<PAGE> 1
As filed with the Securities and Exchange Commission on December 15, 2000
Registration No.: ___________
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
Colorado Business Bankshares, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
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<TABLE>
<CAPTION>
Colorado 6021 84-0826324
------------------------------- ------------------------------- ---------------------------
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
821 Seventeenth Street
Denver, Colorado 80202
(303) 293-2265
--------------------------------------------------------------------------
(Address including zip code, and telephone number, including area code, of
registrant's principal executive office)
-------------
Steven Bangert
Chairman of the Board and Chief Executive Officer
Colorado Business Bankshares, Inc.
821 Seventeenth Street
Denver, Colorado 80202
(303) 293-2265
---------------------------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Andrew L. Blair, Jr. Rand Haddock
Sherman & Howard L.L.C. Jennings, Strouss & Salmon, P.L.C.
633 Seventeenth Street, Suite 3000 Two North Central Avenue, Suite 1600
Denver, Colorado 80202 Phoenix, Arizona 85004
Telephone: (303) 297-2900 Telephone: (602) 262-5911
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<PAGE> 2
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
--------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Title of Each Proposed Maximum
Class of Maximum Aggregate Amount of
Securities to be Amount to be Offering Price Offering Registration
Registered Registered(1) per Share(2) Price(2) Fee(3)
------------------ ------------- -------------- --------- ------------
<S> <C> <C> <C> <C>
Common stock,
$.01 par value 2,199,040 $12.59 $27,687,264 $7,310
</TABLE>
(1) Based upon the maximum number of the registrant's securities that may
be issued in the merger calculated as the product of (i) the 839,008
shares of First Capital Bank of Arizona common stock outstanding on a
fully diluted basis on December 13, 2000, and (ii) the maximum
conversion ratio of 2.621 shares of the registrant for each share of
First Capital Bank of Arizona common stock.
(2) Computed solely for the purpose of calculating the registration fee by
dividing the maximum aggregate offering price by the maximum number of
shares issuable by the registrant in the merger.
(3) Calculated in accordance with Rule 457(f)(1), on the basis of the
average of the high and low prices of the common stock of First Capital
Bank of Arizona on November 27, 2000 (the last day before the filing of
this registration statement on which a trade was reported) of $33.00
and the 839,008 shares of First Capital Bank of Arizona common stock
outstanding on a fully diluted basis on December 13, 2000, which is the
maximum number of shares of First Capital Bank of Arizona common stock
that could be exchanged in the merger.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until this registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE> 3
SUBJECT TO COMPLETION, DATED DECEMBER 14, 2000
[COBIZ INC LOGO] [1ST CAPITAL BANK LOGO]
JOINT PROXY STATEMENT/PROSPECTUS
COLORADO BUSINESS BANKSHARES, INC.
FIRST CAPITAL BANK OF ARIZONA
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
Dear Fellow Shareholders:
The boards of directors of Colorado Business Bankshares, Inc. (CoBiz)
and First Capital Bank of Arizona (First Capital Bank) have each called a
special meeting of their shareholders to consider and to vote upon the approval
of a merger agreement providing for the merger of First Capital Bank with a
wholly owned merger subsidiary of CoBiz.
In the merger, the outstanding common stock of First Capital Bank will
be converted into shares of CoBiz common stock at a ratio based on the market
price of the CoBiz stock at the time of the merger as described in the
accompanying joint proxy statement/prospectus. CoBiz common stock is traded on
the Nasdaq National Market under the symbol COBZ. The merger is intended to be
tax-free to First Capital Bank shareholders, except for taxes due on cash
received for any fractional shares or dissenters' shares.
We cannot complete the merger unless it is approved by the shareholders
of CoBiz and the shareholders of First Capital Bank at their special meetings.
The boards of directors of CoBiz and First Capital Bank believe that the merger
is in the best interests of CoBiz and First Capital Bank and their shareholders
and recommend that you vote FOR the merger proposal.
In addition, at the CoBiz special meeting, the CoBiz shareholders will
consider and vote upon proposals to amend CoBiz's articles of incorporation to
change its proper corporate name from Colorado Business Bankshares, Inc. to
CoBiz Inc. and to permit CoBiz shareholders to reduce the shareholder vote
required to approve amendments to its articles of incorporation from a majority
of the outstanding shares to a majority of the shares voted at a meeting at
which a quorum is present. The board of directors of CoBiz believes that the
proposed name change will reflect the expanded geographic scope of the company's
operations and that the proposed change in voting requirements
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<PAGE> 4
will provide more flexibility in adopting amendments that may be important to
CoBiz and its shareholders in the future. The board of directors of CoBiz
recommends that CoBiz shareholders vote FOR the proposed amendments to its
articles of incorporation.
Whether or not you plan to attend your special meeting, please take the
time to complete and mail the enclosed proxy card. If you sign, date and mail
your proxy card without indicating how you want to vote, your proxy will be
voted in favor of all proposals to be considered at the meetings. For First
Capital Bank shareholders, the failure to return the proxy card will have the
same effect as a vote against the merger. For CoBiz shareholders, the failure to
return the proxy card will have the same effect as a vote against the proposed
amendments.
The accompanying joint proxy statement/prospectus describes the
shareholders' meetings, the merger, the proposed amendments to CoBiz's articles
of incorporation and other related matters. PLEASE READ THE ENTIRE DOCUMENT
CAREFULLY, INCLUDING THE DISCUSSION OF "RISK FACTORS" BEGINNING ON PAGE 20.
We hope to see you at the special meetings.
/s/ Steven Bangert /s/ Harold Mosanko
Steven Bangert Harold Mosanko
Chairman of the Board and President and Chief
Chief Executive Officer Executive Officer
Colorado Business Bankshares, Inc. First Capital Bank of Arizona
-------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the CoBiz common stock to be issued in
the merger or passed upon the adequacy or accuracy of this joint proxy
statement/prospectus. Any representation to the contrary is a criminal offense.
The date of this joint proxy statement/prospectus is __________, 2001,
and it is being mailed or otherwise delivered to shareholders of CoBiz and First
Capital Bank on or about that date.
THE INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT
COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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<PAGE> 5
COLORADO BUSINESS BANKSHARES, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held __________, 2001
NOTICE IS HEREBY GIVEN that, pursuant to the call of its Directors, a
special meeting of shareholders of Colorado Business Bankshares, Inc. will be
held at _______________________________ on _______________, 2001 at ______ a.m.,
local time, for the purpose of considering and voting upon the following
matters:
(1) To approve the Amended and Restated Agreement and Plan of Merger
dated as of November 28, 2000, pursuant to which a wholly owned subsidiary of
Colorado Business Bankshares, Inc. will merge with and into First Capital Bank
of Arizona and the outstanding common stock of First Capital Bank of Arizona
will be converted into shares of Colorado Business Bankshares, Inc. common stock
on the basis described in the joint proxy statement/prospectus that accompanies
this notice.
(2) To approve an amendment to the articles of incorporation changing
the proper corporate name of Colorado Business Bankshares, Inc. to CoBiz Inc.
(3) To approve an amendment to the articles of incorporation allowing
the shareholders to approve any action requiring shareholder approval by the
vote provided in the Colorado Business Corporation Act for corporations formed
after the effective date of that Act.
(4) To conduct other business if properly raised.
Only shareholders of record at the close of business on
________________, 2001 are entitled to notice of and to vote at the special
meeting.
REGARDLESS OF THE NUMBER OF SHARES YOU OWN, YOUR VOTE IS IMPORTANT.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE PROXY
CARD IN THE ENCLOSED ENVELOPE AT YOUR EARLIEST CONVENIENCE. YOU MAY REVOKE YOUR
PROXY AT ANY TIME PRIOR TO THE SPECIAL MEETING, AND IF YOU ARE PRESENT AT THE
SPECIAL MEETING, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
By Order of the Board of Directors
Richard J. Dalton
Secretary
Denver, Colorado
, 2001
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<PAGE> 6
FIRST CAPITAL BANK OF ARIZONA
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held __________, 2001
PURSUANT TO ARS Section 10-702 and Section 10-705, NOTICE IS HEREBY
GIVEN that the Board of Directors of First Capital Bank of Arizona has called a
special meeting of shareholders to be held, at 10:00 a.m., local time, on
_____________, 2001. The special meeting will be held at the Valley of the Sun
meeting room at Hampton Inn, 160 West Catalina Drive, Phoenix, Arizona 85013.
The meeting will be held for the following purposes:
1. To approve the Amended and Restated Agreement and Plan of Merger,
dated as of November 28, 2000, pursuant to which First Capital Bank of Arizona
will merge with and into a wholly owned subsidiary of Colorado Business
Bankshares, Inc., with the result that the outstanding shares of First Capital
Bank of Arizona common stock will be converted into shares of Colorado Business
Bankshares, Inc. common stock on the basis described in the accompanying joint
proxy statement/prospectus.
2. To transact such other business that may properly come before the
meeting.
Only shareholders of record on _______________, 2001, will be entitled
to notice of and be entitled to vote at the special meeting. First Capital Bank
of Arizona shareholders are or may be entitled to assert dissenters' rights
under Chapter 13 of the Arizona Business Corporation Act (ARS Section 10-1301,
et seq.). We have included a summary of the relevant provisions of Chapter 13 in
the accompanying joint proxy statement/prospectus in the section entitled
"Dissenters' Rights." A copy of Chapter 13 is annexed to the joint proxy
statement/prospectus as Annex B.
Please do not send certificates representing your shares of First
Capital Bank of Arizona common stock at this time. REGARDLESS OF THE NUMBER OF
SHARES YOU OWN, YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING, PLEASE SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE AT YOUR
EARLIEST CONVENIENCE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE SPECIAL
MEETING, AND IF YOU ARE PRESENT AT THE SPECIAL MEETING, YOU MAY WITHDRAW YOUR
PROXY AND VOTE IN PERSON.
By order of the Board of Directors
Harold F. Mosanko
President and Chief Executive Officer
Phoenix, Arizona
, 2001
--------------------
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<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE MERGER
AND OTHER MATTERS TO BE CONSIDERED
Q: WHO ARE THE PARTIES TO THE MERGER?
A: First Capital Bank of Arizona will merge with a wholly owned merger
subsidiary of Colorado Business Bankshares, Inc. (CoBiz). After the merger,
First Capital Bank will be a wholly owned subsidiary of CoBiz.
Q: WHAT ARE THE REASONS FOR THE MERGER?
A: For First Capital Bank, the merger will allow it to more effectively compete
with larger regional and national financial institutions and take advantage of
opportunities in the Phoenix market by offering CoBiz's expanded range of
products and services. Management believes that operating efficiencies can be
achieved by combining the operations of the two institutions and that the
resulting cost savings can be redeployed to income-producing functions in the
Phoenix bank. In addition, the shareholders of First Capital Bank should have
greater liquidity as holders of CoBiz common stock, which is traded on the
Nasdaq National Market rather than the OTC Bulletin Board and has a larger
public float and is more actively traded than First Capital Bank stock.
For CoBiz, the merger represents the first step in implementing its strategy for
expansion into geographic markets outside Colorado. The Phoenix market was
selected because it is similar to the Denver market in many ways, with a strong
economy and rapidly growing population and a concentration of small- to
medium-sized businesses and high net worth individuals. First Capital Bank was
selected because CoBiz and First Capital Bank have very similar target customer
bases and approaches to serving those target customers.
For both institutions, the merger will mitigate the risk of operating in a
single geographic market. The boards of directors of CoBiz and First Capital
Bank believe that the merger is in the best interests of their institutions and
their shareholders.
Q: WHAT IS THE CONVERSION RATIO IN THE MERGER?
A: The conversion ratio is based on the average closing price of CoBiz common
stock for the 20 trading days ending three trading days before the merger. If
the average closing price is $14.50 or less, the conversion ratio will be 2.621
shares of CoBiz common stock for each share of First Capital Bank common stock.
If the average closing price exceeds $14.50, the conversion ratio will be
calculated by adding half of the excess to $38.00 and dividing that sum by the
average closing price. This formula reduces the conversion ratio as the market
value of the CoBiz common stock increases, but the reduction is proportionately
smaller than the increase. As a result, the aggregate market value of the CoBiz
stock issued in the merger will increase in response to increases in the average
closing price, even though the conversion ratio decreases. For example, if the
average closing price were $16.00, the conversion ratio would be reduced from
2.621 to 2.422, but the shares of CoBiz common stock issued for each share of
First Capital Bank common stock would be worth $38.75
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<PAGE> 8
rather than $38.00, based on the average closing price. The final conversion
ratio cannot be determined until the closing date of the merger. First Capital
Bank can terminate the merger agreement if the average closing price of CoBiz
common stock is less than $14.50.
Q: IF THE AVERAGE CLOSING PRICE OF COBIZ COMMON STOCK IS LESS THAN $14.50, WILL
THE MERGER AGREEMENT BE TERMINATED?
A: Not necessarily. Although the merger agreement gives the board of directors
of First Capital Bank the right to terminate if the average closing price of
CoBiz common stock is less than $14.50, the board may or may not exercise that
right. The market price of CoBiz stock during the 20-day period in which the
average closing price is determined could be affected by many factors. For
example, market prices generally could be down because of economic news or
domestic or international political developments. The board of directors of
First Capital Bank would examine all of the facts and circumstances surrounding
the decline in the average closing price in deciding whether to terminate the
merger agreement.
Q: WHEN IS THE MERGER EXPECTED TO BE COMPLETED?
A: We are working to complete the merger by February 28, 2001. We must first
obtain the necessary approvals from federal and state regulatory agencies and
the approvals of our shareholders at the special meetings. We cannot predict
with certainty when or if all the conditions to the merger will be met, and it
is possible we will not complete the merger.
Q: WHAT ARE THE FEDERAL TAX CONSEQUENCES OF THE MERGER TO SHAREHOLDERS OF FIRST
CAPITAL BANK?
A: The exchange of shares by First Capital Bank shareholders generally will be
tax-free for U.S. federal income tax purposes. First Capital Bank shareholders
will, however, have to pay taxes on any cash received for fractional shares or
as a dissenting shareholder.
Your tax consequences will depend on your personal situation. First Capital Bank
shareholders should consult their tax advisors for a full understanding of the
tax consequences of the merger to them.
Q: WHY ARE THE SHAREHOLDERS OF COBIZ VOTING ON THE MERGER?
A: Although the shareholders of CoBiz are not required to approve the merger
under state corporate law, the rules of the Nasdaq National Market require CoBiz
to obtain shareholder approval because the number of shares issued in the merger
will exceed 20% of the outstanding shares of CoBiz common stock before the
merger.
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Q: WHY IS COBIZ CHANGING ITS NAME?
A: The name Colorado Business Bankshares, Inc. identifies CoBiz with its
Colorado market areas. After the merger CoBiz will have operations in Arizona
and will continue to evaluate opportunities to expand into other market areas.
Management believes that CoBiz's ability to penetrate new geographic markets
will be enhanced if the company's name does not contain an express geographic
identifier.
Q: WHY IS COBIZ CHANGING THE VOTING REQUIREMENTS FOR SHAREHOLDER ACTION?
A: The effect of this amendment is to allow the CoBiz shareholders to approve
most amendments to the articles of incorporation by vote of a majority of the
shares voted at a meeting at which a quorum is present rather than by vote of a
majority of the outstanding shares. The amendment would reflect the approval
requirements applicable to Colorado corporations formed under the current
Colorado Business Corporation Act. CoBiz's board of directors believes that the
lower voting requirement will make it easier to adopt amendments to the articles
of incorporation when appropriate in the future. CoBiz has no current plans to
propose any additional amendment if the new voting requirement is adopted.
Q: IS THE MERGER DEPENDENT ON THE APPROVAL OF THE PROPOSED AMENDMENTS TO COBIZ'S
ARTICLES OF INCORPORATION?
A: No. If approved by the shareholders of both companies, the merger will
proceed whether or not the CoBiz shareholders approve the proposed amendments to
its articles of incorporation. Similarly, if the CoBiz shareholders approve the
proposed amendments, they will be effective whether or not the merger is
approved or completed.
Q: WILL THE MERGER OCCUR IF SHAREHOLDERS OF EITHER COMPANY DO NOT APPROVE THE
MERGER?
A: No. The merger must be approved by the shareholders of both CoBiz and First
Capital Bank. In the event shareholders of either company do not approve of the
merger, it will not occur.
Q: IF MY SHARES ARE HELD IN "STREET NAME" (MEANING THAT MY SHARES ARE HELD BY A
BROKER AS NOMINEE), WILL MY BROKER VOTE MY SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how to
vote. You should follow the directions provided by your broker regarding how to
instruct your broker to vote your shares. Without instructions to your broker,
your shares will not be voted.
Q: WHAT IS THE EFFECT OF NOT VOTING OR ABSTAINING?
A: For First Capital Bank shareholders, if your shares are not voted or you
abstain, it will have the effect of a vote against the merger. For CoBiz
shareholders, if your shares are not voted or you abstain, it will have the
effect of a vote against the proposed amendments to CoBiz's articles of
incorporation, but will not affect the vote on the merger, assuming a quorum is
present at the special
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meeting. If you sign and send in your proxy but do not indicate how you want to
vote, your shares will be voted in favor of all of the proposals to be voted
upon at the meetings.
Q: WHAT SHOULD I DO NOW?
A: After you have carefully read this document, mail your signed proxy card in
the enclosed envelope following the instructions on or with the proxy card or,
if your shares are held by a broker as nominee, the instructions provided by
your broker regarding how to instruct your broker to vote, so that your shares
will be represented at the meeting of your company's shareholders. First Capital
Bank shareholders should not send their stock certificates yet.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: CoBiz shareholders should call Richard J. Dalton, Secretary, at (303)
293-2265 and First Capital Bank shareholders should call David O. Denslow,
Secretary, at (602) 240-2712 with any questions about the merger or the other
matters described in the accompanying joint proxy statement/prospectus.
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WHERE YOU CAN FIND ADDITIONAL INFORMATION
This joint proxy statement/prospectus is a part of a registration
statement on Form S-4 filed by CoBiz with the Securities and Exchange Commission
under the Securities Act of 1933, as amended. This joint proxy
statement/prospectus does not contain all the information set forth in the
registration statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. For further information with respect to
CoBiz and the securities offered by this joint proxy statement/prospectus,
reference is made to the registration statement, including the documents filed
as exhibits to the registration statement. Statements contained in this joint
proxy statement/prospectus concerning the provisions of such documents are
necessarily summaries, and each such statement is qualified in its entirety by
reference to the document filed with the Securities and Exchange Commission.
CoBiz files periodic reports, proxy statements and other information
with the SEC. Those filings are available to the public over the Internet at the
SEC's web site. The address of that site is http://www.sec.gov. You may also
inspect and copy these materials at the public reference facilities of the SEC
at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Please call the
SEC at 1-800-SEC-0330 for further information about the public reference
facilities. The address of CoBiz's Internet web site is
http:\\www.cobizbank.com.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This document incorporates important business and financial information
about CoBiz that is not included in or delivered with this joint proxy
statement/prospectus. The following documents previously filed by CoBiz under
the Securities Exchange Act of 1934, as amended, are incorporated by reference
into this joint proxy statement/prospectus:
o CoBiz's annual report on Form 10-KSB for the fiscal year ended
December 31, 1999.
o CoBiz's quarterly report on Form 10-Q for the period ended
March 31, 2000.
o CoBiz's quarterly report on Form 10-Q for the period ended
June 30, 2000.
o CoBiz's quarterly report on Form 10-Q for the period ended
September 30, 2000.
The documents incorporated by reference can be obtained from the SEC's
public reference facilities or on the SEC's web site as described above under
"Where You Can Find Additional Information." Documents incorporated by reference
are also available from CoBiz without charge, excluding all exhibits, unless
specifically incorporated by reference as an exhibit to this document. You may
obtain documents incorporated by reference in this document or additional copies
of this document by requesting them in writing or by telephone from:
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Richard J. Dalton
Corporate Secretary
Colorado Business Bankshares, Inc.
821 Seventeenth Street
Denver, Colorado 80202
(303) 293-2265
If you are a shareholder of First Capital Bank and would like to obtain
additional copies of this document, please address your request to:
David O. Denslow
Corporate Secretary
First Capital Bank of Arizona
2700 North Central Avenue
Suite 210
Phoenix, Arizona 85004
(602) 240-2712
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM COBIZ OR FIRST CAPITAL
BANK, PLEASE DO SO AT LEAST FIVE BUSINESS DAYS BEFORE THE DATE OF THE
SHAREHOLDERS' MEETING IN ORDER TO RECEIVE TIMELY DELIVERY OF SUCH DOCUMENTS
PRIOR TO THE SHAREHOLDERS' MEETING.
----------
CoBiz has supplied all information contained or incorporated by
reference in this document relating to CoBiz, and First Capital Bank has
supplied all information contained in this document relating to First Capital
Bank.
You should rely only on the information contained or incorporated by
reference in this document to vote your shares at the special meetings. CoBiz
and First Capital Bank have not authorized anyone to provide you with
information that is different from the information contained in this document.
This document is dated _______________, 2001. You should not assume that the
information contained in this document is accurate as of any other date and
neither the mailing of this document to shareholders nor the issuance of CoBiz
common stock in the merger creates any implication to the contrary.
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<PAGE> 13
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
SUMMARY ..........................................................................................................1
Information About the Companies .........................................................................1
CoBiz ..........................................................................................1
First Capital Bank .............................................................................1
Matters to be Voted on at the Special Meetings ..........................................................1
The Merger .....................................................................................1
Amendments to Articles of Incorporation of CoBiz ...............................................2
What First Capital Bank Shareholders Will Receive in the Merger .........................................2
Special Meetings ........................................................................................2
CoBiz ..........................................................................................2
First Capital Bank .............................................................................3
Record Date; Vote Required ..............................................................................3
CoBiz ..........................................................................................3
First Capital Bank .............................................................................3
Stock Ownership of CoBiz and First Capital Bank Directors and Executive Officers ........................3
CoBiz ..........................................................................................3
First Capital Bank .............................................................................4
Recommendations of CoBiz and First Capital Bank Boards of Directors .....................................4
CoBiz ..........................................................................................4
First Capital Bank .............................................................................4
The Merger is Generally Tax-Free to First Capital Bank Shareholders .....................................4
Interests of Certain Directors and Executive Officers of First Capital Bank in the Merger ...............5
Directors of CoBiz Following the Merger .................................................................5
Accounting Treatment of the Merger ......................................................................5
Regulatory Approvals ....................................................................................6
First Capital Bank Shareholders Have Dissenters' Rights .................................................6
Conditions to the Merger ................................................................................6
Completion of the Merger ................................................................................7
Termination of the Merger ...............................................................................7
Differences in the Rights of Shareholders ...............................................................8
Resales of CoBiz Common Stock Following the Merger ......................................................8
Comparative Market Price Information ....................................................................8
Historical Market Prices and Dividend Information .......................................................9
CoBiz ..........................................................................................9
First Capital Bank ............................................................................10
Dividend Policy of CoBiz ...............................................................................11
Historical and Pro Forma Per Share Data ................................................................11
SUMMARY CONSOLIDATED FINANCIAL DATA OF COBIZ ....................................................................13
SUMMARY FINANCIAL DATA OF FIRST CAPITAL BANK ....................................................................16
</TABLE>
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<TABLE>
<S> <C>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA .............................................................18
RISK FACTORS ....................................................................................................20
A WARNING ABOUT FORWARD-LOOKING STATEMENTS ......................................................................24
THE MERGER ......................................................................................................25
Structure of the Merger ................................................................................25
Background of the Merger ...............................................................................26
Reasons for the Merger .................................................................................29
First Capital Bank ............................................................................29
CoBiz .........................................................................................31
Interests of Certain Directors and Executive Officers of First Capital Bank in the Merger ..............32
Federal Income Tax Consequences of the Merger ..........................................................33
Accounting Treatment of the Merger .....................................................................35
Nasdaq National Market Listing .........................................................................36
Exchange of First Capital Bank Common Stock for CoBiz Common Stock .....................................36
THE MERGER AGREEMENT ............................................................................................37
Conditions to the Merger ...............................................................................37
Treatment of Options ...................................................................................38
Termination ............................................................................................38
Covenants; Conduct of Business Prior to Completion of the Merger .......................................39
Expenses ...............................................................................................41
Amendment and Waiver ...................................................................................41
Agreements with Certain First Capital Bank Shareholders ................................................42
Employment Agreements ..................................................................................42
Sales and Resales of CoBiz Common Stock and First Capital Bank Common Stock ............................43
Regulatory Approvals for the Mergers ...................................................................43
BUSINESS OF COBIZ ...............................................................................................45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF COBIZ ..................61
MANAGEMENT OF COBIZ AFTER THE MERGER ............................................................................78
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF COBIZ .........................................................79
PRINCIPAL SHAREHOLDERS OF COBIZ .................................................................................81
THE SPECIAL MEETING OF THE SHAREHOLDERS OF COBIZ.................................................................83
</TABLE>
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<TABLE>
<S> <C>
BUSINESS OF FIRST CAPITAL BANK ..................................................................................87
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF FIRST CAPITAL BANK .....95
PRINCIPAL SHAREHOLDERS OF FIRST CAPITAL BANK ...................................................................107
THE SPECIAL MEETING OF THE SHAREHOLDERS OF FIRST CAPITAL BANK ..................................................108
DESCRIPTION OF COBIZ CAPITAL STOCK .............................................................................111
MATERIAL DIFFERENCES BETWEEN RIGHTS OF HOLDERS OF COBIZ COMMON STOCK AND RIGHTS OF HOLDERS OF
FIRST CAPITAL BANK COMMON STOCK .......................................................................114
DISSENTERS' RIGHTS .............................................................................................115
EXPERTS ........................................................................................................117
LEGAL MATTERS ..................................................................................................117
INDEX TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS AND HISTORICAL FINANCIAL STATEMENTS .................F-1
ANNEX A AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER..................................................A-1
ANNEX B CHAPTER 13 OF THE ARIZONA BUSINESS CORPORATION ACT - DISSENTERS' RIGHTS ...........................B-1
</TABLE>
xiii
<PAGE> 16
SUMMARY
This summary, together with the preceding Questions and Answers
section, highlights selected information from this joint proxy
statement/prospectus, but does not contain all of the information that is
important to you. To understand the merger and the merger agreement, you should
carefully read this entire document and the documents referred to in
"Incorporation of Certain Documents by Reference" on page ix. You should pay
special attention to the information presented in "Risk Factors" beginning on
page 20 and "A Warning About Forward-Looking Statements" beginning on page 24. A
copy of the Amended and Restated Agreement and Plan of Merger dated November 28,
2000 (the "Merger Agreement") is attached as Annex A to this joint proxy
statement/prospectus. We encourage you to read the Merger Agreement in full,
since it is the legal document governing the merger transaction.
INFORMATION ABOUT THE COMPANIES
COBIZ
CoBiz is a financial holding company headquartered in Denver, Colorado.
CoBiz's wholly owned subsidiary, Colorado Business Bank, N.A., is a full-service
business banking institution with nine Colorado locations. As of September 30,
2000, CoBiz had total assets of $610.3 million, net loans and leases of $408.0
million and deposits of $427.0 million. CoBiz provides a broad range of
financial products and services, including credit, cash management, investment,
deposit, trust, employee benefits consulting and insurance brokerage products
and services, to a targeted customer base of small- and medium-sized businesses
and high net worth individuals, primarily in the Denver metropolitan area.
CoBiz's principal executive offices are located at 821 17th Street, Denver,
Colorado 80202, and its telephone number is (303) 293-2265.
FIRST CAPITAL BANK
First Capital Bank is an Arizona state-chartered commercial bank with
two locations serving Phoenix and the surrounding area of Maricopa County,
Arizona. As of September 30, 2000, First Capital Bank had total assets of $104.1
million, net loans of $72.3 million and deposits of $90.1 million. First Capital
Bank provides commercial banking services to a targeted customer base of small-
and medium-sized businesses and high net worth individuals. First Capital Bank's
principal executive offices are located at 2700 North Central Avenue, Suite 210,
Phoenix, Arizona 85004, and its telephone number is (602) 240-2700.
MATTERS TO BE VOTED ON AT THE SPECIAL MEETINGS
THE MERGER
First Capital Bank will merge with a subsidiary of CoBiz. After the
merger, First Capital Bank will be a wholly owned subsidiary of CoBiz. In the
merger, each outstanding share of First Capital Bank common stock will be
converted into shares of CoBiz common stock based on a conversion ratio
calculated as described below.
1
<PAGE> 17
AMENDMENTS TO ARTICLES OF INCORPORATION OF COBIZ
In addition to the merger, CoBiz shareholders will vote on two proposed
amendments to its articles of incorporation. The first would change its proper
corporate name from Colorado Business Bankshares, Inc. to CoBiz Inc. The second
would reduce the shareholder vote required to approve amendments to its articles
of incorporation from a majority of the outstanding shares to a majority of the
votes cast at a meeting at which a quorum is present. The change in the voting
requirement would conform CoBiz's articles of incorporation to the voting
requirements of the Colorado Business Corporation Act applicable to corporations
formed after the effective date of that Act.
WHAT FIRST CAPITAL BANK SHAREHOLDERS WILL RECEIVE IN THE MERGER
In the merger, First Capital Bank shareholders will receive shares of
CoBiz common stock in exchange for their shares of First Capital Bank common
stock. The number of shares of CoBiz common stock to be received will be
determined by a conversion ratio based on the average closing price of the CoBiz
common stock for the 20 trading days ending three trading days prior to the
merger. If the average closing price is $14.50 or less, the conversion ratio
will be 2.621 shares of CoBiz common stock for each share of First Capital Bank
common stock. If the average closing price exceeds $14.50, the conversion ratio
will be calculated by adding half of the excess to $38.00 and dividing that sum
by the average closing price. This formula reduces the conversion ratio as the
market value of the CoBiz common stock increases, but the reduction is
proportionately smaller than the increase. As a result, the aggregate market
value of the CoBiz stock issued in the merger will increase in response to
increases in the average closing price, even though the conversion ratio
decreases. For example, if the average closing price were $16.00, the conversion
ratio would be reduced from 2.621 to 2.422, but the shares of CoBiz common stock
issued for each share of First Capital Bank common stock would be worth $38.75
rather than $38.00, based on the average closing price. On December 12, 2000,
the closing price of CoBiz stock on the Nasdaq National Market was $16.625. The
final conversion ratio cannot be determined until the closing date of the
merger. First Capital Bank shareholders should obtain current market prices for
CoBiz common stock to see how this formula may affect them. CoBiz will pay cash
in lieu of fractional shares based on the average closing price discussed above.
SPECIAL MEETINGS
COBIZ
The special meeting of the CoBiz shareholders will be held at
________________, ___________________________ at ____ a.m., local time, on
___________, 2001. At that special meeting, the CoBiz shareholders will be asked
to vote on the Merger Agreement and the amendments to CoBiz's articles of
incorporation described above.
2
<PAGE> 18
FIRST CAPITAL BANK
The special meeting of the First Capital Bank shareholders will be held
at the Valley of the Sun meeting room at Hampton Inn, 160 West Catalina Drive,
Phoenix, Arizona 85013, at 10:00 a.m., local time, on ___________, 2001. At that
special meeting, the First Capital Bank shareholders will be asked to vote on
the Merger Agreement.
RECORD DATE; VOTE REQUIRED
COBIZ
You are entitled to vote at the special meeting of CoBiz shareholders
if you owned CoBiz common stock on _______, 2001, the record date for that
special meeting. As of that date, there were __________ shares of CoBiz common
stock outstanding held by approximately ____ holders of record. Each holder of
CoBiz common stock is entitled to one vote per share.
Although a vote of the shareholders of CoBiz is not required to approve
the Merger Agreement under state corporate law, the rules of the Nasdaq National
Market require CoBiz to obtain shareholder approval because the number of shares
issued in the merger will exceed 20% of the number of shares of CoBiz common
stock outstanding before the merger. To satisfy this requirement, the Merger
Agreement must be approved by a majority of the votes cast on the Merger
Agreement at the special meeting of the CoBiz shareholders.
The approval of the proposed amendments to CoBiz's articles of
incorporation requires the affirmative vote of the holders of a majority of the
shares of CoBiz common stock outstanding on the CoBiz record date.
FIRST CAPITAL BANK
You are entitled to vote at the special meeting of First Capital Bank
shareholders if you owned First Capital Bank common stock on _______, 2001, the
record date for that special meeting. As of that date, there were __________
shares of First Capital Bank common stock outstanding held by approximately ____
holders of record. Each holder of First Capital Bank common stock is entitled to
one vote per share.
The approval of the Merger Agreement requires the affirmative vote of
the holders of a majority of the shares of First Capital Bank common stock
outstanding on the record date.
STOCK OWNERSHIP OF COBIZ AND FIRST CAPITAL BANK DIRECTORS AND EXECUTIVE OFFICERS
COBIZ
On the record date for the CoBiz special meeting, directors and
executive officers of CoBiz, including their affiliates, beneficially owned an
aggregate of __________shares of CoBiz common stock or approximately ____% of
the outstanding shares of CoBiz common stock. CoBiz believes
3
<PAGE> 19
that all of its directors and executive officers and their affiliates will vote
all of their shares of CoBiz common stock in favor of the Merger Agreement and
the amendments to CoBiz's articles of incorporation.
FIRST CAPITAL BANK
On the record date for the First Capital Bank special meeting,
directors and executive officers of First Capital Bank, including their
affiliates, beneficially owned an aggregate of ________ outstanding shares of
First Capital Bank common stock or approximately ___% of the outstanding shares
of First Capital Bank common stock. All officers and directors of First Capital
Bank have signed voting agreements pursuant to which they have agreed to vote
in favor of the Merger Agreement.
RECOMMENDATIONS OF COBIZ AND FIRST CAPITAL BANK BOARDS OF DIRECTORS
COBIZ
The board of directors of CoBiz has unanimously approved and adopted
the Merger Agreement and the amendments to CoBiz's articles of incorporation and
recommends that CoBiz shareholders vote FOR approval of the Merger Agreement and
FOR those amendments. CoBiz shareholders should refer to the discussion of the
factors the CoBiz board of directors considered in determining whether to
approve and adopt the Merger Agreement beginning on page 29.
FIRST CAPITAL BANK
The board of directors of First Capital Bank has unanimously approved
and adopted the Merger Agreement and recommends a vote FOR approval of the
Merger Agreement. First Capital Bank shareholders should refer to the discussion
of the factors the First Capital Bank board of directors considered in
determining whether to approve and adopt the Merger Agreement beginning on page
29.
THE MERGER IS GENERALLY TAX-FREE TO FIRST CAPITAL BANK SHAREHOLDERS
First Capital Bank expects that, for U.S. federal income tax purposes,
no gain or loss will be recognized by the First Capital Bank shareholders upon
exchange of their shares of First Capital Bank common stock for shares of CoBiz
common stock. First Capital Bank has received an opinion from its legal counsel
to that effect, based on certain assumptions described in "The Merger - Federal
Income Tax Consequences of the Merger." First Capital Bank shareholders will,
however, have to pay taxes on any cash received for fractional shares or as a
dissenting shareholder.
4
<PAGE> 20
INTERESTS OF CERTAIN DIRECTORS AND EXECUTIVE OFFICERS OF FIRST CAPITAL BANK IN
THE MERGER
When First Capital Bank shareholders consider the First Capital Bank
board of directors' recommendation to vote FOR the Merger Agreement, they should
be aware that certain executive officers and directors of First Capital Bank
have interests in the merger as employees and/or directors that are different
from, and may conflict with, the interests of First Capital Bank shareholders.
These interests include the following, each of which will occur at the effective
time of the merger:
o The outstanding options to purchase First Capital Bank common
stock held by directors, officers and employees of First
Capital Bank will be automatically converted into options to
acquire shares of CoBiz common stock, adjusted to account for
the conversion ratio in the merger.
o The directors of First Capital Bank who participate in First
Capital Bank's Director Deferred Compensation Plan will be
paid the value of their deferred accounts based on the average
closing price of the CoBiz stock used in determining the
conversion ratio in the merger.
o Certain members of senior management of First Capital Bank
will enter into employment agreements with First Capital Bank
as the surviving corporation which provide for severance
benefits they have not had prior to the merger.
o Certain members of the board of directors of First Capital
Bank will become members of the board of directors of CoBiz.
The First Capital Bank board of directors recognized these interests
and determined that they did not negatively affect the benefits of the merger to
the First Capital Bank shareholders.
DIRECTORS OF COBIZ FOLLOWING THE MERGER
Upon completion of the merger, the size of the CoBiz board of directors
will be increased by three directors and Harold F. Mosanko, Alan R. Kennedy and
Thomas M. Longust, who are currently directors of First Capital Bank, will be
added to the CoBiz board.
ACCOUNTING TREATMENT OF THE MERGER
CoBiz expects to account for the merger as a pooling-of-interests. As a
result, the financial statements of CoBiz will be presented as though CoBiz and
First Capital Bank had always been combined. CoBiz does not expect to record any
goodwill as a result of the merger.
5
<PAGE> 21
REGULATORY APPROVALS
The merger must be approved by the Federal Deposit Insurance
Corporation (the "FDIC"), the Board of Governors of the Federal Reserve System
(the "FRB") and the Arizona Superintendent of Banking (the "ASB"). Applications
for all of these approvals have been filed. However, we cannot predict whether
or when we will obtain those approvals.
FIRST CAPITAL BANK SHAREHOLDERS HAVE DISSENTERS' RIGHTS
First Capital Bank's shareholders have dissenters' rights under Chapter
13 of the Arizona Business Corporation Act, the text of which is attached as
Annex B. This means that First Capital Bank shareholders who do not vote in
favor of the merger may make a written demand to First Capital Bank for payment
in cash of the "fair value" of their shares in accordance with the procedures
established in that Chapter. For that purpose, "fair value" means the value of
the shares of First Capital Bank common stock immediately before the merger,
excluding any appreciation or depreciation in anticipation of the merger, unless
exclusion is inequitable. The attached copy of Chapter 13 sets forth the steps
that a dissenting First Capital Bank shareholder must take to exercise
dissenter's rights and that information is summarized in this joint proxy
statement/prospectus in the section entitled "Dissenters' Rights." First Capital
Bank shareholders who exercise dissenters' rights would not receive CoBiz common
stock in the merger.
CONDITIONS TO THE MERGER
The completion of the merger depends upon the satisfaction of a number
of conditions, including:
o Approval of the Merger Agreement by the shareholders of CoBiz
and the shareholders of First Capital Bank.
o Receipt of listing approval from the Nasdaq National Market
for the CoBiz common stock to be issued in the merger.
o Receipt of all necessary federal and state regulatory
approvals for the merger.
o The number of shares owned by First Capital Bank shareholders
who exercise dissenters' rights must not require payments in
an aggregate amount that would prevent CoBiz from accounting
for the merger as a pooling-of-interests or would require cash
payments of more than 2% of the total merger consideration.
o No injunction prohibiting the merger shall have been issued
and there shall be no pending or threatened litigation seeking
to prohibit the merger.
o Receipt of a letter from Jennings, Strouss & Salmon, P.L.C.,
counsel to First Capital Bank, confirming their opinion that
the merger will not result in the recognition of gain
6
<PAGE> 22
or loss for federal income tax purposes to CoBiz, First
Capital Bank or the First Capital Bank shareholders.
Either CoBiz or First Capital Bank can waive any condition for its
benefit, other than the receipt of necessary governmental and Nasdaq approvals,
and complete the merger even though the condition has not been satisfied.
COMPLETION OF THE MERGER
The merger will be completed as soon as practicable following the
satisfaction or waiver of the conditions to the merger described above. If all
of the other conditions have been met or waived at the time of the special
meetings, and if the merger is approved by the shareholders of both companies,
the merger will be completed immediately following the meetings. If any
governmental approval has not been received or other condition has not been
fulfilled at the time of the meetings, the completion of the merger will be
deferred pending receipt of the approval or fulfillment of the condition. Either
party may terminate the Merger Agreement if the merger has not been completed by
March 31, 2001, but that date may be extended by mutual agreement of the boards
of directors of CoBiz and First Capital Bank.
After the merger is completed, CoBiz will send First Capital Bank
shareholders a letter of transmittal and instructions for sending in First
Capital Bank stock certificates to be exchanged for certificates representing
their CoBiz stock and any payment due for fractional shares. First Capital Bank
shareholders should not send in their stock certificates until they receive
those materials from CoBiz.
TERMINATION OF THE MERGER
The Merger Agreement may be terminated at any time prior to the
consummation of the merger as follows:
o CoBiz and First Capital Bank may mutually agree to terminate.
o Either CoBiz or First Capital Bank may terminate if any of the
conditions to its obligations under the Merger Agreement has
not been satisfied or waived and the merger is not completed
by March 31, 2001, but that date may be extended by mutual
agreement of the boards of directors of CoBiz and First
Capital Bank.
o By CoBiz or First Capital Bank if the CoBiz shareholders or
the First Capital Bank shareholders do not approve the Merger
Agreement at their special meeting.
o Either CoBiz or First Capital Bank may terminate if the other
party materially breaches any of its representations,
warranties or covenants in the Merger Agreement and does not
cure the breach after notice.
o Either CoBiz or First Capital Bank may terminate if the board
of directors of the other party withdraws or adversely
modifies its recommendation of the merger.
7
<PAGE> 23
o By First Capital Bank if the average closing price of the
CoBiz common stock on the Nasdaq National Market for the 20
trading days ending with the third trading day prior to the
merger is less than $14.50.
DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS
The rights of First Capital Bank shareholders are currently governed by
Arizona corporate law and the articles of incorporation and bylaws of First
Capital Bank. After the merger, their rights as shareholders of CoBiz will be
governed by Colorado corporate law and the articles of incorporation and bylaws
of CoBiz. The material differences to the First Capital Bank shareholders are:
o Cumulative voting is not allowed in the election of CoBiz
directors.
o CoBiz shareholders do not have preemptive rights to purchase a
pro rata share of any new stock issued.
o CoBiz can issue preferred stock having rights and preferences
established by the board of directors without the approval of
the CoBiz shareholders.
RESALES OF COBIZ COMMON STOCK FOLLOWING THE MERGER
Shares of CoBiz common stock issued in the merger will be freely
transferable by First Capital Bank shareholders, except shareholders who may be
"affiliates" of First Capital Bank prior to the merger. Affiliates generally
include directors, executive officers and holders of 10% or more of the common
stock of First Capital Bank before the merger. First Capital Bank has provided
to CoBiz the written agreement of each person believed to be an "affiliate" that
such person will not dispose of its shares of First Capital Bank common stock
prior to the merger or the CoBiz common stock received in the merger, except in
compliance with Rule 145 of the Securities and Exchange Commission and
applicable accounting rules relating to pooling-of-interests accounting
treatment for the merger.
COMPARATIVE MARKET PRICE INFORMATION
The following table presents information concerning closing prices for
CoBiz common stock on the Nasdaq National Market and First Capital Bank common
stock on the OTC Bulletin Board on the last day that a trade was reported prior
to our public announcement of the signing of the Merger Agreement and on
_____________, 2000. We announced the Agreement and Plan of Merger on October
24, 2000. The last day on which a trade was reported prior to that date was
October 23, 2000 for CoBiz and October 2, 2000 for First Capital Bank.
<TABLE>
<CAPTION>
CoBiz Common Stock First Capital Bank Common Stock
------------------ -------------------------------
<S> <C> <C>
Last trade prior
to announcement $16.875 $26.50
November 27, 2000 16.125 33.00
</TABLE>
8
<PAGE> 24
Set forth below for each of the dates reflected in the preceding table
are the equivalent pro forma closing prices of the shares of CoBiz common stock
that would be issued in the merger for each share of First Capital Bank common
stock assuming the conversion ratio set forth in the table. We determined these
pro forma prices by multiplying the closing price of CoBiz common stock on such
date by the assumed conversion ratio shown in the table.
<TABLE>
<CAPTION>
CoBiz Assumed Equivalent pro forma
closing conversion First Capital Bank
price ratio price
------- ---------- --------------------
<S> <C> <C> <C>
Last trade prior
to announcement $16.875 2.322 $ 39.19
November 27, 2000 $16.125 2.407 38.81
</TABLE>
Under the Merger Agreement, the conversion ratio will be based on the
average closing price of the CoBiz common stock for the 20 trading days ending
three trading days before the merger is completed. The conversion ratios in the
table assume that the average closing price of the CoBiz common stock was equal
to the closing price shown in the table as of each date.
CoBiz and First Capital Bank urge you to obtain current market
quotations for CoBiz common stock and First Capital Bank common stock. We expect
that the market prices of CoBiz common stock and First Capital Bank common stock
will fluctuate between the date of this document and the date on which the
merger is completed. Because the market price of CoBiz common stock is subject
to fluctuation and the number of shares issuable in the merger is based on the
market price of CoBiz common stock, the number and value of the shares of CoBiz
common stock that First Capital Bank shareholders will receive in the merger may
increase or decrease up to the date that the merger is completed.
HISTORICAL MARKET PRICES AND DIVIDEND INFORMATION
COBIZ
CoBiz common stock is listed on the Nasdaq National Market under the
symbol "COBZ." The following table sets forth the high and low prices per share
of CoBiz common stock as reported on the Nasdaq National Market for each quarter
since inception of trading and the dividends paid per share of CoBiz common
stock. The total trading volume for CoBiz common stock for the third quarter of
2000 was 525,500 shares.
9
<PAGE> 25
<TABLE>
<CAPTION>
Dividends
High Low declared
---- --- ---------
<S> <C> <C> <C>
1998:
Second quarter $16.000 $12.000 $ --
Third quarter 16.000 12.375 --
Fourth quarter 13.000 10.188 --
1999:
First quarter 13.063 11.000 --
Second quarter 12.375 10.500 --
Third quarter 13.438 10.750 0.05
Fourth quarter 14.875 11.125 0.05
2000:
First quarter 14.375 12.125 0.05
Second quarter 14.000 12.500 0.05
Third quarter 17.000 12.938 0.06
</TABLE>
CoBiz paid a cash dividend of $0.06 per share for the fourth quarter 2000 on
November 13, 2000.
FIRST CAPITAL BANK
First Capital Bank common stock is traded on the OTC Bulletin Board
under the symbol "FCAZ." The following table sets forth for the calendar
quarters indicated the high and low prices per share of First Capital Bank
common stock as reported on the OTC Bulletin Board for each quarter since
inception of trading. First Capital Bank has never paid a cash dividend on its
common stock. The trading market for First Capital Bank common stock is
relatively small. The total trading volume for First Capital Bank common stock
for the third quarter of 2000 was 1,900 shares.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1998:
Third quarter $20.250 $18.250
Fourth quarter 19.250 18.000
1999:
First quarter 20.500 18.500
Second quarter 27.000 19.750
Third quarter 29.000 24.000
Fourth quarter 31.000 27.000
2000:
First quarter 30.500 20.000
Second quarter 27.000 24.625
Third quarter 31.000 26.000
</TABLE>
First Capital Bank paid a 5% stock dividend in the second quarter of
2000. The prices in the table have not been adjusted to reflect that dividend.
10
<PAGE> 26
DIVIDEND POLICY OF COBIZ
After the merger, holders of CoBiz common stock will be entitled to
receive dividends when, as and if declared by the board of directors of CoBiz.
The timing and amount of future dividends are at the discretion of the board of
directors of CoBiz and will depend upon the consolidated earnings, financial
condition, liquidity and capital requirements of CoBiz and its subsidiaries, the
amount of cash dividends paid to CoBiz by its subsidiaries, applicable
government regulations and policies and other factors considered relevant by the
board of directors of CoBiz. The board of directors of CoBiz anticipates that it
will continue to pay quarterly dividends in amounts determined based on the
factors discussed above.
HISTORICAL AND PRO FORMA PER SHARE DATA
Summarized below is certain per share information for CoBiz and First
Capital Bank on an historical, pro forma combined and pro forma equivalent
basis. In calculating the pro forma per share information, we used a conversion
ratio of 2.422 shares of CoBiz common stock for each share of First Capital Bank
common stock, which is the conversion ratio that would apply if the average
closing price of the CoBiz common stock is $16.00 per share.
We have calculated the pro forma CoBiz and First Capital Bank combined
per share data for net income using the weighted average number of shares of
CoBiz common stock outstanding for the periods presented, increased by the
weighted average number of shares of First Capital Bank common stock outstanding
for the periods presented multiplied by an assumed conversion ratio of 2.422
shares of CoBiz's common stock for each share of First Capital Bank common
stock, as if these shares were outstanding for each period presented.
The pro forma combined dividends assume no changes in CoBiz's cash
dividends per share. The ability of CoBiz to pay dividends in the future is
limited by certain regulatory restrictions. Please see the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of CoBiz - Liquidity and Capital Resources" for a discussion of those
restrictions.
The pro forma CoBiz and First Capital Bank combined book value per
share has been calculated using the shares of outstanding CoBiz common stock
increased by the shares of outstanding First Capital Bank common stock
multiplied by an assumed conversion ratio of 2.422 for each share of First
Capital Bank common stock as if these shares were outstanding as of the date
presented.
The equivalent pro forma First Capital Bank share information has been
calculated by multiplying the CoBiz pro forma combined per share net income,
dividends and book value by an assumed conversion ratio of 2.422.
11
<PAGE> 27
<TABLE>
<CAPTION>
For the nine
months ended For the year ended
September 30, December 31,
------------------- ------------------------------
2000 1999 1999 1998 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Basic earnings per share:
CoBiz, historical ...................... $ 0.73 $ 0.51 $ 0.74 $ 0.53 $ 0.37
First Capital Bank, historical(1) ..... 1.37 0.69 1.11 0.52 0.02
CoBiz, pro forma combined .............. 0.70 0.47 0.68 0.46 0.29
First Capital Bank, equivalent
pro forma ........................... 1.70 1.14 1.65 1.11 0.70
Diluted earnings per share:
CoBiz, historical ...................... 0.71 0.50 0.72 0.51 0.36
First Capital Bank, historical(1) ...... 1.30 0.67 1.06 0.51 0.02
CoBiz, pro forma combined .............. 0.67 0.45 0.66 0.45 0.29
First Capital Bank, equivalent pro
forma ............................... 1.63 1.09 1.61 1.09 0.70
Cash dividends per share:
CoBiz, historical ...................... 0.16 0.05 0.10 -- --
First Capital Bank, historical ......... -- -- -- -- --
CoBiz, pro forma combined .............. 0.13 0.04 0.08 -- --
First Capital Bank, equivalent
pro forma ........................... 0.31 0.10 0.19 -- --
</TABLE>
<TABLE>
<CAPTION>
At September At December
30, 2000 31, 1999
------------- -------------
<S> <C> <C>
Book value per share:
CoBiz, historical ................. $ 6.65 $ 6.05
First Capital Bank, historical(1).. 15.14 14.31
CoBiz, pro forma combined ......... 6.57 6.02
First Capital Bank, equivalent
pro forma ...................... 15.91 14.57
</TABLE>
(1) Restated for a 5% stock dividend paid in the second quarter of 2000.
12
<PAGE> 28
SUMMARY CONSOLIDATED FINANCIAL DATA OF COBIZ
The following selected consolidated financial data for and as of the
end of each of the years in the five-year period ended December 31, 1999 are
derived from CoBiz's audited financial statements. The data set forth below as
of and for the nine months ended September 30, 2000 and 1999 are unaudited and,
in the opinion of CoBiz management, reflect all adjustments (consisting of
normal and recurring adjustments) considered necessary for a fair presentation
of the results for such interim periods. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of CoBiz" and CoBiz's consolidated financial
statements and related notes included in this joint proxy statement/prospectus.
Results for past periods are not necessarily indicative of results to be
expected for any future period, and the results for the nine- month period ended
September 30, 2000 are not necessarily indicative of the results for the entire
year.
13
<PAGE> 29
<TABLE>
<CAPTION>
At or for the
nine months ended
September 30, At or for the year ended December 31,
---------------------- -------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
--------- --------- --------- --------- --------- --------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Interest income ........................ $ 33,259 $ 23,041 $ 32,409 $ 23,899 $ 18,147 $ 13,711 $ 11,231
Interest expense ....................... 14,298 8,167 11,879 8,577 7,016 5,323 4,400
--------- --------- --------- --------- --------- --------- ---------
Net interest income before provision
for loan and lease losses ........... 18,961 14,874 20,530 15,322 11,131 8,388 6,831
Provision for loan and lease losses .... 1,262 1,006 1,473 1,188 949 493 242
--------- --------- --------- --------- --------- --------- ---------
Net interest income after provision
for loan and lease losses ........... 17,699 13,868 19,057 14,134 10,182 7,895 6,589
Noninterest income ..................... 3,518 3,353 4,610 4,246 3,303 1,794 1,191
Noninterest expense .................... 13,047 11,682 15,746 13,133 10,387 7,827 6,632
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes ............. 8,170 5,539 7,921 5,247 3,098 1,862 1,148
Provision for income taxes ............. 3,257 2,117 3,002 2,031 1,245 762 432
--------- --------- --------- --------- --------- --------- ---------
Net income ............................. $ 4,913 $ 3,422 $ 4,919 $ 3,216 $ 1,853 $ 1,100 $ 716
========= ========= ========= ========= ========= ========= =========
Earnings per share - basic ............. $ 0.73 $ 0.51 $ 0.74 $ 0.53 $ 0.37 $ 0.29 $ 0.19
========= ========= ========= ========= ========= ========= =========
Earnings per share - diluted ........... $ 0.71 $ 0.50 $ 0.72 $ 0.51 $ 0.36 $ 0.29 $ 0.19
========= ========= ========= ========= ========= ========= =========
BALANCE SHEET DATA:
Total assets ........................... $ 610,291 $ 449,323 $ 492,009 $ 366,550 $ 264,059 $ 190,645 $ 160,421
Investments ............................ 152,556 103,381 109,921 107,937 58,784 57,571 50,991
Loans and leases ....................... 413,506 307,618 350,679 226,550 166,339 112,408 88,702
Allowance for loan and lease losses .... 5,463 4,195 4,585 3,271 2,248 1,660 1,392
Deposits ............................... 427,004 332,933 383,329 273,028 221,058 155,310 137,513
Company obligated mandatorily
redeemable preferred securities of
subsidiary trust holding solely
subordinated debentures .............. 20,000 -- -- -- -- -- --
Preferred shareholders' equity ......... -- -- -- -- -- 1,500 --
Common shareholders' equity ............ 44,629 39,320 40,351 37,172 15,925 10,189 9,066
KEY RATIOS:
Return on average total assets(1) ...... 1.22% 1.12% 1.15% 1.08% 0.83% 0.64% 0.50%
Return on average common
shareholders' equity(1) ............. 15.40 11.88 12.67 11.80 12.21 11.47 8.24
Average common equity to average
assets .............................. 7.94 9.42 9.11 9.10 6.35 5.54 6.01
Net interest margin(1)(2) .............. 5.11 5.32 5.27 5.71 5.52 5.46 5.44
Efficiency ratio(3) .................... 58.30 64.40 62.91 67.78 72.32 76.87 82.67
Nonperforming assets to total assets ... 0.14 0.12 0.14 0.13 0.31 0.36 0.58
Nonperforming loans and leases to
total loans and leases ............. 0.21 0.17 0.19 0.21 0.49 0.52 0.69
Allowance for loan and lease
losses to total loans and leases .... 1.32 1.36 1.31 1.44 1.35 1.48 1.57
Allowance for loan and lease losses
to nonperforming loans and leases .. 620.09 779.74 671.30 700.40 277.19 285.22 225.97
Net charge-offs to average
loans and leases .................... 0.14 0.04 0.06 0.08 0.26 0.23 0.04
</TABLE>
----------
(1) The ratios for the nine months ended September 30, 2000 and 1999 have been
annualized and are not necessarily indicative of results for the entire year.
(2) Yields do not include adjustments for tax-exempt interest because the amount
of such interest is not material.
(3) Efficiency ratio is computed by dividing noninterest expense by the sum of
net interest income before provision for loan and lease losses and noninterest
income, excluding nonrecurring gains.
The following selected quarterly financial data of CoBiz for each of the
quarters in the two years ended December 31, 1999 and the nine months ended
September 30, 2000 are unaudited and, in the opinion of CoBiz management,
reflect all adjustments (consisting of normal and recurring adjustments)
considered necessary for a fair presentation of such data.
14
<PAGE> 30
<TABLE>
<CAPTION>
For the quarter ended
----------------------------------------------------------------------------
September 30, June 30, March 31, December 31, September 30,
2000 2000 2000 1999 1999
------------- ----------- ----------- ------------ -------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Interest income............. $ 12,146 $ 10,986 $ 10,127 $ 9,368 $ 8,467
Interest expense............ 5,609 4,583 4,106 3,712 3,081
Net interest
income................... 6,537 6,403 6,021 5,656 5,386
Net income.................. 1,698 1,721 1,494 1,497 1,273
Earnings per
share - basic............ $ 0.25 $ 0.26 $ 0.22 $ 0.23 $ 0.19
=========== =========== =========== =========== ===========
Earnings per
share - diluted.......... $ 0.25 $ 0.25 $ 0.22 $ 0.21 $ 0.19
=========== =========== =========== =========== ===========
<CAPTION>
For the quarter ended
------------------------------------------------------------------------------------------
June 30, March 31, December 31, September 30, June 30, March 31,
1999 1999 1998 1998 1998 1998
----------- ----------- ------------ ------------- ----------- -----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Interest income............ $ 7,659 $ 6,915 $ 6,470 $ 6,260 $ 5,792 $ 5,377
Interest expense........... 2,690 2,396 2,166 2,165 2,228 2,018
Net interest
income.................. 4,969 4,519 4,304 4,095 3,564 3,359
Net income................. 1,142 1,007 991 1,003 635 587
Earnings per
share - basic........... $ 0.17 $ 0.15 $ 0.17 $ 0.14 $ 0.11 $ 0.11
=========== =========== =========== =========== =========== ===========
Earnings per
share - diluted......... $ 0.17 $ 0.15 $ 0.17 $ 0.13 $ 0.11 $ 0.10
=========== =========== =========== =========== =========== ===========
</TABLE>
15
<PAGE> 31
SUMMARY FINANCIAL DATA OF FIRST CAPITAL BANK
The following selected financial data for and as of the end of each of
the years in the four-year period ended December 31, 1999 are derived from First
Capital Bank's audited financial statements. The data set forth below as of and
for the nine months ended September 30, 2000 and 1999 are unaudited and, in the
opinion of First Capital Bank management, reflect all adjustments (consisting of
normal and recurring adjustments) considered necessary for a fair presentation
of the results for such interim periods. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of First Capital Bank" and First Capital Bank's
financial statements and related notes included in this joint proxy
statement/prospectus. Results for past periods are not necessarily indicative of
results to be expected for any future period, and the results for the nine-month
period ended September 30, 2000 are not necessarily indicative of the results
for the entire year.
<TABLE>
<CAPTION>
At or for the
nine months ended
September 30, At or for the year ended December 31,
------------------------ -----------------------------------------------------
2000 1999 1999 1998 1997 1996(1)
---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Interest income .............................. $ 6,001 $ 4,526 $ 6,301 $ 4,366 $ 2,182 $ 221
Interest expense ............................. 2,843 1,987 2,796 1,854 818 70
---------- ---------- ---------- ---------- ---------- ----------
Net interest income .......................... 3,158 2,539 3,505 2,512 1,364 151
Provision for loan losses .................... 109 170 179 155 201 50
---------- ---------- ---------- ---------- ---------- ----------
Net interest income after provision for loan
losses ..................................... 3,049 2,369 3,326 2,357 1,163 101
Noninterest income ........................... 238 309 352 201 132 40
Noninterest expense .......................... 1,663 1,871 2,408 2,082 1,287 453
---------- ---------- ---------- ---------- ---------- ----------
Pre-tax income (loss) ........................ 1,624 807 1,270 476 8 (312)
Income before income taxes ................... 623 302 459 52 -- --
Cumulative effect of accounting
change for organizational costs ........... -- -- -- (45) -- --
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) ............................ $ 1,001 $ 505 $ 811 $ 379 $ 8 $ (312)
========== ========== ========== ========== ========== ==========
Earnings per share - basic(2) ................ $ 1.37 $ 0.69 $ 1.11 $ 0.52 $ 0.02 $ (0.65)
========== ========== ========== ========== ========== ==========
Earnings per share - diluted(2) .............. $ 1.30 $ 0.67 $ 1.06 $ 0.51 $ 0.02 $ (0.65)
========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA:
Total assets ................................. $ 104,101 $ 85,496 $ 86,430 $ 67,159 $ 38,251 $ 13,360
Investments .................................. 22,783 20,427 16,716 13,244 -- --
Loans ........................................ 72,988 59,370 63,211 43,467 27,870 5,008
Allowance for loan losses .................... 695 576 586 407 251 50
Deposits ..................................... 90,135 75,492 74,984 57,626 29,249 8,119
Common shareholders' equity .................. 11,043 9,666 9,928 9,407 8,962 5,231
KEY RATIOS:
Return on average total assets(3) ............ 1.45% 0.89% 1.04% 0.72% 0.03% (8.06)%
Return on average shareholder's equity(3) .... 12.75 7.06 8.44 4.12 0.13 (14.00)
Average common equity to average assets ...... 11.35 12.64 12.31 17.57 24.95 57.57
Net interest margin(3)(4) .................... 3.62 3.60 4.80 5.15 5.63 5.89
Efficiency ratio(5) .......................... 49.0 50.3 64.5 78.7 86.0 237.2
Nonperforming assets to total assets ......... -- -- -- -- -- --
Nonperforming loans to total loans(6) ........ -- -- -- -- -- --
Allowance for loan losses to total loans ..... 0.95 0.97 0.94 0.95 0.91 1.00
Allowance for loan losses to
nonperforming loans(6) ....................... -- -- -- -- -- --
Net charge-offs to average loans(6) .......... -- -- -- -- -- --
</TABLE>
16
<PAGE> 32
----------
(1) The information presented represents a partial year. First Capital Bank
commenced operations on August 7, 1996. Key ratios were computed after
annualizing this five-month operational period.
(2) Restated for a 5% stock dividend paid in the second quarter of 2000.
(3) The ratios for the nine months ended September 30, 2000 and 1999 have been
annualized and are not necessarily indicative of results for the entire year.
(4) Yields do not include adjustments for tax-exempt interest because the amount
of such interest is not material.
(5) Efficiency ratio is computed by dividing noninterest expense by the sum of
net interest income before provision for loan losses and noninterest income,
excluding nonrecurring gains.
(6) First Capital Bank has not had any nonperforming loans or other real estate
owned at the end of the periods disclosed, nor any charge-offs since it began
operations in 1996. A nonperforming loan is defined as a loan that is placed on
nonaccrual status, a troubled debt restructuring, or a loan greater than 90 days
past due as to principal and/or interest payment.
17
<PAGE> 33
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited selected pro forma statement of income data for
the nine months ended September 30, 2000 and 1999 and the years ended December
31, 1999, 1998 and 1997 present the combined results of operations of CoBiz and
First Capital Bank as if the companies had been combined for the entire periods.
The following unaudited selected pro forma balance sheet data as of September
30, 2000 and 1999 and as of December 31, 1999, 1998 and 1997 combines the
historical selected financial data of CoBiz and First Capital Bank as if the
merger had been effective as of each such date, after giving effect to certain
adjustments. These adjustments are based on estimates. The unaudited selected
pro forma combined financial data has been prepared from, and should be read in
conjunction with, the historical consolidated financial statements of CoBiz and
First Capital Bank.
The selected unaudited pro forma financial data reflects the
application of the pooling-of-interests method of accounting for the merger.
Under this method of accounting, the recorded assets, liabilities, shareholders'
equity, income and expenses are combined and reflected at their historical
amounts.
The selected pro forma combined figures shown in the selected unaudited
pro forma financial data are simply arithmetical combinations of CoBiz's and
First Capital Bank's separate financial results. You should not assume that
CoBiz and First Capital Bank would have achieved the pro forma combined results
if they had actually been combined during the periods presented.
The combined company expects to incur merger and other non-recurring
expenses as a result of the combination and to achieve merger benefits in the
form of operating cost savings. The pro forma earnings, which do not reflect any
direct costs or potential savings which are expected to result from the
consolidation of the operations of CoBiz and First Capital Bank, are not
indicative of the results of future operations. No assurances can be given with
respect to the ultimate level of expense savings.
18
<PAGE> 34
<TABLE>
<CAPTION>
At or for the
nine months ended
September 30, At or for the years ended December 31,
----------------- ----------------------------------------
2000 1999 1998 1997
---------- ---------- ---------- ----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Interest income ............................... $ 39,260 $ 38,709 $ 28,265 $ 20,329
Interest expense .............................. 17,141 14,674 10,431 7,834
---------- ---------- ---------- ----------
Net interest income before provision
for loan losses ............................ 22,119 24,035 17,834 12,495
Provision for loan and lease losses ........... 1,371 1,652 1,344 1,150
---------- ---------- ---------- ----------
Net interest income after provision
for loan and lease losses .................. 20,748 22,383 16,490 11,345
Noninterest income ............................ 3,756 4,962 4,448 3,435
Noninterest expense ........................... 14,710 18,154 15,215 11,674
---------- ---------- ---------- ----------
Income before taxes ........................... 9,794 9,191 5,723 3,106
Provision for income taxes .................... 3,880 3,461 2,083 1,245
---------- ---------- ---------- ----------
Income from continuing operations ............. 5,914 5,730 3,640 1,861
========== ========== ========== ==========
Earnings per share - basic .................... $ 0.70 $ 0.68 $ 0.46 $ 0.29
========== ========== ========== ==========
Earnings per share - diluted .................. $ 0.67 $ 0.66 $ 0.45 $ 0.29
========== ========== ========== ==========
BALANCE SHEET DATA:
Total assets .................................. $ 714,392 $ 578,439 $ 433,709 $ 302,310
Investments ................................... 175,339 126,637 121,181 58,784
Loans and leases .............................. 486,494 413,890 269,611 194,209
Allowance for loan and lease losses ........... 6,158 5,171 3,678 2,499
Deposits ...................................... 517,139 458,313 330,654 250,307
Company obligated mandatorily redeemable
preferred-securities of subsidiary trust
holding solely subordinated debentures ..... 20,000 -- -- --
PER SHARE DATA:
Preferred shareholders' equity ................ -- -- -- 1,500
Common shareholders' equity ................... 55,672 50,279 46,579 24,887
KEY RATIOS:
Return on average total assets(1) ............. 1.26% 1.14% 1.02% 0.74%
Return on average common
shareholders' equity(1) .................... 14.89 11.82 9.89 8.91
Average common equity to average assets ....... 8.44 9.62 10.35 8.34
Net interest margin(1)(2) ..................... 5.07 5.20 5.63 5.53
Efficiency ratio(3) ........................... 57.20 63.18 69.10 73.62
Nonperforming assets to total assets .......... 0.12 0.12 0.11 0.27
Nonperforming loans and leases to total
loans and leases .......................... 0.18 0.17 0.17 0.42
Allowance for loan and lease losses to total
loans and leases .......................... 1.27 1.25 1.36 1.29
Allowance for loan and lease losses to
nonperforming loans and leases ............. 698.98 757.10 787.58 308.14
Net charge-offs to average loans and leases ... 0.12 0.05 0.07 0.23
</TABLE>
----------
(1) The ratios for the nine months ended September 30, 2000 have been annualized
and are not necessarily indicative of results for the entire year.
