SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from to
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Commission File No. 0-27714
Crazy Woman Creek Bancorp Incorporated
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(Exact name of registrant as specified in its charter)
Wyoming 83-0315410
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
106 Fort Street, Buffalo, Wyoming 82834
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(Address of principal executive offices)
(307) 684-5591
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(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Sections
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
---- ----
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
Class: Common Stock, par value $.10 per share
Outstanding at August 10, 2000: 824,344
Transitional Small Business Disclosure Format (check one): Yes No X
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<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I FINANCIAL INFORMATION
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Item 1. Financial Statements (unaudited)
Consolidated Condensed Statements of Financial Condition at June 30,
2000 and September 30, 1999 1
Consolidated Condensed Statements of Income for the Three and Nine
Months ended June 30, 2000 and 1999 2
Consolidated Condensed Statements of Comprehensive Income for the Three
and Nine Months ended June 30, 2000 and 1999 3
Consolidated Condensed Statements of Cash Flows for the Nine Months
ended June 30, 2000 and 1999 4
Notes to Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 7
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
SIGNATURES
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Condensed Statements of Financial Condition
(Unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
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(In thousands)
<S> <C> <C>
Assets
------
Cash and cash equivalents $ 1,539 $ 2,189
Investment and mortgage-backed securities available-for-sale 29,485 29,479
Stock in Federal Home Loan Bank of Seattle, at cost 1,038 988
Loans receivable, net 30,316 29,727
Accrued interest receivable 524 522
Premises and equipment, net 531 544
Real estate owned -- 73
Deferred income taxes 118 62
Other assets 35 77
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Total assets $63,586 $63,661
================== ===================
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
------------
Deposits $33,652 $34,257
Advances from Federal Home Loan Bank 16,400 15,600
Advances from borrowers for taxes and insurance 56 69
Income taxes payable 10 7
Dividends payable 98 104
Accrued expenses and other liabilities 316 268
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Total liabilities 50,532 50,305
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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 and outstanding 106 106
Additional paid-in surplus 10,099 10,096
Unearned ESOP/MSBP shares (554) (577)
Retained earnings, substantially restricted 7,278 7,080
Accumulated other comprehensive loss (441) (341)
Treasury stock at cost, 212,656 and 173,466 shares at June 30,
2000 and September 30, 1999, respectively (3,434) (3,008)
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Total stockholders' equity 13,054 13,356
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Total liabilities and stockholders' equity $63,586 $63,661
================== ===================
</TABLE>
See notes to consolidated condensed financial statements.
Page 1
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Condensed Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable $ 596 $ 602 $1,753 $1,833
Mortgage-backed securities 195 153 571 438
Investment securities 277 290 855 898
Other 23 31 80 85
------------- ------------- ------------- -------------
Total interest income 1,091 1,076 3,259 3,254
Interest expense:
Deposits 383 389 1,200 1,188
Advances from Federal Home Loan Bank 246 211 668 608
------------- ------------- ------------- -------------
Total interest expense 629 600 1,868 1,796
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Net interest income 462 476 1,391 1,458
Provision for loan losses -- -- -- 6
------------- ------------- ------------- -------------
Net interest income after provision for loan losses 462 476 1,391 1,452
------------- ------------- ------------- -------------
Non-interest income:
Customer service charges 16 12 46 31
Other operating income 6 5 18 14
Loss on sale of securities, net -- (2) -- (2)
------------- ------------- ------------- -------------
Total non-interest income 22 15 64 43
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Non-interest expense:
Compensation and benefits 151 129 411 392
Occupancy and equipment 30 9 66 53
FDIC/SAIF deposit insurance premiums 2 5 8 14
Advertising 11 7 32 26
Data processing services 27 25 81 78
Professional fees 16 14 49 53
Other 41 37 139 120
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Total non-interest expense 278 226 786 736
------------- ------------- ------------- -------------
Income before income taxes 206 265 669 759
Income tax expense 49 76 191 226
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Net income $ 157 $ 189 $ 478 $ 533
============= ============= ============= =============
Dividends declared per common share $ 0.12 $ 0.10 $ 0.36 $ 0.30
============= ============= ============= =============
Basic earnings per common share $ 0.20 $ 0.22 $ 0.59 $ 0.62
============= ============= ============= =============
Diluted earnings per common share $ 0.20 $ 0.22 $ 0.59 $ 0.61
============= ============= ============= =============
</TABLE>
See notes to consolidated condensed financial statements.
