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 March 31, 2002
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 May 14, 2002: 811,208
Transitional Small Business Disclosure Format (check one): Yes No X
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CRAZY WOMAN CREEK BANCORP INCORPORATED
INDEX TO FORM 10-QSB
Page
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PART I FINANCIAL INFORMATION
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Item 1. Financial Statements (unaudited)
Consolidated Condensed Statements of Financial Condition at March 31,
2002 and September 30, 2001 1
Consolidated Condensed Statements of Income for the Three and Six Months
ended March 31, 2002 and 2001 2
Consolidated Condensed Statements of Comprehensive Income for the Three
and Six Months ended March 31, 2002 and 2001 3
Consolidated Condensed Statements of Cash Flows for the Six Months ended
March 31, 2002 and 2001 4
Notes to Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 8
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Condensed Statements of Financial Condition
(Unaudited)
March 31, September 30,
2002 2001
------------- --------------
Assets (Dollars in thousands,
- ------ except per share data)
Cash and cash equivalents $ 4,255 $ 5,897
Investment and mortgage-backed securities available-for-sale 20,350 22,003
Stock in Federal Home Loan Bank of Seattle, at cost 1,165 1,128
Loans receivable, net 42,427 37,058
Accrued interest receivable 414 429
Premises and equipment, net 2,958 1,871
Income tax receivable 30 --
Goodwill and other intangible assets, net of accumulated amortization
of $55 and $34 at March 31, 2002 and September 30, 2001 255 276
Other assets 57 111
------- -------
$71,911 $68,773
======= =======
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Deposits $44,447 $40,709
Advances from Federal Home Loan Bank 13,400 13,400
Advance payments by borrowers for taxes and insurance 33 67
Deferred income taxes 183 213
Dividends payable 97 97
Accrued expenses and other liabilities 318 729
------- -------
Total liabilities 58,478 55,215
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Stockholders' equity:
Preferred stock, par value $.10 per share, 2,000,000 shares
authorized; none issued and outstanding at March 31, 2002
and September 30, 2001 -- --
Common stock, par value $.10 per share, 5,000,000 shares
authorized; 1,058,000 issued and outstanding at March 31, 2002
and September 30, 2001 106 106
Additional paid-in capital 10,122 10,117
Unearned ESOP/MSBP shares (398) (429)
Retained earnings 7,060 7,125
Accumulated other comprehensive income, net 60 195
Treasury stock at cost, 264,476 and 267,876 shares at
March 31, 2002 and September 30, 2001, respectively (3,517) (3,556)
------- -------
Total stockholders' equity 13,433 13,558
------- -------
$71,911 $68,773
======= =======
See notes to consolidated condensed financial statements.
Page 1
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Condensed Statements of Income
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- --------------------------
2002 2001 2002 2001
------- -------- -------- -------
(Dollars in thousands except per share data)
Interest income:
Loans receivable $ 768 $ 645 $1,556 $1,250
Mortgage-backed securities 194 169 414 351
Investment securities 67 223 120 492
Other interest income 25 41 70 78
------ ------ ------ ------
Total interest income 1,054 1,078 2,160 2,171
Interest expense:
Deposits 353 407 747 800
Advances from Federal Home Loan Bank 207 267 419 566
Other interest expense -- 2 2 2
------ ------ ------ ------
Total interest expense 560 676 1,168 1,368
------ ------ ------ ------
Net interest income 494 402 992 803
Provision for loan losses -- -- -- --
------ ------ ------ ------
Net interest income after provision for loan losses 494 402 992 803
------ ------ ------ ------
Non-interest income:
Customer service charges 19 18 41 35
Other operating income 14 8 22 16
------ ------ ------ ------
Total non-interest income 33 26 63 51
------ ------ ------ ------
Non-interest expense:
Compensation and benefits 219 213 472 369
Occupancy and equipment 52 36 93 56
FDIC/SAIF deposit insurance premiums 2 2 4 4
Advertising 16 9 30 21
Data processing services 36 32 68 58
Professional fees 54 27 72 47
Loss on disposal of assets -- 11 -- 11
Amortization of goodwill 3 3 6 3
Other 87 62 160 106
------ ------ ------ ------
Total non-interest expense 469 395 905 675
------ ------ ------ ------
Income before income taxes 58 33 150 179
Income tax expense 13 7 35 52
------ ------ ------ ------
Net income $ 45 $ 26 $ 115 $ 127
====== ====== ====== ======
Dividends declared per common share $ 0.12 $ 0.12 $ 0.24 $ 0.24
====== ====== ====== ======
Basic earnings per common share $ 0.06 $ 0.03 $ 0.14 $ 0.16
====== ====== ====== ======
Diluted earnings per common share $ 0.06 $ 0.03 $ 0.14 $ 0.16
====== ====== ====== ======
See notes to consolidated condensed financial statements.
