SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB

(Mark One)
[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
     1934.

     For the Fiscal Year Ended June 30, 2001.
                                       OR
[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
     OF 1934.

For the transition period from __________to __________

                         Commission File Number: 0-23409

                           HIGH COUNTRY BANCORP, INC.
--------------------------------------------------------------------------------
                 (Name of Small Business Issuer in its Charter)

                 Colorado                                        84-1438612
------------------------------------------                   -------------------
 (State or 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)                              (Zip Code)

         Issuer's Telephone Number, Including Area Code: (719) 539-2516
                                                         --------------

    Securities registered pursuant to Section 12(b) of the Exchange Act: None

      Securities registered pursuant to Section 12(g) of the Exchange Act:

                     Common Stock, par value $.01 per share
                     --------------------------------------
                                (Title of Class)

     Check  whether  the issuer:  (l) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days.
 YES  X    NO
    ------     -----

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of Regulation S-B is not contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. ______

     State registrant's revenues for its most recent fiscal year: $13,556,405

     The aggregate market value of the voting stock held by nonaffiliates of the
registrant  based on the last sale of which the registrant was aware ($16.50 per
share on September 25, 2001), was approximately $10,502,861. Solely for purposes
of this calculation,  the term "affiliate" refers to all directors and executive
officers of the registrant and all  stockholders  beneficially  owning more than
10% of the registrant's common stock.

     As of  September  26,  2001,  there were issued and  outstanding  926,209
shares of the registrant's common stock.

     Transitional Small Business  Disclosure Format (check one):
YES        NO   X
   -----     ------

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Portions of Annual  Report to  Stockholders  for the Fiscal Year Ended June
     30, 2001 (Part II).

2.   Portions of Proxy  Statement  for the 2001 Annual  Meeting of  Stockholders
     (Part III).

<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS
--------------------------------

GENERAL

     HIGH COUNTRY BANCORP,  INC. High Country Bancorp,  Inc. (the "Company") was
incorporated  under the laws of the  State of  Colorado  in August  1997 for the
purpose of becoming a savings and loan holding  company for Salida  Building and
Loan  Association  which  changed its name to High  Country Bank (the "Bank") in
February 2000. On December 9, 1997,  the Bank  consummated  its conversion  from
mutual to stock form (the  "Conversion")  and the Company completed its offering
of Common  Stock  through the sale and  issuance of  1,322,500  shares of Common
Stock at a price of $10.00 per share,  realizing gross proceeds of $13.2 million
and net  proceeds of $12.7  million.  The Company  purchased  all of the capital
stock of the Bank with $5.8 million of the offering  proceeds.  On May 24, 1999,
the Company  announced  that it was  commencing  a stock  repurchase  program to
acquire up to 10% of the Company's  outstanding shares of Common Stock, or up to
132,250 shares, over a 12-month period. On March 20, 2000, the Company announced
a  second  stock  repurchase  program  to  acquire  up to 10%  of the  Company's
outstanding  shares of Common Stock,  or up to 119,025  shares,  over a 12-month
period. These repurchase programs,  both of which have been completed,  resulted
in the  repurchase of 251,275  shares of Company  Common  Stock.  On November 8,
2000, the Company  announced a third stock  repurchase  program to acquire up to
10% of the Company's outstanding shares of common stock, or up to 107,123 shares
over a twelve month period.  Through September 15, 2001, 46,416 shares have been
repurchased.

     The Company  engages in no  significant  activity  other than investing the
proceeds of the offering of Common Stock which it retained, holding the stock of
the Bank and operating the business of a savings  association  through the Bank.
Accordingly,  the  information  set forth in this  report,  including  financial
statements and related data, relates primarily to the Bank and its subsidiaries.

     The  Company's  executive  offices  are located at 7360 West US Highway 50,
Salida, Colorado. Its telephone number is (719) 539-2516.

     HIGH  COUNTRY  BANK.  The  Bank  is a  federal  stock  savings  association
operating  through  offices  located  in the towns of  Salida,  Buena  Vista 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 Federal
Home Loan Bank ("FHLB") of Topeka in 1937. The Bank became a federally-chartered
association  on August  16,  1993  under the name of  Salida  Building  and Loan
Association.  Effective  December  9,  1997,  the Bank  became  a stock  savings
association. In February 2000, the Bank changed its name to "High Country Bank."
The Bank's  subsidiary,  High  Country  Title and Escrow  Company,  offers title
insurance and escrow closing services within the Bank's market area. At June 30,
2001, the Bank had total assets of $161.3  million,  loans  receivable  (net) of
$136.8  million,  total  deposits of $98.5 million and  stockholders'  equity of
$16.6 million.

     Historically, the Bank has operated as a traditional savings institution by
emphasizing the origination of loans secured by one- to four-family  residences.
Since fiscal 1996,  the Bank has  significantly  increased  its  origination  of
consumer,  commercial business and commercial real estate loans, including loans
for the  purchase  and  development  of raw land,  all of which  loans have been
originated in its market area.

     The Bank is subject to  examination  and  comprehensive  regulation  by the
Office of Thrift  Supervision  ("OTS"),  and the  Bank's  savings  deposits  are
insured  up to  applicable  limits by the  Savings  Association  Insurance  Fund
("SAIF"),  which is administered by the Federal  Deposit  Insurance  Corporation
("FDIC").  The Bank is a member of and owns capital stock in the 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."


                                       2
<PAGE>

     The Bank's  executive  offices  are  located  at 7360 West US  Highway  50,
Salida, Colorado 81201-0309 and its main telephone number is (719) 539-2516.

     LENDING ACTIVITIES

     GENERAL. The Bank's loan portfolio, net, totaled $136.8 million at June 30,
2001, representing 84.81% of total assets at that date.  Substantially all loans
are originated in the market area. At June 30, 2001, $63.1 million, or 44.48% of
the Bank's gross loan portfolio  consisted of one- to  four-family,  residential
mortgage  loans.  Other loans  secured by real estate  include  commercial  real
estate  loans  which  amounted  to $29.6  million  or 20.84%  of the gross  loan
portfolio and land and land development loans, which amounted to $8.7 million or
6.39% of the gross loan  portfolio  at June 30, 2001.  The Bank also  originates
commercial  business  loans and  consumer  loans,  most of which are  automobile
loans. At June 30, 2001,  consumer loans totaled $14.6 million, or 10.29% of the
gross loan  portfolio,  and  commercial  business loans totaled $16.1 million or
11.33% of the gross loan portfolio.

     LOAN  PORTFOLIO  COMPOSITION.  Set forth below is selected data relating to
the  composition  of the  Bank's  loan  portfolio  by type of loan at the  dates
indicated.  At June 30, 2001, the Bank had no  concentrations of loans exceeding
10% of total loans other than as disclosed below.
<TABLE>
<CAPTION>
                                                  At June 30,
                                  ---------------------------------------------
                                        2001                     2000
                                  Amount         %        Amount           %
                                  ------       -----      ------         -----
                                           (Dollars in thousands)
Mortgage Loans:
<S>                              <C>            <C>       <C>            <C>
  One- to four-family ........   $ 63,081       46.10%    $ 67,150       56.01%
  Commercial .................     29,563       21.61       18,695       15.59
  Construction ...............      9,060        6.62        7,522        6.27
  Land and land development ..      8,678        6.34        4,601        3.84%
                                 --------      ------     --------      ------
     Total mortgage loans ....    110,382       80.67       97,968       81.71
                                 --------      ------     --------      ------
Consumer loans ...............     14,597       10.67       14,387       12.00
Loans on savings accounts ....        740        0.54          588        0.49
Commercial loans .............     16,065       11.74       11,602        9.68
Other loans ..................         50        0.04           21        0.02
                                 --------      ------     --------      ------
     Total loans .............    141,834      103.66      124,566      103.90
                                 --------      ------     --------      ------

Less:
  Undisbursed loans in process      3,026        2.21        3,069        2.56
   Deferred fees and discounts        626        0.46          596        0.50
  Allowance for losses .......      1,348        0.99        1,003        0.84
                                 --------      ------     --------      ------
Loan portfolio, net ..........   $136,834      100.00%    $119,898      100.00%
                                 ========      ======     ========      ======
</TABLE>
                                       3
<PAGE>

     LOAN MATURITY SCHEDULE.  The following table sets forth certain information
at June 30, 2001  regarding  the dollar  amount of loans  maturing in the Bank's
portfolio  based on their  contractual  terms to maturity.  Demand loans,  loans
having no stated schedule of repayments and no stated  maturity,  and overdrafts
are reported as due in one year or less.
<TABLE>
<CAPTION>
                                                              Due after
                                       Due during             1 through             Due after
                                     the year ending        5 years after         5 years after
                                      June 30, 2002         June 30, 2002         June 30, 2002          Total
                                      -------------         -------------         -------------         -------
                                                           (In thousands)
<S>                                    <C>                    <C>                   <C>                <C>
Mortgage loans:
  One-to four-family................   $    1,236             $   7,570             $  54,275          $ 63,081
  Commercial........................        3,998                20,284                 5,281            29,563
  Construction......................        9,060                    --                    --             9,060
  Land and land development.........        4,122                 4,417                   139             8,678
                                       ----------             ---------             ---------          --------
     Total..........................   $   18,416             $  37,271             $  59,695          $110,382
                                       ==========             =========             =========          ========
</TABLE>

     The next table sets forth at June 30, 2001,  the dollar amount of all loans
which have predetermined interest rates and have floating or adjustable interest
rates.
<TABLE>
<CAPTION>
                                                        Predetermined                 Floating or
                                                            Rates                 Adjustable Rates
                                                           -------                ----------------
                                                                        (In thousands)

<S>                                                     <C>                         <C>
Mortgage loans:
   One-to four-family................................   $   58,885                  $    4,196
   Commercial........................................       28,437                       1,126
   Construction......................................        9,060                          --
   Land and land development.........................        7,122                       1,556
                                                        ----------                  ----------
     Total...........................................   $  103,504                  $    6,878
                                                        ==========                  ==========
</TABLE>

     Scheduled  contractual  principal  repayments  of loans do not  reflect the
actual life of such assets. The average life of loans is substantially less than
their contractual terms because of prepayments. In addition, due-on-sale clauses
on loans generally give the Bank the right to declare a loan immediately due and
payable in the event,  among  other  things,  that the  borrower  sells the real
property subject to the mortgage and the loan is not repaid. The average life of
mortgage  loans tends to increase  when current  mortgage  loan market rates are
substantially  higher than rates on  existing  mortgage  loans and,  conversely,
decrease when current  mortgage loan market rates are  substantially  lower than
rates on existing mortgage loans.

     LOAN FEES AND  SERVICING.  The Bank receives  fees in connection  with loan
applications, late payments and for miscellaneous services related to its loans.
The Bank also charges a fee on loan originations  ranging from 1.00% to 2.00% of
the principal base. As of June 30, 2001, the Bank serviced $3.6 million in loans
for the Federal Home Loan Mortgage Corporation ("FHLMC").

     ONE- TO FOUR-FAMILY  REAL ESTATE LOANS. The Bank's primary lending activity
consists  of the  origination  of  loans  secured  by  owner-occupied,  one-  to
four-family  residential  properties located in its primary market area. At June
30, 2001,  $63.1 million,  or 46.1%,  of the Bank's loan portfolio  consisted of
loans  secured  by one- to  four-family  residential  properties,  of which $4.2
million,  or 66.5%,  carried adjustable  interest rates. The Bank estimates that
the average size of the  residential  mortgages that it currently  originates is
$100,000.

     The Bank  originates  both  fixed-rate  mortgage loans and  adjustable-rate
mortgage loans ("ARMs").  Due to customer  preferences for fixed-rate loans, the
Bank has had difficulty originating a large volume of ARMs in recent years. Most
fixed-rate  mortgage loans are originated for terms of 15 or 30 years.  ARMs are
originated for terms of up to 30 years. The Bank's ARMs have interest rates that
adjust every year,  with a maximum  adjustment of two percentage  points for any
adjustment  period and up to six  percentage  points  over the life of the loan.
These  loans

                                       4
<PAGE>

are  indexed to the rate on one-year  U.S.  Treasury  securities,  adjusted to a
constant  maturity.  The current margin is two and one-half  percentage  points.
Historically,  all loans originated by the Bank have been retained in the Bank's
loan portfolio. The Bank began selling new loans to the FHLMC in April 1999. For
the years ended June 30, 2001 and 2000,  the Bank sold fixed rate loans of $28.0
million and $12.0 million, respectively, to the FHLMC.

     The Bank's lending policies generally limit the maximum loan-to-value ratio
on residential mortgage loans to a maximum of 80% of the lesser of the appraised
value of the  underlying  property or its  purchase  price.  For those few loans
where the  loan-to-value  ratio exceeds 80%, the Bank requires  private mortgage
insurance.  Originated loans in the Bank's portfolio include due-on-sale clauses
which provide the Bank with the contractual  right to deem the loan  immediately
due and  payable  in the event  that the  borrower  transfers  ownership  of the
property without the Bank's consent.

     The  retention  of ARMs in portfolio  helps  reduce the Bank's  exposure to
increases in interest rates.  There are,  however,  unquantifiable  credit risks
resulting from potential  increased  costs to the borrower as a result of upward
repricing of ARMs. It is possible that during periods of rising  interest rates,
the risk of  default  on ARMs  may  increase  due to the  upward  adjustment  of
interest  costs to the  borrower.  The Bank does not  originate  ARM loans which
provide for negative amortization.  Although ARMs allow the Bank to increase the
sensitivity of its asset base to changes in interest  rates,  the extent of this
interest  sensitivity  is limited by the  periodic and  lifetime  interest  rate
ceilings contained in ARM contracts.  In addition,  since ARM interest rates can
be  adjusted  no more  frequently  than  annually,  the yield on the  Bank's ARM
portfolio  does not  adjust as rapidly as market  interest  rates.  Accordingly,
there  can  be  no  assurance  that  yields  on  the  Bank's  ARMs  will  adjust
sufficiently to compensate for increases in its cost of funds.

     The Bank also  originates  second  mortgage  loans and home equity lines of
credit primarily for its existing one- to four-family first mortgage  customers.
At June 30, 2001,  $8.5 million or 6.23% of the Bank's loan portfolio  consisted
of second mortgage loans and home equity lines of credit.  Second mortgage loans
are generally  underwritten  on a fixed-rate  basis with terms of up to 15 years
and are  fully  amortizing  over the term of the  loan.  Home  equity  loans are
underwritten  with terms of 20 years with an adjustable  rate.  Second mortgages
and home equity loans are  generally  subject to an 80%  combined  loan-to-value
limitation, including all other outstanding mortgages or liens.

