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Executives

Lyne B. Andrich - Chief Financial Officer, Executive Vice President and Director of Cobiz Insurance Inc

Steven Bangert - Chairman, Chief Executive Officer, Chairman of Executive Committee, Chairman of Cobiz Bank NA, Director of Cobiz Gmb Inc, Director of Financial Designs Ltd, Director of Colorado Business Leasing Inc, Director of Cobiz Insurance Inc and Director of Alexander Capital Management Group LLC

Jonathan C. Lorenz - Chief Executive Officer of Colorado Business Bank and Chief Executive Officer of Arizona Business Bank

Analysts

Joe Morford - RBC Capital Markets, LLC, Research Division

Brian James Zabora - Keefe, Bruyette, & Woods, Inc., Research Division

Timothy O'Brien - Sandler O'Neill + Partners, L.P., Research Division

Gary P. Tenner - D.A. Davidson & Co., Research Division

CoBiz Financial Inc (COBZ) Q1 2013 Earnings Call April 19, 2013 11:00 AM ET

Operator

Good morning, afternoon, evening. My name is Kayla, and I will be your conference operator today. At this time, I would like to welcome everyone to the CoBiz Financial's First Quarter 2013 Earnings Conference Call. [Operator Instructions] Thank you.

I would now like to hand the call over to Ms. Lyne Andrich, Chief Financial Officer. Please go ahead, ma'am.

Lyne B. Andrich

All right, thank you. And good morning, everyone. Before we commence with management comments today, I do need to remind everyone of our Safe Harbor disclosures.

Certain of the matters discussed in this presentation may constitute forward-looking statements for the purposes of the federal securities laws and, as such, may involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of CoBiz to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Additional information concerning factors that could cause our results to be materially different than those in the forward-looking statements can be found in the company's filings with the SEC, including forms 10-K, 10-Q and other reports and statements we have filed with the SEC. All forward-looking statements are expressly qualified in their entirety by these cautionary statements.

Also on today's call, our speakers may reference certain non-GAAP financial measures, which we believe provide useful information for our investors. Reconciliation of these non-GAAP numbers to GAAP results are included in our earnings release, which is available on our -- in Investor Relations website.

I would now like to introduce Steve Bangert, Chairman and CEO of CoBiz.

Steven Bangert

Thanks, Lyne. And welcome, everybody, to our First Quarter Conference Call. I'll have a few comments, and then I'll turn it back to Lyne to do a deeper dive into the financials, and also ask Jon Lorenz, our CEO, who's sitting with us, to give you an overview of kind of activities that we're seeing in the marketplace as well as at the bank itself.

Last night, we reported $0.14 per share. That's comparable to $0.10 per share same quarter last year. We reported $0.14 -- or $0.17 in the fourth quarter of last year, but our fourth quarter typically has seasonally high fee income, as it did last year also. In many ways, this quarter is typical first quarter for CoBiz. We'd typically start kind of slow out of the gates and gain momentum as the year progresses, and that is, our fee income picks up. And also, lending activity is expected to pick up considerably as the year progresses.

For comparison purposes, fee income in 2012 was unusually high because of investments in the mezzanine income. But other than that, I think, when you compare our first quarter this year to first quarter last year, I think you can see that we're making some progress. And I'm feeling pretty good about where we're at today.

Loans, although they were flat for the quarter, we really emptied the pipeline in the fourth quarter. Those of you that remember the fourth quarter, we had an exceptional fourth quarter, and that really -- at the time, I think we said in the last conference call that we had emptied the pipeline and we're starting to build it again. I feel pretty good about where both pipelines are in both states today, and I'm looking forward to growth over the next 3 quarters on that.

Still very competitive. I'm sure Jon will talk about that but in -- in that it seems to be consistent with what I've heard from other bank reports, as they've reported during the week, and that nothing's changed as far as the competitive market is concerned. It's still very, very competitive out there.

