SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One):
|_| 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, 2000,
------------------
|_| 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 .
------------------- -------------------
Commission File No. 0-27714
CRAZY WOMAN CREEK BANCORP INCORPORATED
---------------------------------------------
(Name of Small Business Issuer in Its Charter)
Wyoming 83-0315410
--------------------------------------------- ------------------
(State or Other Jurisdiction of Incorporation I.R.S. Employer
or Organization) Identification No.
106 Fort Street, Buffalo, Wyoming 82834
----------------------------------------- ------------------
(Address of Principal Executive Offices (Zip Code)
Issuer's Telephone Number, Including Area Code: (307) 684-5591
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
---------------------------------------
(Title of Class)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. YES X NO .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
---
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |X|
State issuer's revenues for its most recent fiscal year. $4,349,101
As of December 1, 2000, there were issued and outstanding 799,608
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 1, 2000, was $7,058,484 ($10.875 per
share based on 649,056 shares of Common Stock outstanding).
Transition Small Business Disclosure Format (check one) YES NO X
--- ---
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the Fiscal Year ended
September 30, 2000. (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 filings 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, objectives, 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 all inclusive. 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 Federal Home Loan Bank of
Seattle (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>
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 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 the Bank 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"), the Bank has been able
to maintain a market share of approximately 21% 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.
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,
-------------------------------------------------------------
2000 1999
----------------------------- -----------------------------
Amount Percent of Total Amount Percent of Total
------ ---------------- ------ ----------------
Type of Loans: (In Thousands)
-------------
<S> <C> <C> <C> <C>
One-to-four-family $ 24,526 77.23% $ 24,625 81.10%
Residential construction 516 1.62 473 1.56
Multi-family 298 0.94 322 1.06
Commercial real estate(1) 2,748 8.65 1,938 6.38
Commercial 693 2.18 253 0.83
Consumer:
Automobile 1,319 4.15 1,068 3.52
Home equity/Line of credit 969 3.05 835 2.75
Share 193 0.61 159 0.52
Other 501 1.57 692 2.28
-------- ------ -------- ------
Total consumer 2,982 9.38 2,754 9.07
-------- ------ -------- ------
Total loans 31,763 100.00% 30,365 100.00%
-------- ====== -------- ======
Less:
Loans in process............................ (331) (200)
Net deferred loan origination fees.......... (182) (189)
Allowance for loan losses................... (270) (249)
-------- --------
Total loans, net.......................... $ 30,980 $ 29,727
======== ========
</TABLE>
--------------
(1) Includes agricultural real estate loans.
3
<PAGE>
Loan Maturity Tables. The following table sets forth the maturity of
the Bank's loan portfolio at September 30, 2000. The table does not include
prepayments or scheduled principal repayments. Prepayments and scheduled
principal repayments on loans totaled $7.328 million and $10.164 million, for
the years ended September 30, 2000 and 1999, respectively. Adjustable-rate
mortgage loans are shown as maturing based on contractual maturities.
Residential
Construction Commercial Total
--------------- ----------- -----------
Non-performing loans $ -- $ -- $ --
--------------- ----------- -----------
Amounts Due:
Within 1 year 516 467 983
After 1 year
1 to 5 years -- 127 127
Over 5 Years -- 99 99
--------------- ----------- -----------
Total due after 1 year -- 226 226
=============== =========== ===========
Total amount due 516 693 1,209
--------------- ----------- -----------
Less:
Allowance for loan losses 3 14 17
Loan in Process 331 -- 331
--------------- ----------- -----------
Loan receivable, net $ 182 $ 679 $ 861
=============== =========== ===========
The following table sets forth at September 30, 2000, the dollar amount
of all loans due after September 30, 2001 which have fixed interest rates and
-----
have floating or adjustable interest rates.
