[LOGO]
HIGH COUNTRY BANCORP, INC.
ANNUAL REPORT FOR
THE YEAR ENDED
JUNE 30, 2000
<PAGE>
[HIGH COUNTRY BANCORP, INC. LETTERHEAD]
TO OUR STOCKHOLDERS:
With the successful completion of another year, we are pleased to present
this Annual Report to the Stockholders. Management and the Board of Directors of
High Country Bancorp, Inc. would like to thank you for your support during the
past year.
During Fiscal 2000, assets increased $23.7 Million to $137.7 Million. This
growth was the result of continued diversification of lending and strong loan
demand in the local economy. As a result of a 24.5% increase in net income and
stock repurchases of 227,494 shares, Stockholder's equity is $16 Million. Asset
quality remains good, as good underwriting standards remain in effect.
There were several major events and accomplishments in Fiscal 2000. Stock
repurchases continued, as we continue to believe that our stock is undervalued.
To date we have repurchased a total of 251,275 shares. We continued operating a
secondary mortgage department offering competitive interest rates and additional
fee income. Our Commercial Loan Department has been a successful competitor in
the local markets. In November, 1999, we organized High Country Title and Escrow
Company, which continues to increase its business. We expect that to be a very
profitable venture. In February, 2000, the Bank changed its name from Salida
Building and Loan Association to High Country Bank. We feel that this allows us
to more effectively market our products and services locally and in the
surrounding areas. In April, 2000, we moved our home office to the newly
constructed West Highway 50 location in Salida. This will allow us to continue
to expand our operations. We continue to operate a branch office out of our
downtown Salida location, as well as house the Title and Escrow Company in that
facility.
After serving the local area for 114 years, we look forward to assisting
with the future growth within our communities. We are confident of the company's
sound financial condition. We are committed to our local customers and
communities. The Company is positioned to take advantage of competitive
opportunities and look forward to meeting the challenges of the financial
services industry.
We appreciate your support and invite you to review this Annual Report. We
look forward to the future with great confidence and enthusiasm.
Sincerely,
HIGH COUNTRY BANCORP, INC.
BY /s/ Larry D. Smith
--------------------------------------
Larry D. Smith, President &
Chief Executive Officer
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
AT JUNE 30, CHANGE
--------------------------- ---------------------
2000 1999 AMOUNT PERCENT
---- ---- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FINANCIAL POSITION:
Total assets.................................. $ 137,735 $ 114,014 23,721 20.81%
Loans receivable, net......................... 119,898 98,433 21,465 21.81
Mortgage-backed and related securities........ 2,843 3,639 (796) (21.87)
Investment securities......................... 1,857 1,201 656 54.62
Deposits...................................... 82,770 72,604 10,166 14.00
Stockholders' equity.......................... 16,108 18,028 (1,920) (10.65)
Number of common shares outstanding........... 1,071,225 1,298,719 (227,494) (17.52)
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
JUNE 30, CHANGE
--------------------- ---------------------
2000 1999 AMOUNT PERCENT
---- ---- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest income............................ $ 9,536 $ 8,536 $ 1,000 11.72%
Interest expense........................... 4,499 3,920 579 14.77
Net interest income........................ 5,037 4,616 421 9.12
Provision for loan losses.................. 210 230 (20) (8.70)
Net interest income after provision
for loan losses.......................... 4,827 4,386 441 10.05
Non-interest income........................ 590 189 401 212.17
Non-interest expense....................... 3,752 3,228 524 16.23
Net earnings............................... 1,046 840 206 24.52
</TABLE>
1
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
SELECTED FINANCIAL CONDITION DATA:
<TABLE>
<CAPTION>
AT JUNE 30,
-----------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total assets................................. $137,735 $114,014 $100,589 $ 76,324 $ 63,185
Cash......................................... 4,393 2,249 2,999 895 511
Interest-earning deposits.................... 1,321 4,410 6,963 2,381 1,577
Securities available for sale................ -- -- -- -- 989
Securities held to maturity................. 2,843 3,639 4,637 5,340 6,843
Loans receivable, net........................ 119,898 98,433 81,359 63,127 50,076
Savings deposits............................. 82,770 72,604 63,425 56,152 49,537
Stockholders' equity......................... 16,108 18,028 18,279 5,958 5,907
_____________________
Number of:
Real estate loans outstanding............ 1,282 1,231 1,185 1,137 1,054
Savings accounts......................... 11,839 11,064 10,199 9,126 7,828
Full-service offices..................... 4 3 3 3 2
</TABLE>
SELECTED OPERATIONS DATA:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income.............................. $ 9,536 $ 8,536 $ 7,033 $ 5,764 $ 4,948
Interest expense............................. 4,499 3,920 3,266 2,813 2,293
------- -------- ------- -------- --------
Net interest income...................... 5,037 4,616 3,767 2,951 2,655
Provision for loan losses.................... 210 230 219 282 59
------- -------- ------- -------- --------
Net interest income after provision
for loan losses........................ 4,827 4,386 3,548 2,669 2,596
------- -------- ------- -------- --------
Noninterest income........................... 590 189 158 141 146
------- -------- ------- -------- --------
Subtotal................................. 5,417 4,575 3,706 2,810 2,742
------- -------- ------- -------- --------
Noninterest expense:
Compensation and benefits.................. 2,216 1,866 1,506 1,345 868
Other...................................... 1,536 1,362 1,119 1,410 948
------- -------- ------- -------- --------
Total noninterest expense.................. 3,752 3,228 2,625 2,755 1,816
------- -------- ------- -------- --------
Income before taxes...................... 1,665 1,347 1,081 55 926
Income tax expense........................... 619 507 428 11 407
------- -------- ------- -------- --------
Net income............................... $ 1,046 $ 840 $ 653 $ 44 $ 519
======= ======== ======= ======== ========
</TABLE>
2
<PAGE>
OPERATING RATIOS
----------------
<TABLE>
<CAPTION>
AT OR FOR THE YEAR
ENDED JUNE 30,
----------------
2000 1999
---- ----
PERFORMANCE RATIOS:
<S> <C> <C>
Return on assets (ratio of net earnings
to average total assets)................................. .84% 0.77%
Return on equity (ratio of net earnings
to average equity) ...................................... 6.14 4.61
Ratio of average interest-earning assets to
average interest-bearing liabilities..................... 110.07 115.52
Ratio of net interest income, after provision
for loan losses, to noninterest expense.................. 128.65 135.87
Net interest rate spread (difference
between weighted average yield on
interest-earning assets and weighted
average cost of interest-bearing liabilities)............ 3.93 3.88
Net yield on average interest-earning assets............... 4.32 4.47
QUALITY RATIOS:
Non-performing loans to total loans
at end of period......................................... 0.57 0.28
Non-performing loans to total assets....................... 0.50 0.24
Non-performing assets to total assets
at end of period......................................... 0.51 0.26
Allowance for loan losses to non-performing
loans at end of period................................... 147 331
Allowance for loan losses to total loans................... 0.84 0.89
CAPITAL RATIOS:
Equity to total assets at end of period.................... 11.69 15.81
Average equity to average assets........................... 13.75 16.86
</TABLE>
3
<PAGE>
BUSINESS OF THE COMPANY AND THE ASSOCIATION
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. These repurchases were completed in December 1999. 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
twelve month period. The repurchases were completed in May 2000.
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 and loan 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 7630 West US Highway 50, Salida, Colorado. Its telephone
number is (719) 539-2516.
HIGH COUNTRY BANK. The Bank is a federal stock savings and loan association
operating through offices located in Salida (2), Colorado, 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 and loan association. 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 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.
In November 1999, the Bank incorporated a new subsidiary, High Country
Title and Escrow Company ("High Country Title"). High Country Title is offering
title insurance and escrow closing services within the Bank's 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. Its main
telephone number is (719) 539-2516.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Prior to the acquisition of all of the outstanding stock of the Bank, the
Company had no assets or liabilities and engaged in no business activities.
Since its acquisition of the Bank, the Company has engaged in no significant
activity other than holding the stock of the Bank, investing the net proceeds of
the offering and operating the business of a savings and loan association
through the Bank. Accordingly, the information set forth in this report,
including financial statements and related data, relates primarily to the Bank.
The principal business of the Bank consists of accepting deposits from the
general public and investing these funds primarily in loans and in investment
securities and mortgage-backed securities. The Bank's loan portfolio consists
primarily of loans secured by residential real estate located in its market
area, with terms of 15 to 30 years, as well as commercial real estate,
commercial business, land development and consumer loans.
The Bank's net income is dependent primarily on its net interest income,
which is the difference between interest income earned on its loan, investment
securities and mortgage-backed securities portfolio and interest paid on
interest-bearing liabilities. Net interest income is determined by (i) the
difference between yields earned on interest-earning assets and rates paid on
interest-bearing liabilities ("interest rate spread") and (ii) the relative
amounts of interest-earning assets and interest-bearing liabilities. The Bank's
interest rate spread is affected by regulatory, economic and competitive factors
that influence interest rates, loan demand and deposit flows. To a lesser
extent, the Bank's net income also is affected by the level of noninterest
expenses such as compensation and employee benefits and FDIC insurance premiums.
The operations of the Bank are significantly affected by prevailing
economic conditions, competition and the monetary, fiscal and regulatory
policies of governmental agencies. Lending activities are influenced by the
demand for and supply of housing, competition among lenders, the level of
interest rates and the availability of funds. Deposit flows and costs of funds
are influenced by prevailing market rates of interest, primarily on competing
investments, account maturities and the levels of personal income and savings in
the Bank's market area.
