**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-QSB**

 
| **(Mark One)** |
|----------------|
|           |
| **ý**     | **QUARTERLY  REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the quarterly period ended March 31, 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**

(Exactname of Registration as Specified in its Charter)

 
| **California**                                                                      |   | **77-0567091**                     |
|-------------------------------------------------------------------------------------|--------|------------------------------------|
| (State  or other jurisdiction of incorporation or organization)                     |   | (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 whether the issuer (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Act during the past12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes: ý No o

 

**APPLICABLE ONLY TO CORPORATE ISSUERS**

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

 

Common Stock – As of April 26, 2002, therewere 632,400 shares of the issuer’s common stock outstanding.

 

Transitional Small Business Disclosure Format

(Checkone)

yes:o      no:ý

 

 

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**CERTAIN STATEMENTS IN THIS QUARTERLY REPORTON FORM 10-QSB INCLUDE FORWARD-LOOKING INFORMATION WITHIN THE MEANING OFSECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THESECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND ARE SUBJECT TO THE “SAFEHARBOR” 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; AND CHANGES IN THE SECURITIES MARKETS.**

**THEREFORE, THE INFORMATION SET FORTH THEREINSHOULD BE CAREFULLY CONSIDERED WHEN EVALUATING THE BUSINESS PROSPECTS OF THEBANK.**

 

**MOREOVER,WHEREVER PHRASES SUCH AS SIMILAR TO, “IN MANAGEMENT’S OPINION,” “MANAGEMENTBELIEVES,” OR “MANAGEMENT CONSIDERS” ARE USED, SUCH STATEMENTS ARE AS OF, ANDBASED UPON THE KNOWLEDGE OF MANAGEMENT, AT THE TIME MADE AND ARE SUBJECT TOCHANGE BY THE PASSAGE OF TIME AND/OR SUBSEQUENT EVENTS, AND ACCORDINGLY SUCHSTATEMENTS ARE SUBJECT TO THE SAME RISKS AND UNCERTAINTIES NOTED ABOVE WITHRESPECT TO FORWARD-LOOKING STATEMENTS.**

 

2

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**INDEX**

**COASTBANCORP**

 
| **PART I – FINANCIAL INFORMATION**                                                              |
|------------------------------------------------------------------------------------------------------|
|                                                                                                 |
| **Item 1 - Financial Statements**                                                                    |
|                                                                                                 | Statement of Financial Condition |
|                                                                                                 | Statement of Operations |
|                                                                                                 | Statement of Changes in Shareholders’  Equity |
|                                                                                                 | Cash Flow Statement |
|                                                                                                 |   |
| 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                                                                                           |

 

3

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**COAST BANCORP**

 

PART I - FINANCIALINFORMATION

ITEM I - FINANCIAL STATEMENTS

 

Statement of FinancialCondition (unaudited)

