<PAGE>
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended June 30, 2000.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
----------------------------------
Commission File Number 000-24445
----------------------------------
COLORADO BUSINESS BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
COLORADO 84-0826324
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
821 l7th Street
Denver, CO 80202
(Address of principal executive offices) (Zip Code)
(303) 293-2265
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
There were 6,705,290 shares of the registrant's Common Stock, $0.01 par value
per share, outstanding as of August 10, 2000.
--------------------------------------------------------------------------------
================================================================================
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities and Use of Proceeds None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
Consolidated Statements of Condition
June 30, 2000 (unaudited) and December 31, 1999
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(unaudited)
ASSETS
<S> <C> <C>
Cash and due from banks $ 23,922,000 $ 18,687,000
Federal funds sold 25,800,000 -
------------ ------------
Total cash and cash equivalents 49,722,000 18,687,000
------------ ------------
Investment securities available for sale (cost of $108,091,000 (unaudited) and
$102,949,000, respectively) 105,734,000 101,456,000
Investment securities held to maturity (fair value of $5,254,000 (unaudited) and
$5,648,000, respectively) 5,254,000 5,620,000
Other investments 3,375,000 2,845,000
------------ ------------
Total investments 114,363,000 109,921,000
------------ ------------
Loans and leases, net 383,301,000 346,094,000
Excess of cost over fair value of net assets acquired, net 4,023,000 4,243,000
Investment in operating leases 3,099,000 4,047,000
Premises and equipment, net 3,689,000 3,606,000
Accrued interest receivable 2,497,000 2,167,000
Deferred income taxes 2,814,000 2,192,000
Other 1,976,000 1,052,000
------------ ------------
TOTAL ASSETS $565,484,000 $492,009,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $116,016,000 $106,492,000
NOW and money market 186,770,000 148,685,000
Savings 6,321,000 5,896,000
Certificates of deposit 131,633,000 122,256,000
------------ ------------
Total deposits 440,740,000 383,329,000
Federal funds purchased - 1,300,000
Securities sold under agreements to repurchase 48,572,000 33,053,000
Advances from Federal Home Loan Bank 10,910,000 30,980,000
Other liabilities 2,819,000 2,996,000
Company obligated mandatorily redeemable preferred securities
of subsidiary trust holding solely subordinated debentures 20,000,000 -
------------ ------------
Total liabilities 523,041,000 451,658,000
Shareholders' Equity:
Common, $.01 par value; 25,000,000 shares authorized; 6,705,290
issued and outstanding 67,000 67,000
Additional paid-in capital 30,067,000 29,994,000
Retained earnings 13,768,000 11,224,000
Accumulated other comprehensive loss, net of income tax
of ($898,000) (unaudited) and ($559,000), respectively (1,459,000) (934,000)
------------ ------------
Total shareholders' equity 42,443,000 40,351,000
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $565,484,000 $492,009,000
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
1
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
Consolidated Statements of Income and Comprehensive Income
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ------------------------------
2000 1999 2000 1999
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans and leases $ 8,994,000 $ 6,053,000 $ 17,382,000 $ 11,437,000
Interest and dividends of investment securities:
Taxable securities 1,623,000 1,515,000 3,275,000 2,950,000
Nontaxable securities 13,000 16,000 26,000 32,000
Dividends on securities 51,000 29,000 97,000 64,000
Federal funds sold and other 305,000 46,000 333,000 91,000
----------- ----------- ------------ ------------
Total interest income 10,986,000 7,659,000 21,113,000 14,574,000
INTEREST EXPENSE:
Interest on deposits 3,825,000 2,016,000 7,070,000 3,762,000
Interest on short-term borrowings and FHLB advances 714,000 674,000 1,575,000 1,324,000
Interest on mandatorily redeemable preferred securities of
subsidiary trust 44,000 - 44,000 -
----------- ----------- ------------ ------------
Total interest expense 4,583,000 2,690,000 8,689,000 5,086,000
NET INTEREST INCOME BEFORE PROVISION FOR
LOAN AND LEASE LOSSES 6,403,000 4,969,000 12,424,000 9,488,000
Provision for loan and lease losses 369,000 332,000 942,000 635,000
----------- ----------- ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN AND LEASE LOSSES 6,034,000 4,637,000 11,482,000 8,853,000
----------- ----------- ------------ ------------
OTHER INCOME:
Service charges 285,000 284,000 568,000 540,000
Operating lease income 509,000 551,000 1,038,000 1,138,000
Other income 437,000 260,000 765,000 491,000
Gain on sale of securities - - - 44,000
----------- ----------- ------------ ------------
Total other income 1,231,000 1,095,000 2,371,000 2,213,000
----------- ----------- ------------ ------------
OTHER EXPENSE:
Salaries and employee benefits 2,311,000 2,091,000 4,476,000 4,029,000
Occupancy expenses, premises and equipment 870,000 630,000 1,654,000 1,211,000
Depreciation on leases 417,000 487,000 851,000 983,000
Amortization of intangibles 110,00 111,000 221,000 221,000
Other 700,000 519,000 1,303,000 1,101,000
----------- ----------- ------------ ------------
Total other expense 4,408,000 3,838,000 8,505,000 7,545,000
----------- ----------- ------------ ------------
INCOME BEFORE INCOME TAXES 2,857,000 1,894,000 5,348,000 3,521,000
Provision for income taxes 1,136,000 752,000 2,133,000 1,372,000
----------- ----------- ------------ ------------
