<PAGE>
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1999.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
------------------------------------
Commission file number 000-24445
------------------------------------
COLORADO BUSINESS BANKSHARES, INC.
(Exact name of small business issuer as specified in its charter)
COLORADO 84-0826324
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
821 l7th Street
Denver, CO 80202
(Address of principal executive offices) (Zip Code)
(303) 293-2265
(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (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 issuer was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
--- ---
There were 6,673,481 shares of the issuer's Common Stock, $0.01 par value per
share, outstanding as of August 10, 1999.
Transitional Small Business Disclosure Format
Yes No X
--- ---
================================================================================
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis or Plan of Operation 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities and Use of Proceeds None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other information None
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 17
<PAGE>
PART I - FINANCIAL INFORMATION
COLORADO BUSINESS BANKSHARES, INC.
Consolidated Condensed Balance Sheets
June 30, 1999 (unaudited) and December. 31, 1998
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 20,940,000 $ 20,058,000
Federal funds sold - -
------------ ------------
Total cash and cash equivalents 20,940,000 20,058,000
------------ ------------
Investment securities available for sale (cost of $100,717,000 (unaudited) and
$95,994,000, respectively) 99,623,000 96,463,000
Investment securities held to maturity (fair value of $8,375,000 (unaudited) and
$9,481,000, respectively) 8,339,000 9,370,000
Other investments 2,514,000 2,104,000
------------ ------------
Total investments 110,476,000 107,937,000
------------ ------------
Loans and leases, net 274,157,000 223,279,000
Excess of cost over fair value of net assets acquired, net 4,462,000 4,682,000
Investment in operating leases 3,623,000 4,180,000
Premises and equipment, net 3,319,000 2,884,000
Accrued interest receivable 1,853,000 1,597,000
Deferred income taxes 1,590,000 934,000
Other 937,000 999,000
------------ ------------
TOTAL ASSETS $421,357,000 $366,550,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $102,842,000 $ 95,169,000
NOW and money market 109,228,000 101,455,000
Savings 6,564,000 6,931,000
Certificates of deposit 91,534,000 69,473,000
------------ ------------
Total deposits 310,168,000 273,028,000
Federal funds purchased 3,300,000 3,500,000
Securities sold under agreements to repurchase 50,144,000 24,956,000
Other liabilities 2,019,000 1,774,000
Advances from the Federal Home Loan Bank 17,050,000 26,120,000
Note payable 189,000 -
------------ ------------
Total liabilities 382,870,000 329,378,000
Shareholders' Equity:
Common, $.01 par value; 25,000,000 shares authorized; 6,673,481 (unaudited)
issued and outstanding 67,000 67,000
Additional paid-in capital 29,839,000 29,839,000
Retained earnings 9,267,000 6,972,000
Accumulated other comprehensive income, net of income tax
of ($411,000) (unaudited) and $172,000, respectively (686,000) 294,000
------------ ------------
Total shareholders' equity 38,487,000 37,172,000
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $421,357,000 $366,550,000
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
1
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
Consolidated Statements of Income and Comprehensive Income
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------------------------------
1999 1998 1999 1998
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans and leases $ 6,053,000 $ 4,888,000 $ 11,437,000 $ 9,256,000
Interest on investments 1,606,000 904,000 3,137,000 1,913,000
----------- ----------- ------------ -----------
Total interest income 7,659,000 5,792,000 14,574,000 11,169,000
INTEREST EXPENSE:
Interest on deposits 2,016,000 1,694,000 3,762,000 3,351,000
Interest on short-term borrowings & FHLB advances 680,000 392,000 1,330,000 594,000
Interest on note payable - 142,000 - 301,000
----------- ----------- ------------ -----------
Total interest expense 2,696,000 2,228,000 5,092,000 4,246,000
NET INTEREST INCOME BEFORE PROVISION FOR
LOAN AND LEASE LOSSES 4,963,000 3,564,000 9,482,000 6,923,000
Provision for loan and lease losses 332,000 370,000 635,000 721,000
