PRELIMINARY DOCUMENT

                        Used for drafting 10-Q submission
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549

                                    Form 10-Q

(Mark One)
   X     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
------   SECURITIES EXCHANGE ACT OF 1934

         For the quarterly period ended      March 31, 2000

Commission File No.: 0-11113

OR

------    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
          SECURITIES EXCHANGE ACT OF 1934

For the transition period from  ______________  to  ____________

                             PACIFIC CAPITAL BANCORP
             (Exact Name of Registrant as Specified in its Charter)

               California                                       95-3673456
--------------------------------------------             -----------------------
    (State or other jurisdiction of                         (I.R.S.  Employer
     incorporation or organization)                         Identification No.)

      200 E. Carrillo Street, Suite 300
          Santa Barbara, California                              93101
   (Address of principal executive offices)                   (Zip Code)

                                 (805) 564-6300
              (Registrant's telephone number, including area code)
                                 Not Applicable
               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
         ------------------             ----------------

Common Stock - As of May 10, 2000 there were  24,605,308  shares of the issuer's
common stock outstanding.

<PAGE>

TABLE OF CONTENTS

PART I.       FINANCIAL INFORMATION

     Item 1.  Financial Statements:

              Consolidated Balance Sheets
                  March 31, 2000 and December 31, 1999

              Consolidated Statements of Income
                  Three-Month Periods Ended March 31, 2000 and 1999

              Consolidated Statements of Cash Flows
                   Three-Month Periods Ended March 31, 2000 and 1999

              Consolidated Statements of Comprehensive Income
                  Three-Month Periods Ended March 31, 2000 and 1999

              Notes to Consolidated Financial Statements

The  financial  statements  included  in this  Form  10-Q  should  be read  with
reference to the Pacific  Capital  Bancorp's  Annual Report on Form 10-K for the
fiscal year ended December 31, 1999.

     Item 2.  Management's Discussion and Analysis of Financial Condition
              and Results of Operations

     Item 3.  Quantitative and Qualitative Disclosures about Market Risk

              Disclosures  about  quantitative  and qualitative  market risk are
              located in  Management's  Discussion  and  Analysis  of  Financial
              Condition  and  Results of  Operations  in the section on interest
              rate sensitivity.

PART II.      OTHER INFORMATION

     Item 6.  Exhibits and Reports on Form 8-K


SIGNATURES

All other schedules and compliance information called for by the instructions to
Form 10-Q have been omitted since the required information is not applicable.

                                                                               2

<PAGE>

                                     PART 1
                              FINANCIAL INFORMATION
<TABLE>

                     PACIFIC CAPITAL BANCORP & SUBSIDIARIES
                      Consolidated Balance Sheets (Unaudited)
                    (dollars in thousands except share amounts)
<CAPTION>

                                                       March 31, 2000   December 31, 1999
                                                       --------------   -----------------
<S>                                                    <C>                 <C>
Assets:
     Cash and due from banks                           $   188,973         $   121,500
     Federal funds sold and securities
        purchased under
        agreement to resell                                475,000                --
     Money market funds                                       --                  --
                                                       -----------         -----------
           Cash and cash equivalents                       663,973             121,500
                                                       -----------         -----------
     Securities (Note 4):
        Held-to-maturity                                   125,571             153,264
        Available-for-sale                                 561,005             528,426
     Bankers' acceptances and commercial paper              39,450                --
     Loans, net of allowance of $30,844 at
        March 31, 2000 and $28,686 at
        December 31, 1999 (Note 5)                       2,030,854           1,953,193
     Premises and equipment, net                            37,325              35,175
     Accrued interest receivable                            17,505              17,345
     Other assets (Note 6)                                  68,927              70,379
                                                       -----------         -----------
              Total assets                             $ 3,544,610         $ 2,879,282
                                                       ===========         ===========
Liabilities:
     Deposits:
        Noninterest bearing demand deposits            $   627,347         $   546,193
        Interest bearing deposits                        2,421,289           1,893,988
                                                       -----------         -----------
           Total Deposits                                3,048,636           2,440,181
     Securities sold under agreements
        to repurchase and Federal funds purchased           57,925              80,507
     Long-term debt and other borrowings (Note 7)          122,854              98,801
     Accrued interest payable and other liabilities         65,082              25,220
                                                       -----------         -----------
           Total liabilities                             3,294,497           2,644,709
                                                       -----------         -----------
Shareholders' equity
     Common stock (no par value; $0.33 per
        share stated value; 60,000,000 authorized;
        24,605,308 outstanding at March 31, 2000
        and 24,554,294 at December 31, 1999)                 8,203               8,186
     Surplus                                                99,863              99,283
     Accumulated other comprehensive income (Note 8)        (6,404)             (6,447)
     Retained earnings                                     148,451             133,551
                                                       -----------         -----------
           Total shareholders' equity                      250,113             234,573
                                                       -----------         -----------
              Total liabilities and
                shareholders' equity                   $ 3,544,610         $ 2,879,282
                                                       ===========         ===========
<FN>

     See accompanying notes to consolidated condensed financial statements.
</FN>
</TABLE>

                                                                               3

<PAGE>

                     PACIFIC CAPITAL BANCORP & SUBSIDIARIES
                  Consolidated Statements of Income (Unaudited)
                 (dollars in thousands except per share amounts)

                                                             For the Three-Month
                                                               Periods Ended
                                                                 March 31,
                                                           --------------------
                                                             2000        1999
                                                           --------    --------
Interest income:
     Interest and fees on loans                            $ 61,872    $ 43,193
     Interest on securities                                  10,638      11,264
     Interest on Federal funds sold and securities
        purchased under agreement to resell                   4,765       1,970
     Interest on commercial paper                               184         257
                                                           --------    --------
        Total interest income                                77,459      56,684
                                                           --------    --------
Interest expense:
     Interest on deposits                                    22,921      15,277
     Interest on securities sold under agreements
        to repurchase and Federal funds purchased               671         262
     Interest on other borrowed funds                         2,085         731
                                                           --------    --------
        Total interest expense                               25,677      16,270
                                                           --------    --------
Net interest income                                          51,782      40,414
Provision for loan losses (Note 5)                            5,573       3,719
                                                           --------    --------
     Net interest income after provision for loan losses     46,209      36,695
                                                           --------    --------
Other operating income:
     Service charges on deposits                              2,361       2,235
     Trust fees                                               3,823       3,409
     Other service charges, commissions and fees, net         9,775       8,537
     Net (loss) gain on securities transactions                (499)       (177)
     Other operating income                                     278         267
                                                           --------    --------
        Total other income                                   15,738      14,271
                                                           --------    --------
Other operating expense:
     Salaries and benefits                                   14,632      12,795
     Net occupancy expense                                    2,769       2,258
     Equipment expense                                        1,440       1,560
     Other expense                                           10,040      10,912
                                                           --------    --------
        Total other operating expense                        28,881      27,525
                                                           --------    --------
Income before income taxes                                   33,066      23,441
Applicable income taxes                                      13,246       8,920
                                                           --------    --------
               Net income                                  $ 19,820    $ 14,521
                                                           ========    ========

Earnings per share - basic (Note 2)                        $   0.81    $   0.60
Earnings per share - diluted (Note 2)                      $   0.80    $   0.59

     See accompanying notes to consolidated condensed financial statements.

                                                                               4

<PAGE>
<TABLE>
<CAPTION>

                                                                For the Three-Month
                                                              Periods Ended March 31,
                                                                 2000         1999
                                                               ---------    ---------
<S>                                                               <C>          <C>
Cash flows from operating activities:
   Net Income                                                     $  19,820    $  14,521
   Adjustments to reconcile net income to net cash
   provided by operations:
       Depreciation and amortization                                  1,591        1,573
       Provision for loan and lease losses                            5,573        3,719
       Net amortization of discounts and premiums for
          securities and commercial paper                            (1,864)      (1,663)
       Net change in deferred loan origination
          fees and costs                                                170          165
       Net (gain) loss on sales and calls of securities                 499          178
       Change in accrued interest receivable and other assets           976       (8,091)
       Change in accrued interest payable and other liabilities      39,907        7,364
                                                                  ---------    ---------
          Net cash provided by operating activities                  66,672       17,766
                                                                  ---------    ---------
Cash flows from investing activities:
       Proceeds from call or maturity of securities                  42,449       96,066
       Purchase of securities                                       (75,854)     (30,404)
       Proceeds from sale of securities                              29,883        9,881
       Proceeds from maturity of commercial paper                      --         35,000
       Purchase of commercial paper                                 (39,449)     (24,868)
       Net increase in loans made to customers                      (83,404)    (126,510)
       Purchase or investment in premises and equipment              (3,382)      (1,618)
                                                                  ---------    ---------
          Net cash used in investing activities                    (129,757)     (42,453)
                                                                  ---------    ---------
Cash flows from financing activities:
       Net increase in deposits                                     608,455       32,034
       Net decrease in borrowings with maturities
          of 90 days or less                                        (22,582)     (11,126)
       Net increase (decrease) in long-term debt and other
          borrowings                                                 24,053       12,356
       Proceeds from issuance of common stock                           552        1,308
       Payments to retire common stock                                 --           --
       Dividends paid                                                (4,920)      (4,358)
                                                                  ---------    ---------
          Net cash provided by financing activities                 605,558       30,214
                                                                  ---------    ---------
   Net increase in cash and cash equivalents                        542,473        5,527
   Cash and cash equivalents at beginning of period                 121,500      185,663
                                                                  ---------    ---------
   Cash and cash equivalents at end of period                     $ 663,973    $ 191,190
                                                                  =========    =========

Supplemental disclosure:
   Cash paid for the three months ended:

       Interest                                                   $  30,035    $  16,809
       Income taxes                                               $     327    $   4,662
       Non-cash additions to other real estate owned              $    --      $    --
       Non-cash additions to loans                                $    --      $     142

</TABLE>

                                                                               5

<PAGE>

                     PACIFIC CAPITAL BANCORP & SUBSIDIARIES
           Consolidated Statements of Comprehensive Income (Unaudited)
                 (dollars in thousands except per share amounts)

                                                            For the Three-Month
                                                              Periods Ended
                                                                March 31,
                                                          ---------------------
                                                           2000          1999
                                                          --------     --------

Net income                                                $ 19,820     $ 14,521
Other comprehensive income, net of tax (Note 8):
   Unrealized loss on securities:
    Unrealized holding gains (losses) arising
      during period                                            542       (1,220)
    Less: reclassification adjustment for
      gains (losses) included in net income                   (499)        (177)
                                                          --------     --------
       Other comprehensive income (loss)                        43       (1,397)
                                                          --------     --------
Comprehensive income                                      $ 19,863     $ 13,124
                                                          ========     ========


     See accompanying notes to consolidated condensed financial statements.

                                                                               6

<PAGE>

                    Pacific Capital Bancorp and Subsidiaries
                   Notes to Consolidated Financial Statements
                                 March 31, 2000
                                   (Unaudited)

1.       Principles of Consolidation

The  consolidated  financial  statements  include  the parent  holding  company,
Pacific Capital Bancorp  ("Bancorp"),  and its wholly owned subsidiaries,  Santa
Barbara  Bank & Trust  ("SBB&T"),  First  National  Bank of  Central  California
("FNB") and its  affiliate  South Valley  National  Bank  ("SVNB"),  and Pacific
Capital  Commercial  Mortgage,  Inc. All  references to "the  Company"  apply to
Pacific Capital Bancorp and its subsidiaries. "Bancorp" will be used to refer to
the parent company only.  Material  intercompany  balances and transactions have
been eliminated.

2.       Earnings Per Share

Earnings per share for all periods  presented in the Consolidated  Statements of
Income are computed based on the weighted  average number of shares  outstanding
during each year. Diluted earnings per share include the effect of the potential
issuance of common shares.  For the Company,  these include only shares issuable
on the exercise of outstanding stock options.

The  computation  of basic and diluted  earnings  per share for the  three-month
period  ended  March 31,  2000 and 1999,  was as follows  (shares and net income
amounts in thousands):

                                                 Three-month Periods
                                            Basic                   Diluted
                                           Earnings                Earnings
                                          Per Share                Per Share
                                        -------------            ------------
Ended March 31, 2000
Numerator--net income                      $19,820                 $19,820
                                           =======                 =======

Denominator--weighted average

      shares outstanding                    24,568                  24,568
Plus: net shares issued in
      assumed stock option exercises                                   280
                                                                   -------
Diluted denominator                                                 24,848
                                                                   =======

Earnings per share                         $  0.81                 $  0.80

Ended March 31, 1999
Numerator--net income                      $14,521                 $14,521
                                           =======                 =======

Denominator--weighted average

      shares outstanding                    24,240                  24,240
Plus: net shares issued in
      assumed stock option exercises                                   372
                                                                   -------
Diluted denominator                                                 24,612
                                                                   =======

Earnings per share                         $  0.60                 $  0.59




3.       Basis of Presentation

The accompanying  unaudited consolidated financial statements have been prepared
in a condensed  format,  and therefore do not include all of the information and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of Management,  all adjustments (consisting
only of normal recurring accruals)  considered necessary for a fair presentation
have been  reflected  in the  financial  statements.  However,  the  results  of
operations  for  the


                                                                               7
<PAGE>

three-month  period  ended March 31,  2000,  especially  considering  the highly
seasonal nature of the Company's income tax refund programs, are not necessarily
indicative  of the results to be  expected  for the full year.  Certain  amounts
reported for 1999 have been reclassified to be consistent with the reporting for
2000.

For the purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks,  money market  funds,  Federal  funds sold,  and  securities
purchased under agreement to resell.

4.   Securities

The  Company's  securities  are  classified  as  either   "held-to-maturity"  or
"available-for-sale."  Securities for which the Company has positive  intent and
ability to hold until  maturity are classified as  held-to-maturity.  Securities
that might be sold prior to maturity  because of interest rate changes,  to meet
liquidity  needs,  or to better match the repricing  characteristics  of funding
sources are  classified as  available-for-sale.  If the Company were to purchase
securities  principally  for the purpose of selling  them in the near term for a
gain,  they would be  classified  as trading  securities.  The Company  holds no
securities that should be classified as trading securities.

