SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended: December 31, 1996
or
[ ] TRANSACTION 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
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(Exact Name of registrant as specified in its charter)
California 77-0003875
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
307 Main Street, Salinas, California 93901
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (408) 757-4900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ X ]
Aggregate market value of common stock held by nonaffiliates of Pacific Capital
Bancorp at March 1, 1997: $106,871,000 Number of shares of Common Stock
outstanding at March 1, 1997: 4,090,757
Documents Incorporated by Reference: Location in Form 10-K
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1996 Annual Report to Shareholders. Part I, Items 1 and 2
Proxy Statement for 1997 Annual Part III, Items 10, 11, 12 and 13
Meeting of Shareholders
THIS REPORT INCLUDES A TOTAL OF 115 PAGES
EXHIBIT INDEX IS ON PAGE 69
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<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
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Form 10-K Annual Report Proxy
(1) Statement (2)
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<S> <C> <C> <C> <C>
Part I
Item 1 Business 1
Statistical Information 4
Distribution of Assets, Liabilities, Equity,
Interest Rates and Interest Differential 4 27-29
Investment Portfolio 5 12-13, 35-36
Loan Portfolio 5 8, 14-15, 31-32
Summary of Loan Loss Experience 6 33
Deposits 6 10-11
Financial Ratios 6 2
Competition 6-7
Supervision and Regulation 8-9
Capital Standards 9-11 40-41
Item 2 Properties 13
Item 3 Legal Proceedings 13
Item 4 Submission of Matters to a Vote of
Securities Holders 13
Part II
Item 5 Market for Registrants Common Stock and
Related Stockholder Matters 13 45
Item 6 Selected Financial Data 13 1
Item 7 Management Discussion and Analysis of
Financial Condition and Results of
Operations 14 22-45
Item 8 Financial Statements and Supplementary Data 14 2-26
Item 9 Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 14
Part III
Item 10 Directors and Executive Officers of the
Registrant 14 4-9
Item 11 Executive Compensation 15 9-13
Item 12 Security Ownership of Certain Beneficial
Owners and Management 15 4-5
Item 13 Certain Relationships and Related Transactions 15 15, 23 13
Part IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K 15-16 1-26
<FN>
(1) The 1996 Annual Report to Shareholders, portions of which are incorporated
by reference into this Form 10-K.
(2) The Proxy Statement dated for the Annual Meeting of Shareholders, portions
of which are incorporated by reference into this Form 10-K.
</FN>
</TABLE>
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PART I
ITEM 1 BUSINESS
GENERAL
Pacific Capital Bancorp (the "Company") is a California bank holding
company headquartered in Salinas, California and incorporated on January 26,
1983. Its principal wholly-owned subsidiaries, First National Bank of Central
California (formerly First National Bank of Monterey County ), ("First
National") commenced operations on April 2, 1984, and South Valley National
Bank, ("South Valley") commenced operations on April 21, 1982.
On November 20, 1996, the Company acquired South Valley Bancorporation
("SVB") and its banking subsidiary, South Valley, headquartered in Morgan Hill,
California. Each share of SVB common stock outstanding on November 20, 1996, was
converted into .92 shares of the Company's common stock. The Company issued
approximately 1,291,000 shares of common stock and cash in lieu of fractional
shares for all of the outstanding shares of SVB. The consolidated financial
statements of the Company give effect to the merger, which has been accounted
for as a pooling-of-interests. Accordingly, the accounts of SVB have been
combined with those of the Company for all periods presented.
First National is a full service commercial bank serving Monterey,
Salinas, Carmel, Watsonville, and surrounding areas in Monterey and Santa Cruz
Counties in California.
South Valley is a full service commercial bank serving Morgan Hill,
Gilroy, Holister, San Juan Bautista, and surrounding areas in Santa Clara and
San Benito Counties in California.
The Company itself does not engage in any business activities other
than the ownership of the banks and the ownership of one other wholly-owned
subsidiary, Pacific Capital Services Corporation ("PCSC"). PCSC has no active
operations at this time.
First National and South Valley are collectively referred to herein as
the "Subsidiary Banks."
General Banking Services
The Subsidiary Banks provides a wide range of commercial banking
services to individuals, professionals, and small- and medium-sized businesses.
The services provided include those typically offered by commercial banks, such
as: checking, interest checking and savings accounts, travelers checks, safe
deposit boxes, collection services, night depository facilities and wire and
telephone transfers. In addition to the above deposit services, the Subsidiary
Banks also provide a full array of loan products including commercial, real
estate and consumer loans as well as a variety of government assisted loan
programs such as SBA or Rural Economic Community Development Service guaranteed
loans. Professional firms, individuals and businesses form the core of the
Subsidiary Banks customer and deposit bases.
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The Subsidiary Banks maintain lobby hours between 9:00 a.m. and 5:00
p.m., Monday through Thursday and between 9:00 a.m. and 6:00 p.m. on Friday.
South Valley's Gilroy and Hollister offices are also open from 9:00 A.M. to
12:00 P.M. on Saturday. In addition to a broad range of retail products and
services, the Subsidiary Banks offer courier pick-up service, nationwide ATM
access available through the Star(R) system, Cirrus(R), Plus(R) Explore(R) and
Ca$h24(R), and point of sale transactions through Explore(R), Maestro(R) and
Discover/Novus(R), merchant bank card support with electronic ticket capture,
self directed IRA, discount brokerage services and consumer and business credit
cards. First National also offers offsite ATM access at the Prunetree Shopping
Center, Prunedale, California and at the Monterey Pennisula College, Monterey,
Calififornia. The Subsidiary Banks do not offer trust services.
Most of the Subsidiary Banks deposits are obtained from individuals,
professionals and small- and medium-sized businesses. As of December 31, 1996
the Subsidiary Banks had a total of 34,524 accounts representing 18,940 interest
bearing and non-interest bearing (checking) accounts with an average balance of
approximately $11,410 each; 11,434 savings and money market accounts with an
average balance of approximately $14,421 each; and 4,150 other time deposits
with an average balance of approximately $40,046 each. The Subsidiary Banks are
members of the Federal Deposit Insurance Corporation (the "FDIC") and the
deposits of each depositor of the Subsidiary Banks are insured up to $100,000.
The Subsidiary Banks engage in a full complement of lending activities,
including commercial, consumer/installment and short-term real estate loans,
with a particular emphasis on short- and medium-term commercial obligations.
Commercial lending activities are directed principally toward small- to
medium-sized businesses, such as professional firms, retail, light industry and
manufacturing to which the Subsidiary Banks make (a) loans for working capital,
(b) loans secured by receivable and inventory, (c) term loans for equipment; and
(d) real estate development loans. In addition to conventional commercial
lending, the Subsidiary Banks also offer an array of government assisted loan
products including SBA guaranteed loans, SBA 504 loans (primarily for commercial
real estate transactions), Rural Economic Community Development Services
guaranteed loans and loans guaranteed under the State of California guarantee
program. The Subsidiary Banks also work to meet the needs of the local
municipalities by providing lease financing for a wide variety of equipment
purchases including energy retrofit, fire trucks, police cars, portable
classrooms, etc. Consumer lending is oriented primarily to the needs of the
Subsidiary Banks customers, with an emphasis on automobile financing and real
estate loans. Real estate loans include home loans and equity advance loans.
In addition, the Subsidiary Banks offer construction loans, generally
for single-family residences and multi-unit projects. Real estate and
construction loans are typically secured by first deeds of trust and guarantees
from principals of the borrower. The economic viability of the project and the
borrower's credit worthiness are primary considerations in the loan underwriting
decision. The Subsidiary Banks use independent local appraisers, conservative
loan-to-value ratios and close monitoring of the projects during construction
phases, and in the absence of rapid declines in real estate values, ultimate
collectibilty of these secured loans is considered by the Subsidiary Banks
management to be better than the average mix of commercial loans. The Subsidiary
Banks do not make long term fixed rate real estate
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loans and, therefore, material sustained increases or decreases in general
interest rate levels have only a short-term effect on the Subsidiary Banks net
yield on real estate loans.
The Subsidiary Banks concentrate their lending activities in the
following areas: real estate loans, commercial loans, consumer loans to
individuals, and other loans. As of December 31, 1996, these four categories
accounted for approximately 60.0%, 29.2%, 5.8%, and 5.0% respectively, of the
Company's loan portfolio. As of December 31, 1996, the Company had total loans
outstanding of $388,728,000. No material portion of the Subsidiary Bank's loan
portfolio is concentrated within a single industry or group of related
industries.
The interest rates charged for the various loans made by the Subsidiary
Banks vary with the degree of risk, size, and maturity of the loans involved and
are generally affected by competition, governmental regulation and by current
money market rates.
The Company's consolidated financial statements are prepared on the
accrual basis of accounting, including the recognition of interest income on the
loan portfolio. The Subsidiary Banks follow the policy of non-accrual of
interest on a loan when principal or interest is 90 days or more past due unless
the loan is well secured and in the process of collection. Interest income from
non-accrual loans is not accrued on the books, but rather is recorded only when
and if received. When a loan is placed on a non-accrual basis, any previously
accrued but unpaid interest is reversed and charged against current income
unless there is adequate collateral to assure recovery of the accrued interest.
Correspondent Banks
The Subsidiary Banks have correspondent relationships with Wells Fargo
Bank, N.A., Union Bank of California., Bank of America, N.T.& S.A., City
National Bank and the Federal Reserve Bank of San Francisco. These relationships
are a result of the Subsidiary Banks efforts to obtain a wide range of services
for the Subsidiary Banks and its customers and, as net sellers of federal funds
(overnight interbank loans), to minimize the risk of an undue concentration of
its resources with a few entities. The Subsidiary Banks do not currently serve,
nor do they have plans to serve, as a correspondent to other banks.
The correspondent banks perform the following services for the
Subsidiary Banks: arrange loan participations; purchase and sell federal funds;
obtain lines for letters of credit; buy and sell investment securities; safekeep
the Subsidiary Banks investment securities; send and receive foreign wire
transactions and data processing services.
Existing Locations
First National currently operates five branch offices: the Monterey
branch located at 495 Washington Street, Monterey; the Salinas branch located at
1001 South Main Street, Salinas; the Oldtown office located at 307 Main Street,
Salinas; the Carmel branch located in the Carmel Rancho Shopping Center, Carmel;
and the Watsonville branch located at 655 Main Street, Watsonville. First
National Bank offers offsite 24-hour ATM services and night depository
facilities at the Prunetree Shopping Center located in Prunedale, and ATM
services located at the Monterey Pennisula College,
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Monterey , California. The Company's loan administration department is located
at 517 S. Main Street, Salinas. In addition to a banking office, the Oldtown
office located at 307 Main Street, Salinas houses all of the Company's
administrative functions as well as the Data Processing/Operations department
and a Community/Board room.
South Valley National Bank currently operates four branch offices: the
Morgan Hill branch located at 500 Tennant Station in Morgan Hill; the Gilroy
branch located at 8000 Santa Teresa Boulevard, Gilroy; the Hollister branch
located at 1730 Airline Highway, Hollister; and the San Juan Bautista branch
located at 301 Third Street, San Juan Bautista.
As of December 31, 1996, the Company and its subsidiaries employed 259
full-time equivalent employees.
Other Information Concerning the Company and the Subsidiary Banks
The Company and its Subsidiary Banks hold no material patents,
trademarks, licenses, franchises or concessions except for the written approvals
issued by the Office of the Comptroller of the Currency (the "OCC") for the
Subsidiary Banks banking offices.
No material expenditures were made by the Company or its Subsidiary
Banks during the last three fiscal years on research and development activities
relating to the development of services or the improvement of existing services.
Based upon present business activities, compliance with federal, state
and local provisions regulating discharge of materials into the environment will
have no material effect upon the capital expenditures, earnings and competitive
position of the Company or its Subsidiary Banks.
Pacific Capital Services Corporation
PCSC, a wholly-owned subsidiary of the Company, was incorporated on
April 22, 1985, to arrange and broker residential, commercial and construction
loans and other extensions of credit. PCSC commenced operations on July 1, 1985,
with a primary emphasis in the area of residential mortgage loans. In December,
1988, the functions performed by PCSC were taken over by First National and PCSC
ceased operations. The Company maintains PCSC as an inactive subsidiary.
SELECTED STATISTICAL INFORMATION
Consolidated statistical information concerning the business of the
Company and the Subsidiary Banks is set forth in Management's Discussion and
Analysis of Financial Condition and Results of Operations ("Management's
Discussion and Analysis") on pages 22 through 45 the Company's Annual Report to
Shareholders for the fiscal year ended December 31, 1996, (the "Annual Report")
and in Notes 1-14 to the Consolidated Financial Statements on pages 1 through 21
of the Annual Report, which pages of the Annual Report are incorporated herein
by reference. This information should be read in
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conjunction with the Consolidated Financial Statements and the Notes thereto
included in the Annual Report which have been incorporated herein by reference.
Distribution of Average Assets, Liabilities and Shareholders' Equity;
Interest Rates and Interest Differential
The Company's average consolidated balance sheet and an analysis of net
interest earnings for the years ended December 31, 1996, 1995 and 1994 is set
forth in Management's Discussion and Analysis on page 27 of the Annual Report.
A table setting forth the changes in interest income and interest
expense in 1996 and 1995 resulting from changes in volume and changes in rates
is set forth in Management's Discussion and Analysis on page 28 of the Annual
Report.
Investment Portfolio
The amortized cost and estimated fair values of each category of
investment securities at December 31, 1996, and 1995 and the maturities of
investment securities at December 31, 1996, are set forth in Note 5 of the Notes
to Consolidated Financial Statements on pages 12 and 13 of the Annual Report.
At December 31, 1996, investment securities from the following issuers
each totaled over ten percent (10%) of shareholder's equity of the Company:
Amortized Estimated
Cost Fair value
Available-for-sale securities:
U.S. Treasury and Agencies $ 64,109,000 $ 64,081,000
Agency Mortgage-Backed Securities $ 45,470,000 $ 45,176,000
Loan and Lease Portfolio
The composition of the loan and lease portfolio for the five years
ended at December 31, 1996, is set forth in Management's Discussion and Analysis
on page 32 of the Annual Report.
Maturities and sensitivity to changes in interest rates in the loan
and lease portfolio, including real estate-mortgage and consumer loans, as of
December 31, 1996, are summarized in Management's Discussion and Analysis on
page 33 of the Annual Report.
The composition of nonaccrual, past due and restructured loans and
leases for the five years ended December 31, 1996, and a discussion of the
Company's policy for placing loans on nonaccrual status is set forth in
Management's Discussion and Analysis on page 37 of the Annual Report.
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Summary of Loan Loss Experience
An analysis of loan loss experience for the five years ended December
31, 1996, and a description of the factors which influenced management's
judgment in determining the amount of the additions to the allowance charged to
operating expenses in each fiscal period, as well as a discussion of the risk
elements in the loan portfolio, are set forth in Management's Discussion and
Analysis on page 35of the Annual Report.
Deposits
The average amount of and the average rate paid on major deposit
categories for the years ended December 31, 1996, 1995 and 1994 is set forth in
Management's Discussion and Analysis on page 39 of the Annual Report.
The maturity of time certificates of deposit of $100,000 or more and
other time deposits of $100,000 or more at December 31, 1996, is set forth in
Management's Discussion and Analysis on page 39 of the Annual Report.
Financial Ratios
Certain ratios of profitability, liquidity and capital for the years
ended December 31, 1996, and 1995 are summarized in the Selected Financial Data
on page 1 of the Annual Report.
COMPETITION
In California and in the Subsidiary Banks primary service areas, major
banks dominate the commercial banking industry. Among the advantages which these
banks have over the Subsidiary Banks are their ability to finance wide-ranging
advertising campaigns and to allocate their investment assets, including loans,
to regions of higher yield and demand. By virtue of their larger amounts of
capital, such institutions have substantially greater lending limits than the
Subsidiary Banks and perform certain functions, including trust services and
international banking, which are not offered directly by the Subsidiary Banks
but are offered indirectly through its correspondent institutions.
First National's primary service area consists of Monterey County and
Southern Santa Cruz County and encompasses the cities of Monterey, Carmel,
Pacific Grove, Seaside, Marina, Sand City, Del Rey Oaks, Salinas, Prunedale,
Watsonville and the unincorporated communities of Pebble Beach, Carmel Valley
and North Monterey County. Based on data as of the most recent practicable date,
June 30, 1996, there were 82 financial institutions with $3,878.6 million in
deposits serving this area. First National's market share at June 30, 1996 was
as follows(1):
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First National
Total Deposits Bank Deposits First National Bank Market
Service Area (in thousands) (in thousands) Share
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Monterey $1,395,167 $123,007 8.8%
Salinas 1,439,932 133,984 9.3%
Carmel 432,021 32,640 7.5%
Watsonville 611,458 55,255 9.0%
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Total $3,878,578 $344,886 8.9%
===============================================================================
South Valley's primary service area is Southern Santa Clara County
and San Benito County, which includes the cities of Morgan Hill, Gilroy,
Hollister and San Juan Bautista. Based upon data as of the most recent
practicable date, June 30, 1996, there were 27 financial institutions with
$947.2 million in deposits serving this area. South Valley's market share at
June 30, 1996 was as follows(1):
South Valley South Valley
Total Deposits Bank Deposits National Bank
Service Area (in thousands) (in thousands) Market Share
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Morgan Hill $308,311 $62,673 20.3%
Gilroy 325,585 64,637 19.9%
Hollister 299,633 20,905 7.0%
San Juan Bautista 13,657 10,803 79.1%
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Total $947,186 $159,018 16.8%
===================================== ================ ================
(1) Sheshunoff(TM)Information Services Branches of California and Hawaii, June
1996 Data.
Other entities, both governmental and in private industry, seeking to
raise capital through the issuance and sale of debt securities, as well as other
depository institutions such as thrift and loan companies and credit unions,
also provide competition for the Subsidiary Banks in the acquisition of
deposits. The Subsidiary Banks also compete with money market funds and other
money market instruments which are not subject to interest rate ceilings.
From time to time, legislation is proposed or enacted which has the
effect of increasing the cost of doing business, limiting permissible activities
or affecting the competitive balance between banks and other financial
institutions. It is impossible to predict the competitive impact these and other
changes in legislation will have on commercial banking in general or on the
business of the Subsidiary Banks in particular.
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SUPERVISION AND REGULATION
The Effect of Governmental Policy on Banking
The earnings and growth of the Company and the Subsidiary Banks are
affected not only by local market area factors and general economic conditions,
but also by government monetary and fiscal policies. For example, the Board of
Governors of the Federal Reserve System (the "FRB") influences the supply of
money through its open market operations in U.S. Government securities, and
adjustments to the discount rates applicable to borrowings by depository
institutions and others. Such actions influence the growth of loans, investments
and deposits and also effect interest rates charged on loans and paid on
deposits. The nature and impact of future changes in such policies on the
business and earnings of the Company and the Subsidiary Banks cannot be
predicted.
As a consequence of the extensive regulation of commercial banking
activities in the United States, the business of the Company is particularly
susceptible to federal and state legislation which may have the effect of
increasing or decreasing the cost of doing business, modifying permissible
activities, or enhancing the competitive position of other financial
institutions. Any change in applicable laws or regulations may have a material
adverse effect on the business and prospects of the Company.
Regulation and Supervision of Bank Holding Companies
The Company is a bank holding company subject to the Bank Holding
Company Act of 1956, as amended ("BHCA"). The Company reports to, registers
with, and may be examined by the FRB. The FRB also has the authority to examine
the Company's subsidiaries.
The FRB requires the Company to maintain certain levels of capital. See
"Capital Standards" herein. The FRB also has the authority to take enforcement
action against any bank holding company that commits any unsafe or unsound
practice, or violates certain laws, regulations, or conditions imposed in
writing by the FRB.
Under the BHCA, a company generally must obtain the prior approval of
the FRB before it exercises a controlling influence over, or acquires directly
or indirectly, more than 5% of the voting shares or substantially all of the
assets of any bank or bank holding company. Thus, the Company is required to
obtain the prior approval of the FRB before it acquires, merges or consolidates
with any bank or bank holding company. Any company seeking to acquire, merge or
consolidate with the Company also would be required to obtain the FRB's
approval.
The Company is generally prohibited under the BHCA from acquiring ownership or
control of more than 5% of the voting shares of any company that is not a bank
or bank holding company and from engaging directly or indirectly in activities
other than banking, managing banks, or providing services to affiliates of the
holding company. A bank holding company, with the approval of the FRB, may
engage, or acquire the voting shares of companies engaged, in activities that
the FRB has determined to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. A bank holding company
must demonstrate that the benefits to the public of the proposed activity will
outweigh the possible adverse effects associated with such activity.
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Legislation was recently introduced in Congress that would repeal the
current statutory restrictions on affiliations between commercial banks and
securities firms. Under the proposed legislation, bank holding companies would
be allowed to control both a commercial bank and a securities affiliate, which
could engage in the full range of investment banking activities, including
corporate underwriting. The likelihood of such legislative changes and the
impact of such changes might have on the Company and the Subsidiary Banks are
imposible to predict.
The FRB generally prohibits a bank holding company from declaring or
paying a cash dividend which would impose undue pressure on the capital of
subsidiary banks or would be funded only through borrowing or other arrangements
that might adversely affect a bank holding company's financial position. The
FRB's policy is that a bank holding company should not continue its existing
rate of cash dividends on its common stock unless its net income is sufficient
to fully fund each dividend and its prospective rate of earnings retention
appears consistent with its capital needs, asset quality and overall financial
condition.
Transactions between the Company and the Subsidiary Banks and any
future subsidiaries are subject to a number of other restrictions. FRB policies
forbid the payment by bank subsidiaries of management fees which are
unreasonable in amount or exceed the fair market value of the services rendered
(or, if no market exists, actual costs plus a reasonable profit). Additionally,
a bank holding company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with the extension of credit, sale or
lease of property, or furnishing of services. Subject to certain limitations,
depository institution subsidiaries of bank holding companies may extend credit
to, invest in the securities of, purchase assets from, or issue a guarantee,
acceptance, or letter of credit on behalf of, an affiliate, provided that the
aggregate of such transactions with affiliates may not exceed 10% of the capital
stock and surplus of the institution, and the aggregate of such transactions
with all affiliates may not exceed 20% of the capital stock and surplus of such
institution. The Company may only borrow from depository institution
subsidiaries if the loan is secured by marketable obligations with a value of a
designated amount in excess of the loan. Further, the Company may not sell a
low-quality asset to a depository institution subsidiary.
Bank Regulation and Supervision
As national banks, the Subsidiary Banks are regulated, supervised and
regularly examined by the OCC. Deposit accounts at the Subsidiary Banks are
insured by the Bank Insurance Fund ("BIF"), as administered by the FDIC, to the
maximum amount permitted by law. The Subsidiary Banks are also subject to
applicable provisions of California law, insofar as such provisions are not in
conflict with or preempted by federal banking law.
Capital Standards
The OCC and other federal banking agencies have risk-based capital
adequacy guidelines intended to provide a measure of capital adequacy that
reflects the degree of risk associated with a banking organization's operations
for both transactions reported on the balance sheet as assets and transactions,
such as letters of credit and recourse arrangements, which are reported as off
balance sheet items. Under these guidelines, nominal dollar amounts of assets
and credit equivalent amounts of off
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balance sheet items are multiplied by one of several risk adjustment
percentages, which range from 0% for assets with low credit risk, such as
certain U.S. government securities, to 100% for assets with relatively higher
credit risk, such as business loans.
A banking organization's risk-based capital ratios are obtained by
dividing its qualifying capital by its total risk adjusted assets and off
balance sheet items. The federal banking agencies measure risk-adjusted assets
and off balance sheet items against both total qualifying capital (the sum of
Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1
capital consists of common stock, retained earnings, noncumulative perpetual
preferred stock and minority interests in certain subsidiaries, less most other
intangible assets. Tier 2 capital may consist of a limited amount of the
allowance for possible loan and lease losses and certain other instruments with
some characteristics of equity. The inclusion of elements of Tier 2 capital are
subject to certain other requirements and limitations of the federal banking
agencies. Since December 31, 1992, the federal banking agencies have required a
minimum ratio of qualifying total capital to risk-adjusted assets and off
balance sheet items of 8%, and a minimum ratio of Tier 1 capital to
risk-adjusted assets and off balance sheet items of 4%.
In addition to the risk-based guidelines, federal banking agencies
require banking organizations to maintain a minimum amount of Tier 1 capital to
total assets, referred to as the leverage ratio. For a banking organization
rated in the highest of the five categories used by regulators to rate banking
organizations, the minimum leverage ratio of Tier 1 capital to total assets is
3%. It is improbable, however, that an institution with a 3% leverage ratio
would receive the highest rating since a strong capital position is a
significant part of the rating. For all banking organizations not rated in the
highest category, the minimum leverage ratio is at least 100 to 200 basis points
above the 3% minimum. Thus, the effective minimum leverage ratio, for all
practical purposes, is at least 4% to 5%. In addition to these uniform
risk-based capital guidelines and leverage ratios that apply across the
industry, the federal banking agencies have the discretion to set individual
minimum capital requirements for specific institutions at rates significantly
above the minimum guidelines and ratios.
<TABLE>
The following tables present the capital ratios for the Company and the
Subsidiary Banks as of December 31, 1996.
<CAPTION>
The Company South Valley First National
Amount Ratio Amount Ratio Amount Ratio
- ------------------------------- -------------- --------------- --------------- -------------- --------------- ---------------
(000's) (000's) (000's)
<S> <C> <C> <C> <C> <C> <C>
Risk-Based Capital Ratio:
Tier 1 Capital $63,469 13.91% $16,096 11.63% $42,034 13.40%
Minimum Requirement 18,254 4.00% 5,534 4.00% 12,546 4.00%
Excess 45,215 9.91% 10,562 7.63% 29,488 9.40%
====== ===== ====== ===== ====== =====
Total Capital 67,141 14.71% 17,409 12.58% 44,258 14.11%
Minimum Requirement 36,508 8.00% 11,060 8.00% 25,092 8.00%
Excess 30,633 6.71% 6,340 4.58% 19,166 6.11%
====== ===== ===== ===== ====== =====
Risk-Adjusted Assets $456,356 $138,362 $313,644
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The Company South Valley First National
Amount Ratio Amount Ratio Amount Ratio
- ------------------------------ --------------- -------------- --------------- --------------- --------------- ---------------
(000's) (000's) (000's)
Leverage Ratio:
Tier 1 Capital $63,469 10.55% $16,096 8.61% $42,034 10.29%
Minimum Requirement 24,060 4.00% 7,481 4.00% 16,340 4.00%
Excess 39,409 6.55% 8,615 4.61% 25,694 6.29%
====== ===== ===== ===== ====== =====
Average Quarterly Assets $601,496 $187,024 $408,502
</TABLE>
Restrictions on Dividends and Other Distributions
The power of the board of directors of an insured depository
institution to declare a cash dividend or other distribution with respect to
capital is subject to statutory and regulatory restrictions which limit the
amount available for such distribution depending upon the earnings, financial
condition and cash needs of the institution, as well as general business
conditions. Federal law prohibits insured depository institutions from paying
management fees to any controlling persons or, with certain limited exceptions,
making capital distributions, including dividends, if, after such transaction,
the institution would be undercapitalized.