Fixed Floating or
Rates Adjustable Rates Total
----- ---------------- -----
(In Thousands)
One-to-four-family.......... $24,039 $ 182 $24,221
Multi-family................ 298 - 298
Commercial real estate...... 2,584 - 2,584
Commercial.................. 226 - 226
Consumer.................... 2,119 367 2,486
------- ----- -------
Total.................. $29,266 $ 549 $29,815
======= ===== =======
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 2000, one
loan at $104,000 was brokered to a third party with $1,040 of fee income
recognized.
4
<PAGE>
The Bank offers adjustable-rate mortgage loans using primarily a
one-year constant maturity treasury interest rate index. During fiscal 2000, the
Bank originated one adjustable rate loan for $116,000. 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, 2000, the
Bank serviced loans for others totaling $65,000.
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, 2000, balloon mortgages totaled
$2.690 million, or 8.68% 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 twelve 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 years has been that most speculative loans are repaid
within the twelve month period. Speculative loans are generally originated with
a loan-to-value ratio that does not exceed 80%. At September 30, 2000, there
were no speculative construction loans.
Construction lending is generally considered to involve a higher degree
of credit risk than long-term financing of residential properties. The Bank's
risk of loss on a construction loan is dependent largely upon the accuracy of
the initial estimate of the property's value at completion of construction or
development and the estimated cost of construction. If the estimate of
construction cost and the marketability of the property upon completion of the
project prove to be inaccurate, the Bank may be compelled to advance additional
funds to complete the development. Furthermore, if the estimate of value proves
to be inaccurate, the Bank may be confronted, at or prior to the maturity of the
loan, with a property with a value that is insufficient to assure full
repayment. For speculative loans originated to builders, the ability of the
builder to sell completed dwelling units will depend, among other things, on
demand, pricing and availability of comparable properties, and economic
conditions.
Commercial Real Estate Loans. In order to serve its community and
enhance yields on its assets, the Bank originates loans secured by commercial
real estate. The commercial real estate loans 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. The Bank'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,
5
<PAGE>
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, the Bank
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. The Bank 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.
The Bank 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 interest collected semi-annually and
principal annually as well as monthly principal and interest payments. As of
September 30, 2000, agricultural land loans constituted approximately $580,000,
or 1.87% of the Bank's loan portfolio. Agricultural land loans are included in
the commercial real estate loan total. See also "-- Commercial Real Estate
Loans."
Multi-Family Loans. The Bank also makes multi-family loans, including
loans on apartment complexes located in the Bank's primary market area.
Multi-family loans generally provide higher interest rates than can be obtained
from single-family mortgage loans. Multi-family lending, however, entails
significant additional risks compared with one-to-four-family residential
lending. For example, multi-family loans typically involve larger loan balances
to single borrowers or groups of related borrowers, the payment experience on
such loans typically is dependent on the successful operation of the real estate
project, and these risks can be significantly impacted by supply and demand
conditions in the market for multi-family residential units and commercial
office, retail and warehouse space.
Consumer Loans. The Bank's consumer loans consist of home equity loans
secured by second mortgages on single-family residences in the Bank's market
area, automobiles, demand loans secured by deposit 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 deposit 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
6
<PAGE>
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 that 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 that 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, 2000, commercial loans
consisted primarily of small business loans (primarily secured by livestock,
office equipment, and machinery).
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, 2000, the
Bank had $132,000 of commitments to cover originations, $330,000 in undisbursed
funds for loans in process and $426,000 for undisbursed home equity line of
Credit balances. 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 $1.6
million at September 30, 2000.
At September 30, 2000, the Bank's largest lending relationship involved
two loans secured by residential and commercial real estate properties loans
aggregating approximately $749,000. The loans are located in the Bank's primary
market area and were performing at September 30, 2000.
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, 2000, loans past due 30 to
89 days totaled $380,000, and loans past 90 days were $62,000.
Loans are reviewed on a monthly basis and are generally placed on a
non-accrual status when the loan becomes more than 90 days delinquent or when,
in the opinion of management, the collection of 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.
