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**SECURITIESAND EXCHANGE COMMISSION********Washington, D.C. 20549**

**FORM10-QSB**

(Mark One)

| **ý** | **QUARTERLY REPORT UNDER  SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934** |   |
|------------|-----------------------------------------------------------------------------------------|--------|
|       |                                                                                    |   |
|       | **For the quarterly period ended June 30, 2001**                                        |   |
|       |                                                                                    |   |
| **o**      | **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE  ACT**                    |   |
|       |                                                                                    |   |
|       | **For the transition period from _______ to ________**                                  |   |

**Commission File No. 000-32827****COAST BANCORP**(Exact name of Registration as Specified in its Charter)

| **California** (State or other jurisdiction of  incorporation or organization) |                                                                                                    |   | **77-0567091**  (IRS Employer Identification No.) |
|-------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------|
|                                                                                |                                                                                                    |   |
|                                                                                |                                                                                                    |   |
| **553B Higuera Street, San Luis  Obispo, CA 93401**                                 |
| (Address  of principal executive offices)                                           |
|                                                                                |                                                                                                    |   |
|                                                                                | **(805) 541-0400**  (Registrant’s telephone number, including area code)                           |   |
|                                                                                |                                                                                                    |   |
|                                                                                | **Not applicable**  (Former name, former address and former fiscal year, if changed since last  report) |   |
|                                                                                     |                                                                                                         |        |                                                   |  |  |

 

Check whetherthe issuer (1) filed all reports required to be filed by Section 13 or 15(d) ofthe Exchange Act during the past 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes oNo ý

**APPLICABLEONLY TO CORPORATE ISSUERS**

State thenumber of shares outstanding of each of the issuer’s classes of common equity,as of the latest practicable date:

Common Stock –As of July 15, 2001, there were 631,200 shares of the issuer’s common stockoutstanding.

TransitionalSmall Business Disclosure Format(Check one)yes o no ý

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**CERTAIN STATEMENTS IN THISQUARTERLY REPORT ON FORM 10-QSB INCLUDE FORWARD-LOOKING INFORMATION WITHIN THEMEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND ARE SUBJECT TO THE“SAFE HARBOR” CREATED BY THOSE SECTIONS. THESE FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIESTHAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THEFORWARD-LOOKING STATEMENTS.  SUCH RISKSAND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING FACTORS:COMPETITIVE PRESSURE IN THE BANKING INDUSTRY INCREASES SIGNIFICANTLY; CHANGESIN THE INTEREST RATE ENVIRONMENT REDUCE MARGINS; GENERAL ECONOMIC CONDITIONS,EITHER NATIONALLY OR REGIONALLY, ARE LESS FAVORABLE THAN EXPECTED, RESULTINGIN, AMONG OTHER THINGS A DETERIORATION IN CREDIT QUALITY AND AN INCREASE IN THEPROVISION FOR POSSIBLE LOAN LOSSES; CHANGES IN THE REGULATORY ENVIRONMENT;CHANGES IN BUSINESS CONDITIONS, PARTICULARLY IN SAN LUIS OBISPO COUNTY;VOLATILITY OF RATE SENSITIVE DEPOSITS; OPERATIONAL RISKS INCLUDING DATAPROCESSING SYSTEMS FAILURES OR FRAUD; ASSET/LIABILITY MATCHING RISKS ANDLIQUIDITY RISKS;THE EFFECTS OF CALIFORNIA ENERGY CRISIS AND CHANGES IN THESECURITIES MARKETS.**

**THEREFORE, THE INFORMATION SETFORTH THEREIN SHOULD BE CAREFULLY CONSIDERED WHEN EVALUATING THE BUSINESSPROSPECTS OF THE BANK.**

**MOREOVER, WHEREVER PHRASES SUCHAS SIMILAR TO, “IN MANAGEMENT’S OPINION,” “MANAGEMENT BELIEVES,” OR “MANAGEMENTCONSIDERS” ARE USED, SUCH STATEMENTS ARE AS OF, AND BASED UPON THE KNOWLEDGE OFMANAGEMENT, AT THE TIME MADE AND ARE SUBJECT TO CHANGE BY THE PASSAGE OF TIMEAND/OR SUBSEQUENT EVENTS, AND ACCORDINGLY SUCH STATEMENTS ARE SUBJECT TO THESAME RISKS AND UNCERTAINTIES NOTED ABOVE WITH RESPECT TO FORWARD-LOOKINGSTATEMENTS.**

