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 December 31, 2002
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from __________ to __________
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 February 11, 2003: 811,608
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
CRAZY WOMAN CREEK BANCORP INCORPORATED
INDEX TO FORM 10-QSB
Page
----
PART I FINANCIAL INFORMATION
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Item 1. Financial Statements (unaudited)
Consolidated Condensed Statements of Financial Condition at December 31,
2002 and September 30, 2002 1
Consolidated Condensed Statements of Income for the Three Months ended
December 31, 2002 and 2001 2
Consolidated Condensed Statements of Comprehensive Income for the Three
Months ended December 31, 2002 and 2001 3
Consolidated Condensed Statements of Cash Flows for the Three Months
ended December 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
Item 3. Controls and Procedures 14
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Condensed Statements of Financial Condition
(Unaudited)
December 31, September 30,
2002 2002
----------- ----------
(Dollars in thousands,
except per share data)
Assets
- ------
Cash and cash equivalents $ 3,661 $ 2,686
Investment and mortgage-backed securities available-for-sale 15,286 18,109
Stock in Federal Home Loan Bank of Seattle, at cost 1,221 1,200
Loans receivable, net 51,270 49,339
Accrued interest receivable 370 420
Premises and equipment, net 3,283 3,282
Repossessed other assets owned 84 96
Income tax receivable -- 71
Goodwill, net 178 178
Other intangible assets, net 62 69
Other assets 26 71
-------- --------
$ 75,441 $ 75,521
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Deposits $ 46,878 $ 46,783
Advances from Federal Home Loan Bank 14,200 14,200
Advance payments by borrowers for taxes and insurance 7 65
Income tax payable 49 --
Deferred income taxes 265 285
Dividends payable 97 97
Accrued expenses and other liabilities 389 637
-------- --------
Total liabilities 61,885 62,067
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Stockholders' equity:
Preferred stock, par value $.10 per share, 2,000,000 shares
authorized; none issued and outstanding at December 31, 2002
and September 30, 2002 -- --
Common stock, par value $.10 per share, 5,000,000 shares
authorized; 1,058,000 issued and outstanding at
December 31, 2002 and September 30, 2002 106 106
Additional paid-in capital 10,142 10,139
Unearned ESOP/MSBP shares (395) (411)
Retained earnings 6,923 6,858
Accumulated other comprehensive income, net 254 236
Treasury stock at cost (3,474) (3,474)
-------- --------
Total stockholders' equity 13,556 13,454
-------- --------
$ 75,441 $ 75,521
======== ========
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
December 31,
---------------------------------
2002 2001
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(Dollars in thousands, except per share data)
(restated see note 2)
Interest Income:
Loans receivable $ 927 $ 788
Mortgage-backed securities 133 220
Investment securities 41 53
Other interest income 25 45
------ ------
Total interest income 1,126 1,106
Interest expense:
Deposits 280 387
Advances from Federal Home Loan Bank 206 212
Other interest expense 6 9
------ ------
Total interest expense 492 608
------ ------
Net interest income 634 498
Provision for loan losses 20 --
------ ------
Net interest income after provision for loan losses 614 498
------ ------
Non-interest income
Customer service charges 25 22
Other operating income 5 8
------ ------
Total non-interest income 30 30
------ ------
Non-interest expense
Compensation and benefits 215 253
Occupancy and equipment 64 41
FDIC/SAIF deposit insurance premiums 2 2
Advertising 12 14
Data processing services 35 32
Professional fees 21 18
Other 74 73
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Total non-interest expense 423 433
------ ------
Income before income taxes 221 95
Income tax expense 66 24
------ ------
Net income $ 155 $ 71
====== ======
Dividends declared per common share $ 0.12 $ 0.12
====== ======
Basic earnings per common share $ 0.19 $ 0.09
====== ======
Diluted earnings per common share $ 0.19 $ 0.09
====== ======
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
December 31,
---------------------------
2002 2001
------ ------
(Dollars in thousands)
(restated see note 2)
Net income $ 155 $ 71
Other comprehensive income
Unrealized gains (losses) on investment and
mortgage-backed securities available-for-sale 28 (101)
Income tax (expense) benefit related to items of other
comprehensive income (10) 34
----- -----
Other comprehensive income (loss), after tax 18 (67)
----- -----
Comprehensive income $ 173 $ 4
===== =====
See notes to consolidated condensed financial statements.
