<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB - QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended June 30, 1998.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from
______________________________________ to ________________________________.
COMMISSION FILE NUMBER 000-24445
COLORADO BUSINESS BANKSHARES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COLORADO 84-0826324
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
821 17TH STREET
DENVER, CO. 80202
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(303) 293-2265
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 No X
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 6,673,468 shares of common
stock, $0.01 par value, outstanding as of August 7, 1998.
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis
of Financial Condition And Results of Operations 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other information None
Item 6. Exhibits 13
SIGNATURES 14
<PAGE>
PART I - FINANCIAL INFORMATION
COLORADO BUSINESS BANKSHARES, INC.
Consolidated Condensed Balance Sheets
June 30, 1998 (unaudited) and December 31, 1997
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
(unaudited)
ASSETS
<S> <C> <C>
Cash and due from banks $ 22,339,000 $ 15,075,000
Federal funds sold - 12,700,000
------------ ------------
Total cash and cash equivalents 22,339,000 27,775,000
------------ ------------
Investment securities available for sale (cost of $57,754,000 (unaudited) and
$41,456,000, respectively) 58,181,000 41,630,000
Investment securities held to maturity (fair value of $11,695,000 (unaudited) and
$15,189,000, respectively) 11,514,000 14,931,000
Other investments 2,130,000 2,223,000
------------ ------------
Total investments 71,825,000 58,784,000
------------ ------------
Loans and leases, net 203,715,000 164,091,000
Excess of cost over fair value of net assets acquired, net 4,908,000 5,116,000
Investment in operating leases 4,631,000 3,297,000
Premises and equipment, net 2,162,000 1,266,000
Accrued interest receivable 1,668,000 1,331,000
Real estate acquired through foreclosure, net - -
Deferred income taxes 887,000 777,000
Other 746,000 1,622,000
------------ ------------
TOTAL ASSETS $312,881,000 $264,059,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 77,938,000 $ 69,069,000
NOW and money market 83,174,000 75,164,000
Savings 5,757,000 5,971,000
Certificates of deposit 68,275,000 70,854,000
------------ ------------
Total deposits 235,144,000 221,058,000
Federal funds purchased 17,000,000 -
Securities sold under agreements to repurchase 21,618,000 13,024,000
Other liabilities 1,779,000 1,792,000
Advances from the Federal Home Loan Bank 2,190,000 3,260,000
Note payable - 7,500,000
------------ ------------
Total liabilities 277,731,000 246,634,000
Shareholders' Equity:
Cumulative preferred, $.01 par value; 2,000,000 shares authorized; 1,500 issued and
outstanding, $1,000 liquidation preference - 1,500,000
Common, $.01 par value; 25,000,000 shares authorized; 6,673,468 (unaudited) and
4,874,968 issued and outstanding, respectively 67,000 49,000
Additional paid-in capital 29,838,000 11,933,000
Retained earnings 4,977,000 3,833,000
Net unrealized appreciation on available for sale securities, net of income tax
of $159,000 (unaudited) and $65,000, respectively 268,000 110,000
------------ ------------
Total shareholders' equity 35,150,000 17,425,000
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $312,881,000 $264,059,000
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
1
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans and leases $ 4,888,000 $ 3,307,000 $ 9,256,000 $ 6,279,000
Interest on investments 904,000 1,182,000 1,913,000 2,103,000
----------- ----------- ----------- -----------
Total interest income 5,792,000 4,489,000 11,169,000 8,382,000
INTEREST EXPENSE:
Interest on deposits 1,694,000 1,191,000 3,351,000 2,328,000
Interest on short-term borrowings & FHLB advances 392,000 408,000 594,000 626,000
Interest on note payable 142,000 192,000 301,000 398,000
----------- ----------- ----------- -----------
Total interest expense 2,228,000 1,791,000 4,246,000 3,352,000
NET INTEREST INCOME BEFORE PROVISION FOR
LOAN AND LEASE LOSSES 3,564,000 2,698,000 6,923,000 5,030,000
Provision for loan and lease losses 370,000 168,000 721,000 314,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN AND LEASE LOSSES 3,194,000 2,530,000 6,202,000 4,716,000
