SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 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 [FEE REQUIRED]
For the Fiscal Year Ended: December 31, 1995

                                       or

[   ]    TRANSACTION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
 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,  1996:  $53,050,518  Number  of  shares  of  Common  Stock
outstanding at March 1, 1996: 2,600,588

Documents Incorporated by Reference:

1995 Annual Report to Shareholders.         Part II, Items 5, 6, 7 and 8

Proxy Statement for 1996 Annual             Part III, Items 10, 11, 12 and 13
Meeting of Shareholders to be filed
pursuant to Regulation 14A.
         THIS REPORT INCLUDES A TOTAL OF       PAGES
                                         -----
         EXHIBIT INDEX IS ON PAGE      
                                  -----  


<PAGE>

<TABLE>

                                                         TABLE OF CONTENTS


<CAPTION>
         PAGE


<S>           <C>                                                                                                        <C>
ITEM 1        BUSINESS....................................................................................................4

ITEM 2        PROPERTIES.................................................................................................16

ITEM 3        LEGAL PROCEEDINGS..........................................................................................19

ITEM 4        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................................19

ITEM 5        MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.......................................20

ITEM 6        SELECTED FINANCIAL DATA....................................................................................20

ITEM 7        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
              AND RESULTS OF OPERATIONS..................................................................................20

ITEM 8        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................................20

ITEM 9        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
              ACCOUNTING AND FINANCIAL DISCLOSURE........................................................................20

ITEM 10       DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.........................................................21

ITEM 11       EXECUTIVE COMPENSATION.....................................................................................21

ITEM 12       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
              AND MANAGEMENT.............................................................................................21

ITEM 13       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................................................21

ITEM 14       EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K............................................22

</TABLE>

                                       1
<PAGE>






                                     PART I

ITEM 1   BUSINESS

GENERAL

         Pacific Capital  Bancorp (the Company) is a California  corporation and
bank holding company which was  incorporated on January 26, 1983. First National
Bank of Central California,  the Company's  wholly-owned banking subsidiary (the
Bank), commenced operations on April 2, 1984, under the name First National Bank
of Monterey County. The Bank is a full service commercial bank serving Monterey,
Salinas,  Carmel,  Watsonville,  Prunedale and surrounding areas in Monterey and
Santa Cruz Counties in California.

         The Company  itself does not engage in any  business  activities  other
than the  ownership  of the Bank and the  ownership  of one  other  wholly-owned
subsidiary,  Pacific Capital  Services  Corporation  (PCSC).  PCSC has no active
operations at this time. If specific  opportunities were to present  themselves,
the Company would consider  expanding the  operations of its banking  subsidiary
and  would  seek  opportunities  for  acquiring  or  forming  other  non-banking
subsidiaries.

GENERAL BANKING SERVICES

         The Bank  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 Bank also provides 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. The Bank is a member of
the Federal Deposit  Insurance  Corporation  (the FDIC) and the deposits of each
depositor  of  the  Bank  are  insured  up  to  $100,000.   Professional  firms,
individuals  and  businesses  form the core of the Bank's  customer  and deposit
base.

         The Bank maintains 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. In addition to a
broad range of retail  products and services,  the Bank offers  courier  pick-up
service,  nationwide ATM access available through the Star(R) system, Cirrus(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'S,  discount  brokerage services and business
credit cards.  Effective  January 1, 1994,  the Bank reduced its services at its
Prunedale branch,  eliminating the acceptance of deposits and cashing of checks,
and on October 15, 1994,  closed this branch  office and  converted it to an ATM
branch offering 24-hour ATM services and night depository facilities. The Bank's
loan administration department has been relocated to this location The Bank does
not offer trust services.


                                       2
<PAGE>


DEPOSITS

         Most  of  the  Bank's   deposits   are   obtained   from   individuals,
professionals  and small and medium-sized  businesses.  As of December 31, 1995,
the Bank had a total of  21,803  accounts  representing  11,248  demand  deposit
(checking) accounts with an average balance of approximately  $6,410 each; 7,473
savings,  interest-bearing  demand,  and money market  accounts  with an average
balance of  approximately  $20,458  each;  and 3,082 other time accounts with an
average balance of approximately $27,355 each.

LENDING ACTIVITIES

         The Bank engages 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 Bank  makes (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 Bank also
offers 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 Bank also works 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 Bank's customers, with an emphasis on automobile financing and real
estate  loans.  Real estate loans include home loans,  equity  advance loans and
construction loans.

         The Bank  concentrates  its lending  activities in the following areas:
real estate loans,  commercial  loans and consumer loans to  individuals.  As of
December 31, 1995, these three  categories  accounted for  approximately  67.7%,
23.6% and 5.7%,  respectively,  of the Bank's loan portfolio. As of December 31,
1995, the Bank had total loans outstanding of $211,344,000.  No material portion
of the 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 Bank vary
with the degree of risk and the 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 Bank follows 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.


                                       3
<PAGE>



CORRESPONDENT BANKS

         The Bank has correspondent  relationships with First Interstate Bank of
California,  Bank of  California,  N.A.,  Bank of  America,  N.T.& S.A.  and the
Federal Reserve Bank of San Francisco.  These  relationships are a result of the
Bank's efforts to obtain a wide range of services for the Bank 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
Bank  does  not  currently  serve,  nor  does  it  have  plans  to  serve,  as a
correspondent to other banks.

         The  correspondent  banks perform the following  services for the Bank:
arrange loan  participations;  purchase and sell federal funds; obtain lines for
letters of  credit;  buy and sell  investment  securities;  safekeep  the Bank's
investment  securities;  and perform stock transfer  agent,  and data processing
services.

EXISTING LOCATIONS

         The Bank 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.  Effective
January 1, 1994, the Bank reduced the services  offered at its Prunedale  branch
located in the Prunedale  Shopping Center,  Prunedale,  discontinuing  accepting
deposits or cashing  checks,  and on October 15, 1994, the Prunedale  branch was
closed and  converted to an ATM branch  offering  24-hour ATM services and night
depository  facilities.  The  Bank's  loan  administration  department  has been
relocated to this location.  In addition to a banking office, the Oldtown office
in Salinas  houses all of the Bank's  administrative  functions  as well as Data
Processing/Operations department and a Community/Board room.

         On January  25,  1995,  the Bank filed a branch  application  for a new
branch  office to be located at the  Westridge  Center in  Salinas,  California,
northwest of U.S. 101 and Laurel Drive.  On March 7, 1996, the Bank withdrew the
application.

         On March 7,  1996,  the Bank filed an  application  for  permission  to
establish  a Customer  Bank  Communication  Terminal  (CBCT)  branch at Monterey
Peninsula College.


EMPLOYEES

         As of December 31, 1995, the Company and its subsidiaries  employed 165
full-time equivalent employees.


                                       4
<PAGE>


OTHER INFORMATION CONCERNING THE COMPANY AND THE BANK

         The  Company  and  the  Bank  hold  no  material  patents,  trademarks,
licenses,  franchises  or  concessions  except  for the  licenses  issued by the
Comptroller of the Currency (the Comptroller) for the Bank's banking offices.

         No  material  expenditures  were made by the Company or the Bank during
their 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 the Bank.

PACIFIC CAPITAL SERVICES CORPORATION

         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 the Bank  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 Bank is set forth in  Management's  Discussion  and  Analysis of
Financial  Condition  and Results of  Operations  (Management's  Discussion  and
Analysis) on pages 44 through 60 of the Company's  Annual Report to Shareholders
for the fiscal year ended  December  31, 1995,  (the Annual  Report) and in Note
1-11 to the  Consolidated  Financial  Statements  on pages 30  through 43 of the
Annual  Report,  which  pages of the Annual  Report are  incorporated  herein by
reference.  This information should be read in 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, 1995,  1994 and 1993 is set
forth in Management's Discussion and Analysis on page 45 of the Annual Report.

         A table  setting  forth the  changes in  interest  income and  interest
expense in 1995 and 1994  resulting  from changes in volume and changes in rates
is set forth in  Management's  Discussion  and Analysis on page 46 of the Annual
Report.


                                       5
<PAGE>


INVESTMENT PORTFOLIO

         The  amortized  cost and  estimated  fair  values of each  category  of
investment  securities  at December 31,  1995,  and 1994 and the  maturities  of
investment securities at December 31, 1995, are set forth in Note 3 of the Notes
to Consolidated Financial Statements on pages 33 and 34 of the Annual Report.

         At December 31, 1995,  investment securities from the following issuers
each totaled over ten percent (10%) of shareholder's equity of the Company:

     Amortized                               Estimated
     Cost                                    Fair value
     Held-to-maturity securities:

     State and municipal                     $6,633,000         $6,692,000


     Available-for-sale securities:

     U.S. Treasury                           $57,328,000        $57,787,000
     U.S. Government Agencies                $14,000,000        $13,999,000


LOAN AND LEASE PORTFOLIO

         The  composition  of the loan and lease  portfolio  for the five  years
ended at December 31, 1995, is set forth in Management's Discussion and Analysis
on page 47of 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, 1995,  are  summarized in  Management's  Discussion and Analysis on
page 48 of the Annual Report.

         The  composition of  nonaccrual,  past due and  restructured  loans and
leases for the five years ended  December  31,  1995,  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 51 of the Annual Report.

SUMMARY OF LOAN LOSS EXPERIENCE

         An analysis of loan loss  experience  for the five years ended December
31,  1995,  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,  is set forth in  Management's  Discussion  and
Analysis on page 49 of the Annual Report.


                                       6
<PAGE>


DEPOSITS

         The  average  amount  of and the  average  rate  paid on major  deposit
categories for the years ended December 31, 1995,  1994 and 1993 is set forth in
Management's Discussion and Analysis on page 52 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,  1995,  is set forth in
Management's Discussion and Analysis on page 53 of the Annual Report.

FINANCIAL RATIOS

         Certain  ratios of  profitability,  liquidity and capital for the years
ended December 31, 1995, and 1994 are summarized in the Selected  Financial Data
on page 24 of the Annual Report and in  Management's  Discussion and Analysis on
page 56 of the Annual Report.


COMPETITION

         In California  and in the Bank's  primary  service  areas,  major banks
dominate the commercial banking industry. Among the advantages which these banks
have  over  the Bank 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 Bank and perform
certain functions, including trust services and international banking, which are
not  offered  directly  by the  Bank  but are  offered  indirectly  through  its
correspondent institutions.

         The  service  area of the  Monterey  and  Carmel  offices  of the  Bank
encompasses the greater  Monterey  Peninsula,  including the cities of Monterey,
Pacific  Grove,  Carmel,  Seaside,  Marina,  Sand  City,  Del Rey Oaks,  and the
unincorporated  communities  of Pebble Beach and Carmel  Valley.  As of June 30,
1995, there were twenty-seven (27) operating bank offices,  including the Bank's
Monterey and Carmel offices,  in the service area. There were also nineteen (19)
operating  savings and loan and credit  union  offices in the service area as of
June 30, 1995.

         The service area of the Salinas offices are comprised  primarily of the
City of  Salinas,  Prunedale  and the  unincorporated  areas of  North  Monterey
County.  There were  sixteen (16) bank  offices in these  areas,  including  the
Bank's  Salinas and Oldtown  offices,  as of June 30, 1995.  There were also ten
(10)  savings and loan and credit  union  offices in the service area as of June
30, 1995.

         The service area of the Bank's  Watsonville office includes the City of
Watsonville  and neighboring  areas.  As of June 30, 1995,  there were eight (8)
operating bank offices,  including the Bank's Watsonville office, in the service
area.  There were also four (4) savings and loan and credit union offices in the
service area as of June 30, 1995.


                                       7
<PAGE>


         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 Bank in the acquisition of deposits. 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 Bank in particular.


SUPERVISION AND REGULATION

THE EFFECT OF GOVERNMENTAL POLICY ON BANKING

         The  earnings  and growth of the Company and the Bank 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 Bank 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 being  affected by  enactment  of 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.  See  "Prompt  Corrective  Action  and  other  Enforcement
Mechanisms" herein.


                                       8
<PAGE>


         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.

         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  Bank  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.


                                       9
<PAGE>


BANK REGULATION AND SUPERVISION

         As a national  bank,  the Bank is regulated,  supervised  and regularly
examined  by the  office  of the  Comptroller  of the  Currency  (OCC).  Deposit
accounts  at the  Bank  are  insured  by  the  Bank  Insurance  Fund  (BIF),  as
administered by the Federal Deposit Insurance Corporation (FDIC), to the maximum
amount  permitted by law. The Bank is 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 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 regulators 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  regulators
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 by the  regulators  since a strong  capital
position  is a  significant  part of the  regulators'  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% or 5%. In
addition to these uniform risk-based capital guidelines and leverage ratios that
apply across the industry,  the regulators have the discretion to set individual
minimum capital  requirements for specific  institutions at rates  significantly
above the minimum guidelines and ratios.


                                       10
<PAGE>

<TABLE>

         The following tables present the capital ratios for the Company and the
Bank as of December 31, 1995.

<CAPTION>
                                                       THE COMPANY                                THE BANK
                                               ----------------------------              ---------------------------
                                                Amount                Ratio              Amount                Ratio
                                               -------               ------             -------                -----
                                               (000's)                                  (000's)
<S>                                            <C>                   <C>                <C>                   <C> 
Risk-Based Capital Ratio:

   Tier 1 Capital                              $42,976               17.60%             $40,532               16.78%
   Minimum Requirement                          $9,765                4.00%              $9,662                4.00%
      Excess                                   $33,211               13.60%             $30,870               12.78%
                                               =======               ======             =======               ======
   Total Capital                               $45,373               18.59%             $42,929               17.77%
   Minimum Requirement                         $19,529                8.00%             $19,325                8.00%
      Excess                                   $25,844               10.59%             $23,604                9.77%
                                               =======               ======             =======                =====
Risk-Adjusted Assets                          $244,114                                 $241,561

                                                       THE COMPANY                                THE BANK
                                               ----------------------------              ---------------------------
                                                Amount                Ratio               Amount               Ratio
                                               -------               ------              -------              ------
                                               (000's)                                   (000's)

Leverage Ratio:
   Tier 1 Capital                              $42,976               12.00%              $40,532              11.38%
      Minimum Requirement                      $14,330                4.00%              $14,247               4.00%
      Excess                                   $28,646                8.00%              $26,285               7.38%
                                               =======                =====              =======               =====
Average Quarterly Assets                      $358,232                                  $356,173

</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.


                                       11
<PAGE>


         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 shall 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.  Regulators  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 Bank has  paid a stock  dividend  every  year  since  1986 and cash
dividends were paid in 1993, 1994 and 1995.


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 $.04 to $.31 per $100 in insured deposits. In November
1995, the FDIC further reduced the range of insurance  assessment rates to $0 to
$.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%.


INTERSTATE BANKING AND BRANCHING

         On September 29, 1994, the Reigle/Neal Interstate Banking and Branching
Efficiency Act of 1994 (the Interstate Act) was signed into law. This Interstate
Act effectively permits nationwide banking. The Interstate Act provides that one
year after enactment, adequately capitalized and adequately managed bank holding
companies  may  acquire  banks in any state,  even in those  jurisdictions  that
currently  bar  acquisition  by  out-of-state  institutions,  subject to deposit
concentration  limits. The deposit  concentration limits provide that regulatory
approval  by the  Federal  Reserve  Board  may  not be  granted  for a  proposed
interstate acquisition if after the acquisition,  the acquiror on a consolidated
basis would  control  more than 10% of the total  deposits  nationwide  or would
control more than 30% of


                                       12
<PAGE>


deposits in the state where the acquiring  institution  is located.  The deposit
concentration state limit does not apply for initial acquisitions in a state and
in every  case,  may be  waived by the state  regulatory  authority.  Interstate
acquisitions  are subject to  compliance  with the  Community  Reinvestment  Act
(CRA).  States are permitted to impose age requirements not to exceed five years
on target banks for interstate  acquisitions.  States are not allowed to opt-out
of interstate banking.

         Branching between states may be accomplished either by merging separate
banks located in different  states into one legal entity,  or by establishing de
novo branches in another state.  Consolidation  of banks is not permitted  until
June 1, 1997, provided that the state has not passed legislation "opting-out" of
interstate  branching.  If a state  opts-out  prior to June 1, 1997,  then banks
located in that state may not  participate  in interstate  banking.  A state may
opt-in to interstate  branching by bank consolidation or by de novo branching by
passing appropriate  legislation earlier than June 1, 1997. Interstate branching
is also subject to a 30% statewide deposit concentration limit on a consolidated
basis, and a 10% nationwide  deposit  concentration  limit. The laws of the host
state  regarding  community  reinvestment,  fair  lending,  consumer  protection
(including  usury  limits)  and  establishment  of  branches  shall apply to the
interstate branches.