The payment of dividends by a national bank is further restricted by
additional provisions of federal law, which prohibits a national bank from
declaring a dividend on its shares of common stock unless its surplus fund
exceeds the amount of its common capital (total outstanding common shares times
the par value per share). Additionally, if losses have at any time been
sustained equal to or exceeding a bank's undivided profits then on hand, no
dividend can be paid. Moreover, even if a bank's surplus exceeds its common
capital and its undivided profits exceed its losses, the approval of the OCC is
required for the payment of dividends if the total of all dividends declared by
a national bank in any calendar year would exceed the total of its net profits
of that year combined with its retained net profits of the two preceding years,
less any required transfers to surplus or a fund for the retirement of any
preferred stock. A national bank must consider other business factors in
determining the payment of dividends. The payment of dividends by the Bank is
governed by the Bank's ability to maintain minimum required capital levels and
an adequate allowance for loan losses. The federal banking agencies also have
the authority to prohibit a depository institution from engaging in business
practices which are considered to be unsafe or unsound, possibly including
payments of dividends or other payments under certain circumstances even if such
payments are not expressly prohibited by statue.
The Company has paid a stock dividend every year since 1986 and cash
dividends were paid in 1993, 1994, 1995 and 1996.
11
<PAGE>
Premiums for Deposit Insurance and Assessments for Examinations
As an insured depository institution, the Company is required to pay
premiums for FDIC deposit insurance. The FDIC has adopted a risk-based
assessment system for deposit insurance premiums. Under this system, depository
institutions were charged anywhere from 23 cents to 31 cents for every $100 in
insured deposits based on that institution's capital levels and supervisory
subgroup assignment.
In May 1995, the BIF achieved its target goal of bringing the ratio of
insurance fund reserves to $1.25 for each $100 of insured deposits. Based on
this reserve level, the FDIC in September 1995, reduced the range of insurance
assessments to a range of $0.04 to $0.31 per $100 in insured deposits. In
November 1995, the FDIC further reduced the range of insurance assessment rates
from $0.04 to $0.31 to $0 to $0.31 per $100 in insured deposits. Due to these
changes in assessment rates, the Company's FDIC assessment expense decreased for
1995 by $316,000 or 94.6%. During 1996, a special one-time assessment was paid
by BIF-insured financial institutions to the FDIC for the purpose of assisting
in the recapitalization of the Savings Association Insurance Fund (the "SAIF")
The SAIF is the insurance fund reserve for savings institutions. In November
1996, the Subsidiary Banks paid $71,000 for this special assessment.
Interstate Banking and Branching
The Riegle-Neal Interstate Banking and Branching Efficiency Act (the
"Act"), which was enacted in 1994, codifies the authority of banks to provide
specified interstate banking services on an agency basis to customers of
affiliate banks as of September 1995. Also, under the act, as of September 1995,
bank holding companies may acquire banks in other states, subject to certain
deposit concentration limitations. Beginning June 1, 1997, and subject to
certain deposit concentration and other limitations, banks may merge with other
banks in states that do not "opt out" of the interstate legislation prior to
June 1, 1997. Interstate mergers may be conducted prior to June 1, 1997 in
states that specifically permit such mergers. In addition, prior to June 1,
1997, certain consolidations are possible using the "30-mile rule," which allows
national banks to relocate their headquarters up to 30 miles away, including
across state lines. Currently, several states have already "opted in" to the
interstate legislation.
Effective October 2, 1995, California opted in early to interstate
branching by permitting other state's banks to acquire an entire California bank
by merger or purchase and thereby establish one or more California branch
offices, provided the acquired bank has been in existence at lease five years.
Accounting Pronouncements
Accounting Pronouncements - During 1996, the Financial
Accounting Standards Board (the "FASB") issued Statement of Financial Accounting
Standards (SFAS) No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. This statement provides accounting
and reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. Under this approach, after a transfer of financial assets, an entity
recognizes all financial and servicing assets it controls and liabilities it has
incurred and derecognizes financial assets it no longer controls and liabilities
that have been extinguished. This statement is effective for years ending after
December 31,
12
<PAGE>
1996. The Company does not believe this statement will have any significant
impact on its consolidated financial statements.
ITEM 2 PROPERTIES
On December 31, 1996, the Company had 10 offices, of which 4 were owned
and 6 were leased by the Company or its Subsidiary Bank's. All of these offices
are considered by management to be well maintained and adequate for the purpose
intended. See page 23 of the Annual Report incorporated herein by reference for
further information on leases.
ITEM 3 LEGAL PROCEEDINGS
Neither the Company nor its Subsidiary Banks is a party to, nor is any
of their property the subject of, any material pending legal proceedings other
than ordinary routine litigation incidental to their respective businesses.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of shareholders of the Company was held on October
22, 1996. The shareholders approved the Agreement and Plan of Reorganization
dated July 18,1996, between the Company and SVB providing for the merger of SVB
with and into the Company. There were 1,599,455 votes cast for approval, 2,818
votes against or withheld and 38,655 abstentions. There were no broker
non-votes.
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
For information concerning the Company's common stock and related
security holder matters, see "Pacific Capital Bancorp Stock Activity" at Page 45
of the Annual Report, which is incorporated herein by reference. For information
regarding dividends, see "Restrictions on Dividends and other Distributions"
under Part I, Item 1 of this Form 10-K on page 13
As of September 10, 1996, there were 2,063 holders of record of the
Company's Common Stock.
ITEM 6 SELECTED FINANCIAL DATA
For selected financial data concerning the Company, see "Selected
Financial Information and Comparative Per Share Data" at Page 1 of the Annual
Report, which is incorporated herein by reference.
13
<PAGE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For management's discussion and analysis of financial condition and
results of operations, see "Management's Discussion and Analysis" at Pages 22
through 45 of the Annual Report, which pages of the Annual Report are
incorporated herein by reference.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For financial statements of the Company, see Pages 2 through 26 of the
Annual Report and the "Independent Auditors" Report thereon at Page 49 which
pages of the Annual Report are incorporated herein by reference.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information Concerning Directors and Executive Officers
For information concerning directors and executive officers of the
Company, see "ELECTION OF DIRECTORS OF THE COMPANY" in the definitive Proxy
Statement for the Company's 1997 Annual Meeting of Shareholders to be filed
pursuant to Regulation 14A (the "Proxy Statement"), which is incorporated herein
by reference.
Compliance With Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and any persons who own more than ten percent
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file. To the best knowledge of the Company, there are no persons who own
more than ten-percent of the Company's Common Stock.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes
14
<PAGE>
that, for the fiscal year ended December 31, 1996, all filing requirements
applicable to its officers and directors have been satisfied.
ITEM 11 EXECUTIVE COMPENSATION
For information concerning executive compensation, see "EXECUTIVE
COMPENSATION" in the Proxy Statement, which is incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information concerning security ownership of certain beneficial
owners and management, see "PRINCIPAL SHAREHOLDERS" and "ELECTION OF DIRECTORS
OF THE COMPANY" in the Proxy Statement, which is incorporated herein by
reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning certain relationships and related
transactions, see "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" and
"INDEBTEDNESS OF MANAGEMENT" in the Proxy Statement, which is incorporated
herein by reference.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements.
The consolidated financial statements of Pacific Capital Bancorp and
subsidiaries, other financial information and the Independent Auditors' Report
on Consolidated Financial Statements appearing at the indicated location in the
Annual Report are incorporated by reference into this report.
2. Financial Statement Schedules.
In accordance with Regulation S-X, the financial statement schedules
have been omitted because (a) they are not applicable to or required of the
Company; or (b) the information required is included in the consolidated
financial statements or notes thereto.
With the exception of such information in the 1996 Annual Report
incorporated herein by reference, the 1996 Annual Report is not deemed "filed"
as part of this report.
15
<PAGE>
3. Exhibits.
See Index to Exhibits at pages 69 - 73 of this Form 10-K.
(b) Reports on Form 8-K.
A report on Form 8-K dated July 24, 1996, was filed with the Commission
on July 24, 1996, reporting under Item 5 -- Other Events. The Company's stock
repurchase program was amended to increase the price per share at which the
Company may repurchase shares of the Company's outstanding common stock at
prices ranging from $25.00 per share to $28.00 per share.
A report on Form 8-K dated December 3, 1996, was filed with on December
3, 1996, reporting under Item 2 the Company's acquisition by merger of SVB and
its subsidiary, South Valley, which is more fully discussed under Item 1 of this
Form 10-K. A report on Form 8-K/A dated January 21, 1997 was filed on January
21, 1997 amending the Form 8-K filed on December 3, 1996 to furnish the
information under Item 7 - Financial Statements, Pro Forma Financial Information
and Exhibits.
16
<PAGE>
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1996, 1995, and 1994
(With Independent Auditors' Report Thereon)
17
<PAGE>
<TABLE>
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
SELECTED FINANCIAL INFORMATION AND
COMPARATIVE PER SHARE DATA
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts) 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest income $ 43,958 $ 38,678 $ 33,030 $ 29,346 $ 30,943
Interest expense 13,319 10,971 8,074 7,763 10,609
- -------------------------------------------------------------------------------------------------------------------------
Net interest income 30,639 27,707 24,956 21,583 20,334
Provision for possible loan losses 685 527 479 1,278 1,265
- -------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses 29,954 27,180 24,477 20,305 19,069
Other income 3,206 3,056 2,888 2,911 2,913
Other expense 22,727 19,352 17,345 16,445 15,935
Net (loss) gain on Securities Transactions (46) (73) (17) 120 3
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes 10,387 10,811 10,003 6,891 6,050
Income taxes 4,348 4,200 3,778 2,426 2,088
- -------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of
accounting change 6,039 6,611 6,225 4,465 3,962
Cumulative effect of accounting change -- -- -- 549 --
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 6,039 $ 6,611 $ 6,225 $ 5,014 $ 3,962
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Income before cumulative effect of
accounting change $ 1.42 $ 1.58 $ 1.51 $ 1.08 $ 0.96
Net income 1.42 1.58 1.51 1.22 0.96
Cash dividends .60 .53 .40 .30 --
Book value 15.59 15.54 14.60 13.83 13.57
BALANCES AT YEAR END
Total assets 619,439 530,852 487,749 436,958 433,656
Total loans 388,728 300,895 290,352 265,903 265,647
Total deposits 547,182 465,508 427,870 382,475 382,094
Total shareholders' equity 63,646 60,533 55,002 50,039 46,068
AVERAGE DAILY BALANCES
Total assets 568,686 496,007 459,695 433,558 414,928
Total loans 332,421 290,265 277,263 259,131 272,368
Total deposits 501,833 431,975 404,047 382,183 365,932
Total shareholders' equity 63,106 58,183 52,719 48,205 44,274
PERFORMANCE AND CAPITAL RATIOS
Return on average assets 1.06% 1.33% 1.35% 1.16% 0.95%
Return on average shareholders' equity 9.57% 11.36% 11.81% 10.40% 8.95%
Average shareholders' equity to average assets 11.10% 11.73% 11.47% 11.12% 10.67%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
- ---------------------------------------------------------------------------------------------------
(In thousands, except share amounts) 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 48,126 $ 34,327
Federal funds sold 14,910 38,226
Money market funds 13,209 6,681
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents 76,245 79,234
Investment securities:
Held-to-maturity, at amortized cost
(fair value of $9,741 and $15,875, respectively) 9,680 15,685
Available-for-sale, at fair value 116,528 110,143
- ---------------------------------------------------------------------------------------------------
Total investment securities 126,208 125,828
Loans available for sale 5,821 3,876
Loans, net of unearned income 388,728 300,895
Less allowance for possible loan losses 3,672 3,710
- ---------------------------------------------------------------------------------------------------
Net loans 385,056 297,185
Premises and equipment, net 15,300 13,507
Accrued interest receivable and other assets 10,809 11,222
- ---------------------------------------------------------------------------------------------------
Total assets $ 619,439 $ 530,852
===================================================================================================
Liabilities and Shareholders' Equity
Deposits:
Demand, noninterest bearing $ 131,332 $ 115,861
Demand, interest bearing 84,770 76,770
Savings and money market 164,890 151,337
Time certificates 166,190 121,540
- ---------------------------------------------------------------------------------------------------
Total deposits 547,182 465,508
Accrued interest payable and other liabilities 8,611 4,811
- ---------------------------------------------------------------------------------------------------
Total liabilities 555,793 470,319
- ---------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock; no par value, 20,000,000 shares authorized and unissued
Common stock; no par value, 20,000,000 shares authorized: 4,083,363
and 3,783,960 shares issued and outstanding in 1996 and 1995,
respectively 49,388 42,566
Retained earnings 14,423 17,601
Net unrealized (loss) gain on available-for-sale securities (165) 366
- ---------------------------------------------------------------------------------------------------
Total shareholders' equity 63,646 60,533
Commitments and contingencies
- ---------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 619,439 $ 530,852
===================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
19
<PAGE>
<TABLE>
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Years ended December 31,
- -----------------------------------------------------------------------------------------------------
(In thousands, except per share amounts) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 33,845 $ 30,490 $ 26,430
Interest on federal funds sold 1,806 1,870 1,182
Interest on investment securities:
Taxable 7,557 5,415 4,461
Non-taxable 750 903 957
- -----------------------------------------------------------------------------------------------------
Total interest income 43,958 38,678 33,030
- -----------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits 13,292 10,922 7,985
Other interest expense 27 49 89
- -----------------------------------------------------------------------------------------------------
Total interest expense 13,319 10,971 8,074
- -----------------------------------------------------------------------------------------------------
Net interest income 30,639 27,707 24,956
Provision for possible loan losses 685 527 479
- -----------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 29,954 27,180 24,477
- -----------------------------------------------------------------------------------------------------
Other income:
Service charges 2,432 2,399 2,163
Gain on sale of loans 27 91 160
Net losses on securities transactions (46) (73) (17)
Other 747 566 565
- -----------------------------------------------------------------------------------------------------
Total other income 3,160 2,983 2,871
- -----------------------------------------------------------------------------------------------------
Other expenses:
Salaries and benefits 11,864 9,989 8,730
Occupancy 2,111 1,959 1,779
Equipment 2,577 1,943 1,476
Advertising and promotion 710 659 679
Stationery and supplies 563 508 456
Legal and professional fees 1,946 823 828
Regulatory assessments 147 572 1,043
Other 2,809 2,899 2,354
- -----------------------------------------------------------------------------------------------------
Total other expenses 22,727 19,352 17,345
- -----------------------------------------------------------------------------------------------------
Income before income taxes 10,387 10,811 10,003
Income taxes 4,348 4,200 3,778
- -----------------------------------------------------------------------------------------------------
Net income $ 6,039 $ 6,611 $ 6,225
=====================================================================================================
Earnings per share $ 1.42 $ 1.58 $ 1.51
=====================================================================================================
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
20
<PAGE>
<TABLE>
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1996, 1995, and 1994
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Net unrealized
gain (loss) on Total
Common Common Retained Guaranteed available-for- shareholders'
(In thousands, except share amounts) shares amount earnings ESOP note sale securities equity
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1993, as
previously reported 2,327,167 $ 25,802 $ 9,638 $ (212) $ 204 $ 50,039
Adjustment to reflect pooling-of-
interests 1,291,185 $ 13,126 $ 1,481 -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1993, restated 3,618,352 38,928 11,119 (212) 204 50,039
Net income for the year ended
December 31, 1994 -- -- 6,225 -- -- 6,225
Purchase and retirement of shares (42,772) (717) -- -- -- (717)
Exercise of stock options
(net of 5,284 shares retired in
connection with cashless 75,071 806 -- -- -- 806
exercises)
5% stock dividend, including
payment of fractional shares 117,051 2,165 (2,181) -- -- (16)
Cash dividend declared -- -- (1,137) -- -- (1,137)
Repayment of ESOP note -- -- -- 212 -- 212
Recognition of net unrealized loss
on available-for-sale securities -- -- -- -- (410) (410)
- ------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1994 3,767,702 41,182 14,026 -- (206) 55,002
Net income for the year ended
December 31, 1995 -- -- 6,611 -- -- 6,611
Purchase and retirement of shares (5,606) (111) -- -- -- (111)
Exercise of stock options
5% stock dividend, including 9,590 158 -- -- -- 158
payment of fractional shares 123,338 3,132 (3,147) -- -- (15)
Cash dividends declared -- -- (1,684) -- -- (1,684)
Recognition of net unrealized gain
on available-for-sale securities -- -- -- -- 572 572
- ------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1995 3,895,024 44,361 15,806 -- 366 60,533
Net income for the year ended
December 31, 1996 -- -- 6,039 -- -- 6,039
Purchase and retirement of shares (23,646) (605) -- -- -- (605)
Exercise of stock options 17,981 295 -- -- -- 295
5% stock dividend, including
payment of fractional shares 194,455 5,348 (5,372) -- -- (24)
Cash dividends declared -- -- (2,050) -- -- (2,050)
Repurchase of dissenter shares (451) (11) -- -- -- (11)
Recognition of net unrealized
loss on available-for-sale
securities -- -- -- -- (531) (531)
- ------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1996 4,083,363 $ 49,388 $ 14,423 $ -- $ (165) $ 63,646
========================================================================================================================
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
21
<PAGE>
<TABLE>
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years ended December 31,
- ------------------------------------------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,039 $ 6,611 $ 6,225
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,074 1,260 1,046
Provision for possible loan losses 685 527 479
Loss on sale of investment securities, net 46 73 17
Net originations of loans available for sale (1,945) (2,891) (3,355)
Proceeds from sale of loans -- 924 3,932
Gain on sale of loans (27) (91) (160)
Deferral of loan origination fees (64) 40 (95)
Change in accrued interest receivable and other assets (118) (837) (1,613)
Change in accrued interest payable and other liabilities 3,813 93 470
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 9,503 5,709 6,946
- ------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net change in loans (88,492) (10,739) (25,011)
Maturities of investment securities 20,445 40,818 25,585
Purchases of investment securities (82,606) (95,070) (41,735)
Proceeds from sale of available-for-sale securities 61,735 42,089 13,494
Capital expenditures, net (2,867) (1,536) (3,173)
- ------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (91,785) (24,438) (30,840)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits 81,674 21,471 45,395
Cash received in connection with branch acquisition -- 16,167 --
Cash paid for retirement of stock (605) (111) (717)
Proceeds from exercise of stock options 295 158 806
Cash paid in lieu of fractional shares (21) (15) (16)
Cash paid for dividends (2,050) (1,684) (1,137)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 79,293 35,986 44,331
- ------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (2,989) 17,257 20,437
Cash and cash equivalents at beginning of year 79,234 61,977 41,540
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 76,245 $ 79,234 $ 61,977
==================================================================================================================
Supplemental disclosures of cash flow information: Cash paid during the period:
Interest $ 14,379 $ 11,827 $ 8,226
Income taxes 4,834 4,107 3,633
Release of guarantee of ESOP note -- -- 212
==================================================================================================================
Noncash investing and financing activities:
Transfer from retained earnings to common stock due to
stock dividends $ 5,348 $ 3,132 $ 2,165
Transfer of securities from held-to-maturity
to available-for-sale -- 38,660 --
Transfer from loans to other real estate owned 352 1,940 1,577
==================================================================================================================
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
22
<PAGE>
7
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995, and 1994
(1) Summary of Significant Accounting Policies
The accounting policies of Pacific Capital Bancorp (the Company) and
subsidiaries are in accordance with generally accepted accounting
principles and conform to general practices within the banking
industry.
The Company - Pacific Capital Bancorp is a California corporation and a
multi-bank holding company which was incorporated on January 26, 1983.
The Company's subsidiaries, First National Bank of Central California
(First National), and South Valley National Bank (South Valley),
commenced operations in 1984 and 1983, respectively. First National is
a full service commercial bank serving Monterey, Salinas, Carmel,
Watsonville, Prunedale and surrounding areas in Monterey and Santa Cruz
Counties. South Valley is a full service commercial bank serving Morgan
Hill, Gilroy, Hollister, San Juan Bautista and surrounding areas in
Santa Clara and San Benito Counties.
Consolidation - The accompanying consolidated financial statements
include the effect of the fourth quarter 1996 acquisition of South
Valley Bancorporation which was accounted for as a
pooling-of-interests. These financial statements include the accounts
of Pacific Capital Bancorp and its subsidiaries, First National Bank of
Central California and South Valley National Bank. Accordingly, the
financial information included in the consolidated financial statements
and notes thereto, present the combined results of operations of
Pacific Capital Bancorp and South Valley Bancorporation as if the
merger had been in effect for all periods presented. All significant
intercompany balances and transactions have been eliminated.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents - Cash and cash equivalents as reported in
the consolidated statements of cash flows includes cash on hand, cash
balances due from banks, federal funds sold, and money market mutual
funds. The cash equivalents are readily convertible to known cash
within 90 days.
23
<PAGE>
8
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Investment Securities - The Company has classified its securities for
which it has the positive intent and ability to hold to maturity as
held-to-maturity securities. Such securities are reported at amortized
cost. The Company has classified certain securities for which it does
not have the intent to hold to maturity and which are not held
principally for the purpose of selling them in the near term as
available-for-sale securities. Such securities are reported at fair
value, with unrealized gains and losses, net of income taxes, reported
in a separate component of shareholders' equity. The Company does not
engage in trading activities.
Amortization of premiums and accretion of discounts arising at
acquisition of investment securities are included in income using
methods that approximate the level yield method. Gains or losses on the
sale of securities are determined based on the specific identification
method.
In November 1995, the Financial Accounting Standards Board (FASB)
issued a special report, A Guide to Implementation of Statement No.
115, on Accounting for Certain Investments in Debt and Equity
Securities Questions and Answers, (the Special Report). The Special
Report allowed companies to reassess the appropriateness of the
classifications of all securities held and account for any resulting
reclassifications at fair value. Reclassifications from this one-time
reassessment will not call into question the intent of an enterprise to
hold other debt securities to maturity in the future, provided that
reclassification was performed by December 31, 1995. The Company
adopted the reclassification provision in the Special Report during
1995 and transferred $38,660,000 of held-to-maturity securities into
available-for-sale.
Loans - Loans are stated at the principal amount outstanding. Interest
on loans is credited to income on a simple interest basis. Loan
origination fees and direct origination costs are deferred and
amortized to income by a method approximating the level yield interest
method over the estimated lives of the underlying loans. Loans
contractually past due over 90 days or considered impaired are placed
on nonaccrual status, unless they are well-secured by underlying
collateral and are in the process of collection. When a loan is placed
on nonaccrual status, the accrued interest is reversed against interest
income and the loan is accounted for on the cash or cost recovery
method thereafter until qualifying for return to accrual status.
Generally, a loan will be returned to accrual status when all
delinquent principal and interest become current in accordance with the
terms of the loan agreement and full collection of the principal
appears probable.
24
<PAGE>
9
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The allowance for possible loan losses is a valuation allowance that is
maintained at a level estimated to be adequate to provide for future
loan losses through charges to current operating expense. The allowance
is based upon a continuing review of loans by management which includes
consideration of changes in the character of the loan portfolio,
current and anticipated economic conditions, past lending experience,
loan loss experience, and such other factors which, in management's
judgment, deserve recognition in estimating potential loan losses. In
addition, regulatory agencies, as an integral part of their examination
process, periodically review the Company's allowance for possible loan
losses. Such agencies may require the Company to recognize additions to
the allowance based on their judgment of information available to them
at the time of their examination.
Loans Available for Sale - The Subsidiary Banks originate loans that
are guaranteed in part by the Small Business Administration. The
guaranteed portion of such loans may be sold without recourse. The
Subsidiary Banks retain the servicing and credit risk in the remaining
unguaranteed portion. Loans available for sale are valued at lower of
cost or estimated market value and are comprised of the portion of
loans originated for sale, which are guaranteed by the Small Business
Administration. When participating interests in loans are sold without
recourse, gains are recognized at the time of the sale which are equal
to the premium received less estimated future loan servicing costs and
profits. Any discounts related to loan interests retained are amortized
using methods that approximate the level yield interest method over the
remaining life of the loan.
Premises and Equipment - Premises and equipment are stated at cost,
less accumulated depreciation and amortization. Depreciation and
amortization are charged to expense over the estimated useful lives of
the assets or the lease term on a straight-line basis as follows:
- --------------------------------------------------------------------------------
Buildings 40 years
Furniture and equipment 2-5 years
Leasehold improvements 5 years
Property under capital lease 5 years
- --------------------------------------------------------------------------------
Other Real Estate Owned - Real estate and other assets acquired in
satisfaction of indebtedness are recorded at the lower of the recorded
loan amount or the estimated fair market value net of anticipated
selling costs, and any difference between this and the loan amount is
treated as a loan loss. Costs of maintaining other real estate owned,
subsequent declines in fair value, if any, and gains or losses on sale
are reflected in current earnings.
25
<PAGE>
10
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Income Taxes - Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. To the extent that current available
evidence about the future raises doubt about the realization of a
deferred tax asset, a valuation allowance is established to reduce that
deferred tax asset if it is more likely than not that the related tax
benefits will not be realized. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years which those differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
Net Income Per Share - Net income per share is computed by dividing net
income by the weighted average number of shares of common stock
outstanding during the year (taking into account the shares issued in
connection with the acquisition of South Valley as if these shares were
issued for all periods presented) plus shares issuable assuming
exercise of all employee stock options, except where antidilutive. The
weighted average shares outstanding were 4,239,617, 4,192,297, and
4,113,474 in 1996, 1995, and 1994, respectively. Weighted average
shares outstanding and all per share amounts included in the
accompanying consolidated financial statements and notes thereto have
given effect to all stock dividends.
Dividends - In 1996 the Company paid four cash dividends of $0.15 per
share to holders of record on March 15, June 28, September 16, and
November 1, payable on March 29, June 28, September 30, and December 9,
1996, respectively. The Company also paid a five percent (5%) stock
dividend payable to shareholders of record as of December 1, 1996.
Reclassifications - Certain amounts in the 1995 and 1994 consolidated
financial statements have been reclassified to conform to the 1996
presentation.
Accounting Pronouncements - During 1996, the Financial Accounting
Standards Board (the "FASB") issued Statement of Financial Accounting
Standards (SFAS) No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. This statement
provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses
on control. It distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. Under this approach,
after a transfer of financial assets, an entity recognizes all
financial and servicing assets it controls and liabilities it has
incurred and derecognizes financial
26
<PAGE>
11
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
assets it no longer controls and liabilities that have been
extinguished. This statement is effective for years ending after
December 31, 1996. The Company does not believe this statement will
have any significant impact on its consolidated financial statements.