NET INCOME $ 1,721,000 $ 1,142,000 $ 3,215,000 $ 2,149,000
=========== =========== ============ ============
UNREALIZED DEPRECIATION ON
AVAILABLE FOR SALE SECURITIES, net of tax (601,000) (892,000) (525,000) (980,000)
----------- ----------- ------------ ------------
COMPREHENSIVE INCOME $ 1,120,000 $ 250,000 $ 2,690,000 $ 1,169,000
=========== ========== ============ ============
EARNINGS PER SHARE:
Basic $ 0.26 $ 0.17 $ 0.48 $ 0.32
=========== ========== ============ ============
Diluted $ 0.25 $ 0.17 $ 0.47 $ 0.31
=========== ========== ============ ============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,215,000 $ 2,149,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Net amortization of securities 44,000 137,000
Depreciation and amortization 1,646,000 1,653,000
Provision for loan and lease losses 942,000 635,000
Deferred income taxes (282,000) (72,000)
Gain on sale of securities - (44,000)
Gain on sale of premises and equipment (27,000) (29,000)
Changes in:
Accrued interest receivable (330,000) (257,000)
Other assets (46,000) 62,000
Accrued interest and other liabilities (177,000) 580,000
----------- -----------
Net cash provided by operating activities 4,985,000 4,814,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in other investments (530,000) (410,000)
Purchase of available for sale securities (16,516,000) (35,354,000)
Proceeds from maturities of held to maturity securities 361,000 2,604,000
Proceeds from maturities and sale of available for
sale securities 11,331,000 28,970,000
Loan and lease originations and repayments, net (38,160,000) (52,022,000)
Purchase of premises and equipment (722,000) (889,000)
Proceeds from sale of premises and equipment 201,000 111,000
----------- -----------
Net cash used in investing activities (44,035,000) (56,990,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, NOW, money market,
and savings accounts 48,034,000 15,079,000
Net increase in certificates of deposit 9,377,000 22,061,000
Net decrease in federal funds purchased (1,300,000) (200,000)
Net increase in securities sold under agreements
to repurchase 15,519,000 25,188,000
Advances from Federal Home Loan Bank 30,800,000 20,000,000
Repayments of Federal Home Loan Bank advances (50,870,000) (29,070,000)
Proceeds from issuance of mandatorily redeemable preferred
securities of subsidiary trust 20,000,000 -
Net increase in debt issuance costs (878,000) -
Proceeds from exercise of stock options 73,000 -
Dividends paid on common stock (670,000) -
----------- -----------
Net cash provided by financing activities 70,085,000 53,058,000
NET INCREASE IN CASH AND CASH
EQUIVALENTS 31,035,000 882,000
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 18,687,000 20,058,000
----------- -----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $49,722,000 $20,940,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
Colorado Business Bankshares, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
(Unaudited)
1. Consolidated Condensed Financial Statements
The accompanying consolidated condensed financial statements are unaudited
and include the accounts of Colorado Business Bankshares, Inc. ("Parent"), and
its wholly owned subsidiaries: CoBiz Connect, Inc., Colorado Business Bankshares
Capital Trust I, Colorado Business Bank, N.A. ("Bank"), and the Bank's 80%
owned equipment leasing subsidiary, Colorado Business Leasing, Inc. ("Leasing"),
collectively referred to as the "Company".
All significant intercompany accounts and transactions have been
eliminated. These financial statements and notes thereto should be read in
conjunction with, and are qualified in their entirety by the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1999, as filed with the
Securities and Exchange Commission on March 30, 2000.
The consolidated condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting only of normally recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
six months ended June 30, 2000 are not necessarily indicative of the results
that may be expected for the full year ending December 31, 2000.
Certain reclassifications have been made to the 1999 financial statements
to conform to the 2000 presentation.
2. 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.
4
<PAGE>
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 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.
3. Earnings per Common Share
Income available to common shareholders and the weighted average shares
outstanding used in the calculation of Basic and Diluted Earnings Per Share are
as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income available to common shareholders $1,721,000 $1,142,000 $3,215,000 $2,149,000
---------- ---------- ---------- ----------
Weighted average shares outstanding -
basic earnings per share 6,705,290 6,673,481 6,701,704 6,673,481
Effect of dilutive securities - stock options 172,584 188,220 175,105 189,514
---------- ---------- ---------- ----------
Weighted average shares outstanding -
diluted earnings per share 6,877,874 6,861,701 6,876,809 6,862,995
========== ========== ========== ==========
Earnings per common share - Diluted $ 0.25 $ 0.17 $ 0.47 $ 0.31
========== ========== ========== ==========
</TABLE>
5
<PAGE>
4. Recent Accounting Pronouncements
SFAS No. 133, "Accounts for Derivative Instruments and Hedging Activities,"
establishes accounting and reporting standards for derivative instruments and
hedging activities and requires recognition of all derivatives as either assets
or liabilities measured at fair value. The accounting for changes in fair value
of a derivative depends on the intended use of the derivative and the resulting
designation. The statement is required for the year 2001. The adoption of SFAS
No. 133 is not expected to have a material effect on the consolidated financial
statements.
