SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One):
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended
September 30, 1999,
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|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the
transition period from to .
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Commission File No. 0-27714
CRAZY WOMAN CREEK BANCORP INCORPORATED
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(Name of Small Business Issuer in Its Charter)
Wyoming 83-0315410
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(State or Other Jurisdiction of Incorporation I.R.S. Employer
or Organization) Identification No.
106 Fort Street, Buffalo, Wyoming 82834
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(Address of Principal Executive Offices (Zip Code)
Issuer's Telephone Number, Including Area Code: (307) 684-5591
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
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(Title of Class)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. YES X NO .
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |X|
State issuer's revenues for its most recent fiscal year. $4,374,502
As of December 17, 1999, there were issued and outstanding 863,798
shares of the registrant's Common Stock.
The Registrant's voting stock trades on the Nasdaq SmallCap Market
under the symbol "CRZY." The aggregate market value of the voting stock held by
non-affiliates of the registrant, based on the average bid and asked price of
the registrant's Common Stock on December 17, 1999, was $6,043,050 ($10.0000 per
share based on 604,305 shares of Common Stock outstanding).
Transition Small Business Disclosure Format (check one) YES NO X
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DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the Fiscal Year ended
September 30, 1999. (Parts I, II, and IV)
2. Portions of the Proxy Statement for the Annual Meeting of Stockholders.
(Part III)
<PAGE>
ITEM I
Crazy Woman Creek Bancorp Incorporated (the "Company") may from time to
time make written or oral "forward-looking statements", including statements
contained in the Company's fillings with the Securities and Exchange Commission
(including this Annual Report on Form 10-KSB and the exhibits thereto), in its
reports to stockholders and in other communications by the Company, which are
made in good faith by the Company pursuant to the "safe harbor" provision of the
Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such
as statements of the Company's plans, objective, expectations, estimates and
intentions, that are subject to change based of various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, 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.
Business of the Company
The Company is a Wyoming corporation organized in December 1995 at the
direction of Buffalo Federal Savings Bank (the "Bank") to acquire all of the
capital stock that the Bank issued upon its conversion from the mutual to stock
form of ownership on March 29, 1996. The Company is a unitary savings and loan
holding company which, under existing laws, generally is not restricted in the
types of business activities in which it may engage provided that the Bank
retains a specified amount of its assets in housing-related investments. The
Company does not conduct any active business other than the investment in mutual
funds. The Company does not employ any persons other than officers but utilizes
the support staff of the Bank from time to time.
Business of the Bank
The Bank attracts deposits from the general public and uses such
deposits primarily to originate fixed-rate loans secured by first mortgages on
one-to-four-family residences in its market area. The Bank also originates
consumer loans, commercial loans and loans secured by savings accounts. The
principal sources of funds for the Bank's lending activities are deposits, the
amortization, repayment, and maturity of loans and FHLB advances. Principal
sources of income are interest on loans, mortgage-backed securities and
investment securities and the principal expense is interest paid on deposits and
FHLB advances.
2
<PAGE>
The Bank's primary market area consists of all of Johnson County,
Wyoming. The Bank also attracts customers from the Banner/Story area which is
located in southern Sheridan County. The Johnson County economy has its roots in
the agriculture and mining industries. Agriculture continues to play a major
role in overall Johnson County revenues, most notably in the cattle and sheep
industries. In fact, Johnson County has the largest concentration of sheep among
all of the counties in Wyoming. Mining has steadily declined as an employment
sector in Johnson County, a reflection of the general decline of the U.S. oil
and gas industry over the past decade. Most of the non-agricultural employment
in Johnson County is found in and around Buffalo, primarily within service
industries, state and local government, and retail trade. The largest employer
in Johnson County is the public school system, followed by the Johnson County
Memorial Hospital. Tourism also provides a major boost to jobs in services and
retail trade in Johnson County, as Buffalo is located at the edge of the Big
Horn National Forest and the area is a popular destination for people seeking
outdoor recreation. The three-way junction of Interstate 90 and 25 and State
Highway 16 also brings a large number of travelers through Buffalo.
Buffalo, the largest town in Johnson County, has a population estimated
at 3,900, with approximately 51 percent of the county population resides in the
Buffalo area. Because Johnson County is primarily a rural area where most of the
land is used for agricultural purposes, Buffalo acts as somewhat of a hub for
commerce in Johnson County. Economic growth in the Bank's market area remains
dependent upon the local economy. In addition, the deposit and loan activity of
the Bank is significantly affected by economic conditions in its market area.
Competition
The Bank is the only savings and loan association in its primary market
area. There are, however, two commercial banks headquartered in the primary
market area and a branch of a larger out-of-area commercial bank and a branch of
a credit union. The Bank believes it is a primary source of residential mortgage
loans in the community. The Bank has competition from all three banks in
originating residential mortgage loans along with some competition from a few
out of area mortgage bankers. All of the competition sells the majority of their
residential mortgage loans on the secondary market, while Buffalo Federal has
been traditionally placing mortgage loan originations in their portfolio.
There is also healthy competition for deposits. Based on data provided
periodically by the Office of Thrift Supervision ("OTS"), Buffalo Federal has
been able to maintain a market share of approximately 22% of the total deposits
in financial institutions in the community. Insurance companies and securities
dealers offer further competition for deposits. The competition for deposits is
expected to continue in the future.
3
<PAGE>
Lending Activities
Analysis of Loan Portfolio. The following table sets forth information
on the composition of the Bank's loan portfolio in dollar amounts and in
percentages of the total loan portfolio (before deductions for loans in process,
net deferred loan origination fees and allowance for loan losses) as of the
dates indicated.
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------
1999 1998
--------------------------- --------------------------
Percent Percent
Amount of Total Amount of Total
------ -------- ------ --------
(In Thousands)
<S> <C> <C> <C> <C>
Type of Loans:
One-to-four-family $ 24,625 81.10% $ 23,162 74.45%
Residential construction 473 1.56 331 1.08
Multi-family 322 1.06 443 1.44
Commercial real estate(1) 1,938 6.38 3,110 10.13
Commercial 253 0.83 203 0.66
Consumer:
Automobile 1,068 3.52 1,136 3.70
Home equity/Line of credit 835 2.75 1,465 4.77
Share 159 0.52 276 0.90
Other 692 2.28 573 1.87
Total consumer 2,754 9.07 3,450 11.24
Total loans 30,365 100.00% 30,699 100.00%
------ ====== ------ ======
Less:
Loans in process.................................... (200) (271)
Net deferred loan origination fees................. (189) (158)
Allowance for loan losses........................... (249) (284)
------ ------
Total loans, net...................................... $29,727 $29,986
====== ======
</TABLE>
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(1) Includes agricultural real estate loans.
Origination, Purchase and Sale of Loans. The following table sets forth
the Bank's loan originations and loan sales and principal repayments for the
periods indicated.
Year Ended September 30,
------------------------
1999 1998
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(In Thousands)
Total gross loans receivable at beginning of $ 30,699 $ 29,184
======== ========
period
Loans originated:
One-to-four-family $ 7,080 $ 6,730
Commercial real estate 288 1,609
Construction 662 801
Commercial 416 229
Consumer 1,772 2,173
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Total loans originated $ 10,218 $ 11,542
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Loans sold:
Total loans sold $ -- $ --
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Principal Repayments:
Loan principal repayments $ 10,552 $ 10,027
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Net loan activity $ (334) $ 1,515
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Total gross loans receivable at end of period $ 30,365 $ 30,699
======== ========
4
<PAGE>
Loan Maturity Tables. The following table sets forth the maturity of
Buffalo Federal's loan portfolio at September 30, 1999. The table does not
include prepayments or scheduled principal repayments. Prepayments and scheduled
principal repayments on loans totaled $10.3 million and $10.0 million, for the
years ended September 30, 1999 and 1998, respectively. Adjustable-rate mortgage
loans are shown as maturing based on contractual maturities.
<TABLE>
<CAPTION>
Commercial
1-4 Family Multi-family Real Estate Construction Business Consumer Total
------------- ---------------------------- --------------- ---------- ------------ ---------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Non-performing loans .... $ -- $ -- $ 66 $ -- $ -- $ 2 $ 68
------- ------- ------- ------- ------- ------- -------
Amounts Due:
Within 3 months ......... 354 -- -- 473 21 404 1,252
3 months to 1 Year ...... 195 -- 10 -- 67 260 532
After 1 year:
1 to 3 years ........ 616 -- 347 -- 27 807 1,797
3 to 5 years ........ 1,277 -- 221 -- 78 761 2,337
5 to 10 years ....... 5,735 322 263 -- 60 300 6,680
10 to 20 years ...... 16,141 -- 1,031 -- -- 220 17,392
Over 20 years ....... 307 -- -- -- -- -- 307
------- ------- ------- ------- ------- ------- -------
Total due after one ..... 24,076 322 1,862 -- 165 2,088 28,513
year
------- ------- ------- ------- ------- ------- -------
Total amount due ........ 24,625 322 1,938 473 253 2,754 30,365
------- ------- ------- ------- ------- ------- -------
Less:
Allowance for loan loss 126 8 45 4 7 59 249
Loans in process ........ -- -- 2 193 5 -- 200
Deferred loan fees ...... 179 4 4 -- -- 2 189
======= ======= ======= ======= ======= ======= =======
Loans receivable, net.. $24,320 $ 310 $ 1,887 $ 276 $ 241 $ 2,693 $29,727
======= ======= ======= ======= ======= ======= =======
</TABLE>
The next table sets forth at September 30, 1999, the dollar amount of
all loans due after September 30, 2000 which have
fixed interest rates and have floating or adjustable interest rates.
Floating or
Fixed Adjustable
Rates Rates Total
----- ----- -----
(In Thousands)
One-to-four-family.......... $24,009 $ 67 $24,076
Multi-family................ 322 - 322
Commercial real estate...... 1,862 - 1,862
Commercial.................. 165 - 165
Consumer.................... 1,820 268 2,088
------ ------ -----
Total.................. $28,178 $ 335 $28,513
====== ====== ======
5
<PAGE>
One-to-Four-Family Residential Loans. The Bank's primary lending
activity consists of the origination of one-to-four-family residential mortgage
loans secured by property located in the Bank's primary market area. The Bank
generally originates one-to-four-family residential mortgage loans in amounts up
to 80% of the lesser of the appraised value or selling price of the mortgaged
property. Loans in excess of 80% of the lesser of the appraised value or selling
price of property require private mortgage insurance for the borrower. The
Bank's strategy is to originate for its portfolio adjustable-rate loans, and
five-year balloon loans as well as 20-year or less fixed-rate loans for
retention in its portfolio. The Bank intends to broker, for a third party, loans
with maturities of greater than 20 years for a one percent fee. During 1999, no
loans were brokered to a third party.
The Bank offers adjustable-rate mortgage loans using primarily a
one-year constant maturity treasury interest rate index. During fiscal 1999, the
Bank did not originate any adjustable rate loans. Interest rates charged on
mortgage loans are competitively priced based on market conditions and the
Bank's cost of funds. Generally, the Bank's standard underwriting guidelines for
mortgage loans conform to secondary market guidelines. It is the current policy
of the Bank to primarily remain a portfolio lender. At September 30, 1999, the
Bank serviced loans for others totaling $70,000.
Loan originations are generally obtained from existing customers,
members of the local community, and referrals from realtors, past customers and
contractors within the Bank's lending area. Mortgage loans originated and held
by the Bank in its portfolio generally include due-on-sale clauses which provide
the Bank with the contractual right to deem the loan immediately due and payable
in the event that the borrower transfers ownership of the property without the
Bank's consent.
The Bank originates five-year balloon mortgage loans with a 30-year
amortization period. Management believes that balloon loans have a pricing
characteristic that helps offset the detrimental affect that rising rates could
have on net interest income. At September 30, 1999, balloon mortgages totaled
$2.08 million, or 6.91% of the Bank's loan portfolio.
Residential Construction Loans. Residential construction loans are made
on one-to-four-family residential properties to the individuals who will be the
owners and occupants upon completion of construction. These loans are made on a
short term basis and permanent long-term financing is available to these
borrowers. No principal payments are required during the construction period,
however, interest is due monthly. The maximum loan-to-value ratio is 80%. If
permanent financing is obtained from the Bank, these loans are made on terms
similar to those of the Bank's single family residential loans and may be
amortized over terms of up to 30 years.
In addition to loans originated for the construction of a residence for
which the ultimate purchaser has been identified, the Bank on a limited basis
originates speculative loans to residential builders who have established
business relationships with the Bank. These speculative loans are typically made
for a 12 month period and require interest only payments during the term of the
loan. In underwriting such loans, the Bank considers the number of units that
the builder has on a speculative bid basis that remain unsold. The Bank's
experience during the past four years has been that most speculative loans are
repaid well within the 12 month period. Speculative loans are generally
originated with a loan-to-value ratio that does not exceed 80%. At September 30,
1999, there were no speculative construction loans.
6
<PAGE>
Construction lending is generally considered to involve a higher degree
of credit risk than long-term financing of residential properties. The Bank's
risk of loss on a construction loan is dependent largely upon the accuracy of
the initial estimate of the property's value at completion of construction or
development and the estimated cost of construction. If the estimate of
construction cost and the marketability of the property upon completion of the
project prove to be inaccurate, the Bank may be compelled to advance additional
funds to complete the development. Furthermore, if the estimate of value proves
to be inaccurate, the Bank may be confronted, at or prior to the maturity of the
loan, with a property with a value that is insufficient to assure full
repayment. For speculative loans originated to builders, the ability of the
builder to sell completed dwelling units will depend, among other things, on
demand, pricing and availability of comparable properties, and economic
conditions.
Commercial Real Estate Loans. In order to serve its community and
enhance yields on its assets, the Bank originates loans secured by commercial
real estate. The commercial real estate loans originated by the Bank have
generally been made to individuals, small businesses, and partnerships. They are
primarily secured by first mortgages on a motel and restaurant, office buildings
and other properties located in its primary market area. The Bank benefits from
originating such loans due to higher origination fees and shorter term
maturities. Buffalo Federal's commercial real estate loans are fixed-rate and
balloon loans with terms of 20 years or less, with loan-to-value ratios not
exceeding 75%.
Loans secured by commercial real estate generally involve a greater
degree of risk than residential mortgage loans and carry larger loan balances.
This increased credit risk is a result of several factors, including the
concentration of principal in a limited number of loans and borrowers, the
effects of general economic conditions on income producing properties, and the
increased difficulty of evaluating and monitoring these types of loans.
Furthermore, the repayment of loans secured by commercial real estate is
typically dependent upon the successful operation of the related real estate
project. If the cash flow from the project is reduced, the borrower's ability to
repay the loan may be impaired. See also "--Non-performing and Problem Assets --
Classified Assets." To minimize these risks, Buffalo Federal generally limits
loans of this type to its market area and to borrowers with which it has
substantial experience or who are otherwise well known to the Bank. The Bank's
underwriting procedures require verification of the borrower's credit history,
income, financial statements, banking relationships, credit references, and
income projections for the property. It is the Bank's current practice to obtain
personal guarantees from all principals obtaining this type of loan. The Bank
also obtains appraisals on each property in accordance with applicable
regulations and appraisal policies. All appraisals on commercial real estate are
reviewed by the Bank's management.
Agricultural Loans. Buffalo Federal engages in lending on improved farm
land with no dwelling, building lots and building acreage sites. These
properties must have good road access. The loan-to-value ratio for this type of
loan is 75% or less with a maximum loan term of 15 years.
Buffalo Federal also engages in loans for improved farm land with
dwelling. The loan-to-value ratio for this type of loan is 75% or less with a
maximum term of 20 years. These loans can be set up with payment of intervals of
interest collected semi-annually and principal annually as well as monthly
principal and interest payments. As of September 30, 1999, agricultural land
loans constituted approximately $671,000, or 2.26% of the Bank's loan portfolio.
Agricultural land loans are included in the commercial real estate loan total.
See also "-- Commercial Real Estate Loans."
7
<PAGE>
Multi-Family Loans. The Bank also makes multi-family loans, including
loans on apartment complexes located in the Bank's primary market area.
Multi-family loans generally provide higher interest rates than can be obtained
from single-family mortgage loans. Multi-family lending, however, entails
significant additional risks compared with one-to-four-family residential
lending. For example, multi-family loans typically involve larger loan balances
to single borrowers or groups of related borrowers, the payment experience on
such loans typically is dependent on the successful operation of the real estate
project, and these risks can be significantly impacted by supply and demand
conditions in the market for multi-family residential units and commercial
office, retail and warehouse space.
Consumer Loans. The Bank's consumer loans consist of home equity loans
secured by second mortgages on single-family residences in the Bank's market
area, automobiles, demand loans secured by savings accounts at the Bank, student
loans and other loans. The Bank has increased its emphasis on consumer lending
in recent years, including new and used automobile loans, to provide a wide
range of financial services to the Bank's customers while increasing the Bank's
portfolio yields.
The Bank makes second mortgage loans secured by the borrower's
residence. These loans, combined with the first mortgage loan, which usually is
from the Bank, generally are limited to 80% of the appraised value of the
residence.
The Bank generally makes savings account loans for up to 90% of the
balance of the account. The interest rate on these loans generally is indexed to
the rate paid on the secured savings account, and interest is due at maturity.
These loans are payable on demand, and the account must be pledged as collateral
to secure the loan.
Consumer loans generally involve more risk than first mortgage loans.
Repossessed collateral for a defaulted loan may not provide an adequate source
of repayment of the outstanding loan balance as a result of damage, loss or
depreciation, and the remaining deficiency often does not warrant further
substantial collection efforts against the borrower. In addition, loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be adversely affected by job loss, divorce, illness or
personal bankruptcy. Further, the application of various federal and state laws,
including federal and state bankruptcy and insolvency laws, may limit the amount
which can be recovered. These loans may also give rise to claims and defenses by
a borrower against the Bank and a borrower may be able to assert against the
Bank claims and defenses which it has against the seller of the underlying
collateral. In underwriting consumer loans, the Bank considers the borrower's
credit history, an analysis of the borrower's income, expenses and ability to
repay the loan and the value of the collateral.
Commercial Loans. The Bank on occasion will originate commercial loans,
primarily to existing customers. At September 30, 1999, commercial loans
consisted primarily of small business loans (primarily secured by livestock,
office equipment, and machinery).
Loan Approval Authority, Underwriting and Fees. The Bank's Loan
Committee, which consists of the three senior officers, has authority to approve
loans up to $125,000. Loans in excess of $125,000 require approval by the Board
of Directors. Individual loan officers have lending authority for consumer loans
up to $20,000.
8
<PAGE>
Upon receipt of a completed loan application from a prospective
borrower, a credit report is ordered, income and certain other information is
verified and, if necessary, additional financial information is requested. An
appraisal of the real estate intended to be used as security for the proposed
loan is obtained. Appraisals are conducted by four independent appraisers which
have been approved by the Bank. The Bank makes construction/permanent loans on
individual properties. Funds advanced during the construction phase are held in
a loan-in-process account and disbursed based upon various stages of completion
in accordance with the results of inspection reports that are based upon
physical inspection of the construction by a loan officer. For real estate
loans, the Bank requires a title commitment. Borrowers must also obtain fire and
casualty insurance (for loans on property located in a flood zone, flood
insurance is required) prior to the closing of the loan.
