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BREAKING NEWS: Pacific Capital unveils three-year strategy following $362M loss

By   /   Thursday, July 30th, 2009  /   Comments Off on BREAKING NEWS: Pacific Capital unveils three-year strategy following $362M loss

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Santa Barbara-based Pacific Capital Bancorp released its second-quarter earnings on July 30, revealing a staggering net loss of $362.6 million and unveiling a three-year plan to improve the company’s capital position. The net loss, $7.77 per common share, compares to $5.9 million, or 13 cents per share, in the same period a year ago.

The parent company of Santa Barbara Bank & Trust and four other banks on the Central Coast, Pacific Capital raised concerns among analysts and investors and caused a 20-percent one-day hit to its stock price in late June when it suspended dividend payments and deferred interest payments on $69.4 million in debt, including its federal TARP loans.

At the time, Pacific Capital maintained that the suspension of such payments was a preemptive move to stay well-capitalized and also noted that the terms of its debt allow it to suspend interest payments for up to 20 consecutive quarters without default or penalty.

Yet in its second-quarter earnings release, the bank announced that following such concerns it has submitted a three-year plan to the Office of the Comptroller of the Currency outlining a strategy to improve its capital position. As of June 30, the bank’s Tier 1 leverage ratio was 5.6 percent and total risk-based capital ratio was 11.1 percent — above the regulatory guidelines to be considered “well capitalized,” but not sufficient to meet the higher Tier-1 level the bank agreed upon with the OCC.

The bank also announced that it has brought on financial advising firm Sandler O’Neill & Partners as part of its strategy “to identify and evaluate a broad range of strategic alternatives to further strengthen the Bank’s capital base and enhance shareholder value.”

Among other cost and asset reductions, the strategic plan will work to boost capital ratios by selling off approximately $150 million in secured real estate loans by the end of the year. It also hopes to cut an additional $45 million to $55 million in annual costs by 2012 through bankwide expense reductions.

“The plan reflects the current challenges with respect to capital and the difficulties in projecting the impact of the economic weakness in our markets on our loan portfolio, as well as the strategies we are employing to maintain the financial strength of the Bank,” Pacific Capital President and Chief Executive Officer George Leis said in a statement.

The company’s total deposits fell to $5.25 billion in the second quarter, down from $6.44 billion in the first quarter and $4.64 billion in the second quarter last year. Pacific Capital attributed the decline in deposits to a reduction in deposit pricing as part of its strategy to increase its net interest margin and improve its Tier 1 ratio. Although its higher-cost deposits declined in the second quarter, Pacific Capital’s non-interest bearing deposits increased by $85 million to $1.01 billion.

Pacific Capital’s total gross loans held for investment were $5.65 billion at the end of the second quarter, compared with $5.75 billion at the end of the first quarter and $5.69 billion at the end of the 2008 second quarter. Net interest income for the second quarter was $53.4 million, compared to $64.4 in the same quarter last year.

The bank’s non-interest second-quarter income was $20.9 million, compared to $22.2 million in the second quarter of 2008.

Directly following the release of its earnings, shares of the company were down more than 17 percent at about $2.15 on the morning of July 30. The company’s stock price has been hammered in the recession, falling from a 52-week high of $27.99.

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