(2) Yields do not include adjustments for tax-exempt interest because the amount
of such interest is not material.
(3) Efficiency ratio is computed by dividing noninterest expense by the sum of
net interest income before provision for loan and lease losses and noninterest
income, excluding nonrecurring gains.
19
<PAGE> 35
RISK FACTORS
After the merger, the current shareholders of First Capital Bank and
CoBiz will continue to face the risks that they have faced as shareholders of
local financial institutions. However, those risks will be altered by the fact
that the combined companies will have operations in two different geographic
markets. For current First Capital Bank shareholders, the risks will also be
affected by the change of control occurring in the merger. The merger and the
process of integrating the two companies after the merger pose risks to the
shareholders of both companies. In addition to the other information presented
in this joint proxy statement/prospectus, including the matters addressed in "A
Warning About Forward-Looking Information" on page 24, shareholders of First
Capital Bank and CoBiz should consider carefully the risks described below in
determining whether to approve the Merger Agreement.
BECAUSE THE CONVERSION RATIO IN THE MERGER IS NOT FIXED, FLUCTUATIONS IN THE
MARKET PRICE OF COBIZ STOCK COULD CHANGE THE NUMBER AND VALUE OF THE COBIZ
SHARES RECEIVED BY FIRST CAPITAL BANK SHAREHOLDERS IN THE MERGER.
The number of shares of CoBiz stock into which each share of First
Capital Bank stock is converted in the merger will be determined by a conversion
ratio based on the average closing price of the CoBiz stock over the 20 trading
days ending three trading days before the merger is effective. The shareholders
of First Capital Bank will not know until the merger becomes effective how many
shares of CoBiz stock they will receive in the merger or what the aggregate
market value of that stock will be. If the other conditions to the merger, such
as the receipt of necessary regulatory approvals, have not been met at the time
of the special meetings, this formula will continue to operate after the
shareholders of First Capital Bank and CoBiz vote on the merger. Because the
formula is based on the average closing price of CoBiz stock over a relatively
long period ending three days before the merger, significant increases or
decreases in the market price of CoBiz stock towards the end of or in the three
days after that period could cause the CoBiz stock issued in the merger to have
a market value on the date of the merger that is significantly more or less than
the average. If the average closing price of the CoBiz stock is less than
$14.50, First Capital Bank has the right to terminate the Merger Agreement, but
may elect not to exercise that right.
IF WE ARE UNABLE TO INTEGRATE THE BUSINESSES OF COBIZ AND FIRST CAPITAL BANK
SUCCESSFULLY, OUR BUSINESS AND EARNINGS MAY BE ADVERSELY AFFECTED.
After the merger, we will undertake to integrate the businesses of
CoBiz and First Capital Bank, which have previously operated independently.
Integration will involve the consolidation of the operations, systems and
procedures of the two institutions in order to eliminate redundant functions and
costs and to operate on a consistent basis. That process will probably increase
operating costs in the short run. We cannot assure you that we will be able to
integrate the two operations without encountering difficulties, including the
possible loss of employees or customers, disruptions in the delivery of services
or inconsistencies in standards, controls, procedures and policies. Such
difficulties could interfere with our ability to realize the benefits expected
from the merger.
20
<PAGE> 36
WE MAY LOSE FIRST CAPITAL BANK CUSTOMERS AND EMPLOYEES AFTER THE MERGER.
Historically, banks acquired by financial institutions headquartered in
another state have experienced some loss of customers and employees. We cannot
assure you that we will be able to retain the customers and employees of First
Capital Bank after the merger or replace any customers or employees that are
lost. At the time of the merger, we will enter into employment agreements with
the four principal executive officers of First Capital Bank, but those contracts
are terminable by either party at any time. We will also enter into severance
agreements with many of the other employees of First Capital Bank providing for
severance payments if those employees are terminated by First Capital Bank
without cause within certain periods of time after the merger.
COBIZ MAY NOT REALIZE THE BENEFITS EXPECTED FROM THE MERGER.
CoBiz intends to grow First Capital Bank by offering CoBiz's expanded
range of products and services to First Capital Bank's customers, by expanding
First Capital Bank's marketing programs and by opening additional branches in
the Phoenix area. We cannot assure you that First Capital Bank's customers or
the Phoenix market in general will be receptive to CoBiz's expanded range of
products and services or that any additional branches will be profitable. The
addition of CoBiz's expanded product and service offerings and the opening of
additional branches in the Phoenix area will involve costs not previously
incurred by First Capital Bank. If the expanded product and service offerings or
additional branches are not successful, such costs could adversely affect the
results of CoBiz's operations and the market price of its stock.
SHAREHOLDERS OF COBIZ AND FIRST CAPITAL BANK WILL BE EXPOSED TO DIFFERENT RISKS
AFTER THE MERGER BECAUSE COBIZ WILL HAVE OPERATIONS IN TWO DISTINCT GEOGRAPHIC
MARKETS.
As shareholders of CoBiz, the former shareholders of First Capital Bank
will be exposed to risks associated with the economy in the Denver, Colorado
metropolitan area. CoBiz shareholders will be exposed to risks associated with
the economy in the Phoenix, Arizona metropolitan area. Immediately after the
merger, approximately 85% of the aggregate amount of CoBiz's loans and leases
will be to borrowers in the Denver metropolitan area and the remaining 15% will
be to borrowers in the Phoenix metropolitan area. The former shareholders of
First Capital Bank will therefore be subject primarily to the risks of economic
fluctuations in the Denver market area. Although having operations in both areas
may soften the impact of an economic downturn in one, we cannot assure First
Capital Bank shareholders that a change in economic conditions in Denver will
not adversely affect the results of CoBiz's operations or the value of the CoBiz
stock, even though the Phoenix economy remains strong. Recent economic
conditions in the Denver area have been generally more favorable than in many
other areas of the country, but there can be no assurance that these favorable
conditions will continue.
21
<PAGE> 37
COBIZ'S GROWTH STRATEGY MAY BE MORE AGGRESSIVE AND THEREFORE MORE RISKY THAN THE
GROWTH STRATEGY OF FIRST CAPITAL BANK PRIOR TO THE MERGER.
The merger is part of CoBiz's ongoing strategy to expand into different
communities and markets through, among other things, acquisitions of existing
financial institutions. CoBiz may acquire other financial institutions and
related businesses in the future. Such acquisitions involve significant risks
including:
o Potential exposure to unknown or contingent liabilities of
financial institutions and other businesses we acquire.
o Exposure to potential asset quality issues at the acquired
banks or businesses.
o Difficulty and expense of integrating the operations and
personnel of banks and businesses we acquire.
o Potential disruption of our business.
o Potential diversion of management's time and attention. - The
possible loss of key employees and customers of the banks and
businesses we acquire.
o Incurrence of goodwill if we account for an acquisition as a
purchase.
COBIZ'S STRATEGY OF CONTINUING TO DIVERSIFY ITS PRODUCTS AND SERVICES WILL
EXPOSE FORMER FIRST CAPITAL BANK SHAREHOLDERS TO ADDITIONAL RISKS.
In recent months, CoBiz has begun offering various types of services
not historically offered by banks. For example, in 2000, CoBiz began offering
employee benefit consulting services and products. CoBiz is currently exploring
the possibility of offering commercial property and casualty insurance
brokerage, as well as investment management services to its customers. CoBiz
intends to continue to explore opportunities to expand its product and service
offerings and sources of revenue. These additional products and services involve
risks that are different than the risks associated with the operation of a
traditional bank. There can be no assurance that CoBiz will be successful in
offering these expanded products and services or that its efforts to do so will
not adversely affect earnings.
AFTER THE MERGER, COBIZ WILL CONTINUE TO FACE THE RISKS COMMON TO LOCAL AND
REGIONAL FINANCIAL INSTITUTIONS.
Prior to the merger, CoBiz and First Capital Bank have faced, and after
the merger CoBiz will continue to face, all of the risks common to local and
regional financial institutions, including:
22
<PAGE> 38
o General or local economic conditions may adversely affect the
demand for our products and services, the ability of our
borrowers to repay loans and the value of the collateral for
our loans.
o Our allowance for loan and lease losses, which is established
based on various assumptions, may not be adequate to cover
actual credit losses or may have to be increased, either of
which would have an adverse effect on earnings.
o Changes in prevailing interest rates or market prices may
adversely affect our net interest margins and asset values and
increase expenses.
o The loss of senior management personnel at the parent company
or any operating subsidiary could adversely affect our
business and prospects.
o Increased competition in one or more of our market areas may
adversely affect earnings, financial condition and growth.
o Changes in the extensive regulatory structures to which we are
subject could require changes in our operations that would
increase costs or otherwise impact earnings.
o Keeping pace with technological changes in the financial
services industry may be more difficult for us than for larger
institutions and may require significant capital expenditures.
23
<PAGE> 39
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus contains forward-looking
statements that describe CoBiz's future plans, strategies and expectations. All
forward-looking statements are based on assumptions and involve risks and
uncertainties, many of which are beyond our control and which may cause our
actual results, performance or achievements to differ materially from the
results, performance or achievements contemplated by the forward-looking
statements. In addition to those described above under "Risk Factors", such
risks and uncertainties include, among other things:
o Competitive pressures among depository and other financial
institutions nationally and in our market areas may increase
significantly.
o Adverse changes in the economy or business conditions, either
nationally or in our market areas, could increase
credit-related losses and expenses.
o Increases in defaults by borrowers and other delinquencies
could result in increases in our provision for losses on loans
and leases and related expenses.
o Our inability to manage growth effectively, including the
successful expansion of our customer support, administrative
infrastructure and internal management systems, could
adversely affect our results of operations and prospects.
o Fluctuations in interest rates and market prices could reduce
our net interest margins and asset valuations and increase our
expenses.
o The consequences of continued bank acquisitions and mergers in
our market areas, resulting in fewer but much larger and
financially stronger competitors, could increase competition
for financial services to our detriment.
o Our continued growth will depend in part on our ability to
enter new markets successfully and capitalize on other growth
opportunities.
o Changes in legislative or regulatory requirements applicable
to us and our subsidiaries could increase costs, limit certain
operations and adversely affect results of operations.
o Changes in tax requirements, including tax rate changes, new
tax laws and revised tax law interpretations may increase our
tax expense or adversely affect our customers' businesses.
o Other factors discussed in "Risk Factors" may adversely affect
us.
In light of these risks, uncertainties and assumptions, you should not
place undue reliance on any forward-looking statements in this joint proxy
statement/prospectus. We undertake no obligation to publicly update or otherwise
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
24
<PAGE> 40
THE MERGER
The detailed terms of the merger are contained in the Merger Agreement
attached as Annex A to this joint proxy statement/prospectus and incorporated
herein by this reference. The following discussion and the discussion under "The
Merger Agreement" describe the more important aspects of the merger and the
material terms of the Merger Agreement. These descriptions are qualified by
reference to the Merger Agreement. We encourage you to read the Merger Agreement
carefully.
STRUCTURE OF THE MERGER
General. The Merger Agreement provides that, after approval of the
Merger Agreement by the shareholders of CoBiz and the shareholders of First
Capital Bank and the satisfaction or waiver of the other conditions to the
merger, FCBA Acquisition Corporation, a wholly owned subsidiary of CoBiz, will
merge with and into First Capital Bank, with First Capital Bank as the surviving
corporation. After the merger, First Capital Bank will be a wholly owned
subsidiary of CoBiz.
The articles of incorporation and bylaws of First Capital Bank as in
effect immediately prior to the merger will be the articles of incorporation and
bylaws of First Capital Bank as the surviving corporation. The officers of First
Capital Bank immediately prior to the merger will be the officers of First
Capital Bank after the merger until they resign or until their respective
successors are duly elected and qualified. The Merger Agreement provides that
each director of First Capital Bank must tender his resignation at the time of
the merger, subject to acceptance by CoBiz.
Timing of Closing. The closing of the merger will occur as soon as
reasonably practicable after the satisfaction or waiver of all of the conditions
to the merger, including the receipt of all regulatory approvals.
Conversion of Shares. After the completion of the merger, First Capital
Bank shareholders will receive shares of CoBiz common stock in exchange for
their shares of First Capital Bank common stock. The exact number of shares of
CoBiz common stock to be received will be determined by a conversion ratio based
on the average closing price of the CoBiz common stock for the 20 trading days
ending three trading days prior to the merger. If the average closing price is
$14.50 or less, the conversion ratio will be 2.621 shares of CoBiz common stock
for each share of First Capital Bank common stock. If the average closing price
exceeds $14.50, the conversion ratio will be calculated by adding half of the
excess to $38.00 and dividing that sum by the average closing price. The
conversion ratio will be rounded to three decimal places. This formula reduces
the conversion ratio as the market value of the CoBiz common stock increases,
but the reduction is proportionately smaller than the increase. As a result, the
aggregate market value of the CoBiz common stock issued in the merger will
increase in response to increases in the average closing price, even though the
conversion ratio decreases.
The following table illustrates the conversion ratios that would result
from the application of the formula described above based on different average
closing prices. The values given for the CoBiz stock that would be issued for
each share of First Capital Bank stock assume that the market value of the CoBiz
stock on the date of the merger is equal to the average closing price given in
the table.
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<TABLE>
<CAPTION>
Average Value of CoBiz
closing Conversion stock issued per
price ratio share of First Capital Bank
---------- ------------- ---------------------------
<S> <C> <C>
$14.50 2.621 $38.00
$16.00 2.422 $38.75
$17.50 2.257 $39.50
</TABLE>
Assuming an average closing price of $16.00, after the merger the First
Capital Bank shareholders will own 1,767,074 shares of CoBiz common stock, or
approximately 21% of the issued and outstanding CoBiz common stock, based on the
6,707,397 shares of CoBiz common stock outstanding on December 13, 2000.
The final conversion ratio cannot be determined until the closing date
of the merger. First Capital Bank shareholders should obtain current market
prices for CoBiz common stock to see how this formula may affect them. CoBiz
will pay cash in lieu of fractional shares based on the average closing price
discussed above.
If before the merger CoBiz changes the number of outstanding shares of
CoBiz common stock through any stock split or other combination, or if before
the merger CoBiz declares a stock dividend, then the conversion ratio will be
adjusted appropriately. The conversion ratio formula assumes that there are a
total of 729,593 shares of First Capital Bank common stock outstanding. If there
are more shares of First Capital Bank common stock outstanding on the effective
date of the merger, other than shares issued upon exercise of outstanding
options, the conversion ratio will be adjusted proportionately.
First Capital Bank shareholders may obtain current market quotations
for First Capital Bank common stock on the OTC Bulletin Board and current market
quotations for CoBiz common stock on the Nasdaq National Market. We expect that
the market prices of CoBiz common stock and First Capital Bank common stock will
fluctuate between the date of this document and the date on which the merger is
completed. Because the market price of CoBiz common stock is subject to
fluctuation and the number of shares issuable in the merger is based on the
market price of CoBiz common stock, the number and value of the shares of CoBiz
common stock that First Capital Bank shareholders will receive in the merger may
increase or decrease up to the date that the merger is completed.
BACKGROUND OF THE MERGER
As part of its strategic planning process in October 1999, the senior
management team of CoBiz discussed potential expansion into various markets,
including Arizona. The potential benefits of geographic expansion were
determined to include the ability to take CoBiz's established growth strategy to
new markets, to diversify credit concentrations and to expand the CoBiz
franchise into a regional franchise. Management considered whether to expand
into new areas by opening a de novo bank or branch or by acquiring an existing
institution with a similar business niche to serve as a platform for
implementing CoBiz's growth strategy in the new market. Management concluded
that an acquisition would be the preferable way to enter the Arizona market and
began making inquiries to develop a list of prospective
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<PAGE> 42
acquisition candidates. In March 2000, a Denver attorney with business interests
in the Phoenix area suggested to CoBiz that First Capital Bank might be a good
fit given the similarity of their target markets and business strategies.
In April 2000, Steven Bangert, Chairman and CEO of CoBiz, contacted
Harold Mosanko, President and CEO of First Capital Bank, to introduce himself
and describe CoBiz's interest in the Phoenix market. Mr. Mosanko indicated that,
although First Capital Bank was not "for sale," he would be happy to meet with
Mr. Bangert to become acquainted and share his perceptions on the Phoenix
market. In April 2000, Mr. Bangert met with Mr. Mosanko in Phoenix to discuss
conditions and opportunities in their respective markets and seek advice on
prospective acquisition candidates in the Phoenix metropolitan area.
On June 22, 2000, Mr. Bangert and two members of CoBiz's senior
management team visited Phoenix to meet with Mr. Mosanko to continue their
discussions related to the Phoenix market. At that meeting, Mr. Mosanko
indicated that First Capital Bank had considered the need to expand the products
and services that it was able to offer its customer base in order to better
compete with larger regional and national financial institutions. Mr. Mosanko
noted that his board of directors had discussed expanding the depth and breadth
of the existing management team and continuing to grow the organization or,
alternatively, looking for a merger partner that could offer the infrastructure
that First Capital Bank needed to grow. Mr. Mosanko noted that the potential of
a merger with a larger organization with a similar business approach was more
appealing since First Capital Bank would be able to offer new products and
services immediately, using existing systems and expertise rather than
developing them in-house. At this meeting, Mr. Bangert first suggested a
possible business combination transaction between CoBiz and First Capital Bank.
The parties discussed the fact that, if such a transaction were consummated, it
would be important to pursue a business strategy and conduct operations
compatible with those of First Capital Bank in the Phoenix market.
During that same trip to Phoenix, Mr. Bangert and the two members of
CoBiz's senior management team also met with two senior level bankers from
large, regional banks in the Phoenix area to discuss their interest in the
branching strategy of CoBiz and conducted due diligence with respect to another
acquisition candidate in the Phoenix area.
On June 29, 2000, CoBiz presented a written proposal for the purchase
of another Phoenix area financial institution that was being offered by an
investment banker from the Denver area. The proposal was contingent upon due
diligence and a number of other conditions.
On July 11, 2000, Mr. Bangert learned that CoBiz's proposal for the
acquisition of that Phoenix area financial institution had not been accepted.
Mr. Bangert then met with members of his management team and discussed the
possibility of structuring an offer to acquire First Capital Bank.
On July 13, 2000, Mr. Mosanko visited the Denver area and met with Mr.
Bangert. They toured the Denver branch of Colorado Business Bank, N.A., met with
senior managers of CoBiz and continued their discussions related to the products
and services that CoBiz offers as well as their discussions related to a
possible business combination and the terms of that combination.
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<PAGE> 43
On July 19, 2000, the board of directors of CoBiz met to review and
discuss a potential transaction for the acquisition of First Capital Bank. At
this meeting, the CoBiz board of directors considered the terms and conditions
of the proposed transaction and the various matters and related agreements
contemplated by the transaction. The board discussed the timing of the
transaction, the necessity for pooling-of-interests accounting treatment and the
due diligence process. They authorized CoBiz management to enter into a letter
of intent on the terms discussed and to proceed to negotiate definitive
agreements for the merger.
On July 26, 2000 Mr. Bangert transmitted to Mr. Mosanko a proposal
letter for the acquisition of First Capital Bank by CoBiz. The initial proposal
was for a base conversion ratio of 2.483 shares of CoBiz common stock for each
share of First Capital Bank common stock if the average closing price of CoBiz
common stock was $14.50 or less. Under that proposal, if the average closing
price exceeded $14.50, the conversion ratio would be determined by adding
one-third of that excess to $36.00 and dividing that sum by the average closing
price. If the average closing price was less than $14.50, First Capital Bank
would have the right to terminate the merger.
On August 10, 2000, Mr. Bangert returned to Phoenix and met with Mr.
Mosanko and two directors of First Capital Bank to negotiate the terms of the
proposed acquisition transaction. As a result of those discussions, the base
conversion ratio was increased to 2.621 shares of CoBiz common stock for each
share of First Capital Bank common stock if the average closing price of CoBiz
common stock is $14.50 or less and the adjustment mechanism was revised to
require that one-half, rather than one-third, of the excess of the average
closing price over $14.50 be added to $38.00, rather than $36.00, to determine
the final conversion ratio.
On August 17, 2000, CoBiz sent a letter of intent to First Capital Bank
that contained those revised terms. Mr. Mosanko executed the letter of intent on
that date.
On August 21, 2000, CoBiz sent an initial due diligence request letter
to Mr. Mosanko.
During the period from August 25 through 27, 2000, seven members of
CoBiz's senior management team conducted due diligence at First Capital Bank's
offices in Phoenix.
During the period from August 17 through September 22, 2000, CoBiz
prepared and submitted to First Capital Bank drafts of definitive agreements
relating to the merger, and the parties commented on and revised those draft
agreements.
On September 22, 2000, the board of directors of First Capital Bank
discussed the terms of the proposed transaction and authorized Mr. Mosanko to
negotiate and execute a definitive merger agreement.
On September 27, 2000, Mr. Bangert returned to Phoenix to meet with Mr.
Mosanko and five of First Capital Bank's board members to discuss outstanding
issues relating to the definitive agreements.
On September 29, 2000, Mr. Mosanko telephoned all of the directors of
First Capital Bank to discuss the terms of the definitive agreements relating to
the merger.
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<PAGE> 44
During the period from September 29 through October 17, 2000, First
Capital Bank provided CoBiz with additional due diligence materials, and CoBiz
reviewed and commented on those materials. During that same period, First
Capital Bank also prepared the schedules to the definitive merger agreement,
provided those schedules to CoBiz and CoBiz reviewed and commented on those
schedules.
On October 3, 2000, Mr. Mosanko and a member of his senior management
team came to Denver to perform due diligence on CoBiz.
On October 18, 2000, the CoBiz board of directors adopted and approved
the definitive merger agreement and authorized CoBiz's management to execute the
definitive merger agreements.
On October 24, 2000, First Capital Bank and CoBiz executed the
definitive merger agreement.
On October 27, 2000, the board of directors of First Capital Bank
ratified, adopted and approved the final form of the definitive merger
agreement.
On November 28, 2000, First Capital Bank and CoBiz executed the amended
and restated definitive merger agreement to correct certain technical issues in
the original agreement.
REASONS FOR THE MERGER
The management of CoBiz and First Capital Bank believe that they have
very similar target markets and very similar approaches to serving those target
markets. Management of each institution perceives opportunities to achieve
operating efficiencies through the combination of their operations and believes
that by offering CoBiz's expanded range of products and services, they will be
able to more effectively compete and successfully take advantage of banking
opportunities in the Phoenix market.
FIRST CAPITAL BANK
First Capital Bank's board believes that the merger is in the best
interests of the bank and its shareholders. Accordingly, First Capital Bank's
board has unanimously approved and adopted the Merger Agreement and recommends
approval of the Merger Agreement by the First Capital Bank shareholders. In
reaching its decision, the board consulted with management, their accountants
and legal counsel. The board's deliberations included an analysis of:
o The current and prospective economic, regulatory and
competitive environment facing financial institutions.
o The alternatives to the merger with CoBiz, the range of
possible values to First Capital Bank shareholders that might
be obtained in the future if other alternatives were chosen
and the timing and likelihood of actually receiving such
values. The alternatives considered included remaining
independent and engaging in a merger or similar transaction
with another financial institution.
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<PAGE> 45
o The business, operations, earnings and financial condition of
First Capital Bank on an historical and a prospective basis
and the historical market price and potential future value of
First Capital Bank's common stock.
o The business, operations, earnings and financial condition of
CoBiz on an historical and a prospective basis and the
historical market price and potential future value of CoBiz's
common stock.
o The tax consequences of the merger to First Capital Bank
shareholders.
o The terms of the Merger Agreement.
o The actual and potential conflicts of interest presented by
the proposed arrangements and agreements between CoBiz and
certain officers and directors of First Capital Bank following
the merger.
o The effect of the merger on First Capital Bank's other
constituencies, including its employees, customers and the
communities it serves.
Based on this analysis, the board identified the following advantages
of the merger to First Capital Bank and its shareholders:
o The diversification of revenue streams and risks by
participating in a loan portfolio that includes markets
outside of the Phoenix metropolitan area.
o The enhanced ability to compete for loans and deposits with
other commercial banks, including many that are much larger
than First Capital Bank, as well as with savings and loan
associations, finance companies, credit unions, brokerage
houses and other financial institutions.
o The ability to offer larger loans via loan participations with
Colorado Business Bank, N.A.
o The elimination and consolidation of duplicate functions
resulting in projected cost savings in the areas of item
processing, data processing, professional and audit fees and
marketing and operating expenses.
o The increased liquidity for shareholders of First Capital Bank
as holders of CoBiz stock, which is traded on the Nasdaq
National Market rather than the OTC Bulletin Board and has
significantly greater float and average trading volumes.
o The opportunity for First Capital Bank shareholders to receive
in the merger a substantial premium over recent trading prices
of First Capital Bank stock.
The foregoing discussion of the information and factors considered by
the First Capital Bank board is not intended to be exhaustive but includes all
material factors considered by the board of directors of
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<PAGE> 46
First Capital Bank. In deciding to approve the merger, the First Capital Bank
board did not assign relative or specific weights to the foregoing factors, and
individual directors may have given differing weights to different factors.
COBIZ
CoBiz's board of directors believes that the merger is in the best
interests of CoBiz and its shareholders. Accordingly, CoBiz's board has
unanimously approved and adopted the Merger Agreement and recommends approval of
the Merger Agreement by CoBiz's shareholders. The following discussion
summarizes the material factors considered by the CoBiz board in reaching that
conclusion, to which relative weights were not assigned.
For CoBiz, the merger represents the first step in implementing its
strategy for expansion into geographic markets outside Colorado. The Phoenix
market was selected because it is similar to the Denver market in many ways,
with a strong economy and rapidly growing population and a concentration of
small-to medium-sized businesses and high net worth individuals. Management of
CoBiz believes that it presents an excellent opportunity to apply CoBiz's proven
operating and growth strategies in a new market area. First Capital Bank was
selected because it is a young and aggressive bank in the process of developing
the same business niche in the Phoenix market that CoBiz has developed in the
Denver market. CoBiz management believes that First Capital Bank represents a
sound platform for expansion into and within the Phoenix market. CoBiz intends
to grow the First Capital Bank operation by offering CoBiz's expanded range of
products and services to existing First Capital Bank customers, by continuing
and expanding the marketing programs that have resulted in First Capital Bank's
significant growth in its first four years of operation and by establishing
additional branches in the Phoenix metropolitan area to increase the penetration
of the market.
CoBiz expects to achieve significant cost savings following the merger
by:
o Consolidating external data processing costs.
o Combining accounting, retail and lending support, audit,
compliance and loan review support and other redundant
functions.
o Combining employee benefits programs.
o Reducing certain professional and other third party fees.
o Achieving economies of scale in advertising, insurance and
purchasing.
Actual savings in some or all of these areas may be higher or lower than
currently expected.
CoBiz intends to redeploy these cost savings to income-producing
functions. CoBiz expects to increase the personnel employed in the loan and
deposit production functions. The addition of CoBiz's expanded product and
service offerings will also involve costs not previously incurred by First
Capital Bank. The plan to open additional branches in the Phoenix area will
involve start-up costs for each new
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<PAGE> 47
location, as well as ongoing operating costs. CoBiz believes that the
redeployment of the cost savings expected from the merger to income-producing
uses will accelerate growth in the new market.
The unaudited pro forma financial statements included in this joint
proxy statement/prospectus show the combined operations and financial condition
of CoBiz and First Capital Bank as if the merger had occurred on December 31,
1999. The unaudited pro forma financial statements are set forth beginning on
page F-3. The unaudited pro forma financial statements do not reflect the cost
savings described above or any increased revenues from the redeployment of those
savings.
The unaudited pro forma financial statements show that the merger would
have caused a "dilution" (reduction) in CoBiz's earnings per share and book
value in 2000. This is reflected in the pro forma financial statements. CoBiz
believes that the merger will be neutral to earnings per share in 2001. However,
management of CoBiz expects that revenue growth in the new market will cause the
First Capital Bank acquisition to increase rather than decrease earnings per
share in subsequent years. These growth expectations are based in part on the
growth that First Capital Bank has been able to achieve in the four years that
it has been operating.
INTERESTS OF CERTAIN DIRECTORS AND EXECUTIVE OFFICERS OF FIRST CAPITAL BANK IN
THE MERGER
When considering the recommendations of the First Capital Bank board of
directors, First Capital Bank shareholders should be aware that some of the
directors, management and employees of First Capital Bank may have interests
that differ from, or conflict with, your interests. The board of directors was
aware of these interests when it approved the merger and the Merger Agreement.
Except as described below, to the knowledge of First Capital Bank, the executive
officers and directors of First Capital Bank do not have any material interest
in the merger apart from their interests as shareholders.
Conversion of Stock Options. CoBiz has agreed to assume the First
Capital Bank stock option plan for employees and directors and all outstanding
options under that plan. As of December 14, 2000, there were 108,155 options
outstanding, of which 66,903 were held by executive officers, 19,425 were held
by outside directors and 21,827 were held by other employees. After the merger,
those options will be exercisable for a number of shares of CoBiz common stock
determined by applying the conversion ratio to the number of shares of First
Capital Bank stock covered by the options at an exercise price determined by
dividing the pre-merger exercise price by the conversion ratio. The holders of
these options will benefit from any increase in the value of CoBiz stock after
the merger in a manner that is not available to the other shareholders of First
Capital Bank.
Employment Contracts. Harold Mosanko, President and Chief Executive
Officer of First Capital Bank, David O. Denslow, Senior Vice President, Chief
Financial Officer and Secretary of First Capital Bank, Lyle D. Frederickson,
Senior Vice President and Senior Lending Officer of First Capital Bank and
Wallace J. Turnage, Senior Vice President and Chief Credit Officer of First
Capital Bank, will each enter into employment agreements with First Capital Bank
upon the closing of the merger. Mr. Mosanko's employment agreement will have a
four-year term and provide for the continuation of his salary for up to two
years if he is terminated by First Capital Bank without cause during that term
or if he terminates his employment following a change of control or constructive
termination or for up to one year if he terminates
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<PAGE> 48
his employment for any other reason after the first year of that term. The other
three contracts will have one-year terms, automatically renewing at the end of
each year unless terminated by either party, and will provide for the
continuation of compensation for one year following termination by First Capital
Bank without cause, including a decision by First Capital Bank not to renew at
the end of any year, or termination by the employee following a change of
control or constructive termination. None of these employees has had employment
contracts or any right to severance benefits prior to the merger.
Other Severance Benefits. First Capital Bank will enter into severance
agreements with certain of its other employees upon the closing of the merger.
Each severance agreement will provide that First Capital Bank will pay severance
payments to the employee if, within certain time periods after the merger, First
Capital Bank terminates that employee without cause. None of these employees has
had any right to severance benefits prior to the merger.
Deferred Director Compensation Plan. First Capital Bank's directors are
compensated under a plan that creates "phantom stock" units based on the nominal
fees that they earn for serving on the board. Those nominal fees consist of
$2,400 per year plus non-employee directors receive an additional $200 for each
board meeting attended and $100 for each committee meeting attended. The fees
are not payable on a current basis. Rather, each director's phantom stock
account is credited with a number of units equal to the number of shares of
First Capital Bank stock that could have been purchased with the amount of the
fee on the day the fee was earned. When the director ceases to serve on the
board, he or she receives a cash payment equal to the number of units in his or
her account multiplied by the then current market value of First Capital Bank's
stock. Upon the merger, the directors of First Capital Bank who participate in
this phantom stock plan will be paid the value of their accounts based on the
average closing price of the CoBiz stock used in determining the conversion
ratio in the merger, whether or not they continue to serve on the board after
the merger. Assuming an average closing price of $16.00, the total amounts
payable under the plan would be approximately $85,000 if the merger were
consummated on February 28, 2001. This plan will not be continued after the
merger. Employees will not receive additional compensation for serving on the
board of directors of CoBiz or First Capital Bank after the merger. Non-employee
directors of First Capital Bank will be compensated after the merger on the same
basis as directors of Colorado Business Bank, N.A.
Appointment of Certain Directors to CoBiz's Board. Subject to approval
of the CoBiz board, upon completion of the merger, three current members of the
First Capital Bank board, Harold F. Mosanko, Alan R. Kennedy and Thomas M.
Longust, will become members of the board of directors of CoBiz. Each CoBiz
board member who is not an employee of CoBiz or a subsidiary receives $1,000 for
attendance at each board or committee meeting. Board members who are employees
are not compensated for attending meetings of the board or any committee.
Directors are eligible to receive options under the CoBiz stock option plans.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary discusses the material federal income tax
consequences of the merger. The discussion may not be applicable to certain
classes of taxpayers, including securities dealers and others that use the
mark-to-market method of accounting for federal income tax purposes, tax-exempt
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organizations or trusts, foreign persons, persons who hold shares of First
Capital Bank as part of a straddle or conversion transaction and persons who
acquire shares of First Capital Bank common stock pursuant to the exercise of
employee stock options or rights or otherwise as compensation. The respective
obligations of the parties to consummate the merger are conditioned upon CoBiz,
First Capital Bank and FCBA Acquisition Corporation receiving a written
confirmation, dated as of the closing date, of the tax opinion described below.
Like other conditions to the merger, any of the parties could choose to waive
receipt of that confirmation. However, if the receipt of the confirmation is
waived and there is a material difference in the tax consequences to you from
what is described in this section, we will recirculate revised proxy materials
and resolicit the vote of shareholders before closing the merger.
A tax opinion has been rendered by special counsel to First Capital
Bank, Jennings, Strouss & Salmon, P.L.C. The opinion of Jennings Strouss &
Salmon, P.L.C. will not be binding on the Internal Revenue Service, and there
can be no assurance that the Internal Revenue Service will not contest the
conclusions expressed therein. The tax opinion is based upon, among other
things, factual representations of CoBiz, First Capital Bank and/or officers and
principal shareholders of CoBiz and First Capital Bank customarily given in
transactions of this type. The tax opinion is filed as an exhibit to the
registration statement of which this joint proxy statement/prospectus is a part.
The opinion of Jennings, Strouss & Salmon, P.L.C., assuming that
factual representations described above are true and complete as of the
effective time of the merger and that the merger is completed as described in
this joint proxy statement/prospectus, provides:
o For federal income tax purposes, the merger will be treated as
a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended.
o Each of CoBiz, FCBA Acquisition Corporation and First Capital
Bank will be a party to that reorganization within the meaning
of Section 368(b) of the Code.
o No gain or loss will be recognized by CoBiz or First Capital
Bank in the merger.
o The assumption of the First Capital Bank employee and director
stock options will not result in any income or gain to the
holders of such options for federal income tax purposes.
o No gain or loss will be recognized by First Capital Bank
shareholders who receive CoBiz common stock in the merger in
exchange for their shares of First Capital Bank common stock
(except with respect to cash received in lieu of a fractional
share interest in CoBiz common stock or cash received for
dissenters' shares).
o First Capital Bank shareholders who receive cash in lieu of
fractional shares or upon exercise of dissenters' rights will
be treated as having received such fractional share interest
or shares in the case of dissenters' rights, and such cash
amount will be treated as received in redemption of the
fractional share interest or shares in the case of dissenters'
rights. In general, shareholders that are United States
taxpayers who held their surrendered shares in First Capital
Bank as a capital asset will recognize capital gain or loss
equal to the cash amount received for the fractional share of
CoBiz common stock or the dissenting shares
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<PAGE> 50
reduced by the portion of the holder's tax basis in the shares
of First Capital Bank common stock surrendered that is
allocable to the fractional share interest or the dissenting
shares. The capital gain or loss will be long-term capital
gain or loss if the shareholder's holding period in the
fractional share interest or dissenting shares for federal
income tax purposes is more than one year. Long-term capital
gain of a non-corporate U.S. shareholder is generally subject
to a maximum tax rate of 20%.
o The aggregate tax basis of the shares of CoBiz common stock
received by the First Capital Bank shareholders in the merger
will be the same as the aggregate tax basis of their shares of
First Capital Bank common stock surrendered in the merger,
less any basis attributable to fractional shares or dissenting
shares for which cash is received.
o The holding period of the CoBiz common stock the First Capital
Bank shareholders receive in the merger will include the
holding period of the shares of First Capital Bank common
stock surrendered in the merger as long as their First Capital
Bank common stock is held as a capital asset.
This summary is based on current federal income tax law. The tax
treatment of each First Capital Bank shareholder will depend in part on such
shareholder's particular situation, and each shareholder is urged to consult
with his or her own tax advisor concerning the specific tax consequences of the
merger to the shareholder, including the applicability and effect of foreign,
state, local or other tax laws and of any future changes in the Internal Revenue
Code, the Treasury Regulations, tax rulings or court decisions or other laws
concerning taxes.
ACCOUNTING TREATMENT OF THE MERGER
The merger is expected to qualify as a pooling-of-interests for
accounting and financial reporting purposes. Accordingly, after the merger, the
assets, liabilities and shareholders' equity of First Capital Bank will be added
to the corresponding balance sheet categories of CoBiz at their recorded book
values, subject to any adjustments required to conform the accounting policies
and financial statement classifications of the two companies. In future
financial statements, the results of operations of CoBiz will include the
results of First Capital Bank and CoBiz's other operating subsidiaries for the
entire fiscal year in which the merger occurs and all prior fiscal periods
presented therein. CoBiz must treat certain expenses incurred to effect the
merger as current charges against income rather than as adjustments to its
balance sheet.
The unaudited pro forma condensed combined financial information
contained in this document has been prepared using the pooling-of-interests
accounting method to account for the merger. See "Summary - Summary Unaudited
Pro Forma Combined Financial Data" on page 18 and "Index to Unaudited Pro Forma
Combined Financial Statements and Historical Financial Statements -- Unaudited
Pro Forma Combined Financial Statements" on page F-1.
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NASDAQ NATIONAL MARKET LISTING
CoBiz intends to apply to list the shares of CoBiz common stock to be
issued in the merger on the Nasdaq National Market. The stock must be authorized
for listing on the Nasdaq National Market for the merger to proceed.
EXCHANGE OF FIRST CAPITAL BANK COMMON STOCK FOR COBIZ COMMON STOCK
At or prior to the completion of the merger, CoBiz will deposit with
Corporate Stock Transfer, Inc., who will act as the exchange agent, certificates
representing shares of CoBiz common stock to which holders of First Capital Bank
common stock are entitled under the terms of the Merger Agreement and the
estimated amount necessary to make payments in cash in lieu of any fractional
shares. Promptly after completion of the merger, CoBiz will send to each holder
of First Capital Bank common stock a letter of transmittal and instructions for
use in exchanging their certificates representing shares of First Capital Bank
common stock for a certificate representing shares of CoBiz common stock and a
check for payment in lieu of any fractional shares.
First Capital Bank shareholders should not send in their share
certificates until they receive the letter of transmittal and instructions.
Upon receipt by Corporate Stock Transfer of a properly completed and
signed letter of transmittal from a First Capital Bank shareholder, together
with certificates representing the shares of First Capital Bank common stock
being surrendered, or a bond with surety that is reasonably satisfactory to
CoBiz if any such certificates have been lost, stolen or destroyed, Corporate
Stock Transfer will mail to such shareholder a certificate representing the
number of shares of CoBiz common stock to which such shareholder is entitled,
together with all undelivered dividends or distributions, less the amount of any
withholding taxes which may be required for the shares and, where applicable, a
check in the amount of cash to be paid in lieu of fractional shares. CoBiz will
pay cash in lieu of fractional shares based on the average closing price of the
CoBiz common stock for the 20 trading days ending three trading days prior to
the merger.
Until surrendered as described above, each certificate representing
shares of First Capital Bank common stock will represent after the completion of
the merger only the right to receive upon such surrender the certificate
representing shares of CoBiz common stock and cash in lieu of any fractional
shares. All amounts of cash in lieu of fractional shares which have not been
claimed within one year after the completion of the merger will be repaid to
CoBiz, subject to escheat laws. After such repayment, CoBiz will be responsible
for the payment of that cash to any of the former First Capital Bank
shareholders who subsequently surrender their shares.
Any declaration of dividends by CoBiz after the completion of the
merger will include dividends on all CoBiz common stock issued in the merger,
but no dividend or other distribution payable to the holders of the CoBiz common
stock to be issued in the merger will be paid to such holders until they
physically surrender all certificates as described above. After completion of
the merger, the stock transfer books of First Capital Bank will close, and there
will be no further transfers on such stock transfer books.
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THE MERGER AGREEMENT
CONDITIONS TO THE MERGER
The obligations of CoBiz and First Capital Bank to complete the merger
are subject to the satisfaction or waiver of certain conditions, including the
following:
o Approval of the Merger Agreement by the shareholders of CoBiz
and the shareholders of First Capital Bank.
o Receipt of listing approval from the Nasdaq National Market
for the CoBiz common stock that will be issued in the merger.
o Receipt of all necessary consents, authorizations and
approvals and the expiration of any waiting periods required
by law.
o No injunction prohibiting the merger shall have been issued by
any court or governmental authority and there shall be no
pending or threatened litigation seeking to prohibit the
merger.
o Receipt of a letter from Jennings, Strouss & Salmon, P.L.C.
confirming their opinion as to the federal income tax
consequences of the merger.
The obligation of CoBiz to consummate the merger is also subject to
fulfillment of other conditions, including the following:
o The number of dissenting shares will not result in aggregate
payments equal to the lesser of (i) an amount which would
result in the merger being disqualified from pooling-of-
interests accounting treatment or (ii) an amount equal to 2%
of the product of (a) the number of shares of First Capital
Bank common stock outstanding as of the time of the merger
multiplied by (b) the average closing price of the CoBiz
common stock on the Nasdaq National Market for the 20 trading
days ending with the third trading day prior to the merger
multiplied by (c) the conversion ratio used in the merger.
o Deloitte & Touche LLP will have confirmed in writing to CoBiz
that the merger will qualify for pooling-of-interests
accounting treatment. In addition, S.R. Snodgrass, A.C. will
have delivered a letter to CoBiz that no conditions exist with
respect to First Capital Bank that would preclude CoBiz from
accounting for the merger as a pooling-of-interests.
o CoBiz will have received the written resignation of all
directors of First Capital Bank, subject to acceptance by
CoBiz.
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o The results of any examination of First Capital Bank by any
regulatory agency that occurs between the date of the Merger
Agreement and the merger must be reasonably satisfactory to
CoBiz.
o CoBiz will have completed its due diligence investigation of
First Capital Bank, and the results must be satisfactory to
CoBiz.
Additionally, the consummation of the merger is subject to the
performance of covenants, the execution and delivery of ancillary documents, the
accuracy of representations and warranties and the receipt of various legal
opinions, officers' certificates and other documents.
TREATMENT OF OPTIONS
Upon completion of the merger, CoBiz will assume the First Capital Bank
stock option plan and each outstanding option to purchase First Capital Bank
common stock issued under that plan. After the merger, each such option will
entitle the optionee to purchase a number of shares of CoBiz common stock equal
to the number of shares of First Capital Bank common stock that were issuable
under the option multiplied by the conversion ratio in the merger at an exercise
price determined by dividing the exercise price per share of the option
immediately prior to the merger by the conversion ratio. The assumed options
will remain subject to their existing vesting schedules.
TERMINATION
The Merger Agreement may be terminated at any time prior to the
consummation of the merger:
o By mutual consent of CoBiz and First Capital Bank in writing.
o By CoBiz or First Capital Bank if the merger does not occur by
March 31, 2001, subject to extension by the boards of
directors of CoBiz and First Capital Bank, but this right to
terminate is not available to any party whose breach of the
Merger Agreement resulted in the failure of the merger to
occur by that date.
o By CoBiz or First Capital Bank if either the CoBiz
shareholders or the First Capital Bank shareholders do not
approve the Merger Agreement at their special meeting.
o By CoBiz or First Capital Bank if any breach by the other
party of a representation, warranty or covenant contained in
the Merger Agreement is not cured within 15 days after notice
thereof.
o By CoBiz or First Capital Bank if the board of directors of
the other has withdrawn, modified or qualified its
recommendation of the Merger Agreement in a manner adverse to
CoBiz or First Capital Bank, as the case may be.
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o By First Capital Bank if the average closing price of the
CoBiz common stock on the Nasdaq National Market for the 20
trading days ending with the third trading day prior to the
merger is less than $14.50.
COVENANTS; CONDUCT OF BUSINESS PRIOR TO COMPLETION OF THE MERGER
The Merger Agreement provides that, during the period from the date of
the Merger Agreement to the consummation of the merger, each of CoBiz and First
Capital Bank will:
o Conduct its business only in the usual, regular and ordinary
course.
o Use its best efforts to preserve intact its present business
organization, keep available the services of its present
officers and employees and preserve its relationships with
each of its representatives, customers, suppliers, personnel
and others having business dealings with it.
o Not take any action that would or could reasonably be excepted
to result in any of its representations and warranties
contained in the Merger Agreement becoming untrue at any time
prior to the consummation of the merger, provided that CoBiz
may acquire another subsidiary or dispose of certain of its
subsidiaries during that period.
o Promptly notify the other if it becomes aware of events or
circumstances that constitute or are reasonably likely to give
rise to a breach of a representation, warranty or covenant
made by it in the Merger Agreement.
o Provide the other with access to information about it.
o Use its best efforts to obtain all approvals and consents
required for consummation of the merger.
The Merger Agreement also provides that CoBiz will:
o For purposes of any length of service requirements, waiting
periods, vesting periods or benefits based on length of
service for any employee benefit plan of CoBiz or First
Capital Bank as the surviving corporation for which an
employee of First Capital Bank may be eligible after the
merger, consider service by such employees with First Capital
Bank prior to the merger to have been service with First
Capital Bank as the surviving corporation.
o Waive any pre-existing conditions, limitations and eligibility
waiting periods under any group health plans of CoBiz or First
Capital Bank as the surviving corporation with respect to
employees who are employed with First Capital Bank at the time
of the merger and their eligible dependants.
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o Give each First Capital Bank employee who is employed at the
time of the merger credit for the plan year in which the
merger occurs towards applicable deductions and out-of-pocket
limits for expenses incurred by each such employee prior to
the merger.
The Merger Agreement also provides that, during the period from the
date of the Merger Agreement to the completion of the merger, First Capital Bank
will not, without the prior written consent of CoBiz, take any of the following
actions:
o Declare or pay any dividends on, make any other distributions
with respect to, split, combine or reclassify, or repurchase
or otherwise acquire any shares of its capital stock.
o Sell, issue, authorize or purchase any shares of its capital
stock, except pursuant to the exercise of options outstanding
as of the date of the Merger Agreement.
o Amend its articles of incorporation or bylaws.
o Make any acquisitions by merging with, or purchasing a
substantial portion of the stock or assets of, any other
entity or by acquiring any assets which are material to First
Capital Bank.
o Sell, lease or otherwise dispose of any of its assets, except
for sales, leases and other dispositions in the ordinary
course of business consistent with past practice.
o Enter into or amend any employee benefit plan, employment
agreement or consulting agreement, except as may be required
by law, or accelerate the exercisability of any options,
warrants or rights to purchase securities of First Capital
Bank.
o Grant any increase in compensation, severance or termination
pay, or enter into any employment arrangement that will create
anything other than an at employment-at-will arrangement, with
certain exceptions.
o Pay any claim or discharge or satisfy any lien or encumbrance
or pay any obligation or liability other than in the ordinary
course of business.
o Make any changes in its banking and safe deposit arrangements,
except for changes in the ordinary course of business.
The Merger Agreement also provides that, during the period from the
date of the Merger Agreement until the completion of the merger, First Capital
Bank will:
o Maintain its corporate existence and fully comply with all
federal, state and local laws with respect to its operations
and the conduct of its business.
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o Take all steps necessary to cease contributions to its SIMPLE
plan as of the completion of the merger.
o Maintain its properties and assets in satisfactory condition
and repair, ordinary wear and tear excepted.
o Maintain its books and records in the usual, regular and
ordinary course consistent with prior years.
o Maintain and keep in full force all of its insurance policies
as in effect on the date of the Merger Agreement or other
insurance equivalent thereto.
o Invest its funds only in non-callable securities issued by
United States government sponsored agencies, the United
States, repurchase agreements secured by securities issued by
the United States, federal funds, municipal bonds or deposits
insured by the FDIC, provided that no such investment will
have a stated maturity of greater than one year and the
various stated maturities of its investments will be
consistent with the stated maturities of the investments held
in the ordinary course of First Capital Bank's business.
o Promptly advise CoBiz of any change or event having, or which
First Capital Bank believes could have, a material adverse
effect on the assets, liabilities, business, operations or
financial condition of First Capital Bank.
EXPENSES
CoBiz and First Capital Bank will each pay their own expenses incurred
in connection with the merger.
AMENDMENT AND WAIVER
Subject to applicable law, the Merger Agreement may be amended at any
time prior to the completion of the merger by a written instrument signed by all
of the parties. In addition, either CoBiz or First Capital Bank may waive any
default, misrepresentation or breach of a warranty or covenant contained in the
Merger Agreement so long as the waiver is set forth in a writing and signed by
the party against whom such waiver is asserted.
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AGREEMENTS WITH CERTAIN FIRST CAPITAL BANK SHAREHOLDERS
CoBiz has entered into voting agreements with all officers and
directors of First Capital Bank who are shareholders of First Capital Bank
pursuant to which they have agreed to vote all shares of First Capital Bank
common stock which they own in favor of the Merger Agreement. On the record
date, the persons who have signed voting agreements owned an aggregate of
_________ outstanding shares of First Capital Bank common stock or ____% of the
outstanding First Capital Bank common stock. Such agreements increase the
likelihood that the Merger Agreement will be approved by the shareholders of
First Capital Bank.
Upon completion of the merger, CoBiz and First Capital Bank will enter
into a Noncompetition and Nonsolicitation Agreement with Harold F. Mosanko, the
President of First Capital Bank, pursuant to which Mr. Mosanko has agreed, among
other things and with limited exceptions, not to participate or engage in any
business which is competitive with CoBiz or First Capital Bank or solicit any
customers or employees of CoBiz or First Capital Bank for a period of four years
after the termination of his employment with First Capital Bank. One of those
exceptions is that after termination of his employment with First Capital Bank,
Mr. Mosanko may make loans to third parties that are not of the type ordinarily
made by First Capital Bank or CoBiz, provided that he has first discussed the
proposed loan with CoBiz, has offered CoBiz the opportunity to make the loan,
and CoBiz has declined to do so. In addition, if prior to Mr. Mosanko's 65th
birthday, he becomes ineligible to obtain coverage under CoBiz's medical and
dental insurance plans, the noncompetition provisions of the agreement will
terminate.
EMPLOYMENT AGREEMENTS
Upon completion of the merger, First Capital Bank will enter into
Employment Agreements with Harold F. Mosanko, President and Chief Executive
Officer of First Capital Bank, David O. Denslow, Senior Vice President, Chief
Financial Officer and Secretary of First Capital Bank, Lyle D. Frederickson,
Senior Vice President and Senior Lending Officer of First Capital Bank, and
Wallace J. Turnage, Senior Vice President and Chief Credit Officer of First
Capital Bank, all of whom are also shareholders of First Capital Bank, pursuant
to which each has agreed to be employed by First Capital Bank after the merger
and has also agreed not to solicit the employees or customers of First Capital
Bank for one year following termination of such person's employment with First
Capital Bank. Mr. Mosanko's employment agreement will have a four-year term and
provide for the continuation of his salary for up to two years if he is
terminated by First Capital Bank without cause during that term or if he
terminates his employment following a change of control or constructive
termination or for up to one year if he terminates his employment for any other
reason after the first year of that term. The other three contracts will have
one-year terms, automatically renewing at the end of each year unless terminated
by either party, and will provide for the continuation of compensation for one
year following termination by First Capital Bank without cause, including a
decision by First Capital Bank not to renew at the end of any year, or
termination by the employee following a change of control or constructive
termination.
Upon completion of the merger, First Capital Bank will also enter into
severance agreements with certain of its other employees. Each severance
agreement will provide that First Capital Bank will pay
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severance payments to the employee if, within certain time periods after the
merger, First Capital Bank terminates that employee's employment with First
Capital Bank without cause.
SALES AND RESALES OF COBIZ COMMON STOCK AND FIRST CAPITAL BANK COMMON STOCK
The shares of CoBiz common stock to be issued to First Capital Bank
shareholders in the merger will be registered under the Securities Act. These
shares may be traded freely and without restriction by those shareholders not
deemed to be "affiliates" of First Capital Bank at the time of the merger. An
"affiliate" of a corporation, as defined by the Securities Act of 1933, as
amended, is a person who directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
that corporation. Generally, affiliates include any executive officer, director
or 10% shareholder of a corporation. Any subsequent transfer of shares of CoBiz
common stock by an affiliate of First Capital Bank must be pursuant to the
resale provisions of Rule 145 promulgated under the Securities Act or as
otherwise permitted under the Securities Act.
Securities and Exchange Commission guidelines regarding qualifying for
the pooling-of-interests method of accounting also limit sales of the acquiring
and acquired company by affiliates of either company before and after a business
combination such as the merger. These guidelines indicate that
pooling-of-interests accounting will generally not be challenged on the basis of
sales by such affiliates if they do not dispose of any of the shares of the
corporation they own or any shares they receive in the merger during the period
beginning 30 days prior to the merger and ending after financial results
covering at least 30 days of post-merger operations of the combined entity have
been published.
First Capital Bank has delivered to CoBiz an agreement signed by each
person considered to be an affiliate of First Capital Bank that such person will
not dispose of any CoBiz common stock except in compliance with Rule 145 or any
First Capital Bank common stock or CoBiz common stock during the restricted
periods established in the pooling rules. In addition, CoBiz has obtained from
each person who may be considered an affiliate of CoBiz that such person will
not dispose of any CoBiz common stock during such restricted periods.
REGULATORY APPROVALS FOR THE MERGERS
Under the Merger Agreement, CoBiz and First Capital Bank have agreed to
use their best efforts to obtain all approvals and consents required to
consummate the merger, including the following:
o FRB. The acquisition of First Capital Bank by CoBiz requires
the prior approval of the FRB under the Bank Holding Company
Act of 1956, as amended. An application for prior approval was
filed with the FRB on December 7, 2000.
o FDIC. The merger of First Capital Bank and FCBA Acquisition
Corporation is subject to the approval of the FDIC under the
Bank Merger Act. An application for approval of the merger
transaction was filed with the FDIC on December 8, 2000.
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o ASB. The merger is an acquisition of control under Arizona law
and therefore it is subject to approval of the ASB. An
application for approval was filed with the ASB on December 7,
2000. The ASB is required to deny the application if the
acquisition by CoBiz would do any of the following:
o Jeopardize the financial condition of First Capital
Bank.
o Prejudice the interest of or be unfair to the
depositors, beneficiaries, creditors and shareholders
of First Capital Bank.
o Fail to serve, because of the character or integrity
of CoBiz, the depositors, beneficiaries, creditors
and shareholders of First Capital Bank.
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BUSINESS OF COBIZ
GENERAL
CoBiz is a financial holding company headquartered in Denver, Colorado.
Our wholly-owned subsidiary Colorado Business Bank, N.A., is a full-service
business banking institution with nine Colorado locations, including six in the
Denver metropolitan area, two in Boulder and one in Edwards, just west of Vail.
As of September 30, 2000, we had total assets of $610 million, net loans and
leases of $408 million and deposits of $427 million. We provide a broad range of
banking products and services, including credit, cash management, investment,
deposit and trust products and employee benefits consulting and insurance
brokerage services, to our targeted customer base of small- and medium-sized
businesses and high net worth individuals. Each of our locations operates as a
separate business bank, with significant local decision-making authority.
Support functions such as accounting, data processing, bookkeeping, credit
administration, loan operations and investment and cash management services are
conducted centrally from our downtown Denver office. As a result of this
operating approach, we believe that we are well positioned to attract and serve
our target customers, combining the elements of personalized service found in
community banks with sophisticated banking products and services traditionally
offered by larger regional banks.
MARKET AREAS SERVED
Our primary market area is the Denver metropolitan area, which is
comprised of the counties of Denver, Boulder, Adams, Arapahoe, Douglas and
Jefferson. The Denver metropolitan area enjoyed a 2.3% increase in population
from July 1998 to July 1999, with the population growing to more than 2.4
million. This six-county area is one of the fastest growing regions in the
nation, helping to make Colorado the third fastest growing state in the United
States.
Denver's economy is also expanding, posting 3.6% growth in non-farm
employment from September 1999 to September 2000. This rapid expansion helped to
drive the unemployment rate down to 2.4% in September 2000. Per capita income
rose 7.2% between 1996 and 1998, which was the fourth highest per capita income
growth rate in the country.
Companies with less than 50 employees make up Denver's single largest
employment group. The economy has diversified over the years, with significant
representation in technology, communications, manufacturing, tourism,
transportation and financial services.
In June 1999, we expanded beyond the Denver metropolitan area by
establishing an office, Colorado Business Bank of the Rockies, in Edwards,
Colorado, which is located in the rapidly developing Vail valley.
We have two locations each in downtown Denver, Boulder and Littleton
and one location each in Golden, the Denver Technological Center and the Vail
valley. The second downtown Denver location was relocated to a new facility
which opened in the second quarter of 2000. The following is selected additional
market data regarding the markets we serve:
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o Downtown Denver is the business center of metropolitan Denver.
o Boulder has one of the highest concentrations of small
businesses and affluent individuals in the Rocky Mountain
region.
o The Littleton locations serve a more residential area,
including Highlands Ranch, one of the fastest growing
communities in the Denver metropolitan area.
o The western metropolitan area served by the Golden location
contains a number of newer industrial and office parks.
o The area around the Denver Technological Center features a
high concentration of office parks and businesses. A large
number of high net worth individuals live and work in the
area.
o The Vail valley is anchored by Vail, a prime mountain resort
with a vigorous high-end primary and second home construction
market. Construction activity in this area is fueling growth
in other commercial businesses supporting the expanding
population base in the market.
LENDING ACTIVITIES
General. We provide a broad range of commercial and retail lending
services, including commercial loans, commercial and residential real estate
construction loans, commercial and residential real estate mortgage loans,
consumer loans, revolving lines of credit and equipment lease financing,
including both operating and direct financing leases. Our primary lending focus
is commercial and real estate lending to small- and medium-sized businesses that
have annual sales of $2 million to $50 million and businesses and individuals
with borrowing requirements of $200,000 to $4 million. As of September 30, 2000,
substantially all of our outstanding loans and leases were to customers within
Colorado.
Interest rates charged on loans vary with the degree of risk, maturity,
underwriting and servicing costs, principal amount and extent of other banking
relationships with the customer, and are further subject to competitive
pressures, money market rates, availability of funds and government regulations.
As of September 30, 2000, approximately 63% of our loans were at interest rates
that float with our base rate or some other reference rate. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
CoBiz" for an analysis of the interest rates on our loans.
Credit Procedures and Review. We address credit risk through internal
credit policies and procedures, including underwriting criteria, officer and
customer lending limits, a multi-layered loan approval process for larger loans,
periodic document examination, justification for any exceptions to credit
policies, loan review and concentration monitoring. In addition, we provide
ongoing loan officer training and review.
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We have a continuous loan review process designed to promote early
identification of credit quality problems. All loan officers are charged with
the responsibility of reviewing, no less frequently than monthly, all past due
loans in their respective portfolios. In addition, each of the loan officers
establishes a watch list of loans to be reviewed monthly by the board of
directors of Colorado Business Bank and CoBiz. The loan and lease portfolio is
also monitored regularly by a loan review officer who reports directly to the
audit committee of the board of directors of Colorado Business Bank and CoBiz.
Composition of Loan and Lease Portfolio. The following table sets forth
the composition of our loan and lease portfolio at the dates indicated.
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<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------
At September 30, 2000 1999 1998
------------------------ ------------------------ ------------------------
Amount % Amount % Amount %
--------- --------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial ...................... $ 131,577 32.2 $ 130,428 37.7 $ 104,745 46.9
Real estate - mortgage .......... 170,859 41.9 123,341 35.6 56,941 25.5
Real estate - construction ...... 63,687 15.6 53,552 15.5 34,210 15.3
Consumer ........................ 24,461 6.0 21,873 6.3 16,913 7.6
Direct financing leases - net ... 22,922 5.6 21,485 6.2 13,741 6.2
--------- --------- --------- --------- --------- ---------
Total loans and leases .......... $ 413,506 101.3 $ 350,679 101.3 $ 226,550 101.5
Less allowance for loan and
lease losses .................. (5,463) (1.3) (4,585) (1.3) (3,271) (1.5)
--------- --------- --------- --------- --------- ---------
Net loans and leases ............ $ 408,043 100.0 $ 346,094 100.0 $ 223,279 100.0
========= ========= ========= ========= ========= =========
<CAPTION>
At December 31,
------------------------------------------------------------------------------------
1997 1996 1995
------------------------ ------------------------ ------------------------
Amount % Amount % Amount %
--------- --------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial ...................... $ 78,152 47.6 $ 58,727 53.0 $ 35,101 40.1
Real estate - mortgage .......... 40,262 24.6 24,491 22.1 31,407 36.0
Real estate - construction ...... 27,786 16.9 19,119 17.3 14,557 16.7
Consumer ........................ 11,732 7.2 8,266 7.5 6,356 7.3
Direct financing leases - net ... 8,407 5.1 1,805 1.6 1,282 1.5
--------- --------- --------- --------- --------- ---------
Total loans and
leases .......................... $ 166,339 101.4 $ 112,408 101.5 $ 88,703 101.6
Less allowance for loan and
lease losses................... (2,248) (1.4) (1,660) (1.5) (1,393) (1.6)
--------- --------- --------- --------- --------- ---------
Net loans and leases ............ $ 164,091 100.0 $ 110,748 100.0 $ 87,310 100.0
========= ========= ========= ========= ========= =========
</TABLE>
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Under federal law, the aggregate amount of loans that we may make to
one borrower is generally limited to 15% of our unimpaired capital, surplus,
undivided profits and allowance for loan and lease losses. As of September 30,
2000, our individual legal lending limit was $9.6 million. Our board of
directors has established an internal lending limit of $5.5 million. To
accommodate customers whose financing needs exceed our internal lending limits,
and to address portfolio concentration concerns, we sell loan participations to
outside participants, including Hawthorne Colorado, Inc., an entity controlled
by Steven Bangert and Howard R. Ross, members of our board of directors. See
"Certain Relationships and Related Transactions of CoBiz." At September 30,
2000, December 31, 1999, December 31, 1998 and December 31, 1997, the
outstanding balances of loan participations sold by us were $19.6 million, $17.6
million, $14.8 million and $10.1 million, respectively. We have retained
servicing rights on all loan participations sold. In addition, we had loan
participations purchased from other banks totaling $8.0 million as of September
30, 2000. We use the same analysis in deciding whether or not to purchase a
participation in a loan as we would in deciding whether to originate the same
loan. In the ordinary course of business, we enter into various types of
transactions that include commitments to extend credit. We apply the same credit
standards to these commitments as we apply to our other lending activities and
have included these commitments in our lending risk evaluations. Our exposure to
credit loss under commitments to extend credit is represented by the amount of
these commitments.
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Nonperforming Assets. Our nonperforming assets consist of nonaccrual
loans and leases, restructured loans and leases, past due loans and leases and
other real estate owned. The following table sets forth information with respect
to these assets at the dates indicated.
<TABLE>
<CAPTION>
At At December 31,
September 30, --------------------------------------------------------
2000 1999 1998 1997 1996 1995
------------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Nonperforming loans and leases:
Loans and leases 90 days or more delinquent and still
accruing interest ................................ $ 37 $ 49 $ 4 $ -- $ -- $ --
Nonaccrual loans and leases .......................... 844 634 125 470 234 --
Restructured loans and leases ........................ -- -- 338 341 348 616
-------- -------- -------- -------- -------- --------
Total nonperforming loans and leases ........... 881 683 467 811 582 616
Real estate acquired by foreclosure ....................... -- -- -- -- 109 310
-------- -------- -------- -------- -------- --------
Total nonperforming assets ..................... $ 881 $ 683 $ 467 $ 811 $ 691 $ 926
======== ======== ======== ======== ======== ========
Allowance for loan and lease losses ....................... $ 5,463 $ 4,585 $ 3,271 $ 2,248 $ 1,660 $ 1,393
======== ======== ======== ======== ======== ========
Ratio of nonperforming assets to total assets ............. 0.14% 0.14% 0.13% 0.31% 0.36% 0.58%
Ratio of nonperforming loans and leases to total loans and
leases ............................................... 0.21 0.19 0.21 0.49 0.52 0.69
Ratio of allowance for loan and lease losses to total loans
and leases ........................................... 1.32 1.31 1.44 1.35 1.48 1.57
Ratio of allowance for loan and lease losses to
nonperforming loans and leases ....................... 620.09 671.30 700.43 277.19 285.22 225.97
</TABLE>
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Accrual of interest is discontinued on a loan or lease when management
believes, after considering economic and business conditions and collection
efforts, that the borrower's financial condition is such that the collection of
interest is doubtful. A delinquent loan or lease is generally placed on
nonaccrual status when it becomes 90 days past due. When a loan or lease is
placed on nonaccrual status, all accrued and unpaid interest on the loan or
lease is reversed and deducted from earnings as a reduction of reported interest
income. No additional interest is accrued on the loan or lease balance until the
collection of both principal and interest becomes reasonably certain. When the
issues relating to a nonaccrual loan or lease are finally resolved, there may
ultimately be an actual write down or charge-off of the principal balance of the
loan or lease, which may necessitate additional charges to earnings.
