FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to _____________________.
Commission File Number 0-13528
Pacific Capital Bancorp
(Exact name of registrant as specified in its charter)
California 77-0003875
(State or other jurisdiction of (I.R.S.
Employer
incorporation or organization) Identification
Number)
1001 S. Main Street, Salinas, California 93901
(Address of principal executive offices)
(Zip Code)
(408) 757-4900
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class October 28, 1995
Common stock, no par value 2,480,470 Shares
This report contains a total of 19 pages.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 PAGE
PACIFIC CAPITAL BANCORP AND
SUBSIDIARIES FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 3
CONSOLIDATED STATEMENTS OF INCOME 4-5
CONSOLIDATED STATEMENTS OF CASH FLOWS 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8 - 15
PART II - OTHER INFORMATION
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
<PAGE>
PART I - FINANCIAL INFORMATION
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
September 30, December 31,
Assets 1995 1994
Cash and due from banks $23,683 $26,301
Federal funds sold and other short term
investments 29,353 15,961
Total cash and equivalents 53,036 42,262
Investment securities:
Available-for-sale securities, at fair value 46,435 22,258
Held-to-maturity securities, at
amortized cost (fair value of $46,769 and 46,954 64,131
$62,367, respectively)
Loans available for sale at cost, which 3,621 2,301
approximates market
Loans:
Commercial 40,121 43,783
Consumer 11,377 11,328
Real estate - mortgage 121,991 116,630
Real estate - construction 18,463 22,539
Bankers' acceptances & commercial 399 709
paper
Other 5,593 6,090
Less deferred loan fees (326) (299)
Total loans 197,618 200,780
Less allowance for possible loan losses (2,245) (2,438)
Net loans 195,373 198,342
Premises and equipment, net 7,306 7,238
Accrued interest receivable and other, 7,750 7,347
net
Total assets $360,475 $343,879
======== ========
Liabilities and shareholders' equity
Deposits:
Demand, non-interest bearing $68,678 $70,638
Demand, interest bearing 55,425 53,410
Savings and money market 107,392 122,816
Time certificates 84,352 56,365
Total deposits 315,847 303,229
Accrued interest payable and other 2,749 1,900
liabilities
Total liabilities 318,596 305,129
Shareholders' equity:
Preferred stock; 20,000,000 shares - -
authorized and unissued
Common stock, no par value; 20,000,000
shares authorized;
2,480,470 and 2,476,517 shares issued
and outstanding at
September 30, 1995 and at December 28,102 28,056
31, 1994, respectively
Retained earnings 13,843 10,850
Net unrealized losses on available-for- (66) (156)
sale securities
Total shareholders' equity 41,879 38,750
Total liabilities and shareholders'equity $360,475 $343,879
======== ========
See accompanying notes to consolidated financial statements
<PAGE>
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Nine months Nine months
ended ended
September 30, September 30,
1995 1994
Interest income:
Interest and fees on loans $15,353 $12,615
Interest on investment securities 2,870 2,962
Interest on federal funds sold 832 505
Total interest income 19,055 16,082
Interest expense:
Demand, interest bearing 422 405
Savings 2,082 2,081
Time certificates 2,513 1,245
Other 0 2
Total interest expense 5,017 3,733
Net interest income 14,038 12,349
Provision for possible loan losses 0 0
Net interest income after provision 14,038 12,349
for possible loan losses
Other income:
Service charges 1,074 1,048
Gain on sale of loans 15 112
Mortgage banking fees 95 129
Net loss on securities transactions (18) (17)
Other 264 322
Total other income 1,430 1,594
Other expenses:
Salaries and benefits 4,852 4,491
Occupancy 1,024 945
Equipment 772 781
Advertising and promotion 326 343
Stationary and supplies 229 200
Legal and professional fees 409 495
Regulatory assessments 373 562
Other operating 1,069 1,120
Total other expenses 9,054 8,937
Earnings before income taxes 6,414 5,006
Income taxes 2,491 1,889
Net income $3,923 $3,117
====== ======
Net income per share $1.51 $1.25
====== ======
Weighted average shares outstanding 2,592,459 2,497,751
See accompanying notes to consolidated financial statements
<PAGE>
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Three months Three months
ended ended
September 30, September 30,
1995 1994
Interest income:
Interest and fees on loans $ 5,108 $4,524
Interest on investment securities 1,125 1,025
Interest on federal funds sold 373 248
Total interest income 6,606 5,797
Interest expense:
Demand, interest bearing 145 139
