CoBiz Financial Q3 Earnings call Transcript

Oct.19.07 | About: CoBiz Financial (COBZ)

CoBiz Financial Inc (NASDAQ:COBZ)

Q3 Earnings call

October 19, 2007 11:00 am ET

Executives

Steve Bangert - Chairman and CEO

Lyne Andrich - CFO

Jon Lorenz - COO of the Bank

Analysts

Joe Morford - RBC Capital Markets

Ben Crabtree - Stifel Nicolaus

Bain Slack - KBW

Mike Gegan - RBC Dain

Ross Haberman - Haberman Fund

Operator

Good morning. My name is Barbaraand I will be your conference operator today. At this time, I would like towelcome everyone to the CoBiz Financial Third Quarter 2007 Earnings Call. Alllines have been placed on mute to prevent any background noise. After thespeakers' remarks, there will be a question-and-answer period.

(Operator Instructions) Thankyou. It is now my pleasure to turn the floor over to your host Steve Bangert,Chairman and CEO. Sir, you may begin your conference.

Steve Bangert

Thank you, Barbara. I appreciateit. We welcome everybody to our third quarter conference call, just want to leteverybody know upfront I have Lyne Andrich, our CFO here he will be availablefor question as well as Jon Lorenz, the COO of the Bank.

So let we start this off. Lookingat the third quarter numbers, we reported $0.25, which is up from $0.23 secondquarter of this year, but down one penny from same quarter of last year. Theprimary difference really is in our insurance segment. We will spend some timetalking about that as well as much larger provision this third quarter thanlast year same quarter it was $1.4 million versus 75,000 last year. So thoseare the primary drivers behind the difference there, but we will spend sometime talking about both of them.

For the nine months earnings of$0.72 versus $0.74 and/or the press release, we did talk about four majorinitiatives for the year; three of them were not planned on going into theyear, but I will spend a little bit of time talking about each one of thembecause I think they have all been very successful for us and will play a bigrole in our earnings for ’08. But we think that those initiatives could cost usin the neighborhood of $0.04 to $0.06 on the earnings this year. But as wetalked it one might think you feel comfortable that those are all have beenvery successful initiative.

So, the highlights, loan growthcontinues to even surprise us. I mean, we are very surprised with this over thelast six months. You will remember our second quarter number was justphenomenal about $111 million, I believe at the time. I think, we havementioned on the conference call although that there was about $25 million inpayoffs early on into the next month, and that normally would have probablygets done at the end of the second quarter.

So, we started off this quarter,the third quarter in the hole as far as loan growth and but quickly built ourway out of that and so finished the quarter with very strong loan growth ofaround $60, almost $70 million. So, that’s essentially $180 million over thelast two quarter. So, exceptional loan growth really coming out of both of ourmarkets, and really not concentrated in real estate or C&I or constructionlending. We are seeing a little bit in everything.

The four initiatives that Italked about, the one of them that we did have plan going into the year, youwill remember the branding initiative that we talked about last year. This wasthe year that we implemented that. That actually probably with the smallest asfar as the cost on the overall company, but that’s gone every well with thatthe majority of the company has been rebranded with a common look. But I thinkthe costs this year are in the neighborhood of $225,000 somewhere in thatneighborhood.

So, not actually that’s big of anumber. The other major initiative early on in the year, we were able torecruit over new leadership for our Trust Division, very strong early successout of that. We think we have really now one of the very best trust groups in Colorado, but it havetaken trust function that was making a little bit of money for us.

So, we are actually losing alittle bit of money in our trust area, but they are showing strong growth. AndI think we are expecting them to be back to breakeven sometime next year. Andthen, we will be able to show some strong growth on going forward basis.

We mentioned the acceleratedrecruitment. We have some real early success for this year as far as recruitingbankers. The first six months of the year were just phenomenal for us, but thathas cost us a little bit of money. A lot of that focuses was on C&Ilenders, which typically don’t moving off a lot of business in the first threeto six months. But we are starting to see some of that activity emergingthrough the loan growth and we expect them to be very accretive for us, as wehead into sometime in ’08.

And then the Real Estate CapitalMarkets Group, which is the LaSalle Group that we recruited over that cameearly in -- towards the end of the second quarter. But just got up, we arerunning in during the third quarter has been very successful right out of thegate. We had a large transaction that could be closing next week, which willmake that profitable for the fourth quarter. I think, we had mentioned that wethought they would be profitable by the first quarter of next year, but thatcould be accelerated.

