-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JP6HB0jBvAirNgNrdIAxDV3eqe7Cl3PRLDwlSIRMWjBzdrSoNbxi3iGIZ8Uw75+5 VqV+Y0iLr64n4faEcS2W0g== 0000731805-96-000003.txt : 19960508 0000731805-96-000003.hdr.sgml : 19960508 ACCESSION NUMBER: 0000731805-96-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960507 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PACIFIC CAPITAL BANCORP CENTRAL INDEX KEY: 0000731805 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 770003875 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13528 FILM NUMBER: 96557083 BUSINESS ADDRESS: STREET 1: 307 MAIN STREET STREET 2: P O BOX 1786 CITY: SALINAS STATE: CA ZIP: 93901 BUSINESS PHONE: 4087574900 MAIL ADDRESS: STREET 1: P O BOX 1786 STREET 2: 307 MAIN ST CITY: SALINAS STATE: CA ZIP: 93902-1786 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC. 20549 (Mark One) ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to _____________________. Commission File Number 0-13528 Pacific Capital Bancorp (Exact name of registrant as specified in its charter) California 77-0003875 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1001 S. Main Street, Salinas, California 93901 (Address of principal executive offices) (Zip Code) (408) 757-4900 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at Class April 25, 1996 Common stock, no par value 2,600,863 Shares This report contains a total of 18 pages. PART I - FINANCIAL INFORMATION ITEM 1 PAGE PACIFIC CAPITAL BANCORP AND SUBSIDIARIES FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS 3 CONSOLIDATED STATEMENTS OF INCOME 4 CONSOLIDATED STATEMENTS OF CASH FLOWS 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8 - 16 PART II - OTHER INFORMATION ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 17 SIGNATURES 18 PART I - FINANCIAL INFORMATION PACIFIC CAPITAL BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AMOUNTS) March 31, December 31, Assets 1996 1995 Cash and due from banks $20,819 $24,891 Federal funds sold and other short term 24,800 17,007 investments Total cash and equivalents 45,619 41,898 Investment securities: Available-for-sale securities, at fair value 75,834 75,896 Held-to-maturity securities, at amortized cost (fair value of $8,133 and $8,662, 8,108 8,596 respectively) Loans available for sale at cost, which 4,131 3,876 approximates market Loans: Commercial 49,962 49,862 Consumer 12,428 12,108 Real estate - mortgage 131,814 126,048 Real estate - construction 17,005 17,071 Bankers' acceptances & commercial paper 220 - Other 8,668 6,501 Less deferred loan fees (275) (246) Total loans 219,822 211,344 Less allowance for possible loan losses (2,375) (2,397) Net loans 217,447 208,947 Premises and equipment, net 8,368 7,523 Accrued interest receivable and other, net 7,399 6,843 Total assets $366,906 $353,579 Liabilities and shareholders' equity Deposits: Demand, non-interest bearing $65,083 $71,988 Demand, interest bearing 53,803 56,527 Savings and money market 104,503 97,087 Time certificates 97,228 82,217 Total deposits 320,617 307,819 Accrued interest payable and other liabilities 2,893 2,784 Total liabilities 323,510 310,603 Shareholders' equity: Preferred stock; 20,000,000 shares authorized - - and unissued Common stock, no par value; 20,000,000 shares authorized; 2,600,863 and 2,603,839 shares issued and outstanding at March 31, 1996 and December 31, 1995, respectively 31,179 31,235 Retained earnings 12,388 11,435 Net unrealized (losses) gains on available-for- (171) 306 sale securities Total shareholders' equity 43,396 42,976 Total liabilities and shareholders' equity $366,906 $353,579 See accompanying notes to consolidated financial statements PACIFIC CAPITAL BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) Three months Three months ended ended March 31, March 31, 1996 1995 Interest income: Interest and fees on loans $5,313 $5,020 Interest on investment securities 1,178 927 Interest on federal funds sold 369 175 Total interest income 6,860 6,122 Interest expense: Demand, interest bearing 137 138 Savings 680 707 Time certificates 1,262 616 Total interest expense 2,079 1,461 Net interest income 4,781 4,661 Provision for possible loan losses - - Net interest income after provision for 4,781 4,661 possible loan losses Other income: Service charges 342 352 Gain on sale of loans 9 3 Mortgage banking fees 47 19 Net gain (loss) on securities transactions 12 (11) Other 98 88 Total other income 508 451 Other expenses: Salaries and benefits 1,792 1,604 Occupancy 364 319 Equipment 255 240 Advertising and promotion 111 98 Stationary and supplies 72 77 Legal and professional fees 129 135 Regulatory assessments 22 188 Other operating 343 368 Total other expenses 3,088 3,029 Earnings before income taxes 2,201 2,083 Income taxes 857 799 Net income $1,344 $1,284 Net income per share $0.49 $0.49 Weighted average shares outstanding 2,726,863 2,646,436 See accompanying notes to consolidated financial statements PACIFIC CAPITAL BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 1996 and March 31, 1995 (UNAUDITED) (IN THOUSANDS) March 