         De novo branching by an out-of-state  bank is not permitted  unless the
host state expressly permits de novo branching by banks from  out-of-state.  The
establishment  of an  initial  de novo  branch in a state is subject to the same
conditions  as apply to initial  acquisition  of a bank in the host state  other
than the deposit concentration limits.

         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.

         Effective one year after  enactment,  the  Interstate  Act permits bank
subsidiaries  of a  bank  holding  company  to  act  as  agents  for  affiliated
depository institutions in receiving deposits,  renewing time deposits,  closing
loans, servicing loans and receiving payments on loans and other obligations.  A
bank acting as agent for an  affiliate  shall not be  considered a branch of the
affiliate.  Any agency relationship between affiliates must be on terms that are
consistent  with safe and sound banking  practices.  The authority for an agency
relationship  for  receiving  deposits  includes  the taking of deposits  for an
existing  account but is not meant to include the opening or  origination of new
deposit accounts.  Subject to certain  conditions,  insured saving  associations
which were  affiliated with banks as of June 1, 1994, may act as agents for such
banks. An affiliate bank or savings  association may not conduct any activity as
an agent which such institution if prohibited from conducting as principal.

         If an  interstate  bank  decides to close a branch  located in a low-or
moderate-income  area,  it must comply with  additional  branch  closing  notice
requirements.  The appropriate  regulatory  agency is authorized to consult with
community  organizations  to explore options to maintain banking services in the
affected community where the branch is to be closed.

         To ensure that interstate  branching does not result in taking deposits
without  regard to a  community's  credit  needs,  the  regulatory  agencies are
directed to implement  regulations  prohibiting  interstate  branches from being
used  as  "deposit  production   offices."  The  regulations  to  implement  its


                                       13
<PAGE>


provisions are due by June 1, 1997. The regulations  must include a provision to
the  effect  that if loans  made by an  interstate  branch  are less than  fifty
percent of the average of all  depository  institutions  in the state,  then the
regulatory  must  review the loan  portfolio  of the  branch.  If the  regulator
determines that the branch is not meeting the credit needs of the community,  it
has the  authority to close the branch and to prohibit the bank from opening new
branches in the state.

ACCOUNTING PRONOUNCEMENTS

         In  October  1995,  the FASB  issued  Statement  of  Financial  Account
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation.  SFAS No. 123
establishes   financial  accounting  and  reporting  standards  for  stock-based
employee  compensation  plans.  Those plans  include all  arrangements  by which
employees receive shares of stock or other equity instruments of the employer or
the employer  incurs  liabilities  to employees in amounts based on the price of
the employer's  stock.  Examples are stock options,  restricted stock, and stock
appreciation  rights.  This  statement  defines  a fair  value  based  method of
accounting for an employee stock option or similar equity instrument. Under this
method,  compensation costs are measured at the grant date based on the value of
the award and are  recognized  over the  service  period,  which is the  vesting
period.  SFAS No. 123 encourages  (but does not require)  employers to adopt the
new method in place of the  provisions  of Accounting  Principles  Board Opinion
(APB) No. 25,  Accounting for Stock Issued to Employees.  This statement applies
to fiscal years  beginning  after  December 15, 1995. The Company has elected to
use current  practice under APB No. 25 and does not anticipate that the required
disclosures will have a material impact on the financial condition or results of
operations of the Company.

ITEM 2   PROPERTIES

SALINAS

         The Salinas  office of the Bank is located at 1001 South Main Street in
Salinas on premises owned by the Company.  The Bank leased the premises from the
Company  at the rate of $6,000  per month  pursuant  to the terms of a  ten-year
lease executed as of April 1, 1984. On April 1, 1994, the lease was renegotiated
for an  additional  10 years.  The amount of monthly rent payable  under the new
lease is subject to annual  negotiation  between the  Company and the Bank.  The
Bank's rental rate for 1995 is $6,000 per month. The Bank pays for all utilities
used at the premises.

         The current  Salinas  office consist of a building which contains 4,800
square feet and is located on a lot of approximately 26,700 square feet. Parking
spaces are available for thirty-five (35) automobiles. During July 1995, a major
renovation and construction project was started that will double the size of the
Salinas Office.  This project is expected to be completed  approximately  May 1,
1996, and cost approximately one million four hundred dollars ($1,400,000).  The
Bank had previously  purchased an adjacent 12,000 square foot parcel of property
located  at 14 and 16 E.  Romie  Lane at a total  cost of  $430,397  for  future
expansion plans.  This property will now become a part of the new Salinas Office
complex by  providing  parking  for 41  automobiles.  At the  completion  of the
project,  the Company will  negotiate  the Bank's  rental rate for the remaining
term of the lease.


                                       14
<PAGE>


         As of December 31, 1995, the Bank had invested  $415,205 for furniture,
fixtures, equipment and leasehold improvements for the Salinas Office.

         The Bank's  Administrative and Oldtown office is leased at market rates
from  Director  James L. Gattis  under a lease for 15,371  square feet of office
space in a  building  located  at 307 Main  Street,  Salinas,  California.  This
facility    houses   the   Bank's    Oldtown    Banking    Office,    its   Data
Processing/Operations  department,  and Community/Board  room. The initial lease
term, which commenced on May 1, 1989, is for five (5) years at an initial rental
rate of $10,600 per month for the first year of the rental  term.  For each year
after the first  year of the term,  the  rental  rate is  increased  to  reflect
increases   in  the   consumer   Price   Index   for  all   items  for  the  San
Francisco/Oakland  Metropolitan Area, using October,  1988 as the base month. on
September 19, 1992,  the Bank exercised an option to lease the 1,662 square feet
of space in the building which it did not already occupy.  The Bank, in addition
to this rental rate,  pays all taxes and  assessments  levied against the leased
premises  and pays for all  utilities  on the  leased  premises.  The lease also
provides the Bank with three successive  five-year  options to renew at a rental
rate to be  determined  based  on  increases  in the  Consumer  Price  Index  as
described  above.  The Bank has  exercised  its option to renew the lease for an
additional  five year period  commencing  on January 1, 1994.  The Bank's rental
rate for 1995 is $15,780 per month.

         The Bank has invested $442,236 in leasehold improvements and $2,227,700
in furniture, fixtures and equipment for the Information Services Department and
the Administrative and Oldtown offices as of December 1995.

         On  February  2,  1996,   the  Bank  entered  into  an  agreement  with
Information  Technology,  Inc.,  for the purpose of  purchasing  a new  computer
mainframe and mainframe software at a cost of $304,603.  The new computer system
is expected to be installed and operational by mid-April 1996.

         Pursuant to a lease  entered into on October 26, 1993,  the Bank leases
from Chairman Stanley R. Haynes, 4,340 square feet of warehouse space located at
632 E. Alisal Street,  Salinas, for a term of sixty months ending on October 31,
1998. The lease is cancelable by either party by giving twelve months notice.

CARMEL

         The Bank's  Carmel  office  opened for business on June 17,  1991.  The
Carmel  office  consists  of a 3,400  square foot  portion of the Carmel  Rancho
Shopping Center. The Carmel office is held under a lease with an initial term of
ten (10) years, commencing on November 1, 1990. The lease provides the Bank with
four (4)  five-year  options to extend the term for an  aggregate  lease term of
thirty (30) years.  The Bank's rental  obligation under the lease was $6,000 per
month for the first twelve (12) months and the lease  provides for adjustment in
subsequent  periods  (including  any renewal  period) to reflect  changes in the
Consumer Price Index for All Urban Consumers in the San Francisco-Oakland  Area.
Accordingly, the Bank's rental rate for 1995 was adjusted to $7,200 per month.

         The Bank had invested  $423,757 in leasehold  improvements and $257,997
in  furniture,  fixtures and  equipment for the Carmel office as of December 31,
1995.


                                       15
<PAGE>


WATSONVILLE

         The Bank's Watsonville office is located at 655 Main Street in downtown
Watsonville,  California  in a 3,600 square foot modular  building  located on a
45,000  square  foot  parcel of land  which was  purchased  in 1986 at a cost of
approximately  $400,000.  As of December  31,  1995,  the  Company has  invested
approximately  $680,146 in  furniture,  fixtures and  equipment,  $1,943,811  in
construction  costs and $79,010 in leasehold  improvements  for the  Watsonville
office.

MONTEREY

         The Bank's Monterey banking office is located at 495 Washington Street,
has  approximately  10,000  square  feet of space,  and is  situated on a 21,962
square foot parcel leased by the Bank.  The Bank's lease for the property has an
initial  term of fifteen  (15)  years,  commencing  on July 1,  1990.  The lease
provides  the Bank with an initial  option to extend the term for an  additional
ten (10) years and with a second  option to extend  the term for a period  which
will cause the  aggregate  lease term to extend to a total of  thirty-four  (34)
years and eleven  (11)  months  from June 28,  1989.  The lease  agreement  also
provides the Bank with a right of first  refusal to purchase the premises and to
lease or purchase an adjacent parcel containing approximately 8,500 square feet.
The Bank's rental  obligation  under the lease is $7,000 per month for the first
sixty (60) months and will be adjusted in subsequent periods (including upon the
exercise of any renewal  option) to reflect  changes in the Consumer Price Index
for All  Urban  Consumers  in the San  Francisco-Oakland-San  Jose  Area,  using
December,  1987 as the base month.  The Bank's rental rate for 1996 was adjusted
to $8,208 per month.

         The Bank had invested a total of $1,642,192 in  construction  costs for
the new building and an additional $437,376 in furniture, fixtures and equipment
as of December 31, 1995.

         In connection  with the relocation of its Monterey  office in 1991, the
Bank  entered  into an  agreement  to sublease  its  original  Monterey  banking
facility,  located at 601  Abrego  Street.  The  sublease  agreement,  which was
entered into as of November 12, 1990, and expires on December 31, 2003, provided
for initial  monthly rent of $4,971,  to be adjusted each January 1,  commencing
January 1, 1994,  to reflect  changes in the Consumer  Price Index for All Urban
Consumers  in  the  San  Francisco-Oakland  Metropolitan  Area  and  to  reflect
adjustments in the underlying lease.

         The Bank's  lease on this  property was renewed for an  additional  ten
(10) years  beginning on January 1, 1994,  and ending on December 31, 2003,  the
same date as the  sublease  discussed  above.  The initial  rental is $4,000 per
month,  to be adjusted each January l to reflect  changes in the Consumer  Price
Index for all Urban Consumers in the San  Francisco-Oakland  Metropolitan  Area.
Accordingly, the Bank's rental rate for 1995 was adjusted to $4,162 per month.

         The Company had invested  approximately  $416,718 in construction costs
in the 601 Abrego Street office as of December 31, 1995.


                                       16
<PAGE>


PRUNEDALE

         The Bank's Prunedale facility is located in a 2,847 square foot portion
of the Prunetree Shopping Center under a lease entered into as of June 28, 1988,
with an initial term of ten (10) years.  The rental  obligation  under the lease
commenced  on July 1, 1989,  at an  initial  monthly  rent of $2,847.  The lease
provides for annual  increases in rent during the initial term and the Company's
monthly  rental  obligation  from July 1, 1994, to June 30, 1995, is $4,578.  On
July 1, 1996, the monthly rental obligation will increase to $4,807.  The Bank's
Loan Department is located at this office.  The Bank offers 24-hour ATM services
and a night depository facility at this location.

         The lease  provides  the Company  with three (3)  five-year  options to
extend the term for an  aggregate  lease term of  twenty-five  (25)  years.  The
Company's  minimum  rental  obligation  under  any  renewal  period  will be the
prevailing  market value rent for equivalent space, as negotiated by the Company
and the lessor,  provided  that the minimum  rental  amount in any such  renewal
period will not be less than the rental  amount paid during the last year of the
original lease term or the last year of the previous option period.  The minimum
rental obligation  during any renewal period will then be increased  annually by
five percent (5%) over the rental amount for the preceding year.

         The lease also  provides the Company  with a right of first  refusal to
lease  premises  adjacent to the  Prunedale  office in the event those  adjacent
premises become available during the lease term, including renewal periods.

         The Company had invested  approximately  $154,649 in construction costs
and an additional $330,120 in furniture, fixtures and equipment in the Prunedale
office as of December 31, 1995.


ITEM 3   LEGAL PROCEEDINGS

         Neither  the  Company  nor the Bank 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 nor are
any such proceedings known to be contemplated by governmental authorities.


ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not applicable.


                                       17
<PAGE>


                                     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 61
of the Annual Report, which is incorporated herein by reference.

         As of  March 1,  1996,  there  were  1,602  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.


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 45
through 60 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 25 through 30 of the
Annual Report and the  "Independent  Auditors"  Report  thereon at Page 65 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.


                                       18
<PAGE>


                                    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  1996 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 that, for the fiscal year ended
December  31,  1995,  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.


                                       19
<PAGE>


                                     PART IV

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

(A)      1.  FINANCIAL STATEMENTS.

         The following  consolidated  financial  statements  of Pacific  Capital
Bancorp  and  Subsidiaries,  other  financial  information  and the  Independent
Auditors'  Report on  Consolidated  Financial  Statements  are contained  herein
following this Item 14.

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 1995  Annual  Report
incorporated  herein by reference,  the 1995 Annual Report is not deemed "filed"
as part of this report.

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  February  28,  1995,  was  filed  with the
Commission on March 21, 1995, reporting under Item 5 -- Other Events - The stock
repurchase  program  was  amended to  increase  the price per share at which the
Company will repurchase  shares from $18.00 per share to $22.00 per share of not
more  than  300,000  shares  of the  Company's  outstanding  common  stock at an
aggregate purchase price not to exceed $5,000,000.

         A report  on Form  8-K  dated  August  22,  1995,  was  filed  with the
Commission  on August 22,  1995,  reporting  under Item 5 -- Other  Events - The
stock  repurchase  program was amended to increase  the price per share at which
the Company will repurchase  shares from $22.00 per share to $24.00 per share of
not more than 300,000  shares of the  Company's  outstanding  common stock at an
aggregate purchase price not to exceed $5,000,000.

         For  the  purposes  of  complying  with  the  amendments  to the  rules
governing Form S-8  (effective  July 13, 1990) under the Securities Act of 1933,
the undersigned registrant hereby undertakes as follows, which undertaking shall
be incorporated by reference into  registrant's  Registration  Statement on Form
S-8 No. 2-98004:


                                       20
<PAGE>


         Insofar as indemnification for liabilities arising under the Securities
Act Of 1933 (the Act) may be permitted to  directors,  officers and  controlling
persons of the registrant  pursuant to the foregoing  provisions,  or otherwise,
the  registrant  has been  advised  that in the  opinion of the  Securities  and
Exchange  Commission such  indemnification is against public policy as expressed
in the Act and is,  therefore,  unenforceable.  In the  event  that a claim  for
indemnification  against  such  liabilities  (other  than  the  payment  by  the
registrant of expenses  incurred or paid by a director,  officer or  controlling
person of the  registrant  in the  successful  defense  of any  action,  suit or
proceeding  is  asserted  by such  director,  officer or  controlling  person in
connection with the securities being  registered the registrant will,  unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit  to a  court  of  appropriate  jurisdiction  the  question  whether  such
indemnification  by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.