ASSET/LIABILITY MANAGEMENT
The Bank's asset/liability management strategy has been to emphasize
shorter term loans and develop a deposit portfolio of transaction accounts.
Beginning in late fiscal 1999 the Bank began selling long-term fixed rate loans
in the secondary market. The Bank's business plan calls for continued emphasis
on shorter term, adjustable rate loans and sales of long-term fixed rate loans.
As noted above, the Bank is seeking to reduce its exposure to changes in
interest rates by originating shorter term consumer and commercial business
loans with maturities of no more than 10 years and by selling long-term fixed
rate loans. The matching of the Bank's assets and liabilities may be analyzed by
examining the extent to which its assets and liabilities are interest rate
sensitive and by monitoring the expected effects of interest rate changes on the
Bank's net interest income.
An asset or liability is interest rate sensitive within a specific time
period if it will mature or reprice within that time period. If the Bank's
assets mature or reprice more quickly or to a greater extent than its
liabilities, the Bank's net portfolio value and net interest income would tend
to increase during periods of rising interest rates but decrease during periods
of falling interest rates. If the Bank's assets mature or reprice more slowly or
to a lesser extent than its liabilities, the Bank's net portfolio value and net
interest income would tend to decrease during periods of rising interest rates
but increase during periods of falling interest rates. As a result of the
interest rate risk inherent in the historical savings institution business of
originating long-term loans funded by short-term deposits, the Bank has pursued
certain strategies designed to decrease the vulnerability of its earnings to
material and prolonged changes in interest rates.
5
<PAGE>
INTEREST RATE SENSITIVITY ANALYSIS
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific period if it
will mature or reprice within that period. The interest rate sensitivity gap is
defined as the difference between the amount of interest-earning assets maturing
or repricing within a specific time period and the amount of interest-bearing
liabilities maturing or repricing within that time period. A gap is considered
positive when the amount of interest rate sensitive assets exceeds the amount of
interest rate sensitive liabilities, and is considered negative when the amount
of interest rate sensitive liabilities exceeds the amount of interest rate
sensitive assets.
Generally, during a period of rising interest rates, a negative gap would
be expected to adversely affect net interest income while a positive gap would
be expected to result in an increase in net interest income, while conversely
during a period of declining interest rates, a negative gap would be expected to
result in an increase in net interest income and a positive gap would be
expected to adversely affect net interest income. As noted above, the Bank is
attempting to improve its significant negative gap by emphasizing the
origination of shorter-term consumer and commercial business loans.
NET PORTFOLIO VALUE. In recent years, the Bank has measured its interest
rate sensitivity by computing the "gap" between the assets and liabilities which
were expected to mature or reprice within certain periods, based on assumptions
regarding loan prepayment and deposit decay rates formerly provided by the OTS.
However, the OTS now requires the computation of amounts by which the net
present value of an institution's cash flows from assets, liabilities and off
balance sheet items (the institution's net portfolio value, or "NPV") would
change in the event of a range of assumed changes in market interest rates.
These computations estimate the effect on an institution's NPV from
instantaneous and permanent 1% to 3% increases and decreases in market interest
rates. In the Bank's interest rate sensitive policy, the Board of Directors has
established a maximum decrease in net interest income and maximum decreases in
NPV given these instantaneous changes in interest rates.
The following table sets forth the interest rate sensitivity of the Bank's
net portfolio value as of June 30, 2000 in the event of 1%, 2% and 3%
instantaneous and permanent increases and decreases in market interest rates,
respectively. These changes are set forth below as basis points, where 100 basis
points equals one percentage point.
<TABLE>
<CAPTION>
NET PORTFOLIO VALUE NPV AS % OF PORTFOLIO VALUE OF ASSETS
CHANGE --------------------------------------- -------------------------------------
IN RATES $ AMOUNT $ CHANGE % CHANGE NPV RATIO BASIS POINT CHANGE
-------- -------- -------- -------- --------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
+ 300 bp $ 13,583 $ (4,370) (24) % 10.09 % (256) bp
+ 200 bp 15,087 (2,865) (16) 11.01 (164)
+ 100 bp 16,595 (1,358) (8) 11.89 (76)
0 bp 17,952 -- -- 12.65 --
- 100 bp 18,828 876 5 13.08 44
- 200 bp 18,970 1,018 6 13.06 42
- 300 bp 19,219 1,266 7 13.10 45
</TABLE>
6
<PAGE>
The following table sets forth the interest rate risk capital component for
the Bank at June 30, 2000 given a hypothetical 200 basis point rate change in
market interest rates.
JUNE 30, 2000
-------------
Pre-shock NPV Ratio: NPV as % of Portfolio Value of Assets........ 12.65%
Exposure Measure: Post-Shock NPV Ratio............................ 11.01%
Sensitivity Measure: Change in NPV Ratio.......................... 164 bp
Computations of prospective effects of hypothetical interest rate changes
are based on numerous assumptions, including relative levels of market interest
rates and loan prepayments, and should not be relied upon as indicative of
actual results. Further, the computations do not contemplate any actions the
Bank may undertake in response to changes in interest rates.
Certain shortcomings are inherent in the method of analysis presented in
both the computation of NPV and in the analysis presented in prior tables
setting forth the maturing and repricing of interest-earning assets and
interest-bearing liabilities. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may react
in differing degrees to changes in market interest rates. The interest rates on
certain of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other assets and liabilities may lag
behind changes in market rates. Based on the above, net interest income should
decline with instantaneous increases in interest rates while net interest income
should increase with instantaneous declines in interest rates. Further, in the
event of a change in interest rates, prepayment and early withdrawal levels
would likely deviate significantly from those assumed in the tables.
The Bank originates fixed-rate and variable-rate real estate loans and has
historically held most loans in portfolio until maturity. Because the Bank's
interest-bearing liabilities which mature or reprice within short periods
substantially exceed its earning assets with similar characteristics, material
and prolonged increases in interest rates generally would adversely affect net
interest income, while material and prolonged decreases in interest rates
generally, but to a lesser extent because of their historically low levels,
would have the opposite effect.
AVERAGE BALANCE, INTEREST AND AVERAGE YIELDS AND RATES
The following table sets forth certain information relating to the Bank's
average interest-earning assets and interest-bearing liabilities and reflects
the average yield on assets and average cost of liabilities for the periods and
at the date indicated. Such yields and costs are derived by dividing income or
expense by the average monthly balance of assets or liabilities, respectively,
for the periods presented. Management does not believe that the use of month-end
balances instead of daily balances has caused any material difference in the
information presented.
The table also presents information for the periods and at the date
indicated with respect to the difference between the average yield earned on
interest-earning assets and average rate paid on interest-bearing liabilities,
or "interest rate spread," which savings institutions have traditionally used as
an indicator of profitability. Another indicator of an institution's net
interest income is its "net yield on interest-earning assets," which is its net
interest income divided by the average balance of interest-earning assets. Net
interest income is affected by the interest rate spread and by the relative
amounts of interest-earning assets and interest-bearing liabilities. When
interest-earning assets approximate or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income.
7
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------
AT JUNE 30, 2000 1999
2000 ------------------------------- ---------------------------------
---------------- AVERAGE AVERAGE
YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE COST BALANCE INTEREST COST BALANCE INTEREST COST
------- ---- ------- -------- ---- ------- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-bearing deposits.............. $ 1,321 6.01% $ 3,511 $ 80 2.28% $ 6,596 $ 305 4.62%
Investments.......................... 4,700 7.09 4,614 299 6.48 5,386 336 6.24
Loans................................ 119,898 8.57 108,601 9,157 8.43 91,363 7,895 8.64
---------- ---------- -------- --------- --------
Total interest-earning assets ......... 125,919 8.49 116,726 9,536 8.17 103,345 8,536 8.26
-------- --------
Non-interest-earning assets............ 11,816 7,181 4,702
---------- ---------- ---------
Total assets........................... $ 137,735 $ 123,907 $ 108,047
========== ========== =========
INTEREST-BEARING LIABILITIES:
Savings deposits..................... $ 82,770 3.85 $ 78,033 $ 2,864 3.67 $ 68,888 $ 2,686 3.90
FHLB advances........................ 36,238 6.40 28,012 1,635 5.84 20,573 1,234 6.00
---------- ---------- -------- --------- --------
Total interest-bearing liabilities..... 119,008 4.61 106,045 4,499 4.24 89,461 3,920 4.38
-------- --------
Non-interest bearing liabilities....... 2,619 826 364
---------- ---------- ---------
Total liabilities...................... 121,627 106,871 89,825
Equity................................. 16,108 17,036 18,222
---------- ---------- ---------
Total liabilities and equity........... $ 137,735 $ 123,907 $ 108,047
========== ========== =========
Net interest income.................... $ 5,037 $ 4,616
======== ========
Net interest rate spread (1)........... 3.88% 3.93% 3.88%
==== ==== ======
Net interest\dividend earning
assets .............................. $ 10,681 $ 13,884
========== =========
Net interest margin (2)................ 4.32% 4.47%
==== ======
Average interest-earning assets
to average interest-bearing
liabilities (3) ..................... 110.07% 115.52%
======== ========
</TABLE>
(1) Net interest rate spread represents the difference between the average
yield on interest-earning assets and the average rate on interest-bearing
liabilities.
(2) Net interest margin represents net interest income divided by average
interest-earning assets.
(3) Due to the immaterial amount of non-accruing loans, the balances of such
loans have been included as interest-earning assets.