Page 2
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Condensed Statements of Comprehensive Income
Nine Months ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------------- -------------------------------
2000 1999 2000 1999
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(Dollars in thousands)
<S> <C> <C> <C> <C>
Net income: $157 $189 $478 $533
Other comprehensive income
Unrealized gains (losses) on investment and
mortgage-backed securities available-for-sale:
Realized and unrealized holding gains (losses)
arising during the period 30 (441) (152) (646)
Add: reclassification adjustment for losses
included in net income -- 2 -- 2
Effect of adoption of SFAS No. 133 -- -- -- 84
------------- ------------- ------------- -------------
Other comprehensive income (loss), before tax 30 (439) (152) (560)
Income tax benefit (expense) related to items of other
comprehensive income (10) 149 52 190
------------- ------------- ------------- -------------
Other comprehensive income (loss), after tax 20 (290) (100) (370)
------------- ------------- ------------- -------------
Comprehensive income (loss) $177 $(101) $378 $163
============= ============= ============= =============
</TABLE>
See notes to consolidated condensed financial statements.
Page 3
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Condensed Statements of Cash Flows
Nine Months ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Cash flows from operating activities: (In thousands)
Net income $ 478 $ 533
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses -- 6
Amortization of premiums and discounts on securities available-for-sale, net (7) 16
Federal Home Loan Bank stock dividend (50) (53)
Depreciation 37 30
Loss on sale of securities available-for-sale -- 2
Loss on sale of foreclosed real estate 2 --
Mutual funds dividends reinvested (30) (38)
Deferred loan origination fees, net (8) 27
ESOP shares committed to be released 37 45
MSBP deferred compensation expense 38 36
Change in:
Accrued interest receivable (2) 44
Income taxes 3 15
Other assets 42 2
Deferred income taxes (5) --
Accrued expenses and other liabilities 48 90
--------------- ---------------
Net cash provided by operating activities 577 755
--------------- ---------------
Cash flows from investing activities:
Purchases of securities available-for-sale (1,669) (11,495)
Proceeds from maturities, calls and prepayments of securities available-for-sale 1,547 10,604
Proceeds from sales of securities available-for-sale -- 498
Origination of loans receivable (6,135) (8,264)
Repayment of principal on loans receivable 5,627 8,382
Purchase of premises and equipment (24) (31)
--------------- ---------------
Net cash used in investing activities (654) (306)
--------------- ---------------
Cash flows from financing activities:
Net decrease in deposits (605) (253)
Advances from Federal Home Loan Bank 24,200 19,100
Repayment of advances from Federal Home Loan Bank (23,400) (13,350)
Net change in advances from borrowers for taxes and insurance (13) (10)
Repurchase of common stock (475) (480)
Dividends paid to stockholders (286) (255)
--------------- ---------------
Net cash used in financing activities (579) (248)
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Net increase (decrease) in cash and cash equivalents (650) 201
Cash and cash equivalents at beginning of period 2,189 1,562
--------------- ---------------
Cash and cash equivalents at end of period $ 1,539 $ 1,763
=============== ===============
Cash paid during period for:
Interest $ 1,866 $ 1,750
Income taxes 208 212
</TABLE>
Noncash Investing and Financing Activities:
The Company transferred loans of $ 0 and $208 to other real estate owned
during the nine months ended June 30, 2000 and 1999, respectively. The
company financed $73 and $0 of loans for the sale of other real estate owned
during the nine months ended June 30, 2000 and 1999, respectively.
See notes to consolidated condensed financial statements.
Page 4
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Condensed Financial Statements
June 30, 2000
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited interim consolidated condensed financial statements
have been prepared in accordance with generally accepted accounting principles
("GAAP") for interim financial information. Accordingly, they do not include all
of the information and footnotes required by GAAP for complete financial
statements. For further information, the reader should refer to the Annual
Report of Crazy Woman Creek Bancorp Incorporated (the "Company") for the Year
Ended September 30, 1999.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentation have been included. The
results of operations for the three and nine months ended June 30, 2000 and 1999
are not necessarily indicative of the results which may be expected for an
entire year or any other period.
The accompanying consolidated financial statements include the accounts of the
Company and Buffalo Federal Savings Bank (the "Bank"), a wholly owned subsidiary
of the Company. All significant intercompany balances and transactions have been
eliminated in consolidation.