The Bank receives fees in connection with loan originations, loan
modifications, late payments and changes of property ownership and for
miscellaneous services related to its loans. Loan origination fees are
calculated as a percentage of the loan principal. The Bank typically receives
fees of up to 2 points (one point being equivalent to 1% of the principal amount
of the loan) in connection with the origination of fixed-rate and
adjustable-rate residential mortgage loans. The excess, if any, of loan
origination fees over direct loan origination expenses is deferred and credited
into income over the contractual life of the loan using the level-yield method.
If a loan is prepaid, refinanced or sold, all remaining deferred fees with
respect to such loan are taken into income at such time.
Loan Commitments. The Bank issues verbal commitments to prospective
borrowers on all approved real estate loans. Generally, the commitment requires
acceptance within 60 days of the date of issuance. At September 30, 1999, the
Bank had $410,000 of commitments to cover originations and $200,000 in
undisbursed funds for loans in process. Management believes that virtually all
of the Bank's commitments will be funded.
Loans-to-One Borrower. Regulations limit loans-to-one borrower in an
amount equal to 15% of unimpaired capital and unimpaired surplus of the Bank.
The Bank is authorized to lend up to an additional 10% of unimpaired capital and
unimpaired surplus if the loan is fully secured by readily marketable
collateral. The Bank's maximum loan-to-one borrower limit was approximately $1.7
million at September 30, 1999.
At September 30, 1999, the Bank's largest lending relationship involved
two loans secured by residential and commercial real estate properties loans
aggregating approximately $771,000. The loans are located in the Bank's primary
market area and were performing at September 30, 1999.
Non-Performing and Problem Assets
Loan Delinquencies. The Bank's collection procedures provide that when
a mortgage loan is 30 days past due, a notice of nonpayment is sent. If the
payment is still delinquent after 60 days, the customer will receive a letter
and/or telephone call and may receive a visit from a representative of the Bank.
If the delinquency continues, similar subsequent efforts are made to eliminate
the delinquency. If the loan continues in a delinquent status until 90 days past
due and no repayment plan is in effect, a notice of right to cure default is
mailed to the customer giving 30 additional days to bring the account current
before foreclosure is commenced. The loan committee meets regularly to determine
when foreclosure proceedings should be initiated and the customer is notified
when foreclosure has been commenced. At September 30, 1999, loans past due 30 to
89 days totaled $382,000, and loans past 90 days were $68,000.
9
<PAGE>
Loans are reviewed on a monthly basis and are generally placed on a
non-accrual status when the loan becomes more than 90 days delinquent or when,
in the opinion of management, the collection of principal or interest is
doubtful. Interest accrued and unpaid at the time a loan is placed on
non-accrual status is charged against interest income. Subsequent interest
payments, if any, are either applied to the outstanding principal balance or
recorded as interest income, depending on the assessment of the ultimate
collectibility of the loan.
Non-Performing Assets. The following table sets forth information
regarding non-accrual loans, real estate owned, and certain other repossessed
assets and loans.
At September 30,
------------------
1999 1998
---- ----
(In Thousands)
Loans accounted for on a non-accrual basis:
One-to-four-family ......................... $-- $115
Commercial real estate ..................... 65 68
Construction ............................... -- --
Commercial ................................. -- --
Consumer ................................... 3 73
---- ----
Total Non-performing loans ................... 68 256
---- ----
Real estate owned (REO) ...................... 73 --
---- ----
Other non-performing assets .................. -- --
---- ----
Total non-performing assets .................. $141 $256
==== ====
Total non-performing loans to net loans ...... 0.23% 0.86%
==== ====
Total non-performing assets to total assets... 0.22% 0.41%
==== ====
Interest income that would have been recorded on loans accounted for on
a non-accrual basis under the original terms of such loans was immaterial for
the year ended September 30, 1999. Amounts included in the Bank's interest
income for the year ended September 30, 1999 were, likewise, immaterial.
Classified Assets. OTS regulations provide for a classification system
for problem assets of insured institutions which covers all problem assets.
Under this classification system, problem assets of insured institutions are
classified as "substandard," "doubtful," or "loss." An asset is considered
substandard if it is inadequately protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any. Substandard assets
include those characterized by the "distinct possibility" that the insured
institution will sustain "some loss" if the deficiencies are not corrected.
Assets classified as doubtful have all of the weaknesses inherent in those
classified substandard, with the added characteristic that the weaknesses
present make "collection or liquidation in full," on the basis of currently
existing facts, conditions, and values, "highly questionable and improbable."
Assets classified as loss are those considered "uncollectible" and of such
little value that their continuance as assets without the establishment of a
specific loss reserve is not warranted. Assets may be designated "special
mention" because of potential weaknesses that do not currently warrant
classification in one of the aforementioned categories.
10
<PAGE>
When an insured institution classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as loss, it is required either to establish a specific allowance
for losses equal to 100% of that portion of the asset so classified or to charge
off such amount. An institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS, which may order the establishment of additional general or specific loss
allowances. A portion of general loss allowances established to cover the
possible losses related to assets classified as substandard or doubtful may be
included in determining an institution's regulatory capital, while specific
valuation allowances for loan losses generally do not qualify as regulatory
capital.
At September 30, 1999, the Bank had $253,000 of assets classified as
special mention (which consisted of one commercial loan and seven
one-to-four-family home loans). The Bank had $9,000 of assets classified as
substandard (which consisted of two consumer loans). Furthermore, the Bank had
$400 of assets classified as doubtful or loss (which consisted of one consumer
loans).
Foreclosed Real Estate. Real estate acquired by the Bank as a result of
foreclosure or by deed in lieu of foreclosure is classified as REO until it is
sold. When property is acquired, it is recorded at the fair value at the date of
foreclosure less estimated costs of disposition. At September 30, 1999, the Bank
had one REO property with a fair value of $73,000.
Allowance for Loan Losses. It is management's policy to provide for
inherent losses on loans in its loan portfolio. A provision for loan losses is
charged to operations based on management's evaluation of the potential losses
that may be incurred in the Bank's loan portfolio. Such evaluation, which
includes a review of all loans of which full collectibility of interest and
principal may not be reasonably assured, considers the Bank's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, estimated value of any underlying
collateral and current economic conditions.
The amount of provisions recorded in future periods may be
significantly greater or less than the provisions taken in the past. The
allowance for loan losses, as a ratio of total net loans was 0.84% at September
30, 1999.
Management will continue to review the entire loan portfolio to
determine the extent, if any, to which further additional loss provisions may be
deemed necessary. There can be no assurance that the allowance for losses will
be adequate to cover losses which may in fact be realized in the future and that
additional provisions for losses will not be required. Subsequent to year end
there has been approximately $26,000 of loans recovered that had been written
off during the year ended September 30, 1999.
11
<PAGE>
Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of the Bank's allowance for loan losses by loan category and the
percent of loans in each category to total loans receivable for the periods
indicated. The portion of the loan loss allowance allocated to each loan
category does not represent the total available for future losses that may occur
within the loan category because the total loan loss allowance is a valuation
reserve applicable to the entire loan portfolio.
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------------------
1999 1998
------------------------- -------------------------
Percent of Percent of
Loans to Loans to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
At end of period allocated to:
One-to four-family............ $126 81.10% $130 75.45%
Multi-family.................. 8 1.06 11 1.44
Commercial real estate........ 45 6.38 62 10.13
Construction.................. 4 1.56 2 1.08
Commercial.................... 7 0.83 12 0.66
Consumer...................... 59 9.07 68 11.24
--- ------ --- ------
Total allowance............... $249 100.00% $302 100.00%
=== ====== ====== ======
</TABLE>
Analysis of the Allowance for Loan Losses. The following table sets
forth information with respect to the Bank's allowance for loan losses at the
dates indicated:
Year Ended September 30,
------------------------
1999 1998
---- ----
(Dollars in Thousands)
Total loans outstanding .................... $ 30,365 $ 30,699
======== ========
Allowance for loan losses (at beginning of
period) .................................... $ 284 $ 302
Provision for loan losses .................. 6 18
Net charge-offs (recoveries):
One-to-four-family ....................... 7 2
Commercial real estate ................... -- --
Commercial ............................... (1) (37)
Consumer ................................. 35 (1)
-------- --------
Net charge-offs ........................ 41 36
-------- --------
Allowance for loan losses (at end of period)
$ 249 $ 284
======== ========
Allowance for loan losses to total
loans, net ............................... 0.82% 0.92%
======== ========
Net charge-offs to loans receivable, net .. 0.14% 0.12%
======== ========
12
<PAGE>
Investment Activities
General. Buffalo Federal is required under federal regulations to
maintain a minimum amount of liquid assets which may be invested in specified
short-term securities and certain other investments. See also " -- Bank
Regulation -- Federal Home Loan Bank System." The Bank has maintained a
liquidity portfolio in excess of regulatory requirements. Liquidity levels may
be increased or decreased depending upon the yields on investment alternatives
and upon management's judgment as to the attractiveness of the yields then
available in relation to other opportunities and its expectation of future yield
levels, as well as management's projections as to the short-term demand for
funds to be used in the Bank's loan origination and other activities. At
September 30, 1999, the Bank's investment portfolio policy allowed investments
in only U.S. Treasury obligations, U.S. Agency securities, mortgage-backed
securities, municipal securities, federally-insured certificates of deposit,
federal funds, FHLMC stock and FHLB overnight and term deposits. Investment
decisions are made by the Bank's Investment Committee, which is comprised of the
three senior officers. Two of the three committee members must agree on all
decisions. The Board of Directors may authorize additional investments.
In 1997, the Board of Directors of the Company authorized the
investment in quality mutual funds. At September 30, 1999, the Company had a
total investment of $1.0 million, with dividends reinvested of $73,000, in three
different mutual funds. The market value of these funds was $1.41 million at
that date. The Board of Directors has established a maximum initial investment
limit of $1.0 million in such funds. The mutual funds purchased by the Company
invest in equity securities and accordingly, the mutual funds are subject to
market risk including potential loss of principal.
Mortgage-Backed Securities. Primarily to supplement lending activities,
Buffalo Federal invests in residential mortgage-backed securities.
Mortgage-backed securities can serve as collateral for borrowings and, through
repayments, as a source of liquidity.
Mortgage-backed securities represent a participation interest in a pool
of single-family mortgages, the principal and interest payments on which are
passed from the mortgage originators, through intermediaries (generally
quasi-governmental agencies) that pool and repackage the participation interests
in the form of securities, to investors such as the Bank. Such
quasi-governmental agencies, which guarantee the payment of principal and
interest to investors, primarily include the Federal Home Loan Mortgage
Corporation ("FHLMC"), Government National Mortgage Association ("GNMA"), and
Federal National Mortgage Association ("FNMA"). Pass-through certificates
typically are issued with stated principal amounts, and the securities are
backed by pools of mortgages that have loans with interest rates and maturities
that are within a specified range. The underlying pool of mortgages can be
composed of either fixed-rate mortgage loans or ARM loans. Mortgage-backed
securities are generally referred to as mortgage participation certificates or
pass-through certificates. As a result, the interest rate risk characteristics
of the underlying pool of mortgages, (i.e., fixed-rate or adjustable-rate) as
well as prepayment risk, are passed on to the certificate holder. The life of a
mortgage-backed pass-through security is equal to the life of the underlying
mortgages. Mortgage-backed securities issued by FHLMC, FNMA and GNMA make up a
majority of the pass-through market.
Mortgage-backed securities provide for monthly payments of principal
and interest and generally have contractual maturities ranging from five to 30
years. However, due to expected repayment terms being significantly less than
the underlying mortgage loan pool contractual maturities, the estimated lives of
these securities could be significantly shorter.
13
<PAGE>
The Bank also purchases mortgage-backed securities issued by government
agencies which are currently qualified under the Internal Revenue Code, as
amended (the "Code") as Real Estate Mortgage Investment Conduit ("REMICs").
REMICs have been developed in response to investor concerns regarding the
uncertainty of cash flows associated with the prepayment option of the
underlying mortgagor and are typically issued by governmental agencies,
governmental sponsored enterprises and special purpose entities, such as trusts,
corporations or partnerships, established by financial institutions or other
similar institutions. Some REMIC instruments are most like traditional debt
instruments because they have stated principal amounts and traditionally defined
interest-rate terms. Purchasers of certain other REMIC instruments are entitled
to the excess, if any, of the issuer's cash inflows, including reinvestment
earnings, over the cash outflows for debt service and administrative expenses.
These mortgage related instruments may include instruments designated as
residual interests, which represent an equity ownership interest in the
underlying collateral, subject to the first lien of the investors in the other
classes of the REMIC. Certain residual REMIC interests may be riskier than many
regular REMIC interests to the extent that they could result in the loss of a
portion of the original investment. Moreover, cash flows from residual interests
are very sensitive to prepayments and, thus, contain a high degree of
interest-rate risk.
At September 30, 1999, all of the Bank's investment in REMICs consisted
of regular interests and did not include any residual interests or interest-only
or principal-only securities. As a matter of policy, the Bank does not invest in
residuals or interest-only and principal-only securities. The REMICs held by the
Bank at September 30, 1999 consisted solely of fixed-rate tranches. The
securities are backed by mortgages on one-to-four-family residential real estate
and have contractual maturities up to 30 years. The securities are PACs (Planned
Amortization Classes) and are designed to provide a specific principal and
interest cash-flow.
At September 30, 1999, the Bank had REMICs with an aggregate carrying
amount (including discounts and premiums) of $692,000, of which none were
privately issued.
During periods of rising mortgage interest rates, if the coupon rates
of the underlying mortgages are less than that of the prevailing market interest
rates offered for mortgage loans, refinancings generally decrease and slow the
prepayment of the underlying mortgages and the related securities. Conversely,
during periods of falling mortgage interest rates, if the coupon rates of the
underlying mortgages exceed the prevailing market interest rates offered for
mortgage loans, refinancing generally increases and accelerates the prepayment
of the underlying mortgages and the related securities. Under such
circumstances, the Bank may be subject to reinvestment risk because to the
extent that the Bank's mortgage-related securities amortize or prepay faster
than anticipated, the Bank may not be able to reinvest the proceeds of such
repayments and prepayments at a comparable rate.
14
<PAGE>
Investment Securities Portfolio. The following table sets forth the
amortized cost of the Company's investment securities portfolio, securities
available for sale portfolio, short-term investments and FHLB stock at the dates
indicated.
At September 30,
----------------
1999 1998
---- ----
(In Thousands)
Investment securities held to maturity:
U.S. Agency securities ...................... $ -- $ 845
Municipal securities ........................ -- 572
Mortgage-backed securities:
GNMA ...................................... -- 996
FNMA ...................................... -- 543
FHLMC ..................................... -- 982
------- -------
Total investment securities held
to maturity ............................. -- 3,938
------- -------
Investment securities available for sale: (1)
U.S. Agency securities ...................... 15,749 16,287
Municipal securities ........................ 2,033 1,085
Mortgage-backed securities:
GNMA ...................................... 4,002 2,745
FHLMC ..................................... 3,949 872
FNMA ...................................... 2,472 --
REMIC's ................................... 718 2,300
Investment in mutual funds(2) ................ 1,073 1,032
------- -------
Total securities available for sale ....... 29,996 24,321
------- -------
Interest-bearing deposits .................... -- 99
FHLB stock ................................... 988 917
------- -------
Total ..................................... $30,984 $29,275
======= =======
- ----------------
(1) Amounts shown at amortized cost, but carried at fair value.
(2) Includes three mutual funds held as available for sale.
15
<PAGE>
The following table sets forth information regarding the scheduled
maturities, carrying value, market value and weighted average yields for the
Bank's investment securities at September 30, 1999:
<TABLE>
<CAPTION>
As of September 30, 1999
--------------------------------------------------------------------------------------------------
Total
One Year or Less One to Five Years Five to Ten Years More than Ten Years Investment Securities
---------------- ----------------- ----------------- ------------------- ---------------------
Amortized Average Amortized Average Amortized Average Amortized Average Amortized Average Market
Cost Yield Cost Yield Cost Yield Cost Yield Cost Yield Value
---- ----- ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities
available for sale: (1)
U. S. Agency securities....... $ 500 7.07% $ 5,200 6.39% $10,049 6.35% $ -- --% $15,749 6.39% $15,146
Municipal securities (2)...... 75 7.27 281 7.54 295 7.69 1,382 6.89 2,033 7.11 1,945
Mortgage-backed securities
and other pass-throughs.....
GNMA -- -- 1,878 6.54 2,124 6.75 -- -- 4,002 6.65 3,939
FHLMC -- -- 1,668 6.52 2,281 6.77 -- -- 3,949 6.66 3,891
FNMA -- -- 907 6.56 1,089 6.33 476 6.11 2,472 6.37 2,457
REMIC's................... -- -- 303 6.80 415 6.50 -- -- 718 6.63 692
----- ------- ------- ------ ------- -------
Total....................... $ 575 7.10% $10,237 6.50% $16,253 6.49% $1,858 6.69% $28,923 6.52% $28,070
===== ======= ====== ====== ======= =======
</TABLE>
(1) Includes U.S. Agency securities and mortgage-backed securities but does not
include investment in mutual funds (See - "Investment Securities
Portfolio").
(2) Calculated using tax equivalent yield
16
<PAGE>
Sources of Funds
General. Deposits are the major external source of the Bank's funds for
lending and other investment purposes. Buffalo Federal derives funds from
amortization and prepayment of loans and, to a lesser extent, maturities of
investment securities, borrowings, maturities of mortgage-backed securities and
operations. Scheduled loan principal repayments are a relatively stable source
of funds, while deposit inflows and outflows and loan prepayments are
significantly influenced by general interest rates and market conditions.
Buffalo Federal also utilizes FHLB advances to meet liquidity and investing
needs.
Deposits. Deposits are attracted principally from within the Bank's
primary market area through the offering of a selection of deposit instruments
including regular savings accounts, money market accounts, NOW accounts, and
term certificate accounts. The Bank also offers IRA accounts. Deposit account
terms vary according to the minimum balance required, the time period the funds
must remain on deposit, and the interest rate, among other factors.
The interest rates paid by the Bank on deposits are set weekly at the
direction of senior management. The Bank determines the interest rate to offer
the public on new and maturing accounts by reviewing the market interest rates
offered by competitors and the national market. The Bank reviews, weekly, the
interest rates being offered by other financial institutions within its primary
market area.
Passbook savings, business checking, money market and NOW accounts
constituted $12.79 million, or 37.33%, of the Bank's deposit portfolio at
September 30, 1999. Certificates of deposit (or time deposits) constituted
$21.47 million, or 62.67% of the deposit portfolio of which $7.67 million, or
22.39% of the deposit portfolio were certificates of deposit with balances of
$100,000 or more. As of September 30, 1999, the Bank had no brokered deposits.