 
| **(in thousands)**                                                                                                           |   | **March 31,  2002** |    | **December 31,  2001** |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|------------------------|--------|
| ASSETS                                                                                                                       |   |                |    |                   |   |
|                                                                                                                         |   |                |    |                   |   |
| Cash and due from banks                                                                                                      |   | $                   | 4,041   |                   | $      | 3,899 |   |
| Federal funds sold                                                                                                           |   | 5,640               |    | 8,650                  |   |
| TOTAL CASH AND CASH  EQUIVALENTS                                                                                             |   | 9,681               |    | 12,549                 |   |
| Interest-bearing deposits                                                                                                    |   | —              |    | —                 |   |
|                                                                                                                         |   |                |    |                   |   |
| Investment securities:                                                                                                       |   |                |    |                   |   |
| Securities held to maturity                                                                                                  |   | —              |    | —                 |   |
| Securities available for sale                                                                                                |   | 8,124               |    | 11,264                 |   |
| TOTAL INVESTMENT SECURITIES                                                                                                  |   | 8,124               |    | 11,264                 |   |
| Loans:                                                                                                                       |   |                |    |                   |   |
| Commercial                                                                                                                   |   | 12,630              |    | 15,061                 |   |
| Real estate - construction                                                                                                   |   | 5,305               |    | 5,738                  |   |
| Real estate - other                                                                                                          |   | 36,473              |    | 31,064                 |   |
| Consumer                                                                                                                     |   | 27,021              |    | 25,055                 |   |
| TOTAL LOANS                                                                                                                  |   | 81,429              |    | 76,918                 |   |
| Net deferred loan fees                                                                                                       |   | (391                | )       | (274                   | )      |
| Allowance for credit losses                                                                                                  |   | (875                | )       | (850                   | )      |
| NET LOANS                                                                                                                    |   | 80,163              |    | 75,794                 |   |
| Premises and equipment                                                                                                       |   | 4,431               |    | 3,894                  |   |
| Deferred taxes                                                                                                               |   | 130                 |    | 213                    |   |
| Federal reserve bank stock, at cost                                                                                          |   | 189                 |    | 189                    |   |
| Other assets                                                                                                                 |   | 791                 |    | 724                    |   |
| TOTAL ASSETS                                                                                                                 |   | $                   | 103,509 |                   | $      | 104,627 |   |
|                                                                                                                         |   |                |    |                   |   |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                   |   |                |    |                   |   |
| Deposits:                                                                                                                    |   |                |    |                   |   |
| Noninterest-bearing demand                                                                                                   |   | $                   | 24,607  |                   | $      | 24,831 |   |
| Money market and NOW                                                                                                         |   | 29,297              |    | 29,958                 |   |
| Savings                                                                                                                      |   | 5,180               |    | 4,610                  |   |
| Time deposits of $100,000 or more                                                                                            |   | 20,577              |    | 20,932                 |   |
| Other time deposits                                                                                                          |   | 15,761              |    | 16,195                 |   |
| TOTAL DEPOSITS                                                                                                               |   | 95,422              |    | 96,526                 |   |
| Notes payable                                                                                                                |   | 732                 |    | 735                    |   |
| Other liabilities                                                                                                            |   | 130                 |    | 210                    |   |
| TOTAL LIABILITIES                                                                                                            |   | 96,284              |    | 97,471                 |   |
| Commitments and contingencies - Note #4 and #11                                                                              |   |                |    |                   |   |
| Stockholders’ equity                                                                                                    |   |                |    |                   |   |
| Peferred stock - 10,000,000 authorized, none outstanding                                                                     |   |                |    |                   |   |
| Common stock no par value; 10,000,000 shares authorized;  issued and outstanding: 632,400  in  2001 and 627,000 in 2000 |   | 6,324               |    | 6,324                  |   |
| Additional paid-in capital                                                                                                   |   |                |    |                   |   |
| Retained earnings                                                                                                            |   | 868                 |    | 732                    |   |
| Accumulated other comprehensive income - net unrealized (losses)  gains  on available-for-sale  securities              |   | 33                  |    | 100                    |   |
| TOTAL STOCKHOLDERS’ EQUITY                                                                                              |   | 7,225               |    | 7,156                  |   |
| TOTAL LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                             |   | $                   | 103,509 |                   | $      | 104,627 |   |

 

4

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**COAST BANCORP**

 

Statement of Operations(unaudited)

(In Thousands, except for per share numbers)

 
|                                                |   | **For the Three Months Ended  March 31,** |   |
|-----------------------------------------------------|--------|-------------------------------------------|--------|
|                                                |   | **2002**                                  |   | **2001** |   |
|                                                |   |                                      |   |   |   |
| Interest income:                                    |   |                                      |   |   |   |
| Interest and fees on loans                          |   | $                                         | 1,416  |   | $ | 1,506 |   |
| Interest on taxable securities                      |   | 99                                        |   | 243 |   |
| Interest on federal funds sold                      |   | 26                                        |   | 99 |   |
| Other interest income                               |   | 3                                         |   | 8 |   |
|                                                |   |                                      |   |   |   |
| Total interest income                               |   | 1,544                                     |   | 1,856 |   |
|                                                |   |                                      |   |   |   |
| Interest expense:                                   |   |                                      |   |   |   |
| Interest on money market and NOW accounts           |   | 89                                        |   | 267 |   |
| Interest on savings deposits                        |   | 15                                        |   | 22 |   |
| Interest on time deposits                           |   | 291                                       |   | 523 |   |
| Interest on other borrowings                        |   | 9                                         |   | 5 |   |
|                                                |   | 404                                       |   | 817 |   |
|                                                |   |                                      |   |   |   |
| Net interest income                                 |   | 1,140                                     |   | 1,039 |   |
| Provision for loan losses                           |   | 20                                        |   | 25 |   |
|                                                |   |                                      |   |   |   |
| Net interest income after provision for loan losses |   | 1,120                                     |   | 1,014 |   |
|                                                |   |                                      |   |   |   |
| Noninterest income:                                 |   |                                      |   |   |   |
| Service charges on deposit accounts and other       |   | 53                                        |   | 61 |   |
| Gain on sale of loans and servicing fees            |   |                                      |   |   |   |
| Gain on sale of securities                          |   | 58                                        |   | 14 |   |
|                                                |   |                                      |   |   |   |
| Total noninterest income                            |   | 111                                       |   | 75 |   |
|                                                |   |                                      |   |   |   |
| Noninterest expense:                                |   |                                      |   |   |   |
| Salaries and benefits                               |   | 560                                       |   | 459 |   |
| Net occupancy expense (net of rental income)        |   | 72                                        |   | 42 |   |
| Equipment expense                                   |   | 49                                        |   | 43 |   |
| Other expense                                       |   | 311                                       |   | 295 |   |
|                                                |   |                                      |   |   |   |
| Total noninterest expense                           |   | 992                                       |   | 839 |   |
|                                                |   |                                      |   |   |   |
| Income before taxes                                 |   | 239                                       |   | 250 |   |
| Income taxes                                        |   | 103                                       |   | 104 |   |
| Net income                                          |   | $                                         | 136    |   | $ | 146 |   |
|                                                |   |                                      |   |   |   |
| Earnings per share - Basic                          |   | $                                         | 0.22   |   | $ | 0.23 |   |
| Earnings per share - Diluted                        |   | $                                         | 0.20   |   | $ | 0.23 |   |

