CoBiz Financial Management Discusses Q3 2013 Results - Earnings Call Transcript

|
 |  About: CoBiz Financial Inc. (COBZ)
by: SA Transcripts

CoBiz Financial (NASDAQ:COBZ)

Q3 2013 Earnings Call

October 18, 2013 11:00 am ET

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

Operator

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

Ms. Lyne Andrich, Chief Financial Officer, you may begin your conference, ma'am.

Lyne B. Andrich

All right. Thank you, Dawn. And good morning, everyone.

Before we commence with management comments, I need to make certain 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 and achievements expressed or implied by such forward-looking statements. Additional information concerning factors that could cause our actual results to be materially different than those in the forward-looking statements may be found on the company's filings with the Securities and Exchange Commission, including our forms 10-Q, 10-K and other reports and statements we file 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 to 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 the Investor Relations page of our website.

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

Steven Bangert

Thanks, Lyne. Well, thank you, everybody, for participating in our third quarter conference call.

I'll try to be brief and then give both Lyne and Jon Lorenz some time to give you some more clarity on what's happened during the quarter. As you saw last night, we reported earnings of $0.17 per diluted common share versus $0.14 same quarter last year. So year-to-date now, we're at $0.49 versus $0.38 for the first 9 months of the year. I'm feeling pretty good about the success that we've had, primarily with the fight in our -- or the margin compression. It -- I would not have been surprised this quarter to see some further compression when you look at the outsized loan payoffs that we experienced, even though we did have some positive impact from the retirements that [indiscernible] some debt during the quarter. And I'm sure Lyne's going to talk about that.

But as for me, what that indicates is that we're now starting to essentially put loans on at the same pace or same yield as loans that are paying off, and that Jon and I have spent a little bit of time looking at some of the payoffs. And we did have a couple of loans with pretty high payoff rates on that have paid off, but we also had some fairly large loans that had below-market -- below-portfolio yields on them that paid off. And so I'm pretty optimistic that the margin compression, certainly the pace of margin compression, has slowed down dramatically. From my view, that is, from June of 2011 -- 2012 to June of 2013, we lost 34 basis points out of our margins. But during -- as I look at the last 4 quarters, the margins really kind of hung in there. It has been, starting with the fourth quarter 2012, 3.89%; and then it was 3.94%; 3.85%; and then finally, 3.87% this last quarter. So it seems to have stabilized there.

And really, our primary focus as we head into 2014 now is going to be growing our net interest income while growing our loans and paying close attention to the composition of our earning assets. The last couple of years, we really have addled that as the margin has come in. Even though we've shown good loan growth, the loan growth has really just been offset by the margin compression. And our net interest income, consequently, has been kind of stuck around $95 million, $96 million for 3 to 4 years now in that. But as I look at this last quarter, we're up $1 million over the previous quarter in that, and our net interest income is -- was up over $25 million for the quarter when you adjust it for the impact of our tax exempt portfolio. So I'm feeling pretty good about that. Historically, when you've looked at CoBiz, our net interest income has -- prior to the recession, used to grow at double-digit rates every year. That was a big focus for us. Since the recession, we actually saw a decline during the recession. And then as I said, during the last 3 years, it's kind of been stuck around the $95 million to $97 million number. But I'm optimistic now that, as we head into 2014, you're going to start to see some growth in that. But we're -- we still recognize the challenges in a very, very competitive market, and I'm sure Jon is going to talk about that.

The other item I'll quickly touch on, and I know Lyne's going to spend more time on it, is just our noninterest expense was up for the quarter. But I also want to remind you that it's really flat for the 9 months versus the 9 months in 2012. So I think we've done a really good job of managing our expenses for the last few years. But now we're starting to make some investments in our Arizona banks, but you've also heard us announce new banks in Fort Collins and Colorado Springs. We've opened a new private bank. We're increasing our efforts with our SBA team. I think these are all the important investments for us as we try to grow our earnings in 2014 and 2015. I've asked Lyne to give you a little bit more visibility into the operating expenses for this quarter. I've also asked Jon to give you an overview of the progress that we've made for some of these new initiatives in that. I'm pretty excited about where we are right now.