Our fee income, I think you'll see that continue to grow as the year progresses. Wealth Management had an excellent first quarter, as far as gathering assets. Our employee benefit group has really had an exceptional year. You'll see their revenues improve as the year proceeds. Investment Banking, unfortunately no closed transactions during the quarter, but we are anticipating their revenues to continue to grow significantly as the year progresses. But once again, it could be heavily weighted towards the third and fourth quarter this year.

I thought that -- probably the thing that pleased us the most was the margin. You saw, instead of margin compression that we've been experiencing over the last few quarters, and that seems to be typical for our industry, we actually had some NIM expansion. I think it was about 5 basis points. But I -- looking forward, I still think margins can be our biggest challenge as we head into the rest of the year and that, will we be able to grow the loan portfolio sufficiently enough to offset the continued competitive pressure that we're feeling on our yields on new loan activity as well as payoffs from our existing portfolio.

We also benefited from the exceptional loan growth that we had in the fourth quarter, so we carried a much larger average of loan balance into the fourth -- first quarter, and that certainly was a big benefit for us and helped us with the margin expansion. But we also got some benefit from the investment portfolio. You may have noticed that the yields on our investment portfolio had widened during the quarter. I don't know that that's something that I would count on it on a going-forward basis. It was kind of an unusual quarter.

We purchased about $21 million of investments during the quarter. Some of it was some senior banknotes. I think there was 1 small TruPS that we were able to acquire. The average yield on that was around 5%. But we really didn't have any of our TruPS called away during the -- well, very little. I think, maybe $6 million was called away in the first quarter. So paydowns and maturities were about $32 million. The average yield on that was about 2.5%. So we were actually investing at higher yields than we were being called away on. I don't know whether that's something I'm going to plan on going forward. We have seen a little bit of our TruPS being called away already in the first -- second quarter now. About $9 million of our JPMorgan was called away. That had about -- above a 6.5% yield on it. We've had about $7 million of Citi called with about a 7% yield on it. We've replaced most of that, but we're replacing it at around 4%. How much more of that is -- and at what pace it gets called away, I'm not quite sure in that. But so far, we've been pretty good as far as trying to find replacements along the way. But there's fewer and fewer, smaller and smaller portfolio of TruPS for us to replace it with. There's just not an awful lot of deals out there trading on a daily basis. We're in the market everyday looking for potential investments in that.

I would tell you, on the $16.5 million that I know that's being called in April already, we probably have about a $500,000 gain off of that from discount. We'll wait and see if -- what else may be called as the year progresses. We still have some fixed-rate TruPS in our portfolio. A lot of it, at least 1/3 of it, has some yield maintenance on it, which means it's not likely to be called but probably 2/3 of it has a -- certainly has the potential. And we've talked about this for a year, and yet it really has not peeled off nearly as fast as I thought it was going to. And we've been very successful as far as replacing it.

So credit quality continues to improve and was responsible for our negative provision expense this quarter. NPAs were up, I know Jon will probably talk about that. I'm not concerned with it. Looking forward, I think loan growth will be critical for us, but I'm confident that the pipeline from our -- from the bank as far as loan activity, as well as fee income, will continue to expand as the year progresses in that. The economy is still sluggish in both states, but I think the -- both states, I'd say, continue to improve at a very slow pace. But we continue to find opportunities to grab some market business. And really, all of our businesses, I'm feeling pretty good about where they all are situated today as we head into the rest of the year.

I also want to remind everybody that we will be benefiting from the 1% SBLF coupon in the second quarter. Hopefully, we'll be able to maintain that going forward in that. I'm sure Lyne will talk a little bit about that.

So overall, I felt real good about the first quarter. As I said, it's a typical first quarter for CoBiz. It's not unusual for us, for our business owners, to dividend a lot of the deposits out. And during the first quarter, you saw some -- you saw that happen. Loan activity typically starts slow out of the gates but, I think, even more so because of the exceptional fourth quarter that we had. We really closed everything. But as I look at the pipeline of business as we've had meetings with, really, all of our business lines over the last 10 days in that, I'm feeling pretty good about where we're situated and how our results will play out over the next 3 quarters.

