FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- ----- THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 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 January 31, 1998
- ------------------------- ----------------------------
Common Stock, par value $ .01 323,721
per share
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FORM 10-QSB
FOR THE QUARTER ENDED December 31, 1997
-----------------
INDEX
PAGE NO.
PART I - Financial Information
Statements of Financial Condition 1
Statements of Income 2
Statements of Cash Flows 4-5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Consolidated Financial Statements 7-13
PART II - Other Information 14
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PART I - FINANCIAL INFORMATION
BIG SKY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS DECEMBER 31, 1997 MARCH 31, 1997
- ------ (Unaudited)
Cash (including interest-bearing accounts
of $ 625,000 and $ 1,813,000) $ 2,171,000 $ 3,017,000
Investment securities available for sale, at
fair value (cost $ 139,000 and $ 134,000) 497,000 359,000
Mortgage-backed securities available for sale,
at fair value (cost $ 7,641,000 and
$ 7,402,000) 7,769,000 7,420,000
Investment securities held to maturity, at
amortized cost (fair value $ 11,189,000
and $ 12,911,000) 11,221,000 13,273,000
Mortgage-backed securities held to maturity, at
amortized cost (fair value $ 522,000 and
$606,000) 492,000 575,000
Loans receivable,net 36,148,000 35,315,000
Accrued interest receivable 449,000 315,000
Real estate owned --- ---
Investment in Federal Home Loan Bank Stock 1,974,000 1,862,000
Premises and equipment 1,275,000 1,335,000
Prepaid expenses and other assets 107,000 101,000
------------- -------------
TOTAL ASSETS $ 62,103,000 $ 63,572,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES
Deposits $ 48,037,000 $ 50,072,000
Advances from Federal Home Loan Bank of
Seattle 5,000,000 5,000,000
Advances from borrowers for taxes and
insurance 258,000 527,000
Accrued expenses and other liabilities 325,000 161,000
Deferred taxes 729,000 638,000
------------- -------------
TOTAL LIABILITIES 54,349,000 56,398,000
------------- -------------
STOCKHOLDERS' EQUITY
Common stock, ($0.01 par value per share;
Authorized 1,500,000 shares; Issued
and outstanding, 323,721 and 308,721) 3,000 3,000
capital surplus 922,000 610,000
Unearned portion of restricted stock issued
for future service (305,000) ---
Unrealized appreciation on securities
available for sale, net of tax 297,000 149,000
Retained earnings, substantially restricted 6,837,000 6,412,000
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 7,754,000 7,174,000
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 62,103,000 $ 63,572,000
============= =============
1
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BIG SKY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
(Unaudited)
INTEREST INCOME:
Loans receivable $ 811,000 $ 809,000
Investments securities 178,000 207,000
Mortgage-backed securities 141,000 55,000
FHLB stock dividends and other 61,000 57,000
------------ -------------
Total interest income 1,191,000 1,128,000
INTEREST EXPENSE 658,000 599,000
------------ -------------
Net interest income 533,000 529,000
Provision for loan losses (7,000) (10,000)
------------ -------------
Net interest income after
provision for loan losses 526,000 519,000
------------ -------------
OTHER INCOME:
Rental income 18,000 20,000
Loan fees and service charges 19,000 18,000
Other 3,000 2,000
------------ -------------
Total other income 40,000 40,000
------------ -------------
OTHER EXPENSES:
Salaries and employee benefits 160,000 161,000
Occupancy 47,000 47,000
FDIC insurance 13,000 36,000
Outside services 26,000 29,000
Advertising 18,000 17,000
Other expense 72,000 67,000
------------ -------------
Total other expense 336,000 357,000
------------ -------------
Income before income taxes 230,000 202,000
Income tax expense 97,000 79,000
------------ -------------
NET INCOME $ 133,000 $ 123,000
============ =============
EARNINGS PER SHARE $ .42 $ .40
============ =============
WEIGHTED AVERAGE SHARES OUTSTANDING
FOR EARNINGS PER SHARE 315,764 308,398
EARNINGS PER SHARE, ASSUMING
DILUTION $ .39 $ .38
============ =============
WEIGHTED AVERAGE SHARES
OUTSTANDING FOR
EARNINGS PER SHARE,
ASSUMING DILUTION 337,924 324,821
2
