Pacific Capital Bancorp Reports Net Income of $20.8 Million in Fourth Quarter 2010

SANTA BARBARA, Calif.--(BUSINESS WIRE)--Pacific Capital Bancorp (Nasdaq: PCBC), a community bank holding company, reported net income of $20.8 million, or $0.66 per diluted share for the three months ended December 31, 2010, and $25.7 million, or $0.83 per diluted share, for the four months since the closing of the $500 million investment from a wholly-owned subsidiary of Ford Financial Fund, L.P. on August 31, 2010.

“We are pleased with the results Pacific Capital Bancorp has achieved over the past four months,” said Carl B. Webb, Chief Executive Officer. “Following the completion of our recapitalization transactions, we have resumed our position as the premier community banking franchise along the Central Coast of California. We have returned to the basic community banking principles that this franchise was built upon, and we are now in a position to fully serve the financial services needs of our customers with a broad array of lending, depository and wealth management products and services.”

During the fourth quarter of 2010, Pacific Capital Bancorp completed its shareholders rights offering, raising gross proceeds of $76.4 million, and completed its 1-for-100 reverse stock split of its common stock, reducing the current number of outstanding shares from approximately 3.29 billion to approximately 32.9 million (without giving effect to the treatment of fractional shares) bringing the Company’s book value per share to $19.53 at December 31, 2010.

Pacific Capital Bancorp and its wholly-owned banking subsidiary, Pacific Capital Bank, N.A. (the “Bank”), exceed the ratios required to be considered ”well capitalized” under generally applicable regulatory guidelines, as well as capital levels that the Bank is required to meet under its agreement with the Office of the Comptroller of the Currency. Tier 1 leverage capital ratios were 9.2% and 10.3% and total risk-based capital ratios were 14.6% and 16.4% at December 31, 2010, for the Bank and Company, respectively.

Impact of Push Down Accounting

On August 31, 2010, a wholly-owned subsidiary of Ford Financial Fund, L.P. became the majority owner of the Company through a $500 million investment. As a result of this change in control, the Company was required to account for this transaction using the acquisition method of accounting and applied “push down accounting” based on authoritative accounting guidance. Accordingly, the Company was required to allocate the aggregate purchase price of $500 million to the assets, liabilities and non-controlling interests of the Company based on their respective fair values. This included recording the Company’s loan portfolio at fair value under “purchased credit-impaired loan” accounting guidance. Fair value is calculated based on discounted estimated future expected cash flows. This accounting allows future credit losses related to the purchased loan portfolio to be brought forward by reducing the carrying value of the loans as part of push down accounting. Authoritative accounting guidance also requires that the statements of financial position and results of operations from periods prior to the transaction be labeled as the predecessor company and periods subsequent to the transaction be labeled as the successor company.

Statement of Operations

Net interest income was $54.0 million and $72.2 million for the three and four months ended December 31, 2010, respectively. Net interest margin was 3.75% for the same respective periods. The improvement in net interest margin from prior periods is primarily the result of the fair valuation of interest-earning assets and interest-bearing liabilities, the repricing of higher interest bearing deposits, and the purchase of investment securities with available cash.

The Company recorded provision for loan losses of $535,000 and $590,000 for the three and four months ended December 31, 2010, respectively, which related only to loans originated subsequent to the closing of the investment on August 31, 2010. The Company expects provision for loan losses to increase in 2011 as it expands loan originations.

Noninterest income was $16.1 million and $20.1 million for the three and four months ended December 31, 2010, respectively. The improvements in noninterest income are primarily from the gains on sales of loans and other real estate owned.

Noninterest expense was $48.7 million and $65.9 million for the three and four months ended December 31, 2010, respectively. Noninterest expense trended lower due to a decrease in employee head count, a reduction in occupancy expense and lower depreciation expense. The Company expects noninterest expense to increase in 2011 due to future investments in technology and personnel.

Annual Report on Form 10-K

The Company intends to file with the Securities and Exchange Commission its Annual Report on Form 10-K for the year ended December 31, 2010 on or before March 31, 2011. This report can be accessed at the Securities and Exchange Commission’s website, www.sec.gov. Shortly after filing, it is also available free of charge at the Company’s website, www.pcbancorp.com or by contacting the Company’s Investor Relations Department.