Restructured loans and leases are those for which concessions,
including the reduction of interest rates below a rate otherwise available to
the borrower, or the deferral of interest or principal, have been granted due to
the borrower's weakened financial condition. Interest on restructured loans and
leases is accrued at the restructured rates when it is anticipated that no loss
of original principal will occur.
The additional interest income that would have been recognized for the
nine months ended September 30, 2000 and the years ended December 31, 1999 and
1998 if our nonaccrual and restructured loans and leases had been current in
accordance with their original terms, and the interest income on nonaccrual and
restructured loans and leases actually included in our net income for such
periods, was not material.
Real estate acquired by foreclosure includes deeds acquired under
agreements with delinquent borrowers. Real estate acquired by foreclosure is
appraised annually and is carried at the lesser of fair market value less
anticipated closing costs or the balance of the related loan. As of September
30, 2000, we did not own any real estate acquired in foreclosure proceedings or
under agreements with delinquent borrowers.
In addition to the nonperforming assets described above, at September
30, 2000, we had 29 loan and lease relationships considered by management to be
potential problem loans or leases, with outstanding principal totaling
approximately $4.1 million. A potential problem loan or lease is one as to which
management has concerns about the borrower's future performance under the terms
of the loan or lease contract. For our protection, management monitors these
loans and leases closely. These loans and leases are current as to the principal
and interest and, accordingly, are not included in the nonperforming asset
categories. However, further deterioration may result in the loan or lease being
classified as nonperforming. The level of potential problem loans and leases is
factored into the determination of the adequacy of the allowance for loan and
lease losses.
Analysis of Allowance for Loan and Lease Losses. 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 considered adequate
to provide for 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 quality 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.
51
<PAGE> 67
The following table sets forth information regarding changes in our
allowance for loan and lease losses for the periods indicated.
52
<PAGE> 68
<TABLE>
<CAPTION>
For the
nine months For the year ended December 31,
ended ----------------------------------------------------------------------
September 30, 2000 1999 1998 1997 1996 1995
------------------ ---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance of allowance for loan and lease
losses at beginning of period ....... $ 4,585 $ 3,271 $ 2,248 $ 1,660 $ 1,392 $ 1,181
Charge-offs:
Commercial ......................... 178 100 200 356 275 27
Real estate--mortgage .............. 16 -- -- -- -- --
Real estate--construction .......... -- 5 -- -- 47 --
Consumer ........................... 2 80 32 38 6 18
Direct financing leases ............ 225 -- 4 -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total charge-offs ............. 421 185 236 394 328 45
Recoveries:
Commercial ......................... 30 24 66 6 61 10
Real estate--mortgage .............. -- -- -- -- -- --
Real estate--construction .......... -- -- -- -- 39 --
Consumer ........................... 5 2 5 27 3 3
Direct financing leases ............ 2 -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total recoveries .............. 37 26 71 33 103 13
---------- ---------- ---------- ---------- ---------- ----------
Net charge-offs ......................... (384) (159) (165) (361) (225) (32)
Provisions for loan and lease losses
charged to operations ............... 1,262 1,473 1,188 949 493 243
---------- ---------- ---------- ---------- ---------- ----------
Balance of allowance for loan and lease
losses at end of period ............. $ 5,463 $ 4,585 $ 3,271 $ 2,248 $ 1,660 $ 1,392
========== ========== ========== ========== ========== ==========
Ratio of net charge-offs to average
loans and leases (1) ................ (.14)% (.06)% (.08)% (.26)% (.23)% (.04)%
Average loans and leases outstanding
during the period ................... $ 376,433 $ 281,796 $ 197,851 $ 138,787 $ 98,075 $ 77,194
</TABLE>
----------
(1) The ratio for the nine months ended September 30, 2000 has been annualized
and is not necessarily indicative of results for the entire year.
53
<PAGE> 69
Additions to the allowance for loan and lease losses, which are
charged as expenses on our income statement, are made periodically to maintain
the allowance at the appropriate level, based on our analysis of the potential
risk in the loan and lease portfolio. Loans and leases charged off, net of
amounts recovered from such loans and leases, reduce the allowance for loan and
lease losses. The amount of the allowance is a function of the levels of loans
and leases outstanding, the level of non-performing loans and leases, historical
loan and lease loss experience, the amount of loan and lease losses actually
charged against the reserve during a given period and current and anticipated
economic conditions. At September 30, 2000, the allowance for loan and lease
losses equaled 1.32% of total loans and leases.
Federal regulatory agencies, as part of their examination process,
review our loans and leases and allowance for loan and lease losses. We believe
that our allowance for loan and lease losses is adequate to cover anticipated
loan and lease losses. However, management may determine a need to increase the
allowance for loan and lease losses, or regulators, when reviewing the Bank's
loan and lease portfolio in the future, may request the Bank to increase such
allowance. Either of these events could adversely affect our earnings. Further,
there can be no assurance that our actual loan and lease losses will not exceed
the allowance for loan and lease losses.
The following table sets forth the allowance for loan and lease
losses by category to the extent specific allocations have been determined
relative to particular categories of loans or leases. The unallocated portion of
the allowance is intended to cover loss exposure related to potential problem
loans or leases for which no specific allocation has been estimated. Management
attempts to quantify, on a quarterly basis, unidentified loss exposure in our
portfolio overall. We continually analyze historical loss/trends in assessing
the unallocated portion of the allowance. General economic conditions and
commercial trends influence the level of the unallocated portion of the
allowance, as well as growth of the loan and lease portfolio. We also
specifically monitor concentrations of real estate and large credits. We believe
that any allocation of the allowance into categories creates an appearance of
precision that does not exist. The allocation table should not be interpreted as
an indication of the specific amounts, by loan or lease classification, to be
charged to the allowance. We believe that the table is a useful device for
assessing the adequacy of the allowance as a whole. The table has been derived
in part by applying historical loan and lease loss ratios to both internally
classified loans and leases and the portfolio as a whole in determining the
allocation. The allowance is utilized as a single unallocated allowance
available for all loans and leases.
54
<PAGE> 70
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------
At September 30, 2000 1999 1998
----------------------------- ----------------------------- -----------------------------
Loans Loans Loans
in category in category in category
as % of as % of as % of
Amount of gross loans Amount of gross loans Amount of gross loans
allowance and leases allowance and leases allowance and leases
------------- ------------- ------------- ------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial ...................... $ 1,225 31.9% $ 1,120 37.2% $ 832 46.2%
Real estate -- mortgage ......... 933 41.3 728 35.2 522 25.1
Real estate -- construction ..... 433 15.4 284 15.3 508 15.1
Consumer ........................ 236 5.9 233 6.2 99 7.5
Direct financing leases ......... 212 5.5 183 6.1 243 6.1
Unallocated ..................... 2,424 -- 2,037 -- 1,067 --
------------- ------------- ------------- ------------- ------------- -------------
Total .............. $ 5,463 100.0% $ 4,585 100.0% $ 3,271 100.0%
============= ============= ============= ============= ============= =============
<CAPTION>
At December 31,
-----------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------- ----------------------------- -----------------------------
Loans Loans Loans
in category in category in category
as % of as % of as % of
Amount of gross loans Amount of gross loans Amount of gross loans
allowance and leases allowance and leases allowance and leases
------------- ------------- ------------- ------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial ..................... $ 811 47.0% $ 510 52.2% $ 527 39.6%
Real estate -- mortgage ........ 296 24.2 189 21.8 151 35.4
Real estate -- construction .... 318 16.7 237 17.0 233 16.4
Consumer ....................... 73 7.0 51 7.4 49 7.2
Direct financing leases ........ 5.1 -- 1.6 -- 1.4
Unallocated .................... 750 -- 673 -- 433 --
------------- ------------- ------------- ------------- ------------- -------------
Total ............. $ 2,248 100.0% $ 1,660 100.0% $ 1,393 100.0%
============= ============= ============= ============= ============= =============
</TABLE>
55
<PAGE> 71
INVESTMENTS
Our investment portfolio is comprised of securities rated "A" or better
by various nationally recognized rating agencies, with the majority of the
portfolio either maturing or repricing within a one- to seven-year period. Our
practice is to purchase primarily U.S. Treasury and U.S. government agency
securities. Since November 1994, we have invested primarily in mortgage-backed
securities that reprice annually. Our investment strategies are reviewed at the
meetings of the asset and liability management committee.
Our mortgage-backed securities are typically classified as available
for sale. Our goals with respect to our securities portfolio are to:
o Maximize safety and soundness.
o Provide adequate liquidity.
o Maximize rate of return within the constraints of applicable
liquidity requirements.
o Complement asset/liability management strategies.
The following table sets forth the book value of the securities in our
investment portfolio by type at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
At September 30, ---------------------------------------------------
2000 1999 1998 1997
---------------- ------------- ------------- -------------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. government
agency securities ........... $ 11,144 $ 11,884 $ 17,764 $ 7,009
Mortgage-backed securities ...... 136,438 94,393 87,104 48,354
State and municipal bonds ....... 1,499 799 965 1,198
Federal Reserve and FHLB
stock........................ 2,925 2,455 1,961 2,012
Other investments ............... 550 390 143 211
------------- ------------- ------------- -------------
Total ..................... $ 152,556 $ 109,921 $ 107,937 $ 58,784
============= ============= ============= =============
</TABLE>
56
<PAGE> 72
The following table sets forth the book value, maturity or repricing
frequency and approximate yield of the securities in our investment portfolio at
September 30, 2000.
<TABLE>
<CAPTION>
Maturity or repricing
-------------------------------------------------------------------------------------
Within 1 year 1-5 years 5-10 years Over 10 years Total
------------------- ------------------ ------------------- ------------------- -------------------
Amount Yield (1) Amount Yield (1) Amount Yield (1) Amount Yield (1) Amount Yield (1)
------ --------- ------ --------- ------ --------- ------ --------- ------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S.
government agency
securities .......... $ 2,337 4.33% $ 1,498 6.13% $ -- -- $ 7,309 6.38% $ 11,144 5.92%
Mortgage-backed
securities .......... 104,032 7.10 6,049 5.95 15,661 5.50% 10,696 7.00 136,438 6.86
State and municipal
bonds ............... 490 6.91 -- -- 309 6.68 700 7.43 1,499 7.11
Federal Reserve and
FHLB stock .......... -- -- -- -- -- -- 2,925 7.23 2,925 7.23
Other investments .... -- -- 550 16.79 -- -- -- -- 550 16.79
--------- -------- -------- -------- --------
Total ..... $ 106,859 7.04 $ 8,097 6.72 $ 15,970 5.52 $ 21,630 6.83 $152,556 6.83
========= ======== ======== ======== ========
</TABLE>
----------
(1) Yields do not include adjustments for tax-exempt interest because the amount
of such interest is not material.
57
<PAGE> 73
DEPOSITS
Our primary source of funds has historically been customer deposits. We
offer a variety of accounts for depositors, which are designed to attract both
short- and long-term deposits. These accounts include certificates of deposit,
savings accounts, money market accounts, checking and negotiable order of
withdrawal accounts and individual retirement accounts. At September 30, 2000,
$119.3 million, or 28%, of our deposits were noninterest-bearing deposits. We
believe that we receive a large amount of noninterest-bearing deposits because
we provide customers with the option of paying for services in cash or by
maintaining additional noninterest-bearing account balances. However, since
proposed changes in banking regulations would allow for the payment of interest
on commercial accounts, there can be no assurance that we will be able to
continue to maintain such a high level of noninterest-bearing deposits.
Interest-bearing accounts earn interest at rates based on competitive market
factors and our desire to increase or decrease certain types of maturities or
deposits. We have not actively sought brokered deposits and do not currently
intend to do so.
The following tables present the average balances for each major
category of deposits and the weighted average interest rates paid for
interest-bearing deposits for the periods indicated.
58
<PAGE> 74
<TABLE>
<CAPTION>
For the year ended December 31,
For the nine months ------------------------------------------------------------------
ended September 30, 2000 1999 1998 1997
------------------------ ------------------- -------------------- --------------------
Weighted Weighted Weighted Weighted
average average average average
Average interest Average interest Average interest Average interest
balance rate balance rate balance rate balance rate
-------- ------------ -------- ---------- ------- -------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NOW and money market accounts .......... $172,080 4.13% $122,688 3.30% $ 85,558 3.31% $ 66,222 3.23%
Savings ................................ 5,969 2.22 6,546 2.22 6,227 2.59 5,780 2.63
Certificates of deposit under $100,000.. 25,554 5.67 25,950 5.09 21,507 5.42 16,942 5.18
Certificates of deposit $100,000 and
over ................................ 103,709 5.93 64,844 5.15 47,453 5.60 35,936 5.80
-------- -------- -------- --------
Total interest-bearing deposits ... 307,312 4.83 220,028 4.02 160,745 4.24 124,880 4.21
Noninterest-bearing demand deposits .... 114,731 -- 101,793 -- 76,223 -- 54,706 --
-------- -------- -------- --------
Total deposits .................... $422,043 3.52 $321,821 2.75 $236,968 2.87 $179,586 2.93
======== ======== ======== ========
</TABLE>
Maturities of certificates of deposit of $100,000 and more are as
follows:
<TABLE>
<CAPTION>
At September 30,
2000
----------------
Remaining maturity (In thousands)
------------------
<S> <C>
Less than three months............. $ 60,302
Three months up to six months...... 19,583
Six months up to one year.......... 28,055
One year and over.................. 4,683
--------
$112,623
========
</TABLE>
59
<PAGE> 75
SHORT-TERM BORROWINGS
Our short-term borrowings include federal funds purchased,
securities sold under agreements to repurchase, which generally mature within 60
days, and advances from the Federal Home Loan Bank of Topeka ("FHLB-Topeka").
The following table sets forth information relating to our short-term
borrowings.
<TABLE>
<CAPTION>
At or for the year
At or for the ended December 31,
nine months ended ----------------------------------------
September 30, 2000 1999 1998 1997
------------------ ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Federal funds purchased
Balance at end of period ............................. $ 11,320 $ 1,300 $ 3,500 --
Average balance outstanding for the period ........... 2,306 4,403 4,956 $ 6,686
Maximum amount outstanding at any month end during the
period ............................................ 11,320 13,000 17,000 18,000
Weighted average interest rate for the period ........ 6.46% 5.40% 5.54% 5.68%
Weighted average interest rate at period end ......... 6.94 4.00 5.06 --
Securities sold under agreement to repurchase
Balance at end of period ............................. $ 68,306 $ 33,053 $ 24,956 $ 13,024
Average balance outstanding for the period ........... 42,513 40,421 18,811 10,916
Maximum amount outstanding at any month end during the
period ............................................ 68,306 51,982 24,956 17,625
Weighted average interest rate for the period ........ 5.32% 4.41% 4.72% 4.92%
Weighted average interest rate at period end ......... 5.85 4.53 3.31 4.58
FHLB-Topeka advances
Balance at end of period ............................. $ 35,910 $ 30,980 $ 26,120 $ 3,260
Average balance outstanding for the period ........... 17,046 18,041 4,626 4,167
Maximum amount outstanding at any month end during the
period............................................. 36,680 32,050 26,120 4,400
Weighted average interest rate for the period ........ 6.32% 5.48% 6.07% 6.72%
Weighted average interest rate at period end ......... 6.64 5.88 5.47 6.46
</TABLE>
60
<PAGE> 76
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
COBIZ
BACKGROUND
CoBiz was acquired by a group of private investors in September 1994.
In March 1997, we completed a private placement of 1,102,725 shares of common
stock at a price of $3.61 per share, for net proceeds of approximately $4.0
million, which we used to fund our continuing growth. We completed the initial
public offering of our common stock in June 1998. We sold a total of 1,610,000
shares of common stock at $12.00 per share yielding net proceeds of $17.5
million, after deducting underwriting commissions and other expenses.
On June 19, 2000, we issued 30-year capital trust preferred securities
in the aggregate amount of $20,000,000. The trust preferred securities bear a
cumulative fixed interest rate of 10% per annum and mature on June 30, 2030.
Interest distributions are payable quarterly. We may defer the payment of
interest at any time for a period not exceeding 20 consecutive quarters provided
that the deferral period does not extend past the stated maturity. During any
such deferral period, our ability to pay dividends on our common shares will be
restricted. Subject to approval by the Federal Reserve Bank, the trust preferred
securities may be redeemed prior to maturity at our option on or after June 30,
2005. Portions of the trust preferred securities qualify as Tier I capital under
regulatory definitions. Issuance costs consisting primarily of underwriting
discounts and professional fees of approximately $1 million were capitalized and
are being amortized over five years to noninterest expense using the
straight-line method.
Our management has focused on developing an organization with
personnel, management systems and products that will allow us to compete
effectively and position us for growth. The cost of this process relative to our
size has been high. In addition, we have operated with excess capacity during
the start-up phases of various projects. As a result, relatively high levels of
noninterest expense have adversely affected our earnings over the past several
years. Salaries and employee benefits comprised most of this overhead category.
However, we believe that our compensation levels have allowed us to recruit and
retain a highly qualified management team capable of implementing our business
strategies. We believe that our compensation policies, which include the
granting of options to purchase common stock to many employees, have highly
motivated our employees and have enhanced our ability to maintain customer
loyalty and generate earnings. While we will continue to add personnel to lead
new growth initiatives, including middle management, we believe that our senior
management and systems infrastructure are adequate to support our anticipated
growth without incurring proportionate increases in general, administrative and
other noninterest expenses.
From December 31, 1995 to September 30, 2000, our shareholders' equity
increased 392%, from $9.1 million to $44.6 million. During that same time
period, our outstanding loans and leases (net) increased 367%, from $87.3
million to $408.0 million. This increase has primarily been the result of our
focus on local relationship banking and commercial lending to small- and
medium-sized businesses and high net worth individuals. In addition, we have
emphasized building and maintaining asset quality
61
<PAGE> 77
through our credit underwriting and monitoring process. Nonperforming assets
have ranged from 0.12% to 0.58% of total assets during this period. We have
maintained asset quality, while continuing to build our allowance for loan and
lease losses. Our allowance for loan and lease losses increased 292%, from $1.4
million as of December 31, 1995 to $5.5 million as of September 30, 2000.
This discussion should be read in conjunction with our consolidated
financial statements and notes thereto included in this joint proxy
statement/prospectus beginning on page F-9. For a description of our accounting
policies, see Note 1 of Notes to our Consolidated Financial Statements. For a
discussion of the segments included in our principal activities, see Note 14 of
Notes to our Consolidated Financial Statements.
FINANCIAL CONDITION
SEPTEMBER 30, 2000, COMPARED TO DECEMBER 31, 1999
Our total assets increased by $118.3 million to $610.3 million as of
September 30, 2000, from $492.0 million as of December 31, 1999. A consistent
focus on internal growth and sustained loan demand allowed our loan and lease
portfolio (net) to increase by $61.9 million, from $346.1 million at December
31, 1999, to $408.0 million as of September 30, 2000. Total investments were
$152.6 million as of September 30, 2000, compared to $109.9 million as of
December 31, 1999. The increase in the investment portfolio was possible due to
strong deposit growth and the proceeds from the trust preferred securities
issued in June of 2000. Deposits increased by $43.7 million to $427.0 million as
of September 30, 2000, from $383.3 million as of December 31, 1999.
Noninterest-bearing deposits increased by $12.8 million, and interest-bearing
deposits increased by $30.8 million. Low-cost demand deposits comprised 28% of
total deposits as of September 30, 2000. Federal funds purchased and securities
sold under agreements to repurchase increased by $45.3 million in the first nine
months of 2000 to $79.6 million. Of this total, $54.7 million represents
repurchase agreements transacted on behalf of our customers and is not
considered a wholesale borrowing source. The increase in deposits and customer
repurchase agreements is attributable, in part, to an increased emphasis on
deposit generation included in banker production goals. Advances from the
FHLB-Topeka were $35.9 million at September 30, 2000, compared to $31.0 million
at December 31, 1999.
DECEMBER 31, 1999, COMPARED TO DECEMBER 31, 1998
Our total assets increased by $125.4 million to $492.0 million as of
December 31, 1999, from $366.6 million as of December 31, 1998. Our loan and
lease portfolio (net) increased by $122.8 million, from $223.3 million at
December 31, 1998, to $346.1 million as of December 31, 1999. The strong loan
growth was attributable to a robust Colorado economy. Total investments were
$109.9 million as of December 31, 1999, compared to $107.9 million as of
December 31, 1998. The nominal increase in the investment portfolio was the
result of utilizing our funding resources primarily to support loan demand,
rather than investment purchases. Deposits were $383.3 million as of December
31, 1999, compared to $273.0 million as of December 31, 1998, a 40.4% increase.
Noninterest-bearing deposits increased by $11.3 million, and interest-bearing
deposits increased by $99.0 million. Low-cost demand deposits comprised 28% of
total deposits as of December 31, 1999, and 35% of total deposits as of December
31, 1998. Federal funds purchased and securities sold under agreements to
repurchase increased by $5.9
62
<PAGE> 78
million, to $34.4 million as of December 31, 1999 from $28.5 million as of
December 31, 1998. Repurchase agreements transacted on behalf of our customers
were $33.1 million at December 31, 1999 and $25.0 million at December 31, 1998.
Outstanding advances from the FHLB-Topeka were $31.0 million at December 31,
1999 compared to $26.1 million as of December 31, 1998.
NET INTEREST INCOME
The largest component of our net income is our net interest income. Net
interest income is the difference between interest income, principally from
loans, leases and investment securities, and interest expense, principally on
customer deposits and borrowings. Changes in net interest income result from
changes in volume, net interest spread and net interest margin. Volume refers to
the average dollar levels of interest-earning assets and interest-bearing
liabilities. Net interest spread refers to the difference between the average
yield on interest-earning assets and the average cost of interest-bearing
liabilities. Net interest margin refers to net interest income divided by
average interest-earning assets and is influenced by the level and relative mix
of interest-earning assets and interest-bearing liabilities.
The following tables present, for the periods indicated, certain
information related to our average asset and liability structure and our average
yields on assets and average costs of liabilities. Such yields are derived by
dividing income or expense by the average balance of the corresponding assets or
liabilities.
63
<PAGE> 79
<TABLE>
<CAPTION>
For the nine months ended September 30,
--------------------------------------------------------------------------------
2000 1999
-------------------------------------- --------------------------------------
Interest Average Interest Average
Average earned yield Average earned yield
balance or paid or cost (1) balance or paid or cost (1)
------- ------- ----------- ------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Federal funds sold and other ................ $ 11,088 $ 525 6.22% $ 4,033 $ 147 4.81%
Investment securities (2) .................. 113,308 5,538 6.42 107,483 4,630 5.68
Loans and leases (3) ........................ 376,433 27,196 9.49 266,215 18,264 9.05
Allowance for loan and lease losses ......... (5,016) -- -- (3,635) -- --
--------- --------- --------- ---------
Total interest-earning assets ............ 495,813 33,259 8.81 374,096 23,041 8.12
Noninterest-earning assets:
Cash and due from banks .................. 23,277 19,354
Other .................................... 17,555 15,531
--------- ---------
Total assets ....................... $ 536,645 $ 408,981
========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Deposits:
NOW and money market accounts ............ $ 172,080 5,325 4.13 $ 115,074 2,698 3.14
Savings .................................. 5,969 99 2.22 6,619 110 2.22
Certificates of deposit:
Under $100,000 ......................... 25,554 1,085 5.67 26,237 991 5.05
$100,000 and over ...................... 103,709 4,605 5.93 59,066 2,237 5.06
--------- --------- --------- ---------
Total interest-bearing deposits .......... 307,312 11,114 4.83 206,996 6,036 3.90
Other borrowings:
Securities and loans sold under agreements
to repurchase and federal funds
purchased .............................. 44,819 1,834 5.38 44,704 1,475 4.35
FHLB-Topeka advances ..................... 17,046 806 6.21 16,539 656 5.23
Company obligated mandatorily
redeemable preferred securities ........ 7,372 544 10.00 -- -- --
--------- --------- --------- ---------
Total interest-bearing liabilities ..... 376,549 14,298 4.78 268,239 8,167 3.73
Noninterest-bearing demand accounts ......... 114,731 99,825
--------- ---------
Total deposits and interest-
bearing liabilities .................. 491,280 368,064
Other non interest-bearing liabilities ...... 2,757 2,408
--------- ---------
Total liabilities .................. 494,037 370,472
Shareholders' equity ........................ 42,608 38,509
--------- ---------
Total liabilities and share holders'
equity ............................ $ 536,645 $ 408,981
========= =========
Net interest income ......................... $ 18,961 $ 14,874
========= =========
Net interest spread ......................... 4.03% 4.39%
Net interest margin ......................... 5.11% 5.32%
Ratio of average interest-earning assets
to average interest-bearing liabilities .... 131.67% 139.46%
</TABLE>
----------
(1) Average yields and costs for the nine months ended September 30, 2000 and
1999 have been annualized and are not necessarily indicative of results for the
entire year.
(2) Yields do not include adjustments for tax-exempt interest because the amount
of such interest is not material.
(3) Loan fees included in interest income are not material. Nonaccrual loans and
leases are included in average loans and leases outstanding.
64
<PAGE> 80
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------------
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 and other .............. $ 3,150 $ 150 4.76% $ 2,588 $ 135 5.22%
Investment securities(1) .................. 108,121 6,325 5.85 70,525 4,124 5.85
Loans and leases(2) ....................... 281,796 25,934 9.20 197,851 19,640 9.93
Allowance for loan and lease losses ....... (3,810) -- -- (2,794) -- --
--------- --------- --------- ---------
Total interest-earning assets .......... 389,257 32,409 8.33 268,170 23,899 8.91
Noninterest-earning assets:
Cash and due from banks ................ 20,925 15,224
Other .................................. 15,837 15,346
--------- ---------
Total assets ..................... $ 426,019 $ 298,740
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
NOW and money market accounts .......... $ 122,688 4,044 3.30 $ 85,558 2,827 3.30
Savings ................................ 6,546 145 2.22 6,227 161 2.59
Certificates of deposit:
Under $100,000 ....................... 25,950 1,320 5.09 21,507 1,166 5.42
$100,000 and over .................... 64,844 3,337 5.15 47,453 2,658 5.60
--------- --------- --------- ---------
Total interest-bearing deposits ........ 220,028 8,846 4.02 160,745 6,812 4.24
Other borrowings:
Securities and loans sold
under agreements to
repurchase and federal
funds purchased ..................... 44,824 2,020 4.51 23,767 1,183 4.98
FHLB-Topeka advances and notes payable .. 18,935 1,013 5.35 4,626 281 6.07
Long-term borrowings .................... -- -- -- 3,678 301 8.18
--------- --------- --------- ---------
Total interest-bearing liabilities .... 283,787 11,879 4.19 192,816 8,577 4.45
Noninterest-bearing demand accounts ........ 101,793 76,223
--------- ---------
Total deposits and interest-
bearing liabilities ................. 385,580 269,039
Other noninterest-bearing liabilities ...... 1,610 1,786
--------- ---------
Total liabilities ................. 387,190 270,825
Shareholders' equity ....................... 38,829 27,915
--------- ---------
Total liabilities and
shareholders' equity ................ $ 426,019 $ 298,740
========= =========
Net interest income ........................ $ 20,530 $ 15,322
========= =========
Net interest spread ........................ 4.14 4.46
Net interest margin ........................ 5.27 5.71
Ratio of average interest-bearing assets to
average interest-bearing liabilities .... 137.17% 139.08%
</TABLE>
65
<PAGE> 81
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
1997
-----------------------------------
Interest Average
Average earned yield
balance or paid or cost
--------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
ASSETS:
Federal funds sold and other .............. $ 5,204 $ 360 6.92%
Investment securities(1) .................. 59,602 3,616 6.07
Loans and leases(2) ....................... 138,787 14,171 10.21
Allowance for loan and lease losses ....... (1,933) -- --
--------- ---------
Total interest-earning assets .......... 201,660 18,147 9.00
Noninterest-earning assets:
Cash and due from banks ................ 12,810
Other .................................. 9,758
---------
Total assets ..................... $ 224,228
=========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
NOW and money market accounts .......... $ 66,222 2,141 3.23
Savings ................................ 5,780 152 2.63
Certificates of deposit:
Under $100,000 ....................... 16,942 877 5.18
$100,000 and over .................... 35,936 2,083 5.80
--------- ---------
Total interest-bearing deposits ........ 124,880 5,253 4.21
Other borrowings:
Securities and loans sold
under agreements to
repurchase and federal
funds purchased ..................... 15,059 751 4.99
FHLB-Topeka advances and notes payable .. 4,167 280 6.72
Long-term borrowings .................... 8,458 732 8.65
--------- ---------
Total interest-bearing liabilities .... 152,564 7,016 4.60
Noninterest-bearing demand accounts ........ 54,706
---------
Total deposits and interest-
bearing liabilities ................. 207,270
Other noninterest-bearing liabilities ...... 1,606
---------
Total liabilities ................. 208,876
Shareholders' equity ....................... 15,352
---------
Total liabilities and
shareholders' equity ................ $ 224,228
=========
Net interest income ........................ $ 11,131
=========
Net interest spread ........................ 4.40
Net interest margin ........................ 5.52
Ratio of average interest-bearing assets to
average interest-bearing liabilities .... 132.18%
</TABLE>
----------
(1) Yields do not include adjustments for tax-exempt interest because the amount
of such interest is not material.
(2) Loan fees included in interest income are not material. Nonaccrual loans and
leases are included in average loans and leases outstanding.
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<PAGE> 82
The following table illustrates, for the periods indicated, the changes
in the levels of interest income and interest expense attributable to changes in
volume or rate. Changes in net interest income due to both volume and rate have
been included in the changes due to rate.
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, 2000 December 31, 1999
compared with compared with
nine months ended year ended
September 30, 1999 December 31, 1998
increase (decrease) increase (decrease)
in net interest income in net interest income
due to changes in due to changes in
-------------------------------- --------------------------------
Volume Rate Total Volume Rate Total
-------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold .......................... $ 258 $ 120 $ 378 $ 29 $ (14) $ 15
Investments(1) .............................. 252 656 908 2,199 2 2,201
Loans and leases(2) ......................... 7,589 1,343 8,932 8,332 (2,038) 6,294
-------- -------- -------- -------- -------- --------
Total interest-earning assets ......... 8,099 2,119 10,218 10,560 (2,050) 8,510
Interest-bearing liabilities:
NOW and money market accounts ............... 1,338 1,288 2,626 1,227 (10) 1,217
Savings ..................................... (11) -- (11) 8 (24) (16)
Certificates of deposits:
Under $100,000 .......................... (26) 120 94 241 (87) 154
$100,000 and over ....................... 1,692 677 2,369 974 (295) 679
Short-term borrowings:
Securities and loans sold under
agreements to repurchase and
federal funds purchased ................... 4 355 359 1,048 (211) 837
FHLB-Topeka advances and notes
payable ................................... 20 130 150 869 (137) 732
Long-term borrowings ............................. 544 -- 544 (301) -- (301)
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities .... 3,561 2,570 6,131 4,066 (764) 3,302
-------- -------- -------- -------- -------- --------
Net increase (decrease) in net
interest income ....................... $ 4,538 $ (451) $ 4,087 $ 6,494 $ (1,286) $ 5,208
======== ======== ======== ======== ======== ========
<CAPTION>
Year ended
December 31, 1998
compared with
year ended
December 31, 1997
increase (decrease)
in net interest income
due to changes in
--------------------------------
Volume Rate Total
-------- -------- --------
<S> <C> <C> <C>
(In thousands)
Interest-earning assets:
Federal funds sold .......................... $ (181) $ (44) $ (225)
Investments(1) .............................. 663 (155) 508
Loans and leases(2) ......................... 6,031 (562) 5,469
-------- -------- --------
Total interest-earning assets ......... 6,513 (761) 5,752
Interest-bearing liabilities:
NOW and money market accounts ............... 624 62 686
Savings ..................................... 12 (3) 9
Certificates of deposits:
Under $100,000 .......................... 236 53 289
$100,000 and over ....................... 668 (93) 575
Short-term borrowings:
Securities and loans sold under
agreements to repurchase and federal
funds purchased ........................... 435 (3) 432
FHLB-Topeka advances and notes
payable ................................... 31 (30) 1
Long-term borrowings ............................. (414) (17) (431)
-------- -------- --------
Total interest-bearing liabilities .... 1,592 (31) 1,561
-------- -------- --------
Net increase (decrease) in net
interest income ....................... $ 4,921 $ (730) $ 4,191
======== ======== ========
</TABLE>
----------
(1) Investment income does not include adjustments for tax-exempt interest
because the amount of such interest is not material.
(2) Loan fees included in interest income are not material. Nonaccrual loans and
leases are included in average loans and leases outstanding.
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<PAGE> 83
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK--ASSET/LIABILITY
MANAGEMENT
Asset/liability management is concerned with the timing and magnitude
of repricing assets compared to liabilities. It is our objective to generate
stable growth in net interest income and to attempt to control risks associated
with interest rate movements. In general, our strategy is to reduce the impact
of changes in interest rates on net interest income by maintaining a favorable
match between the maturities or repricing dates of our interest-earning assets
and interest-bearing liabilities. We adjust interest sensitivity during the year
through changes in the mix of assets and liabilities. We do not utilize
derivative financial instruments to manage our interest rate risk. Our asset and
liability management strategy is formulated and monitored by the asset/liability
committee, in accordance with policies approved by the board of directors of
Colorado Business Bank, N.A. This committee meets regularly to review, among
other things, the sensitivity of our assets and liabilities to interest rate
changes, the book and market values of assets and liabilities, unrealized gains
and losses, purchase and sale activity, and maturities of investments and
borrowings. The asset/liability committee also approves and establishes pricing
and funding decisions with respect to our overall asset and liability
composition. The committee reviews our liquidity, cash flow flexibility,
maturities of investments, deposits and borrowings, deposit activity, current
market conditions, and general levels of interest rates. To effectively measure
and manage interest rate risk, we use simulation analysis to determine the
impact on net interest income of changes in interest rates under various
interest rate scenarios. From these simulations, interest rate risk is
quantified and appropriate strategies are developed and implemented.
The following table presents an analysis of the sensitivity inherent in
our net interest income and market value of equity. The interest rate scenario
presented in the table includes interest rates at September 30, 2000 as adjusted
by instantaneous rate changes upward and downward of up to 200 basis points.
Since there are limitations inherent in any methodology used to estimate the
exposure to changes in market interest rates, this analysis is not intended to
be a forecast of the actual effect of a change in market interest rates. The
market value sensitivity analysis presented includes assumptions that (i) the
composition of our interest sensitive assets and liabilities existing at
September 30, 2000 will remain constant over the twelve month measurement
period; and (ii) that changes in market rates are parallel and instantaneous
across the yield curve regardless of duration or repricing characteristics of
specific assets or liabilities. Further, the analysis does not contemplate any
actions that we might undertake in response to changes in market interest rates.
Accordingly, this analysis is not intended and does not provide a precise
forecast of the effect actual changes in market rates will have on us.
<TABLE>
<CAPTION>
Change in interest rates in basis points
-------------------------------------------------
-200 -100 0 +100 +200
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Impact on:
Net interest income -6.9% -3.8% 0.0% 2.3% 3.6%
Market value of equity 0.4% 0.4% 0.0% -1.1% -3.5%
</TABLE>
Our results of operations depend significantly on net interest income.
Like most financial institutions, our interest income and cost of funds are
affected by general economic conditions and by competition in the marketplace.
Rising and falling interest rate environments can have various impacts
68
<PAGE> 84
<TABLE>
<CAPTION>
Estimated maturity or repricing at September 30, 2000
----------------------------------------------------------------
Three months
Less than to less than One to Over
three months one year five years five years Total
------------ ------------ ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Fixed rate loans ............................ $ 9,251 $ 18,512 $ 84,452 $ 19,770 $ 131,985
Floating rate loans ......................... 213,609 935 40,905 3,150 258,599
Lease financing ............................. 2,699 6,819 13,390 14 22,922
Investment securities held to maturity
and available for sale .................. 17,831 90,525 6,599 37,601 152,556
Federal funds sold .......................... 2,000 -- -- -- 2,000
--------- --------- --------- --------- ---------
Total interest-earning assets ................... $ 245,390 $ 116,791 $ 145,346 $ 60,535 $ 568,062
========= ========= ========= ========= =========
Interest-bearing liabilities:
NOW and money market accounts ............... $ 797 $ 71,114 $ 80,142 $ 11,950 $ 164,003
Savings ..................................... 283 623 1,982 2,775 5,663
Time deposits under $100,000 ................ 10,050 13,469 1,874 -- 25,393
Time deposits $100,000 and over ............. 60,302 47,638 4,683 -- 112,623
Securities and loans sold under agreements
to repurchase and federal funds
purchased ............................... 79,626 -- -- -- 79,626
Federal Home Loan Bank advances ............. 20,070 15,070 560 210 35,910
Company obligated mandatorily redeemable
preferred securities .................... -- -- 20,000 -- 20,000
--------- --------- --------- --------- ---------
Total interest-bearing liabilities .............. $ 171,128 $ 147,914 $ 109,241 $ 14,935 $ 443,218
========= ========= ========= ========= =========
Interest rate gap ............................... $ 74,262 $ (31,123) $ 36,105 $ 45,600 $ 124,844
========= ========= ========= ========= =========
Cumulative interest rate gap .................... $ 74,262 $ 43,139 $ 79,244 $ 124,844
========= ========= ========= =========
Cumulative interest rate gap to total assets .... 12.17% 7.07% 12.98% 20.46%
</TABLE>
To manage these relationships, we evaluate the following factors:
liquidity, equity, debt/capital ratio, anticipated prepayment rates, portfolio
maturities, maturing assets and maturing liabilities. Our asset and liability
management committee is responsible for establishing procedures that enable us
to achieve our goals while adhering to prudent banking practices and existing
loan and investment policies. Our policy is intended to control the exposure of
our operations to changing interest rates by attempting to maintain a position
within a narrow range around an "earnings neutral position," which is defined as
the mix of assets and liabilities that generates the net interest margin that is
least affected by interest rate changes.
We have focused on maintaining balance between interest rate sensitive
assets and liabilities and repricing frequencies. An important element of this
focus has been to emphasize variable rate loans and investments funded by
deposits that also mature or reprice over periods of twelve months or less.
The following table presents, at September 30, 2000, loans and leases
by maturity in each major category of our portfolio. Actual maturities may
differ from the contractual maturities shown below as
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<PAGE> 85
on net interest income, depending on the interest rate profile (i.e., the
difference between the repricing of interest-earning assets and interest-bearing
liabilities), the relative changes in interest rates that occur when various
assets and liabilities reprice, unscheduled repayments of loans and leases and
investments, early withdrawals of deposits and other factors. As a general rule,
banks with positive interest rate gaps are more likely to be susceptible to
declines in net interest income in periods of falling interest rates, while
banks with negative interest rate gaps are more likely to experience declines in
net interest income in periods of rising interest rates. As of September 30,
2000, our cumulative interest rate gap for the period of less than one year was
a positive 7.07%. Therefore, assuming no change in our gap position, a rise in
interest rates is likely to result in increased net interest income, while a
decline in interest rates is likely to result in decreased net interest income.
This is a one-day position that is continually changing and is not indicative of
our position at any other time. While the gap position is a useful tool in
measuring interest rate risk and contributes toward effective asset and
liability management, shortcomings are inherent in gap analysis since certain
assets and liabilities may not move proportionally as interest rates change.
Consequently, in addition to gap analysis, we use the simulation model discussed
above to test the interest rate sensitivity of net interest income and the
balance sheet.
The following table sets forth the estimated maturity or repricing, and
the resulting interest rate gap, of our interest-earning assets and
interest-bearing liabilities at September 30, 2000. All amounts in the table are
based on contractual pricing schedules. Actual prepayment and withdrawal
experience may vary significantly from the assumptions reflected in the table.
69
<PAGE> 86
a result of renewals and prepayments. Loan renewals are evaluated in the same
manner as new credit applications.
<TABLE>
<CAPTION>
At September 30, 2000
---------------------------------------------
Less than One to Over
one year five years five years Total
--------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Commercial ...................... $ 75,877 $ 49,281 $ 6,419 $ 131,577
Real estate - mortgage .......... 34,048 69,723 67,088 170,859
Real estate - construction ...... 59,703 3,984 -- 63,687
Consumer ........................ 11,290 12,709 462 24,461
Direct financing leases - net ... 9,518 13,390 14 22,922
--------- --------- --------- ---------
Total loans and leases ..... $ 190,436 $ 149,087 $ 73,983 $ 413,506
========= ========= ========= =========
</TABLE>
As of September 30, 2000, of the $223.1 million of loans and leases
with maturities of one year or more, approximately $117.2 million were fixed
rate loans and leases and $105.9 million were variable rate loans and leases.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000, COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
Earnings Performance. Net earnings available to common shareholders was
$4.9 million for the nine months ended September 30, 2000, compared with $3.4
million for the nine months ended September 30, 1999, an increase of 44%. This
increase was primarily due to an increase in net interest income of $4.1
million. Earnings per share on a fully diluted basis for the first nine months
was $0.71, versus $0.50 for the same period a year ago, an increase of 42%. On
an operating basis, before the amortization of goodwill, consolidated net income
available to common shareholders for the nine months ended September 30, 2000
and 1999, was $5.2 million and $3.8 million, or $0.76 and $0.55 per diluted
share, respectively. Return on average tangible assets was 1.31% in the first
nine months of 2000, compared with 1.24% in the first nine months of 1999.
Return on average tangible common shareholders' equity was 18.17% for the period
ended September 30, 2000, versus 14.75% for the period ended September 30, 1999.
Net Interest Income. Net interest income before provision for loan and
lease losses was $19.0 million for the period ended September 30, 2000, an
increase of $4.1 million, or 27%, compared with the period ended September 30,
1999. Yields on our interest-earning assets improved by 69 basis points to 8.81%
for the nine months ended September 30, 2000, from 8.12% for the nine months
ended September 30, 1999. The yield improvement on interest earning assets is
principally the result of the prime rate increasing by 125 basis points from
September 1999 to September 2000. Yields paid on interest-bearing liabilities
increased by 105 basis points during this same period. The net interest margin
was 5.11% for the nine months ended September 30, 2000, down from 5.32% for the
nine months ended September 30, 1999. Part of the margin compression related to
the $20 million of trust preferred securities issued in June of 2000. Also
contributing to the decrease in the net interest margin was heightened
competition for customer deposits, which resulted in higher costs of
interest-bearing
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<PAGE> 87
deposits. Although the growth in volume of our average interest-earning assets
helped mitigate the margin compression, continued increases in interest rates
could adversely affect both our cost of funds and loan originations, resulting
in lower net interest margins in future operating periods. Average earning
assets increased by 33% to $495.8 million for the first nine months of 2000,
from $374.1 million for the first nine months of 1999.
Provision and Allowance for Loan and Lease Losses. The provision for
loan and lease losses increased by $256,000 to $1.3 million for the nine months
ended September 30, 2000, up from $1.0 million for the nine months ended
September 30, 1999. This increase was due to the increase in total loans and
leases outstanding and is not reflective of a deterioration of credit quality.
Key indicators of asset quality have remained favorable (minimal changes in
nonperforming asset trends), while average outstanding loan amounts have
increased to $376.4 million for the first nine months of 2000, up from $266.2
million for the first nine months of 1999. As of September 30, 2000, the
allowance for loan and lease losses amounted to $5.5 million, or 1.32% of total
loans and leases.
Noninterest Income. We reported a modest increase in noninterest income
for the first nine months of 2000. Total noninterest income was $3.5 million for
the nine months ended September 30, 2000, compared to $3.4 million for the nine
months ended September 30, 1999. The increase was primarily attributable to
growth in trust fees, and other banking service related fees. Deposit service
charges were relatively flat, period over period. Historically, increases in
deposit service charges have not corresponded with the growth in deposit
balances. This is due to our offering customers the choice of either paying for
services in cash or by maintaining additional noninterest-bearing account
balances. In addition, there was a net decrease in operating lease rentals which
was the result of our leasing subsidiary, Colorado Business Leasing,
concentrating its marketing efforts in 2000 on originating direct finance
leases, rather than operating leases. Net investment in operating leases was
$2.7 million at September 30, 2000, compared to $4.3 million at September 30,
1999. During the first nine months of 1999, we realized gains of $44,000 on the
sale of investment securities. There were no sales of investment securities
during the same period in 2000.
Noninterest Expense. Total noninterest expense increased by $1.4
million to $13.0 million for the nine months ended September 30, 2000, up from
$11.7 million for the nine months ended September 30, 1999. During this period,
however, the efficiency ratio before goodwill amortization improved to 57% for
the nine months ended September 30, 2000, down from 63% for the comparable
period in 1999. The improvement in the efficiency ratio is the result of
revenues growing at a faster rate than expenses. The increases in noninterest
expenses reflect our ongoing investment in personnel, technology and office
space needed to accommodate internal growth. In the second quarter of 1999, our
Boulder bank relocated, a second Boulder location was added and the Vail valley
location opened. The expenses of those new facilities were included in
noninterest expense for only a portion of the nine months ended September 30,
1999, but for all of the nine months ended September 30, 2000.
Included in our noninterest expense for the nine months ended September
2000 and 1999 is goodwill amortization of $329,000. Goodwill of $6.4 million was
recorded in connection with our original acquisition in 1994 is being amortized
over a 15-year period. The amortization of this asset adversely affects our net
income, although it has no effect on our cash flow.
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<PAGE> 88
YEAR ENDED DECEMBER 31, 1999, COMPARED TO YEAR ENDED DECEMBER 31, 1998
Earnings Performance. Net income was a record $4.9 million in 1999,
compared to $3.2 million in 1998. This increase was primarily due to a $5.2
million increase in net interest income from 1998 to 1999. On an operating
basis, before the amortization of goodwill, consolidated net income available to
common shareholders for the years ended 1999 and 1998, was $5.4 million and $3.6
million, or $0.78 and $0.59 per diluted share, respectively. Return on average
tangible assets was 1.27% in 1999, compared with 1.24% in 1998. Return on
average tangible common shareholders' equity was 15.59% for 1999, versus 16.39%
for 1998. Total assets increased to $492.0 million at December 31, 1999, a 34.2%
increase from $366.6 million at December 31, 1998. Strong loan production was
responsible for much of this growth. Net loans and leases grew $122.8 million
from 1998 to 1999.
Net Interest Income. Net interest income before provision for loan and
lease losses was $20.5 million for the year ended December 31, 1999, an increase
of $5.2 million, or 34%, compared with the year ended December 31, 1998.
Interest income increased 35.6%, to $32.4 million in 1999 from $23.9 million in
1998. In 1999, interest on loans and leases increased by $6.3 million and
interest on investments increased by $2.2 million. Of the $8.5 million increase
in 1999, $10.6 million was due to volume increases, which were partially offset
by a negative rate variance of $2.1 million. Average loan and lease volumes were
up by $83.9 million from 1998, and average investments were up by $37.6 million.
The yield on average interest-earning assets was 8.33% for 1999, compared with
8.91% in 1998. The drop in yield is attributable to a decreasing rate
environment. On average, yields on investment securities remained flat at 5.85%
in 1999 and 1998. Yields on average loans and leases decreased to 9.20%, from
9.93% in 1998. Interest expense increased 38.5%, to $11.9 million in 1999, from
$8.6 million in 1998. The increases were primarily due to higher volumes of
interest-bearing liabilities. In 1999, average interest-bearing deposits and
average interest-bearing liabilities grew by $59.3 million and $91.0 million,
respectively, from 1998, while the cost of interest-bearing liabilities dropped
to 4.19% from 4.45% during the same period. The result was $3.3 million of
additional interest expense in 1999.
Provision for Loan and Lease Losses. The provision for loan and lease
losses was $1,473,000 in 1999, compared to $1,188,000 in 1998. This increase was
due to the increase in total loans and leases outstanding, and was not
reflective of a deterioration of credit quality. In 1999, both the ratio of
non-performing loans to total loans, and ratio of net charge-offs to average
loans declined from the previous two years. Net charge-offs were $159,000 in
1999, versus $165,000 in 1998.
Noninterest Income. Noninterest income increased 8.6%, to $4.6 million
in 1999 from $4.2 million in 1998. The moderate increase from 1998 relates to a
decrease in rental income associated with operating leases. Operating lease
income was $2.3 million in 1999, compared to $2.4 million in 1998. During 1999,
Colorado Business Leasing focused on originating direct finance type leases
rather than operating leases. We believe that other noninterest income, such as
deposit service charges, has not grown at the same rate as loan and deposit
volumes in part because customers are provided the option of paying for services
in cash or by maintaining additional noninterest-bearing account balances.
Although the use of compensating balances in lieu of fees decreases noninterest
income, it positively impacts the net interest margin by increasing the level of
noninterest-bearing deposits. At December 31, 1999, 27.8% of our deposits were
noninterest-bearing deposits.
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<PAGE> 89
Noninterest Expense. Total operating expenses were $15.7 million in
1999 and $13.1 million in 1998. Overall, noninterest expenses were up 19.9% from
1998. Of this increase, approximately $1.3 million represented additional
personnel costs and $1.0 million represented increased occupancy costs. The
increases in expenses reflect our ongoing investment in personnel, technology
and office space needed to accommodate growth. In addition, $2.0 million of the
noninterest expense incurred in 1999 was related to depreciation expense from
operating leases. Although operating expenses have increased each year to
accommodate our growth, the efficiency ratio continues to improve because we
consistently generate revenues at a faster rate than expenses. The efficiency
ratio before goodwill amortization was 61.16% for the year ended 1999 and 65.54%
for 1998.
Included in our noninterest expense for the years ended 1999 and 1998
is goodwill amortization of $439,000 and $434,000, respectively. Goodwill of
$6.4 million was recorded in connection with our original acquisition in 1994
and is being amortized over a 15-year period. The amortization of this asset
adversely affects our net income, although it has no effect on our cash flow.
YEAR ENDED DECEMBER 31, 1998, COMPARED TO YEAR ENDED DECEMBER 31, 1997
Earnings Performance. Net income was a record $3.2 million in 1998,
compared to $1.9 million in 1997. This increase was primarily due to a $4.2
million increase in net interest income from 1997 to 1998. On an operating
basis, before the amortization of goodwill, consolidated net income available to
common shareholders for the years ended 1998 and 1997, was $3.6 million and $2.2
million, or $0.59 and $0.45 per diluted share, respectively. Return on average
tangible assets was 1.24% in 1998, compared with 1.04% in 1997. Return on
average tangible common shareholders' equity was 16.39% for 1998, versus 25.68%
for 1997. Total assets increased to $366.6 million at December 31, 1998, a 38.8%
increase from $264.1 million at December 31, 1997. Strong loan production was
responsible for much of this growth. Net loans and leases grew $59.2 million
from 1998 to 1997.
Net Interest Income. Net interest income before provision for loan and
lease losses was $15.3 million for the year ended December 31, 1998, an increase
of $4.2 million, or 38%, compared with the year ended December 31, 1997.
Interest income increased 31.7%, to $23.9 million in 1998 from $18.1 million in
1997. The 1998 interest income increase was due to an increase of $59.1 million
in average loan and lease volume, which resulted in $5.5 million of additional
interest income. The yield on average interest-earning assets was 8.91% for
1998, compared with 9.00% in 1997. The drop in yield is attributable to a
decreasing rate environment. On average, yields on investment securities
decreased to 5.85% from 6.07% in 1997. Yields on average loans and leases
decreased to 9.93% from 10.21% in 1997. Interest expense increased 22.2%, to
$8.6 million in 1998 from $7.0 million in 1997. The increases were primarily due
to higher volumes of interest-bearing liabilities. In 1998, average
interest-bearing deposits and average interest-bearing liabilities grew by $35.9
million and $40.3 million, respectively, from 1997, while the cost of
interest-bearing liabilities dropped to 4.45% from 4.60% during the same period.
The net effect was $1.6 million of additional interest expense in 1998.
Provision for Loan and Lease Losses. The provision for loan and lease
losses was $1,188,000 in 1998, compared to $949,000 in 1997. This increase was
due to the increase in total loans and leases outstanding and was not reflective
of a deterioration of credit quality. In 1998, the level of non-
74
<PAGE> 90
performing loans and net charge-offs declined from the previous year. Net
charge-offs were $165,000 in 1998, versus $361,000 in 1997.
Noninterest Income. Noninterest income increased 28.5%, to $4.2 million
in 1998 from $3.3 million in 1997. Driving this increase was higher rental
income associated with operating leases. Operating lease income was $2.4 million
and $1.3 million in 1998 and 1997, respectively. We believe that noninterest
income, such as deposit service charges, has not grown at the same rate as loan
and deposit volumes in part because customers are provided the option of paying
for services in cash or by maintaining additional noninterest-bearing account
balances. Although the use of compensating balances in lieu of fees decreases
noninterest income, it increases the percentage of noninterest-bearing deposits.
At December 31, 1998, 34.9% of our deposits were noninterest-bearing deposits.
Noninterest Expense. Total operating expenses were $13.1 million in
1998 and $10.4 million in 1997. Overall, noninterest expenses were up 26.4% from
1997. Of this increase, approximately $1.5 million was additional personnel
costs and $0.7 million related to increased occupancy costs. The increases in
expenses reflect our ongoing investment in personnel, technology and office
space needed to accommodate growth. In addition, $1.9 million of the noninterest
expense incurred was related to depreciation expense from operating leases.
Included in our noninterest expense for the years ended 1998 and 1997
is goodwill amortization of $434,000. Goodwill of $6.4 million was recorded in
connection with our original acquisition in 1994 and is being amortized over a
15-year period. The amortization of this asset adversely affects our net income,
although it has no effect on our cash flow.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity management objective is to ensure our ability to satisfy
the cash flow requirements of depositors and borrowers and to allow us to
sustain our operations. Historically, our 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 the general level of
interest rates, returns available on other investments, competition, economic
conditions and other factors, are relatively unstable. 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). 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.
We use various forms of short-term borrowings for cash management and
liquidity purposes on a limited basis. These forms of borrowings include federal
funds purchased, securities sold under agreements to repurchase, the State of
Colorado Treasury's Time Deposit program and borrowings from the FHLB-Topeka.
Colorado Business Bank, N.A. has approved federal funds purchase lines with six
other banks with an aggregate credit line of $51 million. In addition, Colorado
Business Bank, N.A. may apply for up to $20 million of State of Colorado time
deposits. Colorado Business Bank, N.A. also has a line of credit from the
FHLB-Topeka that is limited by the amount of eligible collateral available to
secure it. Borrowings under the FHLB-Topeka line are required to be secured by
unpledged securities and qualifying loans. At September 30, 2000, CoBiz had
$115.6 million in unpledged securities and
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qualifying loans available to collateralize FHLB-Topeka borrowings and
securities sold under agreements to repurchase. We also have a $20 million
revolving credit line facility with American National Bank and Trust Company
available for liquidity needs.
During the first nine months of 2000, cash and cash equivalents
increased by $12.9 million. This increase was primarily the result of $112.0
million in cash provided by financing activities (mainly customer deposits and
repurchase agreements and $20 million of proceeds from the issuance of trust
preferred securities). Offsetting this increase was cash used in investing
activities of $106.1 million (mainly loan and lease originations and security
purchases) and net cash of $7.1 million provided by operating activities.
During the first nine months of 1999, cash and cash equivalents
increased by $5.0 million. This increase was primarily the result of $80.2
million in cash provided by financing activities (mainly customer deposits and
repurchase agreements). Offsetting this increase was cash used in investing
activities of $81.7 million (mainly loan and lease originations) and net cash of
$6.5 million provided by operating activities.
We use dividends paid by Colorado Business Bank, N.A. to provide cash
to CoBiz for various purposes, including the payment of dividends on its common
stock. The approval of the Office of the Comptroller of the Currency is required
prior to the declaration of any dividend by the bank if the total of all
dividends declared by the bank in any calendar year exceeds the total of its net
profits for that year combined with the retained net profits for the preceding
two years. In addition, the Federal Deposit Insurance Corporation Improvement
Act of 1991 provides that the bank cannot pay a dividend if it will cause the
bank to be "undercapitalized." CoBiz's ability to pay dividends on its common
stock depends upon the availability of dividends from Colorado Business Bank,
N.A. and upon CoBiz's compliance with the capital adequacy guidelines of the
FRB. See Note 11 of Notes to the Consolidated Financial Statements of CoBiz for
an analysis of the compliance of Colorado Business Bank, N.A. and CoBiz with
applicable capital adequacy guidelines.
EFFECTS OF INFLATION AND CHANGING PRICES
The primary impact of inflation on our operations is increased
operating costs. Unlike most retail or manufacturing companies, virtually all of
the assets and liabilities of a financial institution such as CoBiz are monetary
in nature. As a result, the impact of interest rates on a financial
institution's performance is generally greater than the impact of inflation.
Although interest rates do not necessarily move in the same direction, or to the
same extent, as the prices of goods and services, increases in inflation
generally have resulted in increased interest rates. Over short periods of time,
interest rates may not move in the same direction, or at the same magnitude, as
inflation.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued Statement No.
133 ("Statement No. 133") "Accounting for Derivative Instruments and Hedging
Activities." Statement No. 133, which becomes effective for periods beginning
after January 1, 2001, requires business enterprises to recognize all
derivatives as either assets or liabilities in their financial statements and to
record such
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instruments at fair value. Any change in fair value of such derivatives are
required to be recognized in the statement of income or comprehensive income in
the period of change. Management does not anticipate that Statement No. 133 will
have a significant impact on CoBiz's financial statements.
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MANAGEMENT OF COBIZ AFTER THE MERGER
Information concerning the current directors and executive officers of
CoBiz is contained in CoBiz's Annual Report on Form 10-KSB for the year ended
December 31, 1999, which information is incorporated by reference into this
joint proxy statement/prospectus.
Subject to approval of the CoBiz board of directors, upon completion of
the merger, three of the current directors of First Capital Bank, Harold F.
Mosanko, Alan R. Kennedy and Thomas M. Longust, will be added to the board of
directors of CoBiz. The following information summarizes the recent business
experience for these new directors.
Harold F. Mosanko. Mr. Mosanko founded First Capital Bank in 1995.
Prior to that time, he had 25 years of banking experience at Valley National
Bank of Arizona. His experience included Branch Manager, Credit Administrator
and Manager of the Credit Evaluation Department of the Audit Division. In 1978
he opened Valley National Bank's first commercial loan center. In 1982, Mr.
Mosanko left Valley National Bank and became a principal in a financial services
firm that was active in mergers and acquisitions and financial securities. In
1984, he returned to Valley National Bank as a Vice President. In 1986, he
became a Senior Vice President, and in 1988, he became Executive Vice President
and Senior Branch Administrator. In 1990, he became Executive Vice President and
Group Manager for the commercial lending group, with responsibility for
$650,000,000 in loans outstanding and over $1,000,000,000 in commitments, Valley
National Bank's leasing and commercial marketing departments and a subsidiary
that performed specialized data processing related to cash management services.
Mr. Mosanko was a member of several of the policy committees of Valley National
Bank. Mr. Mosanko is 61 years old. He attended the Detroit College of Business.
Alan R. Kennedy. Mr. Kennedy is President of the DeHaven Companies, a
home building and commercial real estate development business headquartered in
Phoenix, Arizona, that he founded in 1980. From 1990 through 1992, Mr. Kennedy
was a member of the Phoenix City Council and served as Vice Mayor during 1991.
Mr. Kennedy is 57 years old. He obtained two Bachelors Degrees from Ohio State
University and a Masters Degree from Arizona State University.
Thomas M Longust. Mr. Longust is the Chairman and Chief Executive
Officer of Longust Distributing Inc., a distributing company headquartered in
Phoenix, Arizona, which he founded in 1973. Longust Distributing Inc. is a
distributor of floor covering products for Mannington Industries and for the
Shaw Mark Division of Shaw Industries. It is also a major importer of ceramic
tiles from Europe and South America. Prior to that time, Mr. Longust held
management positions at Monsanto and Olin Industries and was an instructor at
St. Louis University Business School. Mr. Longust is 59 years old. Mr. Longust
received a Bachelor and a Masters Degree in Finance and Economics from St. Louis
University and has completed course work toward a PhD from the same university.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF COBIZ
The executive officers, key employees, directors and principal
shareholders of CoBiz, members of their immediate families and businesses in
which they hold controlling interests are our customers, and it is anticipated
that they will continue to be our customers in the future. All outstanding loans
and extensions of credit by us to these parties were made in the ordinary course
of business in accordance with applicable laws and regulations and on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unaffiliated persons,
and, in our opinion, do not involve more than the normal risk of collectibility
or contain other features unfavorable to us. At September 30, 2000, the
aggregate balance of our loans and advances under existing lines of credit to
these parties was approximately $5.0 million, or 1.2% of our total loans and
leases.
From time to time, Hawthorne Colorado, Inc. ("Hawthorne"), an entity
controlled by Steven Bangert, Chairman and Chief Executive Officer of CoBiz, and
Howard Ross, a director of CoBiz, purchases participations in loans originated
by us that we do not fund fully because of our in-house lending limit or in
order to manage portfolio concentration. During the first nine months of 2000,
Hawthorne participated in six loans, with an aggregate participation commitment
of $3.8 million. The maximum outstanding participation balance at any month end
during 2000 was $1.5 million. At September 30, 2000 there were no outstanding
loan commitments or participation balances with Hawthorne. At December 31, 1999,
1998 and 1997 there were $1.2 million, $4.0 million and $2.8 million in
outstanding participation balances, respectively. In addition, we have one loan
participated with H.R. Financial, an entity controlled by Mr. Ross. At September
30, 2000, $550,000 was participated with H.R. Financial with an aggregate
commitment amount of $1 million. We believe that the terms of such
participations were commensurate with terms that would be negotiated in similar
transactions between unrelated third parties. Hawthorne and H.R. Financial
receive interest on the portion of such loans funded by them at the same rate as
we do on the portion that we fund. In addition, they receive a share of
origination fees for such loans.
We currently lease approximately 37,000 square feet of our downtown
Denver facility from Kesef, LLC ("Kesef"), an entity in which Evan Makovsky, a
director of Colorado Business Bank, N.A. owns a 20% interest and Jack Stern, a
director of Colorado Business Bank, N.A., Mr. Bangert, Jonathan Lorenz,
President and a director of CoBiz, Mr. Ross and Noel Rothman, a director of
CoBiz, each beneficially owns a 16% interest, for approximately $49,000 per
month. Kesef purchased the building in January 1998. The initial term of our
lease is ten years, with an option to renew for an additional ten-year term at
current market rates. In August 2000, we amended the lease to include an
additional 9,000 square feet for approximately $15,000 per month. The
commencement date for the additional premises is dependent upon the completion
of tenant improvements, which are expected to be completed in the first quarter
of 2001.
In July 1997, we purchased a limited partnership interest in Prairie
Capital Mezzanine Fund, L.P. ("Prairie Capital"), an investment fund having $24
million in total capital commitments that makes subordinated debt and preferred
stock investments in a wide variety of small businesses throughout the United
States. Prairie Capital is licensed as a Small Business Investment Company. We
intend to refer companies in our area requiring this type of investment capital
to Prairie Capital. As of September 30,
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2000, our aggregate investment in Prairie Capital was $450,000, and we were
subject to additional capital calls pursuant to which we may be required to
invest additional capital of up to $50,000 in Prairie Capital. Messrs. Bangert
and Ross, Mr. Ross' wife and an entity controlled by Mr. Rothman have made
individual capital commitments to Prairie Capital in amounts of $2 million, $2
million, $50,000 and $1.5 million, respectively, and own interests in Prairie
Capital proportionate to their capital commitments. Messrs. Bangert and Ross are
members of the advisory board of Prairie Capital. The general partner of Prairie
Capital has agreed to make certain payments to Colorado Business Bank, N.A.,
Messrs. Bangert and Ross, Mrs. Ross and the entity controlled by Mr. Rothman
(pro rata, in proportion to their respective investments in Prairie Capital)
following the liquidation of Prairie Capital in the event that they do not
realize an internal rate of return of at least 25% on their respective
investments.
In addition, we have committed to invest in a second fund, Prairie
Capital Mezzanine Fund II, L.P. ("Prairie Capital II"). As of September 30, 2000
our aggregate investment in Prairie Capital II was $100,000, and we were subject
to additional capital calls pursuant to which we may be required to invest
additional capital of up to $900,000. The general partner of Prairie Capital II
has not made any guarantees regarding the financial returns of this fund.
Messrs. Bangert and Ross are members of the advisory board of Prairie Capital
II.
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PRINCIPAL SHAREHOLDERS OF COBIZ
The following table sets forth, as of December 1, 2000, certain
information regarding beneficial ownership of the CoBiz common stock by (i) each
shareholder known by CoBiz to be the beneficial owner of more than 5% of the
outstanding common stock, (ii) each director of CoBiz, (iii) the chief executive
officer of CoBiz and CoBiz's four other most highly compensated executive
officers as of year end 1999 and (iv) all of CoBiz's directors, executive
officers and key employees as a group. Unless otherwise indicated, CoBiz
believes that the shareholders listed below have sole investment and voting
power with respect to their shares based on information furnished to CoBiz by
such owners.
<TABLE>
<CAPTION>
Number of shares Percent
Name of beneficial owner (1) beneficially owned of class
------------------------ ------------------ --------
<S> <C> <C>
Steven Bangert (2)................................................... 1,176,428 17.50%
Jonathan C. Lorenz (3)............................................... 156,542 2.32
Virginia K. Berkeley (4)............................................. 43,506 *
Richard M. Hall, Jr.................................................. -- *
Richard J. Dalton (5)................................................ 91,465 1.36
Mark S. Kipnis (6)................................................... 48,303 *
Noel N. Rothman (7).................................................. 755,194 11.25
Howard R. Ross (8)................................................... 1,098,372 16.36
Michael B. Burgamy (9)............................................... 97,750 1.46
Timothy J. Travis (10)............................................... 38,575 *
All directors, executive officers and key employees as a group
(18 persons) (11).................................................. 3,636,272 52.82
</TABLE>
* Denotes less than 1%.
(1) Unless otherwise indicated, the address of each shareholder named in the
table is c/o Colorado Business Bankshares, Inc., 821 Seventeenth Street, Denver,
Colorado 80202.
(2) Includes 4,927 shares held jointly by Mr. Bangert and his wife, 106,030
shares held by Mr. Bangert's minor children, 126,625 shares held by Hawthorne
Colorado, Inc., an entity of which Mr. Bangert is a director and 50%
shareholder, and 14,367 shares issuable upon exercise of options exercisable
within 60 days after December 1, 2000.
