PRESS RELEASE
Available for Immediate Publication: October 13, 2005
Contacts: Thomas T. Hawker, President / Chief Executive Officer (209) 725-2276
R. Dale McKinney, EVP / Chief Financial Officer (209) 725-7435
Web Site www.ccow.com
Capital Corp of the West Announces Third Quarter 2005 Earnings Increased 37% over Third Quarter 2004
Merced, California, October 13, 2005-Capital Corp of the West (NASDAQ:NMS: CCOW) today announced net income of $5,453,000 for the third quarter ended September 30, 2005, a 37% increase compared to the third quarter 2004; fully diluted earnings per share were $0.50 and return on equity (ROE) to shareholders was 18.8%.
“This 18.8% ROE to our shareholders reflects the growing strength of our franchise and the economic vitality of the many communities within nine counties in which we serve our customers”, stated Chief Executive Officer, Tom Hawker. “Over the last twelve months our market penetration has increased, allowing us to grow total loans 20%, total assets 17%, and have increased deposits by 18%. Additionally, this quarter we have opened a loan production office in Sacramento, received regulatory approval to open a new branch in Clovis, a new branch in Modesto, and to relocate our highly successful San Francisco branch to an improved high traffic location with additional space to continue to meet the expanding needs of our customers. Our plan calls for continued strong reinvestment in our franchise, while at the same time providing these high returns to our shareholders”.
“A very significant milestone for our home county of Merced and the State of California was reached this quarter with the grand opening of the University of California at Merced and the start of classes for almost 900 students. We are especially proud to have been part of the events leading up to this significant event. We look forward to supporting the University, the staff, and the students as the University continues with the planned build out of the campus to support the educational and cultural needs of this first class, and the future classes of students that will follow”, continued Mr. Hawker.
“During the quarter rates have continued to rise and as a result our tax equivalent margin of 4.75% is a 30 basis point improvement relative to the third quarter of 2004”, stated Chief Financial Officer R. Dale McKinney. “In addition to the rising rates, another contributor to this increased margin is the overall improved mix of interest earning assets as a result of increased loan levels. The improved margin, along with over $169 million in additional loans, serve as the primary driver of the 37% increase in earnings over the third quarter 2004”, continued Mr. McKinney.
Earnings Discussion
Net earnings were $5,453,000 or $0.50 per diluted share for the three months ended September 30, 2005. This compares to earnings of $3,983,000 or $0.37 per diluted share for the same period in 2004. Annualized return on average assets and return on average equity were 1.39% and 18.84% for the third quarter of 2005 compared with 1.21% and 16.26% for the same period in 2004.
The 2005 third quarter earnings of $5,453,000 reflect a year over year increase in earnings of $1,470,000 due primarily to an increased net interest margin. The increase in net interest income was driven by a $233,721,000 or a 19% increase in average interest earning assets. In comparing the 2005 to 2004 third quarter, total noninterest expenses increased by $1,254,000 due primarily to increases in salaries and related benefits of $562,000 or 11%, premises and occupancy expenses of $215,000 or 22% and equipment expenses of $246,000 or 31%. Increased salary and related benefits expenses were the result of staff increases necessary to accommodate branch expansion and normal salary progression. Increased expenses related to premises and occupancy expenses and equipment expenses were the result of the purchase and renovation of the Customer Service Center in Merced, and the branch premises and equipment expenditures throughout the branch network. Professional fees increased $83,000 or 25% due to costs related to compliance with Sarbanes Oxley legislation, BSA compliance and increased internal and external audit costs. Marketing expenses decreased $50,000 or 18% due primarily to decreased media marketing costs. Supplies expenses increased $14,000 due to increased branch supplies utilized throughout the growing branch network. Intangible expenses were reduced by $156,000 or 93% with the full amortization of the premium paid for branch deposits purchased from Bank of America in 1997. Our effective tax rate was 34% for the third quarter of 2005, unchanged from the 34% recorded for the third quarter of 2004. Income tax expense increased $803,000 to $2,845,000 when compared to the $2,042,000 recorded during the same quarter in 2004. The consistent 2005 tax rate is primarily attributable to an increase of $346,000 in tax advantaged municipal security interest income in 2005 when compared to 2004, which is offset by higher levels of fully taxable earnings in 2005 when compared to 2004.