About Pacific Capital Bancorp

Pacific Capital Bancorp, with $6.1 billion in assets, is the parent company of Pacific Capital Bank, N.A., a nationally chartered bank that is headquartered in Santa Barbara and operates 47 branches throughout the Central Coast of California. The Company’s website is www.pcbancorp.com.

Forward Looking Statements

This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward‐looking statements to be covered by the safe harbor provisions for forward-looking statements. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, statements about anticipated future operating and financial performance, financial position and liquidity, business prospects, strategic alternatives, business strategies, regulatory and competitive outlook, investment and expenditure plans, capital and financing needs and availability, acquisition and divestiture opportunities, plans and objectives of management for future operations, and other similar forecasts and statements of expectation and statements of assumptions underlying any of the foregoing. Words such as “will likely result,” “aims,” “anticipates,” “believes,” “could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “plans,” “projects,” “seeks,” “should,” “will,” and variations of these words and similar expressions are intended to identify these forward-looking statements.

Forward-looking statements are based on the Company’s current expectations and assumptions regarding its business, the regulatory environment, the economy and other future conditions. The Company’s actual results may differ materially from those contemplated by the forward-looking statements. The Company cautions you against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements are detailed in reports filed by the Company with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, as amended, and with reference to the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on October 5, 2010, and subsequent Quarterly Reports on Form 10-Q. Forward-looking statements speak only as of the date they are made, and the Company does not undertake to update forward‐looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, whether as a result of new information, future developments or otherwise, except as may be required by law.

Pacific Capital Bancorp
Consolidated Balance Sheets
(in thousands)
						Successor Company						Predecessor Company
						12/31/2010			9/30/2010			6/30/2010			3/31/2010			12/31/2009
						(unaudited)			(unaudited)			(unaudited)			(unaudited)
Assets
	Cash and due from banks					$	45,820		$	49,741		$	50,840		$	20,013		$	45,593
	Interest bearing demand deposits in other financial institutions						450,044			844,919			1,331,674			1,109,927			878,823
	Trading assets						—			—			4,640			5,286			5,403
	Investment securities						1,278,100			869,074			825,958			944,539			1,153,687
	Loans held for sale						16,512			25,570			17,300			26,629			19,211
	Loans held for investment						3,761,517			3,948,217			4,603,829			4,887,138			5,166,431
	Allowance for loan and lease losses						(520	)		(55	)		(276,900	)		(283,412	)		(272,852	)
		Net loans held for investment					3,760,997			3,948,162			4,326,929			4,603,726			4,893,579
	Goodwill and other intangible assets						93,700			99,418			7,892			8,641			9,289
	Premises and equipment, net						71,465			74,904			64,654			68,304			71,934
	FHLB and other investments						84,235			79,405			82,112			84,774			84,777
	Other assets						284,675			303,976			313,455			311,468			304,701
	Assets from discontinued operations						—			—			100,772			185,812			75,258
			Total assets			$	6,085,548		$	6,295,169		$	7,126,226		$	7,369,119		$	7,542,255
Liabilities
	Deposits:
		Noninterest bearing demand deposits				$	1,099,260		$	1,105,773		$	1,021,836		$	1,051,008		$	1,076,916
		Interest bearing deposits:
			NOW accounts				936,728			882,289			925,335			963,770			938,336
			Money market deposit accounts				314,362			278,219			274,386			268,153			287,271
			Other savings deposits				434,897			370,985			356,385			372,132			353,712
			Time deposits				2,121,541			2,523,515			2,696,262			2,762,898			2,717,584
				Total interest bearing deposits			3,807,528			4,055,008			4,252,368			4,366,953			4,296,903
					Total deposits		4,906,788			5,160,781			5,274,204			5,417,961			5,373,819
	Securities sold under agreements to repurchase and Federal funds purchased						321,237			325,143			308,255			316,808			322,131
	Long-term debt and other borrowings						117,184			121,516			1,118,657			1,076,951			1,311,828
	Other liabilities						97,656			110,242			100,840			92,209			94,616
	Liabilities from discontinued operations						—			—			100,772			185,812			75,258
			Total liabilities				5,442,865			5,717,682			6,902,728			7,089,741			7,177,652
Shareholders' equity							642,683			577,487			223,498			279,378			364,603
			Total liabilities and shareholders' equity			$	6,085,548		$	6,295,169		$	7,126,226		$	7,369,119		$	7,542,255