----------- ----------- ------------ -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN AND LEASE LOSSES 4,631,000 3,194,000 8,847,000 6,202,000
----------- ----------- ------------ -----------
OTHER INCOME:
Service charges 284,000 219,000 540,000 447,000
Operating lease income 551,000 545,000 1,138,000 1,251,000
Other income 260,000 222,000 535,000 293,000
----------- ----------- ------------ -----------
Total other income 1,095,000 986,000 2,213,000 1,991,000
----------- ----------- ------------ -----------
OTHER EXPENSE:
Salaries and employee benefits 2,091,000 1,679,000 4,029,000 3,258,000
Occupancy expenses, premises and equipment 630,000 460,000 1,211,000 804,000
Depreciation on leases 487,000 448,000 983,000 916,000
Amortization of intangibles 111,000 114,000 221,000 223,000
Other 513,000 422,000 1,095,000 937,000
----------- ----------- ------------ -----------
Total other expense 3,832,000 3,123,000 7,539,000 6,138,000
----------- ----------- ------------ -----------
INCOME BEFORE INCOME TAXES 1,894,000 1,057,000 3,521,000 2,055,000
Provision for income taxes 752,000 422,000 1,372,000 833,000
----------- ----------- ------------ -----------
NET INCOME $ 1,142,000 $ 635,000 $ 2,149,000 $ 1,222,000
=========== =========== ============ ===========
UNREALIZED (DEPRECIATION) APPRECIATION ON
AVAILABLE FOR SALE SECURITIES, net of tax (892,000) 115,000 (980,000) 158,000
=========== =========== ============ ===========
COMPREHENSIVE INCOME $ 250,000 $ 750,000 $ 1,169,000 $ 1,380,000
=========== =========== ============ ===========
EARNINGS PER SHARE:
Basic $ 0.17 $ 0.11 $ 0.32 $ 0.23
=========== =========== ============ ===========
Diluted $ 0.17 $ 0.11 $ 0.31 $ 0.22
=========== =========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------
1999 1998
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,149,000 $ 587,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Net amortization on securities 137,000 61,000
Depreciation and amortization 1,653,000 713,000
Provision for loan and lease losses 635,000 351,000
Deferred income taxes (72,000) (107,000)
Loss (gain) on sale of premises and equipment (29,000) -
Changes in:
Accrued interest receivable (257,000) 86,000
Other assets 62,000 105,000
Accrued interest and other liabilities 391,000 269,000
------------ ------------
Net cash provided by operating activities 4,669,000 2,065,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in other investments (410,000) -
Purchase of available for sale securities (35,354,000) (2,970,000)
Proceeds from maturities of held to maturity securities 2,604,000 1,611,000
Proceeds from maturities and sale of available for
sale securities 28,926,000 3,066,000
Loan and lease originations and repayments, net (52,022,000) (16,025,000)
Purchase of premises and equipment (889,000) (954,000)
Proceeds from sale of premises and equipment 111,000 1,000
------------ ------------
Net cash used in investing activities (57,034,000) (15,271,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, NOW, money market,
and savings accounts 15,079,000 1,325,000
Net increase (decrease) in certificates of deposit 22,061,000 (1,788,000)
Net (decrease) increase in federal funds purchased (200,000) 5,000,000
Net increase in securities sold under agreements
to repurchase 25,188,000 3,061,000
Advances from (payments to) the Federal Home Loan Bank (9,070,000) -
Change in notes payable 189,000 -
Dividends paid on preferred stock - (40,000)
Proceeds from options exercised - 400,000
------------ ------------
Net cash provided by financing activities 53,247,000 7,958,000
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 882,000 (5,248,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 20,058,000 27,775,000
------------ ------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 20,940,000 $ 22,527,000
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
Colorado Business Bankshares, Inc. and Subsidiaries
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" and, collectively with Parent and Bank, the "Company").
All significant intercompany accounts and transactions have been
eliminated. These financial statements and notes thereto should be read in
conjunction with, and are qualified in their entirety by reference to, the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1998, as
filed with the Securities and Exchange Commission on March 31, 1999.
The consolidated condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the 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 months ended June 30, 1999 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1999.