SBB&T and FNB are members of the Federal Reserve Bank of San Francisco  ("FRB").
SBB&T and FNB aremembers of the Federal Home Loan Bank of San Francisco ("FHLB")
and FNB became a member in January  2000.  The banks are required to hold shares
of stock in these two  organizations as a condition of membership.  These shares
are reported as equity securities.

The amortized  historical cost and estimated  market value of debt securities by
contractual  maturity are shown below.  The issuers of certain of the securities
have the right to call or prepay  obligations  before the  contractual  maturity
date.  Depending  on the  contractual  terms of the  security,  the  Company may
receive a call or prepayment penalty in such instances.

                                                                               8
<PAGE>
<TABLE>
<CAPTION>

(in thousands)                                 Held-to-          Available-
                                               Maturity            for-Sale              Total
                                            ------------------------------------------------------
<S>                                       <C>                <C>                    <C>
March 31, 2000
Amortized cost:
      In one year or less                 $      48,334      $       97,465         $     145,799
      After one year through five years          32,569             408,251               440,820
      After five years through ten years          6,988              15,363                22,351
      After ten years                            37,680              33,538                71,218
      Equity securities                              --              17,256                17,256
                                        ----------------------------------------------------------
                  Total securities        $     125,571      $      571,873         $     697,444
                                        ==========================================================

Estimated market value:
      In one year or less                 $      48,920      $       97,138         $     146,058
      After one year through five years          34,833             400,628               435,461
      After five years through ten years          7,619              14,286                21,905
      After ten years                            40,635              31,697                72,332
      Equity securities                              --              17,256                17,256
                                        ----------------------------------------------------------
                  Total securities        $     132,007      $      561,005         $     693,012
                                        ==========================================================

December 31,1999
Amortized cost:
      In one year or less                 $      59,920      $       92,661         $     152,581
      After one year through five years          48,445             376,113               424,558
      After five years through ten years          7,080              24,277                31,357
      After ten years                            37,819              34,848                72,667
      Equity securities                              --              11,649                11,649
                                        ----------------------------------------------------------
                  Total securities        $     153,264      $      539,548         $     692,812
                                        ==========================================================
Estimated market value:
      In one year or less                 $      60,466      $       92,524         $     152,990
      After one year through five years          51,264             369,999               421,263
      After five years through ten years          7,778              22,889                30,667
      After ten years                            39,642              31,365                71,007
      Equity securities                              --              11,649                11,649
                                            ------------------------------------------------------
                  Total securities        $     159,150      $      528,426         $     687,576
                                            ======================================================
</TABLE>

                                                                               9
<PAGE>

<TABLE>

The amortized  historical  cost,  market values and gross  unrealized  gains and
losses of securities are as follows:
<CAPTION>
                                                             Gross             Gross           Estimated
                  (in thousands)           Amortized        Unrealized       Unrealized          Market
                                             Cost             Gains            Losses            Value
                                     ---------------------------------------------------------------------
<S>                                     <C>              <C>               <C>              <C>
March 31, 2000
Held-to-maturity:
     U.S. Treasury obligations          $      20,001    $           7     $         (38)   $      19,970
     U.S. agency obligations                   12,502               --               (97)          12,405
     Mortgage-backed securities                   471                5                --              476
     State and municipal securities            92,597            6,571               (12)          99,156
                                     ---------------------------------------------------------------------
        Total held-to-maturity                125,571            6,583              (147)         132,007
                                     ---------------------------------------------------------------------
Available-for-sale:
     U.S. Treasury obligations                131,138              107            (1,000)         130,245
     U.S. agency obligations                  197,064                1            (2,246)         194,819
     Mortgage-backed securities               165,383               22            (5,706)         159,699
     Asset-backed securities                   14,590                2              (119)          14,473
     State and municipal securities            46,442              271            (2,200)          44,513
     Equity securities                         17,256               --                --           17,256
                                     ---------------------------------------------------------------------
        Total available-for-sale              571,873              403           (11,271)         561,005
                                     ---------------------------------------------------------------------
           Total securities             $     697,444    $       6,986     $     (11,418)   $     693,012
                                     =====================================================================

December 31, 1999
Held-to-maturity:
     U.S. Treasury obligations          $      35,043    $          64     $         (40)   $      35,067
     U.S. agency obligations                   12,502               --               (87)          12,415
     Mortgage-backed securities                   556                8                (1)             563
     State and municipal securities           105,163            6,235              (293)         111,105
                                     ---------------------------------------------------------------------
        Total held-to-maturity                153,264            6,307              (421)         159,150
                                     ---------------------------------------------------------------------
Available-for-sale:
     U.S. Treasury obligations                121,701               49              (691)         121,059
     U.S. agency obligations                  177,985               --            (2,197)         175,788
     Mortgage-backed securities               172,333               21            (4,849)         167,505
     Asset-backed securities                   10,979                7              (114)          10,872
     State and municipal securities            44,901               42            (3,390)          41,553
     Equity securities                         11,649               --                --           11,649
                                     ---------------------------------------------------------------------
        Total available-for-sale              539,548              119           (11,241)         528,426
                                     ---------------------------------------------------------------------
           Total securities             $     692,812    $       6,426     $     (11,662)   $     687,576
                                     =====================================================================
</TABLE>

The  Company  does not expect to realize any of the  unrealized  gains or losses
related to the securities in the  held-to-maturity  portfolio  because it is the
Company's  intent to hold them to  maturity.  At that time the par value will be
received.  An exception to this expectation occurs when securities are called by
the issuer prior to their maturity. In these situations,  gains or losses may be
realized.   Gains   or   losses   may  be   realized   on   securities   in  the
available-for-sale  portfolio as the result of sales of these securities carried
out in response to changes in interest rates or for other reasons related to the
management of the components of the balance sheet.

                                                                              10
<PAGE>

5.   Loans and the Allowance for Credit Losses
<TABLE>

The balances in the various loan categories are as follows:
<CAPTION>

(in thousands)                         March 31, 2000      December 31, 1999         March 31, 1999
                                      ----------------     -----------------        -----------------
<S>                                         <C>                   <C>                      <C>
Real estate:
     Residential                            $ 493,613             $ 484,562                $ 432,025
     Nonresidential                           476,718               435,913                  496,821
     Construction                             150,158               171,870                  119,274
Commercial loans                              569,275               577,407                  368,427
Home equity loans                              52,742                49,902                   44,588
Consumer loans                                154,601               148,051                  125,177
Tax refund loans                               46,718                    --                   18,389
Leases                                         99,775                93,322                   89,057
Municipal tax-exempt obligations               11,915                12,530                    8,540
Other loans                                     6,183                 8,322                    5,463
                                      ----------------     -----------------        -----------------
              Total loans                 $ 2,061,698           $ 1,981,879              $ 1,707,761
                                      ================     =================        =================

</TABLE>

The loan  balances at March 31,  2000,  December 31, 1999 and March 31, 1999 are
net of approximately  $5,035,000,  $4,781,000,  and $4,162,000 respectively,  in
deferred net loan fees and origination costs.

Specific  kinds of loans are  identified  as impaired  when it is probable  that
interest and principal will not be collected  according to the contractual terms
of the loan agreements.  Because this definition is very similar to that used by
Management  to  determine  on which loans  interest  should not be accrued,  the
Company  expects  that  most  impaired  loans  will  be  on  nonaccrual  status.
Therefore,   in  general,   the  accrual  of  interest  on  impaired   loans  is
discontinued,  and any  uncollected  interest is written  off  against  interest
income in the current period. No further income is recognized until all recorded
amounts of principal are recovered in full or until  circumstances  have changed
such that the loan is no longer regarded as impaired.
<TABLE>

Impaired  loans are  reviewed  each  quarter to  determine  whether a  valuation
allowance for loan loss is required.  The amount of the valuation  allowance for
impaired  loans is determined by comparing the recorded  investment in each loan
with its value measured by one of three methods. The first method is to estimate
the expected future cash flows and then discount them at the effective  interest
rate. The second method is to use the loan's observable market price if the loan
is of a kind for which there is a secondary  market.  The third method is to use
the value of the underlying collateral. A valuation allowance is established for
any amount by which the  recorded  investment  exceeds the value of the impaired
loan. If the value of the loan as determined by the selected  method exceeds the
recorded  investment  in the  loan,  no  valuation  allowance  for that  loan is
established.  The  following  table  discloses  balance  information  about  the
impaired loans and the related allowance  (dollars in thousands) as of March 31,
2000, December 31, 1999 and March 31, 1999:
<CAPTION>

                                                  March 31, 2000         December 31, 1999            March 31, 1999
                                                  --------------         -----------------            --------------
<S>                                                  <C>                      <C>                        <C>
Loans identified as impaired                         $  8,355                 $9,496                     $13,273
Impaired loans for which a valuation
allowance has been determined                        $  8,355                 $8,221                     $ 8,632
Amount of valuation allowance                        $  3,370                 $3,726                     $ 3,342
Impaired loans for which no valuation
  allowance was determined necessary                 $    --                  $1,275                     $ 4,641
</TABLE>

Because  the  loans   currently   identified   as  impaired   have  unique  risk
characteristics, the valuation allowance is determined on a loan-by-loan basis.

The following  table  discloses  additional  information  (dollars in thousands)
about impaired loans for the three-month periods ended March 31, 2000 and 1999:

                                                                              11
<PAGE>

                                    Three-month Periods
                                       Ended March 31,
                                      2000       1999
                                      ----       ----

Average amount of recorded
investment in impaired loans         $6,449     $13,368

Collections of interest from
impaired loans and recognized
as interest income                   $  --      $  --


The Company also provides an allowance for credit losses for other loans.  These
include (1) groups of loans for which the  allowance is determined by historical
loss  experience  ratios for  similar  loans;  (2)  specific  loans that are not
included in one of the types of loans covered by the concept of "impairment" but
for which  repayment is nonetheless  uncertain;  and (3) losses  inherent in the
various loan portfolios,  but which have not been specifically  identified as of
the period end. The amount of the various components of the allowance for credit
losses  are based on review of  individual  loans,  historical  trends,  current
economic conditions,  and other factors.  This process is explained in detail in
the notes to the  Company's  Consolidated  Financial  Statements  in its  Annual
Report on Form 10-K for the year ended December 31, 1999.

Loans that are deemed to be uncollectible are charged-off  against the allowance
for  credit  losses.  Uncollectibility  is  determined  based on the  individual
circumstances of the loan and historical trends.

The valuation  allowance for impaired loans of $3.4 million is included with the
general  allowance  for credit  losses of $27.6 million and allowance for credit
losses from tax refund loans of $3.2 million  reported on the balance  sheet for
March 31, 2000, which these notes accompany, and in the "All Other Loans" column
in the statement of changes in the allowance  account for the first three months
of 2000 shown below. The amounts related to tax refund anticipation loans and to
all other loans are shown separately.

(in thousands)                                              Refund
                                              Tax Refund    Other
                                                Loans       Loans        Total
                                               --------    --------    --------
Balance, December 31, 1999                     $    488    $ 28,198    $ 28,686
Provision for loan losses                         3,631       1,915       5,546
Loan losses charged against allowance            (2,869)     (5,964)     (8,833)
Loan recoveries added to allowance                1,959       3,486       5,445
                                               --------    --------    --------
Balance, March 31, 2000                        $  3,209    $ 27,635    $ 30,844
                                               ========    ========    ========

Balance, December 31, 1998                     $    333    $ 28,963    $ 29,296
Provision for loan losses                         2,759         960       3,719
Loan losses charged against allowance            (3,323)       (965)     (4,288)
Loan recoveries added to allowance                2,102         679       2,781
                                               --------    --------    --------
Balance, March 31, 1999                        $  1,871    $ 29,637    $ 31,508
                                               ========    ========    ========


6.       Other Assets

Property acquired as a result of defaulted loans is included within other assets
on the balance sheets.  Property from defaulted loans is carried at the lower of
the  outstanding  balance of the related loan at the time of  foreclosure or the
estimate of the market value of the assets less disposal  costs. As of March 31,
2000 and  December  31,  1999,  the Company  held some  properties  which it had
obtained  in  foreclosures.  However,  because of the  uncertainty  relating  to
realizing  any proceeds  from their  disposal in excess of the cost of disposal,
the Company had written their carrying value down to zero.


                                                                              12
<PAGE>

Also  included  in other  assets on the  balance  sheet  for March 31,  2000 and
December 31, 1999,  are deferred tax assets and  goodwill.  In  connection  with
acquisitions of other financial institutions,  the Company recognized the excess
of the purchase price over the estimated  fair value of the assets  received and
liabilities assumed as goodwill. The current balance of this intangible is $16.1
million.  The purchased goodwill is being amortized over 10 and 15 year periods.
Intangible assets,  including  goodwill,  are reviewed each year to determine if
circumstances  related to their valuation have been materially affected.  In the
event that the current  market value is  determined  to be less than the current
book value of the intangible  asset, a charge against current  earnings would be
recorded .

7.       Long-term Debt and Other Borrowings

Long-term debt and other borrowings included $118.5 million and $85.0 million of
advances  from the Federal Home Loan Bank of San Francisco at March 31, 2000 and
December 31, 1999, respectively.

8.       Comprehensive Income

Components  of  comprehensive  income  are  changes  in equity  other than those
resulting from investments by owners and distributions to owners.  Net income is
the  primary  component  of  comprehensive  income.  For the  Company,  the only
component of  comprehensive  income other than net income is the unrealized gain
or loss on securities classified as available-for-sale.  The aggregate amount of
such  changes  to equity  that have not yet been  recognized  in net  income are
reported in the equity portion of the Consolidated Balance Sheets as accumulated
other comprehensive income.

When a  security  that had been  classified  as  available-for-sale  is sold,  a
realized  gain or  loss  will be  included  in net  income  and,  therefore,  in
comprehensive  income.  Consequently,  the recognition of any unrealized gain or
loss for that  security  that had been  included in  comprehensive  income in an
earlier  period  must  be  reversed.  These  adjustments  are  reported  in  the
consolidated  statements of comprehensive income as reclassification  adjustment
for gains (losses) included in net income.

