UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 2003
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ______________ to ______________
Commission file number 0-23409
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High Country Bancorp, Inc.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Colorado 84-1438612
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
7360 West US Highway 50, Salida Colorado 81201
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(Address of Principal Executive Offices)
719-539-2516
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(Issuer's Telephone Number, Including Area Code)
N/A
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Shares of common stock, $.01 par value outstanding as of November 12, 2003:
894,717
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HIGH COUNTRY BANCORP, INC.
CONTENTS
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Statements of Condition at June 30, 2003
and September 30, 2003 3
Statements of Consolidated Income for the Three Months Ended
September 30, 2003 and 2002 4
Statements of Consolidated Cash Flows for the Three
Months Ended September 30, 2003 and 2002 5
Notes to Financial Statements 6 - 7
Item 2: Management's Discussion and Analysis or Plan of
Operations 8 - 10
Item 3: Controls and Procedures 11
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 12
Item 2: Changes in Securities and Use of Proceeds 12
Item 3: Defaults Upon Senior Securities 12
Item 4: Submission of Matters to a Vote of Security Holders 12
Item 5: Other Information 12
Item 6: Exhibits and Reports on Form 8-K 12
Signatures 13
2
HIGH COUNTRY BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
Part 1-Financial Information
Item 1. Financial Statements
September 30, June 30,
ASSETS 2003 2003
--------------------- ----------------
Cash and amounts due from banks $ 4,195,102 $ 5,526,577
Interest- bearing deposits at other institution 16,587,438 7,492,254
Mortgage-backed securities, held to maturity 8,968,507 10,168,536
Securities, held to maturity 3,302,768 302,322
Loans receivable - net 148,342,911 150,486,042
Loans held for sale 120,000 2,169,400
Federal Home Loan Bank stock, at cost 2,421,600 2,421,600
Accrued interest receivable 1,118,286 1,451,395
Property and equipment, net 6,386,554 6,424,978
Other real estate owned 1,237,500 --
Prepaid expenses and other assets 714,121 724,945
Deferred income taxes 174,000 215,400
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TOTAL ASSETS $ 193,568,787 $ 187,383,449
============== =============
LIABILITIES AND EQUITY
LIABILITIES
Deposits $ 135,598,837 $ 129,215,996
Advances by borrowers for taxes and insurance 91,362
Escrow accounts 11,633 --
Accounts payable and other liabilities 936,202 1,116,456
Advances from Federal Home Loan Bank 38,325,000 39,325,000
Accrued income taxes payable 324,700 3,569
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TOTAL LIABILITIES 175,287,734 169,661,021
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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 901,704 (September 30, 2003)
and 892,612 (June 30, 2003) 9,017 8,926
Paid-in capital 7,263,453 7,142,126
Retained earnings - substantially restricted 11,423,848 10,986,641
Note receivable from ESOP Trust (415,265) (415,265)
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TOTAL EQUITY 18,281,053 17,722,428
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TOTAL LIABILITIES AND EQUITY $ 193,568,787 $ 187,383,449
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
HIGH COUNTRY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
2003 2002
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Interest Income
Interest on loans $2,949,193 $3,031,977
Interest on securities held-to-maturity 72,175 100,396
Interest on other interest- bearing assets 51,237 57,093
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Total interest income 3,072,605 3,189,466
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Interest Expense
Deposits 675,982 740,686
Federal Home Loan Bank advances 530,420 635,025
Total interest expense 1,206,402 1,375,711
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Net interest income 1,866,203 1,813,755
Provision for losses on loans 165,000 97,000
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Net interest income after provision
for loan losses 1,701,203 1,716,755
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Noninterest Income
Service charges on deposits 63,668 60,964
Loans sold 306,701 180,706
Title and escrow fees 62,104 49,610
Other 164,844 161,441
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Total noninterest income 597,317 452,721
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Noninterest Expense
Compensation and benefits 962,747 870,505
Occupancy and equipment 342,452 327,812
Insurance and professional fees 66,775 94,418
Other 183,939 163,614
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Total noninterest expense 1,555,913 1,456,349
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Income before income taxes 742,607 713,127
Income tax expense 305,400 274,800
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Net income $ 437,207 $ 438,327
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Basic Earnings Per Common Share $ 0.51 $ 0.51
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Diluted Earnings Per Common Share $ 0.47 $ 0.49
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Weighted Average Common Shares Outstanding