     CONSTRUCTION  LOANS.  The Bank offers  construction  financing to qualified
borrowers for construction primarily of single-family residential properties and
to qualified developers for construction of small residential developments.  The
Bank provides financing to one builder for the construction of no more than four
homes  at a  time.  Construction  loans  are  generally  limited  to  a  maximum
loan-to-value  ratio  of 75% of  the  appraised  value  of  the  property  on an
"as-completed"   basis.   The  Bank  attempts  to  structure   its   residential
construction  loans so that they convert to a permanent  loan,  although this is
not  necessarily  the case.  Loans to finance the  construction  of  residential
property on a speculative basis are offered on a fixed-rate basis only, with the
rate indexed to the prime rate plus a negotiated increment.  The Bank limits the
origination of construction loans to borrowers and developers with whom the Bank
has had  substantial  prior  experience  due to the  significant  time and other
requirements associated with originating and monitoring construction loans.

     Loan proceeds are disbursed during the construction  phase (a maximum of 12
months)  according  to a  draw  schedule  based  on  the  stage  of  completion.
Construction  loans are  underwritten on the basis of the estimated value of the
property as completed and loan-to-value  ratios must conform to the requirements
for the permanent loan. At June 30, 2001, $9.1 million,  or 6.39%, of the Bank's
gross loan portfolio consisted of construction loans to fund the construction of
one- to four-family  properties.  Approximately  80% of all  construction  loans
originated  by the Bank  convert into  permanent  loans upon  completion  of the
construction phase.

     Construction  financing  generally is considered to involve a higher degree
of risk of loss than long-term financing on improved, occupied real estate. Risk
of loss on a  construction  loan is  dependent  largely upon the accuracy of the
initial  estimate of the  property's  value at  completion  of  construction  or
development and the estimated cost (including interest) of construction.  During
the  construction  phase,  a number of factors  could  result in delays and cost
overruns. If the estimate of construction cost proves to be inaccurate, the Bank
may be required  to advance  funds  beyond the amount  originally  committed  to
permit completion of the development.  If the estimate


                                       5
<PAGE>

of the value proves to be inaccurate, the Bank may be confronted, at or prior to
the maturity of the loan, with a project having a value which is insufficient to
assure full  repayment.  The ability of a developer  to sell  developed  lots or
completed  dwelling units will depend on, among other things,  demand,  pricing,
availability  of comparable  properties  and economic  conditions.  The Bank has
sought to  minimize  this risk by  limiting  construction  lending to  qualified
borrowers  in  the  Bank's  market  area,   limiting  the  aggregate  amount  of
outstanding  construction  loans and  imposing  a stricter  loan-to-value  ratio
requirement than required for one- to four-family mortgage loans.

     LAND AND LAND  DEVELOPMENT  LOANS.  The Bank originates land loans to local
developers for the purpose of developing the land (i.e., roads, sewer and water)
for sale, and loans secured by raw land, such as cattle ranching  acreage.  Such
loans are secured by a lien on the property, are generally limited to 70% of the
developed  value of the secured  property and are typically made for a period of
one-year,  renewable based on negotiations  with the Bank. Most land development
loans are  expected to be fully paid off five years after the  original  date of
the loan. The Bank generally requires  semi-annual  interest payments during the
term of the land loan. The amount of funds available under the Bank's land loans
usually  include an amount from which the borrower  can pay the stated  interest
due thereon  until  completion  of the loan term.  The  principal of the loan is
reduced as lots are developed,  sold and released.  All of the Bank's land loans
are secured by property  located in its primary  market area.  In addition,  the
Bank obtains personal guarantees from its borrowers and originates such loans to
developers  with whom it has  established  relationships.  At June 30, 2001, the
Bank had $8.7 million of land development  loans, which constituted 6.12% of the
gross loan portfolio at such date. This total includes one loan of $1.6 million,
which is the Bank's largest  outstanding  loan. The Bank originated $6.8 million
and $3.5 million in land  development  loans during fiscal 2001 and fiscal 2000,
respectively. The increase in originations was primarily due to the $1.6 million
loan discussed  above and a $725,000 land  development  loan.  Land  development
loans  generally  involve  a higher  degree of risk  than  residential  mortgage
lending in that  there are large  loan  balances  to single  borrowers,  and the
initial  estimate of the property  value at completion  may be inaccurate due to
market  variations  and the  difficulty in selling lots for home  building.  The
success of such land development  projects is sensitive to changes in supply and
demand  conditions in the local housing market, as well as regional and economic
conditions generally.

     COMMERCIAL REAL ESTATE LOANS. At June 30, 2001, loans secured by commercial
real estate  properties  totaled $29.6 million,  and  represented  21.61% of the
Bank's loan  portfolio.  Commercial  real  estate  loans are secured by ranches,
motels,  small  office  buildings  and retail  stores  and other  nonresidential
property.  Some of the Bank's  commercial  real  estate  loans are made to local
businesses connected to the tourism and recreational  rafting industries,  which
predominate  in the Bank's  primary  market area.  At June 30, 2001,  the Bank's
three of the six  largest  loans were a $1.2  million  loan  secured by a cattle
ranch,  a $982,000 loan secured by a cattle ranch and a $953,000 loan secured by
a motel in Salida,  Colorado.  Substantially  all of the Bank's  commercial real
estate loans are secured by property  located  within the Bank's market area and
were current and performing at June 30, 2001.

     Commercial real estate loans generally have terms of up to 10 years and are
underwritten on either a fixed or adjustable-rate basis.  Commercial real estate
loans have a maximum 20-year amortizing,  although the term of the loan may be a
fixed  ten-year  balloon  loan.   Adjustable-rate  commercial  and  multi-family
mortgages  are  indexed  to the  prime  rate  and  adjust  on an  annual  basis.
Loan-to-value ratios may not exceed 70% of the appraised value of the underlying
property.  It is the  Bank's  policy  to  obtain  personal  guarantees  from all
principals  obtaining  commercial  real estate loans.  In assessing the value of
such  guarantees,   the  Bank  reviews  the  individuals'   personal   financial
statements, credit reports, tax returns and other financial information.

     Commercial  real  estate  lending  entails  significant   additional  risks
compared to residential  property  lending.  These loans typically involve large
loan balances to single  borrowers or groups of related  borrowers.  The payment
experience on such loans  typically is dependent on the successful  operation of
the real estate project or business.  These risks can be significantly  affected
by business  conditions  and by supply and demand  conditions  in the market for
office and retail  space,  and, as such,  may be subject to a greater  extent to
adverse conditions in the economy  generally.  To minimize these risks, the Bank
generally  limits this type of lending to its market area and to borrowers  with
which  it has  substantial  experience  or  who  are  otherwise  well  known  to
management.

     With certain limited exceptions,  the maximum amount that the Bank may lend
to any borrower  (including certain related entities of the borrower) at any one
time  may  not  exceed  15%  of  the  unimpaired  capital  and  surplus  of  the
institution,  plus an additional 10% of unimpaired capital and surplus for loans
fully secured by readily


                                       6
<PAGE>
marketable collateral.  At June 30, 2001, the maximum amount that the Bank could
have loaned to any one borrower  without  prior OTS  approval was  approximately
$2.3 million.  At June 30, 2001, the largest  aggregate amount of loans that the
Bank had  outstanding  to any one borrower and their related  interests was $2.2
million and consisted of four loans,  including a $964,000 commercial loan and a
$853,000  commercial  real estate loan secured by real estate located in Salida,
Colorado. The largest single loan outstanding was a $1.6 million loan secured by
a land development property, which is discussed above.

     COMMERCIAL  BUSINESS LOANS. At June 30, 2001, the Bank had $16.1 million in
commercial  business  loans which  represented  11.33% of the Bank's  gross loan
portfolio. The Bank is permitted to invest up to 20% of its assets in commercial
loans. The Bank's  commercial  business lending  activities are directed towards
small  businesses  located in its market area,  including those connected to the
tourism industry, such as recreational vehicle ("RV") dealers, rafting companies
and other tourist-related businesses.  Generally, the Bank's commercial business
loans are secured by assets such as inventory, equipment or other assets and are
guaranteed by the  principals of the business.  From time to time,  the Bank has
engaged in dealer  floor-plan  lending with a limited number of dealerships with
which the Bank has had substantial experience.  At June 30, 2001, the Bank had a
dealer  floor-plan  loan  of $1.1  million  and an  inventory/equipment  loan of
$964,000 to a rafting and retail  company.  Commercial  business  loans  usually
carry a fixed-rate and generally are underwritten for a maximum of five years.

     The Bank  underwrites  its  commercial  business  loans on the basis of the
borrower's  cash flow and ability to service the debt from earnings  rather than
on the basis of the  underlying  collateral  value,  and seeks to structure such
loans to have more than one source of  repayment.  The  borrower  is required to
provide  the Bank  with  sufficient  information  to allow  the Bank to make its
lending determination.  In most instances, this information consists of at least
three years of  financial  statements,  a  statement  of  projected  cash flows,
current financial information on any guarantor and any additional information on
the collateral.

     CONSUMER LOANS.  The Bank's consumer loans,  which totaled $15.4 million or
10.85% of the gross loan portfolio at June 30, 2001,  includes  primarily  loans
secured by deposit  accounts,  automobile loans and other personal loans,  which
represented 0.54%, 10.67%and 0.04% of its total loan portfolio, respectively, at
June 30,  2001.  The Bank also makes RV and boat loans,  tractor  loans and home
improvement loans pursuant to its consumer lending authority.

     The Bank makes deposit account loans up to 95% of the  depositor's  account
balance.  The interest  rate is normally 2.0% above the rate paid on the account
and the  account  must be pledged  as  collateral  to secure  the loan.  Savings
account  loans are  secured by demand  notes and  interest is due on a quarterly
basis. The Bank's  automobile  loans are generally  underwritten in amount up to
the purchase  price of the  automobile or the trade-in value as published by the
National  Automobile Dealers  Association.  The terms of such loans generally do
not exceed 60 months and vary  depending on the age of the vehicle  securing the
loan.  The Bank  requires the borrower to insure the  automobile  under a policy
listing the Bank as loss payee. The Bank also makes unsecured  personal loans of
up to $10,000. The terms of such loans do not exceed 12 months.

     In recent years,  the Bank has increased its consumer  lending,  especially
auto  loans,  by hiring a consumer  loan  officer,  and has also  increased  its
commercial  business  lending.  The Bank  intends to continue to  emphasize  the
origination  of consumer  loans,  especially  automobile  loans,  and commercial
business loans. Consumer loans and commercial business loans entail greater risk
than do residential  mortgage loans,  particularly in the case of consumer loans
or  commercial  business  loans  which  are  unsecured  or  secured  by  rapidly
depreciable assets such as automobiles,  RVs, boats, tractors and inventory.  In
such  cases,  any  repossessed  collateral  for a  defaulted  consumer  loan  or
commercial  business loan may not provide an adequate source of repayment of the
outstanding loan balance as a result of the greater  likelihood of damage,  loss
or  depreciation.  The  remaining  deficiency  often  does not  warrant  further
substantial collection efforts against the borrower. In addition,  consumer loan
collections are dependent on the borrower's continuing financial stability,  and
thus are more likely to be adversely affected by job loss,  divorce,  illness or
personal  bankruptcy for consumer loans, and economic  conditions for commercial
business loans. Furthermore,  the application of various federal and state laws,
including federal and state bankruptcy and insolvency laws, may limit the amount
which can be  recovered  on such loans.  Such loans may also give rise to claims
and  defenses by a borrower  against an assignee of such loans such as the Bank,
and a borrower may be able to assert  against such assignee  claims and defenses
which it has against the seller of the underlying  collateral.  These

                                       7
<PAGE>

additional risks could result in the Bank experiencing increased  delinquencies,
thereby incurring  additional  losses from its consumer and commercial  business
lending activities.

     LOAN SOLICITATION AND PROCESSING.  The Bank's mortgage loans have generally
been  originated by its loan  officers,  branch  managers and senior  management
officials.  Loan  originations are obtained from a number of sources,  including
existing and past  customers,  members of the local  community  and  established
builders and  realtors  within the Bank's  market  area.  Upon receipt of a loan
application  from a  prospective  borrower,  the Bank  reviews  the  information
provided  and  makes  an  initial  determination  as to  whether  certain  basic
underwriting standards regarding the type of property, debt-to-income ratios and
other credit  concerns are satisfied.  A credit report,  employment  history and
other evidence is obtained to verify certain  specific  information  relating to
the loan applicant's  employment,  income and credit  standing.  For real estate
loans, an appraisal of the property intended to secure the loan is undertaken by
an independent appraiser approved by the Bank. It is the Bank's policy to obtain
appropriate  insurance protection on all real estate first mortgage loans and to
obtain a lawyer's  opinion of title which  insures  that the property is free of
prior encumbrances.  The borrower must also obtain paid flood insurance when the
property is located in a flood plain as designated by the Federal Government. It
is the  Bank's  policy to record a lien on the real  estate  securing  the loan.
Borrowers generally are required to advance funds for certain items such as real
estate taxes, flood insurance and private mortgage insurance, when applicable.

     Secured  loans in amounts of up to $260,000  may be approved by two members
of the Bank's loan  committee.  All loans in excess of $500,000 must be approved
by the Board of Directors.  Branch Managers may approve  consumer loans of up to
$10,000,  or up to $30,000  with the  approval  of the  consumer  loan  officer.
Consumer  loans of up to  $100,000  may be  approved  by two members of the loan
committee,  while  consumer loans over $100,000 must be approved by four members
of the loan Committee. Commercial loans of up to $100,000 may be approved by two
members of the loan  committee,  while such loans over  $100,000 to $500,000 are
approved by three loan committee members and loans of $500,000 or over go to the
full Board.

     Loan applicants are promptly notified in writing of the Bank's decision. If
the loan is approved,  the notification  will provide that the Bank's commitment
will generally terminate within 30 days of the approval.  It has been the Bank's
experience that substantially all approved loans are funded.

     LOAN ORIGINATIONS, PURCHASES AND SALES. Historically, most loans originated
by the Bank have been held in the Bank's portfolio until maturity.  Beginning in
April  1999,  the Bank  began  ongoing  sales of new  fixed-rate  single  family
residential terms to the FHLMC. The sales to the FHLMC were done to increase fee
income, lower interest rate risk and compete with mortgage bankers.

