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CoBiz Inc.

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2002.

Commission File Number 000-24445

CoBiz Inc.
(Exact name of registrant as specified in its charter)

(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 ý    No o

        There were 13,229,045 shares of the registrant's Common Stock, $0.01 par value per share, outstanding as of August 13, 2002.

CoBiz Inc.

Item 1. Financial Statements

CoBiz Inc.

Consolidated Statements of Condition

June 30, 2002 and December 31, 2001

(unaudited)

See notes to consolidated financial statements.

CoBiz Inc.

Consolidated Statements of Income and Comprehensive Income

(unaudited)

See notes to consolidated financial statements.

CoBiz Inc.

Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2002 and 2001

(unaudited)

See notes to consolidated financial statements.

CoBiz 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 CoBiz Inc. ("Parent"), and its subsidiaries CoBiz Connect, Inc., CoBiz Insurance, Inc., Colorado Business Bankshares Capital Trust I, American Business Bank, N.A. (the "Bank"), Colorado Business Leasing, Inc. ("Leasing"), and Green Manning & Bunch, Ltd. ("GMB"), all of which are wholly owned except GMB, which has a 2% minority interest. Parent and its subsidiaries are collectively referred to as the "Company" or "CoBiz".

        On March 8, 2001, CoBiz completed the acquisition of First Capital Bank of Arizona ("First Capital"). First Capital was an Arizona state-chartered commercial bank with two locations serving Phoenix and the surrounding area of Maricopa County, Arizona. As a result of the merger, each outstanding share of First Capital common stock was converted into 3.399 shares of CoBiz common stock, resulting in the issuance of 2,484,887 shares of CoBiz common stock to the former First Capital shareholders. In addition, CoBiz assumed approximately 366,000 options that had been issued to First Capital employees. This transaction was accounted for as a pooling of interests.

        On September 7, 2001, the Bank's legal name was changed from Colorado Business Bank, N.A. to American Business Bank, N.A. First Capital was then merged into American Business Bank. The Bank continues to operate in the Colorado market as Colorado Business Bank ("CBB") and in Arizona as Arizona Business Bank ("ABB").

        On March 1, 2001, CoBiz completed its acquisition of Milek Insurance Services, Inc ("Milek"). The agency, which was renamed CoBiz Insurance, Inc., provides commercial and personal property and casualty insurance brokerage, as well as risk management consulting services to small- and medium-sized businesses and individuals. The shareholders of Milek received 67,145 shares of CoBiz common stock as consideration for the acquisition. This transaction was also accounted for as a pooling of interests.

        Under the pooling of interests method of accounting, the recorded assets, liabilities, shareholders' equity, income and expenses of CoBiz, First Capital and Milek give retroactive effect to the merger.

        On March 19, 2001, the Bank acquired all of the outstanding common stock of Leasing held by minority stockholders, thereby making Leasing a wholly-owned subsidiary of the Bank.

        On July 10, 2001, the Company acquired GMB, an investment banking firm based in Denver, Colorado. The acquisition of GMB, which is a limited partnership, was completed through CoBiz GMB, Inc., a wholly owned subsidiary that was formed in order to consummate the transaction. In the acquisition, (i) the corporate general partner of GMB was merged into CoBiz GMB, Inc., with the shareholders of the general partner receiving a combination of cash, shares of common stock, and the right to receive future earn-out payments, and (ii) CoBiz GMB, Inc. acquired all of the limited partnership interests of GMB in exchange for cash, shares of CoBiz GMB, Inc. Class B Common Stock (the "CoBiz GMB, Inc. Shares") and the right to receive future earn-out payments. The CoBiz GMB, Inc. Shares represent a 2% interest in CoBiz GMB, Inc. (and a 2% indirect interest in GMB) and have no voting rights. After two years, or sooner under certain circumstances, the holders of the CoBiz GMB, Inc. Shares have the right to require the Company to exchange the CoBiz GMB, Inc. Shares for shares of our common stock. After three years, or sooner under certain circumstances, the Company can require the holders of the CoBiz GMB, Inc. Shares to exchange such shares for shares of the Company's common stock. The transaction was accounted for as a purchase. Goodwill of $4,976,000 was recorded in connection with the transaction. The contingent consideration resulting from the earn-out payments will be treated as an additional cost of the acquisition and recorded as goodwill, if met. The contingent consideration is to be paid if GMB's revenues and earnings exceed certain targeted levels through 2005. The Company has not recorded this liability as of June 30, 2002 as the outcome of the contingency is not probable.