7
<PAGE>
Non-Performing Assets. The following table sets forth information
regarding non-accrual loans, real estate owned (REO), and certain other
repossessed assets and loans.
At September 30,
----------------
2000 1999
---- ----
(In Thousands)
Loans accounted for on a non-accrual basis:
One-to-four-family $ 39 $ --
Commercial real estate -- 65
Construction -- --
Commercial -- --
Consumer 23 3
----- -----
Total Non-performing loans 62 68
----- -----
Real estate owned (REO) -- 73
----- -----
Other non-performing assets -- --
----- -----
Total non-performing assets $ 62 $ 141
===== =====
Total non-performing assets to net loans 0.20% 0.47%
===== =====
Total non-performing assets to total assets 0.10% 0.22%
===== =====
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, 2000. Amounts included in the Bank's interest
income for the year ended September 30, 2000 were, likewise, immaterial.
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 0.87% at September
30, 2000.
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 that may in fact be realized in the future and that
additional provisions for losses will not be required.
Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of the Bank's allowance for loan losses by loan category and the
percent of loans in each category to total loans receivable for the periods
indicated. The portion of the loan loss allowance allocated to each loan
category does not represent the total available for future losses that may occur
within the loan category because the total loan loss allowance is a valuation
reserve applicable to the entire loan portfolio.
8
<PAGE>
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------
2000 1999
------------------------- -------------------------
Percent of Loans Percent of Loans
Amount to Total Loans Amount to Total Loans
------ -------------- ------ --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
At end of period allocated to:
One-to four-family............ $ 120 77.23% $ 126 81.10%
Multi-family.................. 6 0.94 8 1.06
Commercial real estate........ 68 8.65 45 6.38
Residential construction...... 3 1.62 4 1.56
Commercial.................... 14 2.18 7 0.83
Consumer...................... 59 9.38 59 9.07
----- ------ ----- ------
Total allowance............... $ 270 100.00% $ 249 100.00%
===== ====== ===== ======
</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:
<TABLE>
<CAPTION>
Year Ended September 30,
2000 1999
---- ----
(Dollars in Thousands)
<S> <C> <C>
Total loans outstanding .............................. $ 31,763 $ 30,365
======== ========
Allowance for loan losses (at beginning of period) ... $ 249 $ 284
Provision for loan losses ............................ -- 6
Net charge-offs (recoveries):
One-to-four-family.................................... (10) 7
Commercial real estate ............................. -- --
Commercial ......................................... -- (1)
Consumer ........................................... (11) 35
-------- --------
Net charge-offs .................................. (21) 41
-------- --------
Allowance for loan losses (at end of period) ......... $ 270 $ 249
======== ========
Allowance for loan losses to total loans, net ........ 0.85 % 0.82 %
======== ========
Net charge-offs to loans receivable, net ............ (0.07)% 0.14 %
======== ========
</TABLE>
Investment Activities
General. The Bank 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, 2000,
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 four senior
9
<PAGE>
officers. Three of the four 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, 2000, the Company had a
total investment of $1.0 million, with dividends reinvested of $106,000, in two
different mutual funds. The market value of these funds was $1.58 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,
the Bank invests in residential mortgage-backed securities. Mortgage-backed
securities can serve as collateral for borrowings and, through repayments, as a
source of liquidity.
Mortgage-backed securities represent a participation interest in a pool
of single-family mortgages, the principal and interest payments on which are
passed from the mortgage originators, through intermediaries (generally
quasi-governmental agencies) that pool and repackage the participation interests
in the form of securities, to investors such as the Bank. Such
quasi-governmental agencies, which guarantee the payment of principal and
interest to investors, primarily include the Federal Home Loan Mortgage
Corporation ("FHLMC"), Government National Mortgage Association ("GNMA"), and
Federal National Mortgage Association ("FNMA"). Pass-through certificates
typically are issued with stated principal amounts, and the securities are
backed by pools of mortgages that have loans with interest rates and maturities
that are within a specified range. The underlying pool of mortgages can be
composed of either fixed-rate mortgage loans or ARM loans. Mortgage-backed
securities are generally referred to as mortgage participation certificates or
pass-through certificates. As a result, the interest rate risk characteristics
of the underlying pool of mortgages, (i.e., fixed-rate or adjustable-rate) as
well as prepayment risk, are passed on to the certificate holder. The life of a
mortgage-backed pass-through security is equal to the life of the underlying
mortgages. Mortgage-backed securities issued by FHLMC, FNMA and GNMA make up a
majority of the pass-through market.