Pacific Capital Bancorp
Consolidated Statements of Operations
(dollars and shares in thousands, except per share amounts)
			Successor Company						Predecessor Company
			Three Months			Four Months			Eight Months			Three Months			Twelve Months
			Ended			Ended			Ended			Ended			Ended
			December 31,			December 31,			August 31,			December 31,			December 31,
			2010			2010			2010			2009			2009
			(unaudited)			(unaudited)			(unaudited)			(unaudited)
Interest income
	Loans		$	56,496		$	76,878		$	166,581		$	70,920		$	303,057
	Trading assets			—			—			143			70			5,131
	Investment securities			5,343			6,872			20,052			9,919			42,759
	Other			733			990			2,924			656			2,325
		Total interest income		62,572			84,740			189,700			81,565			353,272
Interest expense
	Deposits			4,374			6,754			46,510			18,490			83,629
	Securities sold under agreements to repurchase and Federal funds purchased			1,452			1,771			5,392			2,116			10,127
	Long-term debt and other borrowings			2,721			4,043			28,426			12,807			59,885
		Total interest expense		8,547			12,568			80,328			33,413			153,641
Net interest income				54,025			72,172			109,372			48,152			199,631
Provision for loan losses				535			590			171,583			37,639			352,398
	Net interest income/(loss) after provision for loan losses			53,490			71,582			(62,211	)		10,513			(152,767	)
Noninterest income
	Service charges and fees			5,783			7,579			14,901			6,311			24,884
	Trust and investment advisory fees			5,128			6,743			14,035			5,390			21,247
	(Loss)/gain on securities, net			(1	)		(32	)		5,667			10,729			10,970
	Other			5,146			5,782			1,194			(1,557	)		460
		Total noninterest income		16,056			20,072			35,797			20,873			57,561
Noninterest expense
	Goodwill impairment			—			—			—			—			128,710
	Salaries and employee benefits			21,047			28,128			58,816			23,530			103,228
	Net occupancy expense			5,693			7,711			15,494			7,421			26,214
	Other			21,995			30,045			75,653			21,623			122,089
		Total noninterest expense		48,735			65,884			149,963			52,574			380,241
Income/(loss) before income tax benefit				20,811			25,770			(176,377	)		(21,188	)		(475,447	)
Income tax benefit				—			—			(4,742	)		(5,278	)		(18,823	)
Net income/(loss) from continuing operations				20,811			25,770			(171,635	)		(15,910	)		(456,624	)
	(Expense)/income from discontinued operations, net of tax			(25	)		(26	)		(1,429	)		(1,548	)		35,363
	Gain on sale of discontinued operations, net of tax			—			—			8,160			—			—
		(Expense)/income from discontinued operations, net		(25	)		(26	)		6,731			(1,548	)		35,363
Net income/(loss)				20,786			25,744			(164,904	)		(17,458	)		(421,261	)
Dividends and accretion on preferred stock				—			—			6,938			2,544			9,996
Net income/(loss) applicable to common shareholders			$	20,786		$	25,744		$	(171,842	)	$	(20,002	)	$	(431,257	)
Income/(loss) from continuing operations:
	Basic		$	0.68		$	1.02		$	(359.07	)	$	(34.07	)	$	(977.78	)
	Diluted		$	0.66		$	0.83		$	(359.07	)	$	(34.07	)	$	(977.78	)
Income/(expense) from discontinued operations:
	Basic		$	—		$	—		$	14.08		$	(3.31	)	$	75.72
	Diluted		$	—		$	—		$	14.08		$	(3.31	)	$	75.72
Income/(loss) applicable to common shareholders per share:
	Basic		$	0.68		$	1.02		$	(359.50	)	$	(42.83	)	$	(923.46	)
	Diluted		$	0.66		$	0.83		$	(359.50	)	$	(42.83	)	$	(923.46	)
Average number of common shares - basic				30,463			25,340			478			467			467
Average number of common shares - diluted				31,354			31,113			478			467			467
Dividends declared per common share			$	—		$	—		$	—		$	—		$	11.00

