FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 July 24, 1996
Common stock, no par value 2,607,438 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 4-5
CONSOLIDATED STATEMENTS OF CASH FLOWS 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8 - 16
PART II - OTHER INFORMATION
ITEM 6
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
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)
June 30, December
31,
Assets 1996 1995
Cash and due from banks $24,044 $24,891
Federal funds sold and other short term 32,923 17,007
investments
Total cash and equivalents 56,967 41,898
Investment securities:
Available-for-sale securities, at fair value 72,593 75,896
Held-to-maturity securities, at amortized
cost
(fair value of $6,063 and $8,662, 6,079 8,596
respectively)
Loans available for sale at cost, which 4,538 3,876
approximates market
Loans:
Commercial 59,216 49,862
Consumer 13,019 12,108
Real estate - mortgage 134,207 126,048
Real estate - construction 16,690 17,071
Bankers' acceptances & commercial paper 528 -
Other 12,961 6,501
Less deferred loan fees (249) (246)
Total loans 236,372 211,344
Less allowance for possible loan losses (2,343) (2,397)
Net loans 234,029 208,947
Premises and equipment, net 8,837 7,523
Accrued interest receivable and other, net 8,002 6,843
Total assets $391,045 $353,579
Liabilities and shareholders' equity
Deposits:
Demand, non-interest bearing $72,257 $71,988
Demand, interest bearing 58,350 56,527
Savings and money market 105,999 97,087
Time certificates 108,065 82,217
Total deposits 344,671 307,819
Accrued interest payable and other liabilities 2,401 2,784
Total liabilities 347,072 310,603
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
June 30, 1996 and at December 31, 1995, 31,179 31,235
respectively
Retained earnings 13,413 11,435
Net unrealized (losses) gains on available-for- (619) 306
sale securities
Total shareholders' equity 43,973 42,976
Total liabilities and shareholders' equity $391,045 $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)
Six months Six months
ended ended
June 30, June 30,
1996 1995
Interest income:
Interest and fees on loans $10,857 $10,245
Interest on investment securities 2,336 1,745
Interest on federal funds sold & short-term 671 459
investments
Total interest income 13,864 12,449
Interest expense:
Demand, interest bearing 279 277
Savings 1,375 1,376
Time certificates 2,606 1,439
Total interest expense 4,260 3,092
Net interest income 9,604 9,357
Provision for possible loan losses - -
Net interest income after provision for 9,604 9,357
possible loan losses
Other income:
Service charges 706 723
Gain on sale of loans 15 16
Mortgage banking fees 101 55
Net gain (loss) on securities transactions 15 (14)
Other 203 172
Total other income 1,040 952
Other expenses:
Salaries and benefits 3,540 3,207
Occupancy 716 655
Equipment 532 491
Advertising and promotion 226 192
Stationary and supplies 151 154
Legal and professional fees 268 278
Regulatory assessments 44 374
Other operating 677 694
Total other expenses 6,154 6,045
Earnings before income taxes 4,489 4,264
Income taxes 1,731 1,652
Net income $2,759 $2,612
Net income per share $1.01 $0.97
Weighted average shares outstanding 2,738,616 2,683,094
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
June 30, June 30,
1996 1995
Interest income:
Interest and fees on loans $5,544 $5,225
Interest on investment securities 1,158 818
Interest on federal funds sold 302 284
Total interest income 7,004 6,327
Interest expense:
Demand, interest bearing 142 139
Savings 695 669
Time certificates 1,344 823
Total interest expense 2,181 1,631
Net interest income 4,823 4,696
Provision for possible loan losses - -
Net interest income after provision for 4,823 4,696
possible loan losses
Other income:
Service charges 364 371
Gain on sale of loans 6 13
Mortgage banking fees 54 36
Net gain (loss) on securities transactions 3 (3)
Other 105 84
Total other income 532 501
Other expenses:
Salaries and benefits 1,748 1,603
Occupancy 352 336
Equipment 277 251
Advertising and promotion 115 94
Stationary and supplies 79 77
Legal and professional fees 139 143
Regulatory assessments 22 186
Other operating 334 326
Total other expenses 3,066 3,016
Earnings before income taxes 2,289 2,181
Income taxes 874 853
Net income $1,415 $1,328
Net income per share $0.52 $0.50
Weighted average shares outstanding 2,742,734 2,682,222
See accompanying notes to consolidated financial statements
PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six months Ended June 30, 1996 and June 30, 1995
(UNAUDITED)
(IN THOUSANDS)
June 30, June 30,
1996 1995
Cash flows from operating activities:
Net income $2,759 $2,612
Adjustments to reconcile net income to net
cash provided by
operating activities:
Depreciation and amortization 455 267
Provision for possible loan losses - -
(Gain) loss on sale of investment (15) 14
securities, net
Net originations of loans held for sale (662) (997)
Gain on sale of loans (15) (16)
Deferral of loan origination fees (23) -
Change in accrued interest receivable and (2,084) 912