Basic 869,964 858,500
Effect of dilutive options 61,670 36,905
Diluted 931,634 895,405
Dividends Paid Per Share -- --
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
HIGH COUNTRY BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
2003 2002
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Operating Activities
Net income $ 437,207 $ 438,327
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of:
Deferred loan origination fees (54,138) (47,666)
Premiums on investments 17,843 16,123
Loss on disposition of equipment -- 1,839
Compensation expense on ESOP shares 31,047 34,107
Compensation expense on Management
Recognition Plan -- 48,600
ESOP market value expense 55,765 24,969
Provision for losses on loans 165,000 97,000
Deferred income taxes 41,400 (33,200)
Depreciation 121,296 115,243
Income taxes 321,131 225,082
Net change in miscellaneous assets 217,933 90,687
Net change in miscellaneous liabilities (211,301) 124,451
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Net cash provided by operating activities 1,143,183 1,135,562
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Investing Activities
Net change in interest bearing deposits (9,095,184) (479,520)
Net change in loans receivable 2,970,169 (1,256,057)
Purchase of securities held-to-maturity (2,990,625) --
Principal repayments of securities-held-to-maturity 1,172,365 585,238
Purchases of property and equipment (82,872) (106,809)
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Net cash used by investing activities (8,026,147) (1,257,148)
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Financing Activities
Net change in deposits 6,382,841 2,599,508
Net change in escrow funds 102,995 (590,338)
Stock options exercised 65,653 --
Proceeds (payment) on FHLB advances (1,000,000) (1,050,000)
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Net cash provided by financing activities 5,551,489 959,170
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Net change in cash and cash equivalents (1,331,475) 837,584
Cash and cash equivalents, beginning 5,526,577 2,873,502
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Cash and cash equivalents, ending $ 4,195,102 $3,711,086
=========== ==========
Supplemental disclosure of cash flow information
Cash paid for:
Taxes -- --
Interest 1,219,709 1,396,721
Loans reclassified to other real estate owned 1,111,500 --
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
HIGH COUNTRY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2003
Note 1. Nature of Business
High Country Bancorp, Inc. (the "Company") was incorporated under the laws of
the State of Colorado for the purpose of becoming the holding company of Salida
Building and Loan Association (the "Association") in connection with the
Association's conversion from a federally chartered mutual savings and loan
association to a federally chartered stock savings and loan association,
pursuant to its Plan of Conversion. The Company was organized in August 1997 to
acquire all of the common stock of Salida Building and Loan Association upon its
conversion to stock form, which was completed on December 9, 1997. In November
1999, the Association incorporated a new subsidiary, High Country Title and
Escrow Company. This company is offering title insurance and escrow closing
services with the Association's market area. In February 2000, the name of
Salida Building and Loan Association was changed to High Country Bank (the
"Bank").
Note 2. Basis of Presentation
The accompanying unaudited consolidated financial statements, (except for the
statement of financial condition at June 30, 2003, which is audited) have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management all adjustments necessary for a fair
presentation of the financial position and results of operations for the periods
presented have been included. The financial statements of the Company are
presented on a consolidated basis with those of High Country Bank and its
subsidiary High Country Title and Escrow Company. The results of operations for
the three months ended September 30, 2003 are not necessarily indicative of the
results of operations that may be expected for the year ended June 30, 2004. 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 the disclosure of
contingent assets and liabilities as 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.
The accounting policies followed are as set forth in Note 1. of the Notes to
Financial Statements in the 2003 High Country Bancorp, Inc. financial statements
Note 3. Regulatory Capital Requirements
At September 30, 2003, the Bank met each of the three current minimum regulatory
capital requirements. The following table summarizes the Bank's regulatory
capital position at September 30, 2003:
Tangible Capital:
Actual $18,139,000 9.37%
Required 2,905,000 1.50
Excess $15,234,000 7.87%
Core Capital:
Actual $18,139,000 9.37%
Required 5,810,000 3.00
Excess $12,329,000 6.37%
Risk-Based Capital:
Actual $19,540,000 14.53%
Required 10,755,000 8.00
Excess $ 8,785,000 6.53%
6
HIGH COUNTRY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2003
Tangible and core capital levels are shown as a percentage of total adjusted
assets; risk-based capital levels are shown as a percentage of risk-weighted
assets.
Note 4. 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 and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
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.
