This is second in a series of five post mortems that I’m doing on failed banks this week. This one is Evergreen Bank, formerly a community bank based in Seattle WA. Like many other community and regional banks it had to compete where the big guys couldn’t, or wouldn’t. Stats as of last reporting are as follows:
- Total Assets: $488,516,000
- Total REO: $6,730,000
- Total Nonaccrual Real Estate Loans: $51,471,000
- Tier 1 Capital Adequacy: 4%
If you’ve been a regular reader you know that I’ve been saying that nonperforming construction loans are going to be a major problem for local and community banks. Well? Construction strikes again. Evergreen Bank’s construction portfolio was at about 50% nonaccrual on its last call report. With $40,945,000 in nonperforming construction loans the bank had only $4,306,000 in construction project OREO and net charge-off’s of 2.66%.
Denying construction loan problems is not a viable option for small banks. I understand that there are certain balance sheet and reporting constraints that every bank has to wrestle with and , well, balance. Inaction, however, merely delays the inevitable. Most of the debt put on condo projects and subdivisions and such is in trouble, that’s a fact. Banks with significant construction money on the street need to take real steps to address it. Simply waiting for the spring (or some other magical) market is not the answer and will very likely be a woefully disappointing strategy for most.
UMPQUA BANK of Roseburg Oregon took over the deposits and while they are a well capitalized bank they too have their share of OREO and nonaccrual loans, and yes they have bad construction loans. A well capitalized bank with an abundance of REO and non-performing loans is an opportunity.
Evergreen Bank Cause of Death: Construction Loans
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