CoBiz Financial's (COBZ) CEO Steven Bangert on Q1 2016 Results - Earnings Call Transcript

| About: CoBiz Financial (COBZ)

CoBiz Financial Inc. (NASDAQ:COBZ)

Q1 2016 Earnings Conference Call

April 22, 2016 11:00 AM ET

Executives

Steven Bangert - Chairman and CEO

Lyne Andrich - EVP and CFO

Scott Page - CEO, Colorado Business Bank/Arizona Business Bank

Analysts

Joseph Morford - RBC Capital Markets

John Rodis - FIG Partners LLC

Alex Morris - Sandler O'Neill & Partners LP

Frederick Cannon - Keefe Bruyette & Woods Inc.

John Moran - Macquarie Capital

Operator

Good morning. My name is Holly, and I will be your conference operator today. At this time, I would like to welcome everyone to the CoBiz Financial First Quarter 2016 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 session. [Operator Instructions]

I’ll now turn today’s conference over to Lyne Andrich, Chief Financial Officer for CoBiz Financial.

Lyne Andrich

All right. Thank you, Holly, and good morning, everyone. Before we commence with Management comments today, though 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 actual results to be materially different than those in the forward-looking statements can be found on the Company’s filings with the SEC, including Forms 10-Q, 10-K, and other reports and statements we’ve 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 the Investor Relations page of our Web site.

I’d like to now introduce Mr. Steve Bangert, Chairman and CEO of CoBiz.

Steven Bangert

Thanks, Lyne. Welcome to the CoBiz Financial first quarter conference call. I will have some short comments before I turn it over to Lyne Andrich, our CFO, to go over the financial results. Scott Page, the CEO of our Banks will follow with a brief overview of the activities we’re seeing on both markets.

I characterize the first quarter as relatively quiet, which is typical CoBiz. During 9 of the last 10 years, the slowest quarter for new loan activity occurred in the first quarter. Deposit activity often mirrors the activity we’re seeing in the loan portfolio.

You will notice that new credit extended as shown in the loan activity table in our press release showed a similar pattern in 2015. In fact loan activity were slow, but it’s picked up -- it picked up as the year progress. We are expecting similar activity this year, but Scott will discuss that later in his comments.

We are still managing to and expecting 10% deposit and loan growth in 2016. We’ve been very clear that we’re targeting continued growth in our core earnings, which is our pre-tax, pre-provision earnings. Last year these earnings were up almost 19%. We are primarily focused on three primary financial metrics and I talked about them repeatedly, but I will mention them again. We are looking for 10% deposit on loan growth and when I say 10% that’s anywhere from 8% to 12% we will be satisfied with.

We are looking for 8% fee income growth out of CoBiz, and we’re -- we want to hold our expense growth of 4% or less. And if we continue to hit these goals, we should continue to benefit from improved operating margins, continued improvement in our efficiency ratio and you ought to expect a 15% plus increase in our core operating earnings on a going forward basis.

So we’re very dialed into those three key financial metrics and if we do that, I think we will be real satisfied with our results this year. And I think we’re seeing some pretty good progress here at CoBiz now, but I will turn it over to Lyne and have her briefly talk about the financial results.

Lyne Andrich

All right. Thank you, Steve. As you saw last night we reported net income available to our common shareholders at $7.4 million for the first quarter, that’s $0.18 per share. I’d also characterize it as a non-eventful or quiet quarter which is a good thing from my perspective.

We saw a significant improvement in our earnings from the fourth quarter, which if you remember is when we took a relatively large provision for loan loss. The fourth quarter provision was related to one large C&I credit that we discussed in the past that was related to the for profit technical college space. We believe it was an isolated credit issue and we fully reserve for it in the prior quarter.

At this point, we work through the majority of the collateral disposition and we’ve no further valuation adjustments that were as reflected in the first quarter of this year. So, having dealt with it in the prior year, asset quality measures you will see have reverted to levels prior to the fourth quarter adjustment and we feel are pretty solid. So, we remain really comfortable at this point with our overall credit quality of the portfolio.

Looking at our earnings as compared to the prior year quarter, our results were relatively flat. However, I believe we’re making really good progress and are improving our core operating income.

As you compare our results to the prior year, I think they’ve been skewed by several items that I think are noteworthy. One, in the first quarter of 2015, we were still in an allowance release position and recorded a negative provision for loan loss of just about $790,000 versus this quarter we had a credit provision of $370,000. So, we’re back to kind of normal provisioning. So those -- that factors contributed nearly a $1.2 million swing in year-over-year comparisons.

