Pacific Capital Bancorp shareholders passed two proposals on Sept. 29 that could make it easier for the capital-strapped banking firm to accommodate a new infusion of cash from investors and bolster its sagging stock price.
Meeting at Fess Parker’s DoubleTree Resort in Santa Barbara, shareholders quickly voted to give Pacific Capital’s board the power to increase the number of shares outstanding from 100 million to 500 million and carry out a reverse stock split. Pacific Capital is the parent of Santa Barbara Bank & Trust and the largest banking independent banking company in the Tri-Counties.
Though the vote count won’t be final until Sept. 30, Debbie Whiteley, executive vice president of investor relations and corporate communications at Pacific Capital, said both measures passed handily.
“The authorized-share increase was approved by 59 percent of outstanding shares, and the reverse stock split passed by 69 percent,” Whiteley said. “It was a 10-minute shareholder meeting.”
Both moves are important to Pacific Capital as it works its way out of a capital crunch. Though the company sits above federal guidelines for a “well capitalized” bank, in April it voluntarily agreed to increase its capital reserves.
The bank agreed to boost its tier one leverage ratio — its free cash divided by its loans and other assets — to 8.5 percent by June 30. It missed that mark, clocking in at 5.7 percent, a decline from 6.7 percent the quarter before. Pacific Capital’s agreement calls for a ratio of 9 percent by Sept. 30.
The power to issue more shares could help the bank raise capital if it chooses to sell stock. Being able to issue enough shares is crucial, analysts say. They point to the example of Hawaii-based Central Pacific Bank, which put a $100 million stock sale on hold in late July because its board hadn’t authorized the issue of enough new shares.
“To authorize the right amount of share issues is the first step in getting a capital raise done,” Julianna Balicka, an analyst with Keefe, Bruyette & Woods, told the Business Times in an interview.
In a different scenario, a stock split could boost the price of shares ahead of a merger. Shareholders gave the board the power to carry out a split of up to 10-to-1. In such a split, a shareholder with 10 shares would end up with one share. The fewer number of shares after a reverse split generally results in a higher per-share price.
Neither the new shares or the reverse split are guaranteed to happen, Whiteley said. They are only options the board of directors has at its disposal, she said. In July, Pacific Capital brought aboard investment bank Sandler O’Neill to help evaluate “strategic alternatives.”
“These are additional tools in the toolbox as the board looks at strategic alternatives,” Whiteley said.