With that, I'm going to turn it over to Lyne and let Lyne give a deeper dive into the financials.

Lyne B. Andrich

All right. Thank you, Steve.

As Steve mentioned, our first quarter results tend to be seasonally softer, so it's not unusual to see the drop-off in activities in the fourth quarter. And for that reason, I find comparing year-over-year results a little bit more meaningful. So looking at the first quarter versus last year, we continue to see some really good momentum. Steve mentioned EPS improved to $0.14 per share versus $0.10 in the prior year quarter. And driving that improvement was another quarter of negative provision, which is a direct reflection of the continued improvement we're seeing in our classified loan levels.

Overall for the quarter, we reported an ROA of 94 basis points and our return on average equity was 9.43%, which compares against 75 basis points and 8.12% for the prior year quarter.

Top line revenue, if you look at that on a tax equivalent basis, it is good to see that, that has stabilized. As Steve mentioned, while our outstanding loans at the end of -- from the end of 2012 were flat, the strong loan growth we saw in the fourth quarter which, if you remember came on really late in the period, did drive an increase in our average loan balances. The result was an improvement in our average earning asset mix, which did expand the NIM by 5 basis points on a linked quarter. Overall, average earning assets increased $18 million, but if you look at the blend, loans on average were up $83 million, which allowed us to bleed off some of the excess liquidity we were carrying at the end of 2012. On average, we saw fed funds sold and our cash balances decrease $42 million and average investments decrease $23 million, which was augmented by the growth in the average loans being up $83 million.

On the liability side, we also saw a decline in customer funding of about $67 million from the end of the year. However, looking at it, the decrease was really due to seasonal decreases that we historically see in our deposit base. And it wasn't attributed to any loss of any significant banking relationship.

Looking at deposits, on average, they were down about $2 million for the quarter. The other thing I would note is that, on average, though, we were able to maintain our DDA-total deposits at 40%, both from year end and the first quarter. With the yield pressure we have been seeing on the asset side, we are continuing to focus on decreasing our core deposit interest costs. On average, the cost of interest-bearing deposits decreased 4 basis points on a linked quarter, bringing our total cost of deposits to 25 basis points in comp for the first quarter of 2013.

Looking at credit metrics. We did report an increase in nonperforming loans. However, the level of classified loans continued to improve, and we saw a decline of nearly 17% on a linked quarter basis. Due to the improvement in our asset quality levels, our allowance methodology did calculate a reversal of $1.6 million of provision expense for the period. We also recorded about $400,000 in net charge-offs, that's about 2 basis points of average loans. So between the provisioning levels and the charge-offs, it drove our allowance to $44.9 million as of the end of March or 2.3% of total loans, which is still a pretty conservative coverage of 146% of our nonperforming loans.

Looking at noninterest income. We recognized $6.5 million in noninterest income in the first quarter versus $10.7 million in the fourth quarter and $6.9 million in the first quarter of 2012. As Steve mentioned, the linked quarter decrease was really primarily due to Investment Banking. As well, if you remember, we had outside [ph] fees in the fourth quarter of 2012 from the sale of interest rate swaps to our customers. The drop-off in other income on a year-over-year basis, though, was really attributed to lower equity investment income. As some of you may know, in the past, we've talked about the partnership interest we have in several SBIC mezzanine funds, which typically generate $1 million to $1.250 million of annual revenue for us. However, in the first quarter of last year, we recorded $1.4 million in revenue for that quarter alone from our mezz fund revenues. Versus the first quarter of 2013, it was more in line with what historically we recognize. We had about $275,000 of mezz revenue in the first quarter. Now excluding the mezz fund income as well as Investment Banking, we are not seeing some nice increases across-the-board in most of our fee income categories.

