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Annual Report

Santa Barbara
Bank & Trust

Santa Barbara Bank & Trust annual report


Letter to Shareholders

Year in Review

Consumer Lending

Trust and Investment
Management Services

Commercial Lending
and Business Services

Real Estate Lending
and Escrow Services


Letter to the Shareholders

For the 25th consecutive year, your Company, Santa Barbara Bancorp, and its principal subsidiary, Santa Barbara Bank & Trust, are pleased to report record earnings.

Net income for 1990,was $10.3 million, or $2.09 per share, after adjusting for the 5% stock dividend declared January 30, 199 1, payable March 22, 1991, to shareholders of record March 1, 1991. Net income per share was up 8.3% from the previous record of $9.6 million, or $1.93 per share, in 1989.

Return on average assets was 1.33% and return on average net shareholders' equity was 18.86%.

Total shareholders' equity at year end was $61.7 million, or 7.31% of year end assets, which reached, a record $844 million.

And more than $33 million, or over 54.8% of total shareholders' equity, has been added to the capital accounts in the last five years.

The Bank once again won recognition. Sheshunoff Information Services of Austin, Texas rates the Bank A+ and in the 94th percentile, the highest rating among the Bank's nationwide peer group. The Findley Reports of California has reported the Bank as an elite Super Premier Performing Bank.

We are proud of our image as a conservative, locally owned institution, widely known for our commitment to the communities we serve. The hallmark of Santa Barbara Bank & Trust has always been our financial strength and quality of assets. Safe and sound. Bank & Trust.

If you examine the financial services industry today it is clear that no other strategy could have brought the same longterm success for us, and no other strategy is more appropriate for our future success.

Headlines in our industry have been dominated by an emphasis on capital strength, because the only thing standing between depositors and the Deposit Insurance Funds of the FDIC is the investment - the capital strength - of the shareholders.

Shareholders know that the growth of assets, earnings, and capital are key ingredients in the formula for success of our Company. Yet the issue which is most vital to our equity interests is the quality of the assets.

The Company has no foreign loans, no loans supporting the leveraged buy-outs of companies, no highly leveraged transactions, and no "junk bonds" - no speculative debt securities below Investment Grade.

We have maintained prudent and conservative underwriting standards within our loan portfolio. The net losses for 1990 were $1.4 million, or 0.3% of the loan portfolio as of year end. Total nonperforming loans still on our books at year end amounted to $1.0 million, or 0.2% of loans.

The Reserve for Loan Losses was $6.2 million, or 1.2% of loans outstanding at December 31, 1990. The reserve represented an amount equal to 6.2 times current non-performing loans, 4.4 times 1990 net losses and 2.1 times net losses for the last five years.

We are understandably pleased with the quality of our loan portfolio. Despite the uncertain future of our world engaged in conflict, our nation and state facing a budget crisis, and our local environment impacted by drought and severe growth controls, the Company is well positioned to deal with the vagaries of this economic cycle. "Safe and Sound" perhaps seemed to be hollow words in the high flying Eighties. We believe they will be the most meaningful words of the Nineties: Safe and Sound, Bank & Trust.

The current crisis of confidence in the banking system has made these cyclical issues into a grave national concern. The imprudent investment of depositors' funds by the savings and loan industry and by commercial banks in the Northeast, combined with questionable legislation, inadequate regulation, and inappropriate political intervention, has created a string of disasters which might require more than one half trillion dollars to correct.

The Department of the Treasury is virtually certain to enforce a major re-capitalization plan on the FDIC. This cost will be allocated to the Company in the form of increased semi-annual deposit insurance premiums. Special assessments over the next five to ten years are'also likely.

It would not be fair to.require the shareholders to bear the full- cost of these onerous expenses. The unfortunate conclusion is that our depositors, borrowers, and we, the staff and management, and our families, must share a portion of this new cost.

We sincerely hope that the required premiums will be based on an assessment of the risk each financial institution has created within the system, so that conservative, well capitalized institutions such as ours are rewarded for their safety. Also, some large banks have as much as 30% of their deposit base in foreign offices, and are currently not required to pay deposit insurance premiums on those dollars. Yet all foreign deposits were covered by the FDIC in both the Continental Bank and the recent Bank of New England failures. All deposits receiving the full protection of the FDIC, especially those deposits in the foreign offices of our major money center banks, should be assessed.

Santa Barbara Bank & Trust will likely benefit from the heightened concerns over strength and stability in the financial marketplace. The Bank has always stood for the qualities which consumers, business persons, and public entities are now seeking out for their banking relationships.

We have reason to be proud of our accomplishments and confident of our future. We thank you for your continuing support. We remain steadfastly committed to our belief that a strong and independent financial institution can best provide for the needs of the communities we serve.

Before we close this letter, we must say a special farewell to two people who have been a part of our story and have passed away in the last year. To Dr. Walter Graham, a founding director of the Company, and to Hertha Kostichuk, Vice President and Trust Officer, a founding member of our Trust Division, you have instilled in us the desire to continue to serve faithfully those friends and neighbors we know as our customers.

As shareholders, you need to know where we stand. Please take the time to go through the pages of this report. If any of our terminology seems mysterious or incomprehensible, please call or write us for clarification.

We anticipate another great year in 1991. Let us proceed with the wonderful news of 1990, our best year ever.

Donald M. Anderson
Chairman of the Board

David W. Spainhour