Shares of Columbia Bancorp of The Dalles, Ore., plunged Monday in the first trading session after the company announced that it would report lower-than-expected first-quarter earnings as a result of margin contraction and a sizable loan chargeoff.
In heavy trading, the shares fell 10%, to close at $22.25, near its 52-week low.
The $1 billion-asset Columbia has consistently reported net interest margins well above industry averages, and James Bradshaw, an analyst at D.A. Davidson & Co. in Portland, Ore., said investors were clearly spooked by the prospect of a steep margin drop. He had predicted Columbia would report a margin of 6.27% for the first quarter, but after the warning he said the margin more likely was about 5.85%. "We had assumed that their margins would be under some pressure, but not as much as it has turned out," he said.
Columbia announced early Friday that it expects to report net income of 33 to 35 cents a share, well below the average estimate of 41 cents of analysts polled by Thomson Financial.
The company said its yield on earning assets would remain "fairly flat" for the remainder of the year, assuming that the federal funds rate does not change, while competition for core deposits would increase.
Additionally, it said it would report a loan-loss provision of $950,000 to $1.05 million for the quarter, because of a $1 million chargeoff of a loan to a single borrower.
In the quarter Columbia reached a settlement with the borrower. The company did not disclose the settlement's size, but it did say it is sufficiently reserved for that settlement. In the first quarter of 2006, Columbia charged off $570,000 and earned $3.72 million, or 37 cents a share.
Roger Christensen, Columbia's president and chief executive, did not return telephone calls Monday. The company expects to release earnings April 25.
Mr. Bradshaw said he expects most other Pacific Northwest banking companies to report margin contraction in the first quarter, because a harsh winter hurt the region's economy. He also expects the reports to show a reduction in low-cost deposits from commercial customers struggling from a seasonal drop in business — on top of the margin squeeze caused by the inverted yield curve.
However, Columbia may be more affected than others, he said, because even though it has enjoyed strong loan growth, it has been less successful in gathering core deposits. Last year no-interest demand deposits increased 7%, to $235 million, while loans — mainly in construction, commercial real estate, and agriculture — rose 18%, to $802 million.
Mr. Bradshaw lowered his earnings estimates Monday by 6 cents for the first quarter, to 34 cents a share, and by 20 cents for the full year, to $1.53. The margin contraction should account for 4 cents of the first-quarter reduction, while the chargeoff should account for the rest, he said.
Louis J. Feldman, an analyst in the Portland office of Punk, Ziegel & Co., said that he thinks investors overreacted somewhat Monday, and that Columbia might not be the only banking company in the region not to meet quarterly expectations. Since interest rates have not moved, the yields on earning assets have become static — while competition for deposits has increased, particularly as a result of the increase in start-up banks in the Pacific Northwest, he said.
"I don't think Columbia is necessarily going to get hurt more than most banks," Mr. Feldman said. "No one else has prereleased yet, but that is not to say we won't see some disappointment coming out of the Northwest."
