UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2003
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
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Crazy Woman Creek Bancorp Incorporated
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(Exact name of registrant as specified in its charter)
Wyoming 83-0315410
- -------------------------------- -------------------
(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 11, 2003: 811,608
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, 1
2003 and September 30, 2002
Consolidated Condensed Statements of Income for the Three and Six Months 2
ended March 31, 2003 and 2002
Consolidated Condensed Statements of Comprehensive Income (loss) for the 3
Three and Six Months ended March 31, 2003 and 2002
Consolidated Condensed Statements of Cash Flows for the Six Months ended 4
March 31, 2003 and 2002
Notes to Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results 8
of Operations
Item 3. Controls and Procedures 16
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,
2003 2002
--------- -------
Assets (Dollars in thousands,
- ------ except per share data)
Cash and cash equivalents $ 6,294 $ 2,686
Investment and mortgage-backed securities
available-for-sale 12,925 18,109
Stock in Federal Home Loan Bank of Seattle, at cost 1,241 1,200
Loans receivable, net 50,986 49,339
Accrued interest receivable 374 420
Premises and equipment, net 3,479 3,282
Repossessed other assets owned 183 96
Income tax receivable - 71
Goodwill, net 178 178
Other intangible assets, net 56 69
Other assets 96 71
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$75,812 $75,521
======= =======
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Deposits $48,784 $46,783
Advances from Federal Home Loan Bank 12,700 14,200
Advance payments by borrowers for taxes and insurance 28 65
Income tax payable 7 -
Deferred income taxes 291 285
Dividends payable 97 97
Accrued expenses and other liabilities 412 637
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Total liabilities 62,319 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 March 31, 2003 and September 30, 2002 - -
Common stock, par value $.10 per share, 5,000,000 shares
authorized; 1,058,000 issued and outstanding at
March 31, 2003 and September 30, 2002 106 106
Additional paid-in capital 10,148 10,139
Unearned ESOP/MSBP shares (397) (411)
Retained earnings 6,892 6,858
Accumulated other comprehensive income, net 194 236
Treasury stock at cost (3,450) (3,474)
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Total stockholders' equity 13,493 13,454
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$75,812 $75,521
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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,
---------------------------- ---------------------------
2003 2002 2003 2002
------ ------ ------ ------
(Dollars in thousands except per share data)
(restated see (restated see
note 2) note 2)
Interest income:
Loans receivable $ 899 $ 768 $1,826 $1,556
Mortgage-backed securities 108 194 241 414
Investment securities 34 67 75 120
Other interest income 27 25 52 70
------ ------ ------ ------
Total interest income $1,068 1,054 2,194 2,160
Interest expense:
Deposits 265 353 551 747
Advances from Federal Home Loan Bank 200 207 406 419
Other interest expense - - - 2
------ ------ ------ ------
Total interest expense 465 560 957 1,168
------ ------ ------ ------
Net interest income 603 494 1,237 992
Provision for loan losses 15 -- 35 --
------ ------ ------ ------
Net interest income after provision for loan losses 588 494 1,202 992
------ ------ ------ ------
Non-interest income:
Customer service charges 27 19 52 41
Gain on sale of securities 20 -- 20 --
Other operating income 6 14 11 22
------ ------ ------ ------
Total non-interest income 53 33 83 63
------ ------ ------ ------
Non-interest expense:
Compensation and benefits 275 219 490 472
Occupancy and equipment 75 52 139 93
FDIC/SAIF deposit insurance premiums 5 2 7 4
Advertising 18 16 30 30
Data processing services 48 36 83 68
Professional fees 47 54 68 72
Other 100 87 174 160
------ ------ ------ ------
Total non-interest expense 568 466 991 899
------ ------ ------ ------
Income before income taxes 73 61 294 156
Income tax expense 15 15 81 38
------ ------ ------ ------
Net income $ 58 $ 46 $ 213 $ 118
====== ====== ====== ======
Dividends declared per common share $ 0.12 $ 0.12 $ 0.24 $ 0.24
====== ====== ====== ======
Basic earnings per common share $ 0.07 $ 0.06 $ 0.27 $ 0.15
====== ====== ====== ======
Diluted earnings per common share $ 0.07 $ 0.06 $ 0.26 $ 0.15
====== ====== ====== ======
See notes to consolidated condensed financial statements.