They have about four decent sizetransactions are working on. The one that’s closing next week is a transactionthat they have stepped in a very large transaction, we kind of, the model forthe Real Estate Capital Markets Group is to work on much larger transactionsand syndicate a lot and offer lot of the transaction retaining fees for thecompany.

The one that they are closingnext week, I will give you a quick overview of that just it’s a good example ofhow successful and profitable this could be for us. But essentially our closingon a $150 million transaction, real-estate transaction in Colorado, where theEuropean Bank will be taking half of the transaction asking us to be theadministrative agent for him, for the transaction asking the other half of thetransaction, which we have already done.

So fees will probably only weretain in around $15 million of those transactions our own book, but the feescould run as high as $1 million dollars on this transaction. How much of thatwe would book day one or how much of this amortize over three year period oftime. I couldn’t tell us today, but you can see that could be very successfulbusiness for us.

And we will -- see we walk intothis not knowing for sure, whether they still be able to execute the type ofbusiness that they were doing at LaSalle from much smaller platform. But earlyon indications are that they are going to be very successful at this, becauseas I mentioned there is really four transactions we are working on. Thathappens to be the largest one, but is the one that closing as soon as than that,so.

Early on we really very, veryencouraged by this and that could be a very profitable part of our '08 numbersin that. So overall those initiatives we are estimating cost is above $0.04 to$0.06 out of our 2000 in numbers. That we really hadn’t gone into the yearbudget in, but those of you that have been shareholders at CoBiz over the lastalmost 10 years now remember, but every three years since we have a year wherewe have outsized expenditures from initiatives that. We fine during the yearthat we really hadn’t planned our going into the year with making those typesof initiatives.

But I think all of these haveshowed. Early on I think it will be very successful for us. And look at thevarious segments of bank real strong loan growth as I mentioned, but depositgrowth over the last year has been almost 14%. Coloradohad stronger deposit growth than Arizona.We had been encouraged a little bit by some deposit growth in Arizona more recently. But Colorado has shown some very strong growthnumbers there for us. We did introduce our Euro Sweep product this last quarterearly on that’s been very, very successful. We think that will be a big productfor us on a going forward basis.

You will notice that, we haveabout $1.7 million of charge-offs for the quarter. These are extensionally twoloans in the Arizonamarket and Jon can speak on those and answer any questions that you guys mighthave. But they are primarily, both of more C&I loans really either one ofthem have anything to do with the real estate market in Arizona, which we areencouraged by, and may be some recovers out of one of these transactions, butwe are really, it’s too early on for us to be able to kind a put a number ontothat.

Consequently, we ended at about$1.4 million in our provision. We think that we would like to continue tomaintain the strong reserve in light of what’s happening with the nationaleconomy, as we head into ’08. So, much larger provision, and we have done thattwo quarters in a row now then which you typically seen out of CoBiz. But Ithink that’s the prudent time for us to do it at this point in time.

Non-performers, we finished thequarter real strong again at I think, 9 basis points to non-performers and Ithink I was told last night that half of those are one loan that we just didn’tget renewed at the end of the quarter. So, it’s even smaller than that when youback that out, because the loan has now been renewed and does not show up forthe non-performer.

Net interest margin although we,it has expanded year-over-year; we did see some contraction during the thirdquarter. I think that's primarily made up or just the composition of our, theliability portfolio. Demand deposits have been very tough to come by.

And so, consequently, we fundedourselves with a little few more earnings, our interest-bearing liabilities andwe have in the past. And really the composition has more to do with the margincompression that you saw during the third quarter. We would anticipate that wewill continue to have that as an issue for us on a going forward basis. I don’tknow that you will see that [very good] 7 basis points of margin compression inthe third quarter I don’t feel you will see that pace over the next couple ofquarters. I wouldn’t be surprised, but it’s really hard to predict compositionof those deposits.

Fourth quarter historically has been a quarterfor us as far as the demand deposits, but this certainly doesn’t feel like ourtraditional year as far as [deposits gather]. So we will find out as we headinto the quarter.

Fee income overall were slightlyversus ‘06 for the quarter we were around $7 million of fee income versus $7.3million same quarter last year. The primary driver has been in our insurancesegment. Historically the insurance segment is delivered $0.04 a year as wellas the earnings for us just a kind of refresh what businesses we are in. We arereally in three segments within insurance segment and that would be propertyand cash of the life, which we will call wealth transfer and group.

