SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                    FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION

[  X  ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934
For the Fiscal Year Ended:  December 31, 1996

                                       or

[    ]  TRANSACTION REPORT PURSUANT TO SECTION  13 OR 15(d)  OF THE  SECURITIES
        EXCHANGE ACT OF 1934
For the transition period from __________ to __________

                         Commission File Number: 0-13528

                             PACIFIC CAPITAL BANCORP
--------------------------------------------------------------------------------
             (Exact Name of registrant as specified in its charter)

         California                                           77-0003875
--------------------------------------------------------------------------------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                               Identification No.)

307 Main Street, Salinas, California                            93901
--------------------------------------------------------------------------------
(Address of principal executive offices)                      (Zip code)

Registrant's telephone number, including area code: (408) 757-4900

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

                           Common Stock, No Par Value

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. YES X NO
                                      ---   ---

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ X ]

Aggregate  market value of common stock held by nonaffiliates of Pacific Capital
Bancorp  at March 1,  1997:  $106,871,000  Number  of  shares  of  Common  Stock
outstanding at March 1, 1997: 4,090,757

Documents Incorporated by Reference:   Location in Form 10-K
-----------------------------------    ---------------------

1996 Annual Report to Shareholders.    Part I, Items 1 and 2

Proxy Statement for 1997 Annual        Part III, Items 10, 11, 12 and 13
Meeting of Shareholders
                                       THIS REPORT INCLUDES A TOTAL OF 115 PAGES
                                                     EXHIBIT INDEX IS ON PAGE 69
<PAGE>

<TABLE>
                                                     TABLE OF CONTENTS
<CAPTION>

                                                                                        Page
---------------------------------------------------------------------------------------------------------------------
                                                                   Form 10-K        Annual Report         Proxy
                                                                                         (1)          Statement (2)
                                                              -------------------- ----------------- ----------------
<S>         <C>                                                     <C>             <C>                   <C>
Part I
Item 1      Business                                                1
              Statistical Information                               4
                Distribution of Assets, Liabilities, Equity,
                  Interest Rates and Interest Differential          4               27-29
                Investment Portfolio                                5               12-13, 35-36
                Loan Portfolio                                      5               8, 14-15, 31-32
                Summary of Loan Loss Experience                     6               33
                Deposits                                            6               10-11
                Financial Ratios                                    6               2
                Competition                                         6-7
                Supervision and Regulation                          8-9
                Capital Standards                                   9-11            40-41
Item 2      Properties                                              13
Item 3      Legal Proceedings                                       13
Item 4      Submission of Matters to a Vote of
               Securities Holders                                   13
Part II
Item 5      Market for Registrants Common Stock and
               Related Stockholder Matters                          13              45
Item 6      Selected Financial Data                                 13              1
Item 7      Management Discussion and Analysis of
               Financial Condition and Results of
               Operations                                           14              22-45
Item 8      Financial Statements and Supplementary Data             14              2-26
Item 9      Changes in and Disagreements with
               Accountants on Accounting and Financial
               Disclosure                                           14
Part III
Item 10     Directors and Executive Officers of the
               Registrant                                           14                                       4-9
Item 11     Executive Compensation                                  15                                       9-13
Item 12     Security Ownership of Certain Beneficial
               Owners and Management                                15                                       4-5
Item 13     Certain Relationships and Related Transactions          15              15, 23                   13
Part IV
Item 14     Exhibits, Financial Statement Schedules and
               Reports on Form 8-K                                  15-16           1-26
<FN>

(1) The 1996 Annual Report to  Shareholders,  portions of which are incorporated
by reference into this Form 10-K.

(2) The Proxy Statement dated for the Annual Meeting of  Shareholders,  portions
of which are incorporated by reference into this Form 10-K.
</FN>
</TABLE>

                                       ii
<PAGE>

                                     PART I

ITEM 1   BUSINESS

GENERAL

         Pacific  Capital  Bancorp (the  "Company") is a California bank holding
company  headquartered  in Salinas,  California and  incorporated on January 26,
1983. Its principal  wholly-owned  subsidiaries,  First National Bank of Central
California   (formerly  First  National  Bank  of  Monterey  County  ),  ("First
National")  commenced  operations  on April 2, 1984,  and South Valley  National
Bank, ("South Valley") commenced operations on April 21, 1982.

         On November 20, 1996, the Company acquired South Valley  Bancorporation
("SVB") and its banking subsidiary,  South Valley, headquartered in Morgan Hill,
California. Each share of SVB common stock outstanding on November 20, 1996, was
converted  into .92 shares of the  Company's  common stock.  The Company  issued
approximately  1,291,000  shares of common stock and cash in lieu of  fractional
shares for all of the  outstanding  shares of SVB.  The  consolidated  financial
statements  of the Company give effect to the merger,  which has been  accounted
for as a  pooling-of-interests.  Accordingly,  the  accounts  of SVB  have  been
combined with those of the Company for all periods presented.

         First  National is a full service  commercial  bank  serving  Monterey,
Salinas, Carmel,  Watsonville,  and surrounding areas in Monterey and Santa Cruz
Counties in California.

         South Valley is a full  service  commercial  bank serving  Morgan Hill,
Gilroy,  Holister,  San Juan Bautista,  and surrounding areas in Santa Clara and
San Benito Counties in California.

         The Company  itself does not engage in any  business  activities  other
than the  ownership  of the banks and the  ownership  of one other  wholly-owned
subsidiary,  Pacific Capital Services Corporation  ("PCSC").  PCSC has no active
operations at this time.

         First National and South Valley are collectively  referred to herein as
the "Subsidiary Banks."

General Banking Services

         The  Subsidiary  Banks  provides  a wide  range of  commercial  banking
services to individuals,  professionals, and small- and medium-sized businesses.
The services  provided include those typically offered by commercial banks, such
as: checking,  interest  checking and savings accounts,  travelers checks,  safe
deposit boxes,  collection  services,  night depository  facilities and wire and
telephone transfers.  In addition to the above deposit services,  the Subsidiary
Banks also  provide a full array of loan  products  including  commercial,  real
estate and  consumer  loans as well as a variety  of  government  assisted  loan
programs such as SBA or Rural Economic Community  Development Service guaranteed
loans.  Professional  firms,  individuals  and  businesses  form the core of the
Subsidiary Banks customer and deposit bases.

                                       1
<PAGE>

         The  Subsidiary  Banks  maintain lobby hours between 9:00 a.m. and 5:00
p.m.,  Monday  through  Thursday  and between 9:00 a.m. and 6:00 p.m. on Friday.
South  Valley's  Gilroy and  Hollister  offices  are also open from 9:00 A.M. to
12:00 P.M. on  Saturday.  In addition  to a broad range of retail  products  and
services,  the Subsidiary  Banks offer courier pick-up  service,  nationwide ATM
access available through the Star(R) system,  Cirrus(R),  Plus(R) Explore(R) and
Ca$h24(R),  and point of sale transactions  through  Explore(R),  Maestro(R) and
Discover/Novus(R),  merchant bank card support with  electronic  ticket capture,
self directed IRA, discount  brokerage services and consumer and business credit
cards.  First National also offers offsite ATM access at the Prunetree  Shopping
Center, Prunedale,  California and at the Monterey Pennisula College,  Monterey,
Calififornia. The Subsidiary Banks do not offer trust services.

         Most of the Subsidiary  Banks  deposits are obtained from  individuals,
professionals  and small- and medium-sized  businesses.  As of December 31, 1996
the Subsidiary Banks had a total of 34,524 accounts representing 18,940 interest
bearing and non-interest  bearing (checking) accounts with an average balance of
approximately  $11,410 each;  11,434  savings and money market  accounts with an
average  balance of  approximately  $14,421 each;  and 4,150 other time deposits
with an average balance of approximately  $40,046 each. The Subsidiary Banks are
members of the  Federal  Deposit  Insurance  Corporation  (the  "FDIC")  and the
deposits of each depositor of the Subsidiary Banks are insured up to $100,000.

         The Subsidiary Banks engage in a full complement of lending activities,
including  commercial,  consumer/installment  and short-term  real estate loans,
with a particular  emphasis on short- and  medium-term  commercial  obligations.
Commercial  lending  activities  are  directed   principally  toward  small-  to
medium-sized businesses,  such as professional firms, retail, light industry and
manufacturing  to which the Subsidiary Banks make (a) loans for working capital,
(b) loans secured by receivable and inventory, (c) term loans for equipment; and
(d) real  estate  development  loans.  In addition  to  conventional  commercial
lending,  the Subsidiary  Banks also offer an array of government  assisted loan
products including SBA guaranteed loans, SBA 504 loans (primarily for commercial
real  estate  transactions),   Rural  Economic  Community  Development  Services
guaranteed loans and loans  guaranteed  under the State of California  guarantee
program.  The  Subsidiary  Banks  also  work  to meet  the  needs  of the  local
municipalities  by  providing  lease  financing  for a wide variety of equipment
purchases  including  energy  retrofit,   fire  trucks,  police  cars,  portable
classrooms,  etc.  Consumer  lending is oriented  primarily  to the needs of the
Subsidiary  Banks customers,  with an emphasis on automobile  financing and real
estate loans. Real estate loans include home loans and equity advance loans.

         In addition,  the Subsidiary Banks offer construction loans,  generally
for  single-family   residences  and  multi-unit   projects.   Real  estate  and
construction  loans are typically secured by first deeds of trust and guarantees
from principals of the borrower.  The economic  viability of the project and the
borrower's credit worthiness are primary considerations in the loan underwriting
decision.  The Subsidiary Banks use independent local  appraisers,  conservative
loan-to-value  ratios and close  monitoring of the projects during  construction
phases,  and in the absence of rapid  declines in real estate  values,  ultimate
collectibilty  of these  secured loans is  considered  by the  Subsidiary  Banks
management to be better than the average mix of commercial loans. The Subsidiary
Banks do not make long  term  fixed  rate  real  estate

                                       2
<PAGE>

loans and,  therefore,  material  sustained  increases  or  decreases in general
interest rate levels have only a short-term  effect on the Subsidiary  Banks net
yield on real estate loans.

         The  Subsidiary  Banks  concentrate  their  lending  activities  in the
following  areas:  real  estate  loans,  commercial  loans,  consumer  loans  to
individuals,  and other loans.  As of December 31, 1996,  these four  categories
accounted for approximately  60.0%,  29.2%, 5.8%, and 5.0% respectively,  of the
Company's loan  portfolio.  As of December 31, 1996, the Company had total loans
outstanding of $388,728,000.  No material portion of the Subsidiary  Bank's loan
portfolio  is  concentrated  within  a  single  industry  or  group  of  related
industries.

         The interest rates charged for the various loans made by the Subsidiary
Banks vary with the degree of risk, size, and maturity of the loans involved and
are generally  affected by competition,  governmental  regulation and by current
money market rates.

         The Company's  consolidated  financial  statements  are prepared on the
accrual basis of accounting, including the recognition of interest income on the
loan  portfolio.  The  Subsidiary  Banks  follow  the policy of  non-accrual  of
interest on a loan when principal or interest is 90 days or more past due unless
the loan is well secured and in the process of collection.  Interest income from
non-accrual  loans is not accrued on the books, but rather is recorded only when
and if received.  When a loan is placed on a non-accrual  basis,  any previously
accrued but unpaid  interest is reversed  and  charged  against  current  income
unless there is adequate collateral to assure recovery of the accrued interest.

Correspondent Banks

         The Subsidiary Banks have correspondent  relationships with Wells Fargo
Bank,  N.A.,  Union Bank of  California.,  Bank of  America,  N.T.&  S.A.,  City
National Bank and the Federal Reserve Bank of San Francisco. These relationships
are a result of the Subsidiary  Banks efforts to obtain a wide range of services
for the Subsidiary  Banks and its customers and, as net sellers of federal funds
(overnight  interbank loans), to minimize the risk of an undue  concentration of
its resources with a few entities.  The Subsidiary Banks do not currently serve,
nor do they have plans to serve, as a correspondent to other banks.

         The  correspondent   banks  perform  the  following  services  for  the
Subsidiary Banks: arrange loan participations;  purchase and sell federal funds;
obtain lines for letters of credit; buy and sell investment securities; safekeep
the  Subsidiary  Banks  investment  securities;  send and receive  foreign  wire
transactions and data processing services.

Existing Locations

         First National  currently  operates five branch  offices:  the Monterey
branch located at 495 Washington Street, Monterey; the Salinas branch located at
1001 South Main Street,  Salinas; the Oldtown office located at 307 Main Street,
Salinas; the Carmel branch located in the Carmel Rancho Shopping Center, Carmel;
and the  Watsonville  branch  located  at 655 Main  Street,  Watsonville.  First
National  Bank  offers  offsite  24-hour  ATM  services  and  night   depository
facilities  at the  Prunetree  Shopping  Center  located in  Prunedale,  and ATM
services located at the Monterey Pennisula College,

                                       3
<PAGE>

Monterey , California.  The Company's loan administration  department is located
at 517 S. Main Street,  Salinas.  In addition to a banking  office,  the Oldtown
office  located  at 307  Main  Street,  Salinas  houses  all  of  the  Company's
administrative  functions as well as the Data  Processing/Operations  department
and a Community/Board room.

         South Valley National Bank currently operates four branch offices:  the
Morgan Hill branch  located at 500 Tennant  Station in Morgan  Hill;  the Gilroy
branch  located at 8000 Santa Teresa  Boulevard,  Gilroy;  the Hollister  branch
located at 1730 Airline  Highway,  Hollister;  and the San Juan Bautista  branch
located at 301 Third Street, San Juan Bautista.

         As of December 31, 1996, the Company and its subsidiaries  employed 259
full-time equivalent employees.

Other Information Concerning the Company and the Subsidiary Banks

         The  Company  and  its  Subsidiary  Banks  hold  no  material  patents,
trademarks, licenses, franchises or concessions except for the written approvals
issued by the Office of the  Comptroller  of the  Currency  (the  "OCC") for the
Subsidiary Banks banking offices.

         No material  expenditures  were made by the  Company or its  Subsidiary
Banks during the last three fiscal years on research and development  activities
relating to the development of services or the improvement of existing services.

         Based upon present business activities,  compliance with federal, state
and local provisions regulating discharge of materials into the environment will
have no material effect upon the capital expenditures,  earnings and competitive
position of the Company or its Subsidiary Banks.

Pacific Capital Services Corporation

         PCSC, a wholly-owned  subsidiary of the Company,  was  incorporated  on
April 22, 1985, to arrange and broker  residential,  commercial and construction
loans and other extensions of credit. PCSC commenced operations on July 1, 1985,
with a primary emphasis in the area of residential  mortgage loans. In December,
1988, the functions performed by PCSC were taken over by First National and PCSC
ceased operations. The Company maintains PCSC as an inactive subsidiary.

SELECTED STATISTICAL INFORMATION

         Consolidated  statistical  information  concerning  the business of the
Company and the  Subsidiary  Banks is set forth in  Management's  Discussion and
Analysis  of  Financial  Condition  and  Results  of  Operations  ("Management's
Discussion and Analysis") on pages 22 through 45 the Company's  Annual Report to
Shareholders  for the fiscal year ended December 31, 1996, (the "Annual Report")
and in Notes 1-14 to the Consolidated Financial Statements on pages 1 through 21
of the Annual Report,  which pages of the Annual Report are incorporated  herein
by  reference.   This  information  should  be  read  in

                                       4
<PAGE>

conjunction  with the  Consolidated  Financial  Statements and the Notes thereto
included in the Annual Report which have been incorporated herein by reference.

Distribution of Average Assets, Liabilities and Shareholders' Equity;
Interest Rates and Interest Differential

         The Company's average consolidated balance sheet and an analysis of net
interest  earnings for the years ended  December 31, 1996,  1995 and 1994 is set
forth in Management's Discussion and Analysis on page 27 of the Annual Report.

         A table  setting  forth the  changes in  interest  income and  interest
expense in 1996 and 1995  resulting  from changes in volume and changes in rates
is set forth in  Management's  Discussion  and Analysis on page 28 of the Annual
Report.

Investment Portfolio

         The  amortized  cost and  estimated  fair  values of each  category  of
investment  securities  at December 31,  1996,  and 1995 and the  maturities  of
investment securities at December 31, 1996, are set forth in Note 5 of the Notes
to Consolidated Financial Statements on pages 12 and 13 of the Annual Report.

         At December 31, 1996,  investment securities from the following issuers
each totaled over ten percent (10%) of shareholder's equity of the Company:

                                                   Amortized         Estimated
                                                   Cost              Fair value

         Available-for-sale securities:

            U.S. Treasury and Agencies             $ 64,109,000     $ 64,081,000
            Agency Mortgage-Backed Securities      $ 45,470,000     $ 45,176,000


Loan and Lease Portfolio

          The  composition  of the loan and lease  portfolio  for the five years
ended at December 31, 1996, is set forth in Management's Discussion and Analysis
on page 32 of the Annual Report.

          Maturities  and  sensitivity  to changes in interest rates in the loan
and lease portfolio,  including real  estate-mortgage  and consumer loans, as of
December 31, 1996,  are  summarized in  Management's  Discussion and Analysis on
page 33 of the Annual Report.

          The  composition of nonaccrual,  past due and  restructured  loans and
leases for the five years ended  December  31,  1996,  and a  discussion  of the
Company's  policy  for  placing  loans  on  nonaccrual  status  is set  forth in
Management's Discussion and Analysis on page 37 of the Annual Report.

                                       5
<PAGE>

Summary of Loan Loss Experience

         An analysis of loan loss  experience  for the five years ended December
31,  1996,  and a  description  of the  factors  which  influenced  management's
judgment in determining the amount of the additions to the allowance  charged to
operating  expenses in each fiscal  period,  as well as a discussion of the risk
elements in the loan  portfolio,  are set forth in  Management's  Discussion and
Analysis on page 35of the Annual Report.

Deposits

         The  average  amount  of and the  average  rate  paid on major  deposit
categories for the years ended December 31, 1996,  1995 and 1994 is set forth in
Management's Discussion and Analysis on page 39 of the Annual Report.

         The  maturity of time  certificates  of deposit of $100,000 or more and
other time  deposits of $100,000 or more at December 31,  1996,  is set forth in
Management's Discussion and Analysis on page 39 of the Annual Report.

Financial Ratios

         Certain  ratios of  profitability,  liquidity and capital for the years
ended December 31, 1996, and 1995 are summarized in the Selected  Financial Data
on page 1 of the Annual Report.


COMPETITION

         In California and in the Subsidiary Banks primary service areas,  major
banks dominate the commercial banking industry. Among the advantages which these
banks have over the Subsidiary  Banks are their ability to finance  wide-ranging
advertising campaigns and to allocate their investment assets,  including loans,
to regions of higher  yield and  demand.  By virtue of their  larger  amounts of
capital,  such institutions have  substantially  greater lending limits than the
Subsidiary  Banks and perform  certain  functions,  including trust services and
international  banking,  which are not offered  directly by the Subsidiary Banks
but are offered indirectly through its correspondent institutions.

         First  National's  primary service area consists of Monterey County and
Southern  Santa Cruz  County and  encompasses  the cities of  Monterey,  Carmel,
Pacific Grove,  Seaside,  Marina, Sand City, Del Rey Oaks,  Salinas,  Prunedale,
Watsonville and the  unincorporated  communities of Pebble Beach,  Carmel Valley
and North Monterey County. Based on data as of the most recent practicable date,
June 30, 1996,  there were 82 financial  institutions  with $3,878.6  million in
deposits serving this area.  First National's  market share at June 30, 1996 was
as follows(1):

                                       6
<PAGE>

                                     First National
                    Total Deposits    Bank Deposits   First National Bank Market
Service Area        (in thousands)   (in thousands)                        Share
-------------------------------------------------------------------------------
Monterey                $1,395,167         $123,007                       8.8%
Salinas                  1,439,932          133,984                       9.3%
Carmel                     432,021           32,640                       7.5%
Watsonville                611,458           55,255                       9.0%
-------------------------------------------------------------------------------
Total                   $3,878,578         $344,886                       8.9%
===============================================================================


           South  Valley's  primary  service area is Southern Santa Clara County
and San  Benito  County,  which  includes  the  cities of Morgan  Hill,  Gilroy,
Hollister  and  San  Juan  Bautista.  Based  upon  data  as of the  most  recent
practicable  date,  June 30,  1996,  there were 27 financial  institutions  with
$947.2 million in deposits  serving this area.  South  Valley's  market share at
June 30, 1996 was as follows(1):

                                        South Valley      South Valley
                      Total Deposits    Bank Deposits     National Bank
Service Area          (in thousands)   (in thousands)     Market Share
-----------------------------------------------------------------------
Morgan Hill                 $308,311          $62,673            20.3%
Gilroy                       325,585           64,637            19.9%
Hollister                    299,633           20,905             7.0%
San Juan Bautista             13,657           10,803            79.1%
-----------------------------------------------------------------------
Total                       $947,186         $159,018            16.8%
===================================== ================ ================

(1)  Sheshunoff(TM)Information  Services Branches of California and Hawaii, June
1996 Data.

         Other entities,  both governmental and in private industry,  seeking to
raise capital through the issuance and sale of debt securities, as well as other
depository  institutions  such as thrift and loan  companies and credit  unions,
also  provide  competition  for  the  Subsidiary  Banks  in the  acquisition  of
deposits.  The  Subsidiary  Banks also compete with money market funds and other
money market instruments which are not subject to interest rate ceilings.