5. 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>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2000 1999 2000 1999
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Other comprehensive income (loss), before tax:
Unrealized gain (loss) on available for sale
securities arising during the period $(959,000) $(1,423,000) $ (837,000) $(1,563,000)
Reclassification adjustment for (gains) losses
arising during the period - - - -
---------- ----------- ---------- -----------
Other comprehensive income (loss), before tax (959,000) (1,423,000) (837,000) (1,563,000)
Tax (expense) benefit related to items of
other comprehensive income (loss) 358,000 531,000 312,000 583,000
---------- ----------- ---------- -----------
Other comprehensive income (loss), net of tax $ (601,000) $ (892,000) $ (525,000) $ (980,000)
========== =========== ========== ===========
</TABLE>
6. Segments
The Company's principal activities include Commercial Banking and Equipment
Leasing. The Commercial Banking segment offers a broad range of banking
products and services, including credit, cash management, investment, deposit
and trust products. The Equipment Leasing segment offers leasing programs for
computers, telecommunications equipment, telephone systems, business furniture,
manufacturing equipment, materials handling equipment and other capital
equipment.
6
<PAGE>
The financial information for each business segment reflects that
information which is specifically identifiable or which is allocated based on an
internal allocation method. The allocation has been consistently applied for
all periods presented. Revenues from affiliated transactions, principally the
Commercial Banking division's funding of Equipment Leasing activity, are
generally charged at the Commercial Banking division's marginal cost of funds.
Results of operations and selected financial information by operating
segment are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2000 1999 2000 1999
---------- ----------- ---------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Total interest income:
Commercial Banking $ 10,983 $ 7,575 $ 21,073 $ 14,499
Equipment Leasing 393 387 835 674
All other 2 7 6 13
Eliminations (392) (310) (801) (612)
---------- ----------- ---------- -----------
Consolidated $ 10,986 $ 7,659 $ 21,113 $ 14,574
========== =========== ========== ===========
Total interest expense:
Commercial Banking $ 4,545 $ 2,692 $ 8,651 $ 5,084
Equipment Leasing 386 308 795 614
All other 44 - 44 -
Eliminations (392) (310) (801) (612)
---------- ----------- ---------- -----------
Consolidated $ 4,583 $ 2,690 $ 8,689 $ 5,086
========== =========== ========== ===========
Other noninterest income:
Commercial Banking $ 717 $ 569 $ 1,278 $ 1,053
Equipment Leasing 623 598 1,208 1,230
All other 2,118 1,379 3,894 2,620
Eliminations (2,227) (1,451) (4,009) (2,690)
---------- ----------- ---------- -----------
Consolidated $ 1,231 $ 1,095 $ 2,371 $ 2,213
========== =========== ========== ===========
Net Income:
Commercial Banking $ 1,885 $ 1,184 $ 3,544 $ 2,242
Equipment Leasing 48 71 (60) 58
All other 1,720 1,142 3,215 2,149
Eliminations (1,932) (1,255) (3,484) (2,300)
---------- ----------- ---------- -----------
Consolidated $ 1,721 $ 1,142 $ 3,215 $ 2,149
========== =========== ========== ===========
</TABLE>
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Consolidated Condensed Balance Sheets
The Company's total assets increased by $73.5 million to $565.5 million as
of June 30, 2000, from $492.0 million as of December 31, 1999. Benefiting from
a strong Colorado economy, the loan and lease portfolio (net) increased by $37.2
million, from $346.1 million at December 31, 1999, to $383.3 million as of June
30, 2000. Investment securities were $114.4 million as of June 30, 2000,
compared to $109.9 million as of December 31, 1999. The investment portfolio
experienced only modest growth as the Company utilized its funding resources to
support loan demand, rather than investment purchases.
In 2000, the Company refined its marketing focus to attract deposits, as
well as loans. As a result, deposits increased by $57.4 million to $440.7
million as of June 30, 2000, from $383.3 million as of December 31, 1999.
Noninterest-bearing deposits increased by $9.5 million, and interest-bearing
deposits increased by $47.9 million. Low-cost demand deposits comprised 26% of
total deposits as of June 30, 2000, compared to 28% as of December 31, 1999.
Federal funds purchased and securities sold under agreements to repurchase
increased by $14.2 million in the first six months of 2000 to $48.6 million.
The balance at June 30, 2000 represents repurchase agreements transacted on
behalf of the Company's customers and is not considered a wholesale borrowing
source.
