<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

For the quarterly period ended September 30, 1998
                               ------------------------------------------------

                                       or

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

For the transition period from                        to
                              -----------------------   -----------------------

Commission File Number: 0-28938
                       --------------------------------------------------------

                                 Coast Bancorp
-------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

           California                                           77-0401327
-------------------------------------------------------------------------------
  (State or other jurisdiction                                (I.R.S. Employer
of incorporation or organization)                           Identification No.)

740 Front Street, Santa Cruz, California                                95060
-------------------------------------------------------------------------------
(Address of principal executive offices)                             (Zip Code)

                               (408) 458-4500
-------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

                               Not Applicable
-------------------------------------------------------------------------------
   (Former name, former address and former fiscal year, if changed since last 
                                     report)

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

     No. of shares of Common Stock outstanding on November 5, 1998: 2,383,679
                                                                      ---------

<PAGE>


                                COAST BANCORP
                                       
                                   FORM 10-Q
                                       
                      FOR THE QUARTER ENDED SEPTEMBER 30, 1998
                               TABLE OF CONTENTS
                                       
                                    PART I
<TABLE>
<CAPTION>
                                                                           Page
<S>                                                                        <C>
Item 1.   Financial Statements                                               1
Item 2.   Management's Discussion and Analysis of Financial 
          Condition and Results of Operations                                5
                                       
                                    PART II

Item 1.   Legal Proceedings                                                 18
Item 2.   Changes in Securities                                             18
Item 3.   Defaults Upon Senior Securities                                   18
Item 4.   Submission of Matters to a Vote of Security Holders               18
Item 5.   Other Information                                                 18
Item 6.   Exhibits and Reports on Form 8-K                                  18
</TABLE>

<PAGE>


PART I
Item 1.  Financial Statements
COAST BANCORP
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                 SEPTEMBER 30,         DECEMBER 31,
                                                                     1998                  1997
                                                                ---------------        -----------
<S>                                                             <C>                   <C>
        
ASSETS                                                           (unaudited)
                                                                                
Cash and due from banks                                         $ 16,287,000          $ 15,853,000
Federal funds sold                                                37,000,000            15,000,000
                                                                ------------          ------------
Total cash and equivalents                                        53,287,000            30,853,000
Securities available-for-sale, at fair value                      98,890,000            80,466,000
                                                                                                  

Loans:                                                                                            
  Commercial                                                      39,748,000            42,838,000
  Real estate - construction                                      20,413,000            21,376,000
  Real estate - term                                              87,299,000            76,101,000
  Installment and other                                            4,502,000             6,112,000
                                                                ------------          ------------
Total loans                                                      151,962,000           146,427,000
  Unearned income                                                 (3,161,000)           (2,349,000)
  Allowance for credit losses                                     (3,776,000)           (3,609,000)
                                                                ------------          ------------
Net loans                                                        145,025,000           140,469,000
Bank premises and equipment, net                                   2,412,000             2,045,000
Other real estate owned                                              197,000               112,000
Accrued interest receivable and other assets                       8,687,000             7,560,000
                                                                ------------          ------------
TOTAL ASSETS                                                    $308,498,000          $261,505,000
                                                                ------------          ------------
                                                                ------------          ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
  Non-interest bearing demand                                   $ 66,184,000          $ 66,812,000
  Interest-bearing demand                                         96,643,000            76,123,000
  Savings                                                         49,003,000            23,942,000
  Time                                                            53,548,000            34,320,000
                                                                ------------          ------------
Total deposits                                                   265,378,000           201,197,000
Other borrowings                                                  10,656,000            30,070,000
Accrued expenses and other liabilities                             3,223,000             2,474,000
                                                              ---------------        --------------
Total liabilities                                                279,257,000           233,741,000
STOCKHOLDERS' EQUITY:
Preferred stock - no par value;
  10,000,000 shares authorized; no shares issued                          --                    --
Common stock - no par value; 20,000,000 shares authorized;
  shares outstanding: 2,372,679 in 1998 and 2,203,659 in 1997     20,253,000            11,011,000
Retained earnings                                                  8,044,000            16,060,000
Accumulated other comprehensive income                               944,000               693,000
                                                                ------------          ------------
Total stockholders' equity                                        29,241,000            27,764,000
                                                                ------------          ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                      $308,498,000          $261,505,000
                                                                ------------          ------------
                                                                ------------          ------------
</TABLE>

         See notes to unaudited consolidated financial statements


                                      -1-

<PAGE>


COAST BANCORP
CONSOLIDATED INCOME STATEMENTS
(unaudited)

<TABLE>
<CAPTION>

                                                       THREE MONTHS ENDED SEPTEMBER 30,  NINE MONTHS ENDED SEPTEMBER 30,
                                                          ----------------------------   --------------------------
                                                                  1998           1997           1998           1997
                                                          ------------    -----------    -----------     ----------
<S>                                                    <C>              <C>             <C>           <C>
Interest Income:
  Loans, including fees                                   $ 4,125,000    $ 3,718,000    $12,495,000    $10,570,000
  Federal funds sold                                          596,000        304,000        949,000        980,000
  Securities:
    Taxable                                                 1,306,000      1,201,000      3,757,000      3,397,000
    Nontaxable                                                191,000         82,000        523,000        248,000
                                                          -----------    -----------    -----------    -----------
Total interest income                                       6,218,000      5,305,000     17,724,000     15,195,000
Interest expense:
    Deposits                                                1,571,000      1,058,000      4,018,000      3,039,000
    Other borrowings                                          258,000        371,000        990,000      1,041,000
                                                          -----------    -----------    -----------    -----------
Total interest expense                                      1,829,000      1,429,000      5,008,000      4,080,000
                                                          -----------    -----------    -----------    -----------
Net interest income                                         4,389,000      3,876,000     12,716,000     11,115,000
Provision for credit losses                                    75,000         75,000        225,000        375,000
                                                          -----------    -----------    -----------    -----------
Net interest income after provision for credit losses       4,314,000      3,801,000     12,491,000     10,740,000
Noninterest income:
    Gain on sale of loans                                     599,000        252,000      1,895,000        905,000
    Customer service fees                                     460,000        471,000      1,368,000      1,427,000
    Loan servicing fees                                       255,000        270,000        750,000        792,000
    Gains (losses) on securities sales                          1,000        (10,000)        13,000        (10,000)
    Other                                                     172,000        177,000        528,000        489,000
                                                          -----------    -----------    -----------    -----------
Total noninterest income                                    1,487,000      1,160,000      4,554,000      3,603,000
Noninterest expenses:
    Salaries and benefits                                   1,672,000      1,381,000      4,773,000      4,168,000
    Occupancy                                                 297,000        253,000        859,000        867,000
    Equipment                                                 276,000        319,000        828,000        726,000
    Stationery and postage                                    106,000         84,000        299,000        267,000
    Insurance                                                  47,000         61,000        163,000        148,000
    Legal fees                                                 22,000         23,000         68,000         68,000
    Other                                                     693,000        636,000      2,047,000      1,883,000
                                                          -----------    -----------    -----------    -----------
Total noninterest expenses                                  3,113,000      2,757,000      9,037,000      8,127,000
                                                          -----------    -----------    -----------    -----------
Income before income taxes                                  2,688,000      2,204,000      8,008,000      6,216,000
Provision for income taxes                                  1,120,000        879,000      3,327,000      2,508,000
                                                          -----------    -----------    -----------    -----------
Net income                                                $ 1,568,000    $ 1,325,000    $ 4,681,000    $ 3,708,000
                                                          -----------    -----------    -----------    -----------
                                                          -----------    -----------    -----------    -----------
Earnings per share:
Basic                                                     $       .65     $      .55    $      1.94    $      1.53
Diluted                                                   $       .63     $      .53    $      1.89    $      1.50