(3) Includes 500 shares held by Mr. Lorenz' minor children and 40,471 shares
issuable upon exercise of options exercisable within 60 days after December 1,
2000.
(4) Includes 1,678 shares held by Ms. Berkeley's minor child and 29,575 shares
issuable upon exercise of options exercisable within 60 days after December 1,
2000.
(5) Includes 18,777 shares issuable upon exercise of options exercisable within
60 days after December 1, 2000.
(6) Includes 3,300 shares issuable upon exercise of options exercisable within
60 days after December 1, 2000.
(7) Includes 3,300 shares issuable upon exercise of options exercisable within
60 days after December 1, 2000.
(8) Includes 29,975 shares held by Mr. Ross' wife, 126,625 shares held by
Hawthorne Colorado, Inc., an entity of which Mr. Ross is a director and 50%
shareholder, and 4,400 shares issuable upon exercise of options exercisable
within 60 days after December 1, 2000.
(9) Includes 4,400 shares issuable upon exercise of options exercisable within
60 days after December 1, 2000.
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(10) Includes 3,300 shares issuable upon exercise of options exercisable within
60 days after December 1, 2000.
(11) Includes 175,836 shares issuable upon exercise of options exercisable
within 60 days after December 1, 2000.
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THE SPECIAL MEETING OF THE SHAREHOLDERS OF COBIZ
GENERAL
The board of directors of CoBiz is providing this joint proxy
statement/prospectus to the holders of CoBiz common stock in connection with the
solicitation of proxies for use at the special meeting of its shareholders and
at any adjournments or postponements of that meeting. The special meeting is
scheduled to be held at ______________ at ______ a.m. on ________________, 2001.
The presence in person or by proxy of the holders of a majority of the
outstanding shares of CoBiz stock is necessary to constitute a quorum. If a
quorum is not present at the special meeting, the persons appointed as proxies
are authorized to vote to approve the adjournment or postponement of the special
meeting in order to permit further solicitation of proxies by CoBiz.
RECORD DATE
The board of directors of CoBiz has fixed the close of business on
________, 200_ as the record date for the determination of shareholders entitled
to notice of, and to vote at, the special meeting. Only holders of record of
common stock on the record date will be entitled to vote at the special meeting
and any adjournment thereof. As of the record date, there were _________ shares
of CoBiz common stock outstanding held by approximately ___ shareholders of
record.
MATTERS TO BE ACTED UPON
The purposes of the special meeting are to consider and vote on the
approval of:
o The Merger Agreement.
o The proposed amendment of CoBiz's articles of incorporation to change
its proper corporate name from Colorado Business Bankshares, Inc. to
CoBiz Inc.
o The proposed amendment to CoBiz's articles of incorporation to make the
shareholder voting requirements of the Colorado Business Corporation
Act for corporations formed after the effective date of that Act
applicable to votes by CoBiz's shareholders.
The structure, background and purpose of the merger are described in the
sections of this joint proxy statement/prospectus captioned "The Merger" and
"The Merger Agreement." The reasons for the proposed amendments to CoBiz's
articles of incorporation are discussed below.
Name Change. The name Colorado Business Bankshares, Inc. identifies CoBiz
with its Colorado market areas. After the merger, CoBiz will have operations in
Arizona and will continue to evaluate opportunities to expand into other market
areas. Management believes that CoBiz's ability to penetrate
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new geographic markets will be enhanced if the company's name does not contain
an express geographic identifier. The company's trading symbol is COBZ and many
people already refer to the company using that symbol. Accordingly, the board of
directors believes that the name CoBiz Inc. will preserve the goodwill of the
existing name while facilitating entry into Arizona and other future market
areas outside Colorado.
Change in Voting Requirement. CoBiz was formed in 1980 under the Colorado
corporate law then in effect. That law required that a merger, a sale of all or
substantially all of a corporation's assets, an amendment to the articles of
incorporation, the dissolution of the corporation and certain other
extraordinary corporate actions must be approved by a vote of shareholders
owning at least two-thirds of the outstanding shares. In line with more modern
corporate laws across the country, the Colorado Business Corporation Act, which
became effective July 1, 1994, lowered the shareholder voting requirement for
most extraordinary corporate actions from two-thirds to a majority. However, in
the case of amendments to the articles of incorporation, the Colorado Business
Corporation Act required only that the action be approved by a majority of the
shares voted at a meeting at which a quorum is present, whether or not the
shares voted for the amendment constitute a majority of the outstanding shares.
The new voting requirements were not automatically applicable to
corporations already in existence when the Colorado Business Corporation Act
became effective. Rather, the old voting requirements continued to apply to
existing corporations unless and until an amendment to the articles of
incorporation were adopted to change them. In 1998, the CoBiz shareholders
approved an amendment to its articles of incorporation stating that any matter
requiring shareholder approval could be approved by a vote of shareholders
having a majority of the outstanding shares. This amendment was intended to make
the new voting requirements of the Colorado Business Corporation Act applicable
to CoBiz. However, because the amendment required a vote of a majority of the
outstanding shares, it did not have the effect of making the Colorado Business
Corporation Act's voting requirement for amendments to the articles of
incorporation applicable to CoBiz. The amendment to be voted upon at the special
meeting is intended to correct that oversight.
The amendment reads as follows:
3.5 Voting Requirements. Any matter requiring the affirmative
vote or approval of the shareholders may be approved by the vote
required by the Act as now or hereafter in effect, applied as though
the Corporation had been formed after June 30, 1994.
Because the amendment adopted by the CoBiz shareholders in 1998 reduced the
voting requirement for shareholder approval of all other extraordinary corporate
actions to a majority of the outstanding shares, the only effect of this
amendment is to allow amendments to the articles of incorporation to be approved
by a majority of the votes cast at a meeting at which a quorum is present.
The board of directors of CoBiz believes that the change in the voting
requirement will provide flexibility to amend the articles of incorporation in
the future if an additional amendment should be appropriate. The board has no
present plans to propose an additional amendment.
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RECOMMENDATIONS OF COBIZ BOARD
The board of directors of CoBiz has unanimously approved and adopted the
Merger Agreement and the amendments to the articles of incorporation. The CoBiz
board believes that the merger is fair and in the best interests of the
shareholders of CoBiz. The board also believes that the proposed amendments to
the articles of incorporation are in the best interests of CoBiz and its
shareholders. THE COBIZ BOARD UNANIMOUSLY RECOMMENDS THAT THE COBIZ SHAREHOLDERS
VOTE FOR THE MERGER AND FOR BOTH OF THE PROPOSED AMENDMENTS.
PROXIES
If you, or your broker if your shares are held by a broker as nominee,
return a proxy card properly signed and dated, your shares will be voted in
accordance with the instructions on the proxy card. If you do not attend the
special meeting and you, or your broker if your shares are held by a broker as
nominee, do not return the signed proxy card, your shares will not be voted. You
are urged to mark the boxes on the proxy card to indicate how you wish your
shares to be voted. If you return a signed proxy card but do not indicate how
your shares are to be voted, your shares will be voted FOR all proposals. The
proxy card also confers discretionary authority on the individuals named on the
proxy card to vote your shares on any other matter that is properly presented
for action at the special meeting. No matters other than those set forth in the
notice of meeting that accompanies this joint proxy statement/prospectus, and
appropriate procedural matters, may be considered at the special meeting. If you
return and sign the proxy card, you may revoke the proxy at any time prior to
its exercise at the special meeting by delivering an instrument of revocation to
the secretary of CoBiz, by duly executing and submitting a proxy card bearing a
later date, or by appearing at the special meeting and voting in person. Your
presence at the special meeting will not, by itself, revoke your proxy. Brokers
who hold common stock as nominees will not have discretionary authority to vote
your shares on any of the matters to be voted on at the special meeting in the
absence of written instructions from you.
COSTS OF SOLICITATION OF PROXIES
Proxies will be solicited through the use of the mail. In addition,
certain directors, officers and employees of CoBiz (for no additional
compensation) may solicit proxies by personal interview, telephone, telex,
telegram or similar means of communication. All costs of solicitation will be
borne by CoBiz. CoBiz also will make arrangements with brokerage firms,
fiduciaries and other custodians who hold shares of record to forward
solicitation materials to the beneficial owners of these shares. CoBiz will
reimburse these brokerage firms, fiduciaries and other custodians for their
reasonable out-of-pocket expenses in connection with this solicitation.
QUORUM
The presence, either in person or by properly executed proxies, of the
holders of a majority of the outstanding shares of CoBiz common stock as of the
record date is necessary to constitute a quorum at the special meeting.
Abstentions and broker non-votes will be counted for purposes of establishing a
quorum.
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VOTE REQUIRED
Shareholders of CoBiz are entitled to one vote for each share of common
stock held of record by them on the record date. The Merger Agreement will be
approved if the number of votes cast for the merger is greater than the number
of votes cast against the merger. Because CoBiz itself is not a party to the
merger, the Colorado requirement that a merger must be approved by a majority of
the outstanding shares does not apply. The proposed amendments to the articles
of incorporation must be approved by a majority of the outstanding shares of
CoBiz stock. Accordingly, if you, or your broker if your shares are held by a
broker as nominee, do not return your proxy or abstain from voting on any
matter, your shares will have no impact on the outcome of the vote on the
merger, but will have the effect of a vote against the proposed amendments. The
three proposals to be voted on at the meeting are independent. The failure of
the shareholders of CoBiz to approve any proposal will not affect the other
proposals.
As of the record date, directors and executive officers of CoBiz
beneficially owned an aggregate of _______ outstanding shares of common stock or
approximately _____% of the outstanding shares as of the record date. CoBiz has
been advised that all of its directors and executive officers intend to vote all
such shares in favor of the approval of the merger and the amendments to CoBiz's
articles of incorporation.
SHAREHOLDER PROPOSALS
Any proposals by CoBiz shareholders intended for presentation at the 2001
annual meeting must be received by CoBiz at its principal executive offices at
821 17th Street, Denver, Colorado 80202, attention of the Corporate Secretary,
no later than December 15, 2000, in order to be included in the proxy material
for that meeting. CoBiz must be notified of any other shareholder proposal
intended to be presented for action at the meeting not later than 45 days before
the CoBiz 2001 annual meeting, or else proxies may be voted on such proposal at
the discretion of the person or persons holding those proxies.
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BUSINESS OF FIRST CAPITAL BANK
GENERAL
First Capital Bank is a full-service commercial bank based in Phoenix,
Arizona with one branch office in Surprise, Arizona, a suburb of Phoenix near
Sun City. Operating under a banking permit issued by the ASB, we have been in
business since August 7, 1996. Our deposits are insured by the FDIC to the
fullest extent authorized by law. We are subject to examination and
comprehensive regulation by the ASB and the FDIC. We derive all of our income
from banking and bank-related services. Our earnings consist of interest
earnings on commercial real estate and other loans, earnings from investment
securities, federal funds sold and fees from deposit and loan services.
We believe that we can satisfy the credit needs of our customers by
delivering tailored credit products and other financial services while
emphasizing quality service. We compete effectively with the large out-of-state
financial institutions in Arizona by emphasizing responsive customer service,
low overhead and the strong, local experience of our management and employees.
As of September 30, 2000, we had total assets of $104.1 million, net loans
outstanding of $72.3 million and deposits of $90.1 million.
MARKET AREA SERVED
Our primary market area is the Phoenix, Arizona metropolitan area, which
is located principally in Maricopa County. More than half of Arizona's
population resides in Maricopa County, which includes the cities of Phoenix,
Tempe, Mesa, Scottsdale, Glendale, Chandler and Peoria. According to U.S. Census
data, Arizona is the second fastest growing state in the nation. Arizona
experienced a population growth rate of 30.4% between 1990 and 1999 as compared
to the national growth rate of 9.6% during the same period. Maricopa County had
a total population of approximately 2.9 million at the end of 1999. The area
experienced an increase of approximately 78,000 people from 1998 to 1999.
Arizona's economic sectors include trade, manufacturing, mining, agriculture,
construction and tourism, with services constituting the largest economic
sector. According to statistics published by the Arizona Department of Commerce,
Arizona has attracted high-technology industries which have a total economic
impact of $33 billion in the state, representing nearly 56% of all manufacturing
employment. As of August 2000, the unemployment rate was 4.0%.
Our branch in Surprise, Arizona is strategically located to serve the
large population of retired persons living in the suburbs of Phoenix. The
customers in this demographic group usually prefer the personal service of a
community bank to the more impersonal service of a large financial institution.
First Capital Bank has the legal authority to conduct a banking business
within and throughout the State of Arizona, subject only to obtaining approval
from the ASB and the FDIC to open new branches.
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LENDING ACTIVITIES
General. We offer a variety of commercial loan services, including term
loans, lines of credit and equipment financing. We deliver financial products
and services tailored to the needs of small- and medium-sized companies,
professionals and business owners while emphasizing responsive, high-quality
customer service, personal relationships and the appeal and service levels of a
community bank. We seek to provide a business culture in which small- and
medium-sized business customers are accorded the highest priority. Our primary
lending focus is commercial real estate mortgage loans, traditional commercial
loans and government enhanced loans. We have highly experienced lending officers
who specialize in each of these areas.
Our commercial real estate mortgage lending includes interim and
permanent loans for acquisition and construction of commercial real estate.
Our traditional commercial lending includes receivable lines of credit,
inventory financing, equipment financing and a wide range of other forms of
commercial financing, including unsecured lines of credit.
Our government enhanced lending includes loans guaranteed by the Small
Business Administration and the Rural Economic & Community Development Agency of
the United States Department of Agriculture, as well as loan guarantee and
credit enhancement programs offered by other federal, state and local government
agencies. Government enhanced loans offer a number of significant advantages,
including reduced lending risk due to the agency guarantees, secondary market
liquidity and exemption of the guaranteed portion from our lending limit and
from the risk-based capital calculation for purposes of determining our capital
ratios.
The interest rates that we charge for loans vary with the type of loan
and competitive rates for the particular class of credit, degree of risk, size,
term and prevailing market conditions for the cost of funds.
Credit Procedures and Review. We address credit risk through internal
credit policies and procedures, including underwriting criteria, officer and
customer lending limits, a multi-layered loan approval process for larger loans,
periodic document examination, justification for any exceptions to credit
policies, loan review and concentration monitoring. In addition, we provide
ongoing loan officer training and review. Our directors and senior management
are responsible for monitoring credit risk for First Capital Bank as a whole.
The Loan Committee of our board of directors periodically reviews the asset
quality of new loans and any problem loans and reports its findings to the full
board. Our loan review officers, including the originating officer for each
specific loan, Chief Credit Officer and Chief Executive Officer, are responsible
for reviewing credit in individual transactions and for reporting their findings
to the Loan Committee. At the origination of any loan, we evaluate credit risks
and place emphasis on the appropriate pricing of risk. Generally, our commercial
loans are underwritten on the basis of the borrower's ability to service such
debt from income. As a general practice, we take as collateral a lien on any of
the borrower's available real estate, equipment or other assets.
88
<PAGE> 104
At September 30, 2000, our individual lending limit was 15% of capital
including our allowance for loan losses so that as of September 30, 2000, our
lending limit was $1.7 million. We have accommodated loan requests in excess of
our lending limits and diversified our loan portfolio through the sale of loan
participations to other banks, including banks that are our shareholders. Even
when we could have accommodated a full loan request within our lending limits,
we sometimes have elected to sell loan participations to reduce our risk in a
particular class of loans through diversification.
Composition of Loan Portfolio. The following table sets forth the
composition of our loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------
At September 30, 2000 1999 1998 1997
---------------------- ------------------- ------------------- -------------------
Amount % Amount % Amount % Amount %
-------- -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage:
Construction ............. $ 8,723 12.0 $ 8,902 14.1 $ 6,801 15.6 $ 5,652 20.3
Commercial ............... 45,553 62.4 36,047 57.0 23,358 53.8 14,275 51.2
Residential .............. 3,296 4.5 3,480 5.5 2,550 5.9 1,454 5.2
Commercial and industrial ... 14,000 19.2 13,412 21.2 8,873 20.4 5,294 19.0
Consumer .................... 1,416 1.9 1,370 2.2 1,886 4.3 1,195 4.3
-------- -------- -------- -------- -------- -------- -------- --------
Total loans ................. 72,988 100.0 63,211 100.0 43,468 100.0 27,870 100.0
Less allowance for loan
losses ...................... (695) -- (586) -- (407) -- (251) --
-------- -------- -------- -------- -------- -------- -------- --------
Net loans ................... $ 72,293 100.0 $ 62,625 100.0 $ 43,061 100.0 $ 27,619 100.0
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
Nonperforming Assets. The board of directors of First Capital Bank has
adopted policies to deal with nonaccrual loans, restructured loans, past due
loans and other real estate owned. As of September 30, 2000, First Capital Bank
has not had any loans that have fallen into any of these categories. The
following discussion describes the policies adopted by the board.
Accrual of interest will be discontinued on a loan when management
believes, after considering economic and business conditions and collection
efforts, that the borrower's financial condition is such that the collection of
interest is doubtful. A delinquent loan will generally be placed on nonaccrual
status when it becomes 90 days past due. When a loan is placed on nonaccrual
status, all accrued and unpaid interest on the loan will be reversed and
deducted from earnings as a reduction of reported interest income. No additional
interest will be accrued on the loan balance until the collection of both
principal and interest became reasonably certain. Interest payments that would
be received on nonaccrual loans are recorded as income or applied against
principal according to management's judgment as to the collectibility of the
related loans. When the issues relating to a nonaccrual loan are finally
resolved, there may ultimately be an actual write down or charge-off of the
principal balance of the loan, which may necessitate additional charges to
earnings.
Restructured loans are those for which concessions, including the
reduction of interest rates below a rate otherwise available to the borrower, or
the deferral of interest or principal, is granted due to the borrower's weakened
financial condition. Interest on restructured loans will be accrued at the
restructured rates when it is anticipated that no loss of principal will occur.
89
<PAGE> 105
A loan is considered impaired when, based on current information and
events, it is probable that we will be unable to collect all amounts due
according to contractual terms of the loan agreement. We make an assessment for
impairment when such loans are on nonaccrual or the loans have been
restructured. Nonaccrual commercial and commercial real estate loans are
considered to be impaired. We individually evaluate such loans for impairment
and do not aggregate loans by major risk classifications. The definition of
"impaired loans" is not the same as "nonaccrual loans," although the two
categories overlap. We may choose to place a loan on nonaccrual status due to
payment delinquency, while not classifying the loan as impaired. Factors
considered by management in determining impairment include payment status and
collateral value. The amount of impairment for these types of impaired loans is
determined by the difference between the present value of the expected cash
flows related to the loan, using the original interest rate, and its recorded
value or as a practical expedient in the case of collateralized loans, the
difference between the fair value of the collateral and the recorded amount of
the loans. When foreclosure is probable, impairment is measured based on the
fair value of the collateral.
At September 30, 2000, First Capital Bank had five loan relationships
considered by management to be potential problem loans, with outstanding
principal, net of governmental guaranty programs, totaling approximately $1.2
million. A potential problem loan is one where management has concerns about the
borrower's future performance under the terms of the loan. These five loans are
current as to the principal and interest and, accordingly, are not included in
the nonperforming asset categories. They are all loans for business purposes,
with four of them being collateralized by the assets of the respective
businesses. Except for a minimal exposure on one loan, the others are
additionally collateralized by real estate. Based upon the anticipated
continuing performance of the customer and upon the value of the overall
collateral, full collectibility is anticipated at this time. For our protection,
management monitors these loans closely. Any further deterioration may result in
a loan being classified as nonperforming. The level of potential problem loans
is factored into the determination of the adequacy of the allowance for loan
losses.
Real estate acquired by foreclosure includes deeds acquired under
agreements with delinquent borrowers. Real estate acquired by foreclosure will
be appraised annually and carried at the lesser of fair market value less
anticipated closing costs or the balance of the related loan.
Analysis of Allowance for Loan Losses. The allowance for loan losses
represents management's recognition of the risks of extending credit and its
evaluation of the quality of the loan portfolio. The allowance for loan losses
is maintained at a level considered adequate to provide for anticipated loan
losses, based on various factors affecting the loan portfolio, including a
review of problem loans, business conditions, historical loss experience,
evaluation of the quality of the underlying collateral and holding and disposal
costs. The allowance is increased by provisions charged to operating income and
reduced by loans charged off, net of recoveries. The provision is based upon
management's periodic evaluation of individual loans, the overall risk
characteristics of the various portfolio segments, changes in the composition
and volume of the portfolio, the impact of current economic conditions on
borrowers and other relevant factors. The estimates used in determining the
adequacy of the allowance for loan losses, including the amounts and timing of
future cash flows expected on any impaired loans, are particularly susceptible
to significant changes in the near term.
90
<PAGE> 106
The following table sets forth information regarding changes in our
allowance for loan losses for the periods indicated.
<TABLE>
<CAPTION>
For the nine
months ended For the year ended December 31,
September 30, -------------------------------
2000 1999 1998 1997
------------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance of allowance for loan losses at
beginning of period ..................... $ 586 $ 407 $ 251 $ 50
Loans charged-off .......................... -- -- -- --
Provision for loan losses .................. 109 179 156 201
------------- -------- -------- --------
Balance of allowance for loan losses at
end of period ........................... $ 695 $ 586 $ 407 $ 251
============= ======== ======== ========
Ratios:
Allowance for loan losses as a percentage
of loans at period end .................. 0.95% 0.94% 0.95% 0.91%
Net loans charged-off to average loans ..... -- -- -- --
</TABLE>
Additions to the allowance for loan losses, which are charged as
expenses on our income statement, are made periodically to maintain the
allowance at the appropriate level based on our analysis of the potential risk
in the loan portfolio. Loans charged off, net of amounts recovered from such
loans, reduce the allowance for loan losses. The amount of the allowance is a
function of the levels of loans outstanding, the level of non-performing assets,
historical loan loss experience, the amount of loan losses actually charged
against the allowance during a given period and current and anticipated economic
conditions. At September 30, 2000, the allowance for loan losses equaled .95% of
total loans, and 1.14% after giving consideration to those portions of loans
outstanding which are guaranteed by government agencies such as the SBA.
Federal regulatory agencies, as an integral part of their examination
process, review our loans and allowance for loan losses. We believe that our
allowance for loan losses is adequate to cover anticipated loan losses. However,
we may determine a need to increase the allowance for loan losses, or
regulators, when reviewing our loan portfolio in the future, may request that we
increase such allowance. Either of these events could adversely affect our
earnings. Further, there can be no assurance that our actual loan losses will
not exceed the allowance for loan losses.
The following table sets forth the allocation of the allowance for loan
losses by category for the periods indicated. We believe that any allocation of
the allowance into categories creates an appearance of precision that does not
exist. The allocation table should not be interpreted as an indication of the
specific amounts, by loan classification, to be charged to the allowance. We
believe that the table is a useful device for assessing the adequacy of the
allowance as a whole. The allocation of the allowance for loan losses is our
determination of the amounts necessary for concentrations and changes in mix and
volume of the loan portfolio. The overall increase in the allowance from year to
year is due to the strategically planned growth in total loans, concentrated in
commercial and commercial real estate. We currently have not experienced any
historical charge-offs. The allowance is utilized as a single unallocated
allowance available for all loans.
91
<PAGE> 107
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------------
At September 30, 2000 1999 1998 1997
------------------------ ------------------------ ------------------------ ------------------------
Loans in Loans in Loans in Loans in
category as category as category as category as
Amount of % of Amount of % of Amount of % of Amount of % of
allowance gross loans allowance gross loans allowance gross loans allowance gross loans
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage:
Construction ........ $ 87 12.0% $ 89 14.1% $ 68 15.6% $ 57 20.3%
Commercial .......... 425 62.4 324 57.0 212 53.8 122 51.2
Residential ......... 33 4.5 35 5.5 26 5.9 14 5.2
Commercial and
industrial ............. 136 19.2 124 21.2 82 20.4 46 19.0
Consumer ............... 14 1.9 14 2.2 19 4.3 12 4.3
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Allowance ........ $ 695 100.0% $ 586 100.0% $ 407 100.0% $ 251 100.0%
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
INVESTMENTS
Our investment portfolio is comprised of securities rated "A" or better
by various nationally recognized rating agencies. The majority of the portfolio
matures within a one to four year period. The portfolio contains U.S. Treasury
and government agency securities, FHLB stock and FNMA stock. The factors
considered in the management of the securities portfolio are liquidity, yield,
asset/liability management and the ability to pledge securities for public
deposits and wholesale borrowings. The entire portfolio is identified as
available for sale. The investment portfolio and investment strategies are
reviewed by our asset liability committee.
The following table sets forth the carrying values of the securities in
our investment portfolio by type at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
At September 30, ----------------------------------
2000 1999 1998 1997
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. government
agency securities .............. $ 22,004 $ 16,460 $ 13,244 --
Other investments .................. 779 256 -- --
---------- ---------- ---------- ----------
Total .............................. $ 22,783 $ 16,716 $ 13,244 --
========== ========== ========== ==========
</TABLE>
92
<PAGE> 108
The following table sets forth the book value, maturity or repricing
frequency, and approximate yield of the securities in our investment portfolio
at September 30, 2000.
<TABLE>
<CAPTION>
Maturity or repricing
-------------------------------------------------------------------------
Within 1 year 1-5 years 5-10 years Over 10 years
---------------- ---------------- ---------------- ----------------
Amount Yield(1) Amount Yield(1) Amount Yield(1) Amount Yield(1)
------- ------- ------- ------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S.
government agency
securities ........... $17,913 6.34% $ 2,759 6.04% $ 1,332 6.89% -- --
Other investments ........ -- -- 631 6.02 148 5.08 -- --
------- ------- ------- -----
Total .................... $17,913 6.34 $ 3,390 6.04 $ 1,480 6.71 -- --
======= ======= =======
</TABLE>
----------
(1) Yields do not include adjustments for tax-exempt interest because the amount
of such interest is not material.
Excluding our concentration in U.S. government agency issued
securities, we have no securities from a single issuer representing more than
10% of stockholders' equity.
DEPOSITS
Our primary source of funds has been customer deposits. We offer a
variety of accounts for depositors, which are designed to attract both short-
and long-term deposits. These accounts include certificates of deposit, savings
accounts, money market accounts, checking and NOW accounts and individual
retirement accounts. In the first nine months of 2000, $8.9 million, or 11%, of
our average deposits were noninterest-bearing deposits. This is a lower ratio
than many other similar banks due to our high concentration of business
customers who actively manage their cash. We have not sought brokered deposits
and do not currently foresee a need to do so.
The following tables present the average balances for each major
category of deposits and the weighted average interest rates paid for
interest-bearing deposits for the periods indicated.
<TABLE>
<CAPTION>
For the nine months
ended September 30, For the year ended December 31,
---------------------- ------------------------------------------------------------------------
2000 1999 1998 1997
---------------------- ---------------------- ---------------------- ----------------------
Weighted Weighted Weighted Weighted
average average average average
Average interest Average interest Average interest Average interest
balance rate balance rate balance rate balance rate
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing ............ $ 8,904 $ 9,414 $ 6,940 $ 3,966
Interest-bearing demand ........ 4,520 2.42% 3,636 2.27% 2,193 1.99% 521 1.83%
Savings deposits ............... 321 3.14 320 3.10 219 3.68 118 3.82
Money market deposits .......... 26,181 5.05 24,086 4.47 11,973 4.63 7,115 4.64
Time deposits under
$ 100,000.................... 24,394 5.64 18,314 5.26 13,266 5.69 4,721 5.87
Time deposits
$100,000 and over ........... 15,822 5.69 12,385 5.27 8,519 5.71 3,264 5.91
---------- ---------- ---------- ----------
Total deposits ................. $ 80,142 $ 68,155 $ 43,110 $ 19,705
========== ========== ========== ==========
</TABLE>
93
<PAGE> 109
Maturities of certificates of deposit of $100,000 and more are as
follows:
<TABLE>
<CAPTION>
At September 30,
2000
----------------
Remaining maturity (In thousands)
<S> <C>
Less than three months.............. $ 1,363
Three months up to six months....... 5,213
Six months up to one year........... 5,278
One year and over................... 6,033
-------
$17,887
=======
</TABLE>
SHORT-TERM BORROWINGS
First Capital Bank's short-term borrowings include federal funds
purchased and advances from the Federal Home Loan Bank of San Francisco
("FHLB-SF"). The following table sets forth information relating to our
short-term borrowings.
<TABLE>
<CAPTION>
At or for the year
At or for the ended December 31,
nine months ended -----------------------
September 30, 2000 1999 1998 1997
------------------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Federal funds purchased
Balance at end of period ...................... $ -- $1,000 -- --
Average balance outstanding for the period .... 647 47 -- --
Maximum amount outstanding at any
month end during the period .................. 4,173 -- -- --
Weighted average interest rate for the
period ....................................... 5.60% 3.98% -- --
Weighted average interest rate at period end .. -- 5.31% -- --
FHLB-SF advances
Balance at end of period ...................... $2,730 -- -- --
Average balance outstanding for the period .... 633 -- -- --
Maximum amount outstanding at any
month end during the period ................. 2,730 -- -- --
Weighted average interest rate for the
period ...................................... 6.81% -- -- --
Weighted average interest rate at period end .. 6.74 -- -- --
</TABLE>
94
<PAGE> 110
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF
FIRST CAPITAL BANK
BACKGROUND
First Capital Bank was incorporated in 1995 and received its banking
permit from the ASB in August 1996. Our original capitalization was $5.6
million. In 1997, we had a second stock offering that raised net proceeds of
$3.7 million. In March 2000, we declared a 5% common stock dividend.
From inception through September 30, 2000, we have increased
stockholders' equity, before accumulated other comprehensive income, by $5.7
million, an increase of 102% over our initial capitalization. We achieved our
first operating positive earnings by the tenth month of operation and recovered
our cumulative operating losses through retained earnings by the end of the
eighteenth month of operation.
Earnings during the first four years of operation have been created
primarily by interest earnings on commercial loans and commercial real estate
loans and secondarily by a relatively short maturity investment portfolio
consisting mostly of FHLB bonds. At September 30, 2000, our loan and investment
portfolios represented 73.4% and 22.9% of total earning assets, respectively.
Commercial and commercial real estate loans comprised 81.6% of the loan
portfolio at September 30, 2000. Our earnings reflect our basic strategy of
marketing to small- and medium-sized businesses and high net worth individuals.
Our allowance for loan losses was $695,000 or .95% of total loans as of
September 30, 2000. Overall, the Arizona economy remains strong, although with
some slowing, and in 2000 we have been able to attract local deposits sufficient
to support the growth in our loan and investment portfolios.
During 1998, we opened two branch offices, one in Yuma, Arizona and the
other in Surprise, Arizona, which is at the entrance to the Sun City West
community in the northwest part of metropolitan Phoenix. Due to slower than
expected growth of the Yuma branch, we closed that branch in August 1999. We
have been able to service the loans and retain some of the deposits acquired
while that branch was open.
FINANCIAL CONDITION
SEPTEMBER 30, 2000, COMPARED TO DECEMBER 31, 1999
First Capital Bank's total assets increased by $17.7 million to $104.1
million as of September 30, 2000, from $86.4 million as of December 31, 1999.
Loan demand in our market area allowed our loan portfolio to increase by $9.8
million, from $63.2 million at December 31, 1999, to $73.0 million as of
September 30, 2000. Total investments were $22.8 million as of September 30,
2000, compared to $16.7 million as of December 31, 1999. Deposits increased by
$15.1 million to $90.1 million as of September 30, 2000, from $75.0 million as
of December 31, 1999. Noninterest-bearing deposits increased by $5.7 million,
and interest-bearing deposits increased by $9.5 million. Demand deposits
comprised 14.4% of total deposits as of September 30, 2000 as compared to 9.7%
at December 31,
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<PAGE> 111
1999. Federal funds purchased decreased by $1.0 million in the first nine months
of 2000. Advances from the FHLB-SF increased during the nine months ended
September 30, 2000 by $2.7 million and were used to purchase available for sale
securities.
DECEMBER 31, 1999, COMPARED TO DECEMBER 31, 1998
Our total assets increased by $19.2 million to $86.4 million as of
December 31, 1999, from $67.2 million as of December 31, 1998. Our loan
portfolio increased by $19.7 million, from $43.5 million at December 31, 1998,
to $63.2 million as of December 31, 1999. This 45.4% annual increase was due to
good loan demand in the Phoenix metropolitan area and the strong marketing
efforts of our lending staff. Total investments were $16.7 million as of
December 31, 1999, compared to $13.2 million as of December 31, 1998. Deposits
were $75.0 million as of December 31, 1999, compared to $57.6 million as of
December 31, 1998, an increase of $17.4 million, which was less than the loan
growth of $19.7 million. Noninterest-bearing deposits decreased by $2.4 million
due to two large, but very short term deposit transactions at the end of 1998,
while interest-bearing deposits increased by $19.8 million, due primarily to
growth in our certificate of deposit and money market portfolios during the same
period.
NET INTEREST INCOME
Net interest income is the difference between interest income,
principally from loans and investment securities, and interest expense,
principally on customer deposits and borrowings. Changes in net interest income
result from changes in volume, net interest spread and net interest margin.
Volume refers to the average dollar levels of interest-earning assets and
interest-bearing liabilities. Net interest spread refers to the difference
between the average yield on interest-earning assets and the average cost of
interest-bearing liabilities. Net interest margin refers to net interest income
divided by average interest-earning assets and is influenced by the level and
relative mix of interest-earning assets and interest-bearing liabilities. The
following tables present, for the periods indicated, certain information related
to our average asset and liability structure and our average yields on assets
and average costs of liabilities. Averages are computed using daily balances.
Yields or costs are derived by dividing income or expense by the average balance
of the corresponding assets or liabilities.
<TABLE>
<CAPTION>
For the nine months ended September 30,
-----------------------------------------------------------------------------
2000 1999
------------------------------------- -------------------------------------
Interest Average Interest Average
Average earned yield Average earned yield
balance or paid or cost(1) balance or paid or cost(1)
----------- ----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Loans, net (2) ......................... $ 67,934 $ 5,134 10.10% $ 52,040 $ 3,786 9.73%
Investment securities .................. 18,575 836 6.01 13,513 561 5.56
Federal funds sold ..................... 721 31 5.70 4,892 179 4.88
----------- ----------- ----------- -----------
Total interest-earning assets .......... 87,230 6,001 9.19 70,445 4,526 8.59
Noninterest-earning assets ............. 5,012 4,976
----------- -----------
Total assets ...................... $ 92,242 $ 75,421
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Time deposits of
$100,000 or more ...................... $ 15,823 $ 674 5.69 $ 12,051 $ 476 5.28
All other interest-
bearing deposits ..................... 55,416 2,110 5.09 43,965 1,510 4.59
Federal funds purchased ................ 647 27 5.57 52 2 5.18
Borrowings ............................. 633 32 6.75 -- -- --
----------- ----------- ----------- -----------
Total interest-bearing liabilities ... 72,519 2,843 5.24 56,067 1,988 4.74
Noninterest-bearing deposits ........... 8,904 9,628
Other liabilities....................... 346 195
Stockholders' equity.................... $ 10,473 $ 9,531
----------- -----------
Total liabilities and
stockholders' equity ............. $ 92,242 $ 75,421
=========== ===========
Net interest rate spread ............... 3.95 3.85
Net interest income .................... $ 3,158 $ 2,538
=========== ===========
Net interest margin .................... 3.62 3.60
</TABLE>
----------
(1) Average yields and costs for the nine months ended September 30, 2000 and
1999 have been annualized and are not necessarily indicative of results for the
entire year.
(2) Loan fees included in interest income are not material.
96
<PAGE> 112
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------- ------------------------------- -------------------------------
Interest Average Interest Average Interest Average
Average earned yield Average earned yield Average earned yield
balance or paid or cost balance or paid or cost balance or paid or cost
--------- --------- --------- --------- --------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Loans, net (1) .............. $ 53,866 $ 5,247 9.74% $ 33,070 $ 3,508 10.61% $ 15,836 $ 1,721 10.87%
Investment securities ....... 14,362 818 5.70 2,787 158 5.67 -- -- 0.00
Federal funds sold .......... 4,751 236 4.97 12,948 700 5.40 8,392 460 5.48
--------- --------- --------- -------- --------- ---------
Total interest-earning
assets ................... 72,979 6,301 8.63 48,805 4,366 8.95 24,228 2,181 9.00
Noninterest earning assets .. 5,087 3,621 2,073
--------- --------- ---------
Total assets................. $ 78,066 $ 52,426 $ 26,301
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Time deposits of
$100,000 or more ........... $ 12,385 $ 653 5.27% $ 8,519 $ 486 5.71% $ 3,264 $ 193 5.91%
All other interest-
bearing deposits .......... 46,356 2,141 4.62 27,651 1,367 4.94 12,475 624 5.00
Federal funds purchased ..... 47 2 4.26 -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Total interest-bearing
liabilities .......... 58,788 2,796 4.76 36,170 1,853 5.12 15,739 817 5.19
Noninterest-bearing
deposits.................... 9,414 6,941 3,966
Other liabilities............ 256 105 34
Stockholders' equity......... 9,608 -- 9,210 -- 6,562 --
--------- --------- ---------
Total liabilities and
stockholders' equity........ $ 78,066 $ 52,426 $ 26,301
========= ========= =========
Net interest rate spread..... 3.83 3.82 3.81
Net interest income.......... $ 3,505 $ 2,512 $ 1,364
========= ========= =========
Net interest margin.......... 4.80 5.15 5.63
</TABLE>
----------
(1) Loan fees included in interest income are not material.
97
<PAGE> 113
The following table illustrates, for the periods indicated, the changes
in the levels of interest income and interest expense attributable to changes in
volume or rate. Changes in net interest income due to both volume and rate have
been included in the changes due to rate. During 1998 we converted a substantial
portion of our federal funds sold balance into a longer term investment
portfolio consisting primarily of FHLB bonds.
<TABLE>
<CAPTION>
Nine months ended Year ended Year ended
September 30, 2000 December 31, 1999 December 31, 1998
compared with compared with compared with
nine months ended year ended year ended
September 30, 1999 December 31, 1998 December 31, 1997
increase (decrease) increase (decrease) increase (decrease)
in net interest income in net interest income in net interest income
due to changes in due to changes in due to changes in
-------------------------- --------------------------- --------------------------
Volume Rate Total Volume Rate Total Volume Rate Total
------- ------- ------- ------- ------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earnings assets:
Federal funds sold ................. $ (152) $ 4 $ (148) $ (443) $ (21) $ (464) $ 250 $ (10) $ 240
Investment securities .............. 211 64 275 656 4 660 158 -- 158
Loans .............................. 1,154 194 1,348 2,205 (466) 1,739 1,876 (89) 1,787
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest-earning assets ...... 1,213 262 1,475 2,418 (483) 1,935 2,284 (99) 2,185
Interest-bearing liabilities:
Now and money market ............... 151 128 279 573 (7) 566 284 (19) 265
Time deposits under $100,000 ....... 258 63 321 287 (79) 208 502 (24) 478
Time deposits $100,000
and over ........................ 149 49 198 221 (54) 167 312 (18) 294
Federal funds purchased ............ 21 4 25 1 -- 1 -- -- --
Other borrowings ................... 32 -- 32 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest-bearing liabilities . 611 244 855 1,082 (140) 942 1,098 (61) 1,037
------- ------- ------- ------- ------- ------- ------- ------- -------
Net increase (decrease) in
net interest income ............... $ 602 $ 18 $ 620 $ 1,336 $ (343) $ 993 $ 1,186 $ (38) $ 1,148
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
ASSET/LIABILITY MANAGEMENT
Asset/liability management consists of managing interest rate risk
within the asset and liability portfolios. We monitor our interest rate risk on
a monthly basis through the Asset/Liability Committee, which is comprised of our
executive management officers and reports to the board of directors at each
meeting. The committee reviews our interest rates as compared to other banks in
our market area, reviews loan demand to determine the need for various types and
volumes of lendable funds and reviews current loan rates, maturities and pricing
characteristics of the loan and investment portfolios. The goal is to monitor
growth in all portfolios while reducing interest rate risk contained in future
pricing decisions. We attempt, to some extent, to match the growth of the
maturities of longer term
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<PAGE> 114
assets and deposits plus borrowings, although realistically they grow at
different rates. We do not utilize derivative financial instruments to manage
interest rate risk.
The following table sets forth the estimated maturity or repricing of
interest-earning assets and interest-bearing liabilities. It shows interest rate
gaps over the timeframes shown at the top of the table. We focus on maintaining
a balance between interest rate sensitive assets and liabilities and repricing
frequencies. An important element of our focus has been to emphasize variable
rate loans and investments funded by deposits that also mature or reprice over
periods of twelve months or less.
<TABLE>
<CAPTION>
Estimated maturity or repricing at September 30, 2000
---------------------------------------------------------------
Three months
Less than to less than One to Over
three months one year five years five years Total
------------ ------------ ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Fixed rate loans ....................... $ 402 $ 632 $ 2,971 $ 3,383 $ 7,388
Floating rate loans .................... 34,734 804 26,277 3,785 65,600
Investment securities
available for sale ................... 2,122 2,479 16,702 1,480 22,783
Federal funds sold ..................... 3,703 -- -- -- 3,703
---------- ---------- ---------- ---------- ----------
Total interest-earning assets ........ $ 40,961 $ 3,915 $ 45,950 $ 8,648 $ 99,474
========== ========== ========== ========== ==========
Interest-bearing liabilities:
NOW and money market accounts .......... $ 30,376 -- -- -- $ 30,376
Savings ................................ 334 -- -- -- 334
Time deposits under $100,000 ........... 1,928 15,736 10,872 -- 28,536
Time deposits over $100,000 ............ 1,363 10,491 6,033 -- 17,887
FHLB-SF advances ....................... -- 2,230 500 -- 2,730
---------- ---------- ---------- ---------- ----------
Total interest-bearing liabilities .. 34,001 28,457 17,405 -- 79,863
---------- ---------- ---------- ---------- ----------
Interest rate gap ......................... $ 6,960 $ (24,542) $ 28,545 $ 8,648 $ 19,611
---------- ---------- ---------- ---------- ----------
Cumulative interest rate gap .............. $ 6,960 $ (17,582) $ 10,963 $ 19,611
========== ========== ========== ==========
Cumulative interest rate gap
to total assets ......................... 6.69% (16.89)% 10.53% 18.84%
</TABLE>
The following table presents at September 30, 2000 loans by contractual
maturity in each major category of our loan portfolio. Actual payments may
differ from the contractual maturities shown below as a result of renewals and
prepayments. To reduce prepayments or to offset the assumed interest rate risk,
we obtain contractual prepayment fee clauses on many loans. Loan renewals are
evaluated in the same manner as new credit applications.
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<PAGE> 115
<TABLE>
<CAPTION>
At September 30, 2000
------------------------------------------
Less than One to Over
one year five years five years Total
--------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Commercial ................. $ 8,801 $ 3,950 $ 1,249 $ 14,000
Real estate - mortgage ..... 8,581 142 -- 8,723
Real estate - construction . 654 2,069 42,830 45,553
Real estate - residential .. 1,199 1,717 380 3,296
Consumer ................... 478 546 392 1,416
--------- --------- --------- ---------
Total loans ........... $ 19,713 $ 8,424 $ 44,851 $ 72,988
========= ========= ========= =========
</TABLE>
As of September 30, 2000, of the $53.2 million of loans with maturities
of one year or more, approximately $6.4 million were fixed rate loans and $47.2
million were variable rate loans.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000, COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
Earnings Performance. Net earnings were $1.0 million for the nine
months ended September 30, 2000, compared with $505,000 for the nine months
ended September 30, 1999, an increase of 98%. This increase was due to a 23%
growth in the loan portfolio combined with an improvement of the net interest
margin. Also, noninterest expense decreased by $209,000 for the first nine
months of 2000 compared to the first nine months of 1999. Earnings per share on
a fully diluted basis for the nine months ended September 30, 2000 were $1.30,
versus $0.67 for the same period a year ago, an increase of 89%. The annualized
return on average assets was 1.45% for the first nine months of 2000, compared
with .89% for the first nine months of 1999. The annualized return on average
shareholders' equity was 12.75% for the nine months ended September 30, 2000,
versus 7.10% for the nine months ended September 30, 1999.
Net Interest Income. Net interest income before provision for loan
losses was $6.0 million for the nine months ended September 30, 2000, an
increase of $1.5 million, or 32.6%, compared with the nine months ended
September 30, 1999. Yields on our interest-earning assets improved by 60 basis
points to 9.19% for the nine months ended September 30, 2000, from 8.59% for the
nine months ended September 30, 1999, due largely to increased yields on
variable rate loans resulting from increases in the prime rate over the past
year. Rates paid on interest-bearing liabilities increased by 50 basis points
during this same period. The net interest margin was 3.62% for the nine months
ended September 30, 2000, up from 3.60% for the nine months ended September 30,
1999. The increase in net interest margin was due to a rise in general interest
rates. Increased yields were partially offset by increases in rates paid on
deposit accounts as a result of some newer, aggressive growth banks with out of
state ownership driving up consumer expectations on all types of
interest-earning accounts. A significant portion of our asset portfolio is tied
to market indexes which adjust with the prime lending rate. The growth of
average earning assets helped reduce the effect of interest expense on earnings
due to the margin compression. However, continued increases in market interest
rates could adversely affect both the cost of funds and loan originations, which
could result in lower net interest margins in future
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<PAGE> 116
operating periods. Average earning assets increased by 23.8% to $87.2 million
for the first nine months of 2000, from $70.4 million for the first nine months
of 1999.
Provision and Allowance for Loan Losses. The provision for loan losses
increased by $118,000 to $695,000 for the nine months ended September 30, 2000,
up from $577,000 for the nine months ended September 30, 1999. This increase was
due to the increase in loans outstanding and does not imply a deterioration of
credit quality. At the end of September, 2000, we did not have any loans past
due more than 30 days and did not have any impaired or nonaccruing loans.
Average outstanding net loan balances have increased to $67.9 million for the
first nine months of 2000, up from $52.0 million for the first nine months of
1999. As of September 30, 2000, the allowance for loan losses amounted to .95%
of total loans.
Noninterest Income. We reported a net decrease in noninterest income of
$72,000 for the nine months ended September 30, 2000 compared to the nine months
ended September 30, 1999. Service charges on deposit accounts increased from
$92,000 for the first nine months of 1999 to $121,000 for the first nine months
of 2000, due to the opening of several new accounts by large customers who have
substantial account activity with small average collected balances to offset
service charges. However, other income decreased due primarily to a reduction in
earnings from syndicated loans. For the nine months ended September 30, 2000,
syndicated loan and mortgage servicing fees totaled $79,000 as compared to
$111,000 for the nine months ended September 30, 1999. In addition, there were
realized gains of $138,000 from the sale of land originally purchased for branch
expansion and the sale of the SBA guaranteed portion of two commercial loans in
1999. There were no asset sales occurring during the nine month period ending
September 30, 2000.
Noninterest Expense. Total noninterest expense was $1.7 million for the
nine months ended September 30, 2000, down from $1.9 million for the nine months
ended September 30, 1999. That decrease in noninterest expense reflects the cost
savings from the closure of the Yuma office in August of 1999. During the first
nine months of 1999, there were normal salary and benefits expenses for the Yuma
branch plus separation payments made to the branch staff. In addition, there
were expenses incurred in the shut down of the branch and relocation of
furniture and equipment. Total salaries, employee benefits and occupancy and
equipment expenses decreased by $226,000, or 15.7%, from 1999 to 2000 as a
result of the Yuma branch office closing and termination of the office staff
there. The closing process began in June of 1999 and was completed by August of
that year. Other operating expenses, including outsourced data processing and
item processing service costs, increased by only $17,000, or 4.0%, for the
period ending September 30, 2000, as compared to the same period in 1999.
Income tax expense increased by $321,000 or 106.4%. This increase was
the result of an increase in income before taxes of $817,000 or 101.3%.
YEAR ENDED DECEMBER 31, 1999, COMPARED TO YEAR ENDED DECEMBER 31, 1998.
Earnings Performance. Net income was $811,000 in 1999, compared to
$379,000 in 1998, or $1.06 and $0.51 per diluted share, respectively. This
increase was primarily due to a $1.0 million, or 39.6%, increase in net interest
income from 1998 to 1999. Return on average assets was 1.04% in 1999, compared
with .72% in 1998. Return on average common shareholders' equity was 8.44% for
1999,
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versus 4.12% for 1998. Total assets increased to $86.4 million at December 31,
1999, a 28.7% increase from $67.2 million at December 31, 1998. Net loans grew
$19.6 million, or 45.4%, from 1998 to 1999.
Net Interest Income. Net interest income before provision for loan
losses was $3.5 million for 1999. Interest income increased 44.3%, to $6.3
million in 1999 from $4.4 million in 1998. In 1999, interest on loans increased
by $1.7 million and interest on investments increased by $660,000, or 418%, due
to the start of the investment portfolio late in 1998 with subsequent growth in
1999. Average loan volume was up by 62.9% or $21.0 million from 1998. The yield
on average interest-earning assets was 8.63% for 1999, compared with 8.95% in
1998. The drop in yield is due to a decreasing rate environment wherein variable
rate loans quickly impacted yields. Yields on average loans decreased to 9.74%,
from 10.61% in 1998. Interest expense increased 50.8%, to $2.8 million in 1999,
from $1.9 million in 1998. The higher interest expense was due to a higher
average volume of interest-bearing liabilities, which increased on average by
41.4% and average interest-bearing deposits which grew by $22.6 million, or
62.4%. The cost of average interest-bearing liabilities dropped to 4.76% from
5.13% during the same period. The result was a net increase of $940,000 in
interest expense in 1999.
Provision for Loan Losses. The provision for loan losses was $179,000
in 1999, compared to $156,000 in 1998. This increase was due to the increase in
total loans outstanding and was not reflective of a deterioration of credit
quality.
Noninterest Income. Noninterest income increased 74.6%, to $353,000 in
1999 from $202,000 in 1998. Service charges on deposit accounts were up 71% to
$122,000 due to the acquisition of new, high-activity accounts. During 1999
there was a gain on sale of $70,000 from land originally purchased for the
building of a branch office, but which was subsequently sold when we purchased
our Surprise branch facility. We realized similar gains from the sales of the
SBA guaranteed portions of selected commercial loans in both 1999 and 1998.
These amounted to $68,000 in 1999 and $69,000 in 1998. Other noninterest income
increased by $33,000, or 155.5%, from 1998 to 1999, due to increased ATM usage
fees from non-customers, including increased ATM processed transaction volumes.
Noninterest Expense. Noninterest expense was $2.4 million in 1999 and
$2.1 million in 1998, an increase of 15.6%. Of this increase, salary and
benefits expense increased by $183,000 due to the growth of lending and
operational staff plus some one-time expenses related to separation payments to
personnel affected by the Yuma branch closing in 1999, and net of deferred loan
origination costs which increased by $19,000 from 1998. Data processing costs
increased by $27,000 or 35.5% due to significant loan and deposit customer
account and transaction volume growth from 1998 through 1999. Other noninterest
expense increased by $65,000, or 16.9%, due primarily to the initiation of
meeting attendance fees to directors in 1999, which amounted to $32,000, or
49.2%, of the annual increase from 1998 to 1999. In 1998, we elected to adopt
AICPA Statement of Position ("SOP") No. 98-5, "Reporting on the Costs of
Start-up Activities." The SOP required us to expense the remaining unamortized
organizational and start-up costs incurred during 1995 and 1996. These expenses
totaled $74,000 and were charged to operations, net of income taxes of $29,000,
and reported as a cumulative effect of accounting change.
Income tax expense increased by $407,000 from 1998 to 1999. This
increase was the direct result of two significant factors. The first was the
increase in income before income taxes and the
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cumulative effect of accounting change of $795,000 or 167.0%. The second factor
was the reduced income tax expense position recorded in 1998 because of the
recording of a tax benefit of $113,000 due to the reversal of the deferred
income tax assets valuation allowance. The allowance was eliminated because of
the documented evidence in 1998 to support our ability to consistently generate
income from operations.
YEAR ENDED DECEMBER 31, 1998, COMPARED TO YEAR ENDED DECEMBER 31, 1997.
Earnings Performance. Net income was $379,000 in 1998, compared to
$8,000 in 1997 or $0.51 and $0.02 per diluted share, respectively. This increase
was due to a $1.15 million increase in net interest income. Return on average
assets was .72% in 1998 compared with 0.03% in 1997. Return on average
shareholders' equity was 4.12% for 1998, versus 0.13% for 1997. Total assets
increased to $67.2 million at December 31, 1998, a 75.6% increase from $38.2
million at December 31, 1997. Net loans grew $15.4 million from 1998 to 1997.
Net Interest Income. Net interest income before provision for loan
losses was $2.5 million for 1998, an increase of $1.2 million, or 84%, compared
with 1997. Interest income increased 100.0%, to $4.4 million in 1998 from $2.2
million in 1997. The 1998 interest income increase was in part due to an
increase of $17.2 million in average loan volume, which created $1.8 million of
additional interest income. In addition, earnings on federal funds sold
increased by $239,000 and interest on investment securities increased by
$158,000.
The yield on average interest-earning assets was 8.95% for 1998,
compared with 9.01% in 1997. The decrease in yield is attributed to a decreasing
interest rate environment. Yields on average loans decreased to 10.61% in 1998
from 10.87% in 1997. Interest expense increased 127%, to $1.9 million in 1998
from $818,000 in 1997. The increase was mainly due to higher volumes of
interest-bearing liabilities. Average interest-bearing liabilities grew by $20.4
million during 1998, while the cost of interest-bearing liabilities dropped to
5.13% from 5.19%. The net effect was $1.0 million of additional interest expense
in 1998.
Provision for Loan Losses. The provision for loan losses was $156,000
in 1998, compared to $201,000 in 1997. This decrease was due to the slower
growth of total loans outstanding. There were no nonperforming or impaired loans
in 1997 or 1998.
Noninterest Income. Noninterest income increased 53.0%, to $202,000 in
1998 from $132,000 in 1997. The increase was primarily comprised of $69,000 in
gains earned in 1998 from the sale of the SBA guaranteed portion of selected
commercial loans we originated. There were no loan sales in 1997.
Noninterest Expense. Total operating expenses were $2.1 million in 1998
and $1.3 million in 1997. Overall, noninterest expense was up 61.8% from 1997.
Salary and employee benefits increased by $505,000, or 63.3%, and also included
staff increases in loan administration and origination production. Occupancy and
equipment expenses increased by $144,000, or 83.4%, due to the two new branch
offices opened. Data processing costs increased by $32,000, a direct result of
our continued accelerated growth in customer loan and deposit accounts and
related transaction volumes. Other operating expenses increased by $113,000, or
41.4%, with the single largest increase being $26,000 for
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legal fees. Such fees were for specific transactions and contemplated dealings,
such as a land negotiation and sale agreement and a branch office operating
lease, which occurred during the conduct of normal banking operations during
1998 and were not recurring in nature.
We recorded income tax expense before the cumulative effect of an
accounting change for organization costs of $52,000 in 1998. There was no
realized income tax expense in 1997 due to the utilization of an operating loss
carryforward from 1996. During 1998, the remaining portion of the operating loss
carryforward was used. In addition, as a result of several factors such as our
consistent profitable trends, which began in late 1997 and extended through the
year ending December 31, 1998, and the projected budgetary growth in such
profitable trends, the valuation allowance of $113,000 was eliminated.
LIQUIDITY AND CAPITAL RESOURCES
First Capital Bank's liquidity management objective is to ensure the
ability to satisfy the cash flow requirements of depositors and borrowers. Our
primary source of funds has been customer deposits. Scheduled loan repayments
and bond maturities are a relatively stable source of funds, while deposit
inflows and unscheduled loan prepayments, which are influenced by changes in
interest rates for borrowers, returns available on other investments,
competition, economic conditions and other factors, are less reliable.
Borrowings such as federal funds purchases and FHLB-SF advances may be used on a
short-term basis to compensate for reductions in other sources of funds. FHLB-SF
advances may also be used on a longer term basis to support expanded lending
activities and to match the maturity or repricing intervals of other assets.
Our primary sources of funds are customers' deposits, proceeds from
principal and interest payments on loans, proceeds from maturities, sales and
repayments of investment securities, proceeds from sales of loans and FHLB-SF
advances. While maturities and scheduled amortization of loans are a relatively
predictable source of funds, loan prepayments and deposit flows are greatly
influenced by general interest rates, economic conditions and competition. We
use our resources primarily to fund existing and future loan commitments,
maturing certificates of deposit and demand deposit withdrawals, investments in
other interest-earning assets, maintenance of necessary liquidity and to meet
operating expenses.
Operating activities, as presented in the statement of cash flows in
the accompanying financial statements, provided $529,000, $467,000, $1,042,000,
and $204,000 in cash during the nine months ended September 30, 2000 and 1999,
and the years ended December 31, 1999 and 1998, respectively. Such increases
were principally generated from net income, provision for loan losses, and
depending on the period income taxes payable. Offsetting these were cash uses
for accrued interest receivable, gains on sales of assets, and depending on the
period income taxes payable. For the year ended December 31, 1997, we used
$36,000 of cash for operating activities which represented lower net income for
our first full year of operations.
Investing activities used $15,579,000, $23,146,000, $23,404,000,
$29,626,000, and $23,044,000 for the nine months ended September 30, 2000 and
1999, and the years ended December 31, 1999, 1998, and 1997, respectively. These
activities consisted principally of the net funding of loans, the
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purchases of premises and equipment and the purchases of investment securities
offset somewhat by both the maturities and sales of investment securities.
Financing activities provided $16,895,000, $17,891,000, $18,384,000,
$28,458,000, and $24,854,000 for the nine months ended September 30, 2000 and
1999, and the years ended December 31, 1999, 1998 and 1997, respectively. These
activities consisted of the solicitation and repayment of customer deposits, as
well as borrowings and repayments.
In light of these variables and to provide an adequate source of
funding for operations, we maintain a varying level of funds in overnight
deposits, as well as credit facilities with M&I Thunderbird Bank, Bankers Bank
of the West, and Zions Bank. These available credit arrangements provide for a
maximum borrowing capacity of up to $10,700,000 at September 30, 2000.
Furthermore, as a member of the FHLB of San Francisco, we have access to a
predetermined credit arrangement which at September 30, 2000, had a borrowing
limit based on 25 percent of our total assets but not to exceed our total
outstanding residential mortgage loan portfolio balance at the time of
borrowing. At September 30, 2000, we were a net seller of federal funds,
although during 2000 we have at times also been a net purchaser of federal
funds. Current advances from the FHLB-SF have been used to purchase short term
securities. We had outstanding term borrowings of $2,730,000 at September 30,
2000.
At September 30, 2000, we had $23,591,000 in outstanding commercial,
mortgage, credit lines and construction loan commitments. Management believes
that we have adequate sources to meet our funding requirements.
Management monitors our total risk-based capital, Tier I risk-based
capital and Tier I leverage capital ratios in order to assess compliance with
regulatory guidelines. At September 30, 2000, we exceeded the minimum risk-based
capital and leverage capital ratio capital requirements. Our total risk-based
capital, Tier I risk-based capital and Tier I leverage capital ratios were
15.8%, 14.9% and 11.7%, respectively, at September 30, 2000.
EFFECTS OF INFLATION AND CHANGING PRICES
The primary impact of inflation on our operations is increased
operating costs. Unlike most retail or manufacturing companies, virtually all of
the assets and liabilities of a financial institution such as First Capital Bank
are monetary in nature. As a result, the impact of interest rates on a financial
institution's performance is generally greater than the impact of inflation.
Although interest rates do not necessarily move in the same direction, or to the
same extent, as the prices of goods and services, increases in inflation
generally have resulted in increased interest rates. Over short periods of time,
interest rates may not move in the same direction, or in the same magnitude, as
inflation.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued Statement No.
133 ("Statement No. 133") "Accounting for Derivative Instruments and Hedging
Activities." Statement No. 133, which becomes effective for periods beginning
after January 1, 2001, requires business enterprises to recognize all
derivatives as either assets or liabilities in their financial statements and to
record such
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<PAGE> 121
instruments at fair value. Any change in fair value of such derivatives are
required to be recognized in the statement of income or comprehensive income in
the period of change. Management does not anticipate that Statement No. 133 will
have a significant impact on First Capital Bank's financial statements.
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<PAGE> 122
PRINCIPAL SHAREHOLDERS OF
FIRST CAPITAL BANK
The following table sets forth at December 1, 2000 the beneficial
ownership of First Capital Bank common stock of (i) each person known by First
Capital Bank to be the beneficial owner of more than 5% of the common stock,
(ii) each director and the chief executive officer of First Capital Bank and
(iii) all executive officers and directors as a group. The number of shares
beneficially owned by each person as indicated in the table is determined under
rules of the Securities and Exchange Commission, and the information is not
necessarily indicative of beneficial ownership for any other purpose.
<TABLE>
<CAPTION>
Number of shares
Name of beneficial owner(1) beneficially owned Percent of class
------------------------ ------------------ ----------------
<S> <C> <C>
FBOP Corporation (2)...................................... 71,943 9.9%
Harold F. Mosanko (3)..................................... 53,641 7.1
Ronald J. Mosanko (4)..................................... 27,944 3.8
Alan R. Kennedy (5)....................................... 14,542 2.0
Pierre H. Landreville (5)................................. 13,650 1.9
Thomas M. Longust (5)..................................... 11,812 1.6
Thomas J. Lauinger (5)(6)................................. 10,360 1.4
Lowell B. Lawson (5)(7)................................... 7,350 1.0
Ronald M. Norris (5)...................................... 4,524 0.6
All officers and directors as a group (11 persons) (8).... 230,904 29.3
</TABLE>
----------
(1) Unless otherwise indicated, the address of each of the above-named
shareholders is c/o First Capital Bank of Arizona, 2700 North Central Avenue,
Suite 210, Phoenix, Arizona 85004.
(2) The address of FBOP Corporation is 11 West Madison Street, Oak Park,
Illinois 60302.
(3) Includes 6,660 shares held by Double M Investment Co., L.L.P. of which
Harold F. Mosanko is a 50% beneficial owner, 1,470 shares held jointly by
Messrs. Mosanko and Mosanko and their mother, 105 shares held jointly by Harold
F. Mosanko and his son and 29,159 shares issuable upon exercise of options
exercisable within 60 days after December 1, 2000.
(4) Includes 6,660 shares held by Double M Investment Co., L.L.P. of which
Ronald Mosanko is a 50% beneficial owner, 1,470 shares held jointly by Messrs.
Mosanko and Mosanko and their mother, 2,991 shares held as trustee of three
trusts for the benefit of Ronald J. Mosanko's three daughters and 2,928 shares
issuable upon exercise of options exercisable within 60 days after December 1,
2000.
(5) Includes 1,050 shares issuable upon exercise of options exercisable within
60 days after December 1, 2000.
(6) Includes 630 shares held in trust for Mr. Lauinger's grandchildren.
(7) Does not include 2,806 shares held of record by relatives of Lowell B.
Lawson, as to which he disclaims beneficial interest.
(8) Includes 57,290 shares issuable upon exercise of options exercisable within
60 days after December 1, 2000.
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THE SPECIAL MEETING OF
THE SHAREHOLDERS OF FIRST CAPITAL BANK
GENERAL
First Capital Bank is furnishing this document to its shareholders in
connection with the solicitation of proxies by the First Capital Bank board of
directors for use at the special meeting of shareholders including any meeting
adjournments or postponements, to be held on , 2001 at 10:00 a.m.,
local time, at the Valley of the Sun meeting room at Hampton Inn, 160 West
Catalina Drive, Phoenix, Arizona 85013. In addition, CoBiz is furnishing this
joint proxy statement/prospectus to the shareholders of First Capital Bank as
its prospectus in connection with the offering and issuance of shares of its
common stock in the merger.
At the special meeting First Capital Bank shareholders will consider
and vote upon the proposal to approve the Merger Agreement pursuant to which
First Capital Bank will merge with and into a wholly owned subsidiary of CoBiz,
with the result that each share of First Capital Bank common stock will be
converted into shares of CoBiz common stock on the basis described in this joint
proxy statement/prospectus. CoBiz will pay cash in lieu of any fractional
shares.
The Merger Agreement is attached to this document as Annex A. For a
description of the Merger Agreement, see "The Merger" on page 25 and "The Merger
Agreement" on page 37.
RECORD DATE; VOTING POWER
If you were a First Capital Bank shareholder at the close of business
on ______________, 2001, you may vote at the meeting. As of _______________,
2001, there were __________ issued and outstanding shares of First Capital Bank
common stock held by approximately _________ shareholders of record. These
shareholders have one vote per share on any matter that may properly come before
the special meeting.
Brokers who hold shares of First Capital Bank common stock as nominees
will not have discretionary authority to vote such shares for the merger without
instructions from the beneficial owners. Any shares of First Capital Bank common
stock for which a broker has submitted an executed proxy but for which the
beneficial owner has not given instructions on voting to such broker are
referred to as "broker non-votes" and will count as votes against the proposal
to approve the Merger Agreement.
VOTE REQUIRED
The presence in person or by proxy of the holders of a majority of the
shares of First Capital Bank common stock outstanding on the record date will
constitute a quorum for the transaction of business at the special meeting.
First Capital Bank will count abstentions and broker non-votes for purposes of
establishing the presence of a quorum at the meeting.
The approval of the proposal to approve the Merger Agreement requires
the affirmative vote of a majority of the shares of First Capital Bank common
stock outstanding on the First Capital Bank
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record date. Because broker non-votes and abstentions are not affirmative
votes, they will have the effect of a vote against the proposal to approve the
Merger Agreement.
On the record date, the executive officers and directors of First
Capital Bank, including their affiliates, had voting power with respect to an
aggregate of ______ outstanding shares of First Capital Bank common stock or
approximately % of the shares of First Capital Bank common stock then
outstanding. We currently expect that such directors and officers will vote all
of their shares in favor of the proposal to approve the Merger Agreement.
CoBiz has entered into voting agreements with all officers and
directors of First Capital Bank pursuant to which they have agreed to vote all
shares of First Capital Bank common stock which they own in favor of the Merger
Agreement. On the record date, the persons who have signed voting agreements
owned an aggregate of ___________ outstanding shares of First Capital Bank
common stock or ____% of the outstanding First Capital Bank common stock. Such
agreements increase the likelihood that the Merger Agreement will be approved by
the shareholders of First Capital Bank.