Advances from the Federal Home Loan Bank of Topeka were $10.9 million at
June 30, 2000, compared to $31.0 million at December 31, 1999. The significant
pay down was possible due to our increased focus on attracting deposit
relationships in 2000.
The Company successfully completed an offering of $20 million of Trust
Preferred Securities late in the second quarter of 2000. Proceeds of $18
million were contributed to the capital of the Bank to support its growth. The
remaining balance will be used for general corporate purposes.
Results of Operations
Overview
Net earnings available to common shareholders was $1,721,000 for the
quarter ended June 30, 2000, compared with $1,142,000 for the quarter ended June
30, 1999, an increase of 51%. Earnings per share on a fully diluted basis for
the second quarter was $0.25, versus $0.17 for the same period a year ago, an
increase of 47%.
Net earnings available to common shareholders was $3,215,000 for the six
months ended June 30, 2000, compared with $2,149,000 for the six months ended
June 30, 1999, an increase of 50%. Earnings per share on a fully diluted basis
for the six months ended June 30, 2000 was $0.47, versus $0.31 for the same
period a year ago, an increase of 52%.
8
<PAGE>
On an operating basis, before the amortization of goodwill, consolidated
net income available to common shareholders for the three months ended June 30,
2000 and 1999, was $1,831,000 and $1,252,000, or $0.27 and $0.18 per diluted
share, respectively. Return on average tangible assets was 1.39% in the second
quarter of 2000, compared with 1.23% in the second quarter of 1999. Return on
average tangible common shareholders' equity was 18.66% for the quarter ended
June 30, 2000, versus 14.65% for the quarter ended June 30, 1999.
On an operating basis, before the amortization of goodwill, consolidated
net income available to common shareholders for the six months ended June 30,
2000 and 1999, was $3,434,000 and $2,368,000, or $0.50 and $0.35 per diluted
share, respectively. Return on average tangible assets was 1.34% in the first
six months of 2000, compared with 1.23% for the comparable period in 1999.
Return on average tangible common shareholders' equity was 18.12% for the six
months ended June 30, 2000, versus 14.17% for the six months ended June 30,
1999.
The following table presents condensed statements of income for the Company
for the three months and six months ended June 30, 2000 and June 30, 1999.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- ---------------------------------
Increase Increase
------------- -------------
2000 1999 Amount % 2000 1999 Amount %
-------- -------- -------- --- -------- -------- -------- ---
<S> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
Interest income $ 10,986 $ 7,659 $ 3,327 43% $ 21,113 $ 14,574 $ 6,539 45%
Interest expense 4,583 2,690 1,893 70% 8,689 5,086 3,603 71%
-------- -------- -------- --- -------- -------- -------- ---
Net interest income before provision
for loan and lease losses 6,403 4,969 1,434 29% 12,424 9,488 2,936 31%
Provision for loan and lease losses 369 332 37 11% 942 635 307 48%
-------- -------- -------- --- -------- -------- -------- ---
Net interest income after provision
for loan and lease losses 6,034 4,637 1,397 30% 11,482 8,853 2,629 30%
Noninterest income 1,231 1,095 136 12% 2,371 2,213 158 7%
Noninterest expense 4,408 3,838 570 15% 8,505 7,545 960 13%
-------- -------- -------- --- -------- -------- -------- ---
Income before income taxes 2,857 1,894 963 51% 5,348 3,521 1,827 52%
Provision for income taxes 1,136 752 384 51% 2,133 1,372 761 55%
-------- -------- -------- --- -------- -------- -------- ---
Net income $ 1,721 $ 1,142 $ 579 51% $ 3,215 $ 2,149 $ 1,066 50%
======== ======== ======== === ======== ======== ======== ===
</TABLE>
9
<PAGE>
Net Interest Income
Net interest income before provision for loan and lease losses was $6.4
million for the quarter ended June 30, 2000, an increase of $1.4 million, or
29%, compared with the quarter ended June 30, 1999. Yields on the Company's
interest-earning assets improved by 83 basis points to 8.84% for the three
months ended June 30, 2000, from 8.01% for the three months ended June 30, 1999.
Yields paid on interest-bearing liabilities increased by 98 basis points during
this same period. The net interest margin was 5.24% for the quarter ended June
30, 2000, down from 5.27% for the quarter ended June 30, 1999. Contributing to
the decrease in the net interest margin was heightened competition for customer
deposits, which resulted in higher yields on interest-bearing deposits. Although
the growth of the Company's average 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 30% to $491.4
million for the second quarter of 2000, from $378.4 million for the second
quarter of 1999.
Net interest income before provision for loan and lease losses was $12.4
million for the six months ended June 30, 2000, an increase of $2.9 million, or
31%, compared with the six months ended June 30, 1999. Yields on the Company's
interest-earning assets improved by 71 basis points to 8.75% for the six months
ended June 30, 2000, from 8.04% for the six months ended June 30, 1999. Yields
paid on interest-bearing liabilities increased by 83 basis points during this
same period. The net interest margin was 5.24% for the six months ended June 30,
2000, down from 5.31% for the six months ended June 30, 1999.