</TABLE>

             See notes to unaudited consolidated financial statements


                                      -2-
<PAGE>


COAST BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

<TABLE>
<CAPTION>


                                                                 NINE MONTHS ENDED SEPTEMBER 30,
                                                                 -------------------------------
                                                                          1998              1997
                                                                 -------------     -------------
<S>                                                             <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:                                                           
Net income                                                       $   4,681,000     $   3,708,000
                                                                                                
Adjustments to reconcile net income to net cash provided by                                     
    operating activities:                                                                       
    Provision for credit losses                                        225,000           375,000
    Depreciation and amortization                                       88,000           112,000
    Gains on securities transactions                                   (13,000)          (10,000)
    Deferred income taxes                                              100,000          (306,000)
    Proceeds from loan sales                                        60,028,000        34,710,000
    Origination of loans held for sale                             (63,509,000)      (39,369,000)
    Accrued interest receivable and other assets                    (1,228,000)          616,000
    Accrued expenses and other liabilities                             749,000           411,000
    Increase in unearned income                                      1,582,000           998,000
    Other - net                                                       (252,000)           30,000
                                                                 -------------     -------------
Net cash provided by operating activities                            2,451,000         1,275,000
                                                                 -------------     -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available-for-sale                25,418,000         5,552,000
Proceeds from maturities of securities                              15,787,000        12,027,000
Purchases of securities available-for-sale                         (59,498,000)      (27,064,000)
Net increase in loans                                               (2,111,000)       (3,656,000)
Purchases of bank premises and equipment                              (925,000)         (382,000)
                                                                 -------------     -------------
Net cash (used in) investing activities                            (21,329,000)      (13,523,000)
                                                                 -------------     ------------- 
                                                                                                 
CASH FLOWS FROM FINANCING ACTIVITIES:                                                            
Net proceeds from securities sold under                                                          
 agreements to repurchase                                          (19,414,000)        4,242,000
Net increase in deposits                                            64,181,000        12,710,000
Payment of cash dividends                                             (983,000)         (764,000)
Repurchase of common stock                                          (2,651,000)         (130,000)
Exercise of stock options                                              186,000                --
Payment of fractional shares resulting from stock dividend              (7,000)               --
                                                                 -------------      -------------
Net cash provided by financing activities                           41,312,000        16,058,000
                                                                 -------------      -------------
                                                                                                 
Net increase in cash and equivalents                                22,434,000         3,810,000
                                                                 -------------      -------------
                                                                                                 
Cash and equivalents, beginning of period                           30,853,000        37,992,000
                                                                 -------------      -------------
                                                                                                 
Cash and equivalents, end of period                              $  53,287,000      $ 41,802,000
                                                                 -------------      -------------
                                                                 -------------      -------------
                                                                                                 
OTHER CASH FLOW INFORMATION - CASH PAID DURING THE PERIOD FOR:                                   
Interest                                                         $   4,907,000      $  3,945,000
Income taxes                                                         3,146,000         1,586,000
                                                                                                 
NON-CASH INVESTING AND FINANCING TRANSACTIONS:                                                   
Additions to other real estate owned                             $      85,000      $         -- 

</TABLE>
             See notes to unaudited consolidated financial statements


                                      -3-
<PAGE>
COAST BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1998 and 1997
-------------------------------------------------------------------------------

1.  BASIS OF PRESENTATION - These financial statements reflect, in
    management's opinion, all adjustments, consisting of adjustments of a 
    normal recurring nature, which are necessary for a fair presentation of 
    Coast Bancorp's financial position and results of operations and cash 
    flows for the periods presented.  The results of interim periods are not 
    necessarily indicative of results of operations expected for the full 
    year.  These financial statements should be read in conjunction with the 
    audited financial statements for 1997 included in the Company's Form 10-K.

2.  NET EARNINGS PER SHARE AND STOCK DIVIDEND- Basic earnings per share is 
    computed by dividing net income by the number of weighted average common 
    shares outstanding. Diluted earnings per share reflects potential dilution
    from outstanding stock options, using the treasury stock method.  The number
    of weighted average shares used in computing basic and diluted net income
    per share are as follows: 

<TABLE>
<CAPTION>
                                           Three months ended September 30,
                                         -----------------------------------  
                                               1998           1997
                                               ----           ----
<S>                                            <C>            <C> 
 Basic shares                                  2,398,079      2,424,025
 Dilutive effect of stock options                 75,778         54,100
                                         -----------------------------------
 Diluted shares                                2,473,857      2,478,125
                                         -----------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                            Nine months ended September 30,
                                         -----------------------------------  
                                                1998           1997
                                               ----           ----
<S>                                            <C>            <C> 
 Basic shares                                  2,407,767      2,427,172
 Dilutive effect of stock options                 70,502         51,146
                                         -----------------------------------  
 Diluted shares                                2,478,269      2,478,318
                                         -----------------------------------  
</TABLE>

On April 15, 1998, the Board of Directors declared a 10% stock dividend paid
on May 27, 1998.