Time Deposits by Rate. The following table sets forth the time deposits
in the Bank classified by interest rate as of the dates indicated.
At September 30,
-----------------------
1999 1998
---- ----
(In Thousands)
Interest Rate
4.01 - 5.00%.............................. 6,223 1,301
5.01 - 6.00%.............................. 13,554 15,067
6.01 - 7.00%.............................. 1,691 4,031
7.01 - 8.00%.............................. -- 29
------- -------
Total.......... $21,468 $20,428
======= =======
17
<PAGE>
Time Deposits Maturity Schedule. The following table sets forth the
amount and maturities of time deposits at September 30, 1999.
Amount Due
-----------------------------------------------------------------
After
September 30, September 30, September 30, September 30,
------------- ------------- ------------- -------------
Interest Rate 2000 2001 2002 2003 Total
- ------------- ---- ---- ---- ---- -----
(In Thousands)
4.01-5.00% ... $ 5,895 $ 328 $ -- $ -- $ 6,223
5.01-6.00% ... 9,262 2,468 1,125 699 13,554
6.01-7.00% ... 911 397 383 -- 1,691
------- ------- ------- ------- -------
Total $16,068 $ 3,193 $ 1,508 $ 699 $21,468
======= ======= ======= ======= =======
Jumbo Certificates of Deposit. The following table indicates the amount
of the Bank's certificates of deposit of $100,000 or more by time remaining
until maturity as of September 30, 1999.
Certificates
Maturity Period of Deposit
- --------------- ----------
(In Thousands)
Within three months........................ $ 1,896
More than three through six months......... 2,312
More than six through twelve months........ 2,232
Over twelve months......................... 1,225
-------
Total................................... $ 7,665
=======
Savings Deposit Activity. The following table sets forth the savings
activities of the Bank for the periods indicated:
Year Ended
September 30,
------------------------
1999 1998
---- ----
(In Thousands)
Net increase (decrease)
before interest credited ........ $ (205) $ 1,868
Interest credited ................. 1,549 1,539
------- -------
Net increase in savings deposits... $ 1,344 $ 3,407
======= =======
Borrowings. The Bank may obtain advances from the FHLB of Seattle to
supplement its supply of lendable funds. Advances from the FHLB of Seattle are
typically secured by a pledge of the Bank's stock in the FHLB of Seattle and a
portion of the Bank's first mortgage loans and certain other assets. The Bank
utilizes short-term FHLB advances primarily to fund loan originations and as a
hedge against interest rates whereby funds from advances are invested in
callable government agencies with terms to maturity of three to ten years. Each
FHLB credit program has its own interest rate, which may be fixed or variable,
and a range of maturities. The Bank, if the need arises, may also access the
Federal Reserve Bank discount window to supplement its supply of lendable funds
and to meet deposit withdrawal requirements. At September 30, 1999, the Bank had
$15.60 million of borrowings from the FHLB of Seattle that consisted of $4.40
million in fixed-rate advances with rates of 4.98% to 6.38%, and $11.20 million
in putable advances with rates of 4.53% to 5.45%. FHLB advances have
18
<PAGE>
been utilized by the Bank to fund loan demand and to purchase investment
securities. The Bank has used FHLB advances to fund the purchase of investment
and mortgage-backed securities with the goal of earning income on the interest
rate differential between the rate earned on the investment securities and the
rate paid on the FHLB advances.
The following table sets forth information concerning only short-term
borrowings (those maturing within one year or less) the Bank had during the
periods indicated.
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Short-term FHLB advances:
Average balance outstanding $ 10,926,000 $ 15,413,000
Maximum amount outstanding at any month-end
during the period $ 12,000,000 $ 14,550,000
Weighted average interest rate during the period 5.10% 5.61%
Total short-term borrowings at end of period $ 11,000,000 $ 12,050,000
</TABLE>
Personnel
At September 30, 1999 the Bank had ten full-time and three part-time
employees. None of the Bank's employees are represented by a collective
bargaining group. The Bank believes that its relationship with its employees is
good.
Regulation
Set forth below is a brief description of certain laws which relate to
the regulation of the Bank and the Company. The description does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.
Bank Regulation
General. As a federally chartered Savings Association Insurance Fund
(SAIF) insured savings association, the Bank is subject to extensive regulation
by the OTS and the Federal Deposit Insurance Corporation (FDIC). Lending
activities and other investments must comply with various federal statutory and
regulatory requirements. The Bank is also subject to certain reserve
requirements promulgated by the Board of Governors of the Federal Reserve System
("Federal Reserve System").
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that they find in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
law, especially in such matters as the ownership of savings accounts and the
form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement
19
<PAGE>
activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. Any change in such regulations, whether by the OTS, the
FDIC or the United States Congress could have a material adverse impact on the
Company or the Bank and their operations.
Insurance of Deposit Accounts. The deposit accounts held by the Bank
are insured by the Savings Association Insurance Fund ("SAIF") to a maximum of
$100,000 for each insured member (as defined by law and regulation). Insurance
of deposits may be terminated by the FDIC upon a finding that the institution
has engaged in unsafe or unsound practices, is in an unsafe of unsound condition
to continue operations or has violated any applicable law, regulation, rule,
order or condition imposed by the FDIC or the Institutions primary regulator.
As a member of the SAIF, the Bank paid an insurance premium to the FDIC
equal to a minimum of 0.23% of its total deposits during 1996 and prior years.
The FDIC also maintains another insurance fund, the Bank Insurance Fund ("BIF"),
which primarily insures commercial bank deposits. In 1996, the annual insurance
premium for most BIF members lowered to $2,000. The lower insurance premiums for
BIF members placed SAIF members at a competitive disadvantage to BIF members.
Effective, December 31, 1996, federal law was revised to mandate a one-time
special assessment on SAIF members such as the Bank of approximately 0.657% of
deposits held on march 31, 1995. Beginning January 1, 1997, the deposit
insurance assessment for most SAIF members was reduced to 0.064% of deposits on
an annual basis through the end of 1999. During this same period, BIF members
will be assessed approximately 0.013% of deposits. After 1999, assessments for
BIF and SAIF members should be the same. It is expected that these continuing
assessments for both SAIF and BIF members will be used to repay outstanding
Financing Corporation bond obligations.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) core capital equal to at least 3% of total
adjusted assets and (3) risk-based capital equal to 8% of total risk-weighted
assets.
Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), plus purchased mortgage servicing rights
valued at the lower of the maximum percentage established by the OTS or the
amount includable in core capital. Core capital is defined as common
stockholders' equity (including retained earnings), noncumulative perpetual
preferred stock and minority interests in the equity accounts of consolidated
subsidiaries, and qualifying supervisory goodwill, less nonqualifying intangible
assets.
The OTS requires a core capital ratio of at least 3% for those savings
associations in the strongest financial and managerial condition. All other
savings associations are required to maintain minimum core capital of at least
4% of total adjusted assets, with a maximum core capital ratio requirement of
5%. In determining the required minimum core capital ratio, the OTS assesses the
quality of risk management and the level of risk in each savings association on
a case-by-case basis.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital (which is defined as core capital plus
supplementary capital) of 8% of risk-weighted assets. The components of
supplementary capital include, among other items, cumulative perpetual preferred
stock, perpetual subordinated debt, mandatory convertible subordinated debt,
20
<PAGE>
intermediate-term preferred stock and the portion of the allowance for loan
losses not designated for specific loan losses. The portion of the allowance for
loan and lease losses includable in supplementary capital is limited to a
maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is
limited to 100% of core capital. A savings association must calculate its
risk-weighted assets by multiplying each asset and off-balance sheet item by
various risk factors as determined by the OTS, which range from 0% for cash to
100% for delinquent loans, property acquired through foreclosure, commercial
loans and other assets.
Set forth below is information regarding the Bank's regulatory capital
at September 30, 1999.
Percent of
Amount Adjusted Assets
------ ---------------
(In Thousands)
GAAP Capital $11,589
Tangible Capital:
Regulatory requirement 948 1.50%
Actual capital 12,151 19.22%
------ -----
Excess 11,203 17.72%
Core Capital:
Regulatory requirement 1,897 3.00%
Actual capital 12,151 19.22%
------ -----
Excess 10,254 16.22%
Risk-Based Capital:
Regulatory Requirement 1,983 8.00%
Actual capital 12,400 50.01%
------ -----
Excess 10,417 42.01%
Net Portfolio Value. In order to encourage associations to reduce their
interest rate risk, the OTS adopted a rule incorporating an interest rate risk
("IRR") component into the risk-based capital rules. Using data from the Bank's
quarterly reports to the OTS, the Bank receives a report which measures interest
rate risk by modeling the change in the Net Portfolio Value ("NPV") over a
variety of interest rate scenarios. NPV is the present value of expected cash
flows from assets, liabilities and off-balance sheet contracts. The calculation
is intended to illustrate the change in NPV that will occur in the event of an
immediate change in interest rates of at least 200 basis points with no effect
given to any steps which management might take to counter the effect of that
interest rate movement. Under the OTS regulations, an institution with a greater
than "normal" level of interest rate risk will be subject to a deduction from
total capital for purposes of calculating its risk-based capital. Institutions
with assets of less than $300 million and a risk-based capital ratio of more
than 12.0% are exempt. The Bank meets these qualifications and therefore is
exempt. Assuming this proposed rule was in effect at September 30, 1999 and the
Bank was not exempt from the rule, the Bank's level of interest rate risk would
have caused it to be treated as an institution with greater than "normal"
interest rate risk. This would have resulted in a reduction in the risk-based
capital ratio from the September 30, 1999 calculation of 50.01% to 49.01%, which
is in excess of the required minimum of 8.00%. Utilizing the NPV measurement
concept, at September 30, 1999, this would have resulted in a $3.68 million, or
14.46% decrease in the Bank's NPV, assuming a 200 basis point increase in
interest rates with no effect given to steps management may take to counter the
effect of that interest rate movement.
21
<PAGE>
The following table is provided by the OTS and illustrates the change
in NPV at September 30, 1999, based on OTS assumptions, that will occur in the
event of an immediate change in interest rates with no effect given to any steps
which management might take to counter the effect of that interest rate
movement.
<TABLE>
<CAPTION>
Net Portfolio as % of
Net Portfolio Value Portfolio Value of Assets
--------------------------------------------- --------------------------------
Basis Point ("bp")
Change in Rates $ Amount $ Change(1) % Change NPV Ratio (2) Change(3)
- --------------------- ------------ --------------- ------------- ------------------ ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
300 bp 6,723 (5,429) (45) 11.88% (748)bp
200 bp 8,476 (3,676) (30) 14.46% (489)bp
100 bp 10,297 (1,855) (15) 16.97% (238)bp
0 bp 12,152 19.36%
(100) bp 13,901 1,748 14 21.45% 210 bp
(200) bp 14,675 2,523 21 22.29% 293 bp
(300) bp 15,488 3,336 27 23.14% 378 bp
</TABLE>
- -----------------
(1) Represents the increase (decrease) of the estimated NPV at the indicated
change in interest rates compared to the NPV assuming no change in interest
rates.
(2) Calculated as the estimated NPV divided by the portfolio value of total
assets ("PV"). The Bank's PV is the estimated present value of total
assets. The PV of the Bank as of September 30, 1999, assuming no changes in
interest rates, was $62.79 million.
(3) Calculated as the increase (decrease) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio assuming no
change in interest rates.
Under the OTS interest rate risk capital rule, those institutions with
greater than "normal" levels of interest rate risk will be subject to an
interest rate risk component in calculating their risk-based capital ratio. An
institution with a "normal" level of interest rate risk is defined as one whose
"Measured Interest Rate Risk" is less than 2.0%.
The following table is provided by the OTS and is based on the
calculations in the above table. It sets forth the IRR capital component that
will be deducted from risk-based capital in determining the level of risk-based
capital. At September 30, 1999, the change in NPV as a percentage of portfolio
value of total assets is negative 5.85%, which is greater than negative 2.0%,
indicating that the Bank has a greater than "normal" level of interest rate
risk. As mentioned earlier, the Bank is exempt from any additional capital
requirements; however, had the Bank been subject to the IRR capital component,
its IRR capital component at September 30, 1999 would be approximately $954,000.
22
<PAGE>
<TABLE>
<CAPTION>
September 30, 1999 September 30, 1998
-------------------------- --------------------------
<S> <C> <C>
RISK MEASURES: 200 BP RATE SHOCK:
Pre-Shock NPV Ratio: NPV as % of PV of Assets................. 19.36% 22.55%
Exposure Measure: Post-Shock NPV Ratio........................ 14.46% 18.53%
Sensitivity Measure: Change in NPV Ratio...................... (489)bp (402)bp
CALCULATION OF CAPITAL COMPONENT:
Change in NPV as % of PV of Assets............................ (5.85)% (5.10)%
Interest Rate Risk Capital Component ($000) (1)............... -- --
</TABLE>
- --------------
(1) No amounts are shown on the interest rate risk capital component line
because the Bank is exempt from the IRR capital component.
Certain shortcomings are inherent in the methodology used in the above
table. Modeling changes in NPV requires the making of certain assumptions that
may tend to oversimplify the manner in which actual yields and costs respond to
changes in market interest rates. First, the models assume that the composition
of the Bank's interest sensitive assets and liabilities existing at the
beginning of a period remains constant over the period being measured. Second,
the models assume that a particular change in interest rates is reflected
uniformly across the yield curve regardless of the duration to maturity or
repricing of specific assets and liabilities. Accordingly, although the NPV
measurements do provide an indication of the Bank's interest rate risk exposure
at a particular point in time, such measurements are not intended to provide a
precise forecast of the effect of changes in market interest rates on the Bank's
net interest income. Furthermore, in times of decreasing interest rates, the
value of fixed-rate assets could increase in value and the lag in repricing of
interest rate sensitive assets could be expected to have a positive effect on
the Bank.
Management believes that the NPV method of assessing the Bank's
exposure to interest rate risk and potential reductions in net interest income
is a useful tool for measuring risk. Management also believes that strategies
employed to respond to changing interest rate environments can have a
significant impact upon the net value of assets and extent of earnings
fluctuations. Also, management believes that a strong equity capital position
and existence of the corporate authority to raise additional capital as
necessary act as valuable tools to absorb interest rate risk.
Limitations on Dividends and Other Capital Distributions. The OTS
imposes various restrictions or requirements on the ability of savings
institutions to make capital distributions, including cash dividends.
A savings association that is a subsidiary of a savings and loan
holding company, such as the Bank after the conversion, must file an application
or a notice with the OTS at least 30 days before making a capital distribution.
Savings associations are not required to file an application for permission to
make a capital distribution an need only file a notice if the following
condition are met: (1) they are eligible for expedited treatment under OTS
regulations, (2) they would remain adequately capitalized after the
distribution, (3) the annual amount of capital distribution does not exceed net
income for that year to date added to retained net income for the two preceding
years, and (4) the capital distribution does not violate any agreements between
the OTS and the savings association or any OTS regulations. Any other situation
would require an application to the OTS.
23
<PAGE>
In addition, the OTS could prohibit a proposed capital distribution by
any institution, which would otherwise be permitted by the regulation, if the
OTS determines that the distribution would constitute an unsafe or unsound
practice.
A federal savings institution is prohibited from making a capital
distribution if, after making the distribution, the savings institution would be
unable to meet any one of its minimum regulatory capital requirements. Further,
a federal savings institution cannot distribute regulatory capital that is
needed for its liquidation account.
Qualified Thrift Lender Test. Savings institutions must meet a
Qualified Thrift Lender ("QTL") test. If the Bank maintains an appropriate level
of Qualified Thrift Investments ("QTIs") (primarily residential mortgages and
related investments, including certain mortgage-related securities) and
otherwise qualifies as a QTL, it will continue to enjoy full borrowing
privileges from the FHLB of Seattle. The required percentage of QTIs is 65% of
portfolio assets (defined as all assets minus intangible assets, property used
by the institution in conducting its business and liquid assets equal to 10% of
total assets). Certain assets are subject to a percentage limitation of 20% of
portfolio assets. In addition, savings associations may include shares of stock
of the Federal Home Loan Banks ("FHLBs"), FNMA and FHLMC as qualifying QTIs.
Compliance with the QTL test is determined on a monthly basis in nine out of
every 12 months. As of September 30, 1999, the Bank was in compliance with its
QTL requirement with 84.30% of its assets invested in QTIs.
Transactions With Affiliates. Generally, restrictions on transactions
with affiliates require that transactions between a savings association or its
subsidiaries and its affiliates be on terms as favorable to the Bank as
comparable transactions with non-affiliates. In addition, certain of these
transactions are restricted to an aggregate percentage of the Bank's capital and
collateral in specified amounts must usually be provided by affiliates to
receive loans from the Bank. Affiliates of the Bank include the Company and any
company which would be under common control with the Bank. In addition, a
savings association may not lend to any affiliate engaged in activities not
permissible for a bank holding company or acquire the securities of any
affiliate that is not a subsidiary. The OTS has the discretion to treat
subsidiaries of savings associations as affiliates on a case-by-case basis.
There were no transactions with affiliates out of the ordinary course of
business.
Liquidity Requirements. All savings associations are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings associations. At September 30, 1999, the Bank's liquidity
ratio was 63.93%. Monetary penalties may be imposed upon associations for
violations of liquidity requirements.
Federal Home Loan Bank System. The Bank is a member of the FHLB of
Seattle, which is one of 12 regional FHLBs that administer the home financing
credit function of savings associations and other financial institutions. Each
FHLB serves as a reserve or central bank for its members within its assigned
region. It is funded primarily from proceeds derived from the sale of
consolidated obligations of the FHLB System. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the Board of
Directors of the FHLB.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Seattle in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year. At September 30, 1999, the Bank had
24
<PAGE>
$987,700 in FHLB stock, which was in compliance with this requirement. The FHLB
imposes various limitations on advances such as limiting the amount of certain
types of real estate related collateral to 35% of a member's total assets and
limiting total advances to a member. At September 30, 1999, this limit was
approximately $24.27 million for the Bank.
The FHLB's' are required to provide funds for the resolution of
troubled savings associations and to contribute to affordable housing programs
through direct loans or interest subsidies on advances targeted for community
investment and low- and moderate-income housing projects. These contributions
have adversely affected the level of FHLB dividends paid and could continue to
do so in the future. For the year ended September 30, 1999, dividends paid by
the FHLB of Seattle to the Bank totaled $71,000.
Federal Reserve System. The Federal Reserve System requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve System may be used
to satisfy the liquidity requirements that are imposed by the OTS. At September
30, 1999, the Bank's total transaction accounts were below the minimum level for
which the Federal Reserve System requires a reserve.
Savings associations have authority to borrow from the Federal Reserve
System "discount window," but Federal Reserve System policy generally requires
savings associations to exhaust all other sources before borrowing from the
Federal Reserve System. The Bank had no borrowings from the Federal Reserve
System at September 30, 1999.