                                       8
<PAGE>

     The  following  table sets forth  certain  information  with respect to the
Bank's loan  origination  activity for the periods  indicated.  The Bank has not
purchased any loans in the periods presented.
<TABLE>
<CAPTION>
                                                                     At June 30,
                                                              --------------------------
                                                                2001              2000
                                                              --------          --------
                                                                      (In thousands)
<S>                                                           <C>               <C>
Net loans, beginning of period..............................  $ 119,898         $ 98,433

Origination by type:
-------------------

Mortgage loans:
   One- to four-family......................................     45,055           39,117
   Commercial...............................................     13,593           11,288
   Land development.........................................      6,773            3,492
Consumer loans..............................................      9,418           10,034
Loans on savings accounts...................................        633              308
Commercial loans............................................     10,420           11,717
                                                              ---------         --------
     Total loans originated.................................     85,892           75,956
                                                              ---------         --------
Loans sold..................................................    (28,044)         (11,994)
                                                              ---------         --------
Repayments..................................................    (41,245)         (43,767)
                                                              ---------         --------
Decrease (increase) in other items, net.....................        333            1,270
                                                              ---------         --------
     Net increase (decrease) in loans receivable, net.......     16,936           21,465
                                                              ---------         --------
Net loans, end of period....................................  $ 136,834         $119,898
                                                              =========         ========
</TABLE>
     NONPERFORMING  LOANS AND OTHER PROBLEM ASSETS. It is management's policy to
continually  monitor its loan portfolio to anticipate and address  potential and
actual  delinquencies.  When a borrower  fails to make a payment on a loan,  the
Bank takes immediate  steps to have the delinquency  cured and the loan restored
to current  status.  Loans which are delinquent 15 days incur a late fee of 5.0%
of principal and interest due. As a matter of policy,  the Bank will contact the
borrower after the loan has been  delinquent 30 days. If payment is not promptly
received,  the borrower is contacted again, and efforts are made to formulate an
affirmative  plan  to  cure  the  delinquency.  Generally,  after  any  loan  is
delinquent 90 days or more,  formal legal  proceedings  are commenced to collect
amounts owed. Loans are placed on nonaccrual status if the loan becomes past due
more than 90 days  unless  such  loans are  well-secured  and in the  process of
collection.  Loans  are  charged  off when  management  concludes  that they are
uncollectible.  See Note 1 of  Notes to  Financial  Statements  included  in the
Company's 2001 Annual Report to Stockholders.

     Real estate  acquired by the Bank as a result of  foreclosure is classified
as real estate acquired through  foreclosure until such time as it is sold. When
such property is acquired,  it is initially recorded at estimated fair value and
subsequently  at the lower of book value or fair value,  less estimated costs to
sell.  Costs relating to holding such real estate are charged  against income in
the current  period,  while costs  relating  to  improving  such real estate are
capitalized until a saleable  condition is reached.  Any required  write-down of
the loan to its fair value less  estimated  selling  costs upon  foreclosure  is
charged against the allowance for loan losses.


                                       9
<PAGE>

     The  following  table sets  forth  information  with  respect to the Bank's
nonperforming assets at the dates indicated.  Further, no loans were recorded as
restructured loans within the meaning of SFAS No. 15 at the dates indicated.
<TABLE>
<CAPTION>
                                                                     At June 30,
                                                              --------------------------
                                                                2001              2000
                                                              --------          --------
                                                                     (In thousands)
<S>                                                           <C>               <C>
Loans accounted for on a nonaccrual basis:
 Real estate:
    One- to four-family.....................................  $     124         $    378
    Commercial..............................................        220               --
    Land development........................................         12               --
 Consumer...................................................        112               41
 Commercial.................................................        253              114
 Other......................................................         --               --
                                                              ---------         --------
        Total...............................................        721              533
                                                              ---------         --------
Accruing loans delinquent 90 days or more:
 Real estate:
    One- to four-family.....................................  $      --         $     --
    Commercial..............................................        401               --
    Land development........................................        660               --
  Consumer..................................................         --              149
 Commercial.................................................         --               --
 Other......................................................         --               --
                                                              ---------         --------
        Total...............................................      1,061              149
                                                              ---------         --------
            Total nonperforming loans.......................      1,782              682
                                                              ---------         --------
Repossessed assets..........................................          7               18
                                                              ---------         --------
Total nonperforming assets..................................  $   1,789         $    700
                                                              =========         ========
Total nonperforming loans as a
  percentage of total net loans.............................      1.31%             0.57%
                                                              ========          ========
Total nonperforming assets as a
  percentage of total assets................................      1.11%             0.51%
                                                              ========          ========
</TABLE>
     At June 30, 2001, the Bank had $1.8 million in loans  outstanding that were
classified as  nonperforming,  of which $672,000 were land loans,  $621,000 were
commercial real estate loans,  $253,000 were commercial loans,  $124,000 were by
one- to  four-family  loans and  $112,000  were  automobile  loans.  The largest
nonperforming  loan of $660,000 is secured by developed  residential lots and is
currently in  foreclosure.  The Bank does not anticipate a loss on this loan due
to the  property  value and the  presence of a second lien  holder.  At June 30,
2001, the Bank also had one $182,000  commercial  real estate loan which was not
included with the  nonperforming  loans,  but to which known  information  about
possible credit problems of borrowers caused management to have serious concerns
as to the ability of the borrowers to comply with present loan  repayment  terms
and may result in disclosure as nonaccrual, 90 days past due or restructured.

     Federal regulations  require savings  institutions to classify their assets
on the  basis  of  quality  on a  regular  basis.  An asset  meeting  one of the
classification  definitions  set forth  below may be  classified  and still be a
performing loan. An asset is classified as substandard if it is determined to be
inadequately  protected by the current retained  earnings and paying capacity of
the obligor or of the  collateral  pledged,  if any. An asset is  classified  as
doubtful if full collection is highly  questionable  or improbable.  An asset is
classified as loss if it is considered uncollectible, even if a partial recovery
could be expected  in the future.  The  regulations  also  provide for a special
mention designation, described as assets which do not currently expose a savings
institution  to a  sufficient  degree of risk to warrant  classification  but do
possess credit deficiencies or potential weaknesses deserving management's close
attention.  Such assets designated as special mention may include  nonperforming
loans consistent with the above definition.  Assets classified as substandard or
doubtful require a savings  institution to establish general allowances for loan
losses. If an asset or portion thereof is classified loss, a savings institution
must either establish
                                       10
<PAGE>
a  specific  allowance  for  loss in the  amount  of the  portion  of the  asset
classified loss, or charge off such amount.  Federal examiners may disagree with
a savings institution's classifications. If a savings institution does not agree
with an examiner's  classification of an asset, it may appeal this determination
to the OTS Regional Director. The Bank regularly reviews its assets to determine
whether any assets require classification or reclassification. At June 30, 2001,
the Bank had $1.1 million in assets classified as special mention,  $2.0 million
in assets  classified as substandard,  $30,000 in assets  classified as doubtful
and no  assets  classified  as  loss.  The  special  mention  classification  is
primarily used by management as a "watch list" to monitor loans that exhibit any
potential deviation in performance from the contractual terms of the loan.

     ALLOWANCE FOR LOAN LOSSES.  In originating  loans, the Bank recognizes that
credit  losses  will be  experienced  and that the risk of loss will vary  with,
among other things,  the type of loan being made,  the  creditworthiness  of the
borrower over the term of the loan, general economic conditions and, in the case
of a secured loan, the quality of the security for the loan. It is  management's
policy to maintain an adequate  allowance  for loan losses based on, among other
things,  the  Bank's  and  the  industry's   historical  loan  loss  experience,
evaluation of economic  conditions,  regular reviews of  delinquencies  and loan
portfolio quality and evolving standards imposed by federal bank examiners.  The
Bank  increases its allowance  for loan losses by charging  provisions  for loan
losses  against the Bank's  income.  During fiscal 2001,  the Bank increased its
allowance for loan losses by $385,000 to $1.3 million at June 30, 2001. The Bank
took this action due to the continued  significant increase in land development,
commercial  real estate,  commercial  business and consumer loans and due to the
additional risks inherent in these types of lending.

     Management  will continue to actively  monitor the Bank's asset quality and
allowance  for loan  losses.  Management  will  charge off loans and  properties
acquired in settlement of loans against the  allowances for losses on such loans
and such properties when  appropriate and will provide  specific loss allowances
when  necessary.  Although  management  believes  it uses the  best  information
available to make  determinations  with respect to the allowances for losses and
believes such  allowances are adequate,  future  adjustments may be necessary if
economic  conditions differ  substantially  from the economic  conditions in the
assumptions used in making the initial determinations.

     The Bank's methodology for establishing the allowance for loan losses takes
into consideration  probable losses that have been identified in connection with
specific  assets as well as  losses  that  have not been  identified  but can be
expected to occur.  Management conducts regular reviews of the Bank's assets and
evaluates  the  need to  establish  allowances  on the  basis  of  this  review.
Allowances are  established by the Board of Directors on a quarterly basis based
on an  assessment of risk in the Bank's  assets  taking into  consideration  the
composition and quality of the portfolio, delinquency trends, current charge-off
and loss experience,  loan concentrations,  the state of the real estate market,
regulatory reviews conducted in the regulatory  examination process and economic
conditions generally.  Specific reserves will be provided for individual assets,
or portions of assets,  when ultimate  collection  is  considered  improbable by
management  based on the current payment status of the assets and the fair value
of the security.  At the date of  foreclosure  or other  repossession,  the Bank
would  transfer  the  property to real estate  acquired in  settlement  of loans
initially at the lower of cost or estimated fair value and  subsequently  at the
lower of book value or fair value less estimated  selling costs.  Any portion of
the  outstanding  loan  balance in excess of fair value less  estimated  selling
costs  would be charged  off against the  allowance  for loan  losses.  If, upon
ultimate disposition of the property, net sales proceeds exceed the net carrying
value of the property, a gain on sale of real estate would be recorded.

     Banking  regulatory  agencies,  including  the OTS,  have  adopted a policy
statement  regarding  maintenance  of an adequate  allowance  for loan and lease
losses and an  effective  loan  review  system.  The Bank's  policy  includes an
analysis of individual  commercial loans over $100,000 for sufficient collateral
and cash flow.  Allowances are added for loans with insufficient  collateral and
cash flow. The commercial  loans reviewed  represent over half of the commercial
loan portfolio.  Allowances are also added for classified  assets.  Depending on
the  severity  of  classification,  allowances  of  5% to  50%  are  applied  to
classified assets.  Finally, the Bank's and industry loss histories are reviewed
to  determine  an  allowance  for  loans  not  currently  classified.  The total
allowance is  considered  neither a "floor" nor a "safe  harbor" of the level of
allowance for loan losses an  institution  should  maintain,  but examiners will
view a shortfall relative to the amount as an indication that they should review
management's  policy on allocating these  allowances to determine  whether it is
reasonable  based on all relevant

                                       11
<PAGE>

facts.  This amount is  considered  neither a "floor" nor a "safe harbor" of the
level of allowance for loan losses an institution should maintain, but examiners
will view a shortfall  relative to the amount as an indication  that they should
review  management's  policy on allocating these allowances to determine whether
it is reasonable based on all relevant factors.

          The following table sets forth an analysis of the Bank's allowance for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
                                                                 Year Ended June 30,
                                                              --------------------------
                                                                2001              2000
                                                              --------          --------
                                                                    (In thousands)
<S>                                                           <C>               <C>
Balance at beginning of period..............................  $   1,003         $    909
                                                              ---------         --------
Charge-offs:
  One- to four-family.......................................         --               (6)
  Multi-family..............................................         --               --
  Non-residential...........................................         --               --
  Construction..............................................         --               --
  Consumer..................................................        (41)              --
  Commercial................................................         --              (48)
  Other.....................................................         --              (66)
                                                              ---------         --------
                                                                    (41)            (120)
                                                              ---------         --------
Recoveries..................................................          1                4
                                                              ---------         --------
Net recoveries (charge-offs)................................        (40)            (116)
                                                              ---------         --------
Additions charged to operations.............................        385              210
                                                              ---------         --------
Balance at end of period....................................  $   1,348         $  1,003
                                                              =========         ========
Allowance for loan losses to total
  nonperforming loans at end of period......................      75.64%          147.07%
                                                              =========          =======
Allowance for loan losses to net loans
  at end of period..........................................       0.99%            0.84%
                                                              =========          =======
</TABLE>

     The  following  table  allocates  the  allowance  for loan  losses  by loan
category  at the  dates  indicated.  The  allocation  of the  allowance  to each
category is not  necessarily  indicative  of future losses and does not restrict
the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
                                                                            June 30,
                                                    -------------------------------------------------------
                                                              2001                       2000
                                                     ---------------------------  -------------------------
                                                                     Percent of                  Percent of
                                                                      Loans to                     Loans to
                                                                    Category to                  Category to
                                                     Amount         Total Loans   Amount         Total Loans
                                                     ------         -----------   ------         -----------
                                                                     (Dollars in thousands)
<S>                                                  <C>                 <C>      <C>                 <C>
Mortgage loans:
   Residential.....................................  $     100           7.42%    $    186            18.54%
   Commercial......................................        175          12.98          121            12.06
   Land............................................         19           1.41           49             4.89
Consumer loans.....................................        292          21.66          267            26.62
Commercial loans...................................        762          56.53          380            37.89%
                                                     ---------         ------     --------            -----
                                                     $   1,348         100.00%    $  1,003           100.00%
                                                     =========         ======     ========           ======
</TABLE>

                                       12
<PAGE>
INVESTMENT ACTIVITIES

     GENERAL.   The  Bank  is  permitted  under  federal  law  to  make  certain
investments,  including  investments  in  securities  issued by various  federal
agencies and state and  municipal  governments,  deposits at the FHLB of Topeka,
certificates  of deposit in federally  insured  institutions,  certain  bankers'
acceptances  and  federal  funds.  It  may  also  invest,   subject  to  certain
limitations,  in  commercial  paper rated in one of the two  highest  investment
rating categories of a nationally  recognized credit rating agency,  and certain
other types of corporate debt securities and mutual funds.

     The Bank makes  investments  in order to manage  cash flow,  diversify  its
assets,  obtain yield, for  asset/liability  management  purposes and to satisfy
certain requirements for favorable tax treatment.  The investment  activities of
the Bank consist  primarily of  investments  in  mortgage-backed  securities and
other investment securities,  consisting primarily of interest-bearing  deposits
and  securities  issued  by  the  U.S.  Treasury.  Typical  investments  include
federally sponsored agency mortgage  pass-through and federally sponsored agency
and mortgage-related securities. Investment and aggregate investment limitations
and credit quality  parameters of each class of investment are prescribed in the
Bank's  investment  policy.  The  Bank  performs  analyses  on  mortgage-related
securities  prior to purchase and on an ongoing basis to determine the impact on
earnings and market value under various interest rate and prepayment conditions.
Under  the  Bank's  current  investment  policy,  securities  purchases  must be
approved by the Bank's Investment Committee.  The Board of Directors reviews all
securities transactions on a monthly basis.