(2) Merger
On November 20, 1996, the Company acquired South Valley Bancorporation
(SVB) and its banking subsidiary, South Valley National Bank,
headquartered in Morgan Hill, California. Each share of SVB common
stock outstanding on November 20, 1996, was converted into 0.92 shares
of the Company's common stock. The Company issued approximately
1,291,000 shares of common stock and cash in lieu of fractional shares
for all of the outstanding shares of SVB. The consolidated financial
statements of the Company give effect to the merger, which has been
accounted for as a pooling-of-interests. Accordingly, the accounts of
SVB have been combined with those of the Company for all periods
presented. A reconciliation of previously reported net interest income
and net income follows:
- -------------------------------------------------------------------------------
(In thousands) Nine months ended Years ended December 31,
September 30, 1996 -----------------------------------
Net interest income (Unaudited) 1995 1994
- ------------------------------------------------------------------------------
SVB $7,786 $8,891 $7,985
PABN 14,664 18,816 16,971
- ------------------------------------------------------------------------------
Combined $22,450 $27,707 $24,956
- ------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(In thousands) Nine months ended Years ended December 31,
September 30, 1996 -----------------------------------
Net income (Unaudited) 1995 1994
- ------------------------------------------------------------------------------
SVB $1,460 $1,577 $1,886
PABN 4,112 5,034 4,339
- ------------------------------------------------------------------------------
Combined $5,572 $6,611 $6,225
- ------------------------------------------------------------------------------
(3) Cash and Due from Banks
Cash and due from banks includes approximately $5,659,000 and
$5,827,000 as of December 31, 1996 and 1995, respectively, held by the
Federal Reserve Bank of San Francisco to meet required reserve
balances.
27
<PAGE>
12
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Quarterly Income Statement
<TABLE>
The following tables depict the Consolidated Statements of Income for
1996 and 1995 by quarter:
<CAPTION>
(Unaudited) 1996
- ---------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts) 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $11,843 $11,201 $10,626 $10,288
Interest expense 3,654 3,406 3,158 3,101
- ---------------------------------------------------------------------------------------------------------------------
Net interest income 8,189 7,795 7,468 7,187
Provision for loan loss 500 6 74 105
- ---------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 7,689 7,789 7,394 7,082
Other income 781 780 817 782
Other expense 7,270 5,584 4,962 4,911
- ---------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 1,200 2,985 3,249 2,953
Income taxes 733 1,207 1,256 1,152
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 467 $ 1,778 $ 1,993 $ 1,801
=====================================================================================================================
Net income per share $ 0.11 $ 0.41 $ 0.47 $ 0.43
=====================================================================================================================
(Unaudited) 1995
- ---------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts) 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
- ---------------------------------------------------------------------------------------------------------------------
Interest income $10,219 $9,839 $9,487 $9,133
Interest expense 2,966 2,970 2,657 2,378
- ---------------------------------------------------------------------------------------------------------------------
Net interest income 7,253 6,869 6,830 6,755
Provision for loan loss 287 90 90 60
- ---------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 6,966 6,779 6,740 6,695
Other income 684 719 936 644
Other expense 5,053 4,784 4,855 4,660
- ---------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 2,597 2,714 2,821 2,679
Income taxes 1,025 1,070 1,088 1,017
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 1,572 $ 1,644 $ 1,733 $ 1,662
=====================================================================================================================
Net income per share $ 0.37 $ 0.39 $ 0.42 $ 0.40
=====================================================================================================================
</TABLE>
28
<PAGE>
13
<TABLE>
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Investment Securities
The amortized cost and estimated fair values of investment securities
as of December 31 are as follows:
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Estimated
Amortized Unrealized Unrealized fair
(In thousands) cost gain loss value
- ---------------------------------------------------------------------------------------------------------------------
1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale securities:
U.S. Treasury and agency $64,109 $159 $187 $64,081
State and municipal 7,233 59 21 7,271
Mortgage-backed securities 45,470 9 303 45,176
- ---------------------------------------------------------------------------------------------------------------------
$116,812 $227 $511 $116,528
=====================================================================================================================
Held-to-maturity securities:
State and municipal $6,449 $55 $42 $6,462
Mortgage-backed securities
and other 3,231 59 11 3,279
- ---------------------------------------------------------------------------------------------------------------------
$9,680 $114 $53 $9,741
- ---------------------------------------------------------------------------------------------------------------------
1995
- ---------------------------------------------------------------------------------------------------------------------
Available-for-sale securities:
U.S. Treasury and agencies $94,820 $708 $143 $95,385
State and municipal 4,074 45 9 4,110
Mortgage-backed securities
and other 10,653 3 8 10,648
- ---------------------------------------------------------------------------------------------------------------------
$109,547 $756 $160 $110,143
=====================================================================================================================
Held-to-maturity securities:
State and municipal $12,133 $128 $20 $12,241
Mortgage-backed securities
and other 3,552 87 5 3,634
- ---------------------------------------------------------------------------------------------------------------------
$15,685 $215 $25 $15,875
=====================================================================================================================
</TABLE>
The amortized cost and estimated fair values of investment securities
as of December 31, 1996, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
29
<PAGE>
14
<TABLE>
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<CAPTION>
Available-for-sale Held-to-maturity
securities securities
---------- Estimated ---------- Estimated
Amortized fair Amortized fair
(In thousands) cost value cost value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due within one year $7,574 $7,592 $1,933 $1,940
Due after one through five years 60,983 60,974 3,987 4,019
Due after five through ten years 3,021 3,021 865 886
Due after ten years 45,234 44,941 1,735 1,736
- ---------------------------------------------------------------------------------------------------------------------
116,812 116,528 8,520 8,581
Freddie Mac Stock - - 500 500
Federal Reserve Bank Stock - - 660 660
=====================================================================================================================
$116,812 $116,528 $9,680 $9,741
=====================================================================================================================
</TABLE>
As of December 31, 1996 and 1995, securities with carrying values of
approximately $26,638,000 and $29,264,000, respectively, were pledged
as collateral for such items as deposits of public funds, Federal
Reserve Bank borrowings, bankruptcy court accounts, and U.S. Treasury,
tax, and loan deposits.
Included in U.S. Agency securities are certain structured notes which
are more commonly known as step-up bonds. These bonds, which carry
certain call features and potential coupon rate increases, had an
estimated fair value of $1,459,000 and an amortized cost of $1,500,000
as of December 31, 1996.
30
<PAGE>
15
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Loans
A summary of loans as of December 31 is as follows:
- -------------------------------------------------------------------------------
(In thousands) 1996 1995
- -------------------------------------------------------------------------------
Commercial $113,428 $82,583
Consumer 22,509 25,604
Real estate - mortgage 195,417 154,572
Real estate - construction 38,014 32,409
Other 20,349 6,501
- -------------------------------------------------------------------------------
389,717 301,669
Less deferred loan fees 989 774
- -------------------------------------------------------------------------------
$388,728 $300,895
===============================================================================
The following is an analysis of the allowance for possible loan losses
for the years ended December 31:
- -----------------------------------------------------------------------------
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------------------
Balance, beginning of year $3,710 $3,769 $3,753
Provision charged to expense 685 527 479
Loans charged off (1,070) (850) (665)
Recoveries on loans previously
charged off 347 264 202
- -----------------------------------------------------------------------------
Balance, end of year $3,672 $3,710 $3,769
=============================================================================
Loans for which interest is no longer being accrued totaled $1,564,000,
$2,481,000, and $3,283,000 as of December 31, 1996, 1995, and 1994,
respectively. Interest that would have been recognized on nonaccrual
loans was $149,000, $379,000, and $364,000 during 1996, 1995, and 1994,
respectively.
The recorded investment in impaired loans was $1,564,000 and $2,481,000
at December 31, 1996 and 1995, respectively. The average balance of
impaired loans during 1996 and 1995 was $2,126,000 and $1,510,000. The
Company did not recognize any interest income on impaired loans during
the year ended December 31, 1996.
31
<PAGE>
16
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Subsidiary Banks operate in a geographic region comprising
Monterey, San Benito, Santa Clara, and Santa Cruz Counties. The Bank's
credit risk is therefore dependent in part to the economic condition of
this region. Loans are made on the basis of a secure repayment source,
namely the cash flows generated by the borrowing entity, collateral is
generally a secondary source for loan qualification. It is the Bank's
policy to maintain the loan to value ratio on secured loans below 75%.
Management believes this practice tends to mitigate risks caused by the
local economy.
The Subsidiary Banks make loans to executive officers, directors, and
their affiliates in the ordinary course of business. Following is an
analysis of activity with respect to such loans for the years ended
December 31, 1996, and 1995:
- --------------------------------------------------------------------------------
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
Balance, beginning of year $5,002 $6,920
New loan funded 4,394 4,699
Repayments of loans (2,923) 6,617
- --------------------------------------------------------------------------------
Balance, end of year $5,711 $5,002
================================================================================
(7) Premises and Equipment
Premises and equipment as of December 31 are summarized as follows:
- --------------------------------------------------------------------------------
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
Land $2,752 $2,752
Buildings 9,867 8,641
Furniture and equipment 8,929 7,966
Leasehold improvements 1,421 1,319
- --------------------------------------------------------------------------------
22,969 20,678
Less accumulated depreciation and amortization 7,669 7,171
- --------------------------------------------------------------------------------
Premises and equipment, net $15,300 $13,507
================================================================================
(8) Time Deposits
As of December 31, 1996 and 1995, the Company had liabilities of
$80,952,000 and $57,285,000, respectively, for time deposits in
denominations of $100,000 or more. Interest expense for these deposits
was $4,036,000 and $2,819,000 in 1996 and 1995, respectively.
32
<PAGE>
17
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Income Taxes
Components of income tax expense for the years ended December 31, 1996,
1995, and 1994 are as follows:
- --------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Current:
Federal $3,696 $3,053 $2,756
State 1,457 1,240 1,139
- --------------------------------------------------------------------------------
5,153 4,293 3,895
- --------------------------------------------------------------------------------
Deferred:
Federal (649) (66) (111)
State (156) (27) (6)
- --------------------------------------------------------------------------------
(805) (93) (117)
================================================================================
Total $4,348 $4,200 $3,778
================================================================================
<TABLE>
The temporary differences between the financial statement carrying
amounts and tax bases of assets and liabilities that give rise to
significant components of the deferred tax asset and liability amounts
relate to the following as of December 31:
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
(In thousands) 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Book provision for loan losses in excess of tax provision $1,195 $1,190
Book depreciation in excess of tax 277 329
State franchise taxes 227 255
Accrued interest on nonaccrual loans recognized for tax 179 116
Expenses accrued for books not currently deductible 357 108
Unrealized loss on securities available-for-sale 118 -
Loan fees and other, net 859 323
- -------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 3,212 2,321
- -------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Difference in recognition of organization costs and other (25) (109)
Unrealized gain on available-for-sale securities - (230)
- -------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (25) (339)
===================================================================================================================
Net deferred tax asset $3,187 $1,982
===================================================================================================================
</TABLE>
33
<PAGE>
18
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The net deferred tax asset represents recoverable taxes and is included
in other assets in the accompanying consolidated balance sheets. The
Company believes that the net deferred tax asset is realizable through
sufficient taxable income within the carryback period and the current
year taxable income.
Actual income tax expense differs from the "expected" tax expense
(computed by applying the U.S. federal corporate income tax rate of 34%
to earnings before income taxes) for the years ended December 31, as
follows:
- --------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Computed "expected" tax expense $3,531 $3,702 $3,402
Increase (reduction) in income taxes resulting from:
Tax exempt income (368) (335) (354)
Franchise taxes, net of federal income tax benefit 858 802 713
Merger and acquisition costs 325 - -
Other, net 2 30 18
================================================================================
$4,348 $4,200 $3,778
================================================================================
(10) Benefit Plans
Stock Option Plans - The Company has a stock option plan (the 1984
Stock Option Plan) under which incentive stock options or nonqualified
stock options were granted to certain key employees or directors to
purchase an aggregate of 60,241 shares of authorized, but unissued,
common stock of the Company. Unexercised options were granted and
outstanding as of December 31, 1996, for an aggregate of 60,241 shares.
Options have been granted at an exercise price not less than the fair
market value of such stock at the date of grant. All stock options
become exercisable at the rate determined by the Company's Board of
Directors and expire no later than 10 years after the date of grant.
The Company's 1994 Stock Option Plan (the 1994 Plan) which was a
successor to the 1984 Plan, provides for incentive stock options or
nonqualified stock options for key employees or directors to purchase
an aggregate of 554,154 shares of authorized, but unissued, common
stock of the Company. Unexercised options were granted and outstanding
as of December 31, 1996, for an aggregate of 228,199 shares with an
exercise price equal to the fair market value of the Company's common
stock at the date of grant. The 1994 Plan provides that options granted
thereunder begin to vest 6 months after the date of grant ratably over
4 years and expire no later than 10 years after the date of grant.
34
<PAGE>
19
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company has a Directors Stock Option Plan (the 1991 Directors Plan)
under which, nonqualified options may be granted to non-employee
directors of the Company and its subsidiaries to purchase an aggregate
of 174,225 shares of authorized, but unissued, common stock of the
Company according to a formula set forth in the 1991 Plan. Unexercised
options were granted and outstanding as of December 31, 1996, for an
aggregate of 100,455 shares with an exercise price equal to the fair
market value of the Company's common stock at the date of grant. The
1991 Plan provides that options granted thereunder begin to vest 6
months after the date of grant and expire no later than 10 years after
the date of grant.
In October 1995, the FASB issued SFAS No. 123, Accounting for
Stock-Based Compensation. SFAS No. 123 establishes financial accounting
and reporting standards for stock-based employee compensation plans.
This statement defines a fair value based method of accounting for an
employee stock option or similar equity instrument. Under this method,
compensation costs are measured at the grant date based on the value of
the award and are recognized over the service period, which is the
vesting period.
The Company applies Accounting Principles Board Opinion (APB) No. 25,
Accounting for Stock Issued to Employees and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its stock option plans. Had compensation costs for the
Company's three stock option plans been determined consistent with SFAS
No. 123, the Company's net income and earnings per share would have
been reduced to the pro forma amounts indicated below:
December 31,
- --------------------------------------------------------------------------------
(In thousands, except per share) 1996 1995
- --------------------------------------------------------------------------------
Net income As reported $6,039 $6,611
Pro forma $5,883 $6,605
Earnings per share As reported $1.42 $1.58
Pro forma $1.39 $1.58
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions used for grants in 1995, and 1996, respectively: dividend
yield of 2.1% and 2.5%, expected volatility of 18% for all years,
risk-free interest rates of 5.39% and 5.64%, and expected lives of 5.5
and 6.1 years, respectively.
35
<PAGE>
20
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Below is a summary of stock option activity under all plans during 1996
and 1995:
1996 1995
- --------------------------------------------------------------------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
- --------------------------------------------------------------------------------
Outstanding at beginning
of year 433,474 $14.57 400,967 $14.33
Granted 157,153 19.13 62,321 15.00
Exercised (200,106) 14.69 (22,811) 11.73
Forfeited (1,626) 11.32 (7,003) 13.74
- --------------------------------------------------------------------------------
Outstanding end of year 433,474 $16.37 433,474 $14.57
Options exercise end of year 317,860 348,905
Weighted average fair value of
options granted during the year $4.32 $3.27
- --------------------------------------------------------------------------------
<TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1996:
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------------------------------------------------------
Weighted Weighted
Number average average Weighted
outstanding contractual exercise Number average
Exercise Price life price outstanding exercise price
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$7.17 to $7.95 6,957 0.67 $7.20 6,957 $7.20
$12.03 to $17.23 318,312 6.53 14.71 310,504 14.67
$16.01 to $25.71 59,876 9.86 25.60 399 21.67
$26.00 3,750 9.94 26.00 - -
$7.17 to $26.00 388,895 6.97 16.37 317,860 $14.51
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Employee Stock Ownership Plan - In 1986, the Company adopted an
Employee Stock Ownership Plan (ESOP) covering substantially all
employees. Effective March 1, 1991, the Company adopted an amendment to
the ESOP to restructure it as a leveraged employee stock ownership
plan, which qualifies as a stock bonus plan under the Internal Revenue
Code. The Company may make annual contributions to the ESOP in an
amount determined by the Board of Directors. Contributions are not
intended to exceed an amount estimated to be an allowable deduction for
tax purposes. The Company made contributions to the ESOP of $275,000,
$292,000, and $332,000 in 1996, 1995, and 1994, respectively.
36
<PAGE>
21
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
401(k) Plan - The Company also has a tax deferred profit sharing plan
and thrift plan covering all eligible employees. The Company's
contributions amounted to $71,000, $70,000, and $69,000 for the years
ended December 31, 1996, 1995, and 1994.
On December 31, 1996, pursuant to the merger between the Company and
SVB, the 401(k) and ESOP Plans of SVB were merged with and into the
respective plans of the Company.
(11) Fair Value of Financial Instruments
<TABLE>
The carrying amounts and estimated fair values of the Company's
financial instruments are as follows:
<CAPTION>
- ----------------------------------------------------------------------------------------------------
December 31, 1996 December 31, 1995
------------------- ------------------
Carrying Estimated Carrying Estimated
(In thousands) amounts fair value amounts fair value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $76,245 $76,245 $79,234 $79,234
Investment securities 126,208 126,269 125,828 126,018
Net loans 390,877 391,135 301,061 297,233
- ----------------------------------------------------------------------------------------------------
Liabilities:
Demand deposits, noninterest bearing $131,332 $131,332 $115,861 $115,861
Demand deposits, interest bearing 84,770 84,770 76,770 76,770
Savings and money market 164,890 164,890 151,337 151,337
Time certificates 166,190 166,632 121,540 121,710
- ----------------------------------------------------------------------------------------------------
</TABLE>
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value.
Cash and Cash Equivalents - The carrying amount approximates fair value
because of the short maturities of these instruments.
37
<PAGE>
22
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Investment Securities - The fair value of investments and
mortgage-backed securities, except certain state and municipal
securities, is estimated based on bid prices published in financial
newspapers or bid quotations received from securities dealers. The fair
value of certain state and municipal securities is not readily
available through market sources other than dealer quotations, so fair
value estimates are based on quoted market prices of similar
instruments, adjusted for differences between the quoted instruments
and the instruments being valued.
Loans - Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as
commercial, commercial real estate, residential mortgage, and consumer.
Each loan category is further segmented into fixed and adjustable rate
interest terms and by performing and nonperforming categories.
The fair value of performing fixed rate loans is calculated by
discounting scheduled cash flows through the estimated maturity using
estimated market discount rates that reflect the credit and interest
rate risk inherent in the loan. The estimate of maturity is based on
the Company's historical experience with repayments for each loan
classification, modified, as required, by an estimate of the effect of
current economic and lending conditions. The fair value of performing
variable rate loans is judged to approximate book value for those loans
whose rates reprice in less than 90 days. Rate floors and rate ceilings
are not considered for fair value purposes as the number of loans with
such limitations is not significant.
Fair value for significant nonperforming loans is based on recent
external appraisals. If appraisals are not available, estimated cash
flows are discounted using a rate commensurate with the risk associated
with the estimated cash flows. Assumptions regarding credit risk, cash
flows, and discount rates are judgmentally determined using available
market information and specific borrower information.
Deposit Liabilities - The fair value of deposits with no stated
maturity, such as non-interest bearing demand deposits, savings and NOW
accounts, and money market and checking accounts, approximates the
amount payable on demand. The fair value of certificates of deposit is
judged to approximate book value for those certificates whose remaining
maturities are less than 90 days. For all other certificates, estimated
cash flows are discounted using rates currently offered for deposits of
similar remaining maturities.
Limitations - Fair value estimates are made at a specific point in
time, based on relevant market information and information about the
financial instrument. These estimates do not reflect any premium or
discount that could result from offering for sale at one time
38
<PAGE>
23
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
the Company's entire holdings of a particular financial instrument.
Fair value estimates are based on judgments regarding future expected
loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are
subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities
that are not considered financial instruments. In addition, the tax
ramifications related to the realization of the unrealized gains and
losses can have a significant effect on fair value estimates and have
not been considered in many of the estimates.
(12) Commitments and Contingencies
Future minimum rental payments for Bank premises under noncancelable
operating leases as of December 31, 1996 are as follows:
- -----------------------------------------------------------------
Minimum lease
payments
Year ending December 31, (In thousands)
- -----------------------------------------------------------------
1997 $878
1998 911
1999 649
2000 443
2001 207
Thereafter 1,092
- -----------------------------------------------------------------
4,180
Minimum rentals receivable under noncancelable subleases (621)
- -----------------------------------------------------------------
$3,559
=================================================================
Rent expense under operating leases totaled $796,000, $781,000, and
$764,000 for the years ended December 31, 1996, 1995, and 1994,
respectively. Related sublease rental income totaled $131,000, $82,000,
and $99,000, respectively.
In December 1988, the Company entered into an operating lease with a
member of its Board of Directors for rental of its administrative
headquarters. This lease
39
<PAGE>
24
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
required payments totaling approximately $192,000, $188,000, and
$185,000 for the years ended December 31, 1996, 1995, and 1994,
respectively. The lease expires on April 30, 1999.
In the normal course of business, there are outstanding commitments,
such as commitments to extend credit, which are not reflected in the
accompanying consolidated financial statements. These commitments
involve elements of credit and interest rate risk. Management does not
anticipate any loss will result from such commitments. As of December
31, 1996, amounts committed to extend credit under normal lending
agreements aggregated approximately $140,372,000. Management reviews
the risk associated with these credits in evaluating the overall
adequacy of the allowance for possible loan losses. Additionally, there
are approximately $4,994,000 in outstanding standby letters of credit
which, in effect, are guarantees of obligations of customers.
The Company, through the Subsidiary Banks, has borrowing lines of
approximately $51,000,000 with primary correspondent banks. There were
no borrowings outstanding under these lines as of December 31, 1996.
(13) Regulatory Capital
The Federal Reserve Board and the Comptroller have established a
minimum leverage ratio of 3% Tier 1 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.
Set forth on the following page are the Company's and the Subsidiary
Banks' risk-based and leverage capital ratios as of December 31, 1996:
40
<PAGE>
25
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
Risk Based Capital Ratio
As of December 31, 1996
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Company South Valley First National
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tier 1 capital $63,469 13.91% $16,096 11.63% $42,034 13.40%
Tier 1 capital minimum
requirement 18,254 4.00% 5,534 4.00% 12,546 4.00%
- -------------------------------------------------------------------------------------------------------------------
Excess 45,215 9.91% 10,562 7.63% 29,488 9.40%
===================================================================================================================
Total capital 67,141 14.71% 17,409 12.58% 44,258 14.11%
Total capital minimum
requirement 36,508 8.00% 11,069 8.00% 25,092 8.00%
- -------------------------------------------------------------------------------------------------------------------
Excess 30,633 6.71% 6,340 4.58% 19,166 6.11%
===================================================================================================================
Risk-adjusted assets $456,356 $138,362 $313,644
===================================================================================================================
As indicated in the table above, the Company's capital ratios
significantly exceeded the minimum capital levels required by current
federal regulations. Management believes that the Company and the Bank
will continue to meet their respective minimum capital requirements in
the foreseeable future.
- ---------------------------------------------------------------------------------------------------------------------
Leverage Capital Ratio
As of December 31, 1996
- ---------------------------------------------------------------------------------------------------------------------
Company South Valley First National
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------------------------
Tier 1 capital to quarterly
average
total assets (Leverage $63,469 10.55% $16,096 8.61% $42,034 10.29%
Ratio)
Minimum leverage requirement 18,045 to 3.00% to 5,611 to 3.00% to 12,255 to 3.00% to
30,075 5.00% 9,351 5.00% 20,425 5.00%
- -------------------------------------------------------------------------------------------------------------------
Excess 33,394 to 5.55% to 6,745 to 3.61% to 21,609 to 5.29% to
45,424 7.55% 10,485 5.61% 29,779 7.29%
===================================================================================================================
Total quarterly average assets $601,496 $187,024 $408,502
===================================================================================================================
</TABLE>
41
<PAGE>
26
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Pacific Capital Bancorp (Parent Company Only)
The following are the financial statements of Pacific Capital Bancorp:
- --------------------------------------------------------------------------------
BALANCE SHEETS
Years ended December 31,
- --------------------------------------------------------------------------------
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
Assets
Cash and cash equivalents $937 $1,605
Loans 1,042 1,149
Premises and equipment, net 3,022 1,865
Investment in subsidiaries 58,178 55,492
Other assets 910 725
- --------------------------------------------------------------------------------
Total Assets $64,089 $60,836
================================================================================
Liabilities and Shareholders' Equity
Liabilities $443 $303
Shareholders' equity 63,646 60,533
- --------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $64,089 $60,836
================================================================================
- --------------------------------------------------------------------------------
STATEMENTS OF INCOME
Years ended December 31,
- --------------------------------------------------------------------------------
(In thousand) 1996 1995 1994
- --------------------------------------------------------------------------------
Equity in income of subsidiaries $3,061 $6,010 $4,257
Cash dividends received from bank subsidiaries 3,993 882 2,216
Interest income and fees on loans 136 214 187
Other expenses (1,151) (495) (435)
- --------------------------------------------------------------------------------
Net income $6,039 $6,611 $6,225
================================================================================
42
<PAGE>
27
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
Years ended December 31,
- -----------------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,039 $ 6,611 $ 6,225
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity in undistributed net income of subsidiaries (7,054) (6,892) (6,473)
Dividends received from subsidiaries 3,993 882 2,216
Increase in other assets (341) (68) (265)
Increase (decrease) in other liabilities 140 (34) 60
- -----------------------------------------------------------------------------------------
Net cash provided by operating activities 2,777 499 1,763
- -----------------------------------------------------------------------------------------
Cash flows from investing activities:
Net change in loans 107 1,931 (834)
Capital expenditures (1,157) (493) (89)
- -----------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (1,050) 1,438 (923)
- -----------------------------------------------------------------------------------------
Cash flows from financing activities:
Repurchase and retirement of stock (605) (111) (717)
Proceeds from stock options exercised 284 158 806
Cash paid for fractional shares (21) (15) (16)
Cash paid for dividends (2,053) (1,684) (1,137)
- -----------------------------------------------------------------------------------------
Net cash used in financing activities (2,395) (1,652) (1,064)
- -----------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (668) 285 (224)
Cash and cash equivalents at beginning of year 1,605 1,320 1,544
- -----------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 937 $ 1,605 $ 1,320
=========================================================================================
Supplemental disclosures:
Noncash investment and financing activities:
Transfer from retained earnings to common stock
due to stock dividend $ 5,348 $ 3,132 $ 2,165
=========================================================================================
</TABLE>
The ability of the Company to pay dividends will largely depend upon
the dividends paid to it by the subsidiary banks. There are legal
limitations on the ability of the subsidiary banks to provide funds to
the Company in the form of loans, advances, or dividends. Under the
National Bank Act, the subsidiary banks may not declare dividends in
any calendar year that exceed certain legal limitations. The
approximate amount of restricted equity of the Subsidiary Banks as of
December 31, 1996 was $45,368,000.
43
<PAGE>
PACIFIC CAPITAL BANCORP
Management's Discussion and Analysis
1996
This document may contain forward-looking statements that are subject to risks
and uncertainties, including, but not limited to the local economy, the real
estate market in California, and other factors beyond the Company's control.
Such risks and uncertainties could cause actual results to differ materially
from those indicated. For a discussion of factors that could cause actual
results to differ, please see the discussion contained herein. Readers should
not place undue reliance on forward-looking statements, which reflect
managements view only as of the date hereof. The Company undertakes no
obligation to publicly revise these forward-looking statements to reflect
subsequent events or circumstances. Readers are also encouraged to review the
Company's publicly available filings with the Securities and Exchange
Commission.