9.       Segment Disclosure

While the  Company's  products and services are all of the nature of  commercial
banking,  the  Company has seven  reportable  segments.  There are six  specific
segments:  Wholesale Lending, Retail Lending, Branch Activities,  Fiduciary, Tax
Refund  Processing,  and the Northern  Region.  The remaining  activities of the
Company are  reported  in a segment  titled "All  Other".  Detailed  information
regarding  the  Company's  segments is  provided in Note 20 to the  consolidated
financial  statements included in the Company's Annual Report on Form 10-K. This
information  includes  descriptions  of the factors  used in  identifying  these
segments,  the types and  services  from which  revenues  for each  segment  are
derived,  charges and credits for funds,  and how the specific measure of profit
or loss was selected.  Readers of these interim  statements are referred to that
information  to better  understand  the  following  disclosures  for each of the
segments.  There  have been no changes  in the basis of  segmentation  or in the
measurement of segment profit or loss from the  description  given in the annual
report.

The following  tables present  information  for each segment  regarding  assets,
profit or loss,  and specific  items of revenue and expense that are included in
that  measure  of  segment  profit or loss as  reviewed  by the chief  operating
decision maker.

                                                                              13
<PAGE>

<TABLE>
<CAPTION>

                                                                      Tax
 (in thousands)               Branch       Retail      Wholesale     Refund                 Northern        All
                            Activities    Lending       Lending     Programs    Fiduciary    Region        Other          Total
                           ------------ ------------  -----------  ----------  ----------- -----------  ------------  -------------
<S>                            <C>         <C>          <C>          <C>          <C>        <C>           <C>            <C>
 Three months ended
      March 31, 2000
 Revenues from
   external customers         $  2,532     $ 15,150     $ 15,653    $ 24,222      $ 3,821    $ 20,115    $   13,098     $   94,590
 Intersegment revenues          26,604           52           --       1,889          850          --         3,773         33,168
                           ------------ ------------  -----------  ----------  ----------- -----------  ------------  -------------
 Total revenues               $ 29,136     $ 15,202     $ 15,653    $ 26,111      $ 4,671    $ 20,115    $   16,871     $  127,758
                           ============ ============  ===========  ==========  =========== ===========  ============  =============
 Profit (Loss)                $  5,587     $  2,754     $  4,376    $ 16,788      $ 2,121    $  6,209    $   (3,376)    $   34,459
 Interest income                    25       14,827       15,402      17,613           --      18,428        12,557         78,852
 Interest expense               17,272           53            1          --          771       5,908         1,671         25,677
 Internal charge for funds         248        9,726        9,170       2,776           --          --        11,248         33,168
 Depreciation                      334           46           26          28           33         270           494          1,231
 Total assets                   14,536      726,506      660,855      41,257        1,811     946,779     1,152,866      3,544,610
 Capital expenditures               --           --           --          --           --       2,579         3,383          5,961

 Three months ended
      March 31, 1999
 Revenues from
   external customers         $  2,077     $ 12,227     $ 12,391    $ 13,384      $ 3,401    $ 17,007    $   11,899     $   72,386
 Intersegment revenues          18,203           53           --       1,713          620          --         3,537         24,126
                           ------------ ------------  -----------  ----------  ----------- -----------  ------------  -------------
 Total revenues               $ 20,280     $ 12,280     $ 12,391    $ 15,097      $ 4,021    $ 17,007    $   15,436     $   96,512
                           ============ ============  ===========  ==========  =========== ===========  ============  =============
 Profit (Loss)                $  4,582     $  2,937     $  4,163    $  9,535      $ 1,853    $  5,777    $   (3,975)    $   24,872
 Interest income                    14       11,918       12,006       7,477           --      15,636        11,064         58,115
 Interest expense                9,862           55           --          --          556       4,981           816         16,270
 Internal charge for funds         199        7,532        6,422         546           --          --         9,427         24,126
 Depreciation                      399           37           23          24           36         331           352          1,202
 Total assets                   13,035      611,099      538,730      13,552        1,408     851,006       671,432      2,700,262
 Capital expenditures               --           --           --          --           --          35         1,569          1,604


</TABLE>

                                                                              14
<PAGE>

The following  table  reconciles  total  revenues and profit for the segments to
total revenues and pre-tax income,  respectively in the consolidated  statements
of income for the three-month periods ended March 31, 2000 and 1999.

                                                    Three Months ended March 31,
                                                      2000               1999
                                                   ---------          ---------
Total revenues for

  reportable segments                              $ 127,758          $  96,512
Elimination of
  intersegment revenues                              (33,168)           (24,126)
Elimination of taxable
  equivalent adjustment                               (1,393)            (1,431)
                                                   ---------          ---------
Total consolidated revenues                        $  93,197          $  70,955
                                                   =========          =========

Total profit or loss
  for reportable segments                          $  34,459          $  24,872
Elimination of taxable
  equivalent adjustment                               (1,393)            (1,431)
                                                   ---------          ---------
Income before income taxes                         $  33,066          $  23,441
                                                   =========          =========



                                                                              15
<PAGE>

10.      New Accounting Pronouncement

Statement of Financial  Accounting  Standards  No. 133,  "Accounting  Derivative
Instruments  and Hedging  Activities",  was issued during the second  quarter of
1998 and will  become  effective  for the  Company as of  January 1, 2001.  This
statement is not expected to have a material impact on the operating  results or
the financial position of the Company.

11.      Contengencies

The  Company  is one of a  number  of  financial  institutions  named  as  party
defendants in a patent  infringement  lawsuit recently filed by an unaffilliated
financial institution. The lawsuit generally relates to the Company's tax refund
program.

The Company has retained  outside  legal  counsel to represent  its interests in
this matter.  The Company does not believe that it has  infringed any patents as
alleged in the lawsuit and intends to  vigorously  defend itself in this matter.
The amount of alleged  damages are not  specified in the papers  received by the
Company.  Therefore,  Management cannot estimate the amount of any possible loss
at this time in the event of an unfavorable outcome.



                                                                              16
<PAGE>



MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

SUMMARY

Pacific Capital Bancorp and its wholly owned subsidiaries  (together referred to
as the "Company")  posted  earnings of $19.8 million for the quarter ended March
31, 2000,  up $5.3  million  over the same quarter last year.  Diluted per share
earnings  for the first  quarter of 2000 were $0.80  compared to $0.59 earned in
the first quarter of 1999.

In various sections of this discussion and analysis,  attention is called to the
significant  impacts on the Company's  balance sheet and income statement caused
by its tax refund and  transfer  programs.  The actions  taken by the Company to
manage  this  program are  discussed  in a specific  section of this  discussion
titled "Refund  Anticipation  Loan and Refund  Transfer  Programs."  Readers are
referred to this section because Management believes that the explanation of the
impacts will be clearer to the reader if those  actions are all described in one
place.

Compared to the first  quarter of 1999,  net  interest  income  (the  difference
between interest income and interest expense)  increased by $11.4 million in the
first  quarter of 2000,  an increase of 28.13%.  This was due  primarily  to the
seasonal  impact of the income tax refund loan programs and additional  interest
on other  loans.  Loans other than tax refund  loans  increased  19% from $1.693
billion at March 31, 1999, to $2.018 billion a year later.  Interest income from
loans for the  quarter  was $61.9  million,  up $18.7  million  or 43%.  Of this
increase,  $5.7  million  related  to the  substantially  expanded  refund  loan
program.

Deposits  increased  $686.9  million or 29.1%  during the last 12 months,  while
interest expense increased $7.6 million.  As explained more fully in the section
below  covering  the tax refund  products,  approximately  $385  million of this
growth was due to issuing  certificates of deposits  through  brokerage firms to
fund the tax refund loans.

Noninterest  income,  exclusive of gains or losses on  securities  transactions,
increased by $1.8 million  over the same quarter of 1999.  Trust and  Investment
Services fees were up $414,000.

Provision  expense for the first quarter of 2000 for loans other than tax refund
loans was  $1,915,000,  compared  to $960,000  provided in the first  quarter of
1999.  The  provision  for tax  refund  loans for the first  quarter of 2000 was
$3,631,000 compared to $2,759,000 for the first quarter of 1999.

Noninterest expenses increased in the first quarter of 2000 compared to the same
quarter of 1999,  from $27.5 million to $28.8 million.  However,  because of the
increases in net interest income and noninterest income, the Company's operating
efficiency ratio, which measures what proportion of a dollar of operating income
it takes to earn that dollar,  improved from 48.9% for the first quarter of 1999
to 41.6% for the first quarter of 2000.

The Company earned $0.80 per diluted share in the first quarter of 2000 compared
with $0.59 in the first quarter of 1999.

BUSINESS

The Company is a bank holding company.  All references to "the Company" apply to
Pacific Capital Bancorp and its subsidiaries. "Bancorp" will be used to refer to
the parent company only. Its major  subsidiaries  are Santa Barbara Bank & Trust
("SBB&T") and First National Bank of Central  California  ("FNB")  including its
affiliate  South  Valley  National  Bank  ("SVNB").  SBB&T is a  state-chartered
commercial  bank  and  is a  member  of the  Federal  Reserve  System.  FNB is a
nationally chartered commercial bank and is also a member of the Federal Reserve
System. They offer a full range of retail and commercial banking services. These
include  commercial,  real estate, and consumer loans, a wide variety of deposit
products,  and full trust  services.  The Company's  third active  subsidiary is
Pacific  Capital  Commercial  Mortgage,  Inc.  ("PCCM").  The  primary  business
activity of PCCM is brokering  commercial  real estate loans and servicing those
loans for a fee.  Bancorp provides  support  services,  such as data processing,
personnel,  training,  and financial reporting to the subsidiary banks.  Bancorp
has one inactive subsidiary, Pacific Capital Services Corporation.

                                                                              17
<PAGE>

FORWARD-LOOKING INFORMATION

This report  contains  forward-looking  statements with respect to the financial
conditions,  results of  operations  and business of the Company.  These include
statements  about the Company's plans,  objectives,  expectations and intentions
that are not historical  facts.  When used in this Report,  the words "expects",
"anticipates",   "plans",   "believes",   "seeks",   "estimates",   and  similar
expressions are generally intended to identify forward-looking statements. These
forward-looking statements involve certain risks and uncertainties. Factors that
may cause actual results to differ  materially  from those  contemplated by such
forward-looking  statements include, among others, the following  possibilities:
(1)  competitive   pressure  among  financial   services   companies   increases
significantly;  (2) changes in the interest  rate  environment  reduce  interest
margins; (3) general economic conditions, internationally,  nationally or in the
State of California,  are less favorable than expected; (4) changes in the IRS's
handling of electronic filing and refund payments adversely affect the Company's
RAL  and  refund  transfer  ("RT")  programs;   (5)  legislation  or  regulatory
requirements or changes  adversely affect the business in which the Company will
be engaged;  and (6) other risks  detailed in the Pacific  Capital  Bancorp 1999
Annual Report on Form 10-K filed with the Securities and Exchange Commission.

TOTAL ASSETS AND EARNING ASSETS


The chart  below shows the growth in average  total  assets and  deposits  since
1996. Annual averages are shown for 1996 and 1997;  quarterly averages are shown
for 1998,  1999 and 2000.  Because  significant but unusual cash flows sometimes
occur  at the  end of a  quarter  and at  year-end,  the  overall  trend  in the
Company's  growth  is  better  shown  by the  use of  average  balances  for the
quarters.

                                                                              18
<PAGE>


Chart 1 GROWTH IN AVERAGE ASSETS AND DEPOSITS ($ in millions)

$3,500                                                     AAA
$3,450
$3,400

$3,350                                                    A
$3,300
$3,250

$3,200                                                   A
$3,150
$3,100

$3,050                                                  A
$3,000                                                     DDD
$2,950                                                 A
$2,900                                                    D
$2,850                                          AAAAAAA

$2,800                                AAA      A
                                         A               D
$2,750                                    A   A
                                           AAA

$2,700                               A

$2,650                                                  D
                                    A
$2,600

                                 AAA

$2,550                          A
                               A                       D
$2,500                      AAA
                           A
$2,450                                DDD
                          A              D      DDDDDDD
$2,400             AAAAAAA           D         D
                  A                      D   D
$2,350                              D      DDD
                 A
$2,300                           DDD
                                D

$2,250          A               D
                            DDD

$2,200                     D
               A
$2,150                    D
              A    DDDDDDD
$2,100
                  D

$2,050       A

$2,000      A    D

$1,950
           A    D
$1,900
               D

$1,850    A
              D

$1,800
        AA   D

$1,750

$1,700 A    D

$1,650     D

$1,600    D

$1,550  DD

$1,500 D

                  1st  2nd  3rd  4th  1st  2nd  3rd  4th  1st
        '96  '97  '98  '98  '98  '98  '99  '99  '99  '99  '00

A = Assets    D = Deposits

                                                                              19
<PAGE>

Deposit balances also have been included in the chart because, prior to 1999, as
reflected  in Chart 1,  changes in assets were  primarily  related to changes in
deposit  levels.  As  deposit  funds were  received,  they were  either  lent to
customers or invested in  securities.  In 1999,  the growth in assets was driven
more by increasing loan demand than by deposit growth.  As explained  below, the
Company funded much of this growth from the proceeds of maturing  securities and
by borrowing funds from other financial  institutions.  This change is reflected
in the chart by assets increasing more than deposits.