3. NEW ACCOUNTING PRONOUNCEMENTS - Effective January 1, 1998, the Company
   adopted Statement of Financial Accounting Standards No. 130 "Reporting
   Comprehensive Income," (SFAS No. 130).  This Statement requires that all
   items recognized under accounting standards as components of comprehensive
   income be reported in an annual financial statement that is displayed with
   the same prominence as other financial statements.  Annual financial
   statements for prior periods will be reclassified, as required.  The 
   Company's source of other comprehensive income is unrealized gains and
   losses on securities available-for-sale.  Total comprehensive income was as
   follows:

<TABLE>
<CAPTION>
                                                   Three Months Ended
                                                       September 30,
                                            -----------------------------------
                                                    1998             1997
                                            -----------------------------------
<S>                                         <C>                 <C>
 Net income                                      $1,568,000      $1,325,000 
 Other comprehensive income                         341,000         199,000
                                            -----------------------------------
 Total comprehensive income                      $1,909,000      $1,524,000 
                                            -----------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                    Nine Months Ended
                                                      September 30,
                                            -----------------------------------
                                                     1998             1997
                                            -----------------------------------
<S>                                            <C>              <C>
 Net income                                      $4,681,000      $3,708,000 
 Other comprehensive income                         251,000         264,000
 Total comprehensive income                      $4,932,000      $3,972,000 
                                            -----------------------------------
</TABLE>

                                      -4-
<PAGE>

Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
         RESULTS OF OPERATIONS

OVERVIEW

Net income for the three months ended September 30, 1998 was $1,568,000 
compared to $1,325,000 during the same period in 1997, representing an 
increase of 18%. Net income for the nine months ended September 30, 1998 was 
$4,681,000 compared to $3,708,000 for the prior year period.  The increase
in net income during 1998 was primarily due to increases in net interest 
income and noninterest income partially offset by an increase in 
noninterest expenses and a related increase in income tax expense.

EARNINGS SUMMARY
NET INTEREST INCOME
Net interest income refers to the difference between interest and fees earned 
on loans and investments and the interest paid on deposits and other borrowed 
funds.  It is the largest component of the net earnings of a financial 
institution.  The primary factors to consider in analyzing net interest 
income are the composition and volume of earning assets and interest-bearing 
liabilities, the amount of noninterest bearing liabilities and nonaccrual 
loans, and changes in market interest rates.

Table I sets forth average balance sheet information, interest income and 
expense, average yields and rates, and net interest income and net interest 
margin for the three and nine months ended September 30, 1998 and 1997.

                                      -5-
<PAGE>

Table I  Components of Net Interest Income

<TABLE>
<CAPTION>

Three months ended September 30,                               1998                              1997
                                              --------------------------------   -------------------------------
                                                Average                Average      Average              Average
(Dollars in thousands)                          Balance    Interest    Rate(4)      Balance   Interest   Rate(4)
                                              ----------   --------    -------    ----------  --------   -------
<S>                                          <C>          <C>         <C>         <C>         <C>        <C>
Assets:                                                                                                         
                                                                                                                
Loans (2) (3)                                 $ 148,602    $ 4,126     11.1%      $ 131,364    $ 3,718      11.3%
                                                                                                                 
Investment securities:                                                                                           
   Taxable                                       78,113      1,306      6.7%         71,025      1,201       6.8% 
   Nontaxable (1)                                14,192        290      7.8%          5,905        124       8.4% 
                                                                                                                 
Federal funds sold                               42,560        596      5.6%         22,123        304       5.5% 
                                              ---------    -------                ---------   --------            
Total earning assets                            284,187      6,318      8.9%        222,901     15,323       9.3% 
                                                                                                                 
Cash and due from banks                          18,177                              17,575                      
Allowance for credit losses                      (3,723)                             (3,522)                     
Unearned income                                  (2,899)                             (1,853)                     
Bank premises and equipment, net                  2,376                               2,003                      
Other assets                                      9,049                               7,340                      
                                              ---------                           ---------                      
Total assets                                  $ 307,167                           $ 251,960                      
                                              ---------                           ---------                      
                                              ---------                           ---------                      
                                                                                                                 
Interest-bearing liabilities:                                                                                    
Deposits:                                                                                                        
  Demand                                      $  91,787        476      2.1%      $  77,794        408       2.1%
  Savings                                        42,090        435      4.1%         27,709        261       3.8%
  Time                                           53,938        660      4.9%         32,393        389       4.8%
                                              ---------    -------                ---------   --------           
Total deposits                                  187,815      1,571      3.4%        137,896      1,058       3.1%
Borrowed funds                                   20,079        258      5.1%         26,763        371       5.5%
                                              ---------    -------                ---------   --------           
Total interest-bearing liabilities              207,894      1,829      3.5%        164,659      1,429       3.5%
                                                                                                                
Demand deposits                                  68,317                              59,261                     
Other liabilities                                 3,174                               2,223                     
Stockholders' equity                             27,782                              25,817                     
                                              ---------                           ---------                     
                                                                                                                
Total liabilities and stockholders' equity    $ 307,167                           $ 251,960                     
                                              ---------                           ---------                     
                                              ---------                           ---------                     
                                                                                                                
Net interest income and margin                             $ 4,489      6.3%                   $ 3,918       6.8%
                                                           --------    -----                  --------    -------
                                                           --------    -----                  --------    -------
</TABLE>

(1)  Tax exempt income includes $99,000 and $42,000 in 1998 and 1997, 
respectively, to adjust to a fully taxable equivalent basis using the federal 
statutory rate of 34%.

(2)  Loan fees totaling $281,000 and $294,000 are included in loan interest 
income for the three months ended September 30, 1998 and 1997, respectively.

(3)  Average nonaccrual loans totaling $58,000 and $280,000 are included in 
average loans for the three months ended September 30, 1998 and 1997, 
respectively.

(4) Annualized
                                      -6-

<PAGE>


Table I  Components of Net Interest Income

<TABLE>

Nine months ended September 30,                               1998                              1997
                                              --------------------------------   --------------------------------
                                                Average                Average      Average              Average 
(Dollars in thousands)                          Balance    Interest    Rate(4)      Balance   Interest   Rate(4) 
                                              ----------   --------    -------    ----------  --------   ------- 
<S>                                          <C>          <C>         <C>         <C>         <C>        <C>
Assets:                                                                                                          
                                                                                                                 
Loans (2) (3)                                 $ 149,662    $12,496     11.1%      $ 125,665    $10,570      11.2% 
                                                                                                                 
Investment securities:                                                                                           
   Taxable                                       75,573      3,757      6.6%         67,043      3,397       6.8% 
   Nontaxable (1)                                13,423        792      7.9%          5,912        376       8.5% 
                                                                                                                 
Federal funds sold                               23,376        949      5.4%         24,281        980       5.4% 
                                              ---------    -------                ---------   --------            
Total earning assets                            262,034     17,994      9.2%        222,901     15,323       9.2% 
                                                                                                                 