The Company
Pacific Capital Bancorp (the "Company") through its wholly owned subsidiaries,
First National Bank of Central California ("First National"), and South Valley
National Bank ("South Valley") engages in a broad range of financial service
activities. First National and South Valley are collectively referred to herein
as "Subsidiary Banks," and references to the Company include the Subsidiary
Banks.
On November 20, 1996, the Company acquired South Valley Bancorporation (SVB) in
a transaction accounted for as a pooling-of-interests. Accordingly, these
consolidated financial statements were restated on a combined basis for all
periods presented.
The following sections set forth a discussion of the significant operating
changes, business trends, financial condition, earnings, capital position, and
liquidity that have occurred in the three-year period ended December 31, 1996,
together with an assessment, when considered appropriate, of external factors
that may affect the Company in the future. This discussion should be read in
conjunction with the Company's consolidated financial statements and notes on
pages _____ of this annual report.
Summary of Financial Results
Net income for 1996 was $6,039,000 or $1.42 per share, a decrease of $572,000 or
$0.16 per share from 1995. This decrease in net income is due to merger-related
expenses incurred relating to the merger with South Valley Bancorporation. (See
Note 2 to the Consolidated Financial Statements) Net income for 1996 excluding
the one-time merger-related expenses was $7,540,000 or $1.78 per share. The
Company's net operating income excluding merger-related charges increased
significantly for the second straight year in 1996. The Company's net income for
1995 of $6,611,000 or $1.58 per share represented an increase of $386,000 or
$0.07 per share over 1994.
44
<PAGE>
In 1996 the Company paid four cash dividends of $0.15 in March, June, September,
and December. In 1995, the Company distributed three $0.125 cash dividends in
March, June, and September and a $0.15 cash dividend in December. In addition,
the Company distributed a 5% stock dividend in each of the years in the three
year period ended December 31, 1996. Earnings per share amounts have been
retroactively restated to reflect these stock dividends. The return on average
shareholders' equity was 9.6% in 1996, compared to 11.4% in 1995 and 11.8% in
1994.
The Company believes that the economies in which it operates, Monterey, Santa
Cruz, Santa Clara, and San Benito Counties, have experienced strong growth and
favorable economic activity in the past two years. Signs of the strength in
these local economies include sustained quality loan demand and strong deposit
growth. On a national scale, the Company is forecasting a relatively flat
interest rate environment due to minimal inflation prospects and very modest
growth.
Certain information concerning the Company's average balances, yields and rates
on average interest-earning assets and interest-bearing liabilities is set forth
in the following table. Interest yields and amounts earned include net loan fees
of $1,211,000, $1,152,000, and $1,178,000 in 1996, 1995, and 1994, respectively.
45
<PAGE>
<TABLE>
AVERAGE BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
1996 1995 1994
Average Yield/ Interest Average Yield/ Interest Average Yield/ Interest
(Dollars in thousands) Balance Rate Amount Balance Rate Amount Balance Rate Amount
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Earning Assets
Investment securities:
Taxable $124,709 6.1% $7,645 $95,408 5.7% $5,455 $88,422 5.0% $4,446
Non-taxable 14,966 5.0% 750 17,529 5.2% 903 18,698 5.1% 957
Federal funds sold 34,267 5.3% 1,805 35,564 5.3% 1,871 28,517 4.2% 1,197
- ---------------------------------------------------------------------------------------------------------------------
Total investment securities 173,942 5.9% 10,200 148,501 5.5% 8,229 135,637 4.9% 6,600
Loans 332,421 10.2% 33,758 287,906 10.6% 30,449 274,788 9.6% 26,430
- ---------------------------------------------------------------------------------------------------------------------
Total Earning Assets 506,363 8.7% 43,958 436,407 8.9% 38,678 410,425 8.0% 33,030
Non-Earning Assets
Premises and Equipment 14,769 13,201 10,187
Other 47,554 46,399 39,083
- ---------------------------------------------------------------------------------------------------------------------
Total Non-Earning Assets 62,323 59,600 49,270
- ---------------------------------------------------------------------------------------------------------------------
Total Assets $568,686 $496,007 $459,695
=====================================================================================================================
Liabilities and
Shareholders' Equity
Interest-Bearing Deposits:
Demand $77,306 1.1% $846 $87,916 1.7% $1,502 $80,428 1.5% $1,240
Savings and Money Market 168,553 2.8% 4,664 140,209 2.8% 3,913 151,882 2.5% 3,740
Time Certificates 146,359 5.3% 7,782 108,026 5.1% 5,507 84,821 3.5% 3,005
Other Interest-Bearing 716 3.8% 27 1,030 4.8% 49 2,172 4.1% 89
Liabilities
- ---------------------------------------------------------------------------------------------------------------------
Total 392,934 3.4% 13,319 337,181 3.3% 10,971 319,303 2.5% 8,074
Non Interest-Bearing Deposits
and Other Liabilities:
Demand, Non 109,615 95,824 86,916
Interest-Bearing
Other Liabilities 3,031 4,819 1,297
Shareholder's Equity 63,106 58,183 52,179
- ---------------------------------------------------------------------------------------------------------------------
Total 175,752 158,826 140,392
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $568,686 $496,007 $459,695
=====================================================================================================================
NET INTEREST INCOME $30,639 $27,707 $24,956
NET INTEREST MARGIN 6.1% 6.3% 6.1%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The net interest margin is expressed as the percentage of net interest income to
average total earning assets. The average balance on non-accrual loans is
immaterial as a percentage of total loans and as such has been included in total
loans. Non-taxable securities and leases have not been calculated on a tax
equivalent basis.
Net Interest Income
Net interest income, the difference between interest earned on loans and
investments and the interest paid on deposits and other sources of funds, is the
principal component of the Company's earnings. The preceding table shows the
composition of average earning assets and average interest-bearing liabilities,
average yields and rates, and the net interest margin for 1994 through 1996.
Interest income increased $5,280,000 or 13.7% from $38,678,000 in 1995 to
$43,958,000 in 1996, after increasing $5,648,000 or 17.1% from 1994 to 1995. The
increase in 1996 is the result of higher average loan and investment volumes
during 1996 partially offset by a slightly
46
<PAGE>
lower yield on the loan portfolio. The increase in 1995 was due mainly to higher
average yields on loans and investment securities and an increase in average
volumes in loans and investments compared to 1994. Total interest and fees
produced a 8.7% yield on average earning assets in 1996, compared to 8.9% and
8.0% yields on average earning assets in 1995 and 1994, respectively. The yield
increase in 1995 was the result of several interest rate increases in the
Subsidiary Banks' reference rate (the rate charged to the Bank's most
creditworthy customers) which took place during the course of 1994 and early
1995.
During 1995, the Company increased its available-for-sale securities portfolio
relative to the held-to-maturity portfolio. This shift has resulted in increased
liquidity for the Company.
Total interest expense for 1996 was $13,319,000, an increase of $2,348,000 or
21.4% over 1995, compared to an increase of $2,897,000 or 35.9% from 1994 to
1995. The Company's cost of funds (excluding noninterest-bearing demand
deposits) experienced a small increase of 0.1% from 1995 to 1996. From 1994 to
1995, the Company's cost of funds increased by 0.72% due to the prevailing
rising interest rate environment and a change in the mix of deposits.
<TABLE>
The Company's net yield on interest-earning assets is affected by changes in the
rates earned and paid and the volume of interest-earning assets and
interest-bearing liabilities. The impact of changes in volume and rate on net
interest income in 1996 and 1995 is shown in the following table. Changes
attributable to both volume and rate have been allocated to rate.
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
1996 Compared to 1995 1995 Compared to 1994
-----------------------------------------------------------
(In thousands) Volume Rate Total Volume Rate Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment securities
Taxable $1,675 $515 $2,190 $351 $658 $1,009
Non-taxable (132) (21) (153) (60) 6 (54)
Federal funds sold (68) 2 (66) 296 378 674
Loans 4,708 (1,399) 3,309 1,262 2,757 4,019
- ---------------------------------------------------------------------------------------------------------------------
Total 6,183 (903) 5,280 1,849 3,799 5,648
- ---------------------------------------------------------------------------------------------------------------------
Demand, Interest Bearing (181) (475) (656) 115 147 262
Savings 791 (40) 751 (287) 460 173
Time Certificates 1,954 321 2,275 822 1,680 2,502
Fed Funds Purchased (15) (7) (22) (47) 7 (40)
- ---------------------------------------------------------------------------------------------------------------------
Total 2,549 (201) 2,348 603 2,294 2,897
- ---------------------------------------------------------------------------------------------------------------------
Increase in Net Interest
Income $3,634 $(702) $2,932 $1,246 $1,505 $2,751
=====================================================================================================================
</TABLE>
Earning Assets
Outstanding total loans averaged $332,421,000 in 1996 compared to $287,906,000
during 1995. This represents an increase of $44,515,000 or 15.5%, compared to an
increase of $13,118,000 or 4.8% from 1994 to 1995. The increase in total loans
outstanding during 1996 is due to increased loan demand from qualified borrowers
and is reflective of the strength of the economy in most of
47
<PAGE>
<TABLE>
the primary markets which the Company serves. The following table summarizes the
composition of the loan portfolio as of December 31:
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
(In thousands) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $113,428 $82,583 $77,402 $63,926 $66,994
Real Estate - Construction 38,014 32,409 39,352 26,799 20,061
Real Estate - Mortgage 195,417 154,572 144,687 146,675 145,966
Consumer 22,509 25,604 22,907 22,185 22,762
Other 19,360 5,727 6,004 6,318 9,864
- ---------------------------------------------------------------------------------------------------------------------
Total $388,728 $300,895 $290,352 $265,903 $265,647
=====================================================================================================================
</TABLE>
The Company lends primarily to small- and medium-sized businesses within its
markets, which is comprised principally of Monterey, Santa Cruz, Santa Clara,
and San Benito Counties.
A majority of the Company's loan portfolio consists of loans secured by
commercial, industrial, and residential real estate. As of December 31, 1996,
real estate mortgage and construction loans represented $233,431,000 or 60.1% of
total loans, an increase of $46,450,000 from the prior year.
Real estate mortgage loans included commercial real estate loans of
approximately $146,777,000, one-to-four family home loans of approximately
$21,434,000, equity lines of credit of approximately $20,710,000, multifamily
dwelling loans of approximately $4,001,000 and farm land loans of approximately
$2,495,000. Construction loans totaled $38,014,000 or 9.8% of the loan portfolio
as of December 31, 1996, which represents an increase of $5,605,000 or 17.3%
from December 31, 1995. Management believes that the Bank does not have any
significant loss exposure with respect to such loans, due to the Bank's
collateral position. In general, advances do not exceed 65% of appraised value
on commercial real estate loans and 75% on residential mortgages. Continued
emphasis is placed on this policy and, accordingly, appraisals are periodically
updated as conditions change.
The Company finances the construction of residential and commercial real estate
properties. These loans are all at variable rates, are secured by first deeds of
trust on the underlying properties, and generally have maturities of less than
24 months. Repayment is based on a pre-qualification analysis of the borrower's
ability to obtain take-out financing. The Company's construction lending has
been in areas which management believes to have favorable market conditions.
Advances on residential and commercial projects are limited in general to the
lower of approximately 75% and 65%, respectively, of cost or appraised value.
Commercial loans not secured by real estate totaled $113,428,000 or 29.2% of the
total loan portfolio at December 31, 1996. This represented an increase of
$30,845,000 over 1995. Management believes that this increase in demand is a
further indicator of the strength in the local economy.
Consumer loans decreased $3,095,000 or 12.1% during 1996. Consumer loans, as of
December 31, 1996, represent 5.8% of the total loan portfolio, compared to 8.5%
of the 1995 loan portfolio.
48
<PAGE>
The Company had undisbursed loans totaling $140,372,000 as of December 31, 1996,
primarily representing available lines of credit and the unfunded portion of
construction loan commitments.
<TABLE>
The following table sets forth the maturity distribution of the loan portfolio
as of December 31, 1996:
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
After One
In One Year Year Through After Five
(In thousands) or Less Five Years Years Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $99,808 $10,783 $2,837 $113,428
Real Estate - Construction 35,605 2,311 98 38,014
Real Estate - Mortgage 108,576 40,094 46,747 195,417
Consumer 8,811 10,924 2,774 22,509
Other 8,939 2,796 7,625 19,360
- ---------------------------------------------------------------------------------------------------------------------
Gross Loans $261,739 $66,908 $60,081 $388,728
=====================================================================================================================
</TABLE>
The fixed rate loan categories discussed above mature as follows: $15,223,000 in
1997, $8,118,000 in 1998 $12,353,000 in 1999, $7,229,000 in 2000, and
$20,888,000 in 2001, with the remaining $59,087,000 maturing thereafter. The
variable loan rate categories discussed above mature as follows: $246,516,000 in
1997, $10,330,000 in 1998, $6,173,000 in 1999, $750,000 in 2000, and $1,067,000
on 2001, with the remaining $994,000 maturing thereafter.
Interest Rate Sensitivity Interest rate sensitivity is the relationship between
market interest rates and net interest income due to the repricing
characteristics of assets and liabilities. If more liabilities than assets
reprice in a given period (a liability sensitive position), market interest rate
changes will be reflected more quickly in liability rates. If interest rates
decline, a liability sensitive position will benefit net income. Alternatively,
where assets reprice more quickly than liabilities in a given period (an asset
sensitive position) a decline in market rates will have an adverse effect on net
interest income.
The table on the following page presents the interest rate sensitivity of the
Company as of December 31, 1996. For any given period, the structure is matched
when an equal amount of assets and liabilities reprice. Any excess of assets or
liabilities over these matched items results in the gap, or mismatch, shown at
the foot of the table. A negative gap indicates liability sensitivity and a
positive gap indicates asset sensitivity.
49
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
Interest Rate Sensitivity as of December 31, 1996
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
Repricing Opportunity
0 - 90 91 - 180 181 - 365 Over
(In thousands) Days Days Days One Year Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal Funds Sold $14,910 $- $- $- $14,910
Loans 229,421 19,736 12,582 126,989 388,728
Taxable Investments 14,001 296 7,197 104,203 125,697
Non-taxable Investments 849 602 1,377 10,892 13,720
- ---------------------------------------------------------------------------------------------------------------------
Total Earning Assets 259,181 20,634 21,156 242,084 543,055
- ---------------------------------------------------------------------------------------------------------------------
Interest Bearing Demand 84,770 - - - 84,770
Savings Deposits 153,916 - 5,690 5,284 164,890
Time Certificates 51,502 44,436 65,581 4,671 166,190
- ---------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities 290,188 44,436 71,271 9,955 415,850
- ---------------------------------------------------------------------------------------------------------------------
Gap $(31,007) $(23,802) $(50,115) $232,129 $127,205
Cumulative Gap (31,007) (54,809) (104,924) 127,205
=====================================================================================================================
</TABLE>
The Company has remained flexible in determining the point at which to reprice
deposits. This flexibility mitigates the Company's liability sensitive position
in the under one year category.
Quality of Loans The Company had net loan charge-offs of $723,000 and $586,000
in 1996 and 1995, respectively. Net charge-offs as a percent of average loans
has remained relatively constant over the last three years at 0.22%, 0.20%, and
0.17% at December 31, 1996, 1995, and 1994, respectively. Over the last five
years, the low amount of net charge-offs to average loans is reflective of
management's continued emphasis on credit quality standards in the loan approval
process as well as close monitoring of the loan portfolio. The Company's net
charge-offs as a percent of average loans have been below most industry averages
in each year reflected in the table below.
Management anticipates the Company's charge-off experience in 1997 to be
consistent with that experienced in 1996 primarily due to the strength and
growth in the local economic areas in which the Company serves. This factor
continues to be of importance in assessing the adequacy of the allowance for
possible loan losses.
The table on the following page summarizes the actual loan losses and provision
for possible loan losses during the last five fiscal years by loan category:
50
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
Summary of Loan Loss Activity
(In thousands) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total loans outstanding, end of year $388,728 $300,895 $290,352 $265,903 $265,647
Average loans during the year 332,421 290,265 277,263 259,131 272,368
Allowance for possible loan losses:
Balance, beginning of year 3,710 3,769 3,753 3,479 3,152
Charge-off by loan category
Commercial 761 480 331 491 617
Consumer 188 129 148 327 276
Real estate 121 241 186 364 265
- ---------------------------------------------------------------------------------------------------------------------
Total 1,070 850 665 1,182 1,158
- ---------------------------------------------------------------------------------------------------------------------
Recoveries by loan category
Commercial 239 98 144 62 112
Consumer 91 42 37 54 106
Real estate 17 124 21 62 2
- ---------------------------------------------------------------------------------------------------------------------
Total 347 264 202 178 220
- ---------------------------------------------------------------------------------------------------------------------
Net charge-offs 723 586 463 1,004 938
Provision charged to expense 685 527 479 1,278 1,265
- ---------------------------------------------------------------------------------------------------------------------
Balance, end of year $3,672 $3,710 $3,769 $3,753 $3,479
=====================================================================================================================
Ratios:
Net charge-offs to
average loans 0.22% 0.20% 0.17% 0.39% 0.34%
Allowance to loans at end of year 0.94% 1.23% 1.30% 1.41% 1.31%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
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, provisions 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 regulatory examinations conducted by governmental agencies and
through management's assessment of risk. The Company's entire allowance is a
valuation allocation; that is, it has been created by direct charges against
earnings through the provision for possible loan losses.
The Company evaluates the allowance for possible loan losses based upon an
individual analysis of specific categories of loans. The adequacy of the
allowance can be determined only on an approximate basis, since estimates as to
the magnitude and timing of loan losses are not predictable because of the
impact of external events. In addition, the Company has for the last several
years contracted with an independent loan review consulting firm to evaluate
overall credit quality on an ongoing basis. Management then considers the
adequacy of the allowance for possible loan losses in relation to the total loan
portfolio.
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. These factors include: 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
51
<PAGE>
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 downturns in specific local industries; and
the experience, ability, and depth of lending management and staff. The Company
evaluates the adequacy of its allowance for possible loan losses on a quarterly
basis.
While these factors cannot be reduced to a mathematical formula, it is
management's view that the allowance for possible loan losses of $3,672,000 or
0.94% of total loans as of December 31, 1996, was adequate. This allowance is
compared to $3,710,000 or 1.23% in 1995 and $3,769,000 or 1.30% in 1994. The
decrease in the allowance for loan losses as a percentage of total loans from
1995 to 1996 was due to the substantial growth in total loans during 1996
without the same corresponding increase in size of the allowance for loan
losses. Management believes that the quality of the loan growth coupled with the
decrease in nonperforming loans during this same period warrants the decrease in
the level of the allowance relative to the loan portfolio. There are, however,
no assurances that in any given period the Company will not sustain charge-offs
which are substantial in relation to the size of the allowance. Loans are
charged to the allowance for loan losses when the loans are deemed
uncollectible. It is the policy of management to make additions to the allowance
so that it remains adequate to cover anticipated losses inherent in the
Company's loan portfolio.
<TABLE>
Any allocation or breakdown in the allowance lends an appearance of an exactness
which does not exist. Thus, the allocation below should not be interpreted as an
indication of expected amounts or categories where charge-offs will occur. The
allocation of the allowance for possible loan losses as of the end of the last
five fiscal years is summarized in the table below:
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Allocation of Allowance 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
Percent of Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in Loans in
Each Each Each Each Each
Category Category Category Category Category
(Dollars in to Total to Total to Total to Total to Total
thousands) $ Loans $ Loans $ Loans $ Loans $ Loans
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Applicable
to:
Commercial $1,507 29.18% $1,395 27.45% $1,607 26.66% $1,441 24.99% $1,464 24.19%
Real Estate -
Construction 218 9.78% 306 10.77% 590 13.55% 229 4.16% 202 8.32%
Real Estate - 1,516 50.27% 1,708 51.37% 1,216 49.83% 1,785 57.82% 1,502 53.72%
Mortgage
Consumer 286 5.79% 272 8.51% 333 7.89% 269 7.40% 267 6.92%
Other 145 4.98% 29 1.90% 26 2.07% 28 2.88% 43 1.25%
- ------------------------------------------------------------------------------------------------------------------------
Total $3,672 100.0% $3,710 100.0% $3,769 100.0% $3,753 100.0% $3,479 100.0%
========================================================================================================================
</TABLE>
Nonperforming Loans Interest income on the loan portfolio is recorded on the
accrual basis. However, the Company follows the policy of discontinuing the
accrual of interest income and
52
<PAGE>
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 Company's Lending Policy provides for strict
requirements for exempting loans from nonaccrual status. The composition of
nonperforming loans as of the end of the last three fiscal years is summarized
in the following table:
- ------------------------------------------------------------------------------
Nonperforming Loans
(In thousands) 1996 1995 1994
- ------------------------------------------------------------------------------
Loans accounted for on a nonaccrual basis $1,564 $2,481 $3,283
Other loans contractually past due 90 days
or more 17 261 734
Restructured loans 279 513 147
- ------------------------------------------------------------------------------
Total $1,860 $3,255 $4,164
==============================================================================
Loans accounted for on a nonaccrual basis experienced a substantial decrease in
1996 to $1,564,000 compared to $2,481,000 at December 31, 1995. This decrease
was due to management's continuing efforts to resolve significantly past due
loans combined with a strong local economy.
Of total nonperforming loans as of December 31, 1996, $726,000 consisted of one
real estate loan which was well-secured. In addition, the overall coverage of
the allowance as a percent of nonperforming loans is 197.4%. The Company's ratio
of nonperforming loans to average loans has been below most industry averages in
each year reflected in the table above.
The Company does not expect to sustain losses in excess of that provided for in
the allowance for possible loan losses. At December 31, 1996, the Company had
$279,000 in loans which were troubled debt restructurings as defined by SFAS No.
15, Accounting by Debtors and Creditors for Troubled Debt Restructurings, and
which were not either nonaccrual loans or loans past due 90 days or more and
still accruing interest. At December 31, 1996, the Company did not have any
loans other than those disclosed as nonaccrual loans, loans past due 90 days or
more and still accruing interest and troubled debt restructurings where known
information about possible credit problems of the borrowers cause management to
have serious doubts as to the ability of such borrowers to comply with the
present loan repayment terms.
Investments The average balance of Federal Funds Sold (overnight investments
with other banks) and other short-term investments (primarily money market
mutual funds) was $43,823,000 in 1996, $42,617,000 in 1995, and $29,021,000 in
1994. These investments are maintained primarily for the short-term liquidity
needs of the Company. The major factors influencing the levels of required
liquidity are loan demand of the Company's customers and fluctuations in the
Company's level of deposits. The Company's loan to deposit ratio averaged 66.2%
in 1996, compared to 67.2% in 1995, and 68.6% in 1994.
53
<PAGE>
<TABLE>
Average total investment securities were $130,119,000 in 1996, an increase of
$23,503,000 over the 1995 average. This increase was the result of the growth in
average deposits which exceeded the growth in average loans by $25,029,000. As
of December 31, 1996, the aggregate book value of the investment portfolio
exceeded the market value by $223,000. At December 31, 1995, the market value
exceeded the book value by $786,000. This decrease in the market value of the
portfolio was the result of decreasing prices in the bond market during the
course of 1996. It is the Company's policy not to engage in securities trading
transactions. There are no investments in the portfolio deemed to be permanently
or temporarily impaired.
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Estimated
Amortized Unrealized Unrealized fair
(In thousands) cost gain loss value
- ---------------------------------------------------------------------------------------------------------------------
1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale securities:
U.S. Treasury and agency $64,109 $159 $187 $64,081
State and municipal 7,233 59 21 7,271
Mortgage-backed securities 45,470 9 303 45,176
- ---------------------------------------------------------------------------------------------------------------------
$116,812 $227 $511 $116,528
=====================================================================================================================
Held-to-maturity securities:
State and municipal $6,449 $55 $42 $6,462
Mortgage-backed securities
and other 3,231 59 11 3,279
- ---------------------------------------------------------------------------------------------------------------------
$9,680 $114 $53 $9,741
=====================================================================================================================
1995
- ---------------------------------------------------------------------------------------------------------------------
Available-for-sale securities:
U.S. Treasury and agencies $94,820 $708 $143 $95,385
State and municipal 4,074 45 9 4,110
Mortgage-backed securities
and other 10,653 3 8 10,648
$109,547 $756 $160 $110,143
=====================================================================================================================
Held-to-maturity securities:
State and municipal $12,133 $128 $20 $12,241
Mortgage-backed securities
and other 3,552 87 5 3,634
- ---------------------------------------------------------------------------------------------------------------------
$15,685 $215 $25 $15,875
=====================================================================================================================
</TABLE>
Funding Average total deposits increased $70,574,000 or 16.3% during 1996,
compared to an increase of $27,928,000 or 6.9% during 1995 and an increase of
$21,864,000 or 5.7% in 1994. Average non-interest bearing deposits increased in
1996 by $13,791,000 or 14.4% compared to an increase of $8,908,000 or 10.3% in
1995 an increase of $9,511,000 or 12.3% in 1994. Average interest-bearing
deposits increased $56,067,000 or 16.7% in 1996, compared with increases of
$19,020,000 or 6.0% in 1995 and $11,112,000 or 3.6% during 1994. Total deposit
growth in 1997 is expected to continue but may not increase at the same rate or
in the same categories. The Company is able to attract deposits by providing
interest rates and services competitive with other institutions located in its
market area. The Company does not have any brokered deposits or large
concentrations with any one customer. Given the Company's forecast
54
<PAGE>
<TABLE>
for interest rates, management believes that maturing certificates of deposit
will continue to be directed into short to medium term deposits.
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Average Deposits 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
Average Average Average
(Dollars in thousands) Balance Rate Balance Rate Balance Rate
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Demand, Noninterest Bearing $109,615 - $95,824 - $86,916 -
Demand, Interest Bearing 77,306 1.09% 87,916 1.71% 80,428 1.54%
Savings and money market 168,553 2.77% 140,209 2.79% 151,882 2.46%
Time Certificates 146,359 5.32% 108,026 5.10% 84,821 3.54%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The table above sets forth information for the last three fiscal years regarding
the Company's average deposits and the average rates paid on each of the deposit
categories.
The remaining maturities of the Company's certificates of deposit, including
public funds, in amounts of $100,000 or more as of December 31, 1996, are
indicated in the table below. Interest expense on these certificates of deposit
totaled $4,036,000 in 1996.
- ----------------------------------------------------------------------------
(In thousands) 1996
- ----------------------------------------------------------------------------
Three month or less $32,921
Over three through six months 21,841
Over six through twelve months 26,190
Over twelve months -
- ----------------------------------------------------------------------------
Total $80,952
============================================================================
Noninterest Income Total other income increased in 1996 to $3,160,000 from
$2,983,000 in 1995. The increase was primarily due to a $181,000 increase in
other income partially offset by a decrease in gains on loan sales. In addition,
net losses on securities transactions decreased in 1996 to $46,000 from $73,000
in 1995. Noninterest income also increased in 1995 by $112,000 as a result of an
increase in service charges of $236,000 partially offset by a decrease in gains
on sales of loans of $69,000. The Mortgage Banking Division of the Company is
solely a brokerage operation. The Company does not originate, purchase, or sell
loans in this area and thus retains no credit or servicing risk.
