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On Wednesday, Pacific Capital Bancorp hung the big scarlet “N” (for non-reliance) on its first quarter 2007 financials. None of the usual reasons you’d expect: no ruined derivatives shortcuts, no improper income taxes, and no backdated options investigations. (Thank God!)

This one looked like an isolated kind of error, native only to Pac Cap. The firms had engaged in making “Refund Anticipation Loans” and in recording the activity for the program in the first quarter, two incorrect postings were made to the general ledger:

… which ultimately resulted in an $11.2 million overstatement in the loan balance, interest income for the first quarter being overstated by $9.7 million, and the provision for RAL credit losses being understated by $1.5 million. The resulting impact is an after-tax decrease in net income of $6.5 million, or $0.14 per fully diluted earnings per share for the first quarter of 2007. The Company now reports net income of $51.6 million and fully diluted earnings per share for the first quarter of 2007 of $1.09.

An 11% decrease in income due to the restatement. How do you miss an error that big in the first place if you’re planning your earnings to any degree? The company’s CFO resigned as of today, as mentioned in the 8-K. As it seems these days, the accounting issues didn’t seem to matter much: the stock finished up on the day of the 8-K, because the second quarter earnings were good.

PCBC 1-yr chart:

PCBC

Source: Pacific Capital: A Costly Mis-post