Pacific Capital Bancorp
Consolidated Average Balances and Annualized Yields (unaudited)
						Successor Company
						For the Three Months Ended December 31, 2010						For the Four Months Ended December 31, 2010
						Average Balance		Income		Rate		Average Balance		Income		Rate
(dollars in thousands)
Assets
	Interest bearing demand deposits in other financial institutions					$	667,507	$	406	0.24	%	$	740,199	$	599	0.24	%
	Investment securities available for sale:
		Taxable					881,847		3,166	1.42	%		825,991		3,976	1.44	%
		Non-taxable (1)					213,283		2,177	4.08	%		214,987		2,896	4.04	%
			Total securities				1,095,130		5,343	1.94	%		1,040,978		6,872	1.98	%
	Loans: (2)
		Commercial					490,811		4,578	3.70	%		502,650		7,655	4.56	%
		Real estate - commercial (3)					2,101,915		35,501	6.76	%		2,114,527		46,812	6.64	%
		Real estate - residential 1 to 4 family					1,194,706		15,305	5.12	%		1,202,802		20,860	5.20	%
		Consumer					79,801		1,112	5.53	%		80,422		1,551	5.77	%
			Total loans, gross				3,867,233		56,496	5.84	%		3,900,401		76,878	5.91	%
	Other interest earning assets						82,364		327	1.58	%		81,636		391	1.43	%
				Total interest earning assets			5,712,234		62,572	4.38	%		5,763,214		84,740	4.41	%
	Noninterest earning assets						520,993						519,755
					Total assets	$	6,233,227					$	6,282,969
Liabilities and shareholders' equity
	Interest bearing deposits:
		Savings and interest bearing transaction accounts				$	1,623,480		1,335	0.33	%	$	1,605,435		1,821	0.34	%
		Time certificates of deposit					2,333,723		3,039	0.52	%		2,379,972		4,933	0.62	%
			Total interest bearing deposits				3,957,203		4,374	0.44	%		3,985,407		6,754	0.51	%
	Borrowed funds:
		Securities sold under agreements to repurchase and Federal funds purchased					325,002		1,452	1.77	%		325,442		1,771	1.63	%
		Other borrowings					115,127		2,721	9.38	%		145,611		4,043	8.31	%
			Total borrowed funds				440,129		4,173	3.76	%		471,053		5,814	3.69	%
				Total interest bearing liabilities			4,397,332		8,547	0.77	%		4,456,460		12,568	0.85	%
	Noninterest bearing demand deposits						1,116,768						1,112,944
	Other noninterest bearing liabilities						106,723						109,607
	Shareholders' equity						612,404						603,958
					Total liabilities and shareholders' equity	$	6,233,227					$	6,282,969
					Net interest spread					3.61	%					3.56	%
					Net interest income/margin			$	54,025	3.75	%			$	72,172	3.75	%

(1)	Because of the Company's tax position, the yield on tax exempt investments is not reported on a tax equivalent basis.
(2)	Nonaccrual loans are included in loan balances. Interest income includes related fee income.
(3)	Commercial real estate loans include multi-family residential real estate loans.