Cash and due from banks                          17,901                              16,260                      
Allowance for credit losses                      (3,682)                             (3,404)                     
Unearned income                                  (2,666)                             (1,799)                     
Bank premises and equipment, net                  2,202                               2,089                      
Other assets                                      8,983                               7,437                      
                                              ---------                           ---------                      
Total assets                                  $ 284,772                           $ 243,484                      
                                              ---------                           ---------                      
                                              ---------                           ---------                      
                                                                                                                 
Interest-bearing liabilities:                                                                                    
Deposits:                                                                                                        
  Demand                                      $  83,348      1,265      2.0%      $  75,737      1,145       2.0%
  Savings                                        32,318        957      3.9%         30,856        872       3.8%
  Time                                           49,796      1,796      4.8%         29,692      1,021       4.6%
                                              ---------    -------                ---------   --------           
Total deposits                                  165,462      4,018      3.2%        136,285      3,038       3.0%
Borrowed funds                                   25,201        990      5.2%         25,906      1,041       5.4%
                                              ---------    -------                ---------   --------           
Total interest-bearing liabilities              190,663      5,008      3.5%        162,191      4,079       3.4%
                                                                                                                
Demand deposits                                  63,064                              54,764                     
Other liabilities                                 2,865                               1,995                     
Stockholders' equity                             28,180                              24,484                     
                                              ---------                           ---------                     
                                                                                                                
Total liabilities and stockholders' equity    $ 284,772                           $ 243,484                     
                                              ---------                           ---------                     
                                              ---------                           ---------                     
                                                                                                                
Net interest income and margin                             $12,986      6.6%                   $11,244       6.7%
                                                           --------    -----                  --------    -------
                                                           --------    -----                  --------    -------
</TABLE>

(1)  Tax exempt income includes $269,000 and $128,000 in 1998 and 1997, 
     respectively, to adjust to a fully taxable equivalent basis using 
     the federal statutory rate of 34%.

(2)  Loan fees totaling $950,000 and $808,000 are included in loan interest 
     income for the nine months ended September 30, 1998 and 1997, respectively.

(3)  Average nonaccrual loans totaling $243,000 and $220,000 are included in 
     average loans for the nine months ended September 30, 1998 and 1997, 
     respectively.

(4)  Annualized
                                      -7-


<PAGE>


    For the three months ended September 30, 1998, net interest income, on a 
    fully taxable-equivalent basis, was $4,489,000 or 6.3% of average 
    earning assets, an increase of 15% over $3,918,000 or 6.8% of average 
    earning assets in the comparable period in 1997. For the nine months ended 
    September 30, 1998, net interest income, on a fully taxable-equivalent
    basis, was $12,986,000 or 6.6% of average earning assets, an increase of
    15% over $11,244,000 or 6.7% of average earning assets in the comparable 
    period in 1997. The increase in 1998 reflects higher levels of earning
    assets.

    Interest income, on a fully taxable-equivalent basis, was $6,318,000 and 
    $5,347,000 for the three months and $17,994,000 and $15,323,000 for the nine
    months ended September 30, 1998 and 1997, respectively.  The increase in 
    1998 resulted from the growth in average earning assets. Loan yields
    averaged 11.1% and 11.3% for the three months ended September 30, 1998 and
    1997, respectively, and 11.1% and 11.2% for the nine months of 1998 and
    1997.  Approximately 89% of the Bank's loans have variable interest rates
    indexed to the prime rate. The Bank's average prime rate was 8.50% for each
    of the three month periods ended September 30, 1998 and 1997, and 8.50% and 
    8.42% for the nine months ended September 30, 1998 and 1997, respectively.
    Average earning assets were $284,187,000 and $262,034,000 for the three and
    nine months of 1998 compared to $230,417,000 and $222,901,000 for the same
    periods in 1997.  The growth in average earning assets resulted from
    increased levels of deposits which were invested in loans, securities and
    federal funds sold.

    The increase in interest income during 1998 on a fully taxable-equivalent
    basis, was partially offset by an increase in interest expense. The average
    rate paid on interest bearing deposits was 3.5% in each of the three month
    periods ended September 30, 1998 and 1997, and 3.5% and 3.4% for the nine
    months ended September 30, 1998 and 1997, respectively.

                                      -8-
<PAGE>


NONINTEREST INCOME

Table 2 summarizes the sources of noninterest income for the periods indicated:

Table 2 - Noninterest Income
(Dollars in thousands)

<TABLE>

                                          Three months ended September 30,
                                          -------------------------------
                                                   1998            1997
                                              ----------       ----------
<S>                                           <C>              <C> 
    Gain on sale of loans                        $  599          $  252
    Customer service fees                           460             471
    Loan servicing fees                             255             270
    Gains (losses)on securities transactions          1             (10)
    Other                                           172             177
                                               ----------      ----------
Total noninterest income                         $1,487          $1,160
                                               ----------      ----------
                                               ----------      ----------
</TABLE>

<TABLE>
<CAPTION>

                                          Nine months ended September 30,
                                          -------------------------------
                                                   1998            1997
                                              ----------       ----------
<S>                                           <C>              <C>
    Gain on sale of loans                        $1,895          $  905
    Customer service fees                         1,368           1,427
    Loan servicing fees                             750             792
    Gains (losses) on securities transactions        13             (10)
    Other                                           528             489
                                               ----------      ----------
Total noninterest income                         $4,554          $3,603
                                               ----------      ----------
                                               ----------      ----------
</TABLE>

Gains on sale of loans increased as a result of a higher volume of Small
Business Administration (SBA) loans sold during 1998. The Company sells SBA
loans and FHLMC conforming mortgage loans with SBA loan sales providing the
primary source of gains on sale. The decrease in customer service fees in 1998
relates primarily to lower levels of fees from returned items. Loan servicing
fees declined due to the amortization of increased servicing assets resulting
from the loan sales. Other noninterest income increased consistent with the
growth of deposits.

                                      -9-
<PAGE>


NONINTEREST EXPENSES

The major components of noninterest expenses stated in dollars and as a 
percentage of average earning assets are set forth in Table 3 for the periods 
indicated.