2. Earnings per Common Share
Income available to common shareholders and the weighted average shares
outstanding used in the calculation of Basic and Diluted Earnings Per Share are
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------- ------------------------------------
1999 1998 1999 1998
---------------- ------------- ---------------- ----------------
Net income $ 1,142,000 $ 635,000 $ 2,149,000 $ 1,222,000
Less: Preferred stock dividends - 37,000 - 78,000
---------------- -------------- ---------------- ----------------
Income available to common shareholders $ 1,142,000 $ 598,000 $ 2,149,000 $ 1,144,000
================ ============== ================ ================
Weighted average shares outstanding -
basic earnings per share 6,673,481 5,205,006 6,673,481 5,074,225
Effect of dilutive securities - stock options 188,220 187,130 189,514 232,583
---------------- -------------- ---------------- ----------------
Weighted average shares outstanding -
diluted earnings per share 6,861,701 5,392,136 6,862,995 5,306,808
================ ============== ================ ================
Earnings per common share - Diluted $ 0.17 $ 0.11 $ 0.31 $ 0.22
================ ============== ================ ================
</TABLE>
4
<PAGE>
3. Recent Accounting Pronouncements
SFAS No. 133, "Accounts for Derivative Instruments and Hedging
Activities," establishes accounting and reporting standards for derivative
instruments and hedging activities and requires recognition of all derivatives
as either assets or liabilities measured at fair value. The accounting for
changes in fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The statement is required for the year
2001. The adoption of SFAS No. 133 is not expected to have a material effect on
the consolidated financial statements.
4. Segments
The Company's principal activities include Commercial Banking and
Equipment Leasing. Commercial banking offers a broad range of banking products
and services, including credit, cash management, investment, deposit and trust
products. The Equipment Leasing segment offers leasing programs for computers,
telecommunications equipment, telephone systems, business furniture,
manufacturing equipment, materials handling equipment and other capital
equipment.
The financial information for each business segment reflects that
information which is specifically identifiable or which is allocated based on an
internal allocation method. The allocation has been consistently applied for
all periods presented. Revenues from affiliated transactions, principally the
Commercial Banking division's funding of Equipment Leasing activity, are
generally charged at the Commercial Banking division's marginal cost of funds.
5
<PAGE>
Results of operations and selected financial information by operating
segment are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ------------ ------------
(Dollars in thousands)
Total interest income:
Commercial Banking $ 7,575 $ 5,854 $ 14,499 $ 11,294
Equipment Leasing 387 176 674 389
All other 7 7 13 9
Elimination's (310) (245) (612) (523)
----------- ----------- ------------ ------------
Consolidated $ 7,659 $ 5,792 $ 14,574 $ 11,169
=========== =========== ============ ============
Total interest expense:
Commercial Banking $ 2,692 $ 2,083 $ 5,084 $ 3,947
Equipment Leasing 314 248 620 523
All other - 142 - 301
Elimination's (310) (245) (612) (525)
----------- ----------- ------------ ------------
Consolidated $ 2,696 $ 2,228 $ 5,092 $ 4,246
=========== =========== ============ ============
Other noninterest income:
Commercial Banking $ 569 $ 387 $ 1,054 $ 726
Equipment Leasing 598 647 1,230 1,369
All other 1,379 873 2,620 1,750
Elimination's (1,451) (921) (2,691) (1,854)
----------- ----------- ------------ ------------
Consolidated $ 1,095 $ 986 $ 2,213 $ 1,991
=========== =========== ============ ============
Net Income:
Commercial Banking $ 1,184 $ 828 $ 2,242 $ 1,589
Equipment Leasing 71 (32) 58 9
All other 1,142 635 2,149 1,221
Elimination's (1,255) (796) (2,300) (1,597)
----------- ----------- ------------ ------------
Consolidated $ 1,142 $ 635 $ 2,149 $ 1,222
=========== =========== ============ ============
</TABLE>
6
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Overview
Net earnings available to common shareholders were $1,142,000 for the
quarter ended June 30, 1999 compared with $598,000 for the quarter ended June
30, 1998, an increase of 91%. Earnings per share on a fully diluted basis for
the second quarter were $0.17, versus $0.11 for the same period a year ago, an
increase of 55%. For the six months ended June 30, 1999, net earnings available
to common shareholders were $2,149,000, an increase of $1,005,000, or 88%, from
the first six months of 1998. Earnings per share on a fully diluted basis for
the six months ended June 30, 1999 were $0.31, compared with $0.22 for the same
period a year ago, an increase of 41%.