RECOMMENDATION OF THE FIRST CAPITAL BANK BOARD OF DIRECTORS
The First Capital Bank board has unanimously approved and adopted the
Merger Agreement and the transactions contemplated thereby. THE FIRST CAPITAL
BANK BOARD BELIEVES THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF
FIRST CAPITAL BANK AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
SOLICITATION AND REVOCATION OF PROXIES
We have enclosed a form of proxy with this document. Shares represented
by a proxy will be voted at the special meeting as specified in the proxy.
Proxies that are properly signed and dated but that do not have voting
instructions will be voted by the proxy holders FOR the merger and in the
discretion of the proxy holder as to any other matter that may properly come
before the meeting.
First Capital Bank asks you to vote by completing, dating and signing
the accompanying proxy card and returning it promptly to First Capital Bank in
the enclosed, postage-paid envelope even if you plan to attend the meeting in
person. First Capital Bank shareholders should not send stock certificates with
their proxy cards.
If you are a First Capital Bank shareholder who delivers a properly
executed proxy, you may revoke such proxy at any time before its exercise. You
may revoke your proxy by:
o Filing with the Secretary of First Capital Bank prior to the
special meeting, at First Capital Bank's principal executive
offices, either a written revocation of such proxy or a duly
executed proxy bearing a later date.
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<PAGE> 125
o Attending the annual meeting and voting in person. Presence at
the meeting will not revoke your proxy unless and until you vote
in person.
o If your shares are held in the name of your broker, bank or other
nominee and you wish to vote in person, you must bring an account
statement and authorization from your nominee so that you can
vote your shares.
First Capital Bank is soliciting proxies for use at its special
meeting. First Capital Bank will bear the cost of solicitation of proxies from
its own shareholders. First Capital Bank and CoBiz will share equally the cost
of printing and mailing this document. In addition to solicitation by mail,
First Capital Bank directors, officers and employees may solicit proxies from
shareholders by telephone, in person or through other means. These persons will
not receive additional compensation, but they will be reimbursed for the
reasonable out-of-pocket expenses they incur in connection with this
solicitation. First Capital Bank also will make arrangements with brokerage
firms, fiduciaries and other custodians who hold shares of record to forward
solicitation materials to the beneficial owners of these shares. First Capital
Bank will reimburse these brokerage firms, fiduciaries and other custodians for
their reasonable out-of-pocket expenses in connection with this solicitation.
OTHER MATTERS
No matters other than those set forth in the notice of meeting that
accompanies this joint proxy statement/prospectus, and appropriate procedural
matters, may be considered at the special meeting. If other matters are properly
presented at the special meeting, the persons named in the proxy will have
authority to vote all proxies in accordance with their judgment on any such
matter.
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DESCRIPTION OF COBIZ CAPITAL STOCK
The authorized capital stock of CoBiz consists of 25,000,000 shares of
common stock, $.01 par value per share, and 2,000,000 shares of preferred stock,
$.01 par value per share, issuable in series. The common stock is quoted on the
Nasdaq National Market under the symbol "COBZ." The following description of the
capital stock of CoBiz is qualified in its entirety by reference to CoBiz's
articles of incorporation and bylaws, which are filed as exhibits to the
registration statement of which this joint proxy statement/prospectus is a part.
COMMON STOCK
As of December 13, 2000, 6,707,397 shares of CoBiz common stock were
outstanding and held of record by 187 persons. Each holder of common stock is
entitled to one vote for each share held of record on all matters on which
shareholders are entitled to vote; shareholders may not cumulate votes for the
election of directors. Subject to the preferences accorded to the holders of
outstanding shares of the preferred stock, if any, holders of common stock are
entitled to dividends at such times and in such amounts as the board of
directors may determine. CoBiz's ability to pay cash dividends in the future
largely depends on the amount of cash dividends paid to it by its subsidiary
Colorado Business Bank. Capital distributions, including dividends, by Colorado
Business Bank are subject to federal and state regulatory restrictions tied to
Colorado Business Bank's earnings and capital. Upon the dissolution, liquidation
or winding up of CoBiz, after payment of debts and expenses and payment of the
liquidation preference, plus any accrued dividends on any outstanding shares of
preferred stock, the holders of common stock will be entitled to receive all
remaining assets ratably in proportion to the number of shares held by them.
Holders of shares of common stock have no preemptive, subscription, conversion
or redemption rights and are not subject to further calls or assessments or
rights of redemption by CoBiz. The outstanding shares of common stock are, and
the shares of common stock to be issued in the merger will be, duly authorized,
validly issued, fully paid and nonassessable.
If the amendment to CoBiz's articles of incorporation changing the
voting requirements to allow most amendments to the articles of incorporation to
be approved by vote of a majority of the shares voted at a meeting at which a
quorum is present is approved, the rights of holders of CoBiz common stock may
then be modified by a vote of less than a majority of shares of CoBiz common
stock outstanding through further amendments to the articles of incorporation.
PREFERRED STOCK
CoBiz's board of directors has the authority, without approval of the
shareholders, to issue shares of preferred stock in one or more series and to
fix the number of shares and rights, preferences and limitations of each series.
Among the specific matters that may be determined by the board of directors are
the dividend rights, the redemption price, if any, the terms of a sinking fund,
if any, the amount payable in the event of any voluntary liquidation,
dissolution or winding up of the affairs of CoBiz, conversion rights, if any,
and voting powers, if any.
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One of the effects of the existence of authorized but unissued common
stock and undesignated preferred stock may be to enable the board of directors
to make more difficult, or to discourage, any attempt to obtain control of CoBiz
by means of a merger, tender offer, proxy contest or otherwise, and thereby to
protect the continuity of CoBiz's management. If, in the exercise of its
fiduciary obligations, the board of directors were to determine that a takeover
proposal was not in CoBiz's best interests, such shares could be issued by the
board of directors, without shareholder approval, in one or more transactions
that might prevent or make more difficult or costly the completion of the
takeover transaction by diluting the voting or other rights of the proposed
acquirer or insurgent shareholder group, by creating a substantial voting block
in institutional or other hands that might undertake to support the position of
the incumbent board of directors, by effecting an acquisition that might
complicate or preclude the takeover, or otherwise. In this regard, CoBiz's
articles of incorporation grant the board of directors broad power to establish
the rights and preferences of the authorized and unissued preferred stock, one
or more series of which could be issued entitling holders to, among other
things:
o Vote separately as a class on any proposed merger or
consolidation.
o Cast a proportionately larger vote together with the common stock
on any such transaction or for all purposes.
o Elect directors having terms of office or voting rights greater
than those of other directors.
o Convert preferred stock into a greater number of shares of common
stock or other securities.
o Demand redemption at a specified price under prescribed
circumstances related to a change of control.
o Exercise other rights designated to impede a takeover.
The issuance of shares of preferred stock pursuant to the board of directors'
authority described above may adversely effect the rights of holders of the
common stock.
In addition, certain other provisions of CoBiz's articles of
incorporation that are described below, either alone, in combination with each
other or with the existence of authorized by unissued capital stock, may have
the effect of discouraging, or making more difficult, an acquisition of CoBiz
deemed undesirable by the board of directors.
CERTAIN CHARTER AND BYLAW PROVISIONS
CoBiz's articles of incorporation and bylaws provide for a classified
board of directors. Two class III directors, Messrs. Ross and Burgamy, are
serving for three-year terms expiring at the 2001 annual meeting. Three class I
directors, Messrs. Bangert, Lorenz and Kipnis are serving for three-year
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<PAGE> 128
terms expiring at the 2002 annual meeting. Three class II directors, Messrs.
Rothman and Travis and Ms. Berkeley are serving for three-year terms expiring at
the 2003 annual meeting.
Following the merger, Mr. Mosanko will become a class III director, Mr.
Kennedy will become class I director of and Mr. Longust will become a class II
director, and each of their terms will expire in accordance with their class as
described above.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Corporate
Stock Transfer, Inc.
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<PAGE> 129
MATERIAL DIFFERENCES BETWEEN RIGHTS OF HOLDERS OF
COBIZ COMMON STOCK AND RIGHTS OF HOLDERS OF
FIRST CAPITAL BANK COMMON STOCK
CoBiz is a Colorado corporation and First Capital Bank is an Arizona
corporation. Upon completion of the merger, First Capital Bank shareholders will
become CoBiz shareholders. Their shares will be governed by CoBiz's articles of
incorporation and bylaws, and their rights as shareholders will become subject
to Colorado's corporation statute. Both Colorado and Arizona corporate law are
based primarily on the Model Business Corporation Act. However, there are
differences between the rights of shareholders under Colorado corporate law and
the articles of incorporation of CoBiz and the rights of shareholders under
Arizona corporate law and the articles of incorporation of First Capital Bank,
the most significant of which are described below.
Cumulative Voting. Shareholders of Arizona corporations are entitled to
cumulate their votes in the election of directors. Cumulative voting is not
required under Colorado corporate law or provided for in the articles of
incorporation of CoBiz. Cumulative voting in the election of directors entitles
each shareholder to cast a number of votes equal to the number of directors
being elected multiplied by the number of shares owned by the shareholder. The
shareholder may cast all of those votes for a single nominee or may distribute
them among two or more nominees. By casting all of the cumulative votes for a
single nominee, a shareholder who owns less than a majority of the outstanding
stock may be able to elect a representative to the board. Without cumulative
voting, each shareholder may cast one vote for each share owned for each nominee
for whom the shareholder wishes to vote. As a result, a shareholder who owns
less than a majority of the outstanding stock cannot elect a representative to
the board.
Preemptive Rights. First Capital Bank's articles of incorporation grant
its shareholders preemptive rights to purchase common stock, warrants or options
offered for sale by the corporation. The articles of incorporation of CoBiz do
not provide for preemptive rights. Preemptive rights allow shareholders to
purchase additional shares offered for sale by a corporation before they are
sold to other parties thereby permitting existing shareholders to maintain a
proportionate ownership interest in the corporation. Without such rights, the
sale of additional shares may dilute existing shareholders' ownership interests
and result in a loss of voting power in corporate matters.
Preferred Stock. CoBiz's articles of incorporation grant its board of
directors the authority, without approval of the shareholders, to issue shares
of authorized and unissued preferred stock in one or more series and to fix the
number of shares and the relative rights, preferences and limitations of each
series. Among the specific matters that may be determined by the CoBiz board of
directors are the dividend rights, the redemption price, if any, the terms of a
sinking fund, if any, the amount payable in the event of any voluntary
liquidation, dissolution or winding up of the affairs of CoBiz, conversion
rights, if any, and voting powers, if any. The articles of incorporation of
First Capital Bank do not grant its board of directors such authority. The
issuance of shares of preferred stock by the CoBiz board of directors may
adversely effect the rights of holders of CoBiz common stock without the need
for any vote or other approval of such holders.
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<PAGE> 130
DISSENTERS' RIGHTS
Under Chapter 13 of the Arizona Business Corporation Act, First Capital
Bank shareholders have the right to dissent from the merger and obtain payment
in cash of the "fair value" of their shares of First Capital Bank common stock.
For that purpose, "fair value" means the value of the shares of First Capital
Bank common stock immediately before the merger, excluding any appreciation or
depreciation in anticipation of the merger, unless exclusion is inequitable.
Chapter 13 is attached as Annex B to this joint proxy statement/ prospectus and
the following discussion, which is not a complete statement of Chapter 13, is
qualified in its entirety by reference to the full text of Chapter 13. Since the
right to dissent from the merger depends on strict compliance with Chapter 13,
if you wish to exercise that right, you should review the text of Chapter 13
carefully. In addition, if you wish to exercise such right, you should consider
consulting your attorney with respect to compliance with these statutory
procedures.
If you wish to assert dissenters' rights, you must (i) deliver to First
Capital Bank, before the vote on the merger is taken at the special meeting,
written notice of your intention to demand payment for your shares if the merger
is effectuated, and (ii) not vote your shares in favor of the merger. The
address to which your notice of intention to demand payment should be mailed is:
First Capital Bank of Arizona
2700 North Central Avenue
Phoenix, Arizona 85004
ATTN: David O. Denslow, Secretary
A VOTE IN FAVOR OF THE MERGER, IN PERSON OR BY PROXY, WILL CONSTITUTE A
WAIVER OF YOUR RIGHT TO EXERCISE DISSENTERS' RIGHTS. PROXIES THAT ARE PROPERLY
SIGNED AND DATED BUT THAT DO NOT HAVE VOTING INSTRUCTIONS WILL BE VOTED FOR THE
MERGER. The mere filing of a proxy directing a vote against the merger, or a
purported objection to the merger submitted on a proxy, does not constitute, and
will not be treated by First Capital Bank as, written notice of your intention
to exercise dissenter's rights within the meaning of Chapter 13.
CoBiz reserves the right to withdraw from the merger at any time prior
to completion if, under the terms of the Merger Agreement, the number of
dissenting shares requires payments in an aggregate amount that would prevent
CoBiz from accounting for the merger as a pooling-of-interests or would require
cash payments of more than 2% of the total merger consideration.
If the merger is approved by the First Capital Bank shareholders at the
special meeting, no later than 10 days after the special meeting, First Capital
Bank will give a written dissenters' notice to all shareholders who gave notice
of their intent to dissent before the vote and did not vote in favor of the
merger. The notice shall:
o Be accompanied by a form of payment demand that requires the
dissenting shareholder to certify whether or not the person
acquired beneficial ownership of the shares before the date of
the first announcement of the merger to news media or to
shareholders, which date will be provided in the notice.
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<PAGE> 131
o State where the payment demand and share certificates must be
sent.
o Set a date by which First Capital Bank must receive the payment
demand (at least thirty but not more than sixty days after the
date that the notice from First Capital Bank was delivered).
o Be accompanied by a copy of Article 2 of Chapter 13 of the
Arizona Business Corporation Act.
A First Capital Bank shareholder who is given a dissenters' notice and
who wishes to assert dissenters' rights must (i) cause First Capital Bank to
receive a payment demand by the date set forth in the dissenters' notice, and
(ii) deposit those certificates in accordance with the dissenters' notice. Any
shareholder who does not deliver a payment demand and deposit share certificates
by the date set forth in the dissenters' notice is not entitled to payment for
that shareholder's shares of First Capital Bank common stock under Chapter 13.
Upon receipt of a demand for payment from a dissenting shareholder,
First Capital Bank will pay each dissenter who has complied with Chapter 13 the
amount that First Capital Bank estimates to be the fair value of the dissenters'
shares, plus accrued interest. Certain financial statements of First Capital
Bank and other information as provided in Chapter 13 must accompany that
payment.
First Capital Bank may elect to withhold payment from a dissenter
unless the dissenter was the beneficial owner of the shares before the date of
the first announcement of the merger to news media or to shareholders.
If a dissenting shareholder believes that the amount paid or offered by
First Capital Bank is less than the fair value of that shareholder's shares of
First Capital Bank common stock, that shareholder may, within 30 days after
First Capital Bank made or offered payment, give written notice to First Capital
Bank of that shareholder's estimate of the fair value of that shareholder's
shares of First Capital Bank common stock and the interest due and may demand
payment of that estimate (less any payment previously made by First Capital
Bank) or reject the offer and demand payment of the fair value of the shares and
interest due. A DISSENTING SHAREHOLDER WAIVES THE RIGHT TO DEMAND PAYMENT OF
THAT ESTIMATE UNLESS THAT SHAREHOLDER GIVES FIRST CAPITAL BANK WRITTEN NOTICE OF
THAT ESTIMATE WITHIN THAT 30-DAY PERIOD.
If a dissenting shareholder and First Capital Bank cannot resolve a
demand for payment, First Capital Bank will, within 60 days after receiving the
payment demand, petition the superior court of Maricopa County to determine the
fair value of that shareholder's shares and accrued interest. If First Capital
Bank does not commence that proceeding within that 60-day period, it must pay
that shareholder the amount demanded.
If the appraising court finds that the fair market value of a
dissenter's shares does not materially exceed the amount offered by First
Capital Bank, it must order the dissenting shareholder to pay First Capital
Bank's costs in the proceeding and may assess against the dissenting shareholder
the fees and expenses of the attorneys and experts of First Capital Bank.
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EXPERTS
The consolidated financial statements of Colorado Business Bankshares,
Inc. as of December 31, 1999 and 1998, and for each of the years in the
three-year period ended December 31, 1999 included or incorporated by reference
in this document have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report which is included and incorporated by
reference in this document. Those statements have been included and incorporated
by reference in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The financial statements of First Capital Bank as of December 31, 1999
and 1998, and for each of the years in the three-year period ended December 31,
1999, have been included herein and in the registration statement in reliance
upon the report of S.R. Snodgrass, A.C., independent auditors, appearing
elsewhere herein, and upon authority of said firm as experts in accounting and
auditing.
LEGAL MATTERS
The validity of the shares of CoBiz common stock to be issued pursuant
to the terms of the Merger Agreement will be passed upon for CoBiz by Sherman &
Howard L.L.C., Denver, Colorado. The material federal income tax consequences of
the merger to First Capital Bank shareholders will be passed upon for First
Capital Bank by Jennings, Strouss & Salmon, P.L.C., Phoenix, Arizona.
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INDEX TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
AND HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Pro Forma Combined Financial Statements
Headnote to Unaudited Pro Forma Condensed Combined Financial Statements of
Colorado Business Bankshares....................................................... F-3
Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2000........ F-4
Unaudited Pro Forma Condensed Combined Statement of Income for the
Nine Months Ended September 30, 2000............................................... F-5
Unaudited Pro Forma Condensed Combined Statement of Income for the
Year Ended December 31, 1999....................................................... F-6
Unaudited Pro Forma Condensed Combined Statement of Income for the
Year Ended December 31, 1998....................................................... F-7
Unaudited Pro Forma Condensed Combined Statement of Income for the
Year Ended December 31, 1997....................................................... F-8
Historical Financial Statements of Colorado Business Bankshares, Inc.
Independent Auditors' Report......................................................... F-9
Consolidated Statements of Condition as of September 30, 2000 (unaudited)
and December 31, 1999 and 1998..................................................... F-10
Consolidated Statements of Income and Comprehensive Income for the Nine
Months Ended September 30, 2000 and 1999 (unaudited)
and the Years Ended December 31, 1999, 1998 and 1997............................... F-12
Consolidated Statements of Shareholders' Equity for the Nine Months
Ended September 30, 2000 (unaudited) and the Years Ended December 31,
1999, 1998 and 1997................................................................ F-14
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2000 and 1999 (unaudited) and the Years Ended December
31, 1999, 1998 and 1997............................................................ F-16
Notes to Consolidated Financial Statements for the Nine Months Ended
September 30, 2000 and 1999 (unaudited) and the Years Ended
December 31, 1999, 1998 and 1997.................................................. F-18
Historical Financial Statements of First Capital Bank of Arizona
Report of Independent Auditors....................................................... F-41
Balance Sheet as of December 31, 1999 and 1998....................................... F-42
Statement of Income for the Years Ended December 31, 1999, 1998 and 1997............. F-43
Statement of Changes in Stockholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997................................................... F-44
Statement of Cash Flows for the Years Ended December 31, 1999,
1998 and 1997...................................................................... F-45
Notes to Financial Statements........................................................ F-46
Balance Sheet as of September 30, 2000 (unaudited)................................... F-60
</TABLE>
F-1
<PAGE> 134
<TABLE>
<S> <C>
Statement of Income for the Nine Months Ended September 30,
2000 and 1999 (unaudited).......................................................... F-61
Statement of Cash Flows for the Nine Months Ended September 30,
2000 and 1999 (unaudited).......................................................... F-62
Notes to Interim Financial Statements................................................ F-63
</TABLE>
F-2
<PAGE> 135
HEADNOTE TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF
COLORADO BUSINESS BANKSHARES
The unaudited pro forma condensed combined balance sheet as of September 30,
2000, combines the historical consolidated balance sheets of Colorado Business
Bankshares, Inc. and First Capital Bank of Arizona as if the merger had been
effective September 30, 2000. The unaudited pro forma condensed statements of
income for the nine months ended September 30, 2000 and the years ended December
31, 1999, 1998, and 1997 present the combined results of operations of Colorado
Business Bankshares, Inc. and First Capital Bank of Arizona as if the companies
had been combined for the entire period. The unaudited pro forma condensed
combined financial information has been prepared from, and should be read in
conjunction with, the historical consolidated financial statements of Colorado
Business Bankshares, Inc. and First Capital Bank of Arizona.
The unaudited pro forma condensed combined financial information reflects the
application of the pooling-of-interests method of accounting for the merger.
Under this method of accounting, the recorded assets, liabilities, shareholders'
equity, income and expenses are combined and reflected at their historical
amounts.
The pro forma combined figures shown in the unaudited pro forma condensed
combined financial information are simply arithmetical combinations of Colorado
Business Bankshares, Inc.'s and First Capital Bank of Arizona's separate
financial results. You should not assume that Colorado Business Bankshares, Inc.
and First Capital Bank of Arizona would have achieved the pro forma combined
results if they had actually been combined during the periods presented.
The combined company expects to incur merger and other non-recurring expenses as
a result of the combination and to achieve merger benefits in the form of
operating cost savings. The pro forma earnings, which do not reflect any direct
costs or potential savings which are expected to result from the consolidation
of the operations of Colorado Business Bankshares, Inc. and First Capital Bank
of Arizona, are not indicative of the results of future operations. No
assurances can be given with respect to the ultimate level of expense savings.
Colorado Business Bankshares, Inc. and First Capital Bank of Arizona's combined
earnings per share and outstanding shares are calculated as the historical
Colorado Business Bankshares, Inc. weighted average shares plus the historical
First Capital Bank of Arizona weighted average shares adjusted for the assumed
conversion ratio of 2.422.
F-3
<PAGE> 136
COLORADO BUSINESS BANKSHARES, INC. AND FIRST CAPITAL BANK OF ARIZONA
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
COLORADO BUSINESS FIRST CAPITAL PRO FORMA PRO FORMA
BANKSHARES, INC. BANK OF ARIZONA ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 29,614,000 $ 2,998,000 $ -- $ 32,612,000
Federal funds sold 2,000,000 3,703,000 -- 5,703,000
------------- ------------- ------------- -------------
Total cash and cash equivalents 31,614,000 6,701,000 -- 38,315,000
------------- ------------- ------------- -------------
Investment securities available for sale 144,003,000 22,162,000 -- 166,165,000
Investment securities held to maturity 5,078,000 -- -- 5,078,000
Other investments 3,475,000 621,000 -- 4,096,000
------------- ------------- ------------- -------------
Total investments 152,556,000 22,783,000 -- 175,339,000
------------- ------------- ------------- -------------
Loans and leases, net 408,043,000 72,292,000 -- 480,335,000
Excess of cost over fair value of net assets acquired, net 3,914,000 -- -- 3,914,000
Investment in operating leases 2,660,000 -- -- 2,660,000
Premises and equipment, net 3,680,000 933,000 -- 4,613,000
Accrued interest receivable 3,049,000 1,015,000 -- 4,064,000
Deferred income taxes 2,361,000 297,000 -- 2,658,000
Other 2,414,000 80,000 -- 2,494,000
------------- ------------- ------------- -------------
TOTAL ASSETS $ 610,291,000 $ 104,101,000 $ -- $ 714,392,000
============= ============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing deposits $ 119,322,000 $ 13,002,000 $ -- $ 132,324,000
Interest bearing deposits 307,682,000 77,133,000 -- 384,815,000
------------- ------------- ------------- -------------
Total deposits 427,004,000 90,135,000 -- 517,139,000
Federal funds purchased 11,320,000 -- -- 11,320,000
Securities sold under agreements to repurchase 68,306,000 -- -- 68,306,000
Advances from Federal Home Loan Bank 35,910,000 2,730,000 -- 38,640,000
Accrued interest and other liabilities 3,122,000 193,000 -- 3,315,000
Company obligated mandatorily redeemable preferred securities --
of subsidiary trust holding solely subordinated debentures 20,000,000 -- -- 20,000,000
------------- ------------- ------------- -------------
Total liabilities 565,662,000 93,058,000 -- 658,720,000
Shareholders' Equity:
Common stock 67,000 3,648,000 (3,630,000) 85,000
Additional paid-in capital 30,074,000 6,672,000 3,630,000 40,376,000
Retained earnings 15,064,000 956,000 -- 16,020,000
Accumulated other comprehensive loss, net of income tax (576,000) (233,000) -- (809,000)
------------- ------------- ------------- -------------
Total shareholders' equity 44,629,000 11,043,000 -- 55,672,000
------------- ------------- ------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 610,291,000 $ 104,101,000 $ -- $ 714,392,000
============= ============= ============= =============
</TABLE>
F-4
<PAGE> 137
COLORADO BUSINESS BANKSHARES, INC. AND FIRST CAPITAL BANK OF ARIZONA
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
COLORADO BUSINESS FIRST CAPITAL PRO FORMA
BANKSHARES, INC. BANK OF ARIZONA COMBINED
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans and leases $ 27,196,000 $ 5,134,000 $ 32,330,000
Interest and dividends of investment securities 6,063,000 867,000 6,930,000
-------------- -------------- --------------
Total interest income 33,259,000 6,001,000 39,260,000
INTEREST EXPENSE:
Interest on deposits 11,114,000 2,784,000 13,898,000
Interest on short-term borrowings 2,640,000 59,000 2,699,000
Interest on mandatorily redeemable preferred securities of
subsidiary trust 544,000 -- 544,000
-------------- -------------- --------------
Total interest expense 14,298,000 2,843,000 17,141,000
NET INTEREST INCOME BEFORE PROVISION FOR
LOAN AND LEASE LOSSES 18,961,000 3,158,000 22,119,000
PROVISION FOR LOAN AND LEASE LOSSES 1,262,000 109,000 1,371,000
-------------- -------------- --------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN AND LEASE LOSSES 17,699,000 3,049,000 20,748,000
-------------- -------------- --------------
OTHER INCOME:
Service charges 857,000 121,000 978,000
Operating lease income 1,521,000 -- 1,521,000
Other income 1,140,000 117,000 1,257,000
-------------- -------------- --------------
Total other income 3,518,000 238,000 3,756,000
-------------- -------------- --------------
OTHER EXPENSE:
Salaries and employee benefits 6,878,000 951,000 7,829,000
Occupancy expenses, premises and equipment 2,492,000 263,000 2,755,000
Depreciation on leases 1,246,000 -- 1,246,000
Amortization of intangibles 332,000 -- 332,000
Other 2,099,000 449,000 2,548,000
-------------- -------------- --------------
Total other expense 13,047,000 1,663,000 14,710,000
-------------- -------------- --------------
INCOME BEFORE INCOME TAXES 8,170,000 1,624,000 9,794,000
PROVISION FOR INCOME TAXES 3,257,000 623,000 3,880,000
-------------- -------------- --------------
INCOME FROM CONTINUING OPERATIONS $ 4,913,000 $ 1,001,000 $ 5,914,000
============== ============== ==============
EARNINGS PER SHARE:
Basic $ 0.73 $ 1.37 $ 0.70
============== ============== ==============
Diluted $ 0.71 $ 1.30 $ 0.67
============== ============== ==============
CASH DIVIDENDS PER SHARE $ 0.16 $ -- $ 0.13
============== ============== ==============
</TABLE>
F-5
<PAGE> 138
COLORADO BUSINESS BANKSHARES, INC. AND FIRST CAPITAL BANK OF ARIZONA
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
COLORADO BUSINESS FIRST CAPITAL PRO FORMA
BANKSHARES, INC. BANK OF ARIZONA COMBINED
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans and leases $ 25,934,000 $ 5,246,000 $ 31,180,000
Interest and dividends of investment securities 6,475,000 1,054,000 7,529,000
-------------- -------------- --------------
Total interest income 32,409,000 6,300,000 38,709,000
INTEREST EXPENSE:
Interest on deposits 8,846,000 2,793,000 11,639,000
Interest on short-term borrowings 3,033,000 2,000 3,035,000
-------------- -------------- --------------
Total interest expense 11,879,000 2,795,000 14,674,000
NET INTEREST INCOME BEFORE PROVISION FOR
LOAN AND LEASE LOSSES 20,530,000 3,505,000 24,035,000
PROVISION FOR LOAN AND LEASE LOSSES 1,473,000 179,000 1,652,000
-------------- -------------- --------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN AND LEASE LOSSES 19,057,000 3,326,000 22,383,000
-------------- -------------- --------------
OTHER INCOME:
Service charges 1,152,000 122,000 1,274,000
Operating lease income 2,348,000 -- 2,348,000
Other income 1,062,000 242,000 1,304,000
Gain on sale of securities 48,000 (12,000) 36,000
-------------- -------------- --------------
Total other income 4,610,000 352,000 4,962,000
-------------- -------------- --------------
OTHER EXPENSE:
Salaries and employee benefits 8,124,000 1,486,000 9,610,000
Occupancy expenses, premises and equipment 2,831,000 367,000 3,198,000
Depreciation on leases 2,015,000 -- 2,015,000
Amortization of intangibles 442,000 -- 442,000
Other 2,334,000 555,000 2,889,000
-------------- -------------- --------------
Total other expense 15,746,000 2,408,000 18,154,000
-------------- -------------- --------------
INCOME BEFORE INCOME TAXES 7,921,000 1,270,000 9,191,000
PROVISION FOR INCOME TAXES 3,002,000 459,000 3,461,000
-------------- -------------- --------------
INCOME FROM CONTINUING OPERATIONS $ 4,919,000 $ 811,000 $ 5,730,000
============== ============== ==============
EARNINGS PER SHARE:
Basic $ 0.74 $ 1.17 $ 0.68
============== ============== ==============
Diluted $ 0.72 $ 1.12 $ 0.66
============== ============== ==============
CASH DIVIDENDS PER SHARE $ 0.10 $ -- $ 0.08
============== ============== ==============
</TABLE>
F-6
<PAGE> 139
COLORADO BUSINESS BANKSHARES, INC. AND FIRST CAPITAL BANK OF ARIZONA
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
COLORADO BUSINESS FIRST CAPITAL PRO FORMA
BANKSHARES, INC. BANK OF ARIZONA COMBINED
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans and leases $ 19,640,000 $ 3,508,000 $ 23,148,000
Interest and dividends of investment securities 4,259,000 858,000 5,117,000
--------------- --------------- ---------------
Total interest income 23,899,000 4,366,000 28,265,000
INTEREST EXPENSE:
Interest on deposits 6,812,000 1,854,000 8,666,000
Interest on short-term borrowings 1,765,000 -- 1,765,000
--------------- --------------- ---------------
Total interest expense 8,577,000 1,854,000 10,431,000
NET INTEREST INCOME BEFORE PROVISION FOR
LOAN AND LEASE LOSSES 15,322,000 2,512,000 17,834,000
PROVISION FOR LOAN AND LEASE LOSSES 1,188,000 156,000 1,344,000
--------------- --------------- ---------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN AND LEASE LOSSES 14,134,000 2,356,000 16,490,000
--------------- --------------- ---------------
OTHER INCOME:
Service charges 945,000 71,000 1,016,000
Operating lease income 2,370,000 -- 2,370,000
Other income 769,000 131,000 900,000
Gain on sale of securities 162,000 -- 162,000
--------------- --------------- ---------------
Total other income 4,246,000 202,000 4,448,000
--------------- --------------- ---------------
OTHER EXPENSE:
Salaries and employee benefits 6,836,000 1,303,000 8,139,000
Occupancy expenses, premises and equipment 1,868,000 317,000 2,185,000
Depreciation on leases 1,889,000 -- 1,889,000
Amortization of intangibles 442,000 -- 442,000
Other 2,098,000 462,000 2,560,000
--------------- --------------- ---------------
Total other expense 13,133,000 2,082,000 15,215,000
--------------- --------------- ---------------
INCOME BEFORE INCOME TAXES 5,247,000 476,000 5,723,000
PROVISION FOR INCOME TAXES 2,031,000 52,000 2,083,000
--------------- --------------- ---------------
INCOME FROM CONTINUING OPERATIONS $ 3,216,000 $ 424,000 $ 3,640,000
=============== =============== ===============
EARNINGS PER SHARE:
Basic $ 0.53 $ 0.55 $ 0.46
=============== =============== ===============
Diluted $ 0.51 $ 0.54 $ 0.45
=============== =============== ===============
CASH DIVIDENDS PER SHARE $ -- $ -- $ --
=============== =============== ===============
</TABLE>
F-7
<PAGE> 140
COLORADO BUSINESS BANKSHARES, INC. AND FIRST CAPITAL BANK OF ARIZONA
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
COLORADO BUSINESS FIRST CAPITAL PRO FORMA
BANKSHARES, INC. BANK OF ARIZONA COMBINED
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans and leases $ 14,171,000 $ 1,721,000 $ 15,892,000
Interest and dividends of investment securities 3,976,000 461,000 4,437,000
--------------- --------------- ---------------
Total interest income 18,147,000 2,182,000 20,329,000
INTEREST EXPENSE:
Interest on deposits 5,253,000 818,000 6,071,000
Interest on short-term borrowings 1,763,000 -- 1,763,000
--------------- --------------- ---------------
Total interest expense 7,016,000 818,000 7,834,000
NET INTEREST INCOME BEFORE PROVISION FOR
LOAN AND LEASE LOSSES 11,131,000 1,364,000 12,495,000
PROVISION FOR LOAN AND LEASE LOSSES 949,000 201,000 1,150,000
--------------- --------------- ---------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN AND LEASE LOSSES 10,182,000 1,163,000 11,345,000
--------------- --------------- ---------------
OTHER INCOME:
Service charges 830,000 52,000 882,000
Operating lease income 1,334,000 -- 1,334,000
Other income 1,057,000 80,000 1,137,000
Gain on sale of securities 82,000 -- 82,000
--------------- --------------- ---------------
Total other income 3,303,000 132,000 3,435,000
--------------- --------------- ---------------
OTHER EXPENSE:
Salaries and employee benefits 5,339,000 798,000 6,137,000
Occupancy expenses, premises and equipment 1,202,000 172,000 1,374,000
Depreciation on leases 1,168,000 -- 1,168,000
Amortization of intangibles 501,000 -- 501,000
Other 2,177,000 317,000 2,494,000
--------------- --------------- ---------------
Total other expense 10,387,000 1,287,000 11,674,000
--------------- --------------- ---------------
INCOME BEFORE INCOME TAXES 3,098,000 8,000 3,106,000
PROVISION FOR INCOME TAXES 1,245,000 -- 1,245,000
--------------- --------------- ---------------
INCOME FROM CONTINUING OPERATIONS $ 1,853,000 $ 8,000 $ 1,861,000
=============== =============== ===============
EARNINGS PER SHARE:
Basic $ 0.37 $ 0.02 $ 0.29
=============== =============== ===============
Diluted $ 0.36 $ 0.02 $ 0.29
=============== =============== ===============
CASH DIVIDENDS PER SHARE $ -- $ -- $ --
=============== =============== ===============
</TABLE>
F-8
<PAGE> 141
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Colorado Business Bankshares, Inc.
Denver, Colorado
We have audited the accompanying consolidated statements of condition of
Colorado Business Bankshares, Inc. and subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of income and comprehensive
income, shareholders' equity, and cash flows for the three years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company as of
December 31, 1999 and 1998, and the results of their operations and their cash
flows for the three years ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
February 25, 2000
Denver, Colorado
F-9
<PAGE> 142
COLORADO BUSINESS BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CONDITION
SEPTEMBER 30, 2000 (UNAUDITED) DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, DECEMBER
2000 1999 1998
(UNAUDITED)
<S> <C> <C> <C>
Cash and due from banks $ 29,614,000 $ 18,687,000 $ 20,058,000
Federal funds sold 2,000,000 -- --
------------ ------------ ------------
Total cash and cash equivalents 31,614,000 18,687,000 20,058,000
------------ ------------ ------------
Investment securities available for sale (cost of
$144,934,000 (unaudited), $102,949,000 and
$95,994,000, respectively) 144,003,000 101,456,000 96,463,000
Investment securities held to maturity (fair value
of $5,104,000 (unaudited), $5,648,000 and
$9,481,000, respectively) 5,078,000 5,620,000 9,370,000
Other investments 3,475,000 2,845,000 2,104,000
------------ ------------ ------------
Total investments 152,556,000 109,921,000 107,937,000
------------ ------------ ------------
Loans and leases, net 408,043,000 346,094,000 223,279,000
Excess of cost over fair value of net assets
acquired, net 3,914,000 4,243,000 4,682,000
Investment in operating leases 2,660,000 4,047,000 4,180,000
Premises and equipment, net 3,680,000 3,606,000 2,884,000
Accrued interest receivable 3,049,000 2,167,000 1,597,000
Deferred income taxes 2,361,000 2,192,000 934,000
Other 2,414,000 1,052,000 999,000
------------ ------------ ------------
TOTAL ASSETS $610,291,000 $492,009,000 $366,550,000
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE> 143
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND SEPTEMBER 30, DECEMBER
SHAREHOLDERS' EQUITY 2000 1999 1998
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES:
Deposits:
Demand $ 119,322,000 $ 106,492,000 $ 95,169,000
NOW and money market 164,003,000 148,685,000 101,455,000
Savings 5,663,000 5,896,000 6,931,000
Certificates of deposit 138,016,000 122,256,000 69,473,000
------------- ------------- -------------
Total deposits 427,004,000 383,329,000 273,028,000
Federal funds purchased 11,320,000 1,300,000 3,500,000
Securities sold under agreements to repurchase 68,306,000 33,053,000 24,956,000
Advances from the Federal Home Loan Bank 35,910,000 30,980,000 26,120,000
Accrued interest and other liabilities 3,122,000 2,996,000 1,774,000
Company obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely subordinated debentures 20,000,000 -- --
------------- ------------- -------------
Total liabilities 565,662,000 451,658,000 329,378,000
MINORITY INTEREST
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Cumulative preferred, $.01 par value; 2,000,000
shares authorized; None outstanding
Common, $.01 par value; 25,000,000 shares
authorized; 6,706,347 (unaudited), 6,674,659
and 6,673,468 issued and outstanding, respectively 67,000 67,000 67,000
Additional paid-in capital 30,074,000 29,994,000 29,839,000
Retained earnings 15,064,000 11,224,000 6,972,000
Accumulated other comprehensive (loss)
income, net of income tax of ($355,000)
(unaudited), ($559,000) and $172,000,
respectively (576,000) (934,000) 294,000
------------- ------------- -------------
Total shareholders' equity 44,629,000 40,351,000 37,172,000
------------- ------------- -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 610,291,000 $ 492,009,000 $ 366,550,000
============= ============= =============
</TABLE>
F-11
<PAGE> 144
COLORADO BUSINESS BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED) AND THE
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
2000 1999 1999 1998 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans and leases $27,196,000 $18,264,000 $25,934,000 $19,640,000 $14,171,000
Interest on investments 6,063,000 4,777,000 6,475,000 4,259,000 3,976,000
----------- ----------- ----------- ----------- -----------
Total interest income 33,259,000 23,041,000 32,409,000 23,899,000 18,147,000
INTEREST EXPENSE:
Interest on deposits 11,114,000 6,036,000 8,846,000 6,812,000 5,253,000
Interest on short-term borrowings 2,640,000 2,131,000 3,008,000 1,464,000 1,031,000
Interest on note payable -- -- 25,000 301,000 732,000
Interest on mandatorily redeemable
preferred securities of subsidiary
trust 544,000 -- -- -- --
----------- ----------- ----------- ----------- -----------
Total interest expense 14,298,000 8,167,000 11,879,000 8,577,000 7,016,000
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN AND LEASE
LOSSES 18,961,000 14,874,000 20,530,000 15,322,000 11,131,000
PROVISION FOR LOAN AND
LEASE LOSSES 1,262,000 1,006,000 1,473,000 1,188,000 949,000
----------- ----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN AND LEASE
LOSSES 17,699,000 13,868,000 19,057,000 14,134,000 10,182,000
----------- ----------- ----------- ----------- -----------
OTHER INCOME:
Service charges 857,000 847,000 1,152,000 945,000 830,000
Operating lease income 1,521,000 1,742,000 2,348,000 2,370,000 1,334,000
Other income 1,140,000 764,000 1,110,000 931,000 1,139,000
----------- ----------- ----------- ----------- -----------
Total other income 3,518,000 3,353,000 4,610,000 4,246,000 3,303,000
----------- ----------- ----------- ----------- -----------
OTHER EXPENSE:
Salaries and employee benefits 6,878,000 6,142,000 8,124,000 6,836,000 5,339,000
Occupancy expenses, premises and
equipment 2,492,000 2,001,000 2,831,000 1,868,000 1,202,000
Depreciation on leases 1,246,000 1,487,000 2,015,000 1,889,000 1,168,000
Amortization of intangibles 332,000 331,000 442,000 442,000 501,000
Other 2,099,000 1,721,000 2,334,000 2,098,000 2,177,000
----------- ----------- ----------- ----------- -----------
Total other expense 13,047,000 11,682,000 15,746,000 13,133,000 10,387,000
----------- ----------- ----------- ----------- -----------
</TABLE>
(Continued)
F-12
<PAGE> 145
COLORADO BUSINESS BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED) AND THE
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
2000 1999 1999 1998 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME BEFORE INCOME TAXES $ 8,170,000 $ 5,539,000 $ 7,921,000 $ 5,247,000 $ 3,098,000
PROVISION FOR INCOME TAXES 3,257,000 2,117,000 3,002,000 2,031,000 1,245,000
----------- ----------- ----------- ----------- -----------
NET INCOME 4,913,000 3,422,000 4,919,000 3,216,000 1,853,000
----------- ----------- ----------- ----------- -----------
UNREALIZED APPRECIATION
(DEPRECIATION) ON AVAILABLE
FOR SALE SECURITIES, net of tax 358,000 (1,086,000) (1,228,000) 184,000 20,000
----------- ----------- ----------- ----------- -----------
COMPREHENSIVE INCOME $ 5,271,000 $ 2,336,000 $ 3,691,000 $ 3,400,000 $ 1,873,000
=========== =========== =========== =========== ===========
EARNINGS PER SHARE:
Basic $ 0.73 $ 0.51 $ 0.74 $ 0.53 $ 0.37
=========== =========== =========== =========== ===========
Diluted $ 0.71 $ 0.50 $ 0.72 $ 0.51 $ 0.36
=========== =========== =========== =========== ===========
CASH DIVIDENDS PER SHARE $ 0.16 $ 0.05 $ 0.10 -- --
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements. (Concluded)
F-13
<PAGE> 146
COLORADO BUSINESS BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) AND THE
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL PREFERRED STOCK
SHARES PAID-IN SHARES
ISSUED AMOUNT CAPITAL ISSUED AMOUNT
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 3,771,885 $ 38,000 $ 7,965,000 -- $ --
ISSUANCE OF COMMON STOCK 1,102,725 11,000 3,967,000 -- --
ISSUANCE OF PREFERRED STOCK -- -- -- 1,500 1,500,000
OPTIONS EXERCISED 358 -- 1,000 -- --
DIVIDENDS PAID-PREFERRED ($77.33 per share) -- -- -- -- --
NET CHANGE IN UNREALIZED APPRECIATION
ON AVAILABLE FOR SALE SECURITIES, net of
income taxes of $12,000 -- -- -- -- --
NET INCOME -- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 4,874,968 49,000 11,933,000 1,500 1,500,000
ISSUANCE OF COMMON STOCK 1,610,000 16,000 17,508,000 -- --
REDEMPTION OF PREFERRED STOCK -- -- -- (1,500) (1,500,000)
OPTIONS EXERCISED 188,500 2,000 398,000 -- --
DIVIDENDS PAID-PREFERRED ($51.29 per share) -- -- -- -- --
NET CHANGE IN UNREALIZED APPRECIATION
ON AVAILABLE FOR SALE SECURITIES, net of
income taxes of $110,000 -- -- -- -- --
NET INCOME -- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 6,673,468 67,000 29,839,000 -- --
<CAPTION>
ACCUMULATED
OTHER
RETAINED COMPREHENSIVE
EARNINGS INCOME TOTAL
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1997 $ 2,096,000 $ 90,000 $ 10,189,000
ISSUANCE OF COMMON STOCK -- -- 3,978,000
ISSUANCE OF PREFERRED STOCK -- -- 1,500,000
OPTIONS EXERCISED -- -- 1,000
DIVIDENDS PAID-PREFERRED ($77.33 per share) (116,000) -- (116,000)
NET CHANGE IN UNREALIZED APPRECIATION
ON AVAILABLE FOR SALE SECURITIES, net of
income taxes of $12,000 -- 20,000 20,000
NET INCOME 1,853,000 -- 1,853,000
------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 3,833,000 110,000 17,425,000
ISSUANCE OF COMMON STOCK -- -- 17,524,000
REDEMPTION OF PREFERRED STOCK -- -- (1,500,000)
OPTIONS EXERCISED -- -- 400,000
DIVIDENDS PAID-PREFERRED ($51.29 per share) (77,000) -- (77,000)
NET CHANGE IN UNREALIZED APPRECIATION
ON AVAILABLE FOR SALE SECURITIES, net of
income taxes of $110,000 -- 184,000 184,000
NET INCOME 3,216,000 -- 3,216,000
------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 6,972,000 294,000 37,172,000
</TABLE>
(Continued)
F-14
<PAGE> 147
COLORADO BUSINESS BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) AND THE
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL PREFERRED STOCK
SHARES PAID-IN SHARES RETAINED
ISSUED AMOUNT CAPITAL ISSUED AMOUNT EARNINGS
<S> <C> <C> <C> <C> <C> <C>
TAX EFFECT ON EXERCISE OF NON-
QUALIFIED STOCK OPTIONS -- $ -- $ 146,000 -- $ -- $ --
OPTIONS EXERCISED 1,191 -- 9,000 -- -- --
DIVIDENDS PAID - COMMON
($ .10) PER SHARE -- -- -- -- -- (667,000)
NET CHANGE IN UNREALIZED DEPRECIATION
ON AVAILABLE FOR SALE SECURITIES, net of
income taxes of ($731,000) -- -- -- -- -- --
NET INCOME -- -- -- -- -- 4,919,000
------------ ------------ ------------ --- ---- ------------
BALANCE, DECEMBER 31, 1999 6,674,659 67,000 29,994,000 -- -- 11,224,000
OPTIONS EXERCISED (UNAUDITED) 31,688 -- 80,000 -- -- --
DIVIDENDS PAID-COMMON ($.16 per share)
(unaudited) -- -- -- -- -- (1,073,000)
NET CHANGE IN UNREALIZED APPRECIATION
ON AVAILABLE FOR SALE SECURITIES, net of
income taxes of $(213,000) (unaudited) -- -- -- -- -- --
NET INCOME (unaudited) -- -- -- -- -- 4,913,000
------------ ------------ ------------ --- ---- ------------
BALANCE, SEPTEMBER 30, 2000 (unaudited) 6,706,347 $ 67,000 $ 30,074,000 -- $ -- $ 15,064,000
============ ============ ============ === ==== ============
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME TOTAL
<S> <C> <C>
TAX EFFECT ON EXERCISE OF NON-
QUALIFIED STOCK OPTIONS $ -- $ 146,000
OPTIONS EXERCISED -- 9,000
DIVIDENDS PAID - COMMON
($.10) PER SHARE -- (667,000)
NET CHANGE IN UNREALIZED DEPRECIATION
ON AVAILABLE FOR SALE SECURITIES, net of
income taxes of ($731,000) (1,228,000) (1,228,000)
NET INCOME -- 4,919,000
------------ ------------
BALANCE, DECEMBER 31, 1999 (934,000) 40,351,000
OPTIONS EXERCISED (UNAUDITED) -- 80,000
DIVIDENDS PAID-COMMON ($.16 per share)
(unaudited) -- (1,073,000)
NET CHANGE IN UNREALIZED APPRECIATION
ON AVAILABLE FOR SALE SECURITIES, net of
income taxes of $(213,000) (unaudited) 358,000 358,000
NET INCOME (unaudited) -- 4,913,000
------------ ------------
BALANCE, SEPTEMBER 30, 2000 (unaudited) $ (576,000) $ 44,629,000
============ ============
</TABLE>
(Concluded)
F-15
<PAGE> 148
COLORADO BUSINESS BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED) AND THE
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
2000 1999 1999 1998 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 4,913,000 $ 3,422,000 $ 4,919,000 $ 3,216,000 $ 1,853,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Net amortization (accretion) on securities 68,000 170,000 195,000 248,000 (988,000)
Depreciation and amortization 2,440,000 2,531,000 3,447,000 2,964,000 2,141,000
Provision for loan and lease losses 1,262,000 1,006,000 1,473,000 1,188,000 949,000
Deferred income taxes (374,000) (152,000) (527,000) (264,000) (341,000)
Gain on sale of securities -- (44,000) (44,000) (162,000) --
(Gain) loss on sale of premises and
equipment (32,000) (1,000) (4,000) 30,000 --
Changes in:
Accrued interest receivable (882,000) (436,000) (570,000) (266,000) (217,000)
Other assets (431,000) (188,000) (53,000) 620,000 (1,962,000)
Accrued interest and other liabilities 126,000 219,000 1,368,000 (18,000) 694,000
------------- ------------- ------------- ------------- -------------
Net cash provided by operating
activities 7,090,000 6,527,000 10,204,000 7,556,000 2,129,000
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net change in other investments (630,000) (645,000) (741,000) 119,000 --
Purchase of available for sale securities (60,211,000) (35,438,000) (48,851,000) (86,941,000) (25,809,000)
Purchase of held to maturity securities -- -- -- -- (2,024,000)
Maturities of held to maturity securities 535,000 2,996,000 3,740,000 5,503,000 13,966,000
Proceeds from maturities and sale of
available for sale securities 18,161,000 35,785,000 41,759,000 32,374,000 13,662,000
Loan and lease originations and
repayments, net (63,212,000) (82,920,000) (126,409,000) (63,431,000) (55,513,000)
Proceeds from sale of real estate acquired
through foreclosure -- -- -- -- 109,000
Purchase of premises and equipment (967,000) (1,593,000) (1,724,000) (2,579,000) (370,000)
Proceeds from sale of premises and
equipment 207,000 114,000 251,000 573,000 106,000
------------- ------------- ------------- ------------- -------------
Net cash used in investing activities (106,117,000) (81,701,000) (131,975,000) (114,382,000) (55,873,000)
</TABLE>
(Continued)
F-16
<PAGE> 149
COLORADO BUSINESS BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED) AND THE
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
2000 1999 1999 1998 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase in demand, NOW,
money market, and savings
accounts $ 27,915,000 $ 34,518,000 $ 57,518,000 $ 53,351,000 $ 32,348,000
Net increase (decrease) in
certificates of deposit 15,760,000 25,387,000 52,783,000 (1,381,000) 33,400,000
Net increase (decrease) in
federal funds purchased 10,020,000 5,300,000 (2,200,000) 3,500,000 (6,226,000)
Net increase in securities sold
under agreements to repurchase 35,253,000 9,417,000 8,097,000 11,932,000 9,602,000
Advances from the Federal Home
Loan Bank 65,800,000 65,000,000 110,400,000 24,000,000 --
Repayment of Federal Home Loan
Bank advances (60,870,000) (59,070,000) (105,540,000) (1,140,000) (1,140,000)
Payment on notes payable -- -- -- (7,500,000) (1,000,000)
Proceeds from issuance of mandatorily
redeemable preferred securities of
subsidiary trust 20,000,000 -- -- -- --
Proceeds from issuance of common
stock -- -- -- 17,524,000 3,978,000
Net increase in debt issuance costs (931,000) -- -- -- --
Dividends paid on common stock (1,073,000) (334,000) (667,000) -- --
Dividends paid on preferred stock -- -- -- (77,000) (116,000)
Proceeds from options exercised 80,000 -- 9,000 400,000 1,000
Redemption of preferred stock -- -- -- (1,500,000) --
------------- ------------- ------------- ------------- -------------
Net cash provided by financing
activities 111,954,000 80,218,000 120,400,000 99,109,000 70,847,000
------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 12,927,000 5,044,000 (1,371,000) (7,717,000) 17,103,000
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 18,687,000 20,058,000 20,058,000 27,775,000 10,672,000
------------- ------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 31,614,000 $ 25,102,000 $ 18,687,000 $ 20,058,000 27,775,000
============= ============= ============= ============= =============
SUPPLEMENTAL DISCLOSURES
OF CASH INFORMATION:
Cash paid during the year for:
Interest $ 14,323,000 $ 7,972,000 $ 11,446,000 $ 8,549,000 $ 6,910,000
============= ============= ============= ============= =============
Income taxes $ 4,265,000 $ 2,171,000 $ 2,889,000 $ 2,542,000 $ 1,455,000
============= ============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements. (Concluded)
F-17
<PAGE> 150
COLORADO BUSINESS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED) AND THE
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
--------------------------------------------------------------------------------
Insofar as these consolidated financial statements and notes relate to September
30, 2000 and for the nine months periods ended September 30, 2000 and 1999, they
are unaudited. In the opinion of management, such unaudited consolidated
financial statements and notes thereto reflect all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of
consolidated financial position, results of operations and cash flows for such
periods. The consolidated results of operations for the nine months ended
September 30, 2000 are not necessarily indicative of the consolidated results of
operations that may be expected for the year ending December 31, 2000.
1. SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting practices of Colorado Business Bankshares,
Inc. ("Parent"), its wholly-owned subsidiary, the Colorado Business Bank,
N.A. ("Bank"), its wholly-owned business trust, and its 80% owned
equipment leasing subsidiary, Colorado Business Leasing, Inc.
("Leasing"), collectively referred to as the "Company," conform to
generally accepted accounting principles and prevailing practices within
the banking industry.
The Bank is a commercial banking institution with eight locations in the
Denver metropolitan area, and one in Edwards, Colorado. Leasing provides
equipment leasing primarily to middle-market companies. In preparing its
financial statements, management of the Company is required to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
significantly from those estimates. Material estimates that are
particularly susceptible to significant changes in the near-term relate
to the determination of the allowance for loan and lease losses, the
valuation of real estate acquired through foreclosures or in satisfaction
of loans, lease residuals and valuation of property under operating
leases. The following is a summary of the Company's significant
accounting and reporting policies.
CONSOLIDATION - The consolidated financial statements include the
accounts of the Parent, the Bank and Leasing. Intercompany balances and
transactions are eliminated in consolidation. Losses attributable to
minority shareholders of Leasing have exceeded their share of equity of
Leasing.
CASH AND DUE FROM BANKS - The Company considers all liquid investments
with original maturities of three months or less to be cash equivalents.
INVESTMENTS - The Company classifies its investment securities as held to
maturity, available for sale, or trading according to management's
intent. As of December 31, 1999 and 1998, the Company had no trading
securities.
a. Investment Securities Held to Maturity - Bonds, notes and
debentures for which the Company has the positive intent and
ability to hold to maturity are reported at cost, adjusted for
premiums and discounts.
F-18
<PAGE> 151
b. Investment Securities Available for Sale - Available for sale
securities consist of bonds, notes, and debentures not classified
as held-to-maturity securities and are reported at fair market
value as determined by quoted market prices. Unrealized holding
gains and losses, net of tax, are reported as a net amount in
accumulated other comprehensive income (loss) until realized.
Premiums and discounts are recognized in interest income using the
level-yield method over the period to maturity. Declines in the fair
value of individual held to maturity and available for sale securities
below their cost that are other than temporary are recorded as
write-downs of the individual securities to their fair value and the
related write-downs are included in earnings as realized losses. Gains
and losses on disposal of securities are determined using the
specific-identification method.
Other investments, including primarily Federal Home Loan Bank and Federal
Reserve Bank stock, are accounted for under the cost method.
LOANS AND LEASES - Loans and leases that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off
are reported at their outstanding principal balance adjusted for any
charge-offs, the allowance for loan and lease losses, deferred fees or
costs on originated loans and leases, and unamortized premiums or
discounts on purchased loans. Loan fees and certain costs of originating
loans and leases are deferred and the net amount is amortized over the
contractual life of the related loans and leases. Interest is accrued and
credited to income daily based on the principal balance outstanding. The
accrual of interest income is generally discontinued when a loan or lease
becomes 90 days past due as to principal and interest. When a loan is
designated as nonaccrual, the current period's accrued interest
receivable is charged against current earnings while any portions
applicable to prior periods are charged against the allowance for loan
and lease losses. Interest payments received on nonaccrual loans are
applied to the principal balance of the loan. Management may elect to
continue the accrual of interest when the loan is in the process of
collection and the realizable value of collateral is sufficient to cover
the principal balance and accrued interest.
NET INVESTMENT IN DIRECT FINANCING LEASES - The Company has entered into
various lease agreements which are accounted for as direct financing
leases, in accordance with Statement of Financial Accounting Standards
No. 13.
Under this method, the present value of the future lease payments, the
present value of the unguaranteed residual and initial direct costs are
recorded as assets, which are equal to the fair value of the equipment
leased. In each period, initial direct costs are amortized and interest
income, which is included in income from direct financing leases, is
recognized as a constant percentage return on the net investment in the
lease.
Residual values are established at lease inception equal to the estimated
value, as determined by the Company, to be received from the equipment
following termination of the initial lease. In estimating such values,
the Company considers all relevant information and circumstances
regarding the equipment and the lessee. Any permanent reduction in the
estimated residual value of lease property is charged to operations in
the period it occurs.
ALLOWANCE FOR LOAN AND LEASE LOSSES - The allowance for loan and lease
losses is established as losses are estimated to have occurred through a
provision for loan and lease losses charged to earnings. Loan losses are
charged against the allowance when management believes the
uncollectibilty of a loan balance is confirmed. Subsequent recoveries, if
any, are credited to the allowance.
F-19
<PAGE> 152
The allowance for loan losses is evaluated on a regular basis by
management and is based upon management's periodic review of the
collectibilty of the loans in light of historical experience, the nature
and volume of the loan portfolio, adverse situations that may affect the
borrower's ability to repay, estimated value of any underlying collateral
and prevailing economic conditions. This evaluation is inherently
subjective as it requires estimates that are susceptible to significant
revision as more information becomes available.
A loan is considered impaired when, based on current information and
events, it is probable that the Company will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Factors considered by management
in determining impairment include payment status, collateral value, and
the probability of collecting scheduled principal and interest payments
when due. Loans that experience insignificant payment delays and payment
shortfalls generally are not classified as impaired. Management
determines the significance of payment delays and payment shortfalls on a
case-by-case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the delay,
the reasons for the delay, the borrower's prior payment record, and the
amount of the shortfall in relation to the principal and interest owed.
Impairment is measured on a loan by loan basis by either the present
value of expected future cash flows discounted at the loan's effective
interest rate, the loan's obtainable market price, or the fair value of
the collateral if the loan is collateral dependent.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED - Excess of cost
over fair value of net assets acquired is amortized by the straight-line
method over 15 years. The Company reviews such assets for impairment at
least annually.
INVESTMENT IN OPERATING LEASES - The Company has entered into various
equipment leases accounted for as operating leases in accordance with
Statement of Financial Accounting Standards No. 13. The equipment, which
is reported as investment in operating leases, is depreciated over the
estimated useful life or lease term, if shorter.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost less
accumulated depreciation and amortization, which is calculated by the
straight-line method over the estimated useful lives of the respective
assets as follows:
Furniture, fixtures and equipment 3 to 10 years
Leasehold improvements are capitalized and amortized using the
straight-line method over the terms of the respective leases or the
estimated useful lives of the improvements, whichever is shorter.
REAL ESTATE ACQUIRED THROUGH FORECLOSURE - Assets acquired by foreclosure
or in settlement of debt and held for sale are valued at estimated fair
value as of the date of foreclosure, and a related valuation allowance is
provided for estimated costs to sell the assets. Management periodically
evaluates the value of foreclosed assets held for sale and increases the
valuation allowance for any subsequent declines in fair value less
selling costs. Subsequent declines in value are charged to operations.
INCOME TAXES - A deferred income tax liability or asset is recognized for
temporary differences which exist in the recognition of certain income
and expense items for financial statement reporting purposes in periods
different than for tax reporting purposes. The provision for income taxes
is based on the amount of current and deferred income taxes payable or
refundable at the date of the financial statements as measured by the
provisions of current tax laws.
F-20
<PAGE> 153
EARNINGS PER SHARE - 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 share include the number of additional
common shares that would be outstanding if the potential dilutive common
shares and common share equivalents had been issued at the beginning of
the year.
RECLASSIFICATIONS - Certain reclassifications have been made to the 1998
and 1997 financial statements to conform with the 1999 presentation.
RECENT ACCOUNTING PRONOUNCEMENTS - SFAS No. 133, "Accounting 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 the
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.
2. INVESTMENTS
The amortized cost and estimated fair values of investment securities are
summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
SEPTEMBER 30, 2000 (UNAUDITED) COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES:
Mortgage-backed securities $132,796,000 $ 416,000 $ 1,021,000 $132,191,000
U.S. treasury 3,531,000 -- 37,000 3,494,000
Obligations of states and
political subdivisions 975,000 34,000 -- 1,009,000
U.S. government agencies 7,632,000 -- 323,000 7,309,000
------------ ------------ ------------ ------------
$144,934,000 $ 450,000 $ 1,381,000 $144,003,000
============ ============ ============ ============
HELD TO MATURITY SECURITIES:
Mortgage-backed securities $ 4,247,000 $ 44,000 $ 12,000 $ 4,279,000
Obligations of states and
political subdivisions 490,000 1,000 -- 491,000
U.S. government agencies 341,000 -- 7,000 334,000
------------ ------------ ------------ ------------
$ 5,078,000 $ 45,000 $ 19,000 $ 5,104,000
============ ============ ============ ============
</TABLE>
F-21
<PAGE> 154
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1999 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES:
Mortgage-backed securities $ 90,467,000 $ 464,000 $ 1,326,000 $ 89,605,000
U.S. treasury 3,540,000 -- 73,000 3,467,000
Obligations of states and
political subdivisions 275,000 34,000 -- 309,000
U.S. government agencies 8,667,000 -- 592,000 8,075,000
------------ ------------ ------------ ------------
$102,949,000 $ 498,000 $ 1,991,000 $101,456,000
============ ============ ============ ============
HELD TO MATURITY SECURITIES:
Mortgage-backed securities $ 4,788,000 $ 40,000 $ 3,000 $ 4,825,000
Obligations of states and
political subdivisions 490,000 4,000 -- 494,000
U.S. government agencies 342,000 -- 13,000 329,000
------------ ------------ ------------ ------------
$ 5,620,000 $ 44,000 $ 16,000 $ 5,648,000
============ ============ ============ ============
DECEMBER 31, 1998
AVAILABLE FOR SALE SECURITIES:
Mortgage-backed securities $ 79,589,000 $ 532,000 $ 10,000 $ 80,111,000
U.S. treasury 4,551,000 11,000 12,000 4,550,000
U.S. government agencies 11,854,000 2,000 54,000 11,802,000
------------ ------------ ------------ ------------
$ 95,994,000 $ 545,000 $ 76,000 $ 96,463,000
============ ============ ============ ============
</TABLE>
F-22
<PAGE> 155
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
HELD TO MATURITY SECURITIES:
Mortgage-backed securities $ 6,993,000 $ 93,000 $ -- $ 7,086,000
U.S. treasury 1,007,000 4,000 -- 1,011,000
Obligations of states and
political subdivisions 965,000 29,000 -- 994,000
U.S. government agencies 405,000 -- 15,000 390,000
------------ ------------ ------------ ------------
$ 9,370,000 $ 126,000 $ 15,000 $ 9,481,000
============ ============ ============ ============
</TABLE>
The amortized cost and estimated fair value of investments in debt
securities at December 31, 1999 by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without penalties.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
--------------------------- ---------------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
<S> <C> <C> <C> <C>
Due in one year or less $ 1,989,000 $ 1,968,000 $ 490,000 $ 494,000
Due after one year through five years 1,551,000 1,499,000 -- --
Due after five years through ten years 275,000 309,000 342,000 329,000
Due after ten years 8,667,000 8,075,000 -- --
Mortgage-backed securities 90,467,000 89,605,000 4,788,000 4,825,000
------------ ------------ ------------ ------------
$102,949,000 $101,456,000 $ 5,620,000 $ 5,648,000
============ ============ ============ ============
</TABLE>
During the years ended December 31, 1999, 1998 and 1997, there were no
sales of held to maturity securities. Proceeds from sales of available
for sale securities totaled $9,858,000, $14,716,000 and $9,155,000,
respectively during the years ended December 31, 1999, 1998 and 1997. The
related gross realized gains were $48,000, $162,000 and $82,000,
respectively.
Investment securities with an approximate fair value of $15,897,000 and
$9,893,000 were pledged to secure public deposits of $12,146,000 and
$7,081,000 at December 31, 1999 and 1998, respectively.
Obligations of states and political subdivisions at December 31, 1999 and
1998 do not include any single issuer for which the aggregate carrying
amount exceeds 10% of the Company's shareholders' equity.
Other investments at December 31, 1999 consists primarily of Federal Home
Loan Bank stock (carrying value $1,579,000) and Federal Reserve Bank
stock (carrying value $876,000). In addition, the Bank had $390,000 in an
investment partnership being accounted for under the cost method. The
Bank has committed to investing up to $500,000 in the partnership.
Certain shareholders and directors have also invested in and received
consulting fees from the partnership.
F-23
<PAGE> 156
3. LOANS AND LEASES
Categories of loans and leases, net of deferred fees include:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999 1998
(UNAUDITED)
<S> <C> <C> <C>
Commercial $131,673,000 $130,633,000 $104,900,000
Real estate - mortgage 171,363,000 123,668,000 57,081,000
Real estate - construction 64,091,000 53,802,000 34,372,000
Consumer 24,465,000 21,880,000 16,913,000
Direct financing leases 25,212,000 23,381,000 15,472,000
------------ ------------ ------------
416,804,000 353,364,000 228,738,000
Less: Allowance for loan and lease losses 5,463,000 4,585,000 3,271,000
Unearned net loan and lease fees 3,298,000 2,685,000 2,188,000
------------ ------------ ------------
$408,043,000 $346,094,000 $223,279,000
============ ============ ============
</TABLE>
The majority of the Company's lending and leasing activities are with
customers located in the Denver metropolitan area.
In the ordinary course of business, the Company makes various direct and
indirect loans to officers and directors of the Company and its
subsidiaries at competitive rates. Activity with respect to officer and
director loans is as follows for the years ended December 31, 1999 and
1998, respectively:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Balance, beginning of period $ 2,914,000 $ 2,139,000
New loans 9,653,000 7,240,000
Principal paydowns and payoffs (8,871,000) (6,465,000)
------------ ------------
Balance, end of period $ 3,696,000 $ 2,914,000
============ ============
</TABLE>
The Company sells participations in loans to an entity controlled by the
Chairman of the Board of Directors and a member of the Board of
Directors. The amount of participations outstanding with the affiliate
were $1,304,000 and $3,994,000 at December 31, 1999 and 1998,
respectively.