31, March 31, 1996 1995 Cash flows from operating activities: Net income $1,344 $1,284 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 275 161 Provision for possible loan losses - - Loss (gain) on sale of investment (12) 11 securities, net Net originations of loans held for sale (255) (259) Gain on sale of loans (9) (3) Deferral of loan origination fees 2 4 Change in accrued interest receivable and (1,033) 400 other assets Change in accrued interest payable and 118 375 other liabilities Net cash provided by operating activities 430 1,973 Investing activities: Net change in loans (8,502) 3,045 Maturities of investment securities 703 3,373 Purchases of investment securities (14,854) - Proceeds from sale of available-for-sale 14,646 10,880 securities Capital expenditures, net (1,053) (149) Net cash (used in) provided by investing (9,060) 17,149 activities Financing activities: Net increase (decrease) in deposits 12,798 (25,154) Cash paid for retirement of stock (60) - Proceeds from exercise of options 4 141 Cash paid for dividends (391) (310) Net cash provided by (used in) financing 12,351 (25,323) activities Net increase (decrease) in cash and 3,721 (6,201) equivalents Cash and equivalents beginning of period 41,898 42,262 Cash and equivalents at end of period $45,619 $36,061 Supplemental disclosures of cash flow information: Cash paid during the period Interest 2,993 1,549 Income taxes 282 350 See accompanying notes to consolidated financial statements PACIFIC CAPITAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1 - Basis of Presentation In the opinion of the Company, the unaudited consolidated financial statements, prepared on the accrual basis of accounting, contain all adjustments (consisting of only normal recurring adjustments) which are necessary to present fairly the financial position of the Company and subsidiaries at March 31, 1996 and December 31, 1995, the results of its operations and the statements of cash flows for the periods ended March 31, 1996 and 1995. Certain information and footnote disclosures normally presented in financial statements prepared in accordance with generally accepted accounting principles have been omitted. The results of operations for the period ended March 31, 1996 are not necessarily indicative of the operating results for the full year ending December 31, 1996. 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. Those plans include all arrangements by which employees receive shares of stock or other equity instruments of the employer or the employer incurs liabilities to employees in amounts based on the price of the employer's stock. Examples are stock options, restricted stock, and stock appreciation rights. 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. SFAS No. 123 encourages but does not require employers to adopt the new method in place of the provisions of Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees. This statement applies to fiscal years beginning after December 15, 1995. On January 1, 1996, the Company adopted SFAS No. 123 and has elected to use the method prescribed in APB No. 25. The Company and does not anticipate that the required disclosures will have a material impact on the financial condition or results of operations of the Company. Note 2 - Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, First National Bank of Central California, (the "Bank"), and Pacific Capital Services Corporation, an inactive subsidiary. All material intercompany accounts and transactions have been eliminated in consolidation. Note 3 - Loans to Directors In the ordinary course of business, the Company has made loans to directors of the Company which at March 31, 1996 amounted to approximately $4,308,000. Note 4 - Commitments The Company had outstanding standby letters of credit of approximately $1,371,000 at March 31, 1996. Note 5 - Net Income Per Share and Dividends Net income per share is computed using the weighted average number of shares of common and common equivalent shares outstanding (as adjusted retroactively to reflect the 5% stock dividend paid on December 1, 1995). On January 23, 1996, the Company declared a $ 0.15 per share cash dividend to shareholders of record on March 15, 1996, payable March 29, 1996. Note 6 - Taxes As of March 31, 1996, the Company has a deferred tax asset of approximately $1,909,000. The asset results primarily from the provisions for possible loan losses and depreciation of premises and equipment, which are recognized in the financial statements but are not yet deductible for income tax reporting purposes. Management of the Company believes that the net deferred tax asset is fully realizable through sufficient taxable income within carryback periods and current year taxable income. PACIFIC CAPITAL BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview of Changes in the Financial Statements Net income for the three months ended March 31, 1996 was $1,344,000 or $0.49 per share compared to $1,284,000 or $0.49 per share during the same period in 1995. This 