**FORM 10-QSB**

 

**UNITEDSTATES****SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20429**

 

| **(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, 2004**                                                                                                         |
|                                                                                                                                                          |
| **o**                                                                                                                                                         |   | **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE  EXCHANGE ACT** |
|                                                                                                                                                          |
| **For the transition period  from          to          ** |

 

**Commission File No. 000-32827**

 

**COASTBANCORP**

(Exact name of Registration as Specified in its Charter)

 

| **California**                                                                      |   | **77-0567091**                    |
|-------------------------------------------------------------------------------------|--------|-----------------------------------|
| (State of incorporation or organization)                                            |   | (IRS Employer Identification No.) |
|                                                                                |
| **500 Marsh 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) |

 

Checkwhether the issuer (1) filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the past 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past 90days.   Yes:   ý   No:   o

 

**APPLICABLE ONLY TO CORPORATE ISSUERS**

 

Statethe number of shares outstanding of each of the issuer’s classes of commonequity, as of the latest practicable date:

 

CommonStock – As of June 30, 2004, there were 640,200 shares of the issuer’scommon stock outstanding.

 

TransitionalSmall Business Disclosure Format (Checkone)                   Yes:   o   No:   ý

 

 

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**FORWARD LOOKING STATEMENTS**

 

**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, ANDSECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND ARESUBJECT TO THE “SAFE HARBOR” CREATED BY THOSE SECTIONS.  THESE FORWARD-LOOKING STATEMENTS INVOLVECERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFERMATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS.  SUCH RISKS AND UNCERTAINTIES INCLUDE, BUTARE NOT LIMITED TO, THE FOLLOWING FACTORS: COMPETITIVE PRESSURE IN THE BANKINGINDUSTRY INCREASES SIGNIFICANTLY; CHANGES IN THE INTEREST RATE ENVIRONMENTREDUCE MARGINS; GENERAL ECONOMIC CONDITIONS, EITHER NATIONALLY OR REGIONALLY,ARE LESS FAVORABLE THAN EXPECTED, RESULTING IN, AMONG OTHER THINGS ADETERIORATION IN CREDIT QUALITY AND AN INCREASE IN THE PROVISION FOR POSSIBLELOAN LOSSES; CHANGES IN THE REGULATORY ENVIRONMENT; CHANGES IN BUSINESSCONDITIONS, PARTICULARLY IN SAN LUIS OBISPO COUNTY; VOLATILITY OF RATESENSITIVE DEPOSITS; OPERATIONAL RISKS INCLUDING DATA PROCESSING SYSTEMSFAILURES OR FRAUD; ASSET/LIABILITY MATCHING RISKS AND LIQUIDITY RISKS;  CHANGES IN THE SECURITIES MARKETS; AND RISKSASSOCIATED WITH THE WAR ON TERRORISM AND IN IRAQ.**

 

**THEREFORE, THE INFORMATIONCONTAINED IN THIS DOCUMENT SHOULD BE CAREFULLY CONSIDERED WHEN EVALUATING THEBUSINESS PROSPECTS OF THE BANCORP.**

 

**MOREOVER, WHEREVER PHRASES ARE USEDSUCH AS OR SIMILAR TO, “IN MANAGEMENT’S OPINION,”“MANAGEMENT BELIEVES,” OR“MANAGEMENT CONSIDERS”, SUCH STATEMENTS ARE AS OF, AND BASED UPON THE KNOWLEDGEOF MANAGEMENT, AT THE TIME MADE AND ARE SUBJECT TO CHANGE BY THE PASSAGE OFTIME AND/OR SUBSEQUENT EVENTS, AND ACCORDINGLY SUCH STATEMENTS ARE SUBJECT TOTHE SAME RISKS AND UNCERTAINTIES NOTED ABOVE WITH RESPECT TO FORWARD-LOOKINGSTATEMENTS.**

 

2

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**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                                |   |
|                                                                                                     |                                               |
| **Item 2 - Management’s Discussion and  Analysis of Financial Condition and Results of Operations** |                                               |
|                                                                                                     |                                               |   |
|                                                                                                     | Overview                                           |   |
|                                                                                                     | Net Interest Income                                |   |
|                                                                                                     | Provision for Loan Losses                          |   |
|                                                                                                     | Non-interest Income                                |   |
|                                                                                                     | Non-interest Expense                               |   |
|                                                                                                     | Income  Taxes                                      |   |
|                                                                                                     | Financial Condition                                |   |
|                                                                                                     | Asset  Quality                                     |   |
|                                                                                                     | Capital                                            |   |
|                                                                                                     | Liquidity                                          |   |
|                                                                                                     |                                               |   |
| **Item 3 – Controls and Procedures**                                                                |                                               |
|                                                                                                     |                                               |   |
| **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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**COASTBANCORP & SUBSIDIARIES**