----------- ----------- ----------- -----------
OTHER INCOME:
Service charges 219,000 196,000 447,000 399,000
Operating lease income 545,000 341,000 1,251,000 649,000
Other income 222,000 180,000 293,000 404,000
----------- ----------- ----------- -----------
Total other income 986,000 717,000 1,991,000 1,452,000
----------- ----------- ----------- -----------
OTHER EXPENSE:
Salaries and employee benefits 1,679,000 1,292,000 3,258,000 2,590,000
Occupancy expenses, premises and equipment 460,000 416,000 804,000 693,000
Depreciation on leases 448,000 283,000 916,000 557,000
Amortization of intangibles 114,000 135,000 223,000 269,000
Other 422,000 377,000 937,000 840,000
----------- ----------- ----------- -----------
Total other expense 3,123,000 2,503,000 6,138,000 4,949,000
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,057,000 744,000 2,055,000 1,219,000
Provision for income taxes 422,000 306,000 833,000 509,000
----------- ----------- ----------- -----------
NET INCOME $ 635,000 $ 438,000 $ 1,222,000 $ 710,000
=========== =========== =========== ===========
EARNINGS PER SHARE:
Basic $ 0.11 $ 0.08 $ 0.23 $ 0.16
=========== =========== =========== ===========
Diluted $ 0.11 $ 0.08 $ 0.22 $ 0.15
=========== =========== =========== ===========
</TABLE>
2
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
Consolidated Condensed Statements of Cash Flows
For the Six Months Ended June 30, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,222,000 $ 710,000
Adjustments to reconcile net income to net cash
by operating activities:
Net amortization (accretion) on securities 106,000 (353,000)
Depreciation and amortization 1,392,000 1,051,000
Provision for loan and lease losses 721,000 314,000
Deferred income taxes (110,000) (96,000)
Loss (Gain) on sale of premises and equipment 63,000 -
Changes in:
Accrued interest receivable (337,000) (231,000)
Other assets 876,000 (35,000)
Accrued interest payable and other liabilities (13,000) 112,000
----------- -----------
Net cash provided by operating activities 2,698,000 762,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of held to maturity securities and other investments (93,000) (2,643,000)
Purchase of available for sale securities (22,669,000) (15,663,000)
Proceeds from maturities of held to maturity securities 3,709,000 4,096,000
Proceeds from maturities and sale of available for
sale securities 6,278,000 11,409,000
Loan and Lease origination's and repayments, net (41,679,000) (24,614,000)
Proceeds from sale of real estate acquired
through foreclosure - 109,000
Purchase of premises and equipment (1,447,000) (204,000)
Proceeds from sale of premises and equipment 312,000 -
----------- -----------
Net cash used in investing activities (55,589,000) (27,510,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, NOW, money market,
and savings accounts 16,665,000 9,228,000
Net (decrease) increase in certificates of deposit (2,579,000) 12,499,000
Net increase (decrease) increase in federal funds purchased 17,000,000 2,874,000
Net increase in securities sold under agreements
to repurchase 8,594,000 10,968,000
Advances from the Federal Home Loan Bank (1,070,000) (70,000)
Payment on notes payable (7,500,000) (1,750,000)
Proceeds from issuance of common stock 17,523,000 3,978,000
Proceeds from issuance of preferred stock - 1,500,000
Dividends paid on preferred stock (78,000) (34,000)
Proceeds from options exercised 400,000 -
Redemption of preferred stock (1,500,000) -
----------- -----------
Net cash provided by financing activities 47,455,000 39,193,000
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (5,436,000) 12,445,000
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 27,775,000 10,672,000
----------- -----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $22,339,000 $23,117,000
=========== ===========
</TABLE>
3
<PAGE>
COLORADO BUSINESS BANKSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Condensed Financial Statements
(Unaudited)
1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The accompanying consolidated condensed financial statements are unaudited and
include the accounts of Colorado Business Bankshares, Inc. ("Parent"), its
wholly owned subsidiary, Colorado Business Bank, N.A. ("Bank"), and its 80%
owned equipment leasing subsidiary, Colorado Business Leasing, Inc. ("Leasing")
collectively referred to as the "Company".
All significant intercompany accounts and transactions have been eliminated.