Savings 706 730
Time certificates 1,074 488
Other 0
Total interest expense 1,925 1,357
Net interest income 4,681 4,440
Provision for possible loan losses 0 0
Net interest income after provision 4,681 4,440
for possible loan losses
Other income:
Service charges 351 353
Gain (loss) on sale of loans (1) 110
Mortgage banking fees 40 37
Net loss on securities transactions (4) (34)
Other 92 136
Total other income 478 602
Other expenses:
Salaries and benefits 1,645 1,588
Occupancy 369 317
Equipment 281 250
Advertising and promotion 134 136
Stationary and supplies 75 70
Legal and professional fees 131 183
Regulatory assessments (1) 175
Other operating 375 403
Total other expenses 3,009 3,122
Earnings before income taxes 2,150 1,920
Income taxes 839 741
Net income $1,311 $1,179
====== ======
Net income per share $0.51 $0.47
====== ======
Weighted average shares outstanding 2,590,916 2,498,531
See accompanying notes to consolidated financial statements
<PAGE>
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 1995 and September 30, 1994
(UNAUDITED)
(IN THOUSANDS)
September 30, September 30,
1995 1994
Cash flows from operating activities:
Net income $3,923 $3,117
Adjustments to reconcile net income to
net cash provided by
operating activities:
Depreciation and amortization 677 1,169
Provision for possible loan losses 0 0
Gain on sale of investment securities, net 18 17
Net originations of loans held for sale (1,320) 1,752
Gain on sale of loans (16) (112)
Deferral of loan origination fees (11) (40)
Change in accrued interest
receivable and other assets (313) (545)
Change in accrued interest payable
and other liabilities 865 246
Net cash provided by operating activities 3,823 5,604
Investing activities:
Net change in loans 2,980 (15,056)
Maturities of investment securities 14,736 12,740
Purchases of investment securities (46,620) (23,549)
Proceeds from sale of available-for-
sale securities 24,839 13,494
Capital expenditures, net (718) (426)
Net cash provided used in investing activities (4,783) (12,797)
Financing activities:
Net increase (decrease) in deposits 12,618 27,633
Cash paid for retirement of stock (111) (718)
Proceeds from exercise of options 157 801
Cash paid for dividends (930) (710)
Net cash provided by financing activities 11,734 27,006
Net increase in cash and equivalents 10,774 19,813
Cash and equivalents beginning of period 42,262 25,297
Cash and equivalents at end of period $53,036 $45,110
======= =======
Supplemental disclosures of cash flow
information:
Cash paid during the period
Interest 5,707 3,774
Income taxes 2,525 1,348
Release of guarantee of ESOP note 0 212
See accompanying notes to consolidated financial statements
<PAGE>
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation
In the opinion of the Company, the unaudited consolidated financial
statements, prepared on the accrual basis of accounting, contain
all adjustments (consisting of only normal recurring adjustments)
which are necessary to present fairly the financial position of
the Company and subsidiaries at September 30, 1995 and December
31, 1994, the results of its operations and the statements of
cash flows for the periods ended September 30, 1995 and 1994.
Certain information and footnote disclosures normally presented in
financial statements prepared in accordance with generally
accepted accounting principles have been omitted. The results of
operations for the period ended September 30, 1995 are not
necessarily indicative of the operating results for the full year
ending December 31, 1995.
In May 1993, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan." This statement
addresses the accounting treatment of certain impaired loans. In October 1994
the FASB issued SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures." SFAS No. 118 amends SFAS No. 114
to allow a creditor to use existing methods for recognizing interest income
on an impaired loan. Both of these statements apply to financial statements
for fiscal years beginning after
Note 2 - Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, First National Bank of
Central California, (the "Bank"), and Pacific Capital Services
Corporation, an inactive subsidiary. All material intercompany
accounts and transactions have been eliminated in consolidation.
Note 3 - Loans to Directors
In the ordinary course of business, the Company has made loans to directors
of the Company which at September 30, 1995 amounted to
approximately $4,100,000.
<PAGE>
Note 4 - Commitments
The Company had outstanding standby letters of credit of
approximately $1,342,000 at September 30, 1995.