Looking at noninterest expenses. We've talked about in the past, we haven't really launched a formal branded cost-cutting program, but we've been working pretty diligently with our line managers on trying to contain our overhead expenses in places where we believe they won't compromise business development or customer service. I was pleased to see that we continued to see some progress, with most of our controllable expenses being held flat or down from the prior year period. Overall, our noninterest expenses has decreased both linked quarter and year-over-year.

Fixed base salaries run about $10.250 million a quarter for us, which was down from the end of the fourth quarter, and it's only up about 1% on the prior year, and that's after consideration of annual merit increases that we do every April 1 of every year.

FTEs at the end of March were about 500. That does adjust for, if you recall the, disc ops [ph] that we announced at the end of last year, so those personnel are -- have been pulled out. So right now, we're running about 500 full-time equivalents. That is down from about 503 at the end of the year and 507 at the end of March 2012. So we continue to be pretty focused on managing our personnel count.

We've also had -- experienced a reduction in loan workout and OREO expenses, which has helped and that's being commensurate with the improvement we've seen in our overall asset quality. And the other thing is that we haven't had any OREO or investment losses and we're actually in a modest gain position again this quarter, so we haven't had those headwinds in terms of marks on our OREO or investment losses.

And then lastly, looking at capital, you did see our shareholders' equity increase to $263.5 million at the end of March, with the increase we saw in our retained earnings and on a slightly smaller balance sheet. You saw our TCE ratio increased to 7.75% from 7.4% at the end of the year, so I'm glad to see that ratio improve.

Regarding the SBLF dividend that Steve mentioned, we did announce last quarter that we were successful in achieving the growth needed to drive the dividend rate to 1%. If you remember, that's always in arrears and that won't take effect till the second quarter. So in the first quarter, you saw our preferred dividend, about $514,000, which is about 3.6%. It will go down to 1% in the second quarter, which is about $145,000 per quarter. So we'll see that savings continue for the rest of this year. And the SBLF qualified growth that we had in the -- on the first quarter, we still saw some modest growth there even though loans were flat, so we continue to have a respectable cushion in terms of maintaining that 1% dividend rate.

And then lastly, just to -- in the release itself, we also reported that the Board of Directors again declared a $0.03 cash dividend to -- on our common stock for the second quarter.

With that, I'll turn it over to Jon.

Jonathan C. Lorenz

Thank you, Lyne.

Well, just to give you a little more detail on the loan portfolio. While it was about even from the fourth quarter, there was quite a bit going on within the loan portfolio in the first quarter. You'll notice, and I'm sure you saw it, that our C&I portfolio did continue to grow in the first quarter, so I think that was very positive that we had about $13 million in growth in our C&I portfolio. And where we lost loans in the first quarter were in our Land A&D category and real estate construction, so thought I'd touch on those.

On the Land A&D, we had 2 large criticized loans within that portfolio that were paid off during the quarter. So that really accounted for almost all that $15 million decrease in the Land A&D were the payouts of 2 loans that we would just assume not having them in the portfolio because of their -- they were stable but still adversely graded. So that was the decline there. And you've seen over -- quarter-over-quarter, we've continued to bring down that Land Acquisition and Development portfolio to where, today, it's a fairly nominal $38 million out of our total $1.9 billion portfolio.

And then on the Construction side, it was really again 2 large credits, both which were in the Construction portfolio but, in the first quarter, moved into the term real estate portfolio, both owner-occupied properties. So we had about $24 million in those 2 credits that didn't move off the balance sheet, just moved from our Construction loan category to our term real estate category. So actually, we were -- other than those 2 credits, we were up a little bit in real estate construction loans in the first quarter. And if you look at those that are commitments in our Construction loans, it actually steadily increased over the last year. We're up 40% in construction loan commitments from a year ago, from $93 million in commitments to $131 million in commitments. So those -- they've drawn down at a slower pace, I think, than what we anticipated, but the commitments are still growing quarter to quarter. And we will see funding on those commitments going forward.