                                       21
<PAGE>


                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES

                        Consolidated Financial Statements

                        December 31, 1995, 1994, and 1993

                   (With Independent Auditors' Report Thereon)






                                       1
<PAGE>

<TABLE>
                                            SELECTED FINANCIAL INFORMATION AND
                                                COMPARATIVE PER SHARE DATA
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)               1995        1994        1993         1992        1991
---------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>         <C>         <C>          <C>         <C>
RESULTS OF OPERATIONS:
Interest Income                                             $25,845     $22,156     $20,257      $21,429     $24,643
Interest Expense                                              7,029       5,185       5,175        7,131      10,875
------------------------------------------------------------------ --------------------------------------------------
Net Interest Income                                          18,816      16,971      15,082       14,298      13,768
Provision for Possible Loan Losses                              135         100         890          925         441
---------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision
   for Possible Loan Losses                                  18,681      16,871      14,192       13,373      13,327
Other Income                                                  1,948       2,105       2,245        2,336       2,168
Other Expense                                                12,342      11,968      11,691       11,251      10,908
Net Gain (Loss) on Securities Transactions                     (73)        (17)         120            3           5
---------------------------------------------------------------------------------------------------- ----------------
Earnings Before Income taxes                                  8,214       6,991       4,866        4,461       4,592
Income Taxes                                                  3,180       2,652       1,727        1,540       1,633
----------------------------------------------------------------------------- ---------------------- ----------------
Income From Continuing Operations                             5,034       4,339       3,139        2,921       2,959
Cumulative Effect of Accounting Change                            -           -         549            -           -
---------------------------------------------------------------------------------------------------------------------
Net Income                                                   $5,034      $4,339      $3,688       $2,921      $2,959
---------------------------------------------------------------------------------------------------------------------

PER SHARE DATA
Income From Continuing Operations (1)                      $1.86        $1.65        $1.18        $1.10        $1.11
Net Income (1)                                              1.86         1.65         1.39         1.10         1.11
Cash Dividends Declared                                      .53          .40          .30            -            -
Book Value                                                 16.50        15.65        15.23        14.80        14.20

BALANCES AT YEAR END
Total Assets                                             353,579      343,879      308,767      307,737      291,240
Total Loans                                              211,344      200,780      180,592      183,744      196,743
Allowance for Possible Loan Losses                         2,397        2,438        2,507        2,352        2,148
Total Deposits                                           307,819      303,229      271,773      272,940      259,991
Total Shareholders' Equity                                42,976       38,750       35,432       32,787       29,751

AVERAGE DAILY BALANCES
Total Assets                                             339,351      324,919      311,867      297,747      277,957
Total Loans                                              201,360      190,721      177,988      191,099      198,495
Allowance for Possible Loan Losses                         2,359        2,475        2,343        2,202        2,248
Total Deposits                                           295,560      287,293      277,246      264,799      247,199
Total Shareholders' Equity                                41,280       37,216       34,131       31,401       28,658

PERFORMANCE AND CAPITAL RATIOS
Return on Average Assets                                    1.48%        1.34%        1.18%        0.98%        1.06%
Return on Average Equity                                   12.19%       11.66%       10.81%        9.30%       10.33%
Average Equity to Average Assets                           12.16%       11.46%       10.94%       10.55%       10.31%
---------------------------------------------------------------------------------------------------------------------
<FN>
(1)      Weighted average shares outstanding and all share and per share amounts
         have given effect to all stock dividends and stock splits.
</FN>
</TABLE>
                                       2

<PAGE>

<TABLE>

                            Pacific Capital Bancorp
                                and Subsidiaries

<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)                1990        1989        1988         1987        1986
----------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>         <C>         <C>          <C>         <C>

RESULTS OF OPERATIONS:
Interest Income                                              $26,882     $25,116     $21,013      $16,662     $13,020
Interest Expense                                              12,698      11,916       9,543        7,573       6,351
----------------------------------------------------------------------------------------------------------------------
Net Interest Income                                           14,184      13,200      11,470        9,089       6,669
Provision for Possible Loan Losses                               225         379         554          650         650
----------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision
   for Possible Loan Losses                                   13,959      12,821      10,916        8,439       6,019
Other Income                                                   2,257       2,208       1,094          873         703
Other Expense                                                 11,530       9,776       7,433        6,651       5,361
Net Gain (Loss) on Securities Transactions                       (7)          43          44           41          27
------------------------------------------------------------------------------------------------------ ---------------
Earnings Before Income taxes                                   4,679       5,296       4,621        2,702       1,388
Income Taxes                                                   1,738       1,959       1,559          986         402
----------------------------------------------------------------------------------------------------------------------
Income From Continuing Operations
Cumulative Effect of Accounting Change                         2,941       3,337       3,062        1,716         986
----------------------------------------------------------------------------------------------------------------------
Net Income                                                    $2,941      $3,337      $3,062       $1,716        $986
----------------------------------------------------------------------------------------------------------------------

PER SHARE DATA
Income From Continuing Operations (1)                          $1.07        $1.64        $1.53       $1.01        $.75
Net Income (1)                                                  1.07         1.64         1.53        1.01         .75
Cash Dividends Declared                                            -            -            -           -           -
Book Value                                                     13.97        13.19        10.71       10.00        8.55

BALANCES AT YEAR END
Total Assets                                                 273,865      262,208      239,034     212,207     179,906
Total Loans                                                  195,461      185,689      157,160     137,575     103,117
Allowance for Possible Loan Losses                             2,193        1,853        1,790       1,391       1,145
Total Deposits                                               243,960      234,672      204,011     188,337     136,885
Total Shareholders' Equity                                    28,301       24,781       20,021      18,248      11,256

AVERAGE DAILY BALANCES
Total Assets                                                 269,592      242,871      223,884     187,851     141,739
Total Loans                                                  196,562      169,513      143,111     113,916      85,380
Allowance for Possible Loan Losses                             2,042        1,840        1,626       1,310       1,071
Total Deposits                                               241,079      216,627      200,690     170,256     129,107
Total Shareholders' Equity                                    26,454       23,207       19,607      14,909      11,243

PERFORMANCE AND CAPITAL RATIOS
Return on Average Assets                                        1.09%        1.37%        1.37%        .91%        .70%
Return on Average Equity                                       11.12%       14.38%       15.62%      11.51%       8.77%
Average Equity to Average Assets                                9.81%        9.56%        8.76%       7.94%       7.93%
-----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                        3

<PAGE>

<TABLE>

                             Pacific Capital Bancorp
                                and Subsidiaries
                          
                          CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31, 1995 and 1994
-------------------------------------------------------------------------------------------------------------------
(In thousands, except share amounts)                                                     1995                 1994
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>                  <C>
ASSETS
Cash and due from banks                                                               $24,891              $25,977
Federal funds sold                                                                     10,326               15,961
Money market funds                                                                      6,681                  324
-------------------------------------------------------------------------------------------------------------------
      Cash and cash equivalents                                                        41,898               42,262

Investment securities:
    Held-to-maturity securities, at amortized cost
       (fair value of $8,662 and $62,367, respectively)                                 8,596               64,131
    Available-for-sale securities, at fair value                                       75,896               22,258
-------------------------------------------------------------------------------------------------------------------
     Total investment securities                                                       84,492               86,389

Loans available for sale                                                                3,876                2,301

Loans                                                                                 211,344              200,780
Less allowance for possible loan losses                                                 2,397                2,438
-------------------------------------------------------------------------------------------------------------------
     Net loans                                                                        208,947              198,342

Premises and equipment, net                                                             7,523                7,238
Accrued interest receivable and other assets                                            6,843                7,347
-------------------------------------------------------------------------------------------------------------------
     Total assets                                                                    $353,579             $343,879
===================================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:
  Demand, non-interest bearing                                                        $71,988              $70,638
  Demand, interest bearing                                                             56,527               53,410
  Savings and money market                                                             97,087              122,816
  Time certificates                                                                    82,217               56,365
-------------------------------------------------------------------------------------------------------------------
     Total deposits                                                                   307,819              303,229

Accrued interest payable and other liabilities                                          2,784                1,900
-------------------------------------------------------------------------------------------------------------------
     Total liabilities                                                                310,603              305,129
-------------------------------------------------------------------------------------------------------------------

Shareholders'  equity:
  Preferred stock; no par value, 20,000,000 shares authorized and unissued                  -                    -
  Common stock; no par value, 20,000,000 shares authorized: 2,603,839
    and 2,476,517 shares issued and outstanding, respectively                          31,235               28,056
  Retained earnings                                                                    11,435               10,850
  Net unrealized gain (loss) on available-for-sale securities                             306                 (156)
-------------------------------------------------------------------------------------------------------------------
     Total shareholders' equity                                                        42,976               38,750

Commitments and contingencies                                                               -                    -
-------------------------------------------------------------------------------------------------------------------
     Total liabilities and shareholders' equity                                      $353,579             $343,879
===================================================================================================================
<FN>

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

                                       4

<PAGE>

<TABLE>

                             Pacific Capital Bancorp
                                and Subsidiaries

                        CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Years ended December 31, 1995, 1994, and 1993
---------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)                                        1995        1994          1993
---------------------------------------------------------------------------------------------------------------

<S>                                                                          <C>         <C>           <C>
Interest income:
  Interest and fees on loans                                                 $20,461     $17,329       $15,557
  Interest on federal funds sold and other short-term investments              1,230         770           638
  Interest on investment securities:
     U.S. Treasury                                                             3,205       3,139         2,726
     U.S. government agencies                                                    282         247           524
     State and municipal                                                         588         596           656
  Other interest income                                                           79          75           156
---------------------------------------------------------------------------------------------------------------
      Total interest income                                                   25,845      22,156        20,257
---------------------------------------------------------------------------------------------------------------
Interest expense:
  Demand, interest bearing                                                       566         551           607
  Savings and money market                                                     2,747       2,837         2,944
  Time certificates                                                            3,716       1,795         1,599
  Other interest expense                                                           -           2            25
---------------------------------------------------------------------------------------------------------------
     Total interest expense                                                    7,029       5,185         5,175
---------------------------------------------------------------------------------------------------------------
     Net interest income                                                      18,816      16,971        15,082
Provision for possible loan losses                                               135         100           890
---------------------------------------------------------------------------------------------------------------
      Net interest income after provision for possible loan losses            18,681      16,871        14,192
---------------------------------------------------------------------------------------------------------------
Other income:
  Service charges                                                              1,805       1,838         1,733
  Mortgage banking fees                                                          123         153           302
  Gain on sale of loans                                                           20         114           210
  Gains on securities transactions                                                70          79           173
  Losses on securities transactions                                            (143)        (96)          (53)
---------------------------------------------------------------------------------------------------------------
      Total other income                                                       1,875       2,088         2,365
---------------------------------------------------------------------------------------------------------------
Other expenses:
  Salaries and benefits                                                        6,638       6,027         5,801
  Occupancy                                                                    1,399       1,271         1,309
  Equipment                                                                    1,035       1,038         1,035
  Advertising and promotion                                                      476         480           317
  Stationery and supplies                                                        310         272           267
  Legal and professional fees                                                    572         653           616
  Regulatory assessments                                                         423         736           722
  Other                                                                        1,489       1,491         1,624
---------------------------------------------------------------------------------------------------------------
    Total other expenses                                                      12,342      11,968        11,691
---------------------------------------------------------------------------------------------------------------
      Income before income taxes and cumulative effect of
          accounting change                                                    8,214       6,991         4,866
Income taxes                                                                   3,180       2,652         1,727
---------------------------------------------------------------------------------------------------------------
      Income before cumulative effect of accounting change                     5,034       4,339         3,139
---------------------------------------------------------------------------------------------------------------
Cumulative effect of change in accounting for income taxes                         -           -           549
---------------------------------------------------------------------------------------------------------------
 Net income                                                                   $5,034      $4,339        $3,688
===============================================================================================================
Earnings per share:
     Income before cumulative effect of accounting change                      $1.86       $1.65         $1.18
     Cumulative effect of accounting change                                        -           -          0.21
---------------------------------------------------------------------------------------------------------------
      Net income                                                               $1.86       $1.65         $1.39
===============================================================================================================

<FN>
See accompanying notes to consolidated financial statements

</FN>
</TABLE>
                                       5

<PAGE>
<TABLE>

                             Pacific Capital Bancorp
                                and Subsidiaries

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1995, 1994, and 1993
---------------------------------------------------------------------------------------------------------------------------

                                                                                        Net unrealized
                                                                                        gain (loss) on            Total
                                       Common stock             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, 1992               2,215,038   $24,726     $8,356       ($295)                -          $32,787
Net income for the year ended                                                          
   December 31, 1993                              -         -      3,688           -                 -            3,688
Purchase and retirement of shares           (77,484)   (1,172)         -           -                 -           (1,172)
Exercise of stock options                                                              
   (net of 5,452 shares retired in                                                     
   connection with cashless exercises)       78,460       526          -           -                 -              526
5% stock dividend, including                                                           
   payment of fractional shares             111,153     1,722    (1,735)           -                 -              (13)
Cash dividend declared                            -         -      (671)           -                 -             (671)
Repayment of ESOP note                            -         -         -           83                 -               83
Recognition of net unrealized gain                                                     
   on available-for-sale securities               -         -         -            -               204              204
------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1993               2,327,167    25,802      9,638        (212)              204           35,432
Net income for the year ended                                                          
   December 31, 1994                              -         -      4,339           -                 -            4,339
Purchase and retirement of shares          (42,772)     (717)          -           -                 -             (717)
Exercise of stock options                                                              
   (net of 5,284 shares retired in                                                     
   connection with cashless exercises)      75,071       806           -           -                 -              806
5% stock dividend, including                                                           
   payment of fractional shares             117,051     2,165    (2,181)           -                 -              (16)
Cash dividends declared                           -         -      (946)           -                 -             (946)
Repayment of ESOP note                            -         -         -          212                 -              212
Recognition of net unrealized loss                                                     
   on available-for-sale securities               -         -         -            -              (360)            (360)
------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1994               2,476,517    28,056     10,850           -              (156)          38,750
Net income for the year ended                                                          
   December 31, 1995                              -         -      5,034           -                 -            5,034
Purchase and retirement of shares            (5,606)     (111)         -           -                 -             (111)
Exercise of stock options                     9,590       158          -           -                 -              158
5% stock dividend, including                                                           
   payment of fractional shares             123,338     3,132    (3,147)           -                 -              (15)
Cash dividends declared                           -         -    (1,302)           -                 -           (1,302)
Recognition of net unrealized                                                          
  gain on available-for-sale securities           -         -         -            -               462              462
------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1995               2,603,839   $31,235    $11,435         $ -              $306          $42,976
========================================================================================================================
<FN>
See accompanying notes to consolidated financial statements                          
</FN>
</TABLE>

                                       6

<PAGE>

<TABLE>

                            Pacific Capital Bancorp
                                and Subsidiaries
                    
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>

Years ended December 31, 1995, 1994, and 1993
--------------------------------------------------------------------------------------------------------------
(In thousands)                                                                1995          1994         1993
--------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>           <C>          <C>
Cash flows from operating activities:
  Net income                                                                $5,034        $4,339       $3,688
  Adjustments to reconcile net income to net cash
   provided by operating activities:
    Cumulative effect of change in accounting method                             -             -        (549)
    Depreciation and amortization                                              886           869          971
    Accretion and amortization on investment securities                       (459)          721          469
    Provision for possible loan losses                                         135           100          890
    Loss (gain) on sale of investment securities, net                           73            17         (120)
    Net originations of loans available for sale                            (1,575)       (2,759)      (5,001)
    Proceeds from sale of loans                                                  -         3,412        2,955
    Gain on sale of loans                                                      (20)         (114)        (210)
    Deferral of loan origination fees                                            8           (41)         138
    Change in accrued interest receivable and other assets                     966        (1,578)        (332)
    Change in accrued interest payable and other liabilities                   906           338         (523)
--------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                    5,954         5,304        2,376
--------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
  Net change in loans                                                      (10,750)      (20,316)       2,069
  Maturities of investment securities                                       22,368        21,062       22,488
  Purchases of investment securities                                       (62,174)      (32,373)     (74,493)
  Proceeds from sale of available-for-sale securities                       42,089        13,494       30,630
  Capital expenditures, net                                                 (1,171)         (789)        (396)
--------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                       (9,638)      (18,922)     (19,702)
--------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
  Net increase (decrease) in deposits                                        4,590        31,456       (1,167)
  Cash paid for retirement of stock                                           (111)         (717)      (1,172)
  Proceeds from exercise of stock options                                      158           806          526
  Cash paid in lieu of fractional shares                                       (15)          (16)         (13)
  Cash paid for dividends                                                   (1,302)         (946)        (671)
--------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                          3,320        30,583       (2,497)
--------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                          (364)       16,965      (19,823)
Cash and cash equivalents at beginning of year                              42,262        25,297       45,120
--------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                   $41,898       $42,262      $25,297
==============================================================================================================
Supplemental disclosures of cash flow information:
   Cash paid during the period:
     Interest                                                               $7,888        $5,289       $5,456
     Income taxes                                                            3,410         2,578        1,952
     Release of guarantee of ESOP note                                           -           212           83
==============================================================================================================
Noncash investing and financing activities:
    Transfer from retained earnings to common stock due to
      stock dividends                                                       $3,132        $2,165       $1,722
    Transfer of securities from held-to-maturity
      to available-for-sale                                                 30,234             -            -
    Transfer from loans to other real estate owned                             366         1,308          380
==============================================================================================================

<FN>
See accompanying notes to consolidated financial statements

</FN>
</TABLE>
                                       7

<PAGE>

                            Pacific Capital Bancorp
                                and Subsidiaries

                              NOTES TO CONSOLIDATED
                              FINANCIAL STATEMENTS

                        December 31, 1995, 1994, and 1993


(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  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.

