EXHIBIT 13
<PAGE>
CRAZY WOMAN CREEK BANCORP
INCORPORATED
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2000 ANNUAL REPORT
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED
2000 ANNUAL REPORT
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TABLE OF CONTENTS
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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 ............................................. 12
Consolidated Balance Sheets................................................ 13
Consolidated Statements of Income.......................................... 14
Consolidated Statements of Stockholders' Equity and Comprehensive Income... 15
Consolidated Statements of Cash Flows...................................... 16
Notes to Consolidated Financial Statements................................. 17
<PAGE>
[CRAZY WOMAN CREEK BANCORP LETTERHEAD]
To Our Stockholders:
I am pleased to present our fourth 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 6% 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 2000 included increasing deposits
and the loan portfolio. The goal to increase loans was achieved, but deposits
declined. An addition of $1.253 million in loans represents a 4% increase.
Deposits decreased by $2.168 million primarily from the loss of public
certificates of deposits. In addition, net earnings for the fiscal year ended
September 30, 2000 were $559,000 compared to $690,000 in fiscal 1999. Total
assets were $64.826 million compared to $63.661 million at the end of fiscal
year 1999. Basic and diluted earnings per share were $0.70 at the end of the
2000 fiscal year.
During fiscal year 2000, the Board and management made a concentrated effort to
promote growth. The Board of Directors and management entered into an agreement
to purchase a branch office in Gillette, Wyoming. This purchase is expected to
be completed in December 2000. Management and the Board of Directors are
actively exploring the Sheridan, Wyoming market and other markets for additional
branches.
The officers and directors of Crazy Woman Creek Bancorp Incorporated are looking
forward to the challenges that will be presented during fiscal year 2001. 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, growing deposits
and expansion into new markets. 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 for January 24, 2001 at 3:00 p.m. at our office in Buffalo, Wyoming.
Sincerely,
/s/Deane D. Bjerke
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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, 2000 - September 30, 2000 $ 11.88 $ 10.13 $ 0.12
April 1, 2000 - June 30, 2000 11.00 9.38 0.12
January 1, 2000 - March 31, 2000 11.00 9.88 0.12
October 1, 1999 - December 31, 1999 12.75 10.00 0.12
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
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, 2000, was
approximately 663. 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, 2000, there were 799,608 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").
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<TABLE>
<CAPTION>
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FINANCIAL HIGHLIGHTS
(Dollars in Thousands except per share date)
At or For the Year Ended September 30, 2000 1999 1998 1997 1996
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<S> <C> <C> <C> <C> <C>
Loan receivable, net $30,980 $29,727 $29,986 $28,636 $25,859
Investment and mortgage-backed
securities, held to maturity (3) -- -- 3,938 9,009 10,303
Investment and mortgage-backed
securities, available for sale (3) 28,869 29,479 24,635 19,155 13,365
Total assets 64,826 63,661 62,153 59,952 51,517
Deposits 32,081 34,249 32,913 29,506 29,371
FHLB advances 19,300 15,600 14,650 15,700 6,113
Total stockholders' equity 13,079 13,356 14,036 14,210 15,508
Interest income 4,350 4,313 4,420 3,940 3,274
Interest expense 2,532 2,358 2,448 1,983 1,702
Net interest income 1,818 1,955 1,973 1,957 1,572
Provision for loan losses -- 6 18 -- --
Net income (1) 559 690 712 691 355
</TABLE>
<TABLE>
<CAPTION>
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OTHER SELECTED DATA
At or For the Year Ended September 30, 2000 1999 1998 1997 1996
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<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets (net income
divided by average total assets) (1) 0.88% 1.10% 1.16% 1.28% 0.80%
Return on average equity (net income
divided by average equity) (1) 4.28% 4.96% 4.96% 4.74% 3.07%
Average interest-earning assets to average
interest-bearing liabilities 125.21% 128.32% 130.65% 136.86% 133.47%
Net interest income after provision for
loan losses to average earning assets 2.94% 3.16% 3.25% 3.71% 3.47%
Net interest rate spread 1.91% 2.09% 2.03% 2.32% 2.26%
Average equity to average assets ratio
(average equity divided by average
total assets) 20.64% 22.20% 23.46% 27.07% 25.50%
Equity to assets at period end 20.18% 20.98% 22.59% 23.70% 30.10%
Non-performing assets to total assets 0.10% 0.22% 0.41% 0.38% 0.06%
Non-performing loans to gross loans 0.20% 0.46% 0.83% 0.77% 0.12%
Allowance for loan losses, REO and other
repossessed assets to non-performing
assets 435.48% 176.60% 110.66% 134.22% 862.50%
Allowance for loan losses to gross loans 0.85% 0.82% 0.93% 1.03% 1.05%
Net charge-offs (recoveries) to loans, net (0.07%) 0.14% 0.12% (0.09%) (0.01%)
Basic earnings per share (2) $ 0.70 $ 0.81 $ 0.79 $ 0.73 $ 0.36
Diluted earnings per share (2) $ 0.70 $ 0.80 $ 0.77 $ 0.73 $ 0.36
Book value per share (2) $ 16.73 $ 15.86 $ 15.81 $ 15.17 $ 14.66
</TABLE>
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(1) Includes a one time assessment in fiscal year 1996 of $ 186,000 to
recapitalize the SAIF.
(2) There were no shares outstanding prior to the consummation of the Company's
initial public offering on March 29, 1996.
(3) 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"
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<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 two 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, 2000, the Bank's interest income was $4.350 million, or
approximately 97.9% 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, 2000, the Bank's net interest rate
spread was 1.91%. 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.
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<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 5 year balloon 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; (x) focusing on commercial and consumer loans with the
purchase of the branch in Gillette, Wyoming. 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, 2000 report the Bank had a greater than "normal" level of interest
rate risk.
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.
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.
