10QSB 1 fm10q33102-1872.txt FORM 10-QSB 3-31-02 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2002 Commission file number 0-23409 High Country Bancorp, Inc. ----------------------------------------------------------------------- (Exact Name of Small business Issuer as Specified in Its Charter) Colorado 84-1438612 ------------------------------ ------------------ (State of Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 7360 West US Highway 50, Salida Colorado 81201 ------------------------------------------------------------------------ (Address of Principal Executive Offices) 719-539-2516 ------------------------------------------------------------------------ (Issuer's Telephone Number, Including Area Code) 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 ------------- -------------- 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 May 1, 2002 905,409 HIGH COUNTRY BANCORP, INC. CONTENTS PART I - FINANCIAL INFORMATION Item 1: Financial Statements Consolidated Statements of Condition at June 30, 2001 and March 31, 2002 3 Statements of Consolidated Income for the Three and Nine Months Ended March 31, 2002 and 2001 4 Statements of Consolidated Cash Flows for the Nine Months Ended March 31, 2002 and 2001 5 Notes to Financial Statements 6-7 Item 2: Management's Discussion and Analysis or Plan of Operations 8-11 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)
March 31, June 30, ASSETS 2002 2001 ------------------------------- Cash and amounts due from banks $ 2,711,946 $ 2,759,671 Interest-bearing deposits at other institutions 7,179,689 9,175,856 Mortgage-backed securities, held to maturity 11,660,150 2,220,909 Securities, held to maturity 303,218 -- Loans receivable - net 137,483,080 135,916,318 Loans held for sale 455,250 917,500 Federal Home Loan Bank stock, at cost 2,421,600 2,421,600 Accrued interest receivable 1,262,671 1,121,412 Property and equipment, net 6,117,775 6,111,907 Mortgage servicing rights 8,759 14,504 Prepaid expenses and other assets 488,171 508,187 Deferred income taxes 196,000 162,800 ------------- ------------- TOTAL ASSETS $ 170,288,309 $ 161,330,664 ============= ============= LIABILITIES AND EQUITY LIABILITIES Deposits $ 111,201,821 $ 98,517,228 Advances by borrowers for taxes and insurance 103,453 29,724 Escrow accounts 936,744 1,070,624 Accounts payable and other liabilities 890,779 988,588 Advances from Federal Home Loan Bank 41,333,332 44,124,999 Accrued income taxes payable 34,681 40,167 ------------- ------------- TOTAL LIABILITIES 154,500,810 144,771,330 ------------- ------------- 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 905,409 (March 31, 2002) and 1,028,992 shares (June 30, 2001) 9,054 10,290 Paid-in capital 7,238,038 9,151,686 Retained earnings - substantially restricted 9,248,469 8,215,667 Note receivable from ESOP Trust (626,865) (626,865) Deferred MRP stock awards (81,197) (191,444) ------------- ------------- TOTAL EQUITY 15,787,499 16,559,334 ------------- ------------- TOTAL LIABILITIES AND EQUITY $ 170,288,309 $ 161,330,664 ============= =============
3 HIGH COUNTRY BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended March 31, March 31, 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Interest Income Interest on loans $ 2,918,427 $ 3,069,164 $ 9,124,603 $ 8,710,074 Interest on securities held-to-maturity 103,177 43,787 202,350 137,764 Interest on other interest- bearing assets 61,011 51,925 304,203 154,658 ----------- ----------- ----------- ----------- Total interest income 3,082,615 3,164,876 9,631,156 9,002,496 ----------- ----------- ----------- ----------- Interest Expense Deposits 811,514 943,913 2,721,993 2,683,318 Federal Home Loan Bank advances 618,916 712,259 1,953,663 1,992,746 ----------- ----------- ----------- ----------- Total interest expense 1,430,430 1,656,172 4,675,656 4,676,064 ----------- ----------- ----------- ----------- Net interest income 1,652,185 1,508,704 4,955,500 4,326,432 Provision for losses on loans 60,000 90,000 175,000 225,000 ----------- ----------- ----------- ----------- Net interest income after provision for loan losses 1,592,185 1,418,704 4,780,500 4,101,432 ----------- ----------- ----------- ----------- Noninterest Income Service charges on deposits 64,809 54,246 198,574 147,678 Loans sold 204,903 110,768 684,747 212,049 Title and escrow fees 78,635 77,717 277,348 208,569 Other 97,336 60,093 316,505 176,608 ----------- ----------- ----------- ----------- Total noninterest income 445,683 302,824 1,477,174 744,904 ----------- ----------- ----------- ----------- Noninterest Expense Compensation and benefits 850,038 686,389 2,504,943 1,940,705 Occupancy and equipment 327,638 290,121 957,414 815,933 