The overall  growth  trend  shown above for the Company  prior to 2000 is due in
part to the continuing  consolidation in the financial  services  industry.  The
Company  has  obtained  new  customers  as they  became  dissatisfied  when  the
character  of their  local bank was  changed by an  acquiring  institution.  The
Company also acquired  First Valley Bank ("FVB") and Citizens State Bank ("CSB")
in 1997 and merged  them into SBB&T.  Contrary  to the general  pattern of banks
losing customers of the acquired institution, depositors of these two banks have
kept their  deposits  with  SBB&T.  The same  experience  has been seen with the
depositors of FNB and SVNB, namely that deposits have increased since the merger
in  December of 1998.  Because  this  merger was  accounted  for as a pooling of
interests,  asset and deposit  totals for periods  prior to the merger have been
restated to include their  balances.  SBB&T has also opened three new offices in
Ventura  County and one new office in northern  Santa Barbara  County during the
period  covered by the  chart.  A decrease  in average  deposits  for the second
quarter  compared to the first is not unusual  although it did not occur in 1997
or 1998.  Such  decreases are usually the result of tax payments and payments of
holiday  bills.  In 1999,  some of the  decrease was probably due to funds being
withdrawn for investment  purposes as stock markets have continued  their strong
rise.

The major reason for the large increase in assets and deposits  during the first
quarter of 2000 was the  significant  expansion of the Company's tax refund loan
program.  The Company  issued  approximately  $405  million in  certificates  of
deposit to fund these loans.  The funding of the program is explained in greater
detail in the section below titled "Refund Anticipation Loan and Refund Transfer
Programs".

Earning assets consist of the various assets on which the Company earns interest
income.  On average,  the Company earned  interest on 94.2% of its assets during
the first three months of 2000.  This compares with an average of 89.8% for peer
FDIC-Insured  Commercial  Banks. (See Note A. Notes are found at the end of this
report.)  Having  more of its  assets  earning  interest  helps the  Company  to
maintain its high level of  profitability.  The Company has achieved this higher
percentage by several means.  Loans are  structured to have interest  payable in
most  cases each month so that  large  amounts  of accrued  interest  receivable
(which are  nonearning  assets) are not built up. In this  manner,  the interest
received can be invested to earn additional interest. The Company leases most of
its facilities under long-term contracts rather than owning them. This, together
with  the  aggressive  disposal  of  real  estate  obtained  as  the  result  of
foreclosure,  avoids tying up funds that could be earning interest.  Lastly, the
Company has  developed  systems for clearing  checks which are faster than those
used by most banks of comparable  size.  These systems permit the Company to put
the cash to use more quickly. At the Company's current size (excluding the extra
assets  due to the  certificates  of  deposits  added  for the tax  refund  loan
program),  these and other steps have resulted in about $141 million more assets
earning  interest  during the first  three  months of the year than would be the
case if the  Company's  ratio were  similar to its FDIC  peers.  The  additional
earnings  from  these  assets  are  somewhat  offset  by higher  lease  expense,
additional  equipment  costs,  and  occasional  losses  taken on quick  sales of
foreclosed property.  However, on balance,  Management believes that these steps
give the Company an earnings advantage.

INTEREST RATE SENSITIVITY

Most of the  Company's  earnings  arise  from  its  functioning  as a  financial
intermediary.  As such, it takes in funds from  depositors and then either lends
the funds to borrowers or invests the funds in securities and other instruments.
The Company  earns  interest  income on loans and  securities  and pays interest
expense on deposits and other borrowings.  Net interest income is the difference
in dollars between the interest income earned and the interest expense paid.

The following first table shows the average  balances of the major categories of
earning assets and liabilities for the three-month  periods ended March 31, 1999
and 2000 together with the related interest income and expense.  A second table,
an analysis of volume and rate variances, explains how much of the difference in
interest income or expense compared to the  corresponding  period of 1999 is due
to changes in the balances (volume) and how much is due to changes in rates. For
example, Table 1 shows that for the first quarter of 2000, NOW accounts averaged
$313,284,000,  interest expense for them was $545,000, and the average rate paid
was 0.71%.  In the first quarter of 1999,  NOW accounts  averaged  $291,216,000,
interest  expense for them was  $589,000,  and the average  rate paid was 0.82%.
Table 2 shows that the $44,000  decrease in


                                                                              20
<PAGE>

interest expense for demand deposits from the first quarter of 1999 to the first
quarter of 2000 is the net result of a $45,000  increase in interest expense due
to the higher  balances in 2000,  offset by a  reduction  of $89,000 in interest
expense due to the lower rates paid during 2000.

These tables also disclose the net interest margin for the reported periods. Net
interest  margin is the ratio of net interest  income to average earning assets.
This ratio is useful in  allowing  the  Company to  monitor  the spread  between
interest  income  and  interest  expense  from  month to month  and year to year
irrespective  of the growth of the Company's  assets.  If the Company is able to
maintain  the net  interest  margin  as the  Company  grows,  the  amount of net
interest  income  will  increase.  If the net  interest  margin  decreases,  net
interest income can still increase, but earning assets must increase at a higher
rate.  This  serves  to  replace  the net  interest  income  that is lost by the
decreasing rate by increasing the volume.

                                                                              21
<PAGE>

<TABLE>

TABLE 1 - AVERAGE BALANCES, INCOME AND EXPENSE, YIELDS AND RATES
<CAPTION>
(dollars in thousands)                               Three months ended                         Three months ended
                                                       March 31, 2000                              March 31, 1999
                                           --------------------------------------      --------------------------------------
                                             Average       Income/       Yield/          Average        Income/       Yield/
                                            Balances       Expense        Rate          Balances        Expense        Rate
                                           --------------------------------------      --------------------------------------
<S>                                           <C>            <C>           <C>            <C>             <C>          <C>
ASSETS
Short-term investments                        $362,945       $4,949        5.53%          $186,531        $2,227       4.80%
Securities:  (2)
    Taxable                                    548,046        8,269        6.12%           606,600         9,000       6.02%
    Non-taxable                                143,479        3,670       10.23%           134,775         3,553      10.54%
                                           ------------    ---------                   ------------    ----------
      Total securities                         691,525       11,939        6.97%           741,375        12,553       6.84%
                                           ------------    ---------                   ------------    ----------
Loans and leases:  (3)
    Commercial                                 579,753       13,659        9.55%           375,967         8,289       8.94%
    Ready equity                                53,086        1,251        9.56%            46,685         1,009       8.77%
    Real estate                              1,097,755       22,701        8.27%           987,080        21,075       8.54%
    Installment and consumer loans             172,176        4,666       10.99%           148,178         3,782      10.35%
    Leasing                                    105,874        2,619       10.03%            82,710         2,060      10.10%
    Tax refund loans                           212,025       17,068       32.65%            42,496         7,120      67.95%
                                           ------------    ---------                   ------------    ----------
      Total loans and leases                 2,220,669       61,964       11.26%         1,683,116        43,335      10.37%
                                           ------------    ---------                   ------------    ----------
      Total earning assets                   3,275,139       78,852        9.72%         2,611,022        58,115       8.97%
Allowance for credit losses                    (31,395)                                    (32,303)
Other assets                                   231,551                                     210,403
                                           ------------                                ------------

TOTAL ASSETS                                $3,475,295                                  $2,789,122
                                           ============                                ============
LIABILITIES

Deposits:
    Interest-bearing demand                   $313,284          545        0.71%          $291,216           589       0.82%
    Savings and money market                   827,253        6,535        3.20%           779,109         5,221       2.72%
    Time deposits                            1,170,107       15,841        5.49%           785,953         9,467       4.89%
                                           ------------    ---------                   ------------    ----------
      Total interest-bearing deposits        2,310,644       22,921                      1,856,278        15,277
Borrowed funds                                 195,175        2,756        5.73%           $75,997           993       5.30%
                                           ------------    ---------    ---------      ------------    ----------     -------
      Total interest-bearing liabilities     2,505,819       25,677        4.16%         1,932,275        16,270       3.41%
Noninterest-bearing demand deposits            692,215                                     603,432
Other liabilities                               31,634                                      33,729
                                           ------------                                ------------
TOTAL LIABILITIES                            3,229,668                                   2,569,436

Shareholders' equity                           245,627                                     219,686
                                           ------------                                ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY                        $3,475,295                                  $2,789,122
                                           ============                                ============

Net interest rate spread                                                   5.56%                                       5.56%
NET INTEREST INCOME AND NET
                                                           ---------                                   ----------
    INTEREST MARGIN                                         $53,175        6.54%                         $41,845       6.44%
                                                           =========                                   ==========
<FN>

(1) Income  amounts are  presented  on a fully  taxable  equivalent  basis.  The
federal statutory rate was 35% for all periods presented.

(2)  Average  securities  balances  are  based  on  amortized  historical  cost,
excluding SFAS 115 adjustments to fair value which are included in other assets.

(3) Nonaccrual  loans are included in loan balances.  Interest  income  includes
related fees income.

</FN>
</TABLE>

                                                                              22
<PAGE>

<TABLE>

TABLE 2 -   RATE/VOLUME ANAYSIS  (1) (2)
<CAPTION>
(in thousands)                                             Three months ended
                                                    March 31, 2000 vs March 31, 1999
                                        ----------------------------------------------------------
                                          Change in     Change in
                                           Average       Income/           Rate         Volume
                                           Balance       Expense          Effect        Effect
                                        ----------------------------------------------------------
<S>                                          <C>              <C>                 <C>       <C>
EARNING ASSETS:
Short-term investments                       $176,414         $2,722          $   377     $ 2,345
Securities: (3)
    Taxable                                   (58,554)          (731)             150        (881)
    Non-taxable                                 8,704            117             (106)        223
                                        ----------------------------------------------------------
      Total securities                        (49,850)          (614)              44        (658)
                                        ----------------------------------------------------------
Loans and leases: (4)
    Commercial                                203,786          5,370              604       4,766
    Ready equity                                6,401            242               96         146
    Real estate                               110,675          1,626             (665)      2,291
    Installment and consumer loans             23,998            884              244         640
    Leasing                                    23,164            559              (14)        573
    Tax refund loans                          169,529          9,948          (18,456)     28,402
                                        ----------------------------------------------------------
      Total loans and leases                  537,553         18,629          (18,191)     36,818
                                        ----------------------------------------------------------

TOTAL EARNING ASSETS                         $664,117         20,737          (17,769)     38,504
                                        ==============

INTEREST-BEARING LIABILITIES
Deposits:
    Interest-bearing demand                   $22,068            (44)             (89)         45
    Savings and money market                   48,144          1,314              991         323
    Time deposits                             384,154          6,374            1,747       4,627
                                        ----------------------------------------------------------
      Total deposits                          454,366          7,644            2,649       4,995
Borrowed funds                                119,178          1,763              206       1,557
TOTAL INTEREST-BEARING
    LIABILITIES                              $573,544          9,407            2,855       6,552
                                        ==============--------------------------------------------

NET INTEREST INCOME (4)                                      $11,330         ($20,624)    $31,952
                                                      ============================================
<FN>

(1) Income amounts are presented on a fully taxable  equivalent (FTE) basis. The
federal statutory rate was 35% for all periods presented.

(2) The change not solely due to volume or rate has been  prorated into rate and
volume components.

(3) Average securities balances are based on amortized cost,  excluding SFAS 115
adjustments to fair value which are included in other assets.

(4) Nonaccrual  loans are included in loan balances.  Interest  income  includes
related fee income.
</FN>
</TABLE>

                                                                              23
<PAGE>

Because such large  proportions  of the  Company's  balance  sheet is made up of
interest-earning  assets and  interest-bearing  liabilities,  and because such a
large  proportion  of its earnings is dependent on the spread  between  interest
earned and interest paid, it is critical that the Company measure and manage its
interest  rate  sensitivity.  Measurement  is done by  estimating  the impact of
changes in interest rates over the next twelve months on net interest income and
on net economic  value.  Net economic value is the net present value of the cash
flows arising from assets and liabilities discounted at their acquired rate plus
or minus assumed changes.

Estimating  changes in net interest  income or net economic value from increases
or decreases in balances is relatively straight forward. Estimating changes that
would result from increases or decreases in interest rates is substantially more
difficult.  Estimation is complicated by a number of factors: (1) some financial
instruments have interest rates that are fixed for their term,  others that vary
with rates,  and others that are fixed for a period and then reprice  using then
current rates;  (2) the rates paid on some deposit  accounts are set by contract
while  others are priced at the  option of the  Company;  (3) the rates for some
loans vary with the market,  but only within a limited range;  (4) customers may
prepay loans or withdraw deposits if interest rates move to their  disadvantage,
effectively  forcing  a  repricing  sooner  than  would  be  called  for  by the
contractual terms of the instrument; and (5) interest rates do not change at the
same time or to the same extent.

To address the complexity  resulting  from these and other  factors,  a standard
practice  developed  in the  industry is to compute the impacts of  hypothetical
interest rate "shocks" on the Company's asset and liability balances. A shock is
an immediate  change in all interest rates.  The resulting  impacts indicate how
much of the Company's net interest  income and net economic  value are "at risk"
(would  deviate  from the base  level) if rates  were to change in this  manner.
Although interest rates normally would not change suddenly in this manner,  this
exercise  is  valuable  in  identifying  exposures  to  risk  and  in  providing
comparability  both with other  institutions  and between  periods.  The results
reported below for the Company's  December 31, 1999, and March 31, 2000 balances
indicate that the  Company's net interest  income at risk over a one year period
and net economic value at risk from 2% shocks are within normal expectations for
such sudden changes:

                                Shocked by -2%    Shocked by +2%
                                --------------    --------------

As of  December 31, 1999
Net interest income               (4.26%)            +3.00%
Net economic value                +8.84%             (6.61%)

As of  March 31, 2000
Net interest income               (4.34%)            +3.14%
Net economic value                +9.27%             (7.09%)

The  differences  in the results are due to changes in the relative  size of the
various  components  of the  Company's  balance sheet (the product mix) over the
last  three  months  and  the  changes  in  the  maturities   and/or   repricing
opportunities of the financial  instruments held.  Because the effect of changes
on net interest income is measured over the next twelve months, the results will
depend on whether more assets or liabilities will reprice within that period. If
the Company has more assets  repricing  within one year than it has liabilities,
then net interest  income will increase with  increases in rates and decrease as
rates decline.  The opposite  effects will be observed if more  liabilities than
assets reprice in the next twelve months. As indicated in several other sections
of this discussion, much of the growth in loans has occurred in types which have
fixed rates for at least  several  years and much of this growth has been funded
by lowering short-term  investments.  As indicated,  these changes tend to cause
liabilities  to reprice  sooner  than assets and reduce net  interest  income at
least over the next 12 months.  To offset this effect,  the Company took several
actions late in the 2nd quarter and throughout the 3rd quarter,  including sales
of   securities,   fixed-rate   longer-term   borrowing,   and   entering   into
fixed-for-variable interest rate swaps.