Mortgage-backed securities provide for monthly payments of principal
and interest and generally have contractual maturities ranging from five to 30
years. However, due to expected repayment terms being significantly less than
the underlying mortgage loan pool contractual maturities, the estimated lives of
these securities could be significantly shorter.
The Bank also purchases mortgage-backed securities issued by government
agencies that 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.
10
<PAGE>
At September 30, 2000, 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, 2000 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, 2000, the Bank had REMICs with an aggregate carrying
amount (including discounts and premiums) of $583,000, 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.
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,
2000 1999
----- ------
(In Thousands)
Investment securities available-for-sale: (1)
U.S. Agency obligations .................. 15,249 15,749
Municipal securities...................... 1,886 2,033
Mortgage-backed securities:
GNMA.................................... 4,389 4,001
FHLMC................................... 3,606 3,949
FNMA.................................... 2,359 2,472
REMIC's................................. 604 719
Investment in mutual funds(2).............. 1,106 1,073
------ ------
Total securities available for sale..... 29,199 29,996
------ ------
FHLB stock................................. 1,055 988
------ ------
Total................................... $30,254 $30,984
====== ======
---------
(1) Amounts shown at amortized cost, but carried at estimated fair value.
(2) Includes two mutual funds held as available-for-sale.
11
<PAGE>
The following table sets forth information regarding the scheduled
maturities, amortized cost, estimated fair value and weighted average yields for
the Bank's investment securities at September 30, 2000 and 1999: (In thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
As of September 30, 2000
--------------------------------------------------------------------------------------------------------------
More than Total
One Year or Less One to Five Years Five to Ten Years Ten Years Investment Securities
-------------------- --------------------- ------------------- ------------------- -------------------------
Investment
securities Estimated
available Amortized Average Amortized Average Amortized Average Amortized Average Amortized Average Fair
for sale: (1) Cost Yield Cost Yield Cost Yield Cost Yield Cost Yield Value
------------- ---- ----- ---- ----- ---- ----- ---- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Agency
obligations...... $ -- -- $ 3,500 6.30% $11,749 6.40% $ -- --% $15,249 6.38% $14,674
Municipal
securities (2)... 75 7.58 205 7.53 540 7.21 1,066 6.86 1,886 7.06 1,823
Mortgage-backed
securities and
other pass-
throughs
GNMA .......... -- -- -- -- 29 8.00 4,360 6.36 4,389 6.37 4,315
FHLMC ......... -- -- 36 8.89 236 6.88 3,334 6.56 3,606 6.61 3,557
FNMA .......... -- -- -- -- -- -- 2,359 6.48 2,359 6.48 2,341
REMIC's ....... -- -- -- -- -- -- 604 6.63 604 6.63 583
------- ------- ------- ------- ------- -------
Total ........... $ 75 7.58% $ 3,741 6.40% $12,554 6.45% $11,723 6.50% $28,093 6.47% $27,293
======= ======= ======= ======= ======= =======
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
As of September 30, 1999
--------------------------------------------------------------------------------------------------------------
More than Total
One Year or Less One to Five Years Five to Ten Years Ten Years Investment Securities
-------------------- --------------------- ------------------- ------------------- -------------------------
Investment
securities Estimated
available Amortized Average Amortized Average Amortized Average Amortized Average Amortized Average Fair
for sale: (1) Cost Yield Cost Yield Cost Yield Cost Yield Cost Yield Value
------------- ---- ----- ---- ----- ---- ----- ---- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Agency