other assets
Change in accrued interest payable and (369) 382
other liabilities
Net cash provided by operating activities 46 3,174
Investing activities:
Net change in loans (25,059) (1,484)
Maturities of investment securities 2,845 7,014
Purchases of investment securities (22,705) (17,441)
Proceeds from sale of available-for-sale 25,695 20,842
securities
Capital expenditures, net (1,769) (464)
Net cash (used in) provided by investing (20,993) 8,467
activities
Financing activities:
Net increase (decrease) in deposits 36,852 (9,346)
Cash paid for retirement of stock (60) (98)
Proceeds from exercise of options 4 157
Cash paid for dividends (780) (619)
Net cash provided by (used in) financing 36,016 (9,906)
activities
Net increase (decrease) in cash and 15,069 1,735
equivalents
Cash and equivalents beginning of period 41,898 42,262
Cash and equivalents at end of period $56,967 $43,997
Supplemental disclosures of cash flow
information:
Cash paid during the period
Interest 4,864 3,378
Income taxes 1,658 1,550
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 June 30, 1996 and December 31,
1995, the results of its operations and the statements of cash
flows for the periods ended June 30, 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 June 30, 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 June 30, 1996 amounted to approximately
$5,334,000.
Note 4 - Commitments
The Company had outstanding standby letters of credit of
approximately $2,353,000 at June 30, 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 and April 23, 1996, the
Company declared $ 0.15 per share cash dividends to
shareholders of record on March 15, 1996 and June 14, 1996,
payable on March 29, 1996 and June 28, 1996, respectively.
Note 6 - Taxes
As of June 30, 1996, the Company has a deferred tax asset of approximately
$2,185,000. 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
As used herein, the term Company shall mean the Company or the Bank as
the context requires. Net income for the six months ended June 30, 1996 was
$2,759,000 or $1.01 per share compared to $2,612,000 or $0.97 per share
during the same period in 1995. This 5.6% increase in net income is due
mainly to a $247,000 increase in net interest income combined with a
$330,000 decrease in the Company's FDIC Assessment. These items were
partially offset by a $333,000 increase in salaries and benefits. The
increase in net interest income is due to growth in average total loans of
$24,084,000 partially offset an increase in average interest bearing
deposits of $37,008.000 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 $236,372,000 at June 30, 1996 compared to
$211,344,000 at December 31, 1995, a $25,028,000 or 11.8% increase. The
increase in outstanding loans from December 31, 1995 to June 30, 1996
resulted primarily from an increase in commercial loans of $9,354,000, an
increase in real estate mortgage loans of $8,159,000 and an increase in tax-
exempt municipal leases of $5,850,000.
Federal Funds Sold and Investment Securities at June 30, 1996 were
$111,595,000, a $10,096,000 or 9.9% 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.
The Company's total deposits at June 30, 1996 were $344,671,000
compared to $307,819,000 at December 31, 1995, a $36,852,000 or 12.0%
increase. Non-interest bearing demand deposits increased $269,000, interest
bearing demand deposits increased $1,823,000 and savings and money market
deposit accounts increased $8,912,000 in the first six months of 1996.
Certificates of deposit increased by $25,848,000 or 31.4% during the first
six 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 June 30, 1996 was 68.6% and is the same as the ratio at
December 31, 1995. The Company's total assets as of June 30, 1996 increased
10.6% compared to year end 1995.
Loans
Outstanding total loans averaged $225,678,000 for the six months ended
June 30, 1996 compared to $201,594,000 for the same period in 1995, an
increase of $24,084,000, or 11.9%. This increase in loans is due to
increased loan demand from qualified borrowers and reflects the strength of
the 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 June 30, 1996, December
31, 1995, and June 30, 1995 is summarized in the following table.
Nonperforming Loans
(Dollars in Thousands)
June 30, December 31, June 30,
1996 1995 1995
Accruing loans
past due 90 days
or more
Commercial $ 30 $ 0 $ 0
Consumer 0 1 0
Real Estate 0 140 0
Total $ 30 $141 $ 0
Nonaccrual loans
Commercial 630 110 424
Consumer 135 136 135
Real Estate 215 747 1,284
Total $980 $993 $1,843
Total Nonperforming
Loans $1,010 $1,134 $1,843
Nonperforming Loans
To Total Loans 0.43% 0.54% 0.91%
Allowance For Possible
Loan Losses To Total
Non Performing Loans 231.98% 211.38% 128.00%
The Company does not expect to sustain losses from any of the Non-
Performing Loans in excess of that specifically provided for in the
allowance for possible loan losses. Currently, the Company's level of non-
performing loans to total loans is well below that of peer banks.