Page 2
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Condensed Statements of Comprehensive Income
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
------------------------- ------------------------
2002 2001 2002 2001
-------- ------- ------- -------
(Dollars in thousands)
Net income $ 45 $ 26 $ 115 $ 127
Other comprehensive income
Unrealized (losses) gains on investment and
mortgage-backed securities available-for-sale (104) 109 (205) 541
Income tax benefit (expense) related to items of other
comprehensive income 35 (37) 70 (184)
----- ---- ----- -----
Other comprehensive (loss) income, after tax (69) 72 (135) 357
----- ---- ----- -----
Comprehensive income $ (24) $ 98 $ (20) $ 484
===== ==== ===== =====
See notes to consolidated condensed financial statements.
Page 3
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Condensed Statements of Cash Flows
Six Months ended March 31, 2002 and 2001
(Unaudited)
2002 2001
----------- -----------
Cash flows from operating activities: (Dollars in thousands)
Net income $ 115 $ 127
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of premiums and discounts on securities available-for-sale, net 53 (4)
Amortization of intangibles 21 12
Deferred income tax benefit, net 40 4
Federal Home Loan Bank stock dividend (37) (35)
Depreciation 56 34
Loss on disposal of fixed assets -- 11
Dividends reinvested (7) (6)
Deferred loan origination fees, net 17 4
ESOP shares committed to be released 31 29
MSBP compensation expense (3) 29
Change in:
Accrued interest receivable 15 86
Income taxes (30) 53
Other assets 54 4
Accrued expenses and other liabilities (411) 5
-------- -------
Net cash (used in) provided by operating activities (86) 353
Cash flows from investing activities:
Purchases of securities available-for-sale (5,431) --
Proceeds from maturities, calls and prepayments of securities available-for-sale 6,833 5,553
Origination of loans receivable (15,893) (6,674)
Repayment of principal on loans receivable 10,507 4,365
Acquisition of branch office -- 773
Purchase of premises and equipment (1,143) (548)
-------- -------
Net cash (used in) provided by investing activities (5,127) 3,469
Cash flows from financing activities:
Net increase in deposits 3,738 797
Advances from Federal Home Loan Bank -- 4,350
Repayment of advances from Federal Home Loan Bank -- (6,900)
Net decrease in advances from borrowers for taxes and insurance (34) (34)
Exercise of stock options 47 --
Dividends paid to stockholders (180) (177)
-------- -------
Net cash provided by (used in) financing activities 3,571 (1,964)
-------- -------
Net (decrease) increase in cash and cash equivalents (1,642) 1,858
Cash and cash equivalents at beginning of period 5,897 2,796
-------- -------
Cash and cash equivalents at end of period $ 4,255 $ 4,654
======== =======
Cash paid during period for:
Interest $ 1,161 $ 1,256
Income taxes 35 --
Noncash Investing and Financing Activities:
During 2001, the Company acquired a branch in Gillette Wyoming with $95 of
loans, $387 of property and equipment and $1,353 of deposits.
See notes to consolidated condensed financial statements.
Page 4
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Condensed Financial Statements
March 31, 2002
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited interim consolidated condensed financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America ("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 on Form 10-KSB of Crazy Woman Creek Bancorp
Incorporated (the "Company") for the fiscal year ended September 30, 2001.