8
<PAGE>
RATE/VOLUME ANALYSIS
The following table sets forth certain information regarding changes in
interest income and interest expense of the Bank for the periods indicated. For
each category of interest-earning asset and interest-bearing liability,
information is provided on changes attributable to: (i) changes in volume
(changes in volume multiplied by old rate); (ii) changes in rate (changes in
rate multiplied by old volume); and (iii) changes in rate/volume (changes in
rate multiplied by changes in volume).
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------
2000 VS. 1999
------------------------------------------------
INCREASE (DECREASE)
DUE TO
------------------------------------------------
RATE/
VOLUME RATE VOLUME TOTAL
------ ---- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-bearing deposits............ $ (143) $ (154) $ 72 $ (225)
Investments.......................... (48) 13 (2) (37)
Loans................................ 1,489 (192) (35) 1,262
--------- -------- -------- ---------
Total interest-earning assets...... 1,298 (333) 35 1,000
--------- -------- -------- ---------
INTEREST-BEARING LIABILITIES:
Deposits............................. 357 (158) (21) 178
FHLB advances........................ 446 (33) (12) 401
--------- -------- -------- ---------
Total interest-bearing
liabilities .................... 803 (191) (33) 579
--------- -------- -------- ---------
Increase (decrease) in net interest
income............................. $ 495 $ (142) $ 68 $ 421
========= ======== ======== =========
</TABLE>
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2000 AND JUNE 30, 1999
The Company's total assets increased by $23.7 million or 20.81% from $114.0
million at June 30, 1999 to $137.7 million at June 30, 2000. The increase in
assets was due to loan growth of $21.5 million and property and equipment growth
of $3.2 million. The loan growth was partially offset by decreases in
interest-bearing deposits and mortgage-backed securities.
Net loans totaled $119.9 million at June 30, 2000 and $98.4 million at June
30, 1999. The majority of the increase occurred in commercial real estate loans,
which increased $10.2 million. In addition to the growth in commercial real
estate loans, auto loans increased $2.5 million, commercial loans increased $2.5
million, residential mortgage loans increased $3.2 million, residential
construction loans increased by $3.1 million and land loans increased by $1.4
million. The growth in loans is due to a strong local economy. The increase
would have been greater without residential loan sales of $12.0 million. The
Bank continued sales of new fixed rate residential loans to the Federal Home
Loan Mortgage Corporation ("FHLMC"). The sales began in order to manage interest
rate risk, compete with mortgage companies and increase fee income.
The allowance for loan losses totaled $1.0 million at June 30, 2000 and
$909,000 at June 30, 1999. As of those dates the non-performing loans in the
Bank's portfolio were $533,000 and $275,000, respectively. The total
non-performing loans at June 30, 2000 included 15 loans secured by single family
residences, business equipment and autos. The largest non-performing loan
balance was $172,000. There were $121,000 of loans charged off and $4,000 of
recoveries of previous loan losses during the year ended June 30, 2000. The
determination of the allowance for loan losses is based on management's
analysis, performed on a quarterly basis, of various factors, including the
market value of the underlying collateral, growth and composition of the loan
portfolio, the relationship of the allowance for loan losses to outstanding
loans, historical loss experience, delinquency trends and
9
<PAGE>
prevailing economic conditions. Although management believes its allowance for
loan losses is adequate, there can be no assurance that additional allowances
will not be required or that losses on loans will not be incurred. The Company
has had minimal losses on loans in prior years. At June 30, 1999 and 2000, the
ratio of the allowance for loan losses to net loans was 0.92% and 0.84%,
respectively.
At June 30, 2000, the Company's investment portfolio included
mortgage-backed securities and local municipal bonds classified as "held to
maturity" carried an amortized cost of $2.8 million and an estimated fair value
of $2.8 million. The balance of the Company's investment portfolio at June 30,
2000 consists of interest bearing deposits with various financial institutions
totaling $1.3 million, a decrease of $3.1 million since June 30, 1999. The
decrease was used to fund loan growth and to repurchase shares of common stock.
Property and equipment increased $3.2 million during the year ended June
30, 2000. The majority of the increase was associated with the construction of
the Bank's new home office in Salida, Colorado. The new office opened in April
2000.
During the year ended June 30, 2000 deposits increased by 14.00% to $82.8
million at June 30, 2000 from $72.6 million at June 30, 1999. The increase was
used to fund loan growth. Management is continually evaluating the investment
alternatives available to the Company's customers, and adjusts the pricing on
its savings products to maintain its existing deposits.
Advances from the Federal Home Loan Bank increased to $36.2 million at June
30, 2000, from $22.7 million at June 30, 1999. The increase was used to fund
loan growth.
Escrow accounts held by High Country Title totaled $1.8 million at June 30,
2000. The total includes outstanding checks from loan closings and funds held
from closings. High Country Title began operations in November 1999.
The Company announced the commencement of a stock repurchase program on May
24, 1999. The program acquired 10% of the Company's outstanding common stock. At
June 30, 1999 the Company had repurchased 23,781 shares at a total cost of
$285,000. The Company completed the initial repurchase program in December 1999.
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. The Company completed these repurchases in May 2000, at a cost
of $1.3 million. Primarily due to the repurchases, stockholders' equity
decreased to $16.1 million at June 30, 2000, from $18.0 million at June 30,
1999.
COMPARISON OF OPERATING RESULTS FOR THE YEAR ENDED JUNE 30, 2000 AND 1999
NET INCOME. The Company's net income for the year ended June 30, 2000 was
$1.0 million compared to $840,000 for the year ended June 30, 1999. The increase
in net income resulted primarily from higher interest income. The higher
interest income offset increases in compensation and benefit expenses, occupancy
expenses and other expenses due to growth.
NET INTEREST INCOME. Net interest income for the year ended June 30, 2000
was $5.0 million compared to $4.6 million for the year ended June 30 1999. The
increase is attributed to increased interest earned on interest earning assets
due to loan growth less the increase in interest expense due to the increase in
interest bearing liabilities. The average interest rate spread increased from
3.88% for the year ended June 30, 1999 to 3.93% for the year ended June 30,
2000. The spread increased slightly due to a larger decrease in the average cost
of interest bearing liabilities than the decrease in the average yield on
interest earning assets. Primarily due to growth in non-interest bearing deposit
accounts, the average cost of interest bearing liabilities decreased from 4.38%
for the year ended June 30, 1999 to 4.24% for the year ended June 30, 2000.
Average yields on interest earning assets declined from 8.26% for the year ended
June 30, 1999 to 8.17% for the year ended June 30, 2000. The decline in yield
was due to lower rate refinancing during the beginning of the year and a
competitive rate environment.
10
<PAGE>
ALLOWANCE FOR LOAN LOSSES. The provision for loan losses for the year ended
June 30, 2000 was $210,000 as compared to $230,000 for the year ended June 30,
1999. The provision during the years ended June 30, 1999 and 2000 reflect the
mix of loans being made and the need to maintain an adequate balance in the
allowance for loan losses.
NON-INTEREST INCOME. Non-interest income for the year ended June 30, 2000
was $590,000 as compared to $189,000 for the year ended June 30, 1999. The
increase was due to income from loan sales and an increase in other non-interest
income, which includes loan origination fees and title insurance fees.
NON-INTEREST EXPENSES. The non-interest expenses for the year ended June
30, 2000 were $3.8 million compared to $3.2 million for the year ended June 30,
1999. The increase was due to higher compensation and benefit expense associated
with additional Bank and High Country Title employees, occupancy expenses
associated with the new home office and other expenses primarily associated with
the new bank name and building.
DIVIDENDS PAID. The Company paid a $0.45 per share dividend during the year
ended June 30, 2000 compared to $0.40 per share during the year ended June 30,
1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds consists of deposits, repayment of
loans and mortgage-backed securities, maturities of investments and
interest-bearing deposits, and funds provided form operations. While scheduled
repayments of loans and mortgage-backed securities and maturities of investment
securities are predicable sources of funds, deposit flows and loan prepayments
are greatly influenced by the general level of interest rates, economic
conditions and competition. The Company uses its liquidity resources principally
to fund existing and future loan commitments, to fund maturing certificates of
deposit and demand deposit withdrawals, to invest in other interest-earning
assets, to maintain liquidity, and to meet operating expenses. Management
believes that proceeds from loan repayments and other sources of funds will be
adequate to meet the Company's liquidity needs for the immediate future.
The Bank is required to maintain minimum levels of liquid assets as defined
by OTS regulations. This requirement, which may be varied at the direction of
the OTS depending upon economic conditions and deposit flows, is based upon a
percentage of deposits and short-term borrowings. The required minimum ratio was
5% until November 24, 1997 when the requirement was lowered to 4%. The Bank has
historically maintained a level of liquid assets in excess of regulatory
requirements. The Bank's liquidity ratios at June 30, 2000 and 1999 were 6.18%
and 5.39%, respectively.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and results of operations in terms
of historical dollars without considering changes in the relative purchasing
power of money over time because of inflation. Unlike most industrial companies,
virtually all of the asset and liabilities of the Company are monetary in
nature. As a result, interest rates have a more significant impact on the
Company's performance than the effects of general levels of inflation. Interest
rates do not necessarily move in the same direction or in the same magnitude as
the prices of goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS
ACCOUNTING FOR DERIVATIVES AND SIMILAR FINANCIAL INSTRUMENTS AND FOR
HEDGING ACTIVITIES. In June 1998, the Financial Accounting Standards Board
issued Statement No. 133, which was subsequently amended by Statement No. 139.