Looking forward, I'm optimistic that loan growth will continue with even a greater contribution from the Arizona franchise in 2014. The credit metrics is -- look great at this franchise. I'm delighted. I really want to thank everybody that's participated in that. They've done a tremendous job for us. Really, all of our business lines are showing reasons for optimism as we close out 2013 and get ready to head into 2014. So we're feeling pretty good about where we're at, but I'm sure it's going to continue to be a very, very competitive market over the next couple of years as the banks slug it out for market position and that. But I think we're really well positioned to take advantage of that, and I look forward to us executing our business plan on a going-forward basis.

With that, I'm going to turn it over to Lyne and have Lyne go over the numbers.

Lyne B. Andrich

All right, thank you, Steve.

As you saw, we reported a nice increase in our net income to our common shareholders, a 22% increase over the prior year period. The quarter was highlighted with good growth from net interest income on a tax equivalent basis, improved asset quality, as well as strong deposit generation. And overall for the quarter, we posted an ROA of 1.02% and a return on tangible common equity of over 13%.

Looking at top line revenues. Revenue from net interest income, again on a tax equivalent basis, as Steven mentioned, was over $25 million for the quarter. That was $1 million increase from the second quarter. A portion of that improvement does relate to the $21 million of subordinated debt that we called, which will ultimately save us about $1.9 million annually because that debt was carrying a 9% coupon on it. However, that debt was called in mid-August, so we only realized a portion of the savings in the third quarter. So we'll see the full impact in the fourth quarter of this year. So the majority of the improvement in our NII was due to the growth we had in average loans on the back of a really stable margin this period.

As Steve mentioned, we saw some larger paydowns in our loan book, but they came really late in the quarter, so on average, our loans increased $63 million, and we saw an increase in average earning -- or investments of $15 million. What I was really pleased to see was just that our loan yields hold steady at 4.54% on a linked-quarter basis. So as a result, we only saw 2 basis points compression in our earning asset yields for the period.

As I mentioned earlier, we had a great quarter for deposit generation, with deposits increasing by nearly $100 million on average and in that, non-interest-bearing DDAs increased $52 million on average. The result overall: deposit yields decreased by 2 basis points to bring our total average cost of total deposits to 21 basis points for the third quarter. In terms of the deposit mix, you could see non-interest-bearing demand increased over 43% of our total deposits by the end of the quarter.

Looking at some credit metrics, we saw a really good decrease in problem loans in the period. You'll note, the classified loans declined by 24% on a linked-quarter basis. Because of the improvement in our problem asset levels, our allowance methodology calculated a provision reversal again for the quarter of $1.6 million. The other thing to note would be that we were in a net loan recovery position, about $132,000, pretty modest for the quarter but a net recovery position. This brings our full year charge-offs to just under $850,000 or 6 basis points of average loans. So at the end of the quarter, our allowance ended at just under $42 million at $41.8 million, but that's still up. That's with a pretty healthy allowance coverage ratio of over 2% of total loans -- or forgive me, just over 2% of total loans and a coverage of our NPLs of over 226%.

Looking to noninterest income. Regarding fee income, we saw a nice pick-up over the prior year period, with double-digit growth, again, in all categories. So I'm really glad to see and pleased to see the momentum we have. You did see it slip a little bit from the second quarter numbers we reported, but to remind everyone, the decrease in the insurance revenue was attributed to some onetime revenue we recognized in the second quarter call, that we had mentioned in the last conference call. However, if you see the -- if you look at the year-over-year results from the segment, you could see that they're approaching pretty healthy growth at 19% year-over-year growth.

The other item I'd mention is in the other line -- other income line item. You saw a pretty marked decreased in -- on the linked quarter. Again, that was really due to the second quarter. If you recall, we discussed the shift in the yield curve had created a gain in our fair value adjustment on our swap portfolio. So that was like a onetime event in the second quarter that didn't repeat in the third quarter.

Noninterest expenses, just to touch on that a little bit more detail -- in more detail. You saw increase in salary- and benefit-related costs in several line items. The majority came through our bonus accruals and then business development expense, 401(k) and higher medical claims.

Looking at kind of like our headcount. We saw our FTEs increase by 8 during the quarter to 510, primarily due to some of the new banking initiatives that we really -- recently announced. So the increased headcount contributed to about $300,000 to the linked-quarter variance.

Also during the third quarter, we increased our bonus accruals from the second quarter run rate. We normally adjust our accruals throughout the year based on our operating results. And depending on the strength of our earnings, the expense can escalate in the latter half of the year as we adjust our accrual over a shorter period versus the full year. In the third quarter, we recorded $1.9 million of bonus expense versus $975,000 in the second quarter and $965,000 in the first quarter. So for the first 9 months, we're about $3.9 million in bonus expense. As a point of reference, we recognize about $5.5 million in bonus expense for the full year of 2012. So it's tracking in line with where 2012 levels would be.