Page 2
CRAZY WOMAN CREEK BANCORP INCORPORATED AND
SUBSIDIARY Consolidated Condensed Statements of
Comprehensive Income (Loss)
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- ---------------------------
2003 2002 2003 2002
-------- ------- --------- --------
(Dollars in thousands)
(restated see (restated see
note 2) note 2)
Net income $ 58 $ 46 $ 213 $ 118
Other comprehensive loss:
Unrealized gains on investment and mortgage-backed
securities available-for-sale (93) (104) (64) (205)
Income tax benefit related to items of other comprehensive
loss 31 35 22 70
---- ----- ----- ------
Other comprehensive loss, after tax (62) (69) (42) (135)
---- ----- ----- ------
Comprehensive income (loss) $ (4) $ (23) $ 171 $ (17)
==== ===== ===== ======
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, 2003 and 2002
(Unaudited)
2003 2002
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(Dollars in thousands)
(restated
Cash flows from operating activities: see note 2)
Net income $ 213 $ 118
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Provision for loan losses 35 -
Amortization of premiums and discounts on
investment securities 54 53
Amortization of core deposit intangibles 13 15
Deferred income tax expense net 28 40
Federal Home Loan Bank stock dividend (41) (37)
Depreciation 88 56
Mutual fund dividends reinvested (8) (7)
Deferred loan origination fees, net (30) 17
Gain on sale of securities (20) -
ESOP shares committed to be released 31 31
MSBP compensation expense 11 (3)
Change in:
Accrued interest receivable 46 15
Other assets (25) 54
Income taxes 78 (27)
Accrued expenses and other liabilities (225) (411)
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Net cash provided by (used in) operating activities 248 (86)
Cash flows from investing activities:
Purchases of securities available-for-sale - (5,431)
Proceeds from maturities, calls and prepayments of
securities available-for-sale 4,427 6,833
Proceeds from sales of securities available-for-sale 667 -
Origination of loans receivable (15,144) (15,893)
Repayment of principal on loans receivable 13,391 10,507
Purchases of premises and equipment (285) (1,143)
Proceeds from the sale of repossessed other assets 14 -
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Net cash provided by (used in) investing activities 3,070 (5,127)
Cash flows from financing activities:
Net increase in deposits 2,001 3,738
Repayment of advances from Federal Home Loan Bank (1,500) -
Net decrease in advances from borrowers for taxes and insurance (37) (34)
Exercise of stock options 5 47
Dividends paid to stockholders (179) (180)
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Net cash provided by financing activities 290 3,571
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Net change in cash and cash equivalents 3,608 (1,642)
Cash and cash equivalents at beginning of period 2,686 5,897
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Cash and cash equivalents at end of period $ 6,294 $ 4,255
======= =======
Cash paid (received) during period for:
Interest $ 938 $ 1,161
Income taxes (25) 35
See notes to consolidated condensed financial statements.
Page 4
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Condensed Financial Statements
March 31, 2003
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 and six months ended March 31, 2003 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 and six months ended March 31, 2002 was to
increase net earnings by $1,000 and $3,000, respectively. There was no impact on
basic or diluted earnings per share from previously reported numbers for the
three months ended March 31, 2002. Basic and diluted earnings per share each
increased $0.01 per share from $0.14 per share to $0.15 per share from
previously reported numbers for the six months ended March 31, 2002.
NOTE 3: EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted-average number of common shares outstanding during the period less
unvested management stock bonus plan (MSBP) and unallocated and not yet
committed to be released Employee Stock Ownership Plan (ESOP) shares. Diluted
EPS is calculated by dividing net income by the weighted-average number of
common shares used to compute basic EPS plus the incremental amount of potential
common stock determined by the treasury stock method.