         From time to time,  legislation  is proposed  or enacted  which has the
effect of increasing the cost of doing business, limiting permissible activities
or  affecting  the  competitive   balance  between  banks  and  other  financial
institutions. It is impossible to predict the competitive impact these and other
changes  in  legislation  will have on  commercial  banking in general or on the
business of the Subsidiary Banks in particular.

                                       7

<PAGE>

SUPERVISION AND REGULATION

The Effect of Governmental Policy on Banking

         The  earnings  and growth of the Company and the  Subsidiary  Banks are
affected not only by local market area factors and general economic  conditions,
but also by government monetary and fiscal policies.  For example,  the Board of
Governors of the Federal  Reserve  System (the "FRB")  influences  the supply of
money through its open market  operations  in U.S.  Government  securities,  and
adjustments  to the  discount  rates  applicable  to  borrowings  by  depository
institutions and others. Such actions influence the growth of loans, investments
and  deposits  and also  effect  interest  rates  charged  on loans  and paid on
deposits.  The  nature  and impact of future  changes  in such  policies  on the
business  and  earnings  of the  Company  and the  Subsidiary  Banks  cannot  be
predicted.

         As a  consequence  of the extensive  regulation  of commercial  banking
activities  in the United  States,  the business of the Company is  particularly
susceptible  to  federal  and state  legislation  which  may have the  effect of
increasing  or  decreasing  the cost of doing  business,  modifying  permissible
activities,   or  enhancing  the   competitive   position  of  other   financial
institutions.  Any change in applicable  laws or regulations may have a material
adverse effect on the business and prospects of the Company.

Regulation and Supervision of Bank Holding Companies

         The  Company is a bank  holding  company  subject  to the Bank  Holding
Company Act of 1956,  as amended  ("BHCA").  The Company  reports to,  registers
with,  and may be examined by the FRB. The FRB also has the authority to examine
the Company's subsidiaries.

         The FRB requires the Company to maintain certain levels of capital. See
"Capital  Standards"  herein. The FRB also has the authority to take enforcement
action  against  any bank  holding  company  that  commits any unsafe or unsound
practice,  or violates  certain  laws,  regulations,  or  conditions  imposed in
writing by the FRB.

           Under the BHCA, a company generally must obtain the prior approval of
the FRB before it exercises a controlling  influence over, or acquires  directly
or  indirectly,  more than 5% of the voting shares or  substantially  all of the
assets of any bank or bank  holding  company.  Thus,  the Company is required to
obtain the prior approval of the FRB before it acquires,  merges or consolidates
with any bank or bank holding company. Any company seeking to acquire,  merge or
consolidate  with the  Company  also  would be  required  to  obtain  the  FRB's
approval.

The Company is generally  prohibited under the BHCA from acquiring  ownership or
control of more than 5% of the voting  shares of any company  that is not a bank
or bank holding  company and from engaging  directly or indirectly in activities
other than banking,  managing banks, or providing  services to affiliates of the
holding  company.  A bank  holding  company,  with the  approval of the FRB, may
engage,  or acquire the voting shares of companies  engaged,  in activities that
the FRB has  determined  to be so closely  related to  banking  or  managing  or
controlling  banks as to be a proper  incident  thereto.  A bank holding company
must demonstrate  that the benefits to the public of the proposed  activity will
outweigh the possible adverse effects associated with such activity.

                                       8
<PAGE>

         Legislation  was recently  introduced in Congress that would repeal the
current  statutory  restrictions on affiliations  between  commercial  banks and
securities firms. Under the proposed  legislation,  bank holding companies would
be allowed to control both a commercial bank and a securities  affiliate,  which
could  engage in the full  range of  investment  banking  activities,  including
corporate  underwriting.  The  likelihood  of such  legislative  changes and the
impact of such changes  might have on the Company and the  Subsidiary  Banks are
imposible to predict.

         The FRB generally  prohibits a bank holding  company from  declaring or
paying a cash  dividend  which  would  impose  undue  pressure on the capital of
subsidiary banks or would be funded only through borrowing or other arrangements
that might adversely affect a bank holding  company's  financial  position.  The
FRB's  policy is that a bank  holding  company  should not continue its existing
rate of cash  dividends on its common stock unless its net income is  sufficient
to fully fund each  dividend  and its  prospective  rate of  earnings  retention
appears  consistent with its capital needs,  asset quality and overall financial
condition.

         Transactions  between  the  Company  and the  Subsidiary  Banks and any
future subsidiaries are subject to a number of other restrictions.  FRB policies
forbid  the  payment  by  bank   subsidiaries   of  management  fees  which  are
unreasonable in amount or exceed the fair market value of the services  rendered
(or, if no market exists, actual costs plus a reasonable profit).  Additionally,
a bank holding  company and its  subsidiaries  are  prohibited  from engaging in
certain tie-in  arrangements in connection with the extension of credit, sale or
lease of property,  or furnishing of services.  Subject to certain  limitations,
depository institution  subsidiaries of bank holding companies may extend credit
to, invest in the  securities  of,  purchase  assets from, or issue a guarantee,
acceptance,  or letter of credit on behalf of, an  affiliate,  provided that the
aggregate of such transactions with affiliates may not exceed 10% of the capital
stock and surplus of the  institution,  and the  aggregate of such  transactions
with all  affiliates may not exceed 20% of the capital stock and surplus of such
institution.   The  Company  may  only   borrow  from   depository   institution
subsidiaries if the loan is secured by marketable  obligations with a value of a
designated  amount in excess of the loan.  Further,  the  Company may not sell a
low-quality asset to a depository institution subsidiary.

Bank Regulation and Supervision

         As national banks, the Subsidiary  Banks are regulated,  supervised and
regularly  examined by the OCC.  Deposit  accounts at the  Subsidiary  Banks are
insured by the Bank Insurance Fund ("BIF"),  as administered by the FDIC, to the
maximum  amount  permitted  by law.  The  Subsidiary  Banks are also  subject to
applicable  provisions of California law,  insofar as such provisions are not in
conflict with or preempted by federal banking law.

Capital Standards

          The OCC and other federal  banking  agencies have  risk-based  capital
adequacy  guidelines  intended  to provide a measure of  capital  adequacy  that
reflects the degree of risk associated with a banking organization's  operations
for both transactions  reported on the balance sheet as assets and transactions,
such as letters of credit and recourse  arrangements,  which are reported as off
balance sheet items.  Under these  guidelines,  nominal dollar amounts of assets
and credit  equivalent  amounts of off

                                       9
<PAGE>

balance  sheet  items  are   multiplied  by  one  of  several  risk   adjustment
percentages,  which  range from 0% for  assets  with low  credit  risk,  such as
certain U.S.  government  securities,  to 100% for assets with relatively higher
credit risk, such as business loans.

         A banking  organization's  risk-based  capital  ratios are  obtained by
dividing  its  qualifying  capital  by its total  risk  adjusted  assets and off
balance sheet items. The federal banking agencies measure  risk-adjusted  assets
and off balance  sheet items against both total  qualifying  capital (the sum of
Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1
capital consists of common stock,  retained  earnings,  noncumulative  perpetual
preferred stock and minority interests in certain subsidiaries,  less most other
intangible  assets.  Tier 2  capital  may  consist  of a  limited  amount of the
allowance for possible loan and lease losses and certain other  instruments with
some  characteristics of equity. The inclusion of elements of Tier 2 capital are
subject to certain other  requirements  and  limitations of the federal  banking
agencies.  Since December 31, 1992, the federal banking agencies have required a
minimum  ratio of  qualifying  total  capital  to  risk-adjusted  assets and off
balance  sheet  items  of  8%,  and  a  minimum  ratio  of  Tier  1  capital  to
risk-adjusted assets and off balance sheet items of 4%.

         In addition to the  risk-based  guidelines,  federal  banking  agencies
require banking  organizations to maintain a minimum amount of Tier 1 capital to
total  assets,  referred to as the leverage  ratio.  For a banking  organization
rated in the highest of the five  categories  used by regulators to rate banking
organizations,  the minimum  leverage ratio of Tier 1 capital to total assets is
3%. It is  improbable,  however,  that an  institution  with a 3% leverage ratio
would  receive  the  highest  rating  since  a  strong  capital  position  is  a
significant part of the rating.  For all banking  organizations not rated in the
highest category, the minimum leverage ratio is at least 100 to 200 basis points
above the 3% minimum.  Thus,  the  effective  minimum  leverage  ratio,  for all
practical  purposes,  is at  least  4% to  5%.  In  addition  to  these  uniform
risk-based  capital  guidelines  and  leverage  ratios  that  apply  across  the
industry,  the federal  banking  agencies have the  discretion to set individual
minimum capital  requirements for specific  institutions at rates  significantly
above the minimum guidelines and ratios.
<TABLE>

The  following  tables  present  the  capital  ratios  for the  Company  and the
Subsidiary Banks as of December 31, 1996.
<CAPTION>
                                        The Company                     South Valley                   First National
                                       Amount           Ratio          Amount          Ratio          Amount           Ratio
------------------------------- -------------- --------------- --------------- -------------- --------------- ---------------
                                      (000's)                         (000's)                        (000's)
<S>                                   <C>              <C>            <C>             <C>            <C>              <C>
Risk-Based Capital Ratio:
   Tier 1 Capital                     $63,469          13.91%         $16,096         11.63%         $42,034          13.40%
   Minimum Requirement                 18,254           4.00%           5,534          4.00%          12,546           4.00%
      Excess                           45,215           9.91%          10,562          7.63%          29,488           9.40%
                                       ======           =====          ======          =====          ======           =====
   Total Capital                       67,141          14.71%          17,409         12.58%          44,258          14.11%
   Minimum Requirement                 36,508           8.00%          11,060          8.00%          25,092           8.00%
      Excess                           30,633           6.71%           6,340          4.58%          19,166           6.11%
                                       ======           =====           =====          =====          ======           =====
Risk-Adjusted Assets                 $456,356                        $138,362                       $313,644

                                       10
<PAGE>


                                       The Company                     South Valley                   First National
                                       Amount          Ratio          Amount           Ratio          Amount           Ratio
------------------------------ --------------- -------------- --------------- --------------- --------------- ---------------
                                      (000's)                        (000's)                         (000's)

Leverage Ratio:
   Tier 1 Capital                     $63,469         10.55%         $16,096           8.61%         $42,034          10.29%
   Minimum Requirement                 24,060          4.00%           7,481           4.00%          16,340           4.00%
      Excess                           39,409          6.55%           8,615           4.61%          25,694           6.29%
                                       ======          =====           =====           =====          ======           =====
Average Quarterly Assets             $601,496                       $187,024                        $408,502

</TABLE>

Restrictions on Dividends and Other Distributions

         The  power  of  the  board  of  directors  of  an  insured   depository
institution  to declare a cash  dividend or other  distribution  with respect to
capital is subject to  statutory  and  regulatory  restrictions  which limit the
amount available for such  distribution  depending upon the earnings,  financial
condition  and  cash  needs  of the  institution,  as well as  general  business
conditions.  Federal law prohibits insured  depository  institutions from paying
management fees to any controlling  persons or, with certain limited exceptions,
making capital distributions,  including dividends,  if, after such transaction,
the institution would be undercapitalized.

         The payment of dividends by a national  bank is further  restricted  by
additional  provisions  of federal  law,  which  prohibits a national  bank from
declaring  a dividend  on its shares of common  stock  unless its  surplus  fund
exceeds the amount of its common capital (total  outstanding common shares times
the par  value  per  share).  Additionally,  if  losses  have at any  time  been
sustained  equal to or exceeding a bank's  undivided  profits  then on hand,  no
dividend  can be paid.  Moreover,  even if a bank's  surplus  exceeds its common
capital and its undivided profits exceed its losses,  the approval of the OCC is
required for the payment of dividends if the total of all dividends  declared by
a national  bank in any calendar  year would exceed the total of its net profits
of that year combined with its retained net profits of the two preceding  years,
less any  required  transfers  to  surplus or a fund for the  retirement  of any
preferred  stock.  A  national  bank must  consider  other  business  factors in
determining  the payment of  dividends.  The payment of dividends by the Bank is
governed by the Bank's ability to maintain  minimum  required capital levels and
an adequate  allowance for loan losses.  The federal banking  agencies also have
the  authority to prohibit a depository  institution  from  engaging in business
practices  which are  considered  to be unsafe or  unsound,  possibly  including
payments of dividends or other payments under certain circumstances even if such
payments are not expressly prohibited by statue.

         The  Company has paid a stock  dividend  every year since 1986 and cash
dividends were paid in 1993, 1994, 1995 and 1996.

                                       11
<PAGE>

Premiums for Deposit Insurance and Assessments for Examinations

         As an insured  depository  institution,  the Company is required to pay
premiums  for  FDIC  deposit  insurance.  The  FDIC  has  adopted  a  risk-based
assessment system for deposit insurance premiums. Under this system,  depository
institutions  were charged  anywhere from 23 cents to 31 cents for every $100 in
insured  deposits based on that  institution's  capital  levels and  supervisory
subgroup assignment.

         In May 1995,  the BIF achieved its target goal of bringing the ratio of
insurance  fund  reserves to $1.25 for each $100 of insured  deposits.  Based on
this reserve level,  the FDIC in September 1995,  reduced the range of insurance
assessments  to a range  of $0.04 to $0.31  per  $100 in  insured  deposits.  In
November 1995, the FDIC further reduced the range of insurance  assessment rates
from  $0.04 to $0.31 to $0 to $0.31 per $100 in insured  deposits.  Due to these
changes in assessment rates, the Company's FDIC assessment expense decreased for
1995 by $316,000 or 94.6%.  During 1996, a special one-time  assessment was paid
by BIF-insured  financial  institutions to the FDIC for the purpose of assisting
in the  recapitalization of the Savings Association  Insurance Fund (the "SAIF")
The SAIF is the  insurance  fund reserve for savings  institutions.  In November
1996, the Subsidiary Banks paid $71,000 for this special assessment.

Interstate Banking and Branching

         The Riegle-Neal  Interstate  Banking and Branching  Efficiency Act (the
"Act"),  which was enacted in 1994,  codifies the  authority of banks to provide
specified  interstate  banking  services  on an  agency  basis to  customers  of
affiliate banks as of September 1995. Also, under the act, as of September 1995,
bank holding  companies may acquire  banks in other  states,  subject to certain
deposit  concentration  limitations.  Beginning  June 1,  1997,  and  subject to
certain deposit concentration and other limitations,  banks may merge with other
banks in states  that do not "opt out" of the  interstate  legislation  prior to
June 1,  1997.  Interstate  mergers  may be  conducted  prior to June 1, 1997 in
states that  specifically  permit such  mergers.  In addition,  prior to June 1,
1997, certain consolidations are possible using the "30-mile rule," which allows
national banks to relocate  their  headquarters  up to 30 miles away,  including
across state lines.  Currently,  several  states have already  "opted in" to the
interstate legislation.

         Effective  October 2,  1995,  California  opted in early to  interstate
branching by permitting other state's banks to acquire an entire California bank
by merger or  purchase  and  thereby  establish  one or more  California  branch
offices, provided the acquired bank has been in existence at lease five years.

Accounting Pronouncements

                 Accounting   Pronouncements   -  During  1996,   the  Financial
Accounting Standards Board (the "FASB") issued Statement of Financial Accounting
Standards  (SFAS) No. 125,  Accounting  for Transfers and Servicing of Financial
Assets and  Extinguishments of Liabilities.  This statement provides  accounting
and reporting  standards  for  transfers  and servicing of financial  assets and
extinguishments   of   liabilities   based  on  consistent   application   of  a
financial-components   approach  that  focuses  on  control.   It  distinguishes
transfers of  financial  assets that are sales from  transfers  that are secured
borrowings. Under this approach, after a transfer of financial assets, an entity
recognizes all financial and servicing assets it controls and liabilities it has
incurred and derecognizes financial assets it no longer controls and liabilities
that have been extinguished.  This statement is effective for years ending after
December 31,

                                       12
<PAGE>

1996.  The Company does not believe  this  statement  will have any  significant
impact on its consolidated financial statements.

ITEM 2   PROPERTIES

         On December 31, 1996, the Company had 10 offices, of which 4 were owned
and 6 were leased by the Company or its Subsidiary  Bank's. All of these offices
are considered by management to be well  maintained and adequate for the purpose
intended.  See page 23 of the Annual Report incorporated herein by reference for
further information on leases.

ITEM 3   LEGAL PROCEEDINGS

          Neither the Company nor its Subsidiary Banks is a party to, nor is any
of their property the subject of, any material pending legal  proceedings  other
than ordinary routine litigation incidental to their respective businesses.

ITEM 4    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          A special  meeting of  shareholders of the Company was held on October
22, 1996.  The  shareholders  approved the Agreement and Plan of  Reorganization
dated July 18,1996,  between the Company and SVB providing for the merger of SVB
with and into the Company.  There were 1,599,455 votes cast for approval,  2,818
votes  against  or  withheld  and  38,655  abstentions.  There  were  no  broker
non-votes.

                                     PART II

ITEM 5   MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

         For  information  concerning  the  Company's  common  stock and related
security holder matters, see "Pacific Capital Bancorp Stock Activity" at Page 45
of the Annual Report, which is incorporated herein by reference. For information
regarding  dividends,  see  "Restrictions on Dividends and other  Distributions"
under Part I, Item 1 of this Form 10-K on page 13

         As of  September  10, 1996,  there were 2,063  holders of record of the
Company's Common Stock.

ITEM 6   SELECTED FINANCIAL DATA

         For selected  financial  data  concerning  the Company,  see  "Selected
Financial  Information  and  Comparative Per Share Data" at Page 1 of the Annual
Report, which is incorporated herein by reference.

                                       13
<PAGE>

ITEM 7   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

         For  management's  discussion  and analysis of financial  condition and
results of operations,  see  "Management's  Discussion and Analysis" at Pages 22
through  45 of  the  Annual  Report,  which  pages  of  the  Annual  Report  are
incorporated herein by reference.


ITEM 8   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         For financial  statements of the Company, see Pages 2 through 26 of the
Annual Report and the  "Independent  Auditors"  Report  thereon at Page 49 which
pages of the Annual Report are incorporated herein by reference.


ITEM 9   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

         Not applicable.
                                    PART III

ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information Concerning Directors and Executive Officers

         For  information  concerning  directors and  executive  officers of the
Company,  see  "ELECTION OF DIRECTORS  OF THE COMPANY" in the  definitive  Proxy
Statement  for the Company's  1997 Annual  Meeting of  Shareholders  to be filed
pursuant to Regulation 14A (the "Proxy Statement"), which is incorporated herein
by reference.

Compliance With Section 16(a) of the Securities Exchange Act of 1934

         Section  16(a) of the  Securities  Exchange  Act of 1934  requires  the
Company's officers and directors,  and any persons who own more than ten percent
of a registered  class of the Company's  equity  securities,  to file reports of
ownership and changes in ownership with the Securities and Exchange  Commission.
Officers,  directors and greater than  ten-percent  shareholders are required by
SEC  regulation  to furnish the Company  with copies of all Section  16(a) forms
they file.  To the best  knowledge of the Company,  there are no persons who own
more than ten-percent of the Company's Common Stock.

         Based solely on its review of the copies of such forms  received by it,
or written  representations  from certain reporting persons that no Forms 5 were
required for those persons, the Company believes

                                       14
<PAGE>

that,  for the fiscal year ended  December  31,  1996,  all filing  requirements
applicable to its officers and directors have been satisfied.

ITEM 11  EXECUTIVE COMPENSATION

        For  information  concerning  executive  compensation,   see  "EXECUTIVE
COMPENSATION" in the Proxy Statement, which is incorporated herein by reference.

ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         For information  concerning  security  ownership of certain  beneficial
owners and management,  see "PRINCIPAL  SHAREHOLDERS" and "ELECTION OF DIRECTORS
OF THE  COMPANY"  in the  Proxy  Statement,  which  is  incorporated  herein  by
reference.

ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         For   information   concerning   certain   relationships   and  related
transactions,   see  "CERTAIN   RELATIONSHIPS  AND  RELATED   TRANSACTIONS"  and
"INDEBTEDNESS  OF  MANAGEMENT"  in the Proxy  Statement,  which is  incorporated
herein by reference.

                                     PART IV

ITEM 14  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)      1.       Financial Statements.

         The  consolidated  financial  statements of Pacific Capital Bancorp and
subsidiaries,  other financial  information and the Independent Auditors' Report
on Consolidated  Financial Statements appearing at the indicated location in the
Annual Report are incorporated by reference into this report.

2.       Financial Statement Schedules.

         In accordance with Regulation  S-X, the financial  statement  schedules
have been  omitted  because  (a) they are not  applicable  to or required of the
Company;  or (b)  the  information  required  is  included  in the  consolidated
financial statements or notes thereto.

         With  the  exception  of such  information  in the 1996  Annual  Report
incorporated  herein by reference,  the 1996 Annual Report is not deemed "filed"
as part of this report.


                                       15
<PAGE>

3.       Exhibits.

         See Index to Exhibits at pages 69 - 73 of this Form 10-K.

(b)      Reports on Form 8-K.

         A report on Form 8-K dated July 24, 1996, was filed with the Commission
on July 24, 1996,  reporting  under Item 5 -- Other Events.  The Company's stock
repurchase  program  was  amended to  increase  the price per share at which the
Company may  repurchase  shares of the  Company's  outstanding  common  stock at
prices ranging from $25.00 per share to $28.00 per share.