Insurance and professional fees 65,246 53,290 212,365 184,623 Other 188,503 162,414 546,568 477,731 ----------- ----------- ----------- ----------- Total noninterest expense 1,431,425 1,192,214 4,221,290 3,418,992 ----------- ----------- ----------- ----------- Income before income taxes 606,443 529,314 2,036,384 1,427,344 Income tax expense 244,400 202,204 788,900 550,476 ----------- ----------- ----------- ----------- Net income $ 362,043 $ 327,110 $ 1,247,484 $ 876,868 =========== =========== =========== =========== Basic Earnings Per Common Share $ 0.42 $ 0.33 $ 1.40 $ 0.89 =========== =========== =========== =========== Diluted Earnings Per Common Share $ 0.41 $ 0.33 $ 1.37 $ 0.89 =========== =========== =========== =========== Weighted Average Common Shares Outstanding Basic 853,337 979,528 887,981 981,912 Diluted 880,870 993,185 911,497 981,912
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4 HIGH COUNTRY BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended March 31, 2002 2001 ------------ ------------ Operating Activities Net income $ 1,247,484 $ 876,868 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of: Deferred loan origination fees (207,589) (109,539) Premiums on investments 34,204 3,656 Compensation expense on Management Recognition Plan 128,830 118,457 ESOP market value expense 53,365 23,872 Provision for losses on loans 175,000 225,000 Deferred income taxes (33,200) (83,700) Depreciation 352,526 297,242 Income taxes (5,486) 41,074 Net change in miscellaneous assets (115,498) (173,228) Net change in miscellaneous liabilities (24,080) (531,171) ------------ ------------ Net cash provided by operating activities 1,605,556 688,531 ------------ ------------ Investing Activities Net change in interest bearing deposits 1,996,167 (2,856,051) Net change in loans receivable (1,071,923) (17,882,059) Purchases of mortgage-backed securities (10,924,006) -- Purchases of securities held to maturity (303,218) -- Principal repayments of mortgage-backed securities-held-to-maturity 1,450,561 274,008 Redemption securities held to maturity -- 200,000 Purchase of Federal Home Loan Bank stock -- (564,600) Purchases of property and equipment (358,394) (310,927) ------------ ------------ Net cash used by investing activities (9,210,813) (21,139,629) ------------ ------------ Financing Activities Net change in deposits 12,684,593 10,549,855 Net change in escrow funds (133,880) 152,296 Purchase of common stock (1,986,832) (474,567) Cash dividends paid (214,682) (249,291) Proceeds (payment) on FHLB advances (2,791,667) 9,143,333 ------------ ------------ Net cash provided by financing activities 7,557,532 19,121,626 ------------ ------------ Net increase (decrease) in cash and cash equivalents (47,725) (1,329,472) Cash and cash equivalents, beginning 2,759,671 4,392,623 ------------ ------------ Cash and cash equivalents, ending $ 2,711,946 $ 3,063,151 ============ ============ Supplemental disclosure of cash flow information Cash paid for: Taxes $ 823,228 $ 606,953 Interest 4,695,856 4,674,991
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5 HIGH COUNTRY BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 2002 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, 2001, 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 it's subsidiary High Country Title and Escrow Company. The results of operations for the nine months ended March 31, 2002 are not necessarily indicative of the results of operations that may be expected for the year ended June 30, 2002. 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 2001 High Country Bancorp, Inc. financial statements Note 3. Regulatory Capital Requirements At March 31, 2002, the Bank met each of the three current minimum regulatory capital requirements. The following table summarizes the Bank's regulatory capital position at March 31, 2002: Tangible Capital: Actual $15,562,000 9.13% Required 2,556,000 1.50 Excess $13,006,000 7.63% Core Capital: Actual $15,562,000 9.13% Required 5,113,000 3.00 Excess $10,449,000 6.13% Risk-Based Capital: Actual $17,036,000 14.04% Required 9,711,000 8.00 Excess $ 7,325,000 6.04% 6 HIGH COUNTRY BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) March 31, 2002 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 COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2001 AND MARCH 31, 2002 The Company's total assets increased by $9.0 million or 5.6% from $161.3 million at June 30, 2001 to $170.3 million at March 31, 2002. The increase in assets was due to mortgage-backed securities growth of $9.4 million and loan growth of $1.1 million. Interest bearing deposits decreased $2.0 million from $9.2 million at June 30, 2001 to $7.2 million