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<PAGE>
<TABLE>
<CAPTION>
At September 30, Year Ended September 30,
----------------- ------------------------------------------------------------------------
2000 2000 1999
---------------- ------------------------------------- ----------------------------------
Average Average Average Average
Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
---------------- ----------- --------- ------------- ----------- ---------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) 7.61 % $29,956 $2,359 7.87 % $30,152 $2,417 8.02 %
Securities
available-for-sale:
Mortgage-backed securities 7.01 11,278 757 6.71 9,838 606 6.16
Investment securities 6.24 18,304 1,128 6.16 19,282 1,177 6.10
Other interest-earning assets(2) 3.90 2,274 106 4.66 2,425 113 4.66
----------- ---------- ----------- ---------
Total interest-earning assets 6.95 61,812 4,350 7.04 61,697 4,313 6.99
----------- ---------- ----------- ---------
Non-interest-earning assets 1,447 1,117
----------- -----------
Total assets $63,259 $62,814
=========== ===========
Interest-bearing liabilities
Interest checking 3.39 9,050 320 3.54 8,739 322 3.68
Time deposits/passbook 5.87 24,127 1,264 5.24 24,262 1,226 5.05
----------- --------- ----------- ----------
Total deposit accounts 5.11 33,177 1,584 4.77 33,001 1,548 4.69
FHLB advances 4.91 16,190 948 5.86 15,078 810 5.37
----------- --------- ----------- ----------
Total interest-bearing 5.03 49,367 2,532 5.13 48,079 2,358 4.90
liabilities
Non-interest-bearing liabilities 837 793
----------- -----------
Total liabilities 50,204 48,872
----------- -----------
Total stockholders' equity 13,055 13,942
----------- -----------
Total liabilities and
stockholders' equity $63,259 $62,814
=========== --------- ===========
----------
Net interest income $1,818 $1,955
========= ==========
Interest rate spread 1.91 % 2.09 %
======== ========
Net interest margin before allowance 2.94 % 3.17 %
======== ========
Ratio of average interest-earning assets
to average interest-bearing liabilities 125.21 % 128.32 %
======== ========
</TABLE>
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(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.
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).
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<PAGE>
Year ended September 30,
2000 vs. 1999
Increase (Decrease) Due to
Rate/
Volume Rate Volume Net
------ ----- ------ ------
In Thousands
Interest Income:
Loans receivable $ (15) $ (43) $ -- $ (58)
Securities available-for-sale:
Mortgage-backed securities 89 54 8 151
Investment securities (60) 12 (1) (49)
Other interest-earning assets (7) -- -- (7)
----- ----- ----- -----
Total interest-earning assets $ 7 $ 23 $ 7 $ 37
===== ===== ===== =====
Interest expense
Deposit accounts $ 9 $ 27 $ -- $ 36
FHLB advances 60 74 4 138
----- ----- ----- -----
Total interest-bearing $ 69 $ 101 $ 4 $ 174
liabilities
===== ===== ===== =====
Net change in net interest income $ (62) $ (78) $ 3 $(137)
===== ===== ===== =====
Financial Condition
The Company's assets increased by $1.165 million from $63.661 million
at September 30, 1999 to $64.826 million at September 30, 2000. The mix in
assets changed with an increase in cash and loans receivable and a corresponding
decrease in investments.
Deposits decreased by $2.168 million from $34.249 million at September
30, 1999 to $32.081 million at September 30, 2000 primarily as a result of
decreases in public certificates of deposits and a slight decrease in retirement
accounts offset by an increase in checking accounts. Advances from the FHLB,
used for funding loans, increased by $3.700 million to $19.300 million at
September 30, 2000.
The Company's net investment in mortgage-backed and investment
securities available for sale decreased by $610,000 from $29.479 million at
September 30, 1999 to $28.869 million at September 30, 2000. The Company
experienced an increase in loans from September 30, 1999 to September 30, 2000
net loans receivable increased from $29.727 million to $30.980 million,
representing an increase of $1.253 million or 4.22%. Increases in all categories
of loans were experienced.
Deposits decreased by $2.168 million from $34.249 million at September
30, 1999 to $32.081 million at September 30, 2000. Interest-bearing checking
accounts (NOW and money market checking) increased by $683,000, business
checking accounts increased $803,000, passbook and certificates of deposits
decreased by $3.654 million.
The Company increased its level of borrowings from the FHLB of Seattle
from $15.600 million at September 30, 1999 to $19.300 million at September 30,
2000. This represents an increase of $3.700 million. The increase in FHLB
advances was primarily used to offset the decline in deposits while maintaining
a stable balance sheet. 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.
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<PAGE>
Total stockholders' equity declined by $277,000 from $13.356 million at
September 30, 1999 to $13.079 million at September 30, 2000 primarily as a
result of stock repurchases. The Company repurchased a total of 64,190 shares of
its common stock in January, July, and August of 2000. The purchases totaled
$693,000. The change in the unrealized loss on investment securities and
mortgage-backed securities available-for-sale increased stockholders' equity by
$123,000. Stockholders' equity was further reduced by cash dividends declared
during fiscal year 2000. These dividends totaled $0.48 per share or $368,000.
Non-performing Assets
Non-performing assets totaled $62,000 at September 30, 2000 or 0.10% of
total assets compared to $141,000 at September 30, 1999 or 0.22% of total
assets. Non-performing assets are primarily comprised of loans secured by
residential real estate. Included in non-performing assets at September 30, 2000
is a $39,000 loan secured by residential real estate and $23,000 in consumer
loans. At September 30, 1999, the Company had one residential real estate
property owned by the Bank valued at $73,000. At September 30, 2000, the Company
did not have any repossessed properties.
Comparison of Results of Operations for the Years Ended September 30, 2000 and
1999
Net Income. For the year ended September 30, 2000 the Company posted
net income of $559,000 or diluted earnings per share of $.70 compared to net
income of $690,000 or diluted earnings per share of $.80 for the year ended
September 30, 1999. Net income was lower in 2000 than in 1999 primarily as a
result of declining net interest income and increased non-interest expenses.
Net Interest Income. Net interest income before provision for loan
losses decreased by $137,000 from $1.955 million for the year ended September
30, 1999 to $1.818 million for the year ended September 30, 2000. The decrease
in net interest income was primarily attributed to a decrease in the volume of
interest earning assets. The ratio of interest earning assets to interest
bearing liabilities decreased from 128.32% for the twelve month period ended
September 30, 1999 to 125.21% for the same period in 2000. Also contributing to
the decrease in net interest income was a slight decrease in the interest rate
spread from 2.09% for the twelve month period ended September 30, 1999 to 1.91%
for the twelve month period ended September 30, 2000.