Community Reinvestment. Under the Community Reinvestment Act ("CRA"),
as implemented by OTS regulations, a savings association has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low-and moderate-income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the OTS, in connection with its examination of a savings institution,
to assess the institution's record of meeting the credit needs of its community
and to take such record into account in its evaluation of certain applications
by such institution. Current law requires public disclosure of an institution's
CRA rating and requires the OTS to provide a written evaluation of an
institution's CRA performance utilizing a four-tiered descriptive rating system
in lieu of the existing five-tiered numerical rating system. The OTS reported
that Buffalo Federal had a "satisfactory record of meeting community credit
needs," in its examination dated June 21, 1999.
Financial Services Modernization Bill
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act (the "Act") which will, effective March 11, 2000, permit
qualifying bank holding companies to become financial holding companies and
thereby affiliate with securities firms and insurance companies and engage in
other activities that are financial in nature. The Act defines "financial in
nature" to include securities underwriting, dealing and market making;
sponsoring mutual funds and investment companies; insurance underwriting and
agency; merchant banking activities; and activities that the Board has
determined to be closely related to banking. A qualifying national bank also may
engage, subject to limitations on investment, in activities that are financial
in nature, other than insurance
25
<PAGE>
underwriting, insurance company portfolio investment, real estate development,
and real estate investment, through a financial subsidiary of the bank.
The act also prohibits new unitary thrift holding companies from
engaging in nonfinancial activities or from affiliating with an nonfinancial
entity. As a grandfathered unitary thrift holding company, the Company will
retain its authority to engage in nonfinancial activities.
Company Regulation
General. The Company is a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Company is required to
register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over the
Company and its non-savings association subsidiaries, should such subsidiaries
be formed, which also permits the OTS to restrict or prohibit activities that
are determined to be a serious risk to the subsidiary savings association. This
regulation and oversight is intended primarily for the protection of the
depositors of the Bank and not for the benefit of stockholders of the Company.
The Company is required to file certain reports with, and otherwise comply with,
the rules and regulations of the OTS and the Securities and Exchange Commission
("SEC").
QTL Test. As a unitary savings and loan holding company, the Company
generally will not be subject to activity restrictions, provided the Bank
satisfies the QTL test. If the Company acquires control of another savings
association as a separate subsidiary, it would become a multiple savings and
loan holding company. The activities of the Company and any of its subsidiaries
(other than the Bank or any other SAIF-insured savings association) would become
subject to restrictions applicable to bank holding companies and those
activities specified by the OTS as permissible for a multiple savings and loan
holding company unless such other associations each also qualify as a QTL or
were acquired in a supervised acquisition.
Restrictions on Acquisitions. The Company must obtain approval from the
OTS before acquiring control of any other SAIF-insured association. Such
acquisitions are generally prohibited if they result in a multiple savings and
loan holding company controlling savings associations in more than one state.
However, such interstate acquisitions are permitted based on specific state
authorization or in a supervisory acquisition of a failing savings association.
Federal law generally provides that no "person," acting directly or
indirectly or through or in concert with one or more other persons, may acquire
"control," as that term is defined in OTS regulations, of a federally insured
savings institution without giving at least 60 days written notice to the OTS
and providing the OTS an opportunity to disapprove the proposed acquisition. In
addition, no company may acquire control of such an institution without prior
OTS approval.
Restriction on Repurchases of Stock. The Company has the authority to
repurchase stock, subject to statutory and regulatory requirements. The Company
must tender an offer to all stockholders, the repurchase would not cause the
Bank to become "undercapitalized" within the meaning of the OTS prompt
correction action regulation and the Company provides to the Regional Director
of the OTS no later than ten days prior to the commencement of a repurchase
program written notice containing a full description of the program to be
undertaken and such program is not disapproved by the Regional Director.
26
<PAGE>
Federal Securities Law. The Company's common stock is registered with
the SEC under the Exchange Act. The Company is subject to the information, proxy
solicitation, insider trading restrictions, and other requirements under the
Exchange Act.
Item 2. Description of Property
- ---------------------------------
(a) Properties.
The Company owns no real property but utilizes the office owned by the
Bank. The Bank owns and operates from its office located at 106 Fort Street,
Buffalo, Wyoming 82834. The Bank has a total investment in office property and
equipment of $1,014,000 with a net book value of $544,000 at September 30, 1999.
(b) Investment Policies.
See "Item 1. Business" above for a general description of the Bank's
investment policies and any regulatory or Board of Directors' percentage of
assets limitations regarding certain investments. All of the Bank's investment
policies are reviewed and approved by the Board of Directors of the Bank, and
such policies, subject to regulatory restrictions (if any), can be changed
without a vote of stockholders. The Bank's investments are primarily acquired to
produce income, and to a lesser extent, possible capital gain.
(1) Investments in Real Estate or Interests in Real Estate. See "Item
1. Business -- Lending Activities," "Item 1. Business -- Regulation of the
Bank," and "Item 2. Description of Property. (a) Properties" above.
(2) Investments in Real Estate Mortgages. See "Item 1. Business --
Lending Activities" and "Item 1. Business -- Regulation of the Bank."
(3) Investments in Securities of or Interests in Persons Primarily
Engaged in Real Estate Activities. See "Item 1. Business -- Lending Activities,"
"Item 1. Business -- Regulation of the Bank," and "Item 1. Business --
Subsidiary Activity."
(c) Description of Real Estate and Operating Data.
Not Applicable.
Item 3. Legal Proceedings
- ---------------------------
The Company, from time to time, is a party to ordinary routine
litigation, which arises in the normal course of business, such as claims to
enforce liens, condemnation proceedings on properties in which the Bank holds
security interests, claims involving the making and servicing of real property
loans, and other issues incident to the business of the Company. In the opinion
of management, currently there are no such claims or lawsuits that would have a
material adverse effect on the Company's results of operations or financial
condition.
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
Not applicable.
27
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- --------------------------------------------------------------------------------
Matters
-------
The information contained under the section captioned "Stock Market
Information" in the Company's Annual Report to Stockholders for the fiscal year
ended September 30, 1999 (the "Annual Report"), is incorporated herein by
reference.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
-------------
The required information is contained in the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Annual Report and is incorporated herein by reference.
Item 7. Financial Statements
- ------------------------------
The Company's consolidated financial statements required herein are
contained in the Annual Report and are incorporated herein by reference.
Item 8. Changes in and Disagreements With Accountants on Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure
--------------------
Not Applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
- --------------------------------------------------------------------------------
with Section 16(b) of the Exchange Act
--------------------------------------
The information contained under the sections captioned "Filing of
Beneficial Ownership Reports" and "Information with Respect to Nominees for
Director, Directors Continuing in Office, and Executive Officers" in the
Company's definitive proxy statement for the Company's Annual Meeting of
Stockholders (the "Proxy Statement") is incorporated herein by reference.
Item 10. Executive Compensation
- --------------------------------
The information contained under the section captioned "Director and
Executive Officer Compensation" in the Proxy Statement is incorporated herein by
reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the section captioned "Voting Securities and
Principal Holders Thereof" in the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the section captioned "Information with Respect
to Nominees for Director, Directors Continuing in Office, and
Executive Officers" in the Proxy Statement.
28
<PAGE>
(c) Management of the Company knows of no arrangements, including
any pledge by any person of securities of the Company, the
operation of which may at a subsequent date result in a change
in control of the Registrant.
Item 12. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by
reference to the section captioned "Certain Relationships and Related
Transactions" and "Voting Securities and Principal Holders Thereof" in the Proxy
Statement.
Item 13. Exhibits, List and Reports on Form 8-K
- ------------------------------------------------
(a) Exhibits are either attached as part of this Report or incorporated herein
by reference.
<TABLE>
<CAPTION>
<S> <C>
3.1 Articles of Incorporation of Crazy Woman Creek Bancorp Incorporated*
3.2 Bylaws of Crazy Woman Creek Bancorp Incorporated*
10.1 Form of Employment Contract with Crazy Woman Creek Bancorp Incorporated*
10.2 Stock Option Plan**
10.3 Management Stock Bonus Plan**
11 Statement regarding computation of earnings per share (see Notes 1 and 12 to the
Notes to Consolidated Financial Statements in the Annual Report)
13 Annual Report to Stockholders for the fiscal year ended September 30, 1999.
21 Subsidiaries of the Registrant (See "Item 1. Business of the Company" and "--Business of the Bank".)
23 Consent of Independent Auditors.
27 Financial Data Schedule (in electronic filing only)
(b) Reports on Form 8-K.
None.
</TABLE>
- ------------------
* Incorporated by reference to the Registrant's Registration Statement on
Form SB-2 (33-80557) declared effective by the Commission on February 12,
1996.
** Incorporated by reference to the Registrant's Proxy Statement filed with
the Commission on December 27, 1996.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
CRAZY WOMAN CREEK BANCORP INCORPORATED
By: /s/ Deane D. Bjerke
----------------------------------------
Deane D. Bjerke
President and Chief Executive Officer
(Duly Authorized Representative)
In accordance with the requirement of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf of
the Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
/s/Deane D. Bjerke /s/John B. Snyder
- ------------------------------------------- --------------------------------------------
Deane D. Bjerke John B. Snyder
President and Chief Executive Officer Vice President and Chief Financial Officer
(Principal Executive Officer) (Principal Financial and Accounting Officer)
Dated: December 27, 1999 Dated: December 27, 1999
/s/Richard Reimann /s/Douglas D. Osborn
- ------------------------------------------- --------------------------------------------
Richard Reimann Douglas D. Osborn
Chairman of the Board Director
Dated: December 27, 1999 Dated: December 27, 1999
/s/Thomas J. Berry
- ------------------------------------------- --------------------------------------------
Greg L. Goddard Thomas J. Berry
Director Director
Dated: December 27, 1999 Dated: December 27, 1999
/s/Sandra K. Todd
- -------------------------------------------
Sandra K. Todd
Director
Dated: December 27, 1999
</TABLE>
EXHIBIT 13
<PAGE>
CRAZY WOMAN CREEK BANCORP
INCORPORATED
-------------------------------
1999 ANNUAL REPORT
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED
1999 ANNUAL REPORT
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Letter to Stockholders.................................................... 1
Corporate Profile and Stock Market Information............................. 2
Financial Highlights...................................................... 3
Management's Discussion and Analysis of
Financial Condition and Results of Operations........................... 4
Independent Auditors' Report ............................................ 14
Consolidated Balance Sheets............................................... 15
Consolidated Statements of Income......................................... 16
Consolidated Statements of Stockholders' Equity and Comprehensive Income.. 17
Consolidated Statements of Cash Flows..................................... 18
Notes to Consolidated Financial Statements................................ 19
<PAGE>
[CRAZY WOMAN CREEK BANCORP LETTERHEAD]
To Our Stockholders:
I am pleased to present our third annual report after the completion of our
mutual to stock conversion in 1996. Since the conversion, the officers,
directors, and staff have been dedicated to achieving goals leading to the
enhancement of shareholder value. The continued payment of dividends and an
additional repurchase of 5% of the outstanding shares are examples of the
Board's and management's efforts to enhance returns.
The goals set by management for fiscal year 1999 included increasing deposits
and loan originations. The goal to increase deposits was achieved, but loan
originations declined. An addition of $1.344 million in deposits represents a 4%
increase. Our loan originations declined from $11.542 million to $10.116 million
despite management's efforts to originate loans. In addition, net earnings for
the fiscal year ending September 30, 1999 were $689,700 compared to $712,400 in
fiscal 1998. Total assets were $63.661 million compared to $62.153 million at
the end of fiscal year 1998. Basic earnings per share was $0.81 at the end of
the fiscal year.
During fiscal year 1999, the Board and management made a concentrated effort to
be technologically prepared in response to the Year 2000 date change.
Implementation of Year 2000 compliant software and hardware is complete. We have
worked with various third parties on their efforts and although there can be no
assurances, we do not expect any significant problems.
The officers and directors of Crazy Woman Creek Bancorp Incorporated are looking
forward to the challenges that will be presented during fiscal year 2000. In
addition to issues relating to the Year 2000, the industry is experiencing the
prospects of declining interest margins, lower income levels, and the continued
slowing of the world economy. The focus of management will be to continue
increasing loan originations and growing deposits. The development of products
and services will continue to be emphasized to benefit our customers and serve
the financial needs of the community.
I wish to personally invite all stockholders to our annual meeting that is
scheduled on January 26th at 3:00 p.m. at our office in Buffalo, Wyoming.
Sincerely,
/s/Deane D. Bjerke
- ------------------
Deane D. Bjerke
President
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED
Corporate Profile
Crazy Woman Creek Bancorp Incorporated (the "Company") is the parent company of
Buffalo Federal Savings Bank ("Buffalo Federal" or the "Bank"). The Company is a
savings and loan holding company which, under existing laws, is not restricted
in the types of activities in which it can engage. At the present time, since
the Company does not conduct any significant business, the Company does not
intend to employ any persons other than officers but utilizes the support staff
and facilities of the Bank from time to time.
Buffalo Federal is a federally-chartered stock savings bank headquartered in
Buffalo, Wyoming, which was originally chartered in 1932 under the name "Buffalo
Building and Loan Association." Deposits are insured up to the maximum allowable
by federal law. The Bank is a community oriented savings institution offering a
variety of financial services to meet the needs of the communities that it
serves. Buffalo Federal conducts its business from its office in Buffalo,
Wyoming.
Buffalo Federal attracts deposits from the general public and uses such
deposits, together with borrowings and other funds, primarily to originate and
fund loans secured by first mortgages on owner-occupied, one-to-four family
residences in its market area. The Bank also makes home equity loans, loans
secured by deposits, automobile loans and personal loans and invests in
municipal obligations, mortgage-backed securities, and other investments.
Stock Market Information
Since its initial public offering in March 1996, the Company's common stock has
been traded on the Nasdaq SmallCap Market under the symbol "CRZY." The following
table reflects the stock price highs and lows for each quarter during the last
two years as reported by Nasdaq as well as cash dividends declared during the
periods.
HIGH LOW DIVIDENDS
---- --- ---------
July 1, 1999 - September 30, 1999 $ 12.50 $ 11.56 $ 0.12
April 1, 1999 - June 30, 1999 13.88 11.88 0.10
January 1, 1999 - March 31, 1999 13.00 11.88 0.10
October 1, 1998 - December 31, 1998 15.50 11.94 0.10
July 1, 1998 - September 30, 1998 17.38 12.50 0.10
April 1, 1998 - June 30, 1998 20.00 16.63 0.10
January 1, 1998 - March 31, 1998 17.25 15.13 0.10
October 1, 1997 - December 31, 1997 15.68 14.75 0.10
Quotations reflect inter-dealer prices without retail mark-up, mark-down or
commission, and may not represent actual transactions. The number of
shareholders of record of common stock as of December 17, 1999, was
approximately 238. This does not reflect the number of persons or entities who
held stock in nominee or "street" name through various brokerage firms. At
December 17, 1999, there were 863,798 shares outstanding.
The Company's ability to pay dividends to stockholders is dependent in part upon
the dividends it receives from the Bank. The Bank may not declare or pay a cash
dividend on any of its stock if the effect thereof would cause the Bank's
regulatory capital to be reduced below (1) the amount required for the
liquidation account established in connection with the Bank's conversion from
mutual to stock form, or (2) the regulatory capital requirements imposed by the
Office of Thrift Supervision ("OTS").
-2-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands except per share date)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
At or For the Year Ended September 30, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loan receivable, net $29,727 $29,986 $28,636 $25,859 $23,006
Mortgage-backed securities, held to maturity (4) -- 2,521 3,644 4,228 3,148
Investment securities, held to maturity (4) -- 1,417 5,365 6,075 6,806
Investment and mortgage-backed
securities, available for sale (4) 29,479 24,635 19,155 13,365 (1) 2,230
Total assets 63,661 62,153 59,952 51,517 (1) 37,510
Deposits 34,257 32,913 29,506 29,371 28,209
FHLB advances 15,600 14,650 15,700 6,113 3,183
Total stockholders' equity 13,356 14,036 14,210 15,508 (1) 5,857
Interest income 4,278 4,420 3,940 3,274 (1) 2,722
Interest expense 2,359 2,448 1,983 1,702 1,455
Net interest income 1,919 1,973 1,957 1,572 1,267
Provision for loan losses 6 18 - - 42
Net income 689 712 691 355 (2) 352
- --------------------------------------------------------------------------------------------------------------------------------
OTHER SELECTED DATA
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
At or For the Year Ended September 30, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
Performance Ratios:
Return on average assets (net income
divided by average total assets) (2) 1.10% 1.16% 1.28% 0.80% 0.96%
Return on average equity (net income
divided by average equity) (1) (2) 4.95% 4.96% 4.74% 3.07% 6.10%
Average interest-earning assets to average
interest-bearing liabilities (1) 128.32% 130.65% 136.86% 133.47% 117.59%
Net interest income after provision for
loan losses to average earning assets 3.10% 3.25% 3.71% 3.47% 3.35%
Net interest rate spread 2.03% 2.03% 2.32% 2.26% 2.84%
Average equity to average assets ratio
(average equity divided by average
total assets) (1) 22.19% 23.46% 27.07% 25.50% 15.76%
Equity to assets at period end (1) 20.98% 22.59% 23.70% 30.10% 15.61%
Non-performing assets to total assets 0.22% 0.41% 0.38% 0.06% 0.33%
Non-performing loans to net loans 0.23% 0.86% 0.79% 0.12% 0.30%
Allowance for loan losses, REO and other
repossessed assets to non-performing
assets 76.60% 110.66% 134.22% 862.50% 223.58%
Allowance for loan losses to net loans 0.84% 0.92% 1.04% 1.06% 1.18%
Net charge-offs (recoveries) to total loans 0.12% (0.09%) (0.01%) (0.11%)
0.13%
Basic earnings per share (3) $ 0.81 $0.79 $0.73 $0.36 n/a
Diluted earnings per share (3) $ 0.80 $0.77 $0.73 n/a n/a
Book value per share (3) $15.46 $15.44 $14.88 $14.66 n/a
</TABLE>
- -------------------------------------
(1) The change in fiscal 1996 is primarily due to the conversion from a mutual
to a stock company in March 1996.
(2) Includes a one time assessment in fiscal year 1996 of $ 186,569 to
recapitalize the SAIF.
(3) There were no shares outstanding prior to the consummation of the Company's
initial public offering on March 29, 1996.
(4) As of October 1, 1998 all securities were classified as available for sale.
The Company elected early implementation of Statement of Financial
Accounting Standards (SFAS) No. 133 "Accounting for Derivative Instruments
and Hedging Activities" - See discussion of SFAS 133 in "Management
Discussion and Analysis of Financial Condition and Results of Operations -
Financial Condition".
