December 29, 2008
Mail-Stop 4561
Mr. Richard S. Cupp
President and Chief Executive Officer
Capital Corp of the West
550 West Main Street
Merced, California 95340
Re: Capital Corp of the West
Form 10-K (y/e December 31, 2007)
Filed April 2, 2008
File No. 000-27384
Dear Mr. Cupp:
We have reviewed your filings and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation
and provide us with your proposed revisions. In some of our
comments, we may ask you to provide us with information so we may
better understand your disclosure. After reviewing this
information,
we may raise additional comments.
The purpose of our review process is to assist you in your
compliance with the applicable disclosure requirements and to
enhance
the overall disclosure in your filing. We look forward to working
with you in these respects. We welcome any questions you may have
about our comments or any other aspect of our review. Feel free
to
call us at the telephone numbers listed at the end of this letter.
Form 10-K
Risk Factors, page 19
1. Revise to add a risk factor for "Increased charge-offs have
adversely affected earnings and loan loss allowance" or another
similar caption and disclose the quarterly charge-offs compared to
the same period in the prior year as well as year to date amounts
charged-off versus the same period in the prior year.
2. Revise to add a risk factor for "Increase in non-performing
loans
and assets have adversely affected earnings" or another similar
caption and disclose the amount of non-performing loans and assets
at
the end of the period and compare to amounts at the end of the
same
period in the prior year. In addition, discuss the reasons for the
change. Also, disclose and discuss the ratio of non-performing
assets
to total assets at the end of the current period and compare to
the
ratio at the end of the same period in the prior year. Finally,
discuss the reasons for the changes, if any.
Management`s Discussion and Analysis and Analysis of Financial
Condition and Results of Operations, page 27
3. We note on page 31 that beginning in the fourth quarter of 2007
you experienced a significant increase in delinquencies in your
single family real estate construction loans as well as a sharp
decrease in collateral values supporting these loans, however, it
is
unclear how these events specifically contributed to the
substantial
increase in your loan loss provision during the fourth quarter of
2007. Please revise your filing to disclose the following:
* Disclose the specific events and factors that occurred during
the
fourth quarter that contributed to the sharp increase in
delinquencies and decline in collateral values;
* Compare the decline in collateral values for each type of loan
during the fourth quarter 2007 to declines in prior periods.
Discuss
the specific changes in the rate of decline and how this impacted
your provision on a quarterly basis;
* Disclose how the credit events occurring in the fourth quarter
impacted your assessment of the allowance for loan losses and how
you
considered these events in both the general and specific
components
of your allowance;
* Disclose how much of the provision was impacted by the increase
in
delinquencies and decline in collateral values during the fourth
quarter and how much was impacted by the material weaknesses
discovered in the fourth quarter of 2007; and,
* Revise to disclose how much of the provision was impacted by the
additional adverse classifications made as a result of working
with
both the regulators and the independent consultants.
4. Considering the significance of the material weaknesses
identified
by you in the fourth quarter of 2007, and the fact that you did
not
engage outside experts to assess the credit quality of your
portfolio
until the fourth quarter 2007, please revise to disclose why you
believe that the entire provision recorded in that quarter was
attributable to credit events that occurred during that time
period.
5. We note that you engaged third party consultants after filing
your
call report in January 2008. Please revise your disclosure to
discuss any changes in your original estimation of loan losses
from
the filing of that report and the filing of your 2007 Form 10-K.
Specifically discuss any changes made to your methodology or
revisions to your provision resulting from the consultation with
the
third party credit experts and your regulators.
Loans, page 40
6. Please revise your disclosure on page 42 to include a
discussion
of how successfully the company has adhered to these policies in
light of your material weaknesses in internal control.
Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies, page 62
Other Real Estate Owned, page 67
7. Please revise to disclose how your policy of recording OREO at
the
lower of the loan balance or fair value complies with paragraph 28
of
SFAS 15.
Note 3. Investment Securities, page 75
8. We note your disclosure on page 78 regarding your bank stock
investment that has been in an unrealized loss position for
greater
than 12 months. Please revise to disclose how you determined that
these securities were not other than temporarily impaired.
Specifically discuss the length of time and extent to which the
securities have been in an unrealized loss position, how you
determined the period over which these investments would recover
in
value and disclose what your estimated period to recovery is.
Please
provide this disclosure in both your Form 10-Q and Form 10-K
reports.
Note 4. Loans, page 78
9. Please revise to disclose how you determined that it was
appropriate to use the value of the collateral as your method for
determining impairment under SFAS 114 for all of your impaired
loans.
Please reconcile this statement to the statement included in your
MD&A on page 46 in which you state that at December 31, 2007 and
2006, you measured impaired loans either based upon the present
value
of expected future cash flows discounted at the loan`s effective
rate, the loan`s observable market price, or the fair value of
collateral if the loan is collateral dependent.