Page 3
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Consolidated Condensed Statements of Cash Flows
Three Months ended December 31, 2002 and 2001
(Unaudited)
2002 2001
-------- ---------
(Dollars in thousands)
(restated
see Note 2)
Cash flows from operating activities:
Net income $ 155 $ 71
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 20 --
Amortization of premiums and discounts on investment securities 27 28
Amortization of core deposit intangibles 7 8
Deferred income tax (benefit) expense net (30) 30
Federal Home Loan Bank stock dividend (21) (20)
Depreciation 42 26
Mutual fund dividends reinvested (4) (4)
Deferred loan origination fees, net (9) 10
ESOP shares committed to be released 14 15
MSBP compensation expense 5 (1)
Change in:
Accrued interest receivable 50 31
Other assets 45 (30)
Income taxes 120 (38)
Accrued expenses and other liabilities (248) (56)
------- -------
Net cash provided by operating activities 173 70
Cash flows from investing activities:
Purchases of securities available-for-sale -- (5,161)
Proceeds from maturities, calls and prepayments of securities available-for-sale 2,828 4,232
Origination of loans receivable (8,157) (9,300)
Repayment of principal on loans receivable 6,215 5,630
Purchases of premises and equipment (43) (333)
Proceeds from the sale of repossessed other assets 12 --
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Net cash provided by (used in) investing activities 855 (4,932)
Cash flows from financing activities:
Net increase in deposits 95 1,816
Net decrease in advances from borrowers for taxes and insurance (58) (56)
Dividends paid to stockholders (90) (89)
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Net cash provided by (used in) financing activities (53) 1,671
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Net change in cash and cash equivalents 975 (3,191)
Cash and cash equivalents at beginning of period 2,686 5,897
------- -------
Cash and cash equivalents at end of period $ 3,661 $ 2,706
======= =======
Cash paid during period for:
Interest $ 479 $ 591
Income taxes -- 35
See notes to consolidated condensed financial statements.
Page 4
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Condensed Financial Statements
December 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, 2002.
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 months ended December 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: RESTATEMENT OF PRIOR PERIOD EARNINGS
In October 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 147 Acquisition of
Certain Financial Institutions - an amendment of SFAS Nos. 72 and 144 and FASB
Interpretations No. 9. Under the provisions of SFAS No. 147, the acquisition of
all or part of a financial institution that meets the definition of a business
combination will be accounted for by the purchase method in accordance with SFAS
No. 141 Business Combinations. 147 provides that long-term customer
relationships intangible assets, except for servicing assets, recognized in the
acquisition of a financial institution, be evaluated for impairment under the
provision of SFAS No. 144 Accounting for the Impairment or Disposal of
Long-Lived Assets.
Per guidance issued in SFAS No. 147, the Company has evaluated the goodwill
recognized in connection with its branch acquisition and determined that it
meets the criteria of SFAS No. 147, and therefore the unidentifiable intangible
asset has been reclassified to goodwill and is subject to SFAS No. 142 Goodwill
and Other Intangible Assets. The reclassification was retroactively applied to
October 1, 2001, which resulted in the restatement of previously filed financial
statements. The impact for the three months ended December 31, 2001 was to
increase net earnings by $2,000. There was no impact on basic or diluted
earnings per share from previously reported numbers.
NOTE 3: IMPACT OF RECENTLY ISSUED ACCOUNT STANDARDS
In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, clarifying the accounting treatment and financial
statement disclosure of certain guarantees issued and outstanding.
Interpretation No. 45 clarifies that a guarantor is required to recognize, at
the inception of certain guarantees, a liability for the fair value undertaken
in issuing the guarantee. In addition, guarantors must disclose the approximate
term and nature of the guarantee, the maximum potential amount of future
payments, current carrying amount of the liability and the nature of recourse
provisions and collateral. The initial recognition and measurement provision of
Interpretation No. 45 are effective for guarantees issued or modified after
December 31, 2002. Management does not expect the adoption of the initial
recognition and measurement provision of Interpretation No. 45 to have a
material impact on the Company's consolidated financial statement, results of
operations or liquidity.