7
HIGH COUNTRY BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 2. Management Discussion and Analysis
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2003 AND SEPTEMBER 30, 2003
The Company's total assets increased by $6.2 million or 1.03% from $187.4
million at June 30, 2003 to $193.6 million at September 30, 2003. The increase
in assets was due to growth in interest-bearing deposits and other real estate
owned.
Interest-bearing deposits increased $9.1 million from $7.5 million at June 30,
2003 to $16.6 million at September 30, 2003. The increase was due to principal
reductions of loans receivable, loans held for sale, and higher savings
deposits. In the upcoming months, the deposits may be used for paying down FHLB
advances, seasonal deposit withdrawals, loan demand and other investment
purchases.
Mortgage-backed securities classified as "held to maturity" decreased from $10.1
million at June 30, 2003 to $8.9 million at September 30, 2003. In the upcoming
months, the Bank plans to purchase additional adjustable-rate and short term
mortgage backed securities and short term Agency Notes in order to improve
investment yields and maintain interest rate risk. At September 30, 2003, the
securities had an estimated fair value of $9.3 million.
Securities held to maturity increased from $300 thousand at June 30, 2003 to
$3.3 million as a result of the purchase of $3 million in short term Agency
Notes. It is Managements intent to hold those until maturity.
Net loans decreased $2.2 million from $150.5 million at June 30, 2003 to $148.3
million at September 30, 2003 as a result of slower loan demand and prepayment
of principal on loans. During the three months ended September 30, 2003, the
Bank sold $18.6 million of fixed-rate loans to the Federal Home Loan Mortgage
Corporation. At September 30, 2003, loans held for sale were $120 thousand. The
loans are valued at the lower of cost or market.
As of September 30, 2003 and June 30, 2003, the non-performing loans in the
Bank's portfolio were $1.83 and $3.1 million, respectively. The total
non-performing loans at September 30, 2003 included 24 loans secured by
commercial real estate, single family residences, vacant land, business
equipment and autos. During the summer of 2002, the Bank's primary lending area
was affected by a major drought and nearby forest fires which negatively
impacted the local tourism economy, which in turn has had a negative impact on
the loan portfolio.
Except as discussed below, the Bank had no loans not classified as
non-performing or restructured where known information about possible credit
problems of borrowers caused management to have serious concerns as to the
ability of the borrowers to comply with present loan repayment terms and may
result in disclosure as non-performing or restructured. As of September 30,
2003, the Bank's loan portfolio included 10 loans totaling $2.2 million to
tourism related businesses which were included on an internal watch list as
potential problem loans. Several borrowers have received assistance for the
Small Business Administration disaster assistance program. Although a specific
allowance for loss has not been established on these loans, management
considered the potential risk of loss on these loans in establishing the
provision for loan losses for the three months ended September 30, 2003.
The allowance for loan losses totaled $1.4 million at September 30, 2003 and
$1.5 million at June 30, 2003. The loans charged off during the quarter ending
September 30, 2003 included accrued interest on commercial loans secured
primarily by a single family residence and vacant land and a ranch property, as
well as auto loans which involved repossessions.
The properties included in other real estate owned include the single family
residence with an adjacent property of vacant land, vacant agricultural
8
land, and a single family property located on an agricultural property. Based on
the most recent information available, no further loss is expected on the
properties as they are recorded at fair value on the financial statements.
9
HIGH COUNTRY BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
At September 30, 2003 and June 30, 2003, the ratio of the allowance for loan
losses to net loans was .94% and .99%, respectively. During the three months
ended September 30, 2003, there were $275 thousand of loans charged off and $3
thousand recoveries of previous loan losses. The determination of the allowance
for loan losses is based on a review and classification of the Bank's portfolio
and other 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 prevailing economic conditions. Particular attention was focused on
the Bank's commercial loan portfolio and any impaired loans. The Bank believes
the current level of allowance for loan losses is adequate to provide for
probable future losses, although there are no assurances that probable future
losses, if any, will not exceed estimated amounts.
At September 30, 2003 deposits increased $6.4 million to $135.6 million from
$129.2 million at June 30, 2003. The increase is a result of competitive rates
and seasonal growth. The increase funded the purchase of $3.0 million of agency
notes and will fund the purchase of additional mortgage backed securities and
investment securities, and loan growth.