4.7% increase in net income is due mainly to a $120,000 increase in net interest income combined with a $166,000 decrease in the Company's FDIC Assessment. These items were partially offset by a $188,000 increase in salaries and benefits. The increase in net interest income is due to growth in average total deposits of $31,844,000 and growth in average total loans of $14,932,000 as compared to the same 1995 period. The Company's FDIC Premium has been reduced to an annual amount of $2,000 due to the recapitalization of the Bank Insurance Fund which occurred in May of 1995. Outstanding loans were $219,822,000 at March 31, 1996 compared to $211,344,000 at December 31, 1995, a $8,478,000 or 4.0% increase. The increase in outstanding loans from December 31, 1995 to March 31, 1996 resulted primarily from an increase in real estate mortgage loans of $5,766,000 and an increase in tax-exempt municipal leases of $2,664,000. Federal Funds Sold and Investment Securities at March 31, 1996 were $108,742,000, a $7,243,000 or 7.1% increase from December 31, 1995. This was primarily due to the increase in total deposits which resulted in an increase in cash invested in Federal Funds and investment securities. The Company's total deposits at March 31, 1996 were $320,617,000 compared to $307,819,000 at December 31, 1995, a $12,798,000 or 4.2% increase. Non- interest bearing demand deposits decreased $6,905,000, interest bearing demand deposits decreased $2,724,000 and savings and money market deposit accounts increased $7,416,000 in the first three months of 1996. Certificates of deposit increased by $15,011,000 or 18.3% during the first three months of 1996. Management believes that the growth in deposits is a result of the recent strength in the tourism and agribusiness industries within the local economies in which the Company operates. The loan to deposit ratio at March 31, 1996 was 68.6% and is the same as the ratio at December 31, 1995. The Company's total assets as of March 31, 1996 increased 3.8% compared to year end 1995. Loans Outstanding total loans averaged $216,551,000 for the period ended March 31, 1996 compared to $201,619,000 for the period ended March 31, 1995, an increase of $14,932,000, or 7.4%. This increase in loans is due to increased loan demand from qualified borrowers and is reflective of the relatively strong economy in most of the primary markets which the Company serves. The Company lends primarily to small and medium sized businesses within its markets, which are comprised principally of the Salinas, Watsonville, Monterey and Carmel areas. A majority of the Company's loan portfolio consists of loans secured by commercial, industrial and residential real estate. Quality of Loans The Company follows the policy of discontinuing the accrual of interest income and reversing any accrued and unpaid interest when the payment of principal or interest is 90 days past due unless the loan is both well-secured and in the process of collection. The composition of non-performing loans as of March 31, 1996, December 31, 1995, and March 31, 1995 is summarized in the following table. Nonperforming Loans (Dollars in Thousands) March 31, December 31, March 31, 1996 1995 1995 Accruing loans past due 90 days or more Commercial $ 3 $ 0 $ 0 Consumer 0 1 0 Real Estate 397 140 0 Total $400 $141 $ 0 Nonaccrual loans Commercial 259 110 484 Consumer 118 136 155 Real Estate 561 747 1,037 Total $938 $993 $1,676 Total Nonperforming Loans $1,338 $1,134 $1,676 Nonperforming Loans To Total Loans 0.61% 0.54% 0.85% Allowance For Possible Loan Losses To Total Non Performing Loans 177.50% 211.38% 138.78% The Company does not expect to sustain losses from any of the Non- Performing Loans in excess of that specifically provided for in the allowance for possible loan losses. In addition to the above, the Company holds four Other Real Estate Owned (OREO) properties, which aggregate $797,000. In all cases, the amount recorded represented the lesser of the loan balance or current fair value obtained from a current appraisal less anticipated selling costs; therefore, any identified loss has already been recognized. Inherent in the lending function is the fact that loan losses will be experienced and that the risk of loss will vary with the type of loan extended and the creditworthiness of the borrower. To reflect the estimated risks of loss associated with its loan portfolio, additions are made to the Company's allowance for possible loan losses. As an integral part of this process, the allowance for possible loan losses is subject to review and possible adjustment as a result of management's assessment of risk or regulatory examinations conducted by governmental agencies. The Company's entire allowance is a valuation allocation created by direct charges against operations through the provision for possible loan losses. The provision for possible loan losses charged against operations is based upon the actual net loan losses incurred plus an amount for other factors which, in management's judgment, deserve recognition