obligations...... $ -- -- $ 2,000 5.95% $13,749 6.45% $ -- --% $15,749 6.39% $15,146
Municipal
securities (2)... 75 7.27 281 7.54 58 10.61 1,619 6.90 2,033 7.11 1,945
Mortgage-backed
securities and
other pass-
throughs
GNMA .......... -- -- -- -- 40 8.00 3,961 6.64 4,001 6.65 3,939
FHLMC ......... -- -- 53 8.68 82 8.25 3,814 6.60 3,949 6.66 3,891
FNMA .......... -- -- -- -- -- -- 2,472 6.37 2,472 6.37 2,457
REMIC's ....... -- -- -- -- -- -- 719 6.63 719 6.63 692
------- ------- ------- ------- ------- -------
Total ........... $ 75 7.27% $ 2,334 6.20% $13,929 6.48% $12,585 6.61% $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
12
<PAGE>
Sources of Funds
General. Deposits are the major external source of the Bank's funds for
lending and other investment purposes. The Bank 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. The Bank 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 $13.976 million, or 43.57%, of the Bank's deposit portfolio at
September 30, 2000 and the weighted average interest rate paid on such deposits
at that date was 3.27%. Certificates of deposit (or time deposits) constituted
$18.105 million, or 56.43% of the deposit portfolio of which $5.377 million, or
16.76% of the deposit portfolio were certificates of deposit with balances of
$100,000 or more. The weighted average interest rate paid on all certificate of
deposits was 5.78% at September 30, 2000. As of September 30, 2000, the Bank had
no brokered deposits.
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, 2000.
Certificates
Maturity Period of Deposit
--------------- ----------
(In Thousands)
Within three months........................ $ 2,190
More than three through six months......... 1,426
More than six through twelve months........ 752
Over twelve months......................... 1,009
-------
Total................................... $ 5,377
=======
Borrowings. The Bank may obtain advances from the FHLB to supplement
its supply of funds for loan origination. Advances from the FHLB are typically
secured by a pledge of the Bank's stock in the FHLB 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 funds for loan origination and to meet
deposit withdrawal requirements. At September 30, 2000, the Bank had $19.30
million of borrowings from the FHLB that consisted of $6.60 million in
fixed-rate advances with rates of 5.95% to 7.49%, and $12.70 million in putable
advances with rates of 4.77% to 6.84%. FHLB advances have been utilized by the
13
<PAGE>
Bank to fund loan demand and to purchase investment securities. The Bank has
used FHLB advances to fund the purchase of investment and mortgage-backed
securities with the goal of earning income on the interest rate differential
between the rate earned on the investment securities and the rate paid on the
FHLB advances.
The following table sets forth information concerning only short-term
borrowings (those maturing within one year or less) the Bank had during the
periods indicated.
Year ended September 30,
------------------------
2000 1999
-------- ---------
Short-term FHLB advances: (In thousands)
Average balance outstanding $ 9,571 $ 10,926
Maximum amount outstanding at any month-end
during the period $ 11,450 $ 12,000
Weighted average interest rate during the period 5.75% 5.10%
Total short-term borrowings at end of period $ 10,900 $ 11,700
Personnel
At September 30, 2000 the Bank had eleven 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 that relate to
the regulation of the Bank and the Company. The description does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.
Bank Regulation
General. As a federally chartered Savings Association Insurance Fund
(SAIF) insured savings association, the Bank is subject to extensive regulation
by the OTS and the Federal Deposit Insurance Corporation (FDIC). Lending
activities and other investments must comply with various federal statutory and
regulatory requirements. The Bank is also subject to certain reserve
requirements promulgated by the Board of Governors of the Federal Reserve System
("Federal Reserve System").
