SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 11-K
X ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission file number 0-11113
Full Title of the Plan and the Address of the Plan:
Santa Barbara Bank & Trust
Employee Stock Ownership Plan and Trust
1021 Anacapa Street
Santa Barbara, CA 93101
Name of Issuer of the securities held pursuant to the plan and the
address of the principal executive office:
Santa Barbara Bancorp
1021 Anacapa Street
Santa Barbara, CA 93101
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REQUIRED INFORMATION
The Santa Barbara Bank & Trust Employee Stock Ownership Plan and Trust ("Plan")
is subject to the Employee Retirement Income Security Act of 1974 ("ERISA").
Therefore, in lieu of the requirement of Items 1-3 of Form 11-K, the financial
statements and schedules of the Plan for the two fiscal years ended December 31,
1997 and 1996, which have been prepared in accordance with the financial
reporting requirements of ERISA, are attached hereto as Appendix 1 and
incorporated herein by this reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the Plan) have duly caused this annual
report to be signed on its behalf by the undersigned hereunto duly authorized.
Santa Barbara Bank & Trust
Employee Stock Ownership Plan & Trust
Date: June 26, 1998 By: /s/Jay Donald Smith
Jay Donald Smith
Senior Vice President
of Santa Barbara Bank & Trust, Trustee
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SANTA BARBARA BANK & TRUST
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
DECEMBER 31, 1997 AND 1996
INDEX
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
FINANCIAL STATEMENTS
Statements of Net Assets Available for Plan Benefits as of
December 31, 1997 and 1996
Statement of Changes in Net Assets Available for Plan Benefits
for the year ended December 31, 1997
NOTES TO FINANCIAL STATEMENTS
SUPPLEMENTAL SCHEDULES
Item 27a - Schedule of Assets Held for Investment as of December 31, 1997
Item 27d - Schedule of Reportable Transactions for the year ended
December 31, 1997
Note: All other schedules have been omitted, since the information is either
disclosed elsewhere in the financial statements, not applicable, or not
required by 29 CFR 2520.103-8 of the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement
Income Security Act of 1974.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees of the Santa Barbara Bank & Trust Employee Stock Ownership
Plan and Trust:
We have audited the accompanying statements of net assets available for plan
benefits of Santa Barbara Bank & Trust Employee Stock Ownership Plan and Trust
(the Plan) as of December 31, 1997 and 1996, and the related statement of
changes in net assets available for plan benefits for the year ended December
31, 1997. These financial statements and the schedules referred to below are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements and the schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits as of December
31, 1997 and 1996, and the changes in net assets available for plan benefits for
the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplemental schedules of assets held for
investment as of December 31, 1997 and of reportable transactions for the year
ended December 31, 1997, are presented for the purpose of additional analysis
and are not a required part of the basic financial statements but are
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. The supplemental schedules have been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, are fairly stated, in all material respects, in relation to the
basic financial statements taken as whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
May 15, 1998
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated May 15, 1998, into this Form 11-K and into Santa
Barbara Bancorp's previously filed Form S-8 Registration Statements File Nos.
33-5493, 33-43560, 33-48724, 333-05117 and 333-05119.