In addition, last year’s results, if you recall, we did report at that time that we benefited from $1.2 million of recaptured past-due interest from problem loan resolutions, which was not a typical level. So that also affects the comparison.

And then lastly, our current period results include $860,000 of interest expense on the sub debt we issued in June of 2015, which if you recall we use the proceeds to redeem the SBLF preferred stock we had outstanding.

The interest expense from that sub debt now runs through our net interest margin whereas the dividend on the preferred shares obviously ran directly through equity. So those three items really kind of affect the year-over-year comparisons. When you strip those out, I think you will see that we had some really good momentum in growth over the prior year.

Just to speak to the margin quickly, from the prior year quarter, our reported net interest income on a tax equivalent basis increased by 773,000 to just under $30 million run rate. That’s why the margin was actually contracting about 33 basis points from the prior year quarter.

Again the prior year comparisons are skewed by the prepayment penalties and interest recapture I mentioned that we saw in the first quarter of 2015, as well as the sub-debt interest expense.

Supporting the growth in our net interest income over the prior year, there was a 12% increase in our average loans, as well as 8.5% increase in average deposits. And the good thing there is that the majority of that growth came in the form of non-interest bearing deposits when you look at the year-over-year growth. Overall, if you look at our margin, I’ve been really pleased over the last three quarters, it’s held relatively steady and it's been about a 3.73% level.

Just look at non-interest income now, just to mention, I think overall our core business lines are showing good momentum growing fee income from the linked quarter. However, this quarter, our total fee income did have some noise in it introduced from the mark-to-market accounting on our SWAP portfolio.

It's really a function of the shift in the yield curve that we’ve seen since year-end and as in the non-cash item within the table, which we’ve embedded within the release. We have broken out the impact from our interest-rate on SWAP portfolio and we will continue to do so, so you can kind of track that on a go-forward basis and isolate the impact of that.

And then lastly just to touch on expenses, which you know it has been an important initiative here at CoBiz. As expected, we saw seasonal increases in our -- in certain payroll related items like our vacation accruals and our payroll taxes. In addition, our stock-based compensation charges are typically higher in the first quarter due to the cliff vesting structure of some of our awards. However, after taking that into consideration, I think overall our expenses are trending in the direction we want to see.

From the prior year, our total non-interest expenses only increased $500,000 or less than 2%. So, as a result, we saw our efficiency ratio improved to 68.6% for the first quarter as compared to 69.4% in the prior year. And we still believe we are on track to drive it further lower to the mid 60% range, so for the full-year 2016. So, overall we feel pretty good about where expenses are trending and directionally where we're going.

I’ll now pass it over to Scott.

Scott Page

Thanks, Lyne. This morning I'm just going to make a -- just a view comments and I will keep them brief, and then I will answer any questions you have. As everybody has already said, it’s been a pretty quiet quarter. We grew loans modestly in quarter one, but feel really good about our loan and deposit pipelines and our calling activity and closing activities for the balance of the year.

We have good visibility into Q2 and Q3 and they both look like they’re going to be good quarters like they’ve been in the past. As Steve said, we still believe overall deposit and loan growth to be in the 10% range for the year.

Our construction lending portfolio is very active right now and we're getting really significant monthly draws as we move into the Colorado building season. These are from loans put on the books last year. Now these loans are through their equity component, into the construction loan phase. This will give us a good baseline of growth for the balance of the year.

Term commercial real estate pipeline is also very strong. That said, we continue to see significant activity in our book of CRE, particularly in Denver. We have five significant pay downs or payoffs in Q1 and four of these came from property sales. The strength of the Denver market is really strong, so we are seeing a lot of opportunistic sales in the real estate book.

Arizona continues to be a really bright light for us. It had a three great years and just continues and doing really well. The bankers we added over the last few years have given us good C&I and real estate lending growth. We had particular strength within our Arizona public finance group and our healthcare banking group, actually in both markets for healthcare banking.

Deposit growth in the first quarter actually exceeded my expectations. We put a real emphasis on core deposit growth, then as Lyne said; it’s really been paying off. The first two quarters of every year tend to be our softest quarters, given our business and healthcare book of business. These clients tend to pay bonuses, distributions, and taxes in the first two quarters of every year and that tends to dampen growth. Our biggest growth generally occurs in the latter months each year.

Asset quality measures, as Lyne said, remains strong and stable. During the quarter we charge-off the one large credit that she referenced in Q4. That issue is now largely behind us in our non-performing loan and loan loss reserve levels came back in line with prior quarters as we expected they would.