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BIG SKY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
(Unaudited)
INTEREST INCOME:
Loans receivable $ 2,426,000 $ 2,531,000
Investments securities 585,000 607,000
Mortgage-backed securities 417,000 173,000
FHLB stock dividends and other 172,000 175,000
------------ -------------
Total interest income 3,600,000 3,486,000
INTEREST EXPENSE 1,963,000 1,835,000
------------ -------------
Net interest income 1,637,000 1,651,000
Provision for loan losses (22,000) (31,000)
------------ -------------
Net interest income after
provision for loan losses 1,615,000 1,620,000
------------ -------------
OTHER INCOME:
Rental income 72,000 75,000
Loan fees and service charges 58,000 56,000
Gain on sale of investments --- 46,000
Other 4,000 4,000
------------ -------------
Total other income 134,000 181,000
------------ -------------
OTHER EXPENSES:
Salaries and employee benefits 515,000 524,000
Occupancy 147,000 134,000
FDIC insurance 40,000 108,000
SAIF assessment --- 345,000
Outside services 78,000 83,000
Advertising 34,000 35,000
Other expense 207,000 200,000
------------ -------------
Total other expense 1,021,000 1,429,000
------------ -------------
Income before income taxes 728,000 372,000
Income tax expense 303,000 145,000
------------ -------------
NET INCOME $ 425,000 $ 227,000
============ =============
EARNINGS PER SHARE $ 1.36 $ .74
============ =============
WEIGHTED AVERAGE SHARES
OUTSTANDING FOR
EARNINGS PER SHARE 311,743 308,398
EARNINGS PER SHARE, ASSUMING
DILUTION $ 1.28 $ .70
============ =============
WEIGHTED AVERAGE SHARES
OUTSTANDING FOR
EARNINGS PER SHARE,
ASSUMING DILUTION 332,834 325,229
3
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BIG SKY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
(Unaudited)
OPERATING ACTIVITIES:
Net income $ 425,000 $ 227,000
ADJUSTMENTS TO RECONCILE NET
INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Depreciation and amortization 61,000 54,000
Provision for loan losses 22,000 31,000
Gain on sale of investments -- (46,000)
Federal Home Loan Bank stock
dividend (112,000) (104,000)
Cash provided (used) by
changes in operating
assets and liabilities:
Accrued interest receivable (134,000) (125,000)
Prepaid expenses and other
assets (6,000) 33,000
Accrued expenses and other
liabilities 164,000 (24,000)
Deferred taxes 91,000 (18,000)
Deferred loan fees, net (12,000) 27,000
---------- ----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 499,000 55,000
INVESTING ACTIVITIES:
Principal repayments on loans 5,082,000 6,014,000
Loan originations (6,007,000) (4,546,000)
Principal repayments on
mortgage-backed securities
available for sale 260,000 245,000
Purchase of mortgage-backed
securities available
for sale (500,000) --
Principal repayments on
mortgage-backed securities
held to maturity 85,000 90,000
Proceeds from maturity of
investment securities
held to maturity 5,145,000 2,000,000
Purchase of investment securities
held to maturity (3,100,000) (1,695,000)
Purchase of investment securities
available for sale (5,000) --
Purchase of premises and
equipment (1,000) (58,000)
---------- ----------
Net cash provided by
investing activities 959,000 2,151,000
---------- ----------
4
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BIG SKY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
NINE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
(Unaudited)
FINANCING ACTIVITIES:
Net decrease in deposit
accounts due on demand (1,133,000) (108,000)
Net decrease in
certificate accounts (902,000) (2,634,000)
Net decrease in advances
from borrowers (269,000) (304,000)
---------- ----------
Net cash used in
financing activities (2,304,000) (3,046,000)
---------- ----------
NET DECREASE IN CASH (846,000) (840,000)
CASH, BEGINNING OF PERIOD 3,017,000 3,058,000
---------- ----------
CASH, END OF PERIOD $2,171,000 $2,218,000
========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Fair value adjustment to
securities available
for sale 486,000 $ 296,000
Income tax effect related
to fair value
adjustment (189,000) (115,000)
Cash paid for:
Interest 1,974,000 1,856,000
Income taxes 307,000 177,000
5
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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 month and nine month periods ended December 31, 1997 are not
necessarily indicative of the results which may be expected for the entire
fiscal year.