The following tables set forth the average amounts outstanding for each
category of interest-earning assets and interest-bearing liabilities, the
interest earned or paid on such amounts and the average rate earned or paid for
the quarters and six months ended June 30, 2000 and 1999.
10
<PAGE>
<TABLE>
<CAPTION>
For the three months ended June 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 $ 19,871 $ 305 6.07% $ 3,925 $ 46 4.64%
Investment securities (2) 103,958 1,687 6.42% 111,070 1,560 5.56%
Loans and leases (3) 372,577 8,994 9.55% 266,999 6,053 8.97%
Allowance for loan and lease losses (5,040) - 0.00% (3,591) - 0.00%
---------- ---------- ----------- ---------- ---------- -----------
Total interest-earning assets 491,366 10,986 8.84% 378,403 7,659 8.01%
Noninterest-earning assets:
Cash and due from banks 24,156 20,145
Other 18,291 14,890
---------- ----------
Total assets $ 533,813 $ 413,438
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
NOW and money market accounts $ 184,177 $ 1,903 4.16% $ 118,036 $ 926 3.15%
Savings 5,855 32 2.20% 6,363 35 2.21%
Certificates of deposit:
Under $100,000 25,765 366 5.71% 26,125 327 5.02%
$100,000 and over 102,480 1,524 5.98% 58,171 728 5.02%
---------- ---------- ----------- ---------- ---------- -----------
Total interest-bearing deposits 318,277 3,825 4.83% 208,695 2,016 3.87%
Other borrowings:
Securities and loans sold under
agreements to repurchase and
federal funds purchased 40,433 538 5.26% 47,345 516 4.31%
FHLB advances 10,933 176 6.37% 12,128 158 5.15%
Company obligated mandatorily
redeemable preferred securities 1,978 44 8.90% - - 0.00%
---------- ---------- ----------- ---------- ---------- -----------
Total interest-bearing
liabilities 371,621 4,583 4.76% 268,168 2,690 3.78%
Noninterest-bearing demand accounts 116,200 103,069
---------- ----------
Total deposits and
interest-bearing liabilities 487,821 371,237
Other noninterest-bearing liabilities 2,457 3,400
---------- ----------
Total liabilities and
preferred stock 490,278 374,637
Shareholders' equity 43,535 38,801
---------- ----------
Total liabilities and
shareholders' equity $ 533,813 $ 413,438
========== ==========
Net interest income $ 6,403 $ 4,969
========== ==========
Net interest spread 4.09% 4.23%
Net interest margin 5.24% 5.27%
Ratio of average interest-earning
assets to
average interest-bearing liabilities 132.22% 141.11%
</TABLE>
--------------------------------------------------------------------------------
(1) Average yield or cost for the three months ended June 30, 2000 and 1999 has
been annualized and is 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.
11
<PAGE>
<TABLE>
<CAPTION>
For the six months ended June 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 $ 10,766 $ 333 6.12% $ 3,780 $ 91 4.79%
Investment securities (2) 105,702 3,398 6.36% 107,691 3,046 5.63%
Loans and leases (3) 365,511 17,382 9.41% 252,495 11,437 9.01%
Allowance for loan and lease losses (4,871) - 0.00% (3,471) - 0.00%
---------- ---------- ----------- ---------- ---------- -----------
Total interest-earning assets 477,108 21,113 8.75% 360,495 14,574 8.04%
Noninterest-earning assets:
Cash and due from banks 23,484 17,987
Other 17,596 15,007
---------- ----------
Total assets $ 518,188 $ 393,489
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
NOW and money market accounts $ 168,860 $ 3,406 4.06% $ 111,219 $ 1,692 3.07%
---------- ---------- ----------- ---------- ---------- -----------
Savings 5,935 66 2.24% 6,692 73 2.20%
Certificates of deposit:
Under $100,000 25,109 692 5.54% 28,191 706 5.05%
$100,000 and over 101,456 2,906 5.76% 51,686 1,291 5.04%
---------- ---------- ----------- ---------- ---------- -----------
Total interest-bearing deposits 301,360 7,070 4.72% 197,788 3,762 3.84%
Other borrowings:
Securities and loans sold under
agreements to repurchase and
federal funds purchased 38,788 996 5.08% 43,606 936 4.27%
FHLB advances 18,883 579 6.07% 14,759 388 5.23%
Company obligated mandatorily
redeemable preferred securities 989 44 8.90% - - 0.00%
---------- ---------- ----------- ---------- ---------- -----------
Total interest-bearing
liabilities 360,020 8,689 4.52% 256,153 5,086 3.69%
Noninterest-bearing demand accounts 113,358 96,432
---------- ----------
Total deposits and 473,378 352,585
interest-bearing liabilities
Other noninterest-bearing liabilities 2,558 2,628
---------- ----------
Total liabilities and
preferred stock 475,936 355,213
Shareholders' equity 42,252 38,276
---------- ----------
Total liabilities and
shareholders' equity $ 518,188 $ 393,489
========== ==========
Net interest income $ 12,424 $ 9,488
========== ==========
Net interest spread 4.23% 4.35%
Net interest margin 5.24% 5.31%
Ratio of average interest-earning
assets to average interest-bearing
liabilities 132.52% 140.73%
</TABLE>
--------------------------------------------------------------------------------
(1) Average yield or cost for the six months ended June 30, 2000 and 1999 has
been annualized and is 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.
