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Pacific Capital Bancorp Reports Fourth Quarter Financial Results.

SANTA BARBARA, Calif. -- Pacific Capital Bancorp (Nasdaq:PCBC), a community bank holding company with $7.4 billion in assets, today announced financial results for the fourth quarter ended December 31, 2007.

Net income for the fourth quarter of 2007 was $12.2 million, or $0.26 per diluted share, compared with a net loss of $1.1 million, or ($0.02) per diluted share, reported for the fourth quarter of 2006. Net income for the full year 2007 was $100.9 million, or $2.14 per diluted shared, compared with net income of $94.5 million, or $2.01 per diluted share for the full year 2006. Amounts for both years reflect the impact of the strategic actions listed below and in prior press releases.

Net income for the fourth quarter of 2007 reflects the following strategic action:

* $3.0 million loss (pre-tax) recorded on securities that were marked-to-market in order to provide greater flexibility to manage the securities portfolio in the future

Net income for the fourth quarter of 2006 reflected the following strategic actions (all dollar amounts are pre-tax):

* $8.8 million loss recorded on securities that were marked-to-market

* $9.3 million asset write-down related to obsolete software

* $0.5 million in severance charges

* $1.8 million gain on sale of the Company's San Diego branch

* $1.0 million benefit from the true-up of the effective tax rate

Excluding the impact of the strategic actions and the Refund Anticipation Loan (RAL) and Refund Transfer (RT) programs in each quarter, net income for the fourth quarter of 2007 was $15.0 million, or $0.32 per diluted share, compared with net income of $10.9 million, or $0.23 per diluted share, reported for the fourth quarter of 2006.

Commenting on the fourth quarter of 2007, George Leis, President and Chief Executive Officer of Pacific Capital Bancorp, said, "Our fourth quarter results reflect solid progress on our efforts to improve the performance of the core bank. Excluding the impact of loan sales and short-term bridge loans, we grew our loan portfolio at an annualized rate of 10.0% during the quarter. We also generated solid year-over-year growth in our most important non-interest income areas and reduced non-interest expense in the core bank by 9.3% from the same period last year, excluding the impact of the strategic actions. We did record a higher provision for credit losses than last quarter, but this was primarily attributable to isolated issues with two particular borrowers. The remainder of the portfolio continues to perform within our expectations.

"We continued to reposition the Company's balance sheet during the fourth quarter, including the decision to sell $353 million in residential real estate loans. We expect this sale will help increase our balance sheet flexibility and mitigate pressure on our net interest margin," said Leis.

Income Statement

Throughout this press release, the Company has presented certain amounts and ratios that are computed both with and without the impact of the Company's RAL and RT programs and certain items that are not deemed to be part of ongoing operations. The Company's management utilizes the information excluding the RAL/RT programs in the evaluation of its core banking operations and believes that the investment community also finds this information valuable. The Company has also called attention to certain other strategic actions. The impact of the RAL/RT programs and those strategic actions on the consolidated information prepared in accordance with Generally Accepted Accounting Principles is provided in tables at the end of this release.

Net interest income for the fourth quarter of 2007 was $59.0 million, compared with $66.6 million in the same quarter of 2006. The decrease in net interest income is primarily attributable to a decline in net interest margin and the sale of loan portfolios during the second quarter of 2007.

Net interest margin for the fourth quarter of 2007 was 3.62%, which compares with 4.06% in the fourth quarter of 2006 and 3.65% in the third quarter of 2007.

Non-interest income was $14.2 million in the fourth quarter of 2007, compared with $9.9 million in the fourth quarter of 2006. Excluding the impact of the strategic actions, non-interest income in the fourth quarter of 2007 was $17.2 million, compared with $16.7 million in the same period of the prior year. The increase in non-interest income was primarily attributable to an increase in service charges on deposits and Wealth Management fees.

The Company's operating efficiency ratio for the fourth quarter of 2007 was 66.1%, compared with 76.7% in the same period last year.

The following reflects the Company's operating efficiency ratios excluding the impact of the RAL/RT programs and the strategic actions:

* Q4 2007: 61.6%

* Q3 2007: 63.3%

* Q4 2006: 62.5%

Total non-interest expense in the fourth quarter of 2007 declined by 9.3% from the same period last year, excluding the impact of the RAL/RT programs and the strategic actions.