55
<PAGE>
Noninterest Expense In 1996, total other operating expenses increased 17.4% to
$22,727,000, after an increase of $2,007,000 or 11.6% in 1995. Of the $3,375,000
increase in 1996, $1,972,000 was attributable to merger-related expenses. These
costs were primarily within the categories of salaries and benefits, equipment
expense, and legal and professional expenses. Salaries and benefits expense
increased $1,875,000 or 18.8% in 1996, compared to an increase of $1,259,000 or
14.4% in 1995. The increase in salaries and benefits during 1996 was mainly the
result of severance costs related to the merger as well as normal salary
increases. The increase in 1995 was primarily due to a greater number of
employees in 1995 over 1994 and normal salary increases. As a percentage of
average earning assets, salaries and benefits were 2.3% in 1996 compared to 2.3%
for 1995 and 2.1% in 1994. The Company employed 259 full-time equivalent
employees at year-end 1996.
Occupancy expense increased $152,000 or 7.8% in 1996 compared to an increase of
$180,000 or 10.1% in 1995. The increases in 1996 and 1995 were due primarily to
the expansion of the Salinas office of First National as well as normal rental
rate increases.
<TABLE>
All other operating expenses totaled $8,752,000 in 1996 compared to $7,404,000
in 1995, an increase of $1,348,000 or 18.2%. This increase was mainly due to
merger-related expenses for data processing and legal and professional fees. In
1995, other operating expense increased by $568,000 or 8.3% as compared to an
increase of $473,000 or 7.4% in 1994. The increase in 1995 was due mainly to
equipment costs associated with a systems conversion at South Valley combined
with an increase in other expenses partially offset by a decrease in FDIC
insurance premiums at both South Valley and First National due to the
recapitalization of the Bank Insurance Fund in 1995. The major components of
other expenses in dollars and as a percentage of average earning assets are as
indicated in the table below.
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Other Expenses 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
Percentage Percentage Percentage
of Average of Average of Average
(Dollars in thousands) Amount Earning Assets Amount Earning Assets Amount Earning Assets
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries and benefits $11,864 2.34% $9,989 2.29% $8,730 2.13%
Occupancy 2,111 0.42% 1,959 0.45% 1,779 0.43%
Equipment 2,577 0.51% 1,943 0.45% 1,476 0.36%
Advertising and promotion 710 0.14% 659 0.15% 679 0.17%
Forms and supplies 563 0.11% 508 0.12% 456 0.11%
Legal and professional fees 1,946 0.38% 823 0.19% 828 0.20%
Assessments 147 0.03% 572 0.13% 1,043 0.25%
Other 2,809 0.56% 2,899 0.65% 2,354 0.58%
- ---------------------------------------------------------------------------------------------------------------------
Total $22,727 4.49% $19,352 4.43% $17,345 4.23%
=====================================================================================================================
</TABLE>
Income Taxes
The provision for income taxes was $4,348,000 in 1996, compared to $4,200,000 in
1995 and $3,778,000 in 1994. The Company's effective tax rate for 1996 was
41.9%, compared with 38.9% for 1995, and 37.8% for 1994. The increase in 1996
was due to the fact that a majority of the merger-related costs were not
tax-deductible.
56
<PAGE>
Capital
Shareholders' equity increased $3,113,000 or 5.1% in 1996. The increase was
primarily a result of retention of the Company's 1996 net income and the
exercise of stock options, offset in part by a repurchase of outstanding shares
and a total cash dividend of $0.60 per share paid during 1996. The Company
regularly assesses future capital needs so that it will remain in compliance
with the capital adequacy guidelines issued by the Federal Reserve Board for
bank holding companies and by the Office of the Comptroller of the Currency (the
"OCC") for national banks. The Company's capital plan for 1996 contemplates
continued growth in shareholders' equity through the retention of net income.
The Company and the Subsidiary Banks are subject to the guidelines and
regulations of the Federal Reserve Board and the 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
OCC'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 or the OCC 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 banking agencies have issued a joint advance notice of proposed
rulemaking to solicit comments on a framework for revising their risk-based
capital guidelines to take account of interest rate risk. As required by the
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), the
notice seeks comment on a proposed method of incorporating an interest rate risk
component into the current risk-based capital guidelines, with the goal of
ensuring that institutions with high levels of interest rate risk have
sufficient capital to cover their exposures. Interest rate risk is a measure of
the relationship between a change in market interest rates and
57
<PAGE>
the resultant change in net interest income due to the repricing and/or maturity
characteristics of the assets and liabilities of the Company. As financial
intermediaries, depository institutions accept interest rate risk as a normal
part of their business. They assume this risk whenever the interest rate
sensitivity of their assets does not match the sensitivity of their liabilities
or off balance sheet positions. Thus, when interest-sensitive assets and
liabilities reprice at mismatched intervals, an increase or decrease in interest
rates will affect net interest income. Under the proposal, interest rate risk
exposures would be quantified by weighing assets, liabilities and off-balance
sheet items by risk factors which approximate sensitivity to interest rate
fluctuations. Institutions identified as having an interest rate risk exposure
greater than a defined threshold would be required to allocate additional
capital to support this higher risk. The capital to be allocated would be a
dollar amount equal to the percentage by which the risk exceeds the defined
threshold multiplied by the institution's total assets. Higher individual
capital allocations could be required by the bank regulators based on
supervisory concerns.
Federal banking agencies have solicited comments on this proposal but have not
yet proposed regulations to implement any interest rate risk component into the
risk-based capital guidelines. Accordingly, the ultimate impact on the Bank and
the Company of a final regulation in this area cannot be predicted at this time.
Leverage Capital Guidelines
The Federal Reserve Board and the OCC have established a minimum leverage ratio
of 3% Tier 1 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.
<TABLE>
Set forth below are the Company's and the Subsidiary Banks' risk-based and
leverage capital ratios as of December 31, 1996:
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Risk Based Capital Ratio
As of December 31, 1996
- -------------------------------------------------------------------------------------------------------------------
Company South Valley First National
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tier 1 capital $63,469 13.91% $16,096 11.63% $42,034 13.40%
Tier 1 capital minimum
requirement 18,254 4.00% 5,534 4.00% 12,546 4.00%
- -------------------------------------------------------------------------------------------------------------------
Excess 45,215 9.91% 10,562 7.63% 29,488 9.40%
===================================================================================================================
Total capital 67,141 14.71% 17,409 12.58% 44,258 14.11%
Total capital minimum
requirement 36,508 8.00% 11,069 8.00% 25,092 8.00%
- -------------------------------------------------------------------------------------------------------------------
Excess 30,633 6.71% 6,340 4.58% 19,166 6.11%
===================================================================================================================
Risk-adjusted assets $456,356 $138,362 $313,644
===================================================================================================================
</TABLE>
58
<PAGE>
<TABLE>
As indicated in the table on the previous page, the Company's capital ratios
significantly exceeded the minimum capital levels required by current federal
regulations. Management believes that the Company and the Bank will continue to
meet their respective minimum capital requirements in the foreseeable future.
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Leverage Capital Ratio
As of December 31, 1996
- -------------------------------------------------------------------------------------------------------------------
Company South Valley First National
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tier 1 capital to quarterly
average
total assets (Leverage $63,469 10.55% $16,096 8.61% $42,034 10.29%
Ratio)
Minimum leverage requirement 18,045 to 3.00% to 5,611 to 3.00% to 12,255 to 3.00% to
30,075 5.00% 9,351 5.00% 20,425 5.00%
- -------------------------------------------------------------------------------------------------------------------
Excess 33,394 to 5.55% to 6,745 to 3.61% to 21,609 to 5.29% to
45,424 7.55% 10,485 5.61% 29,779 7.29%
===================================================================================================================
Total quarterly average assets $601,496 $187,024 $408,502
===================================================================================================================
</TABLE>
Federal banking laws impose restrictions upon the amount of dividends the
Subsidiary Banks may declare to the Holding Company (see Note 14 to the
accompanying consolidated financial statements). Federal laws also impose
restrictions upon the amount of loans or advances that the Subsidiary Banks may
extend to the Holding Company. In management's opinion, these do not affect the
ability of the Company to meet its cash obligations.
Liquidity
Liquidity represents the ability of the Company to meet the requirements of
customer borrowing needs as well as fluctuations in deposit flows.
The Company's principal sources of asset liquidity are cash and due from banks,
time deposits with other financial institutions, federal funds sold, short-term
investments, and marketable investment securities. As of December 31, 1996 these
sources represented $202,453,000 or 37.0% of total deposits, compared to 44.1%
in 1995 and 41.0% in 1994. The decrease in 1996 reflects the growth within the
loan portfolio of which a small portion was funded by maturities in the
investment portfolio. Other sources of asset liquidity are maturing loans and
borrowing lines of approximately $51,000,000 with primary correspondent banks.
There were no borrowings outstanding under these lines as of December 31, 1996.
The Company guarantees the obligations or performance of its customers by
issuing standby letters of credit to a third party. These standby letters of
credit are frequently issued in support of third-party obligations, such as
retail company transactions and travel agency issuances.
The risk involved in issuing standby letters of credit is essentially the same
as the credit risk in extending loans to customers, and they are subject to the
same credit origination, maintenance, and management procedures in effect to
monitor other credit products. As of December 31, 1996 and 1995, outstanding
standby letters of credit totaled $4,994,000 and $2,448,000, respectively.
59
<PAGE>
The Company does not offer or engage in any other off-balance sheet products
such as commitments to purchase and sell foreign exchange, interest rate or
currency swaps, or financial futures and options.
In the opinion of management, there are sufficient resources to meet the
liquidity needs of the Company at present and projected future levels.
Effects of Changing Prices
The most direct effect of inflation is higher interest rates. However, the
Company's earnings are not necessarily dependent on the absolute level of
interest rates. Instead, earnings are affected by the spread between the yield
on loans and investments and the cost of deposits and borrowing money. Another
effect of inflation is upward pressure of the Company's operating expenses. It
is management's opinion that the effects of inflation on the consolidated
financial statements have not been material.
60
<PAGE>
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
PACIFIC CAPITAL BANCORP STOCK ACTIVITY
The common stock of the Company is listed on the NASDAQ National Market under
the symbol PABN. This listing became effective on November 20, 1996. Prior to
that date, the Company's common stock was listed on the OTC Bulletin Board.
The high and low prices listed below reflect actual trades which occurred in the
specified time frames listed. Three brokerage firms effect transactions in the
Company's stock: Van Kasper & Co., Sandler O'Neill Partners, L.P.; and Hoefer &
Arnett, Inc.
According to the Company's records, there were 2,063 shareholders as of
September 10, 1996. In 1996 the Company paid four cash dividends of $0.15 per
share to holders of record on March 15, June 28, September 16, and November 1,
payable on March 29, June 28, September 30, and December 9, 1996, respectively.
The Company also paid a five percent (5%) stock dividend payable to shareholders
of record as of December 1, 1996.
For information regarding restrictions on the payment of dividends see Note 14
to the accompanying consolidated financial Statements.
- -------------------------------------------------------------------------------
Ranges of Common Stock Prices
- -------------------------------------------------------------------------------
1996
- -------------------------------------------------------------------------------
Quarter Low High
- -------------------------------------------------------------------------------
First $24.05 $28.09
Second 25.47 27.63
Third 24.77 26.67
Fourth 25.38 27.63
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1995
- -------------------------------------------------------------------------------
Quarter Low High
- -------------------------------------------------------------------------------
First $17.69 $18.59
Second 17.23 19.73
Third 20.86 23.13
Fourth 22.22 24.53
- -------------------------------------------------------------------------------
61
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
B o a r d o f D i r e c t o r s
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
First National Bank of Central
Pacific Capital Bancorp California South Valley National Bank
- --------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
Charles E. Bancroft Charles E. Bancroft Laruence M. Connell
Director, President & CEO Director, President & CEO President
Sequioa Insurance Company Sequioa Insurance Company Connell Realty Inc.
Citation Insurance Company Citation Insurance Company
Joseph A. Filice
Gene DiCicco Gene DiCicco Partner
Owner, Watsonville Nurseries Owner, Watsonville Nurseries Greco/Filice Accountancy
Lewis L. Fenton Lewis L. Fenton Eugene R. Guglielmo
Attorney, Fenton & Keller Attorney, Fenton & Keller Director & Executive Officer
Emilio Guglielmo Winery
Gerald T. Fry Gerald T. Fry
Chief Financial Officer Chief Financial Officer D. Vernon Horton
Office Products, Inc. Office Products, Inc. Chairman of the Board
South Valley National Bank
James L. Gattis James L. Gattis
Investor, Civic Leader Investor, Civic Leader Roger C. Knopf
President, Knopf Construction Inc.
Eugene R. Guglielmo Stanley R. Haynes
Director & Executive Officer Chairman of the Board Clayton C. Larson
Emilio Guglielmo Winery Cinderella Carpets Vice Chairman
South Valley National bank
Stanley R. Haynes D. Vernon Horton
Chairman of the Board Chief Executive Officer Edward J. Lazzarini
Cinderella Carpets First National Bank of Central President
California Lazzco Inc.
D. Vernon Horton
Chairman of the Board Hubert Hudson Donald G. Mountz
Pacific Capital Bancorp Property Manager, Aptos Station President
Mountz, Inc.
Hubert W. Hudson William J. Keller, M.D.
Property Manager, Aptos Station Physician William H. Pope
Certified Public Accountant
William J. Keller, M.D. Clayton C. Larson
Physician President James R. Price
First National Bank of Central President
Roger C. Knopf California LynRob Enterprises
President, Knopf Construction Inc.
William S. McAfee, M.D. Mary Lou Rawitser
Clayton C. Larson Physician Certified Financial Planner
President, Pacific Capital Bancorp
William H. Pope Brad L. Smith
William S. McAfee, M.D. Certified Public Accountant President
Physician South Valley National Bank
William K. Sambrailo
William H. Pope Chariman of the Board
Certified Public Accountant Charles Sambrailo Paper Co.
Mary Lou Rawitser Clyn Smith, Jr., M.D.
Certified Financial Planner Physician, Retired
William K. Sambrailo Robert B. Sheppard
Chariman of the Board Vice Chariman, Retired
Charles Sambrailo Paper Co. Allstate Insurance Companies
Clyn Smith, Jr., M.D.
Physician, Retired
Robert B. Sheppard
Vice Chariman, Retired
Allstate Insurance Companies
</TABLE>
62
<PAGE>
The Corporation
The Company is a California corporation and bank holding company that was
incorporated on January 26, 1983. First National and South Valley, wholly owned
subsidiaries of the Company, commenced operations in 1984 and 1983,
respectively..
<TABLE>
First National and South Valley are nationally chartered commercial banks
serving Monterey, Santa Cruz, Santa Clara and San Benito Counties and
surrounding areas in California.
<CAPTION>
First National Bank of South Valley Registrar & Transfer Agent Form 10-K
Central California National Bank -------------------------- ----------------------------
Banking Offices Banking Offices ChaseMellon Shareholder A Copy of the Company's
- ----------------------------- ----------------------------- Services Form 10-K as filed with the
<S> <C> <C> <C>
1001 South Main Street 500 Tennant Station Overpeck Centre Securities and Exchange
Salinas, California Morgan Hill, California 85 Challenger Road Commission is available,
93902-1786 95037 Ridgefield Park, NJ without charge, upon
(408) 757-4900 (408) 778-1510 07660 written request.
Please direct requests to:
495 Washington Street 8000 Santa Teresa Blvd.
Monterey, California Gilroy, California Market Makers Dennis A. DeCius
93942-2718 95020 Hoefer & Arnett, Inc. Executive Vice President
(408) 373-4900 (408) 848-2161 353 Sacramento Street Chief Financial Officer
Tenth Floor Pacific Capital Bancorp
307 Main Street 1730 Airline Highway San Francisco, California P.O. Box 1786
Salinas, California Hollister, California 94111 Salinas, California
93902-1786 95023 93902-1786
(408) 757-4900 (408) 636-5581 Sandler O'Neill Partners,
LP
2 World Trade Center Corporate Counsel
655 Main Street 301 Third Streer 104th Floor Graham & James
Watsonville, California San Juan Bautista, Ca. New York, New York One Maritime Plaza
95077-1540 95045 10048 San Francisco, California
(408) 728-2265 (408) 623-4590 94111
Van Kasper & Co.
26380 Carmel Rancho Lane 600 California Street Certified Public
Carmel, California Suite 1700 Accountants
93922-2017 San Francisco, California KPMG Peat Marwick LLP
(408) 626-2900 94108 50 West San Fernando Street
San Jose, California 95113
</TABLE>
63
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant had duly caused this report to be signed on
its behalf of the undersigned, thereunto duly authorized.
Date: March 25, 1997 PACIFIC CAPITAL BANCORP
-------------------------------------
By: /S/ Clayton C. Larson
-----------------------
CLAYTON C. LARSON
President
/S/ Charles E. Bancroft Date: March 25, 1997
- --------------------------------------------
Charles E. Bancroft,
Director
/S/ Dennis A. DeCius Date: March 25, 1997
- --------------------------------------------
Dennis A. DeCius
Executive Vice President
and Chief Financial Officer
(principal financial officer and principal accounting officer)
/S/ Gene DiCicco Date: March 25, 1997
- --------------------------------------------
Gene DiCicco,
Director
/S/ Lewis L. Fenton Date: March 25, 1997
- --------------------------------------------
Lewis L. Fenton,
Director
66
<PAGE>
/S/ Gerald T. Fry Date: March 25, 1997
- --------------------------------------------
Gerald T. Fry,
Director
/S/ James L. Gattis Date: March 25, 1997
- --------------------------------------------
James L. Gattis,
Director and Secretary
/S/ Hubert W. Hudson Date: March 25, 1997
- --------------------------------------------
Hubert W. Hudson,
Director
/S/ Stanley R. Haynes Date: March 25, 1997
- --------------------------------------------
Stanley R. Haynes,
Director
/S/ D. Vernon Horton Date: March 25, 1997
- --------------------------------------------
D. Vernon Horton,
Chairman of the Board
and Director
/S/ William J. Keller Date: March 25, 1997
- --------------------------------------------
William J. Keller,
Director
/S/ Eugene R.Guglielmo Date: March 25, 1997
-------------------------------------------
Eugene R. Guglielmo,
Director
/S/ Roger C. Knopf Date: March 25, 1997
- --------------------------------------------
Roger C. Knopf,
Director
67
<PAGE>
/S/ Clayton C. Larson Date: March 25, 1997
- --------------------------------------------
Clayton C. Larson,
President and Director
/S/ William S. McAfee Date: March 25, 1997
- --------------------------------------------
William S. McAfee,
Director
/S/ William K. Sambrailo Date: March 25, 1997
- --------------------------------------------
William K. Sambrailo,
Director
/S/ Robert B. Sheppard Date: March 25, 1997
- --------------------------------------------
Robert B. Sheppard,
Director
/S/ Clyn Smith, Jr. Date: March 25, 1997
- --------------------------------------------
Clyn Smith, Jr.,
Director
/S/ Mary Lou Rawitser Date: March 25, 1997
- --------------------------------------------
Mary Lou Rawitser,
Director
68
<PAGE>
<TABLE>
INDEX TO EXHIBITS
<CAPTION>
Exhibit Sequentially
Number Exhibit Numbered Page
- ------ ------- -------------
<S> <C> <C>
3.1 Articles of incorporation of the Company an 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/
<FN>
*/ 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, which are incorporated 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.
</FN>
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Exhibit Numbered Page
- ------ ------- -------------
<S> <C> <C>
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/
<FN>
- -----------------------------------------------------------------------
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.
</FN>
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Exhibit Numbered Page
- ------ ------- -------------
<S> <C> <C>
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/
<FN>
- -----------------------------------------------------------------------
8/ Filed as Exhibits 10.23 through 10.34 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.
</FN>
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Exhibit Numbered Page
- ------ ------- -------------
<S> <C> <C>
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/
<FN>
- -----------------------------------------------------------------------
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.
</FN>
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Exhibit Numbered Page
- ------ ------- -------------
<S> <C> <C>
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
10.54 Employment Agreement dated May 22, 1996 between First
National Bank of Central California and Clayton C. Larson
10.55 Employment Agreement dated May 22, 1996 between First
National Bank of Central California and D. Vernon Horton
10.56 Employment Agreement dated May 22, 1996 between First
National Bank of Central California and Dennis A. DeCius
10.57 Employment Agreement dated November 20, 1996 between South
Valley National Bank and Brad L. Smith
13. Pacific Capital Bancorp 1996 Annual Report to Shareholders ---
(parts not incorporated by reference are furnished for
informational purposes only and are not filed only and are not
filed herewith).
21. Subsidiaries of the Company
22. Opinion of KPMG Peat Marwick, LLP
24. Consent of KPMG Peat Marwick LLP.
27. Financial Data Schedule
<FN>
- -----------------------------------------------------------------------
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.
</FN>
</TABLE>
73
LEASE
THIS LEASE is entered into between James L. Gattis, hereinafter called
"Landlord", and Pacific Capital Bancorp, hereinafter called "Tenant."
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE 1. PREMISES
Section 1.01: Landlord hereby leases to Tenant, and Tenant hereby hires
from Landlord, for the term, at the rental and upon the conditions herein set
forth, those certain Premises consisting of approximately 5,365 square feet
located on the first floor at the property commonly known as 517 Main Street,
Salinas, California.
Quiet Enjoyment
Section 1.02: The Landlord covenants and agrees that the Tenant on
paying the rent and performing the covenants contained herein shall and may
peaceably and quietly hold and enjoy the Premises for the term of this Lease.
Subordination
Section 1.03: This Lease shall be subordinate and subject at
all times to any mortgage or deed of trust covering the Premises or which
at any time hereafter shall be made, and to all advances made, or hereafter to
be made, upon the security hereof; provided, however, such agreement by the
parties to subordinate this Lease to any after-acquired mortgages or deeds of
trust is expressly conditioned upon the mortgagee or beneficiary of any such
mortgage or deed of trust agreeing in writing, in form and substance
satisfactory to Tenant, to recognize and honor all rights of Tenant hereunder so
long a Tenant is not in material default of any provision of this Lease (after
the expiration of any applicable cure period.)
ARTICLE 2. USE
Permitted Use
Section 1.01: The Premises are to be used for bank functions and
related uses and for no other purpose without the written consent of Landlord.
Prohibited Use
Section 2.02: Tenant shall not do or permit anything to be done in or
about the Premises, nor bring, nor keep anything therein which will in any way
affect fire or other insurance upon the building, or any of its contents, or
which shall in any way conflict with any law, ordinance, rule,
or regulation affecting the occupancy and use of the Premises, which are 2
75
<PAGE>
or may hereafter be enacted or promulgated by any public authority, or in any
way obstruct or interfere with the rights of other tenants of the building, or
injure or annoy them, nor use, nor allow the Premises to be used, for any
improper, immoral, unlawful or objectionable purpose.
Assignment
Section 2.03: Tenant shall not assign, mortgage or hypothecate this
Lease, or any interest therein, or permit the use of the Premises, or any part
thereof, without the prior written consent of Landlord. Consent to any such
assignment or subletting shall not operate as a waiver o the necessity for a
consent to any subsequent assignment or subletting, and the terms of such
consent shall be binding upon any person holding by, under, or through Tenant.
Landlord's consent will not be unreasonably withheld.
Any such assignment or subletting without such consent shall be void,
and shall, at the option of Landlord, terminate this Lease. This Lease shall
not, nor shall any interest therein be assignable, as to the interest of Tenant,
by operation of law, without the written consent of Landlord. In the event that
the Premises are leased to more than one Tenant, this Lease shall automatically
transfer to the survivor or survivors, in the event of death of one Tenant.
Signs
Section 2.04: Tenant will not permit or suffer any signs,
advertisements, or notices to be displayed, inscribed upon or affixed on any
part of the outside or inside of the Premises, or in the building of which they
are a part, except as Landlord or Landlord's architect may approve. Any such
approved sign shall be manufacture and installed at Tenant's sole cost.
Rules and Regulations
Section 2.05: Tenant agrees to observe faithfully, and comply strictly
with, the rules and regulations promulgated from time to time by the Landlord,
as in the Landlord's judgment are necessary for the safety, care and cleanliness
of the building or for the preservation of good order therein.
ARTICLE 3. TERM
Term
Section 3.01: The term of this Lease shall be for a period of twenty
nine (29) months commencing of the lst day of December, 1996 and ending of the
30th day of April, 1999.
Delivery and Possession
76
<PAGE>
Section 3.02: In the event of the inability of Landlord to
deliver possession of the Premises at the time of the commencement of the term
of this Lease, neither Landlord nor its agents shall be liable for any damage
caused thereby, nor shall this Lease thereby become void or voidable, nor shall
the term herein specified be in any way extended, but in such event Tenant shall
not be liable for any rent until such time as Landlord can deliver possession.
The provisions of Subdivision (1) of Section 1932 of the California Civil Code
shall not apply to this Lease, and the Tenant waives the benefit of such
provisions.
Surrender of Premises
Section 3,03: (a) Tenant agrees to surrender the Premises at the
termination of the tenancy herein created, in the same condition as herein
agreed they have been received, reasonable use and wear thereof and damage by
the act of God or by the elements excepted.
Notice of Surrender
Section 3.03: (b) Tenant shall, at least thirty (30) days before the
last day of the term hereof, give to Landlord a written notice of intention to
surrender the Premises on that date, but nothing contained herein shall be
construed as an extension of the term hereof or as consent of Landlord to any
holding over by Tenant.
Holding Over
Section 3.04: If Tenant holds possession of the Premises after the term
of this Lease, Tenant shall, at the option of Landlord, to be exercised by
Landlord's giving written notice to Tenant and not otherwise, become a tenant
from month to month upon the terms and conditions herein specified, so far as
applicable, at the same a monthly rental as that paid for the final month of the
Lease, payable in advance, in lawful money, and shall continue to be such tenant
until thirty (30) days after Tenant shall have given to Landlord or Landlord
shall have given to Tenant a written notice of intention to terminate such
monthly tenancy. Unless Landlord shall exercise the option hereby given him,
Tenant shall be a tenant at sufferance only, whether or not Landlord shall
accept any rent from Tenant while Tenant is so holding over. such liens
Quitclaim Deed
Section 3.05: Upon the expiration or earlier termination of this Lease,
Tenant agrees to deliver a quitclaim deed in favor of Landlord releasing its
interest in the Premises.
Option to Renew
77
<PAGE>
Section 3.06: (a) Tenant is hereby granted and shall, if Tenant is not
at the time in default under this Lease, have options to renew this Lease as
follows:
lst Option 5 years (May 1, 1999 to April 30, 2004)
2nd Option 5 years (May 1, 2004 to April 30, 2009)
Any extension shall be on the same terms, covenants, and conditions and subject
to the same exceptions and reservations herein contained, with the rent to be
paid by Tenant to Landlord under each option to be increased each year in the
same manner as described in Section 4.01 herein.