Note 5 - Net Income Per Share and Dividends
Net income per share is computed using the weighted average number of
shares of common and common equivalent shares outstanding (as
adjusted retroactively to reflect the 5% stock dividend paid on
December 1, 1994). On January 24, 1995, April 25, 1995, and July
25, 1995 the Company declared a $ 0.125 per share quarterly cash
dividend to shareholders of record on March 15, 1995, June 15,
1995, and September 15, 1995 payable March 30, 1995, June 30,
1995, and September 30, 1995.
Note 6 - Taxes
As of September 30, 1995, the Company has a deferred tax asset of
approximately $1,843,000. The asset results primarily from the
provisions for possible loan losses and depreciation of premises
and equipment, which are recognized in the financial statements
but are not yet deductible for income tax reporting purposes.
Based on the Company's earnings history, management believes the
temporary differences which created the deferred tax asset will
reverse during future periods.
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview of Changes in the Financial Statements
Net income for the nine months ended September 30, 1995 was $3,923,000
or $1.51 per share compared to $3,117,000 or $1.25 per share during the
same period in 1994. This 26% increase in net income is due mainly to an
increase in the Company's net interest margin which has resulted from a
rising interest rate environment in which the Company's interest earning
assets have repriced faster than deposits. Net interest income increased
$1,689,000 or 13.7% in the first nine months of 1995 compared to the
comparable period in 1994.
Outstanding loans were $197,618,000 compared to $200,780,000 at
December 31, 1994, a $3,162,000 or 1.6% decrease. The decrease in
outstanding loans from December 31, 1994 to September 30, 1995 resulted
primarily from decreases in real estate construction and commercial non-
mortgage loans partially offset by an increase in real estate mortgage
loans of $5,361,000.
Federal Funds Sold and Investment Securities at September 30, 1995
were $122,742,000, a $20,392,000 or 19.9% increase from December 31, 1994.
This was primarily due to the increase in total deposits which resulted in
a increase in cash invested in Federal Funds and investment securities.
<PAGE>
The Company's total deposits at September 30, 1995 were $315,847,000
compared to $303,229,000 at December 31, 1994, a $12,618,000 or 4.2%
increase. Non-interest bearing demand deposits decreased $1,960,000,
interest bearing demand deposits increased $2,015,000 and savings and money
market deposit accounts decreased $15,424,000 in the first nine months of
1995. Certificates of deposit increased by $27,987,000 or 49.7% during the
first nine months of 1995. Management believes that these are deposits
which certain retail customers have transferred from savings accounts to
certificates due to the increased interest rate on certificates versus
savings accounts. The loan to deposit ratio at September 30, 1995 was 62.7%
compared to 66.2% at December 31, 1994. The Company's total assets as of
September 30, 1995 increased 4.8% compared to year end 1994.
Loans
Outstanding total loans averaged $201,345,000 for the period ended
September 30, 1995 compared to $187,656,000 for the period ended September
30, 1994, an increase of $13,689,000, or 7.3%. This increase in loans is
due to increased loan demand from qualified borrowers and is reflective of
the economic recovery in most of the primary markets which the Company
serves. The Company lends primarily to small and medium sized businesses
within its markets, which are comprised principally of the Salinas,
Watsonville, Monterey and Carmel areas. A majority of the Company's loan
portfolio consists of loans secured by commercial, industrial and
residential real estate.
Quality of Loans
The Company follows the policy of discontinuing the accrual of
interest income and reversing any accrued and unpaid interest when the
payment of principal or interest is 90 days past due unless the loan is
both well-secured and in the process of collection.
The composition of non-performing loans as of September 30, 1995,
December 31, 1994, and September 30, 1994 is summarized in the following
table.
Nonperforming Loans
(Dollars in Thousands)
September 30, December 31, September 30,
1995 1994 1994
Accruing loans
past due 90 days
or more
Commercial $ 0 $ 0 $ 0
Consumer 0 7 0
Real Estate 423 0 0
Total 423 $ 7 $ 0
Nonaccrual loans
Commercial 229 993 1,096
Consumer 151 194 152
Real Estate 834 836 953
Total $1,214 $2,023 $2,201
Total Nonperforming
Loans $1,637 $2,030 $2,201
Nonperforming Loans
To Total Loans 0.83% 1.01% 1.13%
Allowance For Possible
Loan Losses To Total
Non Performing Loans 137.14% 120.10% 110.22%
<PAGE>
The Company does not expect to sustain losses from any of the Non-
Performing Loans in excess of that specifically provided for in the
allowance for possible loan losses.