Outside of this one charge-offs in the first quarter, we were in a net small net recovery mode. Both of our markets remain stable and healthy. Good job growth in both markets, very low unemployment rates. Frankly, the unemployment rate in Denver right now is 3.1%. It's pretty strong that’s for sure.

That said, we do expect our levels of classified loans to bump up and down as they always do. But we aren’t seeing anything in the economy or in our portfolio that would concern us or any kind of systemic change that might be underway. So feel pretty good about things.

So I remain pretty optimistic about the balance of the year. And I’ll just turn it back over to Steve, and then we're going to answer some questions.

Steven Bangert

We will just open up for questions at this point.

Lyne Andrich

Holly?

Question-and-Answer Session

Operator

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

Joseph Morford

Thanks. Good morning everyone.

Scott Page

Good morning.

Joseph Morford

I guess first just a couple of housekeeping questions. Lyne, I was curious, you mentioned some of the seasonally higher compensation payroll type taxes. Is that -- can you quantify that with how much that really affects this quarter?

Lyne Andrich

Sure, Joe. So, yes, probably one of the bigger areas would be the payroll taxes and FICA being reset as you would expect. So that in itself was about $520,000 swing and that it was higher than the fourth quarter. So, in aggregate we had a $1.2 million in payroll expenses for payroll tax, I should say, for the first quarter and that is 520 higher than fourth quarter. The other area that can be a little volatile quarter to quarter to quarter is vacation accruals in our expense. Obviously, the fourth quarter there is a lot of vacation happening. We generally have to adjust our pools downward and we actually had a credit of about $250,000 supporting fourth quarter expense, whereas it reverted back to a more normal level of $300,000 this quarter. So there is about a $550,000 swing or so in vacation liability. That will go down in the second quarter though, because then what happens is spring break season here in the Colorado and Arizona markets. We tend to see lower vacation expense in the second quarter a bit, which is why we kind of look at year-over-year results and looking some of our expenses, because of some of that seasonality.

Joseph Morford

Right. Okay, that makes sense. Then where there any -- was there much noise at all with the margin and in terms of interest recoveries or anything and did you end up getting any much of a benefit at all from the rate hike in December?

Lyne Andrich

Yes, so the margin as reported is pretty clean. There is not a lot of distortion from like recaptured interest income et cetera. Fee income was a little lighter this quarter than we might typically see on the FASB fees and that’s really a function of the growth we had in the quarter. So, it might have been a little light from that. We did expect some modest support from the Fed action in the margin and I think we’ve quantified in the past all things being equal. Our model would suggest every 25 basis points we would see, 3 to 5 basis point expansion in margin. I think what's happened though is since then with -- with a very short balance sheet we have and the amount of maturities and pay downs in our loan book, we do see a fair amount of our loans repricing every quarter and that offset part of that expansion we’d have seen in rates from the Fed move, as well as composition changes. Obviously, it's never a static balance sheet and we see changes in the asset mix and the funding mix. So, overall I felt pretty good about the margin being stable as it was.

Joseph Morford

Right. Okay. And then lastly, I guess, outside of the one credit it seems like pretty positive outlook there. Just curious why the classified assets increased from say $50 million to $60 million, was that anything of note, and note that the provisions stay fairly modest then for the time being other than providing for growth I would guess?

Scott Page

Yes, I’m sure you would appreciate, Joe; we’ve a pretty fluid balance sheet. Things are moving up and down. There is nothing in those. We had a few credits that we are pretty conservative here as you know and we -- when we call them like we see and we’ve some that we downgraded, but we have some there that's going to be upgraded too, so it's just -- it's nothing systemic, and it's nothing in the same industry, just four of five credits that are moving around a little bit.

Steven Bangert

And looking at those credits also Joe; I would say that a couple of them are going to move in and out in the second quarter, [indiscernible] than a quarter in that. But as Scott said, we typically are pretty conservative with our grading.

Joseph Morford

Okay, great. Thanks so much.

Operator

Your next question will come from the line of John Rodis with FIG Partners.

John Rodis

Good morning, everybody.

Steven Bangert

Good morning.

Scott Page

Good morning, John.

John Rodis

Lyne, maybe a question for you on the tax, tax rate that was down this quarter around 24%, I think last quarter you said it would be around 28% to 29%. So how should we look at that?