Interest Income. Total interest income increased by $37,000 from $4.313
million for the year ended September 30, 1999 to $4.350 million for the year
ended September 30, 2000. The increase in interest income was primarily caused
by an increase in the yield on average interest earning assets from 1999 to
2000. An increase in the yield on average earning assets from 6.99% for the
twelve month period ended September 30, 1999 to 7.04% for the same period in
2000 caused interest income to increase by $23,000. During the twelve month
period ended September 30, 1999 average interest earning assets totaled $61.697
million compared to $61.812 million for the same period in 2000. This increase
in volume caused interest income to increase by $7,000 for the periods covered.
Interest Expense. Deposit interest expense increased by $36,000 from
$1.548 million for the year ended September 30, 1999 to $1.584 million for the
year ended September 30, 2000 primarily as a result of a slight increase in the
average volume of interest bearing deposits, and by an increase in the cost of
these funds. Average interest bearing deposits increased by $176,000 from
September 30, 1999 to September 30, 2000 contributing to the $36,000 increase in
interest expense. An increase in the cost of interest bearing deposits from
4.69% for the twelve month period ended September 30, 1999 to 4.77% for the
twelve month period ended September 30, 2000 increased interest expense by
$27,000.
-8-
<PAGE>
FHLB advances interest expense increased by $138,000 from $810,000 for
the year ended September 30, 1999 to $948,000 for the year ended September 30,
2000, primarily due to higher interest rates on such advances. Average FHLB
advances increased from $15.078 million for the twelve month period ended
September 30, 1999 to $16.190 million for the twelve month period ended
September 30, 2000. This increase in volume caused interest expense to increase
by $60,000. An increase in the cost of FHLB advances from 5.37% in 1999 to 5.86%
2000 accounted for a $74,000 increase in interest expense.
The total cost of average interest bearing liabilities was 5.13% for
2000 and 4.90% for 1999.
Provision for Loan Losses. A provision for loan losses of $6,000 was
made during 1999 and no provision was made in 2000. In 2000, recoveries totaled
$42,000 while charge-offs totaled $21,000. Loan recoveries were greater than
charge-offs in 2000 resulting in a net increase in the allowance for loan losses
of $21,000. 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, 2000, the allowance
represented 0.87% of net loans receivable as compared to 0.84% of net loans
receivable at September 30, 1999.
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 increased by $24,000 from
$65,000 for the year ended September 30, 1999 to $89,000 for the year ended
September 30, 2000. Customer service charges accounted for $15,000 as a result
of a change in deposit fees. Other operating income increased by $8,000 as a
result of late fees associated with the loan portfolio and other miscellaneous
charges.
Non-Interest Expense. The Company experienced a $121,000 increase in
non-interest expense from $1.000 million for the years ended September 30, 1999
to $1.121 million for the year ended September 30, 2000. Compensation and
benefit expense was $58,000 higher in 2000 than in 1999 primarily as a result of
general pay increases in 2000 and the addition of a loan officer and increased
costs associated with the Bank's ESOP and Management Stock Bonus Plan ("MSBP").
Occupancy and equipment expenses increased by $9,000 from $80,000 for the year
ended September 30, 1999 to $89,000 for the year ended September 30, 2000, due
to increased depreciation expense and building maintenance. FDIC/SAIF Assessment
declined by $9,000 as a result of the aligning of the Bank Insurance Fund and
the Savings Association Insurance Fund. Advertising increased $13,000 as a
result of new promotional program. Professional fees increased during 2000 to
$99,000 from $72,000 in 1999, due to expenses related to a marketing consultant.
Other operating expenses expense were $14,000 higher in 2000 than in 1999. In
2000, losses on the sale of investment securities were $13,000. In 1999, losses
on the sale of investment securities totaled $3,000. There were no other
significant changes in operating expenses.
Income Taxes. The effective tax rates for 2000 and 1999 were 28.88% and
31.95%, respectively. There is no state income tax imposed on the Company. In
2000 the Company received a refund for prior year amended tax returns.
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<PAGE>
Liquidity and Capital Resources
The Company's primary source of liquidity is derived from dividends
received 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
4.0% and the Bank's liquidity ratio was 72.43% at September 30, 2000 compared to
63.93% at September 30, 1999.
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, 2000 and 1999, the Bank had
positive net cash flows of $522,000 and $920,000 from operating activities and
$466,000 and $1.376 million from financing activities, respectively. The
Company, however, experienced negative net cash flows of $381,000 and $1.668
million, respectively, from investing activities.
Net income, adjusted for the non-cash and non-operating items, was the
primary source of cash flows from operating activities in both fiscal 2000 and
1999.
During fiscal 2000 and 1999, investing activities used $381,000 and
$1.668 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. 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 2000 and 1999, the Bank originated mortgage
loans in the amounts of $8.501 million and $10.116 million, respectively. The
proceeds from new advances were used to fund investment activities such as the
origination of loans and to off-set the decrease in deposits.
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 2000 and 1999. The primary financing activities of the
Bank are the attraction of deposits and borrowing funds from the FHLB of
Seattle. During fiscal year 2000, deposits decreased $2.168 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
2000, FHLB advances increased by $3.7 million. 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.
-10-
<PAGE>
The Bank anticipates that it will have sufficient funds available to
meet its current commitments. At September 30, 2000, the Bank had commitments to
originate loans of $866,000, including undisbursed Line of Credits. Certificates
of deposit and State of Wyoming deposits which are scheduled to mature in less
than one year at September 30, 2000 totaled $12.919 million. Even though there
was a $3.654 million decrease in certificate and passbook accounts, management
believes that a significant portion of such deposits will remain with the Bank,
based on historical and economic trends in the banks primary market area.
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."
-11-
<PAGE>
[LOGO]
KPMG
1000 First Interstate Center
401 N. 31st Street
P.O. Box 7108
Billings, MT 59103
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, 2000 and 1999, 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 auditing standards generally accepted
in the United States of America. 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, 2000 and 1999, and the
results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.
