Shares of Capital Corp. of the West lost more than half their value Wednesday after the Merced, Calif., company warned that it expects to report a fourth-quarter loss of $15 million and that it would miss a deadline for filing the results because of "material weaknesses" found in its lending and accounting functions.
The $1.9 billion-asset Capital Corp. disclosed late Tuesday that its quarterly provision for loan losses would jump "substantially," to an estimated $26 million, because of sharply declining real estate values in California's Central Valley.
As a result its County Bank would no longer be well capitalized, but would remain adequately capitalized.
Jeffrey A. Rulis, an analyst at D.A. Davidson & Co. in Portland, Ore., said in an interview Wednesday that credit quality deteriorated so rapidly and so severely that he believes a formal regulatory order could be imposed on County Bank within a few weeks.
He said more than 2% of its assets are nonperforming, and "the speed of the deterioration raises some red flags."
In late trading Wednesday, Capital Corp.'s stock was down 56%, to $4.69 a share. The company's shares have lost more than 75% of their value since the beginning of this year.
The company said it determined in working with bank regulators and independent credit specialists that certain loans required an adverse classification, affecting its provision.
It also concluded that it had material weaknesses related to determining the proper credit risk classification of loans, establishing the level of its allowance for loan losses, accounting for housing tax partnerships, and other matters. It said fixing those processes will take several quarters.
Because of the weaknesses and an inability to obtain appraisals and other market information on its loans, finalizing its fourth-quarter and annual results has been difficult, the company said.
For the full year, its "best reasonable estimate" indicates a net loss of $4 million, it said. The company reported a $22.7 million profit for 2006 and a $5.1 million profit for the fourth quarter of that year.
