County Bank's parent, Capital Corp of the West, said it has signed an agreement with the Federal Reserve Bank of San Francisco designed to improve risk management and tighten lending controls.
For 90 percent of its customers, the new agreement means nothing, bank spokesman Thomas Smith said. It will affect only the bank's biggest borrowers.
In particular, it means customers who hold commercial and real estate development loans will have to provide County Bank with financial statements more often, he said.
"We're basically going to be reviewing our loans a lot more often," Smith said. "With the way real estate values are declining these days, it's the right thing to do."
County Bank used to review its biggest loans once or twice a year. Under the new agreement, signed last week, the bank will review loans two to three times a year to ensure they're properly backed.
"When the value of your collateral is changing so quickly, the prudence just has to be stronger," Smith said.
The new agreement stems from a routine January review of County Bank's operations by the Federal Reserve, after which the Fed recommended tighter controls.
The agreement outlines a number of changes the bank must make to improve its risk management, lending and credit administration and board oversight.
County Bank disclosed the possibility of such changes in April.
Even though it was anticipated, the agreement requires approval from the Fed before Capital Corp can resume dividend payments to shareholders.
It suspended those payments in April after it posted its first-ever loss of $14.2 million in last year's fourth quarter.
Since then the bank holding company has recovered from what it earlier called "the rapid decline in real estate values in California's Central Valley" during last year's fourth quarter.
It reported a first-quarter profit of $2.3 million and its share price has rebounded from a seven-year low of $3.76 a share earlier this year to $4.29 at the close of trading Wednesday.