NOTE 2: FINANCIAL SERVICES MODERNIZATION BILL
On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley
Act (the "Act") which, effective March 11, 2000, permitted qualifying bank
holding companies to become financial holding companies and thereby affiliate
with securities firms and insurance companies and engage in other activities
that are financial in nature. The Act defines "financial in nature" to include
securities underwriting, dealing and market making; sponsoring mutual funds and
investment companies; insurance underwriting and agency; merchant banking
activities; and activities that the Federal Reserve Board has determined to be
closely related to banking. A qualifying national bank also may engage, subject
to limitations on investment, in activities that are financial in nature, other
than insurance underwriting, insurance company portfolio investment, real estate
development, and real estate investment, through a financial subsidiary of the
bank.
The Act also prohibits new unitary thrift holding companies from engaging in
nonfinancial activities or from affiliating with a nonfinancial entity. As a
grandfathered unitary thrift holding company, the Company will retain its
authority to engage in nonfinancial activities.
NOTE 3: EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted-average number of common shares outstanding during the period less
unvested management stock bonus plan (MSBP) and unallocated and not yet
committed to be released Employee Stock Ownership Plan (ESOP) shares. Diluted
EPS is calculated by dividing net income by the weighted-average number of
common shares used to compute basic EPS plus the incremental amount of potential
common stock determined by the treasury stock method.
Page 5
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CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Condensed Financial Statements
June 30, 2000
<TABLE>
<CAPTION>
For the Three Months ended June 30, 2000
Net Income Average Shares Per Share Amount
-------------------------------------------------------
Basic EPS
<S> <C> <C> <C>
Net income available to common stockholders $ 157,000 791,141 $ 0.20
Effect of Dilutive Securities
Incremental shares under stock option plan -- --
Incremental shares related to MSBP -- --
------------- ------------
Diluted EPS
Income available to common stockholders plus
assumed conversions $ 157,000 791,141 $ 0.20
============= ============ ====
</TABLE>
<TABLE>
<CAPTION>
For the Three Months ended June 30, 1999
Net Income Average Shares Per Share Amount
-------------------------------------------------------
<S> <C> <C> <C>
Basic EPS
Net income available to common stockholders $ 189,000 849,603 $ 0.22
Effect of Dilutive Securities
Incremental shares under stock option plan -- 6,251
Incremental shares related to MSBP -- 493
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Diluted EPS
Income available to common stockholders plus
assumed conversions $ 189,000 856,347 $ 0.22
============= ============ ====
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months ended June 30, 2000
Net Income Average Shares Per Share Amount
---------------------------------------------------------
<S> <C> <C> <C>
Basic EPS
Net income available to common stockholders $ 478,000 807,968 $ 0.59
====
Effect of Dilutive Securities
Incremental shares under stock option plan -- --
Incremental shares related to MSBP -- --
-------------- ------------
Diluted EPS
Income available to common stockholders plus
assumed conversions $ 478,000 807,968 $ 0.59
============== ============ ====
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months ended June 30, 1999
Net Income Average Shares Per Share Amount
----------------------------------------------------------
<S> <C> <C> <C>
Basic EPS
Net income available to common stockholders $ 533,000 861,812 $ 0.62
Effect of Dilutive Securities
Incremental shares under stock option plan -- 5,716
Incremental shares related to MSBP -- 469
-------------- ------------
Diluted EPS
Income available to common stockholders plus
assumed conversions $ 533,000 867,997 $ 0.61
============== ============ ====
</TABLE>
Page 6
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED
AND SUBSIDIARY Management Discussion and Analysis of
Financial Condition and Results of Operations
June 30, 2000
FORWARD LOOKING STATEMENTS
--------------------------
The Company may from time to time make written or oral "forward-looking
statements", including statements contained in the Company's filings with the
Securities and Exchange Commission (including this Quarterly Report on Form
10-QSB and the exhibits thereto), in its reports to stockholders and in other
communications by the Company, which are made in good faith by the Company
pursuant to the "safe harbor" provision of the Private Securities Litigation
Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to changes based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economy in which the Company conducts operations;
the effects of, and changes in, trade, monetary and fiscal policies and laws,
including interest rate policies of the board of governors of the federal
reserve system, inflation, interest rates, market and monetary fluctuations; the
timely development of and acceptance of new products and services of the Company
and the perceived overall value of these products and services by users,
including the features, pricing and quality compared to competitors' products
and services; the willingness of users to substitute competitors' products and
services for the Company's products and services; the success of the Company in
gaining regulatory approval of its products and services, when required; the
impact of changes in financial services' laws and regulations (including laws
concerning taxes, banking, securities and insurance); technological changes;
acquisitions; changes in consumer spending and saving habits; and the success of
the Company at managing the risks resulting from these factors.