Information contained in the consolidated condensed financial statements and
notes thereto of the Company should be read in conjunction with the Company's
consolidated financial statements and notes thereto contained in the Company's
Prospectus dated June 18, 1998.
The consolidated condensed financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting only of normally recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
six month period ended June 30, 1998, or for the quarter ended June 30, 1998,
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
2. SHAREHOLDERS' EQUITY
In June 1998, the Company completed an initial public offering ("IPO") of its
common stock. A total of 1,610,000 shares of common stock were sold by the
Company at $12.00 per share yielding net proceeds of $17.5 million, after
deducting underwriting expenses and other expenses. Portions of the proceeds
from the offering were used to retire an outstanding note payable and the
Company's cumulative preferred stock. On June 23, 1998, the note payable, $7.25
million as of that date, was paid in full, and the cumulative preferred stock,
$1.5 million as of that date, was redeemed.
4
<PAGE>
3. EARNINGS PER COMMON SHARE
Earnings per common share is computed as follows:
<TABLE>
<CAPTION>
The three months ended Six months ended
---------------------------- -----------------------------
June 1998 June 1997 June 1998 June 1997
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
(In thousands, except per share amount)
Net income $ 635 $ 438 $1,222 $ 710
Preferred dividend 37 34 78 34
------ ------ ------ ------
Net income available for
common shareholders $ 598 $ 404 $1,144 $ 676
------ ------ ------ ------
EARNINGS PER COMMON SHARE
Basic $ 0.11 $ 0.08 $ 0.23 $ 0.16
=============================================================
Diluted $ 0.11 $ 0.08 $ 0.22 $ 0.15
=============================================================
WEIGHTED AVERAGE SHARES
OUTSTANDING
Basic 5,205 4,875 5,073 4,329
=============================================================
Diluted 5,392 4,990 5,306 4,445
=============================================================
</TABLE>
Basic earnings per share is based on net income divided by the weighted average
number of common shares outstanding during the period. The weighted average
number of shares outstanding used to compute diluted earnings per common share
include the number of additional common shares that would be outstanding if the
potentially dilutive common shares and common share equivalents had been issued
at the beginning of the year.
4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued. SFAS
No. 130 established standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. SAFS No. 130 requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 requires that a
company (a) classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the balance sheet. The Company adopted this
statement in the first quarter of 1998. The Company's only comprehensive income
component is unrealized gains and losses on available for sale securities. For
the six months ended June 30, 1998 and 1997, comprehensive income was $1,380,000
(unaudited) and $827,000 (unaudited), respectively.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CONSOLIDATED CONDENSED BALANCE SHEETS
The Company's total assets increased by $48.8 million, from $264.1 as of
December 31, 1997 to $312.9 million as of June 30, 1998. In the first six
months of 1998, the loan and lease portfolio (net) increased by $39.6 million,
from $164.1 million at December 31, 1997 to $203.7 million as of June 30, 1998.
Investment securities increased by $13.0 million, from $58.8 million as of
December 31, 1997 to $71.8 million as of June 30, 1998. For the first six
months of 1998, investment in operating leases increased by $1.3 million while
cash and cash equivalents decreased by $5.5 million.
The increase in loans and leases resulted from increased loan demand in the
Company's market areas, specifically the Boulder, Denver and West locations, as
well as increased economic growth in the Denver metropolitan area.
The increase in investment securities was comprised of purchases of $20.7
million of mortgage-backed securities and $2.0 million of U.S. Government
Treasury bills. Paydowns and maturities of $9.7 million in the investment
portfolio partially offset the purchases.
Deposits increased by $14.1 million, from $221.1 million as of December 31, 1997
to $235.1 million as of June 30, 1998. Noninterest-bearing deposits increased
by $8.9 million and interest-bearing deposits increased by $5.2 million.
Federal funds purchased and securities sold under agreements to repurchase
increased by $25.6 million in the first six months of 1998.
The Company completed an Initial Public Offering ("IPO") on June 23, 1998, and
portions of the proceeds were used to pay off an outstanding note and the
Company's cumulative preferred stock. The note payable, $7.25 million as of
June 23, 1998 was paid in full, and the Company's cumulative preferred stock,
$1.5 million as of June 23, 1998 was redeemed. Additional paid-in capital
increased $17.9 million, from $11.9 million as of December 31, 1997 to $29.8
million as of June 30, 1998. Of this increase, $17.5 million was a result of
the IPO and $400,000 was a result of the exercise of 40,000 options in the first
quarter of 1998.