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 six months ended March 31, 2002 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: IMPACT OF RECENTLY ISSUED ACCOUNT STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, Business Combinations and
SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 141, which was adopted
by the Company on July 1, 2001, requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001. SFAS 141
also specifies criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill. SFAS
142 requires that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually in
accordance with the provisions of SFAS 142. However, goodwill recognized in
connection with certain branch acquisitions will continue to be subject to the
provisions of SFAS No. 72, Accounting for Certain Acquisitions of Banking or
Thrift Institutions. SFAS 142, which was adopted by the Company October 1, 2001,
also requires that intangible assets with definite useful lives be amortized
over their respective estimated useful lives to their estimated residual values,
and reviewed for impairment in accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.
SFAS 141 required, upon adoption of SFAS 142, that the Company evaluate its
existing intangible assets and goodwill that were acquired in a prior purchase
business combination, and to make any necessary reclassifications in order to
conform with the new criteria in SFAS 141 for recognition apart from goodwill.
Additionally, upon adoption of SFAS 142, the Company was required to reassess
the useful lives and residual values of all intangible assets acquired in
purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption which was
December 31, 2001. Upon adoption, the Company did not have any reclassifications
to its recorded intangible assets or any changes in its estimated useful lives
or residual values.
In connection with the transitional goodwill impairment evaluation, SFAS 142
required the Company to perform an assessment of whether there is an indication
that goodwill is impaired as of the date of adoption. As of the date of
adoption, the Company had unamortized goodwill in the amount of $178,000 which
will continue to be amortized in accordance with the provisions of SFAS 72.
There was no indication that goodwill was impaired at the date of adoption. The
Company tests goodwill annually in the
Page 5
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Condensed Financial Statements
March 31, 2002
fourth quarter in connection with its annual budgeting process. Amortization
expense related to goodwill was $3,000 for the three months ended March 31, 2002
and 2001. Amortization expense related to goodwill was $6,000 and $3,000 for the
six months ended March 31, 2002 and 2001, respectively.
Following is a summary of acquired intangible assets at March 31, 2002.
Gross Accumulated
Carrying Amount Amortization Net
--------------- ------------ ---------
Goodwill $ 188,000 16,000 172,000
Core Deposit Premium 122,000 39,000 83,000
--------- -------- ---------
$ 310,000 55,000 255,000
========= ======== =========
Amortization expense for Goodwill and Core Deposit Premium the six months ended
March 31, 2002 was $21,000 and estimated annual amortization expense is as
follows:
Year Ended
September 30,
- -------------------------------------------------
2002 $ 41,000
2003 36,000
2004 31,000
2005 26,000
2006 21,000
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.
For the Three Months ended March 31, 2002
Net Income Average Shares Per Share Amount
----------------- -------------------- -------------------
Basic EPS
Net income available to common stockholders $ 45,000 793,574 $ 0.06
======
Effect of Dilutive Securities
Incremental shares under stock option plan -- 11,213
Incremental shares related to MSBP -- 378
---------------------------------
Diluted EPS
Income available to common stockholders plus
assumed conversions $ 45,000 805,165 $ 0.06
======== ======= ======
Page 6
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Condensed Financial Statements
March 31, 2002
For the Three Months ended March 31, 2001
Net Income Average Shares Per Share Amount
---------------------------------------------------------
Basic EPS
Net income available to common stockholders $ 26,000 777,172 $ 0.03
======
Effect of Dilutive Securities
Incremental shares under stock option plan -- 11,370
Incremental shares related to MSBP -- 562
-----------------------------------
Diluted EPS
Income available to common stockholders plus
assumed conversions $ 26,000 789,104 $ 0.03
======== ======= ======
For the Six Months ended March 31, 2002
Net Income Average Shares Per Share Amount
---------------------------------------------------------
Basic EPS
Net income available to common stockholders $115,000 792,374 $ 0.14
======
Effect of Dilutive Securities
Incremental shares under stock option plan -- 9,403
Incremental shares related to MSBP -- 254
-----------------------------------
Diluted EPS
Income available to common stockholders plus
assumed conversions $115,000 802,031 $ 0.14
======== ======= ======
For the Six Months ended March 31, 2001
Net Income Average Shares Per Share Amount
---------------------------------------------------------
Basic EPS
Net income available to common stockholders $127,000 775,986 $ 0.16
======
Effect of Dilutive Securities
Incremental shares under stock option plan -- 6,482
Incremental shares related to MSBP -- 281
-----------------------------------
Diluted EPS
Income available to common stockholders plus
assumed conversions $127,000 782,757 $ 0.16
======== ======= ======
Page 7
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition
and Results of Operations
March 31, 2002
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, a loan to the
ESOP, a loan to the Bank, and shares held in 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 utilizes funds obtained from the Federal
Home Loan Bank of Seattle ("FHLB") to purchase investment securities and to
originate loans. The Bank also originates commercial real estate loans, business
loans, home equity loans, consumer loans and loans secured by savings accounts.
