank operates as a traditional savings association,
attracting deposit accounts from the general public and using those deposits,
together with other funds, primarily to originate and invest in fixed-rate
conventional loans secured by single-family residential real estate. The Bank
also originates home equity, consumer loans and loans secured by savings
accounts. The Bank also invests in mortgage-backed (including Real Estate
Mortgage Investment Conduits ("REMICs")), municipal bonds, and short-term U.S.
Agency securities. To a lesser extent, the Bank originates commercial real
estate loans and business loans. The Bank 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 December 31, 1998, assets totaled $62.70 million compared to total assets of
$62.15 million at September 30, 1998. Asset growth was primarily attributed to a
$4.53 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 adoption of SFAS 133. Loans also increased by $430,000 and cash decreased by
$448,000. Deposits decreased by $153,000 from $32.91 million at September 30,
1998 to $32.76 million at December 31, 1998 primarily as a result of a decrease
in business checking. Advances from the FHLB increased by $450,000 to $15.10
million at December 31, 1998.
At December 31, 1998, stockholder's equity totaled $14.23 million or 22.70% of
total assets compared to $14.04 million or 22.59% of total assets at September
30, 1998. The increase in stockholder's equity was primarily due to continued
earnings and an increase in the market value of investment securities
available-for-sale. The increase in stockholder's equity was somewhat offset by
cash dividends of $85,000.
ASSET QUALITY
- -------------
Non-performing assets totaled $324,000 at December 31, 1998, or 0.52% of total
assets. This compares to $225,000 at September 30, 1998 or 0.36% of total
assets. Non-performing loans at December 31, 1998 were comprised of two
residential home loans, six consumer loans and one residence held under
judgment.
Page 8
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS
- ---------------------
Comparison of Three Months Ended December 31, 1998 and 1997.
- ------------------------------------------------------------
Net Income. Net income for the three months ended December 31, 1998 totaled
$182,000 compared to $190,000 for the three months ended December 31, 1997. Net
income was lower in 1998 than in 1997 primarily due to a $34,000 decrease in net
interest income. The decrease in net income was offset with a $4,000 increase in
non-interest income and a $15,000 decline in non-interest expense. Net income in
1998 was negatively affected by a $6,000 provision for loan losses. Federal tax
expense was $13,000 lower in 1998 than in 1997 primarily due to a decrease in
net income before tax expense and a increase in non-taxable investments.
Interest Income. For the three months ended December 31, 1998, interest income
totaled $1.09 million compared to $1.13 million for the three months ended
December 31, 1997. An increase in the volume of average earning assets from
$59.31 million for the three months ended December 31, 1997 to $60.85 million
for the same period in 1998 caused interest income to increase by $77,000. A
decrease was experienced in the yield on average earning assets from 7.62% for
the three months ended December 31, 1997 to 7.16% for the three months ended
December 31, 1998, attributed to a $118,000 decrease in interest income.
Interest Expense. Total interest expense decreased by $7,000 from $612,000 for
the three months ended December 31, 1997 to $605,000 million for the same period
in 1998. 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 decreased from 5.12% for the three
months ended December 31, 1997 to 4.98% for the three months ended December 31,
1998, which caused interest expense for deposits to decrease by $10,000. A
increase in the volume of average interest-bearing deposits from $29.85 million
for the three months ended December 31, 1997 to $32.35 million for the three
months ended December 31, 1998, resulted in a $31,000 increase in interest
expense for deposits.
The cost of average interest-bearing advances from the FHLB decreased from 5.96%
for the three months ended December 31, 1997 to 5.69% for the same period in
1998. This decrease in cost of average interest-bearing advances caused an
$11,000 decrease in interest expense. Average interest-bearing advances
decreased from $15.43 million for the three month period ended December 31, 1997
to $14.20 million for the three month period ended December 31, 1998, resulting
in a $17,000 decrease in interest expense for advances.
Net Interest Income. Net interest income decreased by $34,000 from $518,000 for
the three months ended December 31, 1997 to $484,000 for the three months ended
December 31, 1998. 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 earning assets as evidenced by the slight decrease of the ratio of
average earning assets to average interest-bearing liabilities from 130.96% in
1997 to 130.71% in 1998 , net interest income decreased.
Net interest margin declined from 3.49% for the three months ended December 31,
1997 to 3.18% for the three months ended December 31, 1998. 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.
