One of the nation's top-performing community banking companies in 2007 is in danger of becoming the next Southern California failure.

With 2008 losses of roughly $48 million, the $939 million-asset 1st Centennial Bancorp in Redlands said late Tuesday that its bank subsidiary is "critically undercapitalized," and that "unless a substantial capital infusion or sale can be accomplished in the very near future, it will not be able to continue as a going concern."

It also said, "No investment or sale proposal is presently under consideration that would likely lead to the successful recapitalization of the bank."

Calls to 1st Centennial were not returned Wednesday.

Like many other California community banks, 1st Centennial Bank traces its problems to rapid deterioration in its real estate and construction loan portfolio.

At the end of 2007 it reported a return on assets of 1.53%, almost a whole percentage point above the average for California banks at the time and 25 basis points above the national average. Its return on equity was 15.79%, compared with averages of 4.69% for California and 12.3% for the nation.

But 1st Centennial's fortunes took a dramatic turn for worse last year. Its nonperforming loan percentage ballooned to 18.2% by Dec. 31, versus 2.92% a year earlier.

The bank, which began relying heavily on brokered deposits to fund its lending, has been seeking a capital infusion since at least early November, when it announced a large third-quarter loss. On Tuesday, it said its ratio of Tier 1 capital to total assets had fallen to 1.19% by Dec. 31. A bank is considered undercapitalized if the ratio falls below 4%, and Randall James, a banking industry consultant and former Texas banking commissioner, said a ratio of 2% or below usually triggers an enforcement order.

"I applaud" 1st Centennial's management and board "for recognizing their problems," Mr. James said. However, "if they can't come up with the capital, I wonder why the regulators have left … [the bank] open."

If 1st Centennial did fail, it would be the sixth California bank or thrift to do so since regulators seized IndyMac Bank in July. Others included Downey Savings and Loan, which warned investors in early November that it could go under if it failed to raise additional capital. The $12.8 billion-asset thrift was closed by regulators on Nov. 21.

At least two others — Vineyard National Bancorp in Corona and Capital Corp of the West in Merced — have warned in recent months that their days could be numbered if they fail to raise sufficient capital, but they remain in business.

Karen Dorway, the president of BauerFinancial Inc. in Coral Gables, Fla., said no regulatory enforcement actions have been taken against 1st Centennial.

The company has not released its fourth-quarter results, but on Tuesday it said it anticipated reporting a $28 million loss. It also said it expected to report a loan-loss provision of $17.2 million for the quarter, bringing the full-year total to $54 million.

In 2007, 1st Centennial earned $7.9 million and provisioned $2.4 million.

Ms. Dorway said recent filings show it became more dependent on brokered deposits in the third quarter. Brokered deposits as a percentage of the total went from 18.7% on June 30 to 52% three months later.

That growth could explain why the ratio of Tier 1 capital to assets declined so quickly from 7.6% at June 30 to 4.42% at Sept. 30 to 1.19% now, Ms. Dorway said. After a bank falls below regulatory guidelines for required capital, brokered deposits are eliminated as a liquidity option, she said.

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