-3-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Private Securities Litigation Reform act of 1995 contains safe harbor
provisions regarding forward-looking statements. When used in the discussion,
the words "believe", "anticipates", "contemplates", "expects", and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest rates, risks associated with opening new branches, the
ability to control costs and expenses, and general economic conditions. The
Company undertakes no obligation to publicly release the results of any revision
to those forward-looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrences of
unanticipated events.
The Company was formed in connection with the Bank's mutual-to-stock
conversion that was consummated on March 29, 1996. The Company's assets are
comprised of its investment in the Bank, loans to the Bank's Employee Stock
Ownership Plan ("ESOP"), and shares held in three indexed mutual funds. The
Bank's net earnings are dependent primarily on its net interest income, which is
the difference between interest income earned on its interest-earning assets and
interest expense paid on interest-bearing liabilities. For the year ended
September 30, 1999, the Bank's interest income was $4.278 million, or
approximately 97.8% of gross earnings (i.e., interest income and non-interest
income). The Bank's interest rate spread is affected by regulatory, economic and
competitive factors that influence interest rates, loan demand and deposit
flows. For the year ended September 30, 1999, the Bank's net interest rate
spread was 2.03%. To a lesser extent, the Bank's net earnings also are affected
by the level of non-interest income, which primarily consists of service charges
and other operating income. In addition, net earnings are affected by the level
of non-interest (general and administrative) expenses.
The operations of the Bank and the entire thrift industry are significantly
affected by prevailing economic conditions, competition and the monetary and
fiscal policies of the federal government and governmental agencies. Lending
activities are influenced by the demand for and supply of housing, competition
among lenders, the level of interest rates and the availability of funds.
Deposit flows and costs of funds are influenced by prevailing market rates of
interest, primarily on competing investments, account maturities, and the levels
of personal income and savings in the Bank's market area.
Asset/Liability Management and Interest Rate Risk
An asset or liability is interest rate sensitive within a specific time
period if it will mature or reprice within that time period. If the Bank's
assets mature or reprice more quickly or to a greater extent than its
liabilities, the Bank's net portfolio value and net interest income would tend
to increase during periods of rising interest rates but decrease during periods
of falling interest rates. If the Bank's assets mature or reprice more slowly or
to a lesser extent than its liabilities, the Bank's net portfolio value and net
interest income would tend to decrease during periods of rising interest rates
but increase during periods of falling interest rates. The Bank's policy has
been to mitigate the interest rate risk inherent in the historical savings
institution business of originating long-term loans funded by short-term
deposits by pursuing certain strategies designed to decrease the vulnerability
of its earnings to material and prolonged changes in interest rates.
-4-
<PAGE>
The Bank is subject to significant interest rate risk as a result of its
historical emphasis on the origination for portfolio of fixed-rate one to four
family mortgage loans. In order to improve the Bank's interest rate sensitivity,
however, management has attempted to shorten the maturities of the Bank's assets
and lengthen the maturities of its liabilities, while maintaining asset quality.
This strategy has been implemented by (i) emphasizing the origination for
portfolio of 15-and 20-year fixed-rate mortgage loans; (ii) brokering 30-year
fixed-rate mortgage loans for a third party and receiving a commission; (iii)
offering adjustable rate home equity and shorter-term installment loans; (iv)
emphasizing the solicitation and retention of core deposits and lengthening the
average maturity of deposits by adopting a tiered pricing program for its
certificates of deposit (offering higher rates on longer term certificates); (v)
purchasing for its own portfolio adjustable-rate mortgage-backed securities,
(vi) investing in short- and intermediate-term investment securities, (vii)
emphasizing the origination of adjustable-rate mortgage loans; (viii) managing
deposit interest rates; and (ix) utilizing FHLB advances to facilitate growth
and lengthen liabilities. These measures, while significant, may only partially
offset the Bank's interest rate risk. Furthermore, the Bank believes it has
sufficient capital to accept a certain degree of interest rate risk.
To monitor the Bank's interest rate risk, the Bank also utilizes quarterly
reports by the OTS which measure the Bank's interest rate risk by modeling the
change in the Bank's net portfolio value ("NPV") over a variety of interest rate
scenarios. NPV is defined as the present value of expected cash flows from
assets, liabilities and off-balance sheet contracts. Based on the September 30,
1999 report the Bank had a greater than "normal" level of interest rate risk.
See also "- Impact of Inflation and Changing Prices."
The Bank's Board of Directors is responsible for revising the Bank's asset
and liability policies. The Bank's management is responsible for administering
the policies and determinations of the Board of Directors with respect to the
Bank's asset and liability goals and strategies.
-5-
<PAGE>
Analysis of Net Interest Income
Average Balances, Interest, Yields and Rates. The following table sets
forth certain information relating to the Company's average balance sheet and
reflects the average yield on assets and average cost of liabilities for the
periods indicated and the average yields earned and rates paid. Such yields and
costs are derived by dividing income or expense by the average balance of assets
or liabilities, respectively, for the periods presented. Average balances are
derived from month-end balances. Management does not believe that the use of
month-end balances instead of daily average balances has caused any material
differences in the information presented. When interest-earning assets
approximate or exceed interest-bearing liabilities, any positive interest rate
spread will generate net interest income.
<TABLE>
<CAPTION>
At September Year Ended September 30,
------------------------------------------------------------------------------------------
30,
---------------- ------------------------------------------------------------------------
1999 1999 1998
---------------- ------------------------------------ ----------------------------------
Average Average Average Average
Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
---------------- ----------- --------- ------------ ------------ ---------- -----------
(Dollars in Thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C>
Loans receivable (1) 8.07 % $30,152 $2,382 7.90 % $29,202 $2,412 8.26 %
Securities
available-for-sale:
Mortgage-backed securities 5.52 9,838 606 6.16 9,549 635 6.65
Investment securities 6.36 19,282 1,177 6.10 18,985 1,244 6.55
Other interest-earning assets 5.30 2,425 113 4.66 2,321 129 5.56
----------- ---------- ----------- ---------
Total interest-earning 6.97 61,697 4,278 6.93 60,057 4,420 7.36
assets ----------- ---------- ----------- ---------
Non-interest-earning assets 1,117 1,094
=========== ===========
Total assets $62,814 $61,151
=========== ===========
Interest-bearing liabilities
Interest checking 3.65 8,739 322 3.68 7,593 301 3.96
Time deposits/passbook 4.88 24,262 1,227 5.06 22,964 1,238 5.39
----------- --------- ----------- ----------
Total deposit accounts 4.56 33,001 1,549 4.69 30,557 1,539 5.04
FHLB advances 5.19 15,078 810 5.37 15,413 908 5.89
----------- --------- ----------- ----------
Total interest-bearing 4.76 48,079 2,359 4.91 45,970 2,447 5.33
liabilities ----------- --------- ----------- ----------
Non-interest-bearing liabilities 793 832
----------- -----------
Total liabilities $ 48,872 $46,802
----------- -----------
Total stockholders' equity 13,942 14,349
=========== ===========
Total liabilities and
stockholders' equity $62,814 $61,151
=========== ===========
Net interest income $1,919 $1,973
========= ==========
Interest rate spread 2.02 % 2.03 %
======== ========
Net interest margin 3.11 % 3.29 %
======== ========
Ratio of average interest-earning assets
to average interest-bearing liabilities 128.32 130.64 %
======== ========
</TABLE>
- ---------------------------------
(1) Average balances include non-accrual loans, and are net of reserve for loan
losses and deferred loan fees.
(2) Also includes interest-bearing deposits in other financial institutions.
<PAGE>
Rate/Volume Analysis. The table following sets forth certain information
regarding changes in interest income and interest expense of the Bank for the
periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (changes in average volume multiplied by old rate); (ii)
changes in rates (changes in rate multiplied by old average volume); (iii)
changes in rate-volume (changes in rate multiplied by the change in average
volume).
<TABLE>
<CAPTION>
Year ended September 30,
1999 vs. 1998
Increase (Decrease) Due to
Rate/
Volume Rate Volume Net
-------------- -------------- -------------- --------------
In Thousands
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable $ 78 $ (105) $ (3) $ (30)
Securities available-for-sale:
Mortgage-backed securities 19 (47) (1) (29)
Investment securities 19 (85) (1) (67)
Other interest-earning assets 6 (21) (1) (16)
-------------- -------------- -------------- --------------
Total interest-earning assets $ 122 $ (258) $ (6) $ (142)
============== ============== ============== ==============
Interest expense
Deposit accounts $ 124 $ (106) $ (8) $ 10
FHLB advances (20) (80) 2 (98)
-------------- -------------- -------------- --------------
Total interest-bearing $ 104 $ (186) $ (6) $ (88)
liabilities ============== ============== ============== ==============
Net change in net interest income $ 18 $ (72) $ -- $ (54)
============== ============== ============== ==============
</TABLE>
Financial Condition
The Company's assets increased by $1.508 million from $62.153 million at
September 30, 1998 to $63.661 million at September 30, 1999. The growth in
assets was primarily attributed to an increase in cash and cash equivalents and
in investment and mortgage-backed securities available for sale. Asset growth
was primarily funded through a $1.344 million increase in deposits.
The Company's net investment in mortgage-backed and investment securities
available for sale increased by $4.844 million from $24.635 million at September
30, 1998 to $29.479 million at September 30, 1999. Meanwhile, investment and
mortgage-backed securities held to maturity decreased by $3.938 million. As of
October 1, 1998 all securities were classified as available for sale. The
Company elected early implementation of Statement of Financial Accounting
Standards (SFAS) No. 133 "Accounting for Derivative Instruments and Hedging
Activities". The statement establishes accounting and reporting standards for
all, existing and new, derivative instruments, including certain derivative
instruments embedded in other contracts and hedging activities. SFAS 133 has no
material impact on the Company's current financial statements except that it
also allowed for a one-time reclassification of the investment portfolio from
held-to-maturity, of $3.938 million, to either trading or available-for-sale,
which the Company made at the date of adoption. The net effect on the balance
sheet was an increase in total assets of $83,696, deferred tax liability of
$28,457 and unrealized gains on securities available for sale of $55,239.
-7-
<PAGE>
The Company experienced a slight decline in loans. From September 30, 1998
to September 30, 1999 net loans receivable decreased from $29.986 million to
$29.727 million, representing a decrease of $259,000 or 0.87%. Decline in share
loans, home equity lines of credit and commercial real estate accounted for most
of the change in loans.
Deposits increased by $1.344 million from $32.913 million at September 30,
1998 to $34.257 million at September 30, 1999. Interest-bearing checking
accounts (NOW and money market checking) increased by $473,000, business
checking accounts increased $47,000, and passbook and certificates of deposits
increased by $824,000. This increase in deposits was primarily used to purchase
investment and mortgage-backed securities available-for-sale.
The Company increased its level of borrowings from the FHLB of Seattle from
$14.650 million at September 30, 1998 to $15.600 million at September 30, 1999.
This represents an increase of $950,000. The increase in FHLB advances was
primarily used to purchase investment and mortgage-backed securities
available-for-sale. The Company utilizes FHLB advances to take advantage of
investment opportunities with the goal of earning income on the interest rate
differential between the yield earned on the investments and the rate paid on
the FHLB advances.
Total stockholders' equity declined by $680,000 from $14.036 million at
September 30, 1998 to $13.356 million at September 30, 1999 primarily as a
result of stock repurchases. After obtaining regulatory approval, the Company
repurchased a total of 45,463 shares of its common stock in May, June, and
August of 1999. The purchases totaled $581,000. The change in the unrealized
gain (loss) on investment securities and mortgage-backed securities
available-for-sale further reduced stockholders' equity by $549,000.
Stockholders' equity was further reduced by cash dividends declared during
fiscal year 1999. These dividends totaled $0.42 per share or $346,000.
Non-performing Assets
Non-performing assets totaled $141,000 at September 30, 1999 or 0.22% of
total assets compared to $256,000 at September 30, 1998 or 0.41% of total
assets. Non-performing assets are primarily comprised of loans secured by
residential real estate. Included in non-performing assets is a $66,000 loan
secured by commercial real estate, $2,000 in consumer loans and one residential
real estate property owned by the Bank at $73,000. At September 30, 1998, the
Company did not have any repossessed properties.
Comparison of Results of Operations for the Years Ended September 30, 1999 and
1998
Net Income. For the year ended September 30, 1999 the Company posted net
income of $689,000 or diluted earnings per share of $.80 compared to net income
of $712,000 or diluted earnings per share of $.77 for the year ended September
30, 1998. Net income was lower in 1999 than in 1998 primarily as a result of
declining net interest income. Net income was lower in 1999 even though average
earning assets were higher in 1999 than in 1998. Average earning assets were
higher in 1999 because of the increase in investment and mortgage-backed
securities available-for-sale and FHLB deposits.
-8-
<PAGE>
Net Interest Income. Net interest income decreased by $54,000 from $1.973
million for the year ended September 30, 1998 to $1.919 million for the year
ended September 30, 1999. The decrease in net interest income was primarily
attributed to a decrease in the volume of interest earning assets to interest
bearing liabilities. The ratio of interest earning assets to interest bearing
liabilities decreased from 130.64% for the twelve month period ended September
30, 1998 to 128.32% for the same period in 1999. Also contributing to the
decrease in net interest income was a slight decrease in the interest rate
spread from 2.03% for the twelve month period ended September 30, 1998 to 2.02%
for the twelve month period ended September 30, 1999.
Interest Income. Total interest income decreased by $142,000 from $4.420
million for the year ended September 30, 1998 to $4.278 million for the year
ended September 30,1999. The decrease in interest income was primarily caused by
a decrease in the yield on average interest earning assets from 1998 to 1999. A
decrease in the yield on average earning assets from 7.36% for the twelve month
period ended September 30, 1998 to 6.93% for the same period in 1999 caused
interest income to decrease by $258,000. During the twelve month period ended
September 30, 1998 average interest earning assets totaled $60.057 million
compared to $61.697 million for the same period in 1999. This increase in volume
caused interest income to increase by $122,000 for the periods covered.
Interest Expense. Deposit interest expense increased by $9,000 from $1.540
million for the year ended September 30, 1998 to $1.549 million for the year
ended September 30, 1999 primarily as a result of an increase in the volume of
interest bearing deposits, somewhat offset by a decrease in the cost of these
funds. Average interest bearing deposits increased by $2.44 million from
September 30, 1998 to September 30, 1999 contributing to the $124,000 increase
in interest expense. An decrease in the cost of interest bearing deposits from
5.04% for the twelve month period ended September 30, 1998 to 4.69% for the
twelve month period ended September 30, 1999 decreased interest expense by
$106,000.
FHLB advance interest expense decreased by $98,000 from $908,000 for the
year ended September 30, 1998 to $810,000 for the year ended September 30, 1999,
primarily from a lower interest rate on advances. Average FHLB advances
decreased from $15.41 million for the twelve month period ended September 30,
1998 to $15.08 million for the twelve month period ended September 30, 1999.
This decrease in volume caused interest expense to decrease by $20,000. A
decrease in the cost of FHLB advances from 5.89% in 1998 to 5.37% 1999 accounted
for a $80,000 decrease in interest expense.
The total cost of average interest bearing liabilities was 4.91% for 1999
and 5.33% for 1998.
Provision for Loan Losses. The provision for loan losses was $6,000 in 1999
and $18,000 in 1998. In 1999, recoveries totaled $30,000 while charge-offs
totaled $71,000. Loan charge-offs were greater than recoveries in 1999 resulting
in a net decrease in the allowance for loan loss of $35,000. Management's
periodic evaluation of the adequacy of the allowance is based on factors such as
the Bank's past loan loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrower's ability to repay, estimated
value of any underlying collateral, current and prospective economic conditions,
and independent appraisals. Any increase or decrease in the provision for loan
losses has a corresponding negative or positive effect on net income. At
September 30, 1999, the allowance represented 0.84% of net loans receivable as
compared to 0.92% of loans receivable at September 30, 1998. Subsequent to year
end there has been approximately $26,000 of loans recovered that had been
written off during the year ended September 30, 1999.
-9-
<PAGE>
Assessment of the adequacy of the allowance for loan losses involves
subjective judgments regarding future events, and thus, there can be no
assurance that additional provisions for loan losses will not be required in
future periods.
Non-Interest Income. Non-interest income was $96,000 for the years ended
September 30, 1999 and 1998. Customer service charges decreased by $4,000 as a
result of less deposit account overdrafts. Other operating income increased by
$10,000 as a result of fees associated with the loan portfolio. These fees
increased due to the volume of refinancing and loan modifications. In 1999,
losses on the sale of investment securities were $3,000. Meanwhile in 1998,
gains on the sale of investment securities totaled $3,000.
Non-Interest Expense. Non-interest expense was $997,000 for the years ended
September 30, 1999 and 1998. Compensation and benefit expense was $11,000 higher
in 1998 than in 1999 primarily as a result of general pay increases in 1999
offset by reduced costs associated with the Bank's ESOP and Management Stock
Bonus Plan ("MSBP").
Occupancy and equipment expenses declined by $9,000 from $89,000 for the
year ended September 30, 1998 to $80,000 for the year ended September 30, 1999
due to a decline in building maintenance. Data processing costs increased during
1999 to $109,000 from $100,000 in 1998. Other operating expenses expense were
$11,000 higher in 1999 than in 1998. There were no other significant changes in
operating expenses.
Income Taxes. The effective tax rates for 1999 and 1998 were 31.94% and
32.42%, respectively. There is no state income tax imposed on the Company.
Liquidity and Capital Resources
Primary source of income is dividends from the bank and are subject to
regulatory provisions.
The Bank is required to maintain minimum levels of liquid assets as defined
by OTS regulations. This requirement, which varies from time to time depending
upon economic conditions and deposit flows, is based upon a percentage of
deposits and short term borrowings. The required liquidity ratio currently is
5.0% and the Bank's liquidity ratio average was 63.93% at September 30, 1999
compared to 61.08% at September 30, 1998.
The Bank's primary sources of funds are deposits, prepayment and
amortization of loans and mortgage-backed securities, maturities of investment
securities, earnings from operations, and advances from the FHLB of Seattle.
While scheduled principal repayments are greatly influenced by general interest
rates, economic conditions, competition and other factors, the Bank manages the
pricing of its deposits to maintain desired levels and invests in short-term
interest-earning assets, which provide liquidity to meet its lending
requirements.
During the years ended September 30, 1999 and 1998, the Bank had positive
net cash flows of $913,000 and $780,000 from operating activities and $1.38
million and $1.21 million from financing activities, respectively. The Company,
however, experienced negative net cash flows of $1.67 million and $1.62 million,
respectively, from investing activities.
-10-
<PAGE>
The primary investing activity of the Bank is the origination of fixed-rate
mortgages with maturities of less than 20 years and the purchase of investment
securities. During fiscal 1999 and 1998, the Bank originated mortgage loans in
the amounts of $10.12 million and $11.54 million, respectively. The proceeds
from new deposits were used to fund such investment activities as the
origination of loans and the purchase of investment securities available for
sale.
Net income, adjusted for the non-cash and non-operating items, was the
primary source of cash flows from operating activities in both fiscal 1999 and
1998.