     Pursuant  to SFAS  No.  115,  the  Bank  had no  securities  classified  as
"available for sale" at June 30, 2000 and 2001.  Securities  designated as "held
to maturity"  are those assets which the Bank has the ability and intent to hold
to  maturity.  Upon  acquisition,  securities  are  classified  as to the Bank's
intent,  and a sale  would  only be  effected  due to  deteriorating  investment
quality.  The held to maturity investment  portfolio is not used for speculative
purposes  and is  carried  at  amortized  cost.  In the  event  the  Bank  sells
securities  from this  portfolio  for other than  credit  quality  reasons,  all
securities within the investment portfolio with matching  characteristics may be
reclassified as assets available for sale.  Securities  designated as "available
for sale" are those  assets which the Bank may not hold to maturity and thus are
carried at market  value with  unrealized  gains or losses,  net of tax  effect,
recognized in retained earnings.

     INTEREST BEARING DEPOSITS.  Interest bearing deposits represent deposits at
the FHLB of Topeka.  The deposits include $5.0 million in overnight deposits and
$4.2 million in an interest earning demand deposit  account.  The large increase
from the previous year was the result of  significant  refinancing  of portfolio
loans and the subsequent sale to FHLMC. In the upcoming months,  these funds may
be used for FHLB advance repayment,  seasonal deposit  withdrawals,  loan demand
and investment purchases.

     MORTGAGE-BACKED   AND  RELATED   SECURITIES.   Mortgage-backed   securities
represent a participation  interest in a pool of  single-family  or multi-family
mortgages,  the  principal  and  interest  payments on which are passed from the
mortgage  originators  through   intermediaries  that  pool  and  repackage  the
participation  interest in the form of securities to investors such as the Bank.
Such intermediaries include  quasi-governmental  agencies such as the FHLMC, the
Federal  National  Mortgage  Association  ("FNMA") and the  Government  National
Mortgage  Association  ("GNMA")  which  guarantee  the payment of principal  and
interest   to   investors   and  from  all  of  whom  the  Bank  has   purchased
mortgage-backed  securities.  Mortgage-backed  securities generally increase the
quality of the Bank's  assets by virtue of the  guarantees  that back them,  are
more  liquid than  individual  mortgage  loans and may be used to  collateralize
borrowings or other obligations of the Bank.

     Mortgage-related  securities  typically  are issued with  stated  principal
amounts and the securities are backed by pools of mortgages that have loans with
interest  rates  that  are  within  a range  and have  similar  maturities.  The
underlying   pool  of  mortgages  can  be  composed  of  either   fixed-rate  or
adjustable-rate  mortgage  loans.   Mortgage-backed   securities  generally  are
referred to as mortgage participation certificates or pass-through certificates.
As a result,  the interest rate risk  characteristics  of the underlying pool of
mortgages, i.e., fixed-rate or adjustable-rate,  as well as prepayment risk, are
passed on to the certificate holder. The life of a mortgage-backed  pass-through
security is equal to the life of the underlying mortgages.

                                       13
<PAGE>

     The actual maturity of a mortgage-backed security varies, depending on when
the  mortgagors  prepay or repay the  underlying  mortgages.  Prepayments of the
underlying  mortgages may shorten the life of the investment,  thereby adversely
affecting   its  yield  to  maturity  and  the  related   market  value  of  the
mortgage-backed  security.  The yield is based upon the interest  income and the
amortization  of the  premium  or  accretion  of  the  discount  related  to the
mortgage-backed security.  Premiums and discounts on mortgage-backed  securities
are amortized or accredited  over the estimated term of the  securities  using a
level  yield  method.   The  prepayment   assumptions   used  to  determine  the
amortization  period for premiums and  discounts  can  significantly  affect the
yield of the  mortgage-backed  security,  and  these  assumptions  are  reviewed
periodically  to reflect the actual  prepayment.  The actual  prepayments of the
underlying mortgages depend on many factors, including the type of mortgage, the
coupon  rate,  the  age of  the  mortgages,  the  geographical  location  of the
underlying  real estate  collateralizing  the  mortgages  and general  levels of
market  interest  rates.  The  difference  between  the  interest  rates  on the
underlying  mortgages and the prevailing mortgage interest rates is an important
determinant  in the rate of  prepayments.  During  periods of  falling  mortgage
interest rates, prepayments generally increase, and, conversely,  during periods
of rising mortgage interest rates, prepayments generally decrease. If the coupon
rate of the underlying  mortgage  significantly  exceeds the  prevailing  market
interest rates offered for mortgage loans,  refinancing  generally increases and
accelerates the prepayment of the underlying mortgages. Prepayment experience is
more difficult to estimate for adjustable-rate mortgage-backed securities.

     The Bank's  mortgage-backed  securities  portfolio  consists solely of $2.2
million in  mortgage-backed  securities of which $6,000 had fixed interest rates
and $2.2 million had adjustable  interest rates at June 30, 2001. The Bank makes
such  investments  in order to manage cash flow,  mitigate  interest  rate risk,
diversify  assets,  obtain yield, to satisfy certain  requirements for favorable
tax treatment and to satisfy the qualified  thrift lender test. See  "Regulation
of the Bank -- Qualified Thrift Lender Test."

     The  following  table  sets  forth  the  carrying  value  of the  Company's
investment securities at the dates indicated.
<TABLE>
<CAPTION>
                                                                     At June 30,
                                                              --------------------------
                                                                2001              2000
                                                              --------          --------
                                                                      (In thousands)
<S>                                                           <C>               <C>
School district securities..................................  $      --         $    200
Interest-bearing deposits...................................      9,176            1,321
Mortgage-backed securities..................................      2,221            2,643
Federal Home Loan Bank stock................................      2,422            1,857
                                                              ---------         --------
      Total.................................................  $  13,819         $  6,021
                                                              =========         ========
</TABLE>
     The following  table sets forth  information  in the scheduled  maturities,
amortized  cost,  market values and average yields for the Company's  investment
portfolio at June 30, 2001.
<TABLE>
<CAPTION>
                                                                                                      Total Investment
                                    One Year or Less      One to Five Years       Over Five Years        Portfolio
                                   -------------------    ------------------      ----------------    ---------------
                                              Weighted              Weighted              Weighted           Weighted
                                   Book       Average     Book      Average       Book     Average    Book    Average
                                   Value       Yield      Value      Yield        Value     Yield     Value    Yield
                                   -----      --------    -----     ---------     -----   --------    -----  --------
                                                               (Dollars in thousands)
<S>                                 <C>       <C>         <C>        <C>          <C>       <C>       <C>        <C>
School district securities.......   $   --      -- %      $   --       -- %       $   --      -- %   $    --    0.00%
Interest-bearing deposits........    9,176     2.71           --       --             --      --        9,176    2.71
Mortgage-backed securities.......       --      --            --       --          2,221     7.53       2,221    7.53
Federal Home Loan Bank stock.....       --      --            --       --          2,422     7.10       2,422    7.10
                                    ------                ------                  ------              -------
Total investment securities......   $9,176                $   --                  $4,643              $13,819    4.25
                                    ======                ======                  ======              =======
</TABLE>
                                       14
<PAGE>
DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS

     GENERAL.  Deposits are the primary  source of the Bank's funds for lending,
investment activities and general operational purposes. In addition to deposits,
the Bank derives funds from loan principal and interest  repayments,  maturities
of investment  securities and  mortgage-backed  securities and interest payments
thereon.  Although  loan  repayments  are a relatively  stable  source of funds,
deposit inflows and outflows are  significantly  influenced by general  interest
rates and money market conditions.  Borrowings may be used on a short-term basis
to compensate for reductions in the  availability  of funds, or on a longer term
basis for general operational  purposes.  The Bank has access to borrow from the
FHLB of Topeka.

     DEPOSITS.  The Bank attracts  deposits  principally  from within its market
area by offering competitive rates on its deposit  instruments,  including money
market accounts, passbook savings accounts,  Individual Retirement Accounts, and
certificates  of deposit  which  range in  maturity  from three  months to eight
years. Deposit terms vary according to the minimum balance required,  the length
of time the funds must  remain on deposit  and the  interest  rate.  Maturities,
terms,  service  fees and  withdrawal  penalties  for its deposit  accounts  are
established  by the Bank on a periodic  basis.  The Bank reviews its deposit mix
and pricing on a weekly basis. In determining the characteristics of its deposit
accounts,  the Bank  considers  the rates  offered  by  competing  institutions,
lending  requirements,  growth goals and federal regulations.  The Bank does not
accept  brokered  deposits,  but does  accept  jumbo  deposits  from its regular
customers.

     The Bank  attempts to compete for deposits with other  institutions  in its
market  area by  offering  competitively  priced  deposit  instruments  that are
tailored  to the needs of its  customers.  Additionally,  the Bank seeks to meet
customers'  needs by providing  convenient  customer  service to the  community,
efficient staff and convenient hours of service. Substantially all of the Bank's
depositors are Colorado residents who reside in the Bank's market area.

     The  following  table sets forth the change in dollar amount of deposits in
the various types of accounts offered by the Bank between the dates indicated.
<TABLE>
<CAPTION>
                                          Balance at                                 Balance at
                                            June 30,      % of          Increase      June 30,       % of
                                             2001       Deposits       (Decrease)      2000        Deposits
                                         ------------   --------       ----------    ---------     --------
                                                                (Dollars in thousands)
<S>                                       <C>             <C>          <C>           <C>           <C>
Noninterest bearing demand.............   $  6,742        6.84%        $    (582)    $   7,324       8.85%
NOW accounts...........................     19,132       19.42             4,304        14,828      17.91
Money market and savings...............     23,066       23.41             4,059        19,007      22.96
Certificates of deposit................     35,677       36.22             5,172        30,505      36.86
Jumbo certificates.....................     13,900       14.11             2,794        11,106      13.42
                                          --------      ------         ---------     ---------      -----
                                         $  98,517      100.00%        $  15,747     $  82,770     100.00%
                                         =========      ======         =========     =========     ======
</TABLE>
     The following  tables set forth the average  balances and average  interest
rates based on month-end  balances for various types of deposits as of the dates
indicated.
<TABLE>
<CAPTION>
                                                                   Year Ended June 30,
                                                        ---------------------------------------------
                                                               2001                   2000
                                                        --------------------   ----------------------
                                                        Average     Average    Average     Average
                                                        Balance      Rate (1)  Balance        Rate
                                                        -------     ---------  -------     ----------
                                                                   (Dollars in thousands)

         <S>                                            <C>             <C>    <C>            <C>
         Noninterest bearing demand...................  $    7,046      0.00%  $  5,666       0.00%
         NOW..........................................      17,162      1.17     14,831       1.12
         Money market deposits........................      21,476      3.20     18,401       3.10
         Certificates of deposit......................      30,971      5.87     26,527       5.51
         Jumbo certificates...........................      14,338      6.54     12,608       5.88
                                                        ----------             --------
             Total....................................  $   90,993      4.00   $ 78,033       3.77
                                                        ==========             ========
<FN>
--------
(1)  Annualized.
</FN>
</TABLE>
                                       15
<PAGE>

     The  following  table  indicates the amount of the Bank's  certificates  of
deposit of  $100,000  or more by time  remaining  until  maturity as of June 30,
2001.

                                                       Certificates
         Maturity Period                                of Deposits
         ---------------                                -----------
                                                        (In thousands)

         Three months or less..........................  $  3,609
         Over three through six months.................     3,155
         Over six through 12 months....................     3,885
         Over 12 months................................     3,251
                                                         --------
         Total.........................................  $ 13,900
                                                         ========


     The following  table sets forth the savings  activities of the Bank for the
periods indicated.
<TABLE>
<CAPTION>
                                                                      At June 30,
                                                              --------------------------
                                                                2001              2000
                                                              --------          --------
                                                                      (In thousands)
<S>                                                           <C>               <C>
Opening balance.............................................  $  82,770         $ 72,604
Net increase (decrease) before interest credited............     12,741            7,844
Interest credited...........................................      3,006            2,322
                                                              ---------         --------
    Ending balance..........................................  $  98,517         $ 82,770
                                                              =========         ========

Net increase (decrease).....................................  $  15,747         $ 10,166
                                                              =========         ========

Percent increase (decrease).................................     19.03%            14.00%
                                                              ========          ========
</TABLE>
     BORROWINGS.  Savings deposits  historically have been the primary source of
funds for the Bank's lending,  investments and general operating activities. The
Bank is  authorized,  however,  to use  advances  from  the  FHLB of  Topeka  to
supplement  its  supply  of  lendable  funds  and  to  meet  deposit  withdrawal
requirements.  The FHLB of Topeka  functions as a central reserve bank providing
credit for savings institutions and certain other member financial institutions.
As a member of the FHLB System, the Bank is required to own stock in the FHLB of
Topeka and is authorized to apply for advances. Advances are pursuant to several
different  programs,  each of  which  has its own  interest  rate  and  range of
maturities.  The Bank has a Blanket  Agreement  for advances with the FHLB under
which at June 30, 2001,  allowed  borrowings of $47.4 million  subject to normal
collateral  underwriting  requirements.  Advances  from the FHLB of  Topeka  are
secured by residential  first mortgage loans and commercial real estate mortgage
loans.

     At June 30, 2001,  the Bank had an approved line of credit with the FHLB of
Topeka, which the Bank has not drawn. In addition, as of June 30, 2001, the Bank
had $44.1  million in FHLB  advances  outstanding  of which $4.5 million were at
interest rates which range from 5.42% to 6.96% and mature within one year; $10.0
million  were at  interest  rates  which range from 5.49% to 7.05% and mature in
2003;  $7.5  million  were at an  interest  rate of 5.14% to 6.91% and mature in
2004;  $5.5  million at an  interest  rate  which  range from 5.62% to 7.34% and
mature in 2005;  $3.5  million  were at an  interest  rate of 5.54% to 6.98% and
mature in 2006;  $2.0  million  were at an  interest  rate of 5.74% to 6.10% and
mature in 2008;  $4.1  million  were at an  interest  rate of 5.42% to 5.77% and
mature in 2009;  and $7.0 million were at an interest rate of 5.37% to 5.93% and
mature in 2011.

SUBSIDIARY ACTIVITIES

     As a federally  chartered  savings bank, the Bank is permitted to invest an
amount equal to 2% of its assets in subsidiaries,  with an additional investment
of 1% of assets where such investment serves primarily community, inner-city and
community development purposes. Under such limitations, as of June 30, 2001, the
Bank was authorized to invest up to  approximately  $4.8 million in the stock of
or loans to  subsidiaries,  including the additional

                                       16
<PAGE>

1% investment  for community  inner-city  and  community  development  purposes.
Institutions  meeting their applicable minimum  regulatory capital  requirements
may invest up to 50% of their  regulatory  capital in conforming  first mortgage
loans to subsidiaries in which they own 10% or more of the capital stock.