The Bank invests in mortgage-backed securities (including Real Estate Mortgage
Investment Conduits ("REMICs")), municipal bonds and short-term and medium-term
U.S. Agency securities.
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
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
Page 8
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
March 31, 2002
deposit flows. To a lesser extent, the Bank's net income is also 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.
PURCHASE OF BRANCH
On December 27, 2000, the Bank purchased the building, equipment, loans and
acquired the deposit liabilities of the Gillette, Wyoming branch of Hulett
National Bank for a purchase price of $675,000. The transaction was accounted
for as a purchase and accordingly, the Consolidated Condensed Statements of
Income for the three and six months ended March 31, 2002 and 2001, include the
results of operations of the acquired branch since the date of purchase. Cash
received in the branch acquisition totaled $773,000. The purchase consisted of
$95,000 of loans, $387,000 of premises and equipment, the assumption of $1.353
million in deposits and $212,000 of accrued interest and other liabilities. The
premium paid over historical carrying values was $310,000, which has been
allocated to goodwill and deposit premium. The branch is called "The Bank of
Gillette, a branch of Buffalo Federal Savings Bank" ("Branch").
CRITICAL ACCOUNTING POLICIES
Companies may apply certain critical accounting policies requiring management to
make subjective or complex judgments, often as a result of the need to estimate
the effect of matters that are inherently uncertain. The Company considers its
only critical accounting policy to be the allowance for loan losses. The
allowance for loan losses is established through a provision for loan losses
charged against earnings. The balance of allowance for loan losses is maintained
at the amount management believes will be adequate to absorb known and inherent
losses in the loan portfolio. The appropriate balance of allowance for loan
losses is determined by applying estimated loss factors to the credit exposure
from outstanding loans. Estimated loss factors are based on subjective
measurements including management's assessment of the internal risk
classifications, changes in the nature of the loan portfolio, industry
concentrations and the impact of current local, regional and national economic
factors on the quality of the loan portfolio. Changes in these estimates and
assumptions are reasonably possible and may have a material impact on the
Company's consolidated financial statements, results of operation or liquidity.
FINANCIAL CONDITION
- -------------------
ASSETS
At March 31, 2002, assets totaled $70.911 million compared to total assets of
$68.773 million at September 30, 2001. The increase was primarily a result of
increases in net loans receivable and net premises and equipment, which more
than offset the decrease in cash and cash equivalents and investment and
mortgage-backed securities available-for-sale.
Cash and cash equivalents decreased $1.642 million during the period. The
decrease was primarily the result of the increase in loans receivable and costs
associated with branching activities offset by a decrease in investment and
mortgage-backed securities and a corresponding increase in deposits.
Securities available-for-sale decreased by $1.653 million during the six months
ended March 31, 2002. Securities prepayments, calls and maturities of $6.833
million were received on investment securities
Page 9
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
March 31, 2002
available-for-sale. The Bank purchased $5.431 million of investment securities
available-for-sale, and the market value of the securities decreased $205,000
during the period. Amortization of premium discounts and dividends accounted for
$46,000 of the decrease in securities.
Loans receivable increased $5.369 million during the six months ended March 31,
2002. During this period, the Bank originated loans totaling $15.893 million,
comprised of residential mortgage loans totaling $4.963 million, non-residential
mortgage loans totaling $6.439 million, consumer loans totaling $2.605 million,
and commercial loans totaling $1.886 million. During the same period, the Bank
received scheduled principal payments and prepayments totaling $10.507 million
on its loan portfolio.