In addition to the above, the Company holds four Other Real Estate
Owned (OREO) properties, which aggregate $889,000. In all cases, the
amount recorded represented the lesser of the loan balance or current fair
value obtained from a current appraisal less anticipated selling costs;
therefore, any identified loss has already been recognized.
Inherent in the lending function is the fact that loan losses will be
experienced and that the risk of loss will vary with the type of loan
extended and the creditworthiness of the borrower. To reflect the
estimated risks of loss associated with its loan portfolio, additions are
made to the Company's allowance for possible loan losses. As an integral
part of this process, the allowance for possible loan losses is subject to
review and possible adjustment as a result of management's assessment of
risk or regulatory examinations conducted by governmental agencies. The
Company's entire allowance is a valuation allocation created by direct
charges against operations through the provision for possible loan losses.
The provision for possible loan losses charged against operations is
based upon the actual net loan losses incurred plus an amount for other
factors which, in management's judgment, deserve recognition in estimating
possible loan losses. The Company evaluates the adequacy of its allowance
for possible loan losses on a quarterly basis. For the last several years,
the Company has also contracted with an independent loan review consulting
firm to evaluate overall credit quality and the adequacy of the allowance
for possible loan losses. Both internal and external evaluations take into
account the following: specific loan conditions as determined by
management; the historical relationship between charge-offs and the level
of the allowance; the estimated future loss in all significant loans; known
deterioration in concentrations of credit, certain classes of loans or
pledged collateral; historical loss experience based on volume and types of
loans; the results of any independent review or evaluation of the loan
portfolio quality conducted by or at the direction of Company management or
by bank regulatory agencies; trends in portfolio volume, maturity and
composition; off-balance sheet credit risk; volume and trends in
delinquencies and nonaccruals; lending policies and procedures including
those for charge-off, collection and recovery; national and local economic
conditions and their affects on specific local industries; and the
experience, ability and depth of lending management and staff. These
factors are essentially judgmental and may not be reduced to a mathematical
formula.
<PAGE>
The Company closely monitors the local markets in which it conducts
its lending activities. The overall increase in loan demand from qualified
borrowers during the past year is indicative of a stabilizing economic
climate.
The table set forth below summarizes the actual loan losses and
provision for possible losses for the periods ended September 30, 1995,
December 31, 1994, and September 30, 1994.
Charge-Off/Recovery Activity
(Dollars in Thousands)
Nine months Year Nine months
Ended Ended Ended
September 30, 1995December 31,1994September 30, 1994
Total Loans Outstanding $197,618 $200,780 $195,607
Average Net Loans $201,345 $190,721 $187,656
Allowance Balance
Beginning Of Period 2,438 2,507 2,507
Charge-Offs By Loan Category
Commercial 114 175 105
Consumer 49 108 72
Real Estate 130 21 19
Other 0 0 0
Total $ 293 $ 304 $ 196
Recoveries By Loan Category
Commercial 28 85 78
Consumer 29 30 25
Real Estate 43 20 12
Other 0 0 0
Total $ 100 $ 135 $ 115
Net Charge-Offs $ 193 $ 169 $ 81
Provision Charged
To Expense 0 100 0
Allowance Balance
End Of Period $ 2,245 $ 2,438 $ 2,426
Allowance For Possible
Loan Losses
To Total Loans 1.14% 1.21% 1.24%
Annualized Net Charge-
Offs To Average Loans 0.13% 0.09% 0.06%
<PAGE>
The Company did not provide an additional provision to the allowance
for possible loan losses for the nine months ended September 30, 1995, or
September 30, 1994, primarily due to the Company's recognition of a
stabilization of the local economy, resulting in a lower level of
classified loans and the reduced potential of future charge-offs.
The provision for possible loan losses charged against earnings is
based upon an analysis of the actual migration of loans to losses plus an
amount for other factors which, in management's judgment, deserve
recognition in estimating possible loan losses. While these factors cannot
be reduced to a mathematical formula, it is management's view that the
allowance for possible loan losses of $2,245,000 or 1.14% of total loans
was adequate as of September 30, 1995.