In addition, our 401(k) expense was increased this period. It increased by $250,000. Our 401(k) plan provides for an increased company match based on our profitability, as measured by ROA. The way the plan works is that if our ROA exceeds 1%, the company's match goes up to 4.5% from 3%. So in 2012, our 401(k) expense for the full year was $1.1 million. For 2013, based on our current operating results, I expect that expense to be closer to $1.5 million.

And then the last area that we've seen some increase is in our medical benefits. We have a partially self-insured medical plan and after many years of virtually no inflation, we did see and have a couple of larger claims come through. Medical expenses were approximately $1.3 million in the third quarter, which is about $250,000 higher than the second quarter run rate.

So those, for the most part, address most of the increases in our linked-quarter noninterest expenses because, outside of that, you'll see most of the other line items continue to be managed down. And we're still seeing some reductions in some of the areas like loan workout and OREO expenses continue to go the right way. And we're still in a net gain position in terms of marks on our OREO portfolio.

Another item of expense that I'll note for the quarter was our tax provision. You may have noted that our reported tax rate was closer to 29%, and that's really attributed to a $350,000 adjustment we made related to provision true-ups to our tax return, as well as the reversal of some FIN 48 liabilities. So going forward, we think our annualized effective tax rate is closer to 34% than, obviously, what you saw in the third quarter.

And the last thing I'd comment on is just SBLF in terms of capital. Under the program, the rate on our preferred stock would vary quarterly based on the growth we had in qualified small business loans. But it would fix -- based on our balances reported as of the end of September, I'm really pleased to report that, at this point, we have locked in that dividend rate at 1%. So through the remainder of the program, we should still be able to benefit from a 1% dividend rate, and that goes through the first quarter of 2016.

All right, Jon?

Jonathan C. Lorenz

Thanks, Lyne.

Just looking at the loans a little bit further, first. We did see balanced growth continuing within the loan portfolio. All of our loan categories were up for the quarter, a little more heavy-weighted to growth in jumbos. We did see a falloff in our rate of growth in the third quarter, after a very strong loan growth we achieved in the second quarter. And some of you have already seen we actually had reasonably strong bookings of new loans for the quarter, but that was more than offset by higher-than-normal paydowns. And most of those paydowns came out of the Colorado market. So our 4 largest payoffs during the quarter totaled about $30 million. All of those were Colorado credits and were paid off from a variety of sources, but in none of those 4 credits did the banking relationship move to another bank.

Arizona had some good loan growth in the quarter. They're up about $35 million for the quarter. Some of the success we've had in growing our real estate and tax exempt loans in Colorado, we're now beginning to see in the Arizona market and seeing growth in those areas in Arizona. And we were also successful in moving a couple of high-quality commercial credit relationships from competitor banks in Arizona over to the Arizona Business Bank during the quarter.

We are seeing a lot of activity in Colorado, even though that wasn't apparent in the quarterly loan growth in Colorado. So I really do expect to see stronger loan growth coming out of Colorado over the next 2 quarters and couple of quarters and as we move into 2014.

As Lyne mentioned, we did see huge deposit growth in the quarter. In looking at it, most of it appears to be coming from higher deposit balances out of existing depository relationships. We did have a $46 million non-interest-bearing deposit that was due to the sale of a business that came on the balance sheet right before the end of the quarter and then was transferred out early this quarter. So that was part of this swing. But we -- across-the-board, we are seeing customers keeping and still keeping more in deposit balances with us, as opposed to any high rates of investments, causing dollars to go off of our balance sheet and be utilized by our customers.

Our new banking teams are now in place for our 2 new branch locations in Fort Collins and Colorado Springs, as well as for our private banking initiative. We're finalizing the leases for both bank locations. We plan to have both banks open for business in Q1 of 2014. In the meantime, with the bankers in place, they all are now out actively calling in the marketplace and calling on local businesses in it. And I would say that I think our initial receptivity to CoBiz that we're finding in both markets is very favorable.

Competition lines up well for us in both markets: Fort Collins has some good local banks, but we've already heard from a number of businesses that our much-broader product set is very appealing to businesses and something growing businesses and some of the larger businesses in those markets have been really looking for. Wells is the primary competition on the large end in Fort Collins, and we've always competed very effectively with Wells, so we expect to do it in that market also.

