San Joaquin Bank: Indian investors to pour $38 million in major recapitalization

Locally owned San Joaquin Bank had a bit of good and bad news for its investors and shareholders today. First the good: the bank is getting a much needed infusion of capital, to the tune of $38 million, from a group of Indian investors. Like banks across the country, San Joaquin has been struggling as its real estate portfolio continues to deteriorate, and it's now working under some stringent federal guidelines for troubled banks (read the earlier post here) Bart Hill, San Joaquin's CEO, says they hope to get the $38 million soon. He said the money is coming from 11 different Indian families and the issuance of 8.1 million in new shares would give the Indians 62 percent of the company's outstanding shares and two seats on the bank's board. This is huge news for the bank, which has been battling a series of nasty and destructive street rumors about its future. Public institutions like banks live and die on the confidence of the street, and the folks at San Joaquin have been doing everything they can to restore confidence in the bank.
Now here's the bad news: at the same time the bank announces the recapitalization, it is also amending its first quarter results to reflect an even worse loan and earnings environment. Some facts:
* The company originally reported it had $105.5 million in classified loans, but based on new information and consultations with the Federal Reserve, those classified loans are now $163 million. Of those loans, the bank expects that $98 million are now "impaired" compared to the original estimate of $61.6 million. Not good.
* The bank originally reported net charge offs of $858,000 in the first quarter, and that has now been raised to $10.7 million. Whew!
Bart told me that "real estate values were just cascading in the first quarter," but he now seems "some bottoming signs... I'm seeing a turn."
Beyond San Joaquin's fortunes, it's important to look at what this means for our local economy in a larger sense. San Joaquin was like any other bank and now is stuck with collateralized loans that are deemed "impaired." The loans are constantly scrutinized and reappraised, and the restatement of first quarter earnings simply means the market has a ways to go before we begin to see normal again. In other words: we're still in the middle of the shakeout, and until we move through it, banks like San Joaquin will continue to struggle.
For a complete story, check out The Californian Tuesday or look for it on bakersfield.com