On an operating basis, before the amortization of goodwill,
consolidated net income available to common shareholders for the three months
ended June 30, 1999 and 1998, was $1,252,000 and $707,000, or $0.18 and $0.13
per diluted share, respectively. Return on average tangible assets was 1.23% in
the second quarter of 1999 compared with 1.11% in the second quarter of 1998.
Return on average common shareholders' equity was 11.81% for the quarter ended
June 30, 1999, versus 13.17% for the quarter ended June 30, 1998. For the first
six months of 1999 and 1998, respectively, returns on average tangible assets
were 1.23% and 1.08%, and returns on average common shareholders' equity were
11.32% and 13.56%.
Consolidated Condensed Balance Sheets
The Company's total assets increased by $54.8 million to $421.4 million
as of June 30, 1999, from $366.6 as of December 31, 1998. A robust Colorado
economy continues to fuel the Company's strong loan growth, particularly in the
Boulder, Denver, Vail Valley, and West Metropolitan Denver ("West Metro")
markets. In the first six months of 1999, the loan and lease portfolio (net)
increased by $50.9 million, from $223.3 million at December 31, 1998 to $274.2
million as of June 30, 1999. Investment securities were $110.5 million as of
June 30, 1999 compared to $107.9 million as of December 31, 1998. Growth in the
investment portfolio has been limited as the Company has utilized its funding
resources to support stronger than anticipated loan demand, rather than to
support investment purchases.
Deposits increased by $37.2 million to $310.2 million as of June 30,
1999, from $273.0 million as of December 31, 1998. Noninterest-bearing deposits
increased by $7.7 million, and interest-bearing deposits increased by $29.5
million. Low cost demand deposits comprised 33% of total deposits as of June 30,
1999. Federal funds purchased and securities sold under agreements to repurchase
increased by $25.0 million in the first six months of 1999 to $53.4 million. Of
this total, $32.6 million are repurchase agreements transacted on behalf of the
Company's customers and are not considered a wholesale borrowing source.
7
<PAGE>
Results of Operations
Net Interest Income
Net interest income before provision for loan and lease losses was $5.0
million for the quarter ended June 30, 1999, an increase of $1.4 million, or
39%, compared with the quarter ended June 30, 1998. Yields on the Company's
interest-earning assets declined by 100 basis points to 8.01% for the three
months ended June 30, 1999, down from 9.01% for the three months ended June 30,
1998. Rates paid on interest-bearing liabilities declined by only 61 basis
points during this same period. The net interest margin was 5.26% for the
quarter ended June 30, 1999, down from 5.62% for the quarter ended June 30,
1998. This decline corresponds with industry-wide pricing pressures, and
resulted primarily from a higher proportionate share of fixed rate real-estate
term loans, as compared to commercial loans, in the portfolio. However, growth
of the Company's average earning assets helped mitigate the margin compression.
Average earning assets increased by 49% to $378.4 million for the second
quarter, 1999, from $254.4 million for the second quarter, 1998.
Net interest income before provision for loan and lease losses was $9.5
million for the six months ended June 30, 1999, an increase of $2.6 million, or
37%, compared with the six months ended June 30, 1998. The net interest margin
was 5.30% for the first six months of 1999, down from 5.68% for the same period
in 1998.
The following tables set forth for each category of interest-earning
assets and interest-bearing liabilities, the average amounts outstanding, the
interest earned or paid on such amounts, and the average rate earned or paid for
the quarters ended June 30, 1999 and 1998 and for the six months ended June 30,
1999 and 1998.