During fiscal 1999 and 1998, investing activities used $1.67 million and
$1.62 million, respectively, primarily to purchase investment securities and to
fund the origination of loans. This use of cash was offset somewhat by
maturities and calls of investment securities and the repayment of principal on
loans.
Changes in cash flows from financing activities during these periods have
primarily been related to changes in deposits, borrowings, dividends paid and
stock repurchases in 1999. The primary financing activities of the Bank are the
attraction of deposits and borrowing funds from the FHLB of Seattle. During
fiscal year 1999, deposits increased $1.34 million. The Bank also supplements
its deposits with advances from the FHLB of Seattle to manage interest rate risk
and to take advantage of investment opportunities with the goal of earning
income on the interest rate differential between the yield earned on the
investments and the rate paid on the advances. During fiscal year 1999, FHLB
advances increased by $950,000. The increases in deposits and FHLB advances were
used to purchase investment securities and to fund loan originations. Generally,
the cost of advances is greater than the cost of deposits.
The Bank anticipates that it will have sufficient funds available to meet
its current commitments. At September 30, 1999, the Bank had commitments to
originate loans of $610,000. Certificates of deposit and State of Wyoming
deposits which are scheduled to mature in less than one year at September 30,
1999 totaled $16.07 million. Based on historical experience, management believes
that a significant portion of such deposits will remain with the Bank.
Year 2000
The Year 2000 problem exists because many computer programs use only the
last two digits to refer to a year. This convention could affect date-sensitive
calculations that treat "00" as the year 1900, rather than 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.
-11-
<PAGE>
Year 2000 issues expose the Company to a number of risks, any one of which,
if realized, could have a material adverse effect on the Bank's business,
results of operations or financial condition. These risks include the
possibility that, to the extent certain vendors fail to adequately address Year
2000 issues, the Bank may suffer disruptions in important services on which the
Bank depends, such as telecommunications, electrical power, and data processing.
Year 2000 issues could affect the Bank's liquidity, if customer withdrawals in
anticipation of the Year 2000 are greater that expected, or if the Bank's
lenders are unable to provide the Bank with funds when and as needed by the
Company. Year 2000 issues also create additional credit risk to the Company
insofar as the failure of the Company's customers and the counterparties to
adequately address Year 2000 issues could increase the likelihood that these
customers and counterparties become delinquent or default on the obligations to
the Bank. In addition to increasing the Bank's risk exposure to problem loans,
credit losses and liquidity problems, Year 2000 issues expose the Bank to
increased risk of litigation losses and expenses relating to the foregoing.
There are other Year 2000 risks besides those described above that may impact
the Bank's business, results of operations and financial condition.
In addition, the Company places a high degree of reliance on its third
party processor and computer systems of other financial institutions. Although
the Company is assessing the readiness of these other parties and preparing
contingency plans, there can be no guarantee that the failure of these other
parties to modify their systems in advance of December 31, 1999 would not have a
material adverse affect on the Company.
During fiscal 1998, the Company adopted a Year 2000 Action Plan (the
"Plan") and established a Year 2000 Committee (the "Committee"). The objectives
of the Plan and the Committee are to prepare the Company for the new millennium.
As recommended by the Federal Financial Institutions Examination Council
("FFIEC"), the Plan encompasses the following phases: Awareness, Assessment,
Renovation, Validation and Implementation. These phases will enable the Company
to identify risks, develop an action plan, perform adequate testing and complete
certification that its processing systems will be Year 2000 ready. Execution of
the Plan is currently on target. The Company has completed the Implementation
phase, which included instituting Year 2000 ready software and hardware.
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. The
Service Center is considered Year 2000 compliant as of September 30, 1999. The
Service Center is completed with their Implementation 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 are Year 2000 compliant. These third parties also supply, at
least quarterly, an update of their progress. The Company has contacted and
certified that all material customers and non-information technology suppliers
are Year 2000 compliant.
We are unable to test the Year 2000 readiness of our significant suppliers
of utilities. We are relying on the utility companies' internal testing and
representations to provide the required services that drive our data systems.
Any failure of the utilities to adequately address the Year 2000 issues could
result in the Bank being unable to service its customers on a timely basis. The
Bank has arranged for a generator, to be on site during the rollover, which
should provide electric power in the event any local electric utilities
experience problems.
-12-
<PAGE>
Costs have been 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 $20,000 over the three year
period from 1998-2000, of which approximately $18,000 was incurred as of
September 30, 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.
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 Bank, such as customers, vendors, payment systems 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 operations of the Bank.
Impact of Inflation and Changing Prices
The financial statements of the Company and notes thereto, presented
elsewhere herein, have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the change
in the relative purchasing power of money over time and due to inflation. The
impact of inflation is reflected in the increased cost of the Company's
operations. Unlike most industrial companies, nearly all the assets and
liabilities of the Company are monetary.
As a result, interest rates have a greater impact on the Company's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the price
of goods and services.
The Company's subsidiary, the Bank, is a traditional thrift that primarily
originates and holds long-term home loans. These loans are primarily funded with
short-term deposits. Because of this mismatch, the Bank's financial condition
and results of operations may be adversely affected by a sudden and prolonged
increase in interest rates. See also "-Asset/Liability and Interest Rate Risk."
-13-
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Crazy Woman Creek Bancorp Incorporated:
We have audited the accompanying consolidated balance sheets of Crazy Woman
Creek Bancorp Incorporated and subsidiary as of September 30, 1999 and 1998, and
the related consolidated statements of income, stockholders' equity and
comprehensive income, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Crazy Woman Creek
Bancorp Incorporated and subsidiary as of September 30, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
Billings, Montana
October 29, 1999
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 1999 and 1998
<TABLE>
<CAPTION>
Assets 1999 1998
------ ------------------ ------------------
<S> <C> <C>
Cash and cash equivalents $ 2,189,233 1,561,535
Interest bearing deposits -- 99,000
Investment and mortgage-backed securities
available-for-sale 29,479,115 24,635,379
Investment and mortgage-backed securities held-to-
maturity (estimated market value of $4,021,391 at
September 30, 1998) -- 3,937,696
Stock in Federal Home Loan Bank of Seattle, at cost 987,700 917,100
Loans receivable, net 29,727,123 29,986,223
Accrued interest receivable 521,598 538,459
Premises and equipment, net 544,312 397,538
Other real estate owned 73,000 --
Income tax receivable -- 38,597
Deferred income taxes 62,301 --
Other assets 76,628 42,120
------------------ ------------------
$ 63,661,010 62,153,647
================== ==================
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits $ 34,257,336 32,913,120
Advances from Federal Home Loan Bank 15,600,000 14,650,000
Advance payments by borrowers for taxes and insurance 68,934 64,438
Income taxes payable 7,172 --
Deferred income taxes -- 210,706
Dividends payable 103,656 90,926
Accrued expenses and other liabilities 267,711 188,728
------------------ ------------------
Total liabilities 50,304,809 48,117,918
Stockholders' equity:
Preferred stock, par value $.10 per share, 2,000,000
shares authorized; none issued and outstanding -- --
Common stock, par value $.10 per share, 5,000,000
shares authorized; 1,058,000 issued 105,800 105,800
Additional paid-in capital 10,096,435 10,083,224
Unearned ESOP/MSBP shares (576,665) (670,711)
Retained earnings 7,080,054 6,736,570
Accumulated other comprehensive income (loss), net (341,126) 207,612
Treasury stock at cost, 173,466 and 128,003 shares
at September 30, 1999 and 1998, respectively (3,008,297) (2,426,766)
------------------ ------------------
Total stockholders' equity 13,356,201 14,035,729
------------------ ------------------
$ 63,661,010 62,153,647
================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Statements of Income
Years ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
Interest income:
<S> <C> <C>
Loans receivable $ 2,382,028 2,412,177
Mortgage-backed securities 605,899 635,229
Investment securities 1,176,831 1,243,968
Other interest-earning assets 113,246 128,930
------------------ ------------------
Total interest income 4,278,004 4,420,304
Interest expense:
Deposits 1,548,345 1,539,445
Advances from Federal Home Loan Bank 810,346 908,274
------------------ ------------------
Total interest expense 2,358,691 2,447,719
------------------ ------------------
Net interest income 1,919,313 1,972,585
Provision for loan losses 6,000 18,000
------------------ ------------------
Net interest income after provision for loan losses 1,913,313 1,954,585
------------------ ------------------
Non-interest income:
Customer service charges 46,256 49,881
Other operating income 53,397 43,034
Gain (loss) on sale of securities, net (3,155) 3,417
------------------ ------------------
Total non-interest income 96,498 96,332
------------------ ------------------
Non-interest expense:
Compensation and benefits 523,205 533,883
Occupancy and equipment 79,915 88,753
FDIC/SAIF deposit insurance premiums 18,926 18,552
Advertising 36,017 36,446
Data processing services 108,462 99,866
Professional fees 71,820 74,794
Other 158,136 144,523
------------------ ------------------
Total non-interest expense 996,481 996,817
------------------ ------------------
Income before income taxes 1,013,330 1,054,100
Income tax expense 323,642 341,700
------------------ ------------------
Net income $ 689,688 712,400
================== ==================
Basic earnings per share $ 0.81 0.79
================== ==================
Diluted earnings per share $ 0.80 0.77
================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Years ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
Unearned Accumulated
Additional ESOP/ other Total
Common paid-in MSBP Retained comprehensive Treasury stockholders'
stock capital shares earnings income (loss) stock equity
------- ---------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1997 $ 105,800 10,041,629 (809,272) 6,377,093 77,007 (1,581,918) 14,210,339
Comprehensive income:
Net income -- -- -- 712,400 -- -- 712,400
Unrealized gain on securities
available-for-sale, net of
reclassification adjustment -- -- -- -- 130,605 -- 130,605
-----------
Total comprehensive income 843,005
Repurchase of 47,700 shares of common stock -- -- -- -- -- (827,979) (827,979)
Tax benefit from stock related compensation -- 13,507 -- -- -- -- 13,507
Stock options exercised -- -- -- -- -- 24,863 24,863
3,386 MSBP shares forfeited -- -- 41,732 -- -- (41,732) --
ESOP shares committed to be released -- 28,088 45,715 -- -- -- 73,803
MSBP shares vested -- -- 51,114 -- -- -- 51,114
Cash dividends declared ($.40 per share) -- -- -- (352,923) -- -- (352,923)
Balance at September 30, 1998 105,800 10,083,224 (670,711) 6,736,570 207,612 (2,426,766) 14,035,729
------- ---------- --------- --------- --------- ----------- ----------
Comprehensive income:
Net income -- -- -- 689,688 -- -- 689,688
Unrealized loss on securities
available-for-sale, net of
reclassification adjustment -- -- -- -- (548,738) -- (548,738)
------------
Total comprehensive income 140,950
Repurchase of 45,463 shares of common stock -- -- -- -- -- (581,531) (581,531)
Tax benefit from stock related compensation -- 696 -- -- -- -- 696
ESOP shares committed to be released -- 12,515 45,714 -- -- -- 58,229
MSBP shares vested -- -- 48,332 -- -- -- 48,332
Cash dividends declared ($.42 per share) -- -- -- (346,204) -- -- (346,204)
------- ---------- --------- --------- --------- ----------- ----------
Balance at September 30, 1999 $ 105,800 10,096,435 (576,665) 7,080,054 (341,126) (3,008,297) 13,356,201
======= ========== ======== ========= ======== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 689,688 712,400
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 6,000 18,000
Amortization of premiums and discounts on
investment securities, net 21,389 10,462
Federal Home Loan Bank stock dividend (70,600) (67,100)
Depreciation 50,040 51,037
Loss (gain) on sale of securities 3,155 (3,417)
Gain on sale of foreclosed real estate (2,711) --
Mututal funds dividends reinvested (40,893) (31,291)
Deferred loan origination fees, net 32,032 6,793
Loss on sale of premises and equipment 962 2,877
ESOP shares committed to be released 58,229 73,803
MSBP compensation expense 48,332 51,114
Change in:
Accrued interest receivable 16,861 20,323
Other assets (34,508) 13,398
Income taxes payable 46,465 (193,700)
Deferred income taxes 9,676 41,585
Accrued expenses and other liabilities 78,983 73,455
------------ ------------
Net cash provided by operating activities 913,100 779,739
------------ ------------
Cash flows from investing activities:
Decrease in interest-bearing deposits 99,000 --
Purchases of securities available-for-sale (13,970,624) (25,352,022)
Proceeds from maturities, calls and prepayments of
securities available-for-sale 11,290,012 18,118,582
Proceeds from sales of securities available-for-sale 959,500 1,979,955
Proceeds from maturities and calls of securities
held-to-maturity -- 5,066,702
Purchase of Federal Home Loan Bank stock -- (48,500)
Origination of loans receivable (10,115,804) (11,542,319)
Repayment of principal on loans receivable 10,178,740 10,167,523
Purchases of premises and equipment (197,776) (8,129)
Proceeds from sale of foreclosed real estate 87,843 --
------------ ------------
Net cash used in investing activities (1,669,109) (1,618,208)
------------ ------------
Cash flows from financing activities:
Net increase in deposits 1,344,216 3,406,777
Advances from Federal Home Loan Bank 23,100,000 11,650,000
Repayment of advances from Federal Home Loan Bank (22,150,000) (12,700,000)
Net change in advances from borrowers for taxes
and insurance 4,496 10,050
Exercise of stock options -- 24,863
Repurchase of common stock (581,531) (827,979)
Dividends paid to stockholders (333,474) (357,482)
------------ ------------
Net cash provided by financing activities 1,383,707 1,206,229
------------ ------------
Net increase in cash and cash equivalents 627,698 367,760
Cash and cash equivalents at beginning of year 1,561,535 1,193,775
------------ ------------
Cash and cash equivalents at end of year $ 2,189,233 1,561,535
============ ============
Cash paid during the year for:
Interest $ 2,375,000 2,416,000
Income taxes 278,000 494,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
(1) Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the accounts of
Crazy Woman Creek Bancorp Incorporated (the Holding Company) and its
wholly-owned subsidiary, Buffalo Federal Savings Bank (BFSB). The Holding
Company and BFSB are herein referred to collectively as "the Company." All
significant intercompany balances and transactions have been eliminated in
consolidation.
BFSB provides services to customers in the Buffalo, Wyoming area. BFSB
offers a variety of deposit products to its customers while concentrating
its lending activities on real estate loans. These real estate lending
activities focus primarily on the origination of loans secured by one- to
four-family residential real estate but also include the origination of
multi-family, commercial real estate and home equity loans. BFSB is subject
to competition from other financial service providers and is also subject
to the regulations of certain federal and state agencies and undergoes
periodic examinations by those regulatory authorities.
Basis of Presentation
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as
of the date of the balance sheet and income and expenses for the period.
Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for loan
losses. Management believes that the allowance for loan losses is adequate,
however, future additions to the allowance may be necessary based on
changes in factors affecting the borrowers' ability to repay. In addition,
various regulatory agencies, as an integral part of their examination
process, periodically review the allowance for loan losses. Such agencies
may require BFSB to recognize additions to the allowance based on their
judgments about information available to them at the time of their
examination.
Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
cash, daily interest demand deposits, amounts due from banks and
interest-bearing deposits with banks with original maturities of three
months or less to be cash equivalents.
Investment and Mortgage-Backed Securities
Investment and mortgage-backed securities available-for-sale include
securities that management intends to use as part of its overall
asset/liability management strategy and that may be sold in response to
changes in interest rates and resultant prepayment risk and other related
factors. Securities available-for-sale are carried at fair value and
unrealized gains and losses (net of related tax effects) are excluded from
earnings and reported as a separate component of stockholders' equity.
Investment securities and mortgage-backed securities, other than those
designated as available-for-sale or trading, are comprised of debt
securities for which the Company has positive intent and ability to hold to
maturity and are carried at cost. Management
19 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
determines the appropriate classification of investment and mortgage-backed
securities as either available-for-sale or held-to-maturity at the purchase
date.
The carrying value of debt securities is adjusted for amortization of
premiums and accretion of discounts using the level-yield method over the
estimated lives of the securities. Upon realization, gains and losses from
the sale of securities are included in earnings using the specific
identification method. Declines in the fair value of securities below
carrying value that are other then temporary are charged to expense as
realized losses and the related carrying value is reduced to fair value.
Stock in Federal Home Loan Bank
Member institutions of the Federal Home Loan Bank (FHLB) System are
required to hold common stock of its district FHLB according to
predetermined formulas. FHLB provides a source of borrowed funds for its
member institutions which are secured by this FHLB stock.
Loans Receivable
Loans receivable are stated at unpaid principal balances, less net deferred
loan origination fees. Loans are placed on nonaccrual status when
collection of principal or interest is considered doubtful (generally loans
past due 90 days or more). Interest income previously accrued on these
loans, but not yet received, is reversed in the current period. Interest
subsequently recovered is credited to income in the period collected.
The allowance for loan losses is based on management's evaluation of the
adequacy of the allowance, including an assessment of known and inherent
risks in the portfolio, review of individual loans for adverse situations
that may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and consideration of current economic conditions.
Additions to the allowance arise from charges to operations through the
provision for loan losses or from the recovery of amounts previously
charged off. The allowance is reduced by loan charge-offs. Loans are
charged off when management believes there has been permanent impairment of
their carrying values.
The Company also provides an allowance for losses on specific loans which
are deemed to be impaired. Groups of small balance homogeneous basis loans
(generally the Company's consumer loans) are evaluated for impairment
collectively. A loan is considered impaired when, based upon current
information and events, it is probable that the Company will be unable to
collect, on a timely basis, all principal and interest according to the
contractual terms of the loan's original agreement. When a specific loan is
determined to be impaired, the allowance for possible loan losses is
increased through a charge to expense for the amount of the impairment. For
all non-consumer loans, impairment is measured based on the value of the
underlying collateral. The value of the underlying collateral is determined
by reducing the collateral's estimated current value by anticipated selling
costs. The Company recognizes interest income on impaired loans only to the
extent that cash payments are received.
20 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
Loan Origination Fees and Related Costs
Loan origination fees and certain direct loan origination costs are
deferred, and the net fee or cost is recognized as interest income using
the level-yield method over the contractual life of the loans, adjusted for
prepayments based on actual prepayment experience. Amortization of deferred
loan origination fees and costs are suspended during periods in which the
related loan is on nonaccrual status.
Other Real Estate Owned
Other real estate owned is recorded at the fair value at the date of
acquisition, with a charge to the allowance for loan losses for any excess
of cost over fair value. Subsequently, real estate owned is carried at the
lower of cost or fair value, less estimated selling costs. Certain costs
incurred in preparing properties for sale are capitalized, and expenses of
holding foreclosed properties are charged to operations as incurred.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using straight-line and accelerated methods over
the estimated useful lives of 39 years for the building and 5 to 7 years
for furniture, fixtures and equipment.