** **

 

| **INDEX**                                |                                                                                                       |                                               |   |   |   |
|------------------------------------------|------------------------------------------------------------------------------------------------------------|----------------------------------------------------|--------|--------|--------|
| **COAST BANCORP**                        |                                                                                                       |                                               |   |   |   |
|                                     |                                                                                                       |                                               |   |   |   |
| **PART I – FINANCIAL  INFORMATION** |                                                                                                       |                                               |   |   |
|                                     |                                                                                                       |                                               |   |   |   |
|                                     | Item 1 -Financial  Statements                                                                              |
|                                     |                                                                                                       | Statement  of Financial Condition                  |   |   |   |
|                                     |                                                                                                       | Statement of  Operations                           |   |   |   |
|                                     |                                                                                                       | Statement  of Changes in Shareholders’ Equity |   |   |   |
|                                     |                                                                                                       | Cash Flow Statement                                |   |   |   |
|                                     |                                                                                                       | Notes to  financial Statements                     |   |   |   |
|                                     |                                                                                                       |                                               |   |   |
|                                     | Item  2 -Management’s Discussion and Analysis of Financial Condition And Results of  Operations  |
|                                     |                                                                                                       | Overview                                           |   |   |   |
|                                     |                                                                                                       | Net Interest Income                                |   |   |   |
|                                     |                                                                                                       | Provision for Loan Losses                          |   |   |   |
|                                     |                                                                                                       | Noninterest Income                                 |   |   |   |
|                                     |                                                                                                       | Noninterest Expense                                |   |   |   |
|                                     |                                                                                                       | Income Taxes                                       |   |   |   |
|                                     |                                                                                                       | Financial Condition                                |   |   |   |
|                                     |                                                                                                       | Asset Quality                                      |   |   |   |
|                                     |                                                                                                       | Capital                                            |   |   |   |
|                                     |                                                                                                       | Liquidity                                          |   |   |   |
|                                     |                                                                                                       |                                               |   |
| **PART II – OTHER INFORMATION**     |                                                                                                       |                                               |   |   |   |
|                                     |                                                                                                       |                                               |   |
|                                     | Item 1 – Legal Proceedings                                                                            |                                               |   |   |   |
|                                     | Item 2 – Changes in  Securities                                                                       |                                               |   |   |   |
|                                     | Item 3 –  Defaults Upon Senior Securities                                                             |                                               |   |   |   |
|                                     | Item  4 – Submission of Matters to a Vote of Security Holders                                         |                                               |   |   |   |
|                                     | Item 5 – Other Information                                                                            |                                               |   |   |   |
|                                     | Item 6 –  Exhibits and Reports of Form 8-K                                                            |                                               |   |   |   |
|                                     |                                                                                                       |                                               |   |   |
| SIGNATURES                               |                                                                                                       |                                               |   |   |   |
|                                          |                                                                                                            |                                                    |        |        |        |  |  |  |  |  |

 

 

