The housing market downturn has caught up with Columbia Banking System Inc.
Until this week the Tacoma company appeared to be weathering the economic downturn better than many banks, largely because its loan portfolio is not heavily concentrated in residential construction.
But late Wednesday, the $3.2 billion-asset Columbia warned that its second-quarter earnings would include a $15.4 million provision for loan losses to reflect significant weakness in its tract home and condominium construction portfolios.
It did not say how the provision would affect its earnings, but analysts who had estimated that Columbia would earn 44 cent a share now say it will almost certainly swing to a loss.
Joe Morford at Royal Bank of Canada's RBC Capital Markets in San Francisco said he now expects Columbia to lose 10 cents a share; he has lowered his 2008 estimate, from $1.80 to $1. Jeff Rulis, with D.A. Davidson & Co. in Portland, Ore., estimated that Columbia would lose 17 cents a share.
Columbia earned 61 cents a share, or $11 million, in the first quarter.
The news of the increase in its loss provision sent Columbia's share price tumbling to its lowest level in seven years. Its shares closed at $10.80 Thursday, down 40.8%.
Columbia joins a growing list of community banks suffering from deteriorating credit quality in the wake of the housing meltdown. While banks in high-growth areas such as Las Vegas, Florida, and parts of Southern California have been hit the hardest, banks in the Pacific Northwest have not been unscathed.
Frontier Financial Corp. in Everett, Wash., recorded a sixfold increase in its first-quarter provision, to $9 million, and West Coast Bancorp in Lake Oswego, Ore., tripled its provision, to $8.7 million.
In an interview Thursday, Columbia chief executive Melanie Dressel said that provisions over the next several quarters should remain elevated as the company continues to work out the problem loans, but that it is unlikely provisions will be as high $15.4 million again.
"It's going to take some time to work through what's going on in the economy until the housing market strengthens again," Ms. Dressel said. "But we believe we are in good shape to ride out the economic storm, despite the challenges. The fundamentals of our business remain strong and our loan portfolio is highly diverse."
Less than 20% of Columbia's loans are in construction, and about 13% of those are in residential construction, she said.
Aaron J. Deer, an analyst at Sandler O'Neill & Partners LP in San Francisco, agreed that Columbia's fundamentals are strong. "They've got a terrific deposit base, a good, balanced loan portfolio, and a well-managed institution," he said.
About two-thirds of its deposits are core deposits, Mr. Deer said, 40% of which are demand deposits.
"That stems from having a good customer base," he said.
Columbia is expected to release its earnings July 24.
