The credit crunch is setting up to hit mid-tier regional and local community banks with force this earnings season, as the number of construction & development loans tied to a ravaged residential housing market begin to go bad in droves; builders, after all, are running out of reserves. Columbia Bancorp (CBBO) warned Tuesday morning that souring performance on its real estate development loans would likely swing it into the red when it reports second quarter results on July 23, and said it would slash its dividend to $.01 per share as a result. The Oregon-based bank said it expected to lose between 4 and 6 cents per share during the quarter, roughly as much as $640,000 — the first quarterly loss reported by the bank since the housing and associated credit crunch began. Columbia reported $1.2 million in income during the first quarter, but has since seen its C&D lending portfolio in Portland and related key areas of the U.S. northwest come under extreme pressure as the housing market continues to falter. The company said it would record between $5.5 million and $5.7 million of loan loss provision for the second quarter due to the increased risk exposure, up sharply from the $3 million Columbia set aside in the first quarter. At the end of the first quarter, Columbia executives seemed positive about their second quarter prospects — CEO Roger Christenson said then that the bank was “simply going to have to tighten our belts, proactively manage our loan portfolios, utilize our workforce assets and ride out the downturn.” Non-performing assets tied to a worsening C&D loan portfolio, however, have continued to head south. Columbia’s NPAs at the end of Q1 were up 13.2 percent on linked-quarter basis, and were almost 4 times greater than year-ago totals. It now seems to be a foregone conclusion that performance in the second quarter will be worse than that. “It appears evident there are more uncertain real estate-related credit issues to come, putting many businesses, particularly in the financial sector, in a belt-tightening mode, including Columbia,” Christenson said Tuesday in a press statement. In other words, don’t be surprised in a few weeks when mid-tier banks begin reporting second quarter losses that many didn’t really see coming when they wrapped up the first quarter’s earnings calls. Disclosure: The author held no positions in CBBO when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
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