CoBiz Financial Inc. (COBZ)

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CoBiz Financial Inc. (COBZ)

Q3 2008 Earnings Call

October 24, 2008 11:00 am ET


Steve Bangert - Chairman and CEO

Jon Lorenz - President and Vice Chairman

Lyne Andrich - EVP and CFO


Ben Crabtree - Stifel Nicolaus

Jason Werner - Howe Barnes

Jeff Davis - Wolf River Capital



Good morning. My name is [Cheri], and I will be your conference operator today. At this time, I would like to welcome everyone to the CoBiz Financial third quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).

Thank you. Mr. Bangert, you may begin your conference.

Steve Bangert

Thank you. I appreciate everybody tuning into our third quarter conference call. If you saw last night, we reported earnings of $0.18, which is really right on top of what we had reported during the second quarter.

I thought there were several unusual items in the quarter. I think if you look at our earnings in that, we had a small Fannie Mae preferred stock that we booked a one-time loss on it. That stock we acquired when we bought the Arizona bank back in 2001, so very small investment, but it was once in a while the short fall to our earnings of this quarter.

There is also $0.02 loss on the sales of OREO property that was sold during the quarter, so that $0.03 was included in this quarter. The property actually was sold in October, but it shows up as an OREO in our results there, but we did back the $0.02 loss into the third quarter numbers on that.

So overall though, I thought it was a real strong quarter earnings for the franchise, primarily coming out the bank, and that the bank continues to surprise us what has certainly been a challenging operating environment for financial institutions today. But, I think the bank's core earnings continue to do very, very well for us.

One of the highlights for us during the third quarter, I think you will see that we announced that we closed on over $20 million of subordinated debentures. Those were primarily sold to our customer base here at CoBiz and that raised our capital levels sort of Tier 1 at the bank levels 10.61%, total capital, 11.86%.

At the holding company it's 9.75% Tier 1, total capital over 12%, so we are delighted with that. Customers continue to have an awful lot confidence in CoBiz, and CoBiz continues to perform very well. As I mentioned earlier, it has been a difficult environment to operate in.

The second quarter also has been highlighted by, you will see the difference when you compare the two quarters investment banking activity was down $0.05, so there is a pretty big swing in investment banking activity that was early cap offset with some core earnings coming out of the bank as the bank's core earnings continues to grow and the bank had an exceptional quarter.

And loan growth of the bank was about a little over $40 million, so slower than what we reported during the quarter. Second quarter, if you remember was just really a tremendous quarter for us. But still, 14.5% percent over the last year. And most of that activity is coming out over the C&I portfolio or the term real estate portfolio that's tied to that same C&I customer.

And that primarily, as they are out of the Colorado market, although we have continued to show some growth in the Arizona market also, I think for the quarter and really for the last year, really the challenge for us as a franchise has been on the deposit side. Deposits for the second quarter were up over $90 million. That really was the result of those replacings of those broker deposits that we ran off during the second quarter, if you remember.

During the second quarter, the broker deposits costs were out of line relative to other borrowings that we had available to us, so we paid those off as the broker deposit market became a little bit more rationale. We went back into that market in the third quarter, so the majority of the growth that you saw on the deposit side during the quarter really came out of that broker deposit market.

We are not a big user of broker deposits, they historically make up around 5% to 7.5% of our overall deposit portfolio, and I think that's about where they are today. It was just unusual during the second quarter if we ransom some of the money off.

During the quarter we continue to build the reserve, I think we see the reserves up there 1.40, from 1.10 a year ago. We think that's a prudent thing to do. I've got Jon Lorenz in the room, the CEO of the bank and I'll be turning it over to Jon here in a few minutes, because I think most people want to hear what's happening within the loan portfolio. But I also have Lyne Andrich, my CFO here, so if there's any questions about the financials that any of you have, Lyne is prepared to answer those also.

Looking at some of the other businesses, there, we really didn't get much contribution from our fee-based side. In fact, there was a small loss really kind of as I had mentioned earlier, highlighted by the Investment Banking Group.

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