**COAST BANCORP**

| PART I - FINANCIAL INFORMATION                 |                                            |    |         |   |
|------------------------------------------------|-------------------------------------------------|---------|--------------|--------|
| ITEM I - FINANCIAL STATEMENTS                  |                                            |    |         |   |
|                                           |                                            |    |         |   |
|                                           |                                            |    |         |   |
| Statement of Financial Condition (unaudited)   |                                            |    |         |   |
| (In Thousands)                                 | June 30,                                        |    | December 31, |   |
|                                           | 2001                                            |    | 2000         |   |
|                                           |                                                 |    |              |   |
| **Assets**                                     |                                            |    |         |   |
|                                           |                                            |    |         |   |
|                                           | Cash and due from banks                         | $       | 5,185        |   | $ | 6,043 |   |
|                                           | Federal funds sold                              | 10,800  |         | 3,500  |   |
|                                           |                                            |         |         |        |   |
|                                           | Cash and cash equivalents                       | 15,985  |         | 9,543  |   |
|                                           |                                            |    |         |   |   |
|                                           | Interest - bearing deposits                     | -       |         | 200    |   |
|                                           |                                            |    |         |   |   |
|                                           | Investment securities                           | 14,723  |         | 20,966 |   |
|                                           |                                            |    |         |   |   |
|                                           | Loans                                           | 68,542  |         | 61,900 |   |
|                                           | Allowance for loan losses                       | (750    | )            | (700   | ) |
|                                           |                                            |         |         |        |   |
|                                           |                                            | 67,792  |         | 61,200 |   |
|                                           |                                            |    |         |   |   |
|                                           | Premises and equipment                          | 3,594   |         | 3,611  |   |
|                                           | Federal Reserve Bank Stock, at  cost            | 189     |         | 172    |   |
|                                           | Accrued interest and other  assets              | 920     |         | 1,154  |   |
|                                           |                                                 |    |              |   |
| **Total Assets**                               | $                                               | 103,203 |         | $      | 96,846 |   |
|                                           |                                                 |    |              |   |
|                                           |                                            |    |         |   |
| **Liabilities**                                |                                            |    |         |   |
|                                           |                                            |    |         |   |
|                                           | Noninterest-bearing demand                      | $       | 22,986       |   | $ | 21,398 |   |
|                                           | Money market and NOW                            | 30,657  |         | 29,632 |   |
|                                           | Savings deposits                                | 3,810   |         | 3,191  |   |
|                                           | Time deposits of $100,000 or  more              | 22,035  |         | 19,998 |   |
|                                           | Other time deposits                             | 16,535  |         | 15,731 |   |
|                                           |                                            |         |         |        |   |
|                                           | Total deposits                                  | 96,023  |         | 89,950 |   |
|                                           |                                            |    |         |   |   |
|                                           | Other liabilities                               | 422     |         | 532    |   |
|                                           |                                            |         |         |        |   |
|                                           | Total liabilities                               | 96,445  |         | 90,482 |   |
|                                           |                                            |    |         |   |
| **Shareholders Equity**                        |                                            |    |         |   |
|                                           | Common stock, no par value                      |    |         |   |   |
|                                           | 10,000,000 authorized, 631,200  outstanding     |    |         |   |   |
|                                           | at June 30, 2001 and 627,000  December 31, 2000 | 6,312   |         | 6,270  |   |
|                                           | Retained earnings                               | 402     |         | 116    |   |
|                                           | Accumulated other  comprehensive income         | 44      |         | (22    | ) |
|                                           |                                                 |    |              |   |
| **Total Shareholders Equity**                  | 6,758                                           |    | 6,364        |   |
|                                           |                                            |    |         |   |
| **Total Liabilities and  Shareholders Equity** | $                                               | 103,203 |         | $      | 96,846 |   |
|                                           |                                                 |    |              |   |

 

 