     In November 1999,  the Bank  incorporated  a new  subsidiary,  High Country
Title and Escrow  Company.  High Country Title is offering  title  insurance and
escrow closing  services within the Bank's market area. As of June 30, 2001, the
Bank's  investment  in High  Country  Title was  $260,000 or 0.16% of the Bank's
assets.  High Country  Title  reported a net gain before taxes of $3,000 for the
year ended June 30, 2001.

MARKET AREA

     The Bank's market area for gathering  deposits and making loans is Chaffee,
Lake,  Western Fremont and Saguache  Counties in Colorado,  which are located in
central Colorado.

     Tourism related  businesses are the base of the market area's economy.  The
primary  employers  in  the  market  area  are  the  tourism  industry  and  the
government.  As of 2000,  the  market  area had a  population  of  approximately
30,000.  Major  employers  in  the  area  include  the  Colorado  Department  of
Corrections, the Heart of the Rockies Medical Center, local school districts and
governments  and Wal Mart. In addition,  the area is a frequent  destination for
retirees, self-employed individuals and telecommuters who wish to take advantage
of the  recreation  and  beauty  that the Rocky  Mountains  offer.  Major  towns
(population) in the market area include Salida (5,500),  Buena Vista (2,200) and
Leadville (2,800).

COMPETITION

     The Company has no significant  business,  except the business of the Bank.
The Bank faces strong  competition  both in originating real estate and consumer
loans and in  attracting  deposits.  The Bank competes for real estate and other
loans  principally  on the  basis  of  interest  rates,  the  types  of loans it
originates,  the  deposit  products  it offers and the  quality of  services  it
provides to  borrowers.  The Bank also competes by offering  products  which are
tailored to the local  community.  Its  competition in  originating  real estate
loans comes primarily from other  commercial  banks and mortgage  bankers making
loans  secured by real  estate  located in the Bank's  market  area.  Commercial
banks,  credit unions and finance  companies  provide  vigorous  competition  in
consumer  lending.  Competition  may  increase  as a  result  of the  continuing
reduction  of   restrictions   on  the   interstate   operations   of  financial
institutions.

     The Bank attracts its deposits through its offices primarily from the local
communities  of  the  offices.   Consequently,   competition   for  deposits  is
principally from other savings institutions, commercial banks and brokers in the
local  communities as well as from the corporate  credit unions sponsored by the
large  private  employers  in the Bank's  market  area.  The Bank  competes  for
deposits  and loans by  offering  what it  believes  to be a variety  of deposit
accounts at  competitive  rates,  convenient  business  hours,  a commitment  to
outstanding  customer service and a well-trained staff. The Bank believes it has
developed strong relationships with local realtors and the community in general.

     Management  considers its market area for gathering deposits to be Chaffee,
Lake, Western Fremont and Saguache counties in Colorado. The Bank estimates that
it competes with five banks, and two credit unions for deposits and loans. Based
on data  provided  by the FDIC,  the Bank  estimates  that as of June 2000,  the
latest date for which information was available,  it had 29.72% of deposits held
by all financial institutions in its market area.

EMPLOYEES

     As of June 30, 2001, the Bank had 66 full-time and one part-time  employee,
and  High  Country  Title  had  six  full-time  employees,  none  of  whom  were
represented  by a collective  bargaining  agreement.  Management  considers  the
Bank's relationships with its employees to be good.


                                       17
<PAGE>
REGULATION OF THE BANK

     GENERAL. The Bank is a federally chartered savings institution, is a member
of the FHLB of Topeka and its deposits are insured by the FDIC through the SAIF.
As a  federal  savings  institution,  the  Bank is  subject  to  regulation  and
supervision  by the OTS and  the  FDIC  and to OTS  regulations  governing  such
matters  as  capital  standards,  mergers,   establishment  of  branch  offices,
subsidiary investments and activities and general investment authority.  The OTS
periodically   examines  the  Bank  for  compliance   with  various   regulatory
requirements and for safe and sound operations.  The FDIC also has the authority
to conduct special  examinations of the Bank because its deposits are insured by
the SAIF.  The Bank must file reports with the OTS describing its activities and
financial  condition  and must obtain the  approval of the OTS prior to entering
into  certain  transactions,  such as  mergers  with or  acquisitions  of  other
depository institutions.

     As a  federally  insured  depository  institution,  the Bank is  subject to
various  regulations   promulgated  by  the  Federal  Reserve  Board,  including
Regulation B (Equal Credit  Opportunity),  Regulation D (Reserve  Requirements),
Regulations  E  (Electronic  Fund  Transfers),  Regulation Z (Truth in Lending),
Regulation CC (Availability of Funds and Collection of Checks) and Regulation DD
(Truth in Savings).

     The system of regulation and supervision applicable to the Bank establishes
a  comprehensive  framework  for the  operations  of the  Bank  and is  intended
primarily  for the  protection  of the  depositors  of the Bank.  Changes in the
regulatory framework could have a material effect on the Bank and its operations
that in turn, could have a material adverse effect on the Company.

     CAPITAL REQUIREMENTS.  OTS capital regulations require savings institutions
such as the Bank to meet three minimum capital standards: (1) "tangible" capital
of at least 1.5% of adjusted total assets, (2) Tier 1 or "core" capital equal to
at least 4.0% (or 3.0% if the  institution has a composite 1 CAMELS rating under
the  OTS  examination   rating  system)  of  adjusted  total  assets,   and  (3)
"risk-based" capital of at least 8% of total risk-weighted  assets. In addition,
the OTS has adopted  regulations which impose certain  restrictions on a savings
institutions  that have a total  risk-based  capital  ratio of less than 8.0%, a
ratio of Tier 1 capital  to  risk-weighted  assets of less than 4% or a ratio of
Tier 1 capital  to total  assets of less than 4%, (or 3% if the  institution  is
rated  composite 1 CAMELS  under the OTS  examination  rating  system).  See "--
Prompt Corrective Regulatory Action."

     For the purposes of this regulation,  Tier 1 and core capital is defined as
common  stockholders'   equity  (including  retained  earnings),   noncumulative
perpetual preferred stock and related surplus,  minority interests in the equity
accounts of fully consolidated  subsidiaries,  certain nonwithdrawable  accounts
and pledged deposits of mutual savings  institutions and qualifying  supervisory
goodwill.  Tangible  capital is given the same  definition as core capital,  but
does not include an exception for qualifying supervisory goodwill and is reduced
by the amount of all the  savings  institution's  intangible  assets with only a
limited  exception for mortgage  servicing  rights.  Tier 1 and core capital are
generally reduced by the amount of the savings  institution's  intangible assets
for which no market  exists.  Limited  exceptions to the deduction of intangible
assets are provided for mortgage and  nonmortgage  servicing  rights,  purchased
credit card  relationships and qualifying  supervisory  goodwill.  Both core and
tangible  capital  are  further  reduced  by an  amount  equal  to  the  savings
institution's debt and equity investments in nonincludable  subsidiaries engaged
in activities not permissible to national banks (other than subsidiaries engaged
in  activities  undertaken  as  agent  for  customers  or  in  mortgage  banking
activities and subsidiary  depository  institutions or their holding companies).
At June 30, 2001, the Bank had no such investments.

     Adjusted  total  assets  are  a  savings   institution's  total  assets  as
determined under generally accepted accounting principles,  increased by certain
goodwill  amounts  and by a pro rated  portion of the  assets of  unconsolidated
includable  subsidiaries  in which  the  savings  institution  holds a  minority
interest.  Adjusted  total  assets are reduced by the amount of assets that have
been deducted from capital,  the  investments in any  unconsolidated  includable
subsidiary  in which the savings  institutions  has minority  interest  and, for
purposes of the core capital requirement, qualifying supervisory goodwill.

     In  determining  compliance  with the  risk-based  capital  requirement,  a
savings  institution  is  allowed  to use both core and  supplementary  capital,
provided  the amount of  supplementary  capital used does not exceed the savings
institution's  core capital.  Total capital  equals the sum of core capital plus
supplementary  capital.


                                       18
<PAGE>

Supplementary  capital is defined to include  certain  preferred  stock  issues,
nonwithdrawable  accounts  and  pledged  deposits  that do not  qualify  as core
capital,  certain approved subordinated debt, certain other capital instruments,
a portion of the savings  institution's general loss allowances and up to 45% of
unrealized net gains in equity securities.  Total core and supplementary capital
are  reduced  by the  amount of  capital  instruments  held by other  depository
institutions  pursuant  to  reciprocal  arrangements  and by the  amount  of the
savings   institution's  high   loan-to-value   ratio  land  and  nonresidential
construction  loans and equity  investments  other than those deducted from core
and  tangible  capital.  At June 30,  2001,  the Bank had no high  ratio land or
nonresidential  construction  loans and had no equity  investments for which OTS
regulations require a deduction from total capital.

     The risk-based capital requirement is measured against risk-weighted assets
which  equal the sum of each  on-balance-sheet  asset and the  credit-equivalent
amount of each off-balance sheet-item after being multiplied by an assigned risk
weight.  Under the OTS risk-weighting  system  single-family first mortgages not
more  than 90 days  past  due  with  loan-to-value  ratios  not  exceeding  80%,
multi-family  first mortgages not more than 90 days past due with  loan-to-value
ratios not exceeding  80% (75% if rate is  adjustable),  and certain  qualifying
loans for the  construction of one- to four-family  residences  pre-sold to home
purchasers  are  assigned a risk weight of 50%.  Consumer  loans,  nonqualifying
residential  construction  loans and commercial  real estate loans,  repossessed
assets and assets  more than 90 days past due,  as well as all other  assets not
specifically  categorized,  are assigned a risk weight of 100%.  Mortgage-backed
securities that qualify under the Secondary Mortgage  Enhancement Act, including
those issued,  or fully guaranteed as to principal and interest,  by the FNMA or
FHLMC are assigned a 20% risk  weight.  Cash and  securities  backed by the full
faith and credit of the U.S. Government are given a 0% risk weight.

     The table below provides  information with respect to the Bank's compliance
with its regulatory capital requirements at June 30, 2001.
<TABLE>
<CAPTION>
                                                                                        Percent of
                                                                   Amount               Assets  (1)
                                                                   ------               -----------
                                                                         (Dollars in thousands)
            <S>                                                    <C>                        <C>
            Tangible capital.....................................  $   14,195                 8.78%
            Tangible capital requirement.........................       2,426                 1.50
                                                                   ----------             --------
            Excess...............................................  $   11,769                 7.28%
                                                                   ==========              =======

            Core capital (2).....................................  $   14,195                 8.78%
            Core capital requirement.............................       6,470                 4.00
                                                                   ----------              -------
            Excess...............................................  $    7,725                 4.78%
                                                                   ==========              =======

            Risk-based capital...................................  $   15,543                13.05%
            Risk-based capital requirement.......................       9,531                 8.00
                                                                   ----------             --------
            Excess..............................................   $    6,012                  5.05%
                                                                   ==========             =========
<FN>
______________
(1)      Based on adjusted total assets for purposes of the tangible capital and
         core capital requirements and risk-weighted assets for purpose of the
         risk-based capital requirement.
(2)      Reflects the capital requirement which the Bank must satisfy to avoid
         regulatory restrictions that may be imposed pursuant to prompt
         corrective action regulations.
</FN>
</TABLE>

     The OTS risk-based capital  requirements  require savings institutions with
more than a "normal"  level of interest rate risk to maintain  additional  total
capital. A savings institution's  interest rate risk is measured in terms of the
sensitivity  of its "net  portfolio  value" to changes in  interest  rates.  Net
portfolio  value is defined,  generally,  as the present  value of expected cash
inflows from existing  assets and  off-balance  sheet contracts less the present
value of expected cash outflows from existing liabilities. A savings institution
is  considered  to have a "normal"  level of interest  rate risk exposure if the
decline in its net portfolio  value after an immediate 200 basis point  increase
or decrease in market interest rates (whichever  results in the greater decline)
is less than two percent of the current

                                       19
<PAGE>

estimated  economic value of its assets.  A savings  institution  with a greater
than normal  interest  rate risk is required to deduct from total  capital,  for
purposes of  calculating  its  risk-based  capital  requirement,  an amount (the
"interest rate risk  component")  equal to one-half the  difference  between the
institution's  measured interest rate risk and the normal level of interest rate
risk, multiplied by the economic value of its total assets.

     The OTS calculates the sensitivity of a savings institution's net portfolio
value based on data submitted by the  institution in a schedule to its quarterly
Thrift  Financial  Report and using the  interest  rate risk  measurement  model
adopted by the OTS. The amount of the interest rate risk  component,  if any, to
be  deducted  from  a  savings  institution's  total  capital  is  based  on the
institution's  Thrift  Financial  Report  filed two  quarters  earlier.  Savings
institutions  with less than $300  million  in assets and a  risk-based  capital
ratio above 12% are generally exempt from filing the interest rate risk schedule
with their  Thrift  Financial  Reports.  However,  the OTS  requires  any exempt
savings  institution  that it determines  may have a high level of interest rate
risk  exposure  to file  such  schedule  on a  quarterly  basis.  The  Bank  has
determined  that, on the basis of current  financial data, it will not be deemed
to have more than normal level of interest rate risk under the rule and believes
that it will not be required to  increase  its total  capital as a result of the
rule.

     In addition to requiring generally applicable capital standards for savings
institutions,  the OTS is  authorized  to establish the minimum level of capital
for a savings  institution at such amount or at such ratio of  capital-to-assets
as the OTS  determines to be necessary or  appropriate  for such  institution in
light of the particular  circumstances  of the institution.  Such  circumstances
would include a high degree of exposure of interest rate risk,  prepayment risk,
credit risk and  concentration  of credit risk and certain  risks  arising  from
nontraditional  activities.  The  OTS  may  treat  the  failure  of any  savings
institution  to maintain  capital at or above such level as an unsafe or unsound
practice and may issue a directive requiring any savings institution which fails
to maintain  capital at or above the minimum level required by the OTS to submit
and adhere to a plan for  increasing  capital.  Such an order may be enforced in
the same manner as an order issued by the FDIC.

