What next for County Bank?

The future of County Bank is clearly in doubt.

Shocking numbers detailing the bank's worsening financial position were fired off after business hours late Friday, but it didn't go unnoticed and shouldn't have come as a surprise.

County Bank, which is owned by Capital Corp of the West, has been reeling since the real estate market collapsed in the Northern San Joaquin Valley. It reported its first annual loss, $3.7 million, at the end of 2007. On Friday the bank reported the red ink had swelled to about $96 million.

The bank said it expects its capital ratios will fall into the "undercapitalized category" based on federal guidelines. It must raise $75 million "in the near future" to reach acceptable capitalization levels. Without it, regulators would step in.

Amid all the confusing language and multitude of numbers in County Bank's latest revelation, what was missing was a clear explanation of what happens next. No County Bank officials could be reached for comment Saturday.

Other bankers and analysts, though, said they expect the bank to open for business Monday. However, they didn't know if County Bank would be running under its own control with new restrictions or the control of regulators, most likely the Federal Deposit Insurance Corp.

They said there's also the possibility that regulators could have worked out a deal to sell County Bank to another financial institution, probably a banking company that wants to boost its presence in the valley. Merced-based County Bank has seven branches in Stanislaus County and 39 overall in the valley, Tuolumne County and the Bay Area.

At its peak it employed 600 but reportedly has been shedding workers as conditions deteriorated.

Richard Cupp, new chief executive officer of Capital Corp of the West, said in November that the bank was looking at options ranging from raising more capital by attracting new investors to selling County Bank. It also could file for bankruptcy, but regulators likely would step in before it could do that.

Few investors, no deals

Analysts said County Bank hasn't been able to find enough investors willing to pump more money into the hemorrhaging institution in today's dire economic climate.

There have been reports that other banks have looked at buying County Bank, but no deals were struck.

Analysts said there's little incentive for healthy banks to merge with those that are unhealthy, especially one with millions of dollars in bad loans like County Bank.

If a healthy bank waits for regulators to take control, experts said, it can acquire the best parts of the distressed institution, usually the deposits and branches, and avoid being saddled with the liabilities -- all those bad loans.

In County Bank's case, it has a strong network of branches and deposits of $1.43 billion as of Sept. 30, down from $1.67 billion at the end of 2007.

Cupp had hoped to get money from the federal government's banking rescue effort, known as the Troubled Asset Relief Program. But that hasn't materialized, and some bankers doubt whether County Bank would qualify.

Potentially the bank's strongest Washington ally for TARP money won't be much help. U.S. Rep. Dennis Cardoza, D-Merced, said during a recent visit to The Bee that he owns stock in County Bank, which severely limits his ability to advocate for it because of conflict of interest rules.

So with few options left, County Bank has acknowledged that it could no longer guarantee it would continue to be a "going concern."

But analysts insist the bank will continue operations, even if it's at the direction of regulators.

In an effort to avoid another IndyMac panic, regulators now typically conduct bank takeovers on the weekends so it's business as usual when doors open on Mondays.

Depositors are protected by the FDIC's general deposit insurance rules, under which coverage was raised to $250,000 per depositor (with separate coverage for joint accounts) per insured institution through Dec. 31, 2009.

The FDIC provides full coverage for noninterest-bearing transaction deposit accounts, including personal and business checking deposit accounts as well as attorney- client trust accounts.

Bee Business Editor David W. Hill can be reached at 578-2336 or dhill@modbee.com.