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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 Barbara and I will be your conference operator today. At this time, I would like to welcome everyone to the CoBiz Financial Third Quarter 2007 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period.

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

Steve Bangert

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

So let we start this off. Looking at the third quarter numbers, we reported $0.25, which is up from $0.23 second quarter of this year, but down one penny from same quarter of last year. The primary difference really is in our insurance segment. We will spend some time talking about that as well as much larger provision this third quarter than last year same quarter it was $1.4 million versus 75,000 last year. So those are the primary drivers behind the difference there, but we will spend some time 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 major initiatives for the year; three of them were not planned on going into the year, but I will spend a little bit of time talking about each one of them because I think they have all been very successful for us and will play a big role in our earnings for ’08. But we think that those initiatives could cost us in the neighborhood of $0.04 to $0.06 on the earnings this year. But as we talked it one might think you feel comfortable that those are all have been very successful initiative.

So, the highlights, loan growth continues to even surprise us. I mean, we are very surprised with this over the last six months. You will remember our second quarter number was just phenomenal about $111 million, I believe at the time. I think, we have mentioned on the conference call although that there was about $25 million in payoffs early on into the next month, and that normally would have probably gets 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 our way out of that and so finished the quarter with very strong loan growth of around $60, almost $70 million. So, that’s essentially $180 million over the last two quarter. So, exceptional loan growth really coming out of both of our markets, and really not concentrated in real estate or C&I or construction lending. We are seeing a little bit in everything.

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

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

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

We mentioned the accelerated recruitment. We have some real early success for this year as far as recruiting bankers. The first six months of the year were just phenomenal for us, but that has cost us a little bit of money. A lot of that focuses was on C&I lenders, which typically don’t moving off a lot of business in the first three to six months. But we are starting to see some of that activity emerging through the loan growth and we expect them to be very accretive for us, as we head into sometime in ’08.

And then the Real Estate Capital Markets Group, which is the LaSalle Group that we recruited over that came early in -- towards the end of the second quarter. But just got up, we are running in during the third quarter has been very successful right out of the gate. We had a large transaction that could be closing next week, which will make that profitable for the fourth quarter. I think, we had mentioned that we thought they would be profitable by the first quarter of next year, but that could be accelerated.

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

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

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

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

Early on we really very, very encouraged by this and that could be a very profitable part of our '08 numbers in 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 year budget in, but those of you that have been shareholders at CoBiz over the last almost 10 years now remember, but every three years since we have a year where we have outsized expenditures from initiatives that. We fine during the year that we really hadn’t planned our going into the year with making those types of initiatives.

But I think all of these have showed. Early on I think it will be very successful for us. And look at the various segments of bank real strong loan growth as I mentioned, but deposit growth over the last year has been almost 14%. Colorado had 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 growth numbers there for us. We did introduce our Euro Sweep product this last quarter early on that’s been very, very successful. We think that will be a big product for us on a going forward basis.

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

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

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

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

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

Fourth quarter historically has been a quarter for us as far as the demand deposits, but this certainly doesn’t feel like our traditional year as far as [deposits gather]. So we will find out as we head into the quarter.

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

Wealth transfer has always been a very profitable part of our business, but for some reason this year it has not done very well. The primary reason seems to be underwriting cases that have been rejected as we are putting insurance on some of these individuals and that. It just a tough year and we estimated that we’ve had about $2 million of revenue that we lost of underwriting cases has been rejected by insurance companies. Then that’s really unusual for us.

And I don’t think that necessarily a trend. I think that just might be a onetime thing. I would expect that you will see us profitable in the fourth quarter and wealth transfer should 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 penny gained in the first nine months last year.

So, there has been about $0.03 twinge. I think if you head into the fourth quarter, you will see some momentum in that area and that property and casualty is a tough business right now for us, as it is for everybody. Premiums or commissions are down around 15% for commercial insurance this year. So, it’s more of a breakeven type business for us. The group is showing some growth in that. We are encouraged by that. That is 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 in our wealth transfer or life product this year. And you should see that show up in the fourth quarter.