     PROMPT CORRECTIVE  REGULATORY  ACTION.  Under the Federal Deposit Insurance
Corporation  Improvement Act of 1991 ("FDICIA"),  the federal banking regulators
are  required  to  take  prompt  corrective  action  if  an  insured  depository
institution  fails  to  satisfy  certain  minimum  capital   requirements.   All
institutions, regardless of their capital levels, are restricted from making any
capital  distribution  or paying any management  fees if the  institution  would
thereafter   fail  to  satisfy  the  minimum  levels  for  any  of  its  capital
requirements.  An  institution  that  fails to meet the  minimum  level  for any
relevant capital measure (an "undercapitalized institution") may be: (i) subject
to increased  monitoring by the  appropriate  federal  banking  regulator;  (ii)
required to submit an acceptable capital  restoration plan within 45 days; (iii)
subject to asset growth  limits;  and (iv)  required to obtain prior  regulatory
approval for  acquisitions,  branching and new lines of businesses.  The capital
restoration plan must include a guarantee by the  institution's  holding company
that the  institution  will  comply  with the plan until it has been  adequately
capitalized on average for four  consecutive  quarters,  under which the holding
company would be liable up to the lesser of 5% of the institution's total assets
or the amount necessary to bring the institution  into capital  compliance as of
the date it failed to comply with its capital restoration plan. A "significantly
undercapitalized"  institution, as well as any undercapitalized institution that
did not  submit an  acceptable  capital  restoration  plan,  may be  subject  to
regulatory demands for recapitalization,  broader application of restrictions on
transactions  with  affiliates,  limitations on interest rates paid on deposits,
asset  growth  and other  activities,  possible  replacement  of  directors  and
officers,  and restrictions on capital distributions by any bank holding company
controlling the institution.  Any company controlling the institution could also
be required to divest the  institution or the  institution  could be required to
divest   subsidiaries.   The  senior  executive   officers  of  a  significantly
undercapitalized   institution   may  not  receive   bonuses  or   increases  in
compensation  without prior  approval and the  institution  is  prohibited  from
making  payments of principal  or interest on its  subordinated  debt.  In their
discretion,  the  federal  banking  regulators  may also  impose  the  foregoing
sanctions on an  undercapitalized  institution if the regulators  determine that
such actions are  necessary  to carry out the purposes of the prompt  corrective
action provisions. If an institution's ratio of tangible capital to total assets
falls  below a "critical  capital  level,"  the  institution  will be subject to
conservatorship or receivership within specified time periods.

     Under  regulations  jointly  adopted by the federal banking  regulators,  a
savings  institution's  capital  adequacy  for  purposes  of the  FDICIA  prompt
corrective  action rules is determined on the basis of the  institution's  total
risk-based  capital  ratio  (the  ratio of its total  capital  to  risk-weighted
assets),  Tier 1  risk-based  capital  ratio (the  ratio of its core  capital to
risk-weighted  assets)  and  leverage  ratio  (the  ratio  of its

                                       20
<PAGE>

Tier 1 or core capital to adjusted total assets).  The following table shows the
capital ratio requirements for each prompt corrective action category:
<TABLE>
<CAPTION>
                                                     ADEQUATELY                                  SIGNIFICANTLY
                           WELL CAPITALIZED          CAPITALIZED         UNDERCAPITALIZED      UNDERCAPITALIZED
                           ----------------          -----------         ----------------      ----------------
<S>                        <C>                       <C>                 <C>                     <C>
Total risk-based
    capital ratio          10.0% or more             8.0% or more        Less than 8.0%          Less than 6.0%
Tier 1 risk-based
    capital ratio           6.0% or more             4.0% or more        Less than 4.0%          Less than 3.0%
Leverage ratio              5.0% or more             4.0% or more *      Less than 4.0% *        Less than 3.0%
<FN>
-----------
*  3.0% if the institution has a composite 1 CAMELS rating.
</FN>
</TABLE>

A  "critically  undercapitalized"  savings  institution  is defined as a savings
institution  that has a ratio of "tangible  equity" to total assets of less than
2.0%.  Tangible  equity is defined as core  capital  plus  cumulative  perpetual
preferred stock (and related surplus) less all intangibles other than qualifying
supervisory  goodwill and certain purchased  mortgage  servicing rights. The OTS
may reclassify a well capitalized savings association as adequately  capitalized
and may require an adequately  capitalized  or  undercapitalized  institution to
comply with the supervisory actions applicable to institutions in the next lower
capital  category  (but  may not  reclassify  a  significantly  undercapitalized
institution as critically  undercapitalized) if the OTS determines, after notice
and an opportunity for a hearing,  that the savings  institution is in an unsafe
or unsound  condition or that the  institution  has received and not corrected a
less-than-satisfactory  rating for any CAMELS rating  category.  For information
regarding the position of the Bank with respect to the FDICIA prompt  corrective
action rules, see Note 10 of Notes to Consolidated Financial Statements included
under Item 8 hereof.

     SAFETY AND  SOUNDNESS  STANDARDS.  Under  FDICIA,  as amended by the Riegle
Community Development and Regulatory  Improvement Act of 1994, each federal bank
regulatory  agency is required to establish safety and soundness  standards,  by
regulation or guideline.  The OTS and the other federal bank regulatory agencies
have adopted a set of  guidelines  prescribing  safety and  soundness  standards
pursuant to the statute.  The safety and soundness  guidelines establish general
standards relating to internal controls and information systems,  internal audit
systems,  loan documentation,  credit  underwriting,  interest rate exposure and
asset growth.  The guidelines further provide that savings  institutions  should
maintain  safeguards to prevent the payment of  compensation,  fees and benefits
that are  excessive or that could lead to material  financial  loss,  and should
take  into  account  factors  such  as  comparable   compensation  practices  at
comparable institutions. If the OTS determines that a savings institution is not
in  compliance  with the safety and  soundness  guidelines,  it may  require the
institution  to  submit  an  acceptable  plan to  achieve  compliance  with  the
guidelines.  A savings institution must submit an acceptable  compliance plan to
the OTS  within 30 days of  receipt  of a request  for such a plan.  Failure  to
submit or implement a compliance  plan may subject the institution to regulatory
sanctions. Management believes that the Bank already meets substantially all the
standards adopted in the interagency guidelines,  and therefore does not believe
that  implementation of these regulatory  standards has materially  affected the
Bank's operations.

     Additionally,  FDICIA  required  each federal  banking  agency to establish
standards  relating  to asset and  earnings  quality.  In 1995,  the OTS  issued
guidelines  relating to asset and earnings quality.  Under these  guidelines,  a
savings institution should maintain systems,  commensurate with its size and the
nature and scope of its  operations,  to  identify  problem  assets and  prevent
deterioration  in those assets as well as to evaluate  and monitor  earnings and
ensure that earnings are sufficient to maintain  adequate  capital and reserves.
Management does not believe that the asset quality and earnings standards have a
material effect on the Bank's operations.

     FEDERAL  HOME LOAN BANK  SYSTEM.  The FHLB  System  consists of 12 district
FHLBs subject to supervision and regulation by the Federal Housing Finance Board
("FHFB").  The FHLBs  provide a central  credit  facility  primarily  for member
institutions. As a member of the FHLB of Topeka, the Bank is required to acquire
and hold  shares  of  capital  stock in the FHLB of Topeka in an amount at least
equal to 1% of the aggregate unpaid  principal of its home mortgage loans,  home
purchase  contracts,  and similar  obligations at the beginning of each year, or
1/20 of its advances (borrowings) from the FHLB of Topeka, whichever is greater.
The Bank was in

                                       21
<PAGE>

compliance with this  requirement  with an investment in FHLB of Topeka stock at
June 30, 2001 of $2.4 million. The FHLB of Topeka serves as a reserve or central
bank for its member  institutions  within its  assigned  district.  It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB  System.  It offers  advances to members in  accordance  with  policies and
procedures  established  by the FHFB and the Board of  Directors  of the FHLB of
Topeka.  At June 30, 2001, the Bank had $39.6 million in long-term  advances and
$4.5 million in short-term advances.

     FEDERAL  RESERVE  SYSTEM.  Pursuant to regulations  of the Federal  Reserve
Board, a thrift  institution must maintain average daily reserves equal to 3% on
transactions  accounts of between $0 and $42.8  million,  plus 10% on the amount
over $42.8  million.  This  percentage  is subject to  adjustment by the Federal
Reserve Board. Because required reserves must be maintained in the form of vault
cash or in a non-interest  bearing account at a Federal Reserve Bank, the effect
of the  reserve  requirement  is to  reduce  the  amount  of  the  institution's
interest-earning  assets.  As of  June  30,  2001,  the  Bank  met  its  reserve
requirements.

     FEDERAL DEPOSIT INSURANCE. The Bank is required to pay assessments based on
a percentage  of its insured  deposits to the FDIC for insurance of its deposits
by the FDIC through the SAIF. Under the Federal Deposit  Insurance Act, the FDIC
is required to set semi-annual  assessments for  SAIF-insured  institutions at a
level necessary to maintain the designated reserve ratio of the SAIF at 1.25% of
estimated  insured  deposits  or at a higher  percentage  of  estimated  insured
deposits that the FDIC determines to be justified for that year by circumstances
indicating a significant risk of substantial future losses to the SAIF.

     Under the  FDIC's  risk-based  deposit  insurance  assessment  system,  the
assessment rate for an insured depository  institution depends on the assessment
risk classification assigned to the institution by the FDIC, which is determined
by the  institution's  capital level and supervisory  evaluations.  Based on the
data reported to regulators  for the date closest to the last day of the seventh
month preceding the semi-annual assessment period,  institutions are assigned to
one of three  capital  groups -- well  capitalized,  adequately  capitalized  or
undercapitalized  -- using the same  percentage  criteria  as under  the  prompt
corrective action  regulations.  See " -- Prompt Corrective  Regulatory Action."
Within each capital group,  institutions  are assigned to one of three subgroups
on the basis of supervisory evaluations by the institution's primary supervisory
authority and such other  information  as the FDIC  determines to be relevant to
the  institution's  financial  condition  and  the  risk  posed  to the  deposit
insurance fund.  Subgroup A consists of financially sound institutions with only
a few minor  weaknesses.  Subgroup B consists of institutions  that  demonstrate
weaknesses which, if not corrected, could result in significant deterioration of
the  institution  and  increased  risk of loss to the  deposit  insurance  fund.
Subgroup C consists of institutions that pose a substantial  probability of loss
to the deposit insurance fund unless effective corrective action is taken.

     The FDIC has set the SAIF deposit  insurance  assessment  rates at zero for
well capitalized  institutions with the highest supervisory ratings and 0.27% of
insured deposits for institutions in the highest risk-based premium category. In
addition,  FDIC-insured institutions are required to pay assessments to the FDIC
to help  fund  interest  payments  on  certain  bonds  issued  by the  Financing
Corporation ("FICO"), an agency of the federal government established to finance
takeovers  of  insolvent   thrifts.   Until  December  31,  2000,   SAIF-insured
institutions  were  required to pay FICO  assessments  at five times the rate at
which BIF members were  assessed.  After  December  31, 2000,  both BIF and SAIF
members will be assessed at the same rate for FICO payments.

     QUALIFIED THRIFT LENDER TEST. A savings  institution that does not meet the
Qualified  Thrift  Lender test must either  convert to a bank  charter or comply
with the following  restrictions on its operations:  (i) the institution may not
engage in any new activity or make any new  investment,  directly or indirectly,
unless such activity or investment is permissible  for a national bank; (ii) the
branching  powers of the institution  shall be restricted to those of a national
bank; and (iii) payment of dividends by the institution  shall be subject to the
rules regarding  payment of dividends by a national bank. Upon the expiration of
three  years  from the date the  institution  ceases  to be a  Qualified  Thrift
Lender,  it must cease any activity,  and not retain any investment,  unless the
investment  or  activity  is  permissible  for a  national  bank  and a  savings
association.

     To qualify as a Qualified Thrift Lender, a savings  institution must either
satisfy the  definition of "domestic  building and loan  association"  under the
Internal  Revenue  Code or  maintain at least 65% of its  "portfolio"  assets in
Qualified Thrift Investments.  Portfolio assets are defined as total assets less
intangibles, the value of property used

                                       22
<PAGE>

by a savings institution in its business  investments in an amount not exceeding
20% of total assets.  Qualified Thrift Investments consist of: (i) loans, equity
positions  or  securities  related  to  domestic,  residential  real  estate  or
manufactured housing and educational,  small business and credit card loans, and
(ii) 50% of the dollar  amount of  residential  mortgage  loans  subject to sale
under certain conditions but do not include any intangible assets.  Subject to a
20% of portfolio assets limit,  however,  savings institutions are able to treat
as Qualified Thrift  Investments  200% of their  investments in loans to finance
"starter  homes"  and loans for  construction,  development  or  improvement  of
housing and community  service  facilities or for financing small  businesses in
"credit-needy"  areas.  A savings  institution  must  maintain  its  status as a
Qualified Thrift Lender for nine out of every 12 months.  A savings  institution
that fails to maintain  Qualified  Thrift  Lender  status will be  permitted  to
requalify  once and if it fails the Qualified  Thrift Lender Test a second time,
it will become  immediately  subject to all  penalties  as if all time limits on
such penalties had expired. Upon failure to qualify as a Qualified Thrift Lender
for two years, a savings institution must convert to a commercial bank.

     At June 30, 2001,  approximately  79.85% of the Bank's assets were invested
in Qualified Thrift Investments as currently defined.

     RESTRICTIONS ON CAPITAL DISTRIBUTIONS. Except in limited circumstances, the
Bank is not  permitted to pay a dividend or other  capital  distribution  if the
Bank would be undercapitalized after the distribution. In addition, the Bank may
not declare or pay a cash  dividend on its capital  stock if the effect would be
to reduce its regulatory  capital below the amount  required for the liquidation
account  established  for the benefit of certain  depositors  of the Bank at the
time of its conversion to stock form.

     OTS regulations require that savings  institutions submit notice to the OTS
prior  to  making  a  capital  distribution  (which  includes  dividends,  stock
repurchases and amounts paid to  stockholders  of another  institution in a cash
merger) if (a) they would not be  well-capitalized  after the distribution,  (b)
the  distribution  would result in the  retirement  of any of the  institution's
common or preferred stock or debt counted as its regulatory  capital, or (c) the
institution is a subsidiary of a holding  company.  A savings  institution  must
make application to the OTS to pay a capital distribution if (x) the institution
would  not  be  adequately  capitalized  following  the  distribution,  (y)  the
institution's   total   distributions   for  the   calendar   year  exceeds  the
institution's net income for the calendar year to date plus its net income (less
distributions)  for the  preceding  two  years,  or (z) the  distribution  would
otherwise violate applicable law or regulation or an agreement with or condition
imposed by the OTS. If neither the savings  institution nor the proposed capital
distribution meet any of the foregoing  criteria,  then no notice or application
is required to be filed with the OTS before making a capital  distribution.  The
OTS may disapprove or deny a capital distribution if in the view of the OTS, the
capital distribution would constitute an unsafe or unsound practice.