Credit Quality
The Company’s allowance for loan losses was $14,598,000 or 1.42% of total loans at September 30, 2005. Nonperforming assets totaled $2,111,000 or 0.13% of total assets and nonperforming loans stood at $2,051,000 or 0.20% of total loans. At September 30, 2005 the allowance for loan losses totaled 712% of nonperforming loans. This compares to an allowance for loan losses of $13,804,000 or 1.61% of total loans at September 30, 2004. At September 30, 2004, nonperforming assets totaled $4,306,000 or 0.32% of total assets, nonperforming loans totaled $4,246,000 or 0.49% of total loans and the allowance for loan losses totaled 325% of nonperforming loans. The increase in the provision for loan losses of $156,000 in the quarter ended September 30, 2005 when compared to the same quarter in 2004 was due to an increase in criticized loans, partially offset by a decrease in loan charge-offs, and a decrease in nonperforming loans on a year over year basis. Net charge-off and recovery activity for the third quarter of 2005 resulted in a net recovery of $159,000, which compares to a net charge-off of $156,000 for the same period in 2004. The decreased charge-off activity in the third quarter of 2005 when compared to the same period in 2004 was primarily due to the success of workout efforts related to nonperforming loans.
Book Values - Capital
The Company’s capital at September 30, 2005 stood at $117,979,000 compared with $101,775,000 as of September 30, 2004. Book value and tangible book value per share totaled $11.19 and $11.05 as of September 30, 2005 as compared to $9.80 and $9.59 as of September 30, 2004. The Company’s tangible leverage capital ratio stood at 8.53% at September 30, 2005, compared with 8.72% as of September 30, 2004. The Company’s risk based capital ratio stood at 11.50% at September 30, 2005, compared with 11.79% as of September 30, 2004.
Forecasted Information
Chief Financial Officer R. Dale McKinney comments on the remainder of 2005, “This forecast is based on a flat rate environment for the remainder of the year. Our ALCO model indicates slight asset sensitivity; therefore, if interest rates continue to rise as anticipated, margins and earnings should slightly improve relative to this forecast. The taxable equivalent net interest margin averaged 4.75% for third quarter of 2005 and is expected to average in the 4.62% to 4.65% range for the full 2005 year. Loan loss provision for the fourth quarter of 2005 is anticipated to remain fairly constant with this third quarter. Our effective tax rate for 2005 is forecasted at 33%. For 2005, ROE is forecasted in the 18.6% to 18.9% range and growth in total assets over yearend 2004 should be about 12% to 14%. The forecast for annual expense growth is in the 11% to 13% range for 2005 and reflects the infrastructure added primarily during fourth quarter 2004 in order to comply with provisions of both Sarbanes Oxley (SOX) and the Bank Secrecy Act (BSA), and in support of our continued franchise expansion. After adding back the two previously announced fourth quarter 2004 earnings charges related to the real estate investment trust and the other than temporary impairment charge, a 33% to 36% earnings improvement over the 2004 year is forecasted. This forecast includes the $539,000 after tax BOLI income recorded in the first quarter of this year. Full year reported 2005 earnings are anticipated to be in the $20.9 to $21.3 million range, or fully diluted earnings per share in the $1.94 to $1.98 range. Risk based capital ratios are anticipated at 11.25% to 11.50% and leverage capital ratios are anticipated at 8.25% to 8.50% during the full 2005 year. These ratios are considered well capitalized by regulatory definitions.”
Our past practice has been to provide forecasted information. However, going forward, we will no longer be providing forecasted information. Our decision is consistent with the growing trend of companies that either have discontinued the practice or do not provide “guidance” or forecasted information.
Conference Call Recording
Capital Corp of the West’s third quarter 2005 earnings conference call is scheduled for October 14, 2005 at 7:00 am PDT. Investors have the opportunity to listen to a recording of the conference call by going the web site of the company www.ccow.com just after the call and following the instructions to play back the recorded conference call. The recording will be available on the web site for 30 days following the conference call.
Safe Harbor
In addition to historical information, this release includes certain forward-looking statements regarding events and trends that may affect the Company’s future results. Such statements are subject to risks and uncertainties that could cause the Company’s actual results to differ materially. These factors include general risks inherent to commercial lending; risks related to asset quality; risks related to the Company’s dependence on key personnel and its ability to manage existing and future growth; risks related to competition; risks posed by present and future government regulation and legislation; and risks resulting from federal monetary policy.