/s/KPMG LLP
Billings, Montana
October 27, 2000
12
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Balance Sheets
(Dollars in thousands except share and per share data)
September 30, 2000 and 1999
<TABLE>
<CAPTION>
Assets 2000 1999
------ --------- ----------
<S> <C> <C>
Cash and cash equivalents $ 2,796 2,189
Investment and mortgage-backed securities
available-for-sale 28,869 29,479
Stock in Federal Home Loan Bank of Seattle, at cost 1,055 988
Loans receivable, net 30,980 29,727
Accrued interest receivable 534 522
Premises and equipment, net 525 544
Income tax receivable 28 -
Deferred income taxes - 62
Other assets 39 150
-------- --------
$ 64,826 63,661
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits $ 32,081 34,249
Advances from Federal Home Loan Bank 19,300 15,600
Advance payments by borrowers for taxes and insurance 72 69
Income taxes payable - 7
Dividends payable 96 104
Accrued expenses and other liabilities 198 276
-------- --------
Total liabilities 51,747 50,305
Stockholders' equity:
Preferred stock, par value $.10 per share, 2,000,000
shares authorized; none issued and outstanding - -
Common stock, par value $.10 per share, 5,000,000
shares authorized; 1,058,000 issued 106 106
Additional paid-in capital 10,100 10,096
Unearned ESOP/MSBP shares (528) (577)
Retained earnings 7,271 7,080
Accumulated other comprehensive loss, net (218) (341)
Treasury stock at cost, 275,976 and 215,786 shares
at September 30, 2000 and 1999, respectively (3,652) (3,008)
-------- --------
Total stockholders' equity 13,079 13,356
-------- --------
$ 64,826 63,661
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Statements of Income
(Dollars in thousands except share and per share data)
Years ended September 30, 2000 and 1999
2000 1999
------ ------
Interest income:
Loans receivable ........................................ $2,359 2,417
Mortgage-backed securities .............................. 757 606
Investment securities ................................... 1,128 1,177
Other interest-earning assets ........................... 106 113
------ ------
Total interest income ............................. 4,350 4,313
Interest expense:
Deposits ................................................ 1,584 1,548
Advances from Federal Home Loan Bank .................... 948 810
------ ------
Total interest expense ............................ 2,532 2,358
------ ------
Net interest income ............................... 1,818 1,955
Provision for loan losses .................................... - 6
------ ------
Net interest income after provision for loan losses 1,818 1,949
------ ------
Non-interest income:
Customer service charges ................................ 62 46
Other operating income .................................. 27 19
------ ------
Total non-interest income ......................... 89 65
------ ------
Non-interest expense:
Compensation and benefits ............................... 581 523
Occupancy and equipment ................................. 89 80
FDIC/SAIF deposit insurance premiums .................... 10 19
Advertising ............................................. 49 36
Data processing services ................................ 116 117
Professional fees ....................................... 99 72
Other ................................................... 164 150
Loss on sale of securities, net ......................... 13 3
------ ------
Total non-interest expense ........................ 1,121 1,000
------ ------
Income before income taxes ........................ 786 1,014
Income tax expense ........................................... 227 324
------ ------
Net income ........................................ $ 559 690
====== ======
Basic earnings per share ..................................... $ 0.70 0.81
====== ======
Diluted earnings per share ................................... $ 0.70 0.80
====== ======
See accompanying notes to consolidated financial statements.
14
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity and Comprehensive Income
(Dollars in thousands except share and per share data)
Years ended September 30, 2000 and 1999
<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, 1998 $ 106 10,083 (671) 6,736 208 (2,426) 14,036
Comprehensive income:
Net income - - - 690 - - 690
Unrealized loss on securities
available-for-sale, net of
reclassification adjustment - - - - (549) - (549)
-------
Total comprehensive income 141
Repurchase of 45,463 shares of
common stock - - - - - (582) (582)
Tax benefit from stock related
compensation - 1 - - - - 1
ESOP shares committed to be
released - 12 46 - - - 58
MSBP shares vested - - 48 - - - 48
Cash dividends declared
($.42 per share) - - - (346) - - (346)
------- ------ ---- ----- ---- ------ -------
Balance at September 30, 1999 106 10,096 (577) 7,080 (341) (3,008) 13,356
Comprehensive income:
Net income - - - 559 - - 559
Unrealized gain on securities
available-for-sale, net of
reclassification adjustment - - - - 123 - 123
-------
Total comprehensive
income 682
Repurchase of 64,190 shares of
common stock - - - - - (693) (693)
MSBP shares awarded
(4,000 shares) - - (49) - - 49 -
ESOP shares committed to be
released - 4 46 - - - 50
MSBP shares vested - - 52 - - - 52
Cash dividends declared
($.48 per share) - - - (368) - - (368)
------- ------ ---- ----- ---- ------ -------
Balance at September 30, 2000 $ 106 10,100 (528) 7,271 (218) (3,652) 13,079
======= ====== ==== ===== ==== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Dollars in Thousands)
Years ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 559 690
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses - 6
Amortization of premiums and discounts on
investment securities, net (10) 21
Deferred income tax expense (benefit) (1) 10
Federal Home Loan Bank stock dividend (67) (71)
Depreciation 52 50
Loss on sale of securities 13 3
Loss (gain) on sale of foreclosed real estate 2 (3)
Mutual funds dividends reinvested (33) (41)
Deferred loan origination fees, net (7) 32
Loss on sale of premises and equipment - 1
ESOP shares committed to be released 50 58
MSBP compensation expense 52 48
Change in:
Accrued interest receivable (12) 16
Other assets 38 (34)
Income taxes payable (35) 47
Accrued expenses and other liabilities (79) 87
-------- --------
Net cash provided by operating activities 522 920
-------- --------
Cash flows from investing activities:
Decrease in interest-bearing deposits - 99
Purchases of securities available-for-sale (1,669) (13,971)
Proceeds from maturities, calls and prepayments of
securities available-for-sale 2,009 11,290
Proceeds from sales of securities available-for-sale 487 960
Origination of loans receivable (8,501) (10,116)
Repayment of principal on loans receivable 7,328 10,164
Purchases of premises and equipment (33) (197)
Proceeds from sale of foreclosed real estate (2) 103
-------- --------
Net cash used in investing activities (381) (1,668)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits (2,168) 1,336
Advances from Federal Home Loan Bank 29,700 23,100
Repayment of advances from Federal Home Loan Bank (26,000) (22,150)
Net change in advances from borrowers for taxes
and insurance 3 5
Repurchase of common stock (693) (582)
Dividends paid to stockholders (376) (333)
-------- --------
Net cash provided by financing activities 466 1,376
-------- --------
Net increase in cash and cash equivalents 607 628
Cash and cash equivalents at beginning of year 2,189 1,561
-------- --------
Cash and cash equivalents at end of year $ 2,796 2,189
======== ========
Cash paid during the year for:
Interest $ 2,533 2,375
Income taxes 263 278
======== ========
</TABLE>
Noncash investing activities:
The Company transferred loans of $73 and $173 to other real estate owned in
2000 and 1999, respectively.