The same changes to the balance sheet and mitigating  steps  mentioned  above in
connection with net interest income also account for the changes in net economic
value.  However,  the computation of net economic value discounts all cash flows
over the life of the instrument, not only the next twelve months. Therefore, the
results tend to be more pronounced. For


                                                                              24
<PAGE>

example,  in estimating the impact on net interest  income of a two percent rise
in rates on a security  maturing in three years, only the negative impact during
the first year is captured in net interest  income.  In estimating the impact on
net economic value, the negative impact for all three years is captured.

The changes in net interest  income and net economic  value  resulting  from the
hypothetical  increases  and decreases in rates are not exactly  symmetrical  in
that the same percentage of increase and decrease in the  hypothetical  interest
rate will not cause the same  percentage  change in net  interest  income or net
economic   value.   This  occurs   because   various   contractual   limits  and
non-contractual  factors  come  into  play.  An  example  of the  former  is the
"interest  rates  cap" on  loans,  which may limit  the  amount  that  rates may
increase.  An example of the latter is the  assumption on how low rates could be
lowered on  administered  rate accounts.  The degree of symmetry  changes as the
base  rate  changes  from  period  to period  and as there  are  changes  in the
Company's  product mix. For  instance,  the assumed  floors on deposit rates are
more likely to come into play in a 2% decrease if the base rate is lower. To the
extent  that  consumer  variable  rate  loans  are a  larger  proportion  of the
portfolio than in a previous period, the caps on loan rates, which generally are
present  only in  consumer  loans,  would have more of an adverse  impact on the
overall result.

For these computations, the Company makes certain assumptions that significantly
impact the results.  For example,  the Company must make  assumptions  about the
duration of its non-maturity deposits because they have no contractual maturity,
and  about the  rates  that  would be paid on the  Company's  administered  rate
deposits as external yields change.  These assumptions are reviewed each quarter
and changed as deemed  appropriate to reflect the best information  available to
Management.

In  addition to the  simulations  using the sudden  rate  changes,  hypothetical
scenarios are also used that include  gradual  interest  rate changes.  The most
recent modeling using these more realistic  hypothetical scenarios confirms that
the  Company's  interest  rate risk profile is relatively  balanced,  i.e.,  the
negative  impact on net  economic  value from  hypothetical  changes in interest
rates is not  excessive,  and that the results are within  normal  expectations.
However,  along  with the  assumptions  used for the shock  computations,  these
computations using gradual changes require certain  additional  assumptions with
respect  to  the  magnitude,  direction  and  volatility  of the  interest  rate
scenarios selected which affect the results.

The Company's  exposure to interest rate risk is discussed in more detail in the
1999 10-K MD&A.

DEPOSITS AND RELATED INTEREST EXPENSE

While there  occasionally  may be slight  decreases in average deposits from one
quarter to the next,  the overall trend is one of growth as shown in Chart 1. As
noted in the discussion  accompanying  the chart and as discussed in the section
titled "Refund  Anticipation  Loan and Refund  Transfer  Programs,"  there was a
significant  increase in deposits during the first quarter of 2000 to fund these
programs. These deposits bear a higher interest rate than other deposits and the
rate paid on time deposits as shown in Table 1 reflect this higher rate.

The rate of growth of any  financial  institution  is  restrained by the capital
requirements  discussed in the section of this report titled "Capital  Resources
and Company  Stock".  Growth at too rapid a pace will  result in capital  ratios
that are too low. The normal orderly growth  experienced by the Company has been
planned  by  Management  and  Management  anticipates  that it can be  sustained
because of the strong capital  position and earnings record of the Company.  The
increases have come by maintaining  competitive  deposit rates,  introducing new
deposit  products,  the opening of new retail branch offices,  the assumption of
deposits in the FVB and CSB acquisitions,  and successfully  encouraging  former
customers of merged  financial  institutions to become customers of the Company.
The abnormal growth in deposits related to the tax refund programs was carefully
planned to provide the least expensive  source of funding and within the context
of maintaining the Company's well-capitalized classification as measured at each
quarter-end.

LOANS AND RELATED INTEREST INCOME

The  end-of-period  loan balances as of March 31, 2000,  have increased by $79.8
million  compared to December 31, 1999, and by $353.9 million  compared to March
31,  1999.  As  shown  in the  table  in  Note 5 to the  consolidated  financial
statements,  each one of the categories of loans increased in the last 12 months
except nonresidential real estate.

                                                                              25
<PAGE>

Residential  real estate  loans have  continued to increase but at a slower rate
than was seen in 1998 and 1999.  Recent increases in interest rates have reduced
the demand for  refinancing.  Most of the residential real estate loans held are
adjustable rate mortgages  ("ARMS") that have initial  "teaser" rates. The yield
increases for these loans as the teaser rates expire. Applicants for these loans
are qualified based on the fully-indexed rate.

The  balances of  nonresidential  real estate loans tend to vary more than other
loan types  because  the  average  size is larger  than for other loan types and
typically have shorter  maturities.  Therefore  originations  and payoffs have a
proportionally larger impact on the outstanding balance.

Construction loans have also grown over the last year. Silicon Valley,  which is
adjacent to the  Company's  northern  market  areas,  has recently  seen rapidly
rising  housing prices  because of limited  supply.  This has caused new housing
construction  activity to increase in areas that are within commuting  distance,
and the Company is financing some of this construction.

Commercial  loans have  shown the  largest  increase  over the last 12 months as
businesses  in the  Company's  market areas  continue to benefit from the strong
economy.

The consumer  loan  portfolio has  increased  primarily  because of an increased
number of indirect auto loans. Indirect auto loans are loans purchased from auto
dealers. The dealers' loans must meet the credit criteria set by the Company.

About 90% or more of tax refund loans are made in the first quarter of each year
with the remainder in the second quarter.  The expanded program in 2000 resulted
in $46.7  million of loans  outstanding  at the end of the  quarter  compared to
$18.4 million in tax refund loans  outstanding at March 31, 1999.  There were no
such loans outstanding at December 31, 1999.

The average balances and yields for loans for the first three months of 2000 and
1999 are reported in Table 1. As explained in the section  below titled  "Refund
Anticipation  Loan and Refund  Transfer  Programs," the fees charged for the tax
refund loans are unrelated to the time they are  outstanding and related more to
the cost to process  and the credit  risk.  The yields  reported  in Table 1 for
these loans therefore are significantly  impacted by the length of time they are
outstanding,  because  the income is  annualized.  Average  yields for the first
three  months of 2000 and 1999 without the effect of tax refund loans were 8.96%
and 8.95%, respectively.

The Federal Open Market Committee of the Federal Reserve Board has increased its
target  market  rates a number of times in the last 12  months.  Along with most
other  financial  institutions,  the  Company  has  increased  its prime rate to
reflect the change in market rates.  Despite these  increases,  the average rate
earned on loans aside from tax refund loans has remained virtually  identical to
the rate in the first  quarter of 1999.  Among the reasons for this are (1) only
those  loans which are indexed to prime are  repriced by this  change,  (2) many
customers  have  refinanced or repaid their fixed rate loans made in prior years
when rates were higher,  and (3) customers  are now  presented  with a number of
nonbank  sources  from which to borrow.  This  competition  has brought  about a
lowering of the rates to attract borrowers.

OTHER LOAN INFORMATION

In addition to the  outstanding  loans  reported in the  accompanying  financial
statements,  the  Company  has made  certain  commitments  with  respect  to the
extension of credit to customers.

(in thousands)                            March 31,           December 31,
                                           2000                  1999
                                           ----                  ----
Commitments to extend credit
     Commercial                          $395,386              $369,695
     Consumer                              72,824                70,744
 Standby letters of credit                 23,410                20,811


The majority of the  commitments  are for one year or less.  The majority of the
credit  lines  and  commitments  may be  withdrawn  by the  Company  subject  to
applicable legal  requirements.  The Company does anticipates that a majority of
the above commitments will not be fully drawn on by customers.  Consumers do not
tend to borrow the maximum  amounts

                                                                              26
<PAGE>

available  under their home equity lines and  businesses  typically  arrange for
credit lines in excess of their expected needs to handle contingencies.

The Company  defers and  amortizes  loan fees  collected and  origination  costs
incurred over the lives of the related  loans.  For each category of loans,  the
net amount of the  unamortized  fees and costs are  reported as a  reduction  or
addition,  respectively, to the balance reported. Because the fees collected are
generally less than the  origination  costs incurred for commercial and consumer
loans,  the total net deferred or unamortized  amounts for these  categories are
additions to the loan balances.

CREDIT QUALITY AND THE ALLOWANCE FOR CREDIT LOSSES

The allowance for credit  losses is provided in  recognition  that not all loans
will be fully paid according to their contractual terms. The Company is required
by regulation,  generally  accepted  accounting  principles,  and safe and sound
banking  practices  to maintain an allowance  that is adequate to absorb  losses
that are inherent in the portfolio of loans and leases,  including those not yet
identified.  The methodology used to determine the adequacy of the allowance for
credit  loss is  discussed  in  detail in Note 1 to the  Consolidated  Financial
Statements  presented in the Company's Annual Report for 1999 on Form 10-K. This
methodology  involves  estimating  the amount of credit loss inherent in each of
the loan and lease  portfolios  taking into account  such factors as  historical
charge-off  rates,   economic   conditions,   and  concentrations  by  industry,
geography,  and  collateral  type. In addition,  generally  accepted  accounting
principles require the establishment of a valuation allowance for impaired loans
as described in Note 5 to the financial statements.

Table 3 shows the amounts of noncurrent loans and  nonperforming  assets for the
Company at the end of the first quarter of 2000,  and at the end of the previous
four quarters.

Shown for both the Company and its peers are the coverage ratio of the allowance
to total  loans  and the ratio of  noncurrent  loans to total  loans.  While the
Company does not determine  its allowance for credit loss to achieve  particular
target ratios, the Company does nonetheless compute its ratios and compares them
with peer ratios as a check on its  methodology.  Only two other  banks  operate
national  refund loan and  transfer  programs.  Therefore,  refund loans and the
portion of the allowance for credit losses that  specifically  relates to refund
loans are  excluded  from the  Company's  figures  and  ratios for the table for
comparability.

Nonperforming   assets  include  noncurrent  loans  and  foreclosed   collateral
(generally real estate).

                                                                              27
<PAGE>

<TABLE>

Table 3--ASSET QUALITY
(dollars in thousands)
<CAPTION>
                                      March 31,      December 31,    September 30,      June 30,        March 31,
                                        2000            1999             1999             1999             1999
                                      -------          -------          -------          -------          -------
<S>                                   <C>              <C>              <C>              <C>              <C>
COMPANY AMOUNTS:
Loans delinquent
  90 days or more                     $ 2,784          $    80          $   347          $   122          $   301
Nonaccrual loans                       11,666           14,152           14,313           16,319           17,915
                                      -------          -------          -------          -------          -------
Total noncurrent loans                 14,450           14,232           14,660           16,441           18,216
Foreclosed real estate                   --               --               --               --               --
                                      -------          -------          -------          -------          -------
Total nonper-
  forming assets                      $14,450          $14,232          $14,660          $16,441          $18,216
                                      =======          =======          =======          =======          =======
Allowance for credit losses
  other than RALs                     $27,635          $28,198          $28,404          $29,616          $29,637
Allowance for RALs                      3,209              488             --               --              1,871
                                      -------          -------          -------          -------          -------
Total allowance                       $30,844          $28,686          $28,404          $29,616          $31,508
                                      =======          =======          =======          =======          =======

COMPANY RATIOS (Exclusive of RALs):
Coverage ratio of
  allowance for credit
  losses to total loans                  1.37%            1.42%            1.49%            1.63%            1.75%
Coverage ratio of
  allowance for credit
  losses to noncurrent loans              191%             198%             194%             180%             163%
Ratio of noncurrent
  loans to total loans                   0.72%            0.72%            0.77%            0.90%            1.08%
Ratio of nonperforming
  assets to total assets                 0.41%            0.49%            0.51%            0.60%            0.68%

FDIC PEER
  GROUP RATIOS:
Coverage ratio of
  allowance for credit
  losses to total loans                   n/a             1.82%            1.85%            1.99%            2.06%
Coverage ratio of
  allowance for credit
  losses to noncurrent loans              n/a              221%             210%             223%             209%
Ratio of noncurrent
  loans to total loans                    n/a             0.58%            0.62%            0.89%            0.99%
Ratio of nonperforming
  assets to total assets                  n/a             0.83%            0.88%            0.62%            0.69%


</TABLE>
<TABLE>

The allowance for credit losses (other than tax refund loans)  compared to total
loans remains  slightly  lower than the  corresponding  ratios for the Company's
peer group.  This is consistent  with the fact that the Company  generally has a
lower ratio of net charge-offs to average loans as shown in the following table:

Ratio of Net Charge-Offs to Average Loans:
<CAPTION>
                                                     1999     1998     1997     1996    1995
<S>                                                  <C>      <C>      <C>      <C>     <C>
Pacific Capital Bancorp (excl. tax refund loans)     0.24%    0.02%    (0.03%)  0.12%   0.86%
FDIC Peers                                           0.68%    1.08%    1.03%    0.89%   0.69%
</TABLE>

                                                                              28
<PAGE>

Management  identifies and monitors other loans that are potential problem loans
although  they are not now  delinquent  more  than 90 days.  Table 4  classifies
noncurrent loans and all potential  problem loans other than noncurrent loans by
loan category for March 31, 2000 (amounts in thousands).