**COAST BANCORP**

| Statement of Operations (unaudited)          |                                                   |   |                               |   |   |   |   |   |
|----------------------------------------------|--------------------------------------------------------|--------|------------------------------------|--------|--------|--------|--------|--------|
| (In Thousands, except for per share numbers) |                                                   |   |                               |   |   |   |   |   |
|                                         |                                                   |   |                               |   |   |   |   |   |
|                                         | For the Three Months Ended  June 30,                   |   | For the Six Months Ended  June 30, |   |
|                                         |                                                   |   |
|                                         |                                                        |   |                                    |   |
|                                         | 2001                                                   |   | 2000                               |   | 2001   |   | 2000   |   |
|                                         |                                                        |   |                                    |   |        |   |        |   |
|                                         |                                                   |   |                               |   |   |   |   |   |
| Interest income:                             |                                                   |   |                               |   |   |   |   |   |
|                                         | Interest and fees on loans                             | $      | 1,475                              |   | $      | 1,299  |   | $      | 2,981 |   | $ | 2,435 |   |
|                                         | Interest on taxable securities                         | 183    |                               | 240    |   | 429    |   | 501    |   |
|                                         | Interest on federal funds sold                         | 143    |                               | 83     |   | 247    |   | 156    |   |
|                                         | other interest income                                  | -      |                               | -      |   | -      |   | 2      |   |
|                                         |                                                   |        |                               |        |   |        |   |        |   |
|                                         | Total interest income                                  | 1,801  |                               | 1,622  |   | 3,657  |   | 3,094  |   |
|                                         |                                                   |   |                               |   |   |   |   |   |
| Interest expense:                            |                                                   |   |                               |   |   |   |   |   |
|                                         | Interest on money market and  NOW accounts             | 214    |                               | 191    |   | 482    |   | 374    |   |
|                                         | Interest on savings deposits                           | 28     |                               | 24     |   | 50     |   | 45     |   |
|                                         | Interest on time deposits                              | 519    |                               | 430    |   | 1,042  |   | 818    |   |
|                                         | Interest on other borrowings                           | 6      |                               | 5      |   | 11     |   | 10     |   |
|                                         |                                                   |        |                               |        |   |        |   |        |   |
|                                         | 767                                                    |   | 650                                |   | 1,585  |   | 1,247  |   |
|                                         |                                                   |   |                               |   |   |   |   |   |
|                                         | Net interest income                                    | 1,034  |                               | 972    |   | 2,072  |   | 1,847  |   |
|                                         | Provision for loan losses                              | 38     |                               | 105    |   | 63     |   | 150    |   |
|                                         |                                                   |        |                               |        |   |        |   |        |   |
|                                         |                                                   |   |                               |   |   |   |   |   |   |
|                                         | Net interest income after  provision for   loan losses | 996    |                               | 867    |   | 2,009  |   | 1,697  |   |
|                                         |                                                   |   |                               |   |   |   |   |   |
| Noninterest Income:                          |                                                   |   |                               |   |   |   |   |   |
|                                         | Service charges on deposit  accounts and other         | 85     |                               | 48     |   | 191    |   | 84     |   |
|                                         | Gain on sale of securities                             | 61     |                               | -      |   | 75     |   | -      |   |
|                                         |                                                   |        |                               |        |   |        |   |        |   |
|                                         | Total noninterest income                               | 146    |                               | 48     |   | 266    |   | 84     |   |
|                                         |                                                   |   |                               |   |   |   |   |   |
| Noninterest Expense:                         |                                                   |   |                               |   |   |   |   |   |
|                                         | Salaries and benefits                                  | 475    |                               | 341    |   | 934    |   | 712    |   |
|                                         | Net occupancy expense (net of  rental income)          | 46     |                               | 41     |   | 88     |   | 91     |   |
|                                         | Equipment expense                                      | 43     |                               | 42     |   | 86     |   | 84     |   |
|                                         | Other expense                                          | 334    |                               | 273    |   | 674    |   | 541    |   |
|                                         |                                                   |        |                               |        |   |        |   |        |   |
|                                         |                                                   |   |                               |   |   |   |   |   |   |
|                                         | Total noninterest expense                              | 898    |                               | 697    |   | 1,782  |   | 1,428  |   |
|                                         |                                                   |   |                               |   |   |   |   |   |   |
|                                         | Income before taxes                                    | 244    |                               | 218    |   | 493    |   | 353    |   |
|                                         | Income taxes                                           | 103    |                               | (1     | )      | 207    |   | (1     | ) |
|                                         |                                                   |        |                               |        |   |        |   |        |   |
|                                         | Net income                                             | $      | 141                                |   | $      | 217    |   | $      | 286 |   | $ | 352 |   |
|                                         |                                                   |        |                               |        |   |        |   |        |   |
|                                         | Earnings per share - Basic                             | $      | 0.22                               |   | $      | 0.34   |   | $      | 0.45 |   | $ | 0.56 |   |
|                                         |                                                   |        |                               |        |   |        |   |        |   |
|                                         | Earnings per share - Diluted                           | $      | 0.21                               |   | $      | 0.33   |   | $      | 0.44 |   | $ | 0.54 |   |
|                                         |                                                   |        |                               |        |   |        |   |        |   |

 

** **

 