The Statement requires all derivatives to be measured at fair value and to be
recognized as either assets or liabilities in the statement of financial
condition, and is effective for fiscal years beginning after June 15, 2000.
Management has determined the impact of adopting this statement on July 1, 2000,
will not have a material affect on the financial statements.
11
<PAGE>
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101. SAB No. 101 summarizes certain areas of the
Staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements and is effective for the Company's fourth
quarter in fiscal 2001.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting For Certain Transactions Involving Stock
Compensation" - an interpretation of APB Opinion No. 25; the criteria for
determining whether a plan qualifies as a noncompensatory plan; the accounting
consequences of various modifications to the terms of previously fixed stock
options or awards; and the accounting for an exchange of stock compensation
awards in a business combination. FIN 44 is effective July 1, 2000, but certain
conclusions in FIN 44 cover specific events that occurred after either December
15, 1998 or January 12, 2000. Management has not yet determined the impact on
the consolidated financial statements or results of operations of the Company of
this new standard.
ACCOUNTING FOR MORTGAGE-BACKED SECURITIES RETAINED AFTER THE SECURITIZATION
OF MORTGAGE LOANS HELD FOR SALE BY A MORTGAGE BANKING ENTERPRISE. In October
1998, the Financial Accounting Standards Board issued Statement No. 134. The
Statement amends Financial Accounting Standards No. 65. Requiring the
classification of any retained mortgage-backed securities as trading securities
if the entity commits to sell the securities before or during the securitization
process. The Company adopted this pronouncement effective January 1, 1999, and
it did not have an effect on the Company.
12
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
HIGH COUNTRY BANCORP, INC. AND SUBSIDIARIES
PAGE
Independent Auditors' Report 14
Consolidated Statements of Financial Condition as of
June 30, 2000 and 1999 15
Consolidated Statements of Income for the Years Ended
June 30, 2000 and 1999 16
Consolidated Statements of Equity for the Years Ended
June 30, 2000 and 1999 17
Consolidated Statements of Cash Flows for the Years Ended
June 30, 2000 and 1999 18
Notes to Consolidated Financial Statements 19
13
<PAGE>
[LETTERHEAD OF GRIMSLEY, WHITE & COMPANY]
INDEPENDENT AUDITORS' REPORT
Board of Directors
High Country Bancorp, Inc.
Salida, Colorado
We have audited the accompanying consolidated statements of financial condition
of High Country Bancorp, Inc. as of June 30, 2000 and 1999, and the related
consolidated statements of income, equity, and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of High Country
Bancorp, Inc. as of June 30, 2000 and 1999 and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Grimsley, White & Company
GRIMSLEY, WHITE & COMPANY
La Junta, Colorado
August 25, 2000
14
<PAGE>
HIGH COUNTRY BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
ASSETS 2000 1999
------------- -------------
<S> <C> <C>
Cash and amounts due from banks $ 4,392,623 $ 2,248,971
Interest- bearing deposits at other institutions 1,320,918 4,409,949
Mortgage-backed securities, held to maturity 2,642,889 3,328,789
Securities held to maturity 200,000 310,000
Loans receivable - net 119,897,542 98,433,182
Federal Home Loan Bank stock, at cost 1,857,000 1,201,300
Accrued interest receivable 825,109 801,223
Property and equipment, net 6,071,939 2,863,725
Mortgage servicing rights 22,361 22,496
Prepaid expenses and other assets 458,530 386,664
Deferred income taxes 46,300 7,400
------------- -------------
TOTAL ASSETS $ 137,735,211 $ 114,013,699
============= =============
LIABILITIES AND EQUITY
LIABILITIES
Deposits $ 82,770,398 $ 72,604,408
Advances by borrowers for taxes and insurance 11,316 18,015
Escrow accounts 1,833,388 --
Accounts payable and other liabilities 762,553 656,030
Advances from Federal Home Loan Bank 36,238,333 22,685,000
Accrued income taxes payable 11,574 22,014
------------- -------------
TOTAL LIABILITIES 121,627,562 95,985,467
------------- -------------
Commitments and contingencies
EQUITY
Preferred stock- $.01 par value; authorized 1,000,000
shares; no shares issued or outstanding -- --
Common stock-$.01 par value; authorized 3,000,000 shares;
issued and outstanding 1,071,225 (2000)and 1,298,719
shares (1999) 10,712 12,987
Paid-in capital 9,720,159 12,426,953
Retained earnings - substantially restricted 7,433,495 6,868,120
Note receivable from ESOP Trust (732,665) (838,465)
Deferred MRP stock awards (324,052) (441,363)
------------- -------------
TOTAL EQUITY 16,107,649 18,028,232
------------- -------------
TOTAL LIABILITIES AND EQUITY $ 137,735,211 $ 114,013,699
============= =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15
<PAGE>
HIGH COUNTRY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Interest Income
Interest on loans $ 9,156,941 $ 7,895,000
Interest on securities held-to-maturity 193,795 254,651
Interest on other interest- bearing assets 185,682 385,997
----------- -----------
Total interest income 9,536,418 8,535,648
----------- -----------
Interest Expense
Deposits 2,863,665 2,686,082
Federal Home Loan Bank advances 1,635,234 1,234,111
----------- -----------
Total interest expense 4,498,899 3,920,193
----------- -----------
Net interest income 5,037,519 4,615,455
Provision for losses on loans 209,800 229,781
----------- -----------
Net income after provision
for loan losses 4,827,719 4,385,674
----------- -----------
Noninterest Income
Service charges on deposits 155,355 142,878
Loans sold 203,064 --
Other 231,478 46,504
----------- -----------
Total noninterest income 589,897 189,382
----------- -----------
Noninterest Expense
Compensation and benefits 2,216,093 1,865,538
Occupancy and equipment 754,025 643,524
Insurance and professional fees 236,221 237,383
Other 546,233 481,784
----------- -----------
Total noninterest expense 3,752,572 3,228,229
----------- -----------
Income before income taxes 1,665,044 1,346,827
Income tax expense 618,600 507,304
----------- -----------
Net income $ 1,046,444 $ 839,523
=========== ===========
Basic Earnings Per Common Share $ 0.96 $ 0.69
=========== ===========
Diluted Earning Per Common Share $ 0.96 $ 0.69
=========== ===========
Weighted Average Common Shares Outstanding
Basic 1,090,233 1,220,410
Diluted 1,090,233 1,220,410
Dividends Paid Per Share $ 0.450 $ 0.400
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16
<PAGE>
HIGH COUNTRY BANCORP, INC.
CONSOLIDATED STATEMENTS OF EQUITY
YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
NOTE DEFERRED
COMMON PAID-IN RETAINED RECEIVABLE STOCK
STOCK CAPITAL EARNINGS ESOP AWARDS
-------- ------------ ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
BALANCES JUNE 30, 1998 $ 13,225 $ 12,690,438 $ 6,519,509 $ (944,265) $ --
Net income 839,523
Management recognition
plan stock purchase (551,721)
MRP stock awards 110,358
ESOP contribution 21,596
ESOP note payment 105,800
Stock purchased and
retired (238) (285,081)
Dividends paid (490,912)
-------- ------------ ----------- ---------- ---------
BALANCES JUNE 30, 1999 12,987 12,426,953 6,868,120 (838,465) (441,363)
Net income 1,046,444
MRP stock awards (766) 117,311
ESOP contribution 14,934
ESOP note payment 105,800
Stock purchased and
retired (2,275) (2,720,962)
Dividends paid (481,069)
-------- ------------ ----------- ---------- ---------
BALANCES JUNE 30, 2000 $ 10,712 $ 9,720,159 $ 7,433,495 $ (732,665) $(324,052)
======== ============ =========== ========== =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17
<PAGE>
HIGH COUNTRY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Operating Activities
Net income $ 1,046,444 $ 839,523
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of:
Deferred loan origination fees (95,477) (102,655)
Premiums on investments 5,741 13,955
Compensation expense on ESOP shares 105,800 105,800
Compensation expense on Management Recognition Plan 117,311 110,358
Stock dividend received from FHLB (45,300) (80,100)
ESOP market value expense 14,168 21,596
Provision for losses on loans 209,800 230,000
Deferred income taxes (38,900) (54,700)
Depreciation 224,810 189,212
Income taxes (10,440) (266,126)
Net change in miscellaneous assets (95,617) (121,314)
Net change in miscellaneous liabilities 106,523 89,389
----------- -----------
Net cash provided by operating activities 1,544,863 974,938
----------- -----------
Investing Activities
Net change in interest bearing deposits 3,089,031 2,553,181
Net change in loans receivable (21,578,683) (17,201,231)
Principal repayments of securities-held-to-maturity 790,159 983,859
Purchase of Federal Home Loan Bank stock (610,400) (55,700)
Purchases of property and equipment (3,433,024) (577,164)
Purchase of Management Recognition Plan Stock -- (551,721)
----------- -----------
Net cash used by investing activities (21,742,917) (14,848,776)
----------- -----------
Financing Activities
Net change in deposits 10,165,990 9,179,695
Net change in escrow funds 1,826,689 (74,939)
Purchase of common stock (2,723,237) (285,319)
Cash dividends paid (481,069) (490,912)
Proceeds (payment) on FHLB advances 13,553,333 4,795,000
----------- -----------
Net cash provided by financing activities 22,341,706 13,123,525
----------- -----------
Net decrease in cash and cash equivalents 2,143,652 (750,313)
Cash and cash equivalents, beginning 2,248,971 2,999,284
----------- -----------
Cash and cash equivalents, ending $ 4,392,623 $ 2,248,971
=========== ===========
Supplemental disclosure of cash flow information
Cash paid for:
Taxes $ 667,940 $ 828,130
Interest 4,503,612 3,909,387
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18
<PAGE>
HIGH COUNTRY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE -1 OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the more significant accounting
policies which High Country Bancorp, Inc. ( the Company and its wholly
owned subsidiary High Country Bank formerly Salida Building and Loan
Association (the Bank) and its wholly owned subsidiary High Country
Title and Escrow Company follow in preparing and presenting the
consolidated financial statements.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary High Country Bank and its
wholly owned subsidiary High Country Title and Escrow Company. All
significant intercompany accounts and transactions have been
eliminated.
