Tide of red ink washes over state banks

Frontier Financial's cratering portfolio of construction and land-development loans helped push the Everett-based bank to an $89.7 million loss last year, according to financial results released Thursday.

The parent company of Frontier Bank recorded a fourth-quarter loss of $89.5 million, or $1.90 per share — a far cry from the $18 million profit Frontier posted in the same period a year earlier.

Frontier was one of six Washington-based banks that reported losses or lower profits Thursday, as the tide of red ink unleashed by the bursting of the housing bubble continues to wash over the local financial sector.

Between Sept. 30 and Dec. 31, Frontier's portfolio of nonperforming development loans soared from $40.6 million to $177.1 million; nonperforming construction loans rose from $135.4 million to $181.9 million.

Frontier's $446 million in nonperforming assets — past-due loans and foreclosed and repossessed properties — made up 10.9 percent of the company' total assets at quarter's end, up from 4.9 percent as of Sept. 30.

Like many community banks, Frontier's business has been heavily geared toward real-estate construction and development, a once-booming sector that now is at a near-standstill.

The bank has basically stopped making new construction and development loans and said it's working to shrink the amount of such loans already on its books. But, it warned, "given the current economic conditions and the effects on the housing market, this process is going to take time."

Although Frontier reduced its construction and development portfolio by $107.7 million in the fourth quarter, such loans still make up 40.5 percent of the bank's total loan portfolio.

Frontier set aside $120 million last year to cover loans that go bad, including $44.4 million in the fourth quarter; in 2007 it set aside just $11.4 million. It charged off a net $63 million in soured loans last year.

Columbia Banking System, of Tacoma, another bank that reported Thursday, said it earned $1.8 million or 7 cents per share in the fourth quarter, down from $7.3 million or 41 cents per share in the same period in 2007.

For all of 2008, Columbia's net profit shrank to just under $6 million, from $32.4 million in 2007.

Nearly two-thirds of Columbia's $109.6 million in nonperforming assets consists of residential construction loans; another 28 percent are commercial real-estate loans, mostly for retail and condominium projects.

Bellingham-based Horizon Financial said it lost $5.1 million, or 43 cents a share, in its fiscal third quarter ended Dec. 31. Horizon attributed the loss to the $10 million it set aside in the quarter for bad loans.

Rainier Pacific Financial Group, of Tacoma, lost $2 million, or 34 cents per share, in the final quarter of 2008, and $2.5 million, or 42 cents per share, for the full year. Rainier Pacific said the losses were due both to the $7 million it set aside last year for bad loans and a $2.8 million write-down in the value of one of its bank-related investments.

A similar write-down also contributed to lower results at Riverview Bancorp, of Vancouver, Clark County. Despite posting a $1.5 million profit in its fiscal third quarter ended Dec. 31, Riverview still is $1.9 million in the red nine months into its fiscal 2009, due largely to the write-down that was made the previous quarter.

Riverview also has set aside $11.15 million for future bad loans, versus $1.1 million in the corresponding period a year earlier.

And Cowlitz Bancorporation's $687,000 fourth-quarter profit didn't keep the Longview-based bank from losing $8.1 million last year. The company, whose holdings include two Bay Bank branches in Bellevue and Seattle, charged off $9.7 million in bad loans last year and set aside $17.6 million for future credit losses.

Drew DeSilver: 206-464-3145