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COBZ > SEC Filings for COBZ > Form 10-Q on 25-Apr-2014All Recent SEC Filings

Show all filings for COBIZ FINANCIAL INC



Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This discussion should be read in conjunction with our Condensed Consolidated Financial Statements and notes thereto included in this Form 10-Q. Certain terms used in this discussion are defined in the notes to these financial statements. For a description of our accounting policies, see Note 1 of the Notes to Consolidated Financial Statements included in our Form 10-K for the year ended December 31, 2013. For a discussion of the segments included in our principal activities, see Note 8 of the Notes to the Condensed Consolidated Financial Statements.

Executive Summary

CoBiz Financial Inc. is a $2.9 billion financial holding company offering a broad array of financial service products to its target market of professionals, small and medium-sized businesses, and high-net-worth individuals primarily in Arizona and Colorado.

Earnings are derived primarily from our net interest income, which is interest income less interest expense, and our noninterest income earned from fee-based business lines and banking service fees, offset by noninterest expense. As the majority of our assets are interest-earning and our liabilities are interest-bearing, changes in interest rates impact our net interest margin, the largest component of our operating revenue (defined as net interest income plus noninterest income). We manage our interest-earning assets and interest-bearing liabilities to reduce the impact of interest rate changes on our operating results. We also have focused on reducing our dependency on the net interest margin by increasing our noninterest income from complementary financial service activities including investment banking, wealth management and insurance brokerage.

Industry Overview

At the March 2014 meeting, the Federal Open Market Committee (FOMC) kept the target range for federal funds rate at 0-25 basis points. The FOMC noted that while some indicators of labor market conditions have shown improvement, the unemployment rate remains elevated. Previously, the FOMC had stated that the low range of the target federal funds rate would remain appropriate for as long as the unemployment rate was above 6.5% and inflation is projected to be no more than a half percentage point above the FOMC's 2% goal. In its latest statement, the FOMC removed its 6.5% unemployment target and indicated that it would instead assess progress towards its objective of maximum employment and 2% inflation. The FOMC also announced that due to cumulative progress toward maximum employment and the improvement in the labor market outlook, it further reduced the purchase of agency mortgage-backed securities to $25

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billion per month, down from the previous pace of $30 billion per month. The FOMC will also reduce the purchase of longer-term Treasury securities from its previous pace of $40 billion per month to $35 billion per month. These actions are intended to pressure longer-term interest rates and support the mortgage market, among other things.

Labor markets continued to improve in 2014 with the national unemployment rate decreasing to 6.7% in March, down from respective averages of 7.4% and 8.1% in 2013 and 2012, respectively. As of February 2014, Colorado had the third highest year-over-year percentage increase in nonfarm payroll employment, while Arizona was noted as having a statistically significant employment increase.

In the fourth quarter of 2013, FDIC insured commercial banks and savings institutions reported combined earnings of $40.3 billion, 17% higher than a year ago. For the full year 2013, industry net income increased for the fourth consecutive year. However, the average Return on Assets (ROA) of 1.1% for the fourth quarter of 2013 remains below the average ROA of 1.27% for the industry between 2000-2006. Quarterly net interest income for the industry recognized its most significant year-over-year increase since the fourth quarter of 2010. The quarterly net interest margin for the industry also improved, as it declined on a year-over-year basis at the lowest level since the fourth quarter of 2010.

Financial and Operational Highlights

Noted below are some of the Company's significant financial performance measures and operational results for the first three months of 2014:

During the first quarter of 2014, the Company realigned its reportable segments to reflect recent organizational and structural changes. As part of this change, the Company's segments that were previously reported as Investment Banking, Wealth Management and Insurance were combined into one segment titled "Fee-Based Lines."

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