Bank property and equipment increased by $1.087 million during the period and
was primarily the result of improvements to the land in Sheridan, Wyoming.
Improvements to the land in Sheridan totaled $805,000 as of March 31, 2002. The
Sheridan parcel of land consists of 1.48 acres. The total cost of construction
of the branch is estimated to be $2.1 million and the branch opened on April 8,
2002.
LIABILITIES
Deposits increased by $3.738 million from $40.709 million at September 30, 2001
to $44.447 million at March 31, 2002.
Deferred income taxes decreased by $30,000 during the six months ended March 31,
2002 and were mainly the result of the decrease in market value of
available-for-sale securities offset by deferred income tax expense from FHLB
stock dividends and amortization of intangibles.
Accrued expenses and other liabilities decreased by $411,000 during the six
months ended March 31, 2002 and were mainly the result of the decrease in
accrued interest payable, outstanding corporate checks and accounts payable
related to the construction project in Sheridan Wyoming.
STOCKHOLDERS' EQUITY
Overall, stockholders' equity decreased $125,000 during the six months ended
March 31, 2002. The decrease was primarily the result of decreased market value
on available-for-sale securities.
ASSET QUALITY
- -------------
Non-performing assets totaled $381,000 at March 31, 2002, or 0.86% of gross
loans. This compares to $119,000 at September 30, 2001 or 0.31% of gross loans.
Non-performing loans at March 31, 2002 were comprised of four single-family
mortgage loans, two commercial loans, and four consumer loans.
RESULTS OF OPERATIONS
- ---------------------
Comparison of Three Months Ended March 31, 2002 and 2001.
- ---------------------------------------------------------
Net Income. Net income for the three months ended March 31, 2002 was higher than
net income reported for the same period in 2001. Specifically the increase is
attributable to a $92,000 increase in net interest income a $7,000 increase in
non-interest income, a $11,000 decrease in loss on disposal of
Page 10
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
March 31, 2002
assets. These increases were offset by a $6,000 increase in compensation and
benefits, a $16,000 increase in occupancy and equipment, a $7,000 increase in
advertising, a $27,000 increase in professional fees associated with search for
a Chief Executive Officer, a $25,000 increase in other expenses, and an increase
of $6,000 in income tax expense. The increase in net interest income was
primarily attributed to an increase in the volume of interest-earning assets and
interest-bearing liabilities offset by a corresponding decrease in the yield on
interest-earning assets and the cost of interest-bearing liabilities for the
three-month period ended March 31, 2002.
Interest Income. For the three months ended March 31, 2002, interest income
totaled $1.054 million compared to $1.078 million for the three months ended
March 31, 2001. An increase in the volume of average interest-earning assets
from $62.069 million for the three months ended March 31, 2001 to $67.285
million for the same period in 2002 contributed to a $132,000 increase in
interest income. A decrease was experienced in the yield on average
interest-earning assets from 6.95% for the three months ended March 31, 2001 to
6.27% for the three months ended March 31, 2002, which contributed to a $156,000
decrease in interest income.
Interest Expense. Total interest expense decreased by $116,000 from $676,000 for
the three months ended March 31, 2001 to $560,000 for the same period in 2002.
This was primarily a result of a decrease in the cost of average
interest-bearing liabilities.
Interest expense for deposits, including deposit premium amortization, decreased
by $54,000 from $407,000 for the three months ended March 31, 2001 to $353,000
for the same period in 2002. The cost of average interest-bearing deposits
decreased from 4.94% for the three months ended March 31, 2001 to 3.30% for the
three months ended March 31, 2002, which caused interest expense for deposits to
decrease by $155,000. An increase in the volume of average interest-bearing
deposits from $32.981 million for the three months ended March 31, 2001, to
$42.774 million for the three months ended March 31, 2002, resulted in a
$101,000 increase in interest expense for deposits.