**COASTBANCORP**

Statementof Changes in Shareholders’ Equity(In Thousands, Except Number of Shares) (Unaudited)

|                                                                                          | Common Stock                   |   |   |   |                  |   |               |   |                                      |   |
|-----------------------------------------------------------------------------------------------|--------------------------------|--------|--------|--------|-----------------------|--------|--------------------|--------|-------------------------------------------|--------|
|                                                                                          |                                |   |   |   |                  |   |               |   |                                      |   |
|                                                                                          | Number of  Shares              |   | Amount |   | Comprehensive  Income |   | Retained  Earnings |   | Accumulated  Other  Comprehensive  Income |   | Total |   |
|                                                                                          |                                |   |        |   |                       |   |                    |   |                                           |   |  |   |
| **Balance at January 1, 2000**                                                                | 625,800                        |   | $      | 6,258  |                  |   |               | $      | (528                                      | )      | $ | (234 | ) | 5,496 |   |
| Exercise  of stock options                                                                    | 1,200                          |   | 12     |   |                  |   |               |   |                                      |   | 12 |   |
|                                                                                          | **Comprehensive Income**       |   |   |   |                  |   |               |   |                                      |   |   |   |   |
| Net  income                                                                                   |                           |   |   |   | $                     | 644    |               | 644    |                                      |   |   | 644 |   |
| Unrealized  gain on securities available for sale                                             |                           |   |   |   | 215                   |   |               |   | 215                                       |   | 215 |   |
| Reclassification  adjustment for gain on Sale of investment securities included innet income  |                           |   |   |   | (3                    | )      |               |   | (3                                        | )      | (3 | ) |
|                                                                                          |                           |   |   |   |                       |   |               |   |                                      |   |   |   |
|                                                                                          | **Total comprehensive income** |   |   |   |                  | $      | 856                |   |                                      |   |   |   |   |   |
|                                                                                          |                           |   |   |   |                       |   |               |   |                                      |   |   |   |
|                                                                                          |                                |   |        |   |                  |   |                    |   |                                           |   |  |   |
| **Balance at December 31, 2000**                                                              | 627,000                        |   | 6,270  |   |                  |   | 116                |   | (22                                       | )      | 6,364 |   |
| Exercise  of stock options                                                                    | 4,200                          |   | 42     |   |                  |   |               |   |                                      |   | 42 |   |
|                                                                                          | **Comprehensive Income**       |   |   |   |                  |   |               |   |                                      |   |   |   |   |
| Net  income                                                                                   |                           |   |   |   | $                     | 286    |               | 286    |                                      |   |   | 286 |   |
| Unrealized  loss on securities available for sale                                             |                           |   |   |   | 141                   |   |               |   | 141                                       |   | 141 |   |
| Reclassification  adjustment for gain on Sale of investment securities included in net income |                           |   |   |   | (75                   | )      |               |   | (75                                       | )      | (75 | ) |
|                                                                                          |                           |   |   |   |                       |   |               |   |                                      |   |   |   |
|                                                                                          | **Total comprehensive income** |   |   |   |                  | $      | 352                |   |                                      |   |   |   |   |   |
|                                                                                          |                           |   |   |   |                       |   |               |   |                                      |   |   |   |
|                                                                                          |                                |   |        |   |                  |   |                    |   |                                           |   |  |   |
| **Balance at June 30, 2001**                                                                  | 631,200                        |   | $      | 6,312  |                  |   |               | $      | 402                                       |   | $ | 44 |   | $ | 6,758 |   |
|                                                                                          |                                |   |        |   |                  |   |                    |   |                                           |   |  |   |
|                                                                                               |                                |        |        |        |                       |        |                    |        |                                           |        |  |  |  |  |  |  |  |  |

 

 

 
**COASTBANCORP**

 
Statement of Cash Flows (unaudited)For the Six Months Ended  June 30, (In Thousands)    2001 2000    Operating activities     Net income$286 $352  Adjustments to reconcile net  income to       Net cash provided by operating activities:     Depreciation and amortization99 101  Provision for loan losses64 150  Realized gain on investment  securities(75)(44) Other items – net130 3     Net  cash provided by operating activities504 562      Investing activities     Change in interest-bearing  deposits200 (200) Proceeds from sale of  investment securities9,068 -  Maturities of investment  securities9,444 2,000  Purchase of investment securities(12,134)   Net change in loans(6,656)(9,746) Increase in Federal Reserve  Bank Stock(17)(9) Purchase of premises and  equipment(82)(2,064)    Net cash provided (used) by  investing activities(177)(10,019)     Financing activities     Increase in deposits6,073 11,482  Proceeds from exercise of  0ptions42 12     Net cash provided by financing  actvities6,115 11,494            Increase in cash and cash  equivalents6,442 2,037      Cash and cash equivalents at beginning of period9,543 9,778     Cash and cash equivalents at  end of period$15,985 $11,815    
 