F-24
<PAGE> 157
Transactions in the allowance for loan and lease losses are summarized as
follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
2000 1999 1999 1998 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $ 4,585,000 $ 3,271,000 $ 3,271,000 $ 2,248,000 $ 1,660,000
Provision for loan and
lease losses 1,262,000 1,006,000 1,473,000 1,188,000 949,000
------------ ------------ ------------ ------------ ------------
5,847,000 4,277,000 4,744,000 3,436,000 2,609,000
Loans charged off, net
of recoveries of $37,000,
$3,000, $26,000,
$71,000, and $33,000 (384,000) (82,000) (159,000) (165,000) (361,000)
------------ ------------ ------------ ------------ ------------
Balance, end of year $ 5,463,000 $ 4,195,000 $ 4,585,000 $ 3,271,000 $ 2,248,000
============ ============ ============ ============ ============
</TABLE>
The recorded investment in loans that are considered to be impaired under
SFAS No. 114 as amended by SFAS No. 118 (all of which were on a
non-accrual basis) was $683,000 and $467,000 at December 31, 1999 and
1998, respectively (all of which have a related allowance for loan and
lease loss). The allowance for loan and lease losses applicable to
impaired loans was $160,000 and $176,000 at December 31, 1999 and 1998,
respectively. Interest of $61,000, $43,000 and $33,000 was recognized on
average impaired loans of $550,000, $639,000 and $697,000 during 1999,
1998 and 1997, respectively. The amount of additional interest income
that would have been recorded if the loans had been current in accordance
with the original terms is insignificant for the years ended December 31,
1999, 1998 and 1997.
4. INVESTMENT IN LEASES
The Company is the lessor of equipment under agreements expiring in
various future years. Certain of the equipment leases provide for
additional rents, based on use in excess of a stipulated minimum number
of hours, and allow the lessees to purchase the equipment for fair value
at the end of the lease terms.
Property leased or held for lease to others under operating leases
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
<S> <C> <C>
Equipment $ 6,862,000 $ 6,408,000
Unamortized initial direct costs 73,000 77,000
------------ ------------
6,935,000 6,485,000
Less accumulated depreciation 2,888,000 2,305,000
------------ ------------
Total $ 4,047,000 $ 4,180,000
============ ============
</TABLE>
F-25
<PAGE> 158
The Company's net investment in direct financing leases consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
<S> <C> <C>
Minimum lease payments receivable $ 22,968,000 $ 15,324,000
Unamortized initial direct costs 354,000 216,000
Estimated unguaranteed residual values 503,000 148,000
Unearned income (2,340,000) (1,947,000)
------------ ------------
Total $ 21,485,000 $ 13,741,000
============ ============
</TABLE>
At December 31, 1999, future minimum lease payments receivable under
direct financing leases and noncancelable operating leases are as
follows:
<TABLE>
<CAPTION>
DIRECT
SALES-TYPE AND OPERATING
FINANCING LEASES LEASES
<S> <C> <C>
2000 $ 9,057,000 $ 2,269,000
2001 7,418,000 1,518,000
2002 4,334,000 915,000
2003 1,727,000 72,000
2004 432,000 --
------------ ------------
Total $ 22,968,000 $ 4,774,000
============ ============
</TABLE>
5. PREMISES AND EQUIPMENT
The major classes of premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
<S> <C> <C>
Leasehold improvements $ 1,807,000 $ 1,055,000
Furniture, fixtures, and equipment 5,393,000 4,465,000
------------ ------------
7,200,000 5,520,000
Accumulated depreciation 3,594,000 2,636,000
------------ ------------
$ 3,606,000 $ 2,884,000
============ ============
</TABLE>
F-26
<PAGE> 159
6. CERTIFICATES OF DEPOSIT
The composition of certificates of deposit is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999 1998
(UNAUDITED)
<S> <C> <C> <C>
Less than $100,000 $ 25,393,000 $ 23,870,000 $ 27,311,000
$100,000 and more 112,623,000 98,386,000 42,162,000
------------ ------------ ------------
$138,016,000 $122,256,000 $ 69,473,000
============ ============ ============
</TABLE>
Related interest expense is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31
(UNAUDITED)
2000 1999 1999 1998 1997
<S> <C> <C> <C> <C> <C>
Less than $100,000 $ 1,085,000 $ 991,000 $ 1,320,000 $ 1,166,000 $ 877,000
$100,000 and more 4,605,000 2,237,000 3,337,000 2,658,000 2,083,000
------------ ------------ ------------ ------------ ------------
$ 5,690,000 $ 3,228,000 $ 4,657,000 $ 3,824,000 $ 2,960,000
============ ============ ============ ============ ============
</TABLE>
Maturities of certificates of deposit of $100,000 and more are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
(UNAUDITED)
<S> <C> <C>
Less than three months $ 60,302,000 $ 57,975,000
Three months up to six months 19,583,000 28,338,000
Six months up to one year 28,055,000 6,250,000
One year and over 4,683,000 5,823,000
------------ ------------
$112,623,000 $ 98,386,000
============ ============
</TABLE>
7. BORROWED FUNDS
The Company has advances from the Federal Home Loan Bank of Topeka (FHLB)
with interest rates that range from 5.18% to 6.89%. Advances are
collateralized by qualifying loans and investment securities not
otherwise pledged as collateral.
F-27
<PAGE> 160
Aggregate annual maturities of advances are as follows at December 31,
1999:
<TABLE>
<CAPTION>
YEAR
<S> <C>
2000 $ 30,140,000
2001 140,000
2002 140,000
2003 140,000
2004 140,000
Thereafter 280,000
------------
Total $ 30,980,000
============
</TABLE>
Securities sold under agreements to repurchase are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
<S> <C> <C>
Securities with an estimated fair value of
$53,827,000 in 1999 and $33,062,000 in 1998 $ 33,053,000 $ 24,956,000
============ ============
</TABLE>
The Company enters into sales of securities under agreements to
repurchase. The amounts received under these agreements represent
short-term borrowings and are reflected as a liability in the
consolidated statements of condition. Securities sold under agreements to
repurchase averaged $40,421,000 and $18,811,000 and the maximum amounts
outstanding at any month-end during 1999 and 1998 were $51,982,000 and
$24,956,000, respectively. At December 31, 1999, the weighted average
interest rate was 4.53%.
MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST - On June
19, 2000, the Company established Colorado Business Bankshares Capital
Trust I ("Trust"), a wholly-owned statutory business trust. The Trust was
created for the exclusive purpose of issuing 30-year capital trust
preferred securities ("Trust Preferred Securities") in the aggregate
amount of $20,000,000 and using the proceeds to purchase junior
subordinated debentures ("Subordinated Debentures") issued by the Parent.
The sole assets of the Trust are the Subordinated Debentures.
The Trust Preferred Securities bear a cumulative fixed interest rate of
10% per annum and mature on June 30, 2030. Interest distributions are
payable quarterly. The Trust Preferred Securities are subject to
mandatory redemptions upon repayment of the Subordinated Debentures at
their stated maturity date or their earlier redemption in an amount equal
to their liquidation amount plus accumulated and unpaid distributions to
the date of redemption. The Company guarantees the payment of
distributions and payments for redemption or liquidation of the Trust
Preferred Securities to the extent of funds held by the Trust. The
obligations of the Company under the Subordinated Debentures together
with the guarantee and other back-up obligations, in the aggregate,
constitute a full and unconditional guarantee by the Company of the
obligations of the Trust under the Trust Preferred Securities.
The Subordinated Debentures are unsecured, bear interest at a rate of 10%
per annum and mature on June 30, 2030. Interest is payable quarterly. The
Company may defer the payment of interest at any time for a period not
exceeding 20 consecutive quarters provided that deferral period does not
extend past the stated maturity. During any such deferral period,
distributions on the Trust Preferred Securities
F-28
<PAGE> 161
will also be deferred and the Company's ability to pay dividends on its
common shares will be restricted.
Subject to approval by the Federal Reserve Bank, the Trust Preferred
Securities may be redeemed prior to maturity at the Company's option on
or after June 30, 2005. The Trust Preferred Securities may also be
redeemed at any time in whole (but not in part) in the event of
unfavorable changes in laws or regulations that result in (1) the Trust
becoming subject to federal income tax on income received on the
Subordinated Debentures, (2) interest payable by the parent company on
the Subordinated Debentures becoming non-deductible for federal tax
purposes, (3) the requirement for the Trust to register under the
Investment Company Act of 1940, as amended, or (4) loss of the ability to
treat the Trust Preferred Securities as "Tier I capital" under the
Federal Reserve capital adequacy guidelines.
Portions of the Trust Preferred Securities qualify as Tier I capital
under regulatory definitions. Issuance costs consisting primarily of
underwriting discounts and professional fees of approximately $1 million
were capitalized and are being amortized over five years to noninterest
expense using the straight-line method.
8. INCOME TAXES
The components of consolidated income tax expense are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1999 1998 1997
<S> <C> <C> <C>
Current tax expense $ 3,529,000 $ 2,295,000 $ 1,586,000
Deferred tax benefit (527,000) (264,000) (341,000)
------------ ------------ ------------
Total $ 3,002,000 $ 2,031,000 $ 1,245,000
============ ============ ============
</TABLE>
F-29
<PAGE> 162
A deferred tax asset or liability is recognized for the tax consequences
of temporary differences in the recognition of revenue and expense for
financial and tax reporting purposes. The net change during the year in
the deferred tax asset or liability results in a deferred tax expense or
benefit. The temporary differences, tax effected, which give rise to the
Company's net deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 1,594,000 $ 1,097,000
Unrealized loss on available-for-sale securities 559,000 --
True lease adjustment 438,000 --
Depreciation -- 23,000
Deferred loan fees 309,000 170,000
Vacation and other accrued liabilities 49,000 30,000
Other 84,000 53,000
------------ ------------
Total deferred tax assets 3,033,000 1,373,000
------------ ------------
Deferred tax liabilities:
Depreciation 227,000 --
Sale of assets 288,000 --
Building leasehold improvements -- 95,000
Unrealized gain on available-for-sale securities -- 172,000
Deferred initial direct lease costs 179,000 110,000
Prepaid assets 147,000 62,000
------------ ------------
Total deferred tax liabilities 841,000 439,000
------------ ------------
Net deferred tax assets $ 2,192,000 $ 934,000
============ ============
</TABLE>
A reconciliation of income tax expense at the statutory rate to the
Company's actual income tax expense is shown below:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1999 1998 1997
<S> <C> <C> <C>
Computed at the statutory
rate (35% in 2000, 34% in 1999,
1998 and 1997) $ 2,693,000 $ 1,784,000 $ 1,053,000
Increase (decrease) resulting from:
Tax exempt interest income
on loans and securities (22,000) (24,000) (10,000)
Nondeductible goodwill amortization 149,000 148,000 148,000
State income taxes, net of federal
income tax effect 256,000 71,000 65,000
Meals and entertainment 26,000 -- --
Other (100,000) 52,000 (11,000)
------------ ------------ ------------
Actual tax provision $ 3,002,000 $ 2,031,000 $ 1,245,000
============ ============ ============
</TABLE>
F-30
<PAGE> 163
9. SHAREHOLDERS' EQUITY
PREFERRED STOCK - The Board of Directors is authorized, among other
things, to fix the designation and the powers, preferences and relative
participating, optional and other special rights for preferred shares.
All outstanding preferred stock was redeemed in 1998.
STOCK SPLIT - In May 1998, the shareholders approved a 4.7125 for 1 stock
split of the Company's common stock and increased authorized shares to
25,000,000. In addition, the shareholders approved an increase in the
number of preferred shares authorized to 2,000,000 shares. All references
to outstanding shares, options and earnings per share for all periods
have been adjusted for the stock split.
STOCK OPTIONS - The Company has adopted several incentive stock option
plans to reward and provide long-term incentives for directors and key
employees of the Company. The term of all options issued may not exceed
ten years.
The Company granted other stock options ("Other Options") in 1994 to
individuals for their contributions to the Company which were immediately
exercisable at $2.12 per share. An aggregate of 188,500 shares of common
stock were reserved for issuance under these agreements. All of these
options were exercised in February 1998.
The 1995 Incentive Stock Option Plan (the "1995 Plan") authorizes the
issuance of 197,925 shares of Common Stock. One-fourth of the options
included under the 1995 Plan vest on each of the first four anniversaries
of the grant. Under the 1995 Plan, Incentive Stock Options may not be
granted at an exercise price of less than the fair market value of the
Common Stock on the date of grant. Shares available for grant at December
31, 1999 totaled 3,412.
The 1997 Incentive Stock Option Plan (the "1997 Plan") reserves 101,036
shares for issuance at not less than the market value of the Company's
stock at the date of grant. The majority of the options issued under the
1997 Plan are exercisable commencing one year from the date of grant and
vest 25% per year thereafter becoming fully exercisable after four years.
Shares available for grant at December 31, 1999 totaled 14,534.
In May 1998, the Company approved the 1998 Stock Incentive Plan (the
"1998 Plan"). The maximum number of shares authorized to be issued under
the 1998 Plan is 225,000 shares of Common Stock, and the maximum number
of shares underlying awards that may be granted to an individual employee
in a calendar year is 22,500 shares of Common Stock. The exercise price
for options granted under the 1998 Plan must be at least equal to 100% of
the fair market value of the Common Stock on the date of grant. The 1998
Plan permits the granting of Incentive Stock Options and non-qualified
stock options. Options granted under the 1998 plan have vesting schedules
ranging from immediately exercisable to being exercisable four years from
the grant date. Shares available for grant at December 31, 1999 totaled
65,756. In January 2000, the Company's Board of Directors approved,
subject to shareholder approval, an amendment to the 1998 plan that will
increase the number of shares eligible to be granted to 425,000.
F-31
<PAGE> 164
The following is a summary of changes in shares under option (excluding
Other Options discussed above):
<TABLE>
<CAPTION>
1999 1998 1997
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 277,826 $ 3.83 245,051 $ 3.12 157,162 $ 2.54
Granted 166,110 15.94 39,844 8.60 102,733 4.00
Exercised 1,191 7.43 -- -- 358 2.12
Forfeited 4,022 8.49 7,069 6.15 14,486 3.18
---------- ---------- ---------- ---------- ---------- ----------
Outstanding, end of year 438,723 $ 8.10 277,826 $ 3.83 245,051 $ 3.12
========== ========== ========== ========== ========== ==========
Options exercisable, end of year 234,264 $ 5.46 127,827 $ 2.75 67,153 $ 2.43
========== ========== ========== ========== ========== ==========
</TABLE>
The outstanding options at December 31, 1999 were exercisable at prices
ranging from $2.12 to $18.00 per share. The weighted-average remaining
contractual life of options outstanding at December 31, 1999 was 7.57
years.
The Company has elected to continue to account for its stock options
using the intrinsic value method prescribed by Accounting Principles
Board Opinion No. 25 and related interpretations. Accordingly, no
compensation cost has been recognized for its stock option plans. The
Company estimated the fair value of options granted in 1999 and 1998 to
be $538,000 and $41,000, respectively using the Black-Scholes option
pricing model prescribed by SFAS No. 123, "Accounting for Stock-Based
Compensation." The fair value of each stock option grant is estimated
using the Black-Scholes option pricing model with the following weighted
average assumptions for 1999 and 1998, respectively: risk-free interest
rate of 6.56% and 4.72%; expected dividend yield of 1.64% and 0%;
expected life of five years; and expected volatility of 38.09% and
36.16%. Had compensation cost been determined based on fair value at the
grant date for the Company's stock options in accordance with SFAS No.
123, the proforma effect on net income in 1999 and 1998 would have been a
decrease of $131,000 and $48,000, respectively. The effect on earnings
per share is not material.
DIVIDENDS - At December 31, 1999, the Company's ability to pay dividends
on its common stock, if it determines to do so, is largely dependent upon
the payment of dividends by the Bank. At December 31, 1999, the Bank
could have paid total dividends to the Company of approximately $8.6
million, without prior regulatory approval.
F-32
<PAGE> 165
EARNINGS PER 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>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
2000 1999 1999 1998 1997
---------- ---------- ---------- ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income $4,913,000 $3,422,000 $4,919,000 $3,216,000 $1,853,000
Less: Preferred stock dividends -- -- -- 77,000 116,000
---------- ---------- ---------- ---------- ----------
Income available to common
shareholders $4,913,000 $3,422,000 $4,919,000 $3,139,000 $1,737,000
---------- ---------- ---------- ---------- ----------
Weighted average shares outstanding -
basic earnings per share 6,702,920 6,673,481 6,673,484 5,880,419 4,690,852
Effect of dilutive securities - stock
options 180,369 189,804 191,509 214,488 111,926
---------- ---------- ---------- ---------- ----------
Weighted average shares outstanding -
diluted earnings per share 6,883,289 6,863,285 6,864,993 6,094,907 4,802,778
========== ========== ========== ========== ==========
</TABLE>
In January 2000, the Company's Board of Directors approved the adoption
of an Employee Stock Purchase Plan ("ESPP"), subject to shareholder
approval, which provides that all employees may elect to have a
percentage of their payroll deducted and applied to the purchase of
Common Stock at a discount. In addition, the Company may contribute up to
50% of an employee's deduction toward the purchase of additional Common
Stock. The ESPP will be administered by a committee of two or more
directors of the Company appointed by the Board of Directors that are not
employees or officers of the Company.
10. COMMITMENTS AND CONTINGENCIES
EMPLOYEE PROFIT SHARING TRUST - The Company has a defined contribution
pension plan covering substantially all employees. Employees may
contribute up to 15% of their compensation with the Company's
discretionary matching within the limits defined for a 401(k) Plan.
Employer contributions charged to expense for 1999, 1998 and 1997 were
$277,000, $149,000 and $123,000, respectively.
F-33
<PAGE> 166
LEASE COMMITMENTS - The Company entered into various operating lease
agreements for office space. Most of the leases are subject to rent
escalation provisions in subsequent years, and have renewal options at
the end of the initial lease terms. Total rental expense for the years
ended December 31, 1999, 1998 and 1997 was $1,034,000, $686,000 and
$533,000, respectively. The Company's corporate office lease expires June
30, 2009. In 1998, certain officers and directors acquired the building
in which the corporate office is located and certain banking operations
are performed. Future minimum lease payments at December 31, 1999 under
all noncancelable operating leases are as follows:
<TABLE>
<S> <C>
2000 $1,249,000
2001 1,133,000
2002 1,103,000
2003 1,069,000
2004 878,000
Thereafter 3,625,000
----------
Total $9,057,000
==========
</TABLE>
Minimum payments have not been reduced by minimum sublease rentals of
$69,000 due in the future under a non-cancelable sublease.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK - In the normal course
of business the Company has entered into financial instruments which are
not reflected in the accompanying consolidated financial statements.
These financial instruments include commitments to extend credit and
stand-by letters of credit. The Company had the following commitments:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
(UNAUDITED)
<S> <C> <C>
Commitments to originate commercial or
real estate construction loans and unused
lines of credit granted to customers $151,831,000 $160,717,000
============ ============
Commitments to fund consumer loans:
Personal lines of credit and equity lines $ 8,890,000 $ 8,486,000
============ ============
Overdraft protection plans $ 5,482,000 $ 4,831,000
============ ============
Letters of credit $ 6,830,000 $ 4,811,000
============ ============
</TABLE>
The Company makes contractual commitments to extend credit and provide
standby letters of credit, which are binding agreements to lend money to
its customers at predetermined interest rates for a specific period of
time. The credit risk involved in issuing these financial instruments is
essentially the same as that involved in granting on-balance sheet
financial instruments. As such, the Company's exposure to credit loss in
the event of non-performance by the counter-party to the financial
instrument is represented by the contractual amounts of those
instruments. However, the Company applies the same credit policies,
standards and ongoing reassessments in making commitments and conditional
obligations as they do for loans. In addition, the amount and type of
collateral obtained, if deemed necessary upon extension of a loan
commitment or standby letter of credit, is essentially the same as the
collateral requirements provided for loans. Additional risk associated
with providing these commitments arise when they are drawn upon, such as
the demands on liquidity the Bank would
F-34
<PAGE> 167
experience if a significant portion were drawn down at the same time.
However, this is considered unlikely, as many commitments expire without
being drawn upon and therefore do not necessarily represent future cash
requirements.
EMPLOYMENT CONTRACTS - Certain officers of the Company have entered into
employment agreements providing for salaries and fringe benefits. In
addition, severance is provided in the event of termination for other
than cause and under certain changes in control a lump sum payment is
required.
OTHER MATTERS - The Company is involved in various lawsuits which have
arisen in the normal course of business. It is management's opinion,
based upon advice of legal counsel, that the ultimate outcome of these
lawsuits will not have a material impact upon the financial condition or
results of operations of the Company.
11. REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory - and
possibly additional discretionary - actions by regulators that, if
undertaken, could have a direct material effect on the Company's
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company and the
Bank must meet specific capital guidelines that involve quantitative
measures of the Company and the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The Company and the Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts and
ratios (set forth in the following table) of total and Tier I capital (as
defined in the regulations) to risk-weighted assets, and of Tier I
capital to average assets. Management believes, as of December 31, 1999
and 1998, that the Company and Bank meet all capital adequacy
requirements to which they are subject.
As of December 31, 1999, the most recent notification from the Office of
the Comptroller of the Currency categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in
the following table. There are no conditions or events that management
believes have changed the Bank's categories.
F-35
<PAGE> 168
The following table shows the Company and the Bank's actual capital
amounts and ratios and regulatory thresholds as of December 31, 1999 and
1998:
<TABLE>
<CAPTION>
TO BE "WELL
CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AS OF -------------------------- -------------------------- ---------------------------
DECEMBER 31, 1999 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
COMPANY
Total capital
(to risk weighted assets) $41,622,000 10.7% $31,265,000 8.0% N/A N/A
Tier I capital
(to risk weighted assets) 37,037,000 9.5% 15,632,000 4.0% N/A N/A
Tier I capital
(to average assets) 37,037,000 7.8% 18,893,000 4.0% N/A N/A
COLORADO BUSINESS BANK, N.A.
Total capital
(to risk weighted assets) $40,297,000 10.3% $31,242,000 8.0% $39,052,000 10.0%
Tier I capital
(to risk weighted assets) 35,712,000 9.1% 15,621,000 4.0% 23,431,000 6.0%
Tier I capital
(to average assets) 35,712,000 7.6% 18,872,000 4.0% 23,591,000 5.0%
</TABLE>
<TABLE>
<CAPTION>
TO BE "WELL
CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AS OF -------------------------- -------------------------- ---------------------------
DECEMBER 31, 1998 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
COMPANY
Total capital
(to risk weighted assets) $35,382,000 13.9% $20,426,000 8.0% N/A N/A
Tier I capital
(to risk weighted assets) 32,189,000 12.6% 10,213,000 4.0% N/A N/A
Tier I capital
(to average assets) 32,189,000 9.8% 13,205,000 4.0% N/A N/A
COLORADO BUSINESS BANK, N.A.
Total capital
(to risk weighted assets) $34,596,000 13.6% $20,406,000 8.0% $25,508,000 10.0%
Tier I capital
(to risk weighted assets) 31,406,000 12.3% 10,203,000 4.0% 15,305,000 6.0%
Tier I capital
(to average assets) 31,406,000 9.1% 13,764,000 4.0% 15,305,000 5.0%
</TABLE>
F-36
<PAGE> 169
12. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is the total of (1) net income plus (2) all
other changes in net assets arising from non-owner sources, which are
referred to as other comprehensive income (loss). Presented below are the
changes in other comprehensive income (loss) for the periods indicated.
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Other comprehensive income (loss), before tax:
Unrealized (loss) gain on available for sale securities arising
during the period $ (1,959,000) $ 455,000
Reclassification adjustment for gains arising during the period -- (161,000)
------------ ------------
Other comprehensive (loss) income, before tax (1,959,000) 294,000
Tax benefit (expense) related to items of other comprehensive
(loss) income 731,000 (110,000)
------------ ------------
Other comprehensive (loss) income, net of tax $ (1,228,000) $ 184,000
============ ============
</TABLE>
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of the Company's
financial instruments is made in accordance with the requirements of SFAS
No. 107, "Disclosures about Fair Value of Financial Instruments." The
estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies.
However, considerable judgment is required to interpret market data in
order to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and cash equivalents $ 18,687,000 $ 18,687,000 $ 20,258,000 $ 20,258,000
Investment securities available-for-sale 101,456,000 101,456,000 96,463,000 96,463,000
Investment securities held-to-maturity 5,620,000 5,648,000 9,370,000 9,481,000
Other investments 2,845,000 2,845,000 2,104,000 2,104,000
Loans and leases, net 346,094,000 340,028,000 223,279,000 223,015,000
Accrued interest receivable 2,167,000 2,167,000 1,597,000 1,597,000
FINANCIAL LIABILITIES:
Deposits 383,329,000 348,011,000 273,028,000 258,240,000
Federal funds purchased 1,300,000 1,300,000 3,500,000 3,500,000
Securities sold under agreements to repurchase 33,053,000 33,050,000 24,956,000 24,937,000
Advances from Federal Home Loan Bank 30,980,000 30,926,000 26,120,000 26,185,000
Accrued interest payable 829,000 829,000 397,000 397,000
</TABLE>
F-37
<PAGE> 170
The estimation methodologies utilized by the Company are summarized as
follows:
CASH AND CASH EQUIVALENTS - For cash and due from banks the carrying
amount is a reasonable estimate of fair value.
INVESTMENT SECURITIES - For investment securities, fair value equals the
quoted market price, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
investment securities.
OTHER INVESTMENTS - The estimated fair value of other investments
approximates their carrying value.
LOANS AND LEASES - The fair value of fixed rate loans and leases is
estimated by discounting the future cash flows using the current rates at
which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities. In computing the estimate
of fair value for all loans and leases, the estimated cash flows and/or
carrying value have been reduced by specific and general reserves for
loan losses.
ACCRUED INTEREST RECEIVABLE/PAYABLE - The carrying amount of accrued
interest receivable/payable is a reasonable estimate of fair value due to
the short-term nature of these amounts.
DEPOSITS - The fair value of demand deposits, NOW, savings accounts, and
money market deposits is estimated by discounting the expected life of
each deposit category at an index of the Federal Home Loan Bank advance
rate curve. The fair value of fixed-maturity certificates of deposit is
estimated using the rates currently offered for deposits with similar
remaining maturities.
FEDERAL FUNDS PURCHASED - The estimated fair value of variable rate
borrowed funds approximates their carrying value.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND ADVANCES FROM THE
FEDERAL HOME LOAN BANK - Estimated fair value is based on discounting
cash flows for comparable instruments.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT - The
Company's off-balance sheet commitments are funded at current market
rates at the date they are drawn upon. It is management's opinion that
the fair value of these commitments would approximate their carrying
value, if drawn upon.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1999 and 1998.
Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since
that date and, therefore, current estimates of fair value may differ
significantly from the amounts presented herein.
14. SEGMENTS
The Company's principal activities include Commercial Banking and
Equipment Leasing. Commercial banking offers a broad range of
sophisticated 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 reflect those which
are specifically identifiable or which are allocated based on an internal
allocation method. The allocation has been consistently
F-38
<PAGE> 171
applied for all periods presented. Revenues from affiliated transactions,
principally the Commercial Banking division's funding of the Equipment
Leasing activity, are charged generally at rates available to and
transacted with unaffiliated customers.
Results of operations and selected financial information by operating
segment are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
DOLLARS IN THOUSANDS: 1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Total interest income:
Commercial Banking $ 32,201 $ 24,022 $ 18,463
Equipment Leasing 1,435 932 580
Holding Company 25 89 --
Eliminations (1,252) (1,144) (896)
---------- ---------- ----------
Consolidated $ 32,409 $ 23,899 $ 18,147
========== ========== ==========
Total interest expense
Commercial Banking $ 11,843 $ 8,335 $ 6,466
Equipment Leasing 1,287 1,085 --
Holding Company -- 301 732
Eliminations (1,251) (1,144) (182)
---------- ---------- ----------
Consolidated $ 11,879 $ 8,577 $ 7,016
========== ========== ==========
Provision for loan and lease losses:
Commercial Banking $ 1,425 $ 1,114 $ 949
Equipment Leasing 48 74 --
---------- ---------- ----------
Consolidated $ 1,473 $ 1,188 $ 949
========== ========== ==========
Other noninterest income:
Commercial Banking $ 2,243 $ 1,769 $ 1,754
Equipment Leasing 2,538 2,521 1,561
Holding Company 5,896 4,033 2,945
Eliminations (6,067) (4,077) (2,957)
---------- ---------- ----------
Consolidated $ 4,610 $ 4,246 $ 3,303
========== ========== ==========
Depreciation and amortization:
Commercial Banking $ 1,366 $ 1,032 $ 926
Equipment Leasing 2,053 1,914 1,191
Holding Company 28 18 24
Eliminations -- -- --
---------- ---------- ----------
Consolidated $ 3,447 $ 2,964 $ 2,141
========== ========== ==========
Income tax expense (benefit):
Commercial Banking $ 3,043 $ 2,341 $ 1,858
Equipment Leasing 69 (36) (78)
Holding Company (110) (274) (535)
---------- ---------- ----------
Consolidated $ 3,002 $ 2,031 $ 1,245
========== ========== ==========
</TABLE>
F-39
<PAGE> 172
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
DOLLARS IN THOUSANDS: 1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss):
Commercial Banking $ 5,140 $ 3,649 $ 2,723
Equipment Leasing 146 (52) (139)
Holding Company 4,919 3,216 1,853
Eliminations (5,286) (3,597) (2,584)
---------- ---------- ----------
Consolidated $ 4,919 $ 3,216 $ 1,853
========== ========== ==========
Identifiable assets:
Commercial Banking $ 491,376 $ 365,837 $ 276,556
Equipment Leasing 26,137 18,512 12,560
Holding Company 41,015 37,279 25,332
Eliminations (66,519) (55,078) (50,389)
---------- ---------- ----------
Consolidated $ 492,009 $ 366,550 $ 264,059
========== ========== ==========
Capital expenditures:
Commercial Banking $ 1,469 $ 2,416 $ 345
Equipment Leasing 77 32 12
Holding Company 178 131 13
---------- ---------- ----------
Consolidated $ 1,724 $ 2,579 $ 370
========== ========== ==========
</TABLE>
* * * * * *
F-40
<PAGE> 173
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
First Capital Bank of Arizona
We have audited the balance sheet of First Capital Bank of Arizona as of
December 31, 1999 and 1998, and the related statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1999. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Capital Bank of Arizona
as of December 31, 1999 and 1998, and the results of its operations and cash
flows for each of the years in the three-year period ended December 31, 1999, in
conformity with generally accepted accounting principles.
/s/ S.R. Snodgrass, A.C.
Wexford, PA
February 11, 2000
F-41
<PAGE> 174
FIRST CAPITAL BANK OF ARIZONA
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,556,637 $ 3,859,064
Interest-bearing deposits with other banks 1,000,000 --
Federal funds sold 1,298,873 4,974,139
Investment securities available for sale 16,716,215 13,244,104
Loans 63,211,487 43,467,536
Less allowance for loan losses 586,414 407,009
------------ ------------
Net loans 62,625,073 43,060,527
Premises and equipment 1,024,384 1,115,938
Accrued interest and other assets 1,208,850 904,775
------------ ------------
TOTAL ASSETS $ 86,430,032 $ 67,158,547
============ ============
LIABILITIES
Deposits:
Noninterest-bearing demand $ 7,306,655 $ 9,749,994
Interest-bearing demand 4,182,721 3,248,310
Money market 28,130,049 15,536,664
Savings 265,263 315,844
Time 35,099,379 28,775,570
------------ ------------
Total deposits 74,984,067 57,626,382
Short-term borrowings 1,000,000 --
Accrued interest payable and other liabilities 517,498 125,203
------------ ------------
TOTAL LIABILITIES 76,501,565 57,751,585
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, par value $5; 10,000,000 shares authorized,
693,981 and 692,406 issued and outstanding 3,469,905 3,462,030
Additional paid-in capital 5,936,650 5,918,363
Retained earnings 853,755 42,293
Accumulated other comprehensive loss (331,843) (15,724)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 9,928,467 9,406,962
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 86,430,032 $ 67,158,547
============ ============
</TABLE>
See accompanying notes to the financial statements.
F-42
<PAGE> 175
FIRST CAPITAL BANK OF ARIZONA
STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 5,246,849 $ 3,507,860 $ 1,720,876
Federal funds sold 236,113 700,394 461,373
Investment securities 818,170 157,954 --
------------ ------------ ------------
Total interest income 6,301,132 4,366,208 2,182,249
------------ ------------ ------------
INTEREST EXPENSE
Deposits 2,793,697 1,854,044 817,845
Short-term borrowings 1,863 -- --
------------ ------------ ------------
Total interest expense 2,795,560 1,854,044 817,845
------------ ------------ ------------
NET INTEREST INCOME 3,505,572 2,512,164 1,364,404
Provision for loan losses 179,381 155,573 201,121
------------ ------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,326,191 2,356,591 1,163,283
------------ ------------ ------------
NONINTEREST INCOME
Service charges on deposit accounts 122,219 71,435 51,805
Loan service fees 50,353 40,371 63,781
Investment securities losses (12,092) -- --
Gains on sales of assets 137,978 68,894 --
Other 54,093 21,174 16,336
------------ ------------ ------------
Total noninterest income 352,551 201,874 131,922
------------ ------------ ------------
NONINTEREST EXPENSE
Salaries and employee benefits 1,486,192 1,302,987 798,393
Occupancy and equipment 367,249 316,622 172,219
Data processing 103,292 76,240 43,781
Other 451,502 386,479 272,573
------------ ------------ ------------
Total noninterest expense 2,408,235 2,082,328 1,286,966
------------ ------------ ------------
Income before income taxes and cumulative
effect of accounting change 1,270,507 476,137 8,239
Income taxes 459,045 52,213 --
------------ ------------ ------------
Income before cumulative effect of
accounting change 811,462 423,924 8,239
Cumulative effect of accounting change
for organization costs, net of income taxes -- (45,041) --
------------ ------------ ------------
NET INCOME $ 811,462 $ 378,883 $ 8,239
============ ============ ============
EARNINGS PER SHARE Basic earnings per share:
Income before cumulative effect of
accounting change $ 1.17 $ 0.62 $ 0.02
Cumulative effect of accounting change
for organization costs -- (0.07) --
------------ ------------ ------------
Net income $ 1.17 $ 0.55 $ 0.02
============ ============ ============
Diluted earnings per share:
Income before cumulative effect of
accounting change $ 1.12 $ 0.60 $ 0.02
Cumulative effect of accounting change
for organization costs -- (0.06) --
------------ ------------ ------------
Net income $ 1.12 $ 0.54 $ 0.02
============ ============ ============
</TABLE>
See accompanying notes to the financial statements.
F-43
<PAGE> 176
FIRST CAPITAL BANK OF ARIZONA
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Additional Retained Other
Common Paid-in Earnings Comprehensive
Stock Capital (Deficit) Loss
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 $ 2,279,350 $ 3,296,112 $ (344,829) $ --
Net proceeds from sale of 230,000 shares
of common stock ($16.50 per share) 1,150,000 2,573,231
Net income 8,239
---------------- ---------------- ---------------- ----------------
Balance, December 31, 1997 3,429,350 5,869,343 (336,590) --
Net income 378,883
Other comprehensive loss:
Unrealized losses on available for sale
securities, net of tax benefit of $10,211 (15,724)
Comprehensive income
Common stock issued - options exercised 32,680 49,020
---------------- ---------------- ---------------- ----------------
Balance, December 31, 1998 3,462,030 5,918,363 42,293 (15,724)
Net income 811,462
Other comprehensive loss:
Unrealized losses on available for sale
securities, net of tax benefit of $204,499 (316,119)
Comprehensive income
Common stock issued - options exercised 7,875 18,287
---------------- ---------------- ---------------- ----------------
Balance, December 31, 1999 $ 3,469,905 $ 5,936,650 $ 853,755 $ (331,843)
================ ================ ================ ================
1999 1998
---------------- ---------------
Components of other comprehensive loss:
Change in net unrealized loss on
investment securities available for sale $ (323,461) $ (15,724)
Realized losses included in net income, net
of tax benefit of $4,750 7,342 --
---------------- ----------------
Total $ (316,119) $ (15,724)
================ ================
<CAPTION>
Comprehensive
Total Income
---------------- ----------------
<S> <C> <C>
$ 5,230,633
Balance, December 31, 1996 --
3,723,231
Net proceeds from sale of 230,000 shares
of common stock ($16.50 per share) 8,239 $ 8,239
---------------- ================
Net income
8,962,103
Balance, December 31, 1997 378,883 $ 378,883
Net income
Other comprehensive loss: (15,724) (15,724)
Unrealized losses on available for sale ----------------
securities, net of tax benefit of $10,211 $ 363,159
================
Comprehensive income 81,700
----------------
Common stock issued - options exercised 9,406,962
Balance, December 31, 1998 811,462 $ 811,462
--
Net income
Other comprehensive loss: (316,119) (316,119)
Unrealized losses on available for sale ----------------
securities, net of tax benefit of $204,499 $ 495,343
================
Comprehensive income 26,162
----------------
Common stock issued - options exercised
$ 9,928,467
================
Balance, December 31, 1999
Components of other comprehensive loss:
Change in net unrealized loss on
investment securities available for sale
Realized losses included in net income, net
of tax benefit of $4,750
Total
</TABLE>
See accompanying notes to the financial statements.
F-44
<PAGE> 177
FIRST CAPITAL BANK OF ARIZONA
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 811,462 $ 378,883 $ 8,239
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 179,381 155,573 201,121
Depreciation and amortization, net 144,967 (96,802) (55,760)
Cumulative effect of accounting change for
organization costs -- (45,041) --
Deferred income taxes (56,052) (84,418) (21,253)
Net operating loss utilization -- 78,868 14,225
Valuation allowance - deferred income taxes -- (112,574) 7,028
Investment securities losses 12,092 -- --
Gains on sales of assets (137,978) (68,894) --
Increase in accrued interest receivable (294,154) (178,838) (250,826)
Increase in accrued interest payable 18,544 38,538 28,417
Income taxes payable 376,614 18,641 --
Other, net (12,636) 120,532 32,950
------------ ------------ ------------
Net cash provided by (used for)
operating activities 1,042,240 204,468 (35,859)
------------ ------------ ------------
INVESTING ACTIVITIES
Investment securities available for sale:
Purchases (10,070,113) (15,270,000) --
Proceeds from principal repayments
and maturities 1,457,611 2,000,000 --
Proceeds from sales 4,609,153 -- --
Net increase in loans (21,120,489) (18,044,057) (22,756,265)
Proceeds from sale of loans 1,442,274 2,722,244 --
Purchase of premises and equipment (52,608) (1,034,503) (288,189)
Proceeds from sale of land 330,392 -- --
------------ ------------ ------------
Net cash used for investing activities (23,403,780) (29,626,316) (23,044,454)
------------ ------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 17,357,685 28,376,682 21,131,102
Increase in short-term borrowings 1,000,000 -- --
Proceeds from sale of common stock 26,162 81,700 3,723,231
------------ ------------ ------------
Net cash provided by financing activities 18,383,847 28,458,382 24,854,333
------------ ------------ ------------
Increase (decrease) in cash and
cash equivalents (3,977,693) (963,466) 1,774,020
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 8,833,203 9,796,669 8,022,649
------------ ------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 4,855,510 $ 8,833,203 $ 9,796,669
============ ============ ============
</TABLE>
See accompanying notes to the financial statements.
F-45
<PAGE> 178
FIRST CAPITAL BANK OF ARIZONA
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting and reporting policies applied in the
presentation of the accompanying financial statements follows:
NATURE OF OPERATIONS AND BASIS OF PRESENTATION
First Capital Bank of Arizona (the "Bank") is a state-chartered financial
institution headquartered in Phoenix, Arizona. It derives all of its income
from banking and bank-related services which include interest earnings on
commercial and commercial real estate financings, earnings from investment
securities, federal funds sold, and fees from deposit and loan services
provided to its customers through two offices located in the general
Phoenix area.
The accounting and reporting policies of the Bank conform with generally
accepted accounting principles ("GAAP") and prevailing practices within the
banking industry. The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the balance sheet date
and income and expenses for the period. Actual results could differ
significantly from those estimates.
INVESTMENT SECURITIES
Management has classified investment securities as available for sale to
serve principally as a source of liquidity. Unrealized holding gains and
losses for available for sale securities are reported as a separate
component of stockholders' equity, net of tax, until realized. Realized
securities gains and losses are computed using the specific identification
method. Interest on investment securities is recognized as income when
earned.
Common stock of the Federal Home Loan Bank of San Francisco ("FHLB")
represents ownership in an institution which is wholly-owned by other
financial institutions. This equity security is accounted for at cost.
LOANS
Loans are reported at their principal amount net of the allowance for loan
losses. Interest on all loans is recognized as income when earned on the
accrual method. Accrual of interest is discontinued when, in the opinion of
management, reasonable doubt exists as to the collectibility of additional
interest. Interest payments that would be received on nonaccrual loans are
recorded as income or applied against principal according to management's
judgment as to the collectibility of the related loans.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents the amount which management
estimates is adequate to provide for potential losses in loans, loan
commitments, and letters of credit. The Bank uses the allowance method in
providing for loan losses. Accordingly, all loan losses are charged to the
allowance, and all recoveries are credited to it. The allowance for loan
losses is established through a provision for loan losses which is charged
to operations. The provision is based upon management's periodic evaluation
of individual loans, the overall risk characteristics of the various
portfolio segments, changes in the composition and volume of the portfolio,
the impact of current economic conditions on borrowers, and other relevant
factors. The estimates used in determining the adequacy of the allowance
for loan losses, including the amounts and timing of future cash flows
expected on any impaired loans, are particularly susceptible to significant
changes in the near term.
F-46
<PAGE> 179
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ALLOWANCE FOR LOAN LOSSES (CONTINUED)
A loan is considered impaired when, based on current information and
events, it is probable the Bank will be unable to collect all amounts due
according to contractual terms of the loan agreement. The Bank makes an
assessment for impairment when such loans are on nonaccrual or the loans
have been restructured. Nonaccrual commercial and commercial real estate
loans are considered to be impaired. The Bank individually evaluates such
loans for impairment and does not aggregate loans by major risk
classifications. The definition of "impaired loans" is not the same as
"nonaccrual loans," although the two categories overlap. The Bank may
choose to place a loan on nonaccrual status due to payment delinquency,
while not classifying the loan as impaired. Factors considered by
management in determining impairment include payment status and collateral
value. The amount of impairment for these types of impaired loans is
determined by the difference between the present value of the expected cash
flows related to the loan, using the original interest rate, and its
recorded value or as a practical expedient in the case of collateralized
loans, the difference between the fair value of the collateral and the
recorded amount of the loans. When foreclosure is probable, impairment is
measured based on the fair value of the collateral.
Mortgage loans secured by one-to-four family properties and all consumer
loans are large groups of smaller-balance homogeneous loans and are
measured for impairment collectively. Loans that experience insignificant
payment delays, which are defined as 90 days or less, generally are not
classified as impaired.
LOAN FEES
Loan origination and commitment fees and certain direct loan origination
costs are being deferred and the net amount amortized as an adjustment of
the related loan's yield. Management is amortizing these amounts over the
contractual life of the related loans. Commitment fees based on a
percentage of the customer's unused line of credit and fees related to
standby letters of credit are recognized over the commitment period.
Other nonrefundable fees related to lending service activities are
recognized as other operating income in the period in which the related
service is provided. Typically, these fees are earned for loan syndication
transactions regarding the funding of various commercial and commercial
real estate loans and loan servicing for participation loans.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated
useful lives of the assets. Expenditures for maintenance and repairs are
charged against income as incurred. Costs of major additions and
improvements are capitalized.
CAPITALIZED ORGANIZATIONAL AND START-UP ACTIVITY COSTS
Certain organizational and start-up costs incurred primarily before the
commencement of operations as a commercial bank on August 7, 1996 had been
deferred and were being amortized using the straight-line method over a
period of 60 months, which was consistent with industry practice for such
items prior to 1998. Effective for fiscal years beginning after December
15, 1998, AICPA Statement of Position ("SOP") No. 98-5, "Reporting on the
Costs of Start-up Activities," requires entities to expense costs of such
start-up and organization activities as incurred. Except for entities that
meet certain conditions, initial application of this SOP is required to be
reported as a cumulative effect of a change in accounting principle. The
Bank elected early adoption of this SOP, and implemented it effective
January 1, 1998. Accordingly, the remaining unamortized deferred
organization expenses, which amounted to $74,178, were charged to
operations in 1998 and are reflected on the Statement of Income, net of
income taxes of $29,137, as a cumulative effect of accounting change.
F-47
<PAGE> 180
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK OPTIONS
The Company maintains a stock option plan for the directors, officers, and
employees. When the exercise price of the Company's stock options is
greater than or equal to the market price of the underlying stock on the
date of the grant, no compensation expense is recognized in the Company's
financial statements. Pro forma net income and earnings per share are
presented to reflect the impact of the stock option plan assuming
compensation expense had been recognized based on the fair value of the
stock options granted under the plan.
INCOME TAXES
Deferred tax assets or liabilities are computed based on the difference
between the financial statement and income tax basis of assets and
liabilities using the enacted marginal federal and state tax rates.
Deferred income tax expenses or benefits are based on the changes in the
deferred tax asset or liability from period to period.
EARNINGS PER SHARE
The Bank provides dual presentation of basic and diluted earnings per
share. Basic earnings per share is calculated by dividing net income
available to common stockholders by the weighted-average number of common
shares outstanding during the period. Diluted earnings per share is
calculated by dividing net income available to common stockholders,
adjusted for the effects of any dilutive securities, by the
weighted-average number of common shares outstanding adjusted for the
effects of any dilutive securities.
COMPREHENSIVE INCOME
The Bank is required to present comprehensive income and its components in
a full set of general purpose financial statements for all periods
presented. The Bank's other comprehensive loss is comprised exclusively of
the net unrealized losses attributable to the investment securities
available for sale. The Bank has elected to report comprehensive income as
a part of the Statement of Changes in Stockholders' Equity.
CASH FLOW INFORMATION
The Bank has defined cash equivalents as those amounts due from depository
institutions, interest-bearing deposits in other banks, and federal funds
sold on a daily basis. Cash paid during the years ended December 31, 1999,
1998, and 1997, for interest on deposits and short-term borrowings,
amounted to $2,777,016, $1,815,506, and $789,428, respectively. The Bank
made federal and state income tax payments of $144,542 and $122,562 in 1999
and 1998, respectively. No income tax payments were made in 1997.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This
statement requires the recognition of all derivatives as either assets or
liabilities on the balance sheet and the measurement of those instruments
at fair value. The statement requires that changes in the derivatives' fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. In June 1999, SFAS No. 133 was amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133", which deferred the effective
date to the first quarter of 2001. The Bank has not yet determined the
impact, if any, that this standard could have on its financial position or
results of operations.
F-48
<PAGE> 181
2. EARNINGS PER SHARE
For 1999, 1998 and 1997, there were no convertible securities which would
have affected net income and thus been required to be used in calculating
basic and diluted earnings per share. As such, net income as presented on
the Statement of Income is used for computation purposes. The following
table sets forth a reconciliation of the total weighted shares used for the
basic and diluted earnings per share calculations.
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Weighted-average common shares
outstanding used to calculate
basic earnings per share 693,189 687,127 494,934
Additional common stock equivalents
(stock options) used to calculate
diluted earnings per share
32,216 15,078 6,960
------- ------- -------
Weighted-average common shares and
common stock equivalents used
to calculate diluted earnings per share 725,405 702,205 501,894
======= ======= =======
</TABLE>
3. INVESTMENT SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated market value of investment securities
available for sale are as follows:
<TABLE>
<CAPTION>
1999
---------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Government sponsored
agency obligations $15,565,031 $ -- $ (501,321) $15,063,710
Mortgage-backed securities 1,441,797 -- (45,192) 1,396,605
----------- ----------- ----------- -----------
Total debt securities 17,006,828 -- (546,513) 16,460,315
FHLB stock 255,900 -- -- 255,900
----------- ----------- ----------- -----------
Total $17,262,728 $ -- $ (546,513) $16,716,215
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1998
---------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Government agency
and corporate obligations $13,270,000 $ 7,854 $ (33,750) $13,244,104
=========== =========== =========== ===========
</TABLE>
Investment securities with a carrying value of $1,827,431 and $1,195,465 at
December 31, 1999 and 1998, respectively, were pledged to secure public
deposits and other purposes as required by law.
F-49
<PAGE> 182
3. INVESTMENT SECURITIES AVAILABLE FOR SALE (CONTINUED)
The amortized cost and estimated market value of debt securities at
December 31, 1999, by contractual maturity, are shown below. The Bank's
mortgage-backed securities have contractual maturities ranging from 13 to
15 years. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Market
Cost Value
----------- -----------
<S> <C> <C>
Due after one year through five years $15,565,031 $15,063,710
Due after ten years 1,441,797 1,396,605
----------- -----------
Total $17,006,828 $16,460,315
=========== ===========
</TABLE>
Proceeds from the sale of securities available for sale and the gross
realized losses for the year ended December 31, 1999 were as follows. There
were no sales in 1998 and 1997.
<TABLE>
<CAPTION>
1999
----------
<S> <C>
Proceeds from sales $4,609,153
Gross realized losses
12,092
</TABLE>
4. LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Real estate mortgages:
Construction $ 8,902,497 $ 6,801,104
Commercial 36,047,279 23,357,836
Residential 3,480,349 2,550,144
Commercial and industrial 13,411,642 8,873,062
Consumer 1,369,720 1,885,390
------------ ------------
63,211,487 43,467,536
Less allowance for loan losses 586,414 407,009
------------ ------------
Net loans $ 62,625,073 $ 43,060,527
============ ============
</TABLE>
The Bank grants commercial, commercial real estate, and consumer loans to
customers throughout its trade area, which is concentrated in the
metropolitan areas of Phoenix, Yuma, and Maricopa Counties of Arizona.
Approximately $40,700,000 or 64.4 percent, and $25,487,000 or 58.6 percent,
of the loan portfolio at December 31, 1999 and 1998, respectively, was
comprised of commercial real estate owner-occupied and office rental
property loan arrangements. In general, a substantial portion of the Bank's
loan customers' abilities to honor their loan agreements is dependent upon
the economic stability of the immediate trade area.
F-50
<PAGE> 183
5. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December 31,
are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Balance, January 1 $ 407,009 $ 251,436 $ 50,315
Add:
Provision charged to operations 179,381 155,573 201,121
Recoveries 79 -- --
Less loans charged off 55 -- --
------------ ------------ ------------
Balance, December 31 $ 586,414 $ 407,009 $ 251,436
============ ============ ============
</TABLE>
6. PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Land $ 234,891 $ 234,891
Buildings and improvements 469,557 469,557
Leasehold improvements 66,539 103,881
Furniture, fixtures, and equipment 532,394 483,463
------------ ------------
1,303,381 1,291,792
Less accumulated depreciation 278,997 175,854
------------ ------------
Total $ 1,024,384 $ 1,115,938
============ ============
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1999, 1998, and 1997 was $144,162, $110,173, and $49,092, respectively.
The Bank's headquarters and main office are being operated under a lease
agreement which expires on July 31, 2004, with renewal options available to
the Bank. On an annual basis, the minimum rental payments due are adjusted
for increases in building tax and operating expenses. At December 31, 1999,
the estimated minimum rental commitments for this non-cancelable lease
were:
<TABLE>
<S> <C>
2000 $ 155,542
2001 178,529
2002 199,525
2003 204,342
2004 120,841
-----------------
Total $ 858,779
=================
</TABLE>
Total rental expense recorded in 1999, 1998, and 1997 was $ 151,810,
$166,622, and $107,117, respectively.
7. DEPOSITS
Time deposits include certificates of deposit in denominations of $100,000
or more. Such deposits aggregated $14,367,795 and $12,368,438 at December
31, 1999 and 1998, respectively, representing approximately 19.2 percent
and 21.5 percent of the Bank's total deposits.
F-51
<PAGE> 184
7. DEPOSITS (CONTINUED)
At December 31, 1999, the scheduled maturities of certificates of deposit
of $100,000 or more are as follows:
<TABLE>
<S> <C>
Three months or less $ 2,200,715
Over Three to six months 1,503,716
Over six through twelve months 2,916,009
Over twelve months 7,747,355
-----------
Total $14,367,795
===========
</TABLE>
8. INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Currently payable:
Federal $ 473,231 $ 148,602 $ --
State
41,866 21,735 --
--------- --------- ---------
515,097 170,337 --
Deferred
(56,052) (84,418) (21,253)
Net operating loss utilization
-- 78,868 14,225
Adjustment of beginning of the
year valuation allowance for
-- (112,574) 7,028
--------- --------- ---------
Total provision before cumulative
effect of accounting change $ 459,045 $ 52,213 $ --
========= ========= =========
</TABLE>
The tax effect of deductible and taxable temporary differences that gave
rise to the deferred tax assets and liabilities, respectively, at December
31, is comprised as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses $181,269 $114,169 $ 45,928
Organization costs 17,846 28,113 8,001
Directors' compensation 12,661 -- --
Net unrealized loss on securities 214,670 10,172 --
Net operating loss carryforward -- -- 78,868
-------- -------- --------
Gross deferred tax assets 426,446 152,454 132,797
Less valuation allowance -- -- 112,574
-------- -------- --------
Deferred tax assets after allowance 426,446 152,454 20,223
Deferred tax liabilities:
Premises and equipment 37,597 24,155 20,223
-------- -------- --------
Net deferred tax assets $388,849 $128,299 $ --
======== ======== ========
</TABLE>
F-52
<PAGE> 185
8. INCOME TAXES (CONTINUED)
As of December 31, 1997, the Bank represented an entity that had been in
existence for less than two years and had accumulated a net operating loss
since its inception. As such, management established a valuation allowance
for its deferred tax assets, primarily the accumulated future tax benefits
attributed to the operating loss carry forwards and loan loss provisions,
since it is more likely than not that realization of these deferred assets
could not be fully supported at December 31, 1997. However, during 1998,
because of the following positive factors, the beginning of the year
valuation allowance was eliminated. The factors taken into consideration
were: a) the Bank's consistent profitable trends, beginning in late 1997
and extending through 1998, and b) projected budgetary growth in such
profitable trends in the near term.
The following is a reconciliation between the actual provision for income
taxes and the amount of income taxes which would have been provided at
statutory rates:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------- ---------------------------- ----------------------------
% of % of % of
Pre-tax Pre-tax Pre-tax
Amount Income Amount Income Amount Income
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Provision at statutory rate $ 431,995 34.0% $ 161,887 34.0% $ 2,801 34.0%
State income tax, net of
federal tax benefit 27,632 2.2 14,345 3.0 -- --
Adjustment of beginning of
the year valuation allowance
for deferred tax assets -- -- (112,574) (23.6) 7,028 85.3
Other, net (582) -- (11,445) (2.4) (9,829) (119.3)
------------ ------------ ------------ ------------ ------------ ------------
Actual tax expense and
effective rate before
cumulative effect of
accounting change $ 459,045 36.2% $ 52,213 11.0% $ -- --%
============ ============ ============ ============ ============ ============
</TABLE>
9. AVAILABLE LINES OF CREDIT
The Bank maintains a federal funds line of credit with M & I Thunderbird
Bank with a total borrowing limit of $3.5 million. Such a borrowing line is
unsecured in nature, unless borrowings of at least $1 million remain
outstanding for periods greater than two days, in which case certain U.S.
Government obligations must be pledged as security. The line incurs no
service charges.
The Bank also maintains two unsecured federal fund lines of credit with
Bankers Bank of the West and Zions Bank, with maximum borrowing limits of
$4.7 million and $2.5 million, respectively, at year-end. These lines also
incur no service charges.
During the fourth quarter of 1999, the Bank applied and was accepted for
membership in the FHLB of San Francisco. As a member, the Bank has access
to a predetermined credit arrangement, which at December 31, 1999, had a
borrowing limit based on 25 percent of its total assets but not to exceed
its total outstanding residential mortgage loan portfolio balance at the
time of borrowing. This credit arrangement is subject to annual renewal and
typically incurs no service charges. Any outstanding borrowings are
collateralized by a blanket security agreement on qualifying residential
mortgage loans, small business loans, and the Bank's investment in stock of
the FHLB. There were no borrowings from the FHLB in 1999.
F-53
<PAGE> 186
10. COMMITMENTS
In the normal course of business, the Bank makes various commitments that
are not reflected in the accompanying financial statements. These
instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheet. The
Bank's exposure to credit loss in the event of nonperformance by the other
parties to the financial instruments is represented by the contractual
amounts as disclosed. Losses, if any, are charged to the allowance for loan
losses. The Bank minimizes its exposure to credit loss under these
commitments by subjecting them to credit approval and review procedures and
collateral requirements as deemed necessary.
The off-balance sheet commitments were comprised of the following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Commitments to extend credit $27,909,881 $25,910,353
Commercial and standby letters of credit 372,773 303,600
----------- -----------
$28,282,654 $26,213,953
=========== ===========
</TABLE>
Due to regulatory lending limitations as well as bank internal lending
limit guidelines, approximately $6,127,000 at December 31, 1999 and
$4,830,000 at December 31, 1998, of the total commitments to extend credit
will be funded through origination participation arrangements with
independent third-party commercial banking entities.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the loan
agreement. These commitments are comprised primarily of available
commercial lines of credit, commercial construction, and mortgage loan
commitments. The Bank uses the same credit policies in making loan
commitments and conditional obligations as it does for on-balance sheet
instruments. The Bank evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, as deemed necessary,
is based upon management's credit evaluation in compliance with the Bank's
lending policy guidelines. Customers use credit commitments to ensure funds
will be available for working capital purposes, capital expenditures, and
to ensure access to funds at specified terms and conditions.
Standby letters of credit obligate the Bank to disburse funds to a third
party if the Bank's customer fails to perform under the terms of the
agreement with the beneficiary. These instruments are issued primarily to
support bid or performance-related contracts. Commercial letters of credit
are used primarily in the purchase and sale of commercial goods and are
payable upon presentation and supported by funds on deposit or by the
customer's credit qualifications. The coverage period for these instruments
is typically a one-year period or less with an annual renewal option
subject to prior approval by management. The Bank holds collateral for
these instruments, as deemed necessary, which are typically Bank deposit
instruments.
11. EMPLOYEE BENEFITS
The Bank maintains an IRA Savings Incentive Match Plan (Simple IRA)
covering substantially all employees. Employees may contribute up to the
maximum allowed by law. The Bank matches based upon the lesser of one
percent of employee compensation or the actual employee contributions made
for the year. Effective September 1, 1999, the Bank began matching employee
salary reduction contributions up to a limit of three percent of the
employee's compensation for the year. For 1999, 1998, and 1997, the Bank
contributed $17,638, $7,557, and $5,857, respectively.
F-54
<PAGE> 187
12. STOCK OPTION PLANS
The Bank maintains a stock option plan for directors, officers, and
employees. The plan provides for granting stock options to officers,
employees, and non-employee directors of the Bank. The maximum aggregate
number of shares which may be optioned and sold through this plan cannot
exceed 15 percent of all issued and outstanding shares of common stock of
the Bank taking into consideration the shares to be issued upon the
exercise of an option. An aggregate of 122,467 shares of authorized but
unissued common stock can be issued. Options granted become exercisable in
installments of 25 percent each for the first two years from the date of
grant and the remainder in the third year provided certain Bank performance
benchmarks have been obtained regarding such items as regulatory capital
adequacy, nonperforming loan levels, earnings performance, and an
acceptable regulatory composite rating.
Following is a summary of the status of the plan:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------- ---------------------------- --------------------------
Weighted- Weighted- Weighted-
average average average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 88,417 $ 14.44 76,463 $ 12.50 76,463 $ 12.50
Granted 17,450 22.61 40,700 16.80 -- --
Exercised (1,575) 16.61 (6,536) 12.50 -- --
Forfeited (8,425) 16.96 (22,210) 12.64 -- --
------------ ------------ ------------
Outstanding at end of year 95,867 $ 15.66 88,417 $ 14.44 76,463 $ 12.50
============ ============ ============
Exercisable at end of year 55,992 $ 13.09 24,159 $ 12.50 19,116 $ 12.50
============ ============ ============
</TABLE>
The following table summarizes the characteristics of stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Average Average
Grant Exercise Outstanding Contractual Exercisable Exercise
Date Price Shares Life Shares Price
-------------- ------------------- -------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
1996 $ 12.50 48,317 6.82 48,317 $ 12.50
1998 16.50-17.00 30,700 8.24-8.43 7,675 16.82
1999 18.25-24.50 16,850 9.02-9.56 -- 22.62
-------------- --------------
95,867 55,992
============== ==============
</TABLE>
The Bank accounts for its stock option plan under APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Under this Opinion, no compensation expense has been recognized with
respect to the plan because the exercise price of the Bank's employee stock
options equals the market price of the underlying stock on the grant date.
F-55
<PAGE> 188
12. STOCK OPTION PLANS (CONTINUED)
For purposes of computing pro forma results, the Bank estimated the fair
values of stock options using the Black-Scholes option pricing model. The
model requires the use of subjective assumptions that can materially affect
fair value estimates. Therefore, the pro forma results are estimates of
results of operations as if compensation expense had been recognized for
the stock option plans. The fair value of each stock option granted and
vested in 1999, 1998 and 1997 was estimated using the following
weighted-average assumptions for grants made in 1999, 1998, and 1997: (1)
expected dividend yields were zero percent; (2) risk-free interest rates
ranging from 4.70 percent to 6.70 percent; (3) expected volatility ranging
from 0.03 percent to 17.13 percent; and (4) expected lives of options
ranging from 6.82 years to 9.56 years.
Had compensation expense for the stock option plans been recognized in
accordance with the fair value accounting standards, net income applicable
to common stock and basic and diluted net income per common share for the
years ended December 31, would have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net income :
As reported $ 811,462 $ 378,883 $ 8,239
Pro forma 706,694 329,876 (161,817)
Basic earnings per share:
As reported $ 1.17 $ 0.55 $ 0.02
Pro forma 1.02 0.48 (0.33)
Diluted earnings per share:
As reported $ 1.12 $ 0.54 $ 0.02
Pro forma 0.97 0.47 (0.32)
</TABLE>
13. REGULATORY MATTERS
CASH AND DUE FROM BANKS
The district Federal Reserve Bank requires the Bank to maintain certain
reserve balances. As of December 31, 1999, the Bank had required reserves
of $129,000, comprised of vault cash.
DIVIDENDS
The Bank is subject to a dividend restriction that generally limits the
amount of dividends that can be paid by an Arizona state-chartered bank.
Under the Arizona Banking Code, cash dividends may not exceed net profits,
as defined, for that year combined with retained net profits for the two
preceding years less any required transfers to surplus. Using this formula,
the amount available for payment of dividends by the Bank in 2000, without
approval of the Arizona Superintendent of Banks, will be limited to
$1,190,000, plus net profits retained up to the date of the dividend
declaration.
CAPITAL REQUIREMENTS
Federal regulations require the Bank to maintain minimum amounts of
capital. Specifically, the Bank is required to maintain certain minimum
dollar amounts and ratios of Total and Tier I capital to risk-weighted
assets and of Tier I capital to average total assets. Management believes,
as of December 31, 1999, the Bank meets all capital adequacy requirements
to which it is subject.
F-56
<PAGE> 189
13. REGULATORY MATTERS (CONTINUED)
In addition to the capital requirements, the Federal Deposit Insurance
Corporation Improvement Act ("FDICIA") established five capital categories
ranging from "well capitalized" to "critically undercapitalized." Should
any institution fail to meet the requirements to be considered "adequately
capitalized," it would become subject to a series of increasingly
restrictive regulatory actions.
As of December 31, 1999 and 1998, the FDIC categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. To
be classified as a well capitalized financial institution, Total
risk-based, Tier 1 risk-based, and Tier 1 Leverage capital ratios must be
at least ten percent, six percent, and five percent, respectively.
The following table reflects the Bank's capital ratios at December 31:
<TABLE>
<CAPTION>
1999 1998
----------------------------- -----------------------------
Amount Ratio Amount Ratio
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total Capital
(to Risk-weighted Assets)
Actual $ 10,846,724 17.91% $ 9,829,695 21.11%
Capital Adequacy Purposes 4,845,702 8.00 3,725,152 8.00
To Be Well Capitalized 6,057,128 10.00 4,656,440 10.00
Tier I Capital
(to Risk-weighted Assets)
Actual $ 10,260,310 16.94% $ 9,422,686 20.24%
Capital Adequacy Purposes 2,422,851 4.00 1,862,576 4.00
To Be Well Capitalized 3,634,277 6.00 2,793,864 6.00
Tier I Capital
(to Average Assets)
Actual $ 10,260,310 11.87% $ 9,422,686 14.43%
Denovo Capital Required -- -- 5,223,760 8.00
Capital Adequacy Purposes 3,458,700 4.00 2,611,880 4.00
To Be Well Capitalized 4,323,376 5.00 3,264,850 5.00
</TABLE>
F-57
<PAGE> 190
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Bank's financial instruments at December
31, are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------- ---------------------------
Carrying Fair Carrying Fair
Value Value Value Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks,
interest-bearing deposits with
other banks and federal
funds sold $ 4,855,510 $ 4,855,510 $ 8,833,203 $ 8,833,203
Investment securities
available for sale 16,716,215 16,716,215 13,244,104 13,244,104
Net loans 62,625,073 61,039,502 43,060,527 42,966,087
Accrued interest receivable 744,614 744,614 450,460 450,460
----------- ----------- ----------- -----------
Total $84,941,412 $83,355,841 $65,588,294 $65,493,854
=========== =========== =========== ===========
Financial liabilities:
Deposits $74,984,067 $74,579,123 $57,626,382 $57,998,141
Short-term borrowings 1,000,000 1,000,000 -- --
Accrued interest payable 95,922 95,922 77,738 77,738
----------- ----------- ----------- -----------
Total $76,079,989 $75,675,045 $57,704,120 $58,075,879
=========== =========== =========== ===========
</TABLE>
Financial instruments are defined as cash, evidence of ownership interest
in an entity, or a contract which creates an obligation or right to receive
or deliver cash or another financial instrument from/to a second entity on
potentially favorable or unfavorable terms.