On the -- and another thing to point out, I think, on the first quarter, you don't see it in the total numbers where we're even: Arizona loans were actually up $15 million for the quarter, which correspondingly means Colorado was down $15 million. But again, just those 2 large A&D credits, which were both in Colorado, really account for the amount that Colorado was down during the quarter. And we did see 18 -- or I'm sorry, $15 million in growth in Arizona in the quarter. So I think that was a positive and not surprising on the Colorado portfolios given, as we've already talked about, the significant bookings that we had in the fourth quarter in Colorado.

Steve mentioned briefly the pipelines. We are seeing the pipeline for both states increase. We update our loan pipeline reports once a month, and we did see a significant increase in potential credits from the March report to the April report. So I think that hopefully will bode well as we move through the second quarter and into the third quarter in terms of potential bookings that are going to occur as we move through the balance of this year.

So that's kind of the look at the loan portfolio. I can talk further at some point, if anyone's interested, on the competition, but Steve says -- as Steve said, we're continuing to see further pricing pressure. We're continuing to see amortizations particularly lengthening out. But I think we're also still seeing our share of business opportunities that we think we can get. And we're really trying to stay out of bid situations and focus on a consistent calling effort and really focusing on those businesses that give us not only loan opportunities, but treasury management and deposit opportunities. And I think we'll continue to get our fair share as we move through the year in spite of the highly competitive environment.

On -- touching on the loan quality. I don't think there's really much to -- additional to say there beyond what Lyne said. It was 2 large credits that were already adversely graded that moved into nonperforming status in the quarter. So they were already identified problems and problems that just had some further slippage that we felt that putting them on nonperforming status was appropriate. But as Lyne said, classified loans continued to decline nicely. We ended the quarter with virtually no past dues. I think we were about 14 basis points in past dues at the end of the quarter. So overall, the portfolio continues to move in a positive direction, from a credit quality standpoint.

Steve mentioned some success on cross-sell. Particularly in the wealth area, we had 3 significant new additions to assets under managements in wealth that came from business owners in Arizona whose companies have sold over the last few months. And 1 of those 3 was represented by GMB and was a closing they had last year in terms of the sale of the business. And as we've talked about in the past, ideally, as our business owners sell their companies, we want to be positioned to then manage those assets once the sale has occurred. And we had 3 large inflows into our Wealth Management group in the first quarter as a result of business owners placing monies with us to invest after the sale of their businesses. So I think a real positive boost to wealth and assets under management in the first quarter.

Economies in both states continue to improve. Arizona, I think, is accelerating in terms of the improvement. Unemployment now is down to 6.5%, growing jobs at 2.5% to 3%. People are moving back into Arizona. We're seeing some good inflow there, and the forecasts are for accelerated population growth in Arizona in 2013. Commercial office space is finally being absorbed in Arizona. They had -- it was net absorption of about 2.2 million feet last year in commercial office space. So I think we are seeing some acceleration of recovery in Arizona and continued recovery in Colorado.

And then finally, Lyne mentioned a couple of comments on headcount. And I think we are effectively managing headcount. And when you look at all the growth that we experienced in 2012, we really did that with a net reduction of a couple of anchors overall and used up some capacity that we had. We are at a point where, a couple of things: One, we do think we're going to see increasing opportunities as we move through this year; and we're also seeing some good bankers that we've been talking to, in most cases, for an extended period of time that we potentially could -- can move over to the franchise. So I think you will see us selectively recruit a few bankers this year if we can land the right ones. And we think the opportunities will be out there for those bankers to hit the ground running and generate some good business for us as we move through 2013.

Steven Bangert

[indiscernible]. No, I -- that's pretty good overview, Jon. I'm just going to open it up for questions now, Kayla.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question is from the line of Joe Morford with RBC Capital Markets.