Note 5. Other Real Estate Owned, page 80
10. Please revise to disclose the nature of the triggers that led
to
the impairment charges recorded on OREO. Clarify whether this
relates to declines in the fair value of the real estate and how
you
concluded that the OREO was initially recorded at the appropriate
fair value when transferred.
Note 7. Goodwill and Other Intangibles, page 81
11. Please revise to disclose how you determined that no goodwill
impairment was necessary for the amounts related to the
acquisition
of the branches of Stockmen`s Bank and clarify what you consider
to
be your reporting units. Please revise to disclose the specific
factors that led to the impairment of goodwill related to the
Thrift
and how you applied consideration of these factors to your other
reporting units.
Note 12. Regulatory Matters, page 87
12. Please revise to disclose the financial statement impacts of
the
change in your capital adequacy status from well capitalized to
adequately capitalized. For example, clarify if your deposit
insurance rates or regulatory fees have increased, if there are
restrictions on your ability to originate loans or accept
deposits,
or any other aspect that may impact your results of operations.
Note 13. Commitments, contingencies, and Financial Instruments
with
Off Balance Sheet Credit Risk, page 88
13. Please revise to disclose the specific factors considered in
your
determination that no liability was necessary under the
indemnification clause included in the contract with ICBA Bancard.
Please update this disclosure in each quarterly reporting period
and
provide us with your proposed disclosures.
Note 20. Litigation, page 103
14. Please revise your disclosure to specifically state the
allegations made by Pacific Coast Bankers Bank. Revise your
disclosure to include a range of possible outcomes, including the
maximum amount of claims made in this litigation. Refer to
paragraph
10 of SFAS 5.
March 31, 2008 and June 30, 2008 Form 10-Q`s
General
15. Revise to disclose how you considered the requirements of
paragraph 18 of SFAS 142 in concluding that no impairment testing
of
your remaining goodwill and your customer relationship and core
deposit intangibles at each reporting period was required.
Disclose
the specific items considered in making this determination.
September 30, 2008 Form 10-Q
Note 2. Regulatory Matters, Capital Adequacy, Liquidity and Going
Concern Risk, page 8
16. Please revise to disclose the specific steps you have taken to
make progress on the changes required by the Regulatory Agreement.
Specifically discuss how each requirement will impact your
financial
results and quantify that impact if possible.
Note 3. Summary of Significant Accounting Policies, page 10
Goodwill and Other Intangible Assets, page 13
17. Please revise to disclose whether you evaluated your customer
relationship and core deposit intangibles for potential impairment
during the third quarter. If not, please revise to disclose how
you
considered the fact that you have experienced a drawdown on your
overall levels of deposits and are restricted as to the pricing of
certain of your deposits in determining that no impairment
analysis
was required.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 25
Results of Operations, page 28
18. We note your disclosure that you charged off $20.5 million and
$26.6 million in loans during the second and third quarters
respectively as a result of regulatory and independent loan
consultant reviews. Please revise to disclose the following:
* Revise to disclose how you determined it was appropriate to
charge-
off these loans during the second and third quarters of 2008
considering your previous disclosure of material weaknesses
relating
to the allowance for loan losses;
* Revise to disclose whether the portfolios reviewed during the
second and third quarter 2008 were also reviewed in connection
with
your 2007 Form 10-K reporting; and
* Revise to disclose the specific events that happened during the
second and third quarter that prompted the charge-off of these
loans.
19. On page 44, you disclose that you obtained updated appraisals
during the second quarter of 2008 showing a continued decline in
collateral value. Please revise to disclose how you have
considered
this decline, as well as the decline that occurred in the fourth
quarter of 2007 in your qualitative factor adjustments.
20. We note your increased charge-offs and past due loans and
declining credit quality trends. Please revise your disclosure to
specifically discuss how changes in these and other credit quality
trends impacted your estimate of loan losses. Provide this
discussion for each quarterly period.
* * * *
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. You may wish to provide us with marked copies of
the amendment to expedite our review. Please furnish a cover
letter
with your amendment that keys your responses to our comments and
provides any requested information. Detailed cover letters
greatly
facilitate our review. Please understand that we may have
additional
comments after reviewing your amendment and responses to our
comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities Act
of
1933 and that they have provided all information investors require
for an informed investment decision. Since the company and its
management are in possession of all facts relating to a company`s
disclosure, they are responsible for the accuracy and adequacy of
the
disclosures they have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
??should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
??the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
??the company may not assert staff comments and the declaration of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement has access to all information you provide to the staff
of
the Division of Corporation Finance in connection with our review
of
your filing or in response to our comments on your filing.
Any questions regarding the accounting comments may be
directed
to Brittany Ebbertt at (202) 551-3572 or Rebekah Blakeley Moore at
(202) 551-3303. All other questions may be directed to Michael
Clampitt at (202) 551-3434 or to me at (202) 551-3419.
Sincerely,
Christian Windsor
Special Counsel
Financial Services Group
CC:
Phone (209) 725-2269
Facsimile (866) 757-4298
Mr. Richard S. Cupp
Capital Corp of the West
Page 7 of 7