         A report on Form 8-K dated December 3, 1996, was filed with on December
3, 1996,  reporting under Item 2 the Company's  acquisition by merger of SVB and
its subsidiary, South Valley, which is more fully discussed under Item 1 of this
Form 10-K.  A report on Form 8-K/A  dated  January 21, 1997 was filed on January
21,  1997  amending  the Form 8-K  filed on  December  3,  1996 to  furnish  the
information under Item 7 - Financial Statements, Pro Forma Financial Information
and Exhibits.





                                       16
<PAGE>



                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES

                        Consolidated Financial Statements

                        December 31, 1996, 1995, and 1994

                   (With Independent Auditors' Report Thereon)






                                       17


<PAGE>

<TABLE>

                                         PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
                                            SELECTED FINANCIAL INFORMATION AND
                                                COMPARATIVE PER SHARE DATA

-------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)           1996          1995           1994         1993         1992
-------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>           <C>           <C>           <C>          <C>
RESULTS OF OPERATIONS:
Interest income                                          $  43,958     $  38,678     $  33,030     $  29,346    $  30,943
Interest expense                                            13,319        10,971         8,074         7,763       10,609
-------------------------------------------------------------------------------------------------------------------------
Net interest income                                         30,639        27,707        24,956        21,583       20,334
Provision for possible loan losses                             685           527           479         1,278        1,265
-------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
   for possible loan losses                                 29,954        27,180        24,477        20,305       19,069
Other income                                                 3,206         3,056         2,888         2,911        2,913
Other expense                                               22,727        19,352        17,345        16,445       15,935
Net (loss) gain on Securities Transactions                     (46)          (73)          (17)          120            3
-------------------------------------------------------------------------------------------------------------------------
Income before income taxes                                  10,387        10,811        10,003         6,891        6,050
Income taxes                                                 4,348         4,200         3,778         2,426        2,088
-------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of
    accounting change                                        6,039         6,611         6,225         4,465        3,962
Cumulative effect of accounting change                        --            --            --             549         --
-------------------------------------------------------------------------------------------------------------------------
Net income                                               $   6,039     $   6,611     $   6,225     $   5,014    $   3,962
-------------------------------------------------------------------------------------------------------------------------

PER SHARE DATA
Income before cumulative effect of
   accounting change                                     $    1.42     $    1.58     $    1.51     $    1.08    $    0.96
Net income                                                    1.42          1.58          1.51          1.22         0.96
Cash dividends                                                 .60           .53           .40           .30         --
Book value                                                   15.59         15.54         14.60         13.83        13.57

BALANCES AT YEAR END
Total assets                                               619,439       530,852       487,749       436,958      433,656
Total loans                                                388,728       300,895       290,352       265,903      265,647
Total deposits                                             547,182       465,508       427,870       382,475      382,094
Total shareholders' equity                                  63,646        60,533        55,002        50,039       46,068

AVERAGE DAILY BALANCES
Total assets                                               568,686       496,007       459,695       433,558      414,928
Total loans                                                332,421       290,265       277,263       259,131      272,368
Total deposits                                             501,833       431,975       404,047       382,183      365,932
Total shareholders' equity                                  63,106        58,183        52,719        48,205       44,274

PERFORMANCE AND CAPITAL RATIOS
Return on average assets                                      1.06%         1.33%         1.35%         1.16%        0.95%
Return on average shareholders' equity                        9.57%        11.36%        11.81%        10.40%        8.95%
Average shareholders' equity to average assets               11.10%        11.73%        11.47%        11.12%       10.67%
-------------------------------------------------------------------------------------------------------------------------

</TABLE>
                                       18
<PAGE>
<TABLE>

                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<CAPTION>

December 31,
---------------------------------------------------------------------------------------------------
(In thousands, except share amounts)                                            1996         1995
---------------------------------------------------------------------------------------------------
<S>                                                                          <C>          <C>
Assets
Cash and due from banks                                                      $  48,126    $  34,327
Federal funds sold                                                              14,910       38,226
Money market funds                                                              13,209        6,681
---------------------------------------------------------------------------------------------------
      Cash and cash equivalents                                                 76,245       79,234

Investment securities:
    Held-to-maturity, at amortized cost
       (fair value of $9,741 and $15,875, respectively)                          9,680       15,685
    Available-for-sale, at fair value                                          116,528      110,143
---------------------------------------------------------------------------------------------------
     Total investment securities                                               126,208      125,828

Loans available for sale                                                         5,821        3,876

Loans, net of unearned income                                                  388,728      300,895
Less allowance for possible loan losses                                          3,672        3,710
---------------------------------------------------------------------------------------------------
     Net loans                                                                 385,056      297,185

Premises and equipment, net                                                     15,300       13,507
Accrued interest receivable and other assets                                    10,809       11,222
---------------------------------------------------------------------------------------------------
     Total assets                                                            $ 619,439    $ 530,852
===================================================================================================

Liabilities and Shareholders' Equity

Deposits:
  Demand, noninterest bearing                                                $ 131,332    $ 115,861
  Demand, interest bearing                                                      84,770       76,770
  Savings and money market                                                     164,890      151,337
  Time certificates                                                            166,190      121,540
---------------------------------------------------------------------------------------------------
     Total deposits                                                            547,182      465,508

Accrued interest payable and other liabilities                                   8,611        4,811
---------------------------------------------------------------------------------------------------
     Total liabilities                                                         555,793      470,319
---------------------------------------------------------------------------------------------------

Shareholders'  equity:
  Preferred stock; no par value, 20,000,000 shares authorized and unissued
  Common stock; no par value, 20,000,000 shares authorized: 4,083,363
    and 3,783,960 shares issued and outstanding in 1996 and 1995,
    respectively                                                                49,388       42,566
  Retained earnings                                                             14,423       17,601
  Net unrealized (loss) gain on available-for-sale securities                     (165)         366
---------------------------------------------------------------------------------------------------
     Total shareholders' equity                                                 63,646       60,533

Commitments and contingencies
---------------------------------------------------------------------------------------------------
     Total liabilities and shareholders' equity                              $ 619,439    $ 530,852
===================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
                                       19
<PAGE>

<TABLE>

                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Years ended December 31,
-----------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)                               1996        1995        1994
-----------------------------------------------------------------------------------------------------
<S>                                                                  <C>         <C>         <C>
Interest income:
  Interest and fees on loans                                         $ 33,845    $ 30,490    $ 26,430
  Interest on federal funds sold                                        1,806       1,870       1,182
  Interest on investment securities:
     Taxable                                                            7,557       5,415       4,461
     Non-taxable                                                          750         903         957
-----------------------------------------------------------------------------------------------------
      Total interest income                                            43,958      38,678      33,030
-----------------------------------------------------------------------------------------------------
Interest expense:
  Interest on deposits                                                 13,292      10,922       7,985
  Other interest expense                                                   27          49          89
-----------------------------------------------------------------------------------------------------
     Total interest expense                                            13,319      10,971       8,074
-----------------------------------------------------------------------------------------------------
     Net interest income                                               30,639      27,707      24,956
Provision for possible loan losses                                        685         527         479
-----------------------------------------------------------------------------------------------------
      Net interest income after provision for possible loan losses     29,954      27,180      24,477
-----------------------------------------------------------------------------------------------------
Other income:
  Service charges                                                       2,432       2,399       2,163
  Gain on sale of loans                                                    27          91         160
  Net losses on securities transactions                                   (46)        (73)        (17)
  Other                                                                   747         566         565
-----------------------------------------------------------------------------------------------------
      Total other income                                                3,160       2,983       2,871
-----------------------------------------------------------------------------------------------------
Other expenses:
  Salaries and benefits                                                11,864       9,989       8,730
  Occupancy                                                             2,111       1,959       1,779
  Equipment                                                             2,577       1,943       1,476
  Advertising and promotion                                               710         659         679
  Stationery and supplies                                                 563         508         456
  Legal and professional fees                                           1,946         823         828
  Regulatory assessments                                                  147         572       1,043
  Other                                                                 2,809       2,899       2,354
-----------------------------------------------------------------------------------------------------
    Total other expenses                                               22,727      19,352      17,345
-----------------------------------------------------------------------------------------------------
      Income before income taxes                                       10,387      10,811      10,003
Income taxes                                                            4,348       4,200       3,778
-----------------------------------------------------------------------------------------------------
 Net income                                                          $  6,039    $  6,611    $  6,225
=====================================================================================================

Earnings per share                                                   $   1.42    $   1.58    $   1.51
=====================================================================================================
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
                                       20
<PAGE>

<TABLE>

                                         PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
                                      CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1996, 1995, and 1994
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                              Net unrealized
                                                                                               gain (loss) on     Total
                                          Common         Common       Retained     Guaranteed  available-for- shareholders'
(In thousands, except share amounts)      shares         amount       earnings     ESOP note   sale securities   equity
------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>         <C>         <C>       <C>               <C>          <C>
Balances, December 31, 1993, as
   previously reported                   2,327,167    $   25,802    $    9,638    $     (212)   $      204    $   50,039
Adjustment to reflect pooling-of-
   interests                             1,291,185    $   13,126    $    1,481          --            --            --
------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1993, restated    3,618,352        38,928        11,119          (212)          204        50,039
Net income for the year ended
   December 31, 1994                          --            --           6,225          --            --           6,225
Purchase and retirement of shares          (42,772)         (717)         --            --            --            (717)
Exercise of stock options
   (net of 5,284 shares retired in
   connection with cashless                 75,071           806          --            --            --             806
exercises)
5% stock dividend, including
   payment of fractional shares            117,051         2,165        (2,181)         --            --             (16)
Cash dividend declared                        --            --          (1,137)         --            --          (1,137)
Repayment of ESOP note                        --            --            --             212          --             212
Recognition of net unrealized loss
   on available-for-sale securities           --            --            --            --            (410)         (410)
------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1994              3,767,702        41,182        14,026          --            (206)       55,002
Net income for the year ended
   December 31, 1995                          --            --           6,611          --            --           6,611
Purchase and retirement of shares           (5,606)         (111)         --            --            --            (111)
Exercise of stock options
5% stock dividend, including                 9,590           158          --            --            --             158
   payment of fractional shares            123,338         3,132        (3,147)         --            --             (15)
Cash dividends declared                       --            --          (1,684)         --            --          (1,684)
Recognition of net unrealized gain
   on available-for-sale securities           --            --            --            --             572           572
------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1995              3,895,024        44,361        15,806          --             366        60,533
Net income for the year ended
   December 31, 1996                          --            --           6,039          --            --           6,039
Purchase and retirement of shares          (23,646)         (605)         --            --            --            (605)
Exercise of stock options                   17,981           295          --            --            --             295
5% stock dividend, including
   payment of fractional shares            194,455         5,348        (5,372)         --            --             (24)
Cash dividends declared                       --            --          (2,050)         --            --          (2,050)
Repurchase of dissenter shares                (451)          (11)         --            --            --             (11)
Recognition of net unrealized
  loss on available-for-sale
securities                                    --            --            --            --            (531)         (531)
------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1996              4,083,363    $   49,388    $   14,423    $     --      $     (165)   $   63,646
========================================================================================================================
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
                                       21
<PAGE>
<TABLE>
                                         PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>

Years ended December 31,
------------------------------------------------------------------------------------------------------------------
(In thousands)                                                                      1996        1995        1994
------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>         <C>         <C>
Cash flows from operating activities:
  Net income                                                                      $  6,039    $  6,611    $  6,225
  Adjustments to reconcile net income to net cash
   provided by operating activities:
    Depreciation and amortization                                                    1,074       1,260       1,046
    Provision for possible loan losses                                                 685         527         479
    Loss on sale of investment securities, net                                          46          73          17
    Net originations of loans available for sale                                    (1,945)     (2,891)     (3,355)
    Proceeds from sale of loans                                                       --           924       3,932
    Gain on sale of loans                                                              (27)        (91)       (160)
    Deferral of loan origination fees                                                  (64)         40         (95)
    Change in accrued interest receivable and other assets                            (118)       (837)     (1,613)
    Change in accrued interest payable and other liabilities                         3,813          93         470
------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                            9,503       5,709       6,946
------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
  Net change in loans                                                              (88,492)    (10,739)    (25,011)
  Maturities of investment securities                                               20,445      40,818      25,585
  Purchases of investment securities                                               (82,606)    (95,070)    (41,735)
  Proceeds from sale of available-for-sale securities                               61,735      42,089      13,494
  Capital expenditures, net                                                         (2,867)     (1,536)     (3,173)
------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                              (91,785)    (24,438)    (30,840)
------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
  Net increase in deposits                                                          81,674      21,471      45,395
  Cash received in connection with branch acquisition                                 --        16,167        --
  Cash paid for retirement of stock                                                   (605)       (111)       (717)
  Proceeds from exercise of stock options                                              295         158         806
  Cash paid in lieu of fractional shares                                               (21)        (15)        (16)
  Cash paid for dividends                                                           (2,050)     (1,684)     (1,137)
------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                           79,293      35,986      44,331
------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents                                (2,989)     17,257      20,437
Cash and cash equivalents at beginning of year                                      79,234      61,977      41,540
------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                          $ 76,245    $ 79,234    $ 61,977
==================================================================================================================
Supplemental disclosures of cash flow information: Cash paid during the period:
     Interest                                                                     $ 14,379    $ 11,827    $  8,226
     Income taxes                                                                    4,834       4,107       3,633
     Release of guarantee of ESOP note                                                --          --           212
==================================================================================================================
Noncash investing and financing activities:
    Transfer from retained earnings to common stock due to
      stock dividends                                                             $  5,348    $  3,132    $  2,165
    Transfer of securities from held-to-maturity
      to available-for-sale                                                           --        38,660        --
    Transfer from loans to other real estate owned                                     352       1,940       1,577
==================================================================================================================
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
                                       22
<PAGE>

                                        7

                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



                        December 31, 1996, 1995, and 1994


(1)      Summary of Significant Accounting Policies

         The accounting  policies of Pacific  Capital  Bancorp (the Company) and
         subsidiaries  are in  accordance  with  generally  accepted  accounting
         principles  and  conform  to  general   practices  within  the  banking
         industry.

         The Company - Pacific Capital Bancorp is a California corporation and a
         multi-bank  holding company which was incorporated on January 26, 1983.
         The Company's  subsidiaries,  First National Bank of Central California
         (First  National),  and South  Valley  National  Bank  (South  Valley),
         commenced operations in 1984 and 1983, respectively.  First National is
         a full service  commercial  bank  serving  Monterey,  Salinas,  Carmel,
         Watsonville, Prunedale and surrounding areas in Monterey and Santa Cruz
         Counties. South Valley is a full service commercial bank serving Morgan
         Hill,  Gilroy,  Hollister,  San Juan Bautista and surrounding  areas in
         Santa Clara and San Benito Counties.

         Consolidation  - The  accompanying  consolidated  financial  statements
         include  the effect of the fourth  quarter  1996  acquisition  of South
         Valley    Bancorporation    which    was    accounted    for    as    a
         pooling-of-interests.  These financial  statements include the accounts
         of Pacific Capital Bancorp and its subsidiaries, First National Bank of
         Central  California and South Valley  National Bank.  Accordingly,  the
         financial information included in the consolidated financial statements
         and notes  thereto,  present  the  combined  results of  operations  of
         Pacific  Capital  Bancorp  and South  Valley  Bancorporation  as if the
         merger had been in effect for all periods  presented.  All  significant
         intercompany balances and transactions have been eliminated.

         Use  of  Estimates  -  The  preparation  of  financial   statements  in
         conformity  with  generally  accepted  accounting  principles  requires
         management to make estimates and  assumptions  that affect the reported
         amounts of assets and liabilities  and disclosure of contingent  assets
         and  liabilities  at the  date  of the  financial  statements  and  the
         reported amounts of revenues and expenses during the reporting  period.
         Actual results could differ from those estimates.

         Cash and Cash  Equivalents - Cash and cash  equivalents  as reported in
         the  consolidated  statements of cash flows includes cash on hand, cash
         balances due from banks,  federal  funds sold,  and money market mutual
         funds.  The cash  equivalents  are  readily  convertible  to known cash
         within 90 days.

                                       23
<PAGE>
                                        8

                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         Investment  Securities - The Company has  classified its securities for
         which it has the  positive  intent and  ability to hold to  maturity as
         held-to-maturity  securities. Such securities are reported at amortized
         cost. The Company has classified  certain  securities for which it does
         not  have  the  intent  to hold to  maturity  and  which  are not  held
         principally  for  the  purpose  of  selling  them in the  near  term as
         available-for-sale  securities.  Such  securities  are reported at fair
         value, with unrealized gains and losses, net of income taxes,  reported
         in a separate  component of shareholders'  equity. The Company does not
         engage in trading activities.

         Amortization  of  premiums  and  accretion  of  discounts   arising  at
         acquisition  of  investment  securities  are  included in income  using
         methods that approximate the level yield method. Gains or losses on the
         sale of securities are determined based on the specific  identification
         method.

         In November  1995,  the  Financial  Accounting  Standards  Board (FASB)
         issued a special  report,  A Guide to  Implementation  of Statement No.
         115,  on  Accounting  for  Certain   Investments  in  Debt  and  Equity
         Securities  Questions and Answers,  (the Special  Report).  The Special
         Report  allowed  companies  to  reassess  the  appropriateness  of  the
         classifications  of all  securities  held and account for any resulting
         reclassifications at fair value.  Reclassifications  from this one-time
         reassessment will not call into question the intent of an enterprise to
         hold other debt  securities  to maturity in the future,  provided  that
         reclassification  was  performed  by  December  31,  1995.  The Company
         adopted the  reclassification  provision in the Special  Report  during
         1995 and transferred  $38,660,000 of  held-to-maturity  securities into
         available-for-sale.

         Loans - Loans are stated at the principal amount outstanding.  Interest
         on  loans is  credited  to  income  on a simple  interest  basis.  Loan
         origination  fees  and  direct   origination  costs  are  deferred  and
         amortized to income by a method  approximating the level yield interest
         method  over  the  estimated  lives  of  the  underlying  loans.  Loans
         contractually  past due over 90 days or considered  impaired are placed
         on  nonaccrual  status,  unless  they are  well-secured  by  underlying
         collateral and are in the process of collection.  When a loan is placed
         on nonaccrual status, the accrued interest is reversed against interest
         income  and the  loan is  accounted  for on the  cash or cost  recovery
         method  thereafter  until  qualifying  for  return to  accrual  status.
         Generally,  a  loan  will  be  returned  to  accrual  status  when  all
         delinquent principal and interest become current in accordance with the
         terms  of the  loan  agreement  and full  collection  of the  principal
         appears probable.

                                       24
<PAGE>
                                        9

                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         The allowance for possible loan losses is a valuation allowance that is
         maintained  at a level  estimated  to be adequate to provide for future
         loan losses through charges to current operating expense. The allowance
         is based upon a continuing review of loans by management which includes
         consideration  of  changes  in the  character  of the  loan  portfolio,
         current and anticipated economic  conditions,  past lending experience,
         loan loss  experience,  and such other factors which,  in  management's
         judgment,  deserve recognition in estimating  potential loan losses. In
         addition, regulatory agencies, as an integral part of their examination
         process,  periodically review the Company's allowance for possible loan
         losses. Such agencies may require the Company to recognize additions to
         the allowance based on their judgment of information  available to them
         at the time of their examination.

         Loans  Available for Sale - The Subsidiary  Banks  originate loans that
         are  guaranteed  in  part by the  Small  Business  Administration.  The
         guaranteed  portion of such  loans may be sold  without  recourse.  The
         Subsidiary  Banks retain the servicing and credit risk in the remaining
         unguaranteed  portion.  Loans available for sale are valued at lower of
         cost or  estimated  market  value and are  comprised  of the portion of
         loans  originated for sale,  which are guaranteed by the Small Business
         Administration.  When participating interests in loans are sold without
         recourse,  gains are recognized at the time of the sale which are equal
         to the premium  received less estimated future loan servicing costs and
         profits. Any discounts related to loan interests retained are amortized
         using methods that approximate the level yield interest method over the
         remaining life of the loan.

         Premises  and  Equipment - Premises and  equipment  are stated at cost,
         less  accumulated  depreciation  and  amortization.   Depreciation  and
         amortization  are charged to expense over the estimated useful lives of
         the assets or the lease term on a straight-line basis as follows:

--------------------------------------------------------------------------------
                 Buildings                                       40 years
                 Furniture and equipment                          2-5 years
                 Leasehold improvements                           5 years
                 Property under capital lease                     5 years
--------------------------------------------------------------------------------

         Other Real  Estate  Owned - Real  estate and other  assets  acquired in
         satisfaction of indebtedness  are recorded at the lower of the recorded
         loan  amount or the  estimated  fair  market  value net of  anticipated
         selling costs,  and any difference  between this and the loan amount is
         treated as a loan loss.  Costs of maintaining  other real estate owned,
         subsequent  declines in fair value, if any, and gains or losses on sale
         are reflected in current earnings.

                                       25
<PAGE>
                                       10

                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         Income Taxes - Deferred tax assets and  liabilities  are recognized for
         the future tax  consequences  attributable  to differences  between the
         financial statement carrying amounts of existing assets and liabilities
         and their  respective tax bases.  To the extent that current  available
         evidence  about the future  raises  doubt  about the  realization  of a
         deferred tax asset, a valuation allowance is established to reduce that
         deferred  tax asset if it is more  likely than not that the related tax
         benefits will not be realized.  Deferred tax assets and liabilities are
         measured using enacted tax rates expected to apply to taxable income in
         the years which those  differences  are  expected  to be  recovered  or
         settled.  The effect on deferred tax assets and liabilities of a change
         in tax rates is  recognized  in income in the period that  includes the
         enactment date.