         Pacific  Capital  Bancorp is a California  corporation and bank holding
         company which was incorporated on January 26, 1983. First National Bank
         of  Central   California  (the  Bank),   the  Company's   wholly  owned
         subsidiary,  commenced operations on April 2, 1984 under the name First
         National Bank of Monterey County. The Bank is a full service commercial
         bank serving  Monterey,  Salinas,  Carmel,  Watsonville,  Prunedale and
         surrounding areas in Monterey and Santa Cruz Counties in California.

         Consolidation  - The  accompanying  consolidated  financial  statements
         include the accounts of the Company and its wholly owned  subsidiaries,
         First National Bank of Central California, and Pacific Capital Services
         Corporation  (an  inactive  corporation).   All  material  intercompany
         accounts and transactions have been eliminated in consolidation.

         Investment  Securities  - The Company  adopted  Statement  of Financial
         Accounting Standards (SFAS) No. 115, Accounting for Certain Investments
         in Debt and Equity  Securities,  as of December 31, 1993.  SFAS No. 115
         requires entities to classify investments in debt and equity securities
         with   readily   determinable   fair   values  as   "held-to-maturity",
         "available-for-sale",  or "trading",  and  establishes  accounting  and
         reporting requirements for each classification. In accordance with SFAS
         No. 115, the Company has classified  those  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.

         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  prior to  December  31,  1995 and  transferred  $30,234,000  of
         held-to-maturity  securities  into  available-for-sale.  The unrealized
         pretax gain upon transfer was $38,000 at December 31, 1995.

                                       8
<PAGE>

                            Pacific Capital Bancorp
                                and Subsidiaries

         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.

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

         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.

         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.

         In May 1993, the FASB issued SFAS No. 114,  Accounting by Creditors for
         Impairment of a Loan. This statement addresses the accounting treatment
         of certain impaired loans. Management considers a loan impaired when it
         is  contractually  past due  over 90 days  and  when the fair  value of
         assets  collateralizing  the loan (for collateral  dependent loans) has
         suffered significant deterioration. SFAS No. 114 requires that impaired
         loans  generally  be measured  based on the  present  value of expected
         future cash flows discounted at the loans' effective rate or the loans'
         observable  market  price or the  fair  value  of it's  collateral.  In
         October 1995,  the FASB issued SFAS No. 118,  "Accounting  by Creditors
         for Impairment of a Loan - Income  Recognition and  Disclosures".  SFAS
         No. 118 amends SFAS No. 114 to allow a creditor to use existing methods
         for  recognizing  interest  income on an impaired  loan.  Both of these
         Statements  apply to financial  statements  for fiscal years  beginning
         after  December 15, 1994. The Company has adopted both SFAS No. 114 and
         SFAS No.  118 and there has been no  material  impact on its  financial
         condition or results of operation.

         Loans  Available  for  Sale  -  The  Bank  originates  loans  that  are
         guaranteed in part by the Small Business Administration. The guaranteed
         portion of such loans may be sold  without  recourse.  The Bank retains
         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 basis over the remaining life
         of the loan.

         Mortgage  Banking  Fees - The  Mortgage  Banking  Division  of the Bank
         operates solely as a brokerage operation.  The Bank does not originate,
         purchase,  or sell  loans in this area and thus  retains  no  servicing
         risk.  The fee income  derived  from  mortgage  banking  operations  is
         recognized when earned.

                                       9
<PAGE>

                            Pacific Capital Bancorp
                                and Subsidiaries

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

         Income  Taxes - Income  taxes  are  provided  for  under  the asset and
         liability method of SFAS No. 109, Accounting for 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.  Under
         SFAS No. 109,  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.

         Effective  January 1, 1993,  the Company  adopted  SFAS No. 109 and has
         reported the  cumulative  effect of that change in method of accounting
         for income taxes in the 1993 consolidated statement of income.

         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 plus shares issuable  assuming exercise of
         all employee stock  options,  except where  antidilutive.  The weighted
         average shares outstanding were 2,700,850,  2,627,561, and 2,650,127 in
         1995, 1994, and 1993, 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 - During 1995, the Company  declared a quarterly  $0.125 cash
         dividend  payable on March 31, June 30, and September 30, to holders of
         record on March 15, June 15, and September 15. In addition, the Company
         declared a $0.15 cash dividend  payable on December 15, 1995 to holders
         of record on November  15, 1995.  The Company also  declared a 5% stock
         dividend  payable  on  December  1,  1995 to  holders  of  record as of
         November 15, 1995.

         Reclassifications  - Certain amounts in the 1994 and 1993  consolidated
         financial  statements  have been  reclassified  to  conform to the 1995
         presentation.

(2)      Cash and Due from Banks

         Cash  and  due  from  banks  includes   approximately   $4,528,000  and
         $2,805,000 as of December 31, 1995 and 1994, respectively,  held by the
         Federal  Reserve  Bank  of  San  Francisco  to  meet  required  reserve
         balances.

                                       10
<PAGE>

                            Pacific Capital Bancorp
                                and Subsidiaries
<TABLE>

(3)      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
---------------------------------------------------------------------------------------------------------------------
1995
---------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                    <C>             <C>           <C>
Held-to-maturity securities:
   State and municipal                                   $6,633                 $72             $(13)         $6,692
   Mortgage-backed securities
      and other                                           1,963                   7                 -          1,970
-------------------------------------------------------------------------------------------------- ------------------
                                                         $8,596                 $79             $(13)         $8,662
=====================================================================================================================
Available-for-sale securities:
   U.S. Treasury                                        $57,328                $536             $(77)        $57,787
   State and municipal                                    4,074                  45               (9)          4,110
   U.S. government agencies                              14,000                   9              (10)         13,999
-------------------------------------------------------------------------------- ------------------------------------
                                                        $75,402                $590             $(96)        $75,896
=====================================================================================================================
1994
---------------------------------------------------------------------------------------------------------------------
Held-to-maturity securities:
   U.S. Treasury                                        $51,234                  $2          $(1,701)        $49,535
   State and municipal                                   12,043                  68             (134)         11,977
   Mortgage-backed securities
      and other                                             854                   2               (1)            855
--------------------------------------------------------------------------------- -----------------------------------
                                                        $64,131                 $72          $(1,836)        $62,367
=====================================================================================================================
Available-for-sale securities:
   U.S. Treasury                                        $19,846                  $-            $(295)        $19,551
   U.S. government agencies                               2,671                  38               (2)          2,707
---------------------------------------------------------------------------------------------------------------------
                                                        $22,517                 $38            $(297)        $22,258
=====================================================================================================================
</TABLE>

<TABLE>

         The amortized cost and estimated  fair values of investment  securities
         as of December  31, 1995,  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.



<CAPTION>

                                                     Held-to-maturity                    Available-for-sale
                                                        securities                           securities
                                              -----------------------------------------------------------------------
                                                                Estimated                           Estimated
                                              Amortized         fair              Amortized         fair
(In thousands)                                cost              value             cost              value
---------------------------------------------------------------------------------------------------------------------
<S>                                           <C>               <C>               <C>               <C>   
Due within one year                           $5,282            $5,317            $3,000            $3,020
Due after one through five years              1,527             1,562             72,402            72,876
Due after five through ten years              1,247             1,243             -                 -
Due after ten years                           -                 -                 -                 -
---------------------------------------------------------------------------------------------------------------------
                                              8,056             8,122             75,402            75,896
Federal Reserve Bank stock                    540               540               -                 -
------------------------------------------------------------- -------------------------------------------------------
                                              $8,596            $8,662            $75,402           $75,896
=====================================================================================================================
</TABLE>


         As of December 31, 1995 and 1994,  securities  with carrying  values of
         approximately $23,621,000 and $31,084,000,  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.

                                       11
<PAGE>

                             Pacific Capital Bancorp
                                and Subsidiaries

         Investments  classified  as  state  and  municipal  securities  include
         obligations  issued  by the  state  of  California  and  its  political
         subdivisions  and  agencies  having  an  aggregate  carrying  value  of
         $4,607,000  and an aggregate  market value of $4,648,000 as of December
         31, 1995.

         The  Company  uses  Standard & Poor's and  Moody's  rating  services to
         evaluate the quality of its investment portfolio. Of the $10,743,000 in
         state and municipal  securities held by the Company,  $10,177,000  were
         rated  AAA,   $425,000   were  rated  A,  and  $141,000  were  nonrated
         securities. For those bonds not rated, the market values were confirmed
         with independent brokers. All mortgage backed securities are rated AAA.

 (4)     Loans

<TABLE>
         A summary of loans as of December 31 is as follows:

<CAPTION>
----------------------------------------------------------------------------------------- ---------------------------
 (In thousands)                                                                       1995                      1994
---------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                       <C>    
Commercial                                                                         $49,862                   $43,783
Consumer                                                                            12,108                    11,328
Real estate - mortgage                                                             126,048                   116,630
Real estate - construction                                                          17,071                    22,539
Bankers' acceptances and commercial paper                                                -                       709
Other                                                                                6,501                     6,090
---------------------------------------------------------------------------------------------------------------------
                                                                                   211,590                   201,079
Less deferred loan fees                                                                246                       299
---------------------------------------------------------------------------------------------------------------------
                                                                                  $211,344                  $200,780
=====================================================================================================================
</TABLE>

<TABLE>

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

<CAPTION>
---------------------------------------------------------------------------------------------------------------------
(In thousands)                                                        1995                 1994                 1993
---------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                  <C>                  <C>   
Balance, beginning of year                                          $2,438               $2,507               $2,352
Provision charged to expense                                           135                  100                  890
Loans charged off                                                     (321)                (304)                (884)
Recoveries on loans previously
   charged off                                                         145                  135                  149
---------------------------------------------------------------------------------------------------------------------
Balance, end of year                                                $2,397               $2,438               $2,507
=====================================================================================================================
</TABLE>

         Loans for which interest is no longer being accrued  totaled  $993,000,
         $2,023,000,  and  $2,286,000 as of December 31, 1995,  1994,  and 1993,
         respectively.  Interest  that would have been  recognized on nonaccrual
         loans was $256,000, $241,000, and $414,000 during 1995, 1994, and 1993,
         respectively.

                                       12
<PAGE>

                             Pacific Capital Bancorp
                                and Subsidiaries

<TABLE>
         The Company  makes loans to executive  officers,  directors,  and their
         affiliates  in the  ordinary  course of business.  The  following is an
         analysis  of  activity  with  respect to such loans for the years ended
         December 31, 1995, and 1994:

<CAPTION>
---------------------------------------------------------------------------------------------------------------------
(In thousands)                                                                        1995                      1994
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                      <C>   
Balance, beginning of year                                                           $4,838                   $4,581
New loan commitments                                                                  4,203                    5,690
Repayment of loans                                                                   (2,251)                  (2,217)
Undisbursed commitments, end of year                                                 (2,557)                  (3,216)
---------------------------------------------------------------------------------------------------------------------
Balance, end of year                                                                 $4,233                   $4,838
=====================================================================================================================
</TABLE>

         The  Company  and  its  subsidiaries  operate  in a  geographic  region
         comprising Monterey 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

<TABLE>
(5)      Premises and Equipment

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

<CAPTION>
---------------------------------------------------------------------------------------------------------------------
(In thousands)                                                                         1995                     1994
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                      <C>   
Land                                                                                 $1,606                   $1,606
Buildings                                                                             5,050                    4,468
Furniture and equipment                                                               5,072                    4,679
Leasehold improvements                                                                1,273                    1,192
---------------------------------------------------------------------------------------------------------------------
                                                                                     13,001                   11,945
Less accumulated depreciation and amortization                                        5,478                    4,707
---------------------------------------------------------------------------------------------------------------------
Premises and equipment, net                                                          $7,523                   $7,238
=====================================================================================================================
</TABLE>

(6)      Time Deposits

         As of December  31,  1995 and 1994,  the  Company  had  liabilities  of
         $42,976,000  and  $34,885,000,   respectively,  for  time  deposits  in
         denominations of $100,000 or more.  Interest expense for these deposits
         was $2,168,000 and $1,107,000 in 1995 and 1994, respectively.

                                       13
<PAGE>

                            Pacific Capital Bancorp
                                and Subsidiaries

(7)      Income Taxes

         As discussed in Note 1, the Company  adopted SFAS No. 109 as of January
         1, 1993. The cumulative  effect of this change in accounting for income
         taxes of $549,000 is determined as of January 1, 1993,  and is reported
         separately in the  consolidated  statement of income for the year ended
         December 31, 1993.
<TABLE>

         Components of income tax expense for the years ended December 31, 1995,
         1994, and 1993 are as follows:

<CAPTION>
---------------------------------------------------------------------------------------------------------------------
(In thousands)                                                                1995             1994             1993
---------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>              <C>              <C>
Current:
     Federal                                                                $2,420           $1,994           $1,149
     State                                                                     982              809              526
---------------------------------------------------------------------------------------------------------------------
                                                                             3,402            2,803            1,675
---------------------------------------------------------------------------------------------------------------------
Deferred:
     Federal                                                                  (157)            (137)              39
     State                                                                     (65)             (14)              13
------------------------------------------------------------------------------------------------- -------------------
                                                                              (222)            (151)              52
---------------------------------------------------------------------------------------------------------------------
          Total                                                             $3,180           $2,652           $1,727
=====================================================================================================================
</TABLE>

<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)                                                              1995                 1994
---------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                  <C>
Deferred tax assets:
   Book provision for loan losses in excess of tax provision                $740                 $759
   Book depreciation in excess of tax                                       422                  530
   State franchise taxes                                                    192                  144
   Unrealized loss on securities available-for-sale                         -                    103
   Loan fees and other, net                                                 499                  255
---------------------------------------------------------------------------------------------------------------------
      Total deferred tax assets                                             1,853                1,791
   Less valuation allowance                                                  -                   22
---------------------------------------------------------------------------------------------------------------------
      Deferred tax assets, net                                              1,853                1,769
---------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
   Difference in recognition of organization costs and other                (16)                 (19)
   Unrealized gain on securities available-for-sale                         (188)                -
      Total deferred tax liabilities                                        (204)                (19)
---------------------------------------------------------------------------------------------------------------------
Net deferred tax asset                                                      $1,649               $1,750
=====================================================================================================================
<FN>
         The net deferred tax asset represents recoverable taxes and is included
         in other assets in the accompanying consolidated balance sheets.
</FN>
</TABLE>

                                       14
<PAGE>
                             Pacific Capital Bancorp
                                and Subsidiaries

<TABLE>
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:

<CAPTION>
---------------------------------------------------------------------------------------------------------------------
(In thousands)                                                                  1995            1994            1993
---------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>             <C>             <C>
Computed "expected" tax expense                                               $2,793          $2,377          $1,654
Increase (reduction) in income taxes resulting from:
     Tax exempt income                                                          (236)           (237)           (305)
     Franchise taxes, net of federal income tax benefit                          605             511             356
     Other, net                                                                   18               1              22
---------------------------------------------------------------------------------------------------------------------
                                                                              $3,180          $2,652          $1,727
=====================================================================================================================
</TABLE>

(8)      Benefit Plans

         Stock  Option  Plans - The  Company  has a stock  option plan (the 1984
         Plan) under which incentive stock options or nonqualified stock options
         may be granted to certain key  employees  or  directors  to purchase an
         aggregate of 56,778 shares of authorized, but unissued, common stock of
         the Company.  Unexercised  options were granted and  outstanding  as of
         December 31, 1995, for an aggregate of 56,778 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 has a  Directors  Stock  Option Plan (the 1991 Plan) under
         which, nonqualified options may be granted to non-employee directors of
         the Company and its  subsidiaries  to purchase an  aggregate of 172,304
         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, 1995, for an aggregate
         of 89,306 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 vest 6 months after the date
         of grant and expire no later than 10 years after the date of grant.