Page 5
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Condensed Financial Statements
March 31, 2003
For the Three Months ended March 31, 2003
Net Income Average Shares Per Share Amount
------------- -------------------- ------------------
Basic EPS
Net income available to common stockholders $ 58,000 802,188 $ 0.07
====
Effect of Dilutive Securities
Incremental shares under stock option plan - 12,394
Incremental shares related to MSBP - 983
-------- -------
Diluted EPS
Income available to common stockholders plus
assumed conversions 58,000 815,565 $ 0.07
======== ======= ====
For the Three Months ended March 31, 2002
Net Income Average Shares Per Share Amount
-------------- ------------------- ------------------
Basic EPS
Net income available to common stockholders $ 46,000 793,574 $ 0.06
====
Effect of Dilutive Securities
Incremental shares under stock option plan - 11,327
Incremental shares related to MSBP - 378
-------- -------
Diluted EPS
Income available to common stockholders plus
assumed conversions $ 46,000 805,279 $ 0.06
======== ======= ====
For the Six Months ended March 31, 2003
Net Income Average Shares Per Share Amount
-------------- -------------------- ------------------
Basic EPS
Net income available to common stockholders $213,000 801,363 $ 0.27
====
Effect of Dilutive Securities
Incremental shares under stock option plan 9,821
Incremental shares related to MSBP - 670
-------- -------
Diluted EPS
Income available to common stockholders plus
assumed conversions $213,000 811,854 $ 0.26
======== ======= ====
For the Six Months ended March 31, 2002
Net Income Average Shares Per Share Amount
-------------- -------------------- ------------------
Basic EPS
Net income available to common stockholders $118,000 792,374 $ 0.15
====
Effect of Dilutive Securities
Incremental shares under stock option plan - 9,554
Incremental shares related to MSBP - 254
-------- -------
Diluted EPS
Income available to common stockholders plus
assumed conversions $118,000 802,182 $ 0.15
======== ======= ====
Page 6
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Notes to Consolidated Condensed Financial Statements
March 31, 2003
NOTE 4: 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
and six months ended March 31, 2003 and 2002 would have been as follows:
Three Months Ended Six Months Ended
March 31, March 31,
2003 2002 2003 2002
------ ------ ------------- -------------
Net income, as reported $ 58 $ 46 $213 $118
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects (3) (1) (4) (2)
----- ---- ---- ----
Pro forma net income 55 45 209 116
Basic earnings per share: As reported $ .07 .06 .27 .15
Pro forma .07 .06 .26 .15
Diluted earnings per share: As reported $ .07 .06 .26 .15
Proforma .07 .06 .26 .15
The per share weighted-average fair value of stock options granted during 2002
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 4.8%, risk-free interest rates of 2.75%, volatility factor of
21%, and expected life of 7 years. The per share weighted-average fair value of
stock options granted during 2003 for this pro forma disclosure was $1.19,
determined on the date of grant using the Black-Scholes option-pricing model
with the following assumptions: expected dividend yield of 4.8%, risk-free
interest rates of 1.26%, volatility factor of 19%, and expected life of 7 years.
Page 7
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition and Results of Operations
March 31, 2003
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 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 originations. The Bank
invests in mortgage-backed securities, 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.
Page 8
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
March 31, 2003
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 are
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 March 31, 2003 the loan loss reserve was $382,000 as compared to $337,000 at
September 30, 2002.
FINANCIAL CONDITION
- -------------------
ASSETS
At March 31, 2003, assets totaled $75.812 million compared to total assets of
$75.521 million at September 30, 2002. The slight increase was primarily a
result of increases in net loans receivable and cash and cash equivalents, which
offset the decline in investment and mortgage-backed securities
available-for-sale from prepayments and scheduled payments.
Securities available-for-sale decreased by $5.184 million during the six months
ended March 31, 2003. Securities prepayments, calls and maturities of $4.427
million were received on investment securities available-for-sale. Security
sales accounted for $667,000 with a gain of $20,000. The market value of the
securities decreased $64,000 during the period. Amortization of premiums
discounts and dividends accounted for $46,000 of the decrease in securities.
Loans receivable increased $1.647 million during the six months ended March 31,
2003. During this period, the Bank originated loans totaling $15.144 million,
comprised of residential mortgage loans totaling $6.197 million, non-residential
mortgage loans totaling $5.829 million, consumer loans totaling $1.245 million,
and commercial loans totaling $1.873 million. During the same period, the Bank
received scheduled principal payments and prepayments totaling $13.391 million
on its loan portfolio.
LIABILITIES
Deposits increased by $2.001 million from $46.783 million at September 30, 2002
to $48.784 million at March 31, 2003. The increases were attributable to slight
increases in money market, checking, savings, and an increase in certificate
accounts.
Advances from the FHLB decreased $1.500 million during the six months ended
March 31, 2003. The advances are a supplement to the Bank's retail deposits and
were paid down from the increase in deposits.
Page 9
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
March 31, 2003
All other liabilities decreased by $249,000 during the six months ended March
31, 2003 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 2002.