         Net Income Per Share - Net income per share is computed by dividing net
         income by the  weighted  average  number  of  shares  of  common  stock
         outstanding  during the year (taking into account the shares  issued in
         connection with the acquisition of South Valley as if these shares were
         issued  for  all  periods  presented)  plus  shares  issuable  assuming
         exercise of all employee stock options, except where antidilutive.  The
         weighted  average shares  outstanding  were 4,239,617,  4,192,297,  and
         4,113,474  in 1996,  1995,  and 1994,  respectively.  Weighted  average
         shares   outstanding  and  all  per  share  amounts   included  in  the
         accompanying  consolidated  financial statements and notes thereto have
         given effect to all stock dividends.

         Dividends - In 1996 the Company  paid four cash  dividends of $0.15 per
         share to  holders  of record on March 15,  June 28,  September  16, and
         November 1, payable on March 29, June 28, September 30, and December 9,
         1996,  respectively.  The Company  also paid a five  percent (5%) stock
         dividend payable to shareholders of record as of December 1, 1996.

         Reclassifications  - Certain amounts in the 1995 and 1994  consolidated
         financial  statements  have been  reclassified  to  conform to the 1996
         presentation.

         Accounting  Pronouncements  - During  1996,  the  Financial  Accounting
         Standards Board (the "FASB") issued  Statement of Financial  Accounting
         Standards  (SFAS) No. 125,  Accounting  for  Transfers and Servicing of
         Financial  Assets and  Extinguishments  of Liabilities.  This statement
         provides accounting and reporting standards for transfers and servicing
         of  financial  assets  and  extinguishments  of  liabilities  based  on
         consistent application of a financial-components  approach that focuses
         on control.  It  distinguishes  transfers of financial  assets that are
         sales from transfers that are secured borrowings.  Under this approach,
         after  a  transfer  of  financial  assets,  an  entity  recognizes  all
         financial  and  servicing  assets it controls  and  liabilities  it has
         incurred and  derecognizes  financial

                                       26
<PAGE>
                                       11

                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         assets  it  no  longer   controls  and   liabilities   that  have  been
         extinguished.  This  statement  is  effective  for years  ending  after
         December 31, 1996.  The Company  does not believe this  statement  will
         have any significant impact on its consolidated financial statements.

(2)      Merger

         On November 20, 1996, the Company acquired South Valley  Bancorporation
         (SVB)  and  its  banking   subsidiary,   South  Valley  National  Bank,
         headquartered  in Morgan  Hill,  California.  Each  share of SVB common
         stock  outstanding on November 20, 1996, was converted into 0.92 shares
         of  the  Company's  common  stock.  The  Company  issued  approximately
         1,291,000 shares of common stock and cash in lieu of fractional  shares
         for all of the outstanding  shares of SVB. The  consolidated  financial
         statements  of the Company  give  effect to the merger,  which has been
         accounted for as a pooling-of-interests.  Accordingly,  the accounts of
         SVB have  been  combined  with  those of the  Company  for all  periods
         presented.  A reconciliation of previously reported net interest income
         and net income follows:

-------------------------------------------------------------------------------
(In thousands)           Nine months ended       Years ended  December 31,
                        September 30, 1996  -----------------------------------
Net interest income            (Unaudited)              1995              1994
------------------------------------------------------------------------------
SVB                                 $7,786            $8,891            $7,985
PABN                                14,664            18,816            16,971
------------------------------------------------------------------------------
Combined                           $22,450           $27,707           $24,956
------------------------------------------------------------------------------


-------------------------------------------------------------------------------
(In thousands)           Nine months ended       Years ended  December 31,
                        September 30, 1996  -----------------------------------
Net income                     (Unaudited)              1995              1994
------------------------------------------------------------------------------
SVB                                 $1,460            $1,577            $1,886
PABN                                 4,112             5,034             4,339
------------------------------------------------------------------------------
Combined                            $5,572            $6,611            $6,225
------------------------------------------------------------------------------

(3)      Cash and Due from Banks

         Cash  and  due  from  banks  includes   approximately   $5,659,000  and
         $5,827,000 as of December 31, 1996 and 1995, respectively,  held by the
         Federal  Reserve  Bank  of  San  Francisco  to  meet  required  reserve
         balances.

                                       27
<PAGE>
                                       12

                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(4)      Quarterly Income Statement
<TABLE>

         The following tables depict the  Consolidated  Statements of Income for
1996 and 1995 by quarter:
<CAPTION>

(Unaudited)                                                                                  1996
---------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)               4th Quarter      3rd Quarter     2nd Quarter      1st Quarter
---------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>              <C>             <C>              <C>
Interest income                                            $11,843          $11,201         $10,626          $10,288
Interest expense                                             3,654            3,406           3,158            3,101
---------------------------------------------------------------------------------------------------------------------
   Net interest income                                       8,189            7,795           7,468            7,187
Provision for loan loss                                        500                6              74              105
---------------------------------------------------------------------------------------------------------------------
   Net interest income after provision
      for loan losses                                        7,689            7,789           7,394            7,082
Other income                                                   781              780             817              782
Other expense                                                7,270            5,584           4,962            4,911
---------------------------------------------------------------------------------------------------------------------
Earnings before income taxes                                 1,200            2,985           3,249            2,953
Income taxes                                                   733            1,207           1,256            1,152
---------------------------------------------------------------------------------------------------------------------
Net income                                                $    467          $ 1,778         $ 1,993          $ 1,801
=====================================================================================================================
Net income per share                                      $   0.11         $   0.41        $   0.47         $   0.43
=====================================================================================================================

(Unaudited)                                                                                  1995
---------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)               4th Quarter      3rd Quarter     2nd Quarter      1st Quarter
---------------------------------------------------------------------------------------------------------------------
Interest income                                            $10,219           $9,839          $9,487           $9,133
Interest expense                                             2,966            2,970           2,657            2,378
---------------------------------------------------------------------------------------------------------------------
   Net interest income                                       7,253            6,869           6,830            6,755
Provision for loan loss                                        287               90              90               60
---------------------------------------------------------------------------------------------------------------------
   Net interest income after provision
      for loan losses                                        6,966            6,779           6,740            6,695
Other income                                                   684              719             936              644
Other expense                                                5,053            4,784           4,855            4,660
---------------------------------------------------------------------------------------------------------------------
Earnings before income taxes                                 2,597            2,714           2,821            2,679
Income taxes                                                 1,025            1,070           1,088            1,017
---------------------------------------------------------------------------------------------------------------------
Net income                                                $  1,572          $ 1,644         $ 1,733          $ 1,662
=====================================================================================================================
Net income per share                                      $   0.37         $   0.39        $   0.42         $   0.40
=====================================================================================================================
</TABLE>
                                       28
<PAGE>
                                                                 13
<TABLE>

                                              PACIFIC CAPITAL BANCORP AND SUBSIDIARIES

                                             Notes to Consolidated Financial Statements

(5)      Investment Securities

         The amortized cost and estimated  fair values of investment  securities
as of December 31 are as follows:
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                                                                           Estimated
                                                      Amortized          Unrealized        Unrealized           fair
(In thousands)                                             cost                gain              loss          value
---------------------------------------------------------------------------------------------------------------------
1996
---------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                    <C>               <C>         <C>
Available-for-sale securities:
   U.S. Treasury and agency                             $64,109                $159              $187        $64,081
   State and municipal                                    7,233                  59                21          7,271
   Mortgage-backed securities                            45,470                   9               303         45,176
---------------------------------------------------------------------------------------------------------------------
                                                       $116,812                $227              $511       $116,528
=====================================================================================================================
Held-to-maturity securities:
   State and municipal                                   $6,449                 $55               $42         $6,462
   Mortgage-backed securities
      and other                                           3,231                  59                11          3,279
---------------------------------------------------------------------------------------------------------------------
                                                         $9,680                $114               $53         $9,741
---------------------------------------------------------------------------------------------------------------------


1995
---------------------------------------------------------------------------------------------------------------------
Available-for-sale securities:
   U.S. Treasury and agencies                           $94,820                $708              $143        $95,385
   State and municipal                                    4,074                  45                 9          4,110
   Mortgage-backed securities
      and other                                          10,653                   3                8          10,648
---------------------------------------------------------------------------------------------------------------------
                                                       $109,547                $756             $160        $110,143
=====================================================================================================================
Held-to-maturity securities:
   State and municipal                                  $12,133                $128              $20         $12,241
   Mortgage-backed securities
      and other                                           3,552                  87                5           3,634
---------------------------------------------------------------------------------------------------------------------
                                                        $15,685                $215              $25         $15,875
=====================================================================================================================
</TABLE>

         The amortized cost and estimated  fair values of investment  securities
         as of December  31, 1996,  by  contractual  maturity,  are shown below.
         Expected  maturities will differ from  contractual  maturities  because
         borrowers  may have the  right to call or  prepay  obligations  with or
         without call or prepayment penalties.

                                       29
<PAGE>
                                                                 14
<TABLE>

                                              PACIFIC CAPITAL BANCORP AND SUBSIDIARIES

                                             Notes to Consolidated Financial Statements
<CAPTION>

                                                        Available-for-sale               Held-to-maturity
                                                            securities                       securities
                                                            ---------- Estimated             ----------    Estimated
                                                     Amortized              fair         Amortized              fair
(In thousands)                                            cost             value              cost             value
---------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>               <C>               <C>               <C>
Due within one year                                     $7,574            $7,592            $1,933            $1,940
Due after one through five years                        60,983            60,974             3,987             4,019
Due after five through ten years                         3,021             3,021               865               886
Due after ten years                                     45,234            44,941             1,735             1,736
---------------------------------------------------------------------------------------------------------------------
                                                       116,812           116,528             8,520             8,581
Freddie Mac Stock                                            -                 -               500               500
Federal Reserve Bank Stock                                   -                 -               660               660
=====================================================================================================================
                                                      $116,812          $116,528            $9,680            $9,741
=====================================================================================================================
</TABLE>


         As of December 31, 1996 and 1995,  securities  with carrying  values of
         approximately $26,638,000 and $29,264,000,  respectively,  were pledged
         as  collateral  for such items as  deposits  of public  funds,  Federal
         Reserve Bank borrowings,  bankruptcy court accounts, and U.S. Treasury,
         tax, and loan deposits.

         Included in U.S. Agency  securities are certain  structured notes which
         are more  commonly  known as step-up  bonds.  These bonds,  which carry
         certain  call  features and  potential  coupon rate  increases,  had an
         estimated  fair value of $1,459,000 and an amortized cost of $1,500,000
         as of December 31, 1996.

                                       30
<PAGE>
                                       15

                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(6)      Loans

         A summary of loans as of December 31 is as follows:

-------------------------------------------------------------------------------
(In thousands)                                      1996                  1995
-------------------------------------------------------------------------------
Commercial                                      $113,428               $82,583
Consumer                                          22,509                25,604
Real estate - mortgage                           195,417               154,572
Real estate - construction                        38,014                32,409
Other                                             20,349                 6,501
-------------------------------------------------------------------------------
                                                 389,717               301,669
Less deferred loan fees                              989                   774
-------------------------------------------------------------------------------
                                                $388,728              $300,895
===============================================================================


         The  following is an analysis of the allowance for possible loan losses
for the years ended December 31:

-----------------------------------------------------------------------------
(In thousands)                             1996         1995            1994
-----------------------------------------------------------------------------
Balance, beginning of year               $3,710       $3,769          $3,753
Provision charged to expense                685          527             479
Loans charged off                       (1,070)        (850)           (665)
Recoveries on loans previously
   charged off                              347          264             202
-----------------------------------------------------------------------------
Balance, end of year                     $3,672       $3,710          $3,769
=============================================================================

         Loans for which interest is no longer being accrued totaled $1,564,000,
         $2,481,000,  and  $3,283,000 as of December 31, 1996,  1995,  and 1994,
         respectively.  Interest  that would have been  recognized on nonaccrual
         loans was $149,000, $379,000, and $364,000 during 1996, 1995, and 1994,
         respectively.

         The recorded investment in impaired loans was $1,564,000 and $2,481,000
         at December  31, 1996 and 1995,  respectively.  The average  balance of
         impaired loans during 1996 and 1995 was $2,126,000 and $1,510,000.  The
         Company did not recognize any interest  income on impaired loans during
         the year ended December 31, 1996.

                                       31
<PAGE>
                                       16

                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The  Subsidiary  Banks  operate  in  a  geographic   region  comprising
         Monterey,  San Benito, Santa Clara, and Santa Cruz Counties. The Bank's
         credit risk is therefore dependent in part to the economic condition of
         this region.  Loans are made on the basis of a secure repayment source,
         namely the cash flows generated by the borrowing entity,  collateral is
         generally a secondary source for loan  qualification.  It is the Bank's
         policy to maintain the loan to value ratio on secured  loans below 75%.
         Management believes this practice tends to mitigate risks caused by the
         local economy.

         The Subsidiary Banks make loans to executive officers,  directors,  and
         their  affiliates in the ordinary  course of business.  Following is an
         analysis  of  activity  with  respect to such loans for the years ended
         December 31, 1996, and 1995:

--------------------------------------------------------------------------------
(In thousands)                            1996                  1995
--------------------------------------------------------------------------------
Balance, beginning of year               $5,002                $6,920
New loan funded                           4,394                 4,699
Repayments of loans                      (2,923)                6,617
--------------------------------------------------------------------------------
Balance, end of year                     $5,711                $5,002
================================================================================


(7)      Premises and Equipment

         Premises and equipment as of December 31 are summarized as follows:

--------------------------------------------------------------------------------
(In thousands)                                         1996              1995
--------------------------------------------------------------------------------
Land                                                  $2,752            $2,752
Buildings                                              9,867             8,641
Furniture and equipment                                8,929             7,966
Leasehold improvements                                 1,421             1,319
--------------------------------------------------------------------------------
                                                      22,969            20,678
Less accumulated depreciation and amortization         7,669             7,171
--------------------------------------------------------------------------------
Premises and equipment, net                          $15,300           $13,507
================================================================================

(8)      Time Deposits

         As of December  31,  1996 and 1995,  the  Company  had  liabilities  of
         $80,952,000  and  $57,285,000,   respectively,  for  time  deposits  in
         denominations of $100,000 or more.  Interest expense for these deposits
         was $4,036,000 and $2,819,000 in 1996 and 1995, respectively.

                                       32
<PAGE>
                                       17

                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(9)      Income Taxes

         Components of income tax expense for the years ended December 31, 1996,
1995, and 1994 are as follows:

--------------------------------------------------------------------------------
(In thousands)                         1996             1995             1994
--------------------------------------------------------------------------------
Current:
   Federal                           $3,696           $3,053           $2,756
   State                              1,457            1,240            1,139
--------------------------------------------------------------------------------
                                      5,153            4,293            3,895
--------------------------------------------------------------------------------
Deferred:
   Federal                             (649)             (66)            (111)
   State                               (156)             (27)              (6)
--------------------------------------------------------------------------------
                                       (805)             (93)            (117)
================================================================================
Total                                $4,348           $4,200           $3,778
================================================================================
<TABLE>

        The  temporary  differences  between the  financial  statement  carrying
        amounts  and tax  bases of  assets  and  liabilities  that  give rise to
        significant  components of the deferred tax asset and liability  amounts
        relate to the following as of December 31:
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
(In thousands)                                                                            1996                1995
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>                 <C>
Deferred tax assets:
   Book provision for loan losses in excess of tax provision                            $1,195              $1,190
   Book depreciation in excess of tax                                                      277                 329
   State franchise taxes                                                                   227                 255
   Accrued interest on nonaccrual loans recognized for tax                                 179                 116
   Expenses accrued for books not currently deductible                                     357                 108
   Unrealized loss on securities available-for-sale                                        118                   -
   Loan fees and other, net                                                                859                 323
-------------------------------------------------------------------------------------------------------------------
      Total deferred tax assets                                                          3,212               2,321
-------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
   Difference in recognition of organization costs and other                               (25)               (109)
   Unrealized gain on available-for-sale securities                                          -                (230)
-------------------------------------------------------------------------------------------------------------------
      Total deferred tax liabilities                                                       (25)               (339)
===================================================================================================================
Net deferred tax asset                                                                  $3,187              $1,982
===================================================================================================================
</TABLE>

                                       33
<PAGE>
                                       18

                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The net deferred tax asset represents recoverable taxes and is included
         in other assets in the accompanying  consolidated  balance sheets.  The
         Company believes that the net deferred tax asset is realizable  through
         sufficient  taxable income within the carryback  period and the current
         year taxable income.

         Actual  income tax  expense  differs  from the  "expected"  tax expense
         (computed by applying the U.S. federal corporate income tax rate of 34%
         to earnings  before income  taxes) for the years ended  December 31, as
         follows:

--------------------------------------------------------------------------------
(In thousands)                                          1996    1995      1994
--------------------------------------------------------------------------------
Computed "expected" tax expense                        $3,531  $3,702    $3,402
Increase (reduction) in income taxes resulting from:
  Tax exempt income                                      (368)   (335)     (354)
  Franchise taxes, net of federal income tax benefit      858     802       713
  Merger and acquisition costs                            325       -         -
  Other, net                                                2      30        18
================================================================================
                                                       $4,348  $4,200    $3,778
================================================================================

(10)     Benefit Plans

         Stock  Option  Plans - The  Company  has a stock  option plan (the 1984
         Stock Option Plan) under which  incentive stock options or nonqualified
         stock  options  were  granted to certain key  employees or directors to
         purchase an aggregate of 60,241  shares of  authorized,  but  unissued,
         common  stock of the  Company.  Unexercised  options  were  granted and
         outstanding as of December 31, 1996, for an aggregate of 60,241 shares.
         Options have been  granted at an exercise  price not less than the fair
         market  value of such  stock at the date of grant.  All  stock  options
         become  exercisable  at the rate  determined by the Company's  Board of
         Directors and expire no later than 10 years after the date of grant.

         The  Company's  1994  Stock  Option  Plan (the 1994  Plan)  which was a
         successor to the 1984 Plan,  provides for  incentive  stock  options or
         nonqualified  stock  options for key employees or directors to purchase
         an aggregate of 554,154  shares of  authorized,  but  unissued,  common
         stock of the Company.  Unexercised options were granted and outstanding
         as of December  31, 1996,  for an  aggregate of 228,199  shares with an
         exercise  price equal to the fair market value of the Company's  common
         stock at the date of grant. The 1994 Plan provides that options granted
         thereunder  begin to vest 6 months after the date of grant ratably over
         4 years and expire no later than 10 years after the date of grant.

                                       34
<PAGE>
                                       19

                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The Company has a Directors Stock Option Plan (the 1991 Directors Plan)
         under  which,  nonqualified  options  may be  granted  to  non-employee
         directors of the Company and its  subsidiaries to purchase an aggregate
         of 174,225  shares of  authorized,  but  unissued,  common stock of the
         Company according to a formula set forth in the 1991 Plan.  Unexercised
         options were granted and  outstanding  as of December 31, 1996,  for an
         aggregate  of 100,455  shares with an exercise  price equal to the fair
         market value of the  Company's  common stock at the date of grant.  The
         1991 Plan  provides  that options  granted  thereunder  begin to vest 6
         months  after the date of grant and expire no later than 10 years after
         the date of grant.

         In  October  1995,  the  FASB  issued  SFAS  No.  123,  Accounting  for
         Stock-Based Compensation. SFAS No. 123 establishes financial accounting
         and reporting  standards for stock-based  employee  compensation plans.
         This  statement  defines a fair value based method of accounting for an
         employee stock option or similar equity instrument.  Under this method,
         compensation costs are measured at the grant date based on the value of
         the award and are  recognized  over the  service  period,  which is the
         vesting period.

         The Company applies  Accounting  Principles Board Opinion (APB) No. 25,
         Accounting for Stock Issued to Employees and related interpretations in
         accounting for its plans.  Accordingly,  no compensation  cost has been
         recognized for its stock option plans. Had  compensation  costs for the
         Company's three stock option plans been determined consistent with SFAS
         No. 123,  the  Company's  net income and  earnings per share would have
         been reduced to the pro forma amounts indicated below:

December 31,
--------------------------------------------------------------------------------
(In thousands, except per share)                        1996           1995
--------------------------------------------------------------------------------
Net income                       As reported           $6,039         $6,611
                                 Pro forma             $5,883         $6,605

Earnings per share               As reported            $1.42          $1.58
                                 Pro forma              $1.39          $1.58


         The fair value of each option  grant is  estimated on the date of grant
         using  the  Black-Scholes   option-pricing  model  with  the  following
         assumptions used for grants in 1995, and 1996,  respectively:  dividend
         yield of 2.1%  and  2.5%,  expected  volatility  of 18% for all  years,
         risk-free  interest rates of 5.39% and 5.64%, and expected lives of 5.5
         and 6.1 years, respectively.