     LOANS TO  DIRECTORS,  EXECUTIVE  OFFICERS AND PRINCIPAL  STOCKHOLDERS.  The
Bank's ability to extend credit to its directors,  executive  officers,  and 10%
stockholders,  as well as to entities controlled by such persons, is governed by
the  requirements  of Sections  22(g) and 22(h) of the  Federal  Reserve Act and
Regulation O of the Federal Reserve Board thereunder.  Among other things, these
provisions require that an institution's extensions of credit to insiders (a) be
made on terms that are substantially the same as, and follow credit underwriting
procedures  that are not less  stringent  than those  prevailing  for comparable
transactions  with  unaffiliated  persons and that do not involve  more than the
normal risk of  repayment or present  other  unfavorable  features,  and (b) not
exceed  certain  limitations  on the amount of credit  extended to such persons,
individually  and in the  aggregate,  which  limits are based,  in part,  on the
amount of the institution's capital. In addition, extensions of credit in excess
of certain limits must be approved by the Bank's Board of Directors.

FINANCIAL MODERNIZATION LEGISLATION

     On November 12, 1999, President Clinton signed legislation which could have
a far-reaching impact on the financial services industry. The Gramm-Leach-Bliley
("G-L-B") Act authorizes affiliations between banking,  securities and insurance
firms and  authorizes  bank holding  companies and national banks to engage in a
variety  of new  financial  activities.  Under the  G-L-B  Act any bank  holding
company whose depository  institution  subsidiaries have satisfactory  Community
Reinvestment Act ("CRA") records may elect to become a financial holding company
if it  certifies  to the  Federal  Reserve  Board  that  all  of its  depository
institution  subsidiaries  are  well-capitalized  and  well-managed.   Financial
holding  companies  may engage in any activity that the Federal  Reserve  Board,
after


                                       23
<PAGE>

consultation  with the Secretary of the Treasury,  determines to be financial in
nature or incidental to a financial  activity.  Financial  holding companies may
also engage in activities that are complementary to financial  activities and do
not pose a  substantial  risk to the safety and  soundness  of their  depository
institution  subsidiaries  or the  financial  system  generally.  The  G-L-B Act
specifies  that  activities  that are  financial in nature  include  lending and
investing   activities,   insurance  and  annuity  underwriting  and  brokerage,
financial,   investment  and  economic  advice,   selling  interests  in  pooled
investment vehicles,  securities underwriting,  engaging in activities currently
permitted to bank holding companies (including  activities in which bank holding
companies may currently  engage outside the United States) and merchant  banking
through a securities or insurance  underwriting  affiliate.  The Federal Reserve
Board, in consultation with the Department of Treasury,  may approve  additional
financial activities.

     The G-L-B Act permits well capitalized and well-managed national banks with
satisfactory  CRA  records to invest in  financial  subsidiaries  that engage in
activities  that are  financial in nature (or  incidental  thereto) on an agency
basis.  National  banks that are among the 50 largest  insured banks and have at
least one issue of  investment  grade debt  outstanding  may invest in financial
subsidiaries  that  engage in  activities  as  principal  other  than  insurance
underwriting real estate development or merchant banking. All national banks are
given the authority to underwrite  municipal  revenue bonds. The aggregate total
consolidated  assets of a national bank's financial  subsidiaries may not exceed
the lesser of 45% of the bank's  total  consolidated  assets or $50  billion.  A
national  bank  would  be  required  to  deduct  its  investments  in  financial
subsidiaries  from its  regulatory  capital.  National  banks  must  also  adopt
procedures for protecting the bank against risks  associated  with the financial
subsidiary  and to preserve the  separate  corporate  identity of the  financial
subsidiary.  Financial  subsidiaries  of state and national banks (which include
any subsidiary engaged in an activity not permitted to a national bank directly)
would be treated as  affiliates  for  purposes of the  limitations  on aggregate
transactions  with affiliates in Sections 23A and 23B of the Federal Reserve Act
and for purposes of the anti-tying restrictions of the Bank Holding Company Act.
State-chartered   banks  would  be  prohibited   from   investing  in  financial
subsidiaries unless they would be well capitalized after deducting the amount of
their  investment  from capital and observe the other  safeguards  applicable to
national banks.

     The  G-L-B  Act  imposes  functional  regulation  on  bank  securities  and
insurance  activities.  Banks  will  only  be  exempt  from  regulation  by  the
Securities and Exchange  Commission  ("SEC") as securities brokers if they limit
their  activities to those  described in the G-L-B Act. Banks that advise mutual
funds will be subject to the same SEC regulation as other  investment  advisors.
Bank common trust funds will be regulated as mutual funds if they are advertised
or offered for sale to the general public. National banks and their subsidiaries
will be prohibited from underwriting  'insurance products other than those which
they were lawfully  underwriting  as of January 1, 1999 and are prohibited  from
underwriting title insurance or tax-free annuities. National banks may only sell
title insurance in states in which  state-chartered banks are authorized to sell
title  insurance.  The  G-L-B  Act  directs  the  federal  banking  agencies  to
promulgate  regulations governing sales practices in connection with permissible
bank sales of insurance.

     The G-L-B Act imposes  new  requirements  on  financial  institutions  with
respect to customer  privacy.  The G-L-B Act generally  prohibits  disclosure of
customer information to nonaffiliated third parties unless the customer has been
given  the  opportunity  to  object  and has not  objected  to such  disclosure.
Financial  institutions  are further required to disclose their privacy policies
to customers  annually.  Financial  institutions,  however,  will be required to
comply,  with state law if it is more  protective  of customer  privacy than the
G-L-B Act.  The G-L-B Act directs the federal  banking  agencies,  the  National
Credit Union  Administration,  the  Secretary of the  Treasury,  the SEC and the
Federal Trade Commission,  after  consultation with the National  Association of
Insurance  Commissioners,  to  promulgate  implementing  regulations  within six
months of enactment. The privacy provisions became effective in July 2001.

     The G-L-B Act contains significant  revisions to the FHLB System. The G-L-B
Act imposes new capital  requirements  on the FHLBs and authorizes them to issue
two classes of stock with differing dividend rates and redemption  requirements.
The G-L-B Act deletes the current requirement that the FHLBs annually contribute
$300 million to pay interest on certain government obligations in favor of a 20%
of net  earnings  formula.  The G-L-B Act expands the  permissible  uses of FHLB
advances by community  financial  institutions (under $500 million in assets) to
include   funding   loans  to  small   businesses,   small   farms   and   small
agri-businesses.

     The  G-L-B  Act  contains  a  variety  of  other  provisions   including  a
prohibition  against ATM surcharges  unless the customer has first been provided
notice of the  imposition  and  amount of the fee.  The  G-L-B Act  reduces

                                       24
<PAGE>
the frequency of CRA examinations  for smaller  institutions and imposes certain
reporting  requirements  on  depository,  institutions  that  make  payments  to
non-governmental  entities in connection  with the CRA.

     The  Company  is  unable  to  predict  the  impact  of the G-L-B Act on its
operations  at this time.  Although the G-L-B Act reduces the range of companies
which may acquire control of the Company,  it may facilitate  affiliations  with
companies in the financial services industry.

REGULATION OF THE COMPANY

     GENERAL.  The Company is a savings and loan  holding  company as defined by
the  Home  Owners'  Loan Act (the  "HOLA")  and,  as  such,  is  subject  to OTS
regulation,  supervision and examination.  In addition,  the OTS has enforcement
authority over the Company and its nonsavings  institution  subsidiaries and may
restrict or prohibit  activities that are determined to represent a serious risk
to the  safety,  soundness  or  stability  of the Bank or any  other  subsidiary
savings institution.  As a subsidiary of a savings and loan holding company, the
Bank is subject to certain  restrictions  in its  dealings  with the Company and
affiliates thereof.

     ACTIVITIES  RESTRICTIONS.  The Board of Directors of the Company  presently
operates the Company as a unitary  savings and loan holding  company.  Since the
Company was formed prior to May 4, 1999 and  continues  to be a unitary  savings
and loan holding company, there are generally no restrictions on its activities.
However,  if the Director of OTS  determines  that there is reasonable  cause to
believe  that the  continuation  by a savings  and loan  holding  company  of an
activity  constitutes  a serious risk to the  financial  safety,  soundness,  or
stability of its subsidiary savings institution,  the Director of OTS may impose
such  restrictions as deemed necessary to address such risk including  limiting:
(i) payment of dividends by the savings  institution,  (ii) transactions between
the savings  institution  and its  affiliates;  and (iii) any  activities of the
savings institution that might create a serious risk that the liabilities of the
holding  company and its affiliates  may be imposed on the savings  institution.
Notwithstanding the above rules as to permissible business activities of unitary
savings and loan holding  companies,  if the savings  institution  subsidiary of
such a holding  company fails to meet the Qualified  Thrift Lender ("QTL") Test,
then  within one year after the  institution  ceased to be a QTL,  such  unitary
savings and loan holding  company  shall  register as and be deemed to be a bank
holding  company  and  will  become  subject  to  the  activities   restrictions
applicable to a bank holding  company.  See "Regulation of the Bank -- Qualified
Thrift Lender Test."

     If the  Company  were to acquire  control of another  savings  institution,
other than  through  merger or other  business  combination  with the Bank,  the
Company  would  thereupon  become a multiple  savings and loan holding  company.
Except where such acquisition is pursuant to the authority to approve  emergency
thrift  acquisitions and where each subsidiary savings institution meets the QTL
Test, the activities of the Company and any of its subsidiaries  (other than the
Bank or other subsidiary  savings  institutions)  would thereafter be subject to
further  restrictions.  The HOLA provides that, among other things,  no multiple
savings and loan holding  company or  subsidiary  thereof which is not a savings
institution may commence or continue for a limited period of time after becoming
a multiple savings and loan holding company or subsidiary thereof,  any business
activity,  upon prior  notice to, and no  objection  by the OTS,  other than (i)
furnishing  or  performing   management   services  for  a  subsidiary   savings
institution,  (ii)  conducting  an insurance  agency or escrow  business,  (iii)
holding,  managing, or liquidating assets owned by or acquired from a subsidiary
savings  institution,  (iv) holding or managing properties used or occupied by a
subsidiary savings institution, (v) acting as trustee under deeds of trust, (vi)
those activities  previously  authorized by regulation as of March 5, 1987 to be
directly  engaged in by multiple  savings and loan  holding  companies  or (vii)
those activities authorized by the Federal Reserve Board as permissible for bank
holding companies,  unless the Director of OTS by regulation prohibits or limits
such  activities  for  savings  and loan  holding  companies.  Those  activities
described  in (vii) above must also be approved by the  Director of OTS prior to
being engaged in by a multiple savings and loan holding company.

     TRANSACTIONS WITH AFFILIATES. Transactions between savings institutions and
any affiliate  are governed by Sections 23A and 23B of the Federal  Reserve Act.
An affiliate of a savings  institution is any company or entity which  controls,
is controlled by or is under common control with the savings  institution.  In a
holding company  context,  the parent holding  company of a savings  institution
(such as the  Company) and any  companies  which are  controlled  by such parent
holding company are affiliates of the savings institution.  Generally,  Sections
23A and 23B (i)  limit  the  extent  to which  the  savings  institution  or its
subsidiaries may engage in "covered  transactions"  with

                                       25
<PAGE>

any one affiliate to an amount equal to 10% of such institution's  capital stock
and surplus,  and contain an aggregate limit on all such  transactions  with all
affiliates to an amount equal to 20% of such capital stock and surplus, and (ii)
require that all such  transactions  be on terms  substantially  the same, or at
least as favorable,  to the  institution  or  subsidiary as those  provided to a
nonaffiliate.  The term  "covered  transaction"  includes  the  making of loans,
purchase  of  assets,  issuance  of a  guarantee  and  similar  other  types  of
transactions.  In addition to the restrictions  imposed by Sections 23A and 23B,
no savings  institution may (i) loan or otherwise extend credit to an affiliate,
except for any affiliate which engages only in activities  which are permissible
for bank holding  companies,  or (ii)  purchase or invest in any stocks,  bonds,
debentures, notes or similar obligations of any affiliate, except for affiliates
which are  subsidiaries  of the  savings  institution.  Section  106 of the Bank
Holding Company Act of 1956, as amended ("BHCA") which also applies to the Bank,
prohibits the Bank from extending  credit to or offering any other services,  or
fixing or varying the consideration for such extension of credit or service,  on
condition that the customer obtain some additional services from the institution
or certain of its  affiliates  or not obtain  services  of a  competitor  of the
institution, subject to certain exceptions.

     Savings  institutions  are also  subject to the  restrictions  contained in
Section 22(h) and Section 22(g) of the Federal Reserve Act on loans to executive
officers, directors and principal stockholders.  Under Section 22(h), loans to a
director,  executive  officer or to a greater than 10%  stockholder of a savings
institution,  and certain affiliated entities of the foregoing,  may not exceed,
together with all other outstanding loans to such person and affiliated entities
the  institution's  loan to one borrower  limit  (generally  equal to 15% of the
institution's  unimpaired  capital  and surplus  and an  additional  10% of such
capital  and  surplus  for loans  fully  secured by certain  readily  marketable
collateral). Section 22(h) also prohibits loans, above amounts prescribed by the
appropriate federal banking agency, to directors, executive officers and greater
than 10% stockholders of a savings institution, and their respective affiliates,
unless such loan is approved in advance by a majority of the board of  directors
of the  institution  with any  "interested"  director not  participating  in the
voting. The Federal Reserve Board has prescribed the loan amount (which includes
all other  outstanding  loans to such  person),  as to which such prior board of
director approval is required,  as being the greater of $25,000 or 5% of capital
and surplus (up to $500,000).  Further,  the Federal  Reserve Board  pursuant to
Section 22(h) requires that loans to directors, executive officers and principal
stockholders  be made on terms  substantially  the same as offered in comparable
transactions  to  other  persons.  Section  22(h)  also  generally  prohibits  a
depository  institution  from  paying  the  overdrafts  of any of its  executive
officers or directors.

     Section  22(g) of the Federal  Reserve Act requires that loans to executive
officers of depository  institutions  not be made on terms more  favorable  than
those  afforded to other  borrowers,  requires  approval for such  extensions of
credit by the board of  directors  of the  institution,  and  imposes  reporting
requirements  for and additional  restrictions on the type,  amount and terms of
credits to such  officers.  In addition,  Section 106 of the BHCA  extensions of
credit to executive officers,  directors, and greater than 10% stockholders of a
depository  institution  by any  other  institution  which  has a  correspondent
banking relationship with the institution, unless such extension of credit is on
substantially  the same  terms as those  prevailing  at the time for  comparable
transactions  with other  persons and does not involve more than the normal risk
of repayment or present other unfavorable features.