STOCKHOLDERS' EQUITY
Overall, stockholders' equity increased $39,000 during the six months ended
March 31, 2003. The increase was primarily the result of current earnings less
dividends paid, the exercise of stock options, offset by the decreased market
value on available-for-sale securities.
ASSET QUALITY
- -------------
Non-performing assets totaled $733,000 at March 31, 2003, or 0.97% of total
assets. This compares to $96,000 at September 30, 2002 or 0.13% of total assets.
Non-performing assets at March 31, 2003 consisted of other repossessed assets
related to one commercial loan, one residential real estate owned, and one
commercial mortgage loan. Subsequent to March 31, 2003 the real estate owned was
sold and the commercial mortgage has been brought current but will remain on
non-accrual until the loan performs as agreed.
RESULTS OF OPERATIONS
- ---------------------
Comparison of Three Months Ended March 31, 2003 and 2002.
- ---------------------------------------------------------
Net Income. Net income for the three months ended March 31, 2003 was $12,000
- ------------
higher than net income reported for the same period in 2002. The increase is
attributable to a $109,000 increase in net interest income and a $20,000
increase in non-interest income offset by a $102,000 increase in non-interest
expense and a $15,000 increase in the provision for loan losses. The net
interest income increase was primarily attributable to a decrease in the cost of
interest-bearing liabilities. The increase in non-interest expense is primarily
attributable to a $56,000 increase in compensation and benefits, a $23,000
increase in occupancy and equipment, a $12,000 increase in data processing
services, a $13,000 increase in other non-interest expenses primarily due to
continued expansion of the banks operation, partially offset by a $7,000
decrease in professional fees. There were no other material changes in
non-interest expenses.
Interest Income. Total interest income increased by $14,000 for the three months
- ----------------
ended March 31, 2003. Interest income totaled $1.068 million for the three
months ended March 31, 2003 as compared to $1.054 million for the three months
ended March 31, 2002.
Page 10
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
March 31, 2003
An increase in the volume of average interest-earning assets from $67.285
million for the three months ended March 31, 2002 to $71.392 million for the
same period in 2003 contributed to a $113,000 increase in interest income. A
decrease was experienced in the yield on average interest-earning assets from
6.27% for the three months ended March 31, 2002 to 5.98% for the three months
ended March 31, 2003, which contributed to a $99,000 decrease in interest
income.
Interest Expense. Total interest expense decreased by $95,000 from $560,000 for
- ----------------
the three months ended March 31, 2002 to $465,000 for the same period in 2003.
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 $88,000 from $353,000 for the three months ended March 31, 2002 to $265,000
for the same period in 2003. The cost of average interest-bearing deposits
decreased from 3.30% for the three months ended March 31, 2002 to 2.30% for the
three months ended March 31, 2003, which caused interest expense for deposits to
decrease by $107,000. An increase in the volume of average interest-bearing
deposits from $42.774 million for the three months ended March 31, 2002, to
$46.043 million for the three months ended March 31, 2003, resulted in a $19,000
increase in interest expense for deposits.
Interest expense for advances from the FHLB and other interest expense decreased
by $7,000 from $207,000 for the three months ended March 31, 2002 to $200,000
for the same period in 2003. The cost of average interest-bearing advances from
the FHLB decreased from 6.18% for the three months ended March 31, 2002 to 5.76%
for the same period in 2003 which resulted in a $14,000 decrease in interest
expense. Average interest-bearing advances increased from $13.400 million for
the three month period ended March 31, 2002, to $13.893 million for the same
period 2003, and resulted in a $7,000 increase in interest expense for advances.
Net Interest Income. Net interest income increased by $109,000 from $494,000 for
- --------------------
the three months ended March 31, 2002 to $603,000 for the three months ended
March 31, 2003. The increase in net interest income was partially 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 was also attributable to an increase in volume of average
interest-earning assets. Another 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 from 2.28% for the three months ended March 31, 2002 to 2.88% for
the three months ended March 31, 2003.
Net interest margin increased from 2.94% for the three months ended March 31,
2002 to 3.38% for the three months ended March 31, 2003. 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 $15,000 and $0 provision was recorded during the
- -------------------------
three months ended March 31, 2003 and 2002, respectively. There was $1,000 of
loan charge-offs for the three months ended March 31, 2003 while recoveries
totaled $1,000. In the three months ended March 31, 2002, there was $1,000 in
loan charge-offs while recoveries totaled $4,000.