8
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Three months ended June 30,
------------------------------------------------------------------
1999 1998
--------------------------------- -------------------------------
Interest Average Interest Average
Average earned yield Average earned yield
balance or paid or cost balance or paid or cost
------------ -------- -------- ---------- -------- -------
(Dollars in thousands)
ASSETS:
Federal funds sold $ 3,925 $ 45 4.54% $ 530 $ 7 5.22%
Investment securities 111,070 1,560 5.56% 62,440 897 5.68%
Loans and leases 266,999 6,054 8.97% 194,231 4,888 9.96%
Allowance for loan and lease losses (3,591) - 0.00% (2,782) - 0.00%
------------ -------- ---------- --------
Total interest-earning assets 378,403 7,659 8.01% 254,419 5,792 9.01%
Noninterest-earning assets:
Cash and due from banks 20,145 18,452
Other 14,890 11,665
------------ ----------
Total assets $ 413,438 $ 284,536
============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
NOW and money market accounts $ 118,036 $ 926 3.15% $ 81,530 $ 687 3.38%
Savings 6,363 35 2.21% 5,796 38 2.63%
Certificates of deposit:
Under $100,000 26,125 327 5.02% 19,513 266 5.47%
$100,000 and over 58,171 728 5.02% 49,358 703 5.71%
------------ -------- ---------- --------
Total interest-bearing deposits 208,695 2,016 3.87% 156,197 1,694 4.35%
Short-term borrowings:
Securities and loans sold under agreements
to repurchase and federal funds purchased 47,345 516 4.31% 26,288 346 5.21%
FHLB advances & notes payable 12,246 164 5.30% 2,279 46 7.98%
Long-term borrowings - - 0.00% 7,690 142 7.31%
------------ -------- ---------- --------
Total interest-bearing liabilities 268,286 2,696 4.02% 192,454 2,228 4.63%
Noninterest-bearing demand accounts 103,069 69,989
------------ ----------
Total deposits and interest-bearing
liabilities 371,355 262,443
Other noninterest-bearing liabilities 3,282 1,449
------------ ----------
Total liabilities 374,637 263,892
Shareholders' equity 38,801 20,644
------------ ----------
Total liabilities and shareholders'
equity $ 413,438 $ 284,536
============ ==========
Net interest income $ 4,963 $ 3,564
======== ========
Net interest spread 3.99% 4.38%
======== =======
Net interest margin 5.26% 5.62%
======== =======
Ratio of average interest-bearing assets to
average interest-bearing liabilities 141.04% 132.20%
============ ==========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Six months ended June 30,
------------------------------------------------------------------
1999 1998
--------------------------------- -------------------------------
Interest Average Interest Average
Average earned yield Average earned yield
balance or paid or cost balance or paid or cost
------------ --------- --------- ----------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Federal funds sold $ 3,780 $ 88 4.63% $ 3,588 $ 95 5.29%
Investment securities 107,691 3,049 5.63% 60,888 1,818 5.94%
Loans and leases 252,495 11,437 9.01% 183,985 9,256 10.01%
Allowance for loan and lease losses (3,471) - 0.00% (2,599) - 0.00%
------------ --------- --------- --------
Total interest-earning assets 360,495 14,574 8.04% 245,862 11,169 9.04%
Noninterest-earning assets:
Cash and due from banks 17,987 16,602
Other 15,007 11,836
------------ ---------
Total assets $ 393,489 $ 274,300
============ =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
NOW and money market accounts $ 111,219 $ 1,692 3.07% $ 80,491 $ 1,339 3.35%
Savings 6,692 73 2.20% 5,950 78 2.64%
Certificates of deposit:
Under $100,000 28,191 706 5.05% 19,185 512 5.38%
$100,000 and over 51,686 1,291 5.04% 50,653 1,422 5.66%
------------ --------- --------- --------
Total interest-bearing deposits 197,788 3,762 3.84% 156,279 3,351 4.32%
Short-term borrowings:
Securities and loans sold under agreements
to repurchase and federal funds purchased 43,606 936 4.27% 21,482 495 4.58%
FHLB advances & notes payable 14,844 394 5.28% 2,784 99 7.07%
Long-term borrowings - - 0.00% 5,479 301 10.93%
------------ --------- --------- --------
Total interest-bearing liabilities 256,238 5,092 3.99% 186,024 4,246 4.59%
Noninterest-bearing demand accounts 96,432 67,309
------------ ---------
Total deposits and interest-bearing
liabilities 352,670 253,333
Other noninterest-bearing liabilities 2,543 1,464
------------ ---------
Total liabilities 355,213 254,797
Shareholders' equity 38,276 19,503
------------ ---------
Total liabilities and shareholders'
equity $ 393,489 $ 274,300
============ =========
Net interest income $ 9,482 $ 6,923
======= =======
Net interest spread 4.05% 4.45%
==== ====
Net interest margin 5.30% 5.68%
==== ====
Ratio of average interest-bearing assets to
average interest-bearing liabilities 140.69% 132.17%
============ =========
</TABLE>
10
<PAGE>
Noninterest Income
Total noninterest income increased by $109,000 to $1,095,000 for the
three months ended June 30, 1999, from $986,000 for the three months ended June
30, 1998. For the six months ended June 30, 1999, noninterest income was
$2,213,000, compared with $1,991,000 for the same period in 1998. The increases
were primarily attributable to increases in deposit service charges, trust fees,
and other banking service related fees. Generally, increases in deposit service
charges do not correspond with the growth in deposit balances. This is due to
the fact that the Company provides its customers with the choice of either
paying for services in cash or by maintaining additional non-interest bearing
account balances.
