Banks scramble for solid ground

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Saturday, March 01, 2008

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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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