Page 5
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Condensed Financial Statements
December 31, 2002
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, addressing consolidation by business enterprises of
certain variable interest entities. Under the provision of Interpretation No.
46, an enterprise must consolidate a variable interest entity if that enterprise
will absorb a majority of the entity's expected losses or receive a majority of
the entity's residual returns, or both, regardless of the enterprise's direct or
indirect ability to make decisions about the entity's activities through voting
or similar rights. An enterprise that consolidates a variable interest entity is
called the primary beneficiary of that entity. Interpretation No. 46 requires
the primary beneficiary to disclose the nature, purpose, size and activities of
the variable interest entity; the carrying amount and classification of
consolidated assets that are collateral for the variable interest entity's
obligations; and, creditor's recourse to the general credit of the primary
beneficiary. Additional disclosures are required for enterprises that hold
significant interests in a variable interest entity but are not the primary
beneficiaries. Interpretation No. 46 applies immediately to interests in
variable interest entities created or acquired after January 31, 2003 and to the
first fiscal year or interim period beginning after June 15, 2003 for interests
in variable interest entities acquired before February 1, 2003. Interpretation
No. 46 may be applied prospectively or retroactively with a cumulative-effect
adjustment recorded as of the beginning of the first year applied. Management
does not expect the adoption of the initial recognition and measurement
provision of Interpretation No. 46 to have a material impact on the Company's
consolidated financial statements, results of operations or liquidity.
NOTE 4: 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 December 31, 2002
Net Income Average Shares Per Share Amount
---------- -------------- ---------------
Basic EPS
Net income available to common stockholders $ 155,000 800,558 $ 0.19
Effect of Dilutive Securities ======
Incremental shares under stock option plan -- 7,052
Incremental shares related to MSBP -- 354
--------- -------------
Diluted EPS
Income available to common stockholders plus
assumed conversions $ 155,000 807,964 $ 0.19
========= ============= ======
For the Three Months ended December 31, 2001
Net Income Average Shares Per Share Amount
---------- --------------- ----------------
Basic EPS
Net income available to common stockholders $ 71,000 791,201 $ 0.09
Effect of Dilutive Securities ======
Incremental shares under stock option plan -- 875
Incremental shares related to MSBP -- 129
---------- -------------
Diluted EPS
Income available to common stockholders plus
assumed conversions $ 71,000 792,205 $ 0.09
======== ============= ======
Page 6
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Condensed Financial Statements
December 31, 2002
NOTE 5: STOCK BASED COMPENSATION
In October 2002, the FASB issued Statement No. 148 , Accounting for Stock-Based
Compensation-Transition and Disclosure, providing alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. SFAS No. 148 also amends the disclosure
requirements of SFAS No. 123, Accounting for Stock-Based Compensation, to
include prominent disclosures in annual and interim financial statements about
the method of accounting for stock-based employee compensation and the effect of
the method used on reported results. The Company adopted the disclosure
provisions of SFAS No. 148 on December 31, 2002.
Based on the terms of options granted and using the intrinsic value method, no
compensation cost has been recognized for any stock option grants in the
accompanying consolidated financial statements. Had the Company determined
compensation cost based on the estimated fair value at the grant date for its
stock options, the Company's net income and net income per share for the three
months ended December 31, 2002 and 2001 would have been as follows:
2002 2001
---- ----
Net income, as reported $ 155 71
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (2) (1)
=== ===
Pro forma 153 70
=== ===
Basic earnings per share: As reported $ .19 .09
Pro forma .19 .09
=== ===
Diluted earnings per share: As reported $ .19 .09
Pro forma .19 .09
=== ===
The per share weighted-average fair value of stock options granted during 2001
for this pro forma disclosure was $2.22, determined on the date of grant using
the Black-Scholes option-pricing model with the following assumptions: expected
dividend yield of 4%, risk-free interest rates of 2.75%, volatility factor of
21%, and expected life of 7 years. There were no awards in 2002.
