U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number: 0-25284
BIG SKY BANCORP, INC.
---------------------
(Exact name of registrant as specified in its charter)
STATE OF DELAWARE 81-0494188
----------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
711 SOUTH FIRST STREET HAMILTON, MT 59840
------------------------------------ -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (406) 363-4400
NOT APPLICABLE
- --------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X]. No [ ].
Indicate the number of shares outstanding of the issuer's classes of common
stock, as of the latest practicable date.
CLASS OUTSTANDING JULY 31, 1997
- ------------------------- -------------------------
Common Stock, par value $.01 308,721
per share
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FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 1997
INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBER
Consolidated Statements of Financial Condition 1
Consolidated Statements of Income 2
Consolidated Statements of Cash Flows 3-4
Notes to Financial Statements 5
Management's Discussion and Analysis of Consolidated
Financial Statements 6-10
PART II - OTHER INFORMATION 11
SIGNATURES 12
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PART I - FINANCIAL INFORMATION
BIG SKY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS JUNE 30, 1997 MARCH 31, 1997
- ------ ----------- -----------
Cash ( including interest-bearing accounts
of $ 270,000 and $ 1,813,000 ) $ 1,365,000 $ 3,017,000
Investment securities available for sale, at
fair value ( cost $ 135,000 and $ 134,000 ) 430,000 359,000
Mortgage-backed securities available for sale,
at fair value ( cost $ 7,328,000 and
$ 7,402,000 ) 7,383,000 7,420,000
Investment securities held to maturity, at
amortized cost ( fair value $ 13,666,000
and $ 12,911,000 ) 13,815,000 13,273,000
Mortgage-backed securities held to maturity, at
amortized cost (fair value $ 581,000 and
$606,000 ) 550,000 575,000
Loans receivable,net 35,295,000 35,315,000
Accrued interest receivable 469,000 315,000
Real estate owned --- ---
Investment in Federal Home Loan Bank Stock 1,897,000 1,862,000
Premises and equipment 1,315,000 1,335,000
Prepaid expenses and other assets 106,000 101,000
----------- -----------
TOTAL ASSETS $62,625,000 $63,572,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES
Deposits $48,939,000 $50,072,000
Advances from Federal Home Loan Bank of Seattle 5,000,000 5,000,000
Advances from borrowers for taxes and insurance 414,000 527,000
Accrued expenses and other liabilities 150,000 161,000
Deferred taxes 737,000 638,000
----------- -----------
TOTAL LIABILITIES 55,240,000 56,398,000
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, ( $0.01 par value per share;
Authorized 1,500,000 shares; Issued
and outstanding, 308,721 ) 3,000 3,000
Capital surplus 610,000 610,000
Unrealized appreciation on securities
available for sale 213,000 149,000
Retained earnings, substantially restricted 6,559,000 6,412,000
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 7,385,000 7,174,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $62,625,000 $63,572,000
=========== ===========
1
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BIG SKY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996
( Unaudited )
INTEREST INCOME: ------------ ------------
Loans receivable $ 805,000 $ 867,000
Investments securities 211,000 191,000
Mortgage-backed securities 139,000 60,000
FHLB stock dividends and other 57,000 66,000
------------ ------------
Total interest income 1,212,000 1,184,000
INTEREST EXPENSE 649,000 620,000
------------ ------------
Net interest income 563,000 564,000
Provision for loan losses (8,000) (10,000)
------------ ------------
Net interest income after provision
for loan losses 555,000 554,000
------------ ------------
OTHER INCOME:
Rental income 32,000 34,000
Loan fees and service charges 19,000 19,000
Other 1,000 1,000
------------ ------------
Total other income 52,000 54,000
------------ ------------
OTHER EXPENSES:
Salaries and employee benefits 194,000 174,000
Occupancy 50,000 44,000
FDIC/SAIF insurance 13,000 36,000
Outside services 26,000 26,000
Advertising 10,000 10,000
Other expense 66,000 74,000
------------ ------------
Total other expense 359,000 364,000
------------ ------------
Income before income taxes 248,000 244,000
Income tax expense 101,000 95,000
------------ ------------
NET INCOME $ 147,000 $ 149,000
============ ============
NET INCOME PER SHARE $ .44 $ .46
============ ============
2
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BIG SKY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996
( Unaudited )
OPERATING ACTIVITIES: ---------- ----------
