Capital Corp. of the West (CCOW)

Capital Corp of the West is a financial banking holding company operating out of two subsidiaries Merced Area Investment and Development and County Investment Trust. It is more of a regional bank serving the San Joaquin Valley with 22 service branches.

The bank finished the fiscal year 2006 with modest growth in revenues with efficiency ratio deteriorating to 60.93% and rising operating expenses. Garnering low cost deposit hasn’t been easy thereby hurting profitability. The net interest margin was down by 22 basis points due to competitive pricing environment by the competitors

A huge chunk of its loan portfolio, about 41% is in the commercial real estate sector stretching from Fresno market in the south to Sacramento in the north. There has been shift in residential construction portfolio to more of commercial and with rising employment levels in the region makes it a subject of concern. Loan balances were down by 3% due to competitive pricing pressures and lack of attractive lending avenues due to inadequate compensation for risk and doesn’t have much in the pipeline.

The management expects the year 2007 to be transformational year with de novo branch expansion and acquisitions in the Central Valley regions. Currently it is putting all efforts to recruit an international trade finance team to build business out of its San Francisco office. It has also availed a consultancy services to screen options for acquiring an insurance agency business with an aim of increasing the fee income and reducing dependence on interest income.

Though it benefits being a leading regional bank in the Central Valley region the unfavorable economic environment and lower lending avenues makes things difficult for Capital Corp. of the West. The inverted yield curve pressurizes its net interest margins and its intention of expanding franchisee is elevating the cost. There has also been signs of credit quality weakening and future of the bank looks uncertain.