Noninterest Expense
Total noninterest expense increased by $709,000 to $3,832,000 for the
three months ended June 30, 1999, up from $3,123,000 for the three months ended
June 30, 1998. For the six months ended June 30, 1999, noninterest expense was
$7,539,000, up from $6,138,000 for the six months ended June 30, 1998. During
these same periods, however, the efficiency ratio before goodwill improved to
61% for the quarter ended June 30, 1999, up from 66% for the comparable period
in 1998. The efficiency ratio for the first six months of 1999 was 63%, as
compared to 67% in 1998.
Theses increases in noninterest expense were primarily the result of
additional personnel and occupancy expenses incurred to accommodate the
Company's growth. Subsequent to June 1998, the company opened three new
facilities. In addition, the data processing system conversion, which was
completed in the second quarter of 1998, as well as other on-going technological
upgrades, contributed to a higher level of noninterest expense.
11
<PAGE>
Provision and Allowance for Loan Losses
The provision for loan and lease losses decreased by $38,000 to $332,000
for the three months ended June 30, 1999, down from $370,000 for the three
months ended June 30, 1998. The provision for loan and lease losses decreased by
$86,000 to $635,000 for the six months ended June 30, 1999, down from $721,000
for the six months ended June 30, 1998. The decrease relates to the Company's
sustained credit quality. Key indicators of asset quality have remained
favorable, while average outstanding loan amounts have increased to $267.0
million for the second quarter, 1999, up from $194.2 million for the second
quarter, 1998.
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 Company maintains an allowance for loan
losses based upon a number of factors, including, among others, the amount of
problem loans and leases, general economic conditions, historical loss
experience, and the evaluation of the underlying collateral and holding and
disposal costs. In addition to unallocated allowances, specific allowances are
provided for individual loans when ultimate collection is considered
questionable by management after reviewing the current status of those loans
that are contractually past due and considering the net realizable value of the
collateral for the loans. Management actively monitors the Company's asset
quality and will charge-off loans against the allowance for loan losses 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 allowance for loan losses, future adjustments
may be necessary if economic conditions differ from the assumptions used in
making the initial determinations. As of June 30, 1999, the allowance for loan
losses amounted to $3.8 million, or 1.38% of total loans and leases. The
following table presents, for the periods indicated, an analysis of the
allowance for loan and lease losses and other related data.