                                       35
<PAGE>
                                       20

                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Below is a summary of stock option activity under all plans during 1996
and 1995:


                                               1996                     1995
--------------------------------------------------------------------------------
                                             Weighted                 Weighted
                                              average                  average
                                             exercise                 exercise
                                  Shares        price     Shares         price
--------------------------------------------------------------------------------
Outstanding at beginning
  of year                         433,474    $14.57        400,967      $14.33
  Granted                         157,153     19.13         62,321       15.00
Exercised                        (200,106)    14.69        (22,811)      11.73
Forfeited                          (1,626)    11.32         (7,003)      13.74
--------------------------------------------------------------------------------
Outstanding end of year           433,474    $16.37        433,474      $14.57

Options exercise end of year      317,860                  348,905

Weighted average fair value of
  options granted during the year   $4.32                    $3.27
--------------------------------------------------------------------------------
<TABLE>

         The  following  table  summarizes   information   about  stock  options
outstanding at December 31, 1996:
<CAPTION>
                                                   Options Outstanding                      Options Exercisable
---------------------------------------------------------------------------------------------------------------------
                                                         Weighted         Weighted
                                          Number          average          average                          Weighted
                                     outstanding      contractual         exercise           Number          average
Exercise Price                                              life            price       outstanding   exercise price
---------------------------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>                <C>          <C>               <C>
 $7.17 to $7.95                            6,957        0.67               $7.20          6,957            $7.20
 $12.03 to $17.23                        318,312        6.53               14.71        310,504            14.67
 $16.01 to $25.71                         59,876        9.86               25.60            399            21.67
 $26.00                                    3,750        9.94               26.00              -                -
 $7.17 to $26.00                         388,895        6.97               16.37        317,860           $14.51
---------------------------------------------------------------------------------------------------------------------
</TABLE>


         Employee  Stock  Ownership  Plan - In  1986,  the  Company  adopted  an
         Employee  Stock  Ownership  Plan  (ESOP)  covering   substantially  all
         employees. Effective March 1, 1991, the Company adopted an amendment to
         the ESOP to  restructure  it as a leveraged  employee  stock  ownership
         plan,  which qualifies as a stock bonus plan under the Internal Revenue
         Code.  The  Company  may make  annual  contributions  to the ESOP in an
         amount  determined  by the Board of  Directors.  Contributions  are not
         intended to exceed an amount estimated to be an allowable deduction for
         tax purposes.  The Company made  contributions to the ESOP of $275,000,
         $292,000, and $332,000 in 1996, 1995, and 1994, respectively.

                                       36
<PAGE>
                                       21

                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         401(k) Plan - The Company also has a tax deferred  profit  sharing plan
         and  thrift  plan  covering  all  eligible  employees.   The  Company's
         contributions  amounted to $71,000,  $70,000, and $69,000 for the years
         ended December 31, 1996, 1995, and 1994.

         On December  31, 1996,  pursuant to the merger  between the Company and
         SVB,  the 401(k) and ESOP  Plans of SVB were  merged  with and into the
         respective plans of the Company.

(11)     Fair Value of Financial Instruments
<TABLE>

         The  carrying  amounts  and  estimated  fair  values  of the  Company's
financial instruments are as follows:
<CAPTION>
----------------------------------------------------------------------------------------------------
                                                 December 31, 1996             December 31, 1995
                                                -------------------            ------------------
                                              Carrying      Estimated       Carrying      Estimated
(In thousands)                                 amounts     fair value        amounts     fair value
----------------------------------------------------------------------------------------------------
<S>                                            <C>            <C>            <C>            <C>
Assets:
   Cash and cash equivalents                   $76,245        $76,245        $79,234        $79,234
   Investment securities                       126,208        126,269        125,828        126,018
   Net loans                                   390,877        391,135        301,061        297,233
----------------------------------------------------------------------------------------------------
Liabilities:
   Demand deposits, noninterest bearing       $131,332       $131,332       $115,861       $115,861
   Demand deposits, interest bearing            84,770         84,770         76,770         76,770
   Savings and money market                    164,890        164,890        151,337        151,337
   Time certificates                           166,190        166,632        121,540        121,710
----------------------------------------------------------------------------------------------------
</TABLE>

         The following  methods and  assumptions  were used to estimate the fair
         value  of  each  class  of  financial   instruments  for  which  it  is
         practicable to estimate that value.

         Cash and Cash Equivalents - The carrying amount approximates fair value
         because of the short maturities of these instruments.

                                       37
<PAGE>
                                       22

                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Investment   Securities   -  The   fair   value  of   investments   and
         mortgage-backed   securities,   except   certain  state  and  municipal
         securities,  is  estimated  based on bid prices  published in financial
         newspapers or bid quotations received from securities dealers. The fair
         value  of  certain  state  and  municipal  securities  is  not  readily
         available through market sources other than dealer quotations,  so fair
         value   estimates   are  based  on  quoted  market  prices  of  similar
         instruments,  adjusted for differences  between the quoted  instruments
         and the instruments being valued.

         Loans - Fair values are estimated for  portfolios of loans with similar
         financial  characteristics.  Loans  are  segregated  by  type  such  as
         commercial, commercial real estate, residential mortgage, and consumer.
         Each loan category is further  segmented into fixed and adjustable rate
         interest terms and by performing and nonperforming categories.

         The  fair  value of  performing  fixed  rate  loans  is  calculated  by
         discounting  scheduled cash flows through the estimated  maturity using
         estimated  market  discount  rates that reflect the credit and interest
         rate risk  inherent in the loan.  The  estimate of maturity is based on
         the  Company's  historical  experience  with  repayments  for each loan
         classification,  modified, as required, by an estimate of the effect of
         current economic and lending  conditions.  The fair value of performing
         variable rate loans is judged to approximate book value for those loans
         whose rates reprice in less than 90 days. Rate floors and rate ceilings
         are not  considered for fair value purposes as the number of loans with
         such limitations is not significant.

         Fair  value  for  significant  nonperforming  loans is based on  recent
         external  appraisals.  If appraisals are not available,  estimated cash
         flows are discounted using a rate commensurate with the risk associated
         with the estimated cash flows.  Assumptions regarding credit risk, cash
         flows, and discount rates are  judgmentally  determined using available
         market information and specific borrower information.

         Deposit  Liabilities  - The  fair  value  of  deposits  with no  stated
         maturity, such as non-interest bearing demand deposits, savings and NOW
         accounts,  and money market and  checking  accounts,  approximates  the
         amount payable on demand.  The fair value of certificates of deposit is
         judged to approximate book value for those certificates whose remaining
         maturities are less than 90 days. For all other certificates, estimated
         cash flows are discounted using rates currently offered for deposits of
         similar remaining maturities.

         Limitations  - Fair value  estimates  are made at a  specific  point in
         time,  based on relevant market  information and information  about the
         financial  instrument.  These  estimates  do not reflect any premium or
         discount  that  could  result  from  offering  for sale at one time

                                       38
<PAGE>
                                       23

                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         the Company's  entire  holdings of a particular  financial  instrument.
         Fair value estimates are based on judgments  regarding  future expected
         loss experience,  current economic conditions,  risk characteristics of
         various financial  instruments,  and other factors. These estimates are
         subjective  in  nature  and  involve   uncertainties   and  matters  of
         significant judgment and therefore cannot be determined with precision.
         Changes in assumptions could significantly affect the estimates.

         Fair value  estimates are based on existing on- and  off-balance  sheet
         financial  instruments  without  attempting  to  estimate  the value of
         anticipated  future  business  and the value of assets and  liabilities
         that are not considered  financial  instruments.  In addition,  the tax
         ramifications  related to the  realization of the unrealized  gains and
         losses can have a significant  effect on fair value  estimates and have
         not been considered in many of the estimates.


(12)     Commitments and Contingencies

         Future  minimum rental  payments for Bank premises under  noncancelable
         operating leases as of December 31, 1996 are as follows:


-----------------------------------------------------------------
                                                   Minimum lease
                                                        payments
Year ending December 31,                          (In thousands)
-----------------------------------------------------------------
 1997                                                     $878
 1998                                                      911
 1999                                                      649
 2000                                                      443
 2001                                                      207
 Thereafter                                              1,092
-----------------------------------------------------------------
                                                         4,180
Minimum rentals receivable under noncancelable subleases  (621)
-----------------------------------------------------------------
                                                        $3,559
=================================================================

         Rent expense under operating  leases totaled  $796,000,  $781,000,  and
         $764,000  for the  years  ended  December  31,  1996,  1995,  and 1994,
         respectively. Related sublease rental income totaled $131,000, $82,000,
         and $99,000, respectively.

         In December  1988, the Company  entered into an operating  lease with a
         member  of its Board of  Directors  for  rental  of its  administrative
         headquarters.  This  lease

                                       39
<PAGE>
                                       24

                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         required  payments  totaling  approximately  $192,000,   $188,000,  and
         $185,000  for the  years  ended  December  31,  1996,  1995,  and 1994,
         respectively. The lease expires on April 30, 1999.

         In the normal course of business,  there are  outstanding  commitments,
         such as commitments  to extend  credit,  which are not reflected in the
         accompanying  consolidated  financial  statements.   These  commitments
         involve elements of credit and interest rate risk.  Management does not
         anticipate any loss will result from such  commitments.  As of December
         31,  1996,  amounts  committed to extend  credit  under normal  lending
         agreements aggregated  approximately  $140,372,000.  Management reviews
         the risk  associated  with these  credits  in  evaluating  the  overall
         adequacy of the allowance for possible loan losses. Additionally, there
         are approximately  $4,994,000 in outstanding  standby letters of credit
         which, in effect, are guarantees of obligations of customers.

         The Company,  through the  Subsidiary  Banks,  has  borrowing  lines of
         approximately  $51,000,000 with primary correspondent banks. There were
         no borrowings outstanding under these lines as of December 31, 1996.

(13)     Regulatory Capital

         The  Federal  Reserve  Board and the  Comptroller  have  established  a
         minimum  leverage  ratio of 3% Tier 1 capital to total  assets for bank
         holding  companies  and national  banks that have  received the highest
         composite  regulatory  rating and are not  anticipating or experiencing
         any  significant  growth.  All other  institutions  will be required to
         maintain a leverage ratio of at least 100 to 200 basis points above the
         3% minimum.

         Set forth on the following  page are the  Company's and the  Subsidiary
         Banks' risk-based and leverage capital ratios as of December 31, 1996:



                                       40
<PAGE>
                                       25

                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
<TABLE>

-------------------------------------------------------------------------------------------------------------------
Risk Based Capital Ratio
As of December 31, 1996
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                            Company                  South Valley              First National
(Dollars in thousands)                  Amount       Ratio        Amount          Ratio       Amount         Ratio
-------------------------------------------------------------------------------------------------------------------
<S>                                    <C>          <C>          <C>             <C>         <C>            <C>
Tier 1 capital                         $63,469      13.91%       $16,096         11.63%      $42,034        13.40%
Tier 1 capital minimum
   requirement                          18,254       4.00%         5,534          4.00%       12,546         4.00%
-------------------------------------------------------------------------------------------------------------------
      Excess                            45,215       9.91%        10,562          7.63%       29,488         9.40%
===================================================================================================================
Total capital                           67,141      14.71%        17,409         12.58%       44,258        14.11%
Total capital minimum
    requirement                         36,508       8.00%        11,069          8.00%       25,092         8.00%
-------------------------------------------------------------------------------------------------------------------
      Excess                            30,633       6.71%         6,340          4.58%       19,166         6.11%
===================================================================================================================
Risk-adjusted assets                  $456,356                  $138,362                    $313,644
===================================================================================================================


         As  indicated  in  the  table  above,  the  Company's   capital  ratios
         significantly  exceeded the minimum  capital levels required by current
         federal regulations.  Management believes that the Company and the Bank
         will continue to meet their respective minimum capital  requirements in
         the foreseeable future.

---------------------------------------------------------------------------------------------------------------------
Leverage Capital Ratio
As of December 31, 1996
---------------------------------------------------------------------------------------------------------------------
                                          Company                         South Valley           First National
(Dollars in thousands)                   Amount        Ratio        Amount          Ratio        Amount       Ratio
-------------------------------------------------------------------------------------------------------------------
Tier 1 capital to quarterly
average
    total assets (Leverage              $63,469       10.55%       $16,096          8.61%       $42,034      10.29%
Ratio)
Minimum leverage requirement          18,045 to     3.00% to      5,611 to       3.00% to     12,255 to    3.00% to
                                         30,075        5.00%         9,351          5.00%        20,425       5.00%
-------------------------------------------------------------------------------------------------------------------
      Excess                          33,394 to     5.55% to      6,745 to       3.61% to     21,609 to    5.29% to
                                         45,424        7.55%        10,485          5.61%        29,779       7.29%
===================================================================================================================
Total quarterly average assets         $601,496                   $187,024                     $408,502
===================================================================================================================
</TABLE>
                                       41
<PAGE>

                                       26

                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements







(14)     Pacific Capital Bancorp (Parent Company Only)

         The following are the financial statements of Pacific Capital Bancorp:

--------------------------------------------------------------------------------
                                 BALANCE SHEETS
Years ended December 31,
--------------------------------------------------------------------------------
(In thousands)                                    1996                  1995
--------------------------------------------------------------------------------
Assets
Cash and cash equivalents                        $937                $1,605
Loans                                           1,042                 1,149
Premises and equipment, net                     3,022                 1,865
Investment in subsidiaries                     58,178                55,492
Other assets                                      910                   725
--------------------------------------------------------------------------------
Total Assets                                  $64,089               $60,836
================================================================================
Liabilities and Shareholders' Equity
Liabilities                                      $443                  $303
Shareholders' equity                           63,646                60,533
--------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity    $64,089               $60,836
================================================================================


--------------------------------------------------------------------------------
                              STATEMENTS OF INCOME
Years ended December 31,
--------------------------------------------------------------------------------
(In thousand)                                        1996       1995     1994
--------------------------------------------------------------------------------
Equity in income of subsidiaries                    $3,061    $6,010   $4,257
Cash dividends received from bank subsidiaries       3,993       882    2,216
Interest income and fees on loans                      136       214      187
Other expenses                                      (1,151)     (495)    (435)
--------------------------------------------------------------------------------
   Net income                                       $6,039    $6,611   $6,225
================================================================================


                                       42
<PAGE>


                                       27

                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


<TABLE>


                            STATEMENTS OF CASH FLOWS
<CAPTION>
Years ended December 31,
-----------------------------------------------------------------------------------------
(In thousands)                                          1996     1995     1994
-----------------------------------------------------------------------------------------
<S>                                                        <C>        <C>        <C>
Cash flows from operating activities:
  Net income                                               $ 6,039    $ 6,611    $ 6,225
   Adjustments to reconcile net income to net cash
   provided by (used in) operating activities:
   Equity in undistributed net income of subsidiaries       (7,054)    (6,892)    (6,473)
   Dividends received from subsidiaries                      3,993        882      2,216
   Increase in other assets                                   (341)       (68)      (265)
   Increase (decrease) in other liabilities                    140        (34)        60
-----------------------------------------------------------------------------------------
     Net cash provided by operating activities               2,777        499      1,763
-----------------------------------------------------------------------------------------
Cash flows from investing activities:
  Net change in loans                                          107      1,931       (834)
  Capital expenditures                                      (1,157)      (493)       (89)
-----------------------------------------------------------------------------------------
     Net cash provided by (used in) investing activities    (1,050)     1,438       (923)
-----------------------------------------------------------------------------------------
Cash flows from financing activities:
  Repurchase and retirement of stock                          (605)      (111)      (717)
  Proceeds from stock options exercised                        284        158        806
  Cash paid for fractional shares                              (21)       (15)       (16)
  Cash paid for dividends                                   (2,053)    (1,684)    (1,137)
-----------------------------------------------------------------------------------------
     Net cash used in financing activities                  (2,395)    (1,652)    (1,064)
-----------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents          (668)       285       (224)
Cash and cash equivalents at beginning of year               1,605      1,320      1,544
-----------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                   $   937    $ 1,605    $ 1,320
=========================================================================================
Supplemental disclosures:
  Noncash investment and financing activities:
     Transfer from retained earnings to common stock
      due to stock dividend                                $ 5,348    $ 3,132    $ 2,165
=========================================================================================
</TABLE>

         The ability of the Company to pay  dividends  will largely  depend upon
         the  dividends  paid to it by the  subsidiary  banks.  There  are legal
         limitations on the ability of the subsidiary  banks to provide funds to
         the Company in the form of loans,  advances,  or  dividends.  Under the
         National Bank Act, the  subsidiary  banks may not declare  dividends in
         any  calendar  year  that  exceed   certain  legal   limitations.   The
         approximate  amount of restricted  equity of the Subsidiary Banks as of
         December 31, 1996 was $45,368,000.

                                       43
<PAGE>


                             PACIFIC CAPITAL BANCORP


                      Management's Discussion and Analysis

                                      1996

This document may contain  forward-looking  statements that are subject to risks
and  uncertainties,  including,  but not limited to the local economy,  the real
estate market in  California,  and other factors  beyond the Company's  control.
Such risks and  uncertainties  could cause actual  results to differ  materially
from those  indicated.  For a  discussion  of factors  that could  cause  actual
results to differ,  please see the discussion  contained herein.  Readers should
not  place  undue  reliance  on   forward-looking   statements,   which  reflect
managements  view  only  as of  the  date  hereof.  The  Company  undertakes  no
obligation  to  publicly  revise  these  forward-looking  statements  to reflect
subsequent  events or  circumstances.  Readers are also encouraged to review the
Company's   publicly   available   filings  with  the  Securities  and  Exchange
Commission.

The Company

Pacific Capital Bancorp (the "Company")  through its wholly owned  subsidiaries,
First National Bank of Central California ("First  National"),  and South Valley
National  Bank ("South  Valley")  engages in a broad range of financial  service
activities.  First National and South Valley are collectively referred to herein
as  "Subsidiary  Banks," and  references to the Company  include the  Subsidiary
Banks.

On November 20, 1996, the Company acquired South Valley  Bancorporation (SVB) in
a  transaction  accounted  for  as a  pooling-of-interests.  Accordingly,  these
consolidated  financial  statements  were  restated on a combined  basis for all
periods presented.

The  following  sections set forth a  discussion  of the  significant  operating
changes, business trends, financial condition,  earnings,  capital position, and
liquidity that have occurred in the  three-year  period ended December 31, 1996,
together with an assessment,  when considered  appropriate,  of external factors
that may affect the Company in the  future.  This  discussion  should be read in
conjunction with the Company's  consolidated  financial  statements and notes on
pages _____ of this annual report.

Summary of Financial Results

Net income for 1996 was $6,039,000 or $1.42 per share, a decrease of $572,000 or
$0.16 per share from 1995. This decrease in net income is due to  merger-related
expenses incurred relating to the merger with South Valley Bancorporation.  (See
Note 2 to the Consolidated  Financial  Statements) Net income for 1996 excluding
the one-time  merger-related  expenses was  $7,540,000  or $1.78 per share.  The
Company's  net  operating  income  excluding  merger-related  charges  increased
significantly for the second straight year in 1996. The Company's net income for
1995 of  $6,611,000  or $1.58 per share  represented  an increase of $386,000 or
$0.07 per share over 1994.

                                       44
<PAGE>

In 1996 the Company paid four cash dividends of $0.15 in March, June, September,
and December.  In 1995, the Company  distributed  three $0.125 cash dividends in
March,  June, and September and a $0.15 cash dividend in December.  In addition,
the Company  distributed  a 5% stock  dividend in each of the years in the three
year period  ended  December  31,  1996.  Earnings  per share  amounts have been
retroactively  restated to reflect these stock dividends.  The return on average
shareholders'  equity was 9.6% in 1996,  compared  to 11.4% in 1995 and 11.8% in
1994.

The Company  believes that the economies in which it operates,  Monterey,  Santa
Cruz, Santa Clara, and San Benito Counties,  have experienced  strong growth and
favorable  economic  activity  in the past two years.  Signs of the  strength in
these local economies  include  sustained quality loan demand and strong deposit
growth.  On a national  scale,  the Company is  forecasting  a  relatively  flat
interest rate  environment  due to minimal  inflation  prospects and very modest
growth.

Certain information concerning the Company's average balances,  yields and rates
on average interest-earning assets and interest-bearing liabilities is set forth
in the following table. Interest yields and amounts earned include net loan fees
of $1,211,000, $1,152,000, and $1,178,000 in 1996, 1995, and 1994, respectively.