2. Earnings Per Share
Earnings per share is computed in accordance with SFAS No. 128, "Earnings per
Share", which was adopted effective December 31, 1997.
"Earnings per share-assuming dilution" reflects the weighted average
incremental shares assumed issued upon exercise of stock options for all
periods presented.
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.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL STATEMENTS
Special Note Regarding Forward-Looking Statements
This report contains certain "forward-looking statements." The Company
desires to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 and is including this statement for
the express purpose of availing itself of the protections of such safe harbor
with respect to all of such forward-looking statements, which are included in
Management's Discussion and Analysis, describe future plans or strategies and
include the Company's expectations of future financial results. The words
"believe," "expect," "anticipate," "estimate," "project," and similar
expressions identify forward-looking statements. The Company's ability to
predict results or the effect of future plans or strategies is inherently
uncertain. Factors which could affect actual results include interest rate
trends, the general economic climate in the Company's market area and the
country as a whole, loan delinquency rates, and changes in federal and state
regulation. These factors should be considered in evaluating the
forward-looking statements, and undue reliance should not be placed on such
statements.
General
Total assets decreased $ 1,469,000, or 2.31%, to $ 62,103,000 at December 31,
1997, as compared to $ 63,572,000 at March 31, 1997.
Deposits decreased $ 2,035,000, or 4.06%, to $ 48,037,000 at December 31,
1997, as compared to $ 50,072,000 at March 31, 1997.
Net loans increased $ 833,000, or 2.36%, to $ 36,148,000 at December 31, 1997,
from $ 35,315,000 at March 31, 1997.
Investments and mortgage-backed securities decreased by $ 1,648,000, or 7.62%,
to $ 19,979,000 at December 31, 1997, as compared to $ 21,627,000 at March 31,
1997.
Cash (including interest bearing accounts), decreased by $ 846,000, or 28.04%,
to $ 2,171,000 at December 31, 1997, as compared to $ 3,017,000 at March 31,
1997.
Capital Position
The Corporation's capital increased by $ 580,000, or 8.08%, to $ 7,754,000 at
December 31, 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 at December 31, 1997, was as follows:
Amount Percentage of
Assets
------ ------
Tangible capital..................... $ 7,204,000 11.7 %
Minimum tangible capital requirement. 925,000 1.5 %
----------- ----
Excess............................... $ 6,279,000 10.2 %
========= ======
7
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Core capital......................... $ 7,204,000 11.7 %
Minimum core capital requirement..... 1,849,000 3.0 %
----------- ----
Excess............................... $ 5,355,000 8.7 %
========= ======
Risk-based capital................... $ 7,543,000 28.0 %
Minimum risk-based capital requirement. 2,155,000 8.0 %
----------- ----
Excess.................................$ 5,388,000 20.0 %
========= ======
Liquidity
The Company's liquidity ratio decreased to 16.71% at December 31, 1997, from
19.56% at March 31, 1997. The Company is required to maintain cash and
certain investment securities in an amount equal to 4% of its deposit accounts
and short-term borrowings, effective November 24, 1997.
Allowance for Loan Losses
The allowance for loan loss reserves increased by $ 19,000, or 3.74%, to
$527,000 at December 31, 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 borrowers in
the loan portfolio to repay 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 period
ended December 31, 1997, as compared to March 31, 1997.
Year 2000 Compliance
As with other organizations, the data processing programs and typical office
equipment such as computers, telephone, telecopiers, HVAC controls, alarm
systems and elevators were originally designed to recognize calendar years by
their last two digits. Software and hardware programmed to recognize only two
digit fields may not work properly with dates beyond 1999, and will either
need to be replaced or reprogrammed to function properly after January 1,
2000.
The Company has adopted a Year 2000 ("Y2K") Policy and Action Plan to address
the issue. The plan provides for four phases, (1) Awareness, (2) Assessment,
(3) Renovation and (4) Implementation. The Data Processing Review and
Oversight Committee has been designated to work with the Y2K project officer
to successfully complete the project. The President is designated as the Y2K
project officer. The Board of Directors will be kept informed of the status
of the project and of all problems discovered throughout the process. The
Awareness and Assessment phases are virtually complete, and emphasis will now
be placed on the Validation and Implementation phases.
8
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Data processing for the Company is provided by a third party service bureau.
Software provided by the service bureau is used for such applications as
general ledger, deposit, loan, accounts payable and payroll, among others.