 

 
**Item 1. Financial Statements- Continued**
**Note 1 - Basis of Presentation**

The accompanyingfinancial information has been prepared in accordance with the Securities andExchange Commission rules and regulations for quarterly reporting and thereforedoes not necessarily include all information and footnote disclosures normallyincluded in financial statements prepared in accordance with generally acceptedaccounting principles.  This informationshould be read in conjunction with the Bank’s Annual Report for the year endedDecember 31, 2000 filed on Form 10-KSB.

Operatingresults for interim periods are not necessarily indicative of operating resultsfor an entire fiscal year.  In theopinion of management, the unaudited financial information for the three monthand six month period ended June 30, 2001 and 2000, reflect all adjustments,consisting only of normal recurring accruals and provisions, necessary for afair presentation thereof.

Some mattersdiscussed in this Form 10-QSB may be “forward-looking statements” within themeaning of the Private Litigation Reform Act of 1995 and therefore may involverisks, uncertainties and other factors which may cause our actual results to bematerially different from the results expressed or implied by ourforward-looking statements.  Thesestatements generally appear with words such as "anticipate","believe", "estimate", "may", "intend",and "expect".

 

**Note 2 - Earnings Per Share**

EffectiveDecember 31, 1997, the Bank adopted SFAS No. 128, *“Earnings per Share".*  Accordingly, basic earnings per share arecomputed by dividing income available to common shareholders by the weightedaverage number of common shares outstanding during each period.  The computation of diluted earnings pershare also considers the number of shares issuable upon the assumed exercise ofoutstanding common stock options.  Allearnings per common share amounts presented have been restated in accordancewith the provisions of this statement.

 

 
 For the Three Months Ended  June 30, For the Six Months Ended  June 30,        2001 2000 2001 2000       Shares Shares Shares Shares      Used in Basic EPS630,870 627,000 630,150 626,413 Dilutive Effect of Outstanding Stock Options21,308 21,176 19,292 22,437      Earnings per share – Basic652,178 648,176 649,442 648,850      
 

 

 

**Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations**

The unauditedfinancial statements have been prepared in accordance with the instructions toform 10-QSB and contain statements relating to future results of the Company thatare considered to be “forward looking statements” within the meaning of thePrivate Securities Litigation Reform Act of 1995.  These statements relate to, among other things, credit lossreserve adequacy, and simulation of changes in interest rates and litigationresults.  Actual results may differmaterially from those expressed or implied as a result of certain risks anduncertainties, including, but not limited to, changes in political and economicconditions, interest rate fluctuations, competitive product and pricingpressures within the Company’s markets, equity and fixed income marketfluctuations, personal and corporate customers’ bankruptcies, inflation,acquisitions and integrations of acquired businesses, technological change,changes in law, changes in fiscal, monetary, regulatory and tax policies,monetary fluctuations, the California energy crisis, success in gainingregulatory approvals when required as well as other risks and uncertaintiesdetailed elsewhere in this quarterly report or from time to time in the filingsof the Company with the Securities and Exchange Commission.  Such forward-looking statements speak onlyas of the date on which such statements are made, and the corporationundertakes no obligation to update any forward-looking statement to reflectevents or circumstances after the date on which such statement is made or toreflect the occurrence of unanticipated events.  The accompanying financial information should be read inconjunction with the Bank’s Annual Report on Form 10-KSB for the year endedDecember 31, 2000.

On June 1, 2001Coast Bancorp acquired all of the outstanding shares of Coast National Bank’scommon stock in a non-cash transaction. Coast Bancorp has no material business activity other than theinvolvement in Coast National Bank. Financial information presented herein for June 30, 2001 is inclusive ofthe consolidated Company while the comparative information for December 31,2000 and June 30, 2000 is for Coast National Bank.