Wealth transfer has always been avery profitable part of our business, but for some reason this year it has notdone very well. The primary reason seems to be underwriting cases that havebeen rejected as we are putting insurance on some of these individuals andthat. It just a tough year and we estimated that we’ve had about $2 million ofrevenue that we lost of underwriting cases has been rejected by insurance companies.Then that’s really unusual for us.

And I don’t think thatnecessarily a trend. I think that just might be a onetime thing. I would expectthat you will see us profitable in the fourth quarter and wealth transfershould be or life should be a profitable venture for us in the fourth quarter.But really, we are down $0.03 first in that segment from, when you look at that’06 versus ’07, we have loosed about $0.02 for this year versus about a pennygained in the first nine months last year.

So, there has been about $0.03twinge. I think if you head into the fourth quarter, you will see some momentumin that area and that property and casualty is a tough business right now forus, as it is for everybody. Premiums or commissions are down around 15% forcommercial insurance this year. So, it’s more of a breakeven type business forus. The group is showing some growth in that. We are encouraged by that. Thatis an area that we would like to spend more capital on a going forward basis.

But I think, you should see us at’08, we get it back to at least $0.04 of [earner] out of the insurance segment.I would be surprised, if we didn’t see that. It’s just some unusual cases inour wealth transfer or life product this year. And you should see that show upin the fourth quarter.

Investment Banking continued tobe a real strong for us net amount of any further quarter versus breakeven lastyear. Nice pipeline of business. And fact that I tell you, I think, it’s about30% to 40% bigger than it was last time, we talked. How much of that I am stillwon’t be cautious because of the national economy and I don’t know what impactit’s going to have on M&A activities primarily in financing of some ofthese transactions.

So, far I really think this sizeof transactions, these are transactions in the neighborhood of on averagearound $40 to $50 million. I don’t think that market has really been impactedat all. But I do want to be cautious about the economy. But the pipeline ofbusiness is just being phenomenal, continued growth during the third quarter,and I think a lot of that was just business owners also getting concerned aboutthe economy, I’m thinking maybe they should do something sooner rather thanlater. But we are very encouraged by feel like they have a very strong pipelineor where it could be maybe as good years as they have had. We would anticipatea good fourth quarter out of that group also.

Investment banking feeling reallygood about that segment, investment advisory and trust that’s really oursmaller segment in our newest although the trust function is not new for us. Weacquired Alexander Capital about three years ago, which is our investmentadvisor. They are showing strong growth probably would round up to well over apenny this year but with the last come out of the trust for this trust. I don’tknow that that segment will round up to penny, but [our assurance is] a prettygrowth in that area.

So we are feeling pretty goodabout that, but really was a large provision for the quarter and then some surpriseddisappointment really on the insurance segment. But as I said, there is reallynothing that I think is something you would anticipate on a going forwardbasis. I think there should be return to their traditional run rate, which isaround force of the year running for us.

The share repurchase program wereabout half way through that I would like to see and complete that by the end offourth quarter. So we will be out there actively trying to buyback the rest ofthat stock. I don’t know whether we will get it done or not, but we will beactively working on that.

And I know I get a lot ofquestions about the Northwest initiative that we have talked about in the past.Our goal going into the year, which we try to have something that we getannounced by the end of this year. We still continue to work on that, but aboutsix months ago when we started working on the LaSalle Group in trying torecruit them over Jon and I really can’t put that on the backburner because theLaSalle Group itself has probably had more impact on the company over the nexttwo to three years and opening a new third home market for us.

That continues to be a highpriority. We will now move back to the front burner and we will be working onthat. And so, I think, you should see hopefully, we will be able to give someclarity to that sometime in '08, and where we are going on that direction atleast sometime clearly in '08.

So, overall I think, we arefeeling pretty good about where we are. The numbers probably don’t reflectthis, the enthusiasm that we have for the franchise, as we head into '08. Butit really has been some strong investing and some initiatives that are reallygood and payoff clearly for us.

So, I think that was the righttime to do and continued strong provisions really kind of because of the strongloan growth that we have shown this year, and really we need to be cautious, aswe head into, what appears to be a weak national economy. But here at CoBiz, Iam real comfortable saying I think we will be one of the better performingbanks next year, and that you should expect a strong fourth quarter out of us.