Net income $ 147,000 $ 149,000
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 21,000 17,000
Provision for loan losses 8,000 10,000
Federal Home Loan Bank stock dividend (35,000) (33,000)
Cash provided (used) by changes in operating
assets and liabilities:
Accrued interest receivable (154,000) (147,000)
Prepaid expenses and other assets (5,000) (10,000)
Accrued expenses and other liabilities (11,000) 1,000
Deferred taxes 99,000 93,000
Deferred loan fees, net 3,000 4,000
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 73,000 84,000
INVESTING ACTIVITIES:
Principal repayments on loans 2,237,000 3,196,000
Loan originations (2,267,000) (2,640,000)
Principal repayments on mortgage-backed
securities available for sale 26,000 72,000
Principal repayments on mortgage-backed
securities held to maturity 75,000 40,000
Proceeds from maturity of investment
securities 450,000 --
Purchase of investment securities (1,000,000) (1,095,000)
---------- ----------
Net cash provided by investing activities (479,000) (427,000)
---------- ----------
3
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BIG SKY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS ( Continued )
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996
( Unaudited )
FINANCING ACTIVITIES: ---------- ----------
Net decrease in deposit accounts due on demand (675,000) (312,000)
Net decrease in certificate accounts (458,000) (608,000)
Net decrease in advances from borrowers (113,000) (126,000)
---------- ----------
Net cash used in financing activities (1,246,000) (1,046,000)
---------- ----------
NET DECREASE IN CASH (1,652,000) (1,389,000)
CASH, BEGINNING OF PERIOD 3,017,000 3,058,000
---------- ----------
CASH, END OF PERIOD $1,365,000 $1,669,000
========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Fair value adjustment to securities available
for sale $ 349,000 $ 257,000
Income tax effect related to fair value
adjustment (136,000) (100,000)
Cash paid for:
Interest 653,000 627,000
Income taxes 44,000 --
4
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BIG SKY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The information contained in the financial statements is unaudited. In the
opinion of management, the financial statements contain all adjustments
(none of which were other than recurring entries) necessary for a fair
statement of the results of operations for the interim period. The results
of operations for the three months ended June 30, 1997 are not necessarily
indicative of the results which may be expected for the entire fiscal year.
2. NET INCOME PER SHARE
Net income per share is based on net income and the weighted average
number of shares outstanding during the period. The dilutive effect of
outstanding stock options is included in earnings per share.
3. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Corporation and its wholly-owned subsidiary, First Federal Savings and
Loan Association of Montana ("Association"). Significant intercompany
balances and transactions have been eliminated in the consolidation.
4. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes requirements for
disclosure of comprehensive income and becomes effective for the Company's
fiscal year ending March 31, 1999. Reclassification of earlier financial
statements for comparative purposes is required.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards
for disclosure about operating segments in annual financial statements and
selected information in interim financial reports. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. This statement supercedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise." The new
standard becomes effective for the Company's fiscal year ending March 31,
1999, and requires that comparative information from earlier years be
restated to conform to the requirements of this standard.
The adoption of these statements is not expected to be material to the Company.
5
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL STATEMENTS
GENERAL
Total assets decreased by $ 947,000, or 1.49%, to $ 62,625,000 at June 30, 1997
as compared to $ 63,572,000 at March 31, 1997.
Deposits decreased by $ 1,133,000, or 2.26%, to $ 48,939,000 at June 30, 1997 as
compared to $ 50,072,000 at March 31, 1997.
Increased competition from commercial banks paying above-market interest rates
in order to increase their market share of deposits contributed to the decrease
in deposits during the three months ending June 30, 1997, from March 31, 1997.
In addition, the disintermediation of funds from insured deposits into mutual
funds and the stock market, which has been ongoing for the past several years,
continued.