Advances from the Federal Home Loan Bank decreased to $38.3 million at September
30, 2003 from $39.3 million at June 30, 2003. Funds from deposits were used to
pay-off maturing advances.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003
AND 2002
Net Income. The Company's net income for the three months ended September 30,
2003 was $437,000 compared to $438,000 for the three months ended September 30,
2002. The decrease in net income resulted primarily from the increase in
non-interest expenses including compensation, occupancy and equipment, other
expenses, and additional provision for loan loss.
Net Interest Income. Net interest income for the three months ended September
30, 2003 was $1.87 million compared to $1.81 million for the three months ended
September 30, 2002. (Although both interest earning assets and interest bearing
liabilities increased, the cost of interest bearing liabilities decreased at a
greater rate than the yield on interest earning assets.) The average yield on
interest earning assets decreased from 7.63% for the three months ended
September 30, 2002 to 7.14% for the three months ended September 30, 2003. The
decrease in costs was due to lower deposit rates and less reliance on higher
costing Federal Home Loan Advances. The interest rate spread increased from
3.98% for the three months ended September 30, 2002 to 4.17% for the three
months ended September 30, 2003.
Provision for Losses on Loans. The provision for loan loss was $165,000 for the
three months ended September 30, 2003 as compared to $97,000 for the three
months ended September 30, 2002. The Bank charged off a larger than normal
amount of consumer loans, as well as amounts associated with real estate owned.
Non-interest Income. Non-interest income was $597,000 for the three months ended
September 30, 2003 as compared to $453,000 for the three months ended September
30, 2002. Loan sales income was the largest increase. Loan sale income is
expected to decrease in the future as a result of higher interest rates and
fewer refinances, resulting in fewer loan sales.
10
HIGH COUNTRY BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Non-interest Expenses. Non-interest expenses were $1.6 million for the three
months ended September 30, 2003 as compared to $1.5 million for the three months
ended September 30, 2002. Increases occurred in compensation and benefit expense
and other expenses. The increases are tied to additional employees associated
with growth. Insurance and professional fees decreased.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds consist of deposits, FHLB advances,
repayment of loans and mortgage-backed securities, maturities of investments and
interest-bearing deposits, and funds provided from 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 fund maturing FHLB advances, 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 sufficient liquidity to ensure a safe and sound
operation. Management believes that the Bank's sources of liquidity for
potential uses are adequate under the current regulations.
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 assets 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 same direction or in the same magnitude as the
prices of goods and services.
FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such statements are subject to certain risks and uncertainties including changes
in economic conditions in the Company's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, loan demand in the
Company's market area, and competition that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which reflect management's analysis only as
the date made. The Company does not undertake any obligation to publicly revise
these forward-looking statements to reflect events or circumstances that arise
after the date of such statements.
11
HIGH COUNTRY BANCORP, INC.
CONTROLS AND PROCEDURES
Item 3. Controls and Procedures
As of the end of the period covered by this report, management of the Company
carried out an evaluation, under the supervision and with the participation of
the Company's principal executive officer and principal financial officer, of
the effectiveness of the Company's disclosure controls and procedures. Based on
this evaluation, the Company's principal executive officer and principal
financial officer concluded that the Company's disclosure controls and
procedures are effective in ensuring that information required to be disclosed
by the Company in reports that it files or submits under the Securities Exchange
Act of 1934, as amended, is recorded, processed, summarized and reported, within
the time periods specified in the Securities and Exchange Commission's rules and
forms.
In addition, there have been no changes in the Company's internal control over
financial reporting (to the extent that elements of internal control over
financial reporting are subsumed within disclosure controls and procedures)
identified in connection with the evaluation described in the above paragraph
that occurred during the Company's last fiscal quarter, that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
12
HIGH COUNTRY BANCORP, INC.
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
None
ITEM 2: Changes in Securities and Use of Proceeds
None
ITEM 3: Defaults Upon Senior Securities
Not Applicable
ITEM 4: Submission of Matters to a Vote of Security Holders.
None
ITEM 5: Other Information
None
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibit is filed herewith:
Exhibit
Number Title
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31 Rule 13a-14(a) Certifications
32 Certification Pursuant to 18 U.S.C. Section 1350
(b) Reports on Form 8-K
None
13
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
High Country Bancorp, Inc.
Registrant
Date November 12, 2003 /s/ Larry D. Smith
-----------------------------------------
Larry D. Smith
President and Chief Executive Officer
(Duly Authorized Officer)
/s/ Frances Pasquale
Date November 12, 2003 -----------------------------------------
Frances Pasquale
Chief Financial Officer
(Principal Financial Officer)
14