Union Bank sent shockwaves through the region with the announcement that it will cut almost 500 Santa Barbara Bank & Trust jobs as it completes a $1.5 billion acquisition.

But the rollout of the San Francisco-based lender’s vastly increased footprint in the region also creates new opportunities for middle-market companies to get debt financing, experts say. And Union says it will retain the Santa Barbara bank’s headquarters, expand private banking and honor or increase commitments to nonprofit organizations.

Union Bank said Nov. 30 that it will lay off 468 Santa Barbara Bank & Trust employees up and down the coast. It will retain 570 of the Santa Barbara-based bank’s workers, mostly customer-facing personnel.

Leaders from both banks told the Business Times that about 200 of the pink slips were handed out in Goleta, where Santa Barbara Bank & Trust maintained a large back-office and IT operation. About another 100 of the job cuts were at the downtown Santa Barbara headquarters.

The abrupt announcement that almost half of the Santa Barbara bank’s workforce would be eliminated came a day before the deal closed. Union Bank leaders said the merger is ultimately about expanding along the Central Coast, and that they are working to find new positions for as many of the affected employees as possible.

“We’re a strong, vital, California-based banking company. There may be some difficulties with such a large transition, and we’re working through them, but this deal is about growing,” Union Bank Vice Chairman Tim Wennes told the Business Times in a Dec. 4 interview.

Pacific Capital Bancorp, the parent company of Santa Barbara Bank & Trust, also maintained a smaller base of operations in Monterey County. It is expected that a much smaller number of the job cuts are taking place there.

About 80 percent of the layoffs won’t occur until April 30, 2013, Union said, and the affected employees are eligible to apply for new positions within the bank — about 175 positions are open presently, officials said.

“I’m confident that any of those almost 180 Santa Barbara Bank & Trust employees who could get jobs with Union Bank, we can find a job for,” said George Leis, former chief operating officer at Santa Barbara Bank & Trust. “It just won’t be in Santa Barbara.”

For some banking industry insiders, both the timing of the announcement and the size of the cuts came as a surprise.

“I don’t think we’ve seen quite this big of a layoff announcement,” said Bill Watkins, a former banker and now the chief economist at the Center for Economic Research and Forecasting at California Lutheran University.

Stricter banking regulations and a squeeze on interest-rate margins have fueled a nationwide consolidation wave among small- and mid-sized lenders. Watkins said that likely means many of the employees laid off at Santa Barbara Bank & Trust will need to look to other industries if they want to stay in the area. “The banking sector has been declining for quite some time,” he said.

Watkins said the loss of hundreds of well-paying, white-collar jobs could have region-wide spillover effects on both housing and retail sales. “In Santa Barbara in particular, but really along the whole coast, a lot of people don’t have as much as they used to,” he said.

Community bank executives in the Tri-Counties said that while they may be able to pick talent from the pool of dislocated workers, their new hires would number in the dozens, not hundreds.

“The banks in the region — even all of us combined — I don’t think there’s the capacity to bring this in and hire all these people,” said Jeff DeVine, CEO of Santa Barbara-based American Riviera Bank. “The other banks in the region are just not big enough to sop up all of this demand.”

But a few select opportunities in the corporate ranks have opened up. Paso Robles-based Heritage Oaks Bancorp said Dec. 4 that it has hired former Santa Barbara Bank & Trust Chief Financial Officer Mark Olson as its new CFO, effective March 1, 2013.

In an interview before the announcement, Heritage Oaks CEO and President Simone Lagomarsino said that because back-office employees typically have accounting, IT and management skills that can be transferred to other industries, many of the affected Santa Barbara Bank & Trust workers may be able to find non-banking jobs in the Tri-Counties.

Leis said Union Bank has reached out to other major employers on the South Coast, including Deckers Outdoor Corp. and Yardi Systems in Goleta and Santa Barbara-based Mission Linen Supply, who have agreed to host job fairs for the affected bank employees.

Union Bank has not yet finalized decisions regarding a handful of bank branch consolidations, Wennes said. The two banks both have branches in San Luis Obispo, Santa Maria, Lompoc, Simi Valley and Thousand Oaks.

Eloy Ortega, CEO of The Bank of Santa Barbara, a small business bank, said that while the size of the layoff was somewhat of a surprise, industry insiders had been expecting to see some cuts. “One of the advantages of a merger, for the surviving organization, is the economies that you get. You eliminate the redundancies,” he said. “Union Bank doesn’t need an accounting staff or back-office staff here, because they already have that at their headquarters in San Francisco.”

More cuts to come

The bloodletting in the region’s banking industry may be far from over. PacWest’s $231 million purchase of First California is expected to result in multiple branch closures since the two lenders have significant overlap in their networks.

PacWest has not formally announced any layoffs or branch closures and has declined to comment on the pending deal, which still requires regulatory approval before the expected close in the first quarter of 2013.

But one banking insider who spoke on condition of anonymity told the Business Times a round of layoffs at First California could be announced before year-end.