         In May 1995, the Company's  shareholders approved the 1994 Stock Option
         Plan (the 1994 Plan). Under the terms of the 1994 Plan, incentive stock
         options or  nonqualified  stock  options  may be granted to certain key
         employees or  directors  to purchase an aggregate of 539,091  shares of
         authorized,  but  unissued,  common stock of the  Company.  Unexercised
         options were granted and  outstanding  as of December 31, 1995,  for an
         aggregate  of 169,594  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 vest 6 months after
         the date of grant and expire no later  than 10 years  after the date of
         grant.
<TABLE>

         Below is a summary of stock option  activity under the 1984,  1991, and
         1994 Plans:

<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                                                         Options outstanding
                                                                                         ----------------------------
                                                                      Shares
                                                                   available                                   Price
                                                                   for grant              Shares           per share
---------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                 <C>           <C>
Balances, December 31, 1992                                          304,892             317,262       $5.43 - 18.57
   Additions related to 5% stock dividend                             15,284              11,640        5.43 - 18.57
   Exercised                                                               -             (83,912)        5.43 - 8.30
   Canceled                                                            6,394              (6,394)       5.43 - 15.98
---------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1993                                          326,570             238,596        5.43 - 18.57
   Additions related to 5% stock dividend                             13,733              10,523        5.43 - 18.57
   Exercised                                                               -             (80,355)       5.17 - 15.22
   Expirations                                                      (281,069)                  -                   -
</TABLE>


                                       15
<PAGE>

<TABLE>
                             Pacific Capital Bancorp
                                and Subsidiaries

<S>                                                                  <C>                 <C>           <C>
   Canceled                                                           13,723             (13,723)      13.57 - 17.69
---------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1994                                           72,957             155,041        5.55 - 17.69
   Additions related to the adoption of
      the 1994 Plan                                                  371,022             168,100       16.33 - 24.63
   Additions related to 5% stock dividend                              3,662               7,272        5.55 - 17.69
   Granted                                                            (1,525)              1,525       19.17 - 24.63
   Exercised                                                               -              (9,590)       5.29 - 18.10
   Expirations                                                          (291)                  -       12.93 - 12.93
   Canceled                                                            6,670              (6,670)      12.93 - 14.50
---------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1995                                          452,495             315,678       $7.53 - 24.63
=====================================================================================================================
</TABLE>


         Options to  purchase  302,162  shares of stock were  exercisable  as of
         December 31, 1995.  All per share  amounts give  retroactive  effect to
         stock dividends.

         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 $200,000,
         $221,000, and $115,000 in 1995, 1994, and 1993, respectively.

         The ESOP borrowed  $500,000 to finance the acquisition of the Company's
         stock in 1992.  Repayment  of principal  and interest is wholly  funded
         through the Company's  contributions  to the ESOP.  The Company's  1994
         contribution  included  $212,000 in debt  repayment  and $9,000 for the
         interest  accrued on the loan.  The note was fully  repaid in September
         1994.

         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 $40,000,  $35,000, and $29,000 for the years
         ended December 31, 1995, 1994, and 1993.

         In  October  1995,  the  FASB  issued  SFAS  No.  123,  Accounting  for
         Stock-Based Compensation. SFAS No. 123 establishes financial accounting
         and reporting  standards for stock-based  employee  compensation plans.
         Those plans include all arrangements by which employees  receive shares
         of stock or other  equity  instruments  of the employer or the employer
         incurs  liabilities  to employees in amounts  based on the price of the
         employer's  stock.  Examples are stock options,  restricted  stock, and
         stock  appreciation  rights.  This statement defines a fair value based
         method of  accounting  for an employee  stock option or similar  equity
         instrument.  Under this method,  compensation costs are measured at the
         grant date based on the value of the award and are recognized  over the
         service period,  which is the vesting  period.  SFAS No. 123 encourages
         (but does not  require)  employers  to adopt the new method in place of
         the  provisions  of Accounting  Principles  Board Opinion (APB) No. 25,
         Accounting  for Stock Issued to Employees.  This  statement  applies to
         fiscal years beginning after December 15, 1995. The Company has elected
         to use current  practice under APB No. 25 and does not anticipate  that
         the required  disclosures  will have a material impact on the financial
         condition or results of operations of the Company.

(9)      Fair Value of Financial Instruments

         SFAS No. 107,  Disclosures  about Fair Value of Financial  Instruments,
         requires  that  the  Company  disclose  estimated  fair  value  for its
         financial instruments.  Fair value estimates,  methods, and assumptions
         are set forth below for the Company's financial instruments.

         The  carrying  amounts  and  estimated  fair  values  of the  Company's
financial instruments are as follows:

                                       16
<PAGE>

<TABLE>
                             Pacific Capital Bancorp
                                and Subsidiaries

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

<CAPTION>
                                                                 December 31, 1995             December 31, 1994
                                                                 -----------------             -----------------
                                                               Carrying      Estimated       Carrying      Estimated
(In thousands)                                                  amounts     fair value        amounts     fair value
---------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>            <C>            <C>            <C>
Assets:
   Cash and cash cash equivalents                               $41,898        $41,898        $42,262        $42,262
   Investment securities                                         84,492         84,558         86,389         84,625
   Net loans                                                    212,823        208,517        200,643        196,277
---------------------------------------------------------------------------------------------------------------------
Liabilities:
   Demand deposits, noninterest bearing                         $71,988        $71,988        $70,638        $70,638
   Demand deposits, interest bearing                             56,527         56,527         53,410         53,410
   Savings and money market                                      97,087         97,087        122,816        122,816
   Time certificates                                             82,217         82,483         56,365         56,459
---------------------------------------------------------------------------------------------------------------------
</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.

         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.

                                       17
<PAGE>

                             Pacific Capital Bancorp
                                and Subsidiaries

         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 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.

                                       18

<PAGE>

                             Pacific Capital Bancorp
                                and Subsidiaries

(10)     Commitments and Contingencies

         Future  minimum rental  payments for Bank premises under  noncancelable
         operating leases as of December 31, 1995 are as follows:

--------------------------------------------------------------------------------
                                                                   Minimum lease
                                                                        payments
Year ending December 31,                                          (In thousands)
--------------------------------------------------------------------------------
1996                                                                       $508
1997                                                                        499
1998                                                                        468
1999                                                                        296
2000                                                                        224
Thereafter                                                                  547
--------------------------------------------------------------------------------
                                                                          2,542
Minimum rentals receivable under noncancelable subleases                   (501)
--------------------------------------------------------------------------------
                                                                         $2,041
================================================================================


         Rent expense under operating  leases totaled  $503,000,  $470,000,  and
         $473,000  for the  years  ended  December  31,  1995,  1994,  and 1993,
         respectively.  Related sublease rental income totaled $82,000, $99,000,
         and $93,000, 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  required  payments  totaling  approximately
         $188,000, $185,000, and $182,000 for the years ended December 31, 1995,
         1994, and 1993, respectively. The lease will expire 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,  1995,  amounts  committed to extend  credit  under normal  lending
         agreements  aggregated  approximately  $53,201,000.  These  amounts are
         subject to the same loan collateral  requirements  described in Note 4.
         Management reviews the risk associated with these credits in evaluating
         the  overall  adequacy  of the  allowance  for  possible  loan  losses.
         Additionally, there are approximately $1,462,000 in outstanding standby
         letters of credit which,  in effect,  are  guarantees of obligations of
         customers.

         The Bank has borrowing lines of approximately  $24,000,000 with primary
         correspondent  banks. There were no borrowings  outstanding under these
         lines as of December 31, 1995.

                                       19
<PAGE>

                             Pacific Capital Bancorp
                                and Subsidiaries

(11)     Pacific Capital Bancorp (Parent Company Only

<TABLE>
         The following are the financial statements of Pacific Capital Bancorp:

---------------------------------------------------------------------------------------------------------------------
<CAPTION>

                                                      BALANCE SHEETS
Years ended December 31, 1995 and 1994
---------------------------------------------------------------------------------------------------------------------
(In thousands)                                                                            1995                  1994
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>                   <C>

ASSETS
Cash and cash equivalents                                                                 $144                  $135
Loans                                                                                        -                 1,675
Premises and equipment (net of accumulated depreciation)                                 1,865                 1,409
Investment in subsidiaries                                                              40,532                35,244
Other assets                                                                               688                   465
---------------------------------------------------------------------------------------------------------------------
Total Assets                                                                           $43,229               $38,928
=====================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities                                                                               $253                  $178
Shareholders' equity                                                                    42,976                38,750
---------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity                                             $43,229               $38,928
=====================================================================================================================

</TABLE>

<TABLE>

---------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                   STATEMENTS OF INCOME
Years ended December 31, 1995, 1994, and 1993
---------------------------------------------------------------------------------------------------------------------
(In thousands)                                                                   1995            1994           1993
---------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>             <C>            <C>   
Equity in income of subsidiaries                                               $4,826          $2,482         $2,166
Cash dividend received from Bank                                                  500           2,120          1,171
Interest income and fees on loans                                                  69              58             53
Other expenses                                                                   (361)           (321)          (251)
---------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change                            5,034           4,339          3,139
Cumulative effect of accounting change                                              -               -            549
---------------------------------------------------------------------------------------------------------------------
     Net income                                                                $5,034          $4,339         $3,688
=====================================================================================================================
</TABLE>


                                       20

<PAGE>


<TABLE>
                            Pacific Capital Bancorp
                                and Subsidiaries

---------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                 STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994, and 1993
---------------------------------------------------------------------------------------------------------------------
(In thousands)                                                                   1995            1994           1993
---------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>             <C>            <C>
Cash flows from operating activities:
     Net income                                                                $5,034          $4,339         $3,688
     Adjustments to reconcile net income to net cash
       provided by (used in) operating activities:
          Equity in undistributed net income of subsidiary bank                (5,326)         (4,602)        (3,886)
          Receipt of dividend from subsidiary                                     500           2,120          1,171
          Depreciation and amortization                                            37              40             49
          (Increase) decrease in other assets                                    (223)           (427)           551
          (Decrease) increase in other liabilities                                (47)             54           (217)
          Cumulative effect of change in accounting method                          -               -           (549)
---------------------------------------------------------------------------------------------------------------------
               Net cash (used in) provided by operating activities                (25)          1,524            807
---------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
     Net maturities of bankers' acceptances and
       commercial paper                                                         1,675            (636)             -
     Capital expenditures                                                        (493)            (89)           (11)
     Reimbursement for premises and equipment from
       subsidiary bank                                                            122             122            122
---------------------------------------------------------------------------------------------------------------------
               Net cash provided by (used in) investing activities              1,304            (603)           111
---------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
     Repurchase and retirement of stock                                          (111)           (717)        (1,172)
     Proceeds from stock options exercised                                        158             806            526
     Cash paid for fractional shares                                              (15)            (16)           (13)
     Cash paid for dividends                                                   (1,302)           (946)          (671)
---------------------------------------------------------------------------------------------------------------------
               Net cash used in financing activities                           (1,270)           (873)        (1,330)
-------------------------------------------------------------------------------------------------- ------------------
Net increase (decrease) in cash and cash equivalents                                9              48           (412)
Cash and cash equivalents at beginning of year                                    135              87            499
=====================================================================================================================
Cash and cash equivalents at end of year                                         $144            $135            $87
=====================================================================================================================
Supplemental disclosures:
     Noncash investment and financing activities:
          Transfer from retained earnings to common stock
            due to stock dividend                                              $3,132          $2,165         $1,722
=====================================================================================================================
</TABLE>


         The ability of the Company to pay  dividends  will largely  depend upon
         the dividends  paid to it by the Bank.  There are legal  limitations on
         the ability of the Bank to provide  funds to the Company in the form of
         loans,  advances,  or dividends.  Under the National Bank Act, the Bank
         may not declare  dividends  in any  calendar  year that exceed  certain
         legal  limitations.  The approximate amount of restricted equity of the
         Bank as of December 31, 1995 was $29,871,000.

                                       21

<PAGE>


                            Pacific Capital Bancorp
                                and Subsidiaries

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

                                      1995


THE COMPANY
         Pacific  Capital  Bancorp  (the  Company)   through  its  wholly  owned
subsidiary,  First National Bank of Central California (the Bank),  engages in a
broad range of financial  service  activities.  The Company's other  subsidiary,
Pacific Capital Services Corporation, currently is inactive.

         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, 1995, 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 4 of this annual report.

SUMMARY OF FINANCIAL RESULTS
         Net income  for 1995 was a record  $5,034,000  or $1.86 per  share,  an
increase of $695,000 or $0.21 per share over 1994.  The  Company's net operating
income  increased  significantly  for the  second  straight  year in 1995  after
remaining  relatively constant in 1993, 1992, and 1991. The Company's net income
for 1994 of $4,339,000 or $1.65 per share represented an increase of $651,000 or
$0.26 per share over 1993.  Net income for 1993 included an additional  $549,000
or $0.21 per share as a result of a cumulative  effect of an  accounting  change
upon  adoption of Statement of Financial  Accounting  Standards  (SFAS) No. 109,
Accounting for Income Taxes. The Company's  increased  earnings in 1995 resulted
from an  interest  rate  environment  which had a  beneficial  impact on the net
interest margin,  active management of noninterest expense and maintaining a low
level of credit losses.

         In 1995 the Company paid three cash dividends of $0.125 in March, June,
and  September,  and one cash dividend of $0.15 paid in December.  In 1994,  the
Company  distributed  four $0.10  quarterly  cash  dividends.  In addition,  the
Company  distributed a 5% stock  dividend in each of the years in the three year
period  ended   December  31,  1995.   Earnings  per  share  amounts  have  been
retroactively  restated to reflect these stock dividends.  The return on average
shareholders'  equity was 12.2% in 1995,  compared to 11.7% in 1994 and 10.8% in
1993.

         The Company  believes  that the  economies  in which it  operates,  the
Monterey and Santa Cruz Counties,  have  stabilized in the past two years.  (See
"Earning  Assets") Signs of this  stabilization  include  sustained quality loan
demand and modest  deposit  growth as seen in 1995.  On a  national  scale,  the
Company is  forecasting a slight  decrease in interest  rates due to a weakening
overall  economy in 1996. If the economy does continue to slow,  interest  rates
will likely  decline which,  in turn,  could lead to a reduction in net interest
income in 1996.

         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  $191,000,  $147,000,  and  $108,000  in  1995,  1994,  and  1993,
respectively.

                                       22
<PAGE>


<TABLE>
                            Pacific Capital Bancorp
                                and Subsidiaries

                             AVERAGE BALANCE SHEETS
---------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                            1995                        1994                          1993
                               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
 Short-Term Investments:
  Time Deposits with Other
    Financial Institutions         $769     6.1%      $47     $107      3.5%        $4        $-         -        $-
  Federal Funds Sold             15,033     5.9%      887   18,057      4.3%       770    22,144      2.9%       638
  Money Market Funds              6,284     5.5%      344      397      3.8%        15     4,119      3.0%       123
---------------------------------------------------------------------------------------------------------------------

Total                            22,086     5.8%    1,278   18,561      4.2%       789    26,263      2.9%       761
 Investment Securities:
  Taxable                        68,517     5.1%    3,527   70,472      4.8%     3,410    63,139      5.1%     3,250
  Non-Taxable                    11,249     5.2%      588   11,419      5.2%       596    11,836      5.5%       656
  Federal Reserve Bank Stock        540     5.9%       32      540      5.9%        32       532      6.2%        33
---------------------------------------------------------------------------------------------------------------------

Total                            80,306     5.2%    4,147   82,431      4.9%     4,038    75,507      5.2%     3,939
Loans:                          201,360    10.1%   20,420  190,721      9.1%    17,329   177,988      8.7%    15,557
---------------------------------------------------------------------------------------------------------------------

Total Earning Assets            303,752     8.5%   25,845  291,713      7.6%    22,156   279,758      7.2%    20,257
Allowance for Possible Loan
         Losses                  (2,359)                    (2,475)                       (2,342)
Non-Earning Assets
  Premises and Equipment          7,287                      7,253                         7,635
  Other                          30,671                     28,428                        26,816
---------------------------------------------------------------------------------------------------------------------

Total Non-Earning Assets         37,958                     35,681                        34,451
---------------------------------------------------------------------------------------------------------------------

Total Assets                   $339,351                   $324,919                      $311,867
=====================================================================================================================

LIABILITIES AND
SHAREHOLDERS' EQUITY
 Interest-Bearing Deposits:
  Demand                        $52,428     1.1%     $566  $50,059      1.1%      $551   $46,943      1.3%      $607
  Savings and Money Market      105,531     2.6%    2,747  121,079      2.3%     2,837   120,984      2.4%     2,944
  Time Certificates              70,575     5.3%    3,716   52,803      3.4%     1,795    52,556      3.0%     1,599
  Other Interest-Bearing
   Liabilities                        -        -        -       25      8.0%         2       118     21.2%        25
---------------------------------------------------------------------------------------------------------------------

Total                           228,534     3.1%    7,029  223,966      2.3%     5,185   220,601      2.3%     5,175
Non Interest-Bearing Deposits
and Other Liabilities:
  Demand, Non Interest-Bearing   67,026                     63,352                        56,645
  Other Liabilities               2,511                        385                           490
  Shareholder's Equity           41,280                     37,216                        34,131
---------------------------------------------------------------------------------------------------------------------

Total                           110,817                    100,953                        91,266
---------------------------------------------------------------------------------------------------------------------

TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY           $339,351                   $324,919                      $311,867
=====================================================================================================================

NET INTEREST INCOME                               $18,816                      $16,971                       $15,082
NET INTEREST MARGIN                         6.2%                        5.8%                          5.4%
---------------------------------------------------------------------------------------------------------------------
</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

                                       23

<PAGE>

composition of average earning assets and average interest-bearing  liabilities,
average  yields and rates,  and the net interest  margin for 1993 through  1995.
Interest  income  increased  $3,689,000  or 16.7%  from  $22,156,000  in 1994 to
$25,845,000 in 1995, after increasing  $1,899,000 or 9.4% from 1993 to 1994. The
increase  in 1995 is the result of higher  average  loan and  investment  yields
during 1995 and an increase in interest earning assets. The increase in 1994 was
due to primarily to the same factors which  contributed to the increase in 1995,
primarily,  higher  loan  yields and an  increase  in average  interest  earning
assets.  Total interest and fees produced a 8.5% yield on average earning assets
in 1995,  compared to 7.6% and 7.2% yields on average earning assets in 1994 and
1993,  respectively.  The  yield  increase  in 1995 was the  result  of  several
interest rate  increases in the Bank's  reference  rate (the rate charged to the
Bank's most  creditworthy  customers) which took place during the course of 1994
and early 1995. The increase in yields in 1994 was due to the same interest rate
increases which had a beneficial impact on yields during 1995.