Net loans decreased by $ 20,000, or .06%, to $ 35,295,000 at June 30, 1997 as
compared to $ 35,315,000 at March 31, 1997.
Investments and mortgage-backed securities increased by $ 551,000, or 2.55%, to
$ 22,178,000 at June 30, 1997, as compared to $ 21,627,000 at March 31, 1997.
Cash decreased by $ 1,652,000, or 54.76%, to $ 1,365,000 at June 30, 1997, as
compared to $ 3,017,000 at March 31, 1997. The decrease in cash was primarily
the result of the reduction in deposits during the period.
CAPITAL POSITION
The Corporation's capital increased by $ 211,000, or 2.94%, to $ 7,385,000 at
June 30, 1997, from $ 7,174,000 at March 31, 1997.
The Association's capital position relative to its minimum capital requirements
under the Financial institution's Reform, Recovery and Enforcement Act of 1989
(FIRREA) at June 30, 1997 was as follows:
Amount Percentage of
Assets
Tangible capital..................... $ 6,892,000 11.1 %
Minimum tangible capital requirement. 934,000 1.5 %
--------- ----
Excess............................... $ 5,958,000 9.6 %
========= ====
Core capital......................... $ 6,892,000 11.1 %
Minimum core capital requirement..... 1,868,000 3.0 %
--------- ----
Excess............................... $ 5,024,000 8.1 %
========= ====
6
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Risk-based capital................... $ 7,229,000 27.0 %
Minimum risk-based capital requirement. 2,142,000 8.0 %
--------- ----
Excess.................................$ 5,087,000 19.0 %
========= ====
LIQUIDITY
The Company's liquidity ratio increased to 19.67% at June 30, 1997, from 19.56%
at March 31, 1997. The Company is required to maintain cash and certain
investment securities in an amount equal to 5% of its deposit accounts and
short-term borrowings.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan loss reserves was $ 516,500 at June 30, 1997, as compared
to $ 508,000 at March 31, 1997. The allowance is based upon management's
consideration of current and anticipated economic conditions which may affect
the ability of the borrowers in the loan portfolio to repay the loans.
Management also reviews individual loans for which full collectibility may not
be reasonably assured and considers, among other matters, the estimated net
realizable value of the underlying collateral. The increase in the allowance for
potential loan losses was implemented by management as a prudent risk-management
strategy. Management does not believe that any significant changes in portfolio
risk have occurred during the three month period ended June 30, 1997, as
compared to March 31, 1997.
COMPARISON OF THE THREE MONTHS ENDED
JUNE 30, 1997 TO THE THREE MONTHS ENDED JUNE 30, 1996
GENERAL
Total assets increased by $ 2,510,000, or 4.18%, to $ 62,625,000 at June 30,
1997, from $ 60,115,000 at June 30, 1996.
Cash decreased by $ 304,000, or 18.21%, to $ 1,365,000 at June 30, 1997, as
compared to $ 1,669,000 at June 30, 1996. The decrease in cash was primarily the
result of funding new loans and the reduction of deposits during the period.
Investments and mortgage-backed securities increased by $ 4,233,000, or 23.59%,
to $ 22,178,000 at June 30, 1997, from $ 17,945,000 at June 30, 1996. Advances
from the FHLB were utilized to purchase mortgage-backed securities for the
investment portfolio.
Net loans decreased by $ 1,532,000, or 4.16%, to $ 35,295,000 at June 30, 1997,
from $ 36,827,000 at June 30, 1996.
7
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Total deposits decreased by $ 2,984,000, or 5.75%, to $ 48,939,000 at June 30,
1997, from $ 51,923,000 at June 30, 1996.
Increased competition from commercial banks paying above-market interest rates
in order to increase their market share of deposits contributed to the decrease
in deposits during the three months ending June 30, 1997 as compared to the same
period last year. In addition, the disintermediation of funds from insured
deposits into mutual funds and the stock market, which has been ongoing for the
past several years, continued.
At June 30, 1997, advances from the Federal Home Loan Bank of Seattle ("FHLB")
totalled $ 5,000,000. There were no advances from the FHLB outstanding at June
30, 1996. Advances from the FHLB were utilized to fund the purchase of
Collateralized Mortgage Obligations ("CMO's") for the mortgage-backed securities
portfolio.
