FDIC limits Columbia River Bank lending practices


Columbia River Bank in Sunnyside, and the bank's 20 other branches, face restrictions and requirements following FDIC action last week.

Columbia River Bank, which just last year built a new branch office in Sunnyside, has agreed to FDIC orders that limit issuing some lines of credit and other emergency steps, such as restrictions on issuing cash dividends.

Terry Cochran is CEO of Columbia Bancorp, which owns Columbia River Bank and its 21 branches in Oregon and Washington.

He says the downturn has nothing to do with the cathedral-like, wooden beam building here.

"The Sunnyside bank building is so great," Cochran said by phone from the company's headquarters in The Dalles, Ore.

The problem, he says, dates back to last September and October when a building boom went bust in Central Oregon along with the rest of the U.S.

"When the real estate crunch hit Bend the market shut down so quickly," he told the Daily Sun News. "The biggest cause of the problem was real estate development."

That in turn led to dismal third and fourth quarter earnings.

Columbia River Bank's new policies on lending and issuing dividends were announced this past Thursday in a press release.

The news sent the company's stock on the NASDAQ tumbling 23 percent last Friday, down to $1.13 a share.

The measures announced last week were required due to a cease and desist order issued against the bank by the FDIC and the Oregon Division of Finance and Corporate Securities.

In the press release issued last week, Columbia Bancorp said it will comply with the order, but does not "concede the findings or admit to any of the assertions therein."

The new restrictions in place forbid Columbia River Bank from paying cash dividends without FDIC consent.

The order also restricts the bank from extending additional credit to certain types of borrowers and requires the bank to reduce delinquent loans.

The dividend issue is something the bank says it addressed back in September when it suspended dividends to shareholders of Columbia Bancorp.

The bank also has reduced staffing by 14 percent since September. That same month the bank shuttered its mortgage banking business and sold its credit card portfolio at a gain of $1.2 million.

In keeping with the FDIC's orders, Columbia Bancorp must also notify the FDIC in writing when it proposes to add any individuals to its board or to employ any new senior executive officer.

Other requirements announced last week, include:

- Maintaining higher capital levels than normally required. The FDIC usually requires banks to maintain a Tier 1 leverage ratio of 5 percent in order to receive the highest capital adequacy designation. Columbia River Bank now must meet a 10 percent threshold to gain the same standing.

- Increasing to $25 million its allowance for loan losses, which Columbia Bancorp says it did last fall.

- Having the bank's board of directors take a more direct role in participating in the bank's day-to-day business. That includes taking full responsibility for Columbia Bancorp's policies and oversight of its operations.

The news is bad for Columbia River Bank, but at least it has an experienced hand at the wheel. This isn't the first time Cochran has helped steer Columbia River Bank through troubled times.

Before being hired as CEO last October, Cochran had previously been the bank's CEO for 20 years. When he first came on board, the bank was in the throes of the 1981 recession and identified as one of Oregon's most troubled financial institutions.

As it did in 1981, Cochran is optimistic the bank will rebound from financial woes.

"We believe this arrangement represents a positive step in our long-term direction," he said. "We are working closely with the FDIC to address a variety of issues that are affecting the bank in light of the current regional and national economic downturn."

Cochran says the bank will expand on the FDIC's mandate.

"We do not intend to stop with the requirements imposed upon us, but instead are actively conducting our own ongoing, bottom-up review of our business and preparing a thorough remedial action plan.


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