Table 4--NONCURRENT AND OTHER POTENTIAL PROBLEM LOANS

                                                  Noncurrent  Other Potential
                                                       Loans   Problem Loans
                                                  ---------------------------
Loans secured by real estate:
       Construction and
             land development                       $  --          $ 2,388
      Agricultural                                     --            3,208
      Home equity lines                                 258            749
      1-4 family mortgage                             2,437          4,471
      Multifamily                                      --              135
      Nonresidential, nonfarm                         2,803          9,138
Commercial and industrial                             7,548         17,939
Leases                                                  364            227
Other consumer loans                                  1,040          2,115
Other Loans                                            --             --
                                                    -------        -------
                  Total                             $14,450        $40,370
                                                    =======        =======

The following table sets forth the allocation of the allowance for all potential
problem loans by classification as of March 31, 2000 (amounts in thousands).

         Doubtful                     $4,566
         Substandard                  $4,148
         Special Mention              $1,279

The total of the above  numbers  is less than the total  allowance.  Most of the
allowance is allocated  to loans which are not  currently  regarded as potential
problem  loans,  but for which,  based on the  Company's  experience,  there are
unidentified  losses among them. The amounts allocated both to potential problem
loans and to all other loans are determined based on the factors and methodology
discussed in Note 1 to the Consolidated  Financial  Statements  presented in the
Company's Annual Report on Form 10-K. Based on these considerations,  Management
believes  that the allowance for credit losses at March 31, 2000 was adequate to
cover the losses inherent in the loan and lease portfolios as of that date.

HEDGES, DERIVATIVES, AND OTHER DISCLOSURES

The Company has established  policies and procedures to permit limited types and
amounts of  off-balance  sheet  hedges to help manage  interest  rate risk.  The
Company has entered into several  interest rate swaps to mitigate  interest rate
risk late in 1999. Under the terms of these swaps, the Company pays a fixed rate
of interest to the counterparty  and receives a floating rate of interest.  Such
swaps  have the  effect of  converting  fixed rate  financial  instruments  into
variable or  floating  rate  instruments.  Such swaps may be related to specific
instruments or pools of instruments--loans, securities, or deposits with similar
interest  rate  characteristics  or terms.  The notional  amount of the swaps in
place at March 31, 2000 was $34  million  with a market  value of  approximately
$512,000.

Statement of Financial  Accounting  Standards  No. 133,  "Accounting  Derivative
Instruments  and Hedging  Activities",  was issued during the second  quarter of
1998 and will become  effective for the Company as of January 1, 2001 or earlier
should


                                                                              29
<PAGE>

the Company so choose.  The  Company  expects to  implement  this  reporting  on
January 1, 2001. This statement is not expected to have a material impact on the
operating results or the financial position of the Company.

The Company has not purchased  any  securities  arising out of highly  leveraged
transactions, and its investment policy prohibits the purchase of any securities
of less than investment grade, the so-called "junk bonds."

FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL

Cash in excess of the amount  needed to fund  loans,  invest in  securities,  or
cover  deposit  withdrawals  is sold to other  institutions  as Federal funds or
invested  with  other  institutions  on a  collateralized  basis  as  securities
purchased  under  agreements  to  resell  ("reverse  repo  agreements").   These
agreements are investments  which are  collateralized  by securities or loans of
the borrower and mature on a daily basis.  The sales of Federal  funds are on an
overnight  basis as well.  The amount of Federal  funds  sold and  reverse  repo
agreements  purchased  during  the  quarter  is an  indication  of  Management's
estimation  during the  quarter of  immediate  cash  needs,  the excess of funds
supplied by  depositors  over funds lent to  borrowers,  and relative  yields of
alternative investment vehicles.

As shown in Table 1, the average balance of these short-term investments for the
first three months of 2000 was more than for the first three months of 1999.  As
explained  in the section  below  titled  "Refund  Anticipation  Loan and Refund
Transfer  Programs,"  the  reason  for this  change is that the  Company  had to
arrange for a  substantial  amount of funding for the refund loan  program.  The
funding  could not be  arranged  for as short a period as was needed for the tax
refund  loans,  and the Company  therefore had an excess amount of funds on hand
for  much of the  first  quarter.  Some  of this  excess  was  used to  purchase
securities,  but  most  was  sold  as  Federal  funds  or  invested  with  other
institutions in reverse repo agreements.

OTHER BORROWINGS, LONG-TERM DEBT AND RELATED INTEREST EXPENSE

Other  borrowings  consist of securities  sold under  agreements to  repurchase,
Federal funds purchased, Treasury Tax and Loan demand notes, and borrowings from
the "FRB".  Generally,  Federal funds have been  purchased only from other local
financial institutions as an accommodation to them. However, because of the need
for  additional  funding this year to support the very strong loan  demand,  the
Company has purchased additional funds.  Nonetheless,  because the average total
of other  borrowings  still  represents  a very small  portion of the  Company's
source of funds (less than 5%), all of these short-term items have been combined
for the following table.

Table  5  indicates  for  other  borrowings  the  average  balance  (dollars  in
millions),  the rates and the proportion of total assets funded by them over the
last six quarters.

Table 5--OTHER BORROWINGS

                             Average           Average          Percentage of
     Quarter Ended         Outstanding          Rate        Average Total Assets
     -------------        --------------   -------------- ----------------------
     December       1998     $33.5              4.40%               1.3%
     March          1999      26.7              4.43                1.0
     June           1999      44.3              4.54                1.6
     September      1999      30.1              4.68                1.1
     December       1999      61.7              5.13                2.2
     March          2000      82.2              3.81                2.4

The amount of these  borrowings rose in the fourth quarter of 1999 as the growth
in loans  continued to exceed the growth in deposits  and the Company  turned to
nondeposit sources to fund the loan growth.

Long-term  debt  consists  of advances  from the  Federal  Home Loan Bank of San
Francisco  ("FHLB").  The  outstanding  advances  from the FHLB  March 31,  2000
totaled  $118.5  million.  The  scheduled  maturities  of the advances are $40.5
million in 1 year or less,  $15.4 million in 1 to 3 years,  and $62.6 million in
more than 3 years.

Table 6  indicates  the  average  balances  that  are  outstanding  (dollars  in
millions)  and the rates and the  proportion of total assets funded by long-term
debt over the last six quarters.



                                                                              30
<PAGE>

Table 6--LONG-TERM DEBT

                            Average         Average           Percentage of
   Quarter Ended          Outstanding        Rate         Average Total Assets
   -------------         --------------  -------------  ----------------------
   December       1998      $35.8            5.96%                1.4%
   March          1999       49.3            5.66                 1.8
   June           1999       67.9            5.73                 2.5
   September      1999      107.9            5.90                 3.9
   December       1999       88.4            6.07                 3.1
   March          2000      112.9            7.02                 3.3

The Company has increased this  long-term debt over the last two quarters.  This
has been  done both to  provide  funding  for the loan  growth  noted  above and
because much of the loan growth has been in fixed rate  products.  FHLB advances
are among the easiest means of mitigating  the market risk incurred  through the
growth in fixed loans.  One of the methods of managing  interest rate risk is to
match  repricing  characteristics  of assets and  liabilities.  When  fixed-rate
assets are matched by similar term fixed-rate liabilities,  the deterioration in
the value of the asset when interest  rates rise is offset by the benefit to the
Company from having the matching debt at lower than market rates.

OTHER OPERATING INCOME AND EXPENSE

Other  operating  income  consists of income earned other than  interest.  On an
annual basis,  trust fees are the largest  component of other operating  income.
Management  fees on trust  accounts are  generally  based on the market value of
assets under administration.

There are several  reasons for the  variation  in fees from  quarter to quarter.
Trust  customers are charged for the  preparation  of the fiduciary tax returns.
The preparation generally occurs in the first quarter of the year. This accounts
for approximately  $288,000 of the fees earned in the first three months of 1999
and $306,000 of the fees earned in the first three months of 2000.  Variation is
also caused by the recognition of probate fees.  These fees are accrued when the
work is completed,  rather than as the work is done, because it is only upon the
completion of probate that the amount of the fee is established by the court.

Other  categories  of  noninterest  operating  income  include  various  service
charges, fees, and miscellaneous income. Included within "Other Service Charges,
Commissions & Fees" are the electronic  refund transfer fees (described below in
"Refund Anticipation Loan and Refund Transfer  Programs"),  service fees arising
from credit card  processing for  merchants,  escrow fees, and a number of other
fees charged for special services provided to customers.

The following table shows some of the major items of other operating  income and
expense  for the  three  months  ended  March  31,  2000 and  1999  that are not
specifically listed in the consolidated statements of income.

                                                                              31
<PAGE>

TABLE 7--OTHER OPERATING INCOME AND EXPENSE
(dollars in thousands)
                                           Three Months Ended
                                               March 31,
                                       ------------------------
                                            2000        1999
                                       ------------------------
Noninterest income
      Merchant credit card processing      $ 1,745     $ 1,559
      Trust fees                           $ 3,823     $ 3,351
      Refund transfer fees                 $ 6,609     $ 5,808

Noninterest expense
      Marketing                              $ 533       $ 550
      Consultants                          $ 1,343     $ 2,465
      Merchant credit card clearing fees   $ 1,386     $ 1,214

The largest  component of noninterest  expense is staff  expense.  There is some
increase in this  expense each  quarter  caused by the addition of staff.  Other
factors  cause some  variation in staff  expense from quarter to quarter.  Staff
expense will usually increase in the early part of each year because adjustments
arising  from the annual  salary  review for all Company  exempt  employees  are
effective  on either  January 1 or March 1. In 2000,  these  increases  averaged
approximately  5%.  In  addition,  some  temporary  staff is added in the  first
quarter for the RAL program.

Employee  bonuses are paid from a bonus pool,  the amount of which is set by the
Board of Directors  based on the Company  meeting or exceeding its goals for net
income.  The Company  accrues  compensation  expense  for the pool for  employee
bonuses throughout the year based on projected net income for the year.

Staff size is  closely  monitored  in  relation  to the growth in the  Company's
revenues and assets.  The following table compares salary and benefit costs as a
percentage  of revenues and assets for the  three-month  periods ended March 31,
2000 and 1999.

                           Three Months Ended
                               March 31,
                           2000         1999

Salary and benefits as
  a percentage of total
  revenues                 15.7%        18.0%

Salary and benefits as
  a percentage of average
  assets                   0.42%        0.46%

The Company  leases  rather than owns most of its  premises.  Many of the leases
provide for annual rent adjustments.  Equipment expense  fluctuates over time as
needs change,  maintenance is performed, and equipment is purchased. Some of the
additional  occupancy  expense  relates  to  new  facilities  that  were  leased
subsequent  to the  fire  at the  Company's  administrative  headquarters  which
occurred  February 20, 1999. 105 employees that worked in the building needed to
be immediately  located to different work locations.  Vacant  commercial  office
space of  sufficient  size is very limited in the area.  In order to provide new
work space for the  displaced  employees,  the  Company  rented a building  much
larger than the former  administrative  building.  In general,  the new space is
more expensive than the former  building.  Insurance will cover the cost for the
same amount of space;  however,  the additional  space may not be  reimbursable.
Some of the  additional  space will be utilized by moving  employees  from other
leased  space and the  remainder of the building  will be  subleased.  Occupancy
expense  is  higher  in 2000  than  in 1999  because  of the  additional  space.
Eventually,   this  cost  will  be  offset  with   subleasing   income  and  the
discontinuation  of  other  lease  expense  as  employees  are  moved to the new
building.

Included  in other  noninterest  expense  is  consultant  expense  for legal and
professional  services.  The  amount  incurred  in the first  quarter of 2000 is
substantially  less than that  incurred  in the first  quarter of 1999.  A large
proportion of the 1999


                                                                              32
<PAGE>

expenses were consultant fees incurred by the Company's  Information  Technology
department related to two major technology  projects.  The first was directed at
ensuring that all of the Company's information systems,  operational  processes,
and physical facilities were prepared for the Century Date Change (also known as
"Y2K"). The Company began to prepare for this several years previously,  but the
intensity  of efforts  was stepped up in early 1999 to resolve all of the issues
well in advance of January 1, 2000.  The second  project was the  integration of
the information  systems of First National  Bank/South Valley National Bank with
those used by Santa  Barbara  Bank & Trust.  Specifically,  the Company does not
carry staff levels  sufficient to handle two complex,  infrequent  projects like
these along with normal operational demands. In addition, the Y2K project had to
be  completed  under a rigid time  schedule  that  permitted  no  slippage  from
deadlines.  Therefore,  the Company  engaged  outside  assistance in the form of
contract programming support to accomplish both of these projects concurrently.

As described  in the last two  sections of this  discussion  and  analysis,  the
Company  has  announced  that  reached  agreements  to  merge/acquire  two other
financial  institutions.  Some extra expense may be incurred in connection  with
the system  integration for these two institutions,  but it is not expected that
the projects will be as extensive as was the  integration  of the First National
Bank/South  Valley  Bank  systems and  integration  of one of the systems is not
expected until 2001.

INCOME TAX

Income tax expense is  comprised of a current tax  provision  and a deferred tax
provision for both Federal  income tax and state  franchise tax. The current tax
provision  recognizes an expense for what must be paid to taxing authorities for
taxable  income  earned this year.  The deferred  tax  provision  recognizes  an
expense or benefit related to items of income or expense that are included in or
deducted  from  taxable  income  in a period  different  than when the items are
recognized in the  financial  statements  under  generally  accepted  accounting
principles.  Examples  of such  timing  differences  and the impact of the major
items  are  shown  in Note 8 to the  Consolidated  Financial  Statements  in the
Company's Annual Report on Form 10-K.

With each period end, it is necessary for  Management to make certain  estimates
and  assumptions  to compute the provision for income tax.  Management  uses the
best  information  available to develop  these  estimates and  assumptions,  but
generally some of these  estimates and  assumptions are revised when the Company
files its tax return in the middle of the following  year.  In  accordance  with
generally accepted accounting principles, revisions to estimates are recorded as
income tax expense or benefit in the period in which they become known.