in estimating possible loan losses. The Company evaluates the adequacy of its allowance for possible loan losses on a quarterly basis. For the last several years, the Company has also contracted with an independent loan review consulting firm to evaluate overall credit quality and the adequacy of the allowance for possible loan losses. Both internal and external evaluations take into account the following: specific loan conditions as determined by management; the historical relationship between charge-offs and the level of the allowance; the estimated future loss in all significant loans; known deterioration in concentrations of credit, certain classes of loans or pledged collateral; historical loss experience based on volume and types of loans; the results of any independent review or evaluation of the loan portfolio quality conducted by or at the direction of Company management or by bank regulatory agencies; trends in portfolio volume, maturity and composition; off-balance sheet credit risk; volume and trends in delinquencies and nonaccruals; lending policies and procedures including those for charge-off, collection and recovery; national and local economic conditions and their affects on specific local industries; and the experience, ability and depth of lending management and staff. These factors are essentially judgmental and may not be reduced to a mathematical formula. The Company closely monitors the local markets in which it conducts its lending activities. The overall increase in loan demand from qualified borrowers during the past year is indicative of a stabilizing economic climate. The following table sets forth the actual loan losses and provision for possible losses for the periods ended March 31, 1996, December 31, 1995, and March 31, 1995. Charge-Off/Recovery Activity (Dollars in Thousands) Three months Year Three months Ended Ended Ended March 31, 1996 December 31,1995 March 31, 1995 Total Loans Outstanding $219,822 $211,344 $197,619 Average Net Loans $216,551 $201,360 $201,619 Allowance Balance Beginning Of Period 2,397 2,438 2,438 Charge-Offs By Loan Category Commercial 0 129 18 Consumer 51 61 30 Real Estate 0 131 97 Other 0 0 0 Total $ 51 $ 321 $ 145 Recoveries By Loan Category Commercial 0 58 14 Consumer 17 38 12 Real Estate 12 49 7 Other 0 0 0 Total $ 29 $ 145 $ 33 Net Charge-Offs $ 22 $ 176 $ 112 Provision Charged To Expense $0 $135 $0 Allowance Balance End Of Period $ 2,375 $ 2,397 $ 2,326 Allowance For Possible Loan Losses To Total Loans 1.08% 1.13% 1.18% Annualized Net Charge- Offs To Average Loans 0.04% 0.09% 0.22% The Company did not provide an additional provision to the allowance for possible loan losses for the three months ended March 31, 1996, or March 31, 1995, primarily due to the Company's recognition of a stabilization of the local economy, resulting in a lower level of classified loans and the reduced potential of future charge-offs. The provision for possible loan losses charged against earnings is based upon an analysis of the actual migration of loans to losses plus an amount for other factors which, in management's judgment, deserve recognition in estimating possible loan losses. While these factors cannot be reduced to a mathematical formula, it is management's view that the allowance for possible loan losses of $2,375,000 or 1.08% of total loans was adequate as of March 31, 1996. Results of Operations Three months Ended March 31, 1996 Compared with Three months Ended March 31, 1995 Net income of $1,344,000 for the three months ended March 31, 1996 increased by $60,000 or 4.7% as compared to the same 1995 period. The increase in net income for the period was due primarily to an increase in net interest income of $120,000 as well as a decrease in FDIC assessments of $166,000 offset by an increase in salaries and benefits of $188,000. The increase in net interest income is due to growth in average total deposits of $31,844,000 and growth in average total loans of $14,932,000 as compared to the same 1995 period. The average balance of interest earning assets during the three months ended March 31, 1996 was $327,168,000, a $36,821,000 or 12.7% increase over the comparable 1995 period. The Company's average yield on earning assets for the three months ended March 31, 1996 decreased to 8.5% compared to 8.6% during the comparable period in 1995. Total interest income increased $738,000 or 12.1% for the three months ended March 31, 1996 compared to the same 1995 period due to an increase in average interest earning assets of $36,821,000. Average deposits for the Company for the three months ended March 31, 1996 were $316,004,000, a $31,844,000 or 11.2% increase compared to the period ended March 31, 1995. The Company's average cost of funds for the three months ended March 31, 1996 was 3.4% which yielded a net interest margin of 5.9%. This compares to an average cost of funds of 2.7% and a net interest margin of 6.5% for the comparable 1995 period. Interest expense of $2,079,000 for the three months ended March 31, 1996 was $618,000 or 