The service bureau has stated that it has been preparing for the Y2K since the
early 1980's, and writes all of its code to comply with the requirements of
having the century marker as part of the application routines. The service
bureau has stated that it is actively engaged in finishing its preparations
for Y2K compliance. A committee has been formed and monthly updates have
begun to keep its users informed of its progress. The awareness and
assessment phases are now virtually complete. The renovation phase is well on
its way, and the service bureau emphasis will now be on the validation phase.
The Company believes that the Y2K problem will not pose significant
operational problems and is not anticipated to be material to its financial
position or results of operations in any given year.
COMPARISON OF THE THREE MONTHS ENDED
DECEMBER 31, 1997 TO THE THREE MONTHS ENDED DECEMBER 31, 1996
General
Total assets increased by $ 4,017,000, or 6.92%, to $ 62,103,000 at December
31, 1997, from $ 58,086,000 at December 31, 1996.
Total deposits decreased $ 2,064,000, or 4.12%, to $ 48,037,000 at December
31, 1997, from $ 50,101,000 at December 31, 1996.
Net loans increased by $ 292,000, or .81%, to $ 36,148,000 at December 31,
1997, from $ 35,856,000 at December 31, 1996.
Investments and mortgage-backed securities increased by $ 3,669,000, or
22.50%, to $ 19,979,000 at December 31, 1997, from $ 16,310,000 at December
31, 1996.
The Corporation's capital increased by $ 706,000, or 10.02%, to $ 7,754,000
at December 31, 1997, from $ 7,048,000 at December 31, 1996.
Net Income
Net income for the three month period ending December 31, 1997 increased by
$10,000, or 8.13%, to $ 133,000, or basic earnings per share of $.42, as
compared to $123,000, or basic earnings per share of $ .40, for the three
month period ending December 31, 1996. Earnings per share, assuming dilution,
were $ .39 for the three month period ending December 31, 1997, as compared to
$ .38 for the three month period ending December 31, 1996.
Total interest income for the three month period ending December 31, 1997
increased by $ 63,000, or 5.59%, to $ 1,191,000, as compared to $ 1,128,000
for the three month period ending December 31, 1996.
Interest on investments and mortgage-backed securities increased by $ 57,000,
or 21.76%, to $ 319,000 for the three month period ending December 31, 1997,
as compared to $ 262,000 for the three month period ending December 31, 1996.
9
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Other interest and dividends increased by $ 4,000, or 7.02%, to $ 61,000 for
the three month period ending December 31, 1997, as compared to $ 57,000 for
the three month period ending December 31, 1996.
Interest expense increased by $ 59,000, or 9.85%, to $ 658,000 for the three
month period ending December 31, 1997, as compared to $ 599,000 for the three
month period ending December 31, 1996.
The increase in interest expense was primarily due to a $ 5,000,000 advance
outstanding from the Federal Home Loan Bank of Seattle ("FHLB") during the
three month period ending December 31, 1997. No FHLB advances were
outstanding during the three month period ending December 31, 1996.
Loan fees and service charges increased by $ 1,000, or 5.6%, to $ 19,000 for
the three month period ending December 31, 1997, from $ 18,000 for the three
month period ending December 31, 1996.
Rental income decreased by $ 2,000, or 10.0%, to $ 18,000 for the three month
period ending December 31, 1997, as compared to $ 20,000 for the three month
period ending December 31, 1996.
Other income increased by $ 1,000, to $ 3,000 for the three month period
ending December 31, 1997, as compared to $ 2,000 for the three month period
ending December 31, 1996.
Salaries and benefits decreased by $ 1,000, or .62%, to $ 160,000 for the
quarter ending December 31, 1997, as compared to $ 161,000 for the
corresponding quarter in 1996.
Occupancy, advertising, outside services and other expense increased by
$3,000, or 1.9%, to $ 163,000 for the three month period ending December 31,
1997, as compared to $ 160,000 for the same period in 1996.
Premiums on FDIC/SAIF insurance of $ 13,000 were paid during the three month
period ending December 31, 1997, as compared to $ 36,000 for the three month
period ending December 31, 1996. The reduction in premiums paid for FDIC/SAIF
insurance was the result of a combination of lower rates following the
recapitalization of the SAIF insurance fund last year, and a reduction in
deposits for the three month period ending December 31, 1997, as compared to
the comparable period last year.