Table 3 - Noninterest Expenses
(Dollars in thousands)

<TABLE>
<CAPTION>
                                   Three months ended September 30,
                                 -------------------------------------
                                       1998               1997
                                 -----------------  ------------------
<S>                              <C>        <C>     <C>         <C>   
Salaries and benefits             $1,672      2.35%   $1,381      2.40%
Occupancy                            297      0.42%      253      0.44%
Equipment                            276      0.39%      319      0.55%
Stationery and postage               106      0.15%       84      0.15%
Insurance                             47      0.07%       61      0.11%
Legal fees                            22      0.03        23      0.04%
Other                                693      0.98%      636      1.10%
                                  -----------------  -----------------
Total noninterest expenses        $3,113      4.38%   $2,757      4.79%
                                  -----------------  -----------------
                                  -----------------  -----------------
</TABLE>

<TABLE>
<CAPTION>
                                   Nine months ended September 30,
                                 -------------------------------------
                                       1998               1997
                                 -----------------  ------------------
<S>                              <C>        <C>     <C>         <C>   
Salaries and benefits             $4,773      2.43%   $4,168      2.49%
Occupancy                            859      0.44%      726      0.43%
Equipment                            828      0.42%      867      0.52%
Stationery and postage               299      0.15%      267      0.16%
Insurance                            163      0.08%      148      0.09%
Legal fees                            68      0.03        68      0.04%
Other                              2,047      1.04%    1,883      1.13%
                                  -----------------  -----------------
Total noninterest expenses        $9,037      4.60%   $8,127      4.86%
                                  -----------------  -----------------
                                  -----------------  -----------------
</TABLE>

The increases in 1998 were primarily related to higher staff costs and 
increases in other noninterest expenses.  The increase in noninterest 
expenses reflects the additional leased space for the customer service/data 
processing center and new branch as well as the growth in total loans, 
deposits and assets.  The decrease in noninterest expense as a percentage of 
average earning assets is the result of the rate of growth in average earning 
assets in 1998 exceeding the rate of increase in noninterest expenses.

INCOME TAXES

The Company's effective tax rate was 41.7% and 41.5% for the three and nine 
months ended September 30, 1998 compared to 39.9% and 40.3% for the 
comparable periods in 1997.  Changes in the effective tax rate for the 
Company are primarily due to fluctuations in the proportion of tax exempt 
income generated from investment securities to pre-tax income.

BALANCE SHEET ANALYSIS

Total assets increased to $308.5 million at September 30, 1998, a 18% 
increase from the end of 1997.  Based on average balances, third quarter 1998 
average total assets of $307.2 million represent an increase of 22% over the 
third quarter 1997 while nine month 1998 average total assets of $284.8 
million represent an increase of 17% over nine months 1997.

                               -10-

<PAGE>

EARNING ASSETS
LOANS

Total gross loans at September 30, 1998 were $152.0 million, a 3.8% increase 
from $146.4 million at December 31, 1997.  Average loans in the three and 
nine months of 1998 were $148,602,000 and $149,662,000 representing an 
increases of 13% and 19% over the comparable period in 1997. At September 30, 
1998 loans available for sale were $15,846,000 compared to $12,365,000 at 
December 31, 1997 and $10,048,000 at September 30, 1997. The 1998 increases 
in average total loans and loans available for sale reflected growth in real 
estate loans, particularly SBA guaranteed commercial real estate loans and 
residential mortgage loans, which in the opinion of the Company is due to 
improved local economic conditions and the level of interest rates.  The 
origination of loans available for sale is significantly affected by the 
level of interest rates and general economic conditions.  There can be no 
assurance the Company will maintain current origination levels in its SBA and 
residential mortgage lending operations as interest rates or economic 
conditions change.

Risk Elements

Lending money involves an inherent risk of nonpayment.  Through the 
administration of loan policies and monitoring of the portfolio, management 
seeks to reduce such risks.  The allowance for credit losses is an estimate 
to provide a financial buffer for losses, both identified and unidentified, 
in the loan portfolio.

Nonaccrual Loans, Loans Past Due and OREO

The accrual of interest is discontinued and any accrued and unpaid interest 
is reversed when the payment of principal or interest is 90 days past due 
unless the amount is well secured and in the process of collection.  Income 
on such loans is then recognized only to the extent that cash is received and 
where the future collection of principal is probable.  At September 30, 1998 
there were no nonaccrual loans compared to $266,000 or .18% of total loans at 
December 31, 1997.

Table 4 presents the composition of nonperforming assets at September 30, 1998.

Table 4  Nonperforming Assets
(dollars in thousands)

<TABLE>
<CAPTION>
                                                             September 30,
                                                                1998
                                                             -------------
<S>                                                          <C>
Nonperforming assets:
Accruing loans past due 90 days or more                        $   --
Nonaccrual loans                                                   --
                                                               ------
Total nonperforming loans                                          --
OREO                                                              197
                                                               ------
Total nonperforming assets                                     $  197
                                                               ------
                                                               ------
Nonperforming loans as a percent of total loans                  0.00%
OREO as a percent of total assets                                0.06%
Nonperforming assets as a percent of total assets                0.06%

Allowance for credit losses                                    $3,776
  As a percent of total loans                                    2.48%
  As a percent of nonaccrual loans                                n/m%
  As a percent of nonperforming loans                             n/m%

</TABLE>
                                      -11-
<PAGE>

PROVISION AND ALLOWANCE FOR CREDIT LOSSES

Management has established an evaluation process designed to determine the 
adequacy of the allowance for credit losses.  This process attempts to assess 
the risk of loss inherent in the portfolio by segregating the allowance for 
credit losses into three components: "historical losses;" "specific;"  and 
"margin for imprecision."  The "historical losses" and "specific" components 
include management's judgment of the effect of current and forecasted 
economic conditions on the ability of the Company's borrowers' to repay; an 
evaluation of the allowance for credit losses in relation to the size of the 
overall loan portfolio; an evaluation of the composition of, and growth 
trends within, the loan portfolio; consideration of the relationship of the 
allowance for credit losses to nonperforming loans; net charge-off trends; 
and other factors.  While this evaluation process utilizes historical and 
other objective information, the classification of loans and the 
establishment of the allowance for credit losses, relies, to a great extent, 
on the judgment and experience of management.  The Company evaluates the 
adequacy of its allowance for credit losses quarterly. It is the policy of 
management to maintain the allowance for credit losses at a level adequate 
for known and future risks inherent in the loan portfolio.  Based on 
information currently available to analyze loan loss potential, including 
economic factors, overall credit quality, historical delinquency and a 
history of actual charge-offs, management believes that the loan loss 
provision and allowance are adequate; however, no assurance of the ultimate 
level of credit losses can be given with any certainty.  Loans are charged 
against the allowance when management believes that the collectibility of the 
principal is unlikely.  An analysis of activity in the allowance for credit 
losses is presented in Table 5.