The Company cautions that the listed factors are not exclusive. The Company does
not undertake to update any forward-looking statement, whether written or oral,
that may be made from time to time by or on behalf of the Company.
GENERAL
-------
The Company is a unitary savings and loan holding company of the Bank. The
Company's assets are comprised of its investment in the Bank, loans to the ESOP
and to the Bank, and shares in three mutual funds. The Bank operates as a
traditional savings association, attracting deposit accounts from the general
public and using those deposits, together with other funds, primarily to
originate and invest in fixed-rate conventional loans secured by single-family
residential real estate. The Bank also originates home equity, consumer loans
and loans secured by savings accounts. The Bank invests in mortgage-backed
securities (including Real Estate Mortgage Investment Conduits ("REMICs")),
municipal bonds, short-term and medium-term U.S. Agency securities. To a lesser
extent, the Bank originates commercial real estate loans and business loans. The
Bank has hired a new commercial and agriculture loan officer. This loan officer
will focus on our existing commercial customers and build a relationship with
new commercial and agricultural customers with the focus of originating a larger
percentage of these types of loans in the portfolio. The Bank also utilizes
funds obtained from the Federal Home Loan Bank of Seattle ("FHLB") to purchase
investment securities and to originate loans.
The Bank's net income is dependent primarily on its net interest income, which
is the difference between interest income earned on its interest-earning assets
Page 7
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CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition
and Result of Operations
(Continued)
June 30, 2000
and interest expense paid on interest-bearing liabilities. Net interest income
is determined by (i) the difference between yields earned on interest-earning
assets and rates paid on interest-bearing liabilities (interest rate spread) and
(ii) the relative amounts of interest-earning assets and interest-bearing
liabilities. The Bank's interest rate spread is affected by regulatory, economic
and competitive factors that influence interest rates, loan demand and deposit
flows. To a lesser extent, the Bank's net income also is affected by the level
of non-interest income, which primarily consists of service charges and other
operating income. In addition, net income is affected by the level of
non-interest (general and administrative) expenses.
FINANCIAL CONDITION
-------------------
At June 30, 2000, assets totaled $63.586 million compared to total assets of
$63.661 million at September 30, 1999. Cash and cash equivalents decreased by
$650,000. Investments securities available-for-sale increased $6,000. Net loans
increased by $589,000. Other real estate owned decreased $73,000 as a result of
the sale of a repossessed property. Deposits decreased by $605,000 from $34.257
million at September 30, 1999 to $33.652 million at June 30, 2000 primarily as a
result of decreases in certificates of deposits and retirement accounts offset
by a increase in Now and money market checking accounts. Advances from the FHLB,
used for funding loans, increased by $800,000 to $16.400 million at June 30,
2000.
At June 30, 2000, stockholders' equity totaled $13.054 million or 20.53% of
total assets compared to $13.356 million or 20.98% of total assets at September
30, 1999. The decrease in stockholders' equity was primarily due to cash
dividends declared of $280,000, a decrease of $100,000 in accumulated other
comprehensive income and the repurchase of 43,190 shares of common stock, which
more than offset current period earnings of $478,000.
ASSET QUALITY
-------------
Non-performing assets totaled $14,000 at June 30, 2000, or 0.02% of total
assets. This compares to $141,000 at September 30, 1999 or 0.22% of total
assets. Non-performing loans at June 30, 2000 were comprised of three consumer
loans.
RESULTS OF OPERATIONS
---------------------
Comparison of Nine Months Ended June 30, 2000 and 1999.
-------------------------------------------------------
Net Income.
-----------
Net income for the nine months ended June 30, 2000 totaled $478,000
compared to $533,000 for the nine months ended June 30, 1999. Net income was
lower in 2000 than in 1999 primarily due to a $60,000 increase in the cost of
Federal Home Loan Bank of Seattle ("FHLB") advances and $19,000 increase in
compensation and benefits resulting primarily from the hiring of a new
commercial loan officer in April and other non-interest expense. Federal tax
expense was $35,000 lower in 2000 than in 1999 primarily due to a decrease in
net income before tax expense.
Interest Income.