         During 1995,  the Company  increased its  available-for-sale  portfolio
relative to  held-to-maturity  securities.  This shift has resulted in increased
liquidity  for the Company and an increase in the average yield on the portfolio
from 4.78% in 1994 to 5.30% in 1995.

         Total  interest  expense  for  1995  was  $7,029,000,  an  increase  of
$1,844,000 or 35.6% over 1994,  compared to a small  increase of $10,000 or 0.2%
from 1993 to 1994. The Company's  cost of funds  increased in 1995 by 0.58% over
1994  due to a  substantial  change  in the  mix of  deposits.  Certificates  of
deposits  increased to $82,217,000 in 1995 compared to $56,365,000 in 1994 while
savings and money market deposits  decreased in 1995 by  $25,729,000.  The rates
paid on certificates of deposit  generally are  substantially  higher than those
paid on savings and money  market  deposits  thus  resulting in a higher cost of
funds for the Company in 1995

<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 1995 and 1994 is shown in the following  table.  Changes
attributable to both volume and rate have been allocated to rate.

<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                        1995 Compared to 1994                1994 Compared to 1993
                                        ------------------------------------------------------------------------------
(In thousands)                            Volume          Rate        Total        Volume         Rate         Total
----------------------------------------------------------------------------------------------------------------------
<S>                                         <C>         <C>          <C>           <C>            <C>         <C>   
Time Deposits with other
    Financial Institutions                   $40            $3          $43            $4           $0            $4
Federal Funds Sold                          (129)          246          117          (118)         250           132
Money Market Funds                           222           107          329          (111)           3          (108)
Investment Securities:
    Taxable                                  (95)          212          117           377         (217)          160
    Nontaxable                                (9)            1           (8)          (23)         (37)          (60)
    Federal Reserve Bank
      Stock                                    -             -            -             0           (1)           (1)
Loans                                        967         2,124        3,091         1,113          659         1,772
---------------------------------------------------------------------------------------------------------------------
      Total                                  996         2,693        3,689         1,242          657         1,899
---------------------------------------------------------------------------------------------------------------------
Demand, Interest Bearing                      25           (10)          15            40          (96)          (56)
Savings                                     (363)          273          (90)            2         (109)         (107)
Time Certificates                            604         1,317        1,921             8          188           196
Fed Funds Purchased                           (2)            -           (2)          (20)          (3)          (23)
---------------------------------------------------------------------------------------------------------------------
      Total                                  264         1,580        1,844            30          (20)           10
---------------------------------------------------------------------------------------------------------------------
Increase in Net Interest
      Income                                $732        $1,113       $1,845        $1,212         $677        $1,889
=====================================================================================================================
</TABLE>

                                       24


<PAGE>
                            Pacific Capital Bancorp
                                and Subsidiaries

<TABLE>

EARNING ASSETS

         Outstanding  total  loans  averaged  $201,360,000  in 1995  compared to
$190,721,000  during 1994.  This  represents an increase of $10,639,000 or 5.6%,
compared to an increase of  $12,733,000  or 7.2% from 1993 to 1994. The increase
in total  loans  outstanding  during 1995 is due to  increased  loan demand from
qualified  borrowers and is reflective  of the  stabilization  of the economy in
most  of the  primary  markets  which  the  Bank  serves.  The  following  table
summarizes the composition of the loan portfolio as of December 31:

<CAPTION>
---------------------------------------------------------------------------------------------------------------------
(In thousands)                                    1995           1994            1993           1992            1991
---------------------------------------------------------------------------------------------------------------------
<S>                                           <C>            <C>             <C>            <C>             <C>     
Commercial                                     $49,862        $43,783         $40,588        $45,919         $47,585
Real Estate - Construction                      17,071         22,539          10,394          7,637          16,373
Real Estate - Mortgage                         126,048        116,630         110,618        106,237         105,690
Consumer                                        12,108         11,328          12,124         13,603          13,623
Bankers' Acceptances and
    Commercial Paper                                 -            709           1,542          5,047          11,022
Other                                            6,255          5,791           5,326          5,301           2,450
------------------------------------------------------------------- -------------------------------------------------
        Total                                 $211,344       $200,780        $180,592       $183,744        $196,743
=====================================================================================================================
</TABLE>

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

         A majority of the Company's loan portfolio consists of loans secured by
commercial,  industrial,  and residential real estate.  As of December 31, 1995,
real estate mortgage and construction loans represented $143,119,000 or 67.7% of
total loans, an increase of $3,950,000 or 2.8% from the prior year.

         Real estate  mortgage  loans included  commercial  real estate loans of
approximately  $89,180,000,  one-to-four  family  home  loans  of  approximately
$13,972,000,  equity lines of credit of approximately  $16,223,000,  multifamily
dwelling loans of approximately  $4,242,000 and farm land loans of approximately
$2,431,000. 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.

         Construction loans totaled $17,071,000 or 8.1% of the loan portfolio as
of December 31, 1995,  which  represents a decrease of  $5,468,000 or 24.3% from
December 31, 1994.  Construction  loans  increased by $12,145,000 or 116.8% from
December 31, 1993 to December 31, 1994.

         The Bank 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 12  months.  As of  December  31,  1995,  56.2%  of the  construction
portfolio  was  for   residential   development  and  the  remaining  43.8%  was
commercial. Repayment is based on a pre-qualification analysis of the borrower's
ability to obtain take-out financing.  The Bank'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  $49,862,000  or
23.6% of the total loan  portfolio  at December 31, 1995.  This  represented  an
increase  of  $6,079,000  or 13.9%  over  1994.  Management  believes  that this
increase  in demand is a further  indicator  of the  stabilization  in the local
economy.  Commercial  loans  with  maturities  greater  than  one  year  include
approximately $3,975,000 of fixed rate loans.

         Consumer loans increased $780,000 or 6.9% during 1995.  Consumer loans,
as of December 31, 1995, represent 5.7% of the total loan portfolio, compared to
5.6% of the 1994 loan portfolio.

                                       25
<PAGE>
                            Pacific Capital Bancorp
                                and Subsidiaries


         The Company had undisbursed  loans totaling  $54,663,000 as of December
31,  1995,  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, 1995:

<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                                        After One
                                                  In One Year        Year Through       After Five
(In thousands)                                        or Less          Five Years            Years             Total
---------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                  <C>              <C>              <C>     
Commercial                                            $45,826              $3,654             $382           $49,862
Real Estate - Construction                             17,071                   -                -            17,071
Real Estate - Mortgage                                 58,353              28,999           38,696           126,048
Consumer                                                6,806               5,023              279            12,108
Other                                                   2,907               1,207            2,141             6,255
---------------------------------------------------------------------------------------------------------------------
        Gross Loans                                  $130,963             $38,883          $41,498          $211,344
=====================================================================================================================
</TABLE>


         The fixed  rate loan  categories  discussed  above  mature as  follows:
$15,191,000 in 1996,  $6,666,000 in 1997 $6,776,000 in 1998, $6,576,000 in 1999,
and $5,134,000 in 2000, with the remaining $41,498,000 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.

<TABLE>
         The table below  presents the interest rate  sensitivity of the Company
as of December 31, 1995. 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.

<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Interest Rate Sensitivity as of December 31, 1995
---------------------------------------------------------------------------------------------------------------------
                                                                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                                $17,007              -             -              -        $17,007
Loans                                             112,307          7,005        17,496         74,536        211,344
Taxable Investments                                     -          1,287         3,000         69,498         73,785
Non-taxable Investments                               240            727         3,027          6,713         10,707
---------------------------------------------------------------------------------------------------------------------
   Total Earning Assets                           129,554          9,019        23,523        150,747        312,843
---------------------------------------------------------------------------------------------------------------------
Interest Bearing Demand                            56,527              -             -              -         56,527
Savings Deposits                                   90,139          3,693         3,255              -         97,087
Time Certificates                                  24,095         29,301        27,592          1,229         82,217
---------------------------------------------------------------------------------------------------------------------
  Total Interest-Bearing Liabilities              170,761         32,994        30,847          1,229        235,831
---------------------------------------------------------------------------------------------------------------------
Gap                                              $(41,207)      $(23,975)      $(7,324)      $149,518        $77,012
Cumulative Gap                                    (41,207)       (65,182)      (72,506)        77,012
=====================================================================================================================
</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.


                                       26
<PAGE>
                            Pacific Capital Bancorp
                                and Subsidiaries

QUALITY OF LOANS
         The Company had net loan  charge-offs  of $176,000 and $169,000 in 1995
and 1994,  respectively.  Net charge-offs as a percent of average loans remained
relatively flat between 1994 and 1995 after a substantial  decrease from 1993 to
1994.  The net  charge-offs  in 1993  generally  resulted from the  recessionary
environment  prevalent in the local  economy  during that period.  Over the last
five years,  the low amount of net  charge-offs  is reflective  of  management's
continued  emphasis on quality credit  standards in the loan approval process as
well as close monitoring of the loan portfolio.  The Bank'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 Bank's charge-off  experience in 1996 to be
consistent with that  experienced in 1995 primarily due to the  stabilization in
the local  economy.  This factor  continues to be  addressed  in  assessing  the
adequacy of the allowance for possible loan losses.

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

<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Summary of Loan Loss Activity
(In thousands)                                        1995          1994           1993          1992           1991
---------------------------------------------------------------------------------------------------------------------
<S>                                               <C>           <C>            <C>           <C>            <C>     
Total loans outstanding, end of year              $211,344      $200,780       $180,592      $183,744       $196,743
Average net loans during the year                  201,360       190,721        177,988       191,099        198,495
Allowance for possible loan losses:
Balance, beginning of year                           2,438         2,507          2,352         2,148          2,193
    Charge-off by loan category
        Commercial                                     129           175            333           504            303
        Consumer                                        61           108            292           207            261
        Real estate                                    131            21            259           200             50
---------------------------------------------------------------------------------------------------------------------
           Total                                       321           304            884           911            614
---------------------------------------------------------------------------------------------------------------------
Recoveries by loan category
        Commercial                                      58            85             42            94             17
        Consumer                                        38            30             45            94             67
        Real estate                                     49            20             62             2             44
---------------------------------------------------------------------------------------------------------------------
           Total                                       145           135            149           190            128
---------------------------------------------------------------------------------------------------------------------
Net charge-offs                                        176           169            735           721            486
Provision charged to expense                           135           100            890           925            441
---------------------------------------------------------------------------------------------------------------------
Balance, end of year                                $2,397        $2,438         $2,507        $2,352         $2,148
=====================================================================================================================
Ratios:
Net charge-offs to
   average loans                                      0.09%         0.09%          0.41%         0.38%          0.24%
Allowance to loans at end of year                     1.13%         1.21%          1.39%         1.28%          1.09%
---------------------------------------------------------------------------------------------------------------------
</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.  For  additional
information  regarding the allowance for possible loan losses, see Note 1 to the
accompanying consolidated financial statements.

                                       27
<PAGE>

                            Pacific Capital Bancorp
                                and Subsidiaries

         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  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 $2,397,000 or
1.13% of total loans as of December 31, 1995,  was adequate.  This  allowance is
compared to $2,438,000 or 1.21% in 1994 and  $2,507,000 or 1.39% in 1993.  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 Bank'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         1995                1994               1993               1992               1991
-------------------------------------------------------------------------------------------------------------------
                          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          $647      23.59%   $848       21.81%  $731       22.47%  $822       24.99%  $852       24.19%
Real Estate -
 Construction         161       8.08%    443       11.23%    92        5.76%    78        4.16%   147        8.32%
Real Estate -
 Mortgage           1,380      56.64%    884       58.09% 1,474       61.25% 1,221       57.82%   947       53.72%
Consumer             193       5.72%    253        5.64%   194        6.71%   199        7.40%   172        6.92%
Bankers'
Acceptances and
 Commercial
 Paper                 -       0.00%      -        0.35%     -        0.85%     -        2.75%     -        5.60%
Other                 16       2.97%     10        2.88%    16        2.95%    32        2.88%    30        1.25%
------------------------------------------------------------------------------------------------------------------
   Total           2,397      100.0%  2,438       100.0% 2,507       100.0% 2,352       100.0% 2,148       100.0%
==================================================================================================================
</TABLE>

                                       28
<PAGE>
                            Pacific Capital Bancorp
                                and Subsidiaries

<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  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 Bank'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 five fiscal years
is summarized in the following table:

<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Nonperforming Loans
(In thousands)                                   1995            1994            1993           1992            1991
---------------------------------------------------------------------------------------------------------------------
<S>                                            <C>             <C>             <C>            <C>             <C>   
Loans accounted for on a
   nonaccrual basis                              $993          $2,023          $2,286         $2,926          $1,078
Other loans contractually
   past due 90 days or more                       141               7               -            342           1,027
---------------------------------------------------------------------------------------------------------------------
      Total                                    $1,134          $2,030          $2,286         $3,268          $2,105
=====================================================================================================================
</TABLE>


         Loans  accounted  for on a nonaccrual  basis  experienced a substantial
decrease in 1995 to $993,000  compared to $2,023,000 at December 31, 1994.  This
decrease was due to  management's  continuing  efforts to resolve  significantly
past due loans combined with a stabilizing economy.

         Of total nonperforming loans as of December 31, 1995, 78.2% are secured
by real property where the loan to collateral  value ratios are consistent  with
the Bank's existing policies. In addition, the overall coverage of the allowance
as a percent of nonperforming loans is 211.4%. The Bank's ratio of nonperforming
loans to  average  loans has been  below  most  industry  averages  in each year
reflected in the table above.

         The Bank does not expect to sustain  losses in excess of that  provided
for in the allowance  for possible  loan losses.  There were no loans which were
current as of December 31, 1995 where serious doubt existed as to the ability of
the borrower to comply with the present loan repayment  terms or which represent
"troubled debt restructurings".

         INVESTMENTS  The  average  balance  of Federal  Funds  Sold  (overnight
investments with other banks) and other short-term  investments (primarily money
market  mutual  funds)  was  $22,086,000  in  1995,  $18,561,000  in  1994,  and
$26,263,000  in  1993.  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 68.1% in 1995, compared to 66.4% in 1994, and 64.2% in 1993. This
change in 1995 is due to the increase in average  loans  outstanding  during the
year partially offset by an increase in certificates of deposits.

         Average  total  investment  securities  were  $80,306,000  in  1995,  a
decrease of $2,125,000 over the 1994 average.  This decrease was the result of a
slight shift from U.S. Treasury securities to Federal Funds Sold and other short
term  investments  in order to maximize  investment  yields.  As of December 31,
1995, the aggregate market value of the investment portfolio exceeded book value
by  $66,000.  At December  31,  1994,  the market  value was below book value by
$1,764,000. This increase was the result of increasing prices in the bond market
during  the  course  of  1995.  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. See Note 3 to the accompanying
consolidated financial statements.