Organization
High Country Bank (the Bank) is a federal stock savings and loan
association with its main office in Salida, Colorado and branch
offices in Salida, Leadville and Buena Vista, Colorado. The Bank
provides a variety of financial services to the area it serves. Its
primary deposit products are interest-bearing checking accounts and
certificates of deposit, and its primary lending products are real
estate mortgages, consumer and commercial loans.
High Country Title & Escrow Company provides title, escrow and closing
services primarily in Chaffee and Lake Counties.
The Company's purpose is to act as a holding company with the Bank as
its sole subsidiary. The Company's principal business is the business
of the Bank, title and escrow transactions of the wholly owned
subsidiary of the bank, and holding investments.
Savings deposits of the Bank are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to certain limitations. The Bank
pays a premium to FDIC for the insurance of such savings.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Investment Securities and Mortgage-Backed Securities
Securities Held to Maturity. Bonds and notes for which the entities
have the positive intent and ability to hold to maturity are reported
at cost, adjusted for premiums and discounts that are recognized in
interest income using the interest method over the period to maturity.
Securities Available for Sale. Available-for-sale securities consist
of bonds and notes not classified as trading securities nor as
held-to-maturity securities.
Unrealized holding gains and losses, net of tax, on available-for-sale
securities are reported as a net amount in a separate component of
shareholders' equity until realized.
Gains and losses on the sale of available-for-sale securities are
determined using the specific-identification method.
Declines in the fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other than
temporary would result in write-downs of the individual securities to
their fair value. Should the entities incur write-downs they will be
included in earnings as realized losses.
19
<PAGE>
HIGH COUNTRY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE -1 OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Premiums and discounts are recognized in interest income using the
interest method over the period to maturity.
Federal Home Loan Bank Stock
The stock is an equity interest in the Federal Home Loan Bank of
Topeka. The Bank, as a member of the FHLB, is required to maintain an
investment in capital stock of the FHLB. The stock is carried at cost,
as its cost is assumed to equal its market value. FHLB stock can only
be sold at par value to the FHLB or to another member institution. The
FHLB declares cash and stock dividends. The stock dividends are
recognized as income due to the fact they are redeemable at par value
($100 per share) from the FHLBs or another member institution.
Loans
Loans are stated at unpaid principal balances, less the allowance for
loan losses, net of deferred loan fees and loans in process.
Loan origination and commitment fees, as well as certain direct
origination costs, are deferred and amortized as a yield adjustment
over the lives of the related loans using the interest method.
Amortization of deferred loan fees is discontinued when a loan is
placed on nonaccrual status.
Loans are placed on nonaccrual status when principal and interest is
delinquent for 90 days or more. Uncollectible interest on these loans
is charged off, or an allowance is established, based on management's
periodic evaluation, by a charge to interest income equal to all
interest previously accrued. Income is subsequently recognized only to
the extent that cash payments are received.
Management has determined that first mortgage loans on one-to-four
family properties, home equity, second mortgage loans, and all
consumer loans are large groups of smaller-balance homogenous loans
that are collectively evaluated. Accordingly, such loans are outside
the scope of Statement Nos. 114 and 118.
Management considers an insignificant delay, which is determined as 90
days by the Association, will not cause a loan to be classified as
impaired. A loan is not impaired during a period of delay in payment
if the Association expects to collect all amounts due including
interest accrued at the contractual interest rate for the period of
delay. All loans identified as impaired are evaluated independently by
management.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb losses inherent in the
loan portfolio. The amount of the allowance is based on management's
evaluation of the collectibility of the loan portfolio, including the
nature of the portfolio, credit concentrations, specific impaired
loans, and economic conditions. The allowance is increased by a
provision for loan losses, which is charged to expense, and reduced by
charge-offs, net of recoveries. Such provisions are based on
management's estimate of net realizable value or fair value of the
collateral, as applicable. These estimates are susceptible to economic
changes that could result in a material adjustment to results of
operations in the near term. Recovery of the carrying value of such
loans is dependent to a great extent on economic, operational, and
other conditions that may be beyond the Bank's control.
Loan Servicing
The cost of mortgage servicing rights is amortized in proportion to,
and over the period of, estimated net servicing revenues. Impairment
of mortgage servicing rights is assessed based on the fair value of
those rights. Fair values are estimated using discounted cash flows
based on a current market interest rate.
20
<PAGE>
HIGH COUNTRY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE -1 OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is calculated using primarily the
straight-line method over the estimated useful lives of the related
assets. Estimated useful lives of furniture, fixtures, and equipment
range from two to ten years; buildings and improvements range from
five to forty years.
Income Taxes
Income taxes are provided in accordance with SFAS No. 109, Accounting
for Income Taxes. Under the provisions of SFAS No. 109, deferred tax
assets and liabilities are recorded based on the differences between
the financial statement and tax bases of assets and liabilities and
the tax rates which will be in effect when these differences are
expected to reverse. If appropriate, deferred tax assets are reduced
by a valuation allowance which reflects expectations of the extent to
which such assets will be realized. The Company and its subsidiaries
file individual income tax returns.
Financial Instruments
Off-balance sheet instruments. In the ordinary course of business the
Bank has entered into off-balance sheet financial instruments
consisting of commitments to extend credit, and standby letters of
credit. Such financial instruments are recorded in the financial
statements when they are funded.
Fair Values of Financial Instruments
The following methods and assumptions were used by the entities in
estimating fair values of financial instruments as disclosed herein:
Cash and short-term instruments. The carrying amounts of cash and
short-term instruments approximate fair values.
Available-for-sale and held-to-maturity securities. Fair values for
securities, excluding restricted equity securities, are based on
quoted market prices. The carrying values of restricted equity
securities approximate fair values.
Loans receivable. For variable-rate loans that reprice frequently and
have no significant change in credit risk, fair values are based on
carrying-values. Fair values for mortgage loans, consumer loans,
commercial real estate and commercial loans are estimated using
discounted cash flow analysis, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit
quality. Fair values for impaired loans are estimated using discounted
cash flow analysis or underlying collateral values, where applicable.
Deposit Liabilities. The fair values disclosed for demand deposits
are, by definition, equal to the amount payable on demand at the
reporting date. The carrying amounts of variable-rate, fixed-term
money-market accounts and certificates of deposit (CDs) approximate
their fair values at the reporting date. Fair values for fixed-rate
CDs are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
Advances from Federal Home Loan Bank. The fair values are based on the
borrowing rates and remaining maturities.
Cash Equivalents
For the purpose of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks, and interest-bearing
deposits at other institutions. The Company considers all highly
liquid debt instruments with original maturities of three months or
less to be cash equivalents.
21
<PAGE>
HIGH COUNTRY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE-1 OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings Per Share
The Company adopted Financial Accounting Standards Board Statement No.
128 relating to earnings per share. The statement requires dual
presentations of basic and diluted earnings per share on the face of
the income statement. Basic EPS excludes dilution and is computed by
dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common
stock that then shares in the earnings of the entity.
Advertising Costs
Advertising costs are charged to expense as incurred.
NOTE-2 SECURITIES
Securities are classified in categories and accounted for as follows:
Mortgage-Backed Securities Held-to-Maturity
The amortized cost and estimated fair value of mortgage-backed
held-to-maturity securities at June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
2000 Cost Gains Losses Value
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Mortgage-backed securities
GNMA certificates $ 791,340 $ 0 $ (3,442) $ 787,898
FHLMC certificates 426,071 7,814 (6,582) 427,303
FNMA certificates 1,425,478 14,927 (17,244) 1,423,161
----------- ----------- ----------- -----------
$ 2,642,889 $ 22,741 $ (27,268) $ 2,638,362
=========== =========== =========== ===========
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1999 Cost Gains Losses Value
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Mortgage-backed securities
GNMA certificates $ 981,640 $ 9,970 $ 0 $ 991,610
FHLMC certificates 772,886 15,151 (7,703) 780,334
FNMA certificates 1,574,263 16,282 (6,890) 1,583,655
----------- ----------- ----------- -----------
$ 3,328,789 $ 41,403 $ (14,593) $ 3,355,599
=========== =========== =========== ===========
</TABLE>
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
Securities Held-to-Maturity
The amortized cost and estimated fair value of held-to-maturity
securities are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
2000 Cost Gains Losses Value
------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Chaffee County School
District Bonds $ 200,000 $ 0 $ (53) $ 199,947
============= ============= ============== =============
Gross Gross
Amortized Unrealized Unrealized Fair
1999 Cost Gains Losses Value
------------ ------------ ------------- ------------- -------------
Chaffee County School
District Bonds $ 310,000 $ 308 $ 0 $ 310,308
============= ============= ============= =============
</TABLE>
22
<PAGE>
HIGH COUNTRY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE-2 SECURITIES (Continued)
The amortized cost and fair value of debt securities held-to-maturity
as of June 30, 2000, by contractual maturity, is as follows:
Amortized Fair
Held-to-Maturity Debt Securities Cost Value
-------------------------------- ------------- -------------
Due in less than one year $ 200,000 $ 199,947
============= =============
At June 30, investments with a carrying value of $2,156,158 (2000) and
$2,662,732 (1999) were pledged as collateral for deposits of public
funds.
