SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended June 30, 2000
[ ] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-23409
HIGH COUNTRY BANCORP, INC.
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(Name of Small Business Issuer in its Charter)
Colorado 84-1438612
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
7360 West US Highway 50, Salida, Colorado 81201
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(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (719) 539-2516
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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(Title of Class)
Check whether the issuer: (l) filed all reports required to be filed by
Section 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
----- -----
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. X
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State registrant's revenues for its most recent fiscal year: $10,126,314
The aggregate market value of the voting stock held by nonaffiliates of the
registrant based on the last sale of which the registrant was aware ($11.75 per
share on September 15, 2000), was approximately $8,963,969. Solely for purposes
of this calculation, the term "affiliate" refers to all directors and executive
officers of the registrant and all stockholders beneficially owning more than
10% of the registrant's common stock.
As of September 15, 2000, there were issued and outstanding 1,071,225
shares of the registrant's common stock, of which 308,334 shares were held by
affiliates (as defined above).
Transitional Small Business Disclosure Format (check one): YES NO X
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DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for the Fiscal Year Ended June
30, 2000 (Parts I and II)
2. Portions of Proxy Statement for the 2000 Annual Meeting of Stockholders
(Part III)
<PAGE>
PART I
ITEM 1. BUSINESS
-----------------
GENERAL
HIGH COUNTRY BANCORP, INC. High Country Bancorp, Inc. (the "Company") was
incorporated under the laws of the State of Colorado in August 1997 for the
purpose of becoming a savings and loan holding company for Salida Building and
Loan Association which changed its name to High Country Bank (the "Bank") in
February 2000. On December 9, 1997, the Bank consummated its conversion from
mutual to stock form (the "Conversion") and the Company completed its offering
of Common Stock through the sale and issuance of 1,322,500 shares of Common
Stock at a price of $10.00 per share, realizing gross proceeds of $13.2 million
and net proceeds of $12.7 million. The Company purchased all of the capital
stock of the Bank with $5.8 million of the offering proceeds. On May 24, 1999,
the Company announced that it was commencing a stock repurchase program to
acquire up to 10% of the Company's outstanding shares of Common Stock, or up to
132,250 shares, over a 12-month period. On March 20, 2000, the Company announced
a second stock repurchase program to acquire up to 10% of the Company's
outstanding shares of Common Stock, or up to 119,025 shares, over a 12-month
period. These repurchase programs, both of which have been completed, resulted
in the repurchase of 251,275 shares of Company Common Stock.
The Company engages in no significant activity other than investing the
proceeds of the offering of Common Stock which it retained, holding the stock of
the Bank and operating the business of a savings association through the Bank.
Accordingly, the information set forth in this report, including financial
statements and related data, relates primarily to the Bank and its subsidiaries.
In April 2000, the Company relocated its executive offices to its new main
office located at 7360 West US Highway 50, Salida, Colorado. Its telephone
number is (719) 539-2516.
HIGH COUNTRY BANK. The Bank is a federal stock savings association
operating through offices located in Salida, Colorado (2), Buena Vista, Colorado
and Leadville, Colorado and serving Chaffee, Lake, Western Fremont and Saguache
Counties in Colorado. The Bank was chartered in 1886 as the first
state-chartered building and loan association in Colorado. The Bank received
federal insurance of its deposit accounts and became a member of the FHLB in
1937. The Bank became a federally-chartered association on August 16, 1993 under
the name of Salida Building and Loan Association. Effective December 9, 1997,
the Bank became a stock savings association. In November 1999, the Bank
incorporated a new subsidiary, High Country Title and Escrow Company ("High
Country Title"). High Country Title offers title insurance and escrow closing
services within the Bank's market area. At June 30, 2000, the Bank had total
assets of $137.7 million, loans receivable (net) of $119.9 million, total
deposits of $82.8 million and stockholders' equity of $16.1 million.
Historically, the Bank has operated as a traditional savings institution by
emphasizing the origination of loans secured by one- to four-family residences.
Since fiscal 1996, the Bank has significantly increased its origination of
consumer, commercial business and commercial real estate loans, including loans
for the purchase and development of raw land, all of which loans have been
originated in its market area.
The Bank is subject to examination and comprehensive regulation by the
Office of Thrift Supervision ("OTS"), and the Bank's savings deposits are
insured up to applicable limits by the Savings Association Insurance Fund
("SAIF"), which is administered by the Federal Deposit Insurance Corporation
("FDIC"). The Bank is a member of and owns capital stock in the Federal Home
Loan Bank ("FHLB") of Topeka, which is one of 12 regional banks in the FHLB
System. The Bank is further subject to regulations of the Federal Reserve Board
governing reserves to be maintained and certain other matters. Regulations
significantly affect the operations of the Bank. See "Regulation of the Bank."
In April 2000, the Bank relocated its executive offices to its new main
office located at 7360 West US Highway 50, Salida, Colorado 81201-0309. The Bank
retained the location at 130 West 2nd Street as a branch office, and its main
telephone number is (719) 539-2516.
2
<PAGE>
LENDING ACTIVITIES
GENERAL. The Bank's loan portfolio, net, totaled $119.9 million at June 30,
2000, representing 87.05% of total assets at that date. Substantially all loans
are originated in the market area. At June 30, 2000, $67.2 million, or 56.01% of
the Bank's gross loan portfolio consisted of one- to four-family, residential
mortgage loans. Other loans secured by real estate include commercial real
estate loans which amounted to $18.7 million or 15.59% of the gross loan
portfolio and land development loans, which amounted to $4.6 million or 3.84% of
the gross loan portfolio at June 30, 2000. The Bank also originates commercial
business loans and consumer loans, most of which are automobile loans. At June
30, 2000, consumer loans totaled $14.4 million, or 12.00% of the gross loan
portfolio, and commercial business loans totaled $11.6 million or 9.68% of the
gross loan portfolio.
LOAN PORTFOLIO COMPOSITION. Set forth below is selected data relating to
the composition of the Bank's loan portfolio by type of loan at the dates
indicated. At June 30, 2000, the Bank had no concentrations of loans exceeding
10% of total loans other than as disclosed below.
<TABLE>
<CAPTION>
AT JUNE 30,
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2000 1999
-------------------- ---------------------
AMOUNT % AMOUNT %
------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
MORTGAGE LOANS:
One- to four-family..................................... $ 67,150 56.01% $ 63,965 64.98%
Commercial.............................................. 18,695 15.59 8,504 8.64
Construction............................................ 7,522 6.27 4,468 4.54
Land development........................................ 4,601 3.84% 3,209 3.26
---------- ------ --------- -------
Total mortgage loans................................. 97,968 81.71 80,146 81.42
---------- ------ --------- -------
Consumer loans............................................ 14,387 12.00 11,921 12.11
Loans on savings accounts................................. 588 0.49 691 0.70
Commercial loans.......................................... 11,602 9.68 9,058 9.20
Other loans............................................... 21 0.02 15 0.02
---------- ------- --------- ------
Total loans............................................... 124,566 103.90 101,831 103.45
---------- ------- --------- ------
Less:
Undisbursed loans in process............................ 3,069 2.56 1,954 1.99
Deferred fees and discounts............................ 596 0.50 534 0.54
Allowance for losses.................................... 1,003 0.84 910 0.92
---------- ------- --------- ------
Loan portfolio, net....................................... $ 119,898 100.00% $ 98,433 100.00%
========== ======= ========= ======
</TABLE>
3
<PAGE>
LOAN MATURITY SCHEDULE. The following table sets forth certain information
at June 30, 2000 regarding the dollar amount of loans maturing in the Bank's
portfolio based on their contractual terms to maturity. Demand loans, loans
having no stated schedule of repayments and no stated maturity, and overdrafts
are reported as due in one year or less.
<TABLE>
<CAPTION>
Due after
Due during 1 through Due after
the year ending 5 years after 5 years after
June 30, 2001 June 30, 2001 June 30, 2001 Total
------------- ------------- ------------- -------
(In thousands)
<S> <C> <C> <C> <C>
Mortgage loans:
One-to four-family...................$ 1,143 $ 3,888 $ 62,119 $ 67,150
Commercial........................... 2,538 12,610 3,547 18,695
Construction......................... 7,522 -- -- 7,522
Land development..................... 2,198 2,170 233 4,601
---------- --------- --------- --------
Total.............................$ 13,401 $ 18,668 $ 65,899 $ 97,968
========== ========= ========= ========
</TABLE>
The next table sets forth at June 30, 2000, the dollar amount of all loans
which have predetermined interest rates and have floating or adjustable interest
rates.
<TABLE>
<CAPTION>
Predetermined Floating or
Rates Adjustable Rates
------- ----------------
(In thousands)
<S> <C> <C>
Mortgage loans
One-to four-family................................ $ 61,651 $ 5,499
Commercial........................................ 18,261 434
Construction...................................... 7,522 --
Land development.................................. 4,601 --
---------- ----------
Total........................................... $ 92,035 $ 5,933
========== ==========
</TABLE>
Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of loans is substantially less than
their contractual terms because of prepayments. In addition, due-on-sale clauses
on loans generally give the Bank the right to declare a loan immediately due and
payable in the event, among other things, that the borrower sells the real
property subject to the mortgage and the loan is not repaid. The average life of
mortgage loans tends to increase when current mortgage loan market rates are
substantially higher than rates on existing mortgage loans and, conversely,
decrease when current mortgage loan market rates are substantially lower than
rates on existing mortgage loans.
LOAN FEES AND SERVICING. The Bank receives fees in connection with loan
applications, late payments and for miscellaneous services related to its loans.
The Bank also charges a fee on loan originations ranging from 1.00% to 2.00% of
the principal base. As of June 30, 2000, the Bank serviced $4.7 million in loans
for the Federal Home Loan Mortgage Corporation ("FHLMC").
ONE- TO FOUR-FAMILY REAL ESTATE LOANS. The Bank's primary lending activity
consists of the origination of loans secured by owner-occupied, one- to
four-family residential properties located in its primary market area. At June
30, 2000, $67.2 million, or 56.01%, of the Bank's loan portfolio consisted of
loans secured by one- to four-family residential properties, of which $5.5
million, or 8.18%, carried adjustable interest rates. The Bank estimates that
the average size of the residential mortgages that it currently originates is
$105,000.
The Bank originates both fixed-rate mortgage loans and adjustable-rate
mortgage loans ("ARMs"). Due to customer preferences for fixed-rate loans, the
Bank has had difficulty originating a large volume of ARMs in recent years. Most
fixed-rate mortgage loans are originated for terms of 15 or 30 years. ARMs are
originated for terms of
4
<PAGE>
up to 30 years. The Bank's ARMs have interest rates that adjust every year, with
a maximum adjustment of two percentage points for any adjustment period and up
to six percentage points over the life of the loan. These loans are indexed to
the rate on one-year U.S. Treasury securities, adjusted to a constant maturity.
The current margin is two and one-half percentage points. Historically, all
loans originated by the Bank have been retained in the Bank's loan portfolio.
The Bank began selling new loans to the FHLMC in April 1999. For the years ended
June 30, 2000 and 1999, the Bank sold fixed rate loans of $12.0 million and $5.7
million, respectively, to the FHLMC.
The Bank's lending policies generally limit the maximum loan-to-value ratio
on residential mortgage loans to a maximum of 80% of the lesser of the appraised
value of the underlying property or its purchase price. For those few loans
where the loan-to-value ratio exceeds 80%, the Bank requires private mortgage
insurance. Originated loans in the Bank's portfolio include due-on-sale clauses
which provide the Bank with the contractual right to deem the loan immediately
due and payable in the event that the borrower transfers ownership of the
property without the Bank's consent.
The retention of ARMs in portfolio helps reduce the Bank's exposure to
increases in interest rates. There are, however, unquantifiable credit risks
resulting from potential increased costs to the borrower as a result of upward
repricing of ARMs. It is possible that during periods of rising interest rates,
the risk of default on ARMs may increase due to the upward adjustment of
interest costs to the borrower. The Bank does not originate ARM loans which
provide for negative amortization. Although ARMs allow the Bank to increase the
sensitivity of its asset base to changes in interest rates, the extent of this
interest sensitivity is limited by the periodic and lifetime interest rate
ceilings contained in ARM contracts. In addition, since ARM interest rates can
be adjusted no more frequently than annually, the yield on the Bank's ARM
portfolio does not adjust as rapidly as market interest rates. Accordingly,
there can be no assurance that yields on the Bank's ARMs will adjust
sufficiently to compensate for increases in its cost of funds.
The Bank also originates second mortgage loans and home equity lines of
credit primarily for its existing one- to four-family first mortgage customers.