TABLE 5 Allowance for Credit Losses
(Dollars in thousands)

<TABLE>
<CAPTION>
                                        Nine months ended
                                        September 30, 1998
                                          -------------
<S>                                     <C>
Total loans outstanding                      $ 151,961
Average total loans                            149,662

Balance, January 1                           $   3,609
Charge-offs by loan category:
  Commercial                                        79
  Installment and other                             31
  Real estate construction                          --
  Real estate-other                                 --
                                             ---------
     Total charge-offs                             110

Recoveries by loan category:
  Commercial                                        26
  Installment and other                             26
  Real estate construction                          --
  Real estate-other                                 --
                                             ---------
    Total recoveries                                52
                                             ---------
Net chargeoffs                                      58
Provision charged to expense                       225
                                             ---------
Balance, September 30                        $   3,776
                                             ---------
                                             ---------
Ratios:
  Net chargeoffs to average loans                 0.04%
  Reserve to total loans                          2.48%

</TABLE>
                                       -12-
<PAGE>

OTHER INTEREST-EARNING ASSETS
For the three and nine months ended September 30, 1998, the average balance 
of investment securities and federal funds sold totaled $135,585,000 and 
$112,372,000, up from $99,043,000 and $97,236,000 for the same periods in 
1997. The 1998 increases resulted from deploying additional liquidity in 
federal funds sold and investment securities.  Additional liquidity was 
generated by the excess of the increase in average deposits over the increase 
in average loans. Management also uses borrowed funds to increase earning 
assets and enhance the Company's interest rate risk profile.  During the 
first quarter of 1998, the Bank accepted a $15 million certificate of deposit 
from the State of California, in part to replace borrowed funds and to 
increase earning assets.

FUNDING

Deposits represent the Bank's principal source of funds for investment. 
Deposits are primarily core deposits in that they are demand, savings, and 
time deposits under $100,000 generated from local businesses and individuals. 
These sources represent relatively stable, long term deposit relationships 
which minimize fluctuations in overall deposit balances.  The Bank has never 
used brokered deposits.

Deposits increased $64,181,000 from year-end or 32% to $265,378,000 as of 
September 30, 1998.  Average total deposits in the three and nine months of 
1998 of $256,132,000 and $228,526,000 increased from $197,157,000 and 
$197,049,000 in the same periods in 1997.

Another source of funding for the Company is borrowed funds.  Typically, 
these funds result from the use of agreements to sell investment securities 
with a repurchase at a designated future date, also known as repurchase 
agreements. Repurchase agreements are conducted with major banks and 
investment brokerage firms.  The maturity of these arrangements for the Bank 
is typically 30 to 90 days.

During the first quarter of 1998, the Bank replaced $10,000,000 of short-term 
borrowings with $10,000,000 of borrowings issued by the Federal Home Loan 
Bank of San Francisco (FHLBSF) maturing in 5 years at an average cost of 
4.99%, callable after one year at the option of the FHLBSF.  Additionally, 
the Bank issued a $15,000,000 certificate of deposit maturing in three months 
to the State of California.  The Bank believes the overall effect of these 
transactions lowered the effective cost of borrowed funds while increasing 
earning assets.

LIQUIDITY
Liquidity management refers to the Bank's ability to provide funds 
on an ongoing basis to meet fluctuations in deposit levels as well as the 
credit needs and requirements of its clients.  Both assets and liabilities 
contribute to the Bank's liquidity position.  Federal funds lines, short-term 
investments and securities, and loan repayments contribute to liquidity, 
along with deposit increases, while loan funding and deposit withdrawals 
decrease liquidity.  The Bank assesses the likelihood of projected funding 
requirements by reviewing historical funding patterns, current and forecasted 
economic conditions and individual client funding needs.  The Bank maintains 
informal lines of credit with its correspondent banks for short-term 
liquidity needs. These informal lines of credit are not committed facilities 
by the correspondent banks and no fees are paid by the Bank to maintain them.

The Bank manages its liquidity by maintaining a majority of its investment 
portfolio in liquid investments in addition to its federal funds sold. 
Liquidity is measured by various ratios, including the liquidity ratio of net 
liquid assets compared to total assets.  The Bank targets a minimum of 10% 
for this ratio.  As of September 30, 1998, this ratio was 33.3%.  Other key 
liquidity ratios are the ratios of loans to deposits and federal funds sold 
to deposits, which were 57.3% and 13.9%, respectively, as of September 30, 
1998.

                                    -13-

<PAGE>

INTEREST RATE SENSITIVITY

Interest rate sensitivity is a measure of the exposure of the Company's 
future earnings due to changes in interest rates.  If assets and liabilities 
do not reprice simultaneously and in equal volumes, the potential for such 
exposure exists.  It is management's objective to achieve a near-matched to 
modestly asset-sensitive cumulative position at one year, such that the net 
interest margin of the Company increases as market interest rates rise and 
decreases when short-term interest rates decline.

One quantitative measure of the "mismatch" between asset and liability 
repricing is the interest rate sensitivity "gap" analysis.   All 
interest-earning assets and funding sources are classified as to their 
expected repricing or maturity date, whichever is sooner.  Within each time 
period, the difference between asset and liability balances, or "gap," is 
calculated.  Positive cumulative gaps in early time periods suggest that 
earnings will increase if interest rates rise.  Negative gaps suggest that 
earnings will decline when interest rates rise.  Table 6 presents the gap 
analysis for the Company at September 30, 1998. Mortgage backed securities 
are reported in the period of their expected repricing based upon estimated 
prepayments developed from recent experience.



Table 6  Interest Rate Sensitivity
(Dollars in thousands)

<TABLE>
<CAPTION>

                                                            Next day       Over three       Over one
                                                            and within     months and       and within    Over
As of September 30, 1998                       Immediately  three months   within one year  five years    five years   Total
---------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>            <C>            <C>              <C>           <C>          <C>
Rate sensitive assets:
Federal funds sold                           $  37,000       $     --       $     --       $     --       $     --     $  37,000
Investment securities:
     Treasury and agency obligations                --          2,500          5,600          1,044             --         9,144
     Mortgage-backed securities                     --          2,833          7,654         21,575         26,193        58,255
     Municipal securities                           --            694            148          3,606         10,593        15,041
     Corporate debt securities                      --             --             --          1,090         13,879        14,969
     Other                                          --             --             --             --          1,481         1,481

---------------------------------------------------------------------------------------------------------------------------------
Total investment securities                         --          6,027         13,402         27,315         52,146        98,890
Loans excluding nonaccrual loans               135,394          1,794          1,676          3,792          9,305       151,961

---------------------------------------------------------------------------------------------------------------------------------
Total rate sensitive assets                  $ 172,394      $   7,821       $ 15,078       $ 31,107       $ 61,451     $ 287,851
                                       