Total Non-interest Income. Total non-interest income increased $20,000 from
- ---------------------------
$33,000 for the three months ended March 31, 2002 to $53,000 for the same period
in 2003. This was the result of a gain on sale of securities available-for-sale
during the three months ended March 31, 2003.
Page 11
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
March 31, 2003
Total Non-interest Expense. Total non-interest expense increased by $102,000
- ---------------------------
from $466,000 for the three months ended March 31, 2002 to $568,000 for the
three months ended March 31, 2003. The increase was attributable to increases in
compensation and benefits, occupancy and equipment, data processing services,
other non-interest expenses offset by a decrease in professional fees. There
were no other material differences in non-interest expenses.
Provision for Income Taxes. The effective tax rate for the three months ended
- ----------------------------
March 31, 2003 and 2002 was 20.55% and 24.59%, respectively. The effective tax
rate was lower during 2003 than 2002 due to the relationship of non-taxable
income to total income.
Comparison of Six Months Ended March 31, 2003 and 2002.
- -------------------------------------------------------
Net Income. Net income for the six months ended March 31, 2003 was higher than
- ----------
net income reported for the same period in 2002 primarily due to increased net
interest income. Specifically the increase is attributable to a $245,000
increase in net interest income a $4,000 decrease in professional fees, and a
$20,000 gain on sale of investment securities available-for-sale. These
increases were partially offset by a $35,000 increase in the provision for loan
losses, a $18,000 increase in compensation and benefits, a $46,000 increase in
occupancy and equipment, a $15,000 increase in data processing costs, a $14,000
increase in other non-interest expenses, and a increase of $43,000 in income tax
expense. The increase in net interest income was primarily attributed to a
decrease in the cost of interest-bearing liabilities for the six-month period
ended March 31, 2003.
Interest Income. For the six months ended March 31, 2003, interest income
- ----------------
totaled $2.194 million compared to $2.160 million for the six months ended March
31, 2002. An increase in the volume of average interest-earning assets from
$67.187 million for the six months ended March 31, 2002 to $71.389 million for
the same period in 2003 caused interest income to increase by $271,000. A
decrease was experienced in the yield on average interest-earning assets from
6.43% for the six months ended March 31, 2002 to 6.15% for the six months ended
March 31, 2003, which contributed to a $237,000 decrease in interest income.
Interest Expense. Total interest expense decreased by $211,000 from $1.168
- -----------------
million for the six months ended March 31, 2002 to $957,000 for the same period
in 2003. 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 $196,000 from $747,000 for the six months ended March 31, 2002 to $551,000
for the same period in 2003. The cost of average interest-bearing deposits
decreased from 3.57% for the six months ended March 31, 2002 to 2.42% for the
six months ended March 31, 2003, which caused interest expense for deposits to
decrease by $241,000. An increase in the volume of average interest-bearing
deposits from $41.879 million for the six months ended March 31, 2002 to $45.629
million for the six months ended March 31, 2003, resulted in a $45,000 increase
in interest expense for deposits.
Interest expense for advances from the FHLB and other interest expense decreased
by $15,000 from $421,000 for the six months ended March 31, 2002 to $406,000 for
the same period in 2003. The cost of average interest-bearing advances from the
FHLB decreased from 6.28% for the six months ended March 31, 2002 to 5.78% for
the same period in 2003. This decrease in the cost of average interest-bearing
advances caused a $34,000 decrease in interest expense. Average interest-bearing
advances increased from
Page 12
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
March 31, 2003
$13.400 million for the six month period ended March 31, 2002 to $14.047 million
for the six month period ended March 31, 2003, resulting in a $19,000 increase
in interest expense for advances.
Net Interest Income. Net interest income increased by $245,000 from $992,000 for
- -------------------
the six months ended March 31, 2002 to $1.237 million for the six months ended
March 31, 2003. The increase in net interest income was primarily caused by the
decrease 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
121.54% in 2002 to 119.63% in 2003. 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 2.95% for the six months ended March 31, 2002
to 3.47% for the six months ended March 31, 2003. 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. A $35,000 and $0 provision was recorded during the
- -------------------------
six months ended March 31, 2003 and 2002, respectively. There was $1,000 in loan
charge-offs for the six months ended March 31, 2003 while recoveries totaled
$11,000. In the six months ended March 31, 2002, there was $1,000 in loan
charge-offs while recoveries totaled $7,000.