 

5

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**COAST BANCORP**

 

Statement of changes inShareholders’ Equity 

(In Thousands, Except Number of Shares)(Unaudited)

 
|                                                                                          |   | **Common Stock** |   | **Comprehensive  Income** |   | **Retained  Earnings** |   | **Accumulated  Other  Comprehensive  Income** |   | **Total** |   |
|-----------------------------------------------------------------------------------------------|--------|------------------|--------|---------------------------|--------|------------------------|--------|-----------------------------------------------|--------|-----------|--------|
| **Number of  Shares**                                                                         |   | **Amount**       |
| **Balance at January 1, 2001**                                                                |   | 627,000          |   | $                         | 6,270  |                   |   |                                          | $      | 116       |   | $ | (22 | ) | 6,364 |   |
| Exercise of stock options                                                                     |   | 5,400            |   | 54                        |   |                   |   |                                          |   |      |   | 54 |   |
| Cash dividends                                                                                |   |             |   |                      |   |                   |   | $                                             | (32    | )         |   |   | (32 | ) |
| **Comprehensive Income**                                                                      |   |             |   |                      |   |                   |   |                                          |   |      |   |   |   |
| Net income                                                                                    |   |             |   |                      |   | $                      | 648    |                                          | 648    |      |   |   | 648 |   |
| Unrealized gain on securities available for sale                                              |   |             |   |                      |   | 178                    |   |                                          |   | 178       |   | 178 |   |
| Reclassification adjustment for gain on Sale of investment securities  included in net income |   |             |   |                      |   | (56                    | )      |                                          |   | (56       | )      | (56 | ) |
| **Total comprehensive income**                                                                |   |             |   |                      |   | $                      | 770    |                                          |   |      |   |   |   |   |
|                                                                                          |   |             |   |                      |   |                   |   |                                          |   |      |   |   |   |
| **Balance at December 31, 2001**                                                              |   | 632,400          |   | 6,324                     |   |                   |   | 732                                           |   | 100       |   | 7,156 |   |
| Exercise of stock options                                                                     |   |             |   |                      |   |                   |   |                                          |   |      |   | — |   |
| Cash dividends                                                                                |   |             |   |                      |   |                   |   |                                          |   |      |   | — |   |
| **Comprehensive Income**                                                                      |   |             |   |                      |   |                   |   |                                          |   |      |   |   |   |
| Net income                                                                                    |   |             |   |                      |   | $                      | 136    |                                          | 136    |      |   |   | 136 |   |
| Unrealized loss. on securities available for sale                                             |   |             |   |                      |   | (33                    | )      |                                          |   | (33       | )      | (33 | ) |
| Reclassification adjustment for gain on Sale of investment securities  included in net income |   |             |   |                      |   | (34                    | )      |                                          |   | (34       | )      | (34 | ) |
| **Total comprehensive income**                                                                |   |             |   |                      |   | $                      | 69     |                                          |   |      |   |   |   |   |
|                                                                                          |   |             |   |                      |   |                   |   |                                          |   |      |   |   |   |
| **Balance at March 31, 2002**                                                                 |   | 632,400          |   | $                         | 6,324  |                   |   |                                          | $      | 868       |   | $ | 33 |   | $ | 7,225 |   |
|                                                                                               |        |                  |        |                           |        |                        |        |                                               |        |           |        |  |  |  |  |  |  |  |

