MERCED -- Capital Corp of the West, the Merced-based parent company of County Bank, saw its stock rebound strongly Thursday, shooting up 72 percent from the seven-year low it hit the day before.
That drop had come after the company announced its first yearly loss. Capital Corp expects to post a $4 million loss for 2007, the result of plunging real estate values.
At the Nasdaq's market close Thursday, Capital Corp's stock price had risen to $6.48 a share, compared with $3.76 on Wednesday. That was a 64 percent decline from Tuesday's closing price. A year ago, Capital Corp's stock traded at $26.55.
A bank spokesman termed the loss a "blip" and cautioned against overreacting. He said the bank isn't facing the kind of meltdown investment bank Bear Stearns Cos. saw earlier this week.
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"(County Bank) is still adequately capitalized, everyone's deposits are still insured by the (Federal Deposit Insurance Corp.), we still have plenty of money," spokesman Thomas Smith said Wednesday. "We're not going to have the Bear Stearns thing where we're not going to have money to meet depositors' needs."
The company blamed its anticipated loss on "the rapid decline in real estate values in the Central Valley in the fourth quarter of 2007." The drop means the collateral backing County Bank loans is worth less than it was when the loans were made one or two years ago. That means it will have to come up with more money to back those loans.
Joe Morford, a San Francisco-based analyst with RBC Capital Markets, said while the company's projected loss may be unsettling, it's typical of the problems California banks probably will face over the next year, especially in areas hard hit by the real estate slowdown.
"Six to 12 months from now, this is not going to look that unusual," Morford said. "We think there's going to be problems for several other banks both in the Central Valley and throughout the state."
He added, "A big part of the success of a community bank is the strength of its local market. Right now, Merced and the Central Valley are having a real tough time. You're seeing the banks share that pain."
What's surprising about Capital Corp's projected loss, the analyst continued, is that until now the bank seemed to weather the real estate downturn fairly well. Aside from a foreclosed loan to a developer that cost the bank $5 million in the third quarter of 2007, the bank had seen "little deterioration," he said.
When the bank announced that it expects $26 million in loan losses in the last quarter of 2007 -- compared with $400,000 for all of 2006 -- the news came as a shock to the market, Morford said.
On Wednesday, the company announced it is forming a committee of board members to oversee bank operations; Chief Executive Officer Thomas Hawker will report to the committee. Capital Corp also said it has hired financial advisers.
Those moves could be a sign that federal regulators are closely watching the bank, Morford suggested.
"It looks like (regulators) are telling the bank that you need to raise capital, and there needs to be some changes in management," Morford said. "The regulators don't want to see County Bank fail, so they're doing what they can to ensure that doesn't happen."
Smith said the company had fielded "mixed reactions" from customers calling and visiting bank branches.
"Some customers are concerned. They're panicky and flighty; some are saying OK, we get it, we're not worried," he said. "I'd say fewer than 50 customers have expressed significant concerns. Out of 56,000 (total customers), that's not a whole lot."
Capital Corp of the West is the only publicly traded company headquartered in Merced County. County Bank employs 600 people, with 175 in Merced County, and has 41 branches in the state.