Results of Operations
Nine months Ended September 30, 1995
Compared with
Nine months Ended September 30, 1994
Net income of $3,923,000 for the nine months ended September 30, 1995
increased by $806,000 or 25.9% as compared to the same 1994 period. The
increase in net income for the period was due primarily to an increase in
net interest income of $1,689,000 which was the result of increased
interest rates on loans without an equivalent increase in interest rates
paid on deposits. This increase in net interest income was partially offset
by a decrease in other income of $164,000 and a slight increase in other
expenses of $117,000.
Included in net income for the nine months ended September 30, 1995 is
a $173,000 pre-tax refund from the Federal Deposit Insurance Corporation
("FDIC"). This refund represents the overpayments made for FDIC insurance
for June of 1995 and the third quarter of 1995 after the Bank Insurance
Fund ("BIF") was fully recapitalized. Upon full capitalization, assessment
rates dropped from a range of $.23 to $.31 per $100 in insured deposits
down to a range of $.04 to $.31 per $100 in insured deposits. This refund
represents the rate reduction for the Bank retroactive to the end of May
1995. Net income for the nine months ended September 30, 1995 excluding the
BIF refund was $3,817,000, an increase of $700,000 or 18.3% over the same
period in 1994.
The average balance of interest earning assets during the nine months
ended September 30, 1995 was $298,156,000, a $10,766,000 or 3.7% increase
over the comparable 1994 period. The Company's average yield on earning
assets for the nine months ended September 30, 1995 increased to 8.5%
compared to 7.5% during the comparable period in 1994. The increase in
average yields is due to higher interest rates on adjustable rate loans
within the loan portfolio due to the several rate increases in the Prime
Rate over the latter part of 1994. Total interest income increased
$2,973,000 or 18.5% for the nine months ended September 30, 1995 compared
to the same 1994 period due to an increase in average assets coupled with
increased average yields.
<PAGE>
Average deposits for the Company for the nine months ended September
30, 1995 were $289,997,000, a $6,780,000 or 2.4% increase compared to the
period ended September 30, 1994. The Company's average cost of funds for
the nine months ended September 30, 1995 was 3.0% which yielded a net
interest margin of 6.3%. This compares to an average cost of funds of 2.3%
and a net interest margin of 5.8% for the comparable 1994 period.
Interest expense of $5,018,000 for the nine months ended September 30, 1995
was $1,284,000 or 34.4% over the comparable 1994 period due to an increase
in average interest bearing deposits of $3,118,000 and an increase in the
average rate paid on deposits of 0.7%. Net interest income for the nine
months ended September 30, 1995 increased $1,689,000 or 13.7% and resulted
from the increase of $2,973,000 in total interest income and an increase of
$1,284,000 in total interest expense.
The Company did not make any additional provisions to the allowance
for possible loan loss for the nine months ended September 30, 1995 or for
the same period in 1994. The analysis of the loan portfolio completed by
the Company indicates that the current allowance for loan losses is
adequate based on the Company's calculated provision requirements.
Total loans charged-off net of recoveries for the nine months ended
September 30, 1995 amounted to $193,000 compared to $81,000 net of
recoveries for the same period in 1994. Annualized net loan charge-offs as
a percentage of average loans for the nine months ended September 30, 1995
was 0.13% compared to 0.06% for the nine months ended September 30, 1994
and .09% for the year ended December 31, 1994.
Total other income was $1,430,000 for the nine months ended September
30, 1995, a $164,000 or 10.3% decrease compared to the same period of 1994.
Gains on sales of loans decreased $97,000 from the nine months ended
September 30, 1994 due to relatively low levels of loan sales in 1995.
Income from mortgage banking fees decreased $34,000 for the nine months
ended September 30, 1995 due to a slowdown in mortgage refinancing activity
from 1994 levels. Other variances include service charges which increased
by $26,000 from 1994 and other income which fell below 1994 levels by
$58,000.
Salaries and benefits expense for the nine months ended September 30,
1995 was $4,852,000, a $361,000 or 8.0% increase over the comparable 1994
period. This variance resulted primarily from normal salary increases, an
increase in health insurance premiums, and an increase in the Company's
contributions to the Bonus and Employee Stock Ownership Program. The
Company employed 158 full time equivalent employees at September 30, 1995
compared to 155 full time equivalent employees at December 31, 1994 and 156
full time equivalent employees at September 30, 1994.