12
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
1999 1998
-------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Balance of allowance for loan and lease
losses at beginning of period $ 3,271 $ 2,248
------------------- ---------------------
Charge-offs:
Commercial 4 200
Real estate-- mortgage 51 -
Real estate-- construction 4 -
Consumer 20 32
Direct financing leases - 4
------------------- ---------------------
Total charge-offs 79 236
------------------- ---------------------
Recoveries:
Commercial 3 66
Real estate-- mortgage - -
Real estate-- construction - -
Consumer - 5
Direct financing leases - -
------------------- ---------------------
Total recoveries 3 71
------------------- ---------------------
Net charge-offs (76) (165)
Provisions for loan and lease losses
charged to operations 635 1,188
------------------- ---------------------
Balance of allowance for loan and lease
losses at end of period $ 3,830 $ 3,271
=================== =====================
Ratio of net charge-offs to average
loans and leases .03% .08%
Average loans and leases outstanding during
the period $ 252,495 $ 197,851
=================== =====================
</TABLE>
13
<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 $781,000 as of June 30, 1999, compared
with $467,000 as of December 31, 1998 and $899,000 as of June 30, 1998. The
following table presents information regarding nonperforming assets as of the
dates indicated:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1999 1998 1998
-------------------- ---------------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Nonperforming loans and leases:
Loans and leases 90 days or more delinquent
and still accruing interest $ - $ 4 $ -
Nonaccrual loans and leases 781 125 559
Restructured loans and leases - 338 340
-------------- -------------- ---------------
Total nonperforming loans and leases 781 467 899
Real estate acquired by foreclosure - - -
============== ============== ===============
Total nonperforming assets $ 781 $ 467 $ 899
============== ============== ===============
Allowance for loan and lease losses $ 3,830 $ 3,271 $ 2,869
============== ============== ===============
Ratio of nonperforming assets to total assets 0.19% 0.13% 0.29%
Ratio of nonperforming loans and leases to
total loans and leases 0.28% 0.21% 0.44%
Ratio of allowance for loan and lease losses to
total loans and leases 1.38% 1.44% 1.39%
Ratio of allowance for loan and lease losses to
nonperforming loans and leases 490.40% 700.43% 319.13%
</TABLE>
14
<PAGE>
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. Historically, the Company's primary
source of funds 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
level of 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.
The Company uses various forms of short-term borrowings for cash
management and liquidity purposes on a limited basis. These forms of borrowings
include federal funds purchases, securities sold under agreements to repurchase,
the State of Colorado Treasury's Time Deposit program, and borrowings from the
Federal Home Loan Bank of Topeka ("FHLB"). The Bank has approved federal funds
purchase lines with six other banks with an aggregate credit line of $49
million. In addition, the Bank may apply for up to $11 million of State of
Colorado time deposits. The Bank also has available a $53 million line of credit
from the FHLB. Borrowings under the FHLB line would be secured by unpledged
securities and other loans.
Data Processing Systems and Year 2000 Compliance
General. The Year 2000 Issue is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
our computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. The failure to correct any such programs or hardware could result in
system failures or miscalculations causing disruptions of our operations,
including, among other things, a temporary inability to process transactions,
send statements or engage in similar normal business activities. We have
determined that we will have to modify or replace portions of our information
processing systems so that those systems will properly utilize dates beyond
December 31, 1999. We plan to complete the modifications and replacements
necessary to correct those systems prior to December 31, 1999. If such
modifications and replacements are not made, or are not completed on a timely
basis, the Year 2000 Issue could have a material impact on our future operating
performance.
State of Readiness. The Company is well underway with its "Year 2000
Program" efforts. The Company has a Year 2000 Committee that oversees issues
relating to its Year 2000 Program. In June 1998, the Company converted to the
Jack Henry System, a data processing system that provides the Company with the
ability to deliver upgraded P.C. banking, a voice response system and check and
document imaging. The Jack Henry System is designed to be year 2000 compliant.
The renovation phase for other mission critical components was completed by
December 31, 1998. Renovation for non-mission critical components was completed
during the first quarter of 1999. The validation phase for mission critical
components, including the Jack Henry System, was completed in first quarter 1999
and for non-critical components was completed in the second quarter 1999. The
Company utilizes third party servicers for some of its information and data
processing needs, and it is monitoring the progress of these entities in
addressing the Year 2000 Issue. Validation of these third-party provided systems
was
15
<PAGE>
completed during the second quarter of 1999. The Company expects, but cannot
guarantee, that all of these third party servicers will continue to be
compliant. The Company is also assessing the operability of other devices after
1999, including vaults, fax machines, stand-alone personal computers and
security systems. Although the Company does not believe that the failure of
these systems would have a material adverse effect on the financial condition of
the enterprise, it is addressing deficiencies in these systems in an effort to
make them compliant during 1999.