Fair value is defined as the amount at which a financial instrument could
be exchanged in a current transaction between willing parties other than in
a forced or liquidation sale. If a quoted market price is available for a
financial instrument, the estimated fair value would be calculated based
upon the market price per trading unit of the instrument.
If no readily available market exists, the fair value estimates for
financial instruments are based upon management's judgment regarding
current economic conditions, interest rate risk, expected cash flows,
future estimated losses, and other factors as determined through various
option pricing formulas or simulation modeling. As many of these
assumptions result from judgments made by management based upon estimates
which are inherently uncertain, the resulting estimated fair values may not
be indicative of the amount realizable in the sale of a particular
financial instrument. In addition, changes in assumptions on which the
estimated fair values are based may have a significant impact on the
resulting estimated fair values.
As certain assets such as deferred tax assets and premises and equipment
are not considered financial instruments, the estimated fair value of
financial instruments would not represent the full value of the Bank.
F-58
<PAGE> 191
14. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
CASH AND DUE FROM BANKS, INTEREST-BEARING DEPOSITS IN OTHER BANKS, FEDERAL
FUNDS SOLD, ACCRUED INTEREST RECEIVABLE, SHORT-TERM BORROWINGS, AND ACCRUED
INTEREST PAYABLE
The fair value is equal to the current carrying value.
INVESTMENT SECURITIES
The fair value of investment securities held is equal to the available
quoted market price. If no quoted market price is available, fair value is
estimated using the quoted market price for similar securities.
LOANS AND DEPOSITS
Fair value for commercial, commercial real estate, and consumer loans is
estimated using discounted contractual cash flows generated using
prepayment estimates. Discount rates are based upon current market rates
generally being charged for new loan originations with similar credit and
payment characteristics.
Demand, savings, and money market deposit accounts are valued at the amount
payable on demand as of year-end. Fair values for time deposits are
estimated using a discounted cash flow calculation that applies contractual
costs currently being offered in the existing portfolio to current market
rates being offered for deposits of similar remaining maturities.
COMMITMENTS TO EXTEND CREDIT
These financial instruments are generally not subject to sale, and
estimated fair values are not readily available.
The carrying value, represented by the net deferred fee arising from the
unrecognized commitment or letter of credit, and the fair value, determined
by discounting the remaining contractual fee over the term of the
commitment using fees currently charged to enter into similar agreements
with similar credit risk, are not considered material for disclosure. The
contractual amounts of unfunded commitments and letters of credit are
presented in Note 10.
F-59
<PAGE> 192
FIRST CAPITAL BANK OF ARIZONA
BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---------------- ----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,997,618 $ 2,556,637
Interest-bearing deposits with other banks -- 1,000,000
Federal funds sold 3,703,162 1,298,873
Investment securities available for sale 22,783,175 16,716,215
Loans 72,987,691 63,211,487
Less allowance for loan losses 695,300 586,414
---------------- ----------------
Net loans 72,292,391 62,625,073
Premises and equipment 933,031 1,024,384
Accrued interest and other assets 1,391,932 1,208,850
---------------- ----------------
TOTAL ASSETS $ 104,101,309 $ 86,430,032
================ ================
LIABILITIES
Deposits:
Noninterest-bearing demand $ 13,002,082 $ 7,306,655
Interest-bearing demand 4,750,524 4,182,721
Money market 25,625,006 28,130,049
Savings 333,524 265,263
Time 46,423,584 35,099,379
---------------- ----------------
Total deposits 90,134,720 74,984,067
Short-term borrowings 2,730,000 1,000,000
Accrued interest payable and other liabilities 193,374 517,498
---------------- ----------------
TOTAL LIABILITIES 93,058,094 76,501,565
---------------- ----------------
STOCKHOLDERS' EQUITY
Common stock, par value $5; 10,000,000 shares authorized,
729,593 and 693,981 issued and outstanding 3,647,965 3,469,905
Additional paid-in capital 6,671,911 5,936,650
Retained earnings 956,323 853,755
Accumulated other comprehensive loss (232,984) (331,843)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 11,043,215 9,928,467
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 104,101,309 $ 86,430,032
================ ================
</TABLE>
See accompanying notes to the financial statements.
F-60
<PAGE> 193
FIRST CAPITAL BANK OF ARIZONA
STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
------------- -------------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $ 5,134,284 $ 3,785,822
Federal funds sold 30,803 178,503
Investment securities:
Taxable 833,350 561,465
Nontaxable 2,855 --
------------- -------------
Total interest income 6,001,292 4,525,790
------------- -------------
INTEREST EXPENSE
Deposits 2,784,225 1,985,612
Short-term borrowings 59,411 1,863
------------- -------------
Total interest expense 2,843,636 1,987,475
------------- -------------
NET INTEREST INCOME 3,157,656 2,538,315
Provision for loan losses 108,886 169,681
------------- -------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,048,770 2,368,634
------------- -------------
NONINTEREST INCOME
Service charges on deposit accounts 121,084 92,222
Loan service fees 78,982 42,793
Gains on sales of assets -- 137,978
Other 38,063 36,800
------------- -------------
Total noninterest income 238,129 309,793
------------- -------------
NONINTEREST EXPENSE
Salaries and employee benefits 950,637 1,160,189
Occupancy and equipment 263,485 280,458
Data processing 120,283 112,593
Other 328,062 318,152
------------- -------------
Total noninterest expense 1,662,467 1,871,392
------------- -------------
Income before income taxes 1,624,432 807,035
Income taxes 623,056 301,902
------------- -------------
NET INCOME $ 1,001,376 $ 505,133
============= =============
EARNINGS PER SHARE
Basic $ 1.37 $ 0.69
Diluted 1.30 0.67
</TABLE>
See accompanying notes to the financial statements.
F-61
<PAGE> 194
FIRST CAPITAL BANK OF ARIZONA
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,001,376 $ 505,133
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 108,886 169,681
Depreciation and amortization, net 21,080 111,802
Gains on sales of assets -- (137,978)
Increase in accrued interest receivable (270,515) (393,182)
Increase in accrued interest payable 56,377 4,447
Income taxes payable (447,200) 164,816
Other, net 58,979 41,920
--------------- ---------------
Net cash provided by (used for)
operating activities 528,983 466,639
--------------- ---------------
INVESTING ACTIVITIES
Investment securities available for sale:
Purchases (6,143,591) (8,518,060)
Proceeds from principal repayments
and maturities 103,684 920,000
Proceeds from sales 184,900 --
Net increase in loans (9,715,836) (17,276,429)
Proceeds from sale of loans -- 1,442,274
Purchase of premises and equipment (8,036) (43,777)
Proceeds from sale of land -- 330,392
--------------- ---------------
Net cash used for investing activities (15,578,879) (23,145,600)
--------------- ---------------
FINANCING ACTIVITIES
Net increase in deposits 15,150,653 17,865,301
Net decrease in short term borrowings (1,000,000) --
Increase in FHLB advances 2,730,000 --
Cash paid in lieu of fractional shares (816) --
Net proceeds from sale of common stock 15,329 26,162
--------------- ---------------
Net cash provided by financing activities 16,895,166 17,891,463
--------------- ---------------
Increase (decrease) in cash and
cash equivalents 1,845,270 (4,787,498)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 4,855,510 8,833,203
--------------- ---------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 6,700,780 $ 4,045,705
=============== ===============
</TABLE>
See accompanying notes to the financial statements.
F-62
<PAGE> 195
FIRST CAPITAL BANK OF ARIZONA
NOTES TO THE INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited interim period financial statements do not
necessarily include all information which would be included in audited financial
statements. The information furnished reflects all normal recurring adjustments
which are, in the opinion of management, necessary for the fair statement of the
results for the periods presented. The results of operations for the interim
periods are not necessarily indicative of the results to be expected for the
full year.
COMMON STOCK DIVIDEND
On March 24, 2000, the Board of Directors approved the issuance of a five
percent stock dividend to shareholders of record on April 28, 2000. The dividend
was paid on May 23, 2000, with fractional shares paid out in cash. This
represented the first dividend paid to shareholders since the inception of the
Bank. A total of 34,705 shares of common stock were issued. The dividend was
recorded using the Bank's current market price for its common stock at the time
of issuance, and resulted in a noncash charge of $897,992 to retained earnings.
Cash paid in lieu of issuing fractional shares resulted in payments totaling
$816. The total average shares outstanding and the per share amounts included in
these financial statements for the nine-month period ending September 30, 1999,
are based on the increased number of shares after giving retroactive effect to
the stock dividend.
EARNINGS PER SHARE
There were no convertible securities which would affect the numerator in
calculating basic and diluted earnings per share; therefore, net income as
presented on the Statement of Income will be used as the numerator. The
following table sets forth the composition of the weighted-average common shares
(denominator) used in the basic and diluted earnings per share computation.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
------------ ------------
<S> <C> <C>
Weighted-average common shares
outstanding used to calculate basic
earnings per share 729,277 727,590
Additional common stock equivalents
(stock options) used to calculate
diluted earnings per share 41,155 30,561
------------ ------------
Weighted-average common shares
outstanding used to calculate diluted
earnings per share 770,432 758,151
</TABLE>
F-63
<PAGE> 196
FIRST CAPITAL BANK OF ARIZONA
NOTES TO THE INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
SUBSEQUENT EVENT
The Bank has entered into an Agreement and Plan of Merger, originally dated
October 24, 2000, and subsequently amended and restated as of November 28, 2000,
with Colorado Business Bankshares, Inc. ("COBIZ"). Pending regulatory and each
company's shareholder approvals, the Bank will merge with and into a
wholly-owned subsidiary of COBIZ, with the result that the outstanding shares of
the Bank's common stock will be converted into shares of COBIZ common stock. The
stock exchange ratio will be based upon a predetermined conversion formula,
which calculates the exchange ratio based in part on the average market closing
price of COBIZ common stock. The merger transaction, once completed will be
accounted for as a pooling of interest.
CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
------------ ------------
<S> <C> <C>
Cash paid during the period for:
Interest $ 2,787,259 $ 1,982,028
Income taxes 1,070,054 139,542
</TABLE>
STOCK OPTION PLAN
The Bank maintains a stock option plan for directors, officers, and employees.
The plan provides for granting stock options to officers, employees, and
non-employee directors of the Bank. The maximum aggregate number of shares which
may be optioned and sold through this plan cannot exceed 15 percent of all
issued and outstanding shares of common stock of the Bank taking into
consideration the shares to be issued upon the exercise of an option. Options
granted become exercisable in installments of 25 percent each for the first two
years from the date of grant and the remainder in the third year provided
certain Bank performance benchmarks have been obtained.
F-64
<PAGE> 197
FIRST CAPITAL BANK OF ARIZONA
NOTES TO THE INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
STOCK OPTION PLAN (CONTINUED)
Following is a summary of the status of the plan for the nine-month period
ending September 30, 2000:
<TABLE>
<CAPTION>
(1)
------------------------------
Weighted-
average
Exercise
Shares Price
------------ ------------
<S> <C> <C>
Outstanding at beginning of period 100,660 $ 14.89
Granted 16,840 25.85
Exercised (945) 16.23
Forfeited (2,415) 18.30
------------
Outstanding at end of period 114,140 $ 16.43
============
Exercisable at end of period 70,066 $ 13.36
============
</TABLE>
(1) - The beginning period balance, weighted-average exercise prices, and
activity occurring during the period have been adjusted to give retroactive
effect of the five percent stock dividend distributed on May 23, 2000.
F-65
<PAGE> 198
ANNEX A
================================================================================
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
dated as of November 28, 2000
among
Colorado Business Bankshares, Inc.,
FCBA Acquisition Corporation
and
First Capital Bank of Arizona
================================================================================
<PAGE> 199
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1 THE BASIC TRANSACTION...........................................................................1
1.1 The Merger......................................................................................1
1.2 Conversion of Shares............................................................................2
1.3 Conversion Ratio................................................................................2
1.4 No Fractional Shares............................................................................2
1.5 Dissenting Shares...............................................................................2
1.6 Stock Options...................................................................................3
1.7 Adjustments.....................................................................................3
1.8 Exchange Agent..................................................................................3
1.9 Lost or Destroyed Certificates..................................................................4
1.10 Shareholder Approval............................................................................4
1.10.1 Special Meetings.......................................................................4
1.10.2 CoBiz's Consent. ......................................................................4
1.11 Registration Statement and Joint Proxy Statement................................................5
1.11.1 Preparation and Filing.................................................................5
1.11.2 Information............................................................................5
1.11.3 Effectiveness..........................................................................5
SECTION 2 CLOSING.........................................................................................6
SECTION 3 REPRESENTATIONS AND WARRANTIES OF FCBA..........................................................6
3.1 Corporate and Financial.........................................................................6
3.1.1 Authority..............................................................................6
3.1.2 Corporate Status.......................................................................6
3.1.3 Capital Structure......................................................................7
3.1.4 Corporate Records......................................................................8
3.1.5 Tax Returns, Taxes.....................................................................8
3.1.6 Financial Statements...................................................................9
3.1.7 Undisclosed Liabilities................................................................9
3.1.8 Regulatory Reports.....................................................................9
3.1.9 Community Reinvestment Act.............................................................9
3.1.10 Litigation and Proceedings.............................................................9
3.2 Business Operations............................................................................10
3.2.1 Customers.............................................................................10
3.2.2 Permits; Compliance with Law..........................................................10
3.2.3 Insurance.............................................................................10
3.2.4 Material Contracts....................................................................10
3.2.5 Intellectual Property.................................................................12
</TABLE>
i
<PAGE> 200
<TABLE>
<S> <C> <C>
3.2.6 Personal Property.....................................................................12
3.2.7 Leases................................................................................12
3.2.8 Real Property.........................................................................12
3.2.9 Offices and ATMs......................................................................13
3.2.10 Environmental.........................................................................13
3.2.11 Absence of Changes....................................................................14
3.2.12 Loan Portfolio........................................................................15
3.2.13 Investment Securities.................................................................15
3.2.14 Power of Attorney.....................................................................15
3.2.15 Accounts..............................................................................15
3.2.16 Accounting and Tax Matters............................................................16
3.2.17 Indemnification.......................................................................16
3.2.18 Trust Administration..................................................................16
3.3 Employees and Benefits. .......................................................................16
3.3.1 Compensation..........................................................................16
3.3.2 Directors or Officers of Other Corporations...........................................16
3.3.3 Employee Benefits.....................................................................16
3.3.4 Labor Relations.......................................................................18
3.3.5 Related-Party Transactions............................................................18
3.3.6 Operating Losses......................................................................18
3.4 Approvals, Consents and Filings................................................................18
3.5 Absence of Brokers.............................................................................18
3.6 Representations and Warranties.................................................................19
SECTION 4 REPRESENTATIONS AND WARRANTIES OF COBIZ AND MERGERCO...........................................19
4.1 Corporate and Financial........................................................................19
4.1.1 Authority.............................................................................19
4.1.2 Corporate Status......................................................................19
4.1.3 Capital Structure.....................................................................20
4.1.4 Financial Statements..................................................................20
4.2 Approvals, Consents, and Filings...............................................................21
4.3 Status of CoBiz Common Stock to be Issued......................................................21
4.4 Absence of Brokers.............................................................................21
4.5 Representation and Warranties..................................................................21
SECTION 5 COVENANTS PENDING CLOSING......................................................................21
5.1 Conduct of Business of FCBA....................................................................21
5.1.1 Ordinary Course.......................................................................21
5.1.2 Dividends; Changes in Stock...........................................................22
5.1.3 Issuance of Securities................................................................22
5.1.4 Governing Documents; Compliance with Law..............................................22
5.1.5 No Acquisitions or Dispositions.......................................................22
5.1.6 Maintenance of Properties.............................................................22
</TABLE>
ii
<PAGE> 201
<TABLE>
<S> <C> <C>
5.1.7 Benefit Plans.........................................................................22
5.1.8 Books and Records.....................................................................22
5.1.9 Increase in Compensation..............................................................23
5.1.10 Payment of Debt.......................................................................23
5.1.11 Other Actions.........................................................................23
5.1.12 Maintenance of Insurance..............................................................23
5.1.13 Investment Portfolio..................................................................23
5.1.14 Banking Relationships.................................................................23
5.1.15 Notice of Changes.....................................................................23
5.2 Conduct of Business of CoBiz...................................................................23
5.2.1 Ordinary Course.......................................................................24
5.2.2 Other Actions.........................................................................24
SECTION 6 OTHER AGREEMENTS...............................................................................24
6.1 Ongoing Disclosure.............................................................................24
6.2 Access, Information and Documents..............................................................24
6.3 Confidentiality................................................................................24
6.4 Expenses.......................................................................................25
6.5 Approvals and Consents.........................................................................25
6.6 Press Releases.................................................................................25
6.7 Employees of FCBA..............................................................................25
6.8 Affiliate Agreements...........................................................................26
6.9 Accountant's Letter............................................................................26
6.10 Voting Agreements..............................................................................26
6.11 Tax Opinion....................................................................................26
SECTION 7 CONDITIONS TO CLOSING..........................................................................26
7.1 Conditions to Obligations of CoBiz and Mergerco................................................26
7.1.1 Representations and Warranties........................................................27
7.1.2 Performance of Agreements and Covenants...............................................27
7.1.3 Dissenting Shares.....................................................................27
7.1.4 Certificates and Opinion..............................................................27
7.1.5 Affiliate Agreements..................................................................27
7.1.6 Accountant's Letter...................................................................27
7.1.7 Pooling of Interests..................................................................27
7.1.8 Employment Agreements.................................................................28
7.1.9 Noncompetition/Nonsolicitation Agreement..............................................28
7.1.10 Resignations of FCBA Directors........................................................28
7.1.11 Examinations..........................................................................28
7.1.12 Due Diligence.........................................................................28
7.2 Conditions to Obligations of FCBA..............................................................28
7.2.1 Representations and Warranties........................................................28
7.2.2 Performance of Agreements and Covenants...............................................28
7.2.3 Certificates and Opinion..............................................................28
</TABLE>
iii
<PAGE> 202
<TABLE>
<S> <C> <C>
7.3 Conditions to Obligations of Each Party........................................................29
7.3.1 No Order..............................................................................29
7.3.2 Shareholder Approval..................................................................29
7.3.3 Registration Statement and Blue Sky Filings...........................................29
7.3.4 Consents and Approvals................................................................29
7.3.5 Listing of CoBiz Common Stock.........................................................29
7.3.6 Tax Opinion...........................................................................29
SECTION 8 TERMINATION....................................................................................29
8.1 Right to Terminate.............................................................................29
8.1.1 Mutual Consent........................................................................29
8.1.2 Mutual Termination Rights.............................................................30
8.1.3 Termination Rights of CoBiz...........................................................30
8.1.4 Termination Rights of FCBA............................................................30
8.1.5 Notice of Termination.................................................................30
8.2 Effect of Termination..........................................................................31
SECTION 9 MISCELLANEOUS..................................................................................31
9.1 Survival.......................................................................................31
9.2 Jurisdiction...................................................................................31
9.3 Amendments and Supplements.....................................................................31
9.4 Governing Law..................................................................................31
9.5 Notices........................................................................................31
9.6 Entire Agreement, Assignability, Etc...........................................................32
9.7 Exclusivity of Representations.................................................................32
9.8 Counterparts...................................................................................33
9.9 Headings; Terms................................................................................33
9.10 Waivers........................................................................................33
9.11 Severability...................................................................................33
9.12 Construction...................................................................................33
9.13 Incorporation of Exhibits and Schedule.........................................................33
9.14 Waiver of Jury Trial...........................................................................33
</TABLE>
iv
<PAGE> 203
EXHIBITS
<TABLE>
<S> <C>
Exhibit A - Plan of Merger
Exhibit B - Articles of Merger
Exhibit C - FCBA Disclosure Schedule
Exhibit D - Form of Affiliate Agreement
Exhibit E - Shareholders Executing Voting Agreement
Exhibit F - Form of Voting Agreement
Exhibit G - Opinion of FCBA Counsel
Exhibit H - Form of Employment Agreement - Harold Mosanko
Exhibit I - Form of Employment Agreement - Senior Vice Presidents
Exhibit J - Form of Noncompetition and Nonsolicitation Agreement
Exhibit K - Opinion of CoBiz Counsel
</TABLE>
v
<PAGE> 204
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
(the "Agreement") is entered into as of this 28th day of November, 2000, by and
among Colorado Business Bankshares, Inc., a Colorado corporation and a financial
holding company ("CoBiz"), FCBA Acquisition Corporation, an Arizona corporation
and a wholly-owned subsidiary of CoBiz ("Mergerco"), and First Capital Bank of
Arizona, an Arizona corporation and an Arizona state-chartered bank ("FCBA").
RECITALS
A. The respective Boards of Directors of CoBiz, Mergerco and
FCBA have determined that the merger of Mergerco with and into FCBA (the
"Merger"), upon the terms and subject to the conditions set forth in this
Agreement and the plan of merger attached hereto as EXHIBIT A (the "Plan of
Merger"), would be advisable and in the best interests of their respective
shareholders, and have approved the Plan of Merger and the Merger, pursuant to
which each outstanding share of the common stock of FCBA ("FCBA Common Stock")
shall, except as otherwise provided herein, be converted into shares of the
common stock of CoBiz ("CoBiz Common Stock") as provided herein.
B. Under Arizona law, the Plan of Merger must be approved by
the shareholders of Mergerco and FCBA. Under the rules of the Nasdaq National
Market ("Nasdaq"), on which the CoBiz Common Stock is traded, the Merger must be
approved by the shareholders of CoBiz. The respective Boards of Directors of
CoBiz, Mergerco and FCBA have resolved to recommend that the shareholders of
CoBiz, Mergerco and FCBA, respectively, approve this Agreement and the Merger
and the consummation of the transactions contemplated hereby upon the terms and
subject to the conditions set forth herein.
C. In furtherance thereof, the Boards of Directors of CoBiz,
Mergerco and FCBA have approved this Agreement and the Merger in accordance with
Colorado and Arizona law and upon the terms and subject to the conditions set
forth herein.
D. The Merger is intended to qualify as a tax-free
reorganization within the meaning of the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code").
AGREEMENT
In consideration of the premises and the mutual covenants set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1
THE BASIC TRANSACTION
1.1 THE MERGER. On the terms and subject to the conditions set forth in
this Agreement, Mergerco, as the disappearing corporation, shall be merged with
and into FCBA as the surviving
<PAGE> 205
corporation, all as more specifically provided in the Plan of Merger. At the
Closing, FCBA and Mergerco shall execute articles of merger in the form required
by Arizona law attached hereto as EXHIBIT B (the "Articles of Merger") and shall
cause the Articles of Merger to be filed with the Arizona Corporation
Commission. The Merger shall become effective upon such filing (the "Effective
Time").
1.2 CONVERSION OF SHARES. In the Merger, each share of FCBA Common
Stock outstanding at the Effective Time (other than Dissenting Shares as defined
below) shall be converted into the right to receive shares of CoBiz Common Stock
as provided in Section 1.3. Any issued shares of FCBA Common Stock held in the
treasury of FCBA shall be canceled and retired and no conversion shall occur
with respect thereto. Each share of the common stock of Mergerco outstanding at
the Effective Time shall be converted into and become one validly issued, fully
paid and non-assessable share of FCBA common stock. The CoBiz Common Stock
outstanding at the Effective Time shall not be converted or otherwise affected
by the Merger.
1.3 CONVERSION RATIO. The conversion ratio in the Merger shall be based
upon the average closing price of the CoBiz Common Stock on Nasdaq for the 20
trading days ending with the third trading day prior to the Closing (the
"Average Closing Price"). If the Average Closing Price is $14.50 or less, the
conversion ratio shall be 2.621 shares of CoBiz Common Stock for each share of
FCBA Common Stock. If the Average Closing Price is greater than $14.50, the
number of shares of CoBiz Common Stock issuable for each share of FCBA Common
Stock shall be determined by dividing (a) $38.00 plus the product of 0.5 times
the difference between the Average Closing Price and $14.50 by (b) the Average
Closing Price. The conversion ratio calculation set forth in this Section 1.3
assumes that there are 729,593 shares of FCBA Common Stock outstanding as of the
Effective Time. If, as of the Effective Time, there are more than 729,593 shares
of FCBA Common Stock outstanding, the conversion ratio calculated under this
Section 1.3 shall be proportionately adjusted so that the aggregate number of
shares of CoBiz Common Stock issuable in the Merger will be the same as the
number of shares that would have been issued if there had been 729,593 shares of
FCBA Common Stock outstanding; provided, however, that no such adjustment shall
be required in respect of shares of FCBA Common Stock issued upon exercise of
FCBA Stock Options (as defined below) outstanding as of the date hereof. The
actual conversion ratio calculated as provided in this Section 1.3 is referred
to as the "Conversion Ratio". If the Average Closing Price is less than $14.50,
FCBA may terminate this Agreement pursuant to Section 8.1.4(iii).
1.4 NO FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, fractional shares of CoBiz Common Stock shall not be issued to any
holder of FCBA Common Stock in the Merger. Each holder of shares of FCBA Common
Stock who otherwise would have been entitled to receive a fraction of a share of
CoBiz Common Stock (after aggregating all fractional shares of CoBiz Common
Stock to be received by such holder) shall receive in lieu thereof cash (rounded
to the nearest whole cent), without interest, in an amount determined by
multiplying such holder's fractional interest by the Average Closing Price.
1.5 DISSENTING SHARES. Notwithstanding anything in this Agreement to
the contrary, shares of FCBA Common Stock outstanding immediately prior to the
Effective Time and held by holders who did not vote in favor of the Merger and
who comply with all of the relevant provisions
2
<PAGE> 206
of Section 10-1301 et seq. of the Arizona Business Corporation Act ("Dissenting
Shares") shall not be converted into the right to receive shares of CoBiz Common
Stock, unless and until such holders shall have failed to perfect or shall have
effectively withdrawn or lost their rights to appraisal. If, after the Effective
Time, any such holder fails to perfect or withdraws or otherwise loses such
right, each of such holder's shares of FCBA Common Stock shall thereupon be
deemed to have been converted into the right to receive, as of the Effective
Time, shares of CoBiz Common Stock as provided in Section 1.3. FCBA shall give
CoBiz prompt notice of any demands received by FCBA for appraisal of shares of
FCBA Common Stock, and, prior to the Effective Time, CoBiz shall have the right
to participate in all negotiations and proceedings with respect to such demands.
Prior to the Effective Time, FCBA shall not, except with the prior written
consent of CoBiz, make any payment with respect to, or settle or offer to
settle, any such demands.
1.6 STOCK OPTIONS. At the Effective Time, CoBiz shall assume the First
Capital Bank of Arizona Amended and Restated 1995 Stock Option Plan ("the FCBA
Option Plan") and each and every outstanding option to purchase shares of FCBA
Common Stock (the "FCBA Stock Options") issued under such plan. Such plan and
each FCBA Stock Option shall be automatically amended at the Effective Time to
provide that (i) such FCBA Stock Option shall be exercisable for that number of
whole shares of CoBiz common stock equal to the product of (a) the number of
shares of FCBA Common Stock that were issuable under such FCBA Stock Option
immediately prior to the Effective Time multiplied by (b) the Conversion Ratio;
and (ii) the per share exercise price for the shares of CoBiz Common Stock
issuable upon exercise of such FCBA Stock Option shall be equal to the quotient
determined by dividing (a) the exercise price per share of the FCBA Common Stock
at which such FCBA Stock Option was exercisable immediately prior to the
Effective Time by (b) the Conversion Ratio. There shall be no other changes to
the terms or conditions of the FCBA Option Plan or any FCBA Stock Option as a
result of the merger.
1.7 ADJUSTMENTS. If at any time during the period between the date of
this Agreement and the Effective Time, any change in the outstanding shares of
CoBiz Common Stock occurs or is effected by reason of any reclassification,
recapitalization, stock split or combination, exchange or readjustment of
shares, or any stock dividend thereon with a record date during such period, the
Conversion Ratio shall be proportionately adjusted.
1.8 EXCHANGE AGENT. Upon the terms and conditions of this Agreement,
CoBiz shall make available on or before the Closing to Corporate Stock Transfer,
Inc., who is designated as exchange agent (the "Exchange Agent"), such number of
shares of CoBiz Common Stock as shall be issuable to the shareholders of FCBA
Common Stock in accordance with this Agreement and the estimated amount
necessary to make payments in cash in lieu of fractional shares. As soon as
practicable after the Closing, CoBiz or the Exchange Agent shall mail to each
holder of record of FCBA Common Stock a form letter of transmittal and
instructions for the surrender of certificates formerly representing FCBA Common
Stock in exchange for certificates representing the CoBiz Common Stock issuable
pursuant to this Agreement. Upon receipt by the Exchange Agent of a properly
completed and signed transmittal letter, together with certificates representing
the FCBA Common Stock being surrendered, the Exchange Agent shall promptly issue
to each former holder
3
<PAGE> 207
of FCBA Common Stock, CoBiz Common Stock certificates representing such holder's
shares of CoBiz Common Stock, together with all undelivered dividends or
distributions, less the amount of any withholding taxes which may be required
for the shares, and a check for an amount in lieu of any fractional shares. As
of and after the Effective Time, the holders of FCBA Common Stock shall be
entitled to all of the rights and benefits of a holder of CoBiz Common Stock.
Until surrendered as contemplated by this Section 1.8, each certificate
representing shares of FCBA Common Stock shall be deemed after the Effective
Time to represent only the right to receive upon such surrender the certificate
representing shares of CoBiz Common Stock and cash in lieu of any fractional
shares of stock as contemplated by this Section 1.8. All amounts of cash in
respect of fractional interests which have not been claimed at the end of one
year from the Effective Time by surrender of certificates representing FCBA
Common Stock for shares of CoBiz Common Stock shall be repaid to FCBA as the
surviving corporation, subject to the provisions of applicable escheat or
similar laws, for the account of the holders entitled thereto. Any declaration
of dividends by CoBiz after the Merger will include dividends on all CoBiz
Common Stock issued in the Merger, but no dividend or other distribution payable
to the holders of the CoBiz Common Stock to be issued in the Merger will be paid
to such holders until such shareholders physically surrender all certificates as
described above.
1.9 LOST OR DESTROYED CERTIFICATES. Notwithstanding anything to the
contrary set forth herein, if any holder of shares of FCBA Common Stock should
be unable to surrender his, her or its certificates representing shares of FCBA
Common Stock because they have been lost or destroyed, such holder may deliver
in lieu thereof a bond in form and substance and with surety reasonably
satisfactory to CoBiz and shall be entitled to receive the certificate
representing the proper number of shares of CoBiz Common Stock and cash in lieu
of fractional shares in accordance with Section 1.8.
1.10 SHAREHOLDER APPROVAL.
1.10.1 SPECIAL MEETINGS. Each of CoBiz and FCBA, acting
through their respective Boards of Directors, shall in accordance with
applicable law and their respective articles of incorporation and bylaws duly
call, give notice of, convene and hold a special meeting (in each case, a
"Special Meeting") of its shareholders as soon as practicable for the purpose of
considering and taking action upon this Agreement and the Merger. Each of the
CoBiz and the FCBA Board of Directors shall, subject to their fiduciary duties,
at all times continue their recommendations of this Agreement and the Merger to
their respective shareholders in effect without qualification and shall use
commercially reasonable efforts to obtain shareholder approval of this Agreement
and the Merger. Notwithstanding the foregoing, CoBiz or FCBA shall not be
obligated to call or hold a Special Meeting if the other party is in breach of
or default under this Agreement and such breach or default, if not cured, would
result in the nonfulfillment of a condition to the obligations of CoBiz or FCBA,
as the case may be, under Section 7.
1.10.2 COBIZ'S CONSENT. CoBiz, as the sole shareholder of
Mergerco, hereby consents to the adoption of this Agreement by Mergerco and
agrees that such consent shall be treated
4
<PAGE> 208
for all purposes as a vote duly adopted at a meeting of the shareholders of
Mergerco held for this purpose.
1.11 REGISTRATION STATEMENT AND JOINT PROXY STATEMENT.
1.11.1 PREPARATION AND FILING. The parties agree to jointly
prepare a registration statement on Form S-4 (the "Registration Statement") to
be filed by CoBiz with the Securities and Exchange Commission (the "SEC") in
connection with the issuance of the CoBiz Common Stock pursuant to this
Agreement (including the proxy statement and prospectus and other proxy
solicitation materials of CoBiz and FCBA (the "Joint Proxy Statement") and all
related documents). Each party agrees to cooperate with the other parties, their
counsel and their accountants, in the preparation of the Registration Statement
and the Joint Proxy Statement; and provided that both parties have cooperated as
provided above, CoBiz agrees to file the Registration Statement with the SEC as
promptly as reasonably practicable. Each of FCBA and CoBiz agrees to use all
reasonable efforts to cause the Registration Statement to be declared effective
under the Securities Act of 1933, as amended (the "Securities Act"), as promptly
as reasonably practicable after any SEC comments are resolved. CoBiz also agrees
to use all reasonable efforts to obtain all necessary state securities law or
"Blue Sky" permits and approvals required to carry out the transactions
contemplated by this Agreement. FCBA agrees to furnish to CoBiz all information
concerning FCBA and its officers, directors and shareholders as may be
reasonably requested in connection with the foregoing
1.11.2 INFORMATION. Each party agrees that (i) none of the
information supplied or to be supplied by it for inclusion or incorporation by
reference in the Registration Statement shall, at the time the Registration
Statement and each amendment or supplement thereto, if any, becomes effective
under the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which they
were made, not misleading and (ii) the Joint Proxy Statement and each amendment
or supplement thereto, if any, will, at the date of mailing to shareholders and
at the time of the Special Meetings, as the case may be, not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading. Each of FCBA and CoBiz
further agrees that if it becomes aware prior to the Effective Time of any
information furnished by it that would cause any of the statements in the Joint
Proxy Statement or the Registration Statement to be false or misleading with
respect to any material fact, or to omit to state any material fact necessary to
make the statements therein not false or misleading, it will promptly inform the
other party thereof and take the necessary steps to correct the Joint Proxy
Statement or the Registration Statement.
1.11.3 EFFECTIVENESS. CoBiz agrees to promptly advise FCBA of
the time when the Registration Statement has become effective or any supplement
or amendment has been filed, of the issuance of any stop order or the suspension
of the qualification of the CoBiz Common Stock for offering or sale in any
jurisdiction, of the initiation or threat of any proceeding for any such purpose
5
<PAGE> 209
or of any request by the SEC for the amendment or supplement of the Registration
Statement or for additional information.
SECTION 2
CLOSING
As soon as reasonably practicable after the satisfaction or waiver of
all of the conditions precedent set forth in Section 7, but no later than March
31, 2001, the closing of the transactions contemplated by this Agreement (the
"Closing") shall be held at the offices of Sherman & Howard L.L.C., 633
Seventeenth Street, Denver, Colorado, or at such other place as CoBiz and FCBA
may agree upon in writing. At the Closing, FCBA shall deliver the items
described in Section 7.1, and CoBiz and Mergerco shall deliver the items
described in Section 7.2.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF FCBA
To induce CoBiz and Mergerco to enter into this Agreement, FCBA
represents and warrants as follows (which representations and warranties are
being made as of the date of this Agreement and shall be deemed to be made again
as of the Closing), except as set forth in the disclosure schedule attached
hereto as EXHIBIT C (the "FCBA Disclosure Schedule"), the section numbers of
which are numbered to correspond to the sections of this Agreement to which they
refer.
3.1 CORPORATE AND FINANCIAL.
3.1.1 AUTHORITY.
(i) Subject to obtaining the consents and approvals
set forth in Section 3.4, FCBA has full power and authority to make, execute and
perform this Agreement and to consummate the transactions contemplated hereby,
and no further action is necessary on the part of FCBA to authorize its
consummation of the transactions contemplated hereby. This Agreement constitutes
the valid and binding obligation of FCBA and is enforceable in accordance with
its terms, except as limited by the laws affecting creditors' rights generally
and to general principles of equity.
(ii) Subject to obtaining the consents and approvals
set forth in Section 3.4, the execution, delivery and performance of this
Agreement and the transactions contemplated hereby shall not, with or without
the giving of notice or the passage of time, or both, (a) violate any provision
of any law or regulation applicable to FCBA; (b) violate any provision of the
articles of incorporation, charter or bylaws of FCBA; (c) conflict with or
result in a breach of any provision of, or termination of, or constitute a
default under any instrument, license, agreement or commitment to which FCBA is
a party; or (d) constitute a violation of any order, judgment or decree to which
FCBA is a party or by which FCBA or any of its assets or properties are bound.
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3.1.2 CORPORATE STATUS. FCBA is a corporation duly organized,
validly existing and in good standing under the laws of the State of Arizona and
is authorized to conduct a general banking business by the Arizona
Superintendent of Banks (the "ASB"). FCBA's deposits are insured by the Federal
Deposit Insurance Corporation (the "FDIC") in the manner and to the fullest
extent provided by law. FCBA has all requisite corporate power and authority and
is entitled to own or lease its properties and assets and to carry on its
business in the places where such properties or assets are now owned, leased or
operated and such business is conducted. FCBA is not required to be licensed,
qualified or domesticated as a foreign corporation in any jurisdiction. Except
as set forth in Section 3.1.2 of the FCBA Disclosure Schedule, FCBA does not own
any capital stock or other voting interest in any corporation or other entity.
3.1.3 CAPITAL STRUCTURE.
(i) FCBA has authorized capital stock consisting of
10,000,000 shares of common stock, $5.00 par value, of which 729,593 shares are
issued and outstanding as of the date of this Agreement. All of the outstanding
capital stock of FCBA is duly authorized, validly issued, fully paid and
non-assessable and was offered, issued and sold in compliance with all
applicable federal and state securities laws. No person has any right of
rescission or claim for damages under federal or state securities laws with
respect to the issuance of any shares of capital stock of FCBA. None of the
capital stock of FCBA has been issued in violation of any preemptive or other
rights of its shareholders.
(ii) Except as set forth in Section 3.1.3(ii) of the
FCBA Disclosure Schedule, FCBA does not have outstanding any securities which
are either by their terms or by contract convertible into or exchangeable for
capital stock of FCBA, or any other securities or debt of FCBA, or any
preemptive or similar rights to subscribe for or to purchase, or any options or
warrants or agreements or understandings for the purchase or the issuance of,
its capital stock or securities convertible into its capital stock. FCBA is not
subject to any obligation to repurchase or otherwise acquire or retire, or to
register with the SEC, any shares of its capital stock.
(iii) Except as set forth in Section 3.1.3(iii) of
the FCBA Disclosure Schedule, there is no agreement, arrangement or
understanding to which FCBA is a party restricting or otherwise relating to the
transfer of any shares of capital stock of FCBA.
(iv) There is no agreement, arrangement or
understanding to which FCBA is a party relating to the voting of any shares of
capital stock of FCBA.
(v) All shares of FCBA Common Stock or other capital
stock, or any other securities or debt of FCBA which have been purchased or
redeemed by FCBA have been purchased or redeemed in accordance with all
applicable federal, state and local laws, rules, and regulations, including,
without limitation, all banking laws and all federal and state securities laws
and rules and regulations of any securities exchange or system on which such
stock, securities or debt are, or at such time were, traded, and no such
purchase or redemption has resulted or shall with the giving of
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notice or lapse of time, or both, result in a default or acceleration of the
maturity of, or otherwise modify, any agreement, note, mortgage, bond, security
agreement, loan agreement or other contract or commitment of FCBA.
3.1.4 CORPORATE RECORDS. The stock records and minute books of
FCBA previously furnished to CoBiz fully and accurately reflect all issuances,
transfers and redemptions of the capital stock of FCBA, correctly show the
record addresses of the FCBA shareholders and the number of shares of FCBA
capital stock held by each such shareholder, correctly show all corporate action
taken by the directors (or any committee) and shareholders of FCBA (including
actions taken by consent without a meeting), and contain true and correct copies
or originals of FCBA's articles of incorporation, charter and bylaws, in each
case as amended and currently in force, and the minutes of all meetings or
consent actions of its directors and shareholders. No resolutions have been
adopted by the directors or shareholders of FCBA except those contained in the
minute books. All corporate records of FCBA have been maintained in accordance
with all applicable statutory and regulatory requirements and are complete and
accurate.
3.1.5 TAX RETURNS, TAXES. Except as set forth in Section 3.1.5
of the FCBA Disclosure Schedule, FCBA has duly filed when due (i) all required
federal and state tax returns and reports, and (ii) all required returns and
reports of other governmental agencies having jurisdiction with respect to taxes
imposed upon FCBA's income, properties, revenues, operations or other assets or
taxes imposed which might create a lien or encumbrance on any such assets. Such
returns or reports are true, complete and correct, and FCBA has paid to the
extent such taxes or other governmental charges have become due, all taxes and
other governmental charges including all applicable interest and penalties set
forth in such returns or reports. There are no liens on the assets of FCBA
relating to or attributable to any taxes. FCBA is not currently the beneficiary
of any extension of time within which to file any such written return or report.
All federal, state and local taxes and other governmental charges payable by
FCBA have been paid or have been adequately accrued or reserved for on FCBA's
books in accordance with generally accepted accounting principles and banking
regulations applied on a consistent basis Until the Effective Time, FCBA shall
continue to reserve sufficient funds for the payment of expected tax liabilities
in accordance with generally accepted accounting principles and banking
regulations applied on a consistent basis. FCBA has not received any notice of a
tax deficiency or assessment of additional taxes of any kind and, to the
knowledge of FCBA, there is no threatened claim against FCBA or any basis for
any such claim, for payment of any additional federal, state or local taxes for
any period prior to the date of this Agreement in excess of the accruals or
reserves with respect to any such claim shown in the most recent audited
financial statements provided by FCBA to CoBiz. FCBA has not constituted a
"distributing corporation" or a "controlled corporation" in a distribution of
stock qualifying for tax-free treatment under Section 355 of the Code (x) in
the two years prior to the date of this Agreement or (y) in a distribution which
could otherwise constitute part of a "plan" or "series of related transactions"
(within the meaning of Section 355(e) of the Code) that includes the Merger.
Proper and accurate amounts have been withheld by FCBA from its employees for
all periods in full and complete compliance with the tax withholding provisions
of applicable federal, state and local tax laws, and proper and accurate
federal, state and local tax returns have been filed by FCBA for all
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periods for which returns were due with respect to withholding, social security
and unemployment taxes and the amounts shown thereon to be due and payable have
been paid in full.
3.1.6 FINANCIAL STATEMENTS. FCBA has delivered to CoBiz true,
correct and complete copies of (i) the audited financial statements of FCBA for
the years ended December 31, 1997, 1998 and 1999, including balance sheets,
statements of income, statements of shareholders' equity and statement of cash
flows and (ii) unaudited financial statements of FCBA, including a balance
sheet, statement of income, statement of shareholders' equity and statement of
cash flows for the nine months ended September 30, 2000. All such financial
statements have been prepared in accordance with generally accepted accounting
principles and banking regulations consistently applied and truthfully reflect
in all material aspects the assets, liabilities and financial condition of FCBA
as of the dates indicated therein and the results of its operations for the
respective periods then ended.
3.1.7 UNDISCLOSED LIABILITIES. FCBA has no debt, liability or
obligation of any kind, whether accrued, absolute, known or unknown, contingent
or otherwise except (i) those reflected in the most recent audited balance sheet
provided by FCBA to CoBiz or (ii) those incurred in the ordinary course of
business since December 31, 1999, none of which arises from any breach of
contract, tort or violation of law.
3.1.8 REGULATORY REPORTS. FCBA has filed all reports,
registrations and other documents, together with any amendments required to be
made with respect thereto (the "FCBA Filings"), that were required to be filed
with (i) the FDIC, (ii) the ASB, (iii) the SEC and (iv) any other applicable
governmental entity. No administrative actions have been taken or orders issued
in connection with such FCBA Filings. As of their respective dates, each FCBA
Filing (i) complied in all material respects with all laws and regulations
enforced or promulgated by the governmental entity with which it was filed; and
(ii) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. All financial statements contained in the FCBA Filings fairly
present the financial position and results of operations of FCBA as of the dates
and for the periods covered thereby and were prepared in accordance with
generally accepted accounting principles and the regulations of the agency with
which the FCBA Filings were filed, consistently applied. FCBA has furnished or
made available to CoBiz true and correct copies of all FCBA Filings.
3.1.9 COMMUNITY REINVESTMENT ACT. FCBA has received a rating
of "outstanding" in its most recent examination or interim review with respect
to the Community Reinvestment Act. FCBA has not been advised of any supervisory
concerns regarding FCBA's compliance with the Community Reinvestment Act.
3.1.10 LITIGATION AND PROCEEDINGS. There are no actions,
decrees, suits, counterclaims, claims, proceedings or governmental actions or
investigations pending or, to the knowledge of FCBA, threatened against FCBA in
any court or before any arbitrator or governmental
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agency, and no judgment, award, order or decree has been rendered against FCBA
by any agency, arbitrator, court, commission or other authority.
3.2 BUSINESS OPERATIONS.
3.2.1 CUSTOMERS. FCBA has no knowledge of any presently
existing facts which could reasonably be expected to result in the loss of any
material borrower or depositor of FCBA or in the inability of FCBA to collect
amounts due therefrom or to return funds deposited thereby.
3.2.2 PERMITS; COMPLIANCE WITH LAW. FCBA has all permits,
licenses, approvals, authorizations and registrations under all federal, state
and local laws required for it to carry on its business as presently conducted,
all such permits, licenses, approvals, authorizations and registrations are in
full force and effect and no suspension or cancellation of any of them is
pending or, to the knowledge of FCBA, threatened. FCBA has complied with all
laws, regulations, and orders applicable to it or its business. No notice or
warning from any governmental authority with respect to any failure or alleged
failure of FCBA to comply in any material respect with any law, regulation or
order has been received by FCBA, nor to the knowledge of FCBA, is any such
notice or warning threatened.
3.2.3 INSURANCE. Section 3.2.3 of the FCBA Disclosure Schedule
contains a complete list and description (including the expiration date, premium
amount and coverage thereunder) of all policies of insurance and bonds presently
maintained by, or providing coverage for, FCBA or any of its officers, directors
and employees, all of which are in full force and effect, together with a
complete list of all pending claims under any such policies or bonds. All terms,
obligations and provisions of each such policy and bond has been complied with,
all premiums due thereon have been paid and no notice of cancellation with
respect thereto has been received by FCBA. FCBA believes that such policies and
bonds provide adequate coverage to insure the properties and business of FCBA
and the activities of its officers, directors and employees against such risks
and in such amounts as are prudent and customary. FCBA has no liability for
premiums or for retrospective premium adjustments with respect to such policies.
FCBA has previously made available to CoBiz a true, correct and complete copy of
each such insurance policy and bond.
3.2.4 MATERIAL CONTRACTS. Section 3.2.4 of the FCBA Disclosure
Schedule contains a list identifying and briefly describing all written
contracts, agreements, mortgages, security agreements, deeds of trust,
guaranties or commitments to which FCBA is a party, or by which it may be bound
(other than the Leases (as defined below), the Plans (as defined below) and
agreements relating to the loans, leases and other extensions of credit set
forth in Section 3.2.12), involving the payment or receipt of more than $10,000
or having a term or requiring performance over a period of more than 90 days
(collectively the "Material Contracts") including, but not limited to:
(i) any employment, bonus or consulting contract;
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(ii) any contract concerning a partnership or joint
venture;
(iii) any contract or agreement that restricts FCBA
(or would restrict FCBA as the surviving corporation after the Effective Time)
from competing in any line of business in any location;
(iv) any mortgage, pledge, conditional sales
contract, security agreement, option, or any other similar agreement (other than
those in which FCBA is mortgagee, secured party or deed of trust beneficiary, in
each case arising in the ordinary course of its business);
(v) any contract of participation with any other
financial institution or person in any loan or any sales of assets of FCBA with
recourse of any kind to FCBA;
(vi) any agreement for the sale of any property or
assets in which FCBA has an ownership interest or for the grant of any
preferential right to purchase any such property or asset;
(vii) any agreement or promissory note relating to
the borrowing of any money or the deferred purchase price of property (other
than interbank borrowings made in the ordinary course of business and reflected
in the most recent audited financial statements of FCBA provided to CoBiz);
(viii) any guarantee or indemnification other than
letters of credit or loan commitments issued by FCBA in the ordinary course of
business;
(ix) any restrictive covenant contained in any Lease
or deed to Real Property (as defined below) that materially restricts the use,
transferability or value of such property;
(x) any agreement relating to business acquisitions
or dispositions not yet consummated;
(xi) any contracts to which any director, officer or
employee of FCBA is a party (other than agreements relating to employment); and
(xii) any agreement to acquire equipment or any
commitment to make capital expenditures.
Each Material Contract is in full force and effect, is valid
and enforceable in accordance with its terms (subject to any applicable
bankruptcy or creditor laws), constitutes a legal and binding obligation of FCBA
and is not the subject of any notice of default, termination or partial
termination or of any ongoing, pending, completed or threatened investigation,
inquiry or other proceeding or action that will give rise to any notice of
default, termination or partial termination.
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FCBA has complied with the provisions of each Material Contract. A true and
complete copy of each Material Contract has been made available to CoBiz for
examination.
3.2.5 INTELLECTUAL PROPERTY. Section 3.2.5 of the FCBA
Disclosure Schedule describes all of the Intellectual Property Rights (as
defined below), including information as to all registrations or other filings
related thereto. The Intellectual Property Rights are all those necessary for
the conduct of the business of FCBA as presently conducted. FCBA has no
obligation to compensate any person for the use of any Intellectual Property
Rights and FCBA has not granted to any person any license, option or other
rights to use in any manner any of the Intellectual Property Rights, whether
requiring the payment of royalties or not. The Intellectual Property Rights
shall not cease to be rights of FCBA or be impaired by reason of the performance
of this Agreement or the consummation of the transactions contemplated hereby.
No other person (i) has notified FCBA that such person claims any ownership of
or right to use any Intellectual Property Rights or (ii) to the knowledge of
FCBA, is infringing upon any Intellectual Property Rights. To the knowledge of
FCBA, FCBA's use of the Intellectual Property Rights does not conflict with,
infringe upon or otherwise violate the valid rights of any third party anywhere
where the business of FCBA is currently conducted or is currently proposed to be
conducted by FCBA. No written notice has been received and not fully resolved
and, to the knowledge of FCBA, no action has been instituted or threatened
against FCBA alleging that FCBA's use of the Intellectual Property Rights
infringes upon or otherwise violates any rights of a third party. For purposes
of this Agreement, "Intellectual Property Rights" shall mean all intellectual
property rights pertaining to the business of FCBA, including all (i)
trademarks, trade names, service marks or other trade rights, whether or not
registered, and all pending applications for any such registrations; (ii)
copyrights, copyrightable materials or pending applications therefor; (iii)
trade secrets; (iv) inventions, discoveries, designs, and drawings; (v) computer
software (including all source and object codes and manuals); and (vi) patents
and patent applications.
3.2.6 PERSONAL PROPERTY. FCBA has good and marketable title to
all of its personal property, free and clear of all encumbrances, liens or
charges of any kind or character except liens for taxes not due and payable. The
personal property owned and leased by FCBA is in good operating order (ordinary
wear and tear excepted), is usable in the ordinary course of business, and is
sufficient and adequate to carry on the business of FCBA as currently conducted.
3.2.7 LEASES. Section 3.2.7 of the FCBA Disclosure Schedule
sets forth a list of all leases pursuant to which FCBA is either lessor or
lessee of any real or personal property (the "Leases"). All Leases are valid and
enforceable in accordance with their terms, there is not under any such Lease
any default or any event which with notice or lapse of time, or both, would
constitute a default by FCBA or, to the knowledge of FCBA, by any other party
thereto. There are no contractual obligations, agreements in principle or
present plans for FCBA to enter into new leases or to renew or amend existing
Leases prior to the Closing. The copies of the Leases and any amendments thereto
provided by FCBA to CoBiz are true, correct and complete, the Leases have not
been modified in any respect other than pursuant to such amendments, and the
Leases are in full force and effect in accordance with their terms. Except as
set forth in Section 3.2.7 of the FCBA
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Disclosure Schedule, no rent has been paid in advance and no security deposit
has been paid with respect to any Lease.
3.2.8 REAL PROPERTY. Section 3.2.8 of the FCBA Disclosure
Schedule lists all real property (other than security interests) owned by FCBA
(the "Real Property"). Except as set forth in Section 3.2.8 of the FCBA
Disclosure Schedule, (i) FCBA has good and marketable title to each parcel of
Real Property and the title to each parcel of Real Property is covered by a
title insurance policy providing coverage in the amount of the original purchase
price; (ii) the interests of FCBA in each parcel of the Real Property are free
and clear of any and all liens and encumbrances except for liens for current
taxes not yet due and are not subject to any present claim, contest, dispute,
action or, to the knowledge of FCBA, threatened action at law or in equity;
(iii) the present and past use of, and improvements upon, each parcel of Real
Property and all real properties leased by FCBA (the "Leased Property") are in
compliance with all applicable building, fire, zoning and other applicable laws,
ordinances and regulations, including the Americans with Disabilities Act, and
deed restrictions of record and no notice of any violation or alleged violation
thereof has been received; (iv) to the knowledge of FCBA, there is no proposed
or pending change in the zoning of, or any proposed or pending condemnation
proceeding with respect to, any parcel of Real Property or Leased Property; and
(v) the buildings and structures owned, leased or used by FCBA are, taken as a
whole, in good operating order (ordinary wear and tear excepted), are usable in
the ordinary course of business and are sufficient and adequate to carry on the
business of FCBA as presently conducted.
3.2.9 OFFICES AND ATMS. Section 3.2.9 of the FCBA Disclosure
Schedule lists the headquarters of FCBA (identified as such) and each of the
offices and automated teller machines ("ATMs") maintained and operated by FCBA
and the location thereof. Except as set forth in Section 3.2.9 of the FCBA
Disclosure Schedule, FCBA does not maintain any other office or ATM or conduct
business at any other location, and FCBA has not applied for or received
permission to open or close any additional branch or operate at any other
location.
3.2.10 ENVIRONMENTAL. (i) FCBA is in compliance with all
Environmental Regulations (as defined below); (ii) there are no Hazardous
Materials (as defined below) on, below or above the surface of, or migrating to
or from any parcel of Real Property or Leased Property; (iii) FCBA has no
outstanding loans secured by real property that is not in compliance with
Environmental Regulations, upon which there are Hazardous Materials or from or
to which Hazardous Materials have migrated or are migrating; and (iv) there is
no claim, action, suit, proceeding or notice thereof before any governmental
entity pending against FCBA or concerning any real property securing FCBA loans
and there is no outstanding judgment, order, writ, injunction, decree, or award
against FCBA or any real property securing FCBA loans relating to the
representations made in clauses (i) through (iii) above. For purposes of this
Agreement, the term "Environmental Regulations" shall mean all applicable
statutes, regulations, rules, ordinances, codes, licenses, permits, orders,
approvals, plans, authorizations, concessions, franchises, and similar items of
all governmental entities and all applicable judicial, administrative, and
regulatory decrees, judgments, and orders relating to the protection of human
health or the environment. "Hazardous Materials" shall mean any substance the
presence of which requires investigation or remediation
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under any federal, state or local statute, regulation, ordinance, order, action,
policy or common law or which is or becomes defined as a hazardous waste,
hazardous substance, hazardous material, used oil, pollutant or contaminant
under any federal, state or local statute, regulation, rule or ordinance or
amendments thereto. FCBA has provided to CoBiz phase I environmental assessments
with respect to each piece of Real Property and Leased Property as to which such
a phase I environmental investigation has been prepared by or on behalf of FCBA.
3.2.11 ABSENCE OF CHANGES. Except as specifically provided for
in this Agreement or as specifically set forth in Section 3.2.11 of the FCBA
Disclosure Schedule, since December 31, 1999:
(i) there have been no changes in the business,
assets, properties, liabilities, results of operations or financial condition of
FCBA, or in any of its relationships with customers, employees, lessors or
others, other than changes in the ordinary course of business, none of which
individually or in the aggregate has had, or which FCBA believes shall have, a
material adverse effect on FCBA's businesses, assets, properties, liabilities,
results of operations or financial condition;
(ii) the business of FCBA has been operated in the
ordinary course;
(iii) the properties and assets used in FCBA's
business have been maintained in good order, repair and condition, ordinary wear
and tear excepted;
(iv) the books, accounts and records of FCBA have
been maintained in the usual, regular and ordinary manner;
(v) there has been no increase in the compensation
payable or to become payable to any director, executive officer or employee of
FCBA other than increases made in the ordinary course and consistent with past
practice;
(vi) there have been no changes in the articles of
incorporation, charter, or bylaws of FCBA;
(vii) there has been no issuance, sale, repurchase,
acquisition or redemption by FCBA of any of its capital stock, or any
modification or amendment of the rights of the holders of any outstanding
capital stock;
(viii) there has been no mortgage, lien or other
encumbrance or security interest (other than liens for current taxes not yet
due, pledges to secure public deposits or federal funds purchased, in each case
arising in the ordinary course of business) created on or in any asset of FCBA
or assumed by FCBA with respect to any of its assets;
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(ix) there has been no indebtedness or other
liability or obligation (whether absolute, accrued, contingent or otherwise)
incurred by FCBA which would be required to be reflected on a balance sheet of
FCBA prepared as of the date hereof in accordance with generally accepted
accounting principles and banking regulations applied on a consistent basis,
except as incurred in the ordinary course of business;
(x) no obligation or liability of FCBA has been
discharged or satisfied, other than in the ordinary course of business;
(xi) there have been no sales, transfers or other
dispositions of any assets of FCBA, other than in the ordinary course of
business;
(xii) there has been no amendment, termination or
waiver of any right of FCBA under any material contract, license or permit which
has had or may have a material adverse effect on FCBA's business, assets,
properties, liabilities, results of operations or financial condition; and
(xiii) there has been no examination of FCBA by the
FDIC or the ASB requiring the infusion of additional capital or concluding that
FCBA is operating in an unsafe or unsound manner.
3.2.12 LOAN PORTFOLIO. Section 3.2.12 of the FCBA Disclosure
Schedule lists (i) as of September 30, 2000, by type and classification, each
loan, lease, other extension of credit or commitment to extend credit by FCBA;
(ii) as of September 30, 2000, by type and classification, all loans, leases,
other extensions and commitments to extend credit of FCBA that have been
classified internally or by its bank examiners or auditors (external or
internal) as "Watch," "OAEM," "Substandard," "Doubtful," "Loss" or any
comparable classification; and (iii) all consumer loans due to FCBA as to which
any payment of principal, interest or any other amount is 30 days or more past
due.
3.2.13 INVESTMENT SECURITIES. Section 3.2.13 of the FCBA
Disclosure Schedule lists each investment security held by FCBA as of September
30, 2000, and with respect to each such investment security: (i) the issuer
thereof; (ii) the outstanding balance or number of shares; (iii) the maturity,
if applicable; (iv) the title of issue; and (v) the classification under SFAS
No. 115. FCBA has no investment security classified as trading.
3.2.14 POWER OF ATTORNEY. FCBA has not granted any person a
power of attorney or similar authorization that is presently in effect or
outstanding.
3.2.15 ACCOUNTS. Section 3.2.15 of the FCBA Disclosure
Schedule contains a list of each and every bank and other institution in which
FCBA maintains an account or safety deposit box, the account numbers and the
names of all persons who are presently authorized to draw thereon, have access
thereto or give instructions regarding distribution of funds or assets therein.
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3.2.16 ACCOUNTING AND TAX MATTERS. FCBA has not taken or
agreed to take any action that would prevent CoBiz from accounting for the
business combination to be effected by this Agreement as a pooling-of-interests
or, as provided in Section 3.2.16 of the FCBA Disclosure Schedule, would prevent
the Merger from qualifying as a tax-free reorganization under the Code.
3.2.17 INDEMNIFICATION. Other than pursuant to the provisions
of its articles of incorporation or bylaws, FCBA is not a party to any
indemnification agreement with any of its present or former officers, directors,
employees, agents or other persons who serve or served in any other capacity
with any other enterprise at the request of FCBA, and to the knowledge of FCBA,
there are no claims for which any such person would be entitled to
indemnification by FCBA.
3.2.18 TRUST ADMINISTRATION. Except for acting as a custodian
or trustee under individual retirement accounts, FCBA does not maintain trusts
or exercise trust powers, including, but not limited to, trust administration,
and has not maintained any trusts or exercised such trust powers in the past.
3.3 EMPLOYEES AND BENEFITS.
3.3.1 COMPENSATION. Section 3.3.1 of the FCBA Disclosure
Schedule contains a list of (i) the names, titles, responsibilities and
compensation arrangements of each officer and director of FCBA and of each
employee of FCBA whose compensation (including, without limitation, all salary,
wages, bonuses and fringe benefits, other than those fringe benefits made
available to all employees on a non-discriminatory basis), from FCBA for the
current fiscal year will exceed $25,000; and (ii) all written agreements
currently in effect which have been provided to such employees relating to such
person's employment or compensation. There are no controversies pending or, to
FCBA's knowledge, threatened between FCBA and any of its directors, officers or
employees.
3.3.2 DIRECTORS OR OFFICERS OF OTHER CORPORATIONS. No
director, officer, or employee of FCBA serves, or in the past five years has
served, as a director or officer of any other corporation or entity on behalf of
or as a designee of FCBA.
3.3.3 EMPLOYEE BENEFITS.
(i) Section 3.3.3(i) of the FCBA Disclosure Schedule
lists (a) each pension plan, profit sharing plan, group or individual health,
dental, medical or life insurance plan, flexible spending account plan,
cafeteria plan, employee welfare benefit plan (as such term is defined in
Section 3(l) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), severance plan, bonus plan, stock option plan, deferred compensation
plan or other similar plan which is or has been maintained by FCBA or any ERISA
Affiliate (as defined below) for any of its current or former employees; and (b)
each "employee benefit plan" as defined in Section 3(3) of ERISA, maintained by
or on behalf of FCBA or any ERISA Affiliate (including any plans which are
"multiemployer plans" under Section 3(37)(A) of ERISA ("Multiemployer Plans"))
and any defined
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benefit plan (as defined in Section 3(35) of ERISA) terminated by FCBA within
the five plan-years ending immediately before the Closing) which covers or
covered any employees or former employees of FCBA or any ERISA Affiliate (each a
"Plan"). Copies of all Plan documents, summary plan descriptions, actuarial
reports, valuations, annual reports (and attachments thereto) on Form 5500,
5500-C or 5500-R, as the case may be (if required pursuant to ERISA or the
Code), correspondence from any governmental agency with respect to the Plans,
Internal Revenue Service determination letters and any other related documents
have been provided by FCBA to CoBiz. "ERISA Affiliate" means any entity which is
controlled by, or is under common control with, FCBA, as determined under ERISA
Section 4001(a)(14).
(ii) With respect to each Plan: (a) no litigation or
administrative or other proceeding is pending or, to the knowledge of FCBA,
threatened; and (b) each Plan has been restated or amended so as to comply with
all applicable requirements of law, including all applicable requirements of
ERISA, the Code, and the regulations promulgated thereunder by the Internal
Revenue Service and the United States Department of Labor. Neither the Plan nor
any trustee, administrator or fiduciary thereof has at any time been involved in
any transaction relating to the Plan which would constitute a breach of
fiduciary duty under ERISA or a "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Code, unless such transaction is
specifically permitted under Sections 407 or 408 of ERISA, Section 4975 of the
Code or a class or administrative exemption issued by the Department of Labor.
Each Plan has been administered by FCBA in compliance in all material respects
with applicable law and the terms of such Plan, including, but not limited to,
ERISA, the Code, and COBRA (as defined below).
(iii) Except for obligations under the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), FCBA has no
obligation to provide, or material liability for, any post-employment health or
life insurance benefits under any Plan.
(iv) No Plan currently or previously maintained or
contributed to by FCBA is covered by Title IV of ERISA. FCBA does not reasonably
expect to incur any liability, contingent or otherwise and including by reason
of having formerly maintained an employee benefit plan or by reason of having
been a member of a group described in Section 414(b), (c), (m) or (o) of the
Code or Sections 4001(a)(14) or 4001(b)(1) of ERISA, under Section 302 or Title
IV of ERISA or Sections 412 or 4971 of the Code.
(v) FCBA shall take such actions with respect to each
Plan, and refrain from such actions, as are necessary to maintain the
qualification of each such Plan under Section 401(a) of the Code, if applicable.
Other than contributions or payments declared, required or obligated to be paid
to the Plans as of the date of this Agreement, no contribution shall be declared
for or paid to any such Plan.
(vi) No Plan is a Multiemployer Plan.
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(vii) No Plan is maintained in connection with any
trust described in Code Section 501(c)(9)
3.3.4 LABOR RELATIONS. FCBA is not and has not been a party to
any collective bargaining agreement or agreement of any kind with any union or
labor organization with respect to its employees and none of its employees is
represented by a labor union. FCBA has complied with all obligations under the
National Labor Relations Act, as amended, the Age Discrimination in Employment
Act, as amended, and all other federal, state and local labor laws and
regulations applicable to employees. There are no unfair labor practice charges
pending or, to the knowledge of FCBA, threatened against FCBA.
3.3.5 RELATED-PARTY TRANSACTIONS. Except for (i) loans and
extensions of credit made on substantially the same terms as those prevailing at
the time for comparable transactions by FCBA with other persons who are not
affiliated with FCBA and (ii) deposits, all of which are on terms and conditions
identical to those made available to customers of FCBA at the time such deposits
were entered into, there are no contracts with or commitments to present or
former 5% or greater shareholders, directors, officers, or employees of FCBA,
including with respect to any business directly or indirectly controlled by any
such person, (other than agreements relating to employment).
3.3.6 OPERATING LOSSES. Section 3.3.6 of the FCBA Disclosure
Schedule lists any Operating Loss (as defined below) which has occurred at FCBA
since December 31, 1999 to the date of the Agreement. To FCBA's knowledge, no
action has been taken or omitted to be taken by any employee of FCBA that has
resulted in the incurrence by FCBA of an Operating Loss or that might reasonably
be expected to result in the incurrence of any Operating Loss which would exceed
$2,500. For purposes of this section "Operating Loss" means any loss resulting
from cash shortages, lost or misposted items, disputed clerical and accounting
errors, forged checks, payment of checks over stop payment orders, counterfeit
money, wire transfers made in error, theft, robberies, defalcations, check
kiting, fraudulent use of credit cards or ATMs, civil money penalties, fines,
litigation, claims or other similar acts or occurrences.