See accompanying notes to consolidated financial statements.
16
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
September 30, 2000 and 1999
(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.
17 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
September 30, 2000 and 1999
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 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.
18 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
September 30, 2000 and 1999
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.
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. Other real estate owned of $73 at September 30, 1999 is
included in other assets on the accompanying consolidated balance sheet.
No other real estate owned was held at September 30, 2000.
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, 2000 or 1999.
Income Taxes
The Holding Company and BFSB have elected to file separate Federal income
tax returns.
19 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
September 30, 2000 and 1999
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. Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation,"
established accounting and disclosure requirements using a fair
value-based method of accounting for stock-based compensation plans.
Compensation expense for nonemployee stock option grants is measured at
the grant date based on the fair value of the award as required by SFAS
No. 123. As allowed by SFAS No. 123, the Company has elected to continue
to apply the intrinsic value-based method of accounting for employee
stock option grants described above, and has adopted the disclosure
requirements of SFAS No. 123.
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.
Fiscal Year
The Company's fiscal year ends on September 30. Unless otherwise noted,
references to a fiscal year refers to the year in which such fiscal year
ends.
Comprehensive Income
Comprehensive income 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 other comprehensive income is unrealized gains and losses on
securities available-for-sale.
20 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
September 30, 2000 and 1999
Derivative Instruments
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 138, 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 $3,938 as
available-for-sale. The net effect of this reclassification was an
increase in total assets of $84, deferred tax liabilities of $29 and
accumulated other comprehensive income of $55.
Reclassifications
Certain reclassifications have been made to the 1999 financial statements
to conform with the 2000 presentation.
(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
2000 cost gains losses value
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. agency obligations $ 15,249 - (575) 14,674
Municipal securities 1,886 5 (67) 1,824
Mutual funds 1,106 470 - 1,576
Mortgage-backed securities:
GNMA certificates 4,389 11 (85) 4,315
FHLMC certificates 3,606 10 (60) 3,556
REMIC certificates 604 - (21) 583
FNMA certificates 2,359 16 (34) 2,341
------------------ ------------------ ------------------ ------------------
Total MBS 10,958 37 (200) 10,795
------------------ ------------------ ------------------ ------------------
$ 29,199 512 (842) 28,869
================== ================== ================== ==================
</TABLE>
21 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
September 30, 2000 and 1999
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
1999 cost gains losses value
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. agency obligations $ 15,749 - (603) 15,146
Municipal securities 2,033 7 (95) 1,945
Mutual funds 1,073 348 (12) 1,409
Mortgage-backed securities:
GNMA certificates 4,001 19 (81) 3,939
FHLMC certificates 3,949 13 (71) 3,891
REMIC certificates 719 - (27) 692
FNMA certificates 2,472 13 (28) 2,457
------------------ ------------------ ------------------ ------------------
Total MBS 11,141 45 (207) 10,979
------------------ ------------------ ------------------ ------------------
$ 29,996 400 (917) 29,479
================== ================== ================== ==================
</TABLE>
The REMICs consist of two certificates at September 30, 2000 and 1999
which are backed by the FNMA or the FHLMC.
Maturities of securities available-for-sale (other than mutual funds) at
September 30, 2000 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 $ 86 86
Due after one year through five years 9,258 9,154
Due after five years through ten years 17,346 16,724
Due after ten years 1,403 1,329
---------------------- ----------------------
$ 28,093 27,293
====================== ======================
</TABLE>
Gross realized losses on the sale of investment and mortgage-backed
securities available-for-sale were $13 and $3 during the years ended
September 30, 2000 and 1999, respectively. There were no gross gains
during the years ended September 30, 2000 and 1999.
The Company has not entered into any interest rate swaps, options or
future contracts. Substantially all of the U.S. agency obligations and
municipal securities at September 30, 2000 have call features.
22 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
September 30, 2000 and 1999
(3) Loans Receivable, Net
Loans receivable, net at September 30 are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
---------------------- ----------------------
<S> <C> <C>
Real estate mortgage loans, including commercial
real estate $ 27,199 26,499
Real estate construction loans 516 473
Consumer loans 1,699 1,498
Home equity loans 1,003 837
Commercial and agricultural loans 1,134 877
Savings account and other loans 212 181
---------------------- ----------------------
31,763 30,365
Less:
Loans in process 331 200
Allowance for loan losses 270 249
Net deferred loan origination fees 182 189
---------------------- ----------------------
$ 30,980 29,727
====================== ======================
</TABLE>
Adjustable rate mortgages included in the real estate loans receivable
balance above were approximately $182 and $67 at September 30, 2000 and
1999, respectively.
Real estate loans serviced for others were $65 and $70 at September 30,
2000 and 1999, respectively.
First mortgage loans pledged as collateral for public funds or for other
funds on deposit with BFSB were approximately $7,012 and $7,445 at
September 30, 2000 and 1999, respectively.
A summary of activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
2000 1999
---------------------- ----------------------
<S> <C> <C>
Balance at beginning of year $ 249 284
Provision - 6
Losses charged against the allowance (21) (71)
Recoveries of amounts previously charged off 42 30
---------------------- ----------------------
Balance at end of year $ 270 249
====================== ======================
</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 $62 and $68
at September 30, 2000 and 1999, 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.