The Corporation's capital increased by $ 444,000, or 6.40%, to $ 7,385,000 at
June 30, 1997, from $ 6,941,000 at June 30, 1996.
The Company did not have any real estate owned as a result of foreclosure at
June 30, 1997 or June 30, 1996.
NET INCOME
Net income for the three months ended June 30, 1997 decreased by $ 2,000, or
1.34%, to $ 147,000, from $ 149,000 for the three months ended June 30, 1996.
Earnings per share decreased by $ .02, or 4.35%, to $ .44 for the three months
ended June 30, 1997, as compared to $ .46 for the three month period ended June
30, 1996.
Total interest income for the three month period ending June 30, 1997 increased
by $ 28,000, or 2.36%, to $ 1,212,000, as compared to $ 1,184,000 for the three
month period ending June 30, 1996.
Interest and fees on loans decreased by $ 62,000, or 7.15%, to $ 805,000 for the
three month period ending June 30, 1997, as compared to $ 867,000 for the three
month period ending June 30, 1996.
Interest on investments increased by $ 20,000, or 10.47%, to $ 211,000 for the
three month period ending June 30, 1997, as compared to $ 191,000 for the same
period last year.
Interest on mortgage-backed securities increased by $ 79,000, or 131.67%, to $
139,000 for the three month period ending June 30, 1997, as compared to $ 60,000
for the three month period ending June 30, 1996. The increase in interest on
mortgage-backed securities was primarily the result of using advances from the
FHLB to increase the level of the mortgage-backed securities portfolio .
Other interest and dividends decreased by $ 9,000, or 13.64%, to
8
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$ 57,000 for the three month period ending June 30, 1997, as compared to $
66,000 for the three month period ending June 30, 1996.
Total other income decreased by $ 2,000, or 3.70%, to $ 52,000 for the three
month period ending June 30, 1997, as compared to $ 54,000 for the three month
period ending June 30, 1996.
Loan fees and service charges remained the same at $ 19,000, for the quarters
ending June 30, 1997, and June 30, 1996.
Rental income decreased by $ 2,000, or 5.88%, to $ 32,000 for the three month
period ending June 30, 1997, as compared to $ 34,000 for the three month period
ending June 30, 1996.
Interest expense increased by $ 29,000, or 4.68%, for the three month period
ending June 30, 1997, as compared to $ 620,000 for the three month period ending
June 30, 1996.
Total other expense decreased by $ 5,000, or 1,37%, to $ 359,000 for the quarter
ending June 30, 1997, from $ 364,000 for the comparable period in 1996.
Salary and employee benefit expense increased by $ 20,000, or 11.49%, to $
194,000 for the three month period ended June 30, 1997, as compared to $ 174,000
for the comparable period last year.
The increase was primarily due to annual salary increases for officers and
employees effective during the quarter ending June 30, 1997, and additional
compensation in the form of a cash bonus to officers based on the financial
performance of the Company during the fiscal year ended March 31, 1997 and other
factors. No cash bonuses were paid during the corresponding quarter ending June
30, 1996.
Occupancy expense increased by $ 6,000, or 13.64%, to $ 50,000 for the three
month period ended June 30, 1997, as compared to $ 44,000 for the three month
period ended June 30, 1996.
FDIC/SAIF insurance expense decreased by $ 23,000, or 63.89%, to $ 13,000 for
the three month period ending June 30, 1997, as compared to the three month
period ending June 30, 1996. The decrease was primarily the result of a decrease
in deposit insurance premiums resulting from the industry wide assessment to
recapitalize the SAIF which occurred on September 30, 1996. In addition, deposit
volumes were lower during the three month period ending June 30, 1997, as
compared to the corresponding period last year.
Outside services expense remained the same at $ 26,000 for the three month
periods ended June 30, 1997 and June 30, 1996.
Advertising expense remained the same at $ 10,000 for each of the quarters
ending June 30, 1997 and June 30, 1996.