Los Angeles, California
June 26, 1998
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<CAPTION>
Santa Barbara Bank & Trust
Employee Stock Ownership Plan and Trust
Statements of Net Assets Available for Plan Benefits
as of December 31, 1997 and 1996
ASSETS: 1997 1996
---- ----
<S> <C> <C>
Cash equivalents $ 18,226 $ --
Investment in Common Stock of Santa Barbara
Bancorp, at fair value 35,280,461 19,968,536
Investment in Mutual Funds, at fair value 70,261 525,751
Employer contributions receivable -- 1,000,000
Dividends and interest receivable 3,780 --
----------- -----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $35,372,728 $21,494,287
=========== ===========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
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<CAPTION>
Santa Barbara Bank & Trust
Employee Stock Ownership Plan and Trust
Statement of Changes in Net Assets Available for Plan Benefits for
the year ended December 31, 1997
<S> <C>
NET ASSETS AVAILABLE FOR PLAN BENEFITS,
beginning of year $21,494,287
------------
Investment income:
Net appreciation in fair value of investment
of Santa Barbara Bancorp 14,046,149
Net appreciation in fair value of Mutual Funds 876
Dividends on Common Stock
of Santa Barbara Bancorp 681,261
Dividends on Mutual Funds 11,321
Interest income 2,667
------------
Total investment income 14,742,274
------------
Employer contribution 1,347,076
Interest Expense (57,837)
Administrative Expenses (1,095)
Payment of dividends to participants (495,805)
Transfer to profit sharing plan (59,930)
Distributions to participants (1,596,242)
------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS,
end of year $35,372,728
============
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
<PAGE>
Santa Barbara Bank & Trust
Employee Stock Ownership Plan and Trust
Notes to Financial Statements
December 31, 1997
1. Plan Description and Basis of Presentation
The Santa Barbara Bank & Trust Employee Stock Ownership Plan and Trust (the
"Plan" or "ESOP") was approved by the Board of Directors of Santa Barbara Bank &
Trust (the "Bank") on January 1, 1985. The Bank is a wholly owned subsidiary of
Santa Barbara Bancorp (the "Company"). The Bank is also the Trustee and
Administrator of the Plan. Since the initial purchase of common stock of the
Company in January 1985, the Plan has made several other large purchases of the
Company's stock.
The Plan covers employees of the Bank who have completed one year of service,
have worked more than 1,000 hours during the Plan year and are 18 years of age.
Contributions by the Bank to the Plan are discretionary, but generally have
approximated 10 percent of pre-tax Bank profits prior to employer contributions
to the Plan. Employees do not contribute to the Plan.
The Plan is subject to the applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended.
When employees have been participating in the ESOP for ten years and have
attained age 55, the Internal Revenue Code requires the ESOP to permit those
"qualified" employees to begin to diversify the assets that are held in their
accounts. Some of the proceeds from the sale of stock to accomplish this
diversification were used to purchase mutual funds. These investments remained
in the ESOP and are reported in the Statements of Net Assets Available for Plan
Benefits as Investment in Mutual Funds. Other proceeds from sales for this
diversification were transferred to the participants' accounts in the Incentive
& Investment and Salary Savings Plan.
Participants who have completed a year of service during the Plan year and are
employed on the last day of the Plan year receive allocations of forfeitures and
Bank contributions based on their eligible compensation. The Plan's invested
assets consist of stock in Santa Barbara Bancorp and shares in various mutual
funds as shown in the supplemental Schedule of Assets Held for Investment as of
December 31, 1997.
Participants vest in their account as follows:
Plan Years of Percent
-------------- -------
Service Vested
------- ------
Less than 2 years 0%
2 years 20%
3 years 30%
4 years 40%
5 years 60%
6 years 80%
7 years 100%
All participants are considered fully vested upon attainment of retirement age
(65) or the earlier of their qualifying retirement, disability or death.
No distributions from the Plan will be made until a participant retires, dies
(in which case, payment shall be made to his or her beneficiary or, if none, his
or her legal representatives), or otherwise terminates employment with the Bank.
Distributions are made in cash or, if a participant elects, in the form of the
Company's common shares plus cash for any fractional shares.
The Bank retains all rights to terminate or amend the Plan at any time. In the
event of termination of the Plan, all participants will be fully vested and the
Bank, as the Trustee, will be directed to distribute the participants' equity to
participants in proportion to their accounts.
All administrative expenses, except as explained in Note 5, are paid by the
Bank.
2. Summary of Significant Accounting Policies
A. Contributions from the Bank are recorded on an accrual basis and are
allocated annually to individual participants' accounts as provided by the
Plan and in accordance with the law, net of amounts used to make payments
on any debt.