Really, we are very cautious, aswe will watch the real estate markets in both of our communities. Phoenix seems to behaving more issues then [Bimber] does at this point in time. Although, wethink, we are pretty optimistic that we were fair better the other banks inthat market. But Jon is certainly here and we are ready to answers questionsthat any of you might have.

With that, I am going to turn itover to the operator Barbara to open it up for questions-and-answers.

Questions-and-Answer Session

(Operators Instructions) Thankyou. Our first question is coming from Joe Morford from RBC Capital Markets.

Joe Morford - RBC Capital Markets

Thanks. Good morning everyone.

Jon Lorenz

Hi, Joe.

Joe Morford - RBC Capital Markets

I guess a couple of questions forJon on Arizona.First, if you just talk about the losses which you had on C&I side of thisquarter and the nature those and where they it all real-estate related. Andthen moving beyond that just talk more about just the pipeline in Arizona ingeneral and why you all feel, is good if you do about that market, when so thatevery other banker we talk to, talk me how weak the place is?

Jon Lorenz

Joe, you still believe is that welike the market those.

Joe Morford - RBC Capital Markets

I like your deliverance.

Jon Lorenz

Let me talk first on the twohallmark is, we do viewed ours to be isolated cases in that, that indicativeeventually adverse trends developing within the portfolio. One credit of courseone that we talked about I think in the earlier conference call earlier thisyear were its packing company. We just moved the asset of that company into ourother asset category and let we took in-charge down on that loan as we did thatand now we are in process of liquidation.

We will probably know within thefourth quarter in terms of any recovery potential. I think we have been veryconservative on the write down of asset values. I wouldn’t see any additionalwrite down on that credit in the fourth quarter. Then the second one was ageneral contractor and with project the contractor was doing in Arizona, whereowner of the project just fees to pay him and it’s a project that hadsignificant [trail end] equity to the project has been leaned at this point andwe think we hopefully have some recovery potential on that loan it was about 1million one loan we wrote down half of that in the third quarter.

Lyne Andrich

It’s very well capitalizedproject. There is no debt on the project itself and it just the owner in thecontract we’ve got sideways with each other and the contractor he starts tomaking payments. The contractor actually has been as part that is his own cash,but start making payments on that. We will see that how it takes place.

Steve Bangert

Yeah. This is the case contractorthe coming better around for over 15 years always profitable every year so.Until its particular job it was a very strong performing contractor. So againwe see those to be isolated issues within the portfolio and you can see afterthose charge-offs non-performers we will feel very good about where we end ofthe quarter and overall non-performers that above 5 basis points after you takeoff the 190-day past due long that we renewed during the first month ofOctober. As Arizonaand John any other questions on the long.

Joe Morford - RBC Capital Markets

No, that’s fine. Thanks.

Steve Bangert

Okay. As Arizona we are somewhat contrary on a marketdown there today. And so because of that we are spending a lot of time, I’mspending a lot of time to make sure we are reading the signs correctly in Arizona and as to ourportfolio. And I mentioned before I think one of the things on theconstruction, the residential construction side it better benefit us andlargely to the credit of Kevin & Co and who runs the real-estate group forus down in Arizona.

As you’ve spend very selective onthe residential construction project that we financing and really focused oninfill locations in the greater Phoenixarea. And what we are seeing a lot of the issues that have developed are thelarger homebuilders, the national homebuilders that have taken down largeblocks of land on the periphery of Arizona.And that’s where, as you’ve seen, we’ve had some declines in value of 40% to50% on perimeter land values in the Arizona.

We are continually gettingreappraisals and new appraisals on our properties. And as new appraisals arecoming in, we’ve got three new appraisals in on land just this week allsomewhere between even to about 8% down in terms of values. So, we are seeingonly 5% to 10% declines in land values on a very current basis on theproperties we’ve versus again 40% to 50% decline in land values in some of theperimeter areas.

And our projects, there are[in-fill], they tend to be located along the key transportation corridors,which is very important in Arizona.They are closer in and they were continuing to see absorption. Now admittedlyabsorption levels are down in some cases, absorption levels are down 40% to50%. But the point being, our builders are continuing to sale houses.

One midsize builder that we workwith, they does about 100 homes a year. They sold 65 homes in the first half ofthe year and will still sell 35 to 40 homes in the second half of the year.Overall, in Arizona, Arizona is going to sell 40,000 new homes in2007 that will still probably lead the country in terms of new home sales.