Reference Information
Capital Corp. of the West, a bank holding company established November 1, 1995, is the parent company of County Bank, which has more than 28 years of service as “Central California’s Community Bank.”Currently County Bank has twenty branch offices serving the counties of Fresno, Madera, Mariposa, Merced, Stanislaus, San Joaquin, San Francisco, and Tuolumne. As of the latest FDIC data, County Bank has 6.5% market share in the six Central California counties in which it has significant retail branches. This ranks County Bank fifth out of thirty-nine banking institutions in this market area. For further information about the Company’s financial performance, contact Tom Hawker, President & Chief Executive Officer at (209) 725-2276, or R. Dale McKinney Chief Financial Officer, at (209) 725-7435.
-Financial Tables Follow-
Capital Corp of the West
Consolidated Statements of Income
(Unaudited)
(Dollars in thousands) | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | |
| | | 2005 | | 2004 | | 2005 | | 2004 | |
| | | | | | | | | | |
| Interest income | | $ | 23,487 | | $ | 17,587 | | $ | 65,151 | | $ | 51,787 | |
| Interest expense | | | 6,520 | | | 4,256 | | | 17,243 | | | 12,511 | |
| Net interest income | | | 16,967 | | | 13,331 | | | 47,908 | | | 39,276 | |
| Provision for loan losses | | | 1,035 | | | 879 | | | 1,356 | | | 2,183 | |
| Noninterest income: | | | | | | | | | | | | | |
| Service charges on accounts | | | 1,554 | | | 1,641 | | | 4,447 | | | 4,655 | |
| Increase in CSV of life insurance policies | | | 310 | | | 271 | | | 770 | | | 767 | |
| Other income | | | 802 | | | 707 | | | 2,458 | | | 2,228 | |
| Noninterest expenses: | | | | | | | | | | | | | |
| Salaries and related benefits | | | 5,538 | | | 4,976 | | | 16,748 | | | 15,470 | |
| Premises and occupancy | | | 1,205 | | | 990 | | | 3,256 | | | 2,533 | |
| Equipment | | | 1,035 | | | 789 | | | 2,936 | | | 2,361 | |
| Professional fees | | | 418 | | | 335 | | | 1,620 | | | 1,103 | |
| Marketing | | | 231 | | | 281 | | | 855 | | | 781 | |
| Intangible amortization | | | 11 | | | 167 | | | 34 | | | 500 | |
| Supplies | | | 236 | | | 222 | | | 808 | | | 622 | |
| Other expenses | | | 1,626 | | | 1,286 | | | 5,053 | | | 4,327 | |
| Total noninterest expenses | | | 10,300 | | | 9,046 | | | 31,310 | | | 27,697 | |
| Income before income taxes | | | 8,298 | | | 6,025 | | | 22,917 | | | 17,046 | |
| Provision for income taxes | | | 2,845 | | | 2,042 | | | 7,350 | | | 5,539 | |
| NET INCOME | | $ | 5,453 | | $ | 3,983 | | $ | 15,567 | | $ | 11,507 | |
Capital Corp of the West
Consolidated Balance Sheets
(Unaudited)
| | | | | | | 2005 | | 2005 | |
| (Dollars in thousands) | | At Sept. 30, | | Averages | | Averages | |
| | | 2005 | | 2004 | | QTD | | YTD | |
Assets | | | | | | | | | |
| Cash and noninterest-bearing deposits in other banks | | $ | 51,916 | | $ | 43,894 | | $ | 46,720 | | $ | 43,495 | |
| Federal funds sold | | | 4,760 | | | 3,910 | | | 2,101 | | | 4,411 | |
| Time deposits at other financial institutions | | | 350 | | | 350 | | | 350 | | | 855 | |
| Investment securities available for sale, at fair value | | | 237,792 | | | 267,031 | | | 248,942 | | | 264,700 | |
