MERCED -- Capital Corp of the West, parent company of County Bank, says a weak local economy means its troubles could continue -- or even worsen -- this year, according to the year-end financial statement the company filed with the U.S. Securities and Exchange Commission.
As expected, Capital Corp posted its first-ever loss, ending last year $3.6 million in the red compared with a profit of $22.6 million in 2006. The statement filed Wednesday after two delays also contained hints that Capital Corp isn't out of the woods yet, analysts say.
"Clearly it's a stressed bank with some significant credit issues," said analyst Jeffrey Rulis with Portland-based D.A. Davidson & Co. "If things deteriorate from here, that ratchets up things quite a bit."
Most worrying, said Rulis, is that Capital Corp's management said it expects its credit quality to "further deteriorate." Also troubling is Capital Corp's announcement that it won't be paying dividends until at least the end of 2008, said analyst Joe Morford of RBC Capital Markets.
The filing also states that waning confidence in the bank could cause customers to withdraw deposits in "unusual volumes." Though first-quarter figures on the bank's performance could reverse those fears, they could be delayed just as Capital Corp's year-end filing was, Morford said.
The company's filing notes that its fortunes rise and fall with the Central Valley's economy, which relies heavily on industries hit hard by the subprime mortgage crisis -- real estate and agriculture.
"If these conditions continue in our market area, they would have an adverse effect on our borrowers and on our financial condition and results of operations," the filing said.
About 62 percent of Capital Corp's loan portfolio is secured by commercial, residential and agricultural real estate; 10 percent consists of real estate construction loans, according to the filing.
Capital Corp blamed its loss on plunging Central Valley real estate values in the fourth quarter of 2007. It was then that Merced led the nation in depreciating home value, with prices plunging 19 percent between 2006 and 2007, according to the Office of Federal Housing Enterprise Oversight.
Wednesday's filing didn't put too much of a dent in the company's stock price, with share prices closing Thursday at $8.04, compared with $8.05 the previous day.
Two weeks ago when Capital Corp announced that it expected to post its first yearly loss, the company's stock price dropped to a seven-year low of $3.76 a share.
Capital Corp of the West is the only publicly traded company headquartered in Merced County. County Bank employs 539 people, with 175 in Merced County. The bank has 41 branches throughout the Central Valley.
'Clearly it's a stressed bank with some significant credit issues. If things deteriorate from here, that ratchets up things quite
-- Jeffrey Rulis, analyst with D.A. Davidson & Co.