CONSOLIDATED RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998.
Net income before preferred dividends for the Company increased $512,000 or
72.1% for the six months ended June 30, 1998 from $710,000 for the six months
ended June 30,
6
<PAGE>
1997, to $1,222,000 for the six months ended June 30, 1998. The increased
earnings during the six months reflected increases in interest-earning assets
and net interest income. At June 30, 1998 the Company reported a 35.6% increase
in total assets and a 38.9% increase in interest-earning assets as compared to
June 30, 1997.
The provision for loan and lease losses increased by $407,000, from $314,000 for
the six months ended June 30, 1997 to $721,000 for the six months ended June 30,
1998. The increase in provision is the result of increased loan volumes.
Net interest income before provision for loan and lease losses increased $1.9
million to $6.9 million for the six months ended June 30, 1998, from $5.0
million for the six months ended June 30, 1997, primarily due to increased loan
and lease volume. The Company's net interest margin before provision was 5.68%
at June 30, 1998 compared to 5.49% at June 30, 1997.
Total noninterest income increased by $539,000 to $1,991,000 for the six months
ended June 30, 1998, from $1,452,000 for the six months ended June 30, 1997.
The increases were primarily due to increases in operating lease income.
Total noninterest expense increased by $1,189,000 to $6,138,0000 for the six
months ended June 30, 1998, from $4,949,000 for the six months ended June 30,
1997. The increases were primarily due to increases in salary and related
expenses and occupancy expenses as a result of the opening of the West location
in the first quarter of 1998, the establishment of the Community Trust Division
in the first quarter of 1998 and the data processing system conversion that was
completed in the second quarter of 1998. Depreciation on operating leases also
increased in the first six months of 1998 as a result of the increased volume.
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998.
Net income before preferred dividends for the Company increased $197,000 or
45.0% for the quarter ended June 30, 1998 from $438,000 for the quarter ended
June 30, 1997, to $635,000 for the quarter ended June 30, 1998. The increased
earnings during the three months ended June 30, 1998 reflected increases in
interest-earning assets and net interest income. At June 30, 1998 the Company
reported a 35.6% increase in total assets and a 38.9% increase in interest-
earning assets as compared to June 30, 1997.
The provision for loan and lease losses increased by $202,000, from $168,000 for
the three months ended June 30, 1997 to $370,000 for the three months ended June
30, 1998. The increase in provision is the result of increased loan volumes.
7
<PAGE>
Net interest income before provision for loan and lease losses increased
$866,000 to $3,564,000 million for the quarter ended June 30, 1998, from
$2,698,000 for the quarter ended June 30, 1997, primarily due to increased loan
and lease volume.
Total noninterest income increased by $269,000 to $986,000 for the three months
ended June 30, 1998, from $717,000 for the three months ended June 30, 1997.
The increases were primarily due to increases in operating lease income.
Total noninterest expense increased by $620,000 to $3,123,000 for the three
months ended June 30, 1998 from $2,503,000 for the three months ended June 30,
1997. The increases were primarily due to increases in salary and related
expenses and occupancy expenses as a result of continued start-up costs for the
West location and the Community Trust Division, both of which commenced
operations in the first quarter of 1998 and the data processing system
conversion that was completed in the second quarter of 1998. Depreciation on
operating leases also increased in the second quarter of 1998 as a result of the
increased volume.
ALLOWANCE FOR LOAN AND LEASE LOSSES AND NONPERFORMING ASSETS
The following table presents, for the periods indicated, an analysis of the
allowance for loan and lease losses and other related data:
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN AND LEASE LOSSES: SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
-------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
Balance beginning of period $ 2,248 $ 1,660
Provision for loan and lease losses 721 949
Net charge offs (100) (361)
-------------------------------------------
Balance end of period $ 2,869 $ 2,248
===========================================
Allowance for loan and lease losses to total
loans and leases 1.39% 1.35%
Allowance for loan and lease losses to
non-performing loans and leases 319.13% 277.19%
</TABLE>
The allowance for loan and lease losses represents management's recognition of
the risks of extending credit and its evaluation of the quality of the loan and
lease portfolio. The allowance for loan and lease losses is maintained at a
level that is considered adequate to provide for anticipated loan and lease
losses, based on various factors affecting the loan and lease portfolio,
including a review of problem loans and leases, business conditions, historical
loss experience, evaluation of the underlying collateral and holding and
disposal costs. The allowance is increased by additional charges to operating
income and reduced by loans and leases charged off, net of recoveries.