Colorado Springs is a pretty fragmented banking market, again Wells being the primary large bank in that market. So what we're seeing continues to affirm that both markets are setting up well for us. Colorado Springs, there's a lot of effort going on in broadening and diversifying their economic base. And Fort Collins is really in the midst of a -- somewhat of a mini-building boom, with over $2 billion in projects currently under construction in Fort Collins. So again, we have looked at those markets for a long time, found that -- or felt that we found the right bankers now to move forward in that market, and I think everything we're seeing today affirms that these should be good moves for our banking franchise.

With the expansion we've had, we obviously have been adding additional people. We added 8 new production people in the third quarter. In addition to our new locations and private banking, we also hired an SBA specialist who was a top producer at Chase. SBA has recently increased their size limit, so we believe a greater focus on SBA lending will assist our loan growth in the smaller business arena, and that's something that we really do want to build up over the next couple of years. When you look at our portfolio, a lot of our biggest credits today were small credits 7, 8, 10 years ago. And we want to continue that and really build that strong base of smaller commercial loans on businesses that are growing and we can continue to support their growth as they grow. So we think greater SBA emphasis will help. I think we've had bookings to-date of about $16 million already in SBA loans under the 7a or the 504 program. So I think that's going to gear up pretty quickly for us.

We also added a couple of the new bankers in the Arizona market. I think we've mentioned before, that's been a tougher recruiting market for us than Colorado in terms of finding top-quality bankers, but we think we've gotten a couple of great additions there and people that can be immediately productive for us. And you'll probably see a couple more additions in the fourth quarter, but then our intention really is to manage a relatively flat headcount as we move into 2014. I think we've got a great core of bankers in place today and we can utilize that core of bankers that we've brought on over the last couple of quarters to really help us drive growth in 2014. And when you look at the new initiatives and the additional staffing, I think we're going to be very well positioned to drive growth in the franchise in 2014.

So Steve, with that, I'll...

Steven Bangert

Okay. I think we'll just open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Joe Morford with RBC Capital Markets.

Joe Morford - RBC Capital Markets, LLC, Research Division

I wondered if I may have missed it, but did you comment at all about the pipeline or what activity you would expect in the investment banking into the -- going into the fourth quarter, which is usually the strongest quarter for that?

Steven Bangert

Yes, Joe, it's kind of hard for me to tell, to be honest with you. Our pipeline of deals looks pretty good. We don't have the pressure for deals to close at the end of the year like we've had in previous years, where business owners were worried about tax rates changing and needing to get a deal done before tax increases and that. So there doesn't seem to be the sense of urgency that we've seen in the past. Nevertheless, you do have some of the private equity groups that still would like to have their deals closed by the end of the year. I think that, over the next 2 quarters, I'd kind of feel better than -- about their activity than to try to speak about what actually will happen in the fourth quarter versus the first quarter. I do think that we're likely to see some revenue on the first quarter that we haven't seen in previous years just because, as I said, there is no sense of urgency for deals to close and that. And I know we talked a little bit about the investment banking, Joe, because I do get a lot of questions about that. A lot of people wonder why we're staying in that business and that. It is part of our product offering here at CoBiz. What we have done, though, at -- within our investment banking group is we started the year in a $4.5 million breakeven run rate, meaning that their expenses were $4.5 million when you needed operating income off of that, and where our income of that revenue of at least $4.5 million to breakeven. As we head into 2014, we've reduced that to $3.5 million. We've shrunk the staff from 22 to 16. But we've stayed with the verticals, and by verticals, I mean the industries that are -- that really complement the bank. They have 3 verticals now: kind of industrials, which really is kind of a catch-all for a lot of different businesses; health care; and building materials and that. And so I -- we're -- I still like the offering and that, but it really is -- I think the way you have to look at GMB is it's probably of a $0.01 contribution in the bad years but probably a $0.01 loss.

Joe Morford - RBC Capital Markets, LLC, Research Division

Okay. That's great color, Steve. And then maybe Jon, but the increased paydown activity at period end, is that just kind of coincidental in terms of timing with these kind of larger Colorado credits? Or is there anything out there that suggests to you that you might see elevated paydown activity for more of a prolonged period?