Interest expense for advances from the FHLB and other interest expense decreased
by $62,000 from $269,000 for the three months ended March 31, 2001 to $207,000
for the same period in 2002. The cost of average interest-bearing advances from
the FHLB decreased from 6.33% for the three months ended March 31, 2001 to 6.18%
for the same period in 2002. This decrease in the cost of average
interest-bearing advances caused a $5,000 decrease in interest expense. Average
interest-bearing advances decreased from $17.011 million for the three month
period ended March 31, 2001, to $13.400 million for the three month period ended
March 31, 2002, and resulted in an $57,000 decrease in interest expense for
advances.
Net Interest Income. Net interest income increased by $91,000 from $402,000 for
the three months ended March 31, 2001 to $493,000 for the three months ended
March 31, 2002. The increase in the volume of average interest-bearing
liabilities and the decrease in the cost of average interest-bearing liabilities
were the major factors for the increase in net interest income. The increase in
average interest-bearing liabilities was not fully offset by a corresponding
increase in average interest-earning assets as evidenced by the decrease of the
ratio of average interest-earning assets to average interest-bearing liabilities
from 124.16% in 2001 to 119.78% in 2002. The major factor was the decrease in
the rate paid for interest-bearing liabilities and a smaller decrease in the
rate earned for average interest-earning assets.
Page 11
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
March 31, 2002
Net interest margin increased from 2.59% for the three months ended March 31,
2001 to 2.94% for the three months ended March 31, 2002. The increase in net
interest margin was primarily caused by the disproportionate decrease in the
cost of interest-bearing liabilities compared to interest-earning assets.
Provision for Loan Losses. No provision was recorded during the three months
ended March 31, 2002 and 2001. There were $1,000 in loan charge-offs for the
three months ended March 31, 2002 while recoveries totaled $4,000. In the three
months ended March 31, 2001, there were $7,000 in loan charge-offs while
recoveries totaled $22,000.
Total Non-interest Income. Total non-interest income increased by $7,000 from
$26,000 for the three months ended March 31, 2001 to $33,000 for the three
months ended March 31, 2002 primarily due to an increase in other operating
income.
Total Non-interest Expense. Total non-interest expense increased by $74,000 from
$395,000 for the three months ended March 31, 2001 to $469,000 for the three
months ended March 31, 2002. The increase was attributable to increases in
compensation, occupancy and equipment, advertising, data processing costs,
professional fees, and other non-interest expenses primarily related to the
expansion of operations.
Provision for Income Taxes. The effective tax rate for the three months ended
March 31, 2002 and 2001 was 22.41% and 21.21%, respectively. The effective tax
rate is higher during 2002 than 2001 due to an increase in taxable income and a
corresponding increase in tax exempt interest income and resulting in permanent
tax differences arising from the dividends received deduction and tax exempt
interest income.
Comparison of Six Months Ended March 31, 2002 and 2001.
- -------------------------------------------------------
Net Income. Net income for the six months ended March 31, 2002 was lower than
net income reported for the same period in 2001 primarily due to expanding the
branch operations. Specifically the reduction is attributable to a $103,000
increase in compensation and benefits resulted primarily from the hiring of two
branch presidents and ten additional staff members and the costs associated with
a severance payment to a former employee, a $37,000 increase in occupancy and
equipment, a $9,000 increase in advertising, a $10,000 increase in data
processing costs, a $25,000 increase in professional fees associated with search
for a Chief Executive Officer, and a $54,000 increase in other expenses. These
increases were partially offset by a $189,000 increase in net interest income, a
$12,000 increase in non-interest income, a $11,000 decrease in loss on disposal
of assets, and a reduction of $17,000 in income tax expense. The increase in net
interest income was primarily attributed to an decrease in the cost of
interest-bearing liabilities for the six-month period ended March 31, 2002.
Interest Income. For the six months ended March 31, 2002, interest income
totaled $2.160 million compared to $2.171 million for the six months ended March
31, 2001. An increase in the volume of average interest-earning assets from
$62.575 million for the six months ended March 31, 2001 to $67.188 million for
the same period in 2002 caused interest income to increase by $226,000. A
decrease was experienced in the yield on average interest-earning assets from
6.94% for the six months ended March 31, 2001 to 6.43% for the six months ended
March 31, 2002, which contributed to a $237,000 decrease in interest income.