And also, we are seeing a declinein new home permit level. So, some of that oversupplied situation, we thinkit’s going to work itself out of the system relatively quickly, certainly, overthe next 12 to 18 months, as homebuilders are taking down lower levels ofpermits and selling through the existing inventory.

The other thing, I would say in additionto land values, certainly, there will be issue of the home prices themselvesand as to the base more planned to get during the parameter areas, where asignificant oversupplied situation, you are seeing up to 30% or 35% decline inthe base floor plan pricing for houses. Where we are and with our builders theyare doing some discounting, but very little maybe 5% to 10%. So, once againbeing in the infill locations, I think is really going to benefit us, as we areworking through what is literally is the tough market in Arizona.

And the final point, I would makeis the commercial construction side continues to be very strong and our bothcommercial office space as well as industrial. And we are seeing some shifts inour construction portfolio with more and on the commercial side, as we areseeing the residential construction portfolio flat to slightly down. [Lyne,that would be] some summary overview on the market jump, do have any otherspecifics?

Operator

Thank you. Our next question iscoming from Ben Crabtree from Stifel Nicolaus.

Ben Crabtree - Stifel Nicolaus

Just one. Hi, good morning.

Steve Bangert

Good morning Ben.

Ben Crabtree - Stifel Nicolaus

Just one kind of a follow-up onthat, what is your residential real-estate construction portfolio? What'sdollar amount of that?

Jon Lorenz

Residential then is about $100million and this is interesting [scale] on that point. We’ve talked a lot ofour residential construction in Arizona, butonly about 25% of our residential construction portfolio is in Arizona. We've got about$30 million of construction, residential construction loans in Arizona and a little about $90 million of residentialconstruction loans in Colorado.

Ben Crabtree - Stifel Nicolaus

Interesting! Couple of questionon the margin, a margin related question. I’m wondering to what extent the twoside of the balance sheets might be more exposed to prime versus LIBOR in otherwords because LIBOR much of a driver to your loan portfolio and is much of adriver to your liability cost versus to Fed Funds?

Steve Bangert

Well, LIBOR has no impact on ourliability cost that does in our loan portfolio. I think we only had maybe 5loans at the time LIBOR. So, we are fortunate in that respect. Now I do assumethat’s going to grow primarily out of this group that we were freed from salaryused to LIBOR financing.

But then we continue to be prettyaggressive whether our interest rate swap portfolio. So we have essentiallyextended some of our time based loans and to fixed rate assets by through theuse of interest rates swaps and that’s been difficult to do because that thecost by transaction.

But I think its going to payofffor us that. We still feel pretty comfortable that from an asset liabilitymanaged review point that the margin will stay relatively consistent; let’s saywhere we are positioned today. Our primary issue will just be on thecomposition and the change of the composition, that something you can’t hedge.

Ben Crabtree - Stifel Nicolaus

All right. I’m just wondering tothe extent to which the fed funds versus LIBOR spread as widened so much thatmight be hurting you over the short term?

Jon Lorenz

I think we will pretty well hedgefor that. I really do.

Ben Crabtree - Stifel Nicolaus

Okay. Small question tax rate, alittle higher than I was using, it looks like you are working towards somethinglike a 37% rate for the year so is that a reasonable number?

Lyne Andrich

Yeah, Ben this is Lyne. We’veactually did at a tax turbulence financial taxes in October for the state of(inaudible). So, there is about $100,000 of tax drop in our third quarter. Buton the normalized level, I will look to our effect tax rate as 37.3%.

Ben Crabtree - Stifel Nicolaus

37.3% okay. Good enough I thinkthat’s it.

Steve Bangert

Okay. Thanks Ben.

Operator

Thank you. Our next question iscoming from Bain Slack from KBW.

Bain Slack - KBW

Hi, good morning.

Steve Bangert

Good morning Bain.

Bain Slack - KBW

I guess if I could take another,I guess, this is another quick question on the construction portfolio; it seemsas if they have lot of concerned over the use of the interest reserves. I guesscould you give us some color, how CoBiz uses that?

Steve Bangert

Yeah, Bain. We do use interestreserve on most of our construction loans and with the slowdown and absorptionsome of our builders are running out of the reserve. Fortunately, the buildersthat we are working still have pretty strong balance sheet, pretty goodliquidity. And so, on everyone, where we are out of interest reserve, it’s veryrare that we would ever build more interest reserve into a loan, it sounds tothe extending the loan normally when the interest reserve runs out it’s on theborrower neck when in terms of your continuing to make interest payments. Weprobably got a half dozen loans in the portfolio, but now we are interested hasbeen paid for by the borrowers and all of those are performing as expected.

