County Bank's woes aren't new: Federal regulators already were pressing Capital Corp of West to raise more capital.

Nov 19, 2008 (The Fresno Bee - McClatchy-Tribune Information Services via COMTEX) -- CBNC | Quote | Chart | News | PowerRating -- Even before announcing a third-quarter loss of more than $54 million this week, County Bank's parent company was under the gun from federal regulators to come up with additional cash to back its operations.

Under the terms of a July agreement with the Federal Reserve Bank of San Francisco, officials of Merced-based Capital Corp of the West pledged to develop a plan to maintain enough capital to balance out the bank's risks.

But in the troubled economic climate -- with cash and credit in short supply -- bank officials said they aren't sure whether they're going to be able to raise the capital to meet those regulatory obligations, and that's giving rise to concerns about the bank's future.

"I'm a little bit worried," Jorge Janas, a customer at County Bank's branch in downtown Fresno, said Tuesday afternoon. "I'm wondering what's going to happen to my CDs or IRA."

Capital Corp's actual operating losses for the quarter came in at about $5.8 million, said Richard Cupp, the company's chief executive. But the red ink -- which totaled $54.6 million -- was exacerbated by noncash charges for losses in 2007. Cupp explained that the bank suffered a loss of "goodwill," or company value after the acquisition of another bank in late 2007, which amounted to $23.5 million, mostly due to stock-price declines. He said the bank also lost out on $25.3 million in potential tax benefits from operating losses this year and last.

Compounding its problems is the Valley's declining real-estate market.

Capital Corp has about $1.26 billion out in loans, and about 63% -- or $813 million -- is for real estate, including construction and development loans.

But its nonperforming loans -- on which the borrower has stopped paying -- amounted to more than $138 million, or nearly 11% of the total loan portfolio.

Deposits in County Bank amounted to $1.43 billion as of Sept. 30, down from the $1.67 billion reported at the end of 2007.

While its quarterly loss isn't good news for the bank, what has regulators' attention is the bank's assets.

"Significant additional resources of liquidity and capital will be required for us to continue operations," officials reported in their earnings statement filed Monday with the U.S. Securities and Exchange Commission. But, the statement adds, "the uncertainty regarding the company's ability to obtain additional capital ... raises substantial doubt about the company's ability to continue."

For the quarter that ended Sept. 30, County Bank reported it was "adequately capitalized" with $122.7 million, or a capital ratio of about 8% of total assets. That figure, however, falls short of the 10% required by regulators -- $153.4 million, according to its earnings statement.

Regulators with the Federal Reserve Bank of San Francisco, which supervises County Bank, did not return calls Tuesday. Lily Ruiz, a spokeswoman for the Fed, said in an e-mail that, "as regulators, we don't discuss individual banks by name."

K.C. Chen, a professor of business and finance in the Craig School of Business at California State University, Fresno, said the capital ratio deals with how much money the bank has as a percentage of its total assets, including loans and other investments that carry varying degrees of risk.

A sufficient cushion of capital is needed, Chen said, to enable any bank to absorb unexpected losses from the risky assets -- something particularly acute now with real estate serving as collateral for so many loans.

"If the firm loses money, that equity is even less," Chen said. "Whenever there are losses suffered [beyond the available capital], the firm becomes insolvent."

For County Bank, however, building up needed capital is proving difficult.

"This is one of the most challenging environments in the capital markets in a very long time," Cupp said Monday. "We're doing our very best to be aggressive to find capital sources on a private basis."

Cupp said the bank is exploring a range of options, including seeking more investors, a possible sale and applying to participate in the bank bailout approved by Congress last month. Capital Corp is seeking to sell $46 million in preferred stock to the U.S. Treasury Department, but officials don't know when -- or whether -- the application will be approved.

Whatever happens, customer Janas is watching closely.

"I'm waiting to see what the result is on the federal [help]," Janas said. "If they don't get that, I'll take my money out right away."

Janas was one of only a handful of customers doing business Tuesday afternoon at the downtown Fresno branch -- par for a midweek afternoon, said Thomas Smith, the company's marketing director.

"What we're seeing across the board is a perfectly normal day of business at all our branches," he said.

The reporter can be reached at tsheehan@fresnobee.com or (559) 441-6319.

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