Lyne Andrich

Yes, and I think really that was changed -- they weren’t really any unusual adjustments in the tax rate this quarter. The majority of the impact is related to the growth we have seen in our tax exempt book and that will dictate what the rate is. So, given the growth we have seen there so far and going forward, I think our effective tax rate should be in the, I don't know, 25% to 28% range. If our -- if we still see some healthy growth and tax exempt, it will be in the lower end of that range. If we don't, then we see growth in other taxable asset classes than it will drift up to the higher point of that range.

John Rodis

Okay, with 25% to 28%?

Lyne Andrich

Yes.

John Rodis

Okay. And then, Lyne, maybe just another question on the provisioning. Is sort of the right way to think about it going forward, your $370,000 this quarter, but assuming loan growth accelerates through the rest of the year then the provision’s going to be more a function of loan growth going forward?

Lyne Andrich

I think that's right, John, yes.

John Rodis

Okay. And Steve, maybe just a quick question for you, your neighbor announced an acquisition a few weeks ago, and just curious your thoughts on the M&A right now?

Steven Bangert

You know, I think M&A it’s interesting, there is a lot of conversations going on with all the community banks, really in both the two markets that we’re looking at. But we’ve mentioned before that we probably are not going to be a player in the M&A market and that I thought that transaction for guarantee made an awful lot of sense. As you know the guaranteed franchise started up north and then they acquired guaranteed bank down in Denver and then they ended up doing a bank in Longmont, which is up north and now this is an additional add-on to their northern franchise. And they -- I think there is significant cost take outs for them. They also line up well with guarantees and much more consumer activity than what we would be comfortable with. They do a lot of construction lending, real estate lending. But it’s a quality little community bank that I think really fits the Guaranty model real well. But as far as banks for us, we’ve always said there is only one or two banks that we would have an interest in the either market. Otherwise we'd have to go out of market, if we look at our business bank, I'm not going to say that we wouldn’t do that, but my preference would be to continue to stay end market. John, I'm probably more comfortable with our organic growth and that it’s very quality growth. I mentioned before that we’ve slowed now on our growth pattern over the last two years from what used to be a 20% growth company to a 15% growth company, and today we are -- we want the street and shareholders to expect 10% growth out of CoBiz going forward and we feel very comfortable with what we can do with organic growth. So I don’t really think that M&A activity is probably part of our future in that, unless it’s some really small add-on fee based businesses to our existing platforms. I’d be surprised if we find any bank that we’d be willing to do and that I just don’t see that -- and there is too much risk for CoBiz without enough improvement in the franchise value of CoBiz.

John Rodis

Okay. That makes sense, Steve. Thanks a lot guys.

Operator

And our next question comes from the line of Tim O'Brien with Sandler O'Neill & Partners.

Alex Morris

Good morning, everybody. This is actually Alex Morris on for Tim.

Steven Bangert

Good morning.

Scott Page

Hi, Alex.

Lyne Andrich

Good morning.

Alex Morris

Just quick follow-up. You guys gave some good color about the loan and deposit pipelines and kind of what your outlook is for the rest of the year. Looking back at your kind of trailing five quarter credit extended and, as you pay down some maturity, would you expect them to reach similar levels to what you guys saw last year as we move into the second and third quarter? Any kind of change in expectations around pay downs and maturities?

Scott Page

I think that number is being running around the same number for a while and I think it’s going to continue at that number. Would be my first -- I don’t see anything is going to change it.

Steven Bangert

Yes, I think that’s quite right. We used to call that escalated pay downs, but we don’t call it escalated pay downs anymore. That seems to be the norm.

Alex Morris

Got it. Okay. Thanks. Thank you for that. Then just, you guys have -- other than that answered most of my questions. I was just curious with the margin guidance and any additional rate hikes that we could potentially see from the Fed, if down the road we end up getting another 50, 75 basis points, does that 3 to 5 basis point benefit to the margin change at all, or is that pretty static for 100, 150 basis points?

Steven Bangert

Yes, for the next 50 basis points that really is 3 to 5 basis points. And above that, then we can pick up 7 to 8 basis points in that, because we essentially have 20% -- we’ve a $1 billion of loan portfolio that are floating today off of various indexes -- well, various indexes that would be prime and LIBOR. 20% of that have floors on it, and the floors are approximately 50 some basis points out of the market. So, it would expand beyond 50 basis points. The issue quite frankly and Lyne mentioned, it’s a little bit -- it’s just kind of the change in our mix and that as a result of this last increase as you guys know what happened is the yield curve flattened dramatically. And when that happen we saw some more real estate loans refinanced, because our loans aren’t tied to the 10-year treasury. But they are tied to the three and the five-year. You know three and five year came back down. So, if rates were to go up and the yield curve doesn't flatten more, I would expect we would have captured 3 to 5 basis points. If the yield curve were to flatten even more -- I could see continued pre-refinance activity out with our fixed rate real estate portfolio, which is primarily tied to the three and five year treasuries. So I know that's not a great answer, but I can't -- it’s hard for me to forecast what will happen with the yield curve when it's all said and done.