     RESTRICTIONS ON ACQUISITIONS. The HOLA generally prohibits savings and loan
holding companies, without prior approval of the Director of OTS, from acquiring
(i) control of any other savings institution or savings and loan holding company
or  substantially  all the  assets  thereof,  or (ii) more than 5% of the voting
shares  of a savings  institution  or  holding  company  thereof  which is not a
subsidiary.  Under certain circumstances,  a registered savings and loan holding
company is permitted to acquire, with the approval of the Director of OTS, up to
15% of the voting shares of an undercapitalized  savings institution pursuant to
a "qualified  stock  issuance"  without that  savings  institution  being deemed
controlled  by the  holding  company.  In  order  for  the  shares  acquired  to
constitute a "qualified  stock  issuance," the shares must consist of previously
unissued  stock or treasury  shares,  the shares must be acquired for cash,  the
savings and loan holding company's other subsidiaries must have tangible capital
of at least 6 1/2% of total  assets,  there  must  not be more  than one  common
director or officer between the savings and loan holding company and the issuing
savings  institution and  transactions  between the savings  institution and the
savings and loan  holding  company  and any of its  affiliates  must  conform to
Sections 23A and 23B of the Federal  Reserve Act. Except with the prior approval
of the  Director of OTS,  no  director or officer of a savings and loan  holding
company or person owning or  controlling  by proxy or otherwise more than 25% of
such company's stock, may also acquire control of any savings institution, other
than a subsidiary savings institution,  or of any other savings and loan holding
company.

                                       26
<PAGE>

     The  Director  of  OTS  may  only  approve  acquisitions  resulting  in the
formation of a multiple  savings and loan holding company which controls savings
institutions  in more than one  state  if:  (i) the  multiple  savings  and loan
holding company involved controls a savings institution which operated a home or
branch  office in the state of the  institution  to be  acquired  as of March 5,
1987;  (ii) the  acquiror  is  authorized  to  acquire  control  of the  savings
institution  pursuant to the  emergency  acquisition  provisions  of the Federal
Deposit  Insurance Act; or (iii) the laws of the state in which the  institution
to be acquired is located  specifically  permit  institutions  to be acquired by
state-chartered  institutions or savings and loan holding  companies  located in
the state where the  acquiring  entity is located (or by a holding  company that
controls such state-chartered savings institutions).

     OTS regulations permit federal savings  institutions to branch in any state
or states of the United States and its territories.  Except in supervisory cases
or when  interstate  branching  is  otherwise  permitted  by state  law or other
statutory  provision,  a  federal  savings  institution  may  not  establish  an
out-of-state  branch  unless  (i)  the  institution  qualifies  as a QTL or as a
"domestic  building and loan association"  under  ss.7701(a)(19) of the Internal
Revenue  Code  and  the  total  assets  attributable  to  all  branches  of  the
institution  in the  state  would  qualify  such  branches  taken as a whole for
treatment as a QTL or as a domestic building and loan association, and (ii) such
branch would not result in (a)  formation of a prohibited  multi-state  multiple
savings  and loan  holding  company  or (b) a  violation  of  certain  statutory
restrictions  on branching by savings  institution  subsidiaries of bank holding
companies. Federal savings institutions generally may not establish new branches
unless the institution meets or exceeds minimum regulatory capital requirements.
The OTS will also  consider  the  institution's  record of  compliance  with the
Community Reinvestment Act in connection with any branch application.

TAXATION

     GENERAL. The Company and the Bank file separate federal income tax returns.

     FEDERAL INCOME TAXATION. Earnings appropriated to an institution's bad debt
reserve and claimed as a tax deduction are not available for the payment of cash
dividends or for distribution to shareholders  (including  distributions made on
dissolution or liquidation),  unless such amount was included in taxable income,
along with the amount deemed necessary to pay the resulting federal income tax.

     Beginning  with the first taxable year  beginning  after December 31, 1995,
savings  institutions,  such as the Bank,  were  treated the same as  commercial
banks.  Institutions  with $500  million or more in assets  will only be able to
take a tax deduction when a loan is actually charged off. Institutions with less
than $500 million in assets will still be permitted to make  deductible bad debt
additions to reserves, but only using the experience method.

     In 1996,  the Bank's  federal  corporate  income tax  returns for 1995 were
audited  with no  significant  correction.  The Bank's tax returns have not been
otherwise audited in the last five years.

     Under provisions of the Revenue Reconciliation Act of 1993 ("RRA"), enacted
on August 10, 1993, the maximum federal  corporate income tax rate was increased
from 34% to 35% for taxable income over $10.0 million,  with a 3% surtax imposed
on taxable income over $15.0 million.  Also under  provisions of RRA, a separate
depreciation calculation requirement has been eliminated in the determination of
adjusted  current  earnings  for  purposes of  determining  alternative  minimum
taxable income,  rules relating to payment of estimated  corporate  income taxes
were  revised,  and certain  acquired  intangible  assets  such as goodwill  and
customer-based intangibles were allowed a 15-year amortization period. Beginning
with tax years  ending on or after  January  1,  1993,  RRA also  provides  that
securities  dealers must use  mark-to-market  accounting  and generally  reflect
changes in value  during the year or upon sale as taxable  gains or losses.  The
IRS has indicated that  financial  institutions  which  originate and sell loans
will be subject to the rule.

     STATE INCOME TAXATION.  The State of Colorado imposes no franchise taxes on
savings  institutions.  The State of Colorado taxes the Bank's  federal  taxable
income, adjusted for interest income received directly from federal agencies, at
a 4.63% rate.

                                       27
<PAGE>

EXECUTIVE OFFICERS

     The  following  table sets forth  certain  information  with respect to the
executive officers of the Company.
<TABLE>
<CAPTION>
                                         Ages At
                                        June 30,
Name                                      2001                Title
----                                    ---------             -----
<S>                                        <C>                <C>
Larry D. Smith                             43                 President
Scott G. Erchul                            39                 Vice President
Frank L. DeLay                             37                 Chief Financial Officer
</TABLE>

     LARRY D. SMITH has been  President of the Bank since 1991 and a Director of
the Bank since 1987. He serves as the President and Chief  Executive  Officer of
the  Company and the Bank.  From 1978 to 1991,  he served as  Controller  of the
Bank.  He is active in the Salida school system and youth sports by serving as a
coach for  various  sports  teams and by  serving  on the High  School  Building
Accountability  and  Business  Advisory  Committees.  He is also  involved  with
several organizations which promote the academic and athletic development of the
youth of Salida.

     SCOTT G.  ERCHUL  has been a member of the Board of  Directors  of the Bank
since 1997. He has served as Vice President of the Bank since 1991 and serves as
Vice  President  of the  Company and the Bank.  His past and  current  community
involvement  include the Rotary Club, Academic Booster Club committee member and
youth sports coach for football, baseball and soccer.

     FRANK L. DELAY has served as the Chief Financial  Officer of the Bank since
1992 and he serves in a similar capacity for the Company.  He is a member of the
Kiwanis  Club and has served as  Treasurer  and on the Board of Directors of the
Heart of the Rockies Chamber of Commerce.

ITEM 2.  DESCRIPTION OF PROPERTY
--------------------------------

     The following table sets forth information  regarding the Bank's offices at
June 30, 2001.
<TABLE>
<CAPTION>
                                                            Book Value at
                         Year                Owned or         June 30,             Approximate
                        Opened                Leased          2001 (1)           Square Footage
                        ------                ------          --------           --------------
                                                       (Dollars in thousands)
<S>                      <C>                  <C>              <C>                    <C>
Main Office:
7360 West US
Highway 50
Salida, Colorado         2000                  Owned           $2,977                 11,800

Branch Offices:
130 West 2nd
Salida, Colorado         1886 (2)              Owned              752                 10,750

600 Harrison (3)
Leadville, Colorado      1978                  Owned              707                  3,800

713 East Main (3)
Buena Vista, Colorado    1996                  Owned              422                  2,400
<FN>
___________
(1)      Cost less accumulated depreciation and amortization.
(2)      The current location and building was occupied in 1974.
(3)      The Bank constructed new building facilities at each of these locations in 1996.
</FN>
</TABLE>
                                       28
<PAGE>

     The book value of the Bank's  investment in premises and equipment  totaled
approximately  $6.1 million at June 30,  2001.  See Note 6 of Notes to Financial
Statements.

ITEM 3.  LEGAL PROCEEDINGS
--------------------------

     From  time to  time,  the  Bank is a party  to  various  legal  proceedings
incident to its business.  At June 30, 2001, there were no legal  proceedings to
which the Company or the Bank was a party, or to which any of their property was
subject,  which were  expected by management to result in a material loss to the
Company or the Bank.  There are no pending  regulatory  proceedings to which the
Company,  the  Bank or its  subsidiaries  is a party  or to  which  any of their
properties is subject which are currently expected to result in a material loss.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------

     No matters were  submitted to a vote of security  holders during the fourth
quarter of the fiscal year ended June 30, 2001.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
-----------------------------------------------------------------

     The  information  contained under the section  captioned  "Market Price and
Dividend Information" in the Annual Report is incorporated herein by reference.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------------------------------------------------------------------

     The information contained in the section captioned "Management's Discussion
and Analysis of Financial  Condition  and Results of  Operations"  in the Annual
Report is incorporated herein by reference.

ITEM 7.  FINANCIAL STATEMENTS
-----------------------------

     The  financial  statements  contained in the Annual Report which are listed
under Item 13 herein are incorporated herein by reference.

ITEM 8. CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON ACCOUNTING AND
---------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------

         None.


                                    PART III

ITEM 9.  DIRECTORS,  EXECUTIVE  OFFICERS,  PROMOTERS  AND CONTROL  PERSONS;
---------------------------------------------------------------------------
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
-------------------------------------------------

     The  information  contained  under the  section  captioned  "Proposal  I --
Election  of  Directors"  in the  Proxy  Statement  is  incorporated  herein  by
reference.

         For information regarding compliance with Section 16(a) of the Exchange
Act, the information contained under the section captioned "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Proxy Statement is
incorporated herein by reference.

     For certain  information  regarding the executive  officers of the Company,
see "Item 1. Business --Executive Officers" herein.

                                       29
<PAGE>
ITEM 10.  EXECUTIVE COMPENSATION
--------------------------------

     The   information   contained  under  the  section   captioned   "Executive
Compensation" in the Proxy Statement is incorporated herein by reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-----------------------------------------------------------------------

          (a)  Security Ownership of Certain Beneficial Owners

               The information  required by this item is incorporated  herein by
               reference  to  the  section  captioned  "Voting   Securities  and
               Principal Holders Thereof" in the Proxy Statement.

          (b)  Security Ownership of Management

               Information  required  by this  item is  incorporated  herein  by
               reference  to the sections  captioned  "Proposal I -- Election of
               Directors" and "Voting  Securities and Principal Holders Thereof"
               in the Proxy Statement.

          (c)  Changes in Control

               Management of the Company knows of no arrangements, including any
               pledge by any person of securities of the Company,  the operation
               of which may at a  subsequent  date result in a change of control
               of the registrant.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

     The information  required by this item is incorporated  herein by reference
to the section captioned "Transactions with Management" in the Proxy Statement.

ITEM 13.  EXHIBITS LIST AND REPORTS ON FORM 8-K
-----------------------------------------------

          (a)  List of Documents Filed as Part of This Report
               ----------------------------------------------

               (1)  Consolidated  Financial Statements.  The following financial
                    ----------------------------------
                    statements of the registrant are included  herein under Item
                    7. The remaining  information appearing in the Annual Report
                    is not deemed to be filed as part of this  Annual  Report on
                    Form 10-KSB, except as expressly provided herein.

                    Independent Auditor's Report

                    (a)  Statements  of  Financial  Condition as of June 30,
                         2001 and 2000

                    (b)  Statements of Income for the Years Ended June 30, 2001
                         and 2000

                    (c)  Statements of Equity for the Years Ended June 30, 2001
                         and 2000

                    (d)  Statements of Cash Flows for the Years Ended June 30,
                         2001 and 2000

                    (e)  Notes to Financial Statements

               (2)  Financial Statement Schedules. None
                    -----------------------------

               (3)  Exhibits. The following exhibits are either filed as part of
                    --------
                    this Annual Report on Form 10-KSB or incorporated  herein by
                    reference:

                                       30
<PAGE>
    Exhibit No.

    * 3.1     Articles of Incorporation of High Country Bancorp, Inc.

    * 3.2     Bylaws of High Country Bancorp, Inc.

    * 10.1    Employment Agreement between Salida Building and Loan
              Association and Larry D. Smith+

    * 10.2    Guaranty Agreement between High Country Bancorp, Inc. and
              Larry D. Smith+

    * 10.3    High Country Bancorp, Inc. 1997 Stock Option and Incentive Plan+

    * 10.4    High Country Bancorp, Inc. Management Recognition Plan and Trust+

    * 10.5    Salida Building and Loan Association Long-Term Incentive Plan+

    * 10.6    Salida Building and Loan Association Incentive Compensation Plan+

    * 10.7    Employment Agreement between Salida Building and Loan Association
              and Scott G. Erchul+

    * 10.8    Guaranty Agreement between High Country Bancorp, Inc. and Scott
              G. Erchul+

    * 10.9    Change-in-Control Protective Agreement between Salida Building
              and Loan Association and Francis L. Delay+

    * 10.10   Change-in-Control Guaranty Agreement between High Country Bancorp,
              Inc. and Francis L. DeLay+

      13      Annual Report to Stockholders for the year ended June 30, 2001

      21      Subsidiaries

      23      Consent of Grimsley, White & Company

-------------
*    Incorporated  by reference from  Registration  Statement on Form SB-2 filed
     January 27, 1997 (File No. 333-34153).
+    Compensatory plan or arrangement.

               (b) Reports on Form 8-K. No current reports on Form 8-K have been
                   -------------------
filed during the last quarter of the fiscal year covered by this report.


                                       31
<PAGE>

                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                     HIGH COUNTRY BANCORP, INC.


Date:  September 25, 2001            By:/s/ Larry D. Smith
                                        ----------------------------------------
                                        Larry D. Smith
                                        President and Chief Executive Officer
                                        (Duly Authorized Officer)

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.


By: /s/ Larry D. Smith                                  Date: September 25, 2001
    --------------------------------------------
    Larry D. Smith
    President and Chief Executive Officer
    (Principal Executive and Officer)


By: /s/ Frank L. DeLay                                  Date: September 25, 2001
    --------------------------------------------
    Frank L. DeLay
    Chief Financial Officer
    (Principal Financial and Accounting Officer)


By: /s/ Scott G. Erchul                                 Date: September 25, 2001
    --------------------------------------------
    Scott G. Erchul
    Vice President and Director


By: /s/ Timothy R. Glenn                                Date: September 25, 2001
    --------------------------------------------
    Timothy R. Glenn
    Director


By: /s/ Richard A. Young                                Date: September 25, 2001
    --------------------------------------------
    Richard A. Young
    Director


By: /s/ Philip W. Harsh                                 Date: September 25, 2001
    --------------------------------------------
    Philip W. Harsh
    Director