23 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
September 30, 2000 and 1999
(4) Accrued Interest Receivable
Accrued interest receivable at September 30 is summarized as follows:
<TABLE>
<CAPTION>
2000 1999
---------------------- ----------------------
<S> <C> <C>
Investment securities $ 253 268
Mortgage-backed securities 60 61
Loans receivable 221 193
---------------------- ----------------------
$ 534 522
====================== ======================
</TABLE>
(5) Premises and Equipment
Premises and equipment at September 30 is summarized as follows:
<TABLE>
<CAPTION>
2000 1999
---------------------- ----------------------
<S> <C> <C>
Land and building $ 668 662
Furniture, fixtures and equipment 372 352
---------------------- ----------------------
1,040 1,014
Less accumulated depreciation 515 470
---------------------- ----------------------
$ 525 544
====================== ======================
</TABLE>
(6) Deposits
Deposits at September 30 are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
-------------------------------------------------------- ------------------------------
Weighted
average rate Amount Percent Amount Percent
---------------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Demand, NOW and MMDA
accounts 3.17% $ 10,585 33.0% $ 9,099 26.6%
Passbook savings 3.63% 3,391 10.6 3,683 10.8
Certificates of deposit, 4.01 to 5.00% 2,397 7.5 6,223 18.2
by interest rate 5.01 to 6.00 8,930 27.8 13,553 39.5
6.01 to 7.00 5,627 17.5 1,691 4.9
7.01 to 8.00 1,151 3.6 - -
------------- -------------- ------------- -------------
Total certificates of
deposit 18,105 56.4 21,467 62.6
------------- -------------- ------------- -------------
Total deposits $ 32,081 100.0% $ 34,249 100.0%
============= ============== ============= =============
</TABLE>
Certificates of deposit and savings accounts of $100 or greater were
approximately $5,377 and $7,700 at September 30, 2000 and 1999,
respectively.
24 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
September 30, 2000 and 1999
Certificates of deposit at September 30, 2000 are scheduled to mature as
follows:
Year ending September 30 Amount
----------------------
2001 $ 12,919
2002 3,263
2003 1,680
2004 243
----------------------
$ 18,105
======================
Interest expense on deposits for the years ended September 30 is summarized
as follows:
<TABLE>
<CAPTION>
2000 1999
---------------------- ----------------------
<S> <C> <C>
NOW accounts and MMDA $ 320 322
Certificates of deposit and savings 1,264 1,226
---------------------- ----------------------
$ 1,584 1,548
====================== ======================
</TABLE>
Accrued interest payable on deposits (included in accrued expenses and
other liabilities) was $129 and $130 at September 30, 2000 and 1999,
respectively.
(7) Advances From Federal Home Loan Bank
Advances from the Federal Home Loan Bank at September 30 are summarized
as follows:
<TABLE>
<CAPTION>
2000 1999
--------------------- ----------------------
<S> <C> <C>
4.77% to 6.84% Putable Advances, put option
exercisable quarterly, interest payable monthly
$ 12,700 11,200
5.95% to 7.49% Fixed Rate Advances, interest payable
monthly 6,600 4,400
--------------------- ----------------------
$ 19,300 15,600
===================== ======================
</TABLE>
At September 30, 2000, BFSB had a Cash Management Advance note with a
maximum allowable advance of $3,106 maturing on December 22, 2000. No
amounts were outstanding as of September 30, 2000 or 1999. BFSB did
receive advances under the Cash Management Advance note of $5,800 and
$4,600 during the years ended September 30, 2000 and 1999, respectively
which were fully repaid prior to September 30, 2000 and 1999.
25 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
September 30, 2000 and 1999
Contractual principal payments on advances from Federal Home Loan Bank
subsequent to September 30, 2000 are as follows:
Year ending September 30 Amount
----------------------
2001 $ 10,900
2002 4,400
2003 3,500
2004 -
Thereafter 500
----------------------
$ 19,300
======================
These advances are secured by pledges of FHLB demand accounts, FHLB stock
and a blanket assignment of unpledged, qualifying mortgage loan and
investment and mortgage-backed securities.
The weighted average interest rate on these advances was 6.35% and 5.15% at
September 30, 2000 and 1999, respectively.
(8) Comprehensive Income
A summary of the reclassification amounts and related tax effects for
comprehensive income follows:
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------
2000 1999
---------------------- ---------------------
<S> <C> <C>
Disclosure of reclassification amount:
Unrealized and realized holding gains (losses) arising
during the period, net of income tax expense
(benefit) of $60 and $(312) in 2000 and 1999,
respectively $ 114 (606)
Effect of adoption of SFAS No. 133, net of income tax
expense of $28 - 55
Reclassification adjustment for losses included in net
income, net of income tax benefit of $4 and $1 in
2000 and 1999, respectively 9 2
----------------- ---------------------
Net change in unrealized loss on
available-for-sale investment securities $ 123 (549)
================= =====================
</TABLE>
26 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
September 30, 2000 and 1999
(9) Income Taxes
Federal income tax expense (benefit) for the years ended September 30 is
summarized as follows:
<TABLE>
<CAPTION>
2000 1999
---------------------- ----------------------
<S> <C> <C>
Current $ 228 314
Deferred (1) 10
---------------------- ----------------------
Total $ 227 324
====================== ======================
</TABLE>
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>
2000 1999
---------------------- ----------------------
<S> <C> <C>
Computed "expected" tax expense $ 267 345
Increase (decrease) resulting from:
Tax-exempt interest (31) (32)
Dividends exclusion (8) -
Mark-to-market adjustment on ESOP shares
committed to be released 1 4
Other (2) 7
---------------------- ----------------------
$ 227 324
====================== ======================
</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>
2000 1999
---------------------- ----------------------
<S> <C> <C>
Deferred tax assets:
Unrealized loss on securities available-for-sale $ 112 176
Allowance for loan losses 92 85
Employee benefits 18 -
Deferred loan fees 10 13
Other - 14
---------------------- ----------------------
Gross deferred tax assets 232 288
---------------------- ----------------------
Deferred tax liabilities:
FHLB stock dividends (219) (196)
Tax bad debt reserve in excess of base year
amount (13) (26)
Prepaid deposit insurance premium (1) (4)
---------------------- ----------------------
Gross deferred tax liabilities (233) (226)
---------------------- ----------------------
Net deferred tax asset (liability) $ (1) 62
====================== ======================
</TABLE>
27 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
September 30, 2000 and 1999
At September 30, 2000 the deferred tax liability is included in "accrued
expenses and other liabilities" in the accompanying consolidated balance
sheet.
