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COBZ > SEC Filings for COBZ > Form 10-Q on 29-Jul-2016All 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, 2015. For a discussion of the segments included in our principal activities, see Note 11 of the Notes to the Condensed Consolidated Financial Statements on this Form 10-Q.

Executive Summary

CoBiz Financial Inc. is a $3.5 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. Our operating segments include Commercial Banking and Fee-Based Lines.

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.

Industry Overview

At its June 2016 meeting, the Federal Open Market Committee (FOMC) kept the target range for the federal funds rate at 25-50 basis points. The FOMC noted that it will be appropriate to raise the target federal funds rate based on progress towards the objectives of maximum employment and 2% inflation. The FOMC notes that global economic and financial developments continue to pose risks. The stance of monetary policy remains accommodative and the FOMC expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate and that the federal funds rate will likely remain below

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levels expected to prevail in the longer run for some time. In the first quarter of 2016, the federal funds futures market forecasted a 61% probability of a rate increase in December 2016.

The national unemployment rate was 4.9% at June 2016, compared to 5.0% at December 2015. As of May 2016, Colorado's unemployment rate was estimated to be 3.4%, compared to 3.5% at the end of 2015. Arizona's unemployment rate was estimated to be 5.6% in May 2016, compared to 5.9% at the end of 2015.

In the first quarter of 2016, FDIC insured commercial banks and savings institutions reported earnings that were 1.9% lower than the first quarter of 2015, due to an increase in provision for loan losses. The increase in provision for loan losses was primarily due to a 2.4% increase in noncurrent loans in the first quarter of 2016. This was the first quarterly increase in provision for loan losses in two years and was driven by a 65.1% increase in noncurrent commercial and industrial (C&I) loans. A large part of the weakness in C&I loans was attributed to the energy sector.

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