(b) Each option shall be exercised only by Tenant's delivering to
Landlord in person or by United States mail on or before one hundred eighty
(180) days before expiration of the term hereof, or any renewed term, written
notice of his election to renew this Lease as herein provided.
(c) Failure to exercise an option shall terminate Tenant's rights under
this section to any further options or extension of this Lease.
ARTICLE 4. RENT
Rental
Section 4.01: Tenant shall pay rent, free from all claims, demands, or
set-offs against Landlord or any kind or character whatsoever, in advance, to
the Landlord at 376-A Main Street, Salinas, California 93901, or such other
place as Landlord may designate the sum of FIFTY FOUR THOUSAND DOLLARS
($54,000.00) per year payable at the rate of FOUR THOUSAND, FIVE HUNDRED DOLLARS
($4,500.00) per month payable on the Ist of each month.
Section 4.02: Commencing December 1, 1997 and upon the expiration of
each twelve (12) calendar month period thereafter, the monthly rent of Four
Thousand, Five Hundred Dollars and no cents ($4,500.00) shall be increased by
multiplying said rent by a fraction, which fraction, shall have as its numerator
the Consumer Price Index for all items for the San Francisco/Oakland
Metropolitan area (1977=100), as published by the U.S. Department of Labor,
Bureau of Labor Statistics for month of September just prior to the applicable
twelve (12) month period, and which such fraction shall have as its denominator
said Consumer Price Index as published for the month of September 1996. In no
event shall the rent be less than the rent paid for the prior year. In the event
the said bureau should cease to publish said Index figure, then any similar
Index published by any other branch or department of the U.S. Government shall
be used, and if none is so published then another Index generally recognized as
78
<PAGE>
authoritative shall be substituted by agreement of the parties hereto, or if no
such agreement of the parties hereto, or if no such agreement is reached within
a reasonable time, Lessor shall select another Index.
ARTICLE 5. TAXES AND UTILITIES
Taxes
Section 5.01: In addition to the rental to be paid by Tenant
to Landlord, as set forth herein, Tenant agrees to pay to Landlord on a prorata
basis all taxes and assessments levied against the leased Premises and the
building. Landlord shall furnish copies of any tax bills pertaining to the
demised Premises as a condition of receiving said additional rent. The
additional rent is to be paid within sixty (60) days after demand by Landlord.
The provisions herein contained shall apply to taxes levied or assessed by any
public body, whether or not such public body shall have previously levied or
assessed taxes against the herein described property or any part thereof. Tenant
shall pay all taxes levied against any personal property belonging to Tenant and
located on the leased Premises. The term "Real Property Tax" shall not include
any increase in tax which is imposed as a result of a transfer, either partial
or total, of Lessor's interest in the premises.
Utilities
Section 5.02: Tenant shall pay for all water, gas, heat, trash collection,
telephone, electricity, power and all other utilities and janitorial services
which may be furnished to or used in or about the Premises during the term of
this Lease.
ARTICLE 6. IMPROVEMENTS AND REPAIRS
Repairs
Section 6.01: Tenant has examined and inspected and knows the condition
of the Premises and every part thereof and has received the same in good order
and repair and accepts the same in their present condition. Tenant shall take
good care of the Premises and they shall not be altered, repaired, or changed
without the written consent of Landlord. Unless otherwise provided by written
agreement, all alterations, improvements and changes that may be required shall
be done either by or under the direction of Landlord, but at the cost of Tenant,
and shall be the property of Landlord, and shall remain upon and be rendered
with the Premises, excepting however that, at Landlord's option, Tenant shall,
at its expense, when surrendering the Premises, remove from the Premises and the
building all partitions, counters, railing, etc., installed in the Premises by
or at the cost of Tenant. All damage or injury done to the Premises by Tenant,
or by any person who may be in or upon the Premises with the consent of Tenant,
shall be paid for by Tenant.
Mechanic's Lien
79
<PAGE>
Section 6.02: The Tenant shall not suffer or permit any mechanic's or
materialmen's liens to be filed against the fee of the real property of which
the Premises form a part nor against the Tenant's leasehold interest in the
Premises. Landlord shall have the right at all reasonable times to post and keep
posted on the Premises any notices which it deems necessary for protection from
such liens. If any such liens are so filed, landlord, at its election, may pay
and satisfy the same and, in such event, the sums so paid by the Landlord, with
interest at the rate of ten percent (10%) per annum from the date of payment,
shall be deemed to be additional rent due and payable by the Tenant at once
without notice or demand.
ARTICLE 7. DESTRUCTION AND CONDEMNATION
Destruction
Section 7.01: If the Premises or the building wherein the same are
situated shall be destroyed by fire or other cause, or be so damaged thereby
that they are untenantable and cannot be rendered tenantable within ninety (90)
days from the date of such destruction or damage, this Lease may be terminated
by Landlord or Tenant by written notice. In case the damages or destruction be
not such as to permit a termination of the Lease as above provided, then a
proportionate reduction shall be made in the rent herein reserved corresponding
to the time during which and to the portion of the Premises of which Tenant
shall be deprived of possession. The provisions of Subdivision 2 of Section 1932
of the California Civil Code, and of Subdivision 4 of Section 1933 of that Code,
shall not apply to this Lease, and Tenant hereby waives the benefit of such
provisions.
Condemnation
Section 7.02: If the whole or any part of the Premises shall be taken or
condemned b any competent authority under power of eminent domain for a public
or quasi-public use or purpose, or if any adjacent property or street shall be
so taken or condemned, or reconfigured or vacated by such authority in such
manner as to require the use, reconstruction or remodeling of any part of the
Premises, or if Landlord shall grant a deed or other instrument in lieu of such
taking by eminent domain or condemnation, Landlord shall have the option to
terminate this Lease upon ninety (90) days prior written notice to Tenant,
provided such notice is given not later than one hundred eighty (180) days after
the date of such taking, condemnation, reconfiguration, vacation, deed or other
instrument. Tenant shall have reciprocal termination rights if the whole or any
material part of the Premises is taken, or if access to the Premises is
materially impaired. Landlord shall be entitled to receive the entire award or
payment in connection therewith, except that Tenant shall have the right to file
any separate claim available to Tenant for any taking of Tenant's personal
property and fixtures belonging to Tenant and removable by Tenant upon
expiration of the term hereof and for moving expenses, so long as such claim
does not diminish the award available to Landlord, and such claim is payable
separately to Tenant. All rent shall be apportioned as of the date of such
termination, or the date of such taking, whichever shall first
80
<PAGE>
occur. If any part of the Premises shall be taken, and this Lease shall not be
so terminated, the rent payable hereunder shall be proportionately abated.
ARTICLE 8. INDEMNITY
No Liability of Landlord
Section 8.01: Landlord shall not be liable to Tenant for any injury or
damage that may result to any person or property by or from any cause
whatsoever, and without limiting the generality of the foregoing, whether caused
by water leakage of any character from the room, walls, basement, or other
portion of the Premises, or caused by gas, fire, oil, electricity, or any cause
whatsoever, in, on, or about the Premises or any part thereof, except for such
injury or damage resulting from the negligence or willful misconduct of Landlord
or any of Landlord's agents, servants, or employees.
Insurance
Section 8.02: Tenant agrees to maintain in full force and effect at all
times during the term of this Lease or any renewal thereof, public liability and
property damage insurance insuring both Tenant and Landlord in amounts not less
than FIVE HUNDRED THOUSAND DOLLARS ($500,000-00) per person and ONE MILLION
DOLLARS ($1,000,000.00) per occurrence for injury to or death of persons, and in
the amount of not less than FIVE HUNDRED THOUSAND DOLLARS ($500,000.00) for
injury to or loss of property. Tenant shall also provide fire insurance and
glass insurance in amounts reasonably required by Landlord. Tenant shall furnish
to Landlord copies of such policies or certificates issued showing that said
policies are in force and effect and providing that at least ten (10) days
written notice will be provided to Landlord before termination or cancellation
of any insurance.
Indemnification of Landlord
Section 8.03: Tenant agrees to hold Landlord harmless from and defend
Landlord against any and all claims or liability for any injury or damage to any
person or property whatsoever (1) occurring in, on, or about the Premises or any
part thereof; and (2) occurring in, on or about
any facilities (including without prejudice to the generality of the term
"facilities", stairways, passageways, or hallways, when such injury or damage
shall be caused in part or in whole by the act, negligence or fault of, or
omission of any duty with respect to the same by Tenant, his agents, servants,
or employees.)
ARTICLE 9. DEFAULT
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Acts Constituting a Default
Section 9.01: Any and all of the following actions shall constitute a default of
this Lease:
(a) Use of the Premises for any purpose other than as
authorized in this Lease; or
(b) Default in the payment of rent or any other sums owing
when due; or
(c) Abandonment or vacation of Tenant from the Premises; or
(d) Assignment of the Premises by Tenant, either voluntarily
or by operation of law, whether by judgment, executions, death, or any other
means, without the consent of Landlord; or
(e) The filing by Tenant or any other person of a voluntary or
involuntary petition in bankruptcy or an arrangement by or against Tenant; the
adjudication of Tenant as a bankrupt or insolvent; the appointment of a
receiver of the business or of the assets of Tenant, except a receiver appointed
at the instance or request of Landlord; the general or any other assignment by
Tenant for the benefit of his creditors; or
(f) A default in the performance of any of the terms,
covenants, and conditions herein contained; or
(g) The inability of Tenant to pay the rent herein specified
or to perform any of the terms, covenants, or conditions herein by it to be kept
or performed.
Remedies Upon Default
Section 9.02: In the event of a default of this Lease, and in addition
to all other rights and remedies Landlord may have at law including the rights
specified in Section 1951.2 of the California Civil Code, Landlord shall have
the option to do any or all of the foregoing:
Reentry of Premises
(a) Immediately reenter and remove all persons and property in
a public warehouse or elsewhere at the cost of, and for the account of, the
Tenant, provided, however, notwithstanding anything to the contrary in this
Section 9.02 (a) or any other provision of this Lease, Landlord shall not have
the right to take possession of any of Tenant's business records or the records
or personal property of any customer of Tenant located in
the Premises, and provided further, that any rights and remedies of
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Landlord hereunder are subject to the right and power of the Office of the
Comptroller of the Currency and/or any other bank regulatory agency to enter
upon and assume control of the Premises and of any personal property located
therein.
Collection of Rent
(b) To collect by suit or otherwise each installment of rent
or other sum as it becomes due hereunder, or to enforce, by suit or otherwise,
any other term or provision hereof on the part of Tenant required to be kept or
performed, it being specifically agreed that all unpaid installments of rent or
other sums shall bear interest at the highest rate permitted by law from the due
date thereof until paid.
Termination of Lease
(c) Terminate this Lease, in which event Tenant agrees to
immediately surrender the possession of the Premises, and to pay to Landlord, in
addition to any other remedy Landlord may have, all damages Landlord may incur
by reason of its default, including the cost of recovering the Premises.
Measure of Damages
(d) The damages Landlord may recover include:
(1) The worth at the time of award of the unpaid
rent which had been earned at the time of
termination of the Lease;
(2) The worth at the time of award of the amount
by which the unpaid rent which would have been
earned after termination of the Lease until
the time of award exceeds the amount of rental
loss that Tenant proves could have been
reasonably avoided;
(3) The worth at the time of award of the amount
by which the unpaid rent for the balance of
the term after the time of award exceeds the
amount of rental loss that Tenant provides
could be reasonably avoided; and
(4) Any other amount necessary to compensate
Landlord for all detriment proximately caused
by Tenant's failure to perform his obligations
under this Lease.
Removal of Property
Section 9.03: Tenant hereby irrevocably appoints landlord, as agent and
attorney-in-fact of Tenant, to enter upon the Premises, in the event of default
by Tenant in the payment of any rent herein reserved, or in the performance of
any term, covenant or condition herein contained to be kept or
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performed by Tenant, and to remove any and all furniture and personal property
whatsoever situated upon the Premises, and to place such property in storage for
the account of and at the expense of Tenant. In the event that 'Tenant shall not
pay the cost of storing any such property after the property has been stored for
a period of ninety (90) days or more, Landlord may sell any or all of such
property, at places as Landlord in his sole discretion may deem proper, without
notice to Tenant or any demand upon Tenant for the payment of any part of such
charges or the removal of any of such property, and shall apply the proceeds of
such sale, including reasonable attorney's fees actually incurred; second, to
the
payment of the costs of or charges for storing any such property; third to the
payment of any other sums of money which may then or thereafter be due to the
Landlord from Tenant under any of the terms thereof; and fourth, the balance, if
any, to Tenant.
Waiver of Damages
Section 9.04: Tenant hereby waives all claims for damages that may be
caused by Landlord's reentering and taking possession of the
Premises or removing and storing furniture and property, as herein provided, and
will save Landlord harmless from loss, costs or damages occasioned thereby, and
no such reentry shall be considered or construed to be a forcible entry as the
same is defined in the Code of Civil Procedure of the State of California.
Waiver of Breach
Section 9.05: Landlord's failure to take advantage of any default or
breach of covenant on the part of Tenant shall not be, or be construed as a
waiver thereof, nor shall any custom or practice which may grow up between the
parties in the course of administering this instrument be construed to waive or
lessen the right of Landlord to insist upon the performance by Tenant of any
term, covenant or condition hereof, or to exercise any rights given him on
account of any such default. a waiver of a particular breach, or default, shall
not be deemed to be a waiver of the same or any other subsequent breach or
default. The acceptance of rent hereunder shall not be, or be construed to be, a
waiver of any term, covenant or condition of this Lease.
Cumulative Remedies
Section 9.06: The foregoing remedies of Landlord shall not be
exclusive, but shall be cumulative and in addition to all remedies now or
hereafter allowed by law or elsewhere provided.
Landlord Curing Default
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Section 9.07: Upon ten (10) days prior written notice to the Tenant by
the Landlord, it is agreed that the Landlord may cure any default by the Tenant
hereunder and, if necessary, may enter upon the Premises for such purpose, and
in such event the cost thereof to Landlord shall be deemed additional rent
payable by the Tenant, which shall become immediately due and payable.
ARTICLE 10. INSPECTION AND NOTICES
Inspection)
Section 10.01: Subject to any applicable regulations of the Office of
the Controller of the Currency or any other bank regulatory agency, Tenant will
permit Landlord and its agents to enter into and upon the Premises at all
reasonable times for the purpose of inspecting the same, or for the purpose of
protecting owner's reversions, or to make alterations or additions to the
Premises or to any other portion of the building in which the Premises are
situated, without any rebate of rent to Tenant for any loss of occupancy or
quiet enjoyment of the Premises, or damage, injury, or inconvenience thereby
occasioned, and will permit landlord at any time within ninety (90) days prior
to the expiration of this Lease to bring upon the Premises, for the purposes of
inspection or display, prospective tenants thereof.
Notices
Section 10.02: Any notice, demand or communication under, or in
connection with, this Lease may be served upon Landlord by personal service, or
by mailing the same by registered mail in the United States Post Office, postage
prepaid, and directed to Landlord at 376-A Main Street, Salinas, California
93901, and may likewise be served on Tenant by personal service or by so mailing
the same addressed to Tenant at 517 Main Street, Salinas, California 93901.
Either Landlord or Tenant may change such address by notifying the other party
in writing as to such new address as Tenant or Landlord may desire used and
which address shall continue as the address until further written notice.
ARTICLE 11. GENERAL PROVISIONS
Covenants
Section 11.0l.: It is mutually agreed that the letting hereunder is
made upon and subject to the terms, covenants, and conditions of this Lease and
that Tenant covenants as a material part of the consideration for this Lease, to
keep and perform each and all of said terms, covenants and conditions by him to
be kept or performed, and that this Lease is made upon the condition of such
performance.
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Provisions Deemed Covenants and Conditions Section 11.02: The parties hereto
agree that all the provisions hereof are to be construed as covenants and
conditions as though the words importing such covenants and conditions were used
in each instance and that all of the provisions hereof shall bind and inure to
the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns.
Time of the Essence
Section 11.03: Time is of the essence in the performance of each
provision of this Lease.
Cumulative Remedies
Section 11.04: The specified remedies to which Landlord or Tenant may
resort under the terms of this Lease are cumulative and not intended to be
exclusive of any other remedies afforded by law. The waiver of the performance
of any covenant, term or condition of this Lease by Landlord and Tenant shall
not be construed as a waiver of any subsequent breach of the same covenant, term
or condition.
Attorney's Fees
Section 11.05: In the event that suit is brought for the recovery of
any rent due hereunder, or for the recovery of possession of said demised
Premises, or for the breach of any of the terms, conditions or covenant of this
Lease, the prevailing party shall be entitled to receive attorney's fees, costs
and necessary disbursements, in addition to any other relief to which it or he
may be entitled.
Interest on Money Due
Section 11.06: Any sum accruing to Landlord or Tenant under the
provisions of this Lease which shall not be paid when due shall bear interest at
the rate of ten percent (10%) per annum from the date written notice specifying
such nonpayment is served upon the defaulting party until paid.
Invalidity
Section 11.07-. If any term, covenant, condition, or provision of this
Lease is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the provisions hereof shall remain in full force
and effect and shall in no way be affected, impaired, or invalidated thereby.
Agency
Section 11-08: Nothing contained in this Lease shall be deemed or
construed by the parties hereto or by any third person to create the
relationship of principal and agent or of partnership or of joint venture or of
any other association other than Landlord and Tenant.
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Extensions
Section 11.09: All references to the term of this Lease shall include
any extensions of such term.
Captions)
Section 11.10: The captions of articles of this Lease are for reference
only and are not to be construed in any way as a part of this Lease.
Binding Effect: Counterparts
Section 11.1l.: This Lease shall not be binding and in effect until a
counterpart hereof has been executed and delivered by the parties each to the
other.
Execution
Section 11.12: The parties have executed this Lease at the place and on
the dates specified immediately above their respective signatures.
LANDLORD: TENANT:
Executed at Salinas, Ca Executed at Salinas, Ca
--------------- -----------
on October 29, 1996 on November 20, 1996
----------------------- -------------------
Pacific Capital Bancorp
/s/ James L. Gattis /s/ Dennis A. DeCius
- ---------------------------- ------------------------
James L. Gattis Dennis A. DeCius
EVP and CFO
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EMPLOYMENT AGREEMENT
This Employment Agreement (hereinafter referred to as "Agreement") is
made effective as of May 22, 1996, by and between FIRST NATIONAL BANK OF CENTRAL
CALIFORNIA (hereinafter referred to as "Employer") and CLAYTON C. LARSON
(hereinafter referred to as "Employee").
Employer desires to employ, as President, a person of high executive
caliber with significant prior experience in banking services which Employer
provides.
Employee being willing to be employed by Employer as President, and
Employer being willing to employ Employee on the terms, covenants and conditions
hereinafter set forth, it is agreed as follows:
1. Position. Employee is hereby employed as President of Employer.
2. Employment Term. The term of this Agreement shall commence effective
May 22, 1996, and continue for three (3) years thereafter through May 21, 1999,
unless earlier terminated pursuant to Paragraph 6 below, such period being the
term of this Agreement.
3. Employee Duties. Employee shall hold and perform the customary
responsibilities and duties of the position of President, as designated by the
Bylaws of Employer and as directed by Employer through its Board of Directors
(hereinafter referred to as "Board").
4. Extent of Services. Employee shall devote his full time, attention
and energies to the business of Employer, and shall not, during the term of this
Agreement, engage directly or indirectly, in any other business activity, except
personal investments, without the prior written consent of Employer.
5. Compensation and Benefits. Employee's salary shall be at the rate of
$165,672 per year, prorated for any partial year in which this Agreement is in
effect (as such salary may be adjusted during the term of this Agreement, the
"Base Salary"). Said salary shall be payable in equal semi-monthly installments.
Any salary increase shall be at the sole discretion of the Board. Employer
agrees to review and evaluate Employee's performance at the end of each fiscal
year to determine whether Employee should be paid a cash bonus (the "Bonus").
The amount of such Bonus, if any, will be determined in the sole discretion of
the Board. In addition, Employee shall receive the following benefits:
(a) Automobile. Employer shall provide Employee with a
full-size automobile, the make, model and equipment of which shall be determined
by Employer, solely for his use alone during the term of this Agreement.
Employer shall pay or reimburse Employee for all auto expenses incurred in the
use of said automobile by Employee in the performance of his duties under this
Agreement. Employer shall maintain an automobile Liability insurance
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policy on said automobile, with coverage to include Employee's operation of said
automobile and in such amounts as Employer and Employee shall agree upon.
(b) Insurance. Employer shall be a participant in such group
life insurance, health and long-term disability plans as are maintained by
Employer, at Employer's sole cost and expense. In addition, Employer shall, at
its sole cost and expense, provide Employee with a copy of standard term life
insurance in the face amount of $250,000. Employee shall have the right, in
Employee's sole discretion, to designate the beneficiary or beneficiaries of any
such insurance.
(c) Vacation. Employee shall receive four (4) weeks paid
vacation per year, prorated for any partial calendar year in which this
Agreement is in effect, which shall be taken at such time or times as mutually
agreed upon by Employee and the Board, provided that at least two (2) weeks of
such vacation shall be taken consecutively per calendar year. Employee
acknowledges that the requirement of two (2) consecutive weeks of vacation is
required by sound banking practices.
(d) General Expenses. Employer shall, upon submission and
approval of written statements and bills in accordance with the then-regular
procedures of Employer, pay or reimburse Employee for any and all necessary,
customary and usual expenses incurred by him while traveling for or on behalf of
Employer and any and all other necessary, customary or usual expenses (including
entertainment) incurred by employee for or on behalf of Employer in the normal
course of business as determined to be appropriate by Employer.
(e) Other Benefits. In the event that Employer in the future
establishes any other benefit plan for its senior executives generally, Employee
shall be eligible to participate in such plan on the terms and conditions stated
in the legal documents for such plan.
6. Termination. This Agreement may be terminated prior to May 21, 1999,
with or without cause in accordance with this Paragraph 6(a) through 6(f). In
the event of such termination, Employee shall be released from all obligations
under this Agreement, except that Employee shall remain subject to Paragraphs 7,
8, 12 (c), 12 (i) and 12 (j), and Employer shall be released from all
obligations under this Agreement, except as otherwise provided in this Paragraph
and Paragraphs 12(c), 12(e), 12(i) and 12 (j).
(a) Early Termination By Employer Without Cause. This
Agreement may be terminated without cause, for any reason whatsoever, in the
sole, absolute and unreviewable discretion of Employer, upon thirty (30) days'
written notice by Employer to Employee. If this Agreement is terminated pursuant
to this Paragraph 6(a), or the term of this Agreement is not extended upon
expiration thereof, Employee shall receive (i) the salary and insurance benefits
as provided under the terms of this Agreement for a period of six (6) months
from the date of such termination provided Employee shall, at his discretion, be
entitled to receive such salary payment in a lump sum in lieu of receiving such
salary payments over a period of six (6) months following termination; and (ii)
a bonus for the year in which the termination occurs, prorated based upon the
fraction of the calendar year Employee was employed, if, and only if, a bonus
program for that year has been established prior to such termination and
such-plan provides for calculable bonuses not based on the discretion of
Employer. Such salary and insurance benefits
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shall be in full and complete satisfaction of any and all rights which Employee
may enjoy under this Agreement and shall be the sole compensation and/or damages
payable to Employee as the result of termination of this Agreement without
cause.
(b) Early Termination By Employer For Cause. This Agreement
may be terminated for cause by Employer immediately upon written notice to
Employee, and Employee shall not be entitled to receive compensation or other
benefits for any period after termination for cause. Employee understands and
agrees that satisfactory performance of this Agreement on his part requires
conformance with the highest standards of integrity, diligence, competence,
skill, judgment and efficiency in the banking industry and that failure to
conform to such standards is cause for termination of the Agreement by Employer.
Cause for termination pursuant to this Paragraph 6(b) also includes: (1) failure
to qualify for a surety bond as provided in Paragraph 11 of this Agreement; (2)
violation of any law, rule or regulation (other than a traffic violation or
similar offense); (3) acts causing termination of Employer's Banker's Blanket
Bond with respect to Employee; (4) repeated insobriety or usage of drugs without
prescription, (5) misappropriation of Employer's property; (6) any act of
dishonesty; (7) neglect of duties or negligence in carrying out duties; (8)
repeated unexcused absence; (9) breach of any material provision of this
Agreement: and (10) any act or omission that is seriously detrimental to
Employer's interests.
(c) Early Termination By Employee. This Agreement may be
terminated by Employee upon thirty (30) days' written notice to Employer.
(d) Early Termination Upon Disability. If Employee becomes
disabled due to a physical or mental disability so that he is unable to perform
the essential functions of his position and the disability cannot be reasonably
accommodated without undue hardship, Employer may at its option terminate this
Agreement. Employee shall be entitled to the salary provided for in Paragraph 5
of this Agreement for a period of not to exceed six (6) months from the date of
Employee's first absence due to the disability, but not beyond May 21, 1999, and
to accrued but unused vacation leave. Employee's salary in the event of
disability and termination therefor shall be offset by any payments received by
Employee as a result of a disability insurance policy purchased by Employer for
Employee. All other benefits provided for under this Agreement shall cease as of
the date of termination. For purposes of this Agreement, physical or mental
disability shall mean the inability of Employee to fully perform under this
Agreement for a continuous period of ninety (90) days, as determined by a
physician in the case of physical disability, or a psychiatrist in the case of
mental disability, licensed to practice medicine in California and selected
jointly by Employer and Employee. Upon demand by Employer, Employee shall act
promptly to select such physician or psychiatrist jointly with Employer, shall
consent to undergo any reasonable examination or test and shall authorize
release of all pertinent medical records to Employer. Recurrent disabilities
will be treated as separate disabilities if they result from unrelated causes or
if they result from the same or related cause or causes and are separated by a
continuous period of at least six (6) full months during which Employee was able
to perform his duties hereunder equal to at least eighty percent (80%) of his
capacity prior to disability. Otherwise, recurrent disabilities will be treated
as a
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continuation of previous disabilities for the purpose of determining the
limitations established in this paragraph.
(e) Death During Employment. This Agreement shall terminate
immediately upon the death of Employee.
(f) Change of Control. In the event of a change in control by
merger of Employer and/or Pacific Capital Bancorp, the parent company of
Employer (hereinafter referred to as "Pacific"), into another bank and/or
holding company or other entity or by purchase of Employer and/or Pacific or the
purchase of all or substantially all of the assets of Employer and/or Pacific by
another bank and/or holding company or other person or entity, not resulting
from financial difficulties or insolvency of Employer and/or Pacific, then
Employee shall be paid two and one-half times his annual Base Salary plus Bonus
as defined in Section 5 of this Agreement for the average of the three years
immediately preceding the effective time of such change of control, which amount
shall be due and payable to Employee at the effective time of such change in
control together with any Base Salary and Bonus earned to such date.
7. Printed Material. All written or printed materials used by Employee
in performing duties for Employer are and shall remain the property of Employer.
Upon termination of employment, Employee shall promptly return such written or
printed materials to Employer.