3.4 APPROVALS, CONSENTS AND FILINGS. Except for the approval of the
Merger by the FDIC, the ASB and the FCBA shareholders and the filing of the
Articles of Merger with the Arizona Corporation Commission, neither the
execution and delivery of this Agreement by FCBA nor the consummation of the
transactions contemplated hereby, requires any consent, approval, authorization
or permit of, or filing with or notification to, any governmental or regulatory
authority or other third party.
3.5 ABSENCE OF BROKERS. FCBA represents and warrants to CoBiz and
Mergerco that no broker or finder has acted on its behalf in connection with
this Agreement or the transactions contemplated hereby.
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3.6 REPRESENTATIONS AND WARRANTIES. No representation or warranty
contained in this Section 3 or in any other written instrument, document or
agreement delivered by FCBA to CoBiz pursuant to this Agreement or in connection
with the transactions contemplated hereby contains any untrue statement of
material fact or omits to state any material fact required to be stated herein
or therein or necessary to make the statements made herein or therein not
misleading.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF COBIZ AND MERGERCO
To induce FCBA to enter into this Agreement, CoBiz and Mergerco
represent and warrant as follows, which representations and warranties are being
made as of the date of this Agreement and shall be deemed to be made again as of
the Closing:
4.1 CORPORATE AND FINANCIAL.
4.1.1 AUTHORITY.
(i) Subject to obtaining the consents and approvals
set forth in Section 4.2, CoBiz and Mergerco each have full power and authority
to make, execute and perform this Agreement and to consummate the transactions
contemplated hereby, and no further action is necessary on the part of CoBiz or
Mergerco to authorize their consummation of the transactions contemplated
hereby. This Agreement constitutes the valid and binding obligation of CoBiz and
Mergerco and is enforceable in accordance with its terms, except as limited by
the laws affecting creditors' rights generally and to general principles of
equity.
(ii) Subject to obtaining the consents and approvals
set forth in Section 4.2, the execution, delivery and performance of this
Agreement and the transactions contemplated hereby shall not, with or without
the giving of notice or the passage of time, or both, (a) violate any provision
of any law or regulation applicable to CoBiz or Mergerco; (b) violate any
provision of the respective articles of incorporation, charter, or bylaws of
CoBiz or Mergerco; (c) conflict with or result in a breach of any provision of,
or termination of, or constitute a default under any instrument, license,
agreement or commitment to which either CoBiz or Mergerco is a party; or (d)
constitute a violation of any order, judgment or decree to which either CoBiz or
Mergerco is a party, or by which either CoBiz or Mergerco or any of their
respective assets or properties are bound.
4.1.2 CORPORATE STATUS.
(i) COBIZ. CoBiz is a corporation duly organized,
validly existing and in good standing under the laws of the state of Colorado
and has no subsidiaries other than Colorado Business Bank, N.A., a national
banking association, Colorado Business Bankshares Capital Trust I, a Delaware
business trust, Colorado Business Leasing Inc., a Colorado corporation, and
CoBiz Connect, Inc., a Colorado corporation (collectively, the "Other
Subsidiaries"), and Mergerco. CoBiz and each Other Subsidiary have all requisite
corporate power and authority and are entitled to own
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or lease their respective properties and assets and to carry on their businesses
in the places where such properties or assets are now owned, leased or operated
and such businesses are conducted. CoBiz and each Other Subsidiary is duly
licensed, qualified or domesticated as a foreign corporation or business trust
in the jurisdictions where the character of the property owned by it or the
nature of the business transacted by it make such license, qualification or
domestication necessary.
(ii) MERGERCO. Mergerco is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Arizona and is not required to be qualified as a foreign corporation in any
other jurisdiction.
4.1.3 CAPITAL STRUCTURE.
(i) COBIZ. CoBiz has authorized capital stock
consisting of 25,000,000 shares of common stock, $.01 par value, of which
6,706,347 shares are issued and outstanding as of September 30, 2000, and
2,000,000 shares of preferred stock, $.01 par value, none of which are issued
and outstanding as of the date of this Agreement. All of the outstanding capital
stock of CoBiz and each Other Subsidiary is duly authorized, validly issued,
fully paid and non-assessable and was offered, issued and sold in compliance
with all applicable federal and state securities laws. CoBiz owns 100% of the
issued and outstanding capital stock of each Other Subsidiary other than
Colorado Business Leasing Inc., of which CoBiz owns 80%. No person has any right
of rescission or claim for damages under federal or state securities laws with
respect to the issuance of any shares of capital stock of CoBiz or any Other
Subsidiary previously issued. None of the capital stock of CoBiz or any Other
Subsidiary has been issued in violation of any preemptive or other rights of
their respective shareholders.
(ii) MERGERCO. Mergerco has authorized capital stock
consisting solely of 1,000 shares of common stock, without par value, of which
1,000 shares are issued and outstanding as of the date of this Agreement, all of
which are owned by CoBiz. All of the outstanding capital stock of Mergerco is
duly authorized, validly issued, fully paid and non-assessable and was offered,
issued and sold in compliance with all applicable federal and state securities
laws. No person has any right of rescission or claim for damages under federal
or state securities laws with respect to the issuance of any shares of capital
stock of Mergerco previously issued. None of the capital stock of Mergerco has
been issued in violation of any preemptive or other rights of its shareholders.
4.1.4 FINANCIAL STATEMENTS. Since June 30, 1998, CoBiz has
filed all forms, reports and documents with the SEC required to be filed by it
pursuant to the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (the "CoBiz Filings"), all of which have complied
in all material respects with all applicable requirements of the Securities Act
and the Exchange Act. None of the CoBiz Filings, including, without limitation,
any financial statements or schedules included therein, at the time filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
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misleading. The audited and unaudited financial statements of CoBiz included in
the CoBiz Filings have been prepared in accordance with generally accepted
accounting principles and banking regulations applied on a consistent basis
(except as stated in such financial statements and except as permitted by
applicable SEC regulations) and fairly present the financial position of CoBiz
as of the dates thereof and the results of operations for the periods presented
therein, subject, in the case of unaudited financial statements, to normal
year-end audit adjustments.
4.2 APPROVALS, CONSENTS, AND FILINGS. Except for the approval of the
Merger by the Board of Governors of the Federal Reserve System (the "FRB"), the
FDIC, the ASB and the CoBiz shareholders, the declaration of effectiveness of
the Registration Statement and approval of the Joint Proxy Statement by the SEC,
the approval of CoBiz's additional listing application for the inclusion of the
CoBiz Common Stock to be issued in the Merger on Nasdaq and the filing of the
Articles of Merger with the Arizona Corporation Commission, neither the
execution and delivery of this Agreement by CoBiz and Mergerco nor the
consummation of the transactions contemplated hereby, requires any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority or other third party.
4.3 STATUS OF COBIZ COMMON STOCK TO BE ISSUED. The shares of CoBiz
Common Stock to be issued in the Merger will be, when delivered as specified in
this Agreement, duly authorized, validly issued, fully paid and nonassessable
and registered pursuant to the effective Registration Statement under the
Securities Act.
4.4 ABSENCE OF BROKERS. CoBiz and Mergerco each represent and warrant
to FCBA that no broker or finder has acted on its behalf in connection with this
Agreement or the transactions contemplated hereby.
4.5 REPRESENTATION AND WARRANTIES. No representation or warranty
contained in this Section 4 or in any other written instrument, document or
agreement delivered by CoBiz to FCBA pursuant to this Agreement or in connection
with the transactions contemplated hereby contains any untrue statement of
material fact or omits to state any material fact required to be stated herein
or therein or necessary to make the statements made herein or therein not
misleading.
SECTION 5
COVENANTS PENDING CLOSING
5.1 CONDUCT OF BUSINESS OF FCBA. During the period from the date of
this Agreement and continuing until the Effective Time, or the earlier
termination of this Agreement pursuant to Section 8, FCBA agrees (except as
expressly contemplated by this Agreement or to the extent that CoBiz shall
otherwise consent in advance in writing) that:
5.1.1 ORDINARY COURSE. FCBA shall carry on its business in the
usual, regular and ordinary course without the creation of any indebtedness for
borrowed money (other than (i) deposit and similar accounts and customary credit
arrangements between banks in the ordinary course of
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business and (ii) borrowings from the Federal Home Loan Bank for the purchase of
securities and the funding of loans in the ordinary course of business pursuant
to existing agreements, not to exceed $3,000,000 in the aggregate), and, to the
extent consistent with such business, use its best efforts to preserve intact
its present business organizations, keep available the services of its present
officers and employees and preserve its relationships with representatives,
customers, suppliers, personnel and others having business dealings with FCBA.
5.1.2 DIVIDENDS; CHANGES IN STOCK. FCBA shall not declare or
pay any dividends on, or make other distributions in respect of, any of its
capital stock, and FCBA shall not (i) split, combine or reclassify any of its
capital stock or issue, authorize or propose the issuance of any other
securities in respect of, in lieu of, or in substitution for shares of capital
stock of FCBA, or (ii) repurchase or otherwise acquire any shares of its capital
stock.
5.1.3 ISSUANCE OF SECURITIES. FCBA shall not sell, issue,
authorize or purchase any shares of its capital stock or any class of securities
convertible into, or rights, warrants or options to acquire any such shares or
other convertible securities or enter into any agreement with respect to the
foregoing, except for issuances of capital stock pursuant to FCBA Stock Options
outstanding on the date hereof.
5.1.4 GOVERNING DOCUMENTS; COMPLIANCE WITH LAW. FCBA shall not
amend its articles of incorporation, charter, or bylaws. FCBA shall maintain its
corporate existence and powers and fully comply with all federal, state and
local laws with respect to its operations and the conduct of its business.
5.1.5 NO ACQUISITIONS OR DISPOSITIONS. FCBA shall not acquire
by merging or consolidating with, or by purchasing a substantial portion of the
stock or assets of, or by any other manner, any business or any corporation,
partnership, association or other entity or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to
FCBA. FCBA shall not sell, lease or otherwise dispose of any of its assets
except for sales, leases and other dispositions in the ordinary course of
business consistent with prior practice.
5.1.6 MAINTENANCE OF PROPERTIES. FCBA shall maintain its
properties and assets in satisfactory condition and repair for the purposes
intended, ordinary wear and tear excepted.
5.1.7 BENEFIT PLANS. FCBA shall not enter into or amend any
Plan or any employment or consulting agreement except as required by law and
shall not accelerate the exercisability of any options, warrants or rights to
purchase securities of FCBA. FCBA will take all steps necessary to cease
contributions to the First Capital Bank of Arizona SIMPLE Plan as of the
Effective Time.
5.1.8 BOOKS AND RECORDS. The books and records of FCBA shall
be maintained in the usual, regular and ordinary course consistent with prior
years.
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5.1.9 INCREASE IN COMPENSATION. FCBA shall not grant to any
officer or employee any increase in compensation, severance or termination pay,
or enter into any employment arrangement that will create anything other than an
employment-at-will arrangement; provided, however, that if, in the good faith
opinion of the President and Chief Executive Officer of FCBA, there is a
significant risk that FCBA may lose a key employee (other than an employee
holding the title of Senior Vice President or above) prior to the consummation
of the Merger, FCBA may increase any such key employee's salary by up to 5% of
its current level upon receipt of assurance reasonably satisfactory to FCBA that
such key employee will remain in the employ of FCBA through the consummation of
the Merger.
5.1.10 PAYMENT OF DEBT. FCBA shall not pay any claim or
discharge or satisfy any lien or encumbrance or pay any obligation or liability
other than in the ordinary course of business.
5.1.11 OTHER ACTIONS. FCBA shall not take any action that
would or could reasonably be expected to result in any of the representations
and warranties of FCBA set forth in this Agreement becoming untrue at any time
on or prior to the Effective Time.
5.1.12 MAINTENANCE OF INSURANCE. FCBA shall maintain and keep
or cause to be maintained and kept in full force and effect all of the insurance
described in Section 3.2.3 of the FCBA Disclosure Schedule or other insurance
equivalent thereto.
5.1.13 INVESTMENT PORTFOLIO. FCBA shall only invest funds of
FCBA in non-callable securities issued by the Federal Home Loan Bank and other
similar United States government sponsored associations, the United States,
repurchase agreements secured by securities issued by the United States, federal
funds, municipal bonds, or deposits insured by the FDIC; provided, however, that
no such investment by FCBA shall have a stated maturity of greater than one year
and the various stated maturities of FCBA's investments shall be consistent with
the stated maturities of the investments held in the ordinary course of FCBA's
business.
5.1.14 BANKING RELATIONSHIPS. Except for changes in the
ordinary course of business, no change shall be made in the banking and safe
deposit arrangements referred to in Section 3.2.15.
5.1.15 NOTICE OF CHANGES. FCBA shall promptly advise CoBiz
orally and in writing of any change or event having, or which FCBA believes
could have, a material adverse effect on the assets, liabilities, business,
operations or financial condition of FCBA.
5.2 CONDUCT OF BUSINESS OF COBIZ. During the period from the date of
this Agreement and continuing until the Effective Time, or the earlier
termination of this Agreement pursuant to Section 8, CoBiz agrees (except as
expressly contemplated by this Agreement or to the extent that FCBA shall
otherwise consent in advance in writing) that:
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5.2.1 ORDINARY COURSE. CoBiz, each Other Subsidiary and
Mergerco shall each carry on their respective businesses in the usual, regular
and ordinary course and, to the extent consistent with such businesses, use
their best efforts to preserve intact their respective present business
organizations, keep available the services of their respective present officers
and employees and preserve their respective relationships with each of their
representatives, customers, suppliers, personnel and others having business
dealings with each of them.
5.2.2 OTHER ACTIONS. Neither CoBiz, any Other Subsidiary nor
Mergerco shall take any action that would or could reasonably be expected to
result in any of their respective representations and warranties set forth in
this Agreement becoming untrue at any time on or prior to the Effective Time;
provided, however, that this Section 5.2 shall not prohibit CoBiz from effecting
an acquisition of another subsidiary or the disposition of an Other Subsidiary
(other than Colorado Business Bank, N.A. or Colorado Business Bankshares Capital
Trust I) that would cause its representation in Section 4.1.2(i) to be untrue at
the Effective Time.
SECTION 6
OTHER AGREEMENTS
6.1 ONGOING DISCLOSURE. If either party becomes aware of events or
circumstances that constitute or are reasonably likely to give rise to a breach
of a representation, warranty or covenant made by such party in this Agreement,
such party shall promptly notify the other party thereof. Such notice shall
describe in reasonable detail the nature and extent of the breach and the
actions that the party giving the notice proposes to take to cure the breach.
6.2 ACCESS, INFORMATION AND DOCUMENTS. Each party shall allow the other
party and its authorized representatives reasonable access during normal
business hours from and after the date of this Agreement and prior to the
Closing to all of the facilities, financial statements, records, files, stock
books, minute books, books of account, notices, audit reports, contracts,
commitments, insurance policies, surety bonds, leases and copies of tax returns
of such party and shall furnish such party and its authorized representatives
such information concerning its affairs as such party may reasonably request,
provided that such request shall be reasonably related to the transactions
contemplated by this Agreement and shall not interfere unreasonably with normal
operations. Each party shall require its personnel to assist the other party in
making any such investigation and shall cause its counsel (subject to
attorney-client privilege), accountants, employees and other representatives to
be available to such party for such purposes. During such period, each party and
its authorized representatives shall have the right, subject to Section 6.3 of
this Agreement, to make copies of such records, files, tax returns and other
materials as it may deem advisable. No investigation made by either party and
its authorized representatives shall affect the right of such party to rely upon
the representations and warranties of the other party hereunder.
6.3 CONFIDENTIALITY. Prior to the Closing, the parties have provided
and shall provide each other with information which may be deemed by the party
providing the information to be confidential or proprietary. Each party agrees
that it shall hold confidential and protect all
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information provided to it by the other party and use such information only in
connection with the consummation of the transactions contemplated by this
Agreement, except disclosures may be made to the extent (i) the information
shall have become publicly available other than as a result of a disclosure of
confidential information by the party obtaining such information, (ii) that
disclosure is required by law or in connection with any litigation, but only to
the extent such disclosure is so required, or (iii) the other may have given its
consent. If this Agreement is terminated prior to consummation of the
transactions contemplated hereby, each party agrees upon request to return all
documents and other material, and any copies thereof, whether or not
confidential, provided to it by the other. Each party shall insure that its
officers, directors, employees, attorneys and other representatives who are
given access to such information are bound by and shall use the information only
in accordance with the foregoing restrictions. The provisions of this Section
6.3 shall survive any termination of this Agreement.
6.4 EXPENSES. All of the expenses incurred by FCBA in connection with
the authorization, preparation, execution and performance of this Agreement
including, without limitation, all fees and expenses of its agents,
representatives, counsel and accountants shall be paid by FCBA. All expenses
incurred by CoBiz in connection with the authorization, preparation, execution
and performance of this Agreement, including, without limitation, all fees and
expenses of its agents, representatives, counsel and accountants shall be paid
by CoBiz.
6.5 APPROVALS AND CONSENTS. Each party agrees that it shall use its
best efforts, and shall cause its officers, directors, employees and agents to
use their best efforts to obtain as soon as is reasonably practicable all
approvals and consents required or deemed necessary for consummation of the
transactions contemplated by this Agreement, including, without limitation, all
applications required to obtain all consents and approvals of bank regulatory
authorities. Each party agrees to provide drafts of such applications to the
other party prior to filing the same, and shall promptly provide the other party
with copies of all correspondence to and from bank regulatory authorities with
respect to the transactions contemplated by this Agreement.
6.6 PRESS RELEASES. As soon as is reasonably practicable after the date
of this Agreement, the parties shall jointly prepare and issue a press release
related to this Agreement and the Merger. Neither CoBiz nor FCBA shall issue any
subsequent press release without the consent of the other, except as may be
required by law. If either party believes that it is required by law to issue a
press release related to this Agreement and the Merger, such party shall consult
with the other party regarding its belief and the content of such press release
and shall obtain such party's consent prior to any such issuance, which consent
shall not be unreasonably withheld or delayed.
6.7 EMPLOYEES OF FCBA. For purposes of any length of service
requirements, waiting periods, vesting periods or benefits based on length of
service for any benefit plan (but excluding benefit accruals under any qualified
plan) of CoBiz or FCBA as the surviving corporation for which an FCBA employee
may be eligible after the Closing, service by such employee with FCBA prior to
the Merger shall be deemed to have been service with FCBA as the surviving
corporation; provided, that the FCBA Stock Options shall vest in accordance with
Section 1.6. Subject to the terms and conditions of applicable plans, CoBiz
shall and shall cause FCBA as the surviving corporation to, (i) waive any
pre-existing
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conditions, limitations and eligibility waiting periods under any group health
plans of CoBiz or FCBA as the surviving corporation with respect to the FCBA
employees who are employed by FCBA at the Effective Time and their eligible
dependents and (ii) give each FCBA employee who is employed by FCBA at the
Effective Time credit for the plan year in which the Closing occurs towards
applicable deductibles and out-of-pocket limits for expenses incurred by each
such employee prior to the Effective Time.
6.8 AFFILIATE AGREEMENTS. Contemporaneously with the execution of this
Agreement, FCBA shall deliver to CoBiz a letter (the "Letter") identifying all
persons who are then "affiliates" of FCBA for purposes of Rule 145 under the
Securities Act. FCBA shall advise the persons identified in the Letter of the
resale restrictions imposed by applicable securities laws and, prior to the
filing of the Registration Statement with the SEC, shall obtain from each such
person and deliver to CoBiz an executed affiliate agreement in the form attached
hereto as EXHIBIT D (the "Affiliate Agreement"). FCBA shall obtain from any
person who becomes an affiliate of FCBA after FCBA's delivery of the Letter an
executed Affiliate Agreement as soon as practicable after attaining such status.
6.9 ACCOUNTANT'S LETTER. On the effective date of the Registration
Statement, FCBA shall deliver to CoBiz a letter from S.R. Snodgrass, A.C.,
FCBA's independent certified public accountant, in form and content reasonably
satisfactory to CoBiz, addressing matters customarily addressed in "cold
comfort" letters given by accountants in connection with the registration of
securities concerning the financial statements and other financial and
statistical information of FCBA included in the Registration Statement (the
"Accountant's Letter").
6.10 VOTING AGREEMENTS. Prior to the filing of the Registration
Statement with the SEC, the holders of FCBA Common Stock listed on EXHIBIT E
(which Exhibit also lists the number of shares of FCBA Common Stock held by each
such holder) shall enter into a Voting Agreement in the form attached as EXHIBIT
F.
6.11 TAX OPINION. Prior to the filing of the Registration Statement
with the SEC, the parties shall have received from Jennings, Strouss & Salmon,
P.L.C. an opinion reasonably satisfactory to the parties to the effect that the
Merger will not result in the recognition of gain or loss for federal or state
income tax purposes to CoBiz or FCBA, nor will the issuance of the CoBiz Common
Stock result in the recognition of gain or loss for federal or state income tax
purposes by the holders of FCBA Common Stock who receive CoBiz Common Stock in
the Merger, nor will the assumption of the FCBA Stock Options under Section 1.6
result in any income or gain to the holders of such options for federal or
Arizona state income tax purposes (the "Tax Opinion").
SECTION 7
CONDITIONS TO CLOSING
7.1 CONDITIONS TO OBLIGATIONS OF COBIZ AND MERGERCO. All of the
obligations of CoBiz and Mergerco under this Agreement are subject to the
fulfillment prior to or at the Closing of each of the following conditions, any
one or more of which may be waived by CoBiz in writing:
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7.1.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of FCBA contained in Section 3, if qualified by a reference to
materiality, shall be true, and if not so qualified, shall be true in all
material respects, as of the date of this Agreement and as of the Effective Time
with the same effect as though made at the Effective Time.
7.1.2 PERFORMANCE OF AGREEMENTS AND COVENANTS. FCBA shall have
performed and complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by it
prior to or at the Effective Time.
7.1.3 DISSENTING SHARES. The number of Dissenting Shares shall
not result in payments in the aggregate amount of the lesser of (i) an amount
which, when combined with other amounts payable in connection with the Merger,
would result in the Merger being disqualified from pooling of interest
accounting treatment or (ii) an amount equal to 2% of the product of (a) the
number of shares of FCBA Common Stock outstanding as of the Effective Time
multiplied by (b) the Average Closing Price multiplied by (c) the Conversion
Ratio.
7.1.4 CERTIFICATES AND OPINION. FCBA shall have delivered to
CoBiz:
(i) a certificate executed by the President of FCBA,
dated as of the Closing, and certifying to the fulfillment of the conditions
specified in Sections 7.1.1, 7.1.2 and 7.1.3;
(ii) a certificate issued by the Arizona Corporation
Commission dated not more than 15 business days prior to the Closing, of the
valid existence of FCBA under the laws of Arizona; and
(iii) an opinion of Jennings, Strouss & Salmon,
P.L.C., counsel of FCBA, dated the Closing, in the form attached hereto as
EXHIBIT G.
7.1.5 AFFILIATE AGREEMENTS. CoBiz shall have received from
each person referred to in Section 6.8 an executed Affiliate Agreement.
7.1.6 ACCOUNTANT'S LETTER. CoBiz shall have received from FCBA
an update of the Accountant's Letter from the effective date of the Registration
Statement until the Closing.
7.1.7 POOLING OF INTERESTS. CoBiz shall have received from
Deloitte & Touche LLP, its independent certified public accountant, a written
confirmation that the Merger will qualify for pooling-of-interests accounting
treatment. Additionally, FCBA shall have delivered to CoBiz a letter reasonably
satisfactory to CoBiz from S.R. Snodgrass, A.C., FCBA's independent certified
public accountant, to the effect that, as of the Effective Time, no conditions
exist with respect to FCBA that would preclude CoBiz from accounting for the
Merger as a pooling-of-interests. In making their determinations that the Merger
will qualify for such treatment, Deloitte & Touche LLP and S.R. Snodgrass, A.C.
shall be entitled to assume that cash will be paid with respect to all shares
held of record by any holder of Dissenting Shares.
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7.1.8 EMPLOYMENT AGREEMENTS. CoBiz shall have entered into an
Employment Agreement substantially in the form attached as EXHIBIT H with the
President of FCBA and an Employment Agreement substantially in the form attached
as EXHIBIT I with each Senior Vice President of FCBA.
7.1.9 NONCOMPETITION/NONSOLICITATION AGREEMENT. CoBiz shall
have entered into a Noncompetition and Nonsolicitation Agreement substantially
in the form attached as EXHIBIT J with the President of FCBA.
7.1.10 RESIGNATIONS OF FCBA DIRECTORS. CoBiz shall have
received the written resignation of all directors of FCBA, subject to acceptance
by CoBiz.
7.1.11 EXAMINATIONS. The results of any examination of FCBA by
any regulatory agency that occurs between the date of this Agreement and the
Closing, including, but not limited to, any compliance review, shall be
reasonably satisfactory to CoBiz.
7.1.12 DUE DILIGENCE. CoBiz shall have completed its due
diligence investigation of FCBA, and the results of such investigation shall be
satisfactory to CoBiz.
7.2 CONDITIONS TO OBLIGATIONS OF FCBA. All of the obligations of FCBA
under this Agreement are subject to the fulfillment prior to or at the Closing
of each of the following conditions, any one or more of which may be waived by
FCBA in writing:
7.2.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of CoBiz contained in Section 4, if qualified by a reference to
materiality, shall be true, and if not so qualified, shall be true in all
material respects, as of the date of this Agreement and as of the Effective Time
with the same effect as though made at the Effective Time; provided that no
acquisition by CoBiz of an additional subsidiary and no disposition by CoBiz of
an Other Subsidiary (other than Colorado Business Bank, N.A. or Colorado
Business Bankshares Capital Trust I) that causes the representation set forth in
Section 4.1.2(i) to be untrue as of the Closing shall result in the
nonfulfillment of this condition.
7.2.2 PERFORMANCE OF AGREEMENTS AND COVENANTS. CoBiz and
Mergerco shall each have performed and complied in all material respects with
their respective agreements and covenants required by this Agreement to be
performed or complied with by them prior to or at the Effective Time.
7.2.3 CERTIFICATES AND OPINION. CoBiz and Mergerco shall have
each delivered to FCBA:
(i) a certificate executed by its President, dated
the Closing, certifying to the fulfillment of the conditions specified in
Sections 7.2.1 and 7.2.2;
(ii) certificates issued by the Secretary of State of
the State of Colorado and the Arizona Corporation Commission, respectively,
dated not more than 15 business days prior to the Closing, of the valid
existence of CoBiz under the laws of Colorado and Mergerco under the laws of
Arizona; and
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(iii) an opinion of Sherman & Howard L.L.C., counsel
for CoBiz and Mergerco, dated the Closing, in the form attached hereto as
EXHIBIT K.
7.3 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The obligations of each
party to consummate the transactions contemplated by this Agreement shall be
subject to the additional following conditions:
7.3.1 NO ORDER. No temporary restraining order, preliminary or
permanent injunction or other order by any United States federal or state court
or governmental body prohibiting, preventing or materially restraining the
consummation of the transactions contemplated by this Agreement shall have been
issued and shall not have expired or been withdrawn or reversed and there shall
be no pending or threatened litigation or other proceeding seeking to prohibit,
prevent or materially restrict or impose any material limitations on the
consummation of such transactions; it being agreed that the parties shall use
their commercially reasonable efforts to cause any such temporary restraining
order, preliminary or permanent injunction or other order to be vacated or
lifted as promptly as possible.
7.3.2 SHAREHOLDER APPROVAL. The shareholders of FCBA and the
shareholders of CoBiz shall have approved this Agreement and the Merger at their
respective Special Meetings or any adjournment thereof.
7.3.3 REGISTRATION STATEMENT AND BLUE SKY FILINGS. The
Registration Statement shall have been declared effective by the SEC (and
cleared for release by the FDIC) and shall not be the subject of any stop order
or proceedings seeking or threatening a stop order, and CoBiz shall have
received all state securities or "Blue Sky" permits and other authorizations
necessary to issue the CoBiz Common Stock in the Merger.
7.3.4 CONSENTS AND APPROVALS. Each party shall have received
all consents, authorizations and approvals as necessary for the consummation of
the transactions contemplated by this Agreement, including, but not limited to,
the approval of the Merger by the FRB, the FDIC and the ASB, and all applicable
waiting or similar periods required by law shall have expired.
7.3.5 LISTING OF COBIZ COMMON STOCK. The CoBiz Common Stock to
be issued in the Merger shall have been approved for quotation on Nasdaq.
7.3.6 TAX OPINION. The parties shall have received from
Jennings, Strouss & Salmon, P.L.C. a written confirmation dated the Closing to
the effect that the Tax Opinion is confirmed as of that date.
SECTION 8
TERMINATION
8.1 RIGHT TO TERMINATE. The parties may terminate this Agreement as
follows:
8.1.1 MUTUAL CONSENT. CoBiz and FCBA may terminate this
Agreement by mutual written consent at any time prior to the Closing.
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8.1.2 MUTUAL TERMINATION RIGHTS. Either CoBiz or FCBA may
terminate this Agreement if (i) the Effective Time shall not have occurred on or
before March 31, 2001; provided, however, that the right to terminate this
Agreement under this Section 8.1.2(i) shall not be available to any party whose
breach of this Agreement has been the primary cause of, or resulted in, the
failure of the Effective Time to occur on or before such date; or (ii) the
shareholders of CoBiz or the shareholders of FCBA do not approve this Agreement
and the Merger at their respective Special Meetings or any adjournment thereof.
The March 31, 2001 date may be extended by mutual agreement of the Boards of
Directors of CoBiz and FCBA from time to time before or after the approval of
the Merger by the shareholders of CoBiz and FCBA.
8.1.3 TERMINATION RIGHTS OF COBIZ. CoBiz in its sole
discretion may terminate this Agreement at any time prior to the Closing:
(i) if FCBA's Board of Directors shall have (a)
failed to include in the Joint Proxy Statement its recommendation without
modification or qualification that the shareholders of FCBA approve this
Agreement and the Merger, (b) withdrawn, modified or qualified its
recommendation of this Agreement or the Merger in a manner adverse to the
interests of CoBiz or Mergerco or (c) resolved to do any of the foregoing; or
(ii) if FCBA has breached any representation,
warranty or covenant contained in this Agreement, which breach would result in
the nonfulfillment of one or more of the conditions to the obligations of CoBiz
and Mergerco set forth in Section 7.1, CoBiz has notified FCBA of the breach,
and either such breach is incapable of being cured or, if capable of being
cured, has not been cured within 15 days after the notice of breach.
8.1.4 TERMINATION RIGHTS OF FCBA. FCBA in its sole discretion
may terminate this Agreement at any time prior to the Closing:
(i) if CoBiz's Board of Directors shall have (a)
failed to include in the Joint Proxy Statement its recommendation without
modification or qualification that the shareholders of CoBiz approve this
Agreement and the Merger, (b) withdrawn, modified or qualified its
recommendation of this Agreement or the Merger in a manner adverse to the
interests of FCBA or (c) resolved to do any of the foregoing; or
(ii) if CoBiz or Mergerco has breached any
representation, warranty or covenant contained in this Agreement, which breach
would result in the nonfulfillment of one or more of the conditions to the
obligations of FCBA set forth in Section 7.2, FCBA has notified CoBiz of the
breach, and either such breach is incapable of being cured or, if capable of
being cured, has not been cured within 15 days after the notice of breach;
(iii) as provided in Section 1.3.
8.1.5 NOTICE OF TERMINATION. The party desiring to exercise a
right to terminate this Agreement pursuant to Sections 8.1.2, 8.1.3 or 8.1.4
shall do so by giving notice of termination to the other party, specifying the
Section and the particular clause under which the termination is being effected.
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8.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 8.1, no party hereto (or any of its officers or
directors) shall have any liability or further obligation to any other party to
this Agreement, except as provided in Section 9.1, except that nothing herein
shall relieve any party from liability for any willful breach of this Agreement.
SECTION 9
MISCELLANEOUS
9.1 SURVIVAL. The representations and warranties made in this Agreement
or in any instrument, agreement, certificate or other document delivered
pursuant to this Agreement shall not survive the Closing or a termination of
this Agreement, except that (i) the provisions of Sections 1.5, 1.8, 6.4 and 6.7
shall survive the Closing, (iii) the provisions of Sections 6.3 and 6.4 shall
survive any termination of this Agreement and (iv) the provisions of Section 9
shall survive the Closing and any termination of this Agreement.
9.2 JURISDICTION. Each of the parties hereto (i) agrees that any legal
action or proceeding with respect to any dispute that arises out of this
Agreement or any of the transactions contemplated hereby shall be brought in the
state or federal courts of the State of Colorado, (ii) hereby submits itself to
the exclusive personal jurisdiction of such courts and (iii) agrees to service
of process in any manner acceptable for the giving of notice under Section 9.5.
9.3 AMENDMENTS AND SUPPLEMENTS. At any time prior to the Effective
Time, this Agreement may be amended or supplemented by a written instrument
signed by CoBiz, Mergerco and FCBA.
9.4 GOVERNING LAW. EXCEPT TO THE EXTENT THAT THE BUSINESS CORPORATION
ACT OF ARIZONA APPLIES WITH RESPECT TO ISSUES AFFECTING THE GOVERNANCE OF
ARIZONA CORPORATIONS, THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO WITHOUT GIVING EFFECT TO ANY
CHOICE OR CONFLICT OF LAWS RULE OR PROVISION THAT WOULD CAUSE THE APPLICATION OF
THE DOMESTIC SUBSTANTIVE LAWS OF ANY OTHER JURISDICTION.
9.5 NOTICES. All notices and other communications required or permitted
hereunder shall be in writing (including any facsimile transmission or similar
writing), and shall be sent by telecopy, hand delivery or reputable overnight
courier. The telecopier numbers and addresses of the parties set forth below
shall be used for the delivery of notices unless and until a party changes its
telecopier number or address for such purposes by notice to the other parties.
Each such notice or other communication shall be effective (i) if given by
telecopy, when transmission of the telecopy is confirmed by the sender's
telecopier, (ii) if given by reputable overnight courier, one business day after
being delivered to the courier or (iii) if given by any other means, when
actually received.
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To CoBiz or Mergerco:
Colorado Business Bankshares, Inc.
821 17th Street
Denver, Colorado 80202
Attn: Steven Bangert
Telecopier: (303) 244-9700
With a copy to:
Sherman & Howard L.L.C.
633 17th Street, Suite 3000
Denver, Colorado 80202
Attention: Andrew L. Blair, Jr.
Telecopier: (303)298-0940
To FCBA:
First Capital Bank of Arizona
2700 N. Central, Suite 210
Phoenix, Arizona 85004
Attn: Harold Mosanko
Telecopier: (602) 240-2730
With a copy to:
Jennings, Strouss & Salmon, P.L.C.
2 North Central Avenue, Suite 1600
Phoenix, Arizona 85004
Attn: Rand Haddock
Telecopier: (602) 253-3255
9.6 ENTIRE AGREEMENT, ASSIGNABILITY, ETC. This Agreement (including the
EXHIBITS attached hereto and the FCBA Disclosure Schedule) (i) constitutes the
entire agreement, and supersedes all other prior agreements, including, but not
limited to, the Agreement and Plan of Merger dated October 24, 2000 among CoBiz,
Mergerco and FCBA, and understandings, both written and oral, among the parties,
or any of them, with respect to the transactions and matters contemplated
hereby, (ii) is not intended and shall not be construed to confer upon any
person other than the parties hereto any rights or remedies hereunder; and (iii)
shall not be assignable by either party without the prior written consent of the
other party.
9.7 EXCLUSIVITY OF REPRESENTATIONS. FCBA has not and shall not be
deemed to have made to CoBiz or Mergerco any representation or warranty other
than as expressly made by FCBA in Section 3.
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CoBiz and Mergerco have not and shall not be deemed to have made to FCBA any
representation or warranty other than as expressly made by CoBiz and Mergerco in
Section 4.
9.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute but one and the same instrument. The signatures of the
parties on this Agreement may be delivered by facsimile and any such facsimile
signature shall be deemed an original.
9.9 HEADINGS; TERMS. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement. Defined terms shall have the meanings
specified, applicable to both singular and plural forms, for all purposes of
this Agreement. All pronouns (and any variation) shall be deemed to refer to the
masculine, feminine or neuter, as the identity of the person may require. The
singular or plural includes the other, as the context requires or permits. The
word include (and any variation) is used in an illustrative sense rather than a
limiting sense. All references to "Sections" are to sections of this Agreement
unless indicated otherwise.
9.10 WAIVERS. No waiver by any party of any default, misrepresentation
or breach of warranty or covenant hereunder shall be deemed to extend to any
prior or subsequent default, misrepresentation or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence, and no waiver shall be effective unless set forth in
writing and signed by the party against whom such waiver is asserted.
9.11 SEVERABILITY. The invalidity or unenforceability of any term or
provision of this Agreement shall not affect the validity or enforceability of
the remaining terms and provisions hereof. Any provision of this Agreement held
invalid or unenforceable only in part or degree shall remain in full force and
effect to the extent not held invalid or unenforceable. The parties further
agree to replace such invalid or unenforceable provision of this Agreement with
a valid and enforceable provision that shall achieve, to the extent possible,
the economic, business and other purposes of such invalid or unenforceable
provision.
9.12 CONSTRUCTION. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring a party by virtue of the authorship of any of the
provisions of this Agreement.
9.13 INCORPORATION OF EXHIBITS AND SCHEDULE. The EXHIBITS and the FCBA
Disclosure Schedule identified in this Agreement are incorporated herein by
reference and made a part hereof. Any matter disclosed in any section of the
FCBA Disclosure Schedule shall be deemed to be disclosed in all sections of such
FCBA Disclosure Schedule and to be an exception to all representations and
warranties contained herein.
9.14 WAIVER OF JURY TRIAL. Each party hereto waives its right to a jury
trial with respect to any action or claim arising out of any dispute in
connection with this Agreement, any agreement, contract or other document or
instrument executed in connection herewith, or any of the transactions
contemplated hereby.
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IN WITNESS WHEREOF, FCBA, CoBiz and Mergerco have each caused this
Agreement to be executed by a duly authorized corporate officer as of the day
and year first above written.
FIRST CAPITAL BANK OF ARIZONA
By: /s/ Harold Mosanko
-----------------------------------------
Harold Mosanko, President and Chief
Executive Officer
COLORADO BUSINESS BANKSHARES, INC.
By: /s/ Steven Bangert
-----------------------------------------
Steven Bangert, Chairman and Chief
Executive Officer
FCBA ACQUISITION CORPORATION
By: /s/ Steven Bangert
-----------------------------------------
Steven Bangert, President
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ANNEX B
CHAPTER 13 OF THE ARIZONA BUSINESS CORPORATION ACT -
DISSENTERS' RIGHTS
ARTICLE 1 - DISSENT AND PAYMENT FOR SHARES
10-1301. Definitions
In this article, unless the context otherwise requires:
1. "Beneficial shareholder" means the person who is a
beneficial owner of shares held in a voting trust or by a nominee as the record
shareholder.
2. "Corporation" means the issuer of the shares held by a
dissenter before the corporate action or the surviving or acquiring corporation
by merger or share exchange of that issuer.
3. "Dissenter" means a shareholder who is entitled to dissent
from corporate action under section 10-1302 and who exercises that right when
and in the manner required by article 2 of this chapter.
4. "Fair value" with respect to a dissenter's shares means the
value of the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion is inequitable.
5. "Interest" means interest from the effective date of the
corporate action until the date of payment at the average rate currently paid by
the corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under the circumstances.
6. "Record shareholder" means the person in whose name shares
are registered in the records of a corporation or the beneficial owner of shares
to the extent of the rights granted by a nominee certificate on file with a
corporation.
7. "Shareholder" means the record shareholder or the
beneficial shareholder.
10-1302. Right to dissent
A. A shareholder is entitled to dissent from and obtain
payment of the fair value of the shareholder's shares in the event of any of the
following corporate actions:
1. Consummation of a plan of merger to which the corporation
is a party if either:
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(a) Shareholder approval is required for the merger
by section 10-1103 or the articles of incorporation and if the shareholder is
entitled to vote on the merger.
(b) The corporation is a subsidiary that is merged
with its parent under section 10-1104.
2. Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan.
3. Consummation of a sale or exchange of all or substantially
all of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale pursuant to
a court order or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed to the
shareholders within one year after the date of sale.
4. An amendment of the articles of incorporation that
materially and adversely affects rights in respect of a dissenter's shares
because it either:
(a) Alters or abolishes a preferential right of the
shares.
(b) Creates, alters or abolishes a right in respect
of redemption, including a provision respecting a sinking fund for the
redemption or repurchase, of the shares.
(c) Alters or abolishes a preemptive right of the
holder of the shares to acquire shares or other securities.
(d) Excludes or limits the right of the shares to
vote on any matter or to cumulate votes other than a limitation by dilution
through issuance of shares or other securities with similar voting rights.
(e) Reduces the number of shares owned by the
shareholder to a fraction of a share if the fractional share so created is to be
acquired for cash under section 10-604.
5. Any corporate action taken pursuant to a shareholder vote
to the extent the articles of incorporation, the bylaws or a resolution of the
board of directors provides that voting or nonvoting shareholders are entitled
to dissent and obtain payment for their shares.
B. A shareholder entitled to dissent and obtain payment for his shares
under this chapter may not challenge the corporate action creating the
shareholder's entitlement unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
C. This section does not apply to the holders of shares of any class or
series if the shares of the class or series are redeemable securities issued by
a registered investment
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company as defined pursuant to the investment company act of 1940 (15 United
States Code section 80a-1 through 80a-64).
D. Unless the articles of incorporation of the corporation provide
otherwise, this section does not apply to the holders of shares of a class or
series if the shares of the class or series were registered on a national
securities exchange, were listed on the national market systems of the national
association of securities dealers automated quotation system or were held of
record by at least two thousand shareholders on the date fixed to determine the
shareholders entitled to vote on the proposed corporate action.
10-1303. Dissent by nominees and beneficial owners
A. A record shareholder may assert dissenters' rights as to fewer than
all of the shares registered in the record shareholder's name only if the record
shareholder dissents with respect to all shares beneficially owned by any one
person and notifies the corporation in writing of the name and address of each
person on whose behalf the record shareholder asserts dissenters' rights. The
rights of a partial dissenter under this subsection are determined as if the
shares as to which the record shareholder dissents and the record shareholder's
other shares were registered in the names of different shareholders.
B. A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if both:
1. The beneficial shareholder submits to the corporation the
record shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights.
2. The beneficial shareholder does so with respect to all
shares of which the beneficial shareholder is the beneficial shareholder or over
which the beneficial shareholder has power to direct the vote.
ARTICLE 2 - PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
10-1320. Notice of dissenters' rights
A. If proposed corporate action creating dissenters' rights under
section 10-1302 is submitted to a vote at a shareholders' meeting, the meeting
notice shall state that shareholders are or may be entitled to assert
dissenters' rights under this article and shall be accompanied by a copy of this
article.
B. If corporate action creating dissenters' rights under section
10-1302 is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken and shall send them the dissenters' notice described in section
10-1322.
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10-1321. Notice of intent to demand payment
A. If proposed corporate action creating dissenters' rights under
section 10-1302 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights shall both:
1. Deliver to the corporation before the vote is taken written
notice of the shareholder's intent to demand payment for the shareholder's
shares if the proposed action is effectuated.
2. Not vote the shares in favor of the proposed action.
B. A shareholder who does not satisfy the requirements of subsection A
of this section is not entitled to payment for the shares under this article.
10-1322. Dissenters' notice
A. If proposed corporate action creating dissenters' rights under
section 10-1302 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of section 10-1321.
B. The dissenters' notice shall be sent no later than ten days after
the corporate action is taken and shall:
1. State where the payment demand must be sent and where and
when certificates for certificated shares shall be deposited.
2. Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is received.
3. Supply a form for demanding payment that includes the date
of the first announcement to news media or to shareholders of the terms of the
proposed corporate action and that requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date.
4. Set a date by which the corporation must receive the
payment demand, which date shall be at least thirty but not more than sixty days
after the date the notice provided by subsection A of this section is delivered.
5. Be accompanied by a copy of this article.
10-1323. Duty to demand payment
A. A shareholder sent a dissenters' notice described in section 10-1322
shall demand payment, certify whether the shareholder acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to section 10-1322, subsection B, paragraph 3 and
deposit the shareholder's certificates in accordance with the terms of the
notice.
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B. A shareholder who demands payment and deposits the shareholder's
certificates under subsection A of this section retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
C. A shareholder who does not demand payment or does not deposit the
shareholder's certificates if required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
article.
10-1324. Share restrictions
A. The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is taken or the restrictions are released under section
10-1326.
B. The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
10-1325. Payment
A. Except as provided in section 10-1327, as soon as the proposed
corporate action is taken, or if such action is taken without a shareholder
vote, on receipt of a payment demand, the corporation shall pay each dissenter
who complied with section 10-1323 the amount the corporation estimates to be the
fair value of the dissenter's shares plus accrued interest.
B. The payment shall be accompanied by all of the following:
1. The corporation's balance sheet as of the end of a fiscal
year ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for that
year and the latest available interim financial statements, if any.
2. A statement of the corporation's estimate of the fair value
of the shares.
3. An explanation of how the interest was calculated.
4. A statement of the dissenter's right to demand payment
under section 10-1328.
5. A copy of this article.
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10-1326. Failure to take action
A. If the corporation does not take the proposed action within sixty
days after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
B. If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send a new
dissenters' notice under section 10-1322 and shall repeat the payment demand
procedure.
10-1327. After-acquired shares
A. A corporation may elect to withhold payment required by section
10-1325 from a dissenter unless the dissenter was the beneficial owner of the
shares before the date set forth in the dissenters' notice as the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action.
B. To the extent the corporation elects to withhold payment under
subsection A of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares plus accrued interest and shall pay
this amount to each dissenter who agrees to accept it in full satisfaction of
his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated and a statement of the dissenters' right to demand payment under
section 10-1328.
10-1328. Procedure if shareholder dissatisfied with payment or offer
A. A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and amount of interest
due and either demand payment of the dissenter's estimate, less any payment
under section 10-1325, or reject the corporation's offer under section 10-1327
and demand payment of the fair value of the dissenter's shares and interest due,
if either:
1. The dissenter believes that the amount paid under section
10-1325 or offered under section 10-1327 is less than the fair value of the
dissenter's shares or that the interest due is incorrectly calculated.
2. The corporation fails to make payment under section 10-1325
within sixty days after the date set for demanding payment.
3. The corporation, having failed to take the proposed action,
does not return the deposited certificates or does not release the transfer
restrictions imposed on uncertificated shares within sixty days after the date
set for demanding payment.
B. A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection A of this section within thirty days after the
corporation made or offered payment for the dissenter's shares.
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ARTICLE 3 - JUDICIAL APPRAISAL OF SHARES
10-1330. Court action
A. If a demand for payment under section 10-1328 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and shall petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the proceeding
within the sixty day period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
B. The corporation shall commence the proceeding in the court in the
county where a corporation's principal office or, if none in this state, its
known place of business is located. If the corporation is a foreign corporation
without a known place of business in this state, it shall commence the
proceeding in the county in this state where the known place of business of the
domestic corporation was located.
C. The corporation shall make all dissenters, whether or not residents
of this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares, and all parties shall be served with a copy of the
petition. Nonresidents may be served by certified mail or by publication as
provided by law or by the Arizona rules of civil procedure.
D. The jurisdiction of the court in which the proceeding is commenced
under subsection B of this section is plenary and exclusive. There is no right
to trial by jury in any proceeding brought under this section. The court may
appoint a master to have the powers and authorities as are conferred on masters
by law, by the Arizona rules of civil procedure or by the order of appointment.
The master's report is subject to exceptions to be heard before the court, both
on the law and the facts. The dissenters are entitled to the same discovery
rights as parties in other civil proceedings.
E. Each dissenter made a party to the proceeding is entitled to
judgment either:
1. For the amount, if any, by which the court finds the fair
value of his shares plus interest exceeds the amount paid by the corporation.
2. For the fair value plus accrued interest of the dissenter's
after- acquired shares for which the corporation elected to withhold payment
under section 10-1327.
10-1331. Court costs and attorney fees
A. The court in an appraisal proceeding commenced under
section 10-1330 shall determine all costs of the proceeding, including the
reasonable compensation and expenses of any master appointed by the court. The
court shall assess the costs against the corporation, except that the court
shall assess costs against all or some of the dissenters to the extent the court
finds that the fair value does not materially exceed the amount offered by the
corporation
7
<PAGE> 245
pursuant to sections 10-1325 and 10-1327 or that the dissenters acted
arbitrarily, vexatiously or not in good faith in demanding payment under section
10-1328.
B. The court may also assess the fees and expenses of attorneys and
experts for the respective parties in amounts the court finds equitable either:
1. Against the corporation and in favor of any or all
dissenters if the court finds that the corporation did not substantially comply
with the requirements of article 2 of this chapter.
2. Against the dissenter and in favor of the corporation if
the court finds that the fair value does not materially exceed the amount
offered by the corporation pursuant to sections 10-1325 and 10-1327.
3. Against either the corporation or a dissenter in favor of
any other party if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith with
respect to the rights provided by this chapter.
C. If the court finds that the services of an attorney for any
dissenter were of substantial benefit to other dissenters similarly situated and
that the fees for those services should not be assessed against the corporation,
the court may award to these attorneys reasonable fees to be paid out of the
amounts awarded the dissenters who were benefitted.
8
<PAGE> 246
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Articles of Incorporation and Bylaws provide that the
Registrant shall indemnify its directors, officers, employees and agents to the
fullest extent now or hereafter permitted by Colorado law. Under such
provisions, any director or officer who, in his or her capacity as such, is
made, or threatened to be made, a party to any suit or proceeding will be
indemnified if such director or officer acted in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interests of the
Registrant and, with respect to any criminal proceeding, had no reasonable cause
to believe that his or her conduct was unlawful. The Articles of Incorporation,
Bylaws and Colorado law further provide that such indemnification is not
exclusive of any other rights to which such individual may be entitled under the
Articles of Incorporation, Bylaws, any agreement, insurance policies, vote of
shareholders or disinterested directors or otherwise.
In addition, the Articles of Incorporation provide that, to the full
extent now or hereafter permitted by Colorado law, the Registrant's directors
will not be liable for monetary damages for breach of their fiduciary duty of
care to the Registrant and its shareholders. This provision in the Articles of
Incorporation does not eliminate the directors' fiduciary duty of care, and, in
appropriate circumstances, equitable remedies such as an injunction or other
forms of non-monetary relief would remain available under Colorado law. Each
director will continue to be subject to liability for breach of his or her duty
of loyalty to the Registrant and its shareholders for acts or omissions not in
good faith or involving intentional misconduct or knowing violations of law, for
certain activities prohibited by Colorado law (relating primarily to the
unlawful payment of dividends or repurchase of stock), or for any transaction
from which the director derived an improper personal benefit. This provision
does not affect a director's responsibilities under any other laws, such as the
federal securities laws or state or federal environmental laws.
The Registrant maintains directors' and officers' liability insurance
with a $10.0 million limit per year. The Registrant pays annual premiums and
expenses relating to the policy of approximately $49,000 per year.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
2.1 Amended and Restated Agreement and Plan of Merger
dated November 28, 2000 among Colorado Business
Bankshares, Inc., FCBA Acquisition Corporation and
First Capital Bank of Arizona (included as Annex A to
the Prospectus contained in this Registration
Statement)
II-1
<PAGE> 247
4.1(1) Form of Indenture
4.2 Form of Subordinated Debenture (included as an
exhibit to Exhibit 4.1)
4.3(1) Certificate of Trust
4.4(1) Form of Trust Agreement
4.5(1) Form of Amended and Restated Trust Agreement
4.6 Form of Capital Securities Certificate (included as
an exhibit to Exhibit 4.5)
4.7(1) Form of Capital Securities Guarantee Agreement
4.8 Form of Agreement of Expenses and Liabilities
(included as an exhibit to Exhibit 4.5)
4.9(2) Shareholders Agreement of Colorado Business Leasing,
Inc., dated as of March 29, 1996, by and among The
Women's Bank, N.A., Richard M. Hall, Jr., James F.
Enssle, Andrea J. Johnson and Colorado Business
Leasing, Inc.
5.1 Opinion of Sherman & Howard L.L.C.
8.1 Tax Opinion of Jennings, Strouss & Salmon PLC
10.1(2) License Agreement, dated as of November 19, 1997, by
and between Jack Henry & Associates, Inc. and
Colorado Business Bank, N.A.
10.2(2) Contract Modification, dated as of November 19, 1997,
by and between Jack Henry & Associates, Inc. and
Colorado Business Bank, N.A.
10.3(2) Computer Software Maintenance Agreement, dated as of
November 19, 1997, by and between Jack Henry &
Associates, Inc. and Colorado Business Bank, N.A.
10.4(2) Employment Agreement, dated as of March 1, 1995, by
and between Equitable Bankshares of Colorado, Inc.
and Jonathan C. Lorenz
10.5(2) Employment Agreement, dated as of May 8, 1995, by and
between Equitable Bankshares of Colorado, Inc. and
Virginia K. Berkeley
10.6(2) Employment Agreement, dated as of January 3, 1998, by
and between Colorado Business Bankshares, Inc. and
Richard J. Dalton
II-2
<PAGE> 248
10.7(2) Employment Agreement, dated as of February 29, 1996,
by and between Equitable Bankshares of Colorado, Inc.
and Darrell J. Schulte
10.8(2) Employment Agreement, dated as of June 12, 1995, by
and between Colorado Business Bankshares, Inc. and
Charles E. Holmes
10.9(2) Employment Agreement, dated as of November 16, 1997,
by and between Colorado Business Bankshares, Inc. and
Andrew L. Bacon
10.10(2) Employment Agreement, dated as of October 1, 1997, by
and between Colorado Business Bankshares, Inc. and K.
Denise Albrecht
10.11(2) Employment Agreement, dated as of March 29, 1996, by
and between Colorado Business Leasing, Inc. and
Richard M. Hall, Jr.
10.12(2) Employment Agreement, dated as of September 29, 1995,
by and between Equitable Bankshares of Colorado, Inc.
and Katherine H. Kaley
10.13(2) Employment Agreement, dated as of January 8, 1996, by
and between Colorado Business Bankshares, Inc. and
Robert J. Ostertag
10.14(2) Retail Lease, dated as of April 1, 1991, by and
between Southbridge Plaza, L.P. and Equitable Bank of
Littleton, N.A.
10.15(2) First Amendment to Retail Lease, dated as of January
4, 1996, by and between Southbridge Plaza, L.P. and
Colorado Business Bank, N.A., formerly known as
Equitable Bank of Littleton, N.A.
10.16(2) Office Lease, dated as of December 2, 1996, by and
between Elliott Kiowa, Inc. and Colorado Business
Bank, N.A.
10.17(2) Lease, dated as of December 1, 1997, by and between
Spencer Enterprises and Colorado Business Bank, N.A.
10.18(2) Office Lease, dated as of February 23, 1996, by and
between Colorado Business Leasing, Inc. and Denver
Place Associates Limited Partnership
10.19(3) Lease Agreement between Kesef, LLC and Colorado
Business Bankshares, Inc.
10.20(3) Office Lease Between SFP Realty, Ltd., L.L.P. and
Colorado Business Bank of Boulder National
Association
10.21(3) Office Building Lease between Hanover Resources Inc.
and Colorado Business Bank, N.A
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<PAGE> 249
10.22(3) Employment Agreement between Colorado Business
Bankshares, Inc. and Kevin G. Quinn
10.23(4) Lease Agreement between Edwards Interchange II, LLC
and Colorado Business Bank, National Association
10.24(4) Office Lease between Bank One, Colorado, N.A., as
Trustee for the Frank G. Jamison Trust, dated
September 2, 1956 and Colorado Business Bank, N.A.
10.25(2) Lease, dated July 27, 1999, between Joan H. Travis
and Colorado Business Bank, N.A.
10.26(5) Employment Agreement, dated April 12, 1999, by and
between Colorado Business Bankshares, Inc. and Randal
Garman
10.27(5) Employment Agreement, dated May 20, 1998, by and
between Colorado Business Bankshares, Inc. and J.
Henry Schonewise
10.28(6) Employment Agreement, dated January 1, 2000, by and
between Colorado Business Bankshares, Inc. and Lyne
Andrich
10.29(6) Promissory note between American National Bank and
Trust Company of Chicago and Colorado Business
Bankshares, Inc.
10.30(7) First Amendment to Lease Agreement between Kesef, LLC
and Colorado Business Bankshares, Inc. dated May 1,
1998.
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of S.R. Snodgrass, A.C.
23.3 Consent of Sherman & Howard L.L.C. (included as part
of Exhibit 5.1)
23.4 Consent of Jennings, Strouss & Salmon, P.L.C.
(included as part of Exhibit 8.1)
24.1 Power of Attorney (included as part of Signature
Pages).
99.1 Form of Proxy for Colorado Business Bankshares, Inc.
99.2 Form of Proxy for First Capital Bank of Arizona.
----------
(1) Incorporated herein by reference from the Registrant's Registration
Statement on Form S-1 (File No. 333-37674).
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<PAGE> 250
(2) Incorporated herein by reference from the Registrant's Registration
Statement on Form SB-2 (File No. 333-50037).
(3) Incorporated herein by reference from the Registrant's Quarterly
Report on Form 10-QSB for the quarter ended September 30, 1998, as filed on
November 13, 1998.
(4) Incorporated herein by reference from the Registrant's Quarterly
Report on Form 10-QSB for the quarter ended March 31, 1999, as filed on May 17,
1999.
(5) Incorporated herein by reference from Registrant's Quarterly Report
on Form 10-QSB for the quarter ended September 30, 1999, as filed on November
12, 1999.
(6) Incorporated herein by reference from Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31, 2000, as filed on May 12, 2000.
(7) Incorporated herein by reference from the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2000, as filed on
November 14, 2000.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement (notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any
II-5
<PAGE> 251
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement); and (iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(4) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(6) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of Form S-4,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(7) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
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<PAGE> 252
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City and County of Denver, State
of Colorado, on the 14th day of December, 2000.
Colorado Business Bankshares, Inc.
By: /s/ STEVEN BANGERT
Steven Bangert
Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears below
constitutes and appoints Steven Bangert and Jonathan C. Lorenz, and each of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ STEVEN BANGERT Chairman of the Board and December 14, 2000
Steven Bangert Chief Executive Officer
/s/ JONATHAN C. LORENZ Vice Chairman of the Board December 14, 2000
Jonathan C. Lorenz and President
/s/ RICHARD J. DALTON Executive Vice President and December 14, 2000
Richard J. Dalton Chief Financial Officer
/s/ LYNE B. ANDRICH Senior Vice President and December 14, 2000
Lyne B. Andrich Controller
/s/ VIRGINIA K. BERKELEY Director December 14, 2000
Virginia K. Berkeley
/s/ MICHAEL B. BURGAMY Director December 14, 2000
Michael B. Burgamy
/s/ TIMOTHY J. TRAVIS Director December 14, 2000
Timothy J. Travis
</TABLE>
II-7
<PAGE> 253
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ MARK S. KIPNIS Director December 14, 2000
Mark S. Kipnis
/s/ NOEL N. ROTHMAN Director December 14, 2000
Noel N. Rothman
/s/ HOWARD R. ROSS Director December 14, 2000
Howard R. Ross
</TABLE>
II-8
<PAGE> 254
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
2.1 Amended and Restated Agreement and Plan of Merger
dated November 28, 2000 among Colorado Business
Bankshares, Inc., FCBA Acquisition Corporation and
First Capital Bank of Arizona (included as Annex A to
the Prospectus contained in this Registration
Statement)
4.1(1) Form of Indenture
4.2 Form of Subordinated Debenture (included as an
exhibit to Exhibit 4.1)
4.3(1) Certificate of Trust
4.4(1) Form of Trust Agreement
4.5(1) Form of Amended and Restated Trust Agreement
4.6 Form of Capital Securities Certificate (included as
an exhibit to Exhibit 4.5)
4.7(1) Form of Capital Securities Guarantee Agreement
4.8 Form of Agreement of Expenses and Liabilities
(included as an exhibit to Exhibit 4.5)
4.9(2) Shareholders Agreement of Colorado Business Leasing,
Inc., dated as of March 29, 1996, by and among The
Women's Bank, N.A., Richard M. Hall, Jr., James F.
Enssle, Andrea J. Johnson and Colorado Business
Leasing, Inc.
5.1 Opinion of Sherman & Howard L.L.C.
8.1 Tax Opinion of Jennings, Strouss & Salmon PLC
10.1(2) License Agreement, dated as of November 19, 1997, by
and between Jack Henry & Associates, Inc. and
Colorado Business Bank, N.A.
10.2(2) Contract Modification, dated as of November 19, 1997,
by and between Jack Henry & Associates, Inc. and
Colorado Business Bank, N.A.
10.3(2) Computer Software Maintenance Agreement, dated as of
November 19, 1997, by and between Jack Henry &
Associates, Inc. and Colorado Business Bank, N.A.
10.4(2) Employment Agreement, dated as of March 1, 1995, by
and between Equitable Bankshares of Colorado, Inc.
and Jonathan C. Lorenz
10.5(2) Employment Agreement, dated as of May 8, 1995, by and
between Equitable Bankshares of Colorado, Inc. and
Virginia K. Berkeley
10.6(2) Employment Agreement, dated as of January 3, 1998, by
and between Colorado Business Bankshares, Inc. and
Richard J. Dalton
10.7(2) Employment Agreement, dated as of February 29, 1996,
by and between Equitable Bankshares of Colorado, Inc.
and Darrell J. Schulte
10.8(2) Employment Agreement, dated as of June 12, 1995, by
and between Colorado Business Bankshares, Inc. and
Charles E. Holmes
</TABLE>
<PAGE> 255
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
10.9(2) Employment Agreement, dated as of November 16, 1997,
by and between Colorado Business Bankshares, Inc. and
Andrew L. Bacon
10.10(2) Employment Agreement, dated as of October 1, 1997, by
and between Colorado Business Bankshares, Inc. and K.
Denise Albrecht
10.11(2) Employment Agreement, dated as of March 29, 1996, by
and between Colorado Business Leasing, Inc. and
Richard M. Hall, Jr.
10.12(2) Employment Agreement, dated as of September 29, 1995,
by and between Equitable Bankshares of Colorado, Inc.
and Katherine H. Kaley
10.13(2) Employment Agreement, dated as of January 8, 1996, by
and between Colorado Business Bankshares, Inc. and
Robert J. Ostertag
10.14(2) Retail Lease, dated as of April 1, 1991, by and
between Southbridge Plaza, L.P. and Equitable Bank of
Littleton, N.A.
10.15(2) First Amendment to Retail Lease, dated as of January
4, 1996, by and between Southbridge Plaza, L.P. and
Colorado Business Bank, N.A., formerly known as
Equitable Bank of Littleton, N.A.
10.16(2) Office Lease, dated as of December 2, 1996, by and
between Elliott Kiowa, Inc. and Colorado Business
Bank, N.A.
10.17(2) Lease, dated as of December 1, 1997, by and between
Spencer Enterprises and Colorado Business Bank, N.A.
10.18(2) Office Lease, dated as of February 23, 1996, by and
between Colorado Business Leasing, Inc. and Denver
Place Associates Limited Partnership
10.19(3) Lease Agreement between Kesef, LLC and Colorado
Business Bankshares, Inc.
10.20(3) Office Lease Between SFP Realty, Ltd., L.L.P. and
Colorado Business Bank of Boulder National
Association
10.21(3) Office Building Lease between Hanover Resources Inc.
and Colorado Business Bank, N.A.
10.22(3) Employment Agreement between Colorado Business
Bankshares, Inc. and Kevin G. Quinn
10.23(4) Lease Agreement between Edwards Interchange II, LLC
and Colorado Business Bank, National Association
10.24(4) Office Lease between Bank One, Colorado, N.A., as
Trustee for the Frank G. Jamison Trust, dated
September 2, 1956 and Colorado Business Bank, N.A.
10.25(2) Lease, dated July 27, 1999, between Joan H. Travis
and Colorado Business Bank, N.A.
10.26(5) Employment Agreement, dated April 12, 1999, by and
between Colorado Business Bankshares, Inc. and Randal
Garman
10.27(5) Employment Agreement, dated May 20, 1998, by and
between Colorado Business Bankshares, Inc. and J.
Henry Schonewise
10.28(6) Employment Agreement, dated January 1, 2000, by and
between Colorado Business Bankshares, Inc. and Lyne
Andrich
</TABLE>
<PAGE> 256
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
10.29(6) Promissory note between American National Bank and
Trust Company of Chicago and Colorado Business
Bankshares, Inc.
10.30(7) First Amendment to Lease Agreement between Kesef, LLC
and Colorado Business Bankshares, Inc. dated May 1,
1998.
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of S.R. Snodgrass, A.C.
23.3 Consent of Sherman & Howard L.L.C. (included as part
of Exhibit 5.1)
23.4 Consent of Jennings, Strouss & Salmon, P.L.C.
(included as part of Exhibit 8.1)
24.1 Power of Attorney (included as part of Signature
Pages)
99.1 Form of Proxy for Colorado Business Bankshares, Inc.
99.2 Form of Proxy for First Capital Bank of Arizona
</TABLE>
(1) Incorporated herein by reference from the Registrant's Registration
Statement on Form S-1 (File No. 333-37674).
(2) Incorporated herein by reference from the Registrant's Registration
Statement on Form SB-2 (File No. 333-50037).
(3) Incorporated herein by reference from the Registrant's Quarterly Report on
Form 10-QSB for the quarter ended September 30, 1998, as filed on November 13,
1998.
(4) Incorporated herein by reference from the Registrant's Quarterly Report on
Form 10-QSB for the quarter ended March 31, 1999, as filed on May 17, 1999.
(5) Incorporated herein by reference from Registrant's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1999, as filed on November 12, 1999.
(6) Incorporated herein by reference from Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 2000, as filed on May 12, 2000.
(7) Incorporated herein by reference from the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000, as filed on November 14,
2000.