Pacific Capital Bancorp
Consolidated Average Balances and Annualized Yields (unaudited)
						Predecessor Company
						For the Eight Months Ended August 31, 2010						For the Twelve Months Ended December 31, 2009
						Average Balance		Income		Rate		Average Balance		Income		Rate
(dollars in thousands)
Assets
	Interest bearing demand deposits in other financial institutions					$	1,030,268	$	2,241	0.33	%	$	603,223	$	1,635	0.27	%
	Federal funds sold						—		—	—			329		1	0.30	%
	Securities:
		Trading assets					4,998		143	4.30	%		106,623		5,131	4.81	%
	Investment securities available for sale:
		Taxable					737,155		12,325	2.51	%		854,005		27,968	3.27	%
		Non-taxable (1)					238,375		7,727	4.86	%		306,547		14,791	4.83	%
			Total securities				980,528		20,195	3.09	%		1,267,175		47,890	3.78	%
	Loans: (2)
		Commercial					820,380		24,034	4.40	%		1,088,847		49,778	4.57	%
		Real estate - commercial (3)					2,511,673		90,159	5.38	%		2,785,416		158,558	5.69	%
		Real estate - residential 1 to 4 family					935,245		33,438	5.36	%		1,086,122		62,798	5.78	%
		Consumer					574,519		18,950	4.95	%		632,350		31,923	5.05	%
			Total loans, gross				4,841,817		166,581	5.16	%		5,592,735		303,057	5.42	%
	Other interest earning assets						83,364		683	1.23	%		80,382		689	0.86	%
				Total interest earning assets			6,935,977		189,700	4.10	%		7,543,844		353,272	4.68	%
	Noninterest earning assets						216,057						381,358
	Total assets from discontinued operations						225,897						668,428
					Total assets	$	7,377,931					$	8,593,630
Liabilities and shareholders' equity
	Interest bearing deposits:
		Savings and interest bearing transaction accounts				$	1,591,632		4,607	0.43	%	$	1,849,045		13,788	0.75	%
		Time certificates of deposit					2,706,043		41,903	2.33	%		2,580,600		69,841	2.71	%
			Total interest bearing deposits				4,297,675		46,510	1.63	%		4,429,645		83,629	1.89	%
	Borrowed funds:
		Securities sold under agreements to repurchase and Federal funds purchased					314,009		5,392	2.58	%		336,434		10,127	3.01	%
		Other borrowings					1,127,676		28,426	3.79	%		1,441,866		59,885	4.15	%
			Total borrowed funds				1,441,685		33,818	3.53	%		1,778,300		70,012	3.93	%
				Total interest bearing liabilities			5,739,360		80,328	2.11	%		6,207,945		153,641	2.47	%
	Noninterest bearing demand deposits						1,020,775						1,003,647
	Other noninterest bearing liabilities						103,257						113,612
	Total liabilities from discontinued operations						225,897						668,428
	Shareholders' equity						288,642						599,998
					Total liabilities and shareholders' equity	$	7,377,931					$	8,593,630
					Net interest spread					1.99	%					2.21	%
					Net interest income/margin			$	109,372	2.37	%			$	199,631	2.65	%

(1)	Because of the Company's tax position, the yield on tax exempt investments is not reported on a tax equivalent basis.
(2)	Nonaccrual loans are included in loan balances. Interest income includes related fee income.
(3)	Commercial real estate loans include multi-family residential real estate loans.

Pacific Capital Bancorp
Key Financial Ratios (unaudited)
(dollars and shares in thousands, except per share amounts)
	Successor Company			Predecessor Company
	Three Months			Three Months
	Ended			Ended
	December 31,			December 31,
	2010			2009
Financial Ratios, Consolidated:
Return on average equity		13.47	%		—
Return on average assets		1.32	%		—
Financial Ratios, PCBNA:
Return on average equity		14.13	%		—
Return on average assets		1.39	%		—
	Successor Company			Predecessor Company
	December 31,			December 31,
	2010			2009
Capital Ratios, Consolidated:
Tier 1 leverage ratio		10.31	%		5.34	%
Tier 1 risk-based capital ratio		16.07	%		7.81	%
Total risk-based capital ratio		16.38	%		10.40	%
Capital Ratios, PCBNA:
Tier 1 leverage ratio		9.17	%		5.51	%
Tier 1 risk-based capital ratio		14.26	%		8.09	%
Total risk-based capital ratio		14.58	%		10.69	%
Book value per share of common stock:
Shares of common stock outstanding		32,901			467
Book value per share of common stock	$	19.53		$	401.92
Tangible book value per share of common stock	$	16.69		$	382.04