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that they find in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
law, especially in such matters as the ownership of savings accounts and the
form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination
14
<PAGE>
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 FDIC administers two separate
deposit insurance funds. Generally, the Bank Insurance Funs (the "BIF") insures
the deposits of commercial banks and the SAIF insures the deposits of savings
institutions. The FDIC is authorized to increase deposit insurance premiums if
it determines such increases are appropriate to maintain the reserves of either
the SAIF or BIF or to fund the administration of the FDIC. In addition, the FDIC
is authorized to levy emergency special assessments of BIF and SAIF members. The
FDIC has set the deposit insurance assessment rates for SAIF member institutions
for the first six months of 2000 at 0% to 0.027% of insured deposits on an
annualized basis, with the assessment rate for most savings institutions set at
0%.
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.
Set forth below is information regarding the Bank's regulatory capital
at September 30, 2000.
Percent of
Amount Adjusted Assets
------ ---------------
(In Thousands)
GAAP Capital $11,079
Tangible Capital:
Regulatory requirement 963 1.50%
Actual capital 11,607 18.08%
-------------- -------------
Excess 10,644 16.58%
============== =============
Core Capital:
Regulatory requirement 1,926 3.00%
Actual capital 11,607 18.08%
--------------
Excess 9,681 15.08%
============== =============
Risk-Based Capital:
Regulatory Requirement 2,064 8.00%
Actual capital 11,877 46.04%
-------------- -------------
Excess 9,813 38.04%
============== =============
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 that 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 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
15
<PAGE>
these qualifications and therefore is exempt. Assuming this proposed rule was in
effect at September 30, 2000 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,
2000 calculation of 46.04% to 39.14%, which is in excess of the required minimum
of 8.00%. Utilizing the NPV measurement concept, at September 30, 2000, this
would have resulted in a $3.134 million, or 14.99% decrease in the Bank's NPV,
assuming a 200 basis point increase in interest rates with no effect given to
steps management may take to counter the effect of that interest rate movement.
The following table is provided by the OTS and illustrates the change
in NPV at September 30, 2000, 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>
300 bp 7,556 (4,654) (38) 12.87% (611)bp
200 bp 9,077 (3,134) (26) 14.99% (399)bp
100 bp 10,662 (1,549) (13) 17.07% (191)bp
0 bp 12,210 18.98%
(100) bp 13,484 1,273 10 20.44% 147 bp
(200) bp 13,864 1,654 14 20.79% 181 bp
(300) bp 14,151 1,941 16 21.02% 204 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, 2000, assuming no changes in
interest rates, was $64.337 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, 2000, the change in NPV as a percentage of portfolio
value of total assets is negative 4.87%, 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, 2000 would be approximately $322,000.
16
<PAGE>
<TABLE>
<CAPTION>
September 30, 2000 September 30, 1999
-------------------------- --------------------------
<S> <C> <C>
RISK MEASURES: 200 BP RATE SHOCK:
Pre-Shock NPV Ratio: NPV as % of PV of Assets................. 18.98 % 19.36 %
Exposure Measure: Post-Shock NPV Ratio........................ 14.99 % 14.46 %
Sensitivity Measure: Change in NPV Ratio...................... (399)bp (489)bp
CALCULATION OF CAPITAL COMPONENT:
Change in NPV as % of PV of Assets............................ (4.87)% (5.85)%
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 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 and need only file a notice if the following
conditions 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.
17
<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. 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 twelve months, the Bank was in compliance with the QTL test in all twelve
months during 1999 and 2000. As of September 30, 2000, the Bank was in
compliance with its QTL requirement with 84.54% of its assets invested in QTIs.
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, 2000, the Bank's total transaction accounts were below the minimum level for
which the Federal Reserve System requires a reserve.
Financial Services Modernization Bill
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act (the "GLB 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 GLB 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 underwriting, insurance company portfolio
investment, real estate development, and real estate investment, through a
financial subsidiary of the bank.