So we don’t see within ourportfolio any overhang related a lot of loans with interest reserves right nowand then all of the sudden we’ve got non-performing loan on our hand. As wereviewed the portfolio, we feel our borrowers with slowdown and absorption arecertainly capable of paying interest out of pocket isn’t easy.

Bain Slack - KBW

Okay, great. I guess, I just wantto ask a question on the (inaudible) repeated Steve going over the, I guess,what must have been one of the largest deal these for, I guess if you couldhelp us to kind of give us a range what would be the five there maybe thesmaller one?

Steve Bangert

Jon, answer that.

Jon Lorenz

The transactions Steve mentioned,one of the terrific transactions to start with for us and a very profitabletransaction probably it is much higher than what we will see in terms of theadvertise transaction that work on. The three other transactions stand thatthey’re working on our range from $10 million to $30 million. And I thinkthat’s more indicative of what we will see up to maybe $50 million in size andanything over $50 million, it would be pretty unusual.

Bain Slack - KBW

Okay, great.

Jon Lorenz

But that is step up from whatwe’ve traditionally done has been real-estate, construction loans will probablyin the $5 to $15 million range. So it is certainly the step up in size fromwhat we’ve traditionally done.

Bain Slack - KBW

Right, I guess -- with the feeswork out somewhat proportionally to the size of the deals, when thinking aboutthat?

Jon Lorenz

Yeah that’s probably true. What,we are going to try and do, as Steve mentioned on this $160 million [threeaddition] we are only putting $15 million of that on our balance sheet. And weare going to try and manage that as well as we can and keep a little as we canon our balance sheet.

Now clearly, if we are going tolead our agent position the other banks are going to want us to have enough ofan amount that we’ve got sufficient skin and the game. But we are going to tryand manage our old position down as much as we can. And certainly then thesmaller or all the larger portion that we are participating out to other banksthe more fee income will generate in terms of playing that Asian or asyndication role.

Bain Slack - KBW

Okay great. I guess, just lastquestion if I could. I will go back to the discussion on the net interestmargin, you heard the comment about the recent fed move maybe putting some nearterm pressure sort of in the 5, 10 BP range. If there are further moves withthe swaps will have on, would the near term reactions be similar or thereessentially the impact become less in other words if there is another 50 basispoint, and then maybe another one after that?

Jon Lorenz

Yeah. I would anticipate that itwould become less at that point in time.

Bain Slack - KBW

Okay.

Jon Lorenz

I think initially because of thestrong one issue that we’ve been, it is in the strong loan growth. We need tocontinue to be aggressive or we try to fund ourselves.

Bain Slack - KBW

All Right.

Jon Lorenz

And so, we are probably not ableto adjust rates down at the races. If you would model it out you would assume,you’ve been able to -- but I think, as rates continue to go up, if we do, Iwouldn’t be surprised as the several rate drops in front of us. We will, itwon’t, we want gross margin at the same pace.

Bain Slack - KBW

That’s great. Okay I appreciatethat. Good, thanks a lot.

Operator

(Operator Instructions). Our nextquestion is coming from Mike Gegan from RBC Dain.

Mike Gegan - RBC Dain

Hi, guys.

Steve Bangert

Hi, Mike.

Mike Gegan - RBC Dain

Quick, question I may have missedit. But could you give us a status on the [Noble] I know in the last call youtalked I think one in Arizona, two in Colorado. Can you giveus an update on that and maybe the banker account, I think it was 14 or so inthe last quarter just curious put your add on that as well?

Jon Lorenz

We are digging for numbers here.Anyhow finalized the Nobel activity we actually have opened up in second wecall it a satellite branch of our Vail bank and so we have two locations todaythat one just opened up in the last three or four weeks.

Steve Bangert

And then in Arizona, Mike we are planning on our firstquarter openings for new location there. We are looking in the old, as we call,old time Scottsdale area around Camelback and Scottsdale for who thoseeither have familiar with that area. And we are in the final stages ofnegotiating release on that facility. It should be open in first quarter.

But the other market we’ve talkedabout is the Ft. Collinsmarket north of Denverand that one the individual I’ve been talking to of there, I think there willbe a little longer term process. So I don’t think you will see any happeningnear term for us in the Ft. Collins market.