----------------
For the nine months ended June 30, 2000 interest income totaled $3.259 million
compared to $3.254 million for the nine months ended June 30, 1999 for a
decrease of $5,000. A decrease in the volume of average earning assets from
$61.843 million for the nine months ended June 30, 1999 to $61.664 million for
the same period in 2000 caused interest income to decrease by $11,000. An
increase was experienced in the yield on average earning assets from 7.02% for
the nine months ended June 30, 1999 to 7.05% for the nine months ended June 30,
2000, which attributed to a $16,000 increase in interest income.
Page 8
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition
and Result of Operations
(Continued)
June 30, 2000
Interest Expense. Total interest expense increased by
$72,000 from $1.796 million for the nine months ended June 30, 1999 to $1.868
million for the same period in 2000. This was primarily a result of an increase
in the volume and the cost of average interest-bearing liabilities.
Interest expense for deposits increased by $12,000 from $1.188 million for the
nine months ended June 30,1999 to $1.2 million for the same period in 2000. The
cost of average interest-bearing deposits decreased from 4.80% for the nine
months ended June 30, 1999 to 4.76% for the nine months ended June 30, 2000,
which caused interest expense for deposits to decrease by $10,000. An increase
in the volume of average interest-bearing deposits from $32.987 million for the
nine months ended June 30, 1999 to $33.606 million for the nine months ended
June 30, 2000, resulted in a $22,000 increase in interest expense for deposits.
Interest expense for advances from the FHLB increased by $60,000 from $608,000
for the nine months ended June 30,1999 to $668,000 for the same period in 2000.
The cost of average interest-bearing advances from the FHLB increased from 5.42%
for the nine months ended June 30, 1999 to 5.63% for the same period in 2000.
This increase in the cost of average interest-bearing advances caused a $24,000
increase in interest expense. Average interest-bearing advances increased from
$14.945 million for the nine months ended June 30, 1999 to $15.820 million for
the nine month period ended June 30, 2000, resulting in a $36,000 increase in
interest expense on FHLB advances.
Net Interest Income. Net interest income decreased by $67,000 from $1.458
million for the nine months ended June 30, 1999 to $1.391 million for the nine
months ended June 30, 2000. The decrease in net interest income was primarily
caused by the gradual increase in interest rates on the investment portfolio and
the loan portfolio but was offset by the sharp increase in the cost of
liabilities. The increase in average interest-bearing liabilities was larger
than the growth in average interest-earning assets as evidenced by the decrease
of the ratio of average interest-earning assets to average interest-bearing
liabilities from 129.91% in 1999 to 124.71% in 2000, as a result net interest
income decreased.
Net interest margin declined from 3.14% for the nine months ended June 30, 1999
to 3.01% for the nine months ended June 30, 2000. The decrease in net interest
margin was primarily caused by the volume of average interest-bearing
liabilities increasing at a faster pace than the volume of average interest
earning assets for the periods covered.
Provisions for Loan Losses. The Company recorded a $6,000 provision for loan
losses for the nine months ended June 30, 1999; no provision was required to be
recorded during the nine months ended June 30, 2000. Loan charge-offs for the
nine months ended June 30, 2000 totaled $12,000 while recoveries totaled
$37,000. In 1999, loan charge-offs totaled $17,000 while recoveries totaled
$25,000. In determining the provision for loan losses, management analyzes,
among other things, the composition of the Bank's loan portfolio, market
conditions and the Bank's market area. Management has determined that the
reserve for loan losses was adequate to cover any anticipated credit losses.
There can be no assurance that the allowance for losses will be adequate to
cover losses which may in fact be realized in the future and that additional
provisions will not be required.
Total Non-interest Income. Non-interest income increased by $21,000 from $43,000
for the nine months ended June 30, 1999 to $64,000 for the nine months ended
June 30, 2000. Fees generated from service charges and other operating income
and no loss on sale of investment securities attributed to all the increase.
Page 9
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition
and Result of Operations
(Continued)
June 30, 2000
Total Non-interest Expense. Total non-interest expense increased by $50,000 from
$736,000 for the nine months ended June 30, 1999 to $786,000 for the nine months
ended June 30, 2000. The increase was primarily attributed to increases in
expenses related to compensation, occupancy and equipment, advertising, data
processing costs, other non-interest expenses and a decrease in FDIC insurance
premiums, and professional fees.