In addition to the above, the Company holds six Other Real Estate
Owned (OREO) properties, which aggregate $1,150,000. 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 effects on specific local industries; and the
experience, ability and depth of lending management and staff. These
factors are essentially judgmental and may not be reduced to a mathematical
formula.
The Company closely monitors the local markets in which it conducts
its lending activities. The overall increase in loan demand from qualified
borrowers during the past year is indicative of the strength in the local
economic climate.
The table set forth below summarizes the actual loan losses and
provision for possible losses for the periods ended June 30, 1996, December
31, 1995, and June 30, 1995.
Charge-Off/Recovery Activity
(Dollars in Thousands)
Six months Year Six months
Ended Ended Ended
June 30, 1996 December 31,1995 June 30, 1995
Total Loans Outstanding $236,372 $211,344 $202,185
Average Net Loans $225,678 $201,360 $201,594
Allowance Balance
Beginning Of Period 2,397 2,438 2,507
Charge-Offs By Loan Category
Commercial 46 129 53
Consumer 53 61 40
Real Estate 0 131 17
Other 0 0 0
Total $ 99 $ 321 $ 110
Recoveries By Loan Category
Commercial 3 58 67
Consumer 27 38 19
Real Estate 15 49 8
Other 0 0 0
Total $ 45 $ 145 $ 94
Net Charge-Offs $ 54 $ 176 $ 16
Provision Charged
To Expense $0 $135 $0
Allowance Balance
End Of Period $ 2,343 $ 2,397 $ 2,491
Allowance For Possible
Loan Losses
To Total Loans 0.99% 1.13% 1.33%
Annualized Net Charge-
Offs To Average Loans 0.05% 0.09% 0.02%
The Company did not provide an additional provision to the allowance
for possible loan losses for the six months ended June 30, 1996, or June
30, 1995, primarily due to the Company's recognition of the strength 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 $2,343,000 or .99% of total loans was
adequate as of June 30, 1996.
Results of Operations
Six months Ended June 30, 1996
Compared with
Six months Ended June 30, 1995
Net income of $2,759,000 for the six months ended June 30, 1996
increased by $147,000 or 5.6% 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 $247,000 as well as a decrease in FDIC assessments
of $330,000 offset by an increase in salaries and benefits of $333,000. The
increase in net interest income is due to growth in average total loans of
$24,084,000 partially offset by an increase in average interest bearing
deposits of $37,008,000 compared to the same 1995 period.
The average balance of interest earning assets during the six months
ended June 30, 1996 was $332,513,000, a $41,210,000 or 14.1% increase over
the comparable 1995 period. The Company's average yield on earning assets
for the six months ended June 30, 1996 decreased to 8.4% compared to 8.5%
during the comparable period in 1995. Total interest income increased
$1,415,000 or 11.4% for the six months ended June 30, 1996 compared to the
same 1995 period due to an increase in average interest earning assets of
$41,210,000.
Average deposits for the Company for the six months ended June 30,
1996 were $323,372,000, a $31,844,000 or 11.2% increase compared to the
period ended June 30, 1995. The Company's average cost of funds for the
six months ended June 30, 1996 was 3.4% which yielded a net interest margin
of 5.8%. This compares to an average cost of funds of 2.8% and a net
interest margin of 6.4% for the comparable 1995 period. Interest expense
of $4,260,000 for the six months ended June 30, 1996 was $1,168,000 or
37.8% over the comparable 1995 period due to an increase in average
interest bearing deposits of $37,008,000 and an increase in the average
rate paid on deposits of 0.6%. Net interest income for the six months
ended June 30, 1996 increased $247,000 or 2.6% and resulted from the
increase of $1,415,000 in total interest income and an increase of
$1,168,000 in total interest expense.
The Company did not make any additional provisions to the allowance
for possible loan loss for the six months ended June 30, 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 six months ended
June 30, 1996 amounted to $54,000 compared to $16,000 net of recoveries for
the same period in 1995. Annualized net loan charge-offs as a percentage
of average loans for the six months ended June 30, 1996 was 0.05% compared
to 0.02% for the six months ended June 30, 1995 and .09% for the year ended
December 31, 1995.