Investment Banking continued to be a real strong for us net amount of any further quarter versus breakeven last year. Nice pipeline of business. And fact that I tell you, I think, it’s about 30% to 40% bigger than it was last time, we talked. How much of that I am still won’t be cautious because of the national economy and I don’t know what impact it’s going to have on M&A activities primarily in financing of some of these transactions.

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

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

So we are feeling pretty good about that, but really was a large provision for the quarter and then some surprised disappointment really on the insurance segment. But as I said, there is really nothing that I think is something you would anticipate on a going forward basis. I think there should be return to their traditional run rate, which is around force of the year running for us.

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

And I know I get a lot of questions 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 get announced by the end of this year. We still continue to work on that, but about six months ago when we started working on the LaSalle Group in trying to recruit them over Jon and I really can’t put that on the backburner because the LaSalle Group itself has probably had more impact on the company over the next two to three years and opening a new third home market for us.

That continues to be a high priority. We will now move back to the front burner and we will be working on that. And so, I think, you should see hopefully, we will be able to give some clarity to that sometime in '08, and where we are going on that direction at least sometime clearly in '08.

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

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

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

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

Questions-and-Answer Session

(Operators Instructions) Thank you. 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 for Jon on Arizona. First, if you just talk about the losses which you had on C&I side of this quarter and the nature those and where they it all real-estate related. And then moving beyond that just talk more about just the pipeline in Arizona in general and why you all feel, is good if you do about that market, when so that every other banker we talk to, talk me how weak the place is?

Jon Lorenz

Joe, you still believe is that we like the market those.

Joe Morford - RBC Capital Markets

I like your deliverance.

Jon Lorenz

Let me talk first on the two hallmark is, we do viewed ours to be isolated cases in that, that indicative eventually adverse trends developing within the portfolio. One credit of course one that we talked about I think in the earlier conference call earlier this year were its packing company. We just moved the asset of that company into our other asset category and let we took in-charge down on that loan as we did that and now we are in process of liquidation.

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

Lyne Andrich

It’s very well capitalized project. There is no debt on the project itself and it just the owner in the contract we’ve got sideways with each other and the contractor he starts to making 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 contractor the coming better around for over 15 years always profitable every year so. Until its particular job it was a very strong performing contractor. So again we see those to be isolated issues within the portfolio and you can see after those charge-offs non-performers we will feel very good about where we end of the quarter and overall non-performers that above 5 basis points after you take off the 190-day past due long that we renewed during the first month of October. As Arizona and 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 market down there today. And so because of that we are spending a lot of time, I’m spending a lot of time to make sure we are reading the signs correctly in Arizona and as to our portfolio. And I mentioned before I think one of the things on the construction, the residential construction side it better benefit us and largely to the credit of Kevin & Co and who runs the real-estate group for us down in Arizona.

As you’ve spend very selective on the residential construction project that we financing and really focused on infill locations in the greater Phoenix area. And what we are seeing a lot of the issues that have developed are the larger homebuilders, the national homebuilders that have taken down large blocks of land on the periphery of Arizona. And that’s where, as you’ve seen, we’ve had some declines in value of 40% to 50% on perimeter land values in the Arizona.

We are continually getting reappraisals and new appraisals on our properties. And as new appraisals are coming in, we’ve got three new appraisals in on land just this week all somewhere between even to about 8% down in terms of values. So, we are seeing only 5% to 10% declines in land values on a very current basis on the properties we’ve versus again 40% to 50% decline in land values in some of the perimeter 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 admittedly absorption levels are down in some cases, absorption levels are down 40% to 50%. But the point being, our builders are continuing to sale houses.

One midsize builder that we work with, they does about 100 homes a year. They sold 65 homes in the first half of the 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 in 2007 that will still probably lead the country in terms of new home sales.

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

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

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

Operator

Thank you. Our next question is coming 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 on that, what is your residential real-estate construction portfolio? What's dollar amount of that?

Jon Lorenz

Residential then is about $100 million and this is interesting [scale] on that point. We’ve talked a lot of our residential construction in Arizona, but only 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 residential construction loans in Colorado.