---------------------------------------------------------------------------------------------------------------------------------
Rate sensitive liabilities:
Deposits:
     Money market, NOW, and savings          $ 145,646      $      --       $     --       $     --       $     --     $ 145,646
     Time certificates                              --         33,514         17,182          2,852             --        53,548
                                       
---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits                145,646         33,514         17,182          2,852             --       199,194
Borrowings                                          --             --             --         10,000             --        10,000
                                       
---------------------------------------------------------------------------------------------------------------------------------
  Total rate sensitive liabilities           $ 145,646      $  33,514       $ 17,182         12,852             --     $ 209,194
                                       
---------------------------------------------------------------------------------------------------------------------------------
Gap                                          $  26,748      $ (25,693)      $ (2,104)      $ 18,255       $ 61,451     $  78,657
Cumulative gap                               $  26,748      $  (1,055)      $ (1,049)      $ 17,206       $ 78,657

</TABLE>

                                     -14-

<PAGE>

The Company's positive cumulative total gap results from the exclusion from 
the above table of noninterest-bearing demand deposits, which represent a 
significant portion of the Company's funding sources.  The Company maintains 
a minor negative cumulative gap in the over three months and within one year 
time period and a positive cumulative gap in all other time periods.  The 
Company's experience indicates money market deposit rates tend to lag changes 
in the prime rate which immediately impact the prime-based loan portfolio.  
Even in the Company's negative gap time periods, rising rates result in an 
increase in net interest income.  Should interest rates stabilize or decline 
in future periods, it is reasonable to assume that the Company's net interest 
margin, as well as net interest income, may decline correspondingly.

CAPITAL RESOURCES

Management seeks to maintain adequate capital to support anticipated asset 
growth and credit risks, and to ensure that the Company and the Bank are in 
compliance with all regulatory capital guidelines. The primary source of new 
capital for the Company has been the retention of earnings. The Company does 
not have any material commitments for capital expenditures as of
September 30, 1998.

The Company pays a quarterly cash dividend on its common stock as part of 
efforts to enhance shareholder value.  The Company's goal is to maintain a 
strong capital position that will permit payment of a consistent cash 
dividend which may grow commensurately with earnings growth. 

On April 15, 1998, the Board of Directors declared a 10 percent stock 
dividend paid on May 27, 1998 to stockholders of record as of May 7, 1998.

During 1997, the Board of Directors approved a stock repurchase program 
authorizing open market purchases of up to 3% of the shares outstanding, or 
approximately 70,519 shares on a post stock dividend basis, in order to 
enhance long term shareholder value. As of September 30, 1998, 70,350 shares 
had been purchased under the program.

The Company and the Bank are subject to capital adequacy guidelines issued by 
the federal bank regulatory authorities. Under these guidelines, the minimum 
total risk-based capital requirement is 10.0% of risk-weighted assets and 
certain off-balance sheet items for a "well capitalized" depository 
institution. At least 6.0% of the 10.0% total risk-based capital ratio must 
consist of Tier 1 capital, defined as tangible common equity, and the 
remainder may consist of subordinated debt, cumulative preferred stock and a 
limited amount of the allowance for loan losses.

The federal regulatory authorities have established minimum capital leverage 
ratio guidelines for state member banks.  The ratio is determined using Tier 1
capital divided by quarterly average total assets.  The guidelines require 
a minimum of 5.0% for a "well capitalized" depository institution.

The Company's risk-based capital ratios were in excess of regulatory 
guidelines for a "well capitalized" depository institution as of 
September 30, 1998, and December 31, 1997.  Capital ratios for the 
Company are set forth in Table 7:


Table 7 Capital Ratios
<TABLE>
<CAPTION>
                                   September 30,          December 31,
                                         1998                 1997
                                  ------------          ------------
<S>                               <C>                   <C>
The Company:
Total risk-based capital ratio          14.9%                16.4%
Tier 1 risk-based capital ratio         13.7%                15.2%
Tier 1 leverage ratio                    9.7%                 9.8%

The Bank:
Total risk-based capital ratio          14.4%                15.1%
Tier 1 risk-based capital ratio         13.1%                13.9%
Tier 1 leverage ratio                    8.6%                 9.3%

</TABLE>
                                     -15-
<PAGE>

YEAR 2000
The approach of the year 2000 presents significant issues for many financial, 
information, and operational systems. Many computer systems use only two 
digits to refer to a year.  This convention could affect date-sensitive 
calculations that treat "00" as the year 1900 rather than 2000.  Another 
issue is that the year 2000 is a leap year and some programs may not properly 
provide for February 29, 2000.

The following discussion of the implications of the year 2000 problem for the 
Company contains numerous forward-looking statements on inherently uncertain 
information.  The cost of the project and the date on which the Company plans 
to complete the internal year 2000 modifications are based on management's 
best estimates, which were derived utilizing a number of assumptions of 
future events including the continued availability of internal and external 
resources, third party modifications and other factors.  However, there can 
be no guarantee that these estimates will be achieved and actual results 
could differ.  Moreover, although management believes it will be able to make 
the necessary modifications in advance, there can be no guarantee that the 
failure to modify the systems would not have a material adverse impact on the 
Company.

READINESS PREPARATION
The Company's plan to address the year 2000 issues includes a process of 
inventory, analysis, modification, testing and certification, and 
implementation.  In 1997 the Company alerted its business customers of the 
year 2000 problem and is now assessing the readiness preparations of its 
major customers and suppliers. Reviews of the Company's information systems 
and information provided by the Company's primary vendors, large customers 
and suppliers has not identified any year 2000 readiness issues which appear 
to be unresolvable by December 31, 1999.

The Company's major critical information system is its core transaction 
processing software which provides transaction processing for loans, deposits 
and general ledger. The vendor supplying the Company's core transaction 
processing software has provided evidence of year 2000 readiness. Efforts 
continue to ascertain the year 2000 readiness of various systems that 
integrate information into the core processing software.  To date, no 
significant information systems have been found not ready for year 2000.  
Among the major actions remaining is the testing of the core processing 
software and other systems which integrate into the core processing software. 
Other purchased software and systems supported by external parties are also 
being tested as part of the year 2000 program.  In addition, contingency 
plans are being developed to reduce the impact of potential events that may 
occur.  However, there can be no guarantee that the systems of vendors or 
customers with which the Company does business will be completed on a timely 
basis, or that contingency plans will shield operations from failures that 
may occur.

The Company does not significantly rely on embedded technology in its 
critical processes.  Embedded technology typically controls operations such 
as power management and related facilities functions.  Year 2000 risks 
associated with embedded technology in the Company's facilities appear low.