Long-Lived Assets
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or circumstances indicate the carrying amount of
the asset may not be recoverable. An impairment loss is recognized if the
sum of the expected future cash flows is less than the carrying amount of
the asset. No long-lived assets were identified as impaired as of September
30, 1999 or 1998.
Income Taxes
The Holding Company and BFSB have elected to file separate Federal income
tax returns.
Deferred tax assets and liabilities are recognized for the estimated future
consequences attributable to differences between the financial statement
carrying amounts of assets and liabilities and their respective tax bases.
The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in tax expense in the period that includes the enactment
date.
Stock-Based Compensation
Compensation cost for stock-based compensation to employees is measured at
the grant date using the intrinsic value method. Under the intrinsic value
method, compensation cost is the excess of the market price of the stock at
the grant date over the amount an employee must pay to ultimately acquire
the stock and is recognized as compensation expense over any related
service period.
21 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
Earnings Per Share
Basic earnings per share (EPS) is calculated by dividing net income
available to common stockholders by the weighted average number of common
shares outstanding during the period less unvested management stock bonus
plan, treasury stock and unallocated ESOP shares. Diluted earnings per
share is calculated by dividing such 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.
Comprehensive Income
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income," effective
October 1, 1998. SFAS No. 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.
SFAS No. 130 requires only additional disclosures in the consolidated
financial statements; it does not affect the Company's financial position
or results of operations. Prior year financial statements have been
reclassified to conform to the requirements of SFS No. 130.
Derivative Instruments
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. SFAS No. 133 establishes accounting and
reporting standards requiring that derivative instruments (including
certain derivative instruments embedded in other contracts) be recorded in
the balance sheet as either an asset or liability measured at its fair
value. SFAS No. 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria
are met. The Company adopted the provisions of SFAS No. 133 effective
October 1, 1998. Under a one-time opportunity provided for upon adoption of
the statement, the Company reclassified all of its held-to-maturity
securities, with an amortized cost of approximately $3,938,000 as
available-for-sale. The net effect of this reclassification was an increase
in total assets of approximately $84,000, deferred tax liabilities of
approximately $29,000 and accumulated other comprehensive income of
approximately $55,000.
22 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
(2) Investment and Mortgage-Backed Securities Available-for-Sale
The amortized cost, unrealized gains and losses, and estimated fair values
of investment and mortgage-backed securities available-for-sale at
September 30 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
1999 cost gains losses value
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. agency obligations $ 15,748,663 - (602,820) 15,145,843
Municipal securities 2,032,759 7,470 (94,793) 1,945,436
Mutual funds 1,072,995 348,145 (12,369) 1,408,771
Mortgage-backed securities:
GNMA certificates 4,001,675 18,475 (81,443) 3,938,707
FHLMC certificates 3,949,294 12,781 (71,052) 3,891,023
REMIC certificates 718,594 - (26,589) 692,005
FNMA certificates 2,471,992 13,344 (28,006) 2,457,330
----------------- ------------------ ------------------ ------------------
11,141,555 44,600 (207,090) 10,979,065
----------------- ------------------ ------------------ ------------------
$ 29,995,972 400,215 (917,072) 29,479,115
================= ================== ================== ==================
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
1998 cost gains losses value
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. agency obligations $ 16,286,927 168,270 - 16,455,197
Municipal securities 1,084,511 13,732 - 1,098,243
Mutual funds 1,032,100 68,120 - 1,100,220
Mortgage-backed securities:
GNMA certificates 2,744,944 24,669 (729) 2,768,884
FHLMC certificates 872,359 33,903 - 906,262
REMIC certificates 2,299,974 9,114 (2,515) 2,306,573
----------------- ------------------ ----------------- ------------------
5,917,277 67,686 (3,244) 5,981,719
----------------- ------------------ ------------------ ------------------
$ 24,320,815 317,808 (3,244) 24,635,379
================= ================== ================== ==================
</TABLE>
The REMICs consist of two certificates and five certificates at September
30, 1999 and 1998, respectively, which are backed by the FNMA or the FHLMC.
23 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
Maturities of securities available-for-sale (other than equity securities)
at September 30, 1999 are shown below. Mortgage-backed securities are
included in this maturity schedule based on current estimates of their
expected average lives.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---------------------- ----------------------
<S> <C> <C>
Due within one year $ 575,000 572,803
Due after one year through five years 10,236,907 10,112,083
Due after five years through ten years 16,252,857 15,616,093
Due after ten years 1,858,213 1,769,365
---------------------- ----------------------
$ 28,922,977 28,070,344
====================== ======================
</TABLE>
Gross realized losses on the sale of investment and mortgage-backed
securities available-for-sale were $3,155 during the year ended September
30, 1999. Gross realized gains on the sale of investment and
mortgage-backed securities available-for-sale were $3,417 during the year
ended September 30, 1998.
The Company has not entered into any interest rate swaps, options or future
contracts. All of the U.S. agency obligations and municipal securities at
September 30, 1999 have call features.
(3) Investment and Mortgage-Backed Securities Held-to-Maturity
The amortized cost, unrealized gains and losses, and estimated fair values
of investment and mortgage-backed securities held-to-maturity at September
30, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. agency obligations $ 845,000 3,888 - 848,888
Municipal securities 571,632 12,162 (1) 583,793
Mortgage-backed securities:
FNMA certificates 542,469 14,270 - 556,739
GNMA certificates 996,320 28,545 - 1,024,865
FHLMC certificates 982,275 24,831 - 1,007,106
----------------- ------------------ ------------------ ------------------
2,521,064 67,646 - 2,588,710
----------------- ------------------ ------------------ ------------------
$ 3,937,696 83,696 (1) 4,021,391
================= ================== ================== ==================
</TABLE>
No gains or losses were realized on the sale of investment and
mortgage-backed securities held-to-maturity during the year ended September
30, 1998. Amortized cost of the securities sold in fiscal 1998 was
approximately $500,000.
24 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
(4) Loans Receivable, Net
Loans receivable, net at September 30 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
<S> <C> <C>
Real estate mortgage loans, including commercial
real estate $ 26,498,786 25,954,351
Real estate construction loans 473,249 396,637
Consumer loans 1,497,907 1,505,776
Home equity loans 836,961 1,465,238
Commercial and agricultural loans 877,112 1,035,148
Savings account and other loans 181,112 341,622
---------------------- ----------------------
30,365,127 30,698,772
Less:
Loans in process 199,653 271,388
Allowance for loan losses 248,915 283,757
Net deferred loan origination fees 189,436 157,404
---------------------- ----------------------
$ 29,727,123 29,986,223
====================== ======================
</TABLE>
Adjustable rate mortgages included in the real estate loans receivable
balance above were approximately $67,000 and $113,000 at September 30, 1999
and 1998, respectively.
Real estate loans serviced for others were approximately $70,000 and
$74,000 at September 30, 1999 and 1998, respectively.
First mortgage loans pledged as collateral for public funds or for other
funds on deposit with BFSB were approximately $7,445,000 and $6,338,000 at
September 30, 1999 and 1998, respectively.
A summary of activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
<S> <C> <C>
Balance at beginning of year $ 283,757 302,079
Provision 6,000 18,000
Losses charged against the allowance (71,250) (50,674)
Recoveries of amounts previously charged off 30,408 14,352
---------------------- ----------------------
Balance at end of year $ 248,915 283,757
====================== ======================
</TABLE>
BFSB is not committed to lend additional funds to debtors whose loans have
been modified. BFSB's impaired loans, which include those loans currently
reported as nonaccrual, amounted to approximately $68,000 and $256,000 at
September 30, 1999 and 1998, respectively, and were not subject to a
specific allowance for loan losses because of the estimated net realizable
value of loan collateral, guarantees and other factors.
25 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
During the year ended September 30, 1999 the Bank foreclosed on property
securing three loans. The net book value of the loans at the time of
foreclosure was $260,237. The Bank subsequently sold two of the properties
in exchange for loans of $102,105 and cash. There was a $2,711 gain
recognized on the sales.
(5) Accrued Interest Receivable Accrued interest receivable at September 30 is
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
<S> <C> <C>
Investment securities $ 267,583 268,639
Mortgage-backed securities 61,015 46,132
Loans receivable 193,000 223,688
---------------------- ----------------------
$ 521,598 538,459
====================== ======================
</TABLE>
(6) Premises and Equipment
Premises and equipment at September 30 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
<S> <C> <C>
Land and building $ 661,603 502,078
Furniture, fixtures and equipment 352,538 324,721
---------------------- ----------------------
1,014,141 826,799
Less accumulated depreciation 469,829 429,261
---------------------- ----------------------
$ 544,312 397,538
====================== ======================
</TABLE>
(7) Deposits
Deposits at September 30 are summarized as follows:
<TABLE>
<CAPTION>
Weighted 1999 1998
------------------------------ ------------------------------
average rate Amount Percent Amount Percent
---------------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Demand, NOW and MMDA
accounts 3.39% $ 9,106,554 26.6% $ 8,586,816 26.1%
Passbook savings 3.63% 3,682,765 10.8 3,898,287 11.8
Certificates of deposit, by 4.01 to 5.00% 6,223,147 18.2 1,300,661 4.0
interest rate 5.01 to 6.00 13,553,444 39.5 15,066,448 45.8
6.01 to 7.00 1,691,426 4.9 4,031,456 12.2
7.01 to 8.00 - - 29,452 .1
-------------- ------------- ------------- -------------
Total certificates of
deposit 21,468,017 62.6 20,428,017 62.1
-------------- ------------- ------------- -------------
Total deposits $ 34,257,336 100.0% $ 32,913,120 100.0%
============== ============= ============= =============
</TABLE>
Certificates of deposit and savings accounts of $100,000 or greater were
approximately $7,700,000 and $7,000,000 at September 30, 1999 and 1998,
respectively. Amounts in excess of $100,000 are not insured by a federal
agency.
26 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
Certificates of deposit at September 30, 1999 are scheduled to mature as
follows:
<TABLE>
<CAPTION>
Year ending September 30 Amount
----------------------
<S> <C>
2000 $ 16,068,398
2001 3,192,405
2002 1,508,238
2003 698,976
----------------------
$ 21,468,017
======================
</TABLE>
Interest expense on deposits for the years ended September 30 is summarized
as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
<S> <C> <C>
NOW accounts and MMDA $ 321,877 300,856
Certificates of deposit and savings 1,226,468 1,238,589
---------------------- ----------------------
$ 1,548,345 1,539,445
====================== ======================
</TABLE>
Accrued interest payable on deposits (included in accrued expenses and
other liabilities) was approximately $130,000 and $146,000 at September 30,
1999 and 1998, respectively.
(8) Advances From Federal Home Loan Bank
Advances from the Federal Home Loan Bank at September 30 are summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
--------------------- ----------------------
<S> <C> <C>
4.98% to 6.38% Fixed Rate Advances, interest payable
monthly $ 4,400,000 12,350,000
4.53% to 5.45% Putable Advances, put option
exercisable quarterly, interest payable monthly
11,200,000 2,300,000
--------------------- ----------------------
$ 15,600,000 14,650,000
===================== ======================
</TABLE>
At September 30, 1999, BFSB had a Cash Management Advance note with a
maximum allowable advance of $3,068,250 maturing on June 10, 2000. There
was no outstanding balance as of September 30, 1999 or 1998. BFSB did
receive advances under the Cash Management Advance note of $4,600,000 and
$1,750,000 during the years ended September 30, 1999 and 1998, respectively
which were fully repaid prior to September 30, 1999 and 1998.
27 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
Contractual principal payments on advances from Federal Home Loan Bank
subsequent to September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Year ending September 30 Amount
----------------------
<S> <C>
2000 $ 11,700,000
2001 2,200,000
2002 1,700,000
----------------------
$ 15,600,000
======================
</TABLE>
These advances are collateralized by certain mortgage loans and by the
Federal Home Loan Bank stock held by the Company.
The weighted average interest rate on these advances was 5.15% and 5.67% at
September 30, 1999 and 1998, respectively.
(9) Comprehensive Income
A summary of the reclassification amounts and related tax effects for
comprehensive income follows:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------
1999 1998
---------------------- ----------------------
<S> <C> <C>
Disclosure of reclassification amount:
Unrealized and realized holding gains (losses) arising
during the period, net of income tax expense
(benefit) of $(312,212) and $68,443 in 1999 and
1998, respectively $ (606,059) 132,860
Effect of adoption of SFAS No. 133, net of income tax
expense of $28,457 55,239 -
Less reclassification adjustment for gains (losses)
included in net income, net of income tax expense
(benefit) of $(1,072) and $1,162 in 1999 and 1998,
respectively (2,082) 2,255
---------------------- ---------------------
Net change in unrealized gain (loss) on
available-for-sale investment securities $ (548,738) 130,605
====================== =====================
</TABLE>
(10) Income Taxes
Federal income tax expense for the years ended September 30 is summarized
as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
<S> <C> <C>
Current $ 313,966 300,115
Deferred 9,676 41,585
---------------------- ----------------------
Total $ 323,642 341,700
====================== ======================
</TABLE>
28 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
Income tax expense for the years ended September 30 differs from "expected"
income tax expense (computed by applying the Federal corporate income tax
rate of 34% to income before income taxes) as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
<S> <C> <C>
Computed "expected" tax expense $ 344,532 358,394
Increase (decrease) resulting from:
Tax-exempt interest (32,105) (12,018)
Mark-to-market adjustment on ESOP shares
committed to be released 4,255 9,550
Other 6,960 (14,226)
---------------------- ----------------------
$ 323,642 341,700
====================== ======================
</TABLE>
Temporary differences between the financial statement carrying amounts
and the tax bases of assets and liabilities that give rise to significant
portions of deferred tax assets and liabilities at September 30 are as
follows:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
<S> <C> <C>
Deferred tax assets:
Deferred loan fees $ 12,987 14,311
Allowance for loan losses 84,631 96,478
Unrealized loss on securities available-for-sale
175,731 -
Other 14,545 -
---------------------- ----------------------
Gross deferred tax assets 287,894 110,789
---------------------- ----------------------
Deferred tax liabilities:
FHLB stock dividends (195,908) (171,904)
Tax bad debt reserve in excess of base year
amount (26,333) (39,499)
Prepaid deposit insurance premium (3,352) (3,140)
Unrealized gain on securities
available-for-sale, net - (106,952)
---------------------- ----------------------
Gross deferred tax liabilities (225,593) (321,495)
---------------------- ----------------------
Net deferred tax asset (liability) $ 62,301 (210,706)
====================== ======================
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the existence of, or generation of, taxable income
in the periods which those temporary differences are deductible. Management
considers the scheduled reversal of deferred tax liabilities, taxes paid in
carryback years, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the level of historical
taxable income and estimates of future taxable income over the periods
which the deferred tax assets are deductible, at September 30, 1999 and
1998, management believes it is more likely than not that the Company will
realize the benefits of these deductible differences.
29 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
Retained earnings at September 30, 1999 includes approximately $398,000
which is essentially income offset by percentage of income bad debt
deductions for income tax purposes prior to 1988 (the "Base Year Reserve").
This amount is treated as a permanent difference and deferred taxes of
approximately $135,000 are not recognized unless it appears that the amount
will be reduced and thereby result in taxable income in the foreseeable
future. Under current tax regulations, management does not foresee any
changes in its business or operations which would result in a recapture of
the Base Year Reserve into taxable income. A deferred tax liability has
been recognized by BFSB for the amount of the tax bad debt reserve in
excess of the Base Year Reserve. The August 1996 tax legislation also
requires this excess to be recaptured and included in taxable income over a
six year period.
(11) Employee Benefit Plans
Retirement Plan. BFSB has a non-contributory defined contribution
retirement plan for all eligible employees. The retirement plan provides
for a discretionary Bank contribution. BFSB elected to make no contribution
to the retirement plan during the years ended September 30, 1999 and 1998.
Employee Stock Ownership Plan (ESOP). Effective January 1, 1996 the
Company's Board of Directors approved the adoption of an ESOP covering
substantially all employees. The ESOP purchased 64,000 shares of the
Holding Company's common stock for $10 per share in connection with the
conversion to stock ownership. The ESOP borrowed $640,000 from the Holding
Company to fund the purchase, evidenced by a note receivable recorded by
the Holding Company and secured by the common stock purchased by the ESOP.
The terms of the note require quarterly principal payments of approximately
$11,400, bearing interest at prime (7.75% and 8.50% at September 30, 1999
and 1998, respectively), maturing February 2010. Contributions of cash or
common stock are made from BFSB to the ESOP, the form of which is at the
discretion of the Board of Directors. For financial reporting purposes, the
unearned ESOP compensation is classified as a reduction of consolidated
stockholders' equity and amounts paid to the Holding Company for interest
have been eliminated in consolidation.
BFSB records compensation expense equal to the fair value of shares at the
date such shares are committed to be released. Shares are committed to be
released on a straight-line basis over the term of the note receivable
recorded by the Holding Company. Shares committed to be released are
allocated to participant accounts after the end of each fiscal year. For
the years ended September 30, 1999 and 1998, ESOP principal and interest
payments of approximately $85,000 and $93,000, respectively, were funded by
Bank contributions of approximately $59,000 and $67,000, respectively, to
the ESOP. The remainder of the ESOP payments was funded by dividends on
both allocated and unallocated ESOP shares. 4,571 shares were committed to
be released to participant accounts during each of the years ended
September 30, 1999 and 1998 and the fair value of the remaining shares to
be released in future years was approximately $579,000 at September 30,
1999. BFSB recognized compensation expense relating to the ESOP of $53,078
and $71,049 during the years ended September 30, 1999 and 1998,
respectively. The dividends on the unallocated ESOP shares are not recorded
as dividends in the consolidated statements of stockholders' equity.
30 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
Management Stock Bonus Plan (MSBP). On October 2, 1996, the Company's Board
of Directors approved the MSBP. The terms of the MSBP provide for the award
of up to 42,320 shares of common stock to certain officers and directors.
Deferred compensation is recorded at the date of the stock award based on
the fair value of the shares granted. Vesting in the grant occurs in five
equal, annual installments and the related deferred compensation is
expensed over the same period. For financial reporting purposes the
unearned deferred compensation balance is classified as a reduction of
consolidated stockholders' equity. Officers, directors and employees
awarded shares retain voting rights and, if dividends are paid, dividend
privileges during the vesting period. During the year ended September 30,
1997, BFSB purchased 42,320 shares for the MSBP. On October 2, 1996, 24,122
shares were granted to officers and directors. During the year ended
September 30, 1998, 3,386 of unvested shares were forfeited. BFSB
recognized compensation expense for the MSBP of $48,332 and $51,114 for the
years ended September 30, 1999 and 1998, respectively. At September 30,
1999, there were 7,956 unvested shares.
Stock Option Plan. On October 2, 1996, the Company's Board of Directors
approved the Stock Option Plan ("Stock Option Plan"). The terms of the
Stock Plan provide for the granting of up to 105,800 shares of common stock
to certain officers and directors. The Stock Option Plan provides for the
granting of both incentive and non-incentive stock options. The terms of
the options may not exceed 10 years from the date the options are granted.
