As expected, Pacific Capital Bancorp of Santa Barbara, Calif., reported a first-quarter earnings drop, mainly because of a decline in its refund anticipation loan business.
The $7.4 billion-asset Pacific Capital said Tuesday that net income fell 13.8% from a year earlier, to $58.1 million, because pretax income from refund anticipation loans dropped 20.2%. It said that it made fewer loans, and that losses increased as a result of fraud and a higher volume of higher-risk holiday loans and paystub loans made before the tax season.
On April 5, Pacific Capital said that it was reserving $6 million against the full balance of certain loans it made for an operator of 125 tax preparation offices being sued for fraud by the Justice Department. It also said that it would no longer make such loans to customers of those offices.
Five days later, Pacific Capital said it would stop making the holiday and paystub loans.
First-quarter net chargeoffs of refund anticipation loans increased 53.6%, to $62.7 million.
However, Pacific Capital said in its earnings report that its core banking business continues to improve. Excluding refund anticipation loans, its net interest margin increased 5 basis points from the fourth quarter, to 3.88%, and its efficiency ratio declined slightly, to 65.32%.
"We firmly believe that we are doing a better job of managing the factors that are within our control, and we can deliver improved results in the core bank," George Leis, Pacific Capital's president and chief executive, said in a conference call Tuesday.
The company also announced that it would sell its indirect auto loan portfolio and exit the business, because it was "not well aligned with our core competencies."
By late Tuesday, Pacific Capital's shares had risen 5.1% from Monday's close, to $27.32.