Alex Morris

Sure. And a lot of moving parts. I appreciate you walking through all of that. And then, maybe just lastly, you guys really picked apart the expenses well. Are there any seasonal items that come up in that we could expect in the second quarter that are kind of one-time non-recurring?

Lyne Andrich

Not so much one-time non-recurring. Usually you will see some payroll expenses kind of moderate. But I do think you should expect we have a program at CoBiz where our annual cost of living adjustments for our salaries are effective the first quarter -- at the end of the first quarter every year. So, you should see compensation -- base compensation increase some in the second quarter that will be offset to some degree by vacation accruals and the FICA tax kind of bleeding off the balance of the year. So, I wouldn’t be surprised to see a net increase in our expense run rate first quarter and the second quarter. That said, as you guys continue to measure us and how we look at ourselves is, I'm looking over the prior year period to make sure we maintain our expenses lower than 4% over that prior year mark. So, linked quarter you will probably see a slight increase in the second quarter, but year-over-year we are managing to something 4% or under.

Alex Morris

Sure. I appreciate that perspective. Thanks for answering all my questions.

Operator

And the next question will come from the line of Fred Cannon with KBW.

Frederick Cannon

Thanks. Most of my questions have been answered. I just wanted to ask about the Colorado economy and see if there has been any spillover effect. I know you guys don't have energy credits yourselves, but if there's been any spillover effects from slowdown in the energy side of the business into the Front Range economy.

Scott Page

Hey, Fred. This is Scott. We have all been spending a lot of time studying that pretty closely. We have seen some of the oil and gas companies give back some office space downtown, but it's quite remarkable how it's been absorbed by companies moving into the market. The one thing we have really got going for these days is the economy is far more diverse than it used to be 20 or 30 years ago. And so lot of institutions have moved, and companies are moved from the suburbs into the Denver and a number of new companies have moved into Denver. So, we have seen that get absorbed and we do have a lot of office space coming online, Class A office space has been coming online recently, and it’s going to come online this year and next. And so we probably will get a bump up in vacancy for a while, but they will get -- I believe, they will get absorbed back down again. So very healthy here right now. Tremendous in migration from companies and from millennials and -- but we are keeping a close eye on it. But right now I feel pretty good about things.

Steven Bangert

Yes, the one area that we are a little bit concerned about Fred though is, is as Scott mentioned oil and gas. We pay a lot of attention to that. And we also pay attention to the ag market, even though once again we don't really have any direct exposure to ag. My background is agriculture, so I’m concerned about that as I’m oil and gas, because I think oil and gas eventually will and relatively a short period of time you will have a lot of money come into the oil and gas industry and things will start to stabilize even if prices are down at lower levels as far as the health of some of these companies and that. But most of that activity in Colorado as far as oil and gas and agriculture is up north and we have a Fort Collins -- a small Fort Collins bank that we think very highly of, but we do want to be pretty cautious up north when it comes to homebuilding and that, but I think Fort Collins is a great market to be in long-term. But the next couple of years we probably will watch it pretty closely because of the double whammy, its going to get from the slowdown, especially in the field for the oil and gas industry and then you throw agriculture on top of that. There has got to be some slowdown in that market. How that impacts Colorado and Denver, I don't think nearly as much other than as Scott mentioned downtown office space and we will see how that works its way out. Having said that, once again we have no exposure to downtown office space.

Frederick Cannon

And just -- so the ag issue is really just low commodity prices and then also we haven’t really seen any declines in office rents at this point of time?

Scott Page

You know they keep going up actually.

Steven Bangert

Yes, they keep going up at this point of time. But Scott is right, we’ve a significant amount of class A space that's coming on market this year and mostly next year and [indiscernible] for the largest building we’ve built in over 30 years is kind of we will -- be available sometime next year, late next year in that. So that will be interesting and that one was not free lease, so it will be interesting to see how that works. It's a beautiful building, I thing a lot of businesses will want to be in that building. How it impacts other buildings, I don’t know. The commodity prices are really been -- it's really the grains and that have been impacted by the low dollar in that -- or the high dollar as long as the dollar stays as strong as it is. The commodity prices are going to be in trouble and that. And we are starting to see some farm liquidations and so forth. So, that’s interesting. We will see how that plays out.