Total other expenses, excluding salaries and benefits, for the nine
months ended September 30, 1995, was $4,202,000, a $244,000 or 5,5%
decrease from the comparable 1994 period. This decrease was primarily the
result of the refund received by the Company in September 1995 of $173,000
from the Bank Insurance Fund ("BIF") due to the recapitalization of BIF.
Other variances include occupancy which increased $79,000 due primarily to
the expense of temporary branch facilities due to expansion of the Salinas
main office, and legal and professional fees which decreased $86,000 due to
decreased usage of legal counsel in 1995.
Applicable income taxes of $2,491,000 for the nine months ended
September 30, 1995 were $602,000, or 31.9% more than the comparable 1994
period. The Company's effective tax rate for the nine months ended
September 30, 1995 was 38.8% compared to 37.7% for the same period in 1994.
<PAGE>
Results of Operations
Three Months Ended September 30, 1995
Compared with
Three Months Ended September 30, 1994
Net income of $1,311,000 for the three months ended September 30,
1995 increased by $132,000 or 11.2% as compared to the same 1994 period.
The increase in net income for the period was due primarily to an increase
in net interest income of $241,000 which was the result of increased
interest rates on loans without an equivalent increase in interest rates
paid on deposits. Other income decreased for the three months ended
September 30, 1995 by $124,000 compared to the third quarter of 1994 while
other expenses decreased by $113,000 or 3.6%.
Included in net income for the three months ended September 30, 1995
is a $173,000 pre-tax refund from the Federal Deposit Insurance Corporation
("FDIC"). This refund represents the overpayments made for FDIC insurance
for June of 1995 and the third quarter of 1995 after the Bank Insurance
Fund ("BIF") was fully recapitalized. Upon full capitalization, assessment
rates dropped from a range of $.23 to $.31 per $100 in insured deposits
down to a range of $.04 to $.31 per $100 in insured deposits. This refund
represents the rate reduction for the Bank retroactive to the end of May
1995. Net income for the three months ended September 30, 1995 excluding
the BIF refund was $1,205,000, an increase of $26,000 or 2.2% over the
same period in 1994.
The average balance of interest earning assets during the three months
ended September 30, 1995 was $312,059,000, a $13,036,000 increase over the
comparable 1994 period. The Company's average yield on earning assets for
the three months ended September 30, 1995 increased to 8.4% compared to
7.8% during the comparable period in 1994. The increase in average yields
is due to higher interest rates on adjustable rate loans within the loan
portfolio due to the several rate increases in the Prime Rate over the
latter part of 1994 and one in January of 1995. Total interest income
increased $809,000 or 14.0% for the three months ended September 30, 1995
compared to the same 1994 period due to an increase in average yields.
Average deposits for the Company for the three month period ended
September 30, 1995 were $303,397,000, a $7,955,000 or 2.7% increase
compared to the three months ended September 30, 1994. The Company's
average cost of funds for the three months ended September 30, 1995 was
3.2% which yielded a net interest margin of 6.0%. This compares to an
average cost of funds of 2.4% and an identical net interest margin of 6.0%
for the same period in 1994. Interest expense of $1,925,000 for the three
months ended September 30, 1995 was $568,000 or 41.9% over the comparable
1994 period due to an increase in average interest bearing deposits of
$6,563,000 and an increase in the average rate paid on deposits of 0.8%.
Net interest income for the three month period ended September 30, 1995
increased $241,000 or 5.4% and resulted from the increase of $809,000 in
total interest income and an increase of $568,000 in total interest
expense.
Total loan charge-offs net of recoveries for the three months ended
September 30, 1995 amounted to $114,000, compared to $65,000 net of
recoveries for the same period in 1994. Annualized net loan charge-offs as
a percentage of average loans for the three months ended September 30, 1995
was 0.23% compared to 0.14% for the three months ended September 30, 1994.
Total other income was $478,000 for the three months ended September
30, 1995, a $124,000 or 20.6% decrease compared to the same period of 1994.
Gains on sale of loans decreased by $111,000 from the third quarter of 1994
due to high sales activity in 1994. Net gains on sales of securities
increased by $30,000 due to decreased sales activity in the third quarter
of 1995. Other variances include mortgage banking fees which increased by
$3,000 and other income which decreased $44,000 from the third quarter of
1994.