                                       45
<PAGE>

<TABLE>
                                                  AVERAGE BALANCE SHEETS
---------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                            1996                        1995                          1994
                               Average   Yield/  Interest Average   Yield/   Interest   Average   Yield/   Interest
(Dollars in thousands)         Balance    Rate    Amount  Balance    Rate     Amount    Balance    Rate     Amount
---------------------------------------------------------------------------------------------------------------------
<S>                            <C>          <C>    <C>     <C>          <C>     <C>      <C>          <C>     <C>
Assets
Earning Assets
 Investment securities:
  Taxable                      $124,709     6.1%   $7,645  $95,408      5.7%    $5,455   $88,422      5.0%    $4,446
  Non-taxable                    14,966     5.0%      750   17,529      5.2%       903    18,698      5.1%       957
  Federal funds sold             34,267     5.3%    1,805   35,564      5.3%     1,871    28,517      4.2%     1,197
---------------------------------------------------------------------------------------------------------------------
Total investment securities     173,942     5.9%   10,200  148,501      5.5%     8,229   135,637      4.9%     6,600

Loans                           332,421    10.2%   33,758  287,906     10.6%    30,449   274,788      9.6%    26,430
---------------------------------------------------------------------------------------------------------------------

Total Earning Assets            506,363     8.7%   43,958  436,407      8.9%    38,678   410,425      8.0%    33,030
Non-Earning Assets
  Premises and Equipment         14,769                     13,201                        10,187
  Other                          47,554                     46,399                        39,083
---------------------------------------------------------------------------------------------------------------------

Total Non-Earning Assets         62,323                     59,600                        49,270
---------------------------------------------------------------------------------------------------------------------

Total Assets                   $568,686                   $496,007                      $459,695
=====================================================================================================================

Liabilities and
Shareholders' Equity
 Interest-Bearing Deposits:
  Demand                        $77,306     1.1%     $846  $87,916      1.7%    $1,502   $80,428      1.5%    $1,240
  Savings and Money Market      168,553     2.8%    4,664  140,209      2.8%     3,913   151,882      2.5%     3,740
  Time Certificates             146,359     5.3%    7,782  108,026      5.1%     5,507    84,821      3.5%     3,005
  Other Interest-Bearing            716     3.8%       27    1,030      4.8%        49     2,172      4.1%        89
Liabilities
---------------------------------------------------------------------------------------------------------------------

Total                           392,934     3.4%   13,319  337,181      3.3%    10,971   319,303      2.5%     8,074
Non Interest-Bearing Deposits
and Other Liabilities:
  Demand, Non                   109,615                     95,824                        86,916
Interest-Bearing
  Other Liabilities               3,031                      4,819                         1,297
  Shareholder's Equity           63,106                     58,183                        52,179
---------------------------------------------------------------------------------------------------------------------

Total                           175,752                    158,826                       140,392
---------------------------------------------------------------------------------------------------------------------

TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY           $568,686                   $496,007                      $459,695
=====================================================================================================================

NET INTEREST INCOME                               $30,639                      $27,707                       $24,956
NET INTEREST MARGIN                         6.1%                        6.3%                          6.1%
---------------------------------------------------------------------------------------------------------------------
</TABLE>

The net interest margin is expressed as the percentage of net interest income to
average  total  earning  assets.  The average  balance on  non-accrual  loans is
immaterial as a percentage of total loans and as such has been included in total
loans.  Non-taxable  securities  and leases  have not been  calculated  on a tax
equivalent basis.


Net Interest Income

Net  interest  income,  the  difference  between  interest  earned  on loans and
investments and the interest paid on deposits and other sources of funds, is the
principal  component of the Company's  earnings.  The preceding  table shows the
composition of average earning assets and average interest-bearing  liabilities,
average  yields and rates,  and the net interest  margin for 1994 through  1996.
Interest  income  increased  $5,280,000  or 13.7%  from  $38,678,000  in 1995 to
$43,958,000 in 1996, after increasing $5,648,000 or 17.1% from 1994 to 1995. The
increase in 1996 is the result of higher  average  loan and  investment  volumes
during 1996 partially  offset by a slightly

                                       46
<PAGE>

lower yield on the loan portfolio. The increase in 1995 was due mainly to higher
average  yields on loans and  investment  securities  and an increase in average
volumes in loans and  investments  compared  to 1994.  Total  interest  and fees
produced a 8.7% yield on average  earning  assets in 1996,  compared to 8.9% and
8.0% yields on average earning assets in 1995 and 1994, respectively.  The yield
increase  in 1995 was the  result of  several  interest  rate  increases  in the
Subsidiary   Banks'  reference  rate  (the  rate  charged  to  the  Bank's  most
creditworthy  customers)  which took  place  during the course of 1994 and early
1995.

During 1995, the Company increased its  available-for-sale  securities portfolio
relative to the held-to-maturity portfolio. This shift has resulted in increased
liquidity for the Company.

Total interest  expense for 1996 was  $13,319,000,  an increase of $2,348,000 or
21.4% over 1995,  compared to an increase  of  $2,897,000  or 35.9% from 1994 to
1995.  The  Company's  cost  of  funds  (excluding   noninterest-bearing  demand
deposits)  experienced a small increase of 0.1% from 1995 to 1996.  From 1994 to
1995,  the  Company's  cost of funds  increased  by 0.72% due to the  prevailing
rising interest rate environment and a change in the mix of deposits.
<TABLE>

The Company's net yield on interest-earning assets is affected by changes in the
rates   earned  and  paid  and  the  volume  of   interest-earning   assets  and
interest-bearing  liabilities.  The  impact of changes in volume and rate on net
interest  income  in 1996  and 1995 is shown  in the  following  table.  Changes
attributable to both volume and rate have been allocated to rate.
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                      1996 Compared to 1995                 1995 Compared to 1994
                                                      -----------------------------------------------------------
(In thousands)                            Volume          Rate        Total        Volume         Rate         Total
---------------------------------------------------------------------------------------------------------------------
<S>                                       <C>             <C>        <C>             <C>          <C>         <C>
Investment securities
   Taxable                                $1,675          $515       $2,190          $351         $658        $1,009
   Non-taxable                              (132)          (21)        (153)          (60)           6           (54)
   Federal funds sold                        (68)            2          (66)          296          378           674
Loans                                      4,708        (1,399)       3,309         1,262        2,757         4,019
---------------------------------------------------------------------------------------------------------------------
      Total                                6,183          (903)       5,280         1,849        3,799         5,648
---------------------------------------------------------------------------------------------------------------------
Demand, Interest Bearing                    (181)         (475)        (656)          115          147           262
Savings                                       791          (40)         751          (287)         460           173
Time Certificates                           1,954          321        2,275           822        1,680         2,502
Fed Funds Purchased                           (15)          (7)         (22)          (47)           7           (40)
---------------------------------------------------------------------------------------------------------------------
      Total                                 2,549         (201)       2,348           603        2,294         2,897
---------------------------------------------------------------------------------------------------------------------
Increase in Net Interest
      Income                               $3,634        $(702)      $2,932        $1,246       $1,505        $2,751
=====================================================================================================================
</TABLE>

Earning Assets

Outstanding  total loans averaged  $332,421,000 in 1996 compared to $287,906,000
during 1995. This represents an increase of $44,515,000 or 15.5%, compared to an
increase of  $13,118,000  or 4.8% from 1994 to 1995. The increase in total loans
outstanding during 1996 is due to increased loan demand from qualified borrowers
and is reflective of the strength of the economy in most of

                                       47
<PAGE>
<TABLE>

the primary markets which the Company serves. The following table summarizes the
composition of the loan portfolio as of December 31:
<CAPTION>

---------------------------------------------------------------------------------------------------------------------
(In thousands)                                   1996            1995            1994            1993           1992
---------------------------------------------------------------------------------------------------------------------
<S>                                          <C>              <C>             <C>             <C>            <C>
Commercial                                   $113,428         $82,583         $77,402         $63,926        $66,994
Real Estate - Construction                     38,014          32,409          39,352          26,799         20,061
Real Estate - Mortgage                        195,417         154,572         144,687         146,675        145,966
Consumer                                       22,509          25,604          22,907          22,185         22,762
Other                                          19,360           5,727           6,004           6,318          9,864
---------------------------------------------------------------------------------------------------------------------
        Total                                $388,728        $300,895        $290,352        $265,903       $265,647
=====================================================================================================================
</TABLE>

The Company lends  primarily to small- and  medium-sized  businesses  within its
markets,  which is comprised  principally of Monterey,  Santa Cruz, Santa Clara,
and San Benito Counties.

A  majority  of the  Company's  loan  portfolio  consists  of loans  secured  by
commercial,  industrial,  and residential real estate.  As of December 31, 1996,
real estate mortgage and construction loans represented $233,431,000 or 60.1% of
total loans, an increase of $46,450,000 from the prior year.

Real  estate   mortgage   loans  included   commercial   real  estate  loans  of
approximately  $146,777,000,  one-to-four  family  home  loans of  approximately
$21,434,000,  equity lines of credit of approximately  $20,710,000,  multifamily
dwelling loans of approximately  $4,001,000 and farm land loans of approximately
$2,495,000. Construction loans totaled $38,014,000 or 9.8% of the loan portfolio
as of December 31, 1996,  which  represents  an increase of  $5,605,000 or 17.3%
from  December 31,  1995.  Management  believes  that the Bank does not have any
significant  loss  exposure  with  respect  to  such  loans,  due to the  Bank's
collateral position.  In general,  advances do not exceed 65% of appraised value
on  commercial  real estate loans and 75% on  residential  mortgages.  Continued
emphasis is placed on this policy and, accordingly,  appraisals are periodically
updated as conditions change.

The Company  finances the construction of residential and commercial real estate
properties. These loans are all at variable rates, are secured by first deeds of
trust on the underlying  properties,  and generally have maturities of less than
24 months. Repayment is based on a pre-qualification  analysis of the borrower's
ability to obtain take-out  financing.  The Company's  construction  lending has
been in areas which  management  believes to have favorable  market  conditions.
Advances on residential  and  commercial  projects are limited in general to the
lower of approximately 75% and 65%, respectively, of cost or appraised value.

Commercial loans not secured by real estate totaled $113,428,000 or 29.2% of the
total loan  portfolio  at December  31, 1996.  This  represented  an increase of
$30,845,000  over 1995.  Management  believes  that this increase in demand is a
further indicator of the strength in the local economy.

Consumer loans decreased  $3,095,000 or 12.1% during 1996. Consumer loans, as of
December 31, 1996, represent 5.8% of the total loan portfolio,  compared to 8.5%
of the 1995 loan portfolio.

                                       48
<PAGE>

The Company had undisbursed loans totaling $140,372,000 as of December 31, 1996,
primarily  representing  available  lines of credit and the unfunded  portion of
construction loan commitments.
<TABLE>

The following  table sets forth the maturity  distribution of the loan portfolio
as of December 31, 1996:
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                                        After One
                                                  In One Year        Year Through       After Five
(In thousands)                                        or Less          Five Years            Years             Total
---------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                 <C>               <C>             <C>
Commercial                                            $99,808             $10,783           $2,837          $113,428
Real Estate - Construction                             35,605               2,311               98            38,014
Real Estate - Mortgage                                108,576              40,094           46,747           195,417
Consumer                                                8,811              10,924            2,774            22,509
Other                                                   8,939               2,796            7,625            19,360
---------------------------------------------------------------------------------------------------------------------
        Gross Loans                                  $261,739             $66,908          $60,081          $388,728
=====================================================================================================================
</TABLE>

The fixed rate loan categories discussed above mature as follows: $15,223,000 in
1997,   $8,118,000  in  1998  $12,353,000  in  1999,  $7,229,000  in  2000,  and
$20,888,000 in 2001, with the remaining  $59,087,000  maturing  thereafter.  The
variable loan rate categories discussed above mature as follows: $246,516,000 in
1997,  $10,330,000 in 1998, $6,173,000 in 1999, $750,000 in 2000, and $1,067,000
on 2001, with the remaining $994,000 maturing thereafter.

Interest Rate Sensitivity  Interest rate sensitivity is the relationship between
market   interest   rates  and  net  interest   income  due  to  the   repricing
characteristics  of assets and  liabilities.  If more  liabilities  than  assets
reprice in a given period (a liability sensitive position), market interest rate
changes will be reflected  more quickly in liability  rates.  If interest  rates
decline, a liability sensitive position will benefit net income.  Alternatively,
where assets  reprice more quickly than  liabilities in a given period (an asset
sensitive position) a decline in market rates will have an adverse effect on net
interest income.

The table on the following  page presents the interest rate  sensitivity  of the
Company as of December 31, 1996. For any given period,  the structure is matched
when an equal amount of assets and liabilities  reprice. Any excess of assets or
liabilities  over these matched items results in the gap, or mismatch,  shown at
the foot of the table.  A negative gap  indicates  liability  sensitivity  and a
positive gap indicates asset sensitivity.

                                       49
<PAGE>
<TABLE>

---------------------------------------------------------------------------------------------------------------------
Interest Rate Sensitivity as of December 31, 1996
---------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                           Repricing Opportunity
                                                   0 - 90       91 - 180     181 - 365           Over
 (In thousands)                                      Days           Days          Days       One Year          Total
---------------------------------------------------------------------------------------------------------------------
<S>                                               <C>          <C>           <C>             <C>            <C>
Federal Funds Sold                                $14,910             $-            $-             $-        $14,910
Loans                                             229,421         19,736        12,582        126,989        388,728
Taxable Investments                                14,001            296         7,197        104,203        125,697
Non-taxable Investments                               849            602         1,377         10,892         13,720
---------------------------------------------------------------------------------------------------------------------
   Total Earning Assets                           259,181         20,634        21,156        242,084        543,055
---------------------------------------------------------------------------------------------------------------------
Interest Bearing Demand                            84,770              -             -              -         84,770
Savings Deposits                                  153,916              -         5,690          5,284        164,890
Time Certificates                                  51,502         44,436        65,581          4,671        166,190
---------------------------------------------------------------------------------------------------------------------
  Total Interest-Bearing Liabilities              290,188         44,436        71,271          9,955        415,850
---------------------------------------------------------------------------------------------------------------------
Gap                                             $(31,007)      $(23,802)     $(50,115)       $232,129       $127,205
Cumulative Gap                                   (31,007)       (54,809)     (104,924)        127,205
=====================================================================================================================
</TABLE>

The Company has remained  flexible in determining  the point at which to reprice
deposits.  This flexibility mitigates the Company's liability sensitive position
in the under one year category.

Quality of Loans The Company had net loan  charge-offs  of $723,000 and $586,000
in 1996 and 1995,  respectively.  Net  charge-offs as a percent of average loans
has remained  relatively constant over the last three years at 0.22%, 0.20%, and
0.17% at December 31, 1996,  1995,  and 1994,  respectively.  Over the last five
years,  the low amount of net  charge-offs  to average  loans is  reflective  of
management's continued emphasis on credit quality standards in the loan approval
process as well as close  monitoring  of the loan  portfolio.  The Company's net
charge-offs as a percent of average loans have been below most industry averages
in each year reflected in the table below.

Management  anticipates  the  Company's  charge-off  experience  in  1997  to be
consistent  with that  experienced  in 1996  primarily  due to the  strength and
growth in the local  economic  areas in which the  Company  serves.  This factor
continues to be of  importance  in assessing  the adequacy of the  allowance for
possible loan losses.

The table on the following page  summarizes the actual loan losses and provision
for possible loan losses during the last five fiscal years by loan category:

                                       50
<PAGE>
<TABLE>

---------------------------------------------------------------------------------------------------------------------
<CAPTION>
Summary of Loan Loss Activity
(In thousands)                                      1996          1995           1994            1993           1992
---------------------------------------------------------------------------------------------------------------------
<S>                                             <C>           <C>            <C>             <C>            <C>
Total loans outstanding, end of year            $388,728      $300,895       $290,352        $265,903       $265,647
Average loans during the year                    332,421       290,265        277,263         259,131        272,368
Allowance for possible loan losses:
Balance, beginning of year                         3,710         3,769          3,753           3,479          3,152
    Charge-off by loan category
        Commercial                                   761           480            331             491            617
        Consumer                                     188           129            148             327            276
        Real estate                                  121           241            186             364            265
---------------------------------------------------------------------------------------------------------------------
           Total                                   1,070           850            665           1,182          1,158
---------------------------------------------------------------------------------------------------------------------
Recoveries by loan category
        Commercial                                   239            98            144              62            112
        Consumer                                      91            42             37              54            106
        Real estate                                   17           124             21              62              2
---------------------------------------------------------------------------------------------------------------------
           Total                                     347           264            202             178            220
---------------------------------------------------------------------------------------------------------------------
Net charge-offs                                      723           586            463           1,004            938
Provision charged to expense                         685           527            479           1,278          1,265
---------------------------------------------------------------------------------------------------------------------
Balance, end of year                              $3,672        $3,710         $3,769          $3,753         $3,479
=====================================================================================================================
Ratios:
Net charge-offs to
   average loans                                   0.22%         0.20%          0.17%           0.39%          0.34%
Allowance to loans at end of year                  0.94%         1.23%          1.30%           1.41%          1.31%
---------------------------------------------------------------------------------------------------------------------
</TABLE>

Inherent  in  the  lending  function  is the  fact  that  loan  losses  will  be
experienced  and that the risk of loss will vary with the type of loan  extended
and the creditworthiness of the borrower. To reflect the estimated risks of loss
associated  with  its  loan  portfolio,  provisions  are  made to the  Company's
allowance  for possible loan losses.  As an integral  part of this process,  the
allowance for possible loan losses is subject to review and possible  adjustment
as a result of regulatory  examinations  conducted by governmental  agencies and
through  management's  assessment of risk. The Company's  entire  allowance is a
valuation  allocation;  that is, it has been created by direct  charges  against
earnings through the provision for possible loan losses.

The Company  evaluates  the  allowance  for  possible  loan losses based upon an
individual  analysis  of  specific  categories  of loans.  The  adequacy  of the
allowance can be determined only on an approximate  basis, since estimates as to
the  magnitude  and  timing of loan  losses are not  predictable  because of the
impact of external  events.  In  addition,  the Company has for the last several
years  contracted  with an independent  loan review  consulting firm to evaluate
overall  credit  quality on an ongoing  basis.  Management  then  considers  the
adequacy of the allowance for possible loan losses in relation to the total loan
portfolio.

The provision for possible loan losses charged against earnings is based upon an
analysis  of the actual  migration  of loans to losses  plus an amount for other
factors  which,  in  management's  judgment,  deserve  recognition in estimating
possible  loan losses.  These  factors  include:  specific  loan  conditions  as
determined by management;  the historical  relationship  between charge-offs and
the level of the allowance;  the estimated future loss in all significant loans;
known  deterioration in

                                       51
<PAGE>

concentrations  of  credit,  certain  classes  of loans or  pledged  collateral;
historical  loss experience  based on volume and types of loans;  the results of
any independent  review or evaluation of the loan portfolio quality conducted by
or at the direction of Company management or by bank regulatory agencies; trends
in portfolio volume,  maturity, and composition;  off-balance sheet credit risk;
volume  and  trends in  delinquencies  and  nonaccruals;  lending  policies  and
procedures including those for charge-off,  collection,  and recovery;  national
and local economic  conditions and downturns in specific local  industries;  and
the experience,  ability, and depth of lending management and staff. The Company
evaluates  the adequacy of its allowance for possible loan losses on a quarterly
basis.

While  these  factors  cannot  be  reduced  to a  mathematical  formula,  it  is
management's  view that the  allowance for possible loan losses of $3,672,000 or
0.94% of total loans as of December 31, 1996,  was adequate.  This  allowance is
compared to  $3,710,000 or 1.23% in 1995 and  $3,769,000  or 1.30% in 1994.  The
decrease in the  allowance  for loan losses as a percentage  of total loans from
1995 to 1996 was due to the  substantial  growth  in  total  loans  during  1996
without  the  same  corresponding  increase  in size of the  allowance  for loan
losses. Management believes that the quality of the loan growth coupled with the
decrease in nonperforming loans during this same period warrants the decrease in
the level of the allowance  relative to the loan portfolio.  There are, however,
no assurances that in any given period the Company will not sustain  charge-offs
which  are  substantial  in  relation  to the size of the  allowance.  Loans are
charged  to  the   allowance   for  loan   losses  when  the  loans  are  deemed
uncollectible. It is the policy of management to make additions to the allowance
so  that it  remains  adequate  to  cover  anticipated  losses  inherent  in the
Company's loan portfolio.
<TABLE>

Any allocation or breakdown in the allowance lends an appearance of an exactness
which does not exist. Thus, the allocation below should not be interpreted as an
indication of expected amounts or categories  where  charge-offs will occur. The
allocation  of the  allowance for possible loan losses as of the end of the last
five fiscal years is summarized in the table below:
<CAPTION>

------------------------------------------------------------------------------------------------------------------------
Allocation of Allowance     1996                   1995              1994                   1993               1992
------------------------------------------------------------------------------------------------------------------------
                             Percent of          Percent of         Percent of          Percent of           Percent of
                               Loans in            Loans in           Loans in            Loans in             Loans in
                                   Each                Each               Each                Each                 Each
                               Category            Category           Category            Category             Category
(Dollars in                    to Total            to Total           to Total            to Total             to Total
thousands)                 $      Loans        $      Loans       $      Loans        $      Loans         $      Loans
------------------------------------------------------------------------------------------------------------------------
<S>                   <C>        <C>      <C>        <C>     <C>        <C>      <C>         <C>      <C>        <C>
Balance Applicable
to:
Commercial            $1,507     29.18%   $1,395     27.45%  $1,607     26.66%   $1,441      24.99%   $1,464     24.19%
Real Estate -
Construction             218      9.78%      306     10.77%     590     13.55%      229       4.16%      202      8.32%
Real Estate -          1,516     50.27%    1,708     51.37%   1,216     49.83%    1,785      57.82%    1,502     53.72%
Mortgage
Consumer                 286      5.79%      272      8.51%     333      7.89%      269       7.40%      267      6.92%
Other                    145      4.98%       29      1.90%      26      2.07%       28       2.88%       43      1.25%
------------------------------------------------------------------------------------------------------------------------
   Total              $3,672     100.0%   $3,710     100.0%  $3,769     100.0%   $3,753      100.0%   $3,479     100.0%
========================================================================================================================
</TABLE>

Nonperforming  Loans  Interest  income on the loan  portfolio is recorded on the
accrual basis.  However,  the Company  follows the policy of  discontinuing  the
accrual of interest  income and

                                       52
<PAGE>

reversing  any accrued and unpaid  interest  when the  payment of  principal  or
interest  is 90 days past due  unless the loan is both well  secured  and in the
process  of  collection.  The  Company's  Lending  Policy  provides  for  strict
requirements  for exempting  loans from  nonaccrual  status.  The composition of
nonperforming  loans as of the end of the last three fiscal years is  summarized
in the following table:

------------------------------------------------------------------------------
Nonperforming Loans
(In thousands)                                    1996     1995          1994
------------------------------------------------------------------------------
Loans accounted for on a nonaccrual basis       $1,564   $2,481        $3,283
Other loans contractually past due 90 days
   or more                                          17      261           734
Restructured loans                                 279      513           147
------------------------------------------------------------------------------
      Total                                     $1,860   $3,255        $4,164
==============================================================================


Loans accounted for on a nonaccrual basis experienced a substantial  decrease in
1996 to $1,564,000  compared to  $2,481,000 at December 31, 1995.  This decrease
was due to management's  continuing  efforts to resolve  significantly  past due
loans combined with a strong local economy.

