Coast Financial Holdings Inc.'s shares plunged nearly 25% Friday after the Bradenton, Fla., company warned that hundreds of its borrowers could have trouble repaying loans for construction of their new homes.
The $676 million-asset Coast said in a filing Friday with the Securities and Exchange Commission that it has committed roughly $110 million to 482 individual property owners who had contracted with a home builder and its affiliates to build single-family homes on their land.
It has already disbursed at least $55 million to such borrowers, it said in the filing.
But the home builder, which was not identified in the filing, recently stopped construction and indicated that it may not have the money to finish the projects. Coast said in the filing that there are liens on several of the projects.
Though Coast's loans are to the property owners, and not the home builder, failure to complete the projects "may materially adversely impact the ability of the borrowers to satisfy their obligations under the residential construction loan and, in turn, may adversely affect the value of the bank's collateral," the company said in the filing.
Coast, which lost $2.5 million in the first nine months of 2006, said in the filing that it was too early to provide an estimate of the charge it may take to its earnings as a result of the development. James Schutz, an analyst at Sterne, Agee & Leach Inc. in Birmingham, Ala., said Coast's executives told him it could be three weeks before they could give such an estimate. Coast has not yet reported earnings for the fourth quarter or 2006.
"They literally have to go through 480-plus loans," Mr. Schutz said. "I think a lot of people are going to be on kind of pins and needles until this thing is all settled."
In very heavy trading Friday, Coast's stock fell to its lowest level ever, closing at $12.10.
Brian F. Grimes, Coast's president and chief executive officer, did not return phone calls requesting comment.
Coast's setback is another example of the risks that home builders can present to lenders now that the once-red-hot housing market — particularly in Florida — has cooled.
Many Florida banking companies reported an increase in past-due loans in the third quarter. BankUnited Financial Corp. of Coral Gables, warned late last year that one of its borrowers, the home builder Technical Olympic USA Inc., might have trouble making payments on a $675 million syndicated loan.
In mid-October, the East Brunswick, N.J., home builder Kara Homes Inc. filed for bankruptcy protection, leaving a number of banks holding the bag on $248 million of debts.
The seven-year-old Coast said it is assessing its exposure and trying to determine whether its loan-loss provision is adequate to cover possible losses. During the review it will not take on any new residential construction projects, it said in the SEC filing.