For the last several years,  the effective tax rate (income tax expense  divided
by pre-tax  income) for the Company has been  increasing.  The  increase in loan
income and the  expansion  of the tax refund  programs in 2000  compared to 1999
increased  taxable income at a much higher rate than tax-exempt income increased
over the same period. The effective rate for the first quarter of 2000 was 40.1%
compared  to 38.1% for the first  quarter  of 1999.  The  Company  continues  to
purchase  tax-exempt  securities but the rates on securities  purchased over the
last  several  years have been at lower rates than the rates that applied to the
large amount of  municipal  securities  purchased in the mid-80's  many of which
have recently matured.

LIQUIDITY

Liquidity is the ability to raise funds on a timely basis at acceptable  cost in
order to meet cash  needs,  such as might be caused by  fluctuations  in deposit
levels,  customers' credit needs, and attractive investment  opportunities.  The
Company's objective is to maintain adequate liquidity at all times.

The Company has defined and manages  three types of  liquidity:  (1)  "immediate
liquidity,"  which is the  ability to raise  funds  today to meet  today's  cash
obligations,  (2) "intermediate  liquidity," which is the ability to raise funds
during the next few weeks to meet cash  obligations  over that time period,  and
(3) "long term  liquidity,"  which is the ability to raise funds over the entire
planning horizon to meet  anticipated cash needs due to strategic  balance sheet
changes. Adequate liquidity is achieved by (a) holding liquid assets that either
will mature within  several  weeks or can easily be sold,  (b)  maintaining  the
ability to raise  deposits  or borrow  funds,  and (c)  keeping  access  open to
capital markets.

Immediate  liquidity is provided by the prior day's maturing  Federal funds sold
and repurchase  agreements,  any cash in excess of the Federal  Reserve  balance
requirement,  unused Federal funds lines from other banks, and unused repurchase
agreement  facilities with other banks or brokers.  The Company  maintains total
sources of immediate  liquidity of not less than 5% of total assets,  increasing
to higher  targets  during that portion of the first quarter when the tax refund
loan program is active.  At the end March 31, 2000,  these  sources of immediate
liquidity were well in excess of that minimum.

                                                                              33
<PAGE>

Sources of  intermediate  liquidity  include  maturities  or sales of short-term
money market  instruments  and  securities in the  Liquidity  and  Discretionary
Portfolios,  securities in the Earnings  Portfolio maturing within three months,
term repurchase  agreements,  advances from the FHLB, and deposit increases from
special programs.  The Company projects intermediate liquidity needs and sources
over the next several weeks based on historical  trends,  seasonal factors,  and
special transactions.  Appropriate action is then taken to cover any anticipated
unmet needs. At the end of March 2000, the Company's  intermediate liquidity was
adequate to meet all projected needs.

Long term  liquidity  is to be  provided by special  programs  to increase  core
deposits,   reducing  the  size  of  the  investment   portfolios,   selling  or
securitizing  loans, and accessing  capital markets.  The Company's policy is to
address cash needs over the entire planning horizon from actions and events such
as  market  expansions,   acquisitions,   increased  competition  for  deposits,
anticipated loan demand,  economic conditions and the regulatory outlook. At the
end of March 2000,  the Company's  long term liquidity was adequate to meet cash
needs anticipated over its planning horizon.

CAPITAL RESOURCES AND COMPANY STOCK

The  following  table  presents a comparison  of several  important  amounts and
ratios for the first quarter of 2000 and 1999 (dollars in thousands).
<TABLE>

Table 8--CAPITAL RATIOS
<CAPTION>

                                                       1st Quarter       1st Quarter
                                                          2000              1999             Change
                                                    --------------     -------------     -------------
<S>                                                 <C>                <C>               <C>
Amounts:
       Net Income                                   $       19,820     $      14,521     $       5,299
       Average Total Assets                              3,475,295         2,789,122           686,173
       Average Equity                                      245,627           219,686            25,941
Ratios:
       Equity Capital to Total Assets (period end)           7.06%             8.30%            (1.24%)
       Annualized Return on Average Assets                   2.29%             2.11%             0.18%
       Annualized Return on Average Equity                  32.37%            26.81%             5.56%
</TABLE>


The operating earnings of the subsidiary banks are the largest source of capital
for the Company.  For reasons  mentioned in various sections of this discussion,
Management  expects  that there will be  variations  from  quarter to quarter in
operating  earnings.  Areas of uncertainty or seasonal  variations include asset
quality,  loan  demand,  and  the tax  refund  loan  and  transfer  programs.  A
substantial increase in charge-offs might require the Company to record a larger
provision for loan loss to restore the allowance to an adequate level,  and this
would negatively impact earnings. As loan demand has increased,  the Company has
been able to reinvest proceeds from maturing  investments at higher rates, which
would positively  impact earnings.  Income from the tax refund loan and transfer
programs,  occurring almost entirely in the first quarter, introduce significant
seasonality  and cause the return on average assets and return on average equity
ratios to be  substantially  higher in the first  quarter of each year than they
will be in subsequent quarters.

Capital must be managed at both the Company and at the  individual  bank levels.
The FRB sets  minimum  capital  guidelines  for  U.S.  banks  and  bank  holding
companies  based  on the  relative  risk of the  various  types of  assets.  The
guidelines  require  banks  to have  capital  equivalent  to at least 8% of risk
adjusted assets. To be classified as "well capitalized", the Company is required
to have capital  equivalent to at least 10% of risk adjusted assets. As of March
31, 2000, the Company's  risk-based  capital ratio was 10.36%.  The Company must
also maintain a Tier I capital (total shareholder equity less goodwill and other
intangibles)  to risk  adjusted  assets ratio of 6%, and 5% of average  tangible
assets,  respectively.  As of  March 31, 2000,  Tier I capital was 9.18% of risk
adjusted assets and 6.92% of average tangible assets.

The ratio of equity  capital to total assets has decreased over the last year as
assets have  increased at a higher rate than equity  capital.  This occurred for
several reasons. The first is that the strong loan demand noted above has caused
a high rate of asset growth.  The second is that in the fourth  quarter of 1998,
the  Company's  net  income was  significantly  reduced  by the  one-


                                                                              34
<PAGE>

time costs  incurred in  connection  with the closing of the merger with Pacific
Capital  Bancorp.  The  Company,   however,  did  not  reduce  its  dividend  to
shareholders  for  this  quarter  and  therefore  more  capital  was paid out in
dividends to shareholders than was added to capital from net income.  The third,
which is almost  totally  restricted in its impact to the first quarter of 2000,
is the growth in assets related to the tax refund programs as explained below in
the section titled "Refund Anticipation Loan and Refund Transfer Programs."

While the earnings of its  wholly-owned  subsidiaries are recognized as earnings
of the Company,  specific  dividends must be declared and paid by the subsidiary
banks to the parent in order for it to pay dividends to its  shareholders.  As a
state-chartered  bank, California law limits the amount of dividends that may be
paid by SBB&T to Bancorp. As a  nationally-chartered  bank, FNB's ability to pay
dividends is governed by federal law and regulations.

California  law limits  dividends  that may be paid by a bank  without  specific
approval by the California Department of Financial Institutions to the lesser of
the bank's retained  earnings or the total of its  undistributed  net income for
the last three years.  The  dividends  needed to be paid by SBB&T to the Bancorp
for the acquisitions of FVB and CSB exceeded the amount allowable  without prior
approval of the California  Department of Financial  Institutions  ("CDFI").  As
part  of  its  approval  of the  acquisitions,  the  CDFI  approved  the  excess
distributions. During 1998 and 1999, it also approved other dividends from SBB&T
to the Bancorp to partially  fund the latter's  quarterly  cash dividends to its
shareholders and for other incidental purposes. SBB&T was able to pay $3 million
in  dividends  to Bancorp  during the first  quarter  of 2000  without  specific
approval,  but will need to request approval for additional  dividends that will
be needed  during the year,  both for its portion of the Bancorp  cash  dividend
paid to shareholders and for the Los Robles acquisition. Management expects that
approval  will   continue  to  be  granted  due  to  strong   earnings  and  the
well-capitalized position of SBB&T.

Because the former Pacific Capital's merger with South Valley Bancorporation was
a  stock-only  transaction,  FNB did not  have  to pay a large  dividend  to its
holding  company as SBB&T did. FNB  therefore has ample ability to pay dividends
to the Bancorp for all normal operating needs and for shareholder dividends.

There are no material  commitments  for  capital  expenditures  or  "off-balance
sheet" financing  arrangements  other than the acquisition of Los Robles Bancorp
planned at this time.  However, as the Company pursues its stated plan to expand
beyond its current market areas,  Management will consider opportunities to form
strategic  partnerships  with other financial  institutions that have compatible
management  philosophies  and  corporate  cultures and that share the  Company's
commitment   to  superior   customer   service  and  community   support.   Such
transactions,  depending on their structure,  may be accounted for as a purchase
of the other  institution by the Company.  To the extent that  consideration  is
paid in cash rather than Company stock, the assets of the Company would increase
by more than its equity  and  therefore  the ratio of  capital  to assets  would
decrease.

The current quarterly  dividend rate is $0.20 per share.  When annualized,  this
represents  a payout  ratio of  approximately  40% of earnings per share for the
trailing 12 months.

REGULATION

The Company is closely regulated by Federal and State agencies.  The Company and
its subsidiaries may only engage in lines of business that have been approved by
their  respective  regulators,  and cannot open or close  offices  without their
approval.  Disclosure of the terms and conditions of loans made to customers and
deposits accepted from customers are both heavily  regulated as to content.  The
subsidiary  banks are required by the  provisions of the Community  Reinvestment
Act  ("CRA")  to make  significant  efforts  to ensure  that  access to  banking
services is  available  to all members of their  communities.  As a bank holding
company,  Bancorp is primarily regulated by the Federal Reserve Bank ("FRB"). As
a member bank of the Federal  Reserve  System that is  state-chartered,  SBB&T's
primary  Federal  regulator is the FRB and its state regulator is the CDFI. As a
nationally  chartered  bank,  FNB's  primary  regulator  is  the  Office  of the
Comptroller of the Currency.  As a non-bank  subsidiary of the Company,  Pacific
Capital  Commercial  Mortgage,  Inc.  is  regulated  by the  FRB.  Each of these
regulatory  agencies  conducts  periodic  examinations of the Company and/or its
subsidiaries to ascertain their compliance with laws, regulations,  and safe and
sound banking practices.

The regulatory agencies may take action against bank holding companies and banks
should they fail to maintain  adequate  capital or to comply with  specific laws
and regulations.  Such action could take the form of restrictions on the payment
of  dividends  to  shareholders,   requirements  to  obtain  more  capital  from
investors,  or restrictions on operations.  The Company


                                                                              35
<PAGE>

and  the  subsidiary  banks  have  the  highest  capital  classification,  "well
capitalized,"  given by the regulatory  agencies and  therefore,  except for the
need for  approval of dividends  paid from SBB&T to Bancorp,  are not subject to
any  restrictions  as discussed  above.  Management  expects the Company and the
subsidiary banks to continue to be classified as well capitalized in the future.

REFUND ANTICIPATION LOAN AND REFUND TRANSFER PROGRAMS

Since 1992,  SBB&T has extended tax refund  anticipation  loans to taxpayers who
have filed their returns electronically with the IRS and do not want to wait for
the IRS to send them their  refund  check.  SBB&T earns a fixed fee per loan for
advancing  the funds.  The fees are more related to  processing  cost and credit
risk  exposure than to the cost of funding the loans for the length of time that
they are  outstanding.  Nonetheless,  the fees are required to be  classified as
interest  income.  Because  of the April 17 tax filing  date,  almost all of the
loans are made and repaid during the first quarter of the year.

If a taxpayer  meets SBB&T's  credit  criteria for the refund loan product,  and
wishes to receive a loan with the refund as security,  the taxpayer  applies for
and receives an advance less the transaction fees, which are considered  finance
charges.  SBB&T is repaid  directly by the IRS and remits any refund amount over
the amount due SBB&T to the taxpayer.

There is a higher credit risk associated with refund loans than with other types
of loans because (1) SBB&T does not have personal  contact with the customers of
this product;  (2) the customers  conduct no business with SBB&T other than this
once a year  transaction;  and (3)  contact  subsequent  to the  payment  of the
advance,  if there is a problem with the tax return,  may be  difficult  because
many of these taxpayers have no permanent address.

If the taxpayer does not meet the credit criteria or does not want a loan, SBB&T
can still  facilitate  the  receipt of the refund by the  taxpayer  through  the
refund  transfer  program.  This is  accomplished  by SBB&T  authorizing the tax
preparer to issue a check to the taxpayer  once the refund has been  received by
SBB&T from the IRS. The fees  received  for acting as a transfer  agent are less
than the fees  received  for the loans.  These fees are  reported  among  "other
service charges,  commissions and fees, net" in the  consolidated  statements of
income.

While SBB&T is one of very few financial  institutions in the country to operate
these  electronic  loan and transfer  programs,  the  electronic  processing  of
payments  involved  in these  programs  is similar to other  payment  processing
regularly  done by the Company and other  commercial  banks for their  customers
such as direct deposits and electronic bill paying. The refund loan and transfer
programs had  significant  impacts on the  Company's  activities  and results of
operations  during  the first  quarters  of 1999 and  2000.  These  impacts  are
discussed in the following six sections.

1. An IRS Change in the Program Caused Expanded Volume:

Prior to 1995, upon receipt of an electronically filed tax return, the IRS would
send a  return  notice  to the  filer  indicating  whether  the  IRS  had a lien
outstanding  against any refund due the taxpayer.  Such liens might be placed on
refunds  because of prior  underpayments,  delinquent  student loans,  or unpaid
taxes.  Because the primary source of repayment for tax refund loans is the IRS,
not the  taxpayer,  banks  operating  loan  programs  relied  on this  notice in
determining whether to make a loan to the taxpayer.

In 1995, the IRS discontinued this practice, and banks had to use other means to
determine whether they were likely to have their loans repaid. These other means
added  to the  costs of  making  the  loans  and they  were not as  reliable  in
determining collectibility.  Fees for loans were therefore raised to pay for the
additional transaction costs and to cover the higher credit losses.