Total other income was $1,040,000 for the six months ended June 30,
1996, a $88,000 or 9.2% increase compared to the same period of 1995.
Mortgage banking fees increased $46,000 from the six months ended June 30,
1995 due to higher levels of mortgage refinancings compared to 1995. Net
gains on securities transactions was $15,000 compared to a net loss of
$14,000 for the six months ended June 30, 1995. Other variances include
service charges which decreased by $17,000 from the first six months of
1995 and other income which increased by $31,000 over 1995.
Salaries and benefits expense for the six months ended June 30, 1996
was $3,540,000, a $333,000 or 10.4% 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 161 full time equivalent employees at June 30, 1996
compared to 165 full time equivalent employees at December 31, 1995 and 155
full time equivalent employees at June 30, 1995.
Total other expenses, excluding salaries and benefits, for the six
months ended June 30, 1996, was $2,614,000, a $224,000 or 7.9% decrease
from the comparable 1995 period. This decrease was the result of the
decrease in the Company's FDIC Assessment of $330,000 compared to the same
period in 1995. In addition, occupancy expense increased by $61,000 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 $41,000
and other expense which decreased by $17,000.
Applicable income taxes of $1,731,000 for the six months ended June
30, 1996 were $147,000, or 5.6% more than the comparable 1995 period. The
Company's effective tax rate for the six months ended June 30, 1996 was
38.6% compared to 38.7% for the same period in 1995.
Results of Operations
Three Months Ended June 30, 1996
Compared with
Three Months Ended June 30, 1995
Net income of $1,415,000 for the three months ended June 30, 1996
increased by $87,000 or 6.5% 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 $127,000 coupled with a decrease in FDIC premiums of
$164,000 and partially offset by an increase in salaries and benefits of
$145,000. Other income increased for the three months ended June 30, 1996
by $31,000 over the second quarter of 1995.
The average balance of interest earning assets during the three months
ended June 30, 1996 was $338,244,000, a $59,394,000 increase over the
comparable 1995 period. The Company's average yield on earning assets for
the three months ended June 30, 1996 decreased to 8.3% compared to 9.1%
during the comparable period in 1995. The decrease in average yields is due
to a decrease in rates paid on adjustable rate loans within the loan
portfolio due to rate decreases in the Prime Rate over the latter part of
1995. Total interest income increased $677,000 or 10.7% for the three
months ended June 30, 1996 compared to the same 1995 period due to an
increase in average interest earning assets.
Average deposits for the Company for the three month period ended June
30, 1996 were $330,781,000, a $48,590,000 or 17.2% increase compared to the
three months ended June 30, 1995. The Company's average cost of funds for
the three months ended June 30, 1996 was 3.3% which yielded a net interest
margin of 5.7%. This compares to an average cost of funds of 3.0% and a
net interest margin of 6.7% for the same period in 1995. Interest expense
of $2,181,000 for the three months ended June 30, 1996 was $550,000 or
33.7% over the comparable 1995 period due to an increase in average
interest bearing deposits of $45,330,000 and an increase in the average
rate paid on deposits of 0.3%. Net interest income for the three month
period ended June 30, 1996 increased $127,000 or 2.7% and resulted from the
increase of $677,000 in total interest income and an increase of $550,000
in total interest expense.
Total loan charge-offs net of recoveries for the three months ended
June 30, 1996 amounted to $32,000, compared to ($33,000) of net recoveries
for the same period in 1995. Annualized net loan charge-offs as a
percentage of average loans for the three months ended June 30, 1996 was
0.05% compared to (0.07)% for the three months ended June 30, 1995.
Total other income was $532,000 for the three months ended June 30,
1996, a $31,000 or 6.2% increase compared to the same period of 1995.
Mortgage banking fees increased by $18,000 or 50.0% during the second
quarter of 1996 compared to the same period in 1995. Other variances
include other income which increased to $105,000 compared to $84,000, and
service charge income which decreased by $7,000 or 1.9% during the second
quarter of 1996 compared to the same quarter in 1995.
Salaries and benefits expense for the three months ended June 30, 1996
was $1,748,000, a $145,000 or 9.1% increase over the comparable 1995
period, and resulted primarily from normal salary increases, an increase in
group insurance premiums, and an increase in the Company's contributions to
the Bonus and Employee Stock Ownership Program. The Company employed 161
full time equivalent employees at June 30, 1996 compared to 165 full time
equivalent employees at December 31, 1995 and 155 full time equivalent
employees at June 30, 1995.