Page 7
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition and
Results of Operations
December 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.
COMPANY REGULATION
- ------------------
Recent Legislation to Curtail Corporate Accounting Irregularities. On
July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002
(the "Act"). The Securities and Exchange Commission (the "SEC") promulgated
certain regulations pursuant to the Act which were effective August 29, 2002,
and will continue to propose additional implementing or clarifying regulations
as necessary in furtherance of the Act. The passage of the Act and the
regulations implemented by the SEC subject publicly-traded companies to
additional and more cumbersome reporting regulations and disclosure. Compliance
with the Act and corresponding regulations may increase the Company's expenses.
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 attracts
deposits from the general public and uses such deposits, together with other
funds, primarily to originate commercial mortgages, commercial loans, consumer
loans and loans secured by first mortgages on one-to-four family residences in
its market areas. The Bank occasionally utilizes funds obtained from the Federal
Home Loan Bank of Seattle ("FHLB") to fund the loan
Page 8
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
December 31, 2002
originations. 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 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.
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.
At December 31, 2002 loan loss reserve was $367,000 as compared to $337,000 at
September 30, 2002
FINANCIAL CONDITION
- -------------------
ASSETS
At December 31, 2002, assets totaled $75.441 million compared to total assets of
$75.521 million at September 30, 2002. The slight decrease was primarily a
result of increases in net loans receivable and cash and cash equivalents, which
did not offset the decline in investment and mortgage-backed securities
available-for-sale from prepayments and scheduled payments.
Securities available-for-sale decreased by $2.823 million during the three
months ended December 31, 2002. Securities prepayments, calls and maturities of
$2.828 million were received on investment securities available-for-sale. The
market value of the securities increased $28,000 during the period. Amortization
of premium discounts and dividends accounted for $23,000 of the decrease in
securities.
Loans receivable increased $1.931 million during the three months ended December
31, 2002. During this period, the Bank originated loans totaling $8.157 million,
comprised of residential mortgage loans totaling $3.050 million, non-residential
mortgage loans totaling $3.186 million, consumer loans totaling
Page 9
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
December 31, 2002
$0.520 million, and commercial loans totaling $1.401 million. During the same
period, the Bank received scheduled principal payments and prepayments totaling
$6.215 million on its loan portfolio.
LIABILITIES
Deposits increased by $95,000 from $46.783 million at September 30, 2002 to
$46.878 million at December 31, 2002. The increases were attributable to slight
increases in money market, checking, savings, and a slight decline in
certificate accounts.
Accrued expenses and other liabilities decreased by $248,000 during the three
months ended December 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 during 2001.
STOCKHOLDERS' EQUITY
Overall, stockholders' equity increased $102,000 during the three months ended
December 31, 2002. The increase was primarily the result of current earnings
less dividends paid, and the increased market value on available-for-sale
securities.
ASSET QUALITY
- -------------
Non-performing assets totaled $84,000 at December 31, 2002, or 0.11% of total
assets. This compares to $96,000 at September 30, 2002 or 0.13% of total assets.
Non-performing assets at December 31, 2002 consisted of other repossessed assets
related to one commercial loan.
RESULTS OF OPERATIONS
- ---------------------
Comparison of Three Months Ended December 31, 2002 and 2001.
- ------------------------------------------------------------
Net Income. Net income for the three months ended December 31, 2002 was $84,000
- ----------
higher than net income reported for the same period in 2001. The increase is
attributable to a $136,000 increase in net interest income and a $10,000
decrease in non-interest expense partially offset by a $20,000 provision for
loan losses and an increase of $42,000 for income tax expense. Net interest
income increased $136,000 for the three month period ended December 31, 2002 as
compared to the same period in 2001 and was primarily attributable to a decrease
in the cost of interest-bearing liabilities. The decrease in non-interest
expense is primarily attributable to a $38,000 decrease in compensation and
benefits partially offset by a $23,000 increase in occupancy and equipment.
There were no other material changes in non-interest expenses.