9
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Other expense decreased by $ 8,000, or 10.81%, to $ 66,000 for the three month
period ended June 30, 1997, as compared to $ 74,000 for the three month period
ended June 30, 1996.
The decrease was due to additional consulting fees connected with Corporate
strategic planning activities, and the cost of an examination of the holding
company by the Office of Thrift Supervision during the quarter ended June 30,
1996. No comparable expenses were incurred during the quarter ended June 30,
1997.
Expense for special securities counsel increased, however the increase was more
than offset by reductions in expenses for stationery and supplies, charitable
contributions, checking account expense and other operating expenses during the
three month period ending June 30, 1997, as compared to the same period last
year.
The effective income tax rate increased to 40.7% from 38.9% due to changes in
the composition of the Company's permanent and temporary tax items.
NET INTEREST INCOME
Net interest income decreased by $ 1,000, or .18%, to $ 563,000 for the three
month period ending June 30, 1997, from $ 564,000 for the three month period
ending June 30, 1996.
The cost of funds increased by 3 basis points, to 4.78% at June 30, 1997, from
4.75% at June 30, 1996. The yield on earning assets decreased by 7 basis points,
to 7.69% at June 30, 1997, from 7.76% at June 30, 1996. As a result, interest
spread decreased by 10 basis points, to 2.91% at June 30, 1997, from 3.01% at
June 30, 1996.
Average net interest margin decreased by 7 basis points, to 3.45% for the three
month period ending June 30, 1997, from 3.52% for the three month period ending
June 30, 1996.
PROVISION FOR LOAN LOSSES
Provision for loan losses was $ 8,000 for the three month period ending June 30,
1997, as compared to $ 10,000 for the three month period ending June 30, 1996.
10
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Periodically, there have been various claims and lawsuits involving the
Association, such as claims to enforce liens, condemnation proceedings on
properties in which the Association holds security interests, claims involving
the making and servicing of real property loans and other issues incident to the
Association's business. In the opinion of management and the Association's legal
counsel, no significant loss is expected from any of such pending claims or
lawsuits. Aside from such pending claims and lawsuits which are incident to the
conduct of the Association's ordinary business, the Association is not a party
to any material pending legal proceedings.
ITEM 2 - CHANGES IN SECURITIES
None.
ITEM 3 - DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Association's Annual Meeting of Stockholders was held on July 30, 1997. At
this meeting, stockholders : (a) elected, as director, nominee Robert K. Ford by
a vote of 229,356 shares "FOR", and 10 shares "WITHHELD"; (b) elected, as
director, nominee Collette E. Maxwell by a vote of 229,156 shares "FOR", and 210
shares "WITHHELD"; (c) ratified the adoption of the Big Sky Bancorp, Inc. 1997
Management Recognition and Development Plan by a vote of 176,386 vote "FOR",
47,930 votes "AGAINST", 2,200 votes "ABSTAIN" and 2,840 "BROKER NO VOTES"; (d)
ratified the appointment of Deloitte & Touche as independent auditors for the
fiscal year ending March 31, 1998 by a vote of 229,251 votes "FOR", 0 votes
"AGAINST", and 115 votes "ABSTAIN".
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: none
(b)Reports on Form 8-K: No reports on Form 8-K have been filed during the
quarter for which this report is filed.
11
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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.
Big Sky Bancorp, Inc.
---------------------
(Registrant)
DATE: August 6, 1997 BY:/s/MICHAEL E. MCKEE
--------------------------------
Michael E. McKee
President
(Duly Authorized Officer)
BY:/s/ERNEST M. KWIATKOWSKI
--------------------------------
Ernest M. Kwiatkowski
Vice President - Treasurer
(Principal Financial Officer)
12
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<S> <C>
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<PERIOD-END> JUN-30-1997
<CASH> 1365
<INT-BEARING-DEPOSITS> 270
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7813
<INVESTMENTS-CARRYING> 14365
<INVESTMENTS-MARKET> 14247
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<ALLOWANCE> 516
<TOTAL-ASSETS> 62625
<DEPOSITS> 48939
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1301
<LONG-TERM> 5000
0
0
<COMMON> 3
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