B. Investment income is accrued and is allocated to individual participants'
accounts quarterly.
C. The Plan requires that forfeitures of unvested amounts be allocated among
the individual accounts of active participants at the end of the Plan
year. Forfeited non-vested accounts totaled $30,847 and $35,988, at
December 31, 1997 and 1996, respectively. Forfeitures allocated to
participants during the 1997 Plan year totaled $60,569.
D. Investments in the Common Stock of the Company are stated at
fair value. Investments in Mutual Funds are valued at
quoted market prices, which represent the net asset value of
shares held by the Plan at year end. Realized appreciation
or depreciation is recorded upon the sale of vested shares
distributed to terminated Plan participants. Unrealized
appreciation on investments represents the excess of fair
value over cost (cost equals the market value at the
beginning of the period).
E. Certain prior year amounts have been reclassified to conform to the 1997
presentation.
F. The accompanying financial statements are prepared on the accrual basis of
accounting. The presentation of the financial statements in conformity
with generally accepted accounting principles requires the Plan's
management to use estimates and assumptions that affect the accompanying
financial statements and disclosures. Actual results could differ from
these estimates.
Reconciliation of Financial Statements to Form 5500
The following is a reconciliation of net assets available for plan benefits per
the financial statements to the Form 5500 as of December 31:
1997 1996
---- ----
Net assets available for plan
benefits per the financial statements $35,372,728 $21,494,287
Amounts allocated to withdrawing
participants (1,672,897) (436,284)
------------ ------------
Net assets available for plan
benefits per the Form 5500 $33,699,831 $21,058,003
============ ============
The following is a Plan reconciliation of distributions to Plan participants per
the financial statements to the Form 5500 for the year ended December 31, 1997:
1997
----
Distributions to participants per the
financial statements $1,596,242
Add: Amounts allocated to withdrawing
participants at December 31, 1997 1,672,897
Less: Amounts allocated to withdrawing
participants at December 31, 1996 (436,284)
-----------
Distributions to participants per the
Form 5500 $2,832,855
===========
Amounts allocated to withdrawing participants are recorded on the Form 5500 for
benefit claims that have been processed and approved for payment prior to
December 31 but have not yet been paid as of that date. However, these amounts
are not recorded as a liability in the accompanying statements of net assets
available for benefits in accordance with generally accepted accounting
principles.
4. Tax Status
The Plan obtained its most recent determination letter from the Internal Revenue
Service on February 23, 1995. At that time, the Plan was deemed to be designed
to satisfy the qualification requirements, and consequently the related trust
satisfied the tax exempt requirement of the Internal Revenue Code. The Plan has
been amended subsequently. The Plan Administrator believes that the Plan is
currently designed and being operated in compliance with the qualification
requirements of the Internal Revenue Code, and that the related trust was tax
exempt as of the financial statement date.
5. Administration of Plan Assets
The Plan's assets, which consist principally of the Company's common shares, are
held by the Trustee of the Plan.
Bank contributions are held and managed by the Trustee, which invests cash
received, interest, and dividend income and makes distributions to participants.
Certain administrative functions are performed by officers or employees of the
Bank. No such officer or employee receives compensation from the Plan.
Administrative expenses for the Trustee's fees are paid directly by the Bank.
The amounts of these expenses amounted to $41,710 and $42,769 in fiscal year
1997 and 1996, respectively.
Beginning in 1997, the Bank began to charge the Plan for the administration of
the accounts of employees who have terminated their employment before retirement
but have not requested distribution of their accounts. These expenses are
charged by the Plan to the individual's account.