<PAGE>
Salaries and benefits expense for the three months ended September 30,
1995 was $1,645,000, a $57,000 or 3.6% increase over the comparable 1994
period, and resulted primarily from normal salary increases and an increase
in the Company's contributions to the Bonus and Employee Stock Ownership
Program.
Total other expenses, excluding salaries and benefits, for the three
months ended September 30, 1995, was $1,364,000, a $170,000 or 11.1%
decrease from the comparable 1994 period. This decrease was primarily the
result of the refund received by the Company in September 1995 of $173,000
from the Bank Insurance Fund ("BIF") due to the recapitalization of BIF.
Other variances include occupancy expense which increased $52,000 due to
the expense of temporary branch facilities due to the expansion of the
Salinas main office. Equipment expense increased $31,000, legal and
professional fees decreased by $52,000 for the three months ended September
30, 1995 and other expense decreased $28,000 from the third quarter of
1994.
Applicable income taxes of $839,000 for the three months ended
September 30, 1995 were $98,000, or 13.2% more than the comparable 1994
period. The Company's effective tax rate for the three months ended
September 30, 1995 was 39.0% compared to 38.6% for the same period in 1994.
Liquidity Management
Liquidity represents the ability of the Company to meet the
requirements of customer borrowing needs as well as fluctuations in deposit
flows.
Core deposits, which include demand, savings and interest bearing
demand accounts, money market accounts and time deposits of less than
$100,000, provide a relatively stable funding base. Core deposits averaged
$158,984,000 or 45.9% of average total assets during the three months ended
September 30, 1995, as compared to $156,753,000 or 48.2% of average total
assets for the fiscal year ended December 31, 1994. At September 30, 1995
core deposits were $161,627,000 or 44.8% of total assets, compared to
$154,515,000 or 44.9% of total assets at year end 1994.
The Company's principal sources of asset liquidity are cash and cash
due from banks, Federal Funds sold, short term investments, loans held for
sale and available-for-sale investment securities. At September 30, 1995
these sources represented $103,092,000 or 32.6% of total deposits compared
to $66,821,000 or 22.0% at year end 1994. This increase in liquidity for
the nine months ended September 30, 1995 resulted primarily from an
increase in Federal Funds sold, short term investments and available-for-
sale securities.
In the opinion of management, there are sufficient resources to meet
the liquidity needs of the Company at present and projected future levels.
Capital Resources
Capital management is a continuous process of providing adequate
capital for current needs and anticipated future growth. Capital serves as
a source of funds for the acquisition of fixed and other assets and
protects depositors against potential losses. As the Company's assets
increase, so do its capital requirements.
The Company and the Bank are subject to Federal Reserve Board
guidelines and regulations of the Comptroller of the Currency
("Comptroller"), respectively, governing capital adequacy. The Federal
Reserve Board has established final risk-based and leverage capital
guidelines for bank holding companies which are the same as the
Comptroller's capital regulations for national banks.
<PAGE>
The Federal Reserve Board capital guidelines for bank holding
companies and the Comptroller's regulations for national banks set total
capital requirements and define capital in terms of "core capital elements"
(comprising Tier 1 capital) and "supplemental capital elements" (comprising
Tier 2 capital). Tier 1 capital is generally defined as the sum of the
core capital elements less goodwill. The following items are defined as
core capital elements: common stockholders' equity, qualifying
noncumulative perpetual preferred stock, and minority interests in the
equity accounts of consolidated subsidiaries. Supplementary capital
elements include: allowance for loan and lease losses (which cannot exceed
1.25% of an institution's risk weighted assets), perpetual preferred stock
not qualifying as core capital, hybrid capital instruments and mandatory
convertible debt instruments, and term subordinated debt and intermediate-
term preferred stock. The maximum amount of supplemental capital elements
which qualifies as Tier 2 capital is limited to 100% of Tier 1 capital, net
of goodwill.
Risk-based capital ratios are calculated with reference to risk-
weighted assets, including both on and off-balance sheet exposures, which
are multiplied by certain risk weights assigned by the Federal Reserve
Board to those assets. Both bank holding companies and national banks are
required to maintain a minimum ratio of qualifying total capital to risk-
weighted assets of 8%, at least one-half of which must be in the form of
Tier 1 capital. There are presently four risk-weight categories: 0% for
cash and unconditionally guaranteed government securities; 20% for
conditionally guaranteed government securities; 50% for performing
residential real estate loans secured by first liens; and 100% for
commercial loans.