Balance Sheet

Total gross loans were $5.36 billion at December 31, 2007, compared with $5.56 billion at September 30, 2007 and $5.72 billion at December 31, 2006. Excluding a bridge loan and $353 million of residential real estate loans that have been sold or are held-for-sale, total gross loans increased at an annualized rate of 10.0% in the fourth quarter of 2007. The growth in the loan portfolio during the fourth quarter of 2007 was primarily attributable to 22.6% annualized growth in commercial loans (excluding bridge loans). Excluding the impact of loan sales, holiday loans and bridge loans, total gross loans increased 13.4% from $4.71 billion at December 31, 2006.

Total deposits were $4.96 billion at December 31, 2007, compared to $4.85 billion at September 30, 2007, and $5.05 billion at December 31, 2006. Excluding deposits related to the RAL program, total deposits were $4.74 billion at December 31, 2007, compared to $4.80 billion at September 30, 2007 and $4.92 billion at December 31, 2006.

Asset Quality and Capital Ratios

In the fourth quarter of 2007, the Company recorded a provision for credit losses of $4.8 million. The total provision for credit losses consisted of the following: a provision of $6.8 million related to the core bank and a negative provision of $2.0 million related to the RAL program, reflecting RAL collections made during the quarter.

The increased provision for the core bank was primarily attributable to the downgrade of two commercial relationships to non-accrual status during the fourth quarter of 2007: an $11.6 million loan to a company in the auto parts industry and a $33.5 million credit facility to a residential home builder. The remainder of the Company's construction portfolio remains generally stable. Excluding the $33.5 million credit facility referenced above from both the third and fourth quarters, total non-performing construction loans were 1.19% of total construction loans at December 31, 2007, compared with 1.24% at September 30, 2007.

At December 31, 2007, the allowance for credit losses was $44.8 million, or 0.84% of total loans, compared to $40.4 million, or 0.73% of total loans, at September 30, 2007.

Total non-performing assets, which include non-performing loans and other real estate owned, were $76.7 million, or 1.04% of total assets, at December 31, 2007, compared with $25.7 million, or 0.36% of total assets, at September 30, 2007.

The Company's ratio of allowance to non-performing loans was 61% at December 31, 2007, compared to 177% at September 30, 2007.

Excluding RALs, net charge-offs were $1.4 million for the three months ended December 31, 2007, compared with net charge-offs of $3.2 million for the three months ended September 30, 2007. Annualized net charge-offs to total average loans (both excluding RALs) were 0.10% for the three months ended December 31, 2007, compared with 0.23% for the three months ended September 30, 2007.

At December 31, 2007 the Company's capital ratios were above the well-capitalized guidelines established by bank regulatory agencies.

Profitability Ratios

Pacific Capital Bancorp's return on average equity (ROE) and return on average assets (ROA) for the fourth quarter of 2007 were 7.36% and 0.67%, respectively, compared to (0.73%) and (0.06%), respectively, for the fourth quarter of 2006. Excluding the impact of the RAL/RT programs and the strategic actions in both periods, the Company's ROE and ROA for the fourth quarter of 2007 were 11.6% and 0.81%, respectively, compared to 8.7% and 0.61%, respectively, for the fourth quarter of 2006.

Share Repurchase Program

During the fourth quarter of 2007, the Company completed the $25 million stock repurchase program that was authorized by the Board of Directors in August 2007. Over the course of the program, the Company spent $25.0 million to purchase 1,090,966 shares of its common stock at an average price of $22.86.

RAL/RT Programs

The Company continues to expect its overall transaction volume during the 2008 RAL/RT season to increase 10-15% over the 2007 season volume and expects the product mix to be approximately 25% RALs and 75% RTs.

Outlook

Pacific Capital Bancorp provided the following expectations for the core bank for the full year 2008:

* Loan growth of 8%-10%

* Wealth Management fee growth of 8%-10%

* Operating expense growth of 4%-5%

* Provision for credit losses of $18 million-$22 million

* Continued compression in net interest margin

Commenting on the outlook for Pacific Capital Bancorp, Leis said, "We believe the actions we took last year have positioned the Company to increase earnings in both the core bank and the RAL and RT programs in 2008. Our strategic priorities in 2008 include continuing to improve our core deposit gathering abilities, controlling expenses, proactively managing problem credits to minimize losses, further expanding our Wealth Management division with additional acquisitions, and restoring stability to the RAL/RT programs. Despite the slowing economic conditions that are projected for 2008, we believe we are well positioned to create significant value for shareholders."