At June 30, 2000, $7.6 million or 6.31% of the Bank's loan portfolio consisted
of second mortgage loans and home equity lines of credit. Second mortgage loans
are generally underwritten on a fixed-rate basis with terms of up to 15 years
and are fully amortizing over the term of the loan. Home equity loans are
underwritten with terms of 20 years with an adjustable rate. Second mortgages
and home equity loans are generally subject to an 80% combined loan-to-value
limitation, including all other outstanding mortgages or liens.
CONSTRUCTION LOANS. The Bank offers construction financing to qualified
borrowers for construction primarily of single-family residential properties and
to qualified developers for construction of small residential developments. The
Bank provides financing to one builder for the construction of no more than four
homes at a time. Construction loans are generally limited to a maximum
loan-to-value ratio of 75% of the appraised value of the property on an
"as-completed" basis. The Bank attempts to structure its residential
construction loans so that they convert to a permanent loan, although this is
not necessarily the case. Loans to finance the construction of residential
property on a speculative basis are offered on a fixed-rate basis only, with the
rate indexed to the prime rate plus a negotiated increment. The Bank limits the
origination of construction loans to borrowers and developers with whom the Bank
has had substantial prior experience due to the significant time and other
requirements associated with originating and monitoring construction loans.
Loan proceeds are disbursed during the construction phase (a maximum of 12
months) according to a draw schedule based on the stage of completion.
Construction loans are underwritten on the basis of the estimated value of the
property as completed and loan-to-value ratios must conform to the requirements
for the permanent loan. At June 30, 2000, $7.5 million, or 6.04%, of the Bank's
gross loan portfolio consisted of construction loans to fund the construction of
one- to four-family properties. Approximately 80% of all construction loans
originated by the Bank convert into permanent loans upon completion of the
construction phase.
Construction financing generally is considered to involve a higher degree
of risk of loss than long-term financing on improved, occupied real estate. Risk
of loss on a construction loan is dependent largely upon the accuracy of the
initial estimate of the property's value at completion of construction or
development and the estimated cost (including interest) of construction. During
the construction phase, a number of factors could result
5
<PAGE>
in delays and cost overruns. If the estimate of construction cost proves to be
inaccurate, the Bank may be required to advance funds beyond the amount
originally committed to permit completion of the development. If the estimate of
the value proves to be inaccurate, the Bank may be confronted, at or prior to
the maturity of the loan, with a project having a value which is insufficient to
assure full repayment. The ability of a developer to sell developed lots or
completed dwelling units will depend on, among other things, demand, pricing,
availability of comparable properties and economic conditions. The Bank has
sought to minimize this risk by limiting construction lending to qualified
borrowers in the Bank's market area, limiting the aggregate amount of
outstanding construction loans and imposing a stricter loan-to-value ratio
requirement than required for one- to four-family mortgage loans.
LAND DEVELOPMENT LOANS. The Bank originates land loans to local developers
for the purpose of developing the land (i.e., roads, sewer and water) for sale,
and loans secured by raw land, such as cattle ranching acreage. Such loans are
secured by a lien on the property, are generally limited to 70% of the developed
value of the secured property and are typically made for a period of one-year,
renewable based on negotiations with the Bank. Most land development loans are
expected to be fully paid off five years after the original date of the loan.
The Bank generally requires semi-annual interest payments during the term of the
land loan. The amount of funds available under the Bank's land loans usually
include an amount from which the borrower can pay the stated interest due
thereon until completion of the loan term. The principal of the loan is reduced
as lots are developed, sold and released. All of the Bank's land loans are
secured by property located in its primary market area. In addition, the Bank
obtains personal guarantees from its borrowers and originates such loans to
developers with whom it has established relationships. At June 30, 2000, the
Bank had $4.6 million of land development loans, which constituted 3.69% of the
gross loan portfolio at such date. This total includes one loan of $451,000,
which is one of the Bank's fifteen largest loans. The Bank originated $3.5
million and $1.8 million in land development loans during fiscal 2000 and fiscal
1999, respectively. Land development loans generally involve a higher degree of
risk than residential mortgage lending in that there are large loan balances to
single borrowers, and the initial estimate of the property value at completion
may be inaccurate due to market variations and the difficulty in selling lots
for home building. The success of such land development projects is sensitive to
changes in supply and demand conditions in the local housing market, as well as
regional and economic conditions generally. Although the Bank has attempted to
reduce these risks, as noted above, potential investors should be aware of these
factors in making their investment decision.
COMMERCIAL REAL ESTATE LOANS. At June 30, 2000, loans secured by commercial
real estate properties totaled $18.7 million, and represented 15.59% of the
Bank's loan portfolio. Commercial real estate loans are secured by ranches,
motels, small office buildings and retail stores and other non-residential
property. Some of the Bank's commercial real estate loans are made to local
businesses connected to the tourism and recreational rafting industries, which
predominate in the Bank's primary market area. At June 30, 2000, the Bank's
three largest loans were a $1.2 million loan secured by a cattle ranch, a
$998,000 loan secured by a cattle ranch and a $965,000 loan secured by a motel
in Salida, Colorado. Substantially all of the Bank's commercial real estate
loans are secured by property located within the Bank's market area and were
current and performing at June 30, 2000.
Commercial real estate loans generally have terms of up to 10 years and are
underwritten on either a fixed or adjustable-rate basis. Commercial real estate
loans have a maximum 20-year amortizing, although the term of the loan may be a
fixed ten-year balloon loan. Adjustable-rate commercial and multi-family
mortgages are indexed to the prime rate and adjust on an annual basis.
Loan-to-value ratios may not exceed 70% of the appraised value of the underlying
property. It is the Bank's policy to obtain personal guarantees from all
principals obtaining commercial real estate loans. In assessing the value of
such guarantees, the Bank reviews the individuals' personal financial
statements, credit reports, tax returns and other financial information.
Commercial real estate lending entails significant additional risks
compared to residential property lending. These loans typically involve large
loan balances to single borrowers or groups of related borrowers. The payment
experience on such loans typically is dependent on the successful operation of
the real estate project or business. These risks can be significantly affected
by business conditions and by supply and demand conditions in the market for
office and retail space, and, as such, may be subject to a greater extent to
adverse conditions in the economy generally. To minimize these risks, the Bank
generally limits this type of lending to its market area and to borrowers with
which it has substantial experience or who are otherwise well known to
management.
6
<PAGE>
With certain limited exceptions, the maximum amount that the Bank may lend
to any borrower (including certain related entities of the borrower) at any one
time may not exceed 15% of the unimpaired capital and surplus of the
institution, plus an additional 10% of unimpaired capital and surplus for loans
fully secured by readily marketable collateral. At June 30, 2000, the maximum
amount that the Bank could have loaned to any one borrower without prior OTS
approval was approximately $2.1 million. At June 30, 2000, the largest aggregate
amount of loans that the Bank had outstanding to any one borrower and their
related interests was $1.6 million and consisted of eight loans, including a
$629,000 commercial loan and a $565,000 commercial real estate loan secured by
real estate located in Salida, Colorado. The largest single loan outstanding was
a $1.2 million loan secured by a cattle ranch property, which is discussed
above.
COMMERCIAL BUSINESS LOANS. At June 30, 2000, the Bank had $11.6 million in
commercial business loans which represented 9.31% of the Bank's gross loan
portfolio. The Bank is permitted to invest up to 20% of its assets in commercial
loans. The Bank's commercial business lending activities are directed towards
small businesses located in its market area, including those connected to the
tourism industry, such as recreational vehicle ("RV") dealers, rafting companies
and other tourist-related businesses. Generally, the Bank's commercial business
loans are secured by assets such as inventory, equipment or other assets and are
guaranteed by the principals of the business. From time to time, the Bank has
engaged in dealer floor-plan lending with a limited number of dealerships with
which the Bank has had substantial experience. At June 30, 2000, the Bank had
dealer floor-plan loans of $953,000 and $645,000, and an inventory/equipment
loan of $629,000 to a rafting and retail company. Commercial business loans
usually carry a fixed rate and generally are underwritten for a maximum of five
years.
The Bank underwrites its commercial business loans on the basis of the
borrower's cash flow and ability to service the debt from earnings rather than
on the basis of the underlying collateral value, and seeks to structure such
loans to have more than one source of repayment. The borrower is required to
provide the Bank with sufficient information to allow the Bank to make its
lending determination. In most instances, this information consists of at least
three years of financial statements, a statement of projected cash flows,
current financial information on any guarantor and any additional information on
the collateral.
CONSUMER LOANS. The Bank's consumer loans, which totaled $15.0 million or
12.04% of the gross loan portfolio at June 30, 2000, includes primarily loans
secured by deposit accounts, automobile loans and other personal loans, which
represented 0.49%, 12.00%, and 0.02% of its total loan portfolio, respectively,
at June 30, 2000. The Bank also makes RV and boat loans, tractor loans and home
improvement loans pursuant to its consumer lending authority. The Bank has
recently emphasized consumer lending because of the higher yields and
shorter-terms of such loans.
The Bank makes deposit account loans up to 95% of the depositor's account
balance. The interest rate is normally 2.0% above the rate paid on the account
and the account must be pledged as collateral to secure the loan. Savings
account loans are secured by demand notes and interest is due on a quarterly
basis. The Bank's automobile loans are generally underwritten in amount up to
the purchase price of the automobile or the trade-in value as published by the
National Automobile Dealers Association. The terms of such loans generally do
not exceed 60 months and vary depending on the age of the vehicle securing the
loan. The Bank requires the borrower to insure the automobile under a policy
listing the Bank as loss payee. The Bank also makes unsecured personal loans of
up to $10,000. The terms of such loans do not exceed 12 months.
In recent years, the Bank has increased its consumer lending, especially
auto loans, by hiring a consumer loan officer, and has also increased its
commercial business lending. The Bank intends to continue to emphasize the
origination of consumer loans, especially automobile loans, and commercial
business loans. Consumer loans and commercial business loans entail greater risk
than do residential mortgage loans, particularly in the case of consumer loans
or commercial business loans which are unsecured or secured by rapidly
depreciable assets such as automobiles, RVs, boats, tractors and inventory. In
such cases, any repossessed collateral for a defaulted consumer loan or
commercial business loan may not provide an adequate source of repayment of the
outstanding loan balance as a result of the greater likelihood of damage, loss
or depreciation. The remaining deficiency often does not warrant further
substantial collection efforts against the borrower. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be adversely affected by job loss, divorce, illness or
personal bankruptcy for consumer loans, and economic conditions for commercial
business
7
<PAGE>
loans. Furthermore, the application of various federal and state laws, including
federal and state bankruptcy and insolvency laws, may limit the amount which can
be recovered on such loans. Such loans may also give rise to claims and defenses
by a borrower against an assignee of such loans such as the Bank, and a borrower
may be able to assert against such assignee claims and defenses which it has
against the seller of the underlying collateral. These additional risks could
result in the Bank experiencing increased delinquencies, thereby incurring
additional losses from its consumer and commercial business lending activities.
LOAN SOLICITATION AND PROCESSING. The Bank's mortgage loans have generally
been originated by its loan officers, branch managers and senior management
officials. Loan originations are obtained from a number of sources, including
existing and past customers, members of the local community and established
builders and realtors within the Bank's market area. Upon receipt of a loan
application from a prospective borrower, the Bank reviews the information
provided and makes an initial determination as to whether certain basic
underwriting standards regarding the type of property, debt-to-income ratios and
other credit concerns are satisfied. A credit report, employment history and
other evidence is obtained to verify certain specific information relating to
the loan applicant's employment, income and credit standing. For real estate
loans, an appraisal of the property intended to secure the loan is undertaken by
an independent appraiser approved by the Bank. It is the Bank's policy to obtain
appropriate insurance protection on all real estate first mortgage loans and to
obtain a lawyer's opinion of title which insures that the property is free of
prior encumbrances. The borrower must also obtain paid flood insurance when the
property is located in a flood plain as designated by the Federal Government. It
is the Bank's policy to record a lien on the real estate securing the loan.
Borrowers generally are required to advance funds for certain items such as real
estate taxes, flood insurance and private mortgage insurance, when applicable.
Secured loans in amounts of up to $260,000 may be approved by two members
of the Bank's loan committee. All loans in excess of $500,000 must be approved
by the Board of Directors. Branch Managers may approve consumer loans of up to
$10,000, or up to $30,000 with the approval of the consumer loan officer.
Consumer loans of up to $100,000 may be approved by two members of the loan
committee, while consumer loans over $100,000 must be approved by four members
of the loan Committee. Commercial loans of up to $100,000 may be approved by two
members of the loan committee, while such loans over $100,000 to $500,000 are
approved by three loan committee members and loans of $500,000 or over go to the
full Board.