Interest Income. Total interest income increased by $20,000 for the three months
- ---------------
ended December 31, 2002. Interest income totaled $1.126 million for the three
months ended December 31, 2002 as compared to $1.106 million for the three
months ended December 31, 2001. An increase in the volume of average
interest-earning assets from $67.091 million for the three months ended December
31, 2001 to $71.388 million for the same period in 2002 contributed to a
$179,000 increase in interest income. A decrease was experienced in the yield on
average interest-earning assets from 6.59% for the three months ended December
31, 2001 to 6.31% for the three months ended December 31, 2002, which
contributed to a $159,000 decrease in interest income.
Page 10
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
December 31, 2002
Interest Expense. Total interest expense decreased by $116,000 from $608,000 for
- ----------------
the three months ended December 31, 2001 to $492,000 for the same period in
2002. This was primarily a result of a decrease in the cost of average
interest-bearing liabilities as a result of lower market interest rates.
Interest expense for deposits, including deposit premium amortization, decreased
by $109,000 from $396,000 for the three months ended December 31, 2001 to
$286,000 for the same period in 2002. The cost of average interest-bearing
deposits decreased from 4.47% for the three months ended December 31, 2001 to
3.31% for the three months ended December 31, 2002, which caused interest
expense for deposits to decrease by $150,000. An increase in the volume of
average interest-bearing deposits from $40.985 million for the three months
ended December 31, 2001, to $45.216 million for the three months ended December
31, 2002, resulted in a $41,000 increase in interest expense for deposits.
Interest expense for advances from the FHLB and other interest expense decreased
by $7,000 from $213,000 for the three months ended December 31, 2001 to $206,000
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 December 31, 2001 to
5.80% for the same period in 2002 which resulted in a $20,000 decrease in
interest expense. Average interest-bearing advances increased from $13.400
million for the three month period ended December 31, 2001, to $14.200 million
for the same period 2002, and resulted in a $13,000 decrease in interest expense
for advances.
Net Interest Income. Net interest income increased by $136,000 from $498,000 for
- -------------------
the three months ended December 31, 2001 to $634,000 for the three months ended
December 31, 2002. The increase in net interest income was primarily due to the
decrease in the cost of average interest-bearing liabilities which more than
offset the increase in the volume of average interest-bearing liabilities. 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 123.36% in 2001 to 120.15% in 2002. The
primary 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 as evidenced by the increase in the interest rate
spread.
Net interest margin increased from 2.97% for the three months ended December 31,
2001 to 3.55% for the three months ended December 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. A $20,000 and $0 provision was recorded during the
- -------------------------
three months ended December 31, 2002 and 2001, respectively. There were no loan
charge-offs for the three months ended December 31, 2002 while recoveries
totaled $10,000. In the three months ended December 31, 2001, there were no loan
charge-offs while recoveries totaled $3,000.
Total Non-interest Income. Total non-interest income did not change from $30,000
- -------------------------
for the three months ended December 31, 2001 and 2002.
Total Non-interest Expense. Total non-interest expense decreased by $10,000 from
- --------------------------
$433,000 for the three months ended December 31, 2001 to $423,000 for the three
months ended December 31, 2002. The decrease was attributable to decreases in
compensation offset by a increase in occupancy and equipment. There were no
other material differences in non-interest expense.
Page 11
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
December 31, 2002
Provision for Income Taxes. The effective tax rate for the three months ended
- ----------------------------
December 31, 2002 and 2001 was 29.86% and 25.27%, respectively. The effective
tax rate was lower during 2001 than 2002 due to a decrease in taxable income and
the relationship of non-taxable income to total income.