 

6

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**COAST BANCORP**

 

Statement of Cash Flows(unaudited)

(In Thousands)

 
|                                                                               |   | **For the  Three Months Ended  March 31,** |   |
|------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|
|                                                                               |   | **2002**                                   |   | **2001** |   |
| Operating activities                                                               |   |                                       |   |   |   |
| Net income                                                                         |   | $                                          | 136    |   | $ | 146 |   |
| Adjustments to reconcile net income to Net cash provided by operating  activities: |   |                                       |   |   |   |
| Depreciation and amortization                                                      |   | 52                                         |   | 49 |   |
| Provision for loan losses                                                          |   | 20                                         |   | 25 |   |
| Realized gain on investment securities                                             |   | (58                                        | )      | (14 | ) |
| Other items - net                                                                  |   | (4                                         | )      | 198 |   |
| Net  cash provided by  operating activities                                   |   | 146                                        |   | 404 |   |
|                                                                               |   |                                       |   |   |   |
| Investing activities                                                               |   |                                       |   |   |   |
| Change in interest-bearing deposits                                                |   | —                                     |   | 200 |   |
| Proceeds from sale of investment securities                                        |   | 2,071                                      |   | 3,008 |   |
| Maturities of investment securities                                                |   | 1,000                                      |   | 6,000 |   |
| Net change in loans                                                                |   | (4,389                                     | )      | (3,396 | ) |
| Purchase of premises and equipment                                                 |   | (589                                       | )      | (44 | ) |
| Net cash provided (used) by investing activities                                   |   | (1,907                                     | )      | 5,768 |   |
|                                                                               |   |                                       |   |   |   |
| Financing activities                                                               |   |                                       |   |   |   |
| Increase in deposits                                                               |   | (1,104                                     | )      | 4,781 |   |
| Proceeds from exercise of 0ptions                                                  |   | (3                                         | )      | 30 |   |
| Net cash provided by financing actvities                                           |   | (1,107                                     | )      | 4,811 |   |
|                                                                               |   |                                       |   |   |   |
| Increase in cash and cash equivalents                                              |   | (2,868                                     | )      | 10,983 |   |
|                                                                               |   |                                       |   |   |   |
| Cash and cash equivalents at beginning of period                                   |   | 12,549                                     |   | 9,543 |   |
|                                                                               |   |                                       |   |   |   |
| Cash and cash equivalents at end of period                                         |   | $                                          | 9,681  |   | $ | 20,526 |   |

 

7

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**Note 1 - Basis of Presentation**

 

The accompanying financialinformation has been prepared in accordance with the Securities and ExchangeCommission rules and regulations for quarterly reporting and therefore does notnecessarily include all information and footnote disclosures normally includedin 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, 2001 filed on Form 10-KSB.

 

Operating results for interimperiods are not necessarily indicative of operating results for an entirefiscal year.  In the opinion ofmanagement, the unaudited financial information for the three month periodended March 31, 2002 and 2001, reflect all adjustments, consisting only ofnormal recurring accruals and provisions, necessary for a fair presentationthereof.

 

Some matters discussed in thisForm 10-QSB may be “forward-looking statements” within the meaning of thePrivate Litigation Reform Act of 1995 and therefore may involve risks,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”.

 

**Note2 - Earnings Per Share**

 

Effective December 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.  All earningsper common share amounts presented have been restated in accordance with theprovisions of this statement.

 
|                         |   | **For the Three Months Ended  March 31,** |   |
|------------------------------|--------|-------------------------------------------|--------|
|                         |   | **2002**                                  |   | **2001** |   |
|                         |   |                                      |   |   |   |
| Earnings per share - Basic   |   | $                                         | 0.22   |   | $ | 0.23 |   |
| Earnings per share - Diluted |   | $                                         | 0.20   |   | $ | 0.23 |   |

 

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

 

The unaudited financialstatements have been prepared in accordance with the instructions to form10-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’s 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 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 Coast National Bank’s Annual Report on Form 10-KSB for theyear ended December 31, 2001.

