After posting its fifth consecutive quarterly loss and falling out of compliance with a regulatory order, Pacific Capital Bancorp said Thursday that it is weighing "strategic alternatives" — which usually means a company is on the sales block.
In an interview, George Leis, the Santa Barbara, Calif., company's president and chief executive, would not say what alternatives it is considering. However, he noted that Pacific had hired Sandler O'Neill & Partners LP, an investment bank whose services include advice on mergers and acquisitions. "We are looking at all strategic initiatives," he said, "and that is why we brought in a company like Sandler O'Neill to help us."
The $7.3 billion-asset company said its net loss ballooned to $360 million in the second quarter, from $5.9 million a year earlier. The second-quarter loss was largely due to a $194 million loan-loss provision and a $129 million goodwill charge.
Despite being well capitalized by normal standards, the company's banking subsidiary did not meet capital ratio targets set by the Office of the Comptroller of Currency.
On April 16, Pacific signed a memorandum of understanding with the OCC, requiring it to have a Tier 1 leverage ratio of 8.5% and a total risk-based capital ratio of 11% by June 30.
At the end of June, its Tier 1 leverage ratio was 5.6% and total risk-based ratio, 11.1%.
Leis said in a press release that his board had sent the OCC a plan for strengthening the bank's capital position. It includes selling roughly $150 million of loans this year secured by real estate and cutting an additional $45 million to $55 million in annual costs by 2012.
In March, Pacific announced it would cut about 22% of its staff. The company said Thursday that those 275 cuts had all been made, saving it $17.5 million per year.
In June, Pacific announced it would defer payments on $69.4 million of trust-preferred securities and suspend dividends on its common and preferred shares — including the $181 million investment it received from the Treasury Department's Troubled Asset Relief Program. The company said it expected these measures to save it $8 million per quarter.
Asset quality continued to deteriorate in the second quarter. Nonperformers grew 28%, to $348.3 million, or 5% of total assets. This increase was largely due to deterioration in the commercial real estate and construction portfolios. Net chargeoffs were $77.1 million, or 5.4% of total loans.
Leis said in the interview that he was proud that Pacific had increased noninterest-bearing deposits by $85 million and widened its net interest margin during the quarter.
The margin for the "core bank" — excluding Pacific's flagging refund anticipation loan business — was 2.99% at June 30, compared to 2.73% at March 31. The margin grew as it gathered cheaper deposits and more expensive ones ran off.
