For a while now, I've been trumpeting that banks are an oft-overlooked segment of the investing universe. Even our own fine newsletter publications seldom go to the banking well for investment candidates, with only a scant few selections in Inside Value and Income Investor. Yet with so many growing bank franchises around the country flying beneath the investing world's radar, perhaps there's a Motley Fool Hidden Gems candidate or two lying around.
Capital Corp of the West
This time around, performance was mixed. Reported net income growth of 22% was inflated by some gains on the sale of investments, though most banks in today's environment would appreciate the underlying growth of 15%. Returns on assets and equity also improved -- another rarity right now.
Net interest income rose by a sharp 22%, and the company managed to actually improve its net interest margin to a very solid 4.84%. That number compares quite favorably with those at other Western operators, such as Wells Fargo
The balance sheet turns up a bit more mixed, though. Loan growth remained very strong, and the yield on those loans continues to rise nicely. Unfortunately, there was virtually no deposit growth in terms of core deposits, and the company had to load up significantly on brokered CDs. That, in turn, pushed up the cost of funds to a not-so-appealing level, even though the interest spread -- the difference between earnings on assets and the cost of borrowings -- stayed nearly level.
At this point, Capital Corp of the West really doesn't quite meet my criteria for a top-notch bank investment idea. That's especially true when you weigh the valuation against safer (and cheaper) big banks such as Citigroup
For more bankable Foolishness:
Bank of America is a Motley Fool Income Investor recommendation.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).