Conference Call and Webcast

The Company will hold a conference call today at 11:00 a.m. Eastern time / 8:00 a.m. Pacific time to discuss its fourth quarter 2007 results. To access a live webcast of the conference call, log on at the Investor Relations page of the Company's website at www.pcbancorp.com. For those who cannot listen to the live broadcast, a replay of the conference call will be available shortly after the call at the same location.

Pacific Capital Bancorp is the parent company of Pacific Capital Bank, N.A., a nationally chartered bank that operates 50 branches under the local brand names of Santa Barbara Bank & Trust, First National Bank of Central California, South Valley National Bank, San Benito Bank and First Bank of San Luis Obispo.

Forward Looking Statements

This press release contains forward-looking statements with respect to the financial condition, results of operation and businesses of Pacific Capital Bancorp. These include statements that relate to or are dependent on estimates or assumptions relating to the prospects of continued loan and deposit growth, improved credit quality, the health of the capital markets, the Company's de novo branching and acquisition efforts, the operating characteristics of the Company's income tax refund loan and transfer programs and the economic conditions within its markets. These forward-looking statements involve certain risks and uncertainties, many of which are beyond the Company's control. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following possibilities: (1) deterioration in general economic conditions, internationally, nationally or in California; (2) changes in the interest rate environment reducing interest margins or increasing interest rate risk; (3) increased competitive pressure among financial services companies; (4) the occurrence of terrorist acts; (5) reduced demand for or earnings derived from the Company's income tax refund loan and refund transfer programs; (6) legislative or regulatory changes or litigation adversely affecting the businesses in which Pacific Capital Bancorp engages; (7) unfavorable conditions in the capital markets; (8) difficulties in opening additional branches or integrating acquisitions; and (9) other risks detailed in reports filed by Pacific Capital Bancorp with the Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made, and Pacific Capital Bancorp does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. For a more detailed description of the risk factors associated with the Company's businesses, please refer to the Company's most recent Annual Report on Form 10-K.

Non-GAAP Amounts and Measures

This press release contains amounts and ratios that are computed excluding the results of operations of the RAL/RT programs and/or exclude asset and liability balances related to those programs. Because they relate to the filing of individual tax returns, these programs are activities conducted primarily during the first and second quarters of each year. These programs comprise one of the Company's operating segments for purposes of segment reporting in the Company's quarterly and annual reports to the SEC. The Company's Management believes analysts and investors find this information useful for the same reason that Management uses it internally, namely, it provides more comparability with virtually all of the rest of the Company's peers that do not operate such programs.

The information that excludes balances and results of the RAL/RT programs is reconciled to the consolidated information prepared in accordance with Generally Accepted Accounting Principles in several tables at the end of this release.

In addition to the non-GAAP measures computed related to the Company's balances and results exclusive of its RAL and RT programs, this release contains other financial information determined by methods other than in accordance with GAAP. Management uses these non-GAAP measures in their analysis of the business and its performance. In particular, net interest income, net interest margin and operating efficiency are calculated on a fully tax-equivalent basis ("FTE"). Management believes that the measures calculated on a FTE basis provide a useful picture of net interest income, net interest margin and operating efficiency for comparative purposes. Net interest income and net interest margin on a FTE basis is determined by adjusting net interest income to reflect tax-exempt interest income on an equivalent before-tax basis. The efficiency ratio also uses net interest income on a FTE basis.

The assets, liabilities, and results of operations of the Company's refund programs are reported in its periodic filings with the SEC as a segment of its business. Because these are activities conducted by very few other financial institutions, users of the financial statements have indicated that they are interested in information for the Company exclusive of these programs so that they may compare the results of operations with financial institutions that have no comparable programs. The amounts and ratios may generally be computed from the information provided in the note to its financial statements that discloses segment information, but are computed and included in the press release for the convenience of those users.
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Publication:Business Wire
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Date:Jan 31, 2008
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