6. Investment in Common Stock of Santa Barbara Bancorp
The changes in the investment account of Common Stock of the Company for the
years ended December 31, 1997 and 1996 are summarized as follows:
1997 1996
---- ----
Total number of shares 1,426,324 1,564,530
Purchased by the plan 141,344 -
Distribution to participants (70,354) (138,206)
---------- ----------
Balance 1,426,324 1,497,314
========== ==========
Fair value per share as of December
31, 1997 and 1996 $23.57 $14.00
Number of participants 565 465
As explained in Note 1, under the current value method of accounting for
investments, the cost of investments is equal to the market value of the
investment at the end of the previous year. The cost of the Company's shares at
the end of the previous period for determining realized and unrealized
appreciation was $14.00 per share. Investment in common stock of the Company
represents greater than 5 percent of the net assets of the Plan. There were no
other significant related party transactions during the Plan year.
7. Repurchase of Shares
Occasionally, the Plan repurchases stock from terminating employees who do not
wish to retain their stock. Repurchased shares are retained by the Plan and
therefore are not reported in the table as a change in the Investment in Common
Stock of the Company. Such stock is allocated among the individual accounts of
active participants at the end of the Plan year. The market value of investments
other than stock is distributed to terminating employees in cash.
8. Dividends
Cash dividends on allocated shares are distributed directly to participants as
received from the Company. Cash dividends on any outstanding unallocated shares
are allocated to participants' accounts at the end of the Plan year. At December
31, 1997, there were no unallocated shares outstanding.
9. Interest Expense
A block of 80,000 additional shares of Santa Barbara Bancorp stock was offered
for sale to the Plan during 1997. The price offered was $1,652,500 or $20.66 per
share, which represents the fair value of the stock on the date of the offer.
The purchase price exceeded the amount of funds held by the Plan. The Plan
borrowed the funds necessary for the purchase from the Bank. The loan accrued
interest at 8.5 percent for the period that the loan was outstanding. The loan
was repaid on December 31,1997.
10. Subsequent Event
On February 24, 1998, the Board of Directors of the Company declared a 2 for 1
common stock split. The number of shares held and all per share amounts in these
statements have been restated to reflect this split.
<PAGE>
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SCHEDULE I
Santa Barbara Bank & Trust
Employee Stock Ownership Plan and Trust
EIN 95-2089059 Plan Number 003
Item 27a - Schedule of Assets Held for Investment
as of December 31, 1997
Identity of Issuer, Borrower, Fair
Lessor, or Similar Party Description of Investment Cost Value
- -------------------------------------------- -------------------------------- ---------- ----------
<S> <C> <C> <C>
*Money Market Account,
Santa Barbara Bank & Trust 10,016 units $ 10,016 $ 10,016
Franklin Cash Reserves 8,210 shares 8,210 8,210
----------- ----------
Total cash equivalents 18,226 18,226
*Santa Barbara Bancorp 1,497,314 common stock shares 21,600,299 35,280,461
Fidelity Advisor Equity Growth 238 common stock shares 12,082 11,019
Fidelity Advisor Intermediate Bond 1,953 corporate bond units 20,509 20,708
Franklin Mutual Qualified 432 common stock shares 8,061 7,833
Franklin Small Cap Growth 353 common stock shares 6,433 8,096
Templeton Foreign 1,116 common stock shares 11,920 11,105
Van Kampen American Capital Enterprises 660 common stock shares 11,124 11,500
----------- -----------
Total mutual funds 70,129 70,261
----------- -----------
Total investments $21,688,654 $35,368,948
=========== ===========
* Represents a party-in-interest
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<CAPTION>
SCHEDULE II
Santa Barbara Bank & Trust
Employee Stock Ownership Plan and Trust
EIN 95-2089059 PLAN 003
Item 27d - Schedule of Reportable Transactions
for the year ended December 31, 1997
Purchase Selling Cost of Net Gain
Identity of Issuer Description of Asset Price Price Asset (Loss)
- ---------------------- ------------------------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Santa Barbara Bancorp Common Stock
16 purchases $ 1,384,162 $ - $ 1,384,162 $ -
13 sales - 140,354 92,338 48,016
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