Loan applicants are promptly notified in writing of the Bank's decision. If
the loan is approved, the notification will provide that the Bank's commitment
will generally terminate within 30 days of the approval. It has been the Bank's
experience that substantially all approved loans are funded.
LOAN ORIGINATIONS, PURCHASES AND SALES. Historically, most loans originated
by the Bank have been held in the Bank's portfolio until maturity. Beginning in
April 1999, the Bank began ongoing sales of new fixed rate single family
residential terms to the FHLMC. The sales to the FHLMC were done to increase fee
income, lower interest rate risk and compete with mortgage bankers.
8
<PAGE>
The following table sets forth certain information with respect to the
Bank's loan origination activity for the periods indicated. The Bank has not
purchased any loans in the periods presented.
<TABLE>
<CAPTION>
At June 30,
--------------------------
2000 1999
-------- --------
(In thousands)
<S> <C> <C>
Net loans, beginning of period.............................. $ 98,433 $ 81,359
Origination by type:
-------------------
Mortgage loans:
One- to four-family...................................... 39,117 $ 41,451
Commercial............................................... 11,288 3,560
Land development......................................... 3,492 1,814
Consumer loans.............................................. 10,034 9,455
Loans on savings accounts................................... 308 325
Commercial loans............................................ 11,717 5,570
--------- --------
Total loans originated................................. 75,956 62,175
--------- --------
Loans sold.................................................. 11,994 5,666
--------- --------
Repayments.................................................. 43,767 39,671
--------- --------
Decrease (increase) in other items, net..................... 1,270 236
--------- --------
Net increase (decrease) in loans receivable, net....... 21,465 17,074
--------- --------
Net loans, end of period.................................... $ 119,898 $ 98,433
========= ========
</TABLE>
NONPERFORMING LOANS AND OTHER PROBLEM ASSETS. It is management's policy to
continually monitor its loan portfolio to anticipate and address potential and
actual delinquencies. When a borrower fails to make a payment on a loan, the
Bank takes immediate steps to have the delinquency cured and the loan restored
to current status. Loans which are delinquent 15 days incur a late fee of 5.0%
of principal and interest due. As a matter of policy, the Bank will contact the
borrower after the loan has been delinquent 30 days. If payment is not promptly
received, the borrower is contacted again, and efforts are made to formulate an
affirmative plan to cure the delinquency. Generally, after any loan is
delinquent 90 days or more, formal legal proceedings are commenced to collect
amounts owed. Loans are placed on nonaccrual status if the loan becomes past due
more than 90 days unless such loans are well-secured and in the process of
collection. Loans are charged off when management concludes that they are
uncollectible. See Note 1 of Notes to Financial Statements.
Real estate acquired by the Bank as a result of foreclosure is classified
as real estate acquired through foreclosure until such time as it is sold. When
such property is acquired, it is initially recorded at estimated fair value and
subsequently at the lower of book value or fair value, less estimated costs to
sell. Costs relating to holding such real estate are charged against income in
the current period, while costs relating to improving such real estate are
capitalized until a saleable condition is reached. Any required write-down of
the loan to its fair value less estimated selling costs upon foreclosure is
charged against the allowance for loan losses.
9
<PAGE>
The following table sets forth information with respect to the Bank's
nonperforming assets at the dates indicated. Further, no loans were recorded as
restructured loans within the meaning of SFAS No. 15 at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
--------------------------
2000 1999
-------- --------
(In thousands)
<S> <C> <C>
Loans accounted for on a non-accrual basis:
Real estate:
One- to four-family..................................... $ 378 $ 55
Commercial.............................................. -- 34
Land development........................................ -- --
Consumer.................................................... 41 34
Commercial.................................................. 114 152
Other....................................................... -- --
--------- --------
Total............................................... 533 275
--------- --------
Accruing loans delinquent 90 days or more:
Real estate:
One- to four-family..................................... $ -- $ --
Commercial.............................................. -- --
Land development........................................ -- --
Consumer.................................................. 149 --
Commercial.................................................. -- --
Other....................................................... -- --
--------- --------
Total............................................... 149 --
--------- --------
Total nonperforming loans....................... 682 275
--------- --------
Repossessed assets.......................................... 18 18
--------- --------
Total non-performing assets................................. $ 700 $ 293
========= ========
Total non-performing loans as a
percentage of total net loans............................. 0.57% 0.28%
========= ========
Total non-performing assets as a
percentage of total assets................................ 0.51% 0.26%
========= ========
</TABLE>
At June 30, 2000, the Bank had $533,000 in loans outstanding that were
classified as non-accrual, of which $378,000 were one- to four- family loans,
$41,000 were automobile loans and $114,000 were secured commercial loans. At
that date, the Bank had no loans outstanding that were not classified as
non-accrual, 90 days past due or restructured, but as to which known information
about possible credit problems of borrowers caused management to have serious
concerns as to the ability of the borrowers to comply with present loan
repayment terms and may result in disclosure as non-accrual, 90 days past due or
restructured.
Federal regulations require savings institutions to classify their assets
on the basis of quality on a regular basis. An asset meeting one of the
classification definitions set forth below may be classified and still be a
performing loan. An asset is classified as substandard if it is determined to be
inadequately protected by the current retained earnings and paying capacity of
the obligor or of the collateral pledged, if any. An asset is classified as
doubtful if full collection is highly questionable or improbable. An asset is
classified as loss if it is considered uncollectible, even if a partial recovery
could be expected in the future. The regulations also provide for a special
mention designation, described as assets which do not currently expose a savings
institution to a sufficient degree of risk to warrant classification but do
possess credit deficiencies or potential weaknesses deserving management's close
attention. Such assets designated as special mention may include nonperforming
loans consistent with the above definition. Assets classified as substandard or
doubtful require a savings institution to establish general allowances for loan
losses. If an asset or portion thereof is classified loss, a savings institution
must either establish a specific allowance for loss in the amount of the portion
of the asset classified loss, or charge off such amount. Federal examiners may
disagree with a savings institution's classifications. If a savings institution
does not agree with an examiner's classification of an asset, it may appeal this
determination to the OTS Regional Director. The
10
<PAGE>
Bank regularly reviews its assets to determine whether any assets require
classification or re-classification. At June 30, 2000, the Bank had $1.5 million
in assets classified as special mention, $559,000 in assets classified as
substandard, $102,000 in assets classified as doubtful and no assets classified
as loss. The special mention classification is primarily used by management as a
"watch list" to monitor loans that exhibit any potential deviation in
performance from the contractual terms of the loan.
ALLOWANCE FOR LOAN LOSSES. In originating loans, the Bank recognizes that
credit losses will be experienced and that the risk of loss will vary with,
among other things, the type of loan being made, the creditworthiness of the
borrower over the term of the loan, general economic conditions and, in the case
of a secured loan, the quality of the security for the loan. It is management's
policy to maintain an adequate allowance for loan losses based on, among other
things, the Bank's and the industry's historical loan loss experience,
evaluation of economic conditions, regular reviews of delinquencies and loan
portfolio quality and evolving standards imposed by federal bank examiners. The
Bank increases its allowance for loan losses by charging provisions for loan
losses against the Bank's income. During fiscal 2000, the Bank increased its
allowance for loan losses by $94,000 to $1.0 million at June 30, 2000. The Bank
took this action due to the continued significant increase in multi-family real
estate, commercial real estate, commercial business and consumer loans and due
to the additional risks inherent in these types of lending.
Management will continue to actively monitor the Bank's asset quality and
allowance for loan losses. Management will charge off loans and properties
acquired in settlement of loans against the allowances for losses on such loans
and such properties when appropriate and will provide specific loss allowances
when necessary. Although management believes it uses the best information
available to make determinations with respect to the allowances for losses and
believes such allowances are adequate, future adjustments may be necessary if
economic conditions differ substantially from the economic conditions in the
assumptions used in making the initial determinations.
The Bank's methodology for establishing the allowance for loan losses takes
into consideration probable losses that have been identified in connection with
specific assets as well as losses that have not been identified but can be
expected to occur. Management conducts regular reviews of the Bank's assets and
evaluates the need to establish allowances on the basis of this review.
Allowances are established by the Board of Directors on a quarterly basis based
on an assessment of risk in the Bank's assets taking into consideration the
composition and quality of the portfolio, delinquency trends, current charge-off
and loss experience, loan concentrations, the state of the real estate market,
regulatory reviews conducted in the regulatory examination process and economic
conditions generally. Specific reserves will be provided for individual assets,
or portions of assets, when ultimate collection is considered improbable by
management based on the current payment status of the assets and the fair value
of the security. At the date of foreclosure or other repossession, the Bank
would transfer the property to real estate acquired in settlement of loans
initially at the lower of cost or estimated fair value and subsequently at the
lower of book value or fair value less estimated selling costs. Any portion of
the outstanding loan balance in excess of fair value less estimated selling
costs would be charged off against the allowance for loan losses. If, upon
ultimate disposition of the property, net sales proceeds exceed the net carrying
value of the property, a gain on sale of real estate would be recorded.
Banking regulatory agencies, including the OTS, have adopted a policy
statement regarding maintenance of an adequate allowance for loan and lease
losses and an effective loan review system. The Bank's policy includes an
arithmetic formula for determining the reasonableness of the institution's
allowance for loan loss estimate compared to the average loss experience of the
industry as a whole. Management reviews the institution's allowance for loan
losses and compare it against the sum of: (i) 50% of the portfolio that is
classified doubtful; (ii) 15% to 20% of the portfolio that is classified as
substandard; and (iii) for the portions of the portfolio that have not been
classified (including those loans designated as special mention), estimated
credit losses over the upcoming 12 months given the facts and circumstances as
of the evaluation date. This amount is considered neither a "floor" nor a "safe
harbor" of the level of allowance for loan losses an institution should
maintain, but examiners will view a shortfall relative to the amount as an
indication that they should review management's policy on allocating these
allowances to determine whether it is reasonable based on all relevant factors.
11
<PAGE>
The following table sets forth an analysis of the Bank's allowance for loan
losses for the periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------
2000 1999
-------- --------
(In thousands)
<S> <C> <C>
Balance at beginning of period.............................. $ 909 $ 751
--------- --------
Charge-offs:
One- to four-family....................................... (6) --
Multi-family.............................................. -- --
Non-residential........................................... -- --
Construction.............................................. -- --
Consumer.................................................. -- (25)
Commercial................................................ (48) (61)
Other..................................................... (66) --
--------- --------
(120) (86)
--------- --------
Recoveries.................................................. 4 14
--------- --------
Net recoveries (charge-offs)................................ (116) (72)
--------- --------
Additions charged to operations............................. 210 230
--------- --------
Balance at end of period.................................... $ 1,003 $ 909
========= ========
Allowance for loan losses to total
non-performing loans at end of period..................... 147.07% 330.55%
========= ========
Allowance for loan losses to net loans
at end of period.......................................... 0.84% .92%
========= ========
</TABLE>
The following table allocates the allowance for loan losses by loan
category at the dates indicated. The allocation of the allowance to each
category is not necessarily indicative of future losses and does not restrict
the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
June 30,
-------------------------------------------------------
2000 1999
-------------------------- --------------------------
Percent of Percent of
Loans to Loans to
Category to Category to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans:
Residential..................................... $ 186 18.54% $ 207 22.77%
Commercial...................................... 121 12.06 65 7.15
Land............................................ 49 4.89 63 6.93
Consumer loans..................................... 267 26.62 270 29.70
Commercial loans................................... 380 37.89% 304 33.45
--------- ------ -------- ------
$ 1,003 100.00% $ 909 100.00%
========= ====== ======== ======
</TABLE>
12
<PAGE>
INVESTMENT ACTIVITIES
GENERAL. The Bank is permitted under federal law to make certain
investments, including investments in securities issued by various federal
agencies and state and municipal governments, deposits at the FHLB of Topeka,
certificates of deposit in federally insured institutions, certain bankers'
acceptances and federal funds. It may also invest, subject to certain
limitations, in commercial paper rated in one of the two highest investment
rating categories of a nationally recognized credit rating agency, and certain
other types of corporate debt securities and mutual funds. Federal regulations
require the Bank to maintain an investment in FHLB stock and a minimum amount of
liquid assets which may be invested in cash and specified securities. From time
to time, the OTS adjusts the percentage of liquid assets which savings banks are
required to maintain. See "Regulation of the Bank -- Liquidity Requirements."
The Bank makes investments in order to maintain the levels of liquid assets
required by regulatory authorities and manage cash flow, diversify its assets,
obtain yield, for asset/liability management purposes and to satisfy certain
requirements for favorable tax treatment. The investment activities of the Bank
consist primarily of investments in mortgage-backed securities and other
investment securities, consisting primarily of interest-bearing deposits and
securities issued by the U.S. Treasury. Typical investments include federally
sponsored agency mortgage pass-through and federally sponsored agency and
mortgage-related securities. Investment and aggregate investment limitations and
credit quality parameters of each class of investment are prescribed in the
Bank's investment policy. The Bank performs analyses on mortgage-related
securities prior to purchase and on an ongoing basis to determine the impact on
earnings and market value under various interest rate and prepayment conditions.