Jonathan C. Lorenz

I don't think so, Joe. We -- and I think it was mentioned in the press release, we're starting to see a little more activity in terms of the permanent market on real estate loans, life companies coming back and being more active in the permanent market. The one large credit that we had paid off was a construction loan on an apartment building, and the intention was that we would provide the construction financing and then the developer would roll it into a long-term mortgage with a life company. So I think we'll see more of that activity, and hopefully, as our construction portfolio builds, we'll see more of that activity too where we're getting more on construction loans and the fees that we get with construction, but then those loans rolling off to long-term sources after the construction period has increased. But if you look at the large credits, that was one. We had a private equity firm that we've got a capital line set up for, that they drew down and then paid off as they did a capital call to their investors. We had one company where it was the sale of the business and so -- and another business of large credit where the business was sitting with a very substantial amount of cash and they kind of then held onto cash and just decided, "Let's just pay off the loan because we don't really see other opportunities near term to deploy the cash." So I do think it will -- it was just kind of coincidental, to your point, in terms of some of these larger credits and payoffs coming together at the same time. But I don't see really any trends there, other than I think we probably will see in the long term mortgage markets, some more competition from the nonbanks, from life companies. And we're probably seeing more -- some more competition from credit unions in commercial real estate too, which is kind of a new factor in the marketplace, with credit unions pursuing some larger CRE loans.

Operator

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

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

Just a question on the expenses. As far as timing of those recent hires, were they early in the quarter? And can we expect some maybe bleed into the fourth quarter, as far as higher salaries, based on some of the people you added during the quarter?

Lyne B. Andrich

Brian, it's Lyne. Yes, I think you can expect it might tick up a little bit in the fourth quarter because it kind of came on throughout the period, but the same was true of the second quarter as well. So when I look at our annualized run rate for salary expense and just the base salary, it's currently running just under $43 million. So it's up about $1 million from where it was a year ago with all the additional headcounts and investments we've made. So you'll see a little bit more of it come on in the fourth quarter.

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

All right. And then just in terms of the pipeline, you talked about the potential -- it sounds like some good potential loan growth, but just where the loan pipeline might be today versus maybe the end of last quarter?

Jonathan C. Lorenz

I think it's -- it would be a little higher than end of last quarter, just given the strong growth quarter that we had in Q2. We did empty -- as we seem to do kind of every other quarter, recently emptied out a fair amount of the pipeline. So I'd say it's stronger going into the fourth quarter, Brian. And I think, barring some outside payoffs, like we saw in the third quarter, we should see a reasonably strong quarter out of Colorado again in the fourth quarter. But again, whether all of it hits in the fourth quarter or some of it moves into the first quarter, I think the next couple of quarters together look pretty solid for long growth, particularly from Colorado.

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

Great. And then just lastly, on the SBA. Do you plan to sell the guaranteed portion? Have you made a decision on that yet kind of going forward?

Steven Bangert

No. We really haven't made a decision. I think, Brian, right now, we're looking for kind of if there's something for our portfolio in that. But as it gains momentum and that, I mean, that may be the mode that we go into and that we may be a consistent seller of SBA product. But I don't see that in 2014. I think we're -- we've got enough room in our portfolio, that we'll continue to book it for portfolio purposes and maybe shift by the time we get to 2015.

Jonathan C. Lorenz

Yes. And I think we'll monitor the -- what premiums are taking -- or are out there in the secondary market. [indiscernible] have been very significant premiums, which has driven a lot of sales into the secondary market with rates as low as they have been. So we'll monitor it, but as Steve said, initially, I think our intention will be the portfolio.

Operator

Your next question comes from the line of Tim O'Brien with Sandler O'Neill.

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

First question. Just as far as the outlook for credit and reserve releases, has -- is there any shift in your thinking there relative to last quarter? Or are we kind of continuing to track as you expected and expect the same to occur going forward?

Lyne B. Andrich

I think, Tim, it's hard to project. I do think there's probably still some room, if you look at our coverage ratios, in terms of where we are relative to the peers, that it's feasible we'll still see some reserve releases in the future. It's just hard -- it's really hard to project. I will tell you, we did expect credit to improve, and it did. I don't think -- I think it improved proportionally this quarter a little better than we had expected. I do think, going forward, we will continue to see improvement. I don't know if it will be the same magnitude that we just saw. So it's really hard to say, my -- but I -- again, I do think there is some room, if you look at our coverage ratios versus peers in terms of allowance and reserve releases.

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

And then a question regarding paydowns. Was there some capture of prepayments fees, a higher level of capture of that, this quarter that might have brought a little extra benefit to loan yields and impact the margins?