8
<PAGE>
NONPERFORMING ASSETS
The Company's nonperforming assets consist of nonaccrual loans and leases,
restructured loans and leases, past due loans and leases and other real estate
owned. Nonperforming assets were $899,000 as of June 30, 1998 compared with
$811,000 as of December 31, 1997.
The following table presents information regarding nonperforming assets as of
the dates indicated:
<TABLE>
<CAPTION>
NONPERFORMING LOANS AND LEASES:
JUNE 30, 1998 DECEMBER 31, 1997
------------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
Loans and leases 90 days or more delinquent and
still accruing interest $ -- $ --
Nonaccrual loans and leases 559 470
Restructured loans and leases 340 341
------------------------------------------------
Total nonperforming loans and leases 899 811
Real estate acquired by foreclosure ------ ----
Total nonperforming assets $ 899 $ 811
================================================
Ratio of nonperforming assets to total assets
0.29% 0.31%
Ratio of nonperforming loans and leases to
total loans and leases 0.44% 0.49%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity management objective is to ensure its ability to satisfy
the cash flow requirements of depositors and borrowers and allow the Company to
meet its own cash flow needs. The Company's primary source of funds
historically has been customer deposits. Scheduled loan and lease repayments
are a relatively stable source of funds, while deposit inflows and unscheduled
loan and lease prepayments, which are influenced by fluctuations in general
interest rates, returns available on other investments, competition, economic
conditions and other factors, are relatively unstable. Company borrowings may
be used on a short-term basis to compensate for reductions in other sources of
funds (such as deposit inflows at less than projected levels). Company
borrowings may also be used on a longer term basis to support expanded lending
activities and to match the maturity or repricing intervals of assets.
9
<PAGE>
DATA PROCESSING SYSTEMS AND YEAR 2000 COMPLIANCE
The Company has formed a Year 2000 Committee to oversee issues relating to its
year 2000 compliance program. The program calls for all critical systems to be
certified as year 2000 compliant by December 31, 1998. The Company completed a
conversion to the Jack Henry System, a data processing system that will provide
the Company with the ability to offer more advanced services such as upgraded
P.C. banking, a voice response system and check and document imaging, in June
1998. Unlike the Company's prior data processing system, the Jack Henry System
is designed to be year 2000 compliant.
As a result of the conversion to the Jack Henry System, total incremental
expenses relating to year 2000 compliance, including depreciation and
amortization of the new systems, remediation to bring current systems into
compliance and writing off of legacy systems, are not expected to have a
material impact upon the Company's financial condition. Total expenditures
related to remediation, testing, replacement and upgrading system applications
with respect to the conversion to the Jack Henry System are expected to range
from $1.75 million to $1.9 million from 1998 through 2003, of which $39,000 was
incurred in the first six months of 1998. Of the total, approximately $1.1
million result from capital expenditures related to acquisition and
implementation of hardware and software related to the new data processing
system. The balance, $650,000 to $900,000, result from expenses associated with
network implementation, remediation, hardware and software maintenance, and
testing of existing systems.
The Company is attempting to contact vendors, customers and others on whom it
relies to assure that their systems will be certified as year 2000 compliant in
a timely fashion. However, there can be no assurance that the systems of any
such company will be converted in a timely fashion, or that any such failure to
convert by another company would not have an adverse affect on the Company's
systems. Furthermore, no assurance can be given that any or all of the
Company's systems are or will be Year 2000 compliant, or that the ultimate costs
required to address the Year 2000 issue or the impact of any failure to achieve
substantial Year 2000 compliance will not have a material adverse effect on the
Company's financial condition. In addition, bank regulatory agencies have begun
to monitor bank holding companies' and banks' readiness for the year 2000 as
part of the regular examination process. In the event that a bank holding
company or a bank is determined not to be satisfactorily prepared for the year
2000, it will be required to submit a written plan establishing a timetable for
year 2000 compliance and periodic progress reports on its efforts to implement
the plan. Failure to formulate a satisfactory plan, or to implement the plan
successfully, could result in enforcement action. The inability of the Company,
or its venders, customers and others
10
<PAGE>
upon which it relies, to address year 2000 issues successfully could result in
significant interruptions in its operations and, therefore, could have a
material adverse effect on the Company's business, financial condition, results
of operations and cash flows.
