The company’s loans made for the purposes of “residential speculative construction” increased over 1,000% in the four years from 2002 to 2006. In 2006, the company wrote $341,181,000 in these types of loans compared to $110,951,000 in 2005; $56,620,000 in 2004; $40,380,000 in 2003; and $32,809,000 in 2002. These types of loans now comprise the majority of the company’s real estate loan portfolio at 58%, nearly double their historic weighting.
With spec loans amounting to roughtly 3 times the company’s tangible equity, I think it is safe to say the bank is heavily exposed to the local spec market.
The company’s “non-performing assets” increased 75-fold over the past 12 months, to $3,005,000 in 2006 from $40,000 in 2005. (Non-performing assets are those deemed by the bank likely to be written off as a loss.)
“Delinquencies and non-performing assets have increased from historically low levels in part due to softening real estate markets. Non-performing assets were $3.0 million at year end, up from $1.8 million at September 30, 2006. Delinquent loans greater than 30 days past due were at .18% of total loans compared to .09% at September 30, 2006, with the increase centered in a single credit.”
The fact that deliquencies (as a percent of total loans) doubled in one quarter, the bank says, is due to, “a single credit.” With $1,887,263,000 in total loans outstanding this amounts to a single default of roughly $1,700,000. I wonder which local builder will be filing chapter XI sometime in the next few months. (I’ve been hearing rumors but I’ll refrain from naming any names.)
“At year end, Cascade’s customers who businesses are engaged in various aspects of real estate such as construction, mortgage, escrow and realty show a reduction in average and end of period deposit balances as compared to the prior quarter. This is particularly evident in overall balances of non-interest bearing deposits which fell 8.1% between September 30, 2006 and December 31, 2006, with Central Oregon, Southern Oregon and Idaho regions showing declines.”
So local businesses have substantially less cash on hand these days. The decline in deposits at CACB is running at an annualized rate of nearly 30%. This is a clear sign of distress for local businesses and certainly a bad omen for the bank.
Considering all these facts, the company’s following risk disclosure seems the understatement of 2007 (so far):
“The Company has a concentration in real estate lending. A sustained downturn in real estate within the Company’s markets could negatively impact the Company.”