The Company is reliant on suppliers and customers, and year 2000 issues with 
both groups are being addressed.  Inquiries regarding year 2000 readiness 
plans will be directed to vendors upon whom there is significant reliance and 
those vendors found to pose a significant risk will be asked to demonstrate 
how that risk will be addressed.  Appropriate measures to minimize risk will 
be undertaken with those that appear to pose a significant risk.  
Replacements may be effected where necessary.  The Company, however, has no 
viable alternative for some suppliers, such as power distribution and local 
telephone companies. These companies are still being monitored and the 
results will be used as information for contingency planning.  As with all 
financial institutions, the Company places a high degree of reliance on the 
systems of other institutions, including government agencies, to settle 
transactions.  Principal settlement methods associated with major payment 
systems will be tested as part of their integration with the core processing 
system. 

The Company is also reliant on its customers to make necessary preparations 
for year 2000 so that their business operations will not be interrupted, thus 
threatening their ability to honor their financial commitments.  Borrowers, 
funding sources and large depositors are being reviewed to determine those 
with financial volumes sufficiently large to warrant inquiry and assessment 
of the year 2000 readiness preparation.  Financial volumes include loans and 
unused commitments, collected deposit balances, ACH, foreign exchange, etc.

                                    -16-


<PAGE>

The population of customers with loans and unused commitments outstanding 
("borrowers") pose the highest risk level of concern for any lender. Business 
purpose borrowings exceeding $50,000 are being assigned one of three year 
2000 risk levels: low, medium or high.  Completion of the assignment of risk 
is expected in the fourth quarter of 1998.

Ongoing reassessments with risk mitigation plans will be made for all levels 
of risk.  Customers with low and medium risk will be reassessed annually, 
while customers with high risk will be reassessed at least quarterly.  The 
risk mitigation plan will evaluate whether year 2000 issues will materially 
affect the customer's cash flows, asset account values related to its balance 
sheet, and/or collateral pledged to the Bank.  The risk mitigation plan is 
incorporated into the normal credit review process.

COST
Amounts expensed in the first nine months of 1998 were not significant to the 
Company's financial position or results of operations. Although the remaining 
costs associated with achieving year 2000 compliance have not yet been 
determined, management does not believe the amounts expensed during 1998 and 
1999 will have a material effect on the Company's financial position, results 
of operations or cash flows.  In addition, the Company may also replace 
certain equipment and software to ensure year 2000 readiness. The cost of the 
replacement items will be expensed over the useful lives of those assets. 
During the third quarter of 1998 six existing automated teller machines were 
replaced with new machines at a cost of approximately $300,000 due in part to 
year 2000 issues with the existing equipment.  The cost of other identified 
replacement items and contingency equipment is estimated at less than 
$100,000. Estimated total costs could change as analysis continues.

RISKS
The principal risks associated with the year 2000 problem can be grouped into 
three categories.  The first is the risk that the Company does not successfully
ready its operations for the next century.  The second is the risk of 
disruption of the Company's operations due to operational failures of third 
parties.  The third is the risk of business interruption among fund providers 
and obligors such that expected funding and repayment does not take place.

The only risk largely under the Company's control is preparing its internal 
operations for the year 2000.  The Company, like other financial 
institutions, is heavily dependent on its computer systems.  The complexity 
of these systems and their dependence on one another makes it impossible to 
switch to other systems almost immediately as would be necessary if necessary 
corrections were not made in advance.  Management believes it will be able to 
make the necessary corrections in advance.

Failure of third parties may jeopardize Company operations, but how seriously 
depends on the nature and duration of such failures.  The most serious impact 
on the Company operations from suppliers would result if basic services such 
as telecommunications, electric power suppliers and services provided by 
other financial institutions and governmental agencies were disrupted.  
Significant public disclosure of the state of readiness among basic 
infrastructure and other suppliers has not generally been available.  
Although the Company's inquiries are underway, the Company does not yet have 
the information to estimate the likelihood of significant disruptions among 
its suppliers.

Operational failures among the Company's sources of major funding, larger 
borrowers and capital market counterparties could affect their ability to 
continue to provide funding or meet obligations when due.  Similar to the 
situation outlined above with suppliers, public information has been scant. 
Although the Company's inquiries are underway, the Company does not yet have 
the information to estimate the likelihood of significant disruptions among 
its funding sources and obligors.

PROGRAM ASSESSMENT
Senior management and banking regulators regularly assess the Company's year 
2000 preparations.  Additionally, a consulting and services firm has been 
retained to review and advise senior management on internally developed 
testing plans for critical systems.

                                    -17-
<PAGE>

CONTINGENCY PLANS

The Company is developing remediation contingency plans and business 
resumption contingency plans specific to the year 2000. Remediation 
contingency plans address the actions to be taken if the current approach to 
remediating a system is falling behind schedule or otherwise appears in 
jeopardy of failing to deliver a year 2000 ready system when needed. Business 
resumption contingency plans address the actions that would be taken if 
critical business functions can not be carried out in the normal manner upon 
entering the next century due to system or supplier failure. Most contingent 
action plans prepared at this time involve manual processing of transactions. 
Given the size, scope and complexity of the Company's operations, manual 
processing appears a viable alternative for most information systems other 
than the core processing system.

PART II. OTHER INFORMATION

Item 1.   Legal Proceedings
          Not applicable.

Item 2.   Changes in Securities
          Not applicable

Item 3.   Defaults Upon Senior Securities
          Not applicable

Item 4.   Submission of Matters to a Vote of Security Holders
          Not applicable

Item 5.   Other Information

          On October 21, 1998, the Coast Bancorp Board of Directors declared 
a cash dividend of fourteen cents ($0.14) per share, payable November 25, 
1998, to shareholders of record on November 5, 1998.

Item 6.   Exhibits and Reports on Form 8-K
a.        Exhibits

Exhibit Number 

27     Financial Data Schedule



b.  Reports on Form 8-K
          Not applicable


                                    -18-
<PAGE>

SIGNATURES

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

                                   COAST BANCORP
                                   ---------------------------------------
                                   (REGISTRANT)

Date:  November 12, 1998

                                   /s/ HARVEY J. NICKELSON
                                   ---------------------------------------
                                   Harvey J. Nickelson
                                   President and Chief Executive Officer

                                   /s/ BRUCE H. KENDALL
                                   ---------------------------------------
                                   Bruce H. Kendall
                                   Senior Vice President
                                   and Chief Financial Officer
                                   (Principal Financial and Accounting Officer)


                                     -19-