Incentive stock options granted to stockholders with more than 10% of the
total combined voting power of all classes of stock of the Company shall be
granted at an option price of not less than 110% of the fair market value
at the grant date, and the term of the option may not exceed 5 years from
the date of the grant. Non-incentive stock options shall be granted at an
option price of not less then the fair market value at the grant date.
Changes in shares issuable under options granted for the years ended
September 30, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
----------------------------------- -----------------------------------
Weighted Weighted
average average
Shares exercise price Shares exercise price
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Balance September 30, 1997 74,060 $ 11.75 - $ -
Became exercisable - - 27,506 11.75
Granted 2,116 13.25 - -
Exercised (2,116) (11.75) (2,116) (11.75)
Canceled (8,464) (11.75) - -
---------------- ---------------- --------------- ----------------
Balance September 30, 1998 65,596 11.80 25,390 11.75
Became exercisable - - 13,118 11.80
---------------- ---------------- --------------- ----------------
Balance September 30, 1999 65,596 $ 11.80 38,508 $ 11.77
================ ================ =============== ================
</TABLE>
31 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
The stock options outstanding at September 30, 1999 consist of the
following:
Weighted Weighted
Number of Shares Average Exercise Average
Price Remaining Life
----------------------- ---------------------- ----------------------
63,480 $ 11.75 2 years
2,116 $ 13.25 4 years
Based on the terms of options granted and using the intrinsic value method,
no compensation cost has been recognized for any stock option grants in the
accompanying financial statements. Had the Company determined compensation
cost based on the estimated fair value at the grant date for its stock
options, the Company's net income and net income per share for the years
ended September 30, 1999 and 1998 would have been as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
<S> <C> <C>
Net income: As reported $ 689,688 712,400
Pro forma 667,027 690,785
====================== ======================
Basic earnings per share: As reported $ .81 .79
Proforma .78 .77
====================== ======================
Diluted earnings per share: As reported $ .80 .77
Pro forma .78 .75
====================== ======================
</TABLE>
The per share weighted-average fair value of stock options granted during
1998 for this pro forma disclosure was $2.55, determined on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions: expected dividend yield of 4%, risk-free interest rate of
4.73%, volatility ratio of .21, and expected life of 10 years.
Severance Agreements. BFSB has two severance agreements with its executive
officers. Such agreements have a term of three years and provide for
payments equal to three times average annual salary for the previous five
years, in the event BFSB experiences a change in control. A change in
control is defined as (1) a sale of more than 25% of the assets of BFSB or
the Holding Company; (2) any merger or recapitalization whereby BFSB or the
Holding Company is not the surviving entity; (3) a change in control as
determined by the OTS; or (4) acquisition directly or indirectly of 25% or
more of the voting stock of BFSB or the Holding Company by an individual,
entity or group.
32 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
(12) Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share for the years ended September 30:
<TABLE>
<CAPTION>
1999 1998
-------------------- ------------------
<S> <C> <C>
Number of shares on which basic earnings per share is calculated:
Average outstanding common shares during the fiscal year 853,255 901,151
Add: Incremental shares under stock option plans 4,549 18,505
Incremental shares related to MSBP 352 3,449
-------------------- ------------------
Number of shares on which diluted earnings per share is calculated
858,156 923,105
==================== ==================
Net income applicable to common stockholders $ 689,688 712,400
==================== ==================
Basic earnings per share $ .81 .79
==================== ==================
Diluted earnings per share $ .80 .77
==================== ==================
</TABLE>
(13) Regulatory Capital
BFSB is required to meet three capital requirements: a tangible capital
requirement equal to not less than 1.5% of tangible assets (as defined in
the regulations), a core capital requirement, comprised of tangible capital
adjusted for supervisory goodwill and other defined factors, equal to not
less than 3.0% of tangible assets, and a risk-based capital requirement
equal to at least 8.0% of all risk-weighted assets. For risk-weighting,
selected assets are given a risk assignment of 0% to 100%. BFSB's total
risk-weighted assets at September 30, 1999 and 1998 were approximately
$24,793,000 and $26,119,000, respectively.
BFSB's compliance with capital requirements at September 30, 1999 and 1998
follows:
<TABLE>
<CAPTION>
Minimum to be
adequately capitalized Minimum to be well
under prompt capitalized under
corrective actions prompt corrective
Actual provision actions provision
------------------------ ------------------------ ------------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1999:
Total capital (to
risk-weighted assets) $ 12,400 50.01% $ 1,983 8.00% $ 2,479 10.00%
Core (Tier 1) capital (to
risk-weighted assets) 12,151 49.01 744 3.00 1,488 6.00
Core (Tier 1) capital (to
adjusted assets) 12,151 19.22 1,897 3.00 3,161 5.00
Tangible capital (to
tangible assets) 12,151 19.22 948 1.50 948 1.50
========== ========== ========== ========== ========== ==========
</TABLE>
33 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
<TABLE>
<CAPTION>
Minimum to be
adequately capitalized Minimum to be well
under prompt capitalized under
corrective actions prompt corrective
Actual provision actions provision
------------------------ ------------------------ ------------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1998:
Total capital (to
risk-weighted assets) $ 11,884 45.50% $ 2,090 8.00% $ 2,612 10.00%
Core (Tier 1) capital (to
risk-weighted assets) 11,601 44.42 784 3.00 1,567 6.00
Core (Tier 1) capital (to
adjusted assets) 11,601 19.09 1,823 3.00 3,039 5.00
Tangible capital (to
tangible assets) 11,601 19.09 912 1.50 912 1.50
========== ========== ========== ========== ========== ==========
</TABLE>
Failure to comply with applicable regulatory capital requirements can
result in capital directives from the director of the Office of Thrift
Supervision (OTS), restrictions on growth, and other limitations on a
savings bank's operations.
Consolidated stockholders' equity differs from BFSB's tangible, core, and
risk-based capital at September 30 as a result of the following (dollars
rounded to thousands):
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
<S> <C> <C>
Consolidated stockholders' equity $ 13,356,000 14,036,000
Holding Company net assets (1,767,000) (2,272,000)
---------------------- ----------------------
BFSB capital 11,589,000 11,764,000
Add back unrealized losses (gains) on certain
available-for-sale securities 562,000 (163,000)
---------------------- ----------------------
Tangible and core capital 12,151,000 11,601,000
Allowance for loan losses (limited to 1.25% of
risk-weighted assets) 249,000 283,000
---------------------- ----------------------
Risk-based capital $ 12,400,000 11,884,000
====================== ======================
</TABLE>
In accordance with OTS regulations, at the time of conversion, BFSB
restricted a portion of retained earnings by establishing a liquidation
account. The liquidation account will be maintained for the benefit of
eligible holders who continue to maintain their accounts in BFSB after the
conversion. The liquidation account will be reduced annually to the extent
that eligible account holders have reduced their qualifying deposits.
Subsequent increases will not restore an eligible account holder's interest
in the liquidation account. In the event of a complete liquidation of BFSB,
and only in such an event, each account holder will be entitled to receive
a distribution from the liquidation account in an amount proportionate to
the adjusted qualifying account balances then held.
34 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
In addition, savings banks that before and after proposed dividend
distributions meet or exceed their fully phased-in capital requirements,
may make capital distributions with prior notice to the OTS during any
calendar year up to 100% of year-to-date net income plus 50% of the amount
in excess of their fully phased-in capital requirements as of the beginning
of the calendar year. However, the OTS may impose greater restrictions if
an institution is deemed to be in need of more than normal supervision.
BFSB currently exceeds its fully phased-in capital requirements and has
been assessed as "well-capitalized" under the regulatory guidelines as of
September 30, 1999.
(14) Financial Instruments With Off-Balance-Sheet Risk
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
and involve, to varying degrees, elements of credit risk.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Company
uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
Financial instruments outstanding at September 30, 1999 whose contract
amounts represent credit risk are fixed-rate commitments to extend credit
totaling approximately $610,000. These commitments generally contain a
termination date of 30 days from the date the commitment is approved.
(15) Fair Value of Financial Instruments
The Company is required to disclose the fair value of financial
instruments, whether recognized or not recognized on the balance sheet. A
financial instrument is defined as cash, evidence of an ownership interest
in an entity, or a contract that both imposes a contractual obligation on
one entity to deliver cash or another financial instrument to a second
entity.
Quoted market prices are used for fair value when available, but do not
exist for some of the Company's financial instruments, primarily loans,
time deposits and FHLB advances. The fair value of these instruments has
been derived from the OTS Net Portfolio Value Model (OTS Model). The OTS
Model primarily employs the static discounted cash flow method which
estimates the fair value of loans, time deposits and FHLB advances by
discounting the cash flows the instruments are expected to generate by the
yields currently available to investors on instruments of comparable risk
and duration. Therefore, to calculate present value, the OTS Model makes
assumptions about the size and timing of expected cash flows and
appropriate discount rates. Different assumptions could materially change
these instruments' estimated values.
35 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
Financial Assets. Due to the liquid nature of the instruments, the
carrying value of cash and cash equivalents and interest-bearing
deposits approximates fair value. For all investment and
mortgage-backed securities, the fair value is based upon quoted
market prices. The fair value of loans receivable was derived from
the OTS Model. The fair value of accrued interest receivable
approximates book value as the Company expects contractual receipt
in the short-term. The fair value of FHLB stock approximates
redemption value.
Financial Liabilities. The fair value of NOW and demand accounts
and non-term savings deposits approximates book values as these
deposits are payable on demand. The fair value of time deposits
and FHLB advances was derived from the OTS Model.
Off-Balance Sheet. No fair value adjustment is necessary for
commitments made to extend credit which represent commitments for
loan originations. These commitments are for loans with terms of
less than one year and have interest rates which approximate
prevailing market rates.
Limitations. Fair value estimates are made at a specific point in
time, based on relevant market information and information about
the financial instrument. These estimates do not reflect any
premium or discount that could result from offering for sale at
one time the Company's entire holdings of a particular instrument.
Because no market exists for a portion of the Company's financial
instruments, fair value estimates are based on judgments regarding
comparable market interest rates, future expected loss experience,
current economic conditions, risk characteristics of various
financial instruments, and other factors. These estimates are
subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on existing on- and
off-balance-sheet financial instruments without attempting to
estimate the value of anticipated future business and the value of
assets and liabilities that are not considered financial
instruments. Significant assets and liabilities that are not
considered financial instruments include deferred tax assets and
liabilities and premises and equipment. In addition, the tax
effect of the difference between the fair value and carrying value
of financial instruments can have a significant effect on fair
value estimates and have not been considered in the estimates
presented herein.
36 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
The approximate book value and fair value of the Company's financial instruments
as of September 30 are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------- --------------------------------------
Book value Fair value Book value Fair value
----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 2,189,000 2,189,000 1,562,000 1,562,000
Interest-bearing deposits - - 99,000 99,000
Investment and mortgage-backed
securities
available-for-sale 29,479,000 29,479,000 24,635,000 24,635,000
Investment and mortgage-backed
securities held-to-maturity
- - 3,938,000 4,021,000
Stock in Federal Home Loan Bank
988,000 988,000 917,000 917,000
Loans receivable, net 29,727,000 29,278,000 29,986,000 28,144,000
Accrued interest receivable 522,000 522,000 538,000 538,000
Liabilities:
Deposits 34,257,000 34,174,000 32,913,000 33,060,000
Advances from Federal Home
Loan Bank 15,600,000 15,519,000 14,650,000 14,713,000
================= ================== ================== =================
</TABLE>
37 (Continued)
<PAGE>
(16) Holding Company Information (Condensed)
The summarized financial information for Crazy Woman Creek Bancorp
Incorporated is presented below. Intercompany balances and transactions
are noted parenthetically.
<TABLE>
<CAPTION>
Condensed Balance Sheets
September 30,
---------------------------------------
1999 1998
------------------ ------------------
Assets
------
<S> <C> <C>
Cash (Demand account with BFSB) $ 24,924 68,486
Investment in subsidiary 11,830,787 12,029,599
Loan to BFSB - 674,000
Loan to ESOP 480,000 525,714
Dividend receivable 90,000 -
Investment securities available-for-sale - mutual funds 1,408,771 1,100,220
Income taxes receivable 8,030 10,800
Other assets 999 11,809
------------------ ------------------
Total assets $ 13,843,511 14,420,628
================== ==================
Liabilities and Stockholders' Equity
------------------------------------
Deferred tax liability $ 114,164 23,161
Dividends payable 103,656 90,926
Other liabilities 3,479 4,801
Stockholders' equity:
Common stock 105,800 105,800
Additional paid-in capital 10,096,435 10,083,224
Unearned ESOP/MSBP shares (576,665) (670,711)
Retained earnings 7,080,054 6,736,570
Accumulated other comprehensive income (loss) (341,126) 207,612
Treasury stock (2,742,286) (2,160,755)
------------------ ------------------
Total stockholders' equity 13,622,212 14,301,740
------------------ ------------------
Total liabilities and stockholders' equity $ 13,843,511 14,420,628
================== ==================
</TABLE>
BFSB has acquired 21,584 shares of Holding Company common stock for
$266,011 which is reflected as treasury stock in the accompanying
consolidated financial statements.
38 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
<TABLE>
<CAPTION>
Condensed Statements of Income
Year Ended September 30,
---------------------------------------
1999 1998
------------------ ------------------
<S> <C>
Dividends from BFSB $ 270,000 <C> -
Dividends on mutual funds 40,893 31,290
Interest income (ESOP loan and loan to BFSB) 57,911 134,460
Management fee to BFSB (27,600) (27,600)
Other operating expenses (34,538) (36,822)
------------------ ------------------
Income before equity in undistributed earnings of subsidiary and
income taxes 306,666 101,328
Equity in undistributed earnings of subsidiary 392,792 645,572
------------------ ------------------
Income before income taxes 699,458 746,900
Income taxes 9,770 34,500
------------------ ------------------
Net income $ 689,688 712,400
================== ==================
Condensed Statements of Cash flows
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Net income $ 689,688 712,400
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Equity in undistributed earnings of subsidiary (392,792) (645,572)
Mutual fund dividends reinvested (40,895) (31,290)
Decrease in income taxes 2,770 (9,500)
Increase in other liabilities (1,322) 301
Decrease (increase) on other assets (79,190) (10,476)
------------------ ------------------
Net cash provided (used) by operating activities 178,259 15,863
------------------ ------------------
Cash flows from investing activities:
Principal payments on loan to BFSB 674,000 1,500,000
Principal payments on ESOP note receivable 45,714 45,715
Investment in mutual funds - (399,500)
------------------ ------------------
Net cash provided by investing activities 719,714 1,146,215
------------------ ------------------
Cash flows from financing activities:
Repurchase of common stock (581,531) (827,979)
Exercise of stock options - 24,863
Cash dividends paid (360,004) (380,340)
------------------ ------------------
Net cash used in financing activities (941,535) (1,183,456)
------------------ ------------------
Net increase in cash (43,562) (21,378)
Cash at beginning of year 68,486 89,864
------------------ ------------------
24,924 68,486
================== ==================
Cash paid during the year for taxes $ 7,000 46,500
================== ==================
</TABLE>
39
<PAGE>
Corporate Office
Crazy Woman Creek Bancorp Incorporated and Buffalo Federal Savings Bank
106 Fort Street
Buffalo, Wyoming 82834-1889
(307) 684-5591
Board of Directors of Crazy Woman Creek Bancorp Incorporated
Richard Reimann Greg L. Goddard
Chairman of the Board
Deane D. Bjerke Douglas D. Osborn
Thomas J. Berry Sandra K. Todd
Executive Officers
Deane D. Bjerke Arnold R. Griffith, Jr.
President and Chief Executive Officer Senior Vice President
John B. Snyder
Vice President and Chief Financial Officer
Professional Advisors
Corporate Counsel Special Counsel
Kirven and Kirven Mailzia Spidi & Fisch, PC
104 Fort Street One Franklin Square
Buffalo, WY 82834 1301 K Street, N.W., Suite 700 East
Washington, D.C. 20005
Independent Auditors Transfer Agent and Registrar
KPMG LLP American Securities Transfer & Trust
1000 First Interstate Center Incorporated
401 North 31st Street 1825 Lawrence Street, Suite 444
Billings, MT 59103 Denver, CO 80202
Form 10-KSB
Crazy Woman Creek Bancorp Incorporated's Annual Report for the year ended
September 30, 1999 filed with the Securities and Exchange Commission on
Form 10-KSB, excluding exhibits, is available without charge upon written
request. For a copy of the Form 10-KSB or any other investor information,
please write or call the Corporate Secretary at the Company's Corporate
Office in Buffalo, Wyoming. All public reports of the Company are available
on the SEC's website at www.sec.gov. The Annual Meeting of Stockholders
will be held on January 26, 2000 at 3:00 p.m. at the Company's main office
located at 106 Fort Street, Buffalo, Wyoming.
EXHIBIT 23
<PAGE>
KPMG
P.O. Box 7108
Billings, MT 59103
Independent Auditor's Consent
-----------------------------
The Board of Directors
Crazy Woman Creek Bancorp Incorporated
We consent to incorproation by reference in the registration statement (No.
333-53543) on Form S-8 of Crazy Woman Creek Bancorp Incorporated of our report
dated October 29, 1999 relating to the consolidated balance sheets of Crazy
Woman Creek Bancorp Incorporated and subsidiary as of September 30, 1999 and
1998 and the related consolidated statements of income, stockholders' equity and
comprehensive income, and cash flows for the years then ended, which report
appears in the September 30, 1999 annual report on Form 10-KSB of Crazy Woman
Creek Bancorp Incorporated.
/s/KPMG LLP
Billings, Montana
December 24, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 352
<INT-BEARING-DEPOSITS> 1,837
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,479
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 29,727
<ALLOWANCE> 249
<TOTAL-ASSETS> 63,661
<DEPOSITS> 34,257
<SHORT-TERM> 11,700
<LIABILITIES-OTHER> 0
<LONG-TERM> 3,900
0
0
<COMMON> 106
<OTHER-SE> 13,250
<TOTAL-LIABILITIES-AND-EQUITY> 63,661
<INTEREST-LOAN> 2,382
<INTEREST-INVEST> 1,783
<INTEREST-OTHER> 113
<INTEREST-TOTAL> 4,278
<INTEREST-DEPOSIT> 1,548
<INTEREST-EXPENSE> 2,359
<INTEREST-INCOME-NET> 1,919
<LOAN-LOSSES> 6
<SECURITIES-GAINS> (3)
<EXPENSE-OTHER> 996
<INCOME-PRETAX> 1,013
<INCOME-PRE-EXTRAORDINARY> 324
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 689
<EPS-BASIC> 0.81
<EPS-DILUTED> 0.80
<YIELD-ACTUAL> 3.10
<LOANS-NON> 68
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 284
<CHARGE-OFFS> 71
<RECOVERIES> 36
<ALLOWANCE-CLOSE> 249
<ALLOWANCE-DOMESTIC> 249
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
