Cutting Losses: Financially troubled Santa Barbara Bank & Trust says it’s going to save a million a year by moving from its huge headquarters building at 1021 Anacapa Street “back home,” to its original digs at the downtown main branch.

Meanwhile, there are rumors that the trimmed-down SBB&T may be acquired by the giant San Francisco-based Union Bank of California. If that deal goes through it would mean that the small-town bank opened 50 years ago by three local businessmen—Louis Lancaster, Reuben Irvin and Ralph Raddue—will be owned by Bank of Tokyo-Mitsubishi, Union’s parent company.

The Santa Barbara bank, in its year-end report issued today, said it lost $20 million in the fourth quarter, half its third quarter loss of $40.7 million. But Fred Clough, bank attorney, pointed out that the bank made $10 million before taxes and provisions for bad loans, compared with a $6 million loss a year ago.

Asked why the bank is moving from the current headquarters, Clough told the Independent, “Because it costs us $1 million a year” to lease the space for 65 employees. Bank officers will move to the top floor of the Santa Barbara-style, white stucco, red tile-roofed main branch at Carrillo and Anacapa, while other departments will be relocated elsewhere, Clough said. Trust personnel will move to the old Firehouse building in Montecito on East Valley Road, leased by the bank since 2008 but unoccupied, according to spokeswoman Debbie Whiteley.

Moving back into the building where the bank opened 50 years ago will be celebrated on its birthday, March 16, Whiteley said. “We’re going home.”

One local businessman who heard the news called the huge leased building a “Taj Mahal” the bank couldn’t afford any longer. It has room for 107 employees.

“It will be a smaller bank,” said George Leis, president and CEO of SBB&T and its holding company, Pacific Capital Bancorp. He said the bank is looking sell certain unidentified branches, and needs to refocus on markets with stronger positioning and “brand loyalty.” This seemed a hint that Pacific Capital is thinking of unloading banks it purchased in central and northern California but which do not operate under the Santa Barbara Bank name.

It hasn’t been determined which branches will be sold, Clough said.

The bank also announced that it plans to slash operating costs by $25 million this year.

Although the Santa Barbara banking icon lost a total of $431 million last year, sweeping cuts in costs prevented another horrendous quarterly loss (the worst was $362 million in the second quarter of 2009) and for now at least, SBB&T seems to have dodged the possibility of a federal takeover.

Still, its tier-one capital ratio remained far below the mark federal regulators set last year and continues to be worrisome. Its leverage ratio, cash divided by loans and other assets, as of December 31 was 5.5 percent, whereas it promised feds it would hike the ratio to 9 percent.

The bank recently acted to slash costs by, among other things, dumping Medicare-eligible retirees from its medical plan and hiking medical costs for other retirees. These actions helped the balance sheet but are painful for retirees counting on dividends and the health plan. The bank also cut 300 jobs last year, and 47 more this month.

The bank also sold some loans. And it has stopped paying stock dividends, as required since it was not making payments on the federal $180 million TARP loan.

All eyes in the financial community will be looking ahead to see if the bank’s first quarter 2010 balance sheet ends up in the black.

Pacific Capital Bancorp operates 46 branches, including 11 in central and northern California under other names. They are in Gilroy, Morgan Hill and San Juan Bautista under the South Valley National Bank name, three in Watsonville, Salinas and Monterey under the First National Bank of Central California name and two in Hollister and one in San Juan Bautista under the San Benito Bank name and two branches of the First Bank of San Luis Obispo.

One former administrator told the Independent that at times some of the northern banks seemed to operate with excessive independence, like far-flung fiefdoms. However, it is unknown which branches generated many of the toxic loans that helped bring about the parent Pacific Capital’s red ink.

Pacific Capital’s stock was up slightly to $1.28 today—but down from about $13 a year ago, and $20 about 18 months ago.

Leis sounded an optimistic note today: “While previously identified problem loans continue to drive elevated levels of net charge-offs, we are encouraged that the inflow of new delinquent loans slowed considerably during the fourth quarter.

“Loans that are two to three payments past due declined from $116 million at September 30 to $79 million at December 31, 2009.”

Union Bank is 145 years old, and has $78 billion in assets and 332 offices in California, Oregon, Washington and Texas.

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