And on the banker account, weadded six new bankers in the third quarter, that two of those were real-estate capitalmarket people and actually another individual from LaSalle bank, who is one oftheir senior commercial lending bankers in that Denver office. So we haveactually picked up three bankers now one on the commercial side also fromLaSalle and then two new bankers and senior bankers in Arizona in the quarter.

And as we’ve mentioned in therelease, I think with this increased pace of hiring, we will continue to beopportunistic if we find solid bankers that they bring into the franchise. ButI think you will see the hiring pace slowdown, as we move into 2008.

Mike Gegan - RBC Dain

Thanks guys.

Operator

Thank you. Our next question iscoming from Ross Haberman from Haberman Fund.

Ross Haberman - Haberman Fund

Good morning gentleman, how areyou today.

Steve Bangert

Good.

Ross Haberman - Haberman Fund

Sorry, I got on a little late.Could you just tell us what your exposure is to condo developments today? Andwell, let me start with that?

Jon Lorenz

Condo development is not an areathat we’ve focused on really at all on either the Coloradoor the Arizonamarket. So, it would be very minimal, maybe we’ve got a couple of smallerprojects, but very minimal exposure that’s just not been an area of focus forus.

Ross Haberman - Haberman Fund

What's your biggest area of newconcern, is that the interest rate risk or again in the asset quality in yourtwo different markets?

Steve Bangert

Well, this is Steve. I’ll let Jonspeak to that too. But I think it has to be, yes, we worry about asset qualityin line with what’s happened at the national economy. I think interest rate; wefeel pretty good about historically we’ve been able to manage that and that’ssomething that we control.

And so, we’ve been able to managethat pretty well for 13 years now. But asset quality some of that side of ourhands, but and so, we again had to mostly the national economy. But I thinkthat I mentioned earlier in this conference call. I think we will out performthe rest of the industry by quite a long way just far as our asset qualitynumbers are concerned even into ‘08. What about Jon?

Jon Lorenz

Yeah, I think our issue there isthe housing market continues to slide for an extended period of time theabsorption rates continue to decline. Where we have the migration we been ourconstruction portfolio in to most severe level of the clarification. But I cantell you from what we see today even if we have some down grade and we willhave further down grades in the portfolio.

We feel very good about our loanto value position in that portfolio even with further declines in prices and atleast at this point don’t see any potential losses coming out of thatconstruction portfolio.

Ross Haberman - Haberman Fund

Just one of the final question.The interest rate exposure I don’t remember hearing much of your, if you askthat our liability sensitive above at the end of the quarter?

Steve Bangert

Well, we still slightly assetsensitive and that’s kind of hard to completely eliminate in that. But as Imentioned we are pretty active aggressive users of interest rates swaps andthose type of products less than that sensitivity in that. But as a commercialbank that does in primarily time based lending where is going to be somewhatasset sensitive.

Ross Haberman - Haberman Fund

So again if we see another dropin rates hypothetically it’s clearly going to hurt the margin at least every inthe short-term?

Steve Bangert

Yeah, I said that’s probablytrue, but which is just be a few basis point very minimum amount.

Ross Haberman - Haberman Fund

That’s it. Thanks, best of luck.

Steve Bangert

Thank you.

Operator

Thank you. At this time, I liketo turn the floor back over to Mr. Steve Bangert for any closing comments.

Steve Bangert

Okay. I appreciate your continuedinterest in CoBiz. I think, you can see that we are very optimistic, stilladhere to CoBiz. We are obviously concerned about what’s happening in theeconomy today as all of you are and that’s impact on the financial serviceindustry in that. But I do think that we are well positioned as we head into’08. We are just finishing, now we are sitting at the [Broadmoor], finishing upa three day conference that we had.

A planning session with our Boardand I think the primary thing behind that was this should be the next couple ofyears could be very good years for CoBiz in light of some of the other bankshaving some issues that we will be able to distract them, it’s time for us tograb the bar in market share take advantage of what we think it’s a veryhealthy franchise that won’t have many of the issues that the other seem to befacing. And so, with that I’ll just once again, always, as I’ll always closewith, if you have anymore questions, please give us myself, Jon or Lyne a calland we will be happy to talk to you. Thank you.

Operator

Thank you. This concludes today'sCoBiz conference call. You may now disconnect.

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