Of total  nonperforming loans as of December 31, 1996, $726,000 consisted of one
real estate loan which was  well-secured.  In addition,  the overall coverage of
the allowance as a percent of nonperforming loans is 197.4%. The Company's ratio
of nonperforming loans to average loans has been below most industry averages in
each year reflected in the table above.

The Company does not expect to sustain  losses in excess of that provided for in
the allowance for possible  loan losses.  At December 31, 1996,  the Company had
$279,000 in loans which were troubled debt restructurings as defined by SFAS No.
15,  Accounting by Debtors and Creditors for Troubled Debt  Restructurings,  and
which  were not  either  nonaccrual  loans or loans past due 90 days or more and
still  accruing  interest.  At December 31,  1996,  the Company did not have any
loans other than those disclosed as nonaccrual loans,  loans past due 90 days or
more and still accruing  interest and troubled debt  restructurings  where known
information  about possible credit problems of the borrowers cause management to
have  serious  doubts as to the  ability of such  borrowers  to comply  with the
present loan repayment terms.

Investments  The average  balance of Federal Funds Sold  (overnight  investments
with other  banks) and other  short-term  investments  (primarily  money  market
mutual funds) was  $43,823,000 in 1996,  $42,617,000 in 1995, and $29,021,000 in
1994. These  investments are maintained  primarily for the short-term  liquidity
needs of the  Company.  The major  factors  influencing  the levels of  required
liquidity are loan demand of the Company's  customers  and  fluctuations  in the
Company's level of deposits.  The Company's loan to deposit ratio averaged 66.2%
in 1996, compared to 67.2% in 1995, and 68.6% in 1994.

                                       53
<PAGE>
<TABLE>

Average total  investment  securities were  $130,119,000 in 1996, an increase of
$23,503,000 over the 1995 average. This increase was the result of the growth in
average  deposits which exceeded the growth in average loans by $25,029,000.  As
of December 31,  1996,  the  aggregate  book value of the  investment  portfolio
exceeded the market value by  $223,000.  At December 31, 1995,  the market value
exceeded  the book value by $786,000.  This  decrease in the market value of the
portfolio  was the result of  decreasing  prices in the bond  market  during the
course of 1996. It is the Company's  policy not to engage in securities  trading
transactions. There are no investments in the portfolio deemed to be permanently
or temporarily impaired.
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                                                                           Estimated
                                                      Amortized          Unrealized        Unrealized           fair
(In thousands)                                             cost                gain              loss          value
---------------------------------------------------------------------------------------------------------------------
1996
---------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                    <C>               <C>         <C>
Available-for-sale securities:
   U.S. Treasury and agency                             $64,109                $159              $187        $64,081
   State and municipal                                    7,233                  59                21          7,271
   Mortgage-backed securities                            45,470                   9               303         45,176
---------------------------------------------------------------------------------------------------------------------
                                                       $116,812                $227              $511       $116,528
=====================================================================================================================
Held-to-maturity securities:
   State and municipal                                   $6,449                 $55               $42         $6,462
   Mortgage-backed securities
      and other                                           3,231                  59                11          3,279
---------------------------------------------------------------------------------------------------------------------
                                                         $9,680                $114               $53         $9,741
=====================================================================================================================
1995
---------------------------------------------------------------------------------------------------------------------
Available-for-sale securities:
   U.S. Treasury and agencies                           $94,820                $708              $143        $95,385
   State and municipal                                    4,074                  45                 9          4,110
   Mortgage-backed securities
      and other                                          10,653                   3                 8         10,648
                                                       $109,547                $756             $160        $110,143
=====================================================================================================================
Held-to-maturity securities:
   State and municipal                                  $12,133                $128              $20         $12,241
   Mortgage-backed securities
      and other                                           3,552                  87                5           3,634
---------------------------------------------------------------------------------------------------------------------
                                                        $15,685                $215              $25         $15,875
=====================================================================================================================
</TABLE>

Funding  Average  total  deposits  increased  $70,574,000  or 16.3% during 1996,
compared to an increase  of  $27,928,000  or 6.9% during 1995 and an increase of
$21,864,000 or 5.7% in 1994. Average  non-interest bearing deposits increased in
1996 by  $13,791,000  or 14.4% compared to an increase of $8,908,000 or 10.3% in
1995 an  increase  of  $9,511,000  or 12.3% in  1994.  Average  interest-bearing
deposits  increased  $56,067,000  or 16.7% in 1996,  compared with  increases of
$19,020,000 or 6.0% in 1995 and  $11,112,000 or 3.6% during 1994.  Total deposit
growth in 1997 is expected to continue  but may not increase at the same rate or
in the same  categories.  The Company is able to attract  deposits by  providing
interest rates and services  competitive with other institutions  located in its
market  area.  The  Company  does  not  have  any  brokered  deposits  or  large
concentrations with any one customer.  Given the Company's forecast

                                       54
<PAGE>
<TABLE>

for interest rates,  management  believes that maturing  certificates of deposit
will continue to be directed into short to medium term deposits.
<CAPTION>

---------------------------------------------------------------------------------------------------------------------
Average Deposits                                1996                       1995                      1994
---------------------------------------------------------------------------------------------------------------------
                                         Average                    Average                    Average
(Dollars in thousands)                   Balance          Rate      Balance          Rate      Balance          Rate
---------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                         <C>                        <C>
Demand, Noninterest Bearing             $109,615             -      $95,824             -      $86,916             -
Demand, Interest Bearing                  77,306         1.09%       87,916         1.71%       80,428         1.54%
Savings and money market                 168,553         2.77%      140,209         2.79%      151,882         2.46%
Time Certificates                        146,359         5.32%      108,026         5.10%       84,821         3.54%
---------------------------------------------------------------------------------------------------------------------
</TABLE>

The table above sets forth information for the last three fiscal years regarding
the Company's average deposits and the average rates paid on each of the deposit
categories.

The remaining  maturities of the Company's  certificates  of deposit,  including
public  funds,  in amounts of  $100,000  or more as of December  31,  1996,  are
indicated in the table below.  Interest expense on these certificates of deposit
totaled $4,036,000 in 1996.

----------------------------------------------------------------------------
(In thousands)                                                         1996
----------------------------------------------------------------------------
Three month or less                                                 $32,921
Over three through six months                                        21,841
Over six through twelve months                                       26,190
Over twelve months                                                        -
----------------------------------------------------------------------------
   Total                                                            $80,952
============================================================================


Noninterest  Income Total other  income  increased  in 1996 to  $3,160,000  from
$2,983,000 in 1995.  The increase was  primarily  due to a $181,000  increase in
other income partially offset by a decrease in gains on loan sales. In addition,
net losses on securities  transactions decreased in 1996 to $46,000 from $73,000
in 1995. Noninterest income also increased in 1995 by $112,000 as a result of an
increase in service charges of $236,000  partially offset by a decrease in gains
on sales of loans of $69,000.  The Mortgage  Banking  Division of the Company is
solely a brokerage operation. The Company does not originate,  purchase, or sell
loans in this area and thus retains no credit or servicing risk.

                                       55
<PAGE>

Noninterest  Expense In 1996, total other operating  expenses increased 17.4% to
$22,727,000, after an increase of $2,007,000 or 11.6% in 1995. Of the $3,375,000
increase in 1996, $1,972,000 was attributable to merger-related  expenses. These
costs were primarily  within the categories of salaries and benefits,  equipment
expense,  and legal and  professional  expenses.  Salaries and benefits  expense
increased  $1,875,000 or 18.8% in 1996, compared to an increase of $1,259,000 or
14.4% in 1995. The increase in salaries and benefits  during 1996 was mainly the
result of  severance  costs  related  to the  merger  as well as  normal  salary
increases.  The  increase  in 1995 was  primarily  due to a  greater  number  of
employees in 1995 over 1994 and normal  salary  increases.  As a  percentage  of
average earning assets, salaries and benefits were 2.3% in 1996 compared to 2.3%
for 1995 and  2.1% in  1994.  The  Company  employed  259  full-time  equivalent
employees at year-end 1996.

Occupancy expense increased  $152,000 or 7.8% in 1996 compared to an increase of
$180,000 or 10.1% in 1995.  The increases in 1996 and 1995 were due primarily to
the expansion of the Salinas  office of First  National as well as normal rental
rate increases.
<TABLE>

All other operating  expenses totaled  $8,752,000 in 1996 compared to $7,404,000
in 1995,  an increase of  $1,348,000  or 18.2%.  This increase was mainly due to
merger-related  expenses for data processing and legal and professional fees. In
1995,  other operating  expense  increased by $568,000 or 8.3% as compared to an
increase  of $473,000  or 7.4% in 1994.  The  increase in 1995 was due mainly to
equipment costs  associated  with a systems  conversion at South Valley combined
with an  increase  in other  expenses  partially  offset by a  decrease  in FDIC
insurance  premiums  at  both  South  Valley  and  First  National  due  to  the
recapitalization  of the Bank Insurance  Fund in 1995.  The major  components of
other  expenses in dollars and as a percentage of average  earning assets are as
indicated in the table below.
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Other Expenses                           1996                       1995                         1994
---------------------------------------------------------------------------------------------------------------------
                                              Percentage                    Percentage                    Percentage
                                              of Average                    of Average                    of Average
(Dollars in thousands)            Amount  Earning Assets      Amount    Earning Assets       Amount   Earning Assets
---------------------------------------------------------------------------------------------------------------------
<S>                              <C>               <C>        <C>                <C>         <C>               <C>
Salaries and benefits            $11,864           2.34%      $9,989             2.29%       $8,730            2.13%
Occupancy                          2,111           0.42%       1,959             0.45%        1,779            0.43%
Equipment                          2,577           0.51%       1,943             0.45%        1,476            0.36%
Advertising and promotion            710           0.14%         659             0.15%          679            0.17%
Forms and supplies                   563           0.11%         508             0.12%          456            0.11%
Legal and professional fees        1,946           0.38%         823             0.19%          828            0.20%
Assessments                          147           0.03%         572             0.13%        1,043            0.25%
Other                              2,809           0.56%       2,899             0.65%        2,354            0.58%
---------------------------------------------------------------------------------------------------------------------
 Total                           $22,727           4.49%     $19,352             4.43%      $17,345            4.23%
=====================================================================================================================
</TABLE>

Income Taxes

The provision for income taxes was $4,348,000 in 1996, compared to $4,200,000 in
1995 and  $3,778,000  in 1994.  The  Company's  effective  tax rate for 1996 was
41.9%,  compared with 38.9% for 1995,  and 37.8% for 1994.  The increase in 1996
was due to the  fact  that a  majority  of the  merger-related  costs  were  not
tax-deductible.

                                       56
<PAGE>

Capital

Shareholders'  equity  increased  $3,113,000  or 5.1% in 1996.  The increase was
primarily  a result  of  retention  of the  Company's  1996 net  income  and the
exercise of stock options,  offset in part by a repurchase of outstanding shares
and a total cash  dividend  of $0.60 per share paid  during  1996.  The  Company
regularly  assesses  future  capital  needs so that it will remain in compliance
with the capital  adequacy  guidelines  issued by the Federal  Reserve Board for
bank holding companies and by the Office of the Comptroller of the Currency (the
"OCC") for national  banks.  The  Company's  capital plan for 1996  contemplates
continued growth in shareholders' equity through the retention of net income.

The  Company  and  the  Subsidiary  Banks  are  subject  to the  guidelines  and
regulations  of the Federal  Reserve  Board and the  Comptroller,  respectively,
governing  capital  adequacy.  The Federal Reserve Board has  established  final
risk-based and leverage capital  guidelines for bank holding companies which are
the same as the Comptroller's capital regulations for national banks.

The Federal Reserve Board capital  guidelines for bank holding companies and the
OCC's  regulations for national banks set total capital  requirements and define
capital in terms of "core  capital  elements"  (comprising  Tier 1 capital)  and
"supplemental capital elements"  (comprising Tier 2 capital).  Tier 1 capital is
generally  defined as the sum of the core capital  elements less  goodwill.  The
following  items are  defined as core  capital  elements:  common  stockholders'
equity,   qualifying  noncumulative  perpetual  preferred  stock,  and  minority
interests in the equity  accounts of  consolidated  subsidiaries.  Supplementary
capital  elements  include:  allowance  for loan and lease losses  (which cannot
exceed 1.25% of an  institution's  risk weighted  assets),  perpetual  preferred
stock not qualifying as core capital,  hybrid capital  instruments and mandatory
convertible debt instruments,  and term subordinated debt and  intermediate-term
preferred  stock.  The maximum  amount of  supplemental  capital  elements which
qualifies  as Tier 2  capital  is  limited  to 100%  of Tier 1  capital,  net of
goodwill.

Risk-based capital ratios are calculated with reference to risk-weighted assets,
including  both on and  off-balance  sheet  exposures,  which are  multiplied by
certain risk weights  assigned by the Federal  Reserve Board or the OCC to those
assets.  Both bank holding companies and national banks are required to maintain
a minimum ratio of qualifying  total capital to  risk-weighted  assets of 8%, at
least  one-half  of  which  must be in the  form of Tier 1  capital.  There  are
presently  four  risk-weight   categories:   0%  for  cash  and  unconditionally
guaranteed government  securities;  20% for conditionally  guaranteed government
securities;  50% for performing  residential  real estate loans secured by first
liens; and 100% for commercial loans.

The federal  banking  agencies  have issued a joint  advance  notice of proposed
rulemaking  to solicit  comments on a framework  for revising  their  risk-based
capital  guidelines  to take account of interest  rate risk.  As required by the
Federal Deposit  Insurance  Corporation  Improvement  Act of 1991 (FDICIA),  the
notice seeks comment on a proposed method of incorporating an interest rate risk
component  into the  current  risk-based  capital  guidelines,  with the goal of
ensuring  that  institutions  with  high  levels  of  interest  rate  risk  have
sufficient capital to cover their exposures.  Interest rate risk is a measure of
the  relationship  between a change in market  interest  rates and

                                       57
<PAGE>

the resultant change in net interest income due to the repricing and/or maturity
characteristics  of the assets and  liabilities  of the  Company.  As  financial
intermediaries,  depository  institutions  accept interest rate risk as a normal
part of their  business.  They  assume  this risk  whenever  the  interest  rate
sensitivity of their assets does not match the sensitivity of their  liabilities
or off  balance  sheet  positions.  Thus,  when  interest-sensitive  assets  and
liabilities reprice at mismatched intervals, an increase or decrease in interest
rates will affect net interest  income.  Under the proposal,  interest rate risk
exposures  would be quantified by weighing  assets,  liabilities and off-balance
sheet items by risk  factors  which  approximate  sensitivity  to interest  rate
fluctuations.  Institutions  identified as having an interest rate risk exposure
greater  than a defined  threshold  would be  required  to  allocate  additional
capital to support  this higher  risk.  The capital to be  allocated  would be a
dollar  amount  equal to the  percentage  by which the risk  exceeds the defined
threshold  multiplied  by the  institution's  total  assets.  Higher  individual
capital   allocations  could  be  required  by  the  bank  regulators  based  on
supervisory concerns.

Federal banking  agencies have solicited  comments on this proposal but have not
yet proposed  regulations to implement any interest rate risk component into the
risk-based capital guidelines.  Accordingly, the ultimate impact on the Bank and
the Company of a final regulation in this area cannot be predicted at this time.

Leverage Capital Guidelines

The Federal Reserve Board and the OCC have  established a minimum leverage ratio
of 3% Tier 1 capital to total  assets for bank  holding  companies  and national
banks that have  received the highest  composite  regulatory  rating and are not
anticipating or experiencing any significant growth. All other institutions will
be  required to  maintain a leverage  ratio of at least 100 to 200 basis  points
above the 3% minimum.
<TABLE>

Set forth below are the  Company's  and the  Subsidiary  Banks'  risk-based  and
leverage capital ratios as of December 31, 1996:
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Risk Based Capital Ratio
As of December 31, 1996
-------------------------------------------------------------------------------------------------------------------
                                            Company                  South Valley                  First National
(Dollars in thousands)                  Amount       Ratio        Amount          Ratio       Amount         Ratio
-------------------------------------------------------------------------------------------------------------------
<S>                                    <C>          <C>          <C>             <C>         <C>            <C>
Tier 1 capital                         $63,469      13.91%       $16,096         11.63%      $42,034        13.40%
Tier 1 capital minimum
   requirement                          18,254       4.00%         5,534          4.00%       12,546         4.00%
-------------------------------------------------------------------------------------------------------------------
      Excess                            45,215       9.91%        10,562          7.63%       29,488         9.40%
===================================================================================================================
Total capital                           67,141      14.71%        17,409         12.58%       44,258        14.11%
Total capital minimum
    requirement                         36,508       8.00%        11,069          8.00%       25,092         8.00%
-------------------------------------------------------------------------------------------------------------------
      Excess                            30,633       6.71%         6,340          4.58%       19,166         6.11%
===================================================================================================================
Risk-adjusted assets                  $456,356                  $138,362                    $313,644
===================================================================================================================
</TABLE>
                                       58
<PAGE>

<TABLE>
As indicated in the table on the previous  page,  the Company's  capital  ratios
significantly  exceeded the minimum  capital levels  required by current federal
regulations.  Management believes that the Company and the Bank will continue to
meet their respective minimum capital requirements in the foreseeable future.
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Leverage Capital Ratio
As of December 31, 1996
-------------------------------------------------------------------------------------------------------------------
                                          Company                         South Valley             First National
(Dollars in thousands)                   Amount        Ratio        Amount          Ratio        Amount       Ratio
-------------------------------------------------------------------------------------------------------------------
<S>                                     <C>           <C>          <C>              <C>         <C>          <C>
Tier 1 capital to quarterly
average
    total assets (Leverage              $63,469       10.55%       $16,096          8.61%       $42,034      10.29%
Ratio)
Minimum leverage requirement          18,045 to     3.00% to      5,611 to       3.00% to     12,255 to    3.00% to
                                         30,075        5.00%         9,351          5.00%        20,425       5.00%
-------------------------------------------------------------------------------------------------------------------
      Excess                          33,394 to     5.55% to      6,745 to       3.61% to     21,609 to    5.29% to
                                         45,424        7.55%        10,485          5.61%        29,779       7.29%
===================================================================================================================
Total quarterly average assets         $601,496                   $187,024                     $408,502
===================================================================================================================
</TABLE>

Federal  banking  laws  impose  restrictions  upon the amount of  dividends  the
Subsidiary  Banks  may  declare  to the  Holding  Company  (see  Note  14 to the
accompanying  consolidated  financial  statements).  Federal  laws  also  impose
restrictions  upon the amount of loans or advances that the Subsidiary Banks may
extend to the Holding Company. In management's opinion,  these do not affect the
ability of the Company to meet its cash obligations.


Liquidity

Liquidity  represents  the  ability of the Company to meet the  requirements  of
customer borrowing needs as well as fluctuations in deposit flows.

The Company's  principal sources of asset liquidity are cash and due from banks,
time deposits with other financial institutions,  federal funds sold, short-term
investments, and marketable investment securities. As of December 31, 1996 these
sources represented  $202,453,000 or 37.0% of total deposits,  compared to 44.1%
in 1995 and 41.0% in 1994.  The decrease in 1996  reflects the growth within the
loan  portfolio  of  which a small  portion  was  funded  by  maturities  in the
investment  portfolio.  Other sources of asset  liquidity are maturing loans and
borrowing lines of approximately  $51,000,000 with primary  correspondent banks.
There were no borrowings outstanding under these lines as of December 31, 1996.

The Company  guarantees  the  obligations  or  performance  of its  customers by
issuing  standby  letters of credit to a third party.  These standby  letters of
credit are  frequently  issued in support of  third-party  obligations,  such as
retail company transactions and travel agency issuances.

The risk involved in issuing  standby  letters of credit is essentially the same
as the credit risk in extending loans to customers,  and they are subject to the
same credit  origination,  maintenance,  and management  procedures in effect to
monitor  other credit  products.  As of December 31, 1996 and 1995,  outstanding
standby letters of credit totaled $4,994,000 and $2,448,000,  respectively.

                                       59
<PAGE>

The Company  does not offer or engage in any other  off-balance  sheet  products
such as  commitments  to purchase and sell foreign  exchange,  interest  rate or
currency swaps, or financial futures and options.

In the  opinion  of  management,  there  are  sufficient  resources  to meet the
liquidity needs of the Company at present and projected future levels.

Effects of Changing Prices

The most direct  effect of  inflation is higher  interest  rates.  However,  the
Company's  earnings  are not  necessarily  dependent  on the  absolute  level of
interest rates.  Instead,  earnings are affected by the spread between the yield
on loans and investments and the cost of deposits and borrowing  money.  Another
effect of inflation is upward pressure of the Company's operating  expenses.  It
is  management's  opinion  that the  effects of  inflation  on the  consolidated
financial statements have not been material.

                                       60
<PAGE>


                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES
                     PACIFIC CAPITAL BANCORP STOCK ACTIVITY

The common  stock of the Company is listed on the NASDAQ  National  Market under
the symbol PABN.  This listing became  effective on November 20, 1996.  Prior to
that date, the Company's common stock was listed on the OTC Bulletin Board.

