DBRS Downgrades Pacific Capital Bancorp to BB (high); Ratings Remain Under Review Negative

DBRS has today downgraded the ratings of Pacific Capital Bancorp (PCBC or the Company) and its bank subsidiary, Pacific Capital Bank, N.A, (Bank) including the Company’s Issuer & Senior Debt rating to BB (high) from BBB. All ratings remain Under Review with Negative Implications.

The ratings action follows the Company’s announcement deferring interest payments on its trust preferred securities and suspending dividend payments on its common and preferred stock. While the action will help preserve approximately $32 million of capital annually, the action further limits the Company’s already reduced financial flexibility, especially given a low stock price, heightened regulatory attention that requires the Company to increase capital levels and a still disrupted market that remains difficult to sell assets into, even those that are performing. DBRS notes that the regulatory attention will have the primary goal of protecting the Bank over the holding company. As a result, DBRS has increased the notching differential between the Bank and holding company to two notches.

Furthermore, since the ratings review was announced on April 30, 2009, the California economy continues to deteriorate as evidenced by higher unemployment rates, still declining real estate values and a substantial California state budget deficit problem that remains unresolved. All these factors contribute to DBRS’s belief that elevated asset quality problems will persist and operating losses are likely over the intermediate term, which will further pressure PCBC’s capital and raise the likelihood of further regulatory actions. These issues were discussed in more detail in DBRS’s press release dated April 30, 2009.

The Company’s ratings remain supported by a well-established community banking franchise along the demographically attractive central California coastline that has recently enhanced liquidity through deposit growth. The ratings also take into account PCBC’s strong niche in the nationwide Refund Anticipation Loan and Refund Transfer programs, where it processes more than 30% of all transactions in the industry.

As previously written, the review will focus on what strategic plans management will undertake to position the Company for improved financial fundamentals, whether balance sheet initiatives will achieve the desired regulatory capital ratios mandated by the OCC and whether elevated credit costs will continue to invade capital and pressure overall results. Given all the moving parts of the environment, further downside risks to the ratings remain. DBRS notes that any capital raise would be viewed favorably.

Pacific Capital Bancorp, a financial holding company based in Santa Barbara, California, reported total assets of $9.2 billion at March 31, 2009.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are Rating Banks and Bank Holding Companies Operating in the United States, and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.