Total Non-interest Income. Total non-interest income increased $20,000 from
- ---------------------------
$63,000 for the six months ended March 31, 2002 to $83,000 for the same period
in 2003. This was the result of a gain on sale of securities available-for-sale
during the six months ended March 31, 2003.
Total Non-interest Expense. Total non-interest expense increased by $92,000 from
- --------------------------
$899,000 for the six months ended March 31, 2002 to $991,000 for the six months
ended March 31, 2003. There were increases in compensation, occupancy and
equipment, data processing costs, and other non-interest expenses. There were no
other material differences in non-interest expenses.
Provision for Income Taxes. The effective tax rate for the six months ended
- ----------------------------
March 31, 2003 and 2002 was 27.55% and 24.36%, respectively. The effective tax
rate was different in 2003 than in 2002 due to an increase in taxable income and
the relationship of non-taxable income to total income.
Page 13
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
March 31, 2003
CAPITAL COMPLIANCE AND LIQUIDITY
Capital Compliance. The following table presents the Bank's compliance with its
- ------------------
regulatory capital requirements:
At March 31, 2003
------------------------------
Percentage
Amount of Assets (2)
--------- ----------------
(Dollars in thousands)
GAAP Capital................................ $ 11,384 15.32%
Tangible capital............................ $ 10,880 14.64%
Tangible capital requirement................ 1,115 1.50%
-------- -----
Excess...................................... $ 9,765 13.14%
======== =====
Core capital................................ $ 10,991 14.79%
Core capital requirements................... 1,485 3.00%
-------- -----
Excess...................................... $ 9,506 11.79%
======== =====
Total risk-based capital (1)................ $ 11,373 22.98%
Total risk-based capital requirement (1).... 3,960 8.00%
-------- -----
Excess (1).................................. $ 7,413 14.98%
======== =====
1) Based on risk-weighted assets of $49,500
2) Based on the Bank's adjusted total assets of $74,310
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 March 31, 2003 such
borrowed funds totaled $12.700 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, 2004 is approximately $20.855
million and $1.000 million, respectively. To the
Page 14
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Management Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
March 31, 2003
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 $5.697 million of excess borrowing
capacity at FHLB as of March 31, 2003. 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 March 31, 2003, the Bank had loan commitments outstanding of $4.923 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.
KEY OPERATING RATIOS
- --------------------
Three Months Ended Six Months Ended
March 31, March 31,
----------------------------------- ---------------------------------
2003 (1) 2002 (1) 2003 (1) 2002 (1)
(Dollars in thousands, except per share data)
(Unaudited)
Return on average assets 0.31% 0.26% 0.56% 0.33%
Return on average equity 1.71% 1.36% 3.14% 1.73%
Interest rate spread 2.88% 2.28% 2.94% 2.20%
Net interest margin 3.38% 2.94% 3.47% 2.95%
Non-interest expense to average
Assets 2.90% 2.62% 2.57% 2.54%
Net recoveries to average
outstanding loans (0.00%) (0.01%) (0.02%) (0.01%)
At March 31, At September 30,
2003 2002
------------- ----------------
Nonaccrual and 90 days past due
Loans $ 550 $ -
Repossessed other assets 183 96
------ ------
Total nonperforming assets $ 733 $ 96
====== ======
Nonperforming loans to gross loans 1.04% -
Nonperforming assets to total assets 0.97% 0.13%
Book value per share (2) $16.63 $16.59
- ----------------
(1) The ratios for the three and six month periods are annualized.
(2) The number of shares outstanding as of March 31, 2003 was 811,608 and as of
September 30, 2002 was 811,208. These include shares purchased by the ESOP.
Page 15
CRAZY WOMAN CREEK BANCORP INCORPORATED AND SUBSIDIARY
Controls and Procedures
March 31, 2003
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 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, 2003. 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 29, 2003, the Company held its annual meeting of
stockholders and the following items were presented:
The election of Directors Deane D. Bjerke and Thomas J. Berry for terms
of three years ending 2006.
Votes were as follows:
For Withheld
--- --------
Deane D. Bjerke 711,757 8,940
Thomas J. Berry 712,672 8,025
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 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 13, 2003 By: /s/ Gary J. Havens
----------------------------------------
Gary J. Havens
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 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: May 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: May 13, 2003 /s/John B. Snyder
-------------------- ------------------------------------
John B. Snyder, Vice President and
Chief Financial Officer