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, 2000 and 1999, management believes it is more likely than
not that the Company will realize the benefits of these deductible
differences.
Retained earnings at September 30, 2000 includes approximately $398 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 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.
(10) 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. No contributions to the retirement
plan were made by BFSB during the years ended September 30, 2000 and
1999.
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 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, bearing interest at prime (9.5% and 7.75% at September
30, 2000 and 1999, 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.
28 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
September 30, 2000 and 1999
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, 2000 and 1999, ESOP
principal and interest payments of approximately $86 and $85,
respectively, were funded by Bank contributions of approximately $57 and
$59, 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, 2000 and 1999 and the fair value of the
remaining shares to be released in future years was approximately $476 at
September 30, 2000. BFSB recognized compensation expense relating to the
ESOP of $41 and $53 during the years ended September 30, 2000 and 1999,
respectively. The dividends on the unallocated ESOP shares are not
recorded as dividends in the consolidated statements of stockholders'
equity.
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 1997, BFSB
purchased 42,320 shares for the MSBP and granted 24,122 shares to
officers and directors. During 1998, 3,386 of unvested shares were
forfeited. During 2000, 4,000 shares were granted to officers. BFSB
recognized compensation expense for the MSBP of $52 and $48 for the years
ended September 30, 2000 and 1999, respectively. At September 30, 2000
and 1999, there were 7,845 and 7,956 of unvested shares, respectively.
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 10% or
less 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 10 years from the date of grant. 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. At September 30, 2000
and 1999, total shares available for options grants under the Stock
Option Plan are 29,675 and 38,088 shares, respectively.
29 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
September 30, 2000 and 1999
Changes in shares issuable under options granted for the years ended
September 30, 2000 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
----------------------------------- -----------------------------------
Weighted Weighted
average average
Number of exercise Number of exercise
Shares price Shares price
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
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
Granted 10,529 $ 10.16 - -
Canceled (2,116) $ 11.75 (1,269) $ 11.75
Became exercisable - - 13,224 $ 12.67
---------------- ----------------
Balance September 30, 2000 74,009 $ 11.24 50,463 $ 12.01
================ ================
</TABLE>
The stock options outstanding at September 30, 2000 consist of the
following:
Weighted Weighted
Number of Shares Average Exercise Average
Price Remaining Life
----------------------- ---------------------- ----------------------
10,529 $ 10.15 9.52 years
61,364 $ 11.75 6.0 year
2,116 $ 13.25 7.96 years
-----------------------
74,009
=======================
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, 2000 and 1999 would have been
as follows:
2000 1999
------------- -----------
Net income: As reported $ 559 690
Pro forma 536 667
============= ===========
30 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
September 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
----------------- ------------------
<S> <C> <C>
Basic earnings per share: As reported $ .70 .81
Proforma .67 .78
================= ================
Diluted earnings per share: As reported $ .70 .80
Pro forma .67 .78
================= ================
</TABLE>
The per share weighted-average fair value of stock options granted during
2000 for this pro forma disclosure was $2.54, 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 rates of
5.56% and 6.25%, volatility factor of 21%, and expected life of 10 years.
There were no stock option grants during 1999.
Severance Agreements. BFSB has four 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.
(11) 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>
2000 1999
-------------------- -------------------
<S> <C> <C>
Number of shares on which basic earnings per share is calculated:
Average outstanding common shares during the fiscal year 800,818 853,230
Add: Incremental shares under stock option plans 675 4,656
Incremental shares related to MSBP - 297
-------------------- -------------------
Number of shares on which diluted earnings per share is calculated 801,493 858,183
==================== ===================
Net income applicable to common stockholders $ 559 690
==================== ===================
Basic earnings per share $ .70 .81
==================== ===================
Diluted earnings per share $ .70 .80
==================== ===================
</TABLE>
31 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
September 30, 2000 and 1999
Stock options and MSBP awards of 72,988 and 4,106 shares for the years
ended September 30, 2000 and 1999, respectively, were outstanding, but
were not included in the computation of diluted earnings per share
because the options' exercise prices were greater than the average market
price of the common shares, and therefore, the effect would be
antidilutive.
(12) 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, 2000 and 1999
were approximately $25,798 and $24,793, respectively.
BFSB's compliance with capital requirements at September 30, 2000 and
1999 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, 2000:
Total capital (to
risk-weighted assets) $ 11,877 46.04% $ 2,064 8.00% $ 2,580 10.00%
Core (Tier 1) capital (to
risk-weighted assets) 11,607 44.99 774 3.00 1,548 6.00
Core (Tier 1) capital (to
adjusted assets) 11,607 18.08 1,926 3.00 3,210 5.00
Tangible capital (to
tangible assets) 11,607 18.08 963 1.50 963 1.50
========== ========== ========== ========== ========== ==========
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>
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.
32 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
September 30, 2000 and 1999
Consolidated stockholders' equity differs from BFSB's tangible, core, and
risk-based capital at September 30 as a result of the following:
<TABLE>
<CAPTION>
2000 1999
---------------------- ----------------------
<S> <C> <C>
Consolidated stockholders' equity $ 13,079 13,356
Holding Company net assets (2,000) (1,767)
---------------------- ----------------------
BFSB capital 11,079 11,589
Add back unrealized losses on certain
available-for-sale securities 528 562
---------------------- ----------------------
Tangible and core capital 11,607 12,151
Allowance for loan losses (limited to 1.25% of
risk-weighted assets) 270 249
---------------------- ----------------------
Risk-based capital $ 11,877 12,400
====================== ======================
</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.
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, 2000.
(13) 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.
33 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
September 30, 2000 and 1999
Financial instruments outstanding at September 30, 2000 whose contract
amounts represent credit risk are fixed-rate commitments to extend credit
totaling approximately $384. These commitments generally contain a
termination date of 30 days from the date the commitment is approved.