42.3% over the comparable 1995 period due to an increase in average interest bearing deposits of $28,692,000 and an increase in the average rate paid on deposits of 0.7%. Net interest income for the three months ended March 31, 1996 increased $120,000 or 2.6% and resulted from the increase of $738,000 in total interest income and an increase of $618,000 in total interest expense. The Company did not make any additional provisions to the allowance for possible loan loss for the three months ended March 31, 1996 or for the same period in 1995. The analysis of the loan portfolio completed by the Company indicates that the current allowance for loan losses is adequate based on the Company's calculated provision requirements. Total loans charged-off net of recoveries for the three months ended March 31, 1996 amounted to $22,000 compared to $112,000 net of recoveries for the same period in 1995. Annualized net loan charge-offs as a percentage of average loans for the three months ended March 31, 1996 was 0.04% compared to 0.22% for the three months ended March 31, 1995 and .09% for the year ended December 31, 1995. Total other income was $508,000 for the three months ended March 31, 1996, a $57,000 or 12.6% increase compared to the same period of 1995. Mortgage banking fees increased $28,000 from the three months ended March 31, 1995 due to higher levels of mortgage refinancings compared to 1995. Net gains on securities transactions was $12,000 compared to a net loss of $11,000 for the three months ended March 31, 1995. Other variances include service charges which decreased by $10,000 from the first quarter of 1995 and other income which increased by $10,000 over 1995. Salaries and benefits expense for the three months ended March 31, 1996 was $1,792,000, a $188,000 or 11.7% increase over the comparable 1995 period. This variance resulted primarily from normal salary increases, an increase in health insurance premiums, and an increase in the Company's contributions to the Bonus and Employee Stock Ownership Program. The Company employed 164 full time equivalent employees at March 31, 1996 compared to 165 full time equivalent employees at December 31, 1995 and 159 full time equivalent employees at March 31, 1995. Total other expenses, excluding salaries and benefits, for the three months ended March 31, 1996, was $1,296,000, a $129,000 or 9.1% decrease from the comparable 1995 period. This decrease was primarily the result of the decrease in the Company's FDIC Assessment of $166,000 from the first quarter of 1996 compared to the same period in 1995. In addition, occupancy expense increased by $45,000 due to normal rental rate increases and the use of temporary facilities for the Company's Salinas branch while remodeling takes place on the Salinas Main Branch. Other variances include equipment expense which increased $15,000 and other expense which decreased by $25,000. Applicable income taxes of $857,000 for the three months ended March 31, 1996 were $58,000, or 7.3% more than the comparable 1995 period. The Company's effective tax rate for the three months ended March 31, 1996 was 38.9% compared to 38.4% for the same period in 1995. Liquidity Management Liquidity represents the ability of the Company to meet the requirements of customer borrowing needs as well as fluctuations in deposit flows. Core deposits, which include demand, savings and interest bearing demand accounts, money market accounts and time deposits of less than $100,000, provide a relatively stable funding base. Core deposits averaged $165,346,000 or 45.6% of average total assets during the three months ended March 31, 1996, as compared to $158,213,000 or 46.6% of average total assets for the fiscal year ended December 31, 1995. At March 31, 1996 core deposits were $168,143,000 or 45.8% of total assets, compared to $164,574,000 or 46.5% of total assets at year end 1995. The Company's principal sources of asset liquidity are cash and cash due from banks, time deposits with other financial institutions, Federal Funds sold, short term investments, and available-for-sale investment securities. At March 31, 1996 these sources represented $121,453,000 or 37.9% of total deposits compared to $117,794,000 or 38.3% at year end 1995. This increase in liquidity for the three months ended March 31, 1996 resulted primarily from an increase in Federal Funds sold and short term investments. In the opinion of management, there are sufficient resources to meet the liquidity needs of the Company at present and projected future levels. Capital Resources Capital management is a continuous process of providing adequate capital for current needs and anticipated future growth. Capital serves as a source of funds for the acquisition of fixed and other assets and protects depositors against potential losses. As the Company's assets increase, so do its capital requirements. The Company and the Bank are subject to Federal Reserve Board guidelines and regulations of the Comptroller of the Currency ("Comptroller"), respectively, governing capital