I received an email today regarding the Peoples Bancorp Inc. (PEBO) Q2 2008 Earnings Call Transcript. They mentioned a property they financed in Tampa and how the values of this condo conversion have come down. It didn’t mention what development they were talking about. I thought it was interesting and a positive sign for the condo market in Tampa Bay, Florida. If you would like a list of condos for sale in the Tampa, Clearwater or St. Pete areas send us an email with your request.
Here’s the excerpt from the transcript…
Second quarter earnings included an additional provision for loan losses of $4.5 million, or $0.28 per share, after tax related to a single commercial real estate loan of $12.6 million, which was identified as impaired as of June 30, 2008. This specific loan was originated in 2006 when an Ohio-based customer as a $14.8 million real estate construction project in the Tampa, Florida area. The purpose of the loan was to finance the purchase of an apartment complex and subsequent conversion of the apartments to condominium units. When the loan was originated, the project had an appraised value on an as-completed basis, which assumes the planned renovations would be completed, of approximately $21 million or a loan-to-value ratio of 70%.
In second quarter 2008, this loan was exhibiting signs of impairment as the housing market in Florida continued to deteriorate and the liquidity of the borrower became strained. Management’s review of updated information received on this loan in discussions with the borrower indicated that the borrower may be unable to meet its contractual payment obligations, and therefore the loan was placed on non-accrual status as of June 30.
Through management’s review of a new appraisal received in mid July, we determined the value of the property had declined substantially, which caused the loan to be under-collateralized. At that point, the loan was determined to be impaired and charged down to fair value of the collateral of $6.5 million, less estimated selling costs of $300,000 resulting in an adjusted loan balance of $6.2 million. The allowance for loan losses at June 30, which included a general reserve of approximately $1.8 million on the loan, was therefore impacted by a charge-off of $6.4 million.
Additionally, the second quarter provision for loan losses was increased by $4.5 million and we recorded interest reversals of approximately $170,000 as a result of placing the loan on non-accrual status. We have considered the status of this loan in our quarterly loan loss reserve analysis and believe the remaining balance to be adequately collateralized; however, there can be no assurance that the allowance for loan losses will be sufficient to cover all future possible losses. We were proactive and moved quickly and aggressively to address the situation rather than allowing the uncertainty to linger.
Some good news regarding this loan is that the property is in good condition and sales of the condo units securing our loan have recently increased. The proceeds from the sales come directly to Peoples Bancorp. There is capable management on-site at the project. The apartments provide some positive monthly cash flow as well. We will soon be communicating with the borrower and guarantors to discuss next steps.
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