NOTE-3 LOANS RECEIVABLE
Loans receivable at June 30, are summarized as follows
<TABLE>
<CAPTION>
2000 1999
---------------- ---------------
<S> <C> <C>
Loans secured by real estate:
One-to-four family residences $ 67,150,191 $ 63,964,498
Commercial real estate 18,694,660 8,504,406
Construction 7,522,069 4,468,486
Land 4,601,407 3,208,715
---------------- ---------------
Total Loans Secured by Real Estate 97,968,327 80,146,105
Consumer loans, net of discounts 14,386,438 11,920,807
Loans collateralized by savings accounts 587,521 691,448
Commercial loans 11,601,910 9,057,554
Other loans 21,115 14,763
---------------- ---------------
Total Loans 124,565,311 101,830,677
Less:
Undisbursed portion of loans in process 3,069,165 1,953,837
Deferred loan origination fees 595,844 534,187
Allowance for loan losses 1,002,760 909,471
---------------- ---------------
Loans Receivable, Net $ 119,897,542 $ 98,433,182
================ ===============
</TABLE>
The changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
2000 1999
---------------- ---------------
<S> <C> <C>
Balance, beginning of year $ 909,471 $ 751,123
Provision for losses 210,000 230,000
Recoveries 4,493 14,176
Losses incurred (121,204) (85,828)
---------------- ---------------
Balance, end of year $ 1,002,760 $ 909,471
================ ===============
</TABLE>
At June 30, the Bank had adjustable interest rate loans of
approximately $5,933,000 (2000) and $4,713,000 (1999). The adjustable
rate loans have interest rate adjustment limitations and are generally
indexed to the 1-year U.S. Treasury Note rate or prime rate. Future
market factors may affect the correlation of the interest rate
adjustment with the rates the Bank pays on the short-term deposits
that have been primarily utilized to fund these loans.
Loans for which interest accruals had been discontinued at June 30
were approximately $533,000 (2000) and $275,000 (1999). If interest on
these loans had been accrued, such interest would have increased
income by immaterial amounts.
As of June 30, 2000, $1,131,855 of loans had been pledged as
collateral for deposits of public funds.
Loans receivable at June 30 include loans to officers and directors of
approximately $1,510,000 (2000) and $1,575,000 (1999). For the year
ended June 30, 2000, $696,000 of new loans were made and payments of
$761,000 were received.
23
<PAGE>
HIGH COUNTRY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE-4 LOAN SERVICING
Mortgage loans serviced for others are not included in the
accompanying statements of financial condition. The unpaid principal
balances of these loans at June 30 are summarized as follows:
2000 1999
---------------- ---------------
Mortgage loan portfolios serviced for:
FHLMC $ 4,679,663 $ 5,184,915
================ ===============
In connection with these loans serviced for others at June 30, the
Bank held borrowers' escrow balances of $394 (2000) and $1,709 (1999).
NOTE-5 ACCRUED INTEREST RECEIVABLE
Interest receivable at June 30, relates to the following:
2000 1999
---------------- ---------------
Loans $ 806,778 $ 778,010
Mortgage-backed securities 17,648 22,163
Other investments 683 1,050
---------------- ---------------
$ 825,109 $ 801,223
================ ===============
NOTE-6 PROPERTY AND EQUIPMENT
Property and equipment and the related accumulated depreciation at
June 30, are summarized as follows:
2000 1999
---------------- ---------------
Land and improvements $ 572,269 $ 526,942
Buildings and improvements 4,920,245 2,111,487
Furniture, fixtures and equipment 1,759,481 990,247
Construction in progress 28,821 231,863
---------------- ---------------
7,280,816 3,860,539
Less accumulated depreciation (1,208,877) (996,814)
---------------- ---------------
$ 6,071,939 $ 2,863,725
================ ===============
Depreciation expense for the years ended June 30, totaled $224,810
(2000) and $189,212 (1999).
NOTE-7 DEPOSIT ACCOUNTS
Deposit accounts at June 30 are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
------------------------ ------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
NOW accounts, including
non-interest bearing
deposits of $6,899,702 (2000)
and $4,206,450 (1999) $ 22,151,987 1.27% $ 18,197,360 1.35%
Money market and
savings accounts 19,007,212 3.10% 16,941,441 3.03%
Certificate accounts 41,611,199 5.67% 37,465,607 5.38%
--------------- ----------------
$ 82,770,398 $ 72,604,408
=============== ================
</TABLE>
24
<PAGE>
HIGH COUNTRY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE-7 DEPOSIT ACCOUNTS (Continued)
At June 30, 2000, scheduled maturities of the above certificate
accounts are summarized as follows:
<TABLE>
<CAPTION>
Year ending June 30,
-------------------------------------------------------------------------------------
2005 and
2001 2002 2003 2004 thereafter
--------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
3.01-4.00 $ 225,811
4.01-5.00 9,445,892 $ 626,183
5.01-6.00 13,674,767 2,190,685 $ 1,149,650 $ 295,681 $ 367,440
6.01-7.00 7,843,906 1,077,442 2,030,105 190,000 730,232
7.01-8.00 140,612 596,865 498,085 181,430 346,413
--------------- ------------- ------------- ------------- -------------
$ 31,330,988 $ 4,491,175 $ 3,677,840 $ 667,111 $ 1,444,085
=============== ============= ============= ============= =============
</TABLE>
The aggregate amount of certificates of deposits with a minimum
denomination of $100,000 at June 30, was $11,105,764 (2000) and
$10,102,283 (1999).
Deposits in excess of $100,000 are not insured by the Savings
Association Insurance Fund (SAIF).
Interest expense on deposits for the years ended June 30 is summarized
as follows:
2000 1999
---------------- ---------------
NOW accounts $ 204,255 $ 182,585
Money market and savings accounts 561,101 480,998
Certificate accounts 2,098,309 2,022,499
---------------- ---------------
$ 2,863,665 $ 2,686,082
================ ===============
NOTE-8 ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank (FHLB) at June 30 are
summarized as follows:
<TABLE>
<CAPTION>
Interest
Rate 2000 1999
-------------- ---------------- ---------------
<S> <C> <C> <C>
Maturing within one year 5.46-6.80% $ 12,630,000 $ 6,000,000
Maturing in 2002 6.44-6.96% 3,000,000 3,760,000
Maturing in 2003 5.81-7.05% 6,833,333 0
Maturing in 2004 5.81-6.56% 0 5,000,000
Maturing in 2005 6.18-7.34% 3,000,000 0
Maturing after 2005 5.42-5.77% 6,775,000 7,925,000
---------------- ---------------
32,238,333 22,685,000
Line of credit 7.28% 4,000,000 0
---------------- ---------------
$ 36,238,333 $ 22,685,000
================ ===============
</TABLE>
Pursuant to collateral agreements with the FHLB, advances are secured
by a blanket pledge agreement with the FHLB which includes real estate
loans and other non-pledged securities.
At June 30, 2000, the Bank has an approved line of credit subject to
the maximum amount of credit available to the Bank under the FHLB's
credit policies which expires April 27, 2001. At June 30, 2000, the
bank has drawn $4,000,000 on the line of credit. At June 30, 1999 the
Bank had an approved line of credit for $10,000,000 with the FHLB with
an expiration date of April 28, 2000. No amount was drawn on the line
of credit at June 30, 1999.
Interest was capitalized in the amount of $55,994, during the
construction of the new building.
25
<PAGE>
HIGH COUNTRY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE-9 INCOME TAXES
The provision for income taxes consists of the following:
2000 1999
---------------- ---------------
Current $ 657,500 $ 562,004
Deferred (38,900) (54,700)
---------------- ---------------
$ 618,600 $ 507,304
================ ===============
The effective tax rate on income before the provisions for income
taxes differs from the federal statutory income tax rate of 34% for
the following reasons:
<TABLE>
<CAPTION>
2000 1999
---------------- ---------------
<S> <C> <C>
Provision for income taxes at statutory rate $ 566,100 $ 457,900
Nondeductible expenses for tax purposes 28,300 23,300
State income taxes, net of federal income
tax benefit 39,500 34,500
Other, net (15,300) (8,396)
---------------- ---------------
$ 618,600 $ 507,304
================ ===============
Effective tax rates 37% 38%
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. The net deferred tax assets (liabilities) as of June 30, are
as follows:
<TABLE>
<CAPTION>
2000 1999
---------------- ---------------
<S> <C> <C>
Difference between tax basis and
carrying basis of FHLB stock $ (202,000) $ (185,300)
Tax depreciation in excess of
financial statement amounts (84,000) (83,900)
Difference between tax basis and carrying
basis of long term incentive plan 125,400 117,500
Other 5,100 0
Loan loss allowance 201,800 159,100
---------------- ---------------
Net deferred tax asset $ 46,300 $ 7,400
================ ===============
</TABLE>
Management has determined that a valuation allowance is not required.
The deferred tax expense (benefit) results from timing differences in
the recognition of income and expense for tax and financial purposes.