CAPITAL COMPLIANCE AND LIQUIDITY
- --------------------------------
Capital Compliance. The following table presents the Bank's compliance with its
- ------------------
regulatory capital requirements:
At December 31, 2002
----------------------------
Percentage
Amount of Assets
-------- ----------
(Dollars in thousands)
GAAP Capital.............................. $11,325 15.06%
Tangible capital.......................... $10,753 14.30%
Tangible capital requirement.............. 1,128 1.50%
------- -----
Excess.................................... $ 9,625 12.80%
======= =====
Core capital.............................. $10,887 14.48%
Core capital requirements................. 2,256 3.00%
------- -----
Excess.................................... $ 8,631 11.48%
======= =====
Total risk-based capital (1).............. $11,254 22.68%
Total risk-based capital requirement (1).. 3,970 8.00%
------- -----
Excess (1)................................ $ 7,284 14.68%
======= =====
1) Based on risk-weighted assets of $49,625
2) Based on the Bank's adjusted total assets of $75,199
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 and 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 and 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 to fund maturing time
deposits, pay savings withdrawals, fund lending commitments, purchase new
investments, and increase liquidity. The Bank funds its operations internally
but supplements with borrowed funds from the FHLB. As of December 31, 2002 such
Page 12
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
December 31, 2002
borrowed funds totaled $14.200 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 December 31, 2003 is approximately
$21.130 million and $2.500 million, respectively. To the extent that these
deposits do not remain at the Bank upon maturity, the Bank believes that it can
replace these funds with deposits, excess liquidity, FHLB advances or outside
borrowings. The Bank has $4.9 million of excess borrowing capacity at FHLB as of
December 31, 2002. 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 increase.
At December 31, 2002, the Bank had loan commitments outstanding of $5.102
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 13
KEY OPERATING RATIOS
- --------------------
Three Months Ended
December 31,
-----------------------------------
2002 (1) 2001 (1)
(Dollars in thousands, except per
share data)
(Unaudited)
Return on average assets 0.82% 0.40%
Return on average equity 4.56% 2.08%
Interest rate spread 3.00% 2.12%
Net interest margin 3.55% 2.98%
Non-interest expense to average
Assets 2.24% 2.46%
Net recoveries to average
outstanding loans (0.02%) (0.01%)
At December 31, At September
2002 30, 2002
--------------- ----------------
Nonaccrual and 90 days past due
Loans $ -- $ --
Repossessed other assets 84 96
--------------- ----------------
Total nonperforming assets $ 84 $ 96
=============== ================
Nonperforming loans to gross loans -- --
Nonperforming assets to total assets 0.11% 0.13%
Book value per share (2) $16.71 $16.59
- ----------------
(1) The ratios for the three month periods are annualized.
(2) The number of shares outstanding as of December 31, 2002 and September 30,
2002 were 811,208. These include shares purchased by the ESOP.
Page 14
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Controls and Procedures
December 31, 2002
Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on their evaluation
------------------------------------------------
as of a date within 90 days of the filing date of this quarterly report on
Form 10-QSB, the Registrant's principal executive officer and principal
financial officer have concluded that the Registrant's disclosure controls
and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934 (the "Exchange Act")) are effective to
ensure that information required to be disclosed by the Company in reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms.
(b) Changes in internal controls. There were no significant changes in the
------------------------------
Registrant's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Page 15
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 December 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
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 99.1 -- CERTIFICATION PURSUANT TO 18 U.S.C.ss.1350
(b) Reports on Form 8-K
None
Page 16
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: February 13, 2003 By: /s/Gary J. Havens
------------------------------------------------
Gary J. Havens
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 13, 2003 By: /s/John B. Snyder
------------------------------------------------
John B. Snyder
Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
SECTION 302 CERTIFICATION
I, Gary Havens, President and Chief Executive Officer, certify that:
1. I have reviewed the quarterly report on Form 10-QSB of Crazy Woman Creek
Bancorp Incorporated (the "Company");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Company as of, and for, the periods presented in this
quarterly report;
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rule 13a-14(c)) and 15d-14)) for the Company and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to me by others within the
Company, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee
of Company's board of directors (or persons performing equivalent
functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 13, 2003 /s/Gary J. Havens
------------------------------------
Gary J. Havens, President and
Chief Executive Officer
SECTION 302 CERTIFICATION
I, John B. Snyder, Vice President and Chief Financial Officer, certify that:
1. I have reviewed the quarterly report on Form 10-QSB of Crazy Woman Creek
Bancorp Incorporated;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Company as of, and for, the periods presented in this
quarterly report;
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rule 13a-14(c) and 15d-14)) for the Company and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to me by others within the
Company, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee
of Company's board of directors (or persons performing equivalent
functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 13, 2003 /s/John B. Snyder
-----------------------------------
John B. Snyder, Vice President and
Chief Financial Officer