at March 31, 2002. The deposits were used to fund mortgage-backed securities purchases and pay down FHLB advances. In the upcoming months, additional 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" increased by $9.4 million from $2.2 million at June 30, to $11.7 million at March 31, 2002. The Bank purchased adjustable-rate GNMA and FHLMC mortgage backed securities in order to improve investment yields as compared to interest-bearing deposits and lower interest rate risk. At March 31, 2002 the securities had an estimated fair value of $11.5 million. The Bank purchased $300,000 in local municipal bonds in March 2002. The bonds are classified as "held to maturity." At March 31, 2002 the securities had an estimated fair value of $300,000. Net loans increased $1.1 million from $136.8 million at June 30, 2001 to $137.9 million at March 31, 2002. During the nine months ended March 31, 2002, increases of $3.8 million in commercial mortgage loans, $1.7 million in commercial non-mortgage loans and $1.6 million in single family construction loans offset a decrease of $5.2 million in single family mortgage loans and $1.1 million in auto loans. In the commercial and construction loan areas, the Bank benefited from strong local purchase financing, local construction activity and loan refinancing. The decrease in single family mortgage loans and consumer loans was due to the refinancing of portfolio loans into loans that were sold. During the nine months ended March 31, 2002, the Bank sold $43.5 million of fixed-rate loans to the Federal Home Loan Mortgage Corporation. At March 31, 2002, loans held for sale were $455,000. The loans are valued at the lower of cost or market. The allowance for loan losses totaled $1.5 million at March 31, 2002 and $1.3 million at June 30, 2001. At March 31, 2002 and June 30, 2001, the ratio of the allowance for loan losses to net loans was 1.07% and 0.99%, respectively. As of those dates the non-performing loans in the Bank's portfolio were $3.0 and $1.8 million, respectively. The increase in non-performing loans is primarily due to the addition of five loans secured by commercial real estate and vacant land. The largest non-performing loan totals $728,000 and is a business purpose loan secured by two single family residences and vacant land. No loss is expected on this loan. The total non-performing loans at March 31, 2002 included 34 loans secured by commercial real estate, single family residences, vacant land, business equipment and autos. During the nine months ended March 31, 2002, there were $49,000 of loans charged off and no 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 March 31, 2002 deposits increased to $111.2 million from $98.5 million at June 30, 2001 or a net increase of 12.9%. Competitive rates and stock market uncertainty fueled the growth. The increase 8 HIGH COUNTRY BANCORP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS funded investment in mortgage-backed securities and loans and the pay down of Federal Home Loan Bank advances. Advances from the Federal Home Loan Bank decreased to $41.3 million at March 31, 2002 from $44.1 million at June 30, 2001. Funds from deposit growth and interest-bearing deposits were used to pay-off maturing advances. In September 2001, the Bank completed the stock repurchase program that it commenced in November 2000. On November 3, 2001, the Company announced a plan to repurchase up to 10% or 92,221 shares of the outstanding stock. Since November 3, 2001, the Bank has repurchased 16,800 shares at a cost of $282,000. For the nine months ended March 31, 2002, the Bank repurchased 123,583 shares at a cost of $2.0 million. On November 19, 2001, the Company paid dividends of $0.25 per share. COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001 Net Income. The Company's net income for the three months ended March 31, 2002 was $362,000 compared to $327,000 for the three months ended March 31, 2001. The increase in net income resulted primarily from increased interest income and non-interest loan sale income which offset increased compensation, occupancy and other operating expense. Net Interest Income. Net interest income for the three months ended March 31, 2002 was $1.7 million compared to $1.5 million for the three months ended March 31, 2001. 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 8.71% for the three months ended March 31, 2001 to 7.71% for the three months ended March 31, 2002. The decrease was due to growth in low earning interest bearing deposits, mortgage backed securities and loan refinancing at lower rates. The average cost of interest bearing liabilities also decreased from 5.02% for the three months ended March 31, 2001 to 3.94% for the three months ended March 31, 2002. 