12
<PAGE>
Noninterest Income
The Company reported a 12% increase in noninterest income for the second
quarter of 2000. Total noninterest income was $1,231,000 for the three months
ended June 30, 2000, compared to $1,095,000 for the three months ended June 30,
1999. Noninterest income for the first six months of 2000 was $2,371,000 versus
$2,213,000 for the same period in 1999. The quarter and year to date increases
were primarily attributable to growth in trust fees, other banking service
related fees, and gains on the disposition of other assets.
Growth in deposit service charges has historically been moderate and has
not corresponded with the growth in deposit balances. This is due to the
Company offering its customers the choice of either paying for services in cash
or by maintaining additional noninterest bearing account balances. Noninterest
bearing demand accounts were $116.0 million as of June 30, 2000, or 26% of total
deposits. The forgone deposit service charges are mitigated by an increase in
the Company's net interest margin, which improves with higher levels of
noninterest bearing funding sources.
Also offsetting the increase in total other income was a decrease in
operating lease rentals. This was the result of Colorado Business Leasing
concentrating its marketing efforts in 2000 on originating direct finance
leases, rather than operating leases. Net investment in operating leases was
$3.1 million at June 30, 2000, compared to $3.6 million at June 30, 1999.
The second quarter and year to date decline in other loan fees relates to
mortgage origination fees. Due to low product demand from our commercial
customer base, the Company decided to phase out a dedicated mortgage origination
department in 1999.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------------------- --------------------------------------------
Increase (Decrease) Increase (Decrease)
------------------- -------------------
2000 1999 Amount % 2000 1999 Amount %
------ ------ -------- ------- ------ ------ -------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deposit service charges $ 285 $ 284 $ 1 0% $ 568 $ 540 $ 28 5%
Operating lease income 509 551 (42) -8% 1,038 1,138 (100) -9%
Other loan fees 52 102 (50) -49% 101 181 (80) -44%
Trust income 162 57 105 184% 281 105 176 168%
Other income 132 101 31 31% 289 176 113 64%
Gain on sale of other assets 91 - 91 0% 94 29 65 224%
Gain on sale of securities - - - 0% - 44 (44) -100%
------ ------ -------- ------ ------ --------
Total other income $1,231 $1,095 $ 136 12% $2,371 $2,213 $ 158 7%
====== ====== ======== ====== ====== ========
</TABLE>
13
<PAGE>
Noninterest Expense
Total noninterest expense increased by $570,000 to $4,408,000 for the three
months ended June 30, 2000, up from $3,838,000 for the three months ended June
30, 1999. During this period, however, the efficiency ratio before goodwill
amortization improved to 57% for the quarter ended June 30, 2000, down from 62%
for the comparable period in 1999. Noninterest expenses increased to
$8,505,000 for the six months ended June 30, 2000, up from $7,545,000 for the
six months ended June 30, 1999. The efficiency ratio before goodwill
amortization was 56% for the six months ended June 30, 2000, compared to 63% for
the first six months of 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 the Company's ongoing
investment in personnel, technology and office space needed to accommodate
internal growth. In the second quarter of 1999, the Company's Boulder bank
relocated to a larger leased facility. In addition, a second Boulder location
was added in May 1999, the Edwards location opened in June 1999, and the Denver
drive-up location was relocated to a larger, full-service center in May of 2000.
Depreciation on operating leases decreased by $70,000 and $132,000,
respectively, for the three and six months ended June 2000 compared to the same
periods in 1999. This was the result of Colorado Business Leasing concentrating
its marketing efforts in 2000 on originating direct finance leases, rather than
operating leases. The decrease in depreciation expense is consistent with the
decline in operating lease rental income.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------------------- --------------------------------------------
Increase (Decrease) Increase (Decrease)
------------------- -------------------
2000 1999 Amount % 2000 1999 Amount %
------ ------ -------- ------- ------ ------ -------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $2,311 $2,091 $ 220 11% $4,476 $4,029 $ 447 11%
Occupancy expenses, premises
and equipment 870 630 240 38% 1,654 1,211 443 37%
Depreciation on leases 417 487 (70) -14% 851 983 (132) -13%
Amortization of intangibles 110 111 (1) -1% 221 221 - 0%
Other operating expenses 700 519 181 35% 1,303 1,101 202 18%
------ ------ -------- ------ ------ --------
Total other expense $4,408 $3,838 $ 570 15% $8,505 $7,545 $ 960 13%
====== ====== ======== ====== ====== ========
Efficiency ratio 58.4% 63.3% 57.9% 64.9%
Efficiency ratio without goodwill 57.0% 61.5% 56.4% 63.0%
</TABLE>
14
<PAGE>
Provision and Allowance for Loan and Lease Losses
The provision for loan and lease losses was $369,000 for the three months
ended June 30, 2000, up from $332,000 for the three months ended June 30, 1999.