Page 12
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
March 31, 2002
Interest Expense. Total interest expense decreased by $200,000 from $1.368
million for the six months ended March 31, 2001 to $1.168 million for the same
period in 2002. This was primarily a result of a decrease in the cost of average
interest-bearing liabilities.
Interest expense for deposits including deposit premium amortization decreased
by $53,000 from $800,000 for the six months ended March 31, 2001 to $747,000 for
the same period in 2002. The cost of average interest-bearing deposits decreased
from 4.99% for the six months ended March 31, 2001 to 3.57% for the six months
ended March 31, 2002, which caused interest expense for deposits to decrease by
$263,000. An increase in the volume of average interest-bearing deposits from
$32.052 million for the six months ended March 31, 2001 to $41.879 million for
the six months ended March 31, 2002, resulted in a $210,000 increase in interest
expense for deposits.
Interest expense for advances from the FHLB and other interest expense decreased
by $147,000 from $566,000 for the six months ended March 31, 2001 to $419,000
for the same period in 2002. The cost of average interest-bearing advances from
the FHLB decreased from 6.41% for the six months ended March 31, 2001 to 6.28%
for the same period in 2002. This decrease in the cost of average
interest-bearing advances caused a $12,000 decrease in interest expense. Average
interest-bearing advances decreased from $17.731 million for the six month
period ended March 31, 2001 to $13.400 million for the six month period ended
March 31, 2002, resulting in a $135,000 decrease in interest expense for
advances.
Net Interest Income. Net interest income increased by $189,000 from $803,000 for
the six months ended March 31, 2001 to $992,000 for the six months ended March
31, 2002. The decrease in net interest income was primarily caused by the
increase in the cost and volume of interest-bearing liabilities. The increase in
average interest-bearing liabilities was not offset by a corresponding increase
in average interest-earning assets as evidenced by the decrease of the ratio of
average interest-earning assets to average interest-bearing liabilities from
125.70% in 2001 to 121.54% in 2002. The increase in the cost and volume of
average interest-bearing liabilities were the major factors for the decrease in
net interest income.
Net interest margin increased from 2.57% for the six months ended March 31, 2001
to 2.95% for the six months ended March 31, 2002. The increase in net interest
margin was primarily caused by the disproportionate decrease in cost of
interest-bearing liabilities compared to interest-earning assets.
Provision for Loan Losses. No provision was recorded during the six months ended
March 31, 2002 and 2001. There were $1,000 in loan charge-offs for the six
months ended March 31, 2002 while recoveries totaled $7,000. In the six months
ended March 31, 2001, there were $7,000 in loan charge-offs while recoveries
totaled $32,000.
Total Non-interest Income. Total non-interest income increased by $12,000 from
$51,000 for the six months ended March 31, 2001 to $63,000 for the six months
ended March 31, 2002 primarily due to an increase in other operating income and
customer service charges.
Total Non-interest Expense. Total non-interest expense increased by $230,000
from $675,000 for the six months ended March 31, 2001 to $905,000 for the six
months ended March 31, 2002. There were increases in compensation, occupancy and
equipment, advertising, data processing costs, professional fees, amortization
of goodwill and other non-interest expenses.
Page 13
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
March 31, 2002
Provision for Income Taxes. The effective tax rate for the six months ended
March 31, 2002 and 2001 was 23.34% and 29.05%, respectively. The effective tax
rate is lower than the expected tax rate of 34% due to permanent tax differences
arising from the dividends received deduction and tax exempt interest income.