Under the Bank's current investment policy, securities purchases must be
approved by the Bank's Investment Committee. The Board of Directors reviews all
securities transactions on a monthly basis.
Pursuant to SFAS No. 115, the Bank had no securities classified as
"available for sale" at June 30, 1999 and 2000. Securities designated as "held
to maturity" are those assets which the Bank has the ability and intent to hold
to maturity. Upon acquisition, securities are classified as to the Bank's
intent, and a sale would only be effected due to deteriorating investment
quality. The held to maturity investment portfolio is not used for speculative
purposes and is carried at amortized cost. In the event the Bank sells
securities from this portfolio for other than credit quality reasons, all
securities within the investment portfolio with matching characteristics may be
reclassified as assets available for sale. Securities designated as "available
for sale" are those assets which the Bank may not hold to maturity and thus are
carried at market value with unrealized gains or losses, net of tax effect,
recognized in retained earnings.
MORTGAGE-BACKED AND RELATED SECURITIES. Mortgage-backed securities
represent a participation interest in a pool of single-family or multi-family
mortgages, the principal and interest payments on which are passed from the
mortgage originators through intermediaries that pool and repackage the
participation interest in the form of securities to investors such as the Bank.
Such intermediaries include quasi-governmental agencies such as the Federal Home
Loan Mortgage Corporation ("FHLMC"), the Federal National Mortgage Association
("FNMA") and the Government National Mortgage Association ("GNMA") which
guarantee the payment of principal and interest to investors, and from all of
whom the Bank has purchased mortgage-backed securities. Mortgage-backed
securities generally increase the quality of the Bank's assets by virtue of the
guarantees that back them, are more liquid than individual mortgage loans and
may be used to collateralize borrowings or other obligations of the Bank.
Mortgage-related securities typically are issued with stated principal
amounts and the securities are backed by pools of mortgages that have loans with
interest rates that are within a range and have similar maturities. The
underlying pool of mortgages can be composed of either fixed-rate or
adjustable-rate mortgage loans. Mortgage-backed securities generally are
referred to as mortgage participation certificates or pass-through certificates.
As a result, the interest rate risk characteristics of the underlying pool of
mortgages, i.e., fixed-rate or adjustable-rate, as well as prepayment risk, are
passed on to the certificate holder. The life of a mortgage-backed pass-through
security is equal to the life of the underlying mortgages.
The actual maturity of a mortgage-backed security varies, depending on when
the mortgagors prepay or repay the underlying mortgages. Prepayments of the
underlying mortgages may shorten the life of the investment,
13
<PAGE>
thereby adversely affecting its yield to maturity and the related market value
of the mortgage-backed security. The yield is based upon the interest income and
the amortization of the premium or accretion of the discount related to the
mortgage-backed security. Premiums and discounts on mortgage-backed securities
are amortized or accredited over the estimated term of the securities using a
level yield method. The prepayment assumptions used to determine the
amortization period for premiums and discounts can significantly affect the
yield of the mortgage-backed security, and these assumptions are reviewed
periodically to reflect the actual prepayment. The actual prepayments of the
underlying mortgages depend on many factors, including the type of mortgage, the
coupon rate, the age of the mortgages, the geographical location of the
underlying real estate collateralizing the mortgages and general levels of
market interest rates. The difference between the interest rates on the
underlying mortgages and the prevailing mortgage interest rates is an important
determinant in the rate of prepayments. During periods of falling mortgage
interest rates, prepayments generally increase, and, conversely, during periods
of rising mortgage interest rates, prepayments generally decrease. If the coupon
rate of the underlying mortgage significantly exceeds the prevailing market
interest rates offered for mortgage loans, refinancing generally increases and
accelerates the prepayment of the underlying mortgages. Prepayment experience is
more difficult to estimate for adjustable-rate mortgage-backed securities.
The Bank's mortgage-backed securities portfolio consists solely of $2.6
million in mortgage-backed securities of which $6,000 had fixed interest rates
and $2.6 million had adjustable interest rates at June 30, 2000. The Bank makes
such investments in order to manage cash flow, mitigate interest rate risk,
diversify assets, obtain yield, to satisfy certain requirements for favorable
tax treatment and to satisfy the qualified thrift lender test. See "Regulation
of the Bank -- Qualified Thrift Lender Test."
The following table sets forth the carrying value of the Company's
investment securities at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
--------------------------
2000 1999
-------- --------
(In thousands)
<S> <C> <C>
School district securities.................................. $ 200 $ 310
Interest-bearing deposits................................... 1,321 4,410
Mortgage-backed securities.................................. 2,643 3,329
Federal Home Loan Bank stock................................ 1,857 1,201
--------- --------
Total................................................. $ 6,021 $ 9,250
========= ========
</TABLE>
14
<PAGE>
The following table sets forth information in the scheduled maturities,
amortized cost, market values and average yields for the Company's investment
portfolio at June 30, 2000.
<TABLE>
<CAPTION>
One Year or Less One to Five Years Over Five Years Total Investment Portfolio
-------------------- --------------------- -------------------- --------------------------
Weighted Weighted Weighted Weighted
Book Average Book Average Book Average Book Average
Value Yield Value Yield Value Yield Value Yield
----- ---------- ----- ---------- ----- ----------- ----- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
School district securities....... $ 200 4.10% $ -- --% $ -- --% $ 200 4.10%
Interest-bearing deposits........ 1,321 6.01 -- -- -- -- 1,321 6.01
Mortgage-backed securities....... -- -- -- -- 2,643 6.85 2,643 6.85
Federal Home Loan Bank stock..... -- -- -- -- 1,857 7.75 1,857 7.75
------ ------ ------ ------
Total investment securities...... $1,521 $ -- $4,500 $6,021
====== ====== ====== ======
</TABLE>
The Bank is required to maintain average daily balances of liquid assets
(cash, deposits maintained pursuant to Federal Reserve Board requirements, time
and savings deposits in certain institutions, obligations of state and political
subdivisions thereof, shares in mutual funds with certain restricted investment
policies, highly rated corporate debt, and mortgage loans and mortgage-backed
securities with less than one year to maturity or subject to repurchase within
one year) equal to a monthly average of not less than a specified percentage
(currently 4%) of its net withdrawable savings deposits plus short-term
borrowings. Monetary penalties may be imposed for failure to meet liquidity
requirements. The average liquidity ratio of the Bank for the quarter ending
June 30, 2000 was 6.18%.
DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS
GENERAL. Deposits are the primary source of the Bank's funds for lending,
investment activities and general operational purposes. In addition to deposits,
the Bank derives funds from loan principal and interest repayments, maturities
of investment securities and mortgage-backed securities and interest payments
thereon. Although loan repayments are a relatively stable source of funds,
deposit inflows and outflows are significantly influenced by general interest
rates and money market conditions. Borrowings may be used on a short-term basis
to compensate for reductions in the availability of funds, or on a longer term
basis for general operational purposes. The Bank has access to borrow from the
FHLB of Topeka.
DEPOSITS. The Bank attracts deposits principally from within its market
area by offering competitive rates on its deposit instruments, including money
market accounts, passbook savings accounts, Individual Retirement Accounts, and
certificates of deposit which range in maturity from three months to eight
years. Deposit terms vary according to the minimum balance required, the length
of time the funds must remain on deposit and the interest rate. Maturities,
terms, service fees and withdrawal penalties for its deposit accounts are
established by the Bank on a periodic basis. The Bank reviews its deposit mix
and pricing on a weekly basis. In determining the characteristics of its deposit
accounts, the Bank considers the rates offered by competing institutions,
lending and liquidity requirements, growth goals and federal regulations. The
Bank does not accept brokered deposits, but does accept jumbo deposits from its
regular customers.
The Bank attempts to compete for deposits with other institutions in its
market area by offering competitively priced deposit instruments that are
tailored to the needs of its customers. Additionally, the Bank seeks to meet
customers' needs by providing convenient customer service to the community,
efficient staff and convenient hours of service. Substantially all of the Bank's
depositors are Colorado residents who reside in the Bank's market area.
15
<PAGE>
The following table sets forth the change in dollar amount of deposits in
the various types of accounts offered by the Bank between the dates indicated.
<TABLE>
<CAPTION>
Balance at Balance at
June 30, % of Increase June 30, % of
2000 Deposits (Decrease) 1999 Deposits
------------ -------- ---------- ------------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
NOW accounts........................... $ 22,152 26.76% $ 3,955 $ 18,197 25.06%
Money market deposit................... 19,007 22.96 2,066 16,941 23.33
Certificates of deposit................ 30,505 36.86 3,141 27,364 37.69
Jumbo certificates..................... 11,106 13.42 1,004 10,102 13.92
-------- ------ --------- --------- ------
$ 82,770 100.00% $ 10,166 $ 72,604 100.00%
======== ====== ========= ========= ======
</TABLE>
The following table indicates the amount of the Bank's certificates of
deposit of $100,000 or more by time remaining until maturity as of June 30,
2000.
Certificates
Maturity Period of Deposits
--------------- -----------
(In thousands)
Three months or less.......................... $ 3,560
Over three through six months................. 2,058
Over six through 12 months.................... 2,965
Over 12 months................................ 2,523
--------
Total......................................... $ 11,106
========
The following table sets forth the savings activities of the Bank for the
periods indicated.
<TABLE>
<CAPTION>
At June 30,
--------------------------
2000 1999
-------- --------
(In thousands)
<S> <C> <C>
Opening balance............................................. $ 72,604 $ 63,425
Net increase (decrease) before interest credited............ 7,844 7,042
Interest credited........................................... 2,322 2,137
--------- --------
Ending balance.......................................... $ 82,770 $ 72,604
========= ========
Net increase (decrease)..................................... $ 10,166 $ 9,179
========= ========
Percent increase (decrease)................................. 14.00% 14.47%
======== ========
</TABLE>
BORROWINGS. Savings deposits historically have been the primary source of
funds for the Bank's lending, investments and general operating activities. The
Bank is authorized, however, to use advances from the FHLB of Topeka to
supplement its supply of lendable funds and to meet deposit withdrawal
requirements. The FHLB of Topeka functions as a central reserve bank providing
credit for savings institutions and certain other member financial institutions.
As a member of the FHLB System, the Bank is required to own stock in the FHLB of
Topeka and is authorized to apply for advances. Advances are pursuant to several
different programs, each of which has its own interest rate and range of
maturities. The Bank has a Blanket Agreement for advances with the FHLB under
which at June 30, 2000, allowed borrowings of $48.0 million subject to normal
collateral underwriting requirements. Advances from the FHLB of Topeka are
secured by mortgage-backed securities, investments and residential first
mortgage loans.
16
<PAGE>
At June 30, 2000, the Bank had an approved line of credit with the FHLB,
which the Bank had drawn to $4.0 million on at that date. In addition, as of
June 30, 2000, the Bank had $32.2 million in FHLB advances outstanding of which
$12.6 million were at interest rates which range from 5.46% to 6.80% and mature
within one year; $3.0 million were at interest rates which range from 6.44% to
6.96% and mature in 2002; $6.8 million were at an interest rate of 5.87% to
7.05% and mature in 2003; $3.0 million at an interest rate which range from
6.18% to 7.34% and mature in 2005; $1.5 million were at an interest rate of
5.54% to 5.58% and mature in 2006; $1.0 million were at an interest rate of
6.10% and mature in 2008; and $4.3 million were at an interest rate of 5.42% to
5.77% and mature in 2009.
SUBSIDIARY ACTIVITIES
As a federally chartered savings bank, the Bank is permitted to invest an
amount equal to 2% of its assets in subsidiaries, with an additional investment
of 1% of assets where such investment serves primarily community, inner-city and
community development purposes. Under such limitations, as of June 30, 2000, the
Bank was authorized to invest up to approximately $4.1 million in the stock of
or loans to subsidiaries, including the additional 1% investment for community
inner-city and community development purposes. Institutions meeting their
applicable minimum regulatory capital requirements may invest up to 50% of their
regulatory capital in conforming first mortgage loans to subsidiaries in which
they own 10% or more of the capital stock.
In November 1999, the Bank incorporated a new subsidiary, High Country
Title and Escrow Company. High Country Title is offering title insurance and
escrow closing services within the Bank's market area. As of June 30, 2000, the
Bank's investment in High Country Title was $200,000 or 0.14% of the Bank's
assets. High Country Title reported a net loss before taxes of $15,000 for the
year ended June 30, 2000.