The sources and tax effects of these temporary timing differences are
as follows:
2000 1999
---------------- ---------------
FHLB stock dividends $ 16,700 $ 29,700
Accumulated depreciation 100 200
Allowance for loan losses - net (42,700) (67,000)
Other (5,100) 0
Long-term incentive plan (7,900) (17,600)
---------------- ---------------
$ (38,900) $ (54,700)
================ ===============
26
<PAGE>
HIGH COUNTRY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE-9 INCOME TAXES (Continued)
The Bank was in prior years permitted under the Internal Revenue Code
to deduct an annual addition to reserve for bad debts in determining
taxable income, subject to certain limitations. This deduction
differed from the bad debt provision used for financial accounting
purposes. Bad debt deductions for income tax purposes are included in
taxable income of later years only if the bad debt reserve is used
subsequently for purposes other than to absorb bad debt losses.
Because the Bank does not intend to use the reserve for purposes other
than to absorb losses, no deferred income taxes have been provided.
Retained earnings at June 30, 2000, includes approximately $1,169,000,
representing such bad debt deductions for which no income taxes have
been provided.
NOTE-10 REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain actions by regulators that,
if undertaken, could have a direct material effect on the Bank's
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet
specific guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Association to maintain minimum amounts and
ratios as outlined below. Management believes, as of June 30, 2000.
The Bank meet all capital adequacy requirements to which it is
subject.
As of September 7, 1999, the most recent notification from Office of
Thrift Supervision categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be well
capitalized the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios. There are no conditions or
events since that notification that management believes have changed
the institution's category.
The following is a reconciliation of capital computed under generally
accepted accounting principles (GAAP) to regulatory capital. OTS
regulations specify minimum capital requirements for the Bank. The
following reconciliation also compares the capital requirements as
computed to the minimum capital requirements for the Bank, as of June
30.
2000 1999
---------------- ---------------
Equity Per GAAP $ 13,120,703 $ 12,588,013
Less Servicing Rights Plus Valuations (2,236) (2,250)
----------------- ----------------
Equity Per GAAP- Tier I Capital 13,118,467 12,585,763
Valuation Allowance 1,002,760 909,471
---------------- ---------------
Regulatory Capital $ 14,121,227 $ 13,495,234
================ ===============
27
<PAGE>
HIGH COUNTRY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE-10 REGULATORY CAPITAL REQUIREMENTS (Continued)
<TABLE>
<CAPTION>
Minimum Required To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
2000
----
Total Capital
(to Risk
Weighted
Assets) $ 14,121,227 14.37% $ 7,864,160 8.00% $ 9,830,200 10.00%
Tier I Capital
(to Risk
Weighted
Assets) 13,118,467 13.35 2,949,060 3.00 5,898,120 6.00
Tier I Capital
(to Average
Assets) 13,118,467 10.65 1,846,911 1.50 6,156,370 5.00
Tangible Capital
(to Tangible
Assets) 13,118,467 9.49 2,073,705 1.50 N/A
1999
----
Total Capital
(to Risk
Weighted
Assets) $ 13,495,234 18.03% $ 5,988,960 8.00% $ 7,486,200 10.00%
Tier I Capital
(to Risk
Weighted
Assets) 12,585,763 16.81 2,245,860 3.00 4,491,720 6.00
Tier I Capital
(to Average
Assets) 12,585,763 12.18 1,550,532 1.50 5,168,440 5.00
Tangible Capital
(to Tangible
Assets) 12,585,763 11.31 1,668,638 1.50 N/A
</TABLE>
The Bank's management believes that, under the current regulations,
the Bank will continue to meet its minimum capital requirements in the
coming year. However, events beyond the control of the Bank, such as
increased interest rates or a downturn in the economy in the Bank's
operating area, could adversely affect future earnings and,
consequently, the ability of the Bank to meet its future minimum
capital requirements.
28
<PAGE>
HIGH COUNTRY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE-11 BENEFIT PLANS
The Bank adopted a Long-Term Incentive Plan in June, 1997 covering the
directors and key employees of the Bank. On June 30 of each year
following 1997 the participants will have a contribution made to their
account providing the participant continues to be an employee or
director of the Bank. Prior to distribution under the terms of the
Plan, each participant's account shall be credited with a rate of
return, on any amounts previously credited, equal to the highest rate
of interest paid by the Bank on one-year certificates of deposit, or
after conversion the rate of return will equal the dividend-adjusted
rate of return on the common stock.
Amounts credited to Participant's Accounts on the effective date and
thereafter shall be fully vested. Account balances shall be paid, in
cash, in ten equal annual installments beginning during the first
quarter of the calendar year which next follows the calendar year in
which the participant ceases to be a director or employee for any
reason, with subsequent payments being made by the last day of the
first quarter of each subsequent calendar year until the participant
has received the entire amount of his account. Notwithstanding the
foregoing a participant may elect to have his account paid in lump sum
distribution or in annual payments over a period less than ten years.
Any benefits accrued under the plan will be paid from the Bank's
general assets. The Bank has established a trust in order to hold
assets with which to pay benefits. Trust assets, which are included in
the consolidated statement of financial condition will be subject to
the claims of the Bank's general creditors. The expense for the plan
recognized for the years ended June 30, 2000 and 1999 was $32,821 and
$31,727.
As part of the conversion to stock, the Bank established an ESOP to
benefit substantially all employees. The ESOP purchased 105,800 shares
of common stock in the conversion with proceeds received from a loan
from the Company. The note is to be repaid in ten annual principal
installments of $105,800, starting June 30, 1998. Interest is based on
the Wall Street Journal Prime plus one percent, and is adjusted
annually on July 1. The unallocated shares of stock held by the ESOP
are pledged as collateral on the debt. The ESOP is funded by
contributions made by the Bank in amounts sufficient to retire the
debt. At June 30, 2000 and June 30, 1999, the outstanding balance of
the note receivable was $732,665 and $838,465 and is presented as a
reduction of stockholders' equity. ESOP compensation expense for the
years ended June 30, 2000 and 1999 was $144,432 and $158,663.
In November 1993, the AICPA issued Statement of Position 93-6
"Employers' Accounting for Employee Stock Ownership Plans." The
statement was adopted December 9, 1997, the effective date of the
Association's conversion to a stock company. The Statement requires,
among other things, that: (1) for ESOP shares committed to be released
in a period to compensate employees directly, employers should
recognize compensation cost equal to the average fair value ( as
determined on a monthly basis) of the shares committed to be released,
(2) dividends on unallocated shares used to repay ESOP loans are not
considered dividends for financial reporting purposes, dividends on
allocated or committed shares are credited to the accounts of the
participants and reported as dividends in the financial statements,
(3) for an internally leveraged ESOP, the Company's loan receivable
and the ESOP note payable as well as the interest income/expense is
not reflected in the consolidated financial statements and (4) for
earnings per share computations, ESOP shares that have been committed
to be released should be considered outstanding. ESOP shares that have
not been committed to be released should not be considered
outstanding.
The ESOP shares as of June 30, 2000 are as follows:
Shares released 21,160
Shares committed to be released for allocation 10,580
Unreleased shares 74,060
------
Total ESOP shares 105,800
=======
Fair value of unreleased shares $ 814,660
=============
29
<PAGE>
HIGH COUNTRY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE-11 BENEFIT PLANS (Continued
The board of directors of the Company approved a Management
Recognition Plan ("MRP") for directors and employees. The MRP was
approved by the stockholders at the annual meeting in December, 1998.
The Company purchased in the open market 39,675 shares of it's common
stock, at a cost of $551,721, to fund the MRP. Under the terms of the
plan 32,236 shares of common stock were awarded to directors and
employees. The shares awarded pursuant to the MRP have a vesting
schedule which provides that 25% of the shares awarded will
automatically vest on the effective date of the award and 25% will
vest on each subsequent anniversary date. Compensation expense related
to the MRP was $117,311 and $165,537 for the years ended June 30, 2000
and 1999.
NOTE-12 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS
OF CREDIT RISK
The Bank is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of
its customers. At June 30, 2000, the Bank has commitments to fund
fixed rate mortgage loans of $1,331,000, with interest rates from
8.25% to 11.00%, unfunded lines of credit of $6,520,000, and letters
of credit of $74,000. The Bank makes contractual commitments to extend
credit, which are legally binding agreements to lend money to
customers at prevailing interest rates for specified periods of time.
The credit risk involved in issuing these commitments is essentially
the same as that involved in extending loan facilities to customers.
As such, the Bank's exposure to credit loss, in the event of
non-performance by the counterparty to the financial instrument, is
represented by the contractual amount of those instruments. However,
the Bank applies the same credit standards used in the lending process
when extending these commitments, and periodically reassesses the
customers' credit worthiness. Additional risks associated with these
commitments arise when they are drawn upon, such as the demands on
liquidity that the Bank could experience if a significant portion were
drawn down at once. This is considered unlikely, however, as
commitments may expire without having been drawn upon.
The Bank originates loans primarily in Chaffee and Lake Counties,
Colorado. Although the Bank has a diversified loan portfolio, a
substantial portion of its borrower's ability to repay their loans is
dependent upon economic conditions in the market area.