Total other expenses decreased by $21,000, or 5.9%, to $ 336,000 for the
quarter ending December 31, 1997, from $ 357,000 for the comparable period in
1996.
Income tax expense increased by $ 18,000, or 22.78%, to $ 97,000 for the three
month period ending December 31, 1997, as compared to $ 79,000 for the three
month period ending December 31, 1996.
Net Interest Income
Net interest income increased by $ 4,000, or .76%, to $ 533,000 for the three
month period ending December 31, 1997, from $ 529,000 for the corresponding
period in 1996.
Interest spread decreased by .29%, to 2.65% at December 31, 1997, from 2.94%
at December 31, 1996.
10
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The cost of funds increased by .23%, to 4.92% at December 31, 1997, as
compared to 4.69% at December 31, 1996.
Average net interest margin decreased by 19 basis points, to 3.30% at December
31, 1997, from 3.49% at December 31, 1996.
Liquidity
The Association's liquidity ratio decreased to 16.71% at December 31, 1997,
from 18.76% at December 31, 1996.
Provision for Loan Losses
The provision for loan loss reserves decreased by $ 3,000, or 30.0%, to
$ 7,000 for the three month period ending December 31, 1997, as compared to $
10,000 for the three month period ending December 31, 1996. The provision for
loan losses reflects management's continuing evaluation of the possible loss
exposure in the loan portfolio.
Allowance for Loan Losses
The allowance for loan loss reserves increased to $ 527,000 at December 31,
1997, from $ 498,000 at December 31, 1996.
Continuation of the increase in the allowance for potential loan losses has
been implemented by management as a prudent risk-management strategy.
Management does not believe, however, that any significant changes in
portfolio risk have occurred during the three month period ended December 31,
1997, as compared to the corresponding period in 1996.
COMPARISON OF THE NINE MONTHS ENDED
DECEMBER 31, 1997 TO THE NINE MONTHS ENDED DECEMBER 31, 1996
Net Income
Net income for the nine months ended December 31, 1997 increased by $ 198,000,
or 87.22%, to $ 425,000, or basic earnings per share of $ 1.36, from $227,000,
or basic earnings per share of $ .74, for the nine months ended December 31,
1996. A one-time special assessment of $ 345,000 was levied by the FDIC
during the nine month period ending December 31, 1996 to recapitalize the SAIF
insurance fund, however no one-time special assessments for FDIC insurance
were assessed during the nine month period ending December 31, 1997. Earnings
per share, assuming dilution, were $ 1.28 for the nine month period ending
December 31, 1997, as compared to $ .70 for the nine month period ending
December 31, 1996.
Total interest income increased by $ 114,000, or 3.27%, to $ 3,600,000 for the
nine month period ending December 31, 1997, from $ 3,486,000 for the
corresponding period in 1996.
Interest and fees on loans receivable decreased by $ 105,000, or 4.15%, to
$2,426,000 for the nine month period ending December 31, 1997, as compared to
$2,531,000 for the nine month period ending December 31, 1996.
11
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Interest on investments and mortgage-backed securities increased by $ 222,000,
or 28.46%, to $ 1,002,000 for the nine month period ending December 31, 1997,
as compared to $ 780,000 for the corresponding period in 1996. The increase
in interest income this year was primarily due to the earnings generated by
the addition of $ 5,000,000 of mortgage-backed securities funded by an FHLB
advance.
Other interest and dividends decreased by $ 3,000, or 1.71%, to $ 172,000 for
the nine month period ending December 31, 1997, from $ 175,000 for the same
period in 1996, primarily as a result of a decrease in liquidity and a lower
volume of interest bearing overnight funds and short term investments.
Total interest expense increased by $ 128,000, or 6.98%, to $ 1,963,000 for
the nine month period ending December 31, 1997, from $ 1,835,000 for the nine
month period ending December 31, 1996. The increase in interest expense
during the nine month period ending December 31, 1997 was primarily the result
of the impact of a $ 5,000,000 advance from the FHLB.
Loan fees and service charges increased by $ 2,000, or 3.57%, to $ 58,000 for
the nine month period ending December 31, 1997, from $ 56,000 for the
corresponding period in 1996.
Rental income decreased by $ 3,000, or 4.0%, to $ 72,000 for the nine month
period ending December 31, 1997, from $ 75,000 for the same period in 1996.