| Investment securities held to maturity at cost, fair value of $182,864 and $120,893 at September 30, 2005 and 2004 | | | 183,779 | | | 120,191 | | | 184,522 | | | 180,256 | |
| Loans, net of allowance for loan losses of $14,598 and $13,804 at September 30, 2005 and 2004 | | | 1,012,633 | | | 844,176 | | | 995,091 | | | 933,364 | |
| Interest receivable | | | 6,613 | | | 5,530 | | | 6,364 | | | 6,089 | |
| Premises and equipment, net | | | 26,725 | | | 20,040 | | | 25,860 | | | 24,465 | |
| Goodwill and intangible assets | | | 1,439 | | | 2,149 | | | 1,443 | | | 1,455 | |
| Cash value of life insurance | | | 31,525 | | | 28,063 | | | 30,469 | | | 28,976 | |
| Investment in housing tax credit limited partnerships | | | 8,217 | | | 8,763 | | | 8,314 | | | 8,438 | |
| Other assets | | | 15,335 | | | 7,856 | | | 13,828 | | | 14,137 | |
| Total assets | | $ | 1,581,084 | | $ | 1,351,953 | | $ | 1,564,004 | | $ | 1,510,641 | |
| | | | | | | | | | | | | | |
Liabilities and Shareholders’ Equity | | | | | | | | | | | | | |
| Deposits | | | | | | | | | | | | | |
| Noninterest-bearing demand | | $ | 288,791 | | $ | 234,578 | | $ | 281,328 | | $ | 268,343 | |
| Negotiable orders of withdrawal | | | 189,776 | | | 148,409 | | | 180,577 | | | 174,734 | |
| Savings | | | 372,761 | | | 345,937 | | | 371,188 | | | 363,763 | |
| Time, under $100 | | | 210,446 | | | 196,887 | | | 210,367 | | | 204,138 | |
| Time, $100 and over | | | 226,734 | | | 161,840 | | | 220,385 | | | 194,792 | |
| Total deposits | | | 1,288,508 | | | 1,087,651 | | | 1,263,845 | | | 1,205,770 | |
| | | | | | | | | | | | | | |
| Other borrowings and subordinated debentures | | | 161,645 | | | 156,655 | | | 171,730 | | | 182,609 | |
| Accrued interest, taxes and other liabilities | | | 12,952 | | | 5,872 | | | 12,660 | | | 11,657 | |
| Total liabilities | | | 1,463,105 | | | 1,250,178 | | | 1,448,235 | | | 1,400,036 | |
| | | | | | | | | | | | | | |
| Preferred stock, no par value; 10,000,000 shares authorized; none outstanding | | | - | | | - | | | - | | | - | |
| Common stock, no par value; 20,000,000 shares authorized; 10,543,205 and 10,390,185 issued & outstanding at September 30, 2005 and 2004 | | | 58,982 | | | 56,572 | | | 58,398 | | | 57,826 | |
| Retained earnings | | | 60,194 | | | 45,459 | | | 58,151 | | | 53,279 | |
| Accumulated other comprehensive loss | | | (1,197 | ) | | (256 | ) | | (780 | ) | | (500 | ) |
| Total shareholders’ equity | | | 117,979 | | | 101,775 | | | 115,769 | | | 110,605 | |
| Total liabilities and shareholders’ equity | | $ | 1,581,084 | | $ | 1,351,953 | | $ | 1,564,004 | | $ | 1,510,641 | |
Capital Corp of the West
Loan Portfolio Composition
| (Dollars in thousands) | | Sept. 30, 2005 | | Sept. 30, 2004 | |
| Loan Categories: | | Dollar Amount | | Percent of loans | | Dollar Amount | | Percent Of loans | |
| Commercial | | $ | 262,875 | | | 26 | % | $ | 236,738 | | | 27 | % |
| Agricultural | | | 75,654 | | | 7 | | | 83,057 | | | 10 | |
| Real estate construction | | | 158,292 | | | 15 | | | 100,166 | | | 12 | |
| Real estate mortgage | | | 449,204 | | | 44 | | | 361,379 | | | 42 | |
| Consumer | | | 81,206 | | | 8 | | | 76,640 | | | 9 | |
| Total | | | 1,027,231 | | | 100 | % | | 857,980 | | | 100 | % |
