MARCH 2008: AROUND THE STATE
Banks scramble for solid ground
STATEWIDE The
recent fortunes of Oregon’s banks brings to mind that
Beatles song where Paul pipes, “I have to admit
it’s getting better,” and John responds, “It
can’t get much worse.”
They didn’t lose billions in the manner of Wall Street
titans Citigroup and Merrill Lynch — not to mention
Seattle-based Washington Mutual — but Oregon’s six
publicly listed banks all saw their stock prices plummet in
January to lows not seen in years. Two rate cuts in eight days
by the Federal Reserve in the same month stopped the slide, but
recovery has been sluggish.
The biggest Oregon-headquartered banks, Umpqua Bank,
headquartered in Roseburg, and Lake Oswego-based West Coast
Bank, hit rock-bottom on Jan. 18, dropping to their lowest
stock prices since the recession of 2001. Umpqua and West Coast
both took a beating in the fourth quarter of 2007, recording
loan loss provisions of $41.7 million and $30 million
respectively.
Umpqua’s woes resulted from recent acquisitions of three
banks in California, where the residential real estate market
is in particularly bad shape. Umpqua CFO Ron Farnsworth points
out that nearly three-quarters of the bank’s $98 million
of non-performing assets came from bad residential loans in
northern California. “We haven’t been impacted that
badly in Oregon, and we’re starting to see some light at
the end of the tunnel in California,” he says.
“There’s a lot of cash in that market chasing
deals. Those homes are going to sell eventually.”
West Coast Bank’s losses came from a
“two-step” loan program that seemed innovative at
the time but unraveled dramatically, causing the bank to lose
$7.6 million in the fourth quarter. The first step of this
program, wherein West Coast would finance the building of a new
home, proved successful. Unfortunately, the second step, where
the borrower obtains permanent financing from a third party,
didn’t work out so well. After a slew of defaults West
Coast terminated the two-step program last October and
announced a provision for credit losses of $30 million in
January.
Bend-based Bank of the Cascades, the third-largest bank with
headquarters in the state, was also hurt by the mortgage
meltdown, reporting credit losses of $7.5 million and $45.7
million in nonperforming assets in the fourth quarter. The bank
managed to end 2007 with a $35 million profit, but that
didn’t stop Cascade Bancorp’s stock price from
falling to below $14 per share in January, compared with over
$30 in January of 2007.
Oregon’s smaller public banks performed better but
reaped little in the way of rewards. The Dalles-based Columbia
River Bank, Medford-based PremierWest Bank and Eugene-based
Pacific Continental Bank all earned more net income in 2007
than in 2006. But that didn’t stop the market from
sending their stock prices into free-fall. Columbia
River’s stock dropped 42% from a year earlier, Pacific
Continental’s fell 43% and Premier West’s decreased
by 22%.
Nowhere to go from there but up, right?
Jim Ford, president of PremierWest Bank, says his bank will
continue to make the same loans it always has, which could
bring in new customers as credit tightens elsewhere. “We
think there are going to be great opportunities in this
market,” he says.
BEN JACKLET
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