The chairman of Vineyard Bancorp has assembled a group of investors to buy the Corona, Calif., company, but questions remain whether he can raise enough capital to restore the badly hobbled company to health.

Late Wednesday, the $2.1 billion-asset company announced that its chairman, Douglas Kratz, had formed Vineyard Bancshares Inc., a Minnesota corporation, to buy Vineyard for $18 million, on the condition that he is able to raise $125 million from investors.

Adding to the uncertainty was the fact that the company said in the same press release that it continues to seek bids from other potential buyers.

Neither the company nor Mr. Kratz returned calls from American Banker Thursday, but industry watchers wondered whether Mr. Kratz would be able to interest investors in Vineyard, which is reeling from losses on construction loans.

Its bank unit has lost roughly $100 million so far this year, according to call reports filed with the Federal Deposit Insurance Corp., and the holding company's stock price closed at 40 cents a share Thursday, unchanged for the day but down 96% for the year.

Observers also questioned whether $125 million — $100 million of which would be injected into the bank — is enough to reverse Vineyard's sagging fortunes. Just two months ago, the company said it was looking to raise about $250 million.

Karen Dorway, the president of BauerFinancial Inc. in Coral Gables, Fla., said that if Vineyard, whose bank unit has been operating under a cease-and-desist order from the Office of the Comptroller of the Currency since July, is able to add $100 million "it would provide some breathing room."

Still, Vineyard would not be out of the woods. A call report shows that about 13% of its assets are nonperforming, largely in the construction loan portfolio.

In the "long term, if things don't turn around with the construction market, then my guess is they would certainly need more capital," she said.

Third-quarter capital ratios at the subsidiary, Vineyard Bank, continued to deteriorate. The Tier 1 leverage ratio fell 89 basis points, to 7.16%, from the end of the second quarter to the end of the third, and its risk-based capital ratio declined 34 basis points, to 9.44%.

"Where is he going to get the $125 million?" asked Richard Levenson, the president of the San Diego investment banking firm Western Financial Corp. "That is a big question to me because capital has been tough out there."

He further wondered why Mr. Kratz would start a new holding company. "If the $125 million is out there, why not just inject it directly into [the] existing holding company and push it into the bank?"

Mr. Kratz was named Vineyard's chairman in August after a dissident group of investors won control of the company. Mr. Kratz was the only board nominee whose name appeared on the ballots of both the dissidents and management, which observers said was largely due to his experience in the capital markets. Mr. Kratz has been the chairman and chief executive officer of several community banking companies and is currently the chairman of Opportunity Bancshares Inc. in Richardson, Tex.

In a news release late Wednesday, Glen Terry, Vineyard's president and chief executive, said the deal with Mr. Kratz is "a significant step toward realization of the board's goal of securing Vineyard's safety and soundness. We believe that this transaction represents the best alternative available to us in what are the most extreme financial circumstances in my memory."

The buyer would pay $10 million immediately and an additional $8 million over three years if certain undisclosed conditions were satisfied, Vineyard said. The company's senior lender, which is unnamed in the press release but is believed to be First Horizon National Corp. in Memphis, has agreed to accept $9 million of the initial purchase price, plus the right to receive all of the contingent payments, as full satisfaction of the outstanding balance on the senior line of credit.

It is known that First Horizon modified a loan to Vineyard at the end of October, extending the maturity date to the end of November for an outstanding balance of $48.3 million, according to a Securities and Exchange Commission filing.

First Horizon said it does not comment on individual customers.

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