Total other expenses, excluding salaries and benefits, for the three
months ended June 30, 1996, was $1,350,000, a $63,000 or 4.5% decrease from
the comparable 1995 period. The decreases resulted from a decrease in FDIC
premiums of $164,000 partially offset by an increase in equipment expense
of $26,000, and increase in advertising and promotion of $21,000, and an
increase in occupancy expense of $16,000.
Applicable income taxes of $874,000 for the three months ended June
30, 1996 were $21,000, or 2.5% more than the comparable 1995 period. The
Company's effective tax rate for the three months ended June 30, 1995 was
38.2% compared to 39.1% 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
$168,172,000 or 45.7% of average total assets during the six months ended
June 30, 1996, as compared to $158,213,000 or 46.6% of average total assets
for the fiscal year ended December 31, 1995. At June 30, 1996 core
deposits were $173,410,000 or 44.3% 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 June 30, 1996 these sources represented $129,560,000 or
37.6% of total deposits compared to $117,794,000 or 38.3% at year end 1995.
This increase in liquid assets for the six months ended June 30, 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 June 30, 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
June 30, 1996 December 31, 1995
Amount Ratio Amount Ratio
Tier 1 Capital $43,973 15.79% $42,976 17.60%
Tier 1 Capital Minimum
Requirement 11,140 4.00% 9,765 4.00%
Excess $32,833 11.79% $33,211 13.60%
Total Capital $46,316 16.63% $45,373 18.59%
Total Capital Minimum
Requirement 22,280 8.00% 19,529 8.00%
Excess $24,036 8.63% $25,844 10.59%
Risk Adjusted Assets $278,506 $244,114
First National Bank of Central California
June 30, 1996 December 31, 1995
Amount Ratio Amount Ratio
Tier 1 Capital $40,019 14.57% $40,532 16.78%
Tier 1 Capital Minimum
Requirement 10,984 4.00% 9,662 4.00%
Excess $29,035 10.57% $30,870 12.78%
Total Capital $42,362 15.43% $42,929 17.77%
Total Capital Minimum
Requirement 21,969 8.00% 19,325 8.00%
Excess $20,393 7.43% $23,604 9.77%
Risk Adjusted Assets $274,609 $241,561
Leverage Ratio
(Dollars in Thousands)
(Unaudited)
Pacific Capital Bancorp
June 30, 1996 December 31, 1995
Amount Ratio Amount Ratio
Tier 1 Capital to Average
Total Assets $43,973 11.65% $42,976 12.00%
Minimum Leverage $11,325 to 3.00% to $10,747 to 3.00% to
Requirement $18,876 5.00% $17,912 5.00%
Excess $25,097 to 6.65% to $25,064 to 7.00% to
$32,648 8.65% $32,229 9.00%
Average Total Assets $377,510 $358,232
First National Bank of Central California
June 30, 1996 December 31, 1995
Amount Ratio Amount Ratio
Tier 1 Capital to Average
Total Assets $40,019 10.69% $40,532 11.38%
Minimum Leverage $11,236 to 3.00% to $10,685 to 3.00% to
Requirement $18,726 5.00% $17,809 5.00%
Excess $21,293 to 5.69% to $22,723 to 6.38% to
$28,783 7.69% $29,847 8.38%
Average Total Assets $374,519 $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.
PART II -- OTHER INFORMATION
Item 4. Submission of matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Shareholders was held on May
23, 1996.
(b) Not required
(c) At the Annual Meeting the shareholders voted to:
(i) Elect Directors of the Company;
Votes Cast for Votes
Election Withheld
Charles E. Bancroft 1,765,433 4,282
Gene DiCicco 1,765,502 4,213
Lewis L. Fenton 1,765,433 4,282
Gerald T. Fry 1,765,631 4,084
James L. Gattis 1,765,433 4,282
Stanley R. Haynes 1,765,433 4,282
D. Vernon Horton 1,765,631 4,084
Hubert W. Hudson 1,765,502 4,213
William J. Keller 1,765,433 4,282
Clayton C. Larson 1,765,631 4,084
William S. McAfee 1,760,359 9,356
William H. Pope 1,765,631 4,084
William K. Sambrailo 1,765,502 4,213
Robert B. Sheppard 1,765,433 4,282
Clyn Smith, Jr. 1,765,433 4,282
(ii) Ratify the appointment of KPMG Peat Marwick LLP as
independent public accountants for the 1996 fiscal year;
For 1,760,199
Against 1,637
Abstain 7,879
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 __ July 23, 1996_____ /S/ D. Vernon Horton
D. Vernon Horton
Chief Executive Officer
Date __ July 23, 1996_______ /S/ Dennis A. DeCius
Dennis A. DeCius
Executive Vice President
Chief Financial Officer