MARKET AREA
The Bank's market area for gathering deposits and making loans is Chaffee,
Lake, Western Fremont and Saguache Counties in Colorado, which is located in
central Colorado.
Tourism related businesses are the base of the market area's economy. The
primary employers in the market area are the tourism industry and the
government. As of 1999, the market area had a population of approximately
30,000. Major employers in the area include the Colorado Department of
Corrections, the Heart of the Rockies Medical Center, local school districts and
governments and Wal Mart. In addition, the area is a frequent destination for
retirees, self-employed individuals and telecommuters who wish to take advantage
of the recreation and beauty that the Rocky Mountains offer. Major towns
(population) in the market area include Salida (5,600), Buena Vista (2,100) and
Leadville (2,600).
COMPETITION
The Company has no significant business, except the business of the Bank.
The Bank faces strong competition both in originating real estate and consumer
loans and in attracting deposits. The Bank competes for real estate and other
loans principally on the basis of interest rates, the types of loans it
originates, the deposit products it offers and the quality of services it
provides to borrowers. The Bank also competes by offering products which are
tailored to the local community. Its competition in originating real estate
loans comes primarily from other commercial banks and mortgage bankers making
loans secured by real estate located in the Bank's market area. Commercial
banks, credit unions and finance companies provide vigorous competition in
consumer lending. Competition may increase as a result of the continuing
reduction of restrictions on the interstate operations of financial
institutions.
The Bank attracts its deposits through its offices primarily from the local
communities of the offices. Consequently, competition for deposits is
principally from other savings institutions, commercial banks and brokers in the
local communities as well as from the corporate credit unions sponsored by the
large private employers in the Bank's market area. The Bank competes for
deposits and loans by offering what it believes to be a variety of deposit
accounts at competitive rates, convenient business hours, a commitment to
outstanding customer service and
17
<PAGE>
a well-trained staff. The Bank believes it has developed strong relationships
with local realtors and the community in general.
Management considers its market area for gathering deposits to be Chaffee,
Lake, Western Fremont and Saguache counties in Colorado. The Bank estimates that
it competes with five banks, and two credit unions for deposits and loans. Based
on data provided by the FDIC, the Bank estimates that as of June 1999, the
latest date for which information was available, it had 26.45% of deposits held
by all financial institutions in its market area.
EMPLOYEES
As of June 30, 2000, the Bank had 58 full-time and one part-time employee,
and High Country Title had four full-time employees, none of whom were
represented by a collective bargaining agreement. Management considers the
Bank's relationships with its employees to be good.
REGULATION OF THE BANK
GENERAL. The Bank is a federally chartered savings institution, is a member
of the FHLB of Topeka and its deposits are insured by the FDIC through the
Savings Association Insurance Fund (the "SAIF"). As a federal savings
institution, the Bank is subject to regulation and supervision by the OTS and
the FDIC and to OTS regulations governing such matters as capital standards,
mergers, establishment of branch offices, subsidiary investments and activities
and general investment authority. The OTS periodically examines the Bank for
compliance with various regulatory requirements and for safe and sound
operations. The FDIC also has the authority to conduct special examinations of
the Bank because its deposits are insured by the SAIF. The Bank must file
reports with the OTS describing its activities and financial condition and must
obtain the approval of the OTS prior to entering into certain transactions, such
as mergers with or acquisitions of other depository institutions.
As a federally insured depository institution, the Bank is subject to
various regulations promulgated by the Federal Reserve Board, including
Regulation B (Equal Credit Opportunity), Regulation D (Reserve Requirements),
Regulations E (Electronic Fund Transfers), Regulation Z (Truth in Lending),
Regulation CC (Availability of Funds and Collection of Checks) and Regulation DD
(Truth in Savings).
The system of regulation and supervision applicable to the Bank establishes
a comprehensive framework for the operations of the Bank and is intended
primarily for the protection of the depositors of the Bank. Changes in the
regulatory framework could have a material effect on the Bank and its operations
that in turn, could have a material adverse effect on the Company.
CAPITAL REQUIREMENTS. OTS capital adequacy regulations require savings
institutions such as the Bank to meet three minimum capital standards: a "core"
capital equal to 4.0% (or 3% if the institution is rated composite 1 CAMELS
under the OTS examination rating system) of adjusted total assets, a "tangible"
capital requirement of 1.5% of adjusted total assets, and a "risk-based" capital
requirement of 8% of total risk-based capital to total risk-weighted assets. In
addition, the OTS has adopted regulations imposing certain restrictions on
savings institutions that have a total risk-based capital ratio of less than 8%,
a ratio of Tier 1 capital to risk-weighted assets of less than 4% or a ratio of
Tier 1 capital to total assets of less than 4% (or 3% if the institution is
rated Composite 1 CAMELS under the OTS examination rating system). See "--
Prompt Corrective Regulatory Action."
The core capital, or "leverage ratio," requirement mandates that a savings
institution maintain core capital equal to at least 4% of its adjusted total
assets. "Core capital" includes common stockholders' equity (including retained
earnings), noncumulative perpetual preferred stock and related surplus, minority
interests in the equity accounts of fully consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits and "qualifying supervisory
goodwill." Core capital is generally reduced by the amount of the savings
institution's intangible assets for which no market exists. Limited exceptions
to the reduction of intangible assets include permissible mortgage servicing
rights, purchased credit card relationships, qualifying supervisory goodwill and
certain intangible assets arising from prior regulatory accounting practices.
Tangible capital is given the same definition as core capital but does not
include an exception for qualifying supervisory goodwill and is reduced by the
amount of all the savings
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<PAGE>
association's intangible assets with only a limited exception for purchased
mortgage servicing rights. Both core and tangible capital are further reduced by
an amount equal to the savings institution's debt and equity investments in
subsidiaries engaged in activities not permissible to national banks (other than
subsidiaries engaged in activities undertaken as agent for customers or in
mortgage banking activities and subsidiary depository institutions or their
holding companies). At June 30, 2000, the Bank had no such investments.
Adjusted total assets are a savings institution's total assets as
determined under generally accepted accounting principles, adjusted for certain
goodwill amounts and increased by a pro rated portion of the assets of
unconsolidated includable subsidiaries in which the savings institution holds a
minority interest. Adjusted total assets are reduced by the amount of assets
that have been deducted from capital, the portion of the savings institution's
investments in unconsolidated includable subsidiaries and, for purposes of the
core capital requirement, qualifying supervisory goodwill.
In determining compliance with the risk-based capital requirement, a
savings institution is allowed to use both core capital and supplementary
capital in its total capital provided the amount of supplementary capital
included does not exceed the savings institution's core capital. Supplementary
capital is defined to include certain preferred stock issues, nonwithdrawable
accounts and pledged deposits that do not qualify as core capital, certain
approved subordinated debt, certain other capital instruments and a portion of
the savings institution's general loss allowances and up to 45% of unrealized
gains in equity securities. Total core and supplementary capital are reduced by
the amount of capital instruments held by other depository institutions pursuant
to reciprocal arrangements and by that portion of the savings institution's land
loans and non-residential construction loans in excess of 80% loan-to-value
ratio and all equity investments, other than those deducted from core and
tangible capital. At June 30, 2000, the Bank had no high ratio land or
nonresidential construction loans and had no equity investments for which OTS
regulations require a deduction from total capital.
The risk-based capital requirement is measured against risk-weighted assets
which equal the sum of each asset and the credit-equivalent amount of each
off-balance sheet item after being multiplied by an assigned risk weight. Under
the OTS risk-weighting system, one- to four-family first mortgages not more than
90 days past due with loan-to-value ratios under 80% are assigned a risk weight
of 50%. Consumer and residential construction loans are assigned a risk weight
of 100%. Mortgage-backed securities issued, or fully guaranteed as to principal
and interest, by the FNMA or FHLMC are assigned a 20% risk weight. Cash and U.S.
Government securities backed by the full faith and credit of the U.S. Government
are given a 0% risk weight.
The table below provides information with respect to the Bank's compliance
with its regulatory capital requirements at June 30, 2000.
<TABLE>
<CAPTION>
Percent of
Amount Assets (1)
------ -----------
(Dollars in thousands)
<S> <C> <C>
Tangible capital..................................... $ 13,118 9.49%
Tangible capital requirement......................... 2,074 1.5
---------- ------
Excess (deficit)................................ $ 11,044 7.99%
========== ======
Core capital (2)................................ $ 13,118 9.49%
Core capital requirement............................. 5,530 4.0
---------- ------
Excess (deficit)................................ $ 7,588 5.49%
========== ======
Risk-based capital................................... $ 14,121 14.37%
Risk-based capital requirement....................... 7,864 8.0
---------- ------
Excess (deficit)............................... $ 6,257 6.37%
========== ======
</TABLE>
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<PAGE>
----------
(1) Based on adjusted total assets for purposes of the tangible capital and
core capital requirements and risk-weighted assets for purpose of the
risk-based capital requirement.
(2) Reflects the capital requirement which the Bank must satisfy to avoid
regulatory restrictions that may be imposed pursuant to prompt
corrective action regulations. The core requirement applicable to the
Bank may increase to 5.0% if the OTS amends its capital regulations, as
it has proposed, to conform to the more stringent leverage ratio
adopted by the Office of the Comptroller of the Currency for national
banks.
The OTS' risk-based capital requirements require savings institutions with
more than a "normal" level of interest rate risk to maintain additional total
capital. A savings institution's interest rate risk is measured in terms of the
sensitivity of its "net portfolio value" to changes in interest rates. Net
portfolio value is defined, generally, as the present value of expected cash
inflows from existing assets and off-balance sheet contracts less the present
value of expected cash outflows from existing liabilities. A savings institution
is considered to have a "normal" level of interest rate risk exposure if the
decline in its net portfolio value after an immediate 200 basis point increase
or decrease in market interest rates (whichever results in the greater decline)
is less than two percent of the current estimated economic value of its assets.
A savings institution with a greater than normal interest rate risk is required
to deduct from total capital, for purposes of calculating its risk-based capital
requirement, an amount (the "interest rate risk component") equal to one-half
the difference between the institution's measured interest rate risk and the
normal level of interest rate risk, multiplied by the economic value of its
total assets.
The OTS calculates the sensitivity of a savings institution's net portfolio
value based on data submitted by the institution in a schedule to its quarterly
Thrift Financial Report and using the interest rate risk measurement model
adopted by the OTS. The amount of the interest rate risk component, if any, to
be deducted from a savings institution's total capital is based on the
institution's Thrift Financial Report filed two quarters earlier. Savings
institutions with less than $300 million in assets and a risk-based capital
ratio above 12% are generally exempt from filing the interest rate risk schedule
with their Thrift Financial Reports. However, the OTS requires any exempt
savings institution that it determines may have a high level of interest rate
risk exposure to file such schedule on a quarterly basis. The Bank has
determined that, on the basis of current financial data, it will not be deemed
to have more than normal level of interest rate risk under the rule and believes
that it will not be required to increase its total capital as a result of the
rule.
In addition to requiring generally applicable capital standards for savings
institutions, the OTS is authorized to establish the minimum level of capital
for a savings institution at such amount or at such ratio of capital-to-assets
as the OTS determines to be necessary or appropriate for such institution in
light of the particular circumstances of the institution. Such circumstances
would include a high degree of exposure of interest rate risk, prepayment risk,
credit risk and concentration of credit risk and certain risks arising from
non-traditional activities. The OTS may treat the failure of any savings
institution to maintain capital at or above such level as an unsafe or unsound
practice and may issue a directive requiring any savings institution which fails
to maintain capital at or above the minimum level required by the OTS to submit
and adhere to a plan for increasing capital. Such an order may be enforced in
the same manner as an order issued by the FDIC.
PROMPT CORRECTIVE REGULATORY ACTION. Under the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), the federal banking regulators
are required to take prompt corrective action if an insured depository
institution fails to satisfy certain minimum capital requirements. All
institutions, regardless of their capital levels, are restricted from making any
capital distribution or paying any management fees if the institution would
thereafter fail to satisfy the minimum levels for any of its capital
requirements. An institution that fails to meet the minimum level for any
relevant capital measure (an "undercapitalized institution") may be: (i) subject
to increased monitoring by the appropriate federal banking regulator; (ii)
required to submit an acceptable capital restoration plan within 45 days; (iii)
subject to asset growth limits; and (iv) required to obtain prior regulatory
approval for acquisitions, branching and new lines of businesses. The capital
restoration plan must include a guarantee by the institution's holding company
that the institution will comply with the plan until it has been adequately
capitalized on average for four consecutive quarters, under which the holding
company would be liable up to the lesser of 5% of the institution's total assets
or the amount necessary to bring the institution into capital compliance as of
the date it failed to comply with its capital restoration plan. A "significantly
undercapitalized"
20
<PAGE>
institution, as well as any undercapitalized institution that did not submit an
acceptable capital restoration plan, may be subject to regulatory demands for
recapitalization, broader application of restrictions on transactions with
affiliates, limitations on interest rates paid on deposits, asset growth and
other activities, possible replacement of directors and officers, and
restrictions on capital distributions by any bank holding company controlling
the institution. Any company controlling the institution could also be required
to divest the institution or the institution could be required to divest
subsidiaries. The senior executive officers of a significantly undercapitalized
institution may not receive bonuses or increases in compensation without prior
approval and the institution is prohibited from making payments of principal or
interest on its subordinated debt. In their discretion, the federal banking
regulators may also impose the foregoing sanctions on an undercapitalized
institution if the regulators determine that such actions are necessary to carry
out the purposes of the prompt corrective action provisions. If an institution's
ratio of tangible capital to total assets falls below a "critical capital
level," the institution will be subject to conservatorship or receivership
within specified time periods.