The provision for the six months ended June 2000 was $942,000, an increase of
$307,000 from the six months ended June 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, while average outstanding loan amounts have increased to $365.5
million for the first six months of 2000, up from $252.5 million for the first
six months of 1999. As of June 30, 2000, the allowance for loan and lease losses
amounted to $5.2 million, or 1.34% of total loans and leases.
The allowance for loan and lease losses represents management's recognition
of the risks of extending credit and its evaluation of the quality of the loan
and lease portfolio. The Company maintains an allowance for loan losses based
upon a number of factors, including, among others, the amount of problem loans
and leases, general economic conditions, historical loss experience, and the
evaluation of the underlying collateral and holding and disposal costs. In
addition to unallocated allowances, specific allowances are provided for
individual loans when ultimate collection is considered questionable by
management after reviewing the current status of those loans that are
contractually past due and considering the net realizable value of the
collateral for the loans. Management actively monitors the Company's asset
quality and will charge-off loans against the allowance for loan and lease
losses when appropriate and will provide specific loss allowances when
necessary. Although management believes it uses the best information available
to make determinations with respect to the allowance for loan losses, future
adjustments may be necessary if economic conditions differ from the assumptions
used in making the initial determinations. In addition, the determination of
the allowance for loan and lease losses is subject to review by the Company's
regulators, as part of the routine examination process, which may result in the
establishment of additional reserves based upon their judgment of information
available to them at the time of their examination. The following table
presents, for the periods indicated, an analysis of the allowance for loan and
lease losses and other related data.
15
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended Six Months Ended
June 30, 2000 December 31, 1999 June 30, 1999
---------------- --------------------- ----------------
(dollars in thousands)
<S> <C> <C> <C>
Balance of allowance for loan and lease
losses at beginning of period $ 4,585 $ 3,271 $ 3,271
---------------- --------------------- ----------------
Charge-offs:
Commercial 131 100 55
Real estate -- mortgage 16 - -
Real estate -- construction - 5 4
Consumer 2 80 20
Direct financing leases 209 - -
---------------- --------------------- ----------------
Total charge-offs 358 185 79
---------------- --------------------- ----------------
Recoveries:
Commercial 26 24 3
Real estate -- mortgage - - -
Real estate -- construction - - -
Consumer 2 2 -
Direct financing leases 2 - -
---------------- --------------------- ----------------
Total recoveries 30 26 3
---------------- --------------------- ----------------
Net charge-offs (328) (159) (76)
Provisions for loan and lease losses
charged to operations 942 1,473 635
---------------- --------------------- ----------------
Balance of allowance for loan and lease
losses at end of period $ 5,199 $ 4,585 $ 3,830
================ ===================== ================
Ratio of net charge-offs to average
loans and leases (1) (.18%) (.06%) (.06%)
Average loans and leases outstanding during
the period $ 365,511 $ 281,796 $ 252,495
================ ===================== ================
</TABLE>
(1) The ratios for the six months ended June 30, 2000 and 1999 have been
annualized and are not necessarily indicative of the results for the entire
year.
Nonperforming Assets
The Company's nonperforming assets consist of nonaccrual loans and leases,
restructured loans and leases, past due loans and leases, repossessed assets and
other real estate owned. Nonperforming assets were $1,014,000 as of June 30,
2000, compared with $683,000 as of December 31, 1999 and $781,000 as of June 30,
1999. The following table presents information regarding nonperforming assets
as of the dates indicated:
16
<PAGE>
<TABLE>
<CAPTION>
At June 30, At December 31, At June 30,
2000 1999 1999
----------- --------------- -----------
(dollars in thousands)
<S> <C> <C> <C>
Nonperforming loans and leases:
Loans and leases 90 days or more delinquent and still accruing
interest $ 432 $ 49 $ -
Nonaccrual loans and leases 582 634 781
----------- --------------- -----------
Total nonperforming loans and leases 1,014 683 781
Real estate acquired by foreclosure - - -
----------- --------------- -----------
Total nonperforming assets $ 1,014 $ 683 $ 781
=========== =============== ===========
Allowance for loan and lease losses $ 5,199 $ 4,585 $ 3,830
=========== =============== ===========
Ratio of nonperforming assets to total assets 0.18% 0.14% 0.19%
Ratio of nonperforming loans and leases to total loans and leases 0.26 0.19 0.28
Ratio of allowance for loan and lease losses to total loans and
leases 1.34 1.31 1.38
Ratio of allowance for loan and lease losses to nonperforming loans
and leases 512.72 671.30 490.40
</TABLE>
Liquidity and Capital Resources
The Company's liquidity management objective is to ensure its ability to
satisfy the cash flow requirements of depositors and borrowers and to allow the
Company to sustain its operations. Historically, the Company's primary source
of funds has been customer deposits. Scheduled loan and lease repayments are a
relatively stable source of funds, while deposit inflows and unscheduled loan
and lease prepayments, which are influenced by fluctuations in general levels 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). Company borrowings may
also be used on a longer term basis to support expanded lending activities and
to match the maturity or repricing intervals of assets.