| Less allowance for loan losses | | | (14,598 | ) | | | | | (13,804 | ) | | | |
| Net loans | | $ | 1,012,633 | | | | | $ | 844,176 | | | | |
Allowance for Loan Loss Activity
| | | Nine Months Ended Sept. 30, | |
| | | 2005 | | 2004 | | 2003 | |
| | | (Dollars in thousands) | |
| Allowance for Loan Losses: | | | | | | | |
| Balance at beginning of period | | $ | 13,605 | | $ | 12,524 | | $ | 11,680 | |
| Provision for loan losses | | | 1,356 | | | 2,183 | | | 1,697 | |
| Charge-offs | | | (1,318 | ) | | (1,420 | ) | | (1,396 | ) |
| Recoveries | | | 955 | | | 517 | | | 535 | |
| Net charge-offs | | | (363 | ) | | (903 | ) | | (861 | ) |
| Balance at end of period | | $ | 14,598 | | $ | 13,804 | | $ | 12,516 | |
| | | | | | | | | | | |
| Gross loans outstanding at period-end | | $ | 1,027,231 | | $ | 857,980 | | $ | 721,922 | |
| Average gross loans outstanding | | $ | 947,022 | | $ | 799,997 | | $ | 672,370 | |
| | | | | | | | | | | |
| Annualized net charge-offs to average loans | | | 0.05 | % | | 0.15 | % | | 0.17 | % |
| Allowance for loan losses | | | | | | | | | | |
| To total loans | | | 1.42 | % | | 1.61 | % | | 1.73 | % |
| To nonperforming loans | | | 664 | % | | 325 | % | | 722 | % |
Capital Corp of the West
Loan Repricing Table - 09/30/05
| | | Within | | One to | | Over | | | |
| | | One Year | | Five Years | | Five Years | | Total | |
| Loans with floating rates - repricing | | $ | 612,564 | | $ | 167,965 | | $ | 32,807 | | $ | 813,336 | |
| Loans with fixed rates - maturities | | | 43,946 | | | 62,351 | | | 107,598 | | | 213,895 | |
| Total | | $ | 656,510 | | $ | 230,316 | | $ | 140,405 | | $ | 1,027,231 | |
Selected Financial Data
| | | Three Months Ended 9/30/05 | | Three Months Ended 9/30/04 | | Nine Months Ended 9/30/05 | | Nine Months Ended 9/30/04 | |
| Basic Earnings Per Share | | $ | 0.52 | | $ | 0.38 | | $ | 1.49 | | $ | 1.12 | |
| Diluted Earnings Per Share | | $ | 0.50 | | $ | 0.37 | | $ | 1.44 | | $ | 1.08 | |
| Annualized return on: | | | | | | | | | | | | | |
| Average assets | | | 1.39 | % | | 1.21 | % | | 1.37 | % | | 1.20 | % |
| Average equity | | | 18.84 | % | | 16.26 | % | | 18.77 | % | | 16.14 | % |
| Net interest margin | | | 4.75 | % | | 4.45 | % | | 4.67 | % | | 4.49 | % |
| Efficiency ratio | | | 52 | % | | 56 | % | | 56 | % | | 59 | % |
| Annualized net charge-offs to average loans | | | (0.06 | )% | | 0.08 | % | | 0.05 | % | | 0.15 | % |
Capital / Shareholder Information
| | | Sept. 30, 2005 | | Sept. 30, 2004 | |
| | | | | | |
| Book value per share | | $ | 11.19 | | $ | 9.80 | |
| Tangible book value per share | | $ | 11.05 | | $ | 9.59 | |
| | | | | | | | |
| Leverage capital ratio | | | 8.53 | % | | 8.72 | % |
| Risk based capital ratio | | | 11.50 | % | | 11.79 | % |
Nonperforming Assets
| | | Sept. 30 | | Sept. 30 | |
| | | 2005 | | 2004 | |
| | | (Dollars in thousands) | |
| Nonaccrual loans | | $ | 2,042 | | $ | 3,836 | |
| Accruing loans past due 90 days or more | | | 9 | | | 410 | |
| Total nonperforming loans | | | 2,051 | | | 4,246 | |
| Other real estate owned | | | 60 | | | 60 | |
| Total nonperforming assets | | $ | 2,111 | | $ | 4,306 | |
| Nonperforming loans to total loans | | | 0.20 | % | | 0.49 | % |
| Nonperforming assets to total assets | | | 0.13 | % | | 0.32 | % |