Under regulations jointly adopted by the federal banking regulators, a
savings association's capital adequacy for purposes of the FDICIA prompt
corrective action rules is determined on the basis of the institution's total
risk-based capital ratio (the ratio of its total capital to risk-weighted
assets), Tier 1 risk-based capital ratio (the ratio of its core capital to
risk-weighted assets) and leverage ratio (the ratio of its Tier 1 or core
capital to adjusted total assets). The following table shows the capital ratio
requirements for each prompt corrective action category:
<TABLE>
<CAPTION>
Adequately Significantly
Well Capitalized Capitalized Undercapitalized Undercapitalized
---------------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
Total risk-based
capital ratio 10.0% or more 8.0% or more Less than 8.0% Less than 6.0%
Tier 1 risk-based
capital ratio 6.0% or more 4.0% or more Less than 4.0% Less than 3.0%
Leverage ratio 5.0% or more 4.0% or more * Less than 4.0% * Less than 3.0%
-----------
* 3.0% if institution has a composite 1 CAMELS rating.
</TABLE>
A "critically undercapitalized" savings association is defined as a savings
association that has a ratio of "tangible equity" to total assets of less than
2.0%. Tangible equity is defined as core capital plus cumulative perpetual
preferred stock (and related surplus) less all intangibles other than qualifying
supervisory goodwill and certain purchased mortgage servicing rights. The OTS
may reclassify a well capitalized savings association as adequately capitalized
and may require an adequately capitalized or undercapitalized association to
comply with the supervisory actions applicable to associations in the next lower
capital category (but may not reclassify a significantly undercapitalized
institution as critically undercapitalized) if the OTS determines, after notice
and an opportunity for a hearing, that the savings association is in an unsafe
or unsound condition or that the association has received and not corrected a
less-than-satisfactory rating for any CAMELS rating category. For information
regarding the position of the Bank with respect to the FDICIA prompt corrective
action rules, see Note 10 of Notes to Consolidated Financial Statements included
under Item 8 hereof.
SAFETY AND SOUNDNESS STANDARDS. Under FDICIA, as amended by the Riegle
Community Development and Regulatory Improvement Act of 1994, each federal bank
regulatory agency is required to establish safety and soundness standards, by
regulation or guideline. The OTS and the other federal bank regulatory agencies
have adopted a set of guidelines prescribing safety and soundness standards
pursuant to the statute. The final rule and guidelines became effective August
9, 1995. The safety and soundness guidelines establish general standards
relating to internal controls and information systems, internal audit systems,
loan documentation, credit underwriting, interest rate exposure and asset
growth. The guidelines further provide that savings institutions should maintain
safeguards to prevent the payment of compensation, fees and benefits that are
excessive or that could lead to material financial loss, and should take into
account factors such as comparable compensation practices at comparable
institutions. If the OTS determines that a savings institution is not in
compliance with the safety and soundness guidelines, it may require the
institution to submit an acceptable plan to achieve compliance with the
guidelines. A savings institution must submit an acceptable compliance plan to
the OTS within 30 days of receipt of a request for such a plan. Failure to
submit or implement a compliance plan may subject the institution to regulatory
21
<PAGE>
sanctions. Management believes that the Bank already meets substantially all the
standards adopted in the interagency guidelines, and therefore does not believe
that implementation of these regulatory standards has materially affected the
Bank's operations.
Additionally under FDICIA, as amended by the CDRI Act, the Federal banking
agencies were required to establish standards relating to the asset quality and
earnings that the agencies determine to be appropriate. On July 10, 1995, the
Federal banking agencies, including the OTS, issued proposed guidelines relating
to asset quality and earnings. Under the proposed guidelines, a savings
institution should maintain systems, commensurate with its size and the nature
and scope of its operations, to identify problem assets and prevent
deterioration in those assets as well as to evaluate and monitor earnings and
ensure that earnings are sufficient to maintain adequate capital and reserves.
Management believes that the asset quality and earnings standards, in the form
proposed by the banking agencies, would not have a material effect on the Bank's
operations.
FEDERAL HOME LOAN BANK SYSTEM. The FHLB System consists of 12 district
FHLBs subject to supervision and regulation by the Federal Housing Finance Board
("FHFB"). The FHLBs provide a central credit facility primarily for member
institutions. As a member of the FHLB of Topeka, the Bank is required to acquire
and hold shares of capital stock in the FHLB of Topeka in an amount at least
equal to 1% of the aggregate unpaid principal of its home mortgage loans, home
purchase contracts, and similar obligations at the beginning of each year, or
1/20 of its advances (borrowings) from the FHLB of Topeka, whichever is greater.
The Bank was in compliance with this requirement with investment in FHLB of
Topeka stock at June 30, 2000 of $1.9 million. The FHLB of Topeka serves as a
reserve or central bank for its member institutions within its assigned
district. It is funded primarily from proceeds derived from the sale of
consolidated obligations of the FHLB System. It offers advances to members in
accordance with policies and procedures established by the FHFB and the Board of
Directors of the FHLB of Cincinnati. Long-term advances may only be made for the
purpose of providing funds for residential housing finance. At June 30, 2000,
the Bank had $19.6 million in long-term advances, $12.6 million in short-term
advances and $4.0 million on a line of credit outstanding from the FHLB of
Topeka.
FEDERAL RESERVE SYSTEM. Pursuant to regulations of the Federal Reserve
Board, a thrift institution must maintain average daily reserves equal to 3% on
transactions accounts of between $4.9 million and $46.5 million, plus 10% on the
amount over $46.5 million. This percentage is subject to adjustment by the
Federal Reserve Board. Because required reserves must be maintained in the form
of vault cash or in a non-interest bearing account at a Federal Reserve Bank,
the effect of the reserve requirement is to reduce the amount of the
institution's interest-earning assets. As of June 30, 2000, the Bank met its
reserve requirements.
FEDERAL DEPOSIT INSURANCE. The Bank is required to pay assessments based on
a percentage of its insured deposits to the FDIC for insurance of its deposits
by the FDIC through the SAIF. Under the Federal Deposit Insurance Act, the FDIC
is required to set semi-annual assessments for SAIF-insured institutions at a
level necessary to maintain the designated reserve ratio of the SAIF at 1.25% of
estimated insured deposits or at a higher percentage of estimated insured
deposits that the FDIC determines to be justified for that year by circumstances
indicating a significant risk of substantial future losses to the SAIF.
Under the FDIC's risk-based deposit insurance assessment system, the
assessment rate for an insured depository institution depends on the assessment
risk classification assigned to the institution by the FDIC, which is determined
by the institution's capital level and supervisory evaluations. Based on the
data reported to regulators for the date closest to the last day of the seventh
month preceding the semi-annual assessment period, institutions are assigned to
one of three capital groups -- well capitalized, adequately capitalized or
undercapitalized -- using the same percentage criteria as under the prompt
corrective action regulations. See " -- Prompt Corrective Regulatory Action."
Within each capital group, institutions are assigned to one of three subgroups
on the basis of supervisory evaluations by the institution's primary supervisory
authority and such other information as the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance fund. Subgroup A consists of financially sound institutions with only
a few minor weaknesses. Subgroup B consists of institutions that demonstrate
weaknesses which, if not corrected, could result in significant deterioration of
the institution and increased risk of loss to the deposit insurance fund.
Subgroup C consists of institutions that pose a substantial probability of loss
to the deposit insurance fund unless effective corrective action is taken.
22
<PAGE>
The special assessment in 1996 recapitalized the SAIF, and as a result, the
FDIC lowered the SAIF deposit insurance assessment rates to zero for well
capitalized institutions with the highest supervisory ratings and 0.31% of
insured deposits for institutions in the highest risk-based premium category.
Since the BIF is above its designated reserve ratio of 1.25% of insured
deposits, "well-capitalized" institutions in Subgroup A, numbering 95% of
BIF-insured institutions, pay no federal deposit insurance premiums, with the
remaining 5% of institutions paying a graduated range of rates up to 0.27% of
insured deposits for the highest risk-based premium category. Until December 31,
2000, SAIF-insured institutions will be required to pay assessments to the FDIC
at the rate of 6.5 basis points to help fund interest payments on certain bonds
issued by the Financing Corporation ("FICO"), an agency of the federal
government established to finance takeovers of insolvent thrifts. During this
period, BIF members will be assessed for these obligations at the rate of 1.3
basis points. After December 31, 2000, both BIF and SAIF members will be
assessed at the same rate for FICO payments.
LIQUIDITY REQUIREMENTS. The Bank generally is required to maintain average
daily balances of liquid assets (generally, cash, certain time deposits,
bankers' acceptances, highly rated corporate debt and commercial paper,
securities of certain mutual funds, and specified United States government,
state or federal agency obligations) in each calendar quarter that is equal or
greater than 4% of its net withdrawable accounts plus short-term borrowings
either at the end of the preceding calendar quarter or on the average daily
balance during the preceding quarter. The Bank also is required to maintain
sufficient liquidity to ensure its safe and sound operation. Monetary penalties
may be imposed for failure to meet liquidity requirements. The average daily
balance of liquid assets ratio of the Bank for June 30, 2000 was 6.18%.
QUALIFIED THRIFT LENDER TEST. The HOLA and OTS regulations require that all
savings institutions satisfy one of two Qualified Thrift Lender ("QTL") tests or
suffer a number of sanctions, including restrictions on activities. To qualify
as a QTL, a savings institution must either qualify as a "domestic building and
loan association" under the Internal Revenue Code or maintain at least 65% of
its "portfolio" assets in Qualified Thrift Investments. Portfolio assets are
defined as total assets less intangibles, property used by a savings institution
in its business and liquidity investments in an amount not exceeding 20% of
assets. All of the following may be included as Qualified Thrift Investments:
investments in mortgage-backed securities, residential mortgages, home equity
loans, loans made for educational purposes, small business loans, credit card
loans and shares of stock issued by a Federal Home Loan Bank. Subject to a 20%
of portfolio assets limit, savings institutions are also able to treat the
following as Qualified Thrift Investments: (i) 50% of the dollar amount of
residential mortgage loans subject to sale under certain conditions, (ii)
investments, both debt and equity, in the capital stock or obligations of and
any other security issued by a service corporation or operating subsidiary,
provided that such subsidiary derives at least 80% of its annual gross revenues
from activities directly related to purchasing, refinancing, constructing,
improving or repairing domestic residential housing or manufactured housing,
(iii) 200% of their investments in loans to finance "starter homes" and loans
for construction, development or improvement of housing and community service
facilities or for financing small businesses in "credit-needy" areas, (iv) loans
for the purchase, construction, development or improvement of community service
facilities, and (v) loans for personal, family, household or educational
purposes, provided that the dollar amount treated as Qualified Thrift
Investments may not exceed 10% of the savings institution's portfolio assets.
A savings institution must maintain its status as a QTL on a monthly basis
in at least nine out of every 12 months. An initial failure to qualify as a QTL
results in a number of sanctions, including the imposition of certain operating
restrictions and a restriction on obtaining additional advances from its Federal
Home Loan Bank. If a savings institution does not requalify under the QTL test
within the three-year period after it fails the QTL test, it would be required
to terminate any activity not permissible for a national bank and repay as
promptly as possible any outstanding advances from its Federal Home Loan Bank.
In addition, the holding company of such an institution, such as the Company,
would similarly be required to register as a bank holding company with the
Federal Reserve Board. At June 30, 2000, the Bank qualified as a QTL.
RESTRICTIONS ON CAPITAL DISTRIBUTIONS. Under OTS regulations, the Bank is
not permitted to pay dividends on its capital stock if its regulatory capital
would thereby be reduced below the amount then required for the liquidation
account established for the benefit of certain depositors of the Bank at the
time of its conversion to stock form.