Provision for Income Taxes. The effective tax rate for the nine months ended
June 30, 2000 and 1999 was 28.55% and 29.78%, respectively.
Comparison of Three Months Ended June 30, 2000 and 1999.
--------------------------------------------------------
Net Income. Net income for the three months ended June 30, 2000 totaled $157,000
compared to $189,000 for the three months ended June 30, 1999. Net income was
lower in 2000 than in 1999 primarily due to a $35,000 increase in the cost of
Federal Home Loan Bank of Seattle ("FHLB") advances and a $22,000 increase in
compensation and benefits resulting primarily from the hiring of a new
commercial loan officer in April of 2000.
Interest Income. For the three months ended June 30, 2000, interest income
totaled $1.091 million compared to $1.076 million for the three months ended
June 30, 1999. A decrease in the volume of average earning assets from $62.558
million for the three months ended June 30, 1999 to $61.561 million for the same
period in 2000 caused interest income to decrease by $13,000. An increase was
experienced in the yield on average earning assets from 6.88% for the three
months ended June 30, 1999 to 7.09% for the three months ended June 30, 2000,
which attributed to a $28,000 increase in interest income.
Interest Expense. Total interest expense increased by $29,000 from $600,000 for
the three months ended June 30, 1999 to $629,000 for the same period in 2000.
This was primarily a result of an increase in the cost of average
interest-bearing liabilities.
Interest expense for deposits decreased by $6,000 from $389,000 for the nine
months ended June 30,1999 to $383,000 for the same period in 2000. The cost of
average interest-bearing deposits decreased slightly from 4.70% for the three
months ended June 30, 1999 to 4.65% for the three months ended June 30, 2000,
which caused interest expense for deposits to decrease by $4,000. A decrease in
the volume of average interest-bearing deposits from $33.100 million for the
three months ended June 30, 1999 to $32.966 million for the three months ended
June 30, 2000, resulted in a $2,000 decrease in interest expense for deposits.
Interest expense for advances from the FHLB increased by $35,000 from $211,000
for the nine months ended June 30,1999 to $246,000 for the same period in 2000.
The cost of average interest-bearing advances from the FHLB increased from 5.26%
for the three months ended June 30, 1999 to 6.02% for the same period in 2000.
This increase in the cost of average interest-bearing advances caused a $30,000
increase in interest expense. Average interest-bearing advances increased from
$16.041 million for the three month period ended June 30, 1999 to $16.334
million for the three month period ended June 30, 2000, resulting in a $5,000
increase in interest expense for advances.
Net Interest Income. Net interest income decreased by $14,000 from $476,000 for
the three months ended June 30, 1999 to $462,000 for the three months ended June
30, 2000. The decrease in net interest income was primarily caused by the
increase in the cost of interest-bearing liabilities. The decrease in
Page 10
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition
and Result of Operations
(Continued)
June 30, 2000
average interest-earning assets was not offset by a corresponding decrease in
average interest-bearing liabilities. as evidenced by the decrease of the ratio
of average interest-earning assets to average interest-bearing liabilities from
127.30% in 1999 to 124.87% in 2000. The increase in the cost of average
interest-bearing liabilities was the major factor for the decrease in net
interest income.
Net interest margin declined from 3.04% for the three months ended June 30, 1999
to 3.00% for the three months ended June 30, 2000. The decrease in net interest
margin was primarily caused by the disproportionate increase in interest-bearing
liabilities over interest-earning assets.
Provisions for Loan Losses. No provision was recorded during the three months
ended June 30, 2000 and 1999. Loan charge-offs for the three months ended June
30, 2000 totaled $8,000 while recoveries totaled $5,000. In 1999, loan
charge-offs totaled $6,000 while recoveries totaled $8,000.
Total Non-interest Income. Total non-interest income increased by $7,000 from
$15,000 for the three months ended June 30, 1999 to $22,000 for the three months
ended June 30, 2000 primarily due to a increase in customer service charges and
no loss on sale of investment securities during the three months ended June 30,
2000.
Total Non-interest Expense. Total non-interest expense increased by $52,000 from
$226,000 for the three months ended June 30, 1999 to $278,000 for the three
months ended June 30, 2000. There were increases in compensation, occupancy and
equipment, advertising, data processing fees, professional fees and other
non-interest expenses, while there was a slight decrease in FDIC deposit
insurance premiums.