8. Disclosure of Information. Employee recognizes and acknowledges that
Employer and Pacific possess information concerning their business affairs and
methods of operation which constitute valuable, special and unique assets of
their businesses. Employee shall not, at any time before or after termination of
this Agreement, disclose to anyone any confidential information relating to
Employer, Pacific or any affiliate of Pacific. For purpose of this paragraph,
confidential information includes all information regarding products, services,
processes, know-how, customers, suppliers, product and/or service development,
business plans, research, finances, marketing, pricing, costs and any other
proprietary matters relating to Employer, Pacific or any affiliate of Pacific.
Employee recognizes and acknowledges that all financial information concerning
any of Employer's customers is strictly confidential, and Employee shall not at
any time before or after termination of this Agreement disclose to anyone any
such financial information or any part thereof, for any reason or purpose
whatsoever.
9. Noncompetition by Employee. During the term of this Agreement,
Employee shall not, directly or indirectly, either as an employee, employer,
consultant, agent, principal, partner, stockholder, corporate officer, director,
or in any other individual or representative capacity, engage or participate in
any competing banking business; provided, however, Employee shall not be
restricted by this paragraph from owning securities of corporations listed on a
national securities exchange or regularly traded by national securities dealers,
so long as such investment does not exceed one percent (1%) of the market value
of the outstanding securities of such corporation.
10. Moral Conduct. Employee agrees to conduct himself at all times with
due regard to public conventions and morals. Employee further agrees not to do
or commit any act that will
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reasonably tend to degrade him or to bring him into public hatred, contempt or
ridicule or that will reasonably tend to shock or offend the community or to
prejudice Employer or the banking industry in general.
11. Surety Bond. Employee agrees that he will furnish all information
and take any steps necessary to enable Employer to obtain or maintain a fidelity
bond, satisfactory to Employer. conditional on the rendering of a true account
by Employee of all monies, goods or other property which may come into the
custody, charge or possession of Employee during the term of this employment.
Employer shall pay all premiums on the bond. If Employee cannot qualify for a
surety bond at any time during the term of this Agreement, Employer shall have
the option to terminate this Agreement immediately.
12. General Provisions. This Agreement is further governed by the
following provisions:
(a) Entire Agreement. This Agreement supersedes any and all
other agreements, either oral or in writing, among the parties hereto with
respect to the employment of Employee by Employer and contains all of the
covenants and agreements among the parties with respect to such employment. Each
party acknowledges that no representations, inducements, promises or agreements,
oral or otherwise, have been made by any party or anyone acting on behalf of a
party which are not embodied herein, and that no other agreement, statement,
representation, inducement or promise not contained in this Agreement shall be
valid or binding. Any modification, waiver or amendment of this Agreement will
be effective only if it is in writing and signed by the party to be charged.
(b) Waiver. Any waiver by any party of a breach of any
provision of this Agreement shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Agreement. The failure of a party to insist upon strict adherence to any
term of this Agreement on one or more occasions shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
(c) Choice of Law and Forum. This Agreement shall be governed
by and construed in accordance with the laws of the State of California, except
to the extent preempted by the laws of the United States. Any action or
proceeding brought upon or arising out of this Agreement or its termination
shall be brought in a forum located within the State of California.
(d) Binding Effect of Agreement. This Agreement shall inure to
the benefit of and be binding upon Employer, its successors and assigns,
including without limitation, any person, partnership or corporation which may
acquire all or substantially all of Employer's assets and business or with or
into which Employer or Pacific may be consolidated, merged or otherwise
reorganized, and this provision shall apply in the event of any subsequent
merger, consolidation reorganization or transfer. The provisions of this
Agreement shall be binding upon and inure to the benefit of Employee and his
heirs and personal representatives. The rights and obligations of Employee under
this Agreement shall not be transferable by Employee by
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assignment or otherwise and such rights shall not be subject to commutation,
encumbrance or the claims of Employee's creditors, and any attempt to do any of
the foregoing shall be void.
(e) Indemnification. Employer shall indemnify Employee to the
maximum extent permitted under the Bylaws of Employer and the governing laws for
any liability or loss arising out of Employee's actual or asserted misfeasance
or nonfeasance in the good faith performance of his duties or out of any actual
or asserted wrongful act against or by Employer, including, but not limited to,
judgments, fines, settlements and expenses incurred in the defense of actions,
proceedings and appeals therefrom. If available at reasonable rates, which shall
be determined by the Employer in its sole discretion, Employer shall endeavor to
apply for and obtain directors' and officers' liability insurance to indemnify
and insure Employer and Employee from such liability or loss.
(f) Severability. In the event that any term or condition
contained in this Agreement shall, for any reason be held by a court of
competent jurisdiction to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other term
or condition of this Agreement, but this Agreement shall be construed as if such
invalid or illegal or unenforceable term or condition had never been contained
herein.
(g) Headings. The headings in this Agreement are solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
(h) Notices. Any notices to be given hereunder by any party to
another party may be effected either by personal delivery, in writing or by
mail, registered or certified, postage prepaid with return receipt requested.
Mailed notices shall be addressed to the parties at the addresses indicated at
the end of this Agreement, but each party may change his or her address by
written notice in accordance with this paragraph. Notices delivered personally
shall be deemed communicated as of actual receipt; mailed notices shall be
deemed communicated as of five (5) days after mailing.
(i) Arbitration. Any controversy or claim arising out of or
relating to this Agreement or alleged breach of this Agreement, shall be settled
by arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment on the award rendered by the
arbitrators may be entered in any court having jurisdiction. There shall be
three (3) arbitrators, one (1) to be chosen directly by each party and the third
(3rd) arbitrator to be selected by the two (2) arbitrators so chosen. Each party
shall pay the fees of the arbitrator he/it selects and of his/its own attorneys,
and the expenses of his/its witnesses and all other expenses connected with
presenting his/its case. Other costs of the arbitration, including the cost of
any record or transcripts of the arbitration, administrative fees, the fee of
the third (3rd) arbitrator, and all other fees and costs shall be borne equally
by the parties.
(j) Attorneys' Fees and Costs. If any action at law or in
equity is brought by a party upon or arising out of this Agreement or its
termination, the prevailing party shall be entitled to reasonable attorneys'
fees, costs and necessary disbursements incurred in the action, in addition to
any other relief to which he may be entitled.
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IN WITNESS WHEREOF, the parties hereto have set their hands this 22nd
day of May, 1996, in the City of Salinas, County of Monterey, State of
California.
EMPLOYER: FIRST NATIONAL BANK OF CENTRAL CALIFORNIA
By: /s/ William H. Pope
-----------------------------------
Its: Executive Committee Chairman
-----------------------------------
EMPLOYEE: /s/ Clayton C. Larson
-----------------------------------------
Clayton C. Larson
2 La Pradera
Carmel, CA 93923
7
94
EMPLOYMENT AGREEMENT
This Employment Agreement (hereinafter referred to as "Agreement") is
made effective as of May 22, 1996, by and between FIRST NATIONAL BANK OF CENTRAL
CALIFORNIA (hereinafter referred to as "Employer") and D. VERNON HORTON
(hereinafter referred to as "Employee").
Employer desires to employ, as Chairman, a person of high executive
caliber with
significant prior experience in the banking services which Employer provides.
Employee being willing to be employed by Employer as Chairman, and
Employer being willing to employ Employee on the terms, covenants and conditions
hereinafter set forth, it is agreed as follows:
1. Position. Employee is hereby employed as President of Employer.
2. Employment Term. The term of this Agreement shall commence effective
May 22, 1996, and continue for three (3) years thereafter through May 21, 1999,
unless earlier terminated pursuant to Paragraph 6 below, such period being the
term of this Agreement.
3. Employee Duties. Employee shall hold and perform the customary
responsibilities and duties, of the position of Chairman as designated by the
Bylaws of Employer and as directed by Employer through its Board of Directors
(hereinafter referred to as "Board").
4. Extent of Services. Employee shall devote his full time, attention
and energies to the business of Employer, and shall not, during the term of this
Agreement, engage directly or indirectly, in any other business activity, except
personal investments, without the prior written consent of Employer.
5. Compensation and Benefits. Employee's salary shall be at the rate of
$171,254 per year, prorated for any partial year in which this Agreement is in
effect (as such may be adjusted during the term of this Agreement, the "Base
Salary"). Said salary shall be payable in equal semi-monthly installments. Any
salary increase shall be at the sole discretion of the Board. Employer agrees to
review and evaluate Employee's performance at the end of each fiscal year to
determine whether Employee should be paid a cash bonus (the "Bonus"). The amount
of such bonus, if any, will be determined in the sole discretion of the Board.
In addition, Employee shall receive the following benefits:
(a) Automobile. Employer shall provide Employee with a
full-size automobile. the make, model and equipment of which shall be determined
by Employer, solely for his use alone during the term of this Agreement.
Employer shall pay or reimburse Employee for all auto expenses incurred in the
use of said automobile by Employee in the performance of his duties under this
Agreement. Employer shall maintain an automobile liability insurance policy on
said automobile, with coverage to include Employee's operation of said
automobile and in such amounts as Employer and Employee shall agree upon.
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<PAGE>
(b) Insurance. Employer shall be a participant in such group
life insurance, health and long-term disability plans as are maintained by
Employer, at Employer's sole cost and expense. In addition, Employer shall, at
its sole cost and expense, provide Employee with a copy of standard term life
insurance in the face amount of $250,000. Employee shall have the right, in
Employee's sole discretion, to designate the beneficiary or beneficiaries of any
such insurance.
(c) Vacation. Employee shall receive four (4) weeks paid
vacation per year, pronated. for any partial calendar year in which this
Agreement is in effect, which shall be taken at such time or times as mutually
agreed upon by Employee and the Board, provided that at least two (2) weeks of
such vacation shall be taken consecutively per calendar year. Employee
acknowledges that the requirement of two (2) consecutive weeks of vacation is
required by sound banking practices.
(d) General Expenses. Employer shall, upon submission and
approval of written statements and bills in accordance with the then-regular
procedures of Employer, pay or reimburse Employee for any and all necessary,
customary and usual expenses incurred by him while traveling for or on behalf of
Employer and any and all other necessary, customary or usual expenses (including
entertainment) incurred by employee for or on behalf of Employer in the normal
course of business as determined to be appropriate by Employer.
(e) Other Benefits. In the event that Employer in the future
establishes any other benefit plan for its senior executives generally, Employee
shall be eligible to participate in such plan on the terms and conditions stated
in the legal documents for such plan.
6. Termination. This Agreement may be terminated prior to May 21, 1999,
with or without cause in accordance with this Paragraph 6(a) through 6(f). In
the event of such termination, Employee shall be released from all obligations
under this Agreement, except that Employee shall remain subject to Paragraphs 7,
8, 12 (c), 12 (i) and 12 (j), and Employer shall be released from all
obligations under this Agreement, except as otherwise provided in this Paragraph
and Paragraphs 12(c), 12(e), 12(i) and 12(j).
(a) Early Termination By Employer Without Cause. This
Agreement may be terminated without cause, for any reason whatsoever, in the
sole, absolute and unreviewable discretion of Employer, upon thirty (30) days'
written notice by Employer to Employee. If this Agreement is terminated pursuant
to this Paragraph 6(a), if the term of this Agreement is not extended upon
expiration thereof, Employee shall receive (i) the salary and insurance benefits
as provided under the terms of this Agreement for a period of six (6) months
from the date of such termination provided Employee shall, at his discretion, be
entitled to receive such salary payment in a lump sum in lieu of receiving such
salary payments over a period of six (6) months following termination; and (ii)
a bonus for the year in which the termination occurs, prorated based upon the
fraction of the calendar year Employee was employed, if, and only if, a bonus
program for that year has been established prior to such termination and such
plan provides for calculable bonuses not based on the discretion of Employer.
Such salary and insurance benefits shall be in full and complete satisfaction of
any and all rights which Employee may enjoy under
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this Agreement and shall be the sole compensation and/or damages payable to
Employee as the result of termination of this Agreement without cause.
(b) Early Termination By Employer For Cause. This Agreement
may be terminated for cause by Employer immediately upon written notice to
Employee, and Employee shall not be entitled to receive compensation or other
benefits for any period after termination for cause. Employee understands and
agrees that satisfactory performance of this Agreement on his part requires
conformance with the highest standards of integrity, diligence, competence,
skill, judgment and efficiency in the banking industry and that failure to
conform to such standards is cause for termination of the Agreement by Employer.
Cause for termination pursuant to this Paragraph 6(b) also includes: (1) failure
to qualify for a surety bond as provided in Paragraph 11 of this Agreement; (2)
violation of any law, rule or regulation (other than a traffic violation or
similar offense); (3) acts causing termination of Employer's Banker's Blanket
Bond with respect to Employee; (4) repeated insobriety or usage of drugs without
prescription; (5) misappropriation of Employer's property; (6) any act of
dishonesty; (7) neglect of duties or negligence in carrying out duties; (8)
repeated unexcused absence; (9) breach of any material provision of this
Agreement; and (10) any act or omission that is seriously detrimental to
Employer's interests.
(c) Early Termination By Employee. This Agreement may be
terminated by Employee upon thirty (30) days' written notice to Employer.
(d) Early Termination Upon Disability. If Employee becomes
disabled due to a physical or mental disability so that he is unable to perform
the essential functions of his position and the disability cannot be reasonably
accommodated without undue hardship, Employer may at its option terminate this
Agreement. Employee shall be entitled to the salary provided for in Paragraph 5
of this Agreement for a period of not to exceed six (6) months from the date of
Employee's first absence due to the disability, but not beyond May 21, 1999, and
to accrued but unused vacation leave. Employee's salary in the event of
disability and termination therefor shall be offset by any payments received by
Employee as a result of a disability insurance policy purchased by Employer for
Employee. All other benefits provided for under this Agreement shall cease as of
the date of termination. For purposes of this Agreement, physical or mental
disability shall mean the inability of Employee to fully perform under this
Agreement for a continuous period of ninety (90) days, as determined by a
physician in the case of physical disability, or a psychiatrist in the case of
mental disability, licensed to practice medicine in California and selected
jointly by Employer and Employee. Upon demand by Employer, Employee shall act
promptly to select such physician or psychiatrist jointly with Employer, shall
consent to undergo any reasonable examination or test and shall authorize
release of all pertinent medical records to Employer. Recurrent disabilities
will be treated as separate disabilities if they result from unrelated causes or
if they result from the same or related cause or causes and are separated by a
continuous period of at least six (6) full months during which Employee was able
to perform his duties hereunder equal to at least eighty percent (80%) of his
capacity prior to disability. Otherwise, recurrent disabilities will be treated
as a continuation of previous disabilities for the purpose of determining the
limitations established in this paragraph.
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(e) Death During Employment. This Agreement shall terminate
immediately upon the death of Employee.
(f) Change of Control. In the event of a change in control by
merger of Employer and/or Pacific Capital Bancorp, the parent company of
Employer (hereinafter referred to as "Pacific"), into another bank and/or
holding company or other entity or by purchase of Employer and/or Pacific or the
purchase of all or substantially all of the assets of Employer and/or Pacific by
another bank and/or holding company or other person or entity, not resulting
from financial difficulties or insolvency of Employer and/or Pacific, then
Employee shall be paid two and one-half times his annual Base Salary plus Bonus
as defined in Section 5 of this Agreement for the average of the three years
immediately preceding the effective time of such change of control, which amount
shall be due and payable to Employee at the effective time of such change in
control together with any Base Salary and Bonus earned to such date.
7. Printed Material. All written or printed materials used by Employee
in performing duties for Employer are and shall remain the property of Employer.
Upon termination of employment, Employee shall promptly return such written or
printed materials to Employer.
8. Disclosure of Information. Employee recognizes and acknowledges that
Employer and Pacific possess information concerning their business affairs and
methods of operation which constitute valuable, special and unique assets of
their businesses. Employee shall not, at any time before or after termination of
this Agreement, disclose to anyone any confidential information relating to
Employer, Pacific or any affiliate of Pacific. For purpose of this paragraph,
confidential information includes all information regarding products, services,
processes, know-how, customers, suppliers, product and/or service development,
business plans, research, finances, marketing, pricing, costs and any other
proprietary matters relating to Employer, Pacific or any affiliate of Pacific.
Employee recognizes and acknowledges that all financial information concerning
any of Employer's customers is strictly confidential, and Employee shall not at
any time before or after termination of this Agreement disclose to anyone any
such financial information or any part thereof, for any reason or purpose
whatsoever.
9. Noncompetition by Employee. During the term of this Agreement,
Employee shall not, directly or indirectly, either as an employee, employer,
consultant, agent, principal, partner, stockholder, corporate officer, director,
or in any other individual or representative capacity, engage or participate in
any competing banking business; provided, however, Employee shall not be
restricted by this paragraph from owning securities of corporations listed on a
national securities exchange or regularly traded by national securities dealers,
so long as such investment does not exceed one percent (1%) of the market value
of the outstanding securities of such corporation.
10. Moral Conduct. Employee agrees to conduct himself at all times with
due regard to public conventions and morals. Employee further agrees not to do
or commit any act that will reasonably tend to degrade him or to brine, him into
public hatred, contempt or ridicule or that
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will reasonably tend to shock or offend the community or to prejudice Employer
or the banking industry in general.
11. Surety Bond. Employee agrees that he will furnish all information
and take any steps necessary to enable Employer to obtain or maintain a fidelity
bond, satisfactory to Employer, conditional on the rendering of a true account
by Employee of all monies, goods or other property which may come into the
custody, charge or possession of Employee during the term of this employment.
Employer shall pay all premiums on the bond. If Employee cannot qualify for a
surety bond at any time during the term of this Agreement, Employer shall have
the option to terminate this Agreement immediately.
12. General Provisions. This Agreement is further governed by the
following provisions:
(a) Entire Agreement. This Agreement supersedes any and all
other agreements, either oral or in writing, among the parties hereto with
respect to the employment of Employee by Employer and contains all of the
covenants and agreements among the parties with respect to such employment. Each
party acknowledges that no representations, inducements, promises or agreements,
oral or otherwise, have been made by any party or anyone acting on behalf of a
party which are not embodied herein, and that no other agreement, statement,
representation, inducement or promise not contained in this Agreement shall be
valid or binding. Any modification, waiver or amendment of this Agreement will
be effective only if it is in writing and signed by the party to be charged.
(b) Waiver. Any waiver by any party of a breach of any
provision of this Agreement shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Agreement. The failure of a party to insist upon strict adherence to any
term of this Agreement on one or more occasions shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
(c) Choice of Law and Forum. This Agreement shall be governed
by and construed in accordance with the laws of the State of California, except
to the extent preempted by the laws of the United States. Any action or
proceeding brought upon or arising out of this Agreement or its termination
shall be brought in a forum located within the State of California.
(d) Binding Effect of Agreement. This Agreement shall inure to
the benefit of and be binding upon Employer, its successors and assigns,
including without limitation, any person, partnership or corporation which may
acquire all or substantially all of Employer's assets and business or with or
into which Employer or Pacific may be consolidated, merged or otherwise
reorganized, and this provision shall apply in the event of any subsequent
merger, consolidation, reorganization or transfer. The provisions of this
Agreement shall be binding upon and inure to the benefit of Employee and his
heirs and personal representatives. The rights and obligations of Employee under
this Agreement shall not be transferable by Employee by assignment or otherwise
and such rights shall not be subject to commutation, encumbrance or the claims
of Employee's creditors, and any attempt to do any of the foregoing shall be
void.
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(e) Indemnification. Employer shall indemnify Employee to the
maximum extent permitted under the Bylaws of Employer and the governing laws for
any liability or loss arising out of Employee's actual or asserted misfeasance
or nonfeasance in the good faith performance of his duties or out of any actual
or asserted wrongful act against or by Employer, including, but not limited to,
judgments, fines, settlements and expenses incurred in the defense of actions,
proceedings and appeals therefrom. If available at reasonable rates, which shall
be determined by the Employer in its sole discretion, Employer shall endeavor to
apply for and obtain directors' and officers' liability insurance to indemnify
and insure Employer and Employee from such liability or loss.
(f) Severability. In the event that any term or condition
contained in this Agreement shall, for any reason be held by a court of
competent jurisdiction to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other term
or condition of this Agreement, but this Agreement shall be construed as if such
invalid or illegal or unenforceable term or condition had never been contained
herein.
(g) Headings. The headings in this Agreement are solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
(h) Notices. Any notices to be given hereunder by any party to
another party may be effected either by personal delivery, in writing or by
mail, registered or certified, postage prepaid with return receipt requested.
Mailed notices shall be addressed to the parties at the addresses indicated at
the end of this Agreement, but each party may change his or her address by
written notice in accordance with this paragraph. Notices delivered personally
shall be deemed communicated as of actual receipt; mailed notices shall be
deemed communicated as of five (5) days after mailing.
(i) Arbitration. Any controversy or claim arising out of or
relating to this Agreement or alleged breach of this Agreement, shall be settled
by arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment on the award rendered by the
arbitrators may be entered in any court having jurisdiction. There shall be
three (3) arbitrators, one (1) to be chosen directly by each party and the third
(3rd) arbitrator to be selected by the two (2) arbitrators so chosen. Each party
shall pay the fees of the arbitrator he/it selects and of his/its own attorneys,
and the expenses of his/its witnesses and all other expenses connected with
presenting his/its case. Other costs of the arbitration, including the cost of
any record or transcripts of the arbitration, administrative fees, the fee of
the third (3rd) arbitrator, and all other fees and costs shall be borne equally
by the parties.
(j) Attorneys' Fees and Costs. If any action at law or in
equity is brought by a party upon or arising out of this Agreement or its
termination, the prevailing party shall be entitled to reasonable attorneys'
fees, costs and necessary disbursements incurred in the action, in addition to
any other relief to which he may be entitled.
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IN WITNESS WHEREOF, the parties hereto have set their hands this 22nd
day of June, 1996, in the City of Salinas, County of Monterey, State of
California.
EMPLOYER: FIRST NATIONAL BANK OF CENTRAL CALIFORNIA
By:/s/ William H. Pope
--------------------
Its: Executive Committee Chairman
-----------------------------
EMPLOYEE:
/s/ D. Vernon Horton
--------------------
D. Vernon Horton
19535 Redding Drive
Salinas, CA 93908
101
EMPLOYMENT AGREEMENT
This Employment Agreement (hereinafter referred to as "Agreement") is made
effective as of May 22, 1996, by and between FIRST NATIONAL BANK OF CENTRAL
CALIFORNIA (hereinafter referred to as "Employer") and DENNIS A. DeCIUS
(hereinafter referred to as "Employee").
Employer desires to employ, as Senior Vice President and Chief Financial
Officer, a person of high executive caliber with significant prior experience in
the banking services which Employer provides.
Employee being willing to be employed by Employer as Senior Vice
President and Chief Financial Officer, and Employer being willing to employ
Employee on the terms, covenants and conditions hereinafter set forth, it is
agreed as follows:
1. Position. Employee is hereby employed as Senior Vice President and
Chief Financial Officer of Employer.
2. Employment Term. The term of this Agreement shall commence effective
May 22, 1996, and continue for three (3) years thereafter through May 21, 1999,
unless earlier terminated pursuant to Paragraph 6 below, such period being the
term of this Agreement.
3. Employee Duties. Employee shall hold and perform the customary
responsibilities and duties of the position of Senior Vice President and Chief
Financial Officer as designated by the Bylaws of Employer and as directed by
Employer through its Board of Directors (hereinafter referred to as "Board").
4. Extent of Services. Employee shall devote his full time, attention
and energies to the business of Employer, and shall not, during the term of this
Agreement, engage directly or indirectly, in any other business activity, except
personal investments, without the prior written consent of Employer.
5. Compensation and Benefits. Employee's salary shall be at the rate of
$109,027 per year, prorated for any partial year in which this Agreement is in
effect (as such salary may be adjusted during the term of this Agreement, the
"Base Salary"). Said salary shall be payable in equal semi-monthly installments.
Any salary increase shall be at the sole discretion of the Board. Employer
agrees to review and evaluate Employee's performance at the end of each fiscal
year to determine whether Employee should be paid a cash bonus ("the Bonus").
The amount of such bonus, if any, will be determined in the sole discretion of
the Board. In addition, Employee shall receive the following benefits:
a) Automobile. Employer shall provide Employee with a full-size
automobile, the make, model and equipment of which shall be determined by
Employer, solely for his use alone during the term of this Agreement. Employer
shall pay or reimburse Employee for all auto expenses incurred in the use of
said automobile by Employee in the performance of his duties under this
Agreement. Employer shall maintain an automobile liability insurance policy on
said
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automobile, with coverage to include Employee's operation of said automobile and
in such amounts as Employer and Employee shall agree upon.
b) Insurance. Employer shall be a participant in such group life
insurance, health and long-term disability plans as are maintained by Employer,
at Employer's sole cost and expense. In addition, Employer shall, at its sole
cost and expense, provide Employee with a copy of standard term life insurance
in the face amount of $250,000. Employee shall have the right, in Employee's
sole discretion, to designate the beneficiary or beneficiaries of any such
insurance.
c) Vacation. Employee shall receive four (4) weeks paid vacation per
year, prorated for any partial calendar year in which this Agreement is in
effect, which shall be taken at such time or times as mutually agreed upon by
Employee and the Board, provided that at least two (2) weeks of such vacation
shall be taken consecutively per calendar year. Employee acknowledges that the
requirement of two (2) consecutive weeks of vacation is required by sound
banking practices.
d) General Expenses. Employer shall, upon submission and approval of
written statements and bills in accordance with the then-regular procedures of
Employer, pay or reimburse Employee for any and all necessary, customary and
usual expenses incurred by him while traveling for or on behalf of Employer and
any and all other necessary, customary or usual expenses (including
entertainment) incurred by employee for or on behalf of Employer in the normal
course of business as determined to be appropriate by Employer.
e) Other Benefits. In the event that Employer in the future establishes
any other benefit plan for its senior executives generally, Employee shall be
eligible to participate in such plan on the terms and conditions stated in the
legal documents for such plan.