 

On June 1, 2001 Coast Bancorpacquired all of the outstanding shares of Coast National Bank’s common stock ina non-cash transaction.  Coast Bancorphas no material business activity other than the involvement in Coast NationalBank.  Financial 

 

8

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information presented hereinfor March 31, 2002 and comparative information for December 31, 2001 isinclusive of the consolidated Company while the information for March 31, 2001is for Coast National Bank.

 

Coast National Bank commencedoperations June 16, 1997 with two offices and $6,250,000.00 in capital.  All shares sold and issued were of oneclass.  In June 1998 the Morro Baybranch 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 three months endedMarch 31, 2002 the Bank reported net income of $136,000 or $0.20 dilutedearnings per share compared to net income of $146,000 and $0.23 dilutedearnings per share for the same period during 2001.

 

**Net Interest Income**

 

Net interest income is theamount by which the interest and amortization of fees generated from loans andother earning assets exceed the cost of funding those assets, usually depositaccount interest expense.  Net interestincome depends on the difference (the “interest rate spread’) between grossinterest and fees earned on the loans and investment portfolios and theinterest rates paid on deposits and borrowings.   Net interest income was $1,140,000 for the quarter ended March31, 2002, compared to $1,039,000 for the quarter ended March 31, 2001 anincrease of 9.72%.

 

The following table sets forththe components of net interest income, average earning assets and net interestmargin: (in thousands)

 
|                   |   | **Three Months Ended  March 31,** |   | **Year Ended  December 31,  2001** |   |
|------------------------|--------|-----------------------------------|--------|------------------------------------|--------|
| **2002**               |   | **2001**                          |
|                   |   |                              |   |                               |   |   |   |
| Interest Income        |   | $                                 | 1,544  |                               | $      | 1,856 |   | $ | 7,084 |   |
| Interest Expense       |   | 404                               |   | 817                                |   | 2,773 |   |
|                   |   |                              |   |                               |   |   |   |
| Net Interest Income    |   | $                                 | 1,140  |                               | $      | 1,039 |   | $ | 4,311 |   |
|                   |   |                              |   |                               |   |   |   |
| Average Earning Assets |   | $                                 | 94,993 |                               | $      | 88,176 |   | $ | 93,823 |   |
| Net Interest Margin    |   | 4.80                              | %      | 4.71                               | %      | 4.59 | % |

 

The significant increase in netinterest income in 2002 compared to March 31, 2001 was primarily the result ofthe significant growth in interest-earning assets generated by the Bank’sbranches.  The Company also experiencedan increase in the net interest margin due to the decline in the interest rateexpense during the first quarter of 2002. Interest expense declined by duringthe first quarter of 2002, as a result of the declining interest rateenvironment.

 

**Provision for Loan Losses**

 

The Company made a $20,000contribution to the allowance for loan losses for the three months ended March31, 2002 compared to $25,000 for the same period in 2001.  Management believes that the allowance,which equals 1.07% of total loans at March 31, 2002, is adequate to coverfuture losses.  The allowance for loanlosses at December 31, 2001 was also 1.11% of total loans.

 

Changes in the allowance forloan losses for the quarter ended March 31, 2002 and 2001 are as follows(dollar amounts in thousands):

 

9

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|                                  |   | **Three Months Ended  March 31,** |   |
|---------------------------------------|--------|-----------------------------------|--------|
|                                  |   | **2002**                          |   | **2001** |   |
|                                  |   |                              |   |   |   |
| Allowance, Beginning of Period        |   | $                                 | 850    |   | $ | 700 |   |
| Provision for Loan Losses             |   | 20                                |   | 25 |   |
| Loans Charged Off - net of Recoveries |   | 5                                 |   | — |   |
|                                  |   |                              |   |   |   |
| Allowance, End of Period              |   | $                                 | 875    |   | $ | 725 |   |

 

**Noninterest Income**

 

Noninterest income representsdeposit account service charges and other types of non-loan related feeincome.  Noninterest income for thequarter ended March 31, 2002 totaled $111,000 compared to $75,000 for the sameperiod in 2001 a 48.0% increase.  Thisincrease is primarily due to the growth in deposit accounts and realized gainson the sale of investment securities.

 

**Noninterest Expense**

 

Noninterest expense representssalaries, occupancy expenses, professional expenses, outside services and othermiscellaneous expenses necessary to conduct business.  Noninterest expense for the quarter ended March 31, 2002 totaled$992,000 compared to $839,000 for the same period in 2001 for an increase of18.2%.  This increase is primarily dueto the opening of a government guaranteed lending department specializing inSmall Business Administration lending programs during the latter part of 2001and the overall expansion of the customer base.