23
<PAGE>
Under the OTS' prompt corrective action regulations, the Bank is also
prohibited from making any capital distributions if after making the
distribution, the Bank would have: (i) a total risk-based capital ratio of less
than 8%; (ii) a Tier 1 risk-based capital ratio of less than 4%; or (iii) a
leverage ratio of less than 4%. The OTS, after consultation with the FDIC,
however, may permit an otherwise prohibited stock repurchase if made in
connection with the issuance of additional shares in an equivalent amount and
the repurchase will reduce the institution's financial obligations or otherwise
improve the institution's financial condition.
OTS regulations require that savings institutions submit notice to the OTS
prior to making a capital distribution if (a) they would not be well-capitalized
after the distribution, (b) the distribution would result in the retirement of
any of the institution's common or preferred stock or debt counted as its
regulatory capital, or (c) the institution is a subsidiary of a holding company.
A savings institution must make application to the OTS to pay a capital
distribution if (x) the institution would not be adequately capitalized
following the distribution, (y) the institution's total distributions for the
calendar year exceeds the institution's net income for the calendar year to date
plus its net income (less distributions) for the preceding two years, or (z) the
distribution would otherwise violate applicable law or regulation or an
agreement with or condition imposed by the OTS. If neither the savings
institution nor the proposed capital distribution meet any of the foregoing
criteria, then no notice or application is required to be filed with the OTS
before making a capital distribution. The OTS may disapprove or deny a capital
distribution if in the view of the OTS, the capital distribution would
constitute an unsafe or unsound practice.
LOANS TO DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS. The
Bank's ability to extend credit to its directors, executive officers, and 10%
stockholders, as well as to entities controlled by such persons, is governed by
the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and
Regulation O of the Federal Reserve Board thereunder. Among other things, these
provisions require that an institution's extensions of credit to insiders (a) be
made on terms that are substantially the same as, and follow credit underwriting
procedures that are not less stringent than, those prevailing for comparable
transactions with unaffiliated persons and that do not involve more than the
normal risk of repayment or present other unfavorable features and (b) not
exceed certain limitations on the amount of credit extended to such persons,
individually and in the aggregate, which limits are based, in part, on the
amount of the institution's capital. In addition, extensions of credit in excess
of certain limits must be approved by the Bank's Board of Directors.
FINANCIAL MODERNIZATION LEGISLATION. On November 12, 1999, President
Clinton signed legislation which could have a far-reaching impact on the
financial services industry. The Gramm-Leach-Bliley ("G-L-B") Act authorizes
affiliations between banking, securities and insurance firms and authorizes bank
holding companies and national banks to engage in a variety of new financial
activities. Among the new activities that will be permitted to bank holding
companies are securities and insurance brokerage, securities underwriting,
insurance underwriting and merchant banking. The Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"), in consultation with the
Secretary of the Treasury, may approve additional financial activities. National
bank subsidiaries will be permitted to engage in similar financial activities
but only on an agency basis unless they are one of the 50 largest banks in the
country. National bank subsidiaries will be prohibited from insurance
underwriting, real estate development and, for at least five years, merchant
banking. The G-L-B Act, however, prohibits future acquisitions of existing
unitary savings and loan holding companies, like the Company, by firms which are
engaged in commercial activities and limits the permissible activities of
unitary holding companies formed after May 4, 1999.
The G-L-B Act imposes new requirements on financial institutions with
respect to customer privacy. The G-L-B Act generally prohibits disclosure of
customer information to non-affiliated third parties unless the customer has
been given the opportunity to object and has not objected to such disclosure.
Financial institutions are further required to disclose their privacy policies
to customers annually. Financial institutions, however, will be required to
comply with state law if it is more protective of customer privacy than the
G-L-B Act. The G-L-B Act directs the federal banking agencies, the National
Credit Union Administration, the Secretary of the Treasury, the Securities and
Exchange Commission and the Federal Trade Commission, after consultation with
the National Association of Insurance Commissioners, to promulgate implementing
regulations within six months of enactment. The privacy provisions will become
effective six months thereafter.
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<PAGE>
The G-L-B Act contains significant revisions to the FHLB System. The G-L-B
Act imposes new capital requirements on the FHLBs and authorizes them to issue
two classes of stock with differing dividend rates and redemption requirements.
The G-L-B Act deletes the current requirement that the FHLBs annually contribute
$300 million to pay interest on certain government obligations in favor of a 20%
of net earnings formula. The G-L-B Act expands the permissible uses of FHLB
advances by community financial institutions (under $500 million in assets) to
include funding loans to small businesses, small farms and small
agri-businesses. The G-L-B Act makes membership in the FHLB voluntary for
federal savings associations.
The G-L-B Act contains a variety of other provisions including a
prohibition against ATM surcharges unless the customer has first been provided
notice of the imposition and amount of the fee. The G-L-B Act reduces the
frequency of Community Reinvestment Act examinations for smaller institutions
and imposes certain reporting requirements on depository institutions that make
payments to non-governmental entities in connection with the Community
Reinvestment Act. The G-L-B Act eliminates the SAIF special reserve and
authorizes a federal savings association that converts to a national or state
bank charter to continue to use the term "federal" in its name and to retain any
interstate branches.
The Company is unable to predict the impact of the G-L-B Act on its
operations at this time. Although the G-L-B Act reduces the range of companies
which may acquire control of the Company, it may facilitate affiliations with
companies in the financial services industry.
REGULATION OF THE COMPANY
GENERAL. The Company is a savings and loan holding company as defined by
the Home Owners' Loan Act (the "HOLA") and, as such, is subject to OTS
regulation, supervision and examination. In addition, the OTS has enforcement
authority over the Company and its non-savings institution subsidiaries and may
restrict or prohibit activities that are determined to represent a serious risk
to the safety, soundness or stability of the Bank or any other subsidiary
savings institution. As a subsidiary of a savings and loan holding company, the
Bank is subject to certain restrictions in its dealings with the Company and
affiliates thereof.
ACTIVITIES RESTRICTIONS. The Board of Directors of the Company presently
operates the Company as a unitary savings and loan holding company. There are
generally no restrictions on the activities of a unitary savings and loan
holding company. However, if the Director of OTS determines that there is
reasonable cause to believe that the continuation by a savings and loan holding
company of an activity constitutes a serious risk to the financial safety,
soundness, or stability of its subsidiary savings institution, the Director of
OTS may impose such restrictions as deemed necessary to address such risk
including limiting: (i) payment of dividends by the savings institution, (ii)
transactions between the savings institution and its affiliates; and (iii) any
activities of the savings institution that might create a serious risk that the
liabilities of the holding company and its affiliates may be imposed on the
savings institution. Notwithstanding the above rules as to permissible business
activities of unitary savings and loan holding companies, if the savings
institution subsidiary of such a holding company fails to meet the Qualified
Thrift Lender ("QTL") Test, then within one year after the institution ceased to
be a QTL, such unitary savings and loan holding company shall register as and be
deemed to be a bank holding company and will become subject to the activities
restrictions applicable to a bank holding company. See "Regulation of the Bank
-- Qualified Thrift Lender Test."
Legislation currently pending in the United States Congress would, if
enacted, restrict the business activities of unitary savings and loan holding
companies; however, the legislation in its present form would grandfather the
current absence of restriction on business activities for unitary savings and
loan holding companies in existence on the bill's date of enactment. Since the
Company currently is a unitary savings and loan holding company, it would
qualify for such grandfathered treatment under the current form of the
legislation. See " --Proposed Regulatory and Legislative Changes."
If the Company were to acquire control of another savings institution,
other than through merger or other business combination with the Bank, the
Company would thereupon become a multiple savings and loan holding company.
Except where such acquisition is pursuant to the authority to approve emergency
thrift acquisitions and where each subsidiary savings institution meets the QTL
Test, the activities of the Company and any of its
25
<PAGE>
subsidiaries (other than the Bank or other subsidiary savings institutions)
would thereafter be subject to further restrictions. The HOLA provides that,
among other things, no multiple savings and loan holding company or subsidiary
thereof which is not a savings institution may commence or continue for a
limited period of time after becoming a multiple savings and loan holding
company or subsidiary thereof, any business activity, upon prior notice to, and
no objection by the OTS, other than (i) furnishing or performing management
services for a subsidiary savings institution, (ii) conducting an insurance
agency or escrow business, (iii) holding, managing, or liquidating assets owned
by or acquired from a subsidiary savings institution, (iv) holding or managing
properties used or occupied by a subsidiary savings institution, (v) acting as
trustee under deeds of trust, (vi) those activities previously authorized by
regulation as of March 5, 1987 to be directly engaged in by multiple savings and
loan holding companies or (vii) those activities authorized by the Federal
Reserve Board as permissible for bank holding companies, unless the Director of
OTS by regulation prohibits or limits such activities for savings and loan
holding companies. Those activities described in (vii) above must also be
approved by the Director of OTS prior to being engaged in by a multiple savings
and loan holding company.
TRANSACTIONS WITH AFFILIATES. Transactions between savings institutions and
any affiliate are governed by Sections 23A and 23B of the Federal Reserve Act.
An affiliate of a savings institution is any company or entity which controls,
is controlled by or is under common control with the savings institution. In a
holding company context, the parent holding company of a savings institution
(such as the Company) and any companies which are controlled by such parent
holding company are affiliates of the savings institution. Generally, Sections
23A and 23B (i) limit the extent to which the savings institution or its
subsidiaries may engage in "covered transactions" with any one affiliate to an
amount equal to 10% of such institution's capital stock and surplus, and contain
an aggregate limit on all such transactions with all affiliates to an amount
equal to 20% of such capital stock and surplus, and (ii) require that all such
transactions be on terms substantially the same, or at least as favorable, to
the institution or subsidiary as those provided to a non-affiliate. The term
"covered transaction" includes the making of loans, purchase of assets, issuance
of a guarantee and similar other types of transactions. In addition to the
restrictions imposed by Sections 23A and 23B, no savings institution may (i)
loan or otherwise extend credit to an affiliate, except for any affiliate which
engages only in activities which are permissible for bank holding companies, or
(ii) purchase or invest in any stocks, bonds, debentures, notes or similar
obligations of any affiliate, except for affiliates which are subsidiaries of
the savings institution. Section 106 of the Bank Holding Company Act of 1956, as
amended ("BHCA") which also applies to the Bank, prohibits the Bank from
extending credit to or offering any other services, or fixing or varying the
consideration for such extension of credit or service, on condition that the
customer obtain some additional services from the institution or certain of its
affiliates or not obtain services of a competitor of the institution, subject to
certain exceptions.
Savings institutions are also subject to the restrictions contained in
Section 22(h) and Section 22(g) of the Federal Reserve Act on loans to executive
officers, directors and principal stockholders. Under Section 22(h), loans to a
director, executive officer or to a greater than 10% stockholder of a savings
institution, and certain affiliated entities of the foregoing, may not exceed,
together with all other outstanding loans to such person and affiliated entities
the institution's loan to one borrower limit (generally equal to 15% of the
institution's unimpaired capital and surplus and an additional 10% of such
capital and surplus for loans fully secured by certain readily marketable
collateral). Section 22(h) also prohibits loans, above amounts prescribed by the
appropriate federal banking agency, to directors, executive officers and greater
than 10% stockholders of a savings institution, and their respective affiliates,
unless such loan is approved in advance by a majority of the board of directors
of the institution with any "interested" director not participating in the
voting. The Federal Reserve Board has prescribed the loan amount (which includes
all other outstanding loans to such person), as to which such prior board of
director approval is required, as being the greater of $25,000 or 5% of capital
and surplus (up to $500,000). Further, the Federal Reserve Board pursuant to
Section 22(h) requires that loans to directors, executive officers and principal
stockholders be made on terms substantially the same as offered in comparable
transactions to other persons. Section 22(h) also generally prohibits a
depository institution from paying the overdrafts of any of its executive
officers or directors.
Section 22(g) of the Federal Reserve Act requires that loans to executive
officers of depository institutions not be made on terms more favorable than
those afforded to other borrowers, requires approval for such extensions of
credit by the board of directors of the institution, and imposes reporting
requirements for and additional restrictions on the type, amount and terms of
credits to such officers. In addition, Section 106 of the BHCA extensions of
credit to executive officers, directors, and greater than 10% stockholders of a
depository institution by
26
<PAGE>
any other institution which has a correspondent banking relationship with the
institution, unless such extension of credit is on substantially the same terms
as those prevailing at the time for comparable transactions with other persons
and does not involve more than the normal risk of repayment or present other
unfavorable features.