Coast NationalBank commenced operations June 16, 1997 with two offices and $6,250,000.00 incapital.  All shares sold and issuedwere of one class.  In June 1998 theMorro Bay branch was opened, expanding our customer base and service area.  In June 1999 the Los Osos branch was alsoopened to further serve the needs of the residents of the North Coast.  Coast National Bank anticipates being ableto satisfy its cash requirements, near term, with continuing deposit growth.
**Overview**
For the threemonths ended June 30, 2001 the company reported net income of $141,000 or $0.21diluted earnings per share compared to net income of $217,000 and $0.33 dilutedearnings per share for the same period during 2000.  For the six month ended June 30, 2001 the company reported netincome of $286,000 or $0.44 diluted earnings per share compared to net incomeof $352,000 and $0.54 diluted earnings per share for the same period during2000.  Net Income for the six monthsended June 30, 2001 was lower than the same period for 2000 due to the Bankbecoming fully taxable in the last quarter 2000.
**NetInterest Income**
Net interestincome is the amount by which the interest and amortization of fees generatedfrom loans and other earning assets exceed the cost of funding those assets,usually deposit account interest expense. Net interest income depends on the difference (the “interest ratespread’) between gross interest and fees earned on the loans and investmentportfolios and the interest rates paid on deposits and borrowings.   Net interest income was $1,034,000 for the six month ended June 30,2001, compared to $1,847,000 for the quarter ended June 30, 2000 an increase of11.4%.

The followingtable sets forth the components of net interest income, average earning assetsand net interest margin: (in thousands)
 Three Months Ended  June 30, Six Months Ended  June 30, Year Ended  December 31,           2001 2000 2001 2000 2000                  Interest Income$1,801 $1,622 $3,657 $3,094 $6,745 Interest Expense767 650 1,585 1,247 2,858                   Net Interest Income$1,034 $972 $2,072 $1,847 $3,887                  Average Earning Assets$94,284 $75,536 $91,260 $73,712 $78,388 Net Interest Margin4.39%5.15%4.54%5.01%4.96%
 

The 18.2%increase in net interest income for the first six months of 2001 was primarilythe result of the significant growth in interest-earning assets generated bythe Bank’s branches.  The Company alsoexperienced a decrease in the net interest margin due to the decline of theprime rate by 275 basis points during the first six months of 2001.
**Provision for Loan Losses**
The Companymade a $63,000 contribution to the allowance for loan losses for the six monthsended June 30, 2001 compared to $150,000 for the same period in 2000.  Management believes that the allowance,which equals 1.1% of total loans at June 30, 2001, is adequate to cover futurelosses.  The allowance for loan lossesat December 31, 2000 was also 1.1% of total loans.

Changes in theallowance for loan losses for the three months ended and the six months endedJune 30, 2001 and 2000 are as follows (dollar amounts in thousands):

 
 Three Months Ended  June 30, Six Months Ended  June 30,        2001 2000 2001 2000               Allowance, Beginning of Period$725 $445 $700 $400 Provision for Loan Losses38 105 63 150 Loans Charged Off - net of Recoveries(13)- (13)-               Allowance, End of Period$750 $550 $750 $550      
 
**NoninterestIncome**
Noninterestincome represents deposit account service charges and other types of non-loanrelated fee income.  Noninterest incomefor the three months ended June 30, 2001 totaled $146,000 compared to $48,000for the same period in 2000 a 204.2% increase. Noninterest income for the sixmonths ended June 30, 2001 totaled $266,000 compared to $84,000 for the sameperiod in 2000 a 216.6% increase. This increase is primarily due to the growthin deposit accounts and realized gains on the sale of investment securities andrealized gains on the sale of the guaranteed portion of SBA loans.
**NoninterestExpense**
Noninterestexpense represents salaries, occupancy expenses, professional expenses, outsideservices and other miscellaneous expenses necessary to conduct business.  Noninterest expense for the three monthsended June 30, 2001 totaled $898,000 compared to $697,000 for the same periodin 2000 a 28.8% increase. Noninterest expense for the six months ended June 30,2001 totaled $1,783,000 compared to $1,428,000 for the same period in 2000 a24.8% increase. This increase is primarily due to theopening of a government guaranteed lending department specializing in SmallBusiness Administration lending programs during the latter part of 2000 and theoverall expansion of the customer base.
**IncomeTaxes**
The Companyrecorded a $103,000 tax provision for the three months ended June 30, 2001compared to $(1,000) during the same period in 2000.  The six months ended tax provision was $207,000 compared to$(1,000) or the same period in 2000. The increase is due to the utilization of prior losses through thereduction of its deferred tax valuation allowance in 2000.  The Company is fully taxable on its earningsin 2001.

