Coast Bank’s substantial losses expose bad loans
July 25, 2008
By KAREN VELIE
Coast National Bank is operating at a loss after projecting first-quarter profits, partly because of $9.3 million in non-performing loans.
Bank officials originally reported earnings of $168,000 for the first quarter of 2008, down from $291,000 for the same period in 2007. Bank officials recently reported an adjustment in Coast’s financial statements portraying an after-tax loss of $733,000, and cited questionable loans to developers as one reason.
In a letter to customers and shareholders, bank chairman and CEO Jack Wauchope places blame for the company’s financial woes on the “national fallout from the sub-prime mortgage debacle.”
Coast National Bank did not participate in the sub-prime mortgage industry. However, the institution did provide loans to developers with ties to local hard money lenders being investigated for alleged fraudulent activities.
Started in 1998, Coast National operates five branches in San Luis Obispo County and lists $183 million in assets.
According to a Coast National Bank letter to shareholders, the bank’s regulators, the Office of the Comptroller of the Currency, asked Coast National Bank to reclassify three loans to “non-performing.” That raised the bank’s previously reported $4.3 million in bad loans to $9.3 million for the first quarter of 2008. As a result of the increase in non-performing loans, bank officials announced plans to add $1.5 million to a current $1.6 million loan loss cushion account.
In stock market trading as of July 23, Coast Bancorp shares were selling at $14. Shares were near $25 about a year ago.
“It is important to note that even after taking these actions, the bank is still financially sound and our regulatory capital ratio after the changes will be 10.23 percent which is more than double the five percent ratio required to meet the regulatory definition of ‘well capitalized,’” Wauchope added.
Public concern about commercial and construction loan concentrations at smaller locally-owned banks has the Federal Deposit Insurance Corp. planning enlargement of staff by as much as 60 percent to handle anticipated bank closings.
Coast’s new Executive Vice President Gwen Pelfrey said as examinations of local banks continue, those exams will show more non-performing locals with all the banks.”