Scott Page

But as Steve said, we don’t have an agricultural lending department. We don’t do any ag -- direct ag lending, but we do follow the economic impacts of that.

Frederick Cannon

Great, thanks. Thanks for the color. I appreciate it.

Operator

And your next question comes from John Moran with Macquarie.

John Moran

Hey, how is it going?

Scott Page

Good John.

John Moran

Good. Yes, so most of mine have been asked at this point, but maybe just one last one. I know Colorado and the Denver MSA, in particular, are doing really, really well. And I think a couple of quarters back, you guys had sort of said book, the multi-fam stuff particularly downtown ballpark, LoDo, was frothy and kind of redlined. Is there anything else that’s sort of moved into redline category for you at this point on either construction development, CRE, what have you?

Scott Page

No. From my perspective, I think we’ve just been very careful with multi-family and the Scottsdale market and the central business district. So we …

Steven Bangert

And Denver.

Scott Page

… and Denver, yes. So, we have been really, really cautious there. That said, it's amazing how many units keep going up and they seem to be getting absorbed at this point, because there is so much in migration into that the Denver central business district. So, I don’t really have anything else on my radar, John, other than that.

John Moran

All right. Thanks very much.

Operator

[Operator Instructions] And your next question is a follow-up from John Rodis with FIG Partners.

John Rodis

Hi, Lyne. Just wanted to follow-up what you said before on operating expenses. So you said -- I think you said keep full-year growth at 4% or below, but it sounded like from the first quarter to second quarter you could actually see an increase even with lower FICO and so forth?

Lyne Andrich

Yes, and I think what you will see is because of the increase in our base salary; we do annual merit increases April 1 of every year. So, I’ve got on a run rate basis about $46.5 million, $47 million of base salaries, and those will reset 3% come April 1. So, you can expect that to see that in our second quarter run rate. That will be offset though a little bit by the fact that payroll taxes are naturally, they will start declining second quarter a little bit, third quarter more pronounced, fourth quarter you will see -- by that point many of them have -- many of our employees have hit the limit, and then vacation accrual. So, yes, so net it should still be an increase. But I think the way to measure it is you just always look year-over-year, because we’ve the same program in place last year. You saw our compensation expense reset a little bit in the second quarter of 2015 as well.

John Rodis

Okay. So, it’s sort of the $26 million range a quarter roughly for operating expenses?

Lyne Andrich

Yes, so we did a $100 million in growth core NIE last year. And so I’m going to keep that under our $104 million this year. That’s the goal.

John Rodis

Fair enough. And then, one other question for you Lyne, just energy loans. I know you’ve got -- they were roughly what $30 million or $40 million last quarter?

Lyne Andrich

$30 million was the growth commitment, but the outstandings are mid 20s.

Steven Bangert

Or maybe low 20s.

Lyne Andrich

Now low $22 million I think is the outstandings on our energy book.

John Rodis

Okay. And just how many credits is that?

Scott Page

If you measure by relationships, its probably 10 or less, maybe 12 or less.

Lyne Andrich

But in that total, there is only one relationship that makes it the predominance of the balance that we’ve being carefully monitoring and I know Scott has been working real hard to make sure that that amortizes as quickly as possible. And we’ve seen it pay down.

Scott Page

Yes, it’s paying down pretty rapidly, but its also -- it’s a past credit, very strong structure. I think we are fine on that one.

John Rodis

Okay. And any [indiscernible] in that portfolio?

Lyne Andrich

No.

Scott Page

No.

John Rodis

Okay. Okay, thanks guys.

Scott Page

Sure.

Operator

At this time we have no further questions. I'll turn the conference back over to you for closing remarks.

Steven Bangert

Okay. Well, thanks everybody for participating in the first quarter conference call. We're looking forward to the next couple of conference calls. As Scott said, there is quite a bit of activity going on in the Company today. We feel very fortunate to be operating in Colorado and Arizona, two good very healthy markets today in that. And we think we can continue to bring home these important financial metrics that we’re focused on today and I think you should hold us to that and expect continued improvement in our operating margins. So, any questions you have for Lyne, Scott, or myself, please give us a call. Thank you.

Operator

Thank you for dialing in for today's CoBiz Financial first quarter 2016 earnings conference call. You may now disconnect.

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