Pacific Capital Bancorp posts surprise Q2 loss

BANGALORE (Reuters) - Pacific Capital Bancorp (PCBC.O) surprised the markets with a quarterly loss, hurt by higher provision for bad loans, and said the provisions will stay at these levels until the U.S. economy is back on track.

Provision for bad loans rose to $37.2 million in the latest second quarter from $5.1 million a year ago.

"It's a positive that they made such a big provision," FTN Midwest Research Securities analyst Brett Rabatin said. The company still has got loans to work through and it will have to continue doing so for the rest of the year, he said.

The bank holding company reported a quarterly net loss of $5.9 million, or 13 cents a share, compared with a profit of $33.2 million, or 70 cents a share, a year ago.

Analysts had expected the company to earn 18 cents a share, according to Reuters Estimates.

Net interest income fell about 4 percent to $64.4 million.

Shares of the company surged as much as 29 percent in morning trade but pared most of the gains amid volatile trade Wednesday. The shares were up 37 cents at $15.25 in afternoon trade on Nasdaq.

Analyst Rabatin said part of the rally was short covering. As Pacific Capital was well capitalized, investors are thinking that if the company doesn't need to raise capital at diluted levels, then the shares may be oversold and it's safe to own them.

NEGATIVE PROVISIONS

The company's core banking unit recorded $43.5 million provision for loan losses but was partially offset by a negative a provision of $6.4 million, related to its Refund Anticipation Loan (RAL) program.

Negative provisions are made when a company makes provisions for some loans anticipating that such loans might not be collected but end up collecting more than expected.

Under the RAL program, a loan is given to a customer based on the person's anticipated tax refund.

Last year, RAL and Refund Transfer (RT) business was soft but was doing better this year, analyst Rabatin said, adding that the company had some issues with the program but this year it was able to put in systems to reduce the risk.

Through the first six months of 2008, the company's RAL and RT programs generated $117.9 million in pre-tax income, an increase of 81.3 percent from the year-ago period.

(Editing by Gopakumar Warrier)