S.B. Bank & Trust’s Rocky Year

IN THE RED: The parent holding company of Santa Barbara Bank & Trust today announced a $40.7 million third-quarter loss. Teamed with previous losses in the year’s two earlier recession-rattled quarters, Pacific Capital Bancorp has lost more than $411 million in the first nine months of the year. The third-quarter report released Tuesday morning also said that while Pacific Capital was “well capitalized,” the bank’s core capital ratios “were not sufficient to meet the higher levels” that it had voluntarily agreed to with the federal government.

There’s also been a serious human cost this year, as 300 Pacific Capital employees, amounting to 22 percent of its workforce, were laid off in March. And as Pacific Capital’s stock plummeted from nearly $20 a year ago to $1.24 a share today, dividend payments were stopped. That proved to be an especially severe blow to some retiree stockholders as well as to former Bank & Trust officers who had remained loyal shareholders but saw their stock income cut to zero.

A bank spokeswoman did not return The Independent‘s calls for comment.

Although unconfirmed rumors that the Pacific Capital was to be sold have swirled for months – including one this week that it had been split in two with Union Bank taking the southern branches and America West Bank taking the northern branches – nothing has been announced. Pacific Capital operates 46 branches under the Santa Barbara Bank & Trust name along with its four affiliated banks to the north: First National Bank of Central California, South Valley Bank, San Benito Bank, and First Bank of San Luis Obispo.

The company’s annual loss, which included a horrendous $362 million second quarter red-ink report, would have been worse except for Pacific Capital’s much-criticized RAL, a national program involving short-term, high-interest loans for those who want to borrow against their tax refunds rather than waiting for the government check. That program showed a $62 million profit, although a recent Vanity Fair article cited critics who called Bank & Trust’s RAL program in poor neighborhoods around the country “predatory.”

Pacific Capital received $180 million in TARP emergency stabilization money a year ago but has not yet paid dividends to the government. It has not said how much money it would take to raise its capital ratio to satisfy the government’s requirements.

In September, a class action suit was filed in L.A. federal court against Pacific Capital, claiming that its officers had issued false and misleading information about its ability to handle losses from loans. The bank denied the allegations.

So what are its options to increase capital? Here are some suggested by knowledgeable business people:

Sell stock. The board recently authorized increasing the amount to stock available from the present limit of 100 million shares to 500 million.

Restructure the balance sheet in part by reducing loans. Many of the big, bad loans are said to have been tract house projects in “soft” markets in the San Joaquin Valley and Reno areas. Its non-performing loans increased to $384.8 million in the third quarter from $348 million in the second quarter.

The bank has hired an investment banking firm to advise it on “strategic alternatives,” but in a conference call today, CEO George Leis said the bank will not comment until it “has something to report.”