Jonathan C. Lorenz

We do hit that sometimes, Tim. But I don't think, Lyne, this quarter, there was any meaningful amount.

Lyne B. Andrich

No, there really wasn't. There was a modest amount of recaptured interest on some of the non-accruals that we actually had paid down that we captured some back interest on. That's in the yield, but nothing related to prepayment penalties or fees.

Steven Bangert

Yes. We just don't do enough prepayment penalties in our loan documents, and I think that's primarily just the nature of our business. We don't. Most of our fixed rate stuff is 3 -- maybe some kind of belong [ph] to 5 years. But if we had 7- and 10-year stuff that was refinancing, it would have prepayments on it. But we get very little of that in our books.

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

And the recoupment of that forgone interest on non-accrual credits, did that -- that probably didn't move the needle much with regard to the margin, did it?

Lyne B. Andrich

A couple basis points, it was like $130,000, I think. But we'll typically get some every quarter, Tim. It was a little bigger this quarter than maybe the prior quarter. So every quarter, there's always probably a couple base point or 2 of interest recapture.

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

And then last question. Steve, you mentioned Fort Collins' building boom. You guys are staffed to capture some of that business up there, I take it, right? You are set to go there?

Steven Bangert

Yes, I'll let Jon talk about it. But both Jon and I were up there marketing last week and that. And we have a terrific staff up there, a really experienced -- it's a great staff of people.

Jonathan C. Lorenz

Yes. We've got a good, balanced staff. And I've mentioned before, I think, Doug Woods, who's leading that effort and president of that bank, I've known for probably 15 years, and a very well-regarded banker. He's been both in Colorado Springs and in the Fort Collins market, but we think he's the great guy to lead the effort up there. And then we've recruited a junior banker and a mid- to higher-level banker underneath Doug. So I think we've got a well-rounded group up there now, basically 3 lenders out in the market. And then in addition, on larger construction activity, we'll work with our real estate bank -- our real estate department out of the Denver bank in terms of pursuing larger construction and real estate projects up in that market also. So I think we've got the muscle in that market to take advantage of the opportunities up there.

Operator

You're next question comes from the line of Gary Tenner with D.A. Davidson.

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

Just a question in terms of the new markets, Colorado Springs and Fort Collins. Relative to kind of the loans that you guys there are going to be targeting, can you give us a sense of where you see the competitive nature of the markets and the potential kind of yield differential, if you will, on those loans coming on board there over time versus what you see in your Denver market?

Jonathan C. Lorenz

Sure. I think, in one area that we've had, always had strong emphasis on here, has been health care in the Denver market. Both Fort Collins and Colorado Springs are regional health centers of themselves along the front range of Colorado. So I think we will see health care opportunities up there, and that will be an area that we'll pursue in both of those markets. Colorado Springs has pretty good aerospace and, again, they're really trying to develop that and develop some precision manufacturing in that kind of business. So I think I've mentioned, in terms of their efforts to diversify in Colorado Springs, I think those efforts should play well for us in terms of the areas that they're trying to build more technology base and moving away from just military and tourism, which has been the primary thing in those markets. And then -- so I think we'll see similar kinds of credits in both markets. Areas -- or Fort Collins is very much an entrepreneurial market, a lot like Boulder is here in Colorado, and a developing entrepreneurial market. So I think we'll see a lot of higher-growth companies, probably higher-growth companies in the Fort Collins market we're -- versus more stable, maybe even a little larger, companies that we'll be pursuing in the Colorado Springs market. We've talked to a couple of contractors in Fort Collins. We think there are some opportunities there. In particular, that's where our treasury product set, I think, will be a benefit versus what the smaller bank is going to offer to those large deposits, or a type relationships. And then, and surprising, at this point, I think we will see -- and I don't want to quantify it, but I think we will see marginally better pricing in both of those markets from what early indications are, than what we're seeing in Denver. I think Denver will continue to have more competitive pricing, and I think we'll have a little more pricing leeway in both Fort Collins and Colorado Springs.

Operator

And there are no further questions at this time. I would now like to turn the conference back over to our presenters for any closing remarks.

Steven Bangert

Okay. Well, thanks, everybody, for participating in our third quarter conference call. I think you can see that we're still pretty optimistic about our activities here at CoBiz. We look forward to our fourth quarter conference call and really think we have good momentum heading into 2014.

If any of you have any questions, please give us a call. Thank you.

Operator

This concludes today's conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!