                                       29
<PAGE>

<TABLE>
                            Pacific Capital Bancorp
                                and Subsidiaries

---------------------------------------------------------------------------------------------------------------------
<CAPTION>

                                                                  Unrealized          Unrealized           Estimated
(In thousands)                            Amortized cost                gain                loss          fair value
---------------------------------------------------------------------------------------------------------------------
1995
---------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                    <C>             <C>                  <C>    
Held-to-maturity securities:
State and municipal                               $6,633                 $72               $(13)              $6,692
Mortgage-backed securities
    and other                                      1,963                   7                  -                1,970
---------------------------------------------------------------------------------------------------------------------
                                                  $8,596                 $79               $(13)              $8,662
=====================================================================================================================
Available-for-sale securities:
U.S. Treasury                                    $57,328                $536               $(77)             $57,787
State and municipal                                4,074                  45                 (9)               4,110
U.S. government agencies                          14,000                   9                (10)              13,999
---------------------------------------------------------------------------------------------------------------------
                                                 $75,402                $590               $(96)             $75,896
=====================================================================================================================
1994
---------------------------------------------------------------------------------------------------------------------
Held-to-maturity securities:
U.S. Treasury                                    $51,234                  $2            $(1,701)             $49,535
State and municipal                               12,043                  68               (134)              11,977
Mortgage -backed securities and
    other                                            854                   2                 (1)                 855
---------------------------------------------------------------------------------------------------------------------
                                                 $64,131                 $72            $(1,836)             $62,367
=====================================================================================================================
Available-for-sale securities:
U.S. Treasury                                    $19,846                  $-              $(295)             $19,551
U.S. government agencies                           2,671                  38                 (2)               2,707
-------------------------------------------------------------------------- ------------------------------------------
                                                 $22,517                 $38              $(297)             $22,258
=====================================================================================================================
</TABLE>

<TABLE>

FUNDING
         Average  total  deposits  increased  $8,267,000  or 2.9%  during  1995,
compared to an increase  of  $10,047,000  or 3.6% during 1994 and an increase of
$12,446,000  or  4.7%  in  1993.  Average  non-interest  bearing  deposits  grew
$3,674,000 or 5.8% during 1995 compared to growth of $6,707,000 or 11.8% in 1994
and $5,866,000 or 11.6% in 1993.  Average  interest-bearing  deposits  increased
$4,593,000  or 2.1% in 1995,  compared  with  increases of $3,458,000 or 1.6% in
1994 and  $6,580,000  or 3.1%  during  1993.  Total  deposit  growth  in 1996 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.

<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Average  Deposits                              1995                        1994                      1993
---------------------------------------------------------------------------------------------------------------------
                                         Average                    Average                    Average
(Dollars in thousands)                   Balance          Rate      Balance          Rate      Balance          Rate
---------------------------------------------------------------------------------------------------------------------
<S>                                      <C>             <C>        <C>             <C>        <C>             <C>
Demand, Noninterest Bearing              $67,026            -       $63,352            -       $56,645            -
Demand, Interest Bearing                  52,428         1.08%       50,059         1.10%       47,061         1.29%
Savings                                  105,531         2.60%      121,079         2.34%      120,984         2.43%
Time Certificates                         70,575         5.27%       52,803         3.40%       52,556         3.04%
---------------------------------------------------------------------------------------------------------------------
<FN>

         The table above sets forth  information for the last three fiscal years
regarding the Bank's average  deposits and the average rates paid on each of the
deposit categories.
</FN>
</TABLE>

                                       30
<PAGE>

                            Pacific Capital Bancorp
                                and Subsidiaries

         Average  interest-bearing  deposits as a percentage of average  earning
assets have  decreased  slightly over the last three years to 75.2% in 1995 from
76.8% and 78.9% in 1994 and 1993, respectively.

         In 1995,  average  time  certificates  of deposit of  $100,000  or more
increased  by  $9,537,000,  or 30.4%,  to  $40,915,000  and were  13.8% of total
average  deposits,  compared to 10.9% in 1994. Almost all of the certificates of
deposit represent local deposits.  Given the Bank's forecast for interest rates,
management  believes that maturing  certificates  of deposit will continue to be
directed into short to medium term deposits.

         The  remaining  maturities of the  Company's  certificates  of deposit,
including  public funds, in amounts of $100,000 or more as of December 31, 1995,
are  indicated in the table below.  Interest  expense on these  certificates  of
deposit totaled $2,168,000 in 1995.

--------------------------------------------------------------------------------
(In thousands)                                                            1995
--------------------------------------------------------------------------------
Three month or less                                                    $14,315
Over three through six months                                           16,437
Over six through twelve months                                          12,358
Over twelve months                                                         628
--------------------------------------------------------------------------------
   Total                                                               $43,738
================================================================================


OTHER INCOME
         Total other income  decreased in 1995 to $1,875,000  from $2,088,000 in
1994.  The decrease was primarily due to a $94,000  decrease in gains on sale of
loans resulting from decreased activity.  In addition,  net losses on securities
transactions  increased in 1995 to $73,000 from $17,000 in 1994.  This  variance
was due to a larger  number  of  securities  sales in 1995  associated  with the
one-time securities  reclassification as allowed under SFAS No. 115. Total other
income also decreased in 1994 by $277,000 from $2,365,000 in 1993. This decrease
was mainly the result of a decrease  in mortgage  banking  fees of  $149,000,  a
decrease  in net gains on  securities  transactions  of  $137,000,  offset by an
increase in customer service charges of $105,000.  As discussed in Note 1 of the
accompanying consolidated financial statements, the Mortgage Banking Division of
the Bank is solely a brokerage operation. The Bank does not originate, purchase,
or sell loans in this area and thus retains no credit or servicing risk.

         The Bank originates and sells loans which are guaranteed in part by the
SBA. The sold portion is equal to the guaranteed portion of the loan and is sold
without recourse. The Bank retains the credit risk in the remaining unguaranteed
portion, which amounted to approximately $6,160,000 as of December 31, 1995.

OTHER EXPENSE
         In 1995, total other operating  expenses increased 3.1% to $12,342,000,
after an increase  of 2.4% in 1994.  Salaries  and  benefits  expense  increased
$611,000 or 10.1% in 1995,  compared to an increase of $226,000 or 3.9% in 1994.
The increase in salaries and benefits was mainly the result of a greater  number
of employees in 1995 and normal  salary  increases.  As a percentage  of average
earning  assets,  salaries and benefits  were 2.2% in 1995  compared to 2.1% for
1994 and 1993.  The Company  employed  165  full-time  equivalent  employees  at
year-end 1995, 155 at year-end 1994, and 152 at year-end 1993.

         Occupancy  expense  increased  $128,000 or 10.1% in 1995  compared to a
decrease of $38,000 or 2.9% in 1994.  The increase in 1995 was due to the use of
temporary facilities during the year due to the expansion of the Salinas Office.

         All other  operating  expenses  totaled  $4,305,000 in 1995 compared to
$4,670,000  in 1994, a decrease of $365,000 or 7.8%.  This  reduction was mainly
due to the decrease in regulatory  assessments of $313,000 in 1995. In 1995, the
FDIC reduced the Bank  Insurance Fund  assessment for the healthiest  banks from
$.23 per $100 in insured  deposits to $.04 per $100 of insured  deposits  due to
the  recapitalization  of the Bank  Insurance  Fund.  In 1994,  other  operating
expense  increased  by $89,000 or 1.9% as compared to an increase of $185,000 or
4.2% in 1993. The 


                                       31
<PAGE>
                            Pacific Capital Bancorp
                                and Subsidiaries

<TABLE>
increase in 1994 was due mainly to advertising  and promotion which increased by
$163,000  partially  offset  by a decline  in other  miscellaneous  expenses  of
$133,000.  Overall growth in other operating  expenses in 1995 is expected to be
consistent with the overall growth of the Company. 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                          1995                             1994                        1993
---------------------------------------------------------------------------------------------------------------------
                                              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             $6,638           2.19%      $6,027             2.07%       $5,801            2.07%
Occupancy                          1,399           0.46%       1,271             0.44%        1,309            0.47%
Equipment                          1,035           0.34%       1,038             0.36%        1,035            0.37%
Advertising and promotion            476           0.16%         480             0.16%          317            0.11%
Forms and supplies                   310           0.10%         272             0.09%          267            0.10%
Legal and professional fees          572           0.19%         653             0.22%          616            0.22%
Assessments                          423           0.14%         736             0.25%          722            0.26%
Other                              1,489           0.48%       1,491             0.51%        1,624            0.58%
---------------------------------------------------------------------------------------------------------------------
 Total                           $12,342           4.06%     $11,968             4.10%      $11,691            4.18%
=====================================================================================================================
</TABLE>


INCOME TAXES
         The  provision  for income taxes was  $3,180,000  in 1995,  compared to
$2,652,000 in 1994 and $1,727,000 in 1993. The Company's  effective tax rate for
1995 was 38.7%,  compared with 37.9% for 1994, and 35.5% for 1993. The increases
in 1995 and 1994 were due to slightly  higher  state income tax rates as well as
decreases in tax-exempt income relative to total income.

         The Financial  Accounting  Standards  Board issued SFAS No. 109 in 1992
which  established  new guidelines  with respect to accounting and reporting for
income taxes. The Company adopted this statement  effective January 1, 1993, and
recognized  a cumulative  benefit of $549,000 in 1993 from  adoption of SFAS No.
109.  The  adoption of SFAS No. 109 has not had an impact on the earnings of the
Company in 1994 or 1995.

CAPITAL
         Shareholders'  equity  increased  $4,226,000  or  10.9%  in  1995.  The
increase was  primarily a result of retention of the  Company's  1995 net income
and the exercise of stock options, offset in part by a repurchase of outstanding
shares  and a total  cash  dividend  of $0.53 per share paid  during  1995.  The
Company  paid  $111,000  during 1995 to  repurchase  5,606  shares.  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 Comptroller of the Currency (the Comptroller)
for national banks. The Company's capital plan for 1995  contemplates  continued
growth in shareholders' equity through the retention of net income.

         The Company and the Bank 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.

                                       32
<PAGE>
                            Pacific Capital Bancorp
                                and Subsidiaries

         The Federal Reserve Board capital guidelines for bank holding companies
and  the  Comptroller's   regulations  for  national  banks  set  total  capital
requirements and define capital in terms of "core capital elements"  (comprising
Tier 1 capital) and "supplemental capital elements" (comprising Tier 2 capital).
Tier 1 capital is generally defined as the sum of the core capital elements less
goodwill.  The  following  items are defined as core  capital  elements:  common
stockholders' equity,  qualifying  noncumulative  perpetual preferred stock, and
minority  interests  in  the  equity  accounts  of  consolidated   subsidiaries.
Supplementary  capital  elements  include:  allowance  for loan and lease losses
(which cannot exceed 1.25% of an institution's risk weighted assets),  perpetual
preferred stock not qualifying as core capital,  hybrid capital  instruments and
mandatory   convertible  debt  instruments,   and  term  subordinated  debt  and
intermediate-term  preferred stock.  The maximum amount of supplemental  capital
elements which qualifies as Tier 2 capital is limited to 100% of Tier 1 capital,
net of  goodwill.  The Company and the Bank's Tier 1 capital  ratios at December
31, 1995 were  17.60% and 16.78%  respectively,  well in excess of the  required
minimum of 4.0%.

         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 Comptroller 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 Company and the
Bank's total risk-based capital ratios were 18.59% and 17.77%  respectively,  as
compared to the required minimum of 8.0%.

         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 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  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.


                                       33
<PAGE>
                            Pacific Capital Bancorp
                                and Subsidiaries

<TABLE>
Set forth below are the Company's and the Bank's risk-based and leverage capital
ratios as of December 31, 1995:

<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Risk Based Capital Ratio
As of December 31, 1995
---------------------------------------------------------------------------------------------------------------------


                                                      Company                                Bank
(Dollars in thousands)                                 Amount             Ratio             Amount             Ratio
---------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                <C>              <C>                 <C>   
Tier 1 capital                                        $42,976            17.60%            $40,532            16.78%
Tier 1 capital minimum
   requirement                                          9,765             4.00%              9,662             4.00%
---------------------------------------------------------------------------------------------------------------------
      Excess                                           33,211            13.60%             30,870            12.78%
=====================================================================================================================
Total capital                                          45,373            18.59%             42,929            17.77%
Total capital minimum
    requirement                                        19,529             8.00%             19,325             8.00%
---------------------------------------------------------------------------------------------------------------------
      Excess                                           25,844            10.59%             23,604             9.77%
=====================================================================================================================
Risk-adjusted assets                                 $244,114                             $241,561
=====================================================================================================================
</TABLE>

<TABLE>

         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.

<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Leverage Capital Ratio
As of December 31, 1995
---------------------------------------------------------------------------------------------------------------------

                                                      Company                                Bank
(Dollars in thousands)                                 Amount             Ratio             Amount             Ratio
---------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                <C>               <C>                <C>     
Tier 1 capital to quarterly average
    total assets (Leverage Ratio)                     $42,976            12.00%            $40,532            11.38%
Minimum leverage requirement                        10,747 to          3.00% to          10,685 to          3.00% to
                                                       17,912             5.00%             17,809             5.00%
---------------------------------------------------------------------------------------------------------------------
      Excess                                        25,064 to          7.00% to          22,723 to          6.38% to
                                                       32,229             9.00%             29,847             8.38%
=====================================================================================================================
Total quarterly average assets                       $358,232                             $356,173
=====================================================================================================================
</TABLE>

         Federal banking laws impose  restrictions  upon the amount of dividends
the  Bank  may  declare  to  the  Company  (see  Note  11  to  the  accompanying
consolidated financial  statements).  Federal laws also impose restrictions upon
the  amount of loans or  advances  that the Bank may extend to the  Company.  In
management's opinion, these do not affect the ability of the Company to meet its
cash obligations.

                                       34
<PAGE>

                            Pacific Capital Bancorp
                                and Subsidiaries

         On September 29, 1995, the Reigle/Neal Interstate Banking and Branching
Efficiency act of 1995 (the  Interstate Act) was signed into law. The Interstate
Act effectively permits nationwide banking. The Interstate Act provides that one
year after enactment, adequately capitalized and adequately managed bank holding
companies  may  acquire  banks in any state,  even in those  jurisdictions  that
currently  bar  acquisition  by  out-of-state  institutions,  subject to deposit
concentration  limits. The deposit  concentration limits provide that regulatory
approval  by the  Federal  Reserve  Board  may  not be  granted  for a  proposed
interstate acquisition if after the acquisition,  the acquirer on a consolidated
basis would  control  more than 10% of the total  deposits  nationwide  or would
control more than 30% of deposits in the state where the  acquiring  institution
is  located.  The deposit  concentration  state limit does not apply for initial
acquisitions in a state and in every case, may be waived by the state regulatory
authority.  Interstate acquisitions are subject to compliance with the Community
Reinvestment  Act (CRA).  States are permitted to impose age requirements not to
exceed five years on target banks for  interstate  acquisitions.  States are not
allowed to opt-out of interstate banking.

         Branching between states may be accomplished either by merging separate
banks located in different  states into one legal entity,  or by establishing de
novo branches in another state.  Consolidation  of banks is not permitted  until
June 1, 1997 provided that the state has not passed legislation  "opting-out" of
interstate  branching.  If a state  opts-out  prior to June 1, 1997,  then banks
located in that state may not participate in interstate  branching.  A state may
opt-in to interstate  branching by bank consolidation or by de novo branching by
passing  appropriate  legislation  earlier  than June 1,  1997.  California  has
elected to opt-in to interstate branching effective October 2, 1995.  Interstate
branching is also subject to a 30% statewide  deposit  concentration  limit on a
consolidated basis, and a 10% nationwide deposit  concentration  limit. The laws
of the host state  regarding  community  reinvestment,  fair  lending,  consumer
protection (including usury limits) and establishment of branches shall apply to
the interstate branches.

         De novo branching by an out-of-state  bank is not permitted  unless the
host state expressly permits de novo branching by banks from  out-of-state.  The
establishment  of an  initial  de novo  branch in a state is subject to the same
conditions as apply to initial  acquisition of a bank in a host state other than
the deposit concentration limits.

         Effective one year after  enactment,  the  Interstate  Act permits bank
subsidiaries  of a  bank  holding  company  to  act  as  agents  for  affiliated
depository institutions in receiving deposits,  renewing time deposits,  closing
loans, servicing loans and receiving payments on loans and other obligations.  A
bank acting as an agent for an affiliate shall not be considered a branch of the
affiliate.  Any agency relationship between affiliates must be on terms that are
consistent  with safe and sound banking  practices.  The authority for an agency
relationship  for  receiving  deposits  includes  the taking of deposits  for an
existing  account but is not meant to include the opening or  origination of new
deposit accounts.  Subject to certain conditions,  insured savings  associations
which were  affiliated with banks as of June 1, 1994, may act as agents for such
banks. An affiliate bank or savings  association may not conduct any activity as
an agent with such institution if prohibited from conducting as principal.

         If an  interstate  bank  decides to close a branch  located in a low-or
moderate-income  area,  it must comply with  additional  branch  closing  notice
requirements.  The appropriate  regulatory  agency is authorized to consult with
community  organizations  to explore options to maintain banking services in the
affected community where the branch is to be closed.