The Federal Reserve Board and the Comptroller also have established a
minimum leverage ratio of 3% Tier I capital to total assets for bank
holding companies and national banks that have received the highest
composite regulatory rating and are not anticipating or experiencing any
significant growth. All other institutions will be required to maintain a
leverage ratio of at least 100 to 200 basis points above the 3% minimum.
The following tables show the Company's and the Company's risk-based
and leverage capital ratios as of September 30, 1995 and December 31, 1994.
As indicated in these tables, the Company's and the Company's capital
ratios significantly exceeded the minimum capital levels required by
current federal regulations. Management believes that the Company and the
Company will continue to meet their respective minimum capital requirements
in the foreseeable future.
Risk Based Capital Ratio
(Dollars in Thousands)
(Unaudited)
Pacific Capital Bancorp
September 30, 1995 December 31, 1994
Amount Ratio Amount Ratio
Tier 1 Capital $41,879 18.15% $38,750 16.83%
Tier 1 Capital Minimum
Requirement 9,228 4.00% 9,208 4.00%
Excess $32,651 14.15% $29,542 12.83%
Total Capital $44,124 19.13% $41,188 17.89%
Total Capital Minimum
Requirement 18,457 8.00% 18,416 8.00%
Excess $25,667 11.13% $22,772 9.89%
Risk Adjusted Assets $230,710 $230,202
<PAGE>
First National Bank of Central California
September 30, 1995 December 31, 1994
Amount Ratio Amount Ratio
Tier 1 Capital $39,433 17.27% $35,244 15.55%
Tier 1 Capital Minimum
Requirement 9,135 4.00% 9,066 4.00%
Excess $30,298 13.27% $26,178 11.55%
Total Capital $41,678 18.25% $37,682 16.63%
Total Capital Minimum
Requirement 18,270 8.00% 18,132 8.00%
Excess $23,408 10.25% $19,550 8.63%
Risk Adjusted Assets $228,371 $226,652
Leverage Ratio
(Dollars in Thousands)
(Unaudited)
Pacific Capital Bancorp
September 30, 1995 December 31, 1994
Amount Ratio Amount Ratio
Tier 1 Capital to Average
Total Assets $41,879 12.04% $38,750 11.38%
Minimum Leverage $10,433 to 3.00% to $10,212 to 3.00% to
Requirement $17,388 5.00% $17,020 5.00%
Excess $24,491 to 7.04% to $21,730 to 6.38% to
$31,446 9.04% $28,538 8.38%
Average Total Assets $347,763 $340,401
First National Bank of Central California
September 30, 1995 December 31, 1994
Amount Ratio Amount Ratio
Tier 1 Capital to Average
Total Assets $39,433 11.40% $35,244 10.45%
Minimum Leverage $10,374 to 3.00% to $10,114 to 3.00% to
Requirement $17,290 5.00% $16,856 5.00%
Excess $22,144 to 6.40% to $18,388 to 5.45% to
$29,059 8.40% $25,130 7.45%
Average Total Assets $345,790 $337,121
Federal banking laws impose restrictions upon the amount of dividends
the Bank may declare to the Company. Federal laws also impose restrictions
upon the amount of loans or advances that the Bank may extend to the
Company. In management's opinion, these do not affect the ability of the
Company to meet its cash obligations.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
A report on Form 8-K dated February 28, 1995, was filed with
the Commission on March 21, 1995, reporting under Item 5 --
Other Events - The stock repurchase program was amended to
increase the price per share at which the Company will
repurchase shares from $18.00 per share to $22.00 per share
of not more than 300,000 shares of the Company's outstanding
common stock at an aggregate purchase price not to exceed
$5,000,000.
A report on Form 8-K dated August 22, 1995, was filed with
the Commission on August 22, 1995, reporting under Item 5 --
Other Events - The stock repurchase program was amended to
increase the price per share at which the Company will
repurchase shares from $22.00 per share to $24.00 per share
of not more than 300,000 shares of the Company's outstanding
common stock at an aggregate purchase price not to exceed
$5,000,000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date __October 30, 1995_______ /S/ D. Vernon Horton
D. Vernon Horton
Chief Executive Officer
Date __October 30, 1995_______ /S/ Dennis A. DeCius
Dennis A. DeCius
Executive Vice President
Chief Financial Officer