** **

**Financial Condition**

Total assets asof June 30, 2001 increase 6.61% to $103.2 million in comparison to total assetsof $96.8 million as of December 31, 2000. Total assets increased by 14.8 million or 16.74 to 103.2 million as ofJune 30, 2001, compared to  $88.4million at June 30, 2000.  This growthis primarily due to the expansion of the Bank’s customer base.   The majority of the increase was centeredin loans, which increased, by $10.7 million from $61.9 million at June 30, 2000to $68.5 million at June 30, 2001.  Thisgrowth was funded by a $6.0 million, or 6.75%, increase in deposits since June30, 2000.
**AssetQuality**
Asset qualityhas remained excellent at the Company. As of June 30, 2000, December 31, 2000 and June 30, 2001 the bank had noloans on nonaccrual or loans 90 day past due and still accruing.  The Bank has had no OREO during 2000 or2001.
**Capital**
The objectiveof the Company’s asset/liability strategy is to manage liquidity and interestrate risk is to ensure the safety and soundness of the Bank and it’s capitalbase, while maintaining adequate net interest margins and spreads to provide anappropriate return to the shareholders.

Shareholdersequity at June 30, 2001 was $6.7 million, an increase of  $.3 million over $ 6.4 million at December31, 2000.  Average shareholder’s equityfor the six months ended June 30, 2001 was 6.7 million compared to $5.9 millionin 2000.  Shareholders equity increasedprimarily from net income of  $286,000and unrealized securities gains of $44,000.

The Company isrequired to meet certain minimum risk-based capital guidelines and leverageratios set by the banks regulatory authorities. The risk-based capitalstandards establish capital requirements that are more sensitive to riskdifferences between various assets, consider off balance sheet activities inassessing capital adequacy, and minimize the disincentives to holding liquid,low risk assets.  The leverage ratioconsists of tangible Tier I capital divided by average total assets.

Coast Bancorpmaintains capital ratios above the Federal regulatory guidelines for“well-capitalized” bank holding companies. The ratios are as follows:
 Minimum Six Months Ended    Requirements June 30, 2001 December 31, 2000    Tier 1 Capital4.00%9.15%9.85%Total Capital8.00%10.17%10.93%Leverage Ratio4.00%6.53%7.13%
 
**Liquidity**
Management isnot aware of any future capital expenditures or other significant demands oncommitments, which would severely impair liquidity.  For the six months ended June 30, 2001 the bank has a loan todeposit ratio of 70% and total investments to assets of 26%.

 

 
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  On May 24, 2001 the sole shareholder of Coast  Bancorp executed written consent approving the reorganization agreement that  resulted in Coast National Bank becoming the wholly owned subsidiary of Coast  Bancorp.   ITEM  5 – OTHER INFORMATION  Not applicable   ITEM  6 – EXHIBITS AND REPORTS OF FORM 8-K     A)Exhibits   EXHIBIT 11 - CALCULATION OF EARNING PER SHARE  - see footnote #2 to the financials   B)Reports on Form 8-K  The Bancorp filed a Form 8-K’s during the  second quarter ending June 30, 2001, reporting under Item 5 Other Events the  acquisition of the Bank by Bancorp. 
 

 

 

 

**Signatures**

 

In accordance with the requirements of theExchange Act of 1934, the registrant has caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 
   COAST  BANCORP      Date:August 13, 2001/s/ Jack C. Wauchope        Jack Wauchope    President and Chief Executive Officer    [Principal Executive Officer]       Date:August 13, 2001/s/Thomas Sherman        Thomas Sherman    Chief Financial Officer    [Principal Financial Officer]