Outlook for County Bank worsens

County Bank is in much deeper trouble than it has said.

Capital Corp of the West, which owns County Bank, issued a news release after the markets closed Friday declaring that a loss of $96 million last year caused it to question whether it could remain solvent.

Dense with legalese and numbers, the release confirmed that County Bank, like dozens of other U.S. financial institutions, has rammed head-on into the tough new realities of the global economic recession.

Capital Corp blamed its deteriorating financial condition on both macroeconomic and San Joaquin Valley factors. The one-bank holding company said it no longer could guarantee that it would last as a "going concern."

The announcement raises the question of whether Capital Corp would declare bankruptcy or be taken over or bought by another financial concern or the U.S. government itself. The release indicated that its weak balance sheets could lead to "significant regulatory action." Calls to the company spokesman, a vice president and two board members weren't returned.

Capital Corp's bleak red numbers mirror those on the ledgers of numerous other U.S. and foreign banks. They reflect the year's increasing similarity to the 1929 stock market crash and the 1982 prolonged recession.

Capital Corp's weakened condition means that state and federal agencies could take "significant" regulatory action against its bank.

It blamed its cumulative losses on continued declines in the appraised values of real property collateral securing loans in its portfolio, a deteriorating economic environment, downgrades in internal risk ratings, an increase in nonperforming loans and regulatory reviews.

On Friday, it said that on a preliminary basis, it would be required to make a provision for loan losses of about $28.5 million in the fourth quarter of 2008, compared with a provision of $11.5 million for the third quarter of 2008. The company estimated its cumulative provision for loan losses for the year ended Dec. 31, at $55.4 million.

That helped propel its loss for the year to about $96 million, compared to a loss of $2.7 million for 2007. For the fourth quarter, the bank reported a loss of $35.1 million, compared with a loss of $14.3 million for the prior-year fourth quarter.

The provision for loan losses in 2008 was $55.4 million, compared to $29.8 million in 2007. Total nonperforming loans at Dec. 31 were $109 million, or 9% of total loans, compared to $54 million, or 3.6% of total loans a year earlier.

The allowance for loan losses at Dec. 31 was $38.2 million, or 3.1% of total loans, compared to $35.8 million, or 2.4% of total loans in the year-earlier period.

The company said it expects that its capital ratios at year end will fall into the "undercapitalized" category under federal guidelines. It said it needs to raise some $75 million in new capital "in the near future" to be capitalized at acceptable levels.

To try to get there, the bank said it will convert $20 million of tier 2 capital (in the form of a subordinated note) to tier 1 capital upon the company's contribution of the note to the bank.

However, even if it had achieved that type of adequate capitalization at the end of last year, its total risk-based capital ratio still would have been undercapitalized.

No deals are in the works, Capital Corp said, that might help it escape the financial precipice it is teetering on.

In Friday's close, the company's stock stood at 75 cents, down from 94 cents to begin the day. Its 52-week high was $20.20.

County Bank has 30 branch offices and six business lending centers.