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 3.69% for the three months ended March 31, 2001 to 3.77% for the three months ended March 31, 2002. Provision for Losses on Loans. The provision for loan loss was $60,000 for the three months ended March 31, 2002 as compared to $90,000 for the three months ended March 31, 2001. The decline reflects the specific commercial real estate loans which increased non-performing loans for the three months ended March 31, 2002. Although non-performing loans increased by $1.1 million during the quarter, the Bank does not expect significant losses on the new loans. Non-interest Income. Non-interest income was $446,000 for the three months ended March 31, 2002 as compared to $303,000 for the three months ended March 31, 2001. Loan origination growth from favorable mortgage loan interest rates increased income from loan sales. For the three months ended March 31, 2002, the Bank sold $12.6 million of loans as compared to $8.0 million for the three months ended March 31, 2001. Non-interest Expenses. Non-interest expenses were $1.4 million for the three months ended March 31, 2002 as compared to $1.2 million for the three months ended March 31, 2001. Increases occurred in compensation and benefit expense, occupancy expense and other expenses. The increases are tied to additional employees associated with growth. 9 HIGH COUNTRY BANCORP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED MARCH 31, 2002 AND 2001 Net Income. The Company's net income for the nine months ended March 31, 2002 was $1.2 million compared to $877,000 for the nine months ended March 31, 2001. The increase in net income resulted primarily from increased interest income and non-interest loan sale income which offset increased compensation, occupancy and other operating expense. Net Interest Income. Net interest income for the nine months ended March 31, 2002 was $5.0 million compared to $4.3 million for the nine months ended March 31, 2001. The increase is attributed to increase interest earned on interest earning assets due to loan growth. Interest expense was relatively unchanged due to an offset in the increase in interest bearing liabilities by lower interest costs. The average yield on interest earning assets decreased from 8.66% for the nine months ended March 31, 2001 to 8.13% for the nine months ended March 31, 2002. The decrease in yield is associated with the growth in lower earning interest bearing deposits and mortgage backed securities and lower rate loan refinances. The average cost of interest bearing liabilities also decreased from 5.02% for the nine months ended March 31, 2001 to 4.36% for the nine months ended March 31, 2002. The decrease in average cost is due to less reliance on higher costing FHLB advances and lower deposit rates. The interest rate spread increased from 3.64% for the nine months ended March 31, 2001 to 3.77% for the nine months ended March 31, 2002. Non-interest Income. Non-interest income increased from $745,000 for the nine months ended March 31, 2001 to $1.5 million for the nine months ended March 31, 2002. The increase is primarily due to loan sales of $43.5 million for the nine months ended March 31, 2002 compared to $14.3 million for the nine months ended March 31, 2001. Title and escrow fees and other income also increased due to greater loan activity resulting from historically low mortgage loan interest rates. Non-interest Expense. Non-interest expense increased from $3.4 million for the nine months ended March 31, 2001 to $4.2 million for the nine months ended March 31, 2002. The majority of the increase was in compensation and benefit expense, occupancy expense and other expenses. The increases are tied to additional employees and other expenses due to growth. 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 OTS repealed a statutory liquidity requirement in late 2000. The Bank was previously required to maintain a minimum ratio of 4%. Under revised regulations, 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 revised regulations. 10 HIGH COUNTRY BANCORP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS 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. 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 None 12 SIGNATURES Pursuant to 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 May 3, 2002 /s/ Larry D. Smith ----------- ------------------------------------- Larry D. Smith President and Chief Executive Officer (Duly Authorized Officer) Date May 3, 2002 /s/ Frank L. DeLay ----------- ------------------------------------- Frank L. DeLay Chief Financial Officer (Principal Financial Officer) 13