CoBiz Financial Inc. (COBZ)

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CoBiz Financial Inc. (COBZ)

Q2 2008 Earnings Call Transcript

July 24, 2008 11:00 am ET


Steve Bangert – Chairman and CEO

Jon Lorenz – Vice Chairman

Lyne Andrich – EVP and CFO


Ben Crabtree – Stifel Nicolaus

Peyton Green – FTN Midwest Securities

Bain Slack – KBW



Good morning. My name is Ray and I will be your conference operator today. At this time, I would like to welcome everyone to the CoBiz Financial second quarter 2008 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. (Operator instructions) Thank you. It is now my pleasure to turn the floor over to your host, Steve Bangert, Chairman and CEO. Sir, you may begin your conference.

Steve Bangert

Thank you. Welcome everybody to our second quarter conference call. I think you’ve already had an opportunity to see last night’s release. We are real pleased with the quarter. It seems like earnings were coming from throughout the company. I’ll quickly go over a few items and then turn it over to Jon Lorenz, the CEO of the bank, and then Jon can speak to what’s going on in the Arizona and Colorado markets. I also have Lyne Andrich, our CFO, in the room for any questions that any of you might have.

Earnings for the quarter were $0.18 versus $0.07 in the first quarter. So, quite an improvement over our first quarter. It seems like the first quarter really nothing went well for us, but the second quarter as we thought would happen, we saw vast improvements throughout the franchise. So the $0.18 versus $0.07 was a good improvement, but it’s $0.18 versus $0.23 same quarter last year.

Strong earnings growth, really I think despite about $0.17 provision that we thought it was a prudent time to continue to add to the reserves. So, from cash flow earnings, I thought maybe this was probably our strongest quarter that we’ve had as a franchise. So we’re real pleased with that. The two markets that we are operating in are obviously two very different markets today. I think we're fortunate that two-thirds of the franchise system in Colorado, which continues to perform very well by almost all measures as one of the top five states in the country today as far as economic activity. It’s not going gangbusters in Colorado, but it still is a pretty healthy economy for us. I think the recent Case Schiller Report showed that we still have positive housing appreciation in the Denver market. Commercial real estate market continues to be pretty healthy in that. So we are feeling very good about the Colorado economy today.

Arizona economy, on the other side of the coin, is having some difficulty. They continue to lose, have job losses in Arizona, primarily in the construction sector, but nevertheless there are some job losses down there and some real estate depreciation obviously in that. On the positive side, they do continue to have in migration, but probably not at the same pace that they've had over the last five years. But over time, we think that the Arizona market will resolve itself. It’s just the matter of what period that’s going to take. And my guess is for the outskirts of Phoenix it's going to take three to five years and may take us before some of that market becomes healthy again.

The earnings highlights really were improved net interest margin during the quarter and with very healthy loan growth really with Colorado leading the charge, but Arizona also had little bit of a contribution on the loan growth side. Really strong net interest margin – non-interest income really coming from all areas of the company including the bank, and then relatively stable asset quality metrics. Jon will comment about that later, but non-performers were up slightly about 89 basis points of assets and that was pretty consistent with what we discussed in our prior conference call.

In looking at the bank loan growth 86 million, about 18% annual growth rate. So that was – if you remember, we had a relatively slow first quarter, not unusual for us. We almost always have a slow first quarter. So it’s nice to see the pickup there. I think we are especially happy to see the pickup in the C&I portfolio in the Colorado market, which is really (inaudible) with the charge as far as the loan growth was concerned. Arizona also had some loan growth, which probably would surprise many of you. It probably surprised us too, but there still are a number of very good credits down there if you're selective in that.

Reserves, we continue to build reserves, now at 132 basis points. Part of that obviously was – part of the provision this quarter was because of the loan growth that we had to provide for the loan growth, though really that was a prudent thing to do, to continue to build reserve as the Arizona market works its way out. Deposit activity didn’t look too good on paper. Deposits are difficult right now. We’ve run off about $100 million during the first half of the year, about $80 million came in the second half of broker deposits. We’ve never been very dependent upon broker deposits, but we use those as an alternative funding source as we do the repo market with the Federal Home Loan Bank borrowings. But during the credit crunch, the spreads on broker deposits widened considerably.

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