The GLB Act also prohibits new unitary thrift holding companies from
engaging in nonfinancial activities or from affiliating with a 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
18
<PAGE>
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. As a grandfathered unitary savings and
loan holding company under the GLB Act, the Company is generally not subject to
any restrictions on its business activities or those of its non-savings
institution subsidiaries. However, if the Company were to fail to meet the
Qualified Thrift Lender Test, then it would become subject to the activities
restrictions of the Home Owner's Loan Act applicable to multiple holding
companies. See "-Bank regulation - Qualified Thrift Lender Test.:
If the Company were to acquire control of another savings association,
it would lose its grandfathered status under the GLB Act and its business
activities would be restricted to certain activities specified by OTS
regulation, which include performing services and holding properties used by a
savings institution subsidiary, certain activities authorized for savings and
loan holding companies pursuant to the Bank Holding Company Act of 1956 (the
"BHC Act") or authorized for financial holding companies pursuant to the BHC
Act. Furthermore, no company may acquire control of the Company unless the
acquiring company was a unitary savings and loan holding company on May 4, 1999
(or became a unitary savings and loan holding company pursuant to an application
pending as of that date) or the acquiring company is only engaged in activities
that are permitted for multiple savings and loan holding companies or for
financial holding companies under the BHC Act as amended by the GLB Act.
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 $1,040,000 with a net book value of $525,000 at September 30, 2000.
19
<PAGE>
(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, financial
condition or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders
-------------------------------------------------------------
Not applicable.
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, 2000 (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.
20
<PAGE>
Item 7. Financial Statements
------------------------------
The Company's consolidated financial statements required herein are
contained in the Annual Report and are incorporated herein by reference.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
--------------------------------------------------------------------------------
Not Applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(b) of the Exchange Act
--------------------------------------------------------------------------------
The information contained under the sections captioned "Filing of
Beneficial Ownership Reports" and "Information with Respect to Nominees for
Director, Directors Continuing in Office, and Executive Officers" in the
Company's definitive proxy statement for the Company's Annual Meeting of
Stockholders (the "Proxy Statement") is incorporated herein by reference.
Item 10. Executive Compensation
--------------------------------
The information contained under the section captioned "Director and
Executive Officer Compensation" in the Proxy Statement is incorporated herein by
reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the section captioned "Voting Securities and
Principal Holders Thereof" in the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the section captioned "Information with Respect
to Nominees for Director, Directors Continuing in Office, and
Executive Officers" in the Proxy Statement.
(c) Management of the Company knows of no arrangements, including
any pledge by any person of securities of the Company, the
operation of which may at a subsequent date result in a change
in control of the Registrant.
Item 12. Certain Relationships and Related Transactions
--------------------------------------------------------
The information required by this item is incorporated herein by
reference to the section captioned "Certain Relationships and Related
Transactions" and "Voting Securities and Principal Holders Thereof" in the Proxy
Statement.
21
<PAGE>
Item 13. Exhibits, List and Reports on Form 8-K
------------------------------------------------
(a) Exhibits are either attached as part of this Report or incorporated herein
by reference.
<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, 2000.
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)
</TABLE>
(b) Reports on Form 8-K.
None.
----------------
* Incorporated by reference to the Registrant's Registration Statement on
Form SB-2 (33-80557) declared effective by the Commission on February
12, 1996.
** Incorporated by reference to the Registrant's Proxy Statement filed
with the Commission on December 27, 1996.
22
<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 , 2000 Dated: December , 2000
/s/Richard Reimann /s/Douglas D. Osborn
------------------------------------------- -----------------------------------------------------
Richard Reimann Douglas D. Osborn
Chairman of the Board Director
Dated: December , 2000 Dated: December , 2000
/s/Thomas J. Berry
------------------------------------------- -----------------------------------------------------
Greg L. Goddard Thomas J. Berry
Director Director
Dated: December , 2000 Dated: December , 2000
/s/Sandra K. Todd
-------------------------------------------
Sandra K. Todd
Director
Dated: December , 2000
</TABLE>