Presentations to investors hint at the magnitude of the anticipated downsizing. Calling the deal an “attractive in-market consolidation opportunity,” PacWest stated in November regulatory filings that it has “considerable branch network overlap” with First California.

Eleven of First California’s branches are within five miles of PacWest branches. The Los Angeles lender estimated that it can save $31.5 million by combining many branches and adding First California’s $1.6 billion in deposit accounts and $1.2 billion in loans to its books.

In the Tri-Counties, the areas of significant overlap appear to be Camarillo, Ventura and San Luis Obispo. And First California’s Westlake Village headquarters might be substantially reduced or eliminated.

“They’re talking about cost savings of 50 percent,” Lagomarsino at Heritage Oaks said. “You look at an acquisition like that, and you realize that salaries and employees really are the big expense when it comes to banks.”

With the exit of the Santa Barbara Bank & Trust name from the market and the expected close of Los Angeles-based PacWest Corp.’s acquisition of rival First California, Heritage Oaks and Santa Barbara-based Montecito Bank & Trust become the largest banks based in the region, each with about $1 billion in assets.

Gradual rebranding

Santa Barbara Bank & Trust parent company Pacific Capital Bancorp ceased trading on the Nasdaq stock exchange under the ticker symbol PCBC on Nov. 30, with its share price freezing at $45.98. The deal ends four tumultuous years for the historic brand.

The 52-year-old Santa Barbara bank grew into a regional powerhouse in the space of several decades. With $7.5 billion in assets in 2006, the lender employed more than 1,620 people in California before the financial crisis.

But Santa Barbara Bank & Trust’s downfall was as dramatic as its rise. Fueled by bad real estate loans, the bank reported a $421 million loss for 2009 and had downsized to about 1,100 employees.

In May 2010, banking regulators placed the bank under a strict order to boost its capital levels or potentially sell or liquidate the franchise. Soon after, veteran banking turnaround experts Gerald Ford and Carl Webb swooped in and purchased the majority of the company in exchange for a $500 million infusion of life-saving capital.

The Texas-based investors, who had made their fortunes turning banks around in the ashes of the savings and loans crisis, had big plans to grow the Santa Barbara Bank & Trust franchise up and down the coast after scrubbing most of the troubled assets from its loan portfolio.

“The Central Coast is a very special area, and Santa Barbara is ground zero,” Webb told the Business Times in March 2012. “It’s resilient, has a diverse mix of business, and came through the recession better than most. If we had continued to be independent, Ventura would have been our first target for acquisitions. If we had made three of four we could have easily doubled in size.”

But in early 2012, San Francisco-based Union made the Ford team an offer it couldn’t refuse — a chance to triple its investment.

“My message to Union Bank was ‘handle with care,’” Webb said after the deal was announced.

At $1.5 billion, the Union purchase of Santa Barbara Bank & Trust is by far the largest corporate deal in tri-county history and almost twice the size of Dutch giant Rabobank’s $857 million purchase of Mid-State Bank & Trust in 2007.

Union looks forward

The Santa Barbara Bank & Trust acquisition provides Union Bank with a coveted network of 45 branches between Westlake Village and the Monterey Peninsula, elevating the San Francisco lender’s presence in a region that could be a rich source of deposits and loans to small and medium-sized businesses.

Leis, formerly CEO and then chief operating officer of Santa Barbara Bank & Trust, will run the Central Coast operation as regional market president. He and his staff will continue to operate out of the Santa Barbara Bank & Trust headquarters at 1021 Anacapa St., which now becomes a regional hub for Union.

Union is hiring more than 20 wealth managers as it grows its private banking operation in the region, bank officials said. It is also ramping up its small-business lending.

The switch to Union’s IT infrastructure will occur in March, and the Santa Barbara Bank & Trust signs will start to come down some time after that, Leis said. “We’re not in a hurry to rebrand.”

Although veteran bankers had speculated that Union may see a mass exodus of deposits in the region as people move to take their accounts to locally based banks, Union said it hasn’t seen any such backlash thus far.

Because the job cuts have been in non-customer-facing positions, “people will find they still have the same tellers and the same people helping them at the bank that have been there all along,” Wennes said.

DeVine of American Riviera Bank said that while Union Bank is very well-regarded and will be able to better bank larger firms in the region, there is an opportunity for institutions such as his to gain market share.

“Union Bank is a good bank,” DeVine said. “However, Union Bank isn’t necessarily going to be the right bank for everyone. There are definitely some business people who will feel that they aren’t being served the way they used to be, and they might go and look for something that was closer to what they became accustomed to.”

On the other hand, he said, Union Bank can bring more sophisticated tools and new offerings to emerging middle-market companies and larger small businesses. “The size of Union Bank and the fact that they have international expertise and a much larger lending limit will be appealing to some customers, maybe some real estate developers or people in the import-export business,” he said.

Ortega at The Bank of Santa Barbara said he’s operating on the assumption that at least some people will want to move their accounts to smaller banks. “We’re counting on it,” he said.