 

**Income Taxes**

 

The Bank recorded a $103,000tax provision during the first quarter of 2002 compared to $104,000 during thesame period in 2001.

 

**Financial Condition**

 

Total assets as of March 31, 2002decrease 1.07% to $103.5 million in comparison to total assets of $104.6million as of December 31, 2001. Compared to total assets of $101.9 million atMarch 31, 2001 the company has increased assets by $1.6 million or 1.57%. Theincrease is primarily due to the interest rate environment. The majority of theincrease was centered in loans, which increased, by $15.5 million from $64.6million at March 31, 2001 to $80.1 million at March 31, 2002 this growth wasfunded primarily by the reductions of fed funds sold and investmentsecurities.  This growth was funded bythe reduction of Federal Funds Sold at an average rate of  3.98% and $16.6 million, or 21.3%, increase in deposits since March 31, 2000.

 

**Asset Quality**

 

As of March 31, 2002, and March31, 2001 the Company had no loans on nonaccrual or loans 90 day past due andstill accruing. As of December 31, 2001 the company had one loan in the amountof $55,000 on non-accrual. As of March 31, the Company has had no OREO during2002 or 2001.

 

**Capital**

 

The objective of the Company’sasset/liability strategy is to manage liquidity and interest rate risk is toensure the safety and soundness of the Bank and it’s capital base, whilemaintaining adequate net interest margins and spreads to provide an appropriatereturn to the shareholders.

 

Shareholders equity at March31, 2002 was $7.2 million, compared to 7.2 at December 31, 2001.  Average shareholder’s equity for the threemonths ended March 31, 2002 was 7.1 million compared to $6.5 million in 2001.  Shareholders equity increased primarily fromnet income of  $136 thousand andpartially offset by unrealized security losses of  $33,000 and realized security gains of $34,000.

 

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The Company is required to meetcertain minimum risk-based capital guidelines and leverage ratios set by thebank regulatory authorities. The risk-based capital standards establish capitalrequirements that are more sensitive to risk differences between variousassets, consider off balance sheet activities in assessing capital adequacy,and minimize the disincentives to holding liquid, low risk assets.  The leverage ratio consists of tangible TierI capital divided by average total assets.

 

Coast Bancorp maintains capitalratios above the Federal regulatory guidelines for “well-capitalized” bankholding companies.  The ratios are asfollows:

 
|                            |   | **Minimum  Requirements** |   | **Well  Capitalized** |   | **Three Months Ended  March 31, 2002** |   | **December 31, 2001** |   |
|---------------------------------|--------|---------------------------|--------|-----------------------|--------|----------------------------------------|--------|-----------------------|--------|
| Total risk-based capital ratio  |   | 8.00                      | %      | 10.00                 | %      | 10.52                                  | %      | 10.48                 | %      |
| Tier 1 risk-based capital ratio |   | 4.00                      | %      | 6.00                  | %      | 9.44                                   | %      | 9.41                  | %      |
| Tier 1 leverage capital ratio   |   | 4.00                      | %      | 5.00                  | %      | 7.37                                   | %      | 7.15                  | %      |

 

**Liquidity**

 

Management is not aware of anyfuture capital expenditures or other significant demands on commitments whichwould severely impair liquidity.

 

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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

Not applicable.

 

ITEM 6 –EXHIBITS AND REPORTS OF FORM 8-K

 

A)  Exhibits

 

None

 

B)  Reports on Form 8-K

 

No Form 8-K’s were filed by the Bank during the quarter ended March 31,2002.

 

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**Signatures**

 

In accordancewith the requirements of the Exchange Act of 1934, the registrant has causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
|   |         | COAST BANCORP                                      |
|--------|--------------|----------------------------------------------------|
|   |         |                                               |
| Date:  | May 13, 2002 | /s/Jack  Wauchope                                  |   |
|   |         | Jack  Wauchope                                     |
|   |         | President,  Chief Executive Officer                |
|   |         | (Principal  Executive Officer)                     |
|   |         |                                               |
| Date:  | May 13, 2002 | /s/Thomas  Sherman                                 |   |
|   |         | Thomas  Sherman                                    |
|   |         | Executive  Vice President  Chief Financial Officer |
|   |         | (Principal  Financial Officer)                     |

 

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