Ben Crabtree - Stifel Nicolaus

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

Steve Bangert

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

But then we continue to be pretty aggressive whether our interest rate swap portfolio. So we have essentially extended some of our time based loans and to fixed rate assets by through the use of interest rates swaps and that’s been difficult to do because that the cost by transaction.

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

Ben Crabtree - Stifel Nicolaus

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

Jon Lorenz

I think we will pretty well hedge for that. I really do.

Ben Crabtree - Stifel Nicolaus

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

Lyne Andrich

Yeah, Ben this is Lyne. We’ve actually 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. But on the normalized level, I will look to our effect tax rate as 37.3%.

Ben Crabtree - Stifel Nicolaus

37.3% okay. Good enough I think that’s it.

Steve Bangert

Okay. Thanks Ben.

Operator

Thank you. Our next question is coming 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 seems as if they have lot of concerned over the use of the interest reserves. I guess could you give us some color, how CoBiz uses that?

Steve Bangert

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

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

Bain Slack - KBW

Okay, great. I guess, I just want to 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 could help us to kind of give us a range what would be the five there maybe the smaller 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 profitable transaction probably it is much higher than what we will see in terms of the advertise transaction that work on. The three other transactions stand that they’re working on our range from $10 million to $30 million. And I think that’s more indicative of what we will see up to maybe $50 million in size and anything over $50 million, it would be pretty unusual.

Bain Slack - KBW

Okay, great.

Jon Lorenz

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

Bain Slack - KBW

Right, I guess -- with the fees work out somewhat proportionally to the size of the deals, when thinking about that?

Jon Lorenz

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

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

Bain Slack - KBW

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

Jon Lorenz

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

Bain Slack - KBW

Okay.

Jon Lorenz

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

Bain Slack - KBW

All Right.

Jon Lorenz

And so, we are probably not able to 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, I wouldn’t be surprised as the several rate drops in front of us. We will, it won’t, we want gross margin at the same pace.

Bain Slack - KBW

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

Operator

(Operator Instructions). Our next question 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 missed it. But could you give us a status on the [Noble] I know in the last call you talked I think one in Arizona, two in Colorado. Can you give us an update on that and maybe the banker account, I think it was 14 or so in the 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 we call it a satellite branch of our Vail bank and so we have two locations today that one just opened up in the last three or four weeks.

Steve Bangert

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

But the other market we’ve talked about is the Ft. Collins market north of Denver and that one the individual I’ve been talking to of there, I think there will be a little longer term process. So I don’t think you will see any happening near term for us in the Ft. Collins market.

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

And as we’ve mentioned in the release, I think with this increased pace of hiring, we will continue to be opportunistic if we find solid bankers that they bring into the franchise. But I 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 is coming from Ross Haberman from Haberman Fund.

Ross Haberman - Haberman Fund

Good morning gentleman, how are you 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? And well, let me start with that?

Jon Lorenz

Condo development is not an area that we’ve focused on really at all on either the Colorado or the Arizona market. So, it would be very minimal, maybe we’ve got a couple of smaller projects, but very minimal exposure that’s just not been an area of focus for us.

Ross Haberman - Haberman Fund

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

Steve Bangert

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

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

Jon Lorenz

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

We feel very good about our loan to value position in that portfolio even with further declines in prices and at least at this point don’t see any potential losses coming out of that construction 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 ask that our liability sensitive above at the end of the quarter?

Steve Bangert

Well, we still slightly asset sensitive and that’s kind of hard to completely eliminate in that. But as I mentioned we are pretty active aggressive users of interest rates swaps and those type of products less than that sensitivity in that. But as a commercial bank that does in primarily time based lending where is going to be somewhat asset sensitive.

Ross Haberman - Haberman Fund

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

Steve Bangert

Yeah, I said that’s probably true, 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 like to turn the floor back over to Mr. Steve Bangert for any closing comments.

Steve Bangert

Okay. I appreciate your continued interest in CoBiz. I think, you can see that we are very optimistic, still adhere to CoBiz. We are obviously concerned about what’s happening in the economy today as all of you are and that’s impact on the financial service industry 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 up a three day conference that we had.

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

Operator

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

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Source: CoBiz Financial Q3 Earnings call Transcript
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