Joe Morford - RBC Capital Markets, LLC, Research Division

Jon, you mentioned the pipeline was up quite a bit March to April. I just -- I guess I was curious, lately, where are you seeing the most demand? And is much coming from the niche portfolios? And also geographically, I was encouraged to see the Arizona balances actually tick up and kind of, maybe you'd talk a little bit more about your expectations for that market this year.

Jonathan C. Lorenz

Yes, we're -- yes, so we were pleased to see that. And I think -- and we also are -- on the niches Jumbo portfolio, continued to grow in the first quarter. We're up about $8 million in our consumer loans, all of that in Jumbo mortgages. The -- we didn't see much in the first quarter in Structured Finance, and that was probably our biggest growth area in the fourth quarter as people and private equity groups were working to get deals done before the end of the year. So we are starting to see that pipeline in Structured Finance grow again, and I think we'll see some nice bookings there over the next few quarters. We'll continue to show steady growth in Jumbos. We're still seeing good opportunities in our tax-exempt or public finance portfolio, so I think that will continue to grow this year. And just C&I, generally, we are -- even though our commitment usage isn't increasing, we did see a slight uptick in our C&I line utilization in the first quarter. I still think we're going to see some additional line utilization as we move through the year. And we're continuing to book new commitments in C&I. And then finally, as I talked about on real estate construction, we are showing steady growth in commitments there that they're going to resolve in fundings as we move through the year, too. So I think it's going to be pretty broad-based, Joe, in terms of both the niches that we've talked about previously and identify that they'll show good growth this year, as well as just general C&I and real estate.

Joe Morford - RBC Capital Markets, LLC, Research Division

Arizona?

Jonathan C. Lorenz

And then for Arizona, I think, pretty much the same. I -- we're definitely seeing increases in real estate opportunities down there, some builder financing on some of the smaller home builders, a few that did make it through the cycle and are back building houses again, and just talking to the guys down there. As they're out making business development calls on operating companies, more optimism, more of a sense that, yes, we are going to invest in new equipment this year. We're looking at buying at a piece of real estate and going to that versus a lease this year. So I think just the general economic pickup is going to help us on the C&I side in Arizona this year.

Joe Morford - RBC Capital Markets, LLC, Research Division

And then the one follow-up is just -- on the real estate construction, is that all pretty much residential stuff that you're doing now? Or there -- is there some commercial activity you're seeing too?

Jonathan C. Lorenz

I -- it's mostly residential, but we are starting to see some smaller commercial. And I think, even -- as I said, even in Arizona where it looks like we had a, I don't know, 40-year supply of commercial office space down there, it's getting absorbed pretty quickly down there. So at some -- at this point in Arizona, it's really just existing commercial properties that we're financing. But at some point, maybe not this year, maybe into next year, I think we'll see some commercial construction opportunities in Arizona starting to develop, too.

Operator

Your next question is from the line of Brian Zabora with KBW.

Brian James Zabora - Keefe, Bruyette, & Woods, Inc., Research Division

A question on the expense side. Good cost controls, do you think that year-over-year we could be seeing expenses flat or down through 2013?

Lyne B. Andrich

Brian, this is Lyne, obviously. I think so. Generally speaking, I think the one area is compensation and, as Jon mentioned, to the extent maybe he selectively brings on some new bankers that might increase it. But generally speaking, I expect certain overhead costs like, certainly, our loan workout and OREO expenses to continue to trend downwards or FDIC insurance costs should still be trending downward. We've worked pretty hard on looking to ways to reduce our occupancy expenses, and you're kind of seeing that reflected in our run rate. So, I think so. I think, year over year, it should be flat. Maybe comp is the one area. And variable comp, which we hope, when we try to break out for you, hopefully that's up and reflective of higher revenues.

Brian James Zabora - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. And then on the margin side. You do have some sub debt maturing -- or I'm sorry, a call date in August. Just any thoughts on what your plans are, if you'll utilize that call date.