Provision for Income Taxes. The effective tax rate for the three months ended
June 30, 2000 and 1999 was 23.79% and 28.68%, respectively. The lower tax rate
for the quarter ended June 30, 2000 resulted from a tax benefit not previously
recognized, which was recorded in the current quarter.
YEAR 2000
---------
Like many financial institutions, we rely on computers to conduct our business
and information systems processing. Industry experts were concerned that on
January 1, 2000, some computers might not be able to interpret the new year
properly, causing computer malfunctions. Some banking industry experts remain
concerned that some computers may not be able to interpret additional dates in
the year 2000 properly. We have operated and evaluated our computer operating
systems following January 1, 2000 and have not identified any errors or
experienced any computer system malfunctions. We will continue to monitor our
information systems to assess whether our systems are at risk of misinterpreting
any future dates and will develop appropriate contingency plans to prevent any
potential system malfunction or correct any system failures. The Company has not
been informed of any such problem experienced by its vendors or its customers,
nor by any of the municipal agencies that provide services to the Company.
Nevertheless, it is too soon to conclude that there will not by any problems
arising from the Year 2000 problem, particularly at some of the Company's
vendors. The Company will continue to monitor its significant vendors with
respect to Year 2000 problems they may encounter as those issues may effect the
Company's ability to continue operations, or might adversely affect the
Company's financial position, results of operations and cash flows. The Company
does not believe at this time that these potential problems will materially
impact the ability of the Company to continue its operations, however, no
assurance can be given that this will be the case.
Page 11
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition
and Result of Operations
(Continued)
June 30, 2000
The expectations of the Company contained in this section of Year 2000 are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve substantial risks and uncertainties
that may cause actual results to differ materially from those indicated by the
forward looking statements. All forward looking statements in the section are
based on information available to the Company on the date of this document, and
the Company assumes no obligation to update such forward looking statements.
CAPITAL COMPLIANCE AND LIQUIDITY
--------------------------------
Capital Compliance. The following table presents the Bank's compliance with its
regulatory capital requirements:
At June 30, 2000
--------------------------------
Percentage
Amount of Assets
---------- -------------
(Dollars in thousands)
GAAP Capital............................. $ 11,106
Tangible capital......................... $ 11,913 18.81%
Tangible capital requirement............. 947 1.50%
--------- --------
Excess................................... $ 10,966 17.31%
========= ========
Core capital............................. $ 11,913 18.81%
Core capital requirements................ 1,898 3.00%
--------- --------
Excess................................... $ 10,015 15.81%
========= ========
Total risk-based capital (1)............. $ 12,187 48.31%
Total risk-based capital requirement (1). 2,017 8.00%
--------- --------
Excess (1)............................... $ 10,170 40.31%
========= ========
1) Based on risk-weighted assets of $25,228
Management believes that under current regulations, the Bank will continue to
meet its minimum capital requirements in the foreseeable future. Events beyond
the control of the Bank, such as increased interest rates or a downturn in the
economy in areas in which the Bank operates could adversely affect future
earnings and, as a result, the ability of the Bank to meet its future minimum
capital requirements.
The Bank, before and after any proposed capital distributions must meet or
exceed all capital requirements, may make capital distributions with prior
notice to the Office of Thrift Supervision during any calendar year up to a
total of current year net income and the preceding two years net income less
dividends paid during the previous two years. The Bank currently exceeds all
capital requirements and has been assessed as "well-capitalized" under the
regulatory guidelines.
Liquidity. The Bank's liquidity is a measure of its ability to fund loans, pay
withdrawals of deposits,
Page 12
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition
and Result of Operations
(Continued)
June 30, 2000
and other cash outflows in an efficient, cost effective manner. The Bank's
primary source of funds are deposits and scheduled amortization and prepayment
of loans. During the past several years, the Bank has used such funds primarily
to fund maturing time deposits, pay savings withdrawals, fund lending
commitments, purchase new investments, and increase liquidity. The Bank funds
its operations internally but supplements with borrowed funds from the FHLB of
Seattle. As of June 30, 2000 such borrowed funds totaled $16.400 million. Loan
payments and maturing investments are greatly influenced by general interest
rates, economic conditions and competition.
The Bank is required under federal regulations to maintain certain specified
levels of "liquid investments," which include certain United States government
obligations and other approved investments. Current regulations require the Bank
to maintain liquid assets of not less than 4% of its net withdrawable accounts
plus short-term borrowings. Those levels may be changed from time to time by the
regulators to reflect current economic conditions. The Bank has generally
maintained liquidity far in excess of regulatory requirements. The Bank's
regulatory liquidity was 68.07% and 62.37% at June 30, 2000 and 1999,
respectively.