        All significant intercompany accounts and transactions have been eliminated. Certain reclassifications have been made to prior balances to conform to the current year presentation. These financial statements and notes thereto should be read in conjunction with, and are qualified in their entirety by, our Annual Report on Form 10-K for the year ended December 31, 2001, as filed with the Securities and Exchange Commission.

        The consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America 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 three and six months ended June 30, 2002 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2002.

2. Earnings per Common Share

        Income available to common shareholders and the weighted average shares outstanding used in the calculation of Basic and Diluted Earnings Per Share are as follows:

        As of June 30, 2002 and 2001, 167,000 and 4,500 options, respectively, were excluded from the earnings per share computation solely because their effect was anti-dilutive.

3. Stock Dividend

        On July 17, 2001, the Board of Directors approved a three-for-two stock split that was effected through a stock dividend for shareholders of record as of July 30, 2001, payable August 13, 2001. As a result of the dividend, 4,320,371 additional shares of CoBiz common stock were issued, with fractional shares paid in cash. All shares and per share amounts included in this report are based on the increased number of shares after giving retroactive effect to the stock split.

4. Recent Accounting Pronouncements

        The Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as of January 1, 2001. The adoption of this statement did not have a material impact on the consolidated financial statements of the Company.

        In July 2001, SFAS No. 141, Business Combinations was issued. SFAS No. 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. The adoption of SFAS No. 141 did not have a material impact on the consolidated financial statements of the Company.

        In July 2001, SFAS No. 142, Goodwill and Other Intangible Assets, which was effective January 1, 2002 was issued. SFAS No. 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles currently included in goodwill, reassessment of the useful lives of existing recognized intangibles, and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS No. 142 also requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. Upon adoption of SFAS No. 142 on January 1, 2002, the Company determined that goodwill was not impaired and reclassified a $150,000 intangible asset from goodwill into other assets. For additional discussion on the impact of adopting SFAS No. 142, see Note 6.

        In August 2001, SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets was issued. SFAS No. 144 supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, but retains the requirements relating to recognition and measurement of an impairment loss and resolves certain implementation issues resulting from SFAS No. 121. SFAS No. 144 became effective January 1, 2002 and did not have a material impact on the Company's consolidated financial statements.

5. Comprehensive Income

        Comprehensive income 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. Presented below are the changes in other comprehensive income for the periods indicated.

6. Goodwill and Intangible Assets

        As discussed in Note 4, the Company adopted SFAS No. 142 in January 2002, which requires companies to stop amortizing goodwill and certain intangible assets. Instead, SFAS No. 142 requires that goodwill and intangible assets with an indefinite life be reviewed for impairment upon adoption (January 1, 2002) and annually thereafter.

        Under SFAS No. 142, goodwill impairment is deemed to exist when the carrying value of a reporting unit exceeds its estimated fair value. The Company's reporting units are generally consistent with the operating segments identified in Note 8. The Company estimated the fair value of the reporting units using multiples of comparable entities, including recent transactions, or a combination of multiples and a discounted cash flow methodology. As of the date of adoption, the estimated fair value of all reporting units exceeded their carrying values and goodwill impairment was not deemed to exist.

        A summary of goodwill and total assets by operating segment as of June 30, 2002 is as follows:

        The reported 2001 results do not reflect the provisions of SFAS No. 142 which eliminated the amortization method for goodwill. Had the Company adopted SFAS No. 142 as of January 1, 2001, net income and basic and diluted earnings per share for the three and six months ended June 30, 2001 would have been as follows: