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 June 30, 1997
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 August 12, 1997
Common stock, no par value 4,092,986 Shares
This report contains a total of 22 pages.
PART I - FINANCIAL INFORMATION
ITEM 1 PAGE
PACIFIC CAPITAL BANCORP AND
SUBSIDIARIES UNAUDITED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 3
CONSOLIDATED STATEMENTS OF INCOME 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7-8
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9 - 15
PART II - OTHER INFORMATION
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
ITEM 6
OTHER EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 22
PART 1
ITEM 1 - FINANCIAL INFORMATION
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
June 30, December
31,
Assets 1997 1996
Cash and due from banks $43,375 $48,126
Federal funds sold and other short term 64,643 28,119
investments
Total cash and equivalents 108,018 76,245
Investment securities:
Available-for-sale securities, at fair value 117,681 116,528
Held-to-maturity securities, at amortized
cost
(fair value of $9,041 and $9,739, 9,040 9,680
respectively)
Loans available for sale 8,557 5,821
Total loans 414,018 388,728
Less allowance for possible loan losses (4,074) (3,672)
Net loans 409,944 385,056
Premises and equipment, net 15,199 15,300
Accrued interest receivable and other, net 11,572 10,809
Total assets $680,011 $619,439
Liabilities and shareholders' equity
Deposits:
Demand, non-interest bearing $133,782 $131,332
Demand, interest bearing 85,226 84,770
Savings and money market 174,035 164,890
Time certificates 214,551 166,190
Total deposits 607,594 547,182
Accrued interest payable and other liabilities 5,005 8,611
Total liabilities 612,599 555,793
Shareholders' equity:
Preferred stock; 20,000,000 shares authorized - -
and unissued
Common stock, no par value; 20,000,000 shares
authorized;
4,092,436 and 4,083,363 shares issued and
outstanding at
June 30, 1997 and at December 31, 1996, 49,775 49,388
respectively
Retained earnings 18,031 14,423
Net unrealized losses on available-for-sale (394) (165)
securities
Total shareholders' equity 67,412 63,646
Total liabilities and shareholders' equity $680,011 $619,439
See accompanying notes to unaudited consolidated financial statements.
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Six months Six months
ended ended
June 30, June 30,
1997 1996
Interest income:
Interest and fees on loans $19,996 $15,959
Interest on fed funds sold 732 1,144
Interest on investment securities 4,307 3,811
Total interest income 25,035 20,914
Interest expense:
Interest on deposits 7,984 6,242
Other 21 17
Total interest expense 8,005 6,259
Net interest income 17,030 14,655
Provision for possible loan losses 570 179
Net interest income after provision for 16,460 14,476
possible loan losses
Other income:
Service charges 1,240 1,199
Gain on sale of loans 11 15
Net gain on securities transactions 11 15
Other 342 370
Total other income 1,604 1,599
Other expenses:
Salaries and benefits 5,443 5,490
Occupancy 1,124 1,031
Equipment 828 1,041
Advertising and promotion 343 283
Stationary and supplies 426 238
Legal and professional fees 421 442
Regulatory assessments 107 72
Other operating 1,232 1,276
Total other expenses 9,924 9,873
Earnings before income taxes 8,140 6,202
Income taxes 3,217 2,408
Net income $4,923 $3,794
Net income per share $1.16 $0.89
Weighted average shares outstanding 4,238,308 4,247,087
See accompanying notes to unaudited consolidated financial statements.
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Three months Three months
ended ended
June 30, June 30,
1997 1996
Interest income:
Interest and fees on loans $10,465 $8,178
Interest on fed funds sold 423 473
Interest on investment securities 2,161 1,975
Total interest income 13,049 10,626
Interest expense:
Interest on deposits 4,129 3,154
Other 14 4
Total interest expense 4,143 3,158
Net interest income 8,906 7,468
Provision for possible loan losses 285 74
Net interest income after provision for 8,621 7,394
possible loan losses
Other income:
Service charges 620 634
Gain on sale of loans 5 6
Net gain on securities transactions 11 3
Other 163 174
Total other income 799 817
Other expenses:
Salaries and benefits 2,696 2,740
Occupancy 560 522
Equipment 437 534
Advertising and promotion 191 142
Stationary and supplies 194 125
Legal and professional fees 217 223
Regulatory assessments 53 36
Other operating 616 640
Total other expenses 4,964 4,962
Earnings before income taxes 4,456 3,249
Income taxes 1,775 1,256
Net income $2,681 $1,993
Net income per share $0.63 $0.47
Weighted average shares outstanding 4,239,356 4,251,526
See accompanying notes to unaudited consolidated financial statements.
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Six Months Six Months
Ended Ended
June 30, June 30,
1997 1996
Cash flows from operating activities:
Net income $4,923 $3,794
Adjustments to reconcile net income to net
cash used in
operating activities:
Depreciation and amortization 725 676
Provision for possible loan losses 570 179
Gain on sale of investment securities, net (11) (15)
Net originations of loans available for (2,736) (1,165)
sale
Gain on sale of loans (11) (15)
Deferral of loan origination costs (90) (16)
Change in accrued interest receivable and (992) (2,836)
other assets
Change in accrued interest payable and (3,584) (608)
other liabilities
Net cash used in operating activities (1,206) (6)
Investing activities:
Net increase in loans (25,368) (28,713)
Maturities of investment securities 8,516 6,064
Purchases of investment securities (9,029) (36,858)
Proceeds from sale of available-for-sale - 25,695
securities
Capital expenditures, net (624) (1,920)
Net cash used in investing activities (26,505) (35,732)
Financing activities:
Net increase in deposits 60,412 35,952
Cash paid for retirement of stock - (60)
Proceeds from exercise of options 387 4
Cash paid for dividends (1,315) (1,010)
Net cash provided by financing activities 59,484 34,886
Net increase (decrease) in cash and 31,773 (852)
equivalents
Cash and equivalents at beginning of period 76,245 79,234
Cash and equivalents at end of period $108,018 $78,382
Supplemental disclosures of cash flow
information:
Cash paid during the period
Interest $8,137 $6,837
Income taxes 2,450 2,359
See accompanying notes to unaudited consolidated financial statements.
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 June 30, 1997 and December 31,
1996, the results of its operations and the statements of cash
flows for the periods ended June 30, 1997 and 1996.
Certain information and note 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 June 30, 1997 are not necessarily
indicative of the operating results for the full year ending
December 31, 1997.
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting of
Comprehensive Income. This statement establishes standards for reporting and
displaying comprehensive income and its components in the consolidated
financial statements. It does not, however, require a specific format for
the statement, but requires the Company to display an amount representing
total comprehensive income for the period in that financial statement.
The Company is in the process of determining its preferred format.
This statement is effective for fiscal years beginning after December 15,
1997.
In June 1997, the FASB issued SFAS
No. 131, Disclosures about Segments of an Enterprise and Related Information.
The Statement establishes standards for the way the public business enterprises
are to report information about operating segments in annual financial
statements and requires those enterprises to report selected information about
operating segments in interim financial reports issued to shareholders. This
statement is effective for fiscal years beginning after December 15, 1997.
The Company does not believe it has any separately reportable business
segments.
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share and SFAS
No. 129, Disclosure of Information about Capital Structure. SFAS No. 128
supersedes APB Opinion No. 15 Earnings Per Share, and specifies the
computation, presentation, and disclosure requirements for earnings per share
("EPS") for entities with publicly held common stock or potential common
stock.
SFAS No. 128 replaces Primary EPS and Fully Diluted EPS with Basic EPS and
Diluted EPS, respectively. Upon adoption, it also requires dual presentation of
Basic EPS and Diluted EPS on the face of the Statement of Income for all
entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the Basic EPS computation to the numerator
of the Diluted EPS computation.
SFAS No. 129 establishes standards for disclosing information about an entity's
capital structure for those entities deemed to have complex capital
structures.
Statements No. 128 and 129 are effective for financial statements for periods
beginning after December 15, 1997. The adoption of these statements is not
anticipated to have a material impact on the financial condition or results
of operations of the Company. The following table represents pro forma
Earnings per Share as it would appear after adoption of these statements.
Three Months Ended
June 30, 1997 June 30, 1996
Basic Earnings per Share $0.66 $0.48
Diluted Earnings per Share $0.63 $0.47
Six Months Ended
June 30, 1997 June 30, 1996
Basic Earnings per Share $1.17 $0.92
Diluted Earnings per Share $1.16 $0.89
Note 2 - Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, First National Bank of
Central California, ("First National"), and South Valley National
Bank ("South Valley"). For purposes used herein, the term
"Subsidiary Banks" shall mean First National and South Valley,
collectively. 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 and their affiliates which at June 30, 1997
amounted to approximately $10,648,000.
Note 4 - Commitments
The Company had outstanding standby letters of credit of
approximately $1,915,000 at June 30, 1997.
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. On
January 28, 1997 and April 22, 1997, the Company declared $0.165
per share cash dividends to shareholders of record on March 14,
1997 and June 16, 1997, payable on March 31, 1997 and June 30,
1997, respectively.
Note 6 - Taxes
As of June 30, 1997, the Company has a deferred tax asset of approximately
$3,187,000. 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. Management of the
Company believes that the net deferred tax asset is fully
realizable through sufficient taxable income within carryback
periods and current year taxable income.
PART 1
ITEM II - 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 six months ended June 30, 1997 was $4,923,000 or
$1.16 per share compared to $3,794,000 or $0.89 per share during the
comparable period in 1996. This 29.8% increase in net income is due mainly
to a $2,375,000 increase in net interest income. The increase in net
interest income is due to growth in average total loans of $89,562,000
partially offset by an increase in average interest bearing deposits of
$67,963,000 as compared to the same 1996 period.
Outstanding loans were $414,018,000 at June 30, 1997 compared to
$388,728,000 at December 31, 1996, a $25,290,000 or 6.5% increase. The
increase in outstanding loans from December 31, 1996 to June 30, 1997
resulted primarily from an increase in real estate mortgage loans of
$17,332,000, an increase in real estate construction loans of $14,447,000
partially offset by a decrease in other loans of $5,789,000.
Federal Funds Sold and Investment Securities at June 30, 1997 were
$191,364,000, a $37,037,000 or 24.0% increase from December 31, 1996. This
was primarily due to the increase in total deposits which resulted in an
increase in cash invested in Federal Funds.
The Company's total deposits at June 30, 1997 were $607,594,000
compared to $547,182,000 at December 31, 1996, a $60,412,000 or 11.0%
increase. Non-interest bearing demand deposits increased $2,450,000,
interest bearing demand deposits increased $456,000 and savings and money
market deposit accounts increased $9,145,000 in the first six months of
1997. Certificates of deposit increased by $48,361,000 or 29.1% during the
first six months of 1997. Management believes that the growth in deposits
is a result of the overall strength in the local tourism, agribusiness,
and high-tech industries within the local economies in which the Company
operates. The loan to deposit ratio at June 30, 1997 was 68.1% as compared
to 71.0% at December 31, 1996.
Loans
Outstanding total loans averaged $404,858,000 for the six months ended
June 30, 1997 compared to $315,296,000 for the comparable period in 1996,
an increase of $89,562,000, or 28.4%. This increase in loans is due to
increased loan demand from qualified borrowers and reflects stability and
economic growth in most of the primary markets which the Company serves.
The Company lends primarily to small and medium sized businesses and
consumers within its markets, which are comprised principally of Monterey,
Santa Cruz, San Benito, and southern Santa Clara counties. A majority of
the Company's loan portfolio consists of loans secured by commercial,
industrial and residential real estate.
Quality of Loans
The composition of non-performing loans as of June 30, 1997,
December 31, 1996, and June 30, 1996 is summarized in the following table.
Nonperforming Loans
(Dollars in Thousands)
June 30, December 31, June 30,
1997 1996 1996
Accruing loans
past due 90 days
or more:
Commercial $ 17 $ 15 $ 46
Consumer 32 2 2
Real Estate - - -
Total $ 49 $ 17 $ 48
Nonaccrual loans:
Commercial 821 507 1,056
Consumer 130 142 143
Real Estate 831 915 363
Total $1,782 $1,564 $1,562
Total Nonperforming
Loans $1,831 $1,581 $1,610
Nonperforming Loans
To Total Loans 0.44% 0.41% 0.49%
Allowance For Possible
Loan Losses To Total
Non Performing Loans 222.62% 232.26% 235.71%
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. Currently, the Company's level of non-
performing loans to total loans is below that of peer banks.
In addition to the above, the Company holds two Other Real Estate
Owned (OREO) properties, which aggregate $1,490,000. In both cases, the
amount recorded represents 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 allowance 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. 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 effects 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.
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 the strength in the local
economic climate.
The table set forth below summarizes the actual loan losses and
provision for possible losses as of and for the periods ended June 30,
1997, December 31, 1996, and June 30, 1996:
Loan Charge-Off/Recovery Activity
(Dollars in Thousands)
Six months Year Six months
Ended Ended Ended
June 30, 1997 December 31,1996 June 30, 1996
Loans Outstanding, at period end $414,018 $388,728
$330,073
Average Loans $404,858 $332,421 $315,296
Allowance Balance:
Beginning Of Period 3,672 3,710 3,710
Charge-Offs By Loan Category:
Commercial 91 761 135
Consumer 20 188 55
Real Estate 166 121 56
Other 4 - -
Total $ 281 $ 1,070 $ 246
Recoveries By Loan Category:
Commercial 90 239 74
Consumer 14 91 63
Real Estate 6 17 15
Other 3 - -
Total $ 113 $ 347 $ 152
Net Charge-Offs $ 168 $ 723 $ 94
Provision Charged
To Expense $570 $685 $179
Allowance Balance
End Of Period $ 4,074 $ 3,672 $ 3,795
Allowance For Possible
Loan Losses
To Period End Loans 0.98% 0.94% 1.15%
Annualized Net Charge-offs
to Average Loans 0.08% 0.22% 0.06%
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 $4,074,000 or .98% of total loans was
adequate as of June 30, 1997.
Results of Operations
Six Months Ended June 30, 1997
Compared with
Six Months Ended June 30, 1996
Net income for the six months ended June 30, 1997 was $4,923,000, an
increase of $1,129,000 or 29.8% as compared to the same 1996 period. The
increase in net income for the period was due primarily to an increase in
net interest income of $2,375,000 partially offset by an increase in the
provision for loan losses of $391,000. The increase in net interest income
is due to growth in average total loans of $89,562,000 partially offset by
an increase in average interest bearing deposits of $67,971,000 compared to
the same 1996 period.
The average balance of interest earning assets during the six months
ended June 30, 1997 was $571,705,000, an $83,981,000 or 17.2% increase over
the comparable 1996 period. The Company's average yield on earning assets
for the six months ended June 30, 1997 increased to 8.8% from 8.6% in the
comparable 1996 period. Total interest income increased $4,121,000 or 19.7%
for the six months ended June 30, 1997 compared to the same 1996 period due
to an increase in average interest earning assets of $83,981,000.
Average deposits for the Company for the six months ended June 30,
1997 were $564,508,000, an $88,331,000 or 18.6% increase compared to the
same period ended June 30, 1996. The Company's average cost of funds for
the six months ended June 30, 1997 was 3.6% which yielded a net interest
margin of 6.0%. This compares to an average cost of funds of 3.4% and a
net interest margin of 6.1% for the comparable 1996 period. Interest
expense of $8,005,000 for the six months ended June 30, 1997 was $1,746,000
or 27.9% over the comparable 1996 period due to an increase in average
interest bearing deposits of $67,974,000 and an increase in the Company's
cost of funds of 0.2%. Net interest income for the six months ended June
30, 1997 increased $2,375,000 or 16.2%.
The Company made a provision to the allowance for possible loan loss
of $570,000 in the six months ended June 30, 1997 primarily due to the
recent growth experienced within the loan portfolio. An 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 six months ended
June 30, 1997 amounted to $168,000 compared to $94,000 for the same period
in 1996. Annualized net loan charge-offs as a percentage of average loans
for the six months ended June 30, 1997 was 0.08% compared to 0.06% for the
six months ended June 30, 1996 and 0.22% for the year ended December 31,
1996.
Total other income was $1,604,000 for the six months ended June 30,
1997, a $5,000 or 0.3% increase compared to the same period in 1996.
Service charges on deposit accounts increased by $41,000 or 3.4% over the
comparable period in 1996. Other income decreased by $28,000 from year to
year.
Salaries and benefits expense for the six months ended June 30, 1997
was $5,443,000, a $47,000 or 0.9% decrease from the comparable 1996 period.
This variance resulted primarily from the reduction in officers as a result
of the merger between South Valley Bancorporation and the Company in 1996.
The Company employed 266 full time equivalent employees at June 30, 1997
compared to 259 full time equivalent employees at December 31, 1996 and 245
full time equivalent employees at June 30, 1996.
Total other expenses, excluding salaries and benefits, for the six
months ended June 30, 1997, was $4,481,000, a $98,000 or 2.2% increase from
the comparable 1996 period. This was primarily due to an increase in
stationery and supplies expense of $188,000 due to increased orders of
printed forms for statements and various mailings. In addition, occupancy
expense increased by $93,000, or 9.0% due to normal rental rate increases
from year to year. Partially offsetting these increases was a decrease in
equipment expense of $213,000 associated with data processing costs which
were targeted for significant cost savings from the merger through systems
consolidation.
Applicable income taxes of $3,217,000 for the six months ended June
30, 1997 were $809,000, or 33.6% more than the comparable 1996 period. The
Company's effective tax rate for the six months ended June 30, 1997 was
39.5% compared to 38.8% for the same period in 1996.
Three Months ended June 30, 1997
Compared with
Three Months Ended June 30, 1996
Net income for the three months ended June 30, 1997 was $2,681,000, an
increase of $688,000 or 34.5% as compared to the same 1996 period. The
increase in net income for the period was due primarily to an increase in
net interest income of $1,438,000 partially offset by an increase in the
provision for loan losses of $211,000. The increase in net interest income
is due to growth in average total loans of $92,532,000 partially offset by
an increase in average interest bearing deposits of $68,156,000 compared to
the same 1996 period.
The average balance of interest earning assets during the three months
ended June 30, 1997 was $587,603,000, an $92,532,000 or 17.2% increase over
the comparable 1996 period. The Company's average yield on earning assets
for the three months ended June 30, 1997 increased to 8.9% from 8.6% in the
comparable 1996 period. Total interest income increased $2,423,000 or 22.8%
for the three months ended June 30, 1997 compared to the same 1996 period
due to an increase in average interest earning assets of $92,532,000.
Average deposits for the Company for the quarter ended June 30, 1997
were $579,997,000, a $94,556,000 or 19.5% increase compared to the same
period in 1996. The Company's average cost of funds for the three months
ended June 30, 1997 was 3.7% which yielded a net interest margin of 6.1%.
This compares to an average cost of funds of 3.3% and a net interest margin
of 6.1% for the comparable 1996 period. Interest expense of $4,143,000 for
the quarter ended June 30, 1997 was $985,000 or 31.2% over the comparable
1996 period due to an increase in average interest bearing deposits of
$68,156,000 and an increase in the Company's cost of funds of 0.3%.
During the quarter ended June 30, 1997, the Company made a provision
to the allowance for possible loan loss of $285,000. This compares to a
provision of $74,000 which was made in the second quarter 1996 and
represents an increase of $211,000.
Total other income was $799,000 for the three months ended June 30,
1997, an $18,000 or 2.2% increase compared to the same period in 1996.
Service charges on deposit accounts decreased by $14,000 or 2.2% over the
comparable period in 1996. Other income decreased by $11,000 from year to
year and net gains on securities transactions was $11,000, an increase of
$8,000 from the second quarter of 1996.
Salaries and benefits expense for the three months ended June 30, 1997
was $2,696,000, a $44,000 or 1.6% decrease from the comparable 1996 period.
This variance resulted primarily from the reduction in administrative
officers as a result of the merger between South Valley Bancorporation and
the Company in 1996.
Total other expenses, excluding salaries and benefits, for the three
months ended June 30, 1997, was $2,268,000, a $46,000 or 2.1% increase from
the comparable 1996 period. This was primarily due to an increase in
stationery and supplies expense of $69,000, an increase in advertising and
promotion of $49,000, partially offset by a decrease in equipment expense
of $97,000 due to cost savings through systems consolidation.
Applicable income taxes of $1,775,000 for the three months ended June
30, 1997 were $519,000, or 41.3% more than the comparable 1996 period. The
Company's effective tax rate for the three months ended June 30, 1997 was
39.8% compared to 38.7% for the same period in 1996.
Liquidity Management
Liquidity represents the ability of the Company to meet the
requirements of customer borrowing needs as well as fluctuations in deposit
flows.
The Company manages its liquidity primarily by maintaining investments
in overnight fed funds, money market mutual funds, available-for-sale
securities, and by maintaining lines of credit with correspondent banks. At
June 30, 1997 the total of cash and due from banks, overnight fed funds,
money market mutual funds, and available-for-sale securities represented
$225,699,000 or 37.1% of total deposits compared to $192,773,000 or 35.2%
at year end 1996. This increase in liquid assets for the six months ended
June 30, 1997 resulted primarily from an increase in deposits which were
invested in fed funds sold and short term investments.
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 Subsidiary Banks 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.
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 risk-based and leverage
capital ratios as of June 30, 1997 and December 31, 1996. The Company's
capital ratios significantly exceeded the minimum capital levels required
by current federal regulations. Management believes that the Company will
continue to meet the respective minimum capital requirements in the
foreseeable future.
Risk-Based Capital Ratios
June 30, 1997 December 31, 1996
(Dollars in thousands) Amount Ratio Amount Ratio
Tier 1 Capital $67,484 13.89% $63,469 13.91%
Tier 1 Capital minimum 19,431 4.00% 18,254 4.00%
requirement
Excess 48,053 9.89% 45,215 9.91%
Total Capital 71,558 14.73% 67,141 14.71%
Total Capital minimum 38,861 8.00% 36,508 8.00%
requirement
Excess 32,697 6.73% 30,633 6.71%
Risk-adjusted assets $485,766 $456,356
Leverage Ratios
June 30, 1997 December 31, 1996
(Dollars in thousands) Amount Ratio Amount Ratio
Tier 1 Capital to average
total assets
(Leverage ratio) $67,484 10.38% 63,469 10.55%
Minimum leverage 19,509 to 3.00% to 18,045 to 3.00% to
requirement
32,515 5.00% 30,075 5.00%
Excess 34,969 to 5.38% to 33,394 to 5.55% to
47,975 7.38% 45,424 7.55%
Average total assets $650,292 $601,496
Federal banking laws impose restrictions upon the amount of dividends
the Subsidiary Banks may declare to the Company. Federal laws also impose
restrictions upon the amount of loans or advances that the Subsidiary Banks
may extend to the Company. In management's opinion, these do not affect
the ability of the Company to meet its cash obligations.
PART II -- OTHER INFORMATION
Item 4. Submission of matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Shareholders was held on May
22, 1997.
(c) At the Annual Meeting the shareholders voted to:
(i) Elect Directors of the Company;
Votes Cast for Votes
Election Withheld
Charles E. Bancroft 2,711,368 11,309
Gene DiCicco 2,718,848 3,829
Lewis L. Fenton 2,718,848 3,829
Gerald T. Fry 2,717,334 5,343
Eugene R. Guglielmo 2,718,848 3,829
James L. Gattis 2,718,439 4,238
Stanley R. Haynes 2,718,848 3,829
D. Vernon Horton 2,717,743 4,934
Hubert W. Hudson 2,718,848 3,829
William J. Keller 2,718,848 3,829
Roger C. Knopf 2,695,749 26,928
Clayton C. Larson 2,718,848 3,829
William S. McAfee 2,718,848 3,829
William H. Pope 2,715,717 6,950
Mary Lou Rawitser 2,711,473 11,204
William K. Sambrailo 2,718,439 4,192
Robert B. Sheppard 2,718,848 3,783
Clyn Smith, Jr. 2,718,848 3,783
In the voting for Directors, there
were no abstentions and 1,368,080 broker nonvotes
(ii) Ratify the appointment of KPMG Peat Marwick LLP as
independent public accountants for the 1996 fiscal year;
For 2,709,994
Against 3,578
Abstain 8,683
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) INDEX TO EXHIBITS
Exhibit Sequentially
Number Exhibit Numbered Page
3.1 Articles of incorporation of the Company as amended to date. 1/
(*)
3.2 Bylaws of Company as amended to date. 2/ (*)
10.1 Lease -- 601 Abrego Street, Monterey, Premises. 3/ (*)
10.2 Lease for 1001 South Main Street, Salinas, Banking office. 2/
(*)
10.3 Lease dated December 15, 1988 by and between the Bank (*)
and James L. Gattis for 307 Main Street, Salinas Old Town Office.
2/
10.4 Lease dated May 1, 1985 by and between the Bank (*)
and Pacific Capital Bancorp. 4/
10.5 Pacific Capital Bancorp Employee Stock Ownership (*)
Plan and Trust Agreement. 5/
10.6 Master Equipment Lease Agreement between Bank and (*)
Parker North American Corporation. 5/
10.7 Lease dated September 22, 1986 between (*)
Bank and The Saunders Company. 5/
*/ Not Applicable.
1/ Filed as Exhibits 3.1, 10.21 and 10.32, respectively, to the Company's
Annual Report on Form 10-K (File No. 0-13528) for the fiscal year ended
December 31, 1988, and are incorporated herein by reference.
2/ Filed as Exhibits 3.2 and 10.17, respectively, to the Company's Annual
Report on Form 10-K (File No. 2-87513) for the fiscal year ended December
31, 1984, which are incorporated by reference.
3/ Filed as Exhibit to the Company's Registration Statement on Form S-18
(Registration No. 2-87513), which is incorporated by reference.
4/ Filed as Exhibit 10.20 to the Company's Annual Report on Form 10-K
(File No. 0-13528) for the fiscal year ended December 31, 1985, which is
incorporated by reference.
5/ Filed as Exhibits 10.24 through 10.26, respectively, to Company's
Annual Report on Form 10-K (File No. 0-13528) for the fiscal year ended
December 31, 1986, which are incorporated by reference.
Exhibit Sequentially
Number Exhibit Numbered Page
10.8 Matrix Funding Corporation Master Lease Agreement. 1/ (*)
10.9 Lease dated January 24, 1989 by and between First National Bank
(*)
of Monterey County and Stanley R. Haynes. 6/
10.13 Amendment No. One to Pacific Capital Bancorp(*)
Employee Stock Ownership Plan. 2/
10.14 Amendment No. Two to Pacific Capital Bancorp(*)
Employee Stock Ownership Plan. 7/
10.15 Amendment No. Three to Pacific Capital Bancorp (*)
Employee Stock Ownership Plan. 7/
10.16 Lease dated August 10, 1990 by and between the (*)
Trustees of the Stanley Family Trust and Pacific
Capital Bancorp for Carmel Office. 7/
10.17 Assignment of Lease dated November 1, 1990 by and (*)
between Pacific Capital Bancorp and First National
Bank of Monterey-County for Carmel Office. 7/
10.18 Lease dated November 12, 1990 by and between(*)
First National Bank of Monterey County and Carmel
Monterey Travel for Premises located at 601 Abrego
Street, Monterey, California. 7/
10.19 Prunetree Shopping Center Lease dated June 28, 1988 (*)
by and between Dennis R. Keith and Pajaro Valley Bancorporation.
7/
6/ Filed as Exhibits 10.20 through 10.24, respectively, to the Company's
Annual Report on Form 10-K (File No. 0-13528) for the fiscal year ended
December 31, 1989, which are incorporated by reference.
7/ Filed as Exhibits 10.25 through 10.32 to the Company's Annual Report
on Form 10-K (File No. 0-13528) for the fiscal year ended December 31,
1990, which are incorporated by reference.
Exhibit Sequentially
Number Exhibit Numbered Page
10.20 Lease dated June 21, 1990 by and between Saucito (*)
Land Co. and First National Bank of Monterey County. 7/
10.22 Amendment No. Four to Pacific Capital Bancorp (*)
Employee Stock Ownership Plan. 8/
10.23 Amendment dated May 20, 1991 to Lease dated(*)
December 15, 1988 by and between the Bank and
James L. Gattis for 307 Main Street, Salinas Old Town Office. 8/
10.24 Pacific Capital Bancorp Directors' Stock Option Plan (*)
and Form of Stock Option Agreement. 8/
10.26 Pacific Capital Bancorp 1984 Stock Option Plan (*)
and Forms of Agreements as amended to date. 8/
10.30 Business Recovery Services Agreement dated(*)
September 30, 1991 by and between Bank and J.D.B. & Associates,
Inc. 8/
10.31 Consolidated Agreement dated December 17, 1991 (*)
by and between Bank and Unisys with Equipment Sale Agreement,
Software License Agreement and Product License Agreement by
and between Bank and information Technology, Inc. 8/
10.32 Fidelity and Deposit Company of Maryland Directors and (*)
Officers Liability Insurance Policy including Bank Reimbursement.
8/
10.33 Fidelity and Deposit Company of Maryland (*)
Financial Institution Bond. 8/
10.34 Lease dated January 28, 1993 by and between J.W. and R.W. (*)
McClellan, Partners, and First National Bank of Central
California. 9/
10.35 Exercise of Lease Option as of September 19, 1992 by and (*)
between First National Bank of Central California and James L.
Gattis. 9/
8/ Filed as Exhibits 10.34 through 10.35 to the Company's Annual Report
on Form 10-K (File No. 0-13528) for the fiscal year ended December 31,
1991, which are incorporated by reference.
9/ Filed as exhibits to the Company's Annual Report on Form 10-K (File
No. 0-13528) for the fiscal year ended December 31, 1993, which are
incorporated by reference.
Exhibit Sequentially
Number Exhibit Numbered Page
10.37 Lease dated November 18, 1993 by and between Hazel Graven (*)
and Vines Stewart and First National Bank of Central California.
10/
10.38 Software License Agreement for Platform Transfer Module and
Interface (*)
dated September 15, 1993 by and between First National Bank of
Central California and Information Technology, Inc. 10/
10.39 Equipment Sale Agreement dated December 16, 1993 by and (*)
between First National Bank of Central California and
Information Technology, Inc. 10/
10.40 Asset/Liability Management Software Agreement dated (*)
December 31, 1993 by and between First National Bank of
Central California and Profitstar, Inc. 10/
10.41 Applications dated December 28, 1993 by First National Bank (*)
of Central California to become a member of the California
Bankers
Clearing House Association. 10/
10.42 Consolidated Agreement for the purchase of computer hardware
(*)
dated December 20, 1993 by and between First National Bank of
Central California and Unisys Corporation. 10/
10.46 Amended Pacific Capital Bancorp 1994 Stock Option Plan and Form
of (*)
Incentive and Non-Qualified Stock Option Agreements. 9/
10.47 Amendment No. Five to Pacific Capital Bancorp Employee (*)
Stock Ownership Plan and Trust. 10/
10.48 Pacific Capital Bancorp 401(k) Profit Sharing Plan. 10/ (*)
10.49 Equipment Sale Agreement dated March 22, 1995, by and between
(*)
First National Bank of Central California and
Information Technology, Inc. 11/
10.50 Equipment Sale Agreement dated February 2, 1996, by and between
(*)
First National Bank of Central California and
Information Technology, Inc. 11/
9/ Filed as Exhibits to the Company's Registration Statement on Form S-8
(File No. 33-83848) as filed on September 8, 1994, and Amendment No. 1 to
Form S-8 as filed on November 15, 1994.
10/ Filed as exhibits to the Company's Annual Report on Form 10-K (File
No. 0-13528) for the fiscal year ended December 31, 1994, which are
incorporated by reference.
11/ Filed as exhibits to the Company's Annual Report on Form 10-K (File
No. 0-13528) for the fiscal year ended December 31, 1995, which are
incorporated by reference.
Exhibit Sequentially
Number Exhibit Numbered Page
10.51 Standard Form of Agreement between Owner (Pacific Capital
Bancorp) (*)
and Contractor (Daniels & House Construction Co.) for the
renovation
of existing building and construction of new addition for
First National Bank of Central California at 1001 S. Main Street,
Salinas, CA, 93901, dated June 15, 1995. 11/
10.52 Employee Welfare Benefit Plan Agreement dated January 1, 1995,
(*)
between Pacific Capital Bancorp and
Great-West Life & Annuity Insurance Co. 11/
10.53 Lease Agreement dated October 29, 1996 by and between James L.
(*)
Gattis and Pacific Capital Bancorp for property located at 517 S.
Main Street, Salinas /12
10.54 Employment Agreement dated May 22, 1996 between First (*)
National Bank of Central California and Clayton C. Larson /12
10.55 Employment Agreement dated May 22, 1996 between First (*)
National Bank of Central California and D. Vernon Horton /12
10.56 Employment Agreement dated May 22, 1996 between First (*)
National Bank of Central California and Dennis A. DeCius /12
10.57 Employment Agreement dated November 20, 1996 between South (*)
Valley National Bank and Brad L. Smith /12
27. Financial Data Schedule 23
11/ Filed as exhibits to the Company's Annual Report on Form 10-K (File
No. 0-13528) for the fiscal year ended December 31, 1995, which are
incorporated by reference.
12/ Filed as exhibits to the Company's Annual Report on Form 10-K (File
No. 0-13528) for the fiscal year ended December 31, 1996, which are
incorporated by reference.
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 __ August 12, 1997_____ /S/ D. Vernon Horton
D. Vernon Horton
Chairman of the Board
Chief Executive Officer
Date __ August 12, 1997_______ /S/ Dennis A. DeCius
Dennis A. DeCius
Executive Vice President
Chief Financial Officer
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