Costs. In order to achieve and confirm year 2000 readiness, significant
costs are being incurred to test and modify or replace computer software and
hardware. The Company believes that its remediation costs have been mitigated
since it has replaced, in the ordinary course of business, a substantial portion
of its core banking systems during the past five years with year 2000 compliant
software. However, the considerable effort required to implement new software
and sufficiently test its compliance is consuming a substantial portion of the
Company's internal information technology resources. This diversion of resources
to the Year 2000 Program has resulted in delays in implementing enhancements to
a number of the Company's systems and products. The Company does not believe,
however, that these delays will have a significant effect on its revenue or
expense growth. The aggregate increase in operating expense to achieve Year 2000
readiness is estimated to be $1.9 million, of which $726,000 has been incurred
through June 30, 1999, including approximately $470,000 incurred in converting
to the Jack Henry System. In addition, a significant portion of the Company's
personal computers have been replaced to achieve Year 2000 compliance. The
capital outlay to replace these assets is estimated to have been $198,000, a
portion of which would have been incurred in the ordinary course of business
without regard to Year 2000 issues.
Risks. If the Company's mission-critical applications are not
compliant by 2000, it may not be able to correctly process transactions in a
reasonable period of time. This scenario could result in a wide variety of
claims against the Company for improper handling of its assets and deposits and
other borrowings from its customers. The Company is also at risk if the credit
worthiness of a few of its large borrowers, or a significant number of its small
borrowers, were to deteriorate quickly and severely as a result of their
inability to conduct business operations after December 31, 1999 due to Year
2000 issues or any other reason. Although the Company has surveyed and is
presently reviewing the Year 2000 plans of a number of its credit customers to
ascertain the sufficiency of their remediation efforts and the implications of
their actions on their credit worthiness, the Company cannot control or predict
whether such customers' remediation efforts will be successful.
Contingency Plans. The Company has developed business resumption plans
for each significant business unit in the event that its remediation plan is not
completed in time or fails for reasons that are not presently foreseen. In the
event of such a failure, these plans outline the steps that will be taken to
remediate the situation and minimize the effect on customers and losses to the
Company. These plans are complete and were tested in the second quarter of 1999.
16
<PAGE>
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 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27.1 Financial Data Schedule as of June 30, 1999.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1999.
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 13, 1999 By: /s/ Steven Bangert
----------------------------------------------------
Steven Bangert, Chief Executive Officer and Chairman
Date: August 13, 1999 By: /s/ Richard J. Dalton
----------------------------------------------------
Richard J. Dalton, Executive Vice President and
Chief Financial Officer
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 20,871,000 22,339,000
<INT-BEARING-DEPOSITS> 69,000 0
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 102,137,000 58,181,000
<INVESTMENTS-CARRYING> 8,339,000 11,514,000
<INVESTMENTS-MARKET> (1,094,000) 181,000
<LOANS> 277,987,000 206,583,000
<ALLOWANCE> 3,830,000 2,868,000
<TOTAL-ASSETS> 421,357,000 312,881,000
<DEPOSITS> 310,168,000 235,144,000
<SHORT-TERM> 69,584,00 38,618,000
<LIABILITIES-OTHER> 2,019,000 1,779,000
<LONG-TERM> 1,099,000 2,190,000
0 0
0 0
<COMMON> 67,000 67,000
<OTHER-SE> 38,420,000 35,083,000
<TOTAL-LIABILITIES-AND-EQUITY> 421,357,000 312,881,000
<INTEREST-LOAN> 11,437,000 9,256,000
<INTEREST-INVEST> 3,137,000 1,913,000
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 14,574,000 11,169,000
<INTEREST-DEPOSIT> 3,762,000 3,351,000
<INTEREST-EXPENSE> 5,092,000 4,246,000
<INTEREST-INCOME-NET> 9,482,000 6,923,000
<LOAN-LOSSES> 635,000 721,000
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 7,539,000 6,138,000
<INCOME-PRETAX> 3,521,000 2,055,000
<INCOME-PRE-EXTRAORDINARY> 2,149,000 1,222,000
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,149,000 1,222,000
<EPS-BASIC> 0.32 0.23
<EPS-DILUTED> 0.31 0.22
<YIELD-ACTUAL> 5.30 5.68
<LOANS-NON> 781,000 559,000
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 340,000
<LOANS-PROBLEM> 3,880,000 1,150,000
<ALLOWANCE-OPEN> 3,271,000 2,248,000
<CHARGE-OFFS> 79,000 151,000
<RECOVERIES> 3,000 51,000
<ALLOWANCE-CLOSE> 3,830,000 2,869,000
<ALLOWANCE-DOMESTIC> 3,830,000 2,869,000
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 819,000 1,328,000
</TABLE>