Lyne B. Andrich

Yes. So it is callable in August, it's about $21 million at 9%. And certainly at this point, I think it's highly likely we will call. And what I'm -- we've been working on and I need to go to our board with is how we're going to refinance it. We carry a pretty liquid balance sheet at the parent company, and we certainly have good dividend capacity from our banks, so now we're just looking at the alternatives, whether or not we just want to use dividends from the banks to pay it off or if we maybe want to look at refinancing alternatives for not probably all $20 million -- $21 million, but a portion of it may need to be refinanced. So I'm not sure which direction we're going to go, but it's almost certain that we'll call that 9% debt.

Brian James Zabora - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. And then lastly, could you give us the size of the 2 credits that you put on NPA, maybe combined, how big they were?

Jonathan C. Lorenz

Yes. It's -- I think they total about $12 million, Brian. One was a apartment building, which was kind of a Class C apartment building in Arizona -- or actually, a couple of a apartment buildings, but same credit. So actually, it's not a bad sign to have -- be dealing with apartments because the overall apartment is -- market has strengthened so much that we think we'll be -- even though they are Class C properties, we'll be in a pretty good position to dispose of those if they do end up going to foreclosure. And then the other credit was a private school in Arizona. The school that -- or occupancy, the student enrollment rate, it has stayed relatively strong through the economic downturn, but it's -- a lot of public-private schools are experiencing the contributions and donations from the parents, and others have gone down. So we put that one on a non-accrual also in the quarter.

Operator

Your next question is from the line of Tim O'Brien with Sandler O'Neill and Partners.

Timothy O'Brien - Sandler O'Neill + Partners, L.P., Research Division

Steve, quick follow-up for you. Did I hear you -- did I hear this right, did you say that 60.4 million in TruPS are due to be called in April?

Steven Bangert

No, no, no, no, Tim. It was 16, 16.4. Thanks for saying that. And I think what's important, and I probably spoke -- I probably confused you guys more than I helped you in that. Our biggest part of our investment portfolio, which is a little over 500 million, about 60% of it is mortgage-backed securities. And those are the likely the ones -- I mean, those are going to be being called also, and the average yield on our investment -- our mortgage-backed securities portfolio is 2%. And that's why you saw the paydowns during the first quarter really didn't impact us because it's coming from our lowest-yielding part of the investment portfolio. So yes, we will still continue to have some TruPS called here and there as the year progresses, maybe as much as $40 million, I don't know. But we'll probably pay down some -- an investment portfolio will probably be dominated by the mortgage-backed security portfolio, which today is just over 2%, like 2.05% or something like that. So I -- overall, I think we'll do a pretty good job, Tim, in kind of holding that investment yield. But I do -- I was just pointing out that the expansion that we saw during the first quarter, I think that that's unlikely to continue going forward in that, but I think we'll do a pretty good job of maintaining that.

Timothy O'Brien - Sandler O'Neill + Partners, L.P., Research Division

That's great. And then the 16.4 million, if that's not the JPM, Citi piece, those were already called? Or is that what you were referring to?

Steven Bangert

16.4 million is, I think, 10 million in JPMorgan and 6 million of Citi. And we're going to replace the Citi with another Citi. JPMorgan, it really doesn't -- we won't be able to replace that one.

Timothy O'Brien - Sandler O'Neill + Partners, L.P., Research Division

Okay. And then one other question: iBanking, it sounded like not all -- there was -- not all the deals from the iBanking pipeline closed in the fourth quarter. And you guys thought that some of that might get done in the first quarter. Can you narrate a little bit on what happened? And did those deals just fall out? Or are they going to -- are they still there? Or what's going on?