The Company uses various forms of short-term borrowings for cash management
and liquidity purposes on a limited basis. These forms of borrowings include
federal funds purchases, securities sold under agreements to repurchase, the
State of Colorado Treasury's Time Deposit program, and borrowings from the
Federal Home Loan Bank of Topeka ("FHLB"). The Bank has approved federal funds
purchase lines with six other banks with an aggregate credit line of $49
million. In addition, the Bank may apply for up to $16 million of State of
Colorado time deposits. The Bank also has available a $153 million line of
credit from the FHLB. Borrowings under the FHLB line are required to be secured
by unpledged securities and qualifying loans. At June 30, 2000, the Company had
$80.8 million in unpledged securities and loans available to collateralize FHLB
borrowings and securities sold under agreements to repurchase.
17
<PAGE>
In June 2000, the Company successfully completed its offering of $20
million of Trust Preferred Securities. The securities bear a cumulative fixed
interest rate of 10% and mature on June 30, 2030. 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. Portions of the
Trust Preferred Securities qualify for Tier I capital under capital regulatory
definitions. As of June 30, 2000, $13.3 million qualified as Tier I capital.
During the first six months of 2000, cash and cash equivalents increased by
$31.0 million. This increase was primarily the result of $70.1 million in cash
provided by financing activities (mainly customer deposits, net of repayments of
FHLB advances and the proceeds from the issuance of the $20 million of Trust
Preferred Securities). Offsetting this increase was cash used in investing
activities of $44.0 million (mainly loan and lease originations) and net cash of
$5.0 million provided by operating activities.
During the first six months of 1999, cash and cash equivalents increased by
only $882,000. This increase was primarily the result of $53.1 million in cash
provided by financing activities (mainly customer deposits and repurchase
agreements). Offsetting this increase was cash used in investing activities of
$57.0 million (mainly loan and lease originations) and net cash of $4.8 million
provided by operating activities.
Forward Looking Statements
The discussion in this report contains forward-looking statements, which
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Although the Company believes that the
expectations reflected in the forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to be correct. The forward-
looking statements involve risks and uncertainties that affect the Company's
operations, financial performance and other factors as discussed in the
Company's filings with the Securities and Exchange Commission. These risks
include the impact of economic conditions and interest rates, loan and lease
losses, risks related to the execution of the Company's growth strategy, the
possible loss of key personnel, factors that could affect the Company's ability
to compete in its trade areas, changes in regulations and government policies
and other factors discussed in the Company's filing with the Securities and
Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As of June 30, 2000, there have been no material changes in the
quantitative and qualitative information about market risk provided pursuant to
Item 305 of Regulation S-K as presented in the Company's Prospectus for the
offering of 2,000,000 Capital Securities issued by Colorado Business Bankshares
Capital Trust I dated June 19, 2000.
18
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on May 17, 2000, the
following proposals were adopted by the margins indicated:
1. To elect three Class II directors to hold office for a three-year term
expiring on the Annual Meeting of Shareholders occurring in 2003 or until
the election and qualification of their respective successors.
Number of Shares
----------------
For Against Withheld
--- ------- --------
Steven Bangert 5,664,913 0 2,725
Noel N. Rothman 5,664,713 200 2,725
Timothy J. Travis 5,664,913 0 2,725
In addition, the following directors continued in office after the annual
meeting: Jonathan C. Lorenz, Virginia K. Berkeley, Mark S. Kipnis, Howard R.
Ross and Michael B. Burgamy.
2. To ratify the selection of Deloitte & Touche, LLP as the Company's
independent auditors for the fiscal year ending December 31, 2000.
Number of Shares
----------------
For 5,663,968
Against 1,350
Withheld 2,320
3. To approve an Employee Stock Purchase Plan.
Number of Shares
----------------
For 4,740,647
Against 22,600
Withheld 4,820
4. To approve an Amendment to the 1998 Incentive Plan increasing the number of
Shares available for granting under the Plan to 425,000.
Number of Shares
----------------
For 4,616,844
Against 124,496
Withheld 26,727
19
<PAGE>
At the Annual Meeting of Shareholders, the following shareholder proposal
was rejected by the margin indicated:
1. To eliminate the classes of the Board of Directors and to have all directors
elected for one-year terms.
Number of Shares
----------------
For 490,990
Against 4,114,451
Withheld 162,626
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27.1 Financial Data Schedule as of June 30, 2000.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 2000.
20
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COLORADO BUSINESS BANKSHARES, INC.
Date: August 10, 2000 By: /s/ Steven Bangert
--------------- ------------------------------
Steven Bangert, Chief Executive Officer and Chairman
Date: August 10, 2000 By: /s/ Richard J. Dalton
--------------- ---------------------------------
Richard J. Dalton, Executive Vice President and
Chief Financial Officer
21