6. Termination. This Agreement may be terminated prior to May 21, 1999,
with or without cause in accordance with this Paragraph 6(a) through 6(f). In
the event of such termination, Employee shall be released from all obligations
under this Agreement, except that Employee shall remain subject to Paragraphs 7,
8, 12(c), 12(i) and 12(j), and Employer shall be released from all obligations
under this Agreement, except as otherwise provided in this Paragraph and
Paragraphs 12(c), 12(e), 12(i) and 12(j).
a) Early Termination By Employer Without Cause. This Agreement may be
terminated without cause, for any reason whatsoever, in the sole, absolute and
unreviewable discretion of Employer, upon thirty (30) days' written notice by
Employer to Employee. If this Agreement is terminated pursuant to this Paragraph
6(a), if the term of this Agreement is not extended upon expiration thereof,
Employee shall receive (i) the salary and insurance benefits as provided under
the terms of this Agreement for a period of six (6) months from the date of such
termination provided Employee shall, at his discretion, be entitled to receive
such salary payment in a lump sum in lieu of receiving such salary payments over
a period of six (6) months following termination; and (ii) a bonus for the year
in which the termination occurs, prorated based upon the fraction of the
calendar year Employee was employed, if, and only if, a bonus program for that
year has been established prior to such termination and such plan provides for
calculable bonuses not based on the discretion of Employer. Such salary and
insurance benefits
2
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shall be in full and complete satisfaction of any and all rights which Employee
may enjoy under this Agreement and shall be the sole compensation and/or damages
payable to Employee as the result of termination of this Agreement without
cause.
b) Early Termination By Employer For Cause. This Agreement may be
terminated for cause by Employer immediately upon written notice to Employee,
and Employee shall not be entitled to receive compensation or other benefits for
any period after termination for cause. Employee understands and agrees that
satisfactory performance of this Agreement on his part requires conformance with
the highest standards of integrity, diligence, competence, skill, judgment and
efficiency in the banking industry and that failure to conform to such standards
is cause for termination of the Agreement by Employer. Cause for termination
pursuant to this Paragraph 6(b) also includes: (1) failure to qualify for a
surety bond as provided in Paragraph 11 of this Agreement; (2) violation of any
law, rule or regulation (other than a traffic violation or similar offense); (3)
acts causing termination of Employer's Banker's Blanket Bond with respect to
Employee; (4) repeated insobriety or usage of drugs without prescription; (5)
misappropriation of Employer's property; (6) any act of dishonesty; (7) neglect
of duties or negligence in carrying out duties; (8) repeated unexcused absence;
(9) breach of any material provision of this Agreement; and (10) any act or
omission that is seriously detrimental to Employer's interests.
c) Early Termination By Employee. This Agreement may be terminated by
Employee upon thirty (30) days' written notice to Employer.
d) Early Termination Upon Disability. If Employee becomes disabled due
to a physical or mental disability so that he is unable to perform the essential
functions of his position and the disability cannot be reasonably accommodated
without undue hardship, Employer may at its option terminate this Agreement.
Employee shall be entitled to the salary provided for in Paragraph 5 of this
Agreement for a period of not to exceed six (6) months from the date of
Employee's first absence due to the disability, but not beyond May 21, 1999, and
to accrued but unused vacation leave. Employee's salary in the event of
disability and termination therefor shall be offset by any payments received by
Employee as a result of a disability insurance policy purchased by Employer for
Employee. All other benefits provided for under this Agreement shall cease as of
the date of termination. For purposes of this Agreement, physical or mental
disability shall mean the inability of Employee to fully perform under this
Agreement for a continuous period of ninety (90) days, as determined by a
physician in the case of physical disability, or a psychiatrist in the case of
mental disability, licensed to practice medicine in California and selected
jointly by Employer and Employee. Upon demand by Employer, Employee shall act
promptly to select such physician or psychiatrist jointly with Employer, shall
consent to undergo any reasonable examination or test and shall authorize
release of all pertinent medical records to Employer. Recurrent disabilities
will be treated as separate disabilities if they result from unrelated causes or
if they result from the same or related cause or causes and are separated by a
continuous period of at least six (6) full months during which Employee was able
to perform his duties hereunder equal to at least eighty percent (80%) of his
capacity prior to disability. Otherwise, recurrent disabilities will be treated
as a continuation of previous disabilities for the purpose of determining the
limitations established in this paragraph.
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e) Death During Employment. This Agreement shall terminate immediately
upon the death of Employee.
f) Change of Control. In the event of a change in control by merger of
Employer and/or Pacific Capital Bancorp, the parent company of Employer
(hereinafter referred to as "Pacific"), into another bank and/or holding company
or other entity or by purchase of Employer and/or Pacific or the purchase of all
or substantially all of the assets of Employer and/or Pacific by another bank
and/or holding company or other person or entity, not resulting from financial
difficulties or insolvency of Employer and/or Pacific, then Employee shall be
paid one and one-half times his annual Base Salary plus Bonus as defined in
Section 5 of this Agreement for the average of the three years immediately
preceding the effective time of such change of control, which amount shall be
due and payable to Employee at the effective time of such change in control
together with any Base Salary and Bonus earned to such date.
7. Printed Material. All written or printed materials used by Employee
in performing duties for Employer are and shall remain the property of Employer.
Upon termination of employment, Employee shall promptly return such written or
printed materials to Employer.
8. Disclosure of Information. Employee recognizes and acknowledges that
Employer and Pacific possess information concerning their business affairs and
methods of operation which constitute valuable, special and unique assets of
their businesses. Employee shall not, at any time before or after termination of
this Agreement, disclose to anyone any confidential information relating to
Employer, Pacific or any affiliate of Pacific. For purpose of this paragraph,
confidential information includes all information regarding products, services,
processes, know-how, customers, suppliers, product and/or service development,
business plans, research, finances, marketing, pricing, costs and any other
proprietary matters relating to Employer, Pacific or any affiliate of Pacific.
Employee recognizes and acknowledges that all financial information concerning
any of Employer's customers is strictly confidential, and Employee shall not at
any time before or after termination of this Agreement disclose to anyone any
such financial information or any part thereof, for any reason or purpose
whatsoever.
9. Noncompetition by Employee. During the term of this Agreement,
Employee shall not, directly or indirectly, either as an employee, employer,
consultant, agent, principal, partner, stockholder, corporate officer, director,
or in any other individual or representative capacity, engage or participate in
any competing banking business; provided, however, Employee shall not be
restricted by this paragraph from owning securities of corporations listed on a
national securities exchange or regularly traded by national securities dealers,
so long as such investment does not exceed one percent (1%) of the market value
of the outstanding securities of such corporation.
10. Moral Conduct. Employee agrees to conduct himself at all times with
due regard to public conventions and morals. Employee further agrees not to do
or commit any act that will reasonably tend to degrade him or to bring him into
public hatred, contempt or ridicule or that
4
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will reasonably tend to shock or offend the community or to prejudice Employer
or the banking industry in general.
11. Surety Bond. Employee agrees that he will furnish all information
and take any steps necessary to enable Employer to obtain or maintain a fidelity
bond, satisfactory to Employer, conditional on the rendering of a true account
by Employee of all monies, goods or other property which may come into the
custody, charge or possession of Employee during the term of this employment.
Employer shall pay all premiums on the bond. If Employee cannot qualify for a
surety bond at any time during the term of this Agreement, Employer shall have
the option to terminate this Agreement immediately.
12. General Provisions. This Agreement is further governed by the
following provisions:
a) Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or in writing, among the parties hereto with respect to
the employment of Employee by Employer and contains all of the covenants and
agreements among the parties with respect to such employment. Each party
acknowledges that no representations, inducements, promises or agreements, oral
or otherwise, have been made by any party or anyone acting on behalf of a party
which are not embodied herein, and that no other agreement, statement,
representation, inducement or promise not contained in this Agreement shall be
valid or binding. Any modification, waiver or amendment of this Agreement will
be effective only if it is in writing and signed by the party to be charged.
b) Waiver. Any waiver by any party of a breach of any provision of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
c) Choice of Law and Forum. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, except to the
extent preempted by the laws of the United States. Any action or proceeding
brought upon or arising out of this Agreement or its termination shall be
brought in a forum located within the State of California.
d) Binding Effect of Agreement. This Agreement shall inure to the
benefit of and be binding upon Employer, its successors and assigns, including
without limitation, any person, partnership or corporation which may acquire all
or substantially all of Employer's assets and business, or with or into which
Employer or Pacific may be consolidated, merged or otherwise reorganized, and
this provision shall apply in the event of any subsequent merger, consolidation,
reorganization or transfer. The provisions of this Agreement shall be binding
upon and inure to the benefit of Employee and his heirs and personal
representatives. The rights and obligations of Employee under this Agreement
shall not be transferable by Employee by assignment or otherwise and such rights
shall not be subject to commutation, encumbrance or the claims of Employee's
creditors, and any attempt to do any of the foregoing shall be void.
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<PAGE>
e) Indemnification. Employer shall indemnify Employee to the maximum
extent permitted under the Bylaws of Employer and the governing laws for any
liability or loss arising out of Employee's actual or asserted misfeasance or
nonfeasance in the good faith performance of his duties or out of any actual or
asserted wrongful act against or by Employer, including, but not limited to,
judgments, fines, settlements and expenses incurred in the defense of actions,
proceedings and appeals therefrom. If available at reasonable rates, which shall
be determined by the Employer in its sole discretion, Employer shall endeavor to
apply for and obtain directors' and officers' liability insurance to indemnify
and insure Employer and Employee from such liability or loss.
f) Severability. In the event that any term or condition contained in
this Agreement shall, for any reason be held by a court of competent
jurisdiction to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other term or
condition of this Agreement, but this Agreement shall be construed as if such
invalid or illegal or unenforceable term or condition had never been contained
herein.
g) Headings. The headings in this Agreement are solely for convenience
of reference and shall be given no effect in the construction or interpretation
of this Agreement.
h) Notices. Any notices to be given hereunder by any party to another
party may be effected either by personal delivery, in writing or by mail,
registered or certified, postage prepaid with return receipt requested. Mailed
notices shall be addressed to the parties at the addresses indicated at the end
of this Agreement, but each party may change his or her address by written
notice in accordance with this paragraph. Notices delivered personally shall be
deemed communicated as of actual receipt; mailed notices shall be deemed
communicated as of five (5) days after mailing.
i) Arbitration. Any controversy or claim arising out of or relating to
this Agreement or alleged breach of this Agreement, shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment on the award rendered by the arbitrators
may be entered in any court having jurisdiction. There shall be three (3)
arbitrators, one (1) to be chosen directly by each party and the third (3rd)
arbitrator to be selected by the two (2) arbitrators so chosen. Each party shall
pay the fees of the arbitrator he/it selects and of his/its own attorneys, and
the expenses of his/its witnesses and all other expenses connected with
presenting his/its case. Other costs of the arbitration, including the cost of
any record or transcripts of the arbitration, administrative fees, the fee of
the third (3rd) arbitrator, and all other fees and costs shall be borne equally
by the parties.
j) Attorneys' Fees and Costs. If any action at law or in equity is
brought by a party upon or arising out of this Agreement or its termination, the
prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements incurred in the action, in addition to any other relief
to which he may be entitled.
6
107
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands this 22nd
day of May, 1996, in the City of Salinas, County of Monterey, State of
California.
EMPLOYER: FIRST NATIONAL BANK OF CENTRAL CALIFORNIA
By: /s/ William H. Pope
--------------------------------------
Its: Executive Committee Chairman
--------------------------------------
EMPLOYEE: /s/ Dennis A. DeCius
--------------------
Dennis A. DeCius
1172 S. Main, #169
Salinas, CA 93901
7
108
EMPLOYMENT AGREEMENT
This Employment Agreement (hereinafter referred to as "Agreement") is
made effective as of November 20, 1996, by and between SOUTH VALLEY NATIONAL
BANK (hereinafter referred to as "Employer") and BRAD L. SMITH (hereinafter
referred to as "Employee").
Employee being willing to be employed by Employer as President and
Chief Executive Officer, and Employer being willing to employ Employee on the
terms, covenants and conditions hereinafter set forth, it is agreed as follows:
1. Position. Employee is hereby employed as President and Chief
Executive Officer of Employer.
2. Employment Term. The term of this Agreement shall commence effective
November 20, 1996, and continue for two (2) years thereafter through November
20, 1998, unless earlier terminated pursuant to Paragraph 6 below, such period
being the term of this Agreement.
3. Employee Duties. Employee shall hold and perform the
responsibilities and duties of the position of President and Chief Executive
Officer as specified on Exhibit A attached hereto.
4. Extent of Services. Employee shall devote his full time, attention
and energies to the business of Employer, and shall not, during the term of this
Agreement, engage directly or indirectly, in any other business activity, except
personal investments, without the prior written consent of Employer.
5. Compensation and Benefits. Employee's salary shall be at the rate of
One Hundred Fifty Three Thousand, One Hundred Fifty Dollars ($153,150) per year,
prorated for any partial year in which this Agreement is in effect (as such
salary may be adjusted during the term of this Agreement, the "Base Salary").
Said salary shall be payable in equal semi-monthly installments. Any salary
increase shall be at the sole discretion of the Board. Employer agrees to review
and evaluate Employee's performance at the end of each fiscal year to determine
whether Employee should be paid a cash bonus (the "Bonus"). The amount of such
Bonus, if any, and any salary increase will be determined in the sole discretion
of Employers Board of Directors (the "Board"), subject to review and approval by
the Board of Directors of Pacific Capital Bancorp ("Pacific") or its designated
representatives. In addition, Employee shall receive the following benefits:
(a) Automobile. For one (1) year after the date hereof, Employer shall
provide Employee with a full-size automobile, the make, model and equipment of
which shall be determined by Employer, solely for his use during the term of
this Agreement. Employer shall pay or reimburse Employee for all auto expenses
incurred in the use of said automobile by Employee in the performance of his
duties under this Agreement. Employer shall maintain an
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109
<PAGE>
automobile liability insurance policy on said automobile, with coverage to
include Employee's operation of said automobile and in such amounts as Employer
and Employee shall agree upon. Upon the expiration of one (1) year after the
date hereof, Employer may, in its sole discretion, renew the benefits under this
Paragraph 5(a).
(b) Insurance. Employer shall be a participant in such group life
insurance, health and long-term disability plans as are maintained by Employer,
at Employer's sole cost and expense. In addition, for one (1) year after the
date hereof Employer shall, at its sole cost and expense, provide Employee with
a copy of standard term life insurance in the face amount of Six Hundred Fifty
Thousand Dollars ($650,000). Employee shall have the right, in Employee's sole
discretion, to designate the beneficiary or beneficiaries of any such insurance.
Upon the expiration of one (1) year after the date hereof, Employer may, in its
sole discretion, continue providing such life insurance to Employer under this
Paragraph 5(b).
(c) Vacation. Employee shall receive four (4) weeks paid vacation per
year, prorated for any partial calendar year in which this Agreement is in
effect, which shall be taken at such time or times as mutually agreed upon by
Employee and the Board, provided that at least two (2) weeks of such vacation
shall be taken consecutively per calendar year. Employee acknowledges that the
requirement of two (2) consecutive weeks of vacation is required by sound
banking practices.
(d) General Expenses. Employer shall, upon submission and approval of
written statements and bills in accordance with the then-regular procedures of
Employer, pay or reimburse Employee for any and all necessary, customary and
usual expenses incurred by him while traveling for or on behalf of Employer and
any and all other necessary, customary or usual expenses (including
entertainment) incurred by employee for or on behalf of Employer in the normal
course of business as determined to be appropriate by Employer.
6. Termination. This Agreement may be terminated prior to November 20,
1998, with or without cause in accordance with this Paragraph 6(a) through 6(c).
In the event of such termination, Employee shall be released from all
obligations under this Agreement, except that Employee shall remain subject to
Paragraphs 7, 8, 12(c), 12(i), and 13, and Employer shall be released from all
obligations under this Agreement, except as otherwise provided in this Paragraph
and Paragraphs 12(c), 12(e), and 12(i).
(a) Early Termination By Employer Without Cause. This Agreement may be
terminated without cause, for any reason whatsoever, in the sole, absolute and
unreviewable discretion of Employer, upon thirty (30) days' written notice by
Employer to Employee. If this Agreement is terminated pursuant to this Paragraph
6(a). Employee shall be entitled to receive two (2) times Employee's average
annual compensation for the five (5) years immediately preceding the date of
this Agreement, payable in bi-monthly installments on the first and fifteenth
days of each month. Such payment shall be in full and complete satisfaction of
any and all rights which Employee may enjoy under this Agreement and shall be
the sole compensation and/or damages payable to Employee as the result of
termination of this Agreement without cause. All other benefits and rights due
to Employee under this Agreement shall immediately
2
110
<PAGE>
cease upon such payment. Employee acknowledges and agrees that such payment is
in lieu of all damages, payments and liabilities under this Agreement and shall
constitute Employee's sole and exclusive remedy hereunder.
(b) Early Termination By Employer For Cause. This Agreement may be
terminated for cause by Employer immediately upon written notice to Employee,
and Employee shall not be entitled to receive compensation or other benefits for
any period after termination for cause. Employee understands and agrees that
satisfactory performance of this Agreement on his part requires conformance with
the highest standards of integrity, diligence, competence, skill, judgment and
efficiency in the banking industry and that failure to conform to such standards
is cause for termination of the Agreement by Employer. Cause for termination
pursuant to this Paragraph 6(b) also includes: (1) failure to qualify for a
surety bond as provided in Paragraph 11 of this Agreement; (2) violation of any
law, rule or regulation (other than a traffic violation or similar offense); (3)
acts causing termination of Employer's Banker's Blanket Bond with respect to
Employee; (4) repeated insobriety or usage of drugs without prescription; (5)
misappropriation of Employer's property; (6) any act of dishonesty; (7) neglect
of duties or negligence in carrying out duties; (8) repeated unexcused absence;
(9) breach of any material provision of this Agreement: and (10) any act or
omission that is seriously detrimental to Employer's interests.
(c) Early Termination By Employee. This Agreement may be terminated by
Employee upon thirty (30) days' written notice to Employer and shall terminate
immediately upon the death of Employee. If this Agreement is terminated pursuant
to this Paragraph 6(c), Employee shall be entitled to receive two (2) times
Employee's average annual compensation for the five (5) years immediately
preceding the date of this Agreement, payable in bi-monthly installments on the
first and fifteenth days of each month. All other benefits and rights due to
Employee under this Agreement shall immediately cease upon such payment.
Employee acknowledges and agrees that such payment is in lieu of all damages,
payments and liabilities under this Agreement and shall constitute Employee's
sole and exclusive remedy hereunder.
7. Printed Material. All written or printed materials used by Employee
in performing duties for Employer are and shall remain the property of Employer.
Upon termination of employment, Employee shall promptly return such written or
printed materials to Employer.
8. Disclosure of Information. Employee recognizes and acknowledges that
Employer, Pacific and their affiliates possess information concerning their
business affairs and methods of operation which constitute valuable, special and
unique assets of their businesses. Employee shall not, at any time before or
after termination of this Agreement, disclose to anyone any confidential
information relating to Employer, Pacific or any affiliate of Pacific. For
purpose of this paragraph, confidential information includes all information
regarding products, services, processes, know-how, customers, suppliers, product
and/or service development, business plans, research, finances, marketing,
pricing, costs and any other proprietary matters relating to Employer, Pacific
or any affiliate of Pacific. Employee recognizes and acknowledges that all
financial information concerning any of Employer's customers is strictly
confidential, and
3
111
<PAGE>
Employee shall not at any time before or after termination of this Agreement
disclose to anyone any such financial information or any part thereof, for any
reason or purpose whatsoever.
9. Noncompetition by Employee. During the term of this Agreement,
Employee shall not, directly or indirectly, either as an employee, employer,
consultant, agent, principal, partner, stockholder, corporate officer, director,
or in any other individual or representative capacity, engage or participate in
any competing banking business; provided, however, Employee shall not be
restricted by this paragraph from owning securities of corporations listed on a
national securities exchange or regularly traded by national securities dealers,
so long as such investment does not exceed one percent (1%) of the market value
of the outstanding securities of such corporation.
10. Moral Conduct. Employee agrees to conduct himself at all times with
due regard to public conventions and morals. Employee further agrees not to do
or commit any act that will reasonably tend to degrade him or to bring him into
public hatred, contempt or ridicule or that will reasonably tend to shock or
offend the community or to prejudice Employer or the banking industry in
general.
11. Surety Bond. Employee agrees that he will furnish all information
and take any steps necessary to enable Employer to obtain or maintain a fidelity
bond, satisfactory to Employer. conditional on the rendering of a true account
by Employee of all monies, goods or other property which may come into the
custody, charge or possession of Employee during the term of this employment.
Employer shall pay all premiums on the bond. If Employee cannot qualify for a
surety bond at any time during the term of this Agreement, Employer shall have
the option to terminate this Agreement immediately.
12. General Provisions. This Agreement is further governed by the
following provisions:
(a) Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or in writing, among the parties hereto with respect to
the employment of Employee by Employer and contains all of the covenants and
agreements among the parties with respect to such employment. Each party
acknowledges that no representations, inducements, promises or agreements, oral
or otherwise, have been made by any party or anyone acting on behalf of a party
which are not embodied herein, and that no other agreement, statement,
representation, inducement or promise not contained in this Agreement shall be
valid or binding. Any modification, waiver or amendment of this Agreement will
be effective only if it is in writing and signed by the party to be charged.
(b) Waiver. Any waiver by any party of a breach of any provision of
this Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
4
112
<PAGE>
(c) Choice of Law and Forum. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, except to the
extent preempted by the laws of the United States. Any action or proceeding
brought upon or arising out of this Agreement or its termination shall be
brought in a forum located within the State of California.
(d) Binding Effect of Agreement. This Agreement shall inure to the
benefit of and be binding upon Employer, its successors and assigns, including
without limitation, any person, partnership or corporation which may acquire all
or substantially all of Employer's assets and business or with or into which
Employer or Pacific may be consolidated, merged or otherwise reorganized, and
this provision shall apply in the event of any subsequent merger, consolidation
reorganization or transfer. The provisions of this Agreement shall be binding
upon and inure to the benefit of Employee and his heirs and personal
representatives. The rights and obligations of Employee under this Agreement
shall not be transferable by Employee by assignment or otherwise and such rights
shall not be subject to commutation, encumbrance or the claims of Employee's
creditors, and any attempt to do any of the foregoing shall be void.
(e) Indemnification. Employer shall indemnify Employee to the maximum
extent permitted under the Bylaws of Employer and the governing laws for any
liability or loss arising out of Employee's actual or asserted misfeasance or
nonfeasance in the good faith performance of his duties or out of any actual or
asserted wrongful act against or by Employer, including, but not limited to,
judgments, fines, settlements and expenses incurred in the defense of actions,
proceedings and appeals therefrom. If available at reasonable rates, which shall
be determined by the Employer in its sole discretion, Employer shall endeavor to
apply for and obtain directors' and officers' liability insurance to indemnify
and insure Employer and Employee from such liability or loss.
(f) Severability. In the event that any term or condition contained in
this Agreement shall, for any reason be held by a court of competent
jurisdiction to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other term or
condition of this Agreement, but this Agreement shall be construed as if such
invalid or illegal or unenforceable term or condition had never been contained
herein.
(g) Headings. The headings in this Agreement are solely for convenience
of reference and shall be given no effect in the construction or interpretation
of this Agreement.
(h) Notices. Any notices to be given hereunder by any party to another
party may be effected either by personal delivery, in writing or by mail,
registered or certified, postage prepaid with return receipt requested. Mailed
notices shall be addressed to the parties at the addresses indicated at the end
of this Agreement, but each party may change his or her address by written
notice in accordance with this paragraph. Notices delivered personally shall be
deemed communicated as of actual receipt; mailed notices shall be deemed
communicated as of five (5) days after mailing.
(i) Arbitration. Any controversy or claim arising out of or relating to
this Agreement or alleged breach of this Agreement, shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment on the
5
113
<PAGE>
award rendered by the arbitrators may be entered in any court having
jurisdiction. There shall be three (3) arbitrators, one (1) to be chosen
directly by each party and the third (3rd) arbitrator to be selected by the two
(2) arbitrators so chosen. Each party shall pay the fees of the arbitrator he/it
selects and of his/its own attorneys, and the expenses of his/its witnesses and
all other expenses connected with presenting his/its case. Other costs of the
arbitration, including the cost of any record or transcripts of the arbitration,
administrative fees, the fee of the third (3rd) arbitrator, and all other fees
and costs shall be borne equally by the parties. The substantially prevailing
party in any such arbitration shall be entitled to reasonable attorneys' fees,
costs and necessary disbursements incurred therein, in addition to any other
relief to which he may be entitled.
13. Indemnification for Negligence or Misconduct. Employee shall
indemnify and hold Employer harmless from all liability for loss, damage or
injury to persons or property resulting from the gross negligence or intentional
conduct of the Employee.
IN WITNESS WHEREOF, the parties hereto have set their hands this 20th
day of November, 1996, in the City of , County of , State of California.
EMPLOYER: SOUTH VALLEY NATIONAL BANK
By: /s/ Clayton C. Larson
---------------------
Its:Vice Chairman
-------------
EMPLOYEE:
/s/ Brad L. Smith
-----------------
Brad L. Smith
6
114
EXHIBIT 21
SUBSIDIARIES OF PACIFIC CAPITAL BANCORP
Name State of Incorporation
- -------------------------------------------- --------------------------------
First National Bank of Central California California
South Valley National Bank California
Pacific Capital Services Corporation California
Exhibit 22
KPMG Peat Marwick LLP
The Board of Directors
Pacific Capital Bancorp:
We have audited the accompanying consolidated balance sheets of Pacific
Capital Bancorp and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements 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
misstatements. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pacific
Capital Bancorp and subsidiaries at December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
- -------------------------
January 24, 1997
65
KPMG Peat Marwick LLP
50 West San Fernando Street
San Jose, CA 95113
Consent of Independent Auditors
-------------------------------
The Board of Directors
Pacific Capital Bancorp:
We consent to incorporation by reference in the registration statement No.
33-83848 on Form S-8 of Pacific Capital Bancorp and subsidiaries of our report
dated January 24, 1997, relating to the consolidated balance sheets of Pacific
Capital Bancorp and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1996, which
report appears in the December 31, 1996 annual report on Form 10-K of Pacific
Capital Bancorp and subsidiaries.
/s/ KPMG Peat Marwick LLP
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996
<CASH> 24,891 48,126
<INT-BEARING-DEPOSITS> 1,287 693
<FED-FUNDS-SOLD> 10,326 14,910
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 75,896 116,528
<INVESTMENTS-CARRYING> 8,596 9,680
<INVESTMENTS-MARKET> 8,662 9,741
<LOANS> 215,220 388,728
<ALLOWANCE> 2,397 3,672
<TOTAL-ASSETS> 353,579 619,439
<DEPOSITS> 307,819 547,182
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 2,784 8,611
<LONG-TERM> 0 0
<COMMON> 31,325 49,388
0 0
0 0
<OTHER-SE> 11,741 14,258
<TOTAL-LIABILITIES-AND-EQUITY> 353,579 619,439
<INTEREST-LOAN> 20,461 33,845
<INTEREST-INVEST> 5,305 10,113
<INTEREST-OTHER> 79 0
<INTEREST-TOTAL> 25,845 43,958
<INTEREST-DEPOSIT> 7,029 13,292
<INTEREST-EXPENSE> 7,029 13,319
<INTEREST-INCOME-NET> 18,816 30,639
<LOAN-LOSSES> 135 685
<SECURITIES-GAINS> (73) (46)
<EXPENSE-OTHER> 10,394 22,727
<INCOME-PRETAX> 8,214 10,387
<INCOME-PRE-EXTRAORDINARY> 8,214 10,387
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,034 6,039
<EPS-PRIMARY> 2 0
<EPS-DILUTED> 2 0
<YIELD-ACTUAL> 9 0
<LOANS-NON> 993 1,564
<LOANS-PAST> 141 17
<LOANS-TROUBLED> 0 279
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 2,438 3,710
<CHARGE-OFFS> 321 1,070
<RECOVERIES> 145 347
<ALLOWANCE-CLOSE> 2,397 3,672
<ALLOWANCE-DOMESTIC> 2,397 3,672
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