Pagae 9
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Provisions for Credit Losses. The Company recorded a $6,000 provision for loan
losses for the three months ended December 31, 1998; no provisions were recorded
during the three months ended December 31, 1997. Loan charge-offs for the three
months ended December 31, 1998 totaled $5,000 while recoveries totaled $3,000.
In 1997, loan charge-offs totaled $39,000 while recoveries totaled $3,000. 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
is adequate to cover any anticipated credit losses. There can be no assurance
that the reserve for loan losses will be adequate to cover losses which may be
realized in the future and that additional provisions will not be required.
Total Non-interest Income. Total non-interest income increased by $4,000 from
$22,000 for the three months ended December 31, 1997 to $26,000 for the three
months ended December 31, 1998 primarily due to an slight decrease in fees
generated from service charges and an increase in loan origination fees.
Total Non-interest Expense. Total non-interest expense declined by $15,000 from
$257,000 for the three months ended December 31, 1997 to $242,000 for the three
months ended December 31, 1998. The decrease was primarily attributed to lower
compensation expenses and other non-interest expenses. There were no significant
changes in the other components of non-interest expense.
Non-interest expense for the three months ended December 31, 1998 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.
YEAR 2000
- ---------
The Year 2000 problem exists because many computer programs use only the last
two digits to refer to a year. This convention could affect date-sensitive
calculations that treat "00" as the year 1900, rather that 2000. An additional
issue is that 1900 was not a leap year, whereas the year 2000 is. Therefore,
some programs may not properly provide for February 29, 2000. This anomaly could
result is miscalculations when processing critical date-sensitive information
after December 31, 1999.
The following discussion of the implications of the Year 2000 problem for the
Company contains numerous forward-looking statements based on inherently
uncertain information. The cost of the project and the date on which the Company
plans to complete the internal Year 2000 modifications are based on management's
best estimates, which were derived utilizing a number of assumptions of future
events including the continued availability of internal and external resources,
third party modifications and other factors. However, there can be no guarantee
that these estimates will be achieved and actual results could differ. Moreover,
although management believes it will be able to make the necessary modifications
in advance, there can be no guarantees that failure to modify the systems would
not have a material adverse affect on the Company.
In addition, the Company places a high degree of reliance on its third party
processor and computer systems of other financial institutions. Although the
Company is assessing the readiness of these other parties and preparing
contingency plans, there can be no guarantee that the failure of these other
parties to modify their systems in advance of December 31, 1999 would not have a
material adverse affect on the Company.
Page 10
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
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 is completed
with their Renovation phase and is in the process of the Validation phase. The
Company has contacted all other major vendors and suppliers regarding their Year
2000 state of readiness. Each of these third parties has delivered written
assurance to the Company that they expect the be Year 2000 compliant prior to
the Year 2000. These third parties also supply, at least quarterly, an update of
their progress. The Company has contacted all material customers and
non-information technology suppliers (i.e., utility systems, telephone systems
and security systems), regarding their Year 2000 state of readiness. The Bank is
unable to test the Year 2000 readiness of our significant supplier 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.
The Renovation phase is targeted for completion 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 $3,000 was incurred as of December 31, 1998.
The Company does not separately track the internal personnel costs incurred for
the Year 2000 compliance. No assurance can be given that the Year 2000
Compliance Plan will be completed successfully by the Year 2000, in which event
the Company could incur significant costs. If the Service Center is unable to
resolve the potential problem in time, the Company would likely experience
significant data processing delays, mistakes or failures. These delays, mistakes
or failures could have a significant adverse impact on the financial statements
of the Company.
One of the guidelines from the FFIEC is to establish a Contingency Plan for all
possible Year 2000 failures. During fiscal 1998, the Company adopted a Year 2000
Contingency Plan. The objective of the Contingency Plan is to prepare for any
Year 2000 failures. These failures could result from internal software and
hardware, the Service Center, and/or third parties (utilities, telephone,
suppliers, and other banks). The Contingency Plan is continually being revised
based on new information and updates on the Year 2000 conversions of third
parties and other vendors.