adequacy. The Federal Reserve Board has established final risk-based and leverage capital guidelines for bank holding companies which are the same as the Comptroller's capital regulations for national banks. The Federal Reserve Board capital guidelines for bank holding companies and the Comptroller's regulations for national banks set total capital requirements and define capital in terms of "core capital elements" (comprising Tier 1 capital) and "supplemental capital elements" (comprising Tier 2 capital). Tier 1 capital is generally defined as the sum of the core capital elements less goodwill. The following items are defined as core capital elements: common stockholders' equity, qualifying noncumulative perpetual preferred stock, and minority interests in the equity accounts of consolidated subsidiaries. Supplementary capital elements include: allowance for loan and lease losses (which cannot exceed 1.25% of an institution's risk weighted assets), perpetual preferred stock not qualifying as core capital, hybrid capital instruments and mandatory convertible debt instruments, and term subordinated debt and intermediate-term preferred stock. The maximum amount of supplemental capital elements which qualifies as Tier 2 capital is limited to 100% of Tier 1 capital, net of goodwill. Risk-based capital ratios are calculated with reference to risk-weighted assets, including both on and off-balance sheet exposures, which are multiplied by certain risk weights assigned by the Federal Reserve Board to those assets. Both bank holding companies and national banks are required to maintain a minimum ratio of qualifying total capital to risk-weighted assets of 8%, at least one-half of which must be in the form of Tier 1 capital. There are presently four risk-weight categories: 0% for cash and unconditionally guaranteed government securities; 20% for conditionally guaranteed government securities; 50% for performing residential real estate loans secured by first liens; and 100% for commercial loans. The Federal Reserve Board and the Comptroller also have established a minimum leverage ratio of 3% Tier I capital to total assets for bank holding companies and national banks that have received the highest composite regulatory rating and are not anticipating or experiencing any significant growth. All other institutions will be required to maintain a leverage ratio of at least 100 to 200 basis points above the 3% minimum. The following tables show the Company's and the Bank's risk-based and leverage capital ratios as of March 31, 1996 and December 31, 1995. As indicated in these tables, the Company's and the Bank'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. Risk Based Capital Ratio (Dollars in Thousands) (Unaudited) Pacific Capital Bancorp March 31, 1996 December 31, 1995 Amount Ratio Amount Ratio Tier 1 Capital $43,396 16.97% $42,976 17.60% Tier 1 Capital Minimum Requirement 10,229 4.00% 9,765 4.00% Excess $33,167 12.97% $33,211 13.60% Total Capital $45,771 17.90% $45,373 18.59% Total Capital Minimum Requirement 20,458 8.00% 19,529 8.00% Excess $25,313 9.90% $25,844 10.59% Risk Adjusted Assets $255,722 $244,114 First National Bank of Central California March 31, 1996 December 31, 1995 Amount Ratio Amount Ratio Tier 1 Capital $40,022 15.85% $40,532 16.78% Tier 1 Capital Minimum Requirement 10,097 4.00% 9,662 4.00% Excess $29,925 11.85% $30,870 12.78% Total Capital $42,397 16.80% $42,929 17.77% Total Capital Minimum Requirement 20,195 8.00% 19,325 8.00% Excess $22,202 8.80% $23,604 9.77% Risk Adjusted Assets $252,433 $241,561 Leverage Ratio (Dollars in Thousands) (Unaudited) Pacific Capital Bancorp March 31, 1996 December 31, 1995 Amount Ratio Amount Ratio Tier 1 Capital to Average Total Assets $43,396 11.96% $42,976 12.00% Minimum Leverage $10,889 to 3.00% to $10,747 to 3.00% to Requirement $18,148 5.00% $17,912 5.00% Excess $25,248 to 6.96% to $25,064 to 7.00% to $32,507 8.96% $32,229 9.00% Average Total Assets $362,954 $358,232 First National Bank of Central California March 31, 1996 December 31, 1995 Amount Ratio Amount Ratio Tier 1 Capital to Average Total Assets $40,022 11.10% $40,532 11.38% Minimum Leverage $10,813 to 3.00% to $10,685 to 3.00% to Requirement $18,022 5.00% $17,809 5.00% Excess $22,000 to 6.10% to $22,723 to 6.38% to $29,209 8.10% $29,847 8.38% Average Total Assets $360,444 $356,173 Federal banking laws impose restrictions upon the amount of dividends the Bank may declare to the Company. Federal laws also impose restrictions upon the amount of loans or advances that the Bank may extend to the Company. In management's opinion, these do not affect the ability of the Company to meet its cash obligations. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date __ May 6, 1996_____ /S/ D. Vernon Horton D. Vernon Horton Chief Executive Officer Date __ May 6, 1996_______ /S/ Dennis A. DeCius Dennis A. DeCius Executive Vice President Chief Financial Officer EX-27 2 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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