Congress  has given the IRS a mandate to increase the number of returns that are
filed  electronically in order to keep IRS costs down. Greater use of the refund
loan and transfer  programs helps the IRS to meet this mandate  because they are
connected to  electronic  filing.  In 2000,  the IRS resumed  sending the return
notice  indicating  whether it would withhold the  taxpayer's  refund because of
funds owed the Federal government. The banks running national programs decreased
their transaction fees for loans because better credit  determinations  could be
made at lower cost. This served to encourage more taxpayers to use the products,
especially the loan product.  It also permitted the Company and other  providers
to lend against a higher proportion of each refund.

                                                                              36
<PAGE>

The  consequence  of this  IRS  change  was to  increase  the  total  volume  of
transactions,  to increase the proportion of loans compared to transfers, and to
increase the size of the loans made.

2. Seasonality Impact on Earnings:

Because the  programs  relate to the filing of income tax  returns,  activity is
concentrated in the first quarter of each year. This causes first quarter income
to average about 30% of each year's net income.  Because of the expansion of the
program in 2000,  Management  expects that net income for the first quarter will
be approximately 38% of net income for the year.

3. Product Mix Impact on Revenues:

In 2000,  the product mix between loans and transfers was more heavily  weighted
towards  loans than it had been since  1995.  This  meant that  interest  income
arising  from the  program  was  higher  both  because  the  overall  volume  of
transactions  in the programs  was larger and because  more of the  transactions
were loans rather than  transfers.  This resulted in higher net interest  income
and net  interest  margin  than would  otherwise  be  expected.  Even though the
product mix shifted  towards  loans,  as noted below in the summary of operating
results,  the expanded program caused income from transfers to increase as well,
but at a lower rate than loans.

4. Funding Impact on Various Balance Sheet and Income and Expense Accounts:

In prior  years,  SBB&T  funded the loans by first  drawing  down its  overnight
liquid  assets and then by borrowing  overnight.  The borrowing was done through
use  of  its  unsecured   Federal  funds  credit  lines  with  other   financial
institutions  and by entering into  repurchase  agreements  with other financial
institutions  that used  SBB&T's  securities  as  collateral  for the  overnight
borrowings.

Again in 2000,  SBB&T used  liquid  assets and  borrowed  overnight  to fund the
loans.  In addition,  SBB&T  increased its borrowings  from the FHLB during this
period. With the larger program,  interest expense on these borrowings increased
over the amounts incurred in 1999. However,  because of the substantial increase
in the program in 2000, SBB&T could not fund the loans using only these sources.
While it  expanded  the  number  and  amount of credit  lines  available  to it,
Management  decided that the best assured  source of funding  would be to engage
brokerage firms to sell certificates of deposit.  Approximately  $385 million of
these  CDs  were  issued  with  terms of two,  three,  and six  months.  Shorter
maturities  would have been preferable  because the funding need is concentrated
in the only  first  three  weeks of  February,  but they were not  available  in
sufficient  quantity.  The average rate for these CDs was 6.30%.  These brokered
CDs account for the increase in the average time  deposits  outstanding  and the
increase in interest expense on these accounts during the first quarter of 2000,
as reported in Table 1, compared to the amounts for the first quarter of 1999.

Among  the  amounts  reported  in Note 9 to the  financial  statements  for each
operating  segment of the Company are  interest  expense,  internal  charges for
funds, and intersegment revenues. Though issued for the refund loan program, the
CDs were  booked  in the  Branch  Activities  segment,  since  that is where all
deposit funding is recorded for SBB&T. The proceeds from the CDs were in essence
lent to the Tax  Refund  Programs  segment.  This  segment  reports  the cost of
borrowing  the funds as an internal  charge for funds and the Branch  Activities
segment recognizes intersegment revenues in the amount of the charge.

The impact of using this  method of funding is that SBB&T had an excess of funds
after the loans began to be repaid by the IRS in substantial  quantities.  These
funds were initially sold into overnight  Federal funds market and reverse repos
with other  financial  institutions,  increasing the average balance of, and the
interest income from, these  short-term  instruments for the quarter as shown in
Table 1. However,  because the rates earned on these overnight  investments were
below the interest  rate paid on the  deposits,  the Company  began to place the
funds into securities and commercial paper that had maturities  matching the CDs
or would be easily  salable to provide  the funds  necessary  to redeem the CDs.
These  instruments  had interest  rates more  closely  matching the CD rates and
therefore the negative carrying cost was reduced.

Other liabilities  reported in the consolidated balance sheet were substantially
higher at March 31, 2000 than at December 31, 1999.  The primary reason for this
increase  relates to one of its contractors in the program.  SBB&T collects fees
for this  contractor  and holds the fees for  application  against credit losses
incurred on the loans made by this contractor. The amount held at March 31, 2000
for this purpose was $22.4 million.

5. Summary of Operating Results:

                                                                              37
<PAGE>

Gross  revenues for the refund loan and transfer  programs were $7.5 million and
$5.9  million,  respectively,  for the first  quarter  of 1999,  with  operating
expenses of $1.8  million.  The Company  added $2.8 million to the allowance for
credit loss for refund loans  through a charge to provision  expense  during the
quarter and added another $2.1 million to the allowance from recoveries on loans
charged off in prior years. The Company charged-off $3.3 million in refund loans
during this quarter of 1999.

During the first quarter of 2000, the Company  recognized  fees for refund loans
of $17.6  million and fees for  transfers of $6.6  million.  Operating  expenses
totaled $2.3 million.

The Company estimates that about 1.3% of refund loans will not be collected in a
timely fashion from the IRS. Using this estimate, during the quarter ended March
31, 2000, the Company provided for these potential losses by adding $3.6 million
to the allowance for credit loss from refund loans through a charge to provision
expense and adding  another $2.0 million to the  allowance  from  recoveries  on
loans charged off in prior years. The Company  charged-off $2.9 million in RAL's
against this allowance in the first quarter of 2000. Some of these loans may yet
be paid during the remainder of this year or during the 2001 filing  season.  In
addition,  following  past  practice,  the  Company  expects to  charge-off  any
remaining uncollected refund loans by June 30.

There is no credit risk associated with the refund transfers  because checks are
issued only after receipt of the refund payment from the IRS.

6. Expectations for the Remainder of 2000:

Additional loans and transfers were made between the end of the first quarter of
2000 and the tax filing  deadline of April 17. But this  activity  represents  a
small proportion of the total activity for the season.  Some additional revenues
will be generated from this activity.  Because SBB&T does not recognize interest
income on the loans or transfer income until the IRS has remitted the refunds to
it, there will also be some revenue  recognized  from loans and  transfers  made
prior to March 31.

During the first quarter, SBB&T charged off loans that had been outstanding more
than six weeks.  In  addition it  provided  an  allowance  for credit loss in an
amount estimated to cover losses on the remaining  outstanding loans. During the
second quarter,  SBB&T will likely receive  payments on some of these loans that
were charged off and on loans charged off in prior years.  In addition,  some of
the  outstanding  loans  which  appeared  collectible  at March  31 will  become
delinquent and need to be charged off. These activities will require adjustments
to the provision for credit loss by charging or crediting  income for the second
quarter.   Management  does  not  anticipate   that  the  adjustments   will  be
significant.  As in prior years,  still outstanding loans will be charged off at
the end of the second quarter. Collections that are eventually received on these
loans will be added to the allowance for credit losses.

Lastly,  during the second quarter,  as well as during the rest of 2000, the tax
refund programs will continue to incur expenses for salaries,  occupancy, legal,
data processing,  etc. These expenses will tend to lower the reported profit for
the segment  compared to the figure reported in Note 9. However,  these expenses
are not expected to exceed several hundred thousand dollars.

The  Company  is one of a  number  of  financial  institutions  named  as  party
defendants in a patent  infringement  lawsuit recently filed by an unaffilliated
financial institution. The lawsuit generally relates to the Company's tax refund
program.

The Company has retained  outside  legal  counsel to represent  its interests in
this matter.  The Company does not believe that it has  infringed any patents as
alleged in the lawsuit and intends to  vigorously  defend itself in this matter.
The amount of alleged  damages are not  specified in the papers  received by the
Company.  Therefore,  Management connot estimate the amount of any possible loss
at this time in the event of an unfavorable outcome.

YEAR 2000

The Company provided  extensive  information  regarding its preparations for the
Century Date Change in the 1999 10-K MD&A.  It was  reported in that  discussion
that "no  significant  problems were  encountered  with the  Company's  critical
systems and through the writing of this discussion, the Company has become aware
of no significant  problems  encountered by its customers or the other financial
institutions  with which it does  business.  The Company has become  aware of no
significant  impact on its  customers'  abilities to repay loans due to problems
with their systems.  The Company will remain alert to the potential for problems
to arise later in 2000, especially because it will be a leap year."

As of the writing of this  discussion,  the above  statements are still correct,
and this topic will not be included in future reports unless problems arise.

                                                                              38
<PAGE>

MERGER WITH SAN BENITO BANK

In  February  2000,  the  Company  signed a  merger  agreement  with  Hollister,
California-based San Benito Bank. The agreement provides for existing San Benito
Bank  shareholders  to receive 0.605 shares of Pacific  Capital  Bancorp  common
stock  for  each of  their  outstanding  shares  of  common  stock.  The  merger
transaction  will be accounted for as a pooling of interests.  As of the date of
the agreement,  based on the closing price per share of Company stock, the value
of the merger would be estimated to be $51.8 million.  However,  the final value
will be based on the price per share at the time the transaction  closes,  which
may  result  in a  value  more  or less  than  that  stated  above.  Subject  to
shareholder  and  regulatory  approvals,  the merger is expected to close in the
third quarter of 2000.  One-time  charges to be taken at the time of closing are
estimated to be $1.6 million after tax.  Administrative and operational  support
units will be based out of First National Bank of Central  California,  creating
the merger  savings  that will make the  transaction  accretive  to earnings per
share in the first full operating year for the combined company.

At December 31, 1999, San Benito Bank reported net income of $2.3 million,  with
total assets of $201million, total deposits of $181 million, total loans of $109
million,  and  total  shareholders'  equity  of $18  million.  San  Benito  Bank
maintains three offices in the communities of Hollister and San Juan Bautista in
San Benito County, and an office in Gilroy in Santa Clara County.

ACQUISITION OF LOS ROBLES BANCORP

In March 2000,  the Company  signed a definitive  agreement to acquire  Thousand
Oaks,  California-based  Los Robles Bancorp,  parent company of Los Robles Bank.
The agreement  provides for each outstanding  share of Los Robles Bancorp common
stock  to be  converted  into the  right to  receive  $23.12  in cash,  and each
outstanding  stock  option to  receive  the  difference  between  $23.12 and the
exercise  price of the option in cash.  The  acquisition  will be accounted  for
under the purchase  method of accounting.  As of the date of the agreement,  the
estimated value of the transaction is approximately $32.5 million,  representing
2.73  times Los  Robles'  book  value at  December  31,  1999,  15.6  times 1999
earnings. Subject to regulatory approval and the approval of shareholders of Los
Robles  Bancorp,  the  acquisition  is expected to close in the third quarter of
2000.  One-time  charges to be taken at the time of closing are  estimated to be
$0.6 million  after tax. It is  anticipated  that Los Robles Bank will be merged
into Santa Barbara Bank & Trust.

At December 31, 1999, Los Robles  Bancorp  reported  year-to-date  net income of
$2.0 million and total assets of $149 million.  Los Robles Bank  operates  three
banking offices in Ventura County, one each in Thousand Oaks,  Westlake Village,
and Camarillo, and has two loan production offices, one in Thousand Oaks and one
in Orange County.

--------------------------------------------------------------------------------


Note A - To obtain  information on the  performance  ratios for peer banks,  the
Company primarily uses The FDIC Quarterly Banking Profile, published by the FDIC
Division of Research and Statistics. This publication provides information about
all FDIC  insured  banks  and  certain  subsets  based on size and  geographical
location.  Geographically,  the Company is included in a subset that includes 12
Western States plus the Pacific Islands.  By asset size, the Company is included
in the group of financial institutions with total assets from $1-10 billion. The
information in this publication is based on year-to-date information provided by
banks  each  quarter.  It takes  about 2-3 months to  process  the  information.
Therefore,  the  published  data is always  one  quarter  behind  the  Company's
information. For this quarter, the peer information is for the fourth quarter of
1999. All peer information in this discussion and analysis is reported in or has
been derived from information reported in this publication.

                                                                              39
<PAGE>


PART II

OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibit Index:

         Exhibit Number             Item Description

         3     Certificate of Determination of Rights, Preference and Privileges
               of Series A Preferred Stock

         4

               4.1  1998 Amended and Restated Trust Agreement of Pacific Capital
                    Bancorp Voluntary Employee's beneficiary association.

               4.2  1998 Amended and Restated Key Employee Retiree Health Plan

               4.3  1998 Amended and Restated Retiree Health Plan

         27    Financial Data Schedule for March 31, 2000

(b)      Two reports on Form 8-K were filed  during the quarter  ended March 31,
         2000.

         The announcement of the Agreement and Plan of Reorganization  providing
         for the  acquisition of the San Benito Bank by Pacific  Capital Bancorp
         was reported on a Form 8-K filed with the Commission on March 7, 2000.

         The  announcement  of the  definitive  agreement  to acquire Los Robles
         Bancorp was reported on a Form 8-K filed with the  Commission  on April
         12, 2000.

                                                                              40
<PAGE>

SIGNATURES

Pursuant to the  Securities  Exchange  Act of 1934,  the Company has duly caused
this  report to be  signed  on its  behalf  by the  undersigned  thereunto  duly
authorized:

PACIFIC CAPITAL BANCORP

         /s/  William S. Thomas, Jr.
         William S. Thomas, Jr.                      May 15, 2000
         President
         Chief Executive Officer


         /s/  Donald Lafler
         Donald Lafler                               May 15, 2000
         Executive Vice President
         Chief Financial Officer


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