Steven Bangert

Well, one deal did fall out. We had actually -- we were anticipating some 2 deals closing in the first quarter in that. It's always hard to forecast timing on these. I mean, I -- some of them close as expected and others close 6 months after they're expected to. One of them did fall out. The other one, we've -- did close. Now I think there's a discussion over the fee income due CoBiz, and so we at this point in time don't -- aren't -- don't feel comfortable enough recognizing any income off of it.

Operator

Your next question is from the line of Gary Tenner with DA Davidson.

Gary P. Tenner - D.A. Davidson & Co., Research Division

I had just a question on the Construction portfolio. As those commitments rise, is it primarily owner-occupied construction? Is it developer funding? What's -- what does that growth look like?

Jonathan C. Lorenz

The home builder piece is probably the biggest piece that we're seeing right now on the construction side. We also have -- are seeing good activity on apartment buildings, so the multifamily segment. And I think everybody's seeing good activity on multifamily loans. I think that's the one we're probably most cautious of in terms of when you'd stop doing multifamily as more and more product hits the market. So home builder and multifamily are probably 2 of the strongest. And then we're starting to see the -- not a significant amount of owner-occupied construction but a little bit of that. Our bail [ph] bank is actually seeing some of the second home financing starting up again and some construction taking place for more of the high-end residential up there. So it's pretty well mixed across all those categories.

Gary P. Tenner - D.A. Davidson & Co., Research Division

So I remember you guys saying a couple of quarters ago that you were starting to get more cautious on multifamily. And it seems certainly as though a lot of banks are still going full bore at that segment. Are you -- have you pulled back from committing new funds to those projects?

Jonathan C. Lorenz

We're still selectively looking. But I -- but we're starting to ratchet up our underwriting standards on multifamily in terms of requiring another 5% equity into the project or making sure we're dealing with strong developers that have good secondary support. I don't think we see anything immediate on the multifamily front. I think it'll stay strong for the next probably 2 to 3 years and maybe even beyond that. But when you look at the time from loan approval through the construction period to when the apartments are actually on the market and filling up with tenants, that can be a 1.5-year time frame there, from the time they approve to the time that construction completed and that -- and the units are filled up. So that's kind of why we're starting to be more cautious. But on the other hand, again, I think we've got a pretty strong market ahead of us there for the next 2 or 3 years. So it -- we have, on our concentrations, a green light, yellow light, red light. And we've got apartments in the yellow light category where we're being more cautious, where we're looking at stronger developers but selectively, right now, continuing to do some additional apartment lending.

Gary P. Tenner - D.A. Davidson & Co., Research Division

Okay. That's great. And then just a quick follow-up on the home builder side. Is that spec construction? Is this presold homes? What's with the...

Jonathan C. Lorenz

It's a little bit of both, but primarily presold. In both markets, we're seeing good activity right now. So I think it's probably weighted 2/3 presold and 1/3 spec. And the spec that we're doing is -- we put limits on spec exposure in our construction loans. And the specs are turning very quickly right now. So our builders are actually asking us to give additional latitude on specs just because of the need to have product coming on the market as the demand continues to grow. So things are getting absorbed very quickly even on the spec side.

Gary P. Tenner - D.A. Davidson & Co., Research Division

And is that in both Colorado and Arizona?

Jonathan C. Lorenz

Yes. And I would say that, that is happening in both states right now and probably even more so in Arizona just because demand is increasing pretty quickly down there. I think demand is increasing more quickly in Arizona than Colorado. And you don't have a lot of building going on, so things are getting absorbed very quickly and particularly on the lower-end pricing in Arizona right now.

Operator

Thank you. At this time, there are no further questions.

Steven Bangert

Okay, thank you, Kayla. Well, I just want to thank everybody for participating in our First Quarter Conference Call. We feel pretty confident about how the -- well the company is executing now. Still a difficult economic environment to execute the business strategy in that, but I think we're executing as well as we possibly could. If you have any other questions for any of us, please give us a call. Thank you.

Operator

Thank you. This does conclude today's call. You may now disconnect.

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