In case you haven’t been paying attention, a Florida “community” (a.k.a. “small”) bank called Coast Bank of Florida, a sub of Coastal Financial Holdings (Nasdaq:CFHI) is apparently in some kind of trouble, to put it mildly. They apparently loaned out $110 MILLION dollars to about 482 borrowers IN A SINGLE DEVELOPMENT. Guess what? The builder apparently disappeared, and the subcontractors are now placing liens left and right on the buyers who took out mortgages w/ Coast Bank.
According to AP wires, the bank said the F***ed Borrowers may not be able to re-pay the mortgages on the half-finished houses.
I’m kicking myself because the company’s SEC filing on “Material Impairment” came 8:46am Friday, when I could’ve shorted a couple shares of the bank. I was too busy at work Friday that I didn’t notice the news until I read Ben’s blog Saturday morning. The stock plunged $4 on Friday. Be interesting to see what happens on Monday.
So what happens now? A run on the bank is possible. But that would only doom the bank as the liquidity at the bank will instantly disappear.
My guess is the Feds or the state regulators (depending on who regulates Coast Bank) will take over the bank at some time before January is over. Incidentally, Coast Financial only has about $70MM of capital. This stupid loan package itself is $110MM. The said housing development is HALF FINISHED. The bank would be lucky to get 20 cent on the dollar, IMHO.
In the broader scheme of things, I wonder if this is the start of a financial contagion or liquidity shrinkage. The scenario: CFHI is the focal point, then the panic will spread to all the regional Florida banks, and onward and forward.
I believe that the $110 million number is commitments, as opposed to actual loans. My understanding is that $55 million has been loaned out. Still, assuming that $20-$30 million gets charged-off, that’s a big hit to equity, although not enough to put them out of business. The bank can always shrink the balance sheet assuming that there are no other terminal problems – but the stock’s probably headed lower.
Another one to look at is Corus Bancshares (CORS) in Chicago. Corus is one of the nation’s largest lenders to condo developers – they’ve underwritten a bunch of projects here in San Diego. Corus’ nonperforming loans increased from less than $1 million at the end of ’05 to $107 million at the end of ’06. In my opinion, Corus is the canary in the coalmine regarding lenders’ troubles vis-a-vis condo development nationwide. Corus’ stock is trading at $22, down from $33 in the summer of ’05.
Likewise, Vineyard National Bancorp (VNBC)is the canary in the coalmine for Riverside and San Bernardino County home development – they’re one of the largest pure local lenders to builders in the Inland Empire. VNBC’s stock is at $21, down from $34 in the summer of ’05. Vineyard’s nonperformers have also jumped considerably over the last year.
Thank you for the update!!!! The stock price dropped 60% this year. The house price will have the same drop. According to the ugly foreclosing data, the house prices will drop much faster than last time house downfall cycle since the houses are extremely overpriced, especially in CA.
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