The amount of certificate accounts and FHLB advances which are scheduled to
mature during the twelve months ending June 30, 2001 is approximately $13.96
million and $6.70 million, respectively. To the extent that these deposits do
not remain at the Bank upon maturity, the Bank believes that it can replace
these funds with deposits, excess liquidity, FHLB advances or outside
borrowings. It has been the Bank's experience that a substantial portion of such
maturing deposits remain at the Bank. No assurances, however, can be made that
deposits can be maintained in the future without further increasing the cost of
funds if interest rates continue to increase.
At June 30, 2000, the Bank had loan commitments outstanding of $412,000. Funds
required to fill these commitments are derived primarily from current excess
liquidity, deposit inflows or loan and investment and mortgage-backed security
repayments.
The Company's primary source of liquidity on a stand alone basis is dividends
from the Bank. As indicated above under Capital Compliance, dividends paid by
the Bank are subject to regulatory restrictions. The Bank has paid $760,000 in
dividends for the nine months ended June 30, 2000, to the Company for the
purpose of repurchasing common stock and the payment of cash dividends to
stockholders.
IMPACT OF INFLATION AND CHANGING PRICES
---------------------------------------
The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with GAAP, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of the Company's operations. Unlike most industrial
companies, nearly all the assets and liabilities of the Company are financial.
As a result, interest rates have a greater impact on the Company's performance
than do the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the prices of
goods and services.
Page 13
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition
and Result of Operations
(Continued)
June 30, 2000
KEY OPERATING RATIOS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------------------- -----------------------------------
2000 (1) 1999 (1) 2000 (1) 1999 (1)
--------------- --------------- --------------- ---------------
(Dollars in thousands, except per share data)
(Unaudited)
<S> <C> <C> <C> <C>
Return on average assets.......................... 1.00% 1.14 % 1.02 % 1.16%
Return on average equity.......................... 4.88% 5.05 % 4.55 % 5.10%
Interest rate spread.............................. 1.99% 2.03 % 2.02 % 2.03%
Net interest margin............................... 3.00% 3.14 % 3.01 % 3.19%
Non-interest expense to average assets............ 1.77% 1.70 % 1.62 % 1.63%
Net charge-offs to average outstanding loans...... 0.01% (0.01)% 0.09 % 0.04%
At June 30, 2000 At September 30,
1999
------------------ ------------------
Nonaccrual and 90 days past due loans............. $ 12 $ 68
Repossessed real estate, held under judgment..... -- 73
--------------- ---------------
Total nonperforming assets...................... 12 141
Nonperforming loans to total loans................ 0.04% 0.47%
Nonperforming assets to total assets.............. 0.02% 0.22%
Book value per share (2).......................... $15.44 $15.10
</TABLE>
----------------
(1) The ratios for the three- and nine-month periods are annualized.
(2) The number of shares outstanding as of June 30, 2000 and September 30, 1999
was 845,344 and 884,534, respectively. These include shares purchased by
the ESOP.
Page 14
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
Neither the Company nor the Bank was engaged in any legal
proceeding of a material nature at June 30, 2000. From time to
time, the Company is a party to legal proceedings in the
ordinary course of business wherein it enforces its security
interest in loans.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
The Company announced that the board of directors has authorized the
repurchase of up to 50,000 shares of the Company's common stock. The
repurchase program follows the repurchase of 194,202 shares of common
stock since the Bank's mutual-to-stock conversion in March 1996.
The repurchase will be made in open-market transactions over a one-year
period subject to the availability of stock and pursuant to the terms
of the Company's repurchase plan. Repurchased shares will become
authorized but unissued shares and will be utilized for general
corporate and other purposes, including the issuance of shares in
connection with the exercise of stock options. Any repurchase could
have an adverse effect on the Company's ability to be listed on the
Nasdaq Small Cap market.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 27 -- Financial Disclosure Schedule (in electronic filing
only)
(b) Reports on Form 8-K
None.
Page 15
<PAGE>
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRAZY WOMAN CREEK BANCORP INCORPORATED
Date: August 10, 2000 By: /s/ Deane D. Bjerke
-------------------
Deane D. Bjerke
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 10, 2000 By: /s/ John B. Snyder
------------------
John B. Snyder
Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