A $ 46,000 non-recurring gain on sale of investments was realized during the
nine month period ending December 31, 1996, however no income from non-
recurring gain on sales of investments was received during the corresponding
period this year.
Salaries and employee benefits decreased by $ 9,000, or 1.72%, to $ 515,000
for the nine month period ending December 31, 1997, from $ 524,000 for the
corresponding period in 1996.
Occupancy expense increased by $ 13,000, or 9.70%, to $ 147,000 for the nine
month period ending December 31, 1997, from $ 134,000 for the nine month
period ending December 31, 1996.
FDIC/SAIF insurance decreased by $ 413,000, or 91.17%, to $ 40,000 for the
nine month period ending December 31, 1997, from $ 453,000 for the
corresponding period in 1996. A one-time special assessment of $ 345,000 was
levied by the FDIC to recapitalize the SAIF insurance fund during the nine
month period ending December 31, 1996, however no corresponding one-time
special assessment was levied during the same period this year.
FDIC insurance premiums decreased by $ 68,000, or 62.96%, to $ 40,000 for the
nine month period ending December 31, 1997, from $ 108,000 for the nine month
period ending December 31, 1996. The decrease was primarily the result of a
decrease in the premium rate for FDIC insurance, and a reduction in deposits.
Expense for outside services and advertising decreased by $ 6,000, or 5.08%,
to $ 112,000 for the nine month period ending December 31, 1997, as compared
to $ 118,000 for the nine month period ending December 31, 1996.
12
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Other expense increased by $ 7,000, or 3.50%, to $ 207,000 for the nine month
period ending December 31, 1997, as compared to $ 200,000 for the
corresponding period in 1996.
Income tax expense increased by $ 158,000, or 109.0%, to $ 303,000, for the
nine month period ending December 31, 1997, as compared to $ 145,000 for the
nine month period ending December 31, 1996.
Total other expense decreased by $ 408,000, or 28.55%, to $ 1,021,000 for the
nine month period ending December 31, 1997, as compared to $ 1,429,000 for the
nine month period ending December 31, 1996. The decrease was primarily due to
a one-time special assessment of $ 345,000 levied by the FDIC during the nine
month period ending December 31, 1996, to recapitalize the SAIF insurance
fund, and a decrease of $ 68,000 in FDIC insurance premiums during the nine
month period ending December 31, 1997, from the corresponding period last
year.
Net Interest Income
Net interest income decreased by $ 14,000, or .85%, to $ 1,637,000 for the
nine month period ending December 31, 1997, from $ 1,651,000 for the
comparable period in 1996.
Interest spread decreased by 19 basis points, to 2.77% for the nine month
period ending December 31, 1997, as compared to 2.96% for the corresponding
period in 1996.
Average net interest margin decreased by 15 basis points, to 3.36% for the
nine month period in 1997, as compared to 3.51% for the same period in 1996.
The cost of funds increased by 13 basis points, to 4.85% for the nine month
period ending December 31, 1997, as compared to 4.72% for the nine month
period ending December 31, 1996.
The yield on earning assets decreased by 6 basis points, to 7.62% for the nine
month period ending December 31, 1997, from 7.68% for the nine month period
ending December 31, 1996.
Provision for Loan Losses
Provision for loan losses decreased by $ 9,000, or 29.03%, to $ 22,000 for the
nine month period ended December 31, 1997, as compared to $ 31,000 for the
nine month period ended December 31, 1996.
The provision for loan losses reflects management's continuing evaluation of
the possible loan loss exposure in the loan portfolio. Management does not
believe that any significant changes in portfolio risk have occurred during
the nine months ended December 31, 1997, as compared to the nine months ended
December 31, 1996.
13
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings - Periodically, there have been various claims and
lawsuits involving the Company, 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 Company'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 Company's ordinary business, the
Company is not a party to any material pending legal proceedings.
Item 2 - Changes in Securities - 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 - Not applicable.
Item 6 - Exhibits and Reports on Form 8-K - A report on Form 8-K was filed on
December 8, 1997, announcing that the Office of Thrift Supervision did not
intend to disapprove the acquisition of additional shares of stock by Michael
E. McKee, representing the "McKee family", and Collette E. Maxwell,
representing the "Maxwell family" during the next two years.
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: February 13, 1998 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)
14
<PAGE>
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