Todays Bulletin has a piece, Unemployment up; rates remain at historic lows, that details another unexpected increase in the tri-county unemployment rate. Deschutes County has roared to a 4.4% unemployment rate, up from a record low 3.5% in October. Granted, these rates are far below historical norms for the area, but both November & December rates surprised on the upside. And the losses were in "business and professional" industries, not the far lower paying leisure & hospitality area.
It might be said that Deschutes County will have more evident swings, due to our heavily tourist oriented economy, but Crook & Jefferson counties has even higher increases, both moving up .5% to 5.8% and 5.5%, respectively.
I've said many times that we are a "high beta" economy, as the economy as a whole goes, so do we but at a far greater extreme. And unemployment moving up almost one full percentage point in 2 months seems to indicate that we are headed towards the unhappy side of Central Oregons economic sine wave. And the job losses are in the home owner sector, not the renters.
Broken Top Deep Throat Tells ALL!
If you wonder what is happening in the BT saga, read the comments for the post after this one. Someone at BT has pasted much of the communications on the BT blog, which was closed last week due to high dirty-laundry quotients. Oh there's lawsuits and other juicy goodies there. This is NOT a Everybody Happy situation, believe me.
Broken Top Deep Throat, We Thank You!
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Dear all,
Cascade Bank (CACB) stock had a very bad week this past week, and their recently reported financial results give some indication of the challenges in the Central Oregon economy.
CACB reported quarterly earnings on January 17th. Interestingly this is several days late when compared to past quarters (usually the report on the 11th-13th of the month). So they must have spent a few extra days fretting over the figures and the press release.
Subsequently the stock price has dropped 10% and one investment bank analyst has downgraded the stock to “sell”. Investment analysts now are revising their forecasts for CACB’s future profits downward.
CACB’s profit for this past quarter somewhat missed expectations, and the profit was partially propped up by a one-time state tax credit. This is noted in their earnings release.
A few other interesting/alarming signs in their results:
CACB reported that the balances in their non-interest bearing accounts fell 8% in one quarter (Sept-Dec 2006). Let me explain what this means. A non-interest bearing account is basically a checking account. When an individual or a business is making money, their checking account balances will be stable or increasing—because you are making more money then you are spending.
However, when an individual or business starts losing money, they need to start running down their checking account balances, because the costs exceed the income. The CACB quote in their press release says “real estate-related businesses including construction, mortgage, escrow, and realty show a reduction in average and end of period deposit balances as compared to the prior quarter.”
What these quote means is that all of these CACB business customers, in the real estate sector, were running negative cashflows (ie losing money) in the fourth quarter of 2006. And that they were losing money so fast that they drew down 8% of the checking account balances.
Looking ahead, one can imagine that Q1 2007 will be similar. January to March are dead months in local real estate even in the best of times. So we can anticipate that CACB’s desposits will continue to drop fast. We can also anticipate that the real-estate sector will be forced to slash costs rapidly. The cash is dwindling. The data is clear.
Other notes from CACB’s earning results:
Net interest margin fell from 5.71% to 5.54%. This is the difference between the price they charge for loans and the coast at which they obtain the funds for those loans. This is in part due to the drop off in checking account balances. As these balances go down, the bank needs to seek higher cost funds elsewhere. So we can expect this margin % to drop further in the future.
CACB’s other expenses rose at nearly a 14% rate in the fourth quarter. This reflects higher costs of doing business (even CACB has to pay rent, and health insurance), and this further squeezes their performance). Now it's a tricky situation for them. If they cut costs by cutting employees and closing branches, they really start to lose the logic of being a “growth stock.”
CACB also significantly raised their provisions for non-performing loans and loan write-offs. Their % of delinquent loans doubled, and they attributed this to a single loan. If a single loan can have this kind of impact, then we might expect further trouble ahead as more “single loans” hit troubles. (Certainly some of those real-estate businesses who are running down their checking accounts so fast may also have outstanding loans from CACB, which may go bad in the future).
CACB mortgage revenue was down in Q4 2006 versus Q3 2006, and I would imagine that Q1 2007 will also be flat. Overall loan growth for the bank slowed dramatically.
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And me? I have held my short position and now have made a tidy sum. I’m glad that I doubled my bet a few months back. Now I face the question of when to take profits. I don’t think that CACB’s troubles are over. Of course these profits do not offset the paper losses on my property in Bend anyway.
Those CACB executives and insiders who dumped the stock throughout 2006 (and especially in Q4) certainly knew exactly what they were doing. Perhaps the SEC will take a look at this. Of course I could be wrong.
-CACB Shorter (CACB Short Hair on the Bend economy board)
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