CAPITAL COMPLIANCE AND LIQUIDITY
- --------------------------------
Capital Compliance. The following table presents the Bank's compliance with its
regulatory capital requirements:
At March 31, 2002
--------------------------
Percentage
Amount of Assets
--------- -----------
(Dollars in thousands)
GAAP Capital................................................... $ 10,358 14.67%
Tangible capital............................................... $ 10,189 14.47%
Tangible capital requirement................................... 1,056 1.50%
-------- -----
Excess......................................................... $ 9,133 12.97%
======== =====
Core capital................................................... $ 10,188 14.47%
Core capital requirements...................................... 2,112 3.00%
-------- -----
Excess......................................................... $ 8,076 11.47%
======== =====
Total risk-based capital (1)................................... $ 10,502 26.06%
Total risk-based capital requirement (1)....................... 3,223 8.00%
-------- -----
Excess (1)..................................................... $ 7,279 18.06%
======== =====
1) Based on risk-weighted assets of $40,293,000
2) Based on the Bank's adjusted total assets of $70,407,000
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, is permitted to 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 is required under federal regulations to maintain sufficient
liquidity to insure its safe an sound operation. The Bank's liquidity is a
measure of its ability to fund loans, pay withdrawals of deposits, 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
Page 14
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
March 31, 2002
lending commitments, purchase new investments, and increase liquidity. The Bank
funds its operations internally but supplements with borrowed funds from the
FHLB. As of March 31, 2002 such borrowed funds totaled $13.400 million. Loan
payments and maturing investments are greatly influenced by general interest
rates, economic conditions and competition.
The amount of certificate accounts and FHLB advances, which are scheduled to
mature during the twelve months ending March 31, 2003 is approximately $20.493
million and $700,000, 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 March 31, 2002, the Bank had loan commitments outstanding of $5.019 million.
Funds required to fill these commitments are derived primarily from current
excess liquidity, deposit inflows or loan and investment and mortgage-backed
security repayments and if necessary through FHLB advances.
The Company's primary source of liquidity on a stand alone basis is dividends
received from the Bank. As indicated above under "Capital Compliance", dividends
paid by the Bank are subject to regulatory restrictions.
Page 15
KEY OPERATING RATIOS
- --------------------
Three Months Ended Six Months Ended
March 31, March 31,
------------------------------ -----------------------------------
2002 (1) 2001 (1) 2002 (1) 2001 (1)
---------------------------------------------------------------------
(Dollars in thousands, except per share data)
(Unaudited)
Return on average assets 0.26% 0.16% 0.32% 0.40%
Return on average equity 1.36% 0.77% 1.69% 1.92%
Interest rate spread 2.28% 1.54% 2.20% 1.44%
Net interest margin 2.94% 2.59% 2.95% 2.56%
Non-interest expense to average
assets 2.63% 2.44% 2.56% 2.09%
Net charge-offs to average
outstanding loans (0.01%) (0.04%) (0.01%) (0.07%)
At March 31, At September
2002 30, 2001
------------ -------------
Nonaccrual and 90 days past due
loans $ 381 $ 119
Repossessed real estate, held under
judgment -- --
-------- --------
Total nonperforming assets $ 381 $ 119
======== ========
Nonperforming loans to gross loans 0.86% 0.31%
Nonperforming assets to total assets 0.53% 0.17%
Book value per share (2) $16.93 $17.21
- ---------------------
(1) The ratios for the three-month periods are annualized.
(2) The number of shares outstanding as of March 31, 2002 and September 30,
2001 was 793,524 and 790,124, respectively. These include shares purchased
by the ESOP.
Page 16
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 March 31, 2002. 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
---------------------------------------------------
On January 23, 2002, the Company held its annual meeting of
stockholders and the following items were presented:
Election of Directors Richard Reimann and Sandra K. Todd for terms of
three years ending 2005 and the ratification of the appointment of KPMG
LLP as the Company's auditors for the 2002 fiscal year.
Votes were as follows:
For Against Withheld
--- ------- --------
Richard Reimann 697,485 -- 17,310
Sandra K. Todd 697,735 -- 17,060
Ratification of KPMG LLP 696,799 11,896 6,100
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K
A report on Form 8-K was filed on May 2, 2002 pursuant to
items 5 and 7 announcing the registrant's management
succession plan to fill the position vacated by former
President and Chief Executive Officer Deane D. Bjerke who
retired on May 1, 2002.
Page 17
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: May 14, 2002 By: /s/ Gary J. Havens
----------------------
Gary J Havens
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 2002 By: /s/ John B. Snyder
----------------------
John B. Snyder
Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)