(14) Commitments
The Company has entered into a purchase and assumption agreement to
purchase the assets and assume the liabilities, deposits of approximately
$1,300 (unaudited), of a branch in Gillette, Wyoming for $675. The
closing of the transaction is expected to take place in first quarter of
fiscal year 2001. The Company has also entered into a related agreement
to purchase a vacant lot adjacent to the branch for a total purchase
price of $75.
The Company has entered into an option agreement to purchase land in
Sheridan, Wyoming. The option expires on December 1, 2000. The land will
facilitate construction of a branch. The purchase price of the land is
$277. The purchase is expected to close in the first quarter of fiscal
year 2001.
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's consolidated financial position, results of
operations or liquidity.
(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.
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.
34 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
September 30, 2000 and 1999
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.
The approximate book value and fair value of the Company's financial instruments
as of September 30 are as follows:
<TABLE>
<CAPTION>
2000 1999
--------------------------------------- --------------------------------------
Book value Fair value Book value Fair value
------------------ ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 2,796 2,796 2,189 2,189
Investment and mortgage-backed
securities
available-for-sale 28,869 28,869 29,479 29,479
Stock in FHLB 1,055 1,055 988 988
Loans receivable, net 30,980 30,588 29,727 29,278
Accrued interest receivable 534 534 522 522
Liabilities:
Deposits 32,081 32,037 34,249 34,166
Advances from FHLB 19,300 19,188 15,600 15,519
================== ================== ================== =================
</TABLE>
35 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
September 30, 2000 and 1999
(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.
Condensed Balance Sheets
<TABLE>
<CAPTION>
September 30,
--------------------------------------
2000 1999
----------------- -----------------
Assets
------
<S> <C> <C>
Cash (demand account with BFSB) $ 37 25
Investment in subsidiary 11,078 11,565
Loan to ESOP 434 480
Dividend receivable - BFSB 200 90
Investment securities available-for-sale - mutual funds 1,576 1,409
Income taxes receivable 11 8
Other assets 1 1
----------------- -----------------
Total assets $ 13,337 13,578
================= =================
Liabilities and Stockholders' Equity
------------------------------------
Deferred tax liability - investment securities available-for-sale $ 160 114
Dividends payable 96 104
Other liabilities 2 4
Stockholders' equity:
Common stock 106 106
Additional paid-in capital 10,100 10,096
Unearned ESOP/MSBP shares (528) (577)
Retained earnings 7,271 7,080
Accumulated other comprehensive loss (218) (341)
Treasury stock (3,652) (3,008)
----------------- -----------------
Total stockholders' equity 13,079 13,356
----------------- -----------------
Total liabilities and stockholders' equity $ 13,337 13,578
================= =================
</TABLE>
36 (Continued)
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
September 30, 2000 and 1999
Condensed Statements of Income
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
Dividends from BFSB $ 1,180 270
Dividends on mutual funds 33 41
Interest income (ESOP loan and loan to BFSB) 41 58
Management fee to BFSB (28) (28)
Other operating expenses (32) (34)
----------------- -----------------
Income before equity in undistributed earnings of subsidiary and
income taxes 1,194 307
Equity in undistributed earnings (distributions in excess of earnings) of
subsidiary (652) 393
----------------- -----------------
Income before income taxes 542 700
Income tax benefit (expense) 17 (10)
----------------- -----------------
Net income $ 559 690
================= =================
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
Year Ended September 30,
--------------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
Net income $ 559 690
Adjustments to reconcile net income to net cash provided by operating
activities:
Dividends in excess of earnings (equity in undistributed earnings)
of subsidiary 652 (393)
Mutual fund dividends reinvested (33) (41)
Increase in dividends receivable - BFSB (110) (90)
Decrease (increase) in income taxes receivable (3) 2
Decrease in other liabilities (2) (1)
Decrease in other assets - 11
----------------- -----------------
Net cash provided by operating activities 1,063 178
----------------- -----------------
Cash flows from investing activities:
Principal payments received on loan to BFSB - 674
Principal payments received on ESOP note receivable 46 46
----------------- -----------------
Net cash provided by investing activities 46 720
----------------- -----------------
Cash flows from financing activities:
Repurchase of common stock (693) (582)
Cash dividends paid (404) (360)
----------------- -----------------
Net cash used in financing activities (1,097) (942)
----------------- -----------------
Net increase (decrease) in cash 12 (44)
Cash at beginning of year 25 69
----------------- -----------------
37 25
================= =================
Cash paid (refunds received) during the year for income taxes $ (11) 7
================= =================
</TABLE>
37 (Continued)
<PAGE>
Corporate Office
Crazy Woman Creek Bancorp, Incorporated and Buffalo Federal Savings Bank
106 Fort Street, P.O. Box 1020
Buffalo, Wyoming 82834-1020
(307) 684-5591
Board of Directors of Crazy Woman Creek Bancorp, Incorporated
<TABLE>
<CAPTION>
<S> <C>
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 Mark A. Gannon
President and Chief Executive Officer Executive Vice President
Arnold R. Griffith, Jr. John B. Snyder
Senior Vice President Vice President and Chief Financial Officer
Professional Advisors
Corporate Counsel Transfer Agent and Registrar
Kirven and Kirven Computershare Investor Services
104 Fort Street 12039 West Alameda Parkway, Ste. Z-2
Buffalo, WY 82834 Lakewood, CO 80228
Independent Auditors Special Counsel
KPMG LLP Mailzia Spidi & Fisch, PC
1000 First Interstate Center 1100 New York Avenue, NW
401 North 31st Street Suite 340 West
Billings, MT 59101 Washington, D.C. 20005
Form 10-KSB
Crazy Woman Creek Bancorp Incorporated's Annual Report for the year ended
September 30, 2000 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 web site
at www.sec.gov. The Annual Meeting of Stockholders will be held on January 24,
2001 at 3:00 p.m. at the Company's main office located at 106 Fort Street,
Buffalo, Wyoming.
</TABLE>
<PAGE>
Crazy Woman Creek Bancorp, Incorporated
106 Fort Street
P.O. Box 1020
Buffalo, WY 82834
(307) 684-5591