FORWARD LOOKING STATEMENTS
The discussion in this report contains forward-looking statements, including,
without limitation, statements relating to the Company's year 2000 compliance,
which are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Although the Company believes that the
expectations reflected in the forward looking statements are reasonable, it can
give no assurance that such expectations will prove to be correct. The forward-
looking statements involve risks and uncertainties that affect the Company's
operations, financial performance and other factors as discussed in the
Company's filings with the Securities and Exchange Commission. These risks
include the impact of economic conditions and interest rates, loan and lease
losses, risks related to the execution of the Company's growth strategy, the
possible loss of key personnel, factors that could affect the Company's ability
to compete in its trade areas, changes in regulations and government policies
and other factors discussed in the Company's filing with the Securities and
Exchange Commission. In particular, risks related to the Company's year 2000
compliance include those discussed under the heading "Data Processing Systems
and Year 2000 Compliance" in this report.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In June 1998, the Company completed its IPO. The IPO was conducted pursuant to a
Registration Statement (the "Registration Statement") on Form SB-2 (File No.
333-50037), which was declared effective by the Securities and Exchange
Commission on June 17, 1998. The IPO was commenced on June 18, 1998 and has been
completed. The managing underwriter for the IPO was Dain Rauscher Wessels, a
division of Dain Rauscher Incorporated. 1,610,000 shares of the Company's Common
Stock, $.01 par value (the "Common Stock"), were registered pursuant to the
Registration Statement and all such shares were sold in the IPO by the Company
at a price to the public of $12.00 per share, for gross proceeds of $19.32
million. Expenses incurred by the Company in connection with the Offering
(including underwriting discounts and commissions and expenses paid to or for
the underwriters) are estimated at $1.8 million. Such expenses constitute direct
or indirect payments to others. None of such expenses were direct or indirect
payments to directors or officers of the Company or their associates, persons
owning 10% or more of any class of equity securities of the Company or
affiliates of the Company. After deducting the expenses described above, the net
proceeds to the
11
<PAGE>
Company from the IPO were approximately $17.5 million. Approximately $7.25
million of such net proceeds was used to repay all of the remaining outstanding
indebtedness under the Company's credit facility, approximately $1.5 million was
used to redeem all of the Company's outstanding Preferred Stock and
approximately $ 5.0 million was contributed to the capital of Colorado Business
Bank, N.A., the Company's wholly-owned bank subsidiary (the "Bank"). The Company
intends to contribute the remaining $3.75 million of net proceeds to the Bank
during the next 12 months. Such uses constitute direct or indirect payments to
others. None of the net proceeds of the IPO were used to make direct or
indirect payments to directors or officers of the Company or their associates,
persons owning 10% or more of any class of equity securities of the Company or
affiliates of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On May 19, 1998, the Company held its annual meeting of shareholders. At
that meeting, the following items were submitted to a vote of security holders
with the following results (shares voted are given prior to the 4.7125-to-1
stock split of the Common Stock, which was effected after the annual meeting):
1. The following directors were elected:
Name Term
- ---- ----
Jonathan C. Lorenz 1 year
Virginia K. Berkeley 1 year
Mark S. Kipnis 1 year
Steven Bangert 2 years
Noel N. Rothman 2 years
Timothy J. Travis 2 years
Howard R. Ross 3 years
Michael B. Burgamy 3 years
982,297 shares were voted in favor of each director's election, no shares were
voted against any director's election, there were no abstentions and 52,179
shares were not voted.