RESTRICTIONS ON ACQUISITIONS. The HOLA generally prohibits savings and loan
holding companies, without prior approval of the Director of OTS, from acquiring
(i) control of any other savings institution or savings and loan holding company
or substantially all the assets thereof, or (ii) more than 5% of the voting
shares of a savings institution or holding company thereof which is not a
subsidiary. Under certain circumstances, a registered savings and loan holding
company is permitted to acquire, with the approval of the Director of OTS, up to
15% of the voting shares of an under-capitalized savings institution pursuant to
a "qualified stock issuance" without that savings institution being deemed
controlled by the holding company. In order for the shares acquired to
constitute a "qualified stock issuance," the shares must consist of previously
unissued stock or treasury shares, the shares must be acquired for cash, the
savings and loan holding company's other subsidiaries must have tangible capital
of at least 6 1/2% of total assets, there must not be more than one common
director or officer between the savings and loan holding company and the issuing
savings institution and transactions between the savings institution and the
savings and loan holding company and any of its affiliates must conform to
Sections 23A and 23B of the Federal Reserve Act. Except with the prior approval
of the Director of OTS, no director or officer of a savings and loan holding
company or person owning or controlling by proxy or otherwise more than 25% of
such company's stock, may also acquire control of any savings institution, other
than a subsidiary savings institution, or of any other savings and loan holding
company.
The Director of OTS may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
institutions in more than one state if: (i) the multiple savings and loan
holding company involved controls a savings institution which operated a home or
branch office in the state of the institution to be acquired as of March 5,
1987; (ii) the acquiror is authorized to acquire control of the savings
institution pursuant to the emergency acquisition provisions of the Federal
Deposit Insurance Act; or (iii) the laws of the state in which the institution
to be acquired is located specifically permit institutions to be acquired by
state-chartered institutions or savings and loan holding companies located in
the state where the acquiring entity is located (or by a holding company that
controls such state-chartered savings institutions).
OTS regulations permit federal savings institutions to branch in any state
or states of the United States and its territories. Except in supervisory cases
or when interstate branching is otherwise permitted by state law or other
statutory provision, a federal savings institution may not establish an
out-of-state branch unless (i) the institution qualifies as a QTL or as a
"domestic building and loan association" under ss.7701(a)(19) of the Code and
the total assets attributable to all branches of the institution in the state
would qualify such branches taken as a whole for treatment as a QTL or as a
domestic building and loan association and (ii) such branch would not result in
(a) formation of a prohibited multi-state multiple savings and loan holding
company or (b) a violation of certain statutory restrictions on branching by
savings institution subsidiaries of bank holding companies. Federal savings
institutions generally may not establish new branches unless the institution
meets or exceeds minimum regulatory capital requirements. The OTS will also
consider the institution's record of compliance with the Community Reinvestment
Act of 1977 in connection with any branch application.
TAXATION
GENERAL. The Company and the Bank file separate federal income tax returns.
Federal Income Taxation. Earnings appropriated to an institution's bad debt
reserve and claimed as a tax deduction are not available for the payment of cash
dividends or for distribution to shareholders (including distributions made on
dissolution or liquidation), unless such amount was included in taxable income,
along with the amount deemed necessary to pay the resulting federal income tax.
Beginning with the first taxable year beginning after December 31, 1995,
savings institutions, such as the Bank, were treated the same as commercial
banks. Institutions with $500 million or more in assets will only be able to
take a tax deduction when a loan is actually charged off. Institutions with less
than $500 million in assets will still be permitted to make deductible bad debt
additions to reserves, but only using the experience method.
27
<PAGE>
In 1996 the Bank's federal corporate income tax returns for 1995 were
audited with no significant correction. The Bank's tax returns have not been
otherwise audited in the last five years.
Under provisions of the Revenue Reconciliation Act of 1993 ("RRA"), enacted
on August 10, 1993, the maximum federal corporate income tax rate was increased
from 34% to 35% for taxable income over $10.0 million, with a 3% surtax imposed
on taxable income over $15.0 million. Also under provisions of RRA, a separate
depreciation calculation requirement has been eliminated in the determination of
adjusted current earnings for purposes of determining alternative minimum
taxable income, rules relating to payment of estimated corporate income taxes
were revised, and certain acquired intangible assets such as goodwill and
customer-based intangibles were allowed a 15-year amortization period. Beginning
with tax years ending on or after January 1, 1993, RRA also provides that
securities dealers must use mark-to-market accounting and generally reflect
changes in value during the year or upon sale as taxable gains or losses. The
IRS has indicated that financial institutions which originate and sell loans
will be subject to the rule.
STATE INCOME TAXATION. The State of Colorado imposes no franchise taxes on
savings institutions. The State of Colorado taxes the Bank's federal taxable
income, adjusted for interest income received directly from federal agencies, at
a 4.75% rate.
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
executive officers of the Company.
<TABLE>
<CAPTION>
Ages at
June 30,
Name 2000 Title
---- ---- -----
<S> <C> <C>
Larry D. Smith 42 President
Scott G. Erchul 38 Vice President
Frank L. DeLay 36 Chief Financial Officer
</TABLE>
Larry D. Smith has been President of the Bank since 1991 and a Director of
the Bank since 1987. He serves as the President and Chief Executive Officer of
the Company and the Bank. From 1978 to 1991, he served as Controller of the
Bank. He is active in the Salida school system and youth sports by serving as a
coach for various sports teams and by serving on the High School Building
Accountability and Business Advisory Committees. He is also involved with
several organizations which promote the academic and athletic development of the
youth of Salida.
Scott G. Erchul has been a member of the Board of Directors of the Bank
since 1997. He has served as Vice President of the Bank since 1991 and serves as
Vice President of the Company and the Bank. His past and current community
involvement include the Rotary Club, Academic Booster Club committee member and
youth sports coach for football, baseball and soccer.
Frank L. DeLay has served as the Chief Financial Officer of the Bank since
1992 and he serves in a similar capacity for the Company. He is a member of the
Kiwanis Club and has served as Treasurer and on the Board of Directors of the
Heart of the Rockies Chamber of Commerce.
28
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
--------------------------------
The following table sets forth information regarding the Bank's offices at
June 30, 2000.
<TABLE>
<CAPTION>
Book Value at
Year Owned or June 30, Approximate
Opened Leased 2000 (1) Square Footage
------ ------ -------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
MAIN OFFICE:
7360 West US
Highway 50
Saldia, Colorado 2000 (2) Owned $ 3,020 11,800
BRANCH OFFICES:
130 West 2nd
Salida, Colorado 1886 (3) Owned 756 10,750
600 Harrison (4)
Leadville, Colorado 1978 Owned 737 3,800
713 East Main (4)
Buena Vista, Colorado 1996 Owned 436 2,400
<FN>
(1) Cost less accumulated depreciation and amortization.
(2) Opened in April 2000.
(3) The current location and building in Salida, Colorado was occupied in 1974.
(4) The Bank constructed new building facilities at each of these locations in 1996.
</FN>
</TABLE>
The book value of the Bank's investment in premises and equipment totaled
approximately $6.1 million at June 30, 2000. See Note 6 of Notes to Financial
Statements.
ITEM 3. LEGAL PROCEEDINGS
--------------------------
From time to time, the Bank is a party to various legal proceedings
incident to its business. At June 30, 2000, there were no legal proceedings to
which the Company or the Bank was a party, or to which any of their property was
subject, which were expected by management to result in a material loss to the
Company or the Bank. There are no pending regulatory proceedings to which the
Company, the Bank or its subsidiaries is a party or to which any of their
properties is subject which are currently expected to result in a material loss.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended June 30, 2000.
29
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
-----------------------------------------------------------------
The information contained under the section captioned "Market Price and
Dividend Information" in the Annual Report is incorporated herein by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------------------------------------------------------------------
The information contained in the section captioned "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Annual
Report is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
-----------------------------
The financial statements contained in the Annual Report which are listed
under Item 13 herein are incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
------------------------------------------------------------------------
Financial Disclosure
--------------------
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
----------------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
The information contained under the section captioned "Proposal I --
Election of Directors" in the Proxy Statement is incorporated herein by
reference.
Pursuant to regulations promulgated under the Securities Exchange Act of
1934, the Company's officers, directors and persons who own more than ten
percent of the Company's outstanding shares of common stock are required to file
reports detailing their ownership and changes of ownership in such Common Stock,
and to furnish the Company with copies of all such reports. Based solely on the
Company's review of such reports which the Company received during the last
fiscal year, or written representations from such persons that no annual report
of change in beneficial ownership was required, the Company believes that,
during the last fiscal year, all persons subject to such reporting requirements
have complied with the reporting requirements.
For certain information regarding the executive officers of the Company,
see "Item 1. Business --Executive Officers" herein.
ITEM 10. EXECUTIVE COMPENSATION
--------------------------------
The information contained under the section captioned "Executive
Compensation" in the Proxy Statement is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
The information required by this item is incorporated herein
by reference to the section captioned "Voting Securities and
Principal Holders Thereof" in the Proxy Statement.
30
<PAGE>
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the sections captioned "Proposal I -- Election of
Directors" and "Voting Securities and Principal Holders
Thereof" in the Proxy Statement.
(c) Changes in Control
Management of the Company knows of no arrangements, including
any pledge by any person of securities of the Company, the
operation of which may at a subsequent date result in a change
of control of the registrant.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
The information required by this item is incorporated herein by reference
to the section captioned "Transactions with Management" in the Proxy Statement.
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
-----------------------------------------------
(a) List of Documents Filed as Part of This Report
----------------------------------------------
(1) Consolidated Financial Statements. The following financial
statements of the registrant are included herein under Item 7.
The remaining information appearing in the Annual Report is not
deemed to be filed as part of this Annual Report on Form 10-KSB,
except as expressly provided herein.
Independent Auditor's Report
(a) Statements of Financial Condition as of June 30, 2000
and 1999
(b) Statements of Income for the Years Ended June 30, 2000
and 1999
(c) Statements of Equity for the Years Ended June 30, 2000
and 1999
(d) Statements of Cash Flows for the Years Ended June 30,
2000 and 1999
(e) Notes to Financial Statements
(2) Financial Statement Schedules. None
-----------------------------
(3) Exhibits. The following exhibits are either filed as part of this
--------
Annual Report on Form 10-KSB or incorporated herein by reference:
Exhibit No.
* 3.1 Articles of Incorporation of High Country Bancorp, Inc.
* 3.2 Bylaws of High Country Bancorp, Inc.
* 10.1 Employment Agreement between Salida Building and Loan
Association and Larry D. Smith
* 10.2 Guaranty Agreement between High Country Bancorp, Inc. and Larry
D. Smith
* 10.3 High Country Bancorp, Inc. 1997 Stock Option and Incentive Plan
31
<PAGE>
* 10.4 High Country Bancorp, Inc. Management Recognition Plan and Trust
* 10.5 Salida Building and Loan Association Long-Term Incentive Plan
* 10.6 Salida Building and Loan Association Incentive Compensation Plan
* 10.7 Employment Agreement between Salida Building and Loan
Association and Scott G. Erchul
* 10.8 Guaranty Agreement between High Country Bancorp, Inc. and
Scott G. Erchul
* 10.9 Change-in-Control Protective Agreement between Salida Building
and Loan Association and Francis L. Delay
* 10.10 Change-in-Control Guaranty Agreement between High Country
Bancorp, Inc. and Francis L. DeLay
13 Annual Report to Stockholders for the year ended June 30, 2000
21 Subsidiaries
23 Consent of Grimsley, White & Company
27 Financial Data Schedule
-------------
* Incorporated by reference from Registration Statement on Form SB-2 filed
January 27, 1997 (File No. 333-34153).
(b) Reports on Form 8-K. No current reports on Form 8-K have been filed
-------------------
during the last quarter of the fiscal year covered by this report.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
HIGH COUNTRY BANCORP, INC.
Date: September 27, 2000 By: /s/ Larry D. Smith
-----------------------------
Larry D. Smith
President and Chief Executive Officer
(Duly Authorized Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Larry D. Smith Date: September 27, 2000
------------------------------------
Larry D. Smith
President and Chief Executive Officer
(Principal Executive and Officer)
By: /s/ Frank L. DeLay Date: September 27, 2000
------------------------------------
Frank L. DeLay
Chief Financial Officer
(Principal Financial and Accounting Officer)
By: /s/ Scott G. Erchul Date: September 27, 2000
------------------------------------
Scott G. Erchul
Vice President and Director
By: /s/ Robert B. Mitchell Date: September 27, 2000
------------------------------------
Robert B. Mitchell
Chairman of the Board
By: /s/ Timothy R. Glenn Date: September 27, 2000
------------------------------------
Timothy R. Glenn
Director
By: /s/ Richard A. Young Date: September 27, 2000
------------------------------------
Richard A. Young
Director
By: /s/ Philip W. Harsh Date: September 27, 2000
-------------------------------------
Philip W. Harsh
Director