NOTE-13 FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the financial instruments are as follows:
<TABLE>
<CAPTION>
2000 1999
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash $ 4,392,623 $ 4,392,623 $ 2,248,971 $ 2,248,971
Interest-bearing deposits 1,320,918 1,320,918 4,409,949 4,409,949
Mortgage backed securities 2,642,889 2,638,362 3,328,789 3,356,000
Securities held to maturity 200,000 199,947 310,000 310,308
FHLB stock 1,857,000 1,857,000 1,201,300 1,201,300
Loans receivable - net 119,897,542 120,116,000 98,433,182 100,396,000
Financial liabilities
Deposits 82,770,398 82,430,000 72,604,408 72,851,000
Advances from FHLB 36,238,333 35,431,000 22,685,000 22,214,000
</TABLE>
30
<PAGE>
HIGH COUNTRY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE-14 OTHER NON-INTEREST EXPENSE
2000 1999
---------------- ---------------
Advertising $ 89,198 $ 65,210
Stationery Supplies 140,250 97,047
Postage 92,066 74,431
Telephone 40,945 25,203
Dues and Subscriptions 37,365 31,103
Community Support 30,878 29,171
Bank Charges 36,733 33,222
Other 78,798 126,397
---------------- ---------------
$ 546,233 $ 481,784
================ ===============
NOTE-15 STOCKHOLDERS' EQUITY
In the years ended June 30, 2000 and 1999, the Company purchased
227,494 and 23,781 shares of its common stock, at a cost of $2,723,237
and $285,319, and retired the stock in accordance with Colorado
Revised Statutes
For the years ended June 30, 2000 and 1999, the Company paid a cash
dividend of $.45 and $.40 per share respectively.
NOTE-16 IMPACT OF NEW ACCOUNTING STANDARDS
Accounting For Derivatives and Similar Financial Instruments and For
Hedging Activities. In June 1998, the Financial Accounting Standards
Board issued Statement No. 133, which was subsequently amended by
Statement No. 139. The Statement requires all derivatives to be
measured at fair value and to be recognized as either assets or
liabilities in the statement of financial condition, and is effective
for fiscal years beginning after June 15, 2000. Management has
determined the impact of adopting this statement on July 1, 2000, will
not have a material affect on the financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101. SAB No. 101 summarizes certain
areas of the Staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements and is
effective for the Company's fourth quarter in fiscal 2001.
In March 2000, The Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation" - an interpretation of APB Opinion No. 25; the
criteria for determining whether a plan qualifies as a
non-compensatory plan; the accounting consequences of various
modifications to the terms of previously fixed stock options or
awards; and the accounting for an exchange of stock compensation
awards in a business combination. FIN 44 is effective July 1, 2000,
but certain conclusions in FIN 44 cover specific events that occurred
after either December 15, 1998 or January 12, 2000. Management has not
yet determined the impact on the consolidated financial statements or
results of operations of the Company of this new standard.
NOTE-17 CONTINGENCIES AND COMMITMENTS
In the normal course of business, the Bank is involved in various
legal actions arising in the ordinary course of business. In the
opinion of management, after consultation with legal counsel, the
ultimate disposition of these matters is not expected to have a
material adverse effect on the financial position of the Bank.
31
<PAGE>
HIGH COUNTRY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE-18 CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
The following condensed statements summarize the financial position,
operating results and cash flows of High Country Bancorp, Inc.,
<TABLE>
<CAPTION>
2000 1999
---------------- ---------------
<S> <C> <C>
CONDENSED BALANCE SHEET
ASSETS
Cash and equivalents $ 291,757 $ 3,391,725
Investment in subsidiary 7,189,424 6,629,793
Note due from subsidiary 3,000,000 2,500,000
ESOP note receivable 732,665 838,485
Other 0 7,579
---------------- ---------------
$ 11,213,846 $ 13,367,582
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accruals $ 7,700 $ 17,722
Stockholders' equity 11,206,146 13,349,840
---------------- ---------------
$ 11,213,846 $ 13,367,562
================ ===============
CONDENSED STATEMENT OF INCOME
For the years ended June 30, 2000 and
June 30, 1999
Equity in undistributed net income of subsidiary $ 960,396 $ 746,886
Other net 86,048 92,637
---------------- ---------------
$ 1,046,444 $ 839,523
================ ===============
CONDENSED STATEMENT OF CASH FLOWS
For the years ended June 30, 2000 and
June 30, 1999
Operating Activities:
Net income $ 1,046,444 $ 839,523
Adjustments to reconcile net income to cash
provided by operating activities:
Equity in undistributed net income of
subsidiary (960,396) (746,886)
Other 12,490 (26,326)
---------------- ----------------
Net cash provided by operations 98,538 66,311
---------------- ---------------
Investing Activities:
ESOP note payment 105,800 105,800
Loan to subsidiary (500,000) (2,500,000)
Dividends received 400,000 450,000
---------------- ---------------
Net cash used in investing activities 5,800 (1,944,200)
---------------- ----------------
Financing Activities:
Purchase of common stock (2,723,237) (285,319)
Dividends paid (481,069) (490,912)
---------------- ----------------
Net cash provided (used)by financing activities (3,204,306) (776,231)
----------------- ----------------
Net increase (decrease) in cash (3,099,968) (2,654,120)
Cash beginning 3,391,725 6,045,845
---------------- ---------------
Cash ending $ 291,757 $ 3,391,725
================ ===============
</TABLE>
32
<PAGE>
MARKET AND DIVIDEND INFORMATION
TRADING IN THE COMMON STOCK AND DIVIDENDS PAID
The Company's Common Stock is traded on the Nasdaq SmallCap Market
under the symbol "HCBC." As of September 15, 2000, there were 1,017,225 shares
of the Common Stock issued and outstanding and approximately 344 holders of
record of the Common Stock (not including shares held in "street name").
The following table sets forth certain information as to the range of the
high and low bid prices for the Company's common stock for the calendar quarters
since the first quarter of fiscal 1999.
HIGH BID (1) LOW BID (1) DIVIDENDS PAID
------------ ----------- --------------
FISCAL 1999:
First Quarter 14.88 11.88 --
Second Quarter 14.13 10.25 0.20
Third Quarter 13.50 11.25 --
Fourth Quarter 12.06 10.00 0.20
FISCAL 2000:
First Quarter 13.00 12.13 --
Second Quarter 13.50 11.50 0.20
Third Quarter 12.25 9.75 --
Fourth Quarter 12.13 9.69 0.25
______________
(1) Quotations reflect inter-dealer price, without retail mark-up,
mark-down or commissions, and may not represent actual transactions.
DIVIDEND RESTRICTIONS
For a period of one year following the completion of the Conversion, the
Company may not pay any special dividends or dividends that would be construed
as a return of capital nor take any actions to pursue or propose such dividends.
The payment of dividends, will be subject to the requirements of applicable law
and the determination by the Board of Directors of the Company that the net
income, capital and financial condition of the Company and the Bank, thrift
industry trends and general economic conditions justify the payment of
dividends, and there can be no assurance that dividends will be paid or, if
paid, will continue to be paid in the future.
Since the Company initially has no significant source of income other than
dividends from the Bank, principal and interest payments on the note payable
from the ESOP and earnings from investment of the cash proceeds of the
Conversion retained by the Company, the payment of dividends by the Company will
depend in large part upon the proceeds from the Conversion retained by the
Company and the Company's earnings thereon and the receipt of dividends from the
Bank, which is subject to various tax and regulatory restrictions on the payment
of dividends. Unlike the Converted Association, the Company is not subject to
regulatory restrictions on the payment of dividends to stockholders. Under the
Colorado General Corporation Law, dividends may be paid either out of surplus
or, if there is no surplus, out of net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year.
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BOARD OF DIRECTORS
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LARRY D. SMITH PHILIP W. HARSH TIMOTHY R. GLENN
President and Chief Executive Owner and Agent of Fredrickson Brown Owner and Funeral Director of
Officer of the Company and Insurance Agency Lewis & Glenn Funeral Home
the Bank
SCOTT G. ERCHUL ROBERT B. MITCHELL RICHARD A. YOUNG
Vice President of the Company Retired Partner of Swartz & Young, P.C.
and the Bank
EXECUTIVE OFFICERS
LARRY D. SMITH SCOTT G. ERCHUL FRANK L. DELAY
President and Chief Executive Officer of Vice President of the Company and the Bank Chief Financial Officer of the
the Company and the Bank Company and the Bank
OFFICE LOCATIONS
MAIN OFFICE: BRANCH OFFICE: BRANCH OFFICE: BRANCH OFFICE:
7360 West US Highway 50 130 West 2nd 600 Harrison 713 East Main
Salida, Colorado Salida, Colorado Leadville, Colorado Buena Vista, Colorado
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GENERAL INFORMATION
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INDEPENDENT PUBLIC ACCOUNTANTS ANNUAL MEETING ANNUAL REPORT ON FORM 10-KSB
Grimsley, White & Company, The 2000 Annual Meeting of Stockholders A copy of the Company's Annual Report
Certified Public Accountants will be held on October 26, 2000 at 5:00 on Form 10-KSB for the fiscal year
La Junta, Colorado p.m. at High Country Bank, 7360 West US ended June 30, 2000 as filed with the
Highway 50, Salida, Colorado 81210 Securities and Exchange Commission
GENERAL COUNSEL will be furnished without charge to
Rush and Rush, P.C. TRANSFER AGENT AND REGISTRAR stockholders as of the record date
Salida, Colorado Illinois Stock Transfer for the 2000 Annual Meeting upon
233 West Jackson Boulevard written request to Richard A. Young,
SPECIAL COUNSEL Suite 1210 Secretary, High Country Bancorp,
Stradley Ronon Housley Kantarian & Chicago, Illinois 60606 Inc., 7360 West US Highway 50,
Bronstein, LLP Salida, Colorado 81201.
1220 19th Street, N.W., Suite 700
Washington, D.C. 20036
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