2. The shareholders adopted a proposal to amend the Company's Articles of
Incorporation to: (a) increase the number of shares of Common Stock authorized
for issuance from 5 million to 25 million; (b) increase the number of shares of
the Company's Preferred Stock, $.01 par value, from 20,000 to 2 million; (c)
provide for a classified Board of Directors, with three classes of directors
having staggered terms of three years each; and (d) appoint Steven Bangert as
the registered agent of the Company. 982,297 shares were voted in favor of the
proposal, no shares were voted against the proposal, no shares abstained and
52,179 shares were not voted.
12
<PAGE>
3. The shareholders adopted a proposal to amend the Colorado Business
Bankshares, Inc. 1995 Incentive Stock Option Plan (the "1995 Plan") to: (a)
provide that the Compensation Committee of the Board of Directors shall
administer the 1995 Plan; and (b) clarify that awards under the 1995 Plan may be
granted to such employees of the Company as may be determined by the
Compensation Committee. 973,337 shares were voted in favor of the proposal,
8,960 shares were voted against the proposal, no shares abstained and 52,179
shares were not voted.
4. The shareholders adopted a proposal to approve the Amended and Restated
Colorado Business Bankshares, Inc. 1997 Incentive Stock Option Plan. 982,297
shares were voted in favor of the proposal, no shares were voted against the
proposal, no shares abstained and 52,179 shares were not voted.
5. The shareholders adopted a proposal to approve the Colorado Business
Bankshares, Inc. 1998 Stock Incentive Plan. 982,297 shares were voted in favor
of the proposal, no shares were voted against the proposal, no shares abstained
and 52,179 shares were not voted.
6. The shareholders adopted a proposal to ratify the appointment of Deloitte &
Touche LLP as the Company's independent auditors for the years ended December
31, 1997 and 1998. 982,297 shares were voted in favor of the proposal, no
shares were voted against the proposal, no shares abstained and 52,179 shares
were not voted.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27.1 Financial Data Schedule as of June 30, 1998
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1998.
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COLORADO BUSINESS BANKSHARES, INC.
Date: August 14, 1998 By: /s/ Steven Bangert
--------------- ------------------------
Steven Bangert, Chief Executive Officer and Chairman
Date: August 14, 1998 By: /s/ Richard J. Dalton
--------------- ---------------------------
Richard J. Dalton, Executive Vice President and
Chief Financial Officer
14
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<PAGE>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 22,339,000 20,617,000
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 0 2,500,000
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 58,181,000 34,064,000
<INVESTMENTS-CARRYING> 11,514,000 25,035,000
<INVESTMENTS-MARKET> 181,000 291,000
<LOANS> 206,583,000 136,844,000
<ALLOWANCE> 2,868,000 1,953,000
<TOTAL-ASSETS> 312,881,000 230,723,000
<DEPOSITS> 235,144,000 177,037,000
<SHORT-TERM> 38,618,000 23,490,000
<LIABILITIES-OTHER> 1,779,000 1,210,000
<LONG-TERM> 2,190,000 12,580,000
0 0
0 1,500,000
<COMMON> 67,000 49,000
<OTHER-SE> 35,083,000 14,814,000
<TOTAL-LIABILITIES-AND-EQUITY> 312,881,000 230,723,000
<INTEREST-LOAN> 9,256,000 6,279,000
<INTEREST-INVEST> 1,913,000 2,103,000
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 11,169,000 8,382,000
<INTEREST-DEPOSIT> 3,351,000 2,328,000
<INTEREST-EXPENSE> 4,246,000 3,352,000
<INTEREST-INCOME-NET> 6,923,000 5,030,000
<LOAN-LOSSES> 721,000 314,000
<SECURITIES-GAINS> 0 25,000
<EXPENSE-OTHER> 6,138,000 4,949,000
<INCOME-PRETAX> 2,055,000 1,219,000
<INCOME-PRE-EXTRAORDINARY> 1,222,000 710,000
<EXTRAORDINARY> 0 0
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<NET-INCOME> 1,222,000 710,000
<EPS-PRIMARY> .23 .16
<EPS-DILUTED> .22 .15
<YIELD-ACTUAL> 5.68 5.49
<LOANS-NON> 559,000 270,000
<LOANS-PAST> 0 38,000
<LOANS-TROUBLED> 340,000 344,000
<LOANS-PROBLEM> 1,150,000 3,110,000
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