Provision for Income Taxes. The effective tax rate for the three months ended
December 31, 1998 and 1997 was 30.59% and 32.87%, 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)
CAPITAL COMPLIANCE AND LIQUIDITY
- --------------------------------
Capital Compliance. The following table presents the Bank's compliance with its
regulatory capital requirements:
At December 31, 1998
----------------------
Percentage
Amount of Assets
------ ---------
(Dollars in Thousands)
GAAP Capital .......................................... $11,884
Tangible capital ...................................... $11,795 19.26%
Tangible capital requirement .......................... 916 1.50%
Excess ................................................ $10,879 17.76%
====== ====
Core capital .......................................... $11,795 19.26%
Core capital requirements ............................. 1,834 3.00%
Excess ................................................ $ 9,961 16.26%
======= =====
Total risk-based capital (1) .......................... $12,083 48.15%
Total risk-based capital requirement (1) .............. 2,008 8.00%
------- -----
Excess (1) ............................................ $10,075 40.15%
======= =====
1) Based on risk-weighted assets of $25,093
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 December 31, 1998 such borrowed
funds totaled $15.10 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 61.17% and 11.17% at December 31, 1998 and 1997,
respectively. Recent regulatory changes regarding assets eligible for liquidity
caused the significant increase in the Bank's regulatory liquidity ratios from
1997 to 1998; specifically, the maturity restrictions were lifted on U.S. Agency
securities.
Page 12
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
The amount of certificate of deposit accounts which are scheduled to mature
during the twelve months ending December 31, 1999 is approximately $11.93
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 December 31, 1998, the Bank had loan commitments outstanding of $384,000.
Funds required to fill these commitments are derived primarily from current
excess liquidity, deposit inflows or loan, investment and mortgage-backed
security repayments.
IMPACT OF INFLATION AND CHANGING PRICES
- ---------------------------------------
The consolidated condensed financial statements of the Company 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 Company's operations. Unlike most
industrial companies, nearly all the assets and liabilities of the Company are
financial. As a result, interest rates have a greater impact on the Company's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services.
KEY OPERATING RATIOS
- --------------------
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-----------------------------------------
1998 (1) 1997 (1)
------------------- ------------------
(Dollars in Thousands,
except per share data)
(Unaudited)
<S> <C> <C>
Return on average assets 1.18% 1.26%
Return on average equity 5.15% 5.31%
Interest rate spread 1.96% 2.22%
Net interest margin 3.18% 3.49%
Non-interest expense to average assets 1.56% 1.70%
Net charge-offs to average outstanding loans (0.01)% (0.13)%
</TABLE>
<TABLE>
<CAPTION>
At December 31, At September 30,
1998 1998
--------------- ----------------
<S> <C> <C>
Nonaccrual and 90 days past due loans 256 225
Repossessed real estate, held under judgment 68 0
Total non-performing assets 324 225
Allowance for credit losses to non-performing assets 88.98% 134.22%
Non-performing loans to total loans 1.04% 0.79%
Non-performing assets to total assets 0.52% 0.36%
Book value per share (2) $15.64 $15.44
</TABLE>
- ----------------
(1) The ratios for the three-month periods are annualized.
(2) The number of shares outstanding as of December 31, 1998 and September 30,
1998 were 909,261. These include shares purchased by the ESOP.
Page 13
<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 December 31, 1998. 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
---------------------------------------------------
Not applicable
Item 5. Other Information
-----------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 27 -- Financial Disclosure Schedule
(in electronic filing only)
(b) Reports on Form 8-K
None.
Page 14
<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: February 12, 1999 By: /s/ Deane D. Bjerke
---------------------------------------------
Deane D. Bjerke
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 12, 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 DERIVED 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> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 95
<INT-BEARING-DEPOSITS> 1,118
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,161
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 30,416
<ALLOWANCE> 288
<TOTAL-ASSETS> 62,701
<DEPOSITS> 32,760
<SHORT-TERM> 11,500
<LIABILITIES-OTHER> 616
<LONG-TERM> 3,600
0
0
<COMMON> 106
<OTHER-SE> 14,119
<TOTAL-LIABILITIES-AND-EQUITY> 62,701
<INTEREST-LOAN> 613
<INTEREST-INVEST> 423
<INTEREST-OTHER> 53
<INTEREST-TOTAL> 1,089
<INTEREST-DEPOSIT> 403
<INTEREST-EXPENSE> 605
<INTEREST-INCOME-NET> 484
<LOAN-LOSSES> 6
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 242
<INCOME-PRETAX> 262
<INCOME-PRE-EXTRAORDINARY> 262
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 182
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
<YIELD-ACTUAL> 3.18
<LOANS-NON> 256
<LOANS-PAST> 0
<LOANS-TROUBLED> 21
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 284
<CHARGE-OFFS> 5
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 282
<ALLOWANCE-DOMESTIC> 282
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