         To ensure that interstate  branching does not result in taking deposits
without  regard to a  community's  credit  needs,  the  regulatory  agencies are
directed to implement  regulations  prohibiting  interstate  branches from being
used  as  "deposit  production   offices."  The  regulations  to  implement  its
provisions are due by June 1, 1997. The regulations  must include a provision to
the  effect  that if loans  made by an  interstate  branch  are less than  fifty
percent of the average of all  depository  institutions  in the state,  then the
regulator  must  review  the loan  portfolio  of the  branch.  If the  regulator
determines that the branch is not meeting the credit needs of the community,  it
has the  authority to close the branch and to prohibit the bank from opening new
branches in the state.

                                       35
<PAGE>
                            Pacific Capital Bancorp
                                and Subsidiaries

         Bank holding  companies  are also  restricted as to the extent to which
they,  and their  subsidiaries  can borrow or otherwise  obtain  credit from one
another,  or engage in certain other  transactions.  The "covered  transactions"
that an insured  depository  institution and its  subsidiaries  are permitted to
engage in with their  nondepository  affiliates  are  limited  to the  following
amounts:  (I) in the case of any one such  affiliate,  the  aggregate  amount of
covered transactions of the insured depository  institution and its subsidiaries
cannot exceed 10% of the capital stock and the surplus of the insured depository
institution;  and (II) in the case of all  affiliates,  the aggregate  amount of
covered transactions of the insured depository  institution and its subsidiaries
cannot exceed 20% of the capital stock and the surplus of the insured depository
institution.   In  addition,   extension  of  credit  that  constitute   covered
transactions must be collateralized in prescribed amounts.

         "Covered  transactions"  are  defined  by  statute to include a loan or
extension  of credit to the  affiliate,  a purchase of  securities  issued by an
affiliate, a purchase of assets from the affiliate (unless otherwise exempted by
the Federal Reserve Board) the acceptance of securities  issued by the affiliate
as collateral for a loan and the issuance of a guarantee,  acceptance, or letter
of credit for the benefit of an affiliate.  Further,  a bank holding company and
its subsidiaries are prohibited from engaging in certain tie-in  arrangements in
connection with any extension of credit, lease or sale of property or furnishing
of services.

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

         Core  deposits,  which  include  demand,  savings and  interest-bearing
demand accounts, money market accounts, and time deposits of less than $100,000,
provide a relatively stable funding base. Core deposits averaged $158,213,000 or
46.6% of average total assets in 1995,  compared with  $156,753,000  or 48.2% in
1994. As of December 31, 1995, core deposits were $164,574,000 or 46.5% of total
assets, compared to $154,515,000 or 44.9% as of December 31, 1994.

         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,
1995 these sources represented $117,794,000 or 38.3% of total deposits, compared
to 33.9% in 1994 and 42.2% in 1993.  The  increase in 1995  reflects  the effort
made by management to provide increased  liquidity for the Company by allocating
a large  percentage of the  investment  portfolio to  available-for-sale.  Other
sources  of  asset   liquidity  are  maturing  loans  and  borrowing   lines  of
approximately  $24,000,000  with  primary  correspondent  banks.  There  were no
borrowings outstanding under these lines as of December 31, 1995.

         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, 1995 and 1994,
outstanding  standby  letters  of  credit  totaled  $1,462,000  and  $1,288,000,
respectively.  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


                                       36
<PAGE>
                            Pacific Capital Bancorp
                                and Subsidiaries

         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.


                                       37
<PAGE>
                            Pacific Capital Bancorp
                                and Subsidiaries


                    PACIFIC CAPITAL BANCORP AND SUBSIDIARIES

                     PACIFIC CAPITAL BANCORP STOCK ACTIVITY

         The  common  stock of  Pacific  Capital  Bancorp  is not  listed on any
exchange,  nor is it listed for quotation with NASDAQ.  It is,  however,  listed
with the National  Quotation  Service and on the Over the Counter (OTC) Bulletin
Board.

         The high and low bid and ask prices  listed below have been reported by
three  brokerage  firms known to effect  transactions  in the  Company's  stock:
Kidder Peabody & Co.,  Inc.;  Dean Witter  Reynolds,  Inc.; and Hoefer & Arnett,
Inc. The  quotations  listed below reflect  interdealer  prices,  without retail
markup,  markdown  or  commission,  and may  not  necessarily  represent  actual
transactions.

         According to the Company's records, there were 1,602 shareholders as of
March 1, 1996. In 1995 the Company paid three cash dividends of $0.125 per share
to holders of record on March 15, June 15,  September  15,  payable on March 31,
June 30, and September 30. The Company also paid a $0.15 per share cash dividend
to holders of record on November 15,  payable on December 15, and a five percent
(5%) stock dividend payable to shareholders of record as of November 15, 1995.

<TABLE>

         For information regarding  restrictions on the payment of dividends see
Note 11 to the accompanying consolidated financial Statements.

<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                               Ranges of Common Stock Prices
                                                           1995
---------------------------------------------------------------------------------------------------------------------
                                                          Low              High                Low              High
Quarter                                                   Bid               Bid                Ask               Ask
---------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>               <C>                <C>               <C>   
First                                                  $19.00            $19.25             $20.00            $20.50
Second                                                  19.50             20.00              20.50             21.75
Third                                                   20.00             20.13              21.75             22.00
Fourth                                                  20.13             21.00              22.00             25.75
---------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------
                                                           1994
---------------------------------------------------------------------------------------------------------------------
                                                          Low              High                Low              High
Quarter                                                   Bid               Bid                Ask               Ask
---------------------------------------------------------------------------------------------------------------------
First                                                  $16.00            $17.00             $17.00            $18.00
Second                                                  17.00             17.50              18.00             18.50
Third                                                   17.50             18.50              18.50             19.50
Fourth                                                  17.75             18.50              18.75             19.75
---------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       38
<PAGE>

<TABLE>

                            Pacific Capital Bancorp
                                and Subsidiaries


                               BOARD OF DIRECTORS


<S>                           <C>                           <C>                          <C>
PACIFIC CAPITAL BANCORP       James L. Gattis               William K. Sambrailo
                              Investor                      President
Stanley R. Haynes             Civic Leader                  Charles Sambrailo
Chairman of the Board                                       Company
President                     D. Vernon Horton
Cinderella Carpets            President/Chief               Robert B. Sheppard
                              Executive Officer             Vice Chairman, Retired
William S. McAfee             First National Bank of        Allstate Insurance
Vice Chairman of the Board    Central California            Companies
Physician
                              Hubert H.Hudson               Clyn Smith, Jr.
Charles E. Bancroft           Consultant                    Physician, Retired
Chairman of the Board         McSherry & Hudson
CLM Insurance Agencies, Inc   Insurance                     DIRECTORS EMERITUS

Gene DiCicco                  William J. Keller             Howard S. Bucquet            Clinton F. Miller
Owner                         Physician                     Property Management          President
Watsonville Nurseries                                                                    Clint Miller Farms, Inc.
                                                            Wayne O. Hall
Lewis L. Fenton               Clayton C. Larson             President                    June Duran-Stock
Attorney                      President                     Wayne O. Hall                President
Fenton & Keller               Pacific Capital Bancorp       Insurance Agency             Legal Research &
                                                                                         Services Center
Gerald T. Fry                                               Thomas M. Merrill
President                     William H. Pope               President
Office Products, Inc.         Certified Public Accountant   Merrill Farms
</TABLE>


                                       39
<PAGE>


                            Pacific Capital Bancorp
                                and Subsidiaries


                                 THE CORPORATION

         Pacific Capital  Bancorp (the Company) is a California  corporation and
bank holding company that was  incorporated on January 26, 1983.  First National
Bank of Central  California  (First National Bank), a wholly owned subsidiary of
the Company, commenced operations on April 2, 1984.

<TABLE>

         First National Bank is a nationally  chartered  commercial bank serving
Monterey  and Santa Cruz  Counties  and  surrounding  areas in  California.  The
Company  itself  does not  engage  in any  business  activities  other  than the
ownership of First National Bank.


<S>                           <C>                           <C>                          <C>
FIRST NATIONAL BANK OF        ADMINISTRATION CENTER         REGISTRAR & TRANSFER AGENT   FORM 10-K
CENTRAL CALIFORNIA            307 Main Street               First Interstate Bank        A COPY OF THE COMPANY'S
BANKING OFFICES               Salinas, California           Stock Transfer               FORM 10-K AS FILED WITH THE
1001 South Main Street        93902-1786                    Administration               SECURITIES AND EXCHANGE
Salinas, California           (408) 757-4900                345 California Street        COMMISSION IS AVAILABLE,
93902-1786                                                  Eighth Floor                 WITHOUT CHARGE, UPON
(408) 757-4900                CREDIT ADMINISTRATION         San Francisco, California    WRITTEN REQUEST.
                              CENTER                        94104                        PLEASE DIRECT REQUESTS TO:
495 Washington Street         17547 Vierra Canyon Road
Monterey, California          Salinas, California           MARKET MAKERS                DENNIS A. DECIUS
93942-2718                    93907-1329                    Paine Webber                 EXECUTIVE VICE PRESIDENT
(408) 373-4900                (408) 663-9100                26435 Carmel Rancho          CHIEF  FINANCIAL OFFICER
                                                            Boulevard                    PACIFIC CAPITAL BANCORP
307 Main Street               CORPORATE COUNSEL             Carmel, California  93923    P.O. BOX 1786
Salinas, California           Graham & James                                             SALINAS, CALIFORNIA
93902-1786                    One Maritime Plaza            Dean Witter Reynolds, Inc.   93902-1786
(408) 757-4900                San Francisco, California     1400 Del Monte Center
                              94111                         Monterey, California  93940
655 Main Street
Watsonville, California       CERTIFIED PUBLIC              111 Mission Street
95077-1540                    ACCOUNTANTS                   Santa Cruz, California 95061
(408) 728-2265                KPMG Peat Marwick LLP
                              50 West San Fernando Street   Hoefer & Arnett, Inc.
26380 Carmel Rancho Lane      San Jose, California  95113   353 Sacramento Street
Carmel, California                                          Tenth Floor
93922-2017                                                  San Francisco, California
(408) 626-2900                                              94111
</TABLE>


                                       40
<PAGE>



KPMG Peat Marwick LLP

                        Consent of Independent Auditors
                        -------------------------------

Shareholders and Board of Directors
Pacific Capital Bancorp

We consent to  incorporation  by reference in the  registration  statement  (No.
33-83848) on Form S-8 of Pacific Capital Bancorp and  subsidiaries of our report
dated January 10, 1996,  relating to the consolidated  balance sheets of Pacific
Capital  Bancorp  and  subsidiaries  as of December  31, 1995 and 1994,  and the
related consolidated  statments of income,  shareholders' equity, and cash flows
for each of the years in the three-year  period ended  December 31, 1995,  which
report  appears in the December  31, 1995 annual  report on Form 10-K of Pacific
Capital Bancorp and subsidiaries.

                                       /s/ KPMG Peat Marwick LLP

March 25, 1996




<PAGE>

KPMG Peat Marwick LLP


                          Independent Auditors' Report


The Board of Directors
Pacific Capital Bancorp

We have audited the accompanying  consolidated balance sheets of Pacific Capital
Bancorp  and  subsidiaries  as of December  31,  1995 and 1994,  and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of  the  years  in  the  three-year   period  ended  December  31,  1995.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accpeted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Pacific  Capital
Bancorp and subsidiaries at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December  31,  1995 in  conformity  with  generally  accepted  accounting
principles.

As  discussed in Notes 1 and 7 to the  consolidated  financial  statements,  the
Company  adopted the provisions of Statement of Financial  Accounting  Standards
No. 109, Accounting for Income Taxes, in 1993.


                                               /s/ KPMG Peat Marwick LLP

San Jose, California
January 10, 1996

<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 27, 1996                      PACIFIC CAPITAL BANCORP
      -------------------------------


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


/S/ Clayton C. Larson
--------------------------------------    Date:             March 27, 1996
Charles E. Bancroft,
Director


/S/ Dennis A. DeCius
--------------------------------------    Date:             March 27, 1996
Dennis A. DeCius
Executive Vice President
and Chief Financial Officer
(principal financial officer and
principal accounting officer)


/S/ Gene DiCicco
--------------------------------------    Date:             March 27, 1996
Gene DiCicco,
Director


/S/ Clayton C. Larson
--------------------------------------    Date:             March 27, 1996
Lewis L. Fenton,
Director


<PAGE>

/S/ Gerald T. Fry
--------------------------------------    Date:             March 27, 1996
Gerald T. Fry,
Director


/S/ James L. Gattis
--------------------------------------    Date:             March 27, 1996
James L. Gattis,
Director and Secretary


/S/ Hubert W. Hudson
--------------------------------------    Date:             March 27, 1996
Hubert W. Hudson,
Director


/S/ Stanley R. Haynes
--------------------------------------    Date:             March 27, 1996
Stanley R. Haynes
Chairman of the Board
and Director


/S/ D. Vernon Horton
--------------------------------------    Date:             March 27, 1996
D. Vernon Horton,
Chief Executive officer
(principal executive
officer) and Director


/S/ William J. Keller
--------------------------------------    Date:             March 27, 1996
William J. Keller,
Director


<PAGE>

/S/ Clayton C. Larson
--------------------------------------    Date:             March 27, 1996
Clayton C. Larson,
President and Director


/S/ William S. McAfee
--------------------------------------    Date:             March 27, 1996
William S. McAfee,
Director


/S/ William H. Pope
--------------------------------------    Date:             March 27, 1996
William H. Pope,
Director


/S/ William K. Sambrailo
--------------------------------------    Date:             March 27, 1996
William K. Sambrailo,
Director


/S/ Robert B. Sheppard
--------------------------------------    Date:             March 27, 1996
Robert B. Sheppard,
Director


/S/ Clyn Smith, Jr.
--------------------------------------    Date:             March 27, 1996
Clyn Smith, Jr.,
Director


<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/                                    (*)

     4.        Not applicable.                                                              (*)

     9.        Not applicable.                                                              (*)

    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>

<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/

    10.10     Executive Salary Continuation Agreement entered into                          (*)
              August 22, 1989 by and between First National Bank of
              Monterey County and Clayton C. Larson. 6/

    10.11     Executive Salary Continuation Agreement entered into                          (*)
              August 22, 1989 by and between First National Bank of
              Monterey County and D. Vernon Horton. 6/

    10.12    Executive Salary Continuation Agreement entered into                           (*)
             August 22, 1989 by and between First National Bank of
             Monterey County and Dennis A. DeCius. 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>


<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.

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

    10.36    Software License Agreement and Product License Agreements dated               (*)
             March 3, 1993 by and between First National Bank of Central California
             and Information Technology, Inc.

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

    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.

<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.
</FN>
</TABLE>


<PAGE>


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

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

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

    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.

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

    10.43     Employment Agreement dated may 22, 1993 between                               (*)
              First National Bank of Central California and D. Vernon Horton.

    10.44     Employment Agreement dated May 22, 1993 between                               (*)
              First National Bank of Central California and Clayton C. Larson.

    10.45     Employment Agreement dated May 22, 1993 between
              First National Bank of Central California and Dennis A. De Cius.              (*)

    10.46     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                  75
              First National Bank of Central California and
              Information Technology, Inc.

    10.50     Equipment Sale Agreement dated February 2, 1996, by and between                80
              First National Bank of Central California and
              Information Technology, Inc.


<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 10.47 through 10.48 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.
</FN>
</TABLE>



<PAGE>


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

    <S>       <C>                                                                           <C>
    10.51     Standard Form of Agreement between Owner (Pacific Capital Bancorp)             86
              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.

    10.52     Employee Welfare Benefit Plan Agreement dated January 1, 1995,                118
              between Pacific Capital Bancorp and 
              Great-West Life & Annuity Insurance Co.

    11.       Not applicable.                                                               (*)

    12.       Not applicable.                                                               (*)

    13.       Pacific Capital Bancorp 1994 Annual Report to Shareholders                     24
              (parts  not   incorporated  by  reference  are  furnished  for
              informational purposes only and are not filed only and are not
              filed herewith).

    18.       Not applicable.                                                               (*)

    19.       Not applicable.                                                               (*)

    21.       Subsidiaries of the Company                                                    74

    23.       Not applicable.                                                               (*)

    24.       Consent of KPMG Peat Marwick LLP.                                              64

    25.       Power of Attorney.                                                            201

</TABLE>


<PAGE>



                      SUBSIDIARY OF PACIFIC CAPITAL BANCORP
                PACIFIC CAPITAL SERVICES CORPORATION (INACTIVE).