The high and low prices listed below reflect actual trades which occurred in the
specified time frames listed.  Three brokerage firms effect  transactions in the
Company's stock: Van Kasper & Co., Sandler O'Neill Partners,  L.P.; and Hoefer &
Arnett, Inc.

According  to  the  Company's  records,  there  were  2,063  shareholders  as of
September  10, 1996.  In 1996 the Company paid four cash  dividends of $0.15 per
share to holders of record on March 15, June 28,  September  16, and November 1,
payable on March 29, June 28, September 30, and December 9, 1996,  respectively.
The Company also paid a five percent (5%) stock dividend payable to shareholders
of record as of December 1, 1996.

For information  regarding  restrictions on the payment of dividends see Note 14
to the accompanying consolidated financial Statements.

-------------------------------------------------------------------------------
                Ranges of Common Stock Prices
-------------------------------------------------------------------------------
                           1996
-------------------------------------------------------------------------------
Quarter                                                 Low                High
-------------------------------------------------------------------------------
First                                                $24.05              $28.09
Second                                                25.47               27.63
Third                                                 24.77               26.67
Fourth                                                25.38               27.63
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
                           1995
-------------------------------------------------------------------------------
Quarter                                                 Low                High
-------------------------------------------------------------------------------
First                                                $17.69              $18.59
Second                                                17.23               19.73
Third                                                 20.86               23.13
Fourth                                                22.22               24.53
-------------------------------------------------------------------------------


                                       61
<PAGE>

<TABLE>

----------------------------------------------------------------------------------------------------------------------
                                              B o a r d o f D i r e c t o r s
----------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                           First National Bank of Central
       Pacific Capital Bancorp                       California                     South Valley National Bank
--------------------------------------- -------------------------------------- --------------------------------------
<S>                                     <C>                                    <C>
Charles E. Bancroft                     Charles E. Bancroft                    Laruence M. Connell
Director, President & CEO               Director, President & CEO              President
Sequioa Insurance Company               Sequioa Insurance Company              Connell Realty Inc.
Citation Insurance Company              Citation Insurance Company
                                                                               Joseph A. Filice
Gene DiCicco                            Gene DiCicco                           Partner
Owner, Watsonville Nurseries            Owner, Watsonville Nurseries           Greco/Filice Accountancy

Lewis L. Fenton                         Lewis L. Fenton                        Eugene R. Guglielmo
Attorney, Fenton & Keller               Attorney, Fenton & Keller              Director & Executive Officer
                                                                               Emilio Guglielmo Winery
Gerald T. Fry                           Gerald T. Fry
Chief Financial Officer                 Chief Financial Officer                D. Vernon Horton
Office Products, Inc.                   Office Products, Inc.                  Chairman of the Board
                                                                               South Valley National Bank
James L. Gattis                         James L. Gattis
Investor, Civic Leader                  Investor, Civic Leader                 Roger C. Knopf
                                                                               President, Knopf Construction Inc.
Eugene R. Guglielmo                     Stanley R. Haynes
Director & Executive Officer            Chairman of the Board                  Clayton C. Larson
Emilio Guglielmo Winery                 Cinderella Carpets                     Vice Chairman
                                                                               South Valley National bank
Stanley R. Haynes                       D. Vernon Horton
Chairman of the Board                   Chief Executive Officer                Edward J. Lazzarini
Cinderella Carpets                      First National Bank of Central         President
                                        California                             Lazzco Inc.
D. Vernon Horton
Chairman of the Board                   Hubert Hudson                          Donald G. Mountz
Pacific Capital Bancorp                 Property Manager, Aptos Station        President
                                                                               Mountz, Inc.
Hubert W. Hudson                        William J. Keller, M.D.
Property Manager, Aptos Station         Physician                              William H. Pope
                                                                               Certified Public Accountant
William J. Keller, M.D.                 Clayton C. Larson
Physician                               President                              James R. Price
                                        First National Bank of Central         President
Roger C. Knopf                          California                             LynRob Enterprises
President, Knopf Construction Inc.
                                        William S. McAfee, M.D.                Mary Lou Rawitser
Clayton C. Larson                       Physician                              Certified Financial Planner
President, Pacific Capital Bancorp
                                        William H. Pope                        Brad L. Smith
William S. McAfee, M.D.                 Certified Public Accountant            President
Physician                                                                      South Valley National Bank
                                        William K. Sambrailo
William H. Pope                         Chariman of the Board
Certified Public Accountant             Charles Sambrailo Paper Co.

Mary Lou Rawitser                       Clyn Smith, Jr., M.D.
Certified Financial Planner             Physician, Retired

William K. Sambrailo                    Robert B. Sheppard
Chariman of the Board                   Vice Chariman, Retired
Charles Sambrailo Paper Co.             Allstate Insurance Companies

Clyn Smith, Jr., M.D.
Physician, Retired

Robert B. Sheppard
Vice Chariman, Retired
Allstate Insurance Companies

</TABLE>
                                       62
<PAGE>

                                 The Corporation

The  Company is a  California  corporation  and bank  holding  company  that was
incorporated on January 26, 1983. First National and South Valley,  wholly owned
subsidiaries   of  the  Company,   commenced   operations   in  1984  and  1983,
respectively..
<TABLE>

First  National  and South  Valley are  nationally  chartered  commercial  banks
serving  Monterey,   Santa  Cruz,  Santa  Clara  and  San  Benito  Counties  and
surrounding areas in California.
<CAPTION>

First National Bank of        South Valley                  Registrar & Transfer Agent   Form 10-K
Central California            National Bank                 --------------------------   ----------------------------
Banking Offices               Banking Offices               ChaseMellon Shareholder      A Copy of the Company's
----------------------------- ----------------------------- Services                     Form 10-K as filed with the
<S>                           <C>                           <C>                          <C>
1001 South Main Street        500 Tennant Station           Overpeck Centre              Securities and Exchange
Salinas, California           Morgan Hill, California       85 Challenger Road           Commission is available,
93902-1786                    95037                         Ridgefield Park, NJ          without charge, upon
(408) 757-4900                (408) 778-1510                07660                        written request.
                                                                                         Please direct requests to:
495 Washington Street         8000 Santa Teresa Blvd.
Monterey, California          Gilroy, California            Market Makers                Dennis A. DeCius
93942-2718                    95020                         Hoefer & Arnett, Inc.        Executive Vice President
(408) 373-4900                (408) 848-2161                353 Sacramento Street        Chief  Financial Officer
                                                            Tenth Floor                  Pacific Capital Bancorp
307 Main Street               1730 Airline Highway          San Francisco, California    P.O. Box 1786
Salinas, California           Hollister, California         94111                        Salinas, California
93902-1786                    95023                                                      93902-1786
(408) 757-4900                (408) 636-5581                Sandler O'Neill Partners,
                                                            LP
                                                            2 World Trade Center         Corporate Counsel
655 Main Street               301 Third Streer              104th Floor                  Graham & James
Watsonville, California       San Juan Bautista, Ca.        New York, New York           One Maritime Plaza
95077-1540                    95045                         10048                        San Francisco, California
(408) 728-2265                (408) 623-4590                                             94111
                                                            Van Kasper & Co.
26380 Carmel Rancho Lane                                    600 California Street        Certified Public
Carmel, California                                          Suite 1700                   Accountants
93922-2017                                                  San Francisco, California    KPMG Peat Marwick LLP
(408) 626-2900                                              94108                        50 West San Fernando Street
                                                                                         San Jose, California  95113

</TABLE>
                                       63

<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant had duly caused this report to be signed on
its behalf of the undersigned, thereunto duly authorized.


Date:  March 25, 1997                                PACIFIC CAPITAL BANCORP
       -------------------------------------

                                                     By:  /S/ Clayton C. Larson
                                                        -----------------------
                                                     CLAYTON C. LARSON
                                                     President

  /S/ Charles E. Bancroft                            Date:       March 25, 1997
--------------------------------------------
Charles E. Bancroft,
Director

  /S/ Dennis A. DeCius                               Date:       March 25, 1997
--------------------------------------------
Dennis A. DeCius
Executive Vice President
and Chief Financial Officer
(principal financial officer and principal accounting officer)


  /S/ Gene DiCicco                                   Date:       March 25, 1997
--------------------------------------------
Gene DiCicco,
Director

  /S/ Lewis L. Fenton                                Date:       March 25, 1997
--------------------------------------------
Lewis L. Fenton,
Director

                                       66
<PAGE>

  /S/ Gerald T. Fry                                  Date:       March 25, 1997
--------------------------------------------
Gerald T. Fry,
Director

  /S/ James L. Gattis                                Date:       March 25, 1997
--------------------------------------------
James L. Gattis,
Director and Secretary

  /S/ Hubert W. Hudson                               Date:       March 25, 1997
--------------------------------------------
Hubert W. Hudson,
Director

  /S/ Stanley R. Haynes                              Date:       March 25, 1997
--------------------------------------------
Stanley R. Haynes,
Director

  /S/ D. Vernon Horton                               Date:       March 25, 1997
--------------------------------------------
D. Vernon Horton,
Chairman of the Board
and Director

  /S/ William J. Keller                              Date:       March 25, 1997
--------------------------------------------
William J. Keller,
Director

 /S/ Eugene R.Guglielmo                              Date:       March 25, 1997
 -------------------------------------------
Eugene R. Guglielmo,
Director

/S/ Roger C. Knopf                                   Date:       March 25, 1997
--------------------------------------------
Roger C. Knopf,
Director

                                       67
<PAGE>


  /S/ Clayton C. Larson                              Date:       March 25, 1997
--------------------------------------------
Clayton C. Larson,
President and Director

  /S/ William S. McAfee                              Date:       March 25, 1997
--------------------------------------------
William S. McAfee,
Director

  /S/ William K. Sambrailo                           Date:       March 25, 1997
--------------------------------------------
William K. Sambrailo,
Director

  /S/ Robert B. Sheppard                             Date:       March 25, 1997
--------------------------------------------
Robert B. Sheppard,
Director

  /S/ Clyn Smith, Jr.                                Date:       March 25, 1997
--------------------------------------------
Clyn Smith, Jr.,
Director

 /S/ Mary Lou Rawitser                               Date:       March 25, 1997
--------------------------------------------
Mary Lou Rawitser,
Director

                                       68
<PAGE>


<TABLE>

                                          INDEX TO EXHIBITS
<CAPTION>

Exhibit                                                                                 Sequentially
Number                                        Exhibit                                   Numbered Page
------                                        -------                                   -------------
     <S>          <C>                                                                     <C>
      3.1         Articles of incorporation of the Company an amended to date.  1/        (*)

      3.2         Bylaws of Company as amended to date.  2/                               (*)

     10.1         Lease -- 601 Abrego Street, Monterey, Premises.  3/                     (*)

     10.2         Lease for 1001 South Main Street, Salinas, Banking office. 2/           (*)

     10.3         Lease dated December 15, 1988 by and between the Bank                   (*)
                  and James L. Gattis for 307 Main Street, Salinas Old Town Office. 2/

     10.4         Lease dated May 1, 1985 by and between the Bank                         (*)
                  and Pacific Capital Bancorp. 4/

     10.5         Pacific Capital Bancorp Employee Stock Ownership                        (*)
                  Plan and Trust Agreement. 5/

     10.6         Master Equipment Lease Agreement between Bank and                       (*)
                  Parker North American Corporation. 5/

     10.7         Lease dated September 22, 1986 between                                  (*)
                  Bank and The Saunders Company.  5/
<FN>
*/       Not Applicable.

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

1/       Filed as Exhibits 3.1, 10.21 and 10.32, respectively,  to the Company's
         Annual Report on Form 10-K (File No. 0-13528) for the fiscal year ended
         December 31, 1988, which are incorporated by reference.

2/       Filed as Exhibits 3.2 and 10.17, respectively,  to the Company's Annual
         Report on Form 10-K  (File  No.  2-87513)  for the  fiscal  year  ended
         December 31, 1984, which are incorporated by reference.

3/       Filed as Exhibit to the Company's  Registration  Statement on Form S-18
         (Registration No. 2-87513), which is incorporated by reference.

4/       Filed as  Exhibit  10.20 to the  Company's  Annual  Report on Form 10-K
         (File No.  0-13528) for the fiscal year ended December 31, 1985,  which
         is incorporated by reference.

5/       Filed as Exhibits  10.24  through  10.26,  respectively,  to  Company's
         Annual Report on Form 10-K (File No. 0-13528) for the fiscal year ended
         December 31, 1986, which are incorporated by reference.
</FN>
</TABLE>

                                       69
<PAGE>
<TABLE>
<CAPTION>

Exhibit                                                                                 Sequentially
Number                                        Exhibit                                   Numbered Page
------                                        -------                                   -------------

         <S>      <C>                                                                     <C>
         10.8     Matrix Funding Corporation Master Lease Agreement. 1/                   (*)

         10.9     Lease dated January 24, 1989 by and between First National Bank         (*)
                  of Monterey County and Stanley R. Haynes. 6/

         10.13    Amendment No. One to Pacific Capital Bancorp                            (*)
                  Employee Stock Ownership Plan. 2/

         10.14    Amendment No. Two to Pacific Capital Bancorp                            (*)
                  Employee Stock Ownership Plan. 7/

         10.15    Amendment No. Three to Pacific Capital Bancorp                          (*)
                  Employee Stock Ownership Plan. 7/

         10.16    Lease dated August 10, 1990 by and between the                          (*)
                  Trustees of the Stanley Family Trust and Pacific
                  Capital Bancorp for Carmel Office. 7/

         10.17    Assignment of Lease dated November 1, 1990 by and                       (*)
                  between Pacific Capital Bancorp and First National
                  Bank of Monterey-County for Carmel Office. 7/

         10.18    Lease dated November 12, 1990 by and between                            (*)
                  First National Bank of Monterey County and Carmel
                  Monterey Travel for Premises located at 601 Abrego
                  Street, Monterey, California. 7/

         10.19    Prunetree Shopping Center Lease dated June 28, 1988                     (*)
                  by and between Dennis R. Keith and Pajaro Valley Bancorporation. 7/

<FN>
-----------------------------------------------------------------------
6/       Filed as Exhibits 10.20 through 10.24,  respectively,  to the Company's
         Annual Report on Form 10-K (File No. 0-13528) for the fiscal year ended
         December 31, 1989, which are incorporated by reference.

7/       Filed as Exhibits 10.25 through 10.32 to the Company's Annual Report on
         Form 10-K (File No.  0-13528)  for the fiscal year ended  December  31,
         1990, which are incorporated by reference.
</FN>
</TABLE>
                                       70
<PAGE>
<TABLE>
<CAPTION>


Exhibit                                                                                 Sequentially
Number                                        Exhibit                                   Numbered Page
------                                        -------                                   -------------

         <S>      <C>                                                                     <C>
         10.20    Lease dated June 21, 1990 by and between Saucito                        (*)
                  Land Co. and First National Bank of Monterey County. 7/

         10.22    Amendment No. Four to Pacific Capital Bancorp                           (*)
                  Employee Stock Ownership Plan. 8/

         10.23    Amendment dated May 20, 1991 to Lease dated                             (*)
                  December 15, 1988 by and between the Bank and
                  James L. Gattis for 307 Main Street, Salinas Old Town Office. 8/

         10.24    Pacific Capital Bancorp Directors' Stock Option Plan                    (*)
                  and Form of Stock Option Agreement. 8/

         10.26    Pacific Capital Bancorp 1984 Stock Option Plan                          (*)
                  and Forms of Agreements as amended to date.  8/

         10.30    Business Recovery Services Agreement dated                              (*)
                  September 30, 1991 by and between Bank and J.D.B. & Associates, Inc. 8/

         10.31    Consolidated Agreement dated December 17, 1991                          (*)
                  by and between Bank and Unisys with Equipment Sale Agreement,
                  Software License Agreement and Product License Agreement by
                  and between Bank and information Technology, Inc. 8/

         10.32    Fidelity and Deposit Company of Maryland Directors and                  (*)
                  Officers Liability Insurance Policy including Bank Reimbursement. 8/

         10.33    Fidelity and Deposit Company of Maryland                                (*)
                  Financial Institution Bond.  8/

         10.34    Lease dated January 28, 1993 by and between J.W. and R.W.               (*)
                  McClellan, Partners, and First National Bank of Central California. 9/

         10.35    Exercise of Lease Option as of September 19, 1992 by and                (*)
                  between First National Bank of Central California and
                  James L. Gattis. 9/
<FN>

-----------------------------------------------------------------------
8/       Filed as Exhibits 10.23 through 10.34 to the Company's Annual Report on
         Form 10-K (File No.  0-13528)  for the fiscal year ended  December  31,
         1991, which are incorporated by reference.

9/       Filed as exhibits to the Company's Annual Report on Form 10-K (File No.
         0-13528)  for the  fiscal  year  ended  December  31,  1993,  which are
         incorporated by reference.

</FN>
</TABLE>
                                       71
<PAGE>
<TABLE>
<CAPTION>

Exhibit                                                                                 Sequentially
Number                                        Exhibit                                   Numbered Page
------                                        -------                                   -------------

         <S>      <C>                                                                     <C>
         10.37    Lease dated November 18, 1993 by and between Hazel Graven               (*)
                  and Vines Stewart and First National Bank of Central California. 10/

         10.38    Software License Agreement for Platform Transfer Module and Interface   (*)
                  dated September 15, 1993 by and between First National Bank of
                  Central California and Information Technology, Inc. 10/

         10.39    Equipment Sale Agreement dated December 16, 1993 by and                 (*)
                  between First National Bank of Central California and
                  Information Technology, Inc. 10/

         10.40    Asset/Liability Management Software Agreement dated                     (*)
                  December 31, 1993 by and between First National Bank of
                  Central California and Profitstar, Inc. 10/

         10.41    Applications dated December 28, 1993 by First National Bank             (*)
                  of Central California to become a member of the California Bankers
                  Clearing House Association. 10/

         10.42    Consolidated Agreement for the purchase of computer hardware            (*)
                  dated December 20, 1993 by and between First National Bank of
                  Central California and Unisys Corporation. 10/

         10.46    Amended Pacific Capital Bancorp 1994 Stock Option Plan and Form of      (*)
                  Incentive and Non-Qualified Stock Option Agreements. 9/

         10.47    Amendment No. Five to Pacific Capital Bancorp Employee                  (*)
                  Stock Ownership Plan and Trust. 10/

         10.48    Pacific Capital Bancorp 401(k) Profit Sharing Plan. 10/                 (*)

         10.49    Equipment Sale Agreement dated March 22, 1995, by and between           (*)
                  First National Bank of Central California and
                  Information Technology, Inc. 11/

         10.50    Equipment Sale Agreement dated February 2, 1996, by and between         (*)
                  First National Bank of Central California and
                  Information Technology, Inc. 11/

<FN>

-----------------------------------------------------------------------
9/       Filed as Exhibits to the Company's  Registration  Statement on Form S-8
         (File No.  33-83848) as filed on September 8, 1994, and Amendment No. 1
         to Form S-8 as filed on November 15, 1994.

10/      Filed as exhibits to the Company's Annual Report on Form 10-K (File No.
         0-13528)  for the  fiscal  year  ended  December  31,  1994,  which are
         incorporated by reference.

11/      Filed as exhibits to the Company's Annual Report on Form 10-K (File No.
         0-13528)  for the  fiscal  year  ended  December  31,  1995,  which are
         incorporated by reference.
</FN>
</TABLE>
                                       72
<PAGE>

<TABLE>
<CAPTION>
Exhibit                                                                                 Sequentially
Number                                        Exhibit                                   Numbered Page
------                                        -------                                   -------------

         <S>      <C>                                                                    <C>
         10.51    Standard Form of Agreement between Owner (Pacific Capital Bancorp)        (*)
                  and Contractor (Daniels & House Construction Co.) for the renovation
                  of existing building and construction of new addition for
                  First National Bank of Central California at 1001 S. Main Street,
                  Salinas, CA, 93901, dated June 15, 1995. 11/

         10.52    Employee Welfare Benefit Plan Agreement dated January 1, 1995,            (*)
                  between Pacific Capital Bancorp and
                  Great-West Life & Annuity Insurance Co. 11/

         10.53    Lease Agreement dated October 29, 1996 by and between James L.
                  Gattis and Pacific Capital Bancorp for property located at 517 S.
                  Main Street, Salinas

         10.54    Employment Agreement dated May 22, 1996 between First
                  National Bank of Central California and Clayton C. Larson

         10.55    Employment Agreement dated May 22, 1996 between First
                  National Bank of Central California and D. Vernon Horton

         10.56    Employment Agreement dated May 22, 1996 between First
                  National Bank of Central California and Dennis A. DeCius

         10.57    Employment Agreement dated November 20, 1996 between South
                  Valley National Bank and Brad L. Smith

         13.      Pacific Capital Bancorp 1996 Annual Report to Shareholders              ---
                  (parts  not   incorporated  by  reference  are  furnished  for
                  informational purposes only and are not filed only and are not
                  filed herewith).

         21.      Subsidiaries of the Company

         22.      Opinion of KPMG Peat Marwick, LLP

         24.      Consent of KPMG Peat Marwick LLP.

         27.      Financial Data Schedule

<FN>

-----------------------------------------------------------------------
11/      Filed as exhibits to the Company's Annual Report on Form 10-K (File No.
         0-13528)  for the  fiscal  year  ended  December  31,  1995,  which are
         incorporated by reference.
</FN>
</TABLE>

                                       73