Cascade Financial to unload nearly 400 lots to get bad loans off books
Published 11:07 pm Wednesday, April 14, 2010
Cascade Financial Corp. plans to sell almost 400 parcels of land in King and Snohomish counties, part of a strategy to reduce its exposure to bad real estate deals, officials said Wednesday.
The bank acquired the land from former borrowers of two large residential real estate loans. The sales will reduce Cascade Bank’s real-estate portfolio by about a third, bank president Carol Nelson said.
A total of 397 lots will be sold to buyers Nelson declined to name at this point. The deal is expected to close later this year.
Cascade expects to set aside from $25 million to $27 million for loan losses in the first quarter of 2010. An increase is the result of charges related to those two loans and updated appraisals on other real estate loans.
“The whole purpose of this, of course, is to continue to work through and resolve these problems real estate loans,” Nelson said.
The first sale is for 263 foreclosed residential lots in the Marysville area. Cascade will record a $5.6 million charge on the $13 million loan.
The second sale will mean an $8.2 million charge for the bank on a loan from a $17 million acquisition and development loan related to 134 lots in Auburn.
After closing, Cascade’s real estate portfolio will likely decline to about 11 percent of the total loan portfolio, down from 16 percent at the end of fiscal year 2009.
At the end last month, that portion of the portfolio was worth $134 million, a decline of about 18 percent.
“Housing and land prices have not yet stabilized in the Pacific Northwest, resulting in lower lot values,” said Rob Disotell, chief credit officer at Cascade. “Consequently, we also are recording additional impairments of approximately $13 million on other loans to reflect recently updated appraisals on real estate collateral securing loans in our portfolio.”
Selling land from the bank’s two largest failed real estate loans was urgent for a few reasons, Nelson said. The loans weren’t generating revenue for the bank, and the land was likely to be worth less in the near future.
“There are a lot of other financial institutions that have not fared so well, and we anticipate that as they … end up putting other lots on the market, that could drive prices down,” Nelson said.
Until the sales close, the bad loans will continue to leave their mark on Cascade’s books when the bank releases earnings later this month.
“As a result of declining land values and the tax consequences relating to the losses we have incurred in the past year, the estimated loss for the first quarter is expected to be within a range of $27 to $29 million,” Nelson said. “Despite the anticipated loss, Cascade expects to maintain capital ratios above regulatory levels for well-capitalized banks.”
Read Amy Rolph’s small-business blog at cmg-northwest2.go-vip.net/heraldnet/TheStorefront. Contact her at 425-339-3029 or arolph@heraldnet.com.