 

 

**ITEM I****- FINANCIAL STATEMENTS**

 

ConsolidatedBalance Sheet (Unaudited)

(inthousands)

 
|                                                                                                                                                                             |   | **June 30,  2004** |    | **December 31,  2003** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|-----------------------------|--------|
| **ASSETS**                                                                                                                                                                       |   |                    |    |                        |   |
| Cash and due from banks                                                                                                                                                          |   | $                       | 9,753   |                        | $      | 9,273 |   |
| Federal funds sold                                                                                                                                                               |   | 15,150                  |    | 5,400                       |   |
| TOTAL CASH AND CASH EQUIVALENTS                                                                                                                                                  |   | 24,903                  |    | 14,673                      |   |
|                                                                                                                                                                             |   |                    |    |                        |   |
| Interest-bearing deposits                                                                                                                                                        |   | —                  |    | —                      |   |
|                                                                                                                                                                             |   |                    |    |                        |   |
| Investment securities:                                                                                                                                                           |   |                    |    |                        |   |
| Securities held to maturity                                                                                                                                                      |   | —                  |    | —                      |   |
| Securities available for sale                                                                                                                                                    |   | 7,878                   |    | 12,073                      |   |
| TOTAL  INVESTMENT SECURITIES                                                                                                                                                     |   | 7,878                   |    | 12,073                      |   |
| Loans:                                                                                                                                                                           |   |                    |    |                        |   |
| Commercial                                                                                                                                                                       |   | 29,588                  |    | 28,244                      |   |
| Real estate - construction                                                                                                                                                       |   | 14,120                  |    | 13,501                      |   |
| Real estate - other                                                                                                                                                              |   | 65,262                  |    | 62,282                      |   |
| Consumer                                                                                                                                                                         |   | 3,929                   |    | 3,849                       |   |
| TOTAL LOANS                                                                                                                                                                      |   | 112,899                 |    | 107,876                     |   |
| Net deferred loan fees                                                                                                                                                           |   | (375                    | )       | (414                        | )      |
| Allowance for credit losses                                                                                                                                                      |   | (1,177                  | )       | (1,109                      | )      |
| NET LOANS                                                                                                                                                                        |   | 111,347                 |    | 106,353                     |   |
| Premises and equipment                                                                                                                                                           |   | 7,722                   |    | 7,091                       |   |
| Deferred taxes                                                                                                                                                                   |   | 558                     |    | 367                         |   |
| Federal Reserve Bank and FHLB stock, at  cost                                                                                                                                    |   | 872                     |    | 415                         |   |
| Accrued interest and other assets                                                                                                                                                |   | 1,500                   |    | 1,312                       |   |
| TOTAL ASSETS                                                                                                                                                                     |   | $                       | 154,780 |                        | $      | 142,284 |   |
|                                                                                                                                                                             |   |                    |    |                        |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                    |   |                    |    |                        |   |
| Deposits:                                                                                                                                                                        |   |                    |    |                        |   |
| Noninterest-bearing demand                                                                                                                                                       |   | $                       | 36,419  |                        | $      | 34,636 |   |
| Money market and NOW                                                                                                                                                             |   | 36,665                  |    | 35,754                      |   |
| Savings                                                                                                                                                                          |   | 7,182                   |    | 7,015                       |   |
| Time deposits of $100,000 or more                                                                                                                                                |   | 42,055                  |    | 32,412                      |   |
| Other time deposits                                                                                                                                                              |   | 17,551                  |    | 18,206                      |   |
| TOTAL  DEPOSITS                                                                                                                                                                  |   | 139,872                 |    | 128,023                     |   |
| Notes payable                                                                                                                                                                    |   | 115                     |    | 164                         |   |
| Junior subordinated debt securities                                                                                                                                              |   | 5,155                   |    | 5,155                       |   |
| Other liabilities                                                                                                                                                                |   | 258                     |    | 129                         |   |
| TOTAL  LIABILITIES                                                                                                                                                               |   | 145,400                 |    | 133,471                     |   |
| Commitments and contingencies                                                                                                                                                    |   | —                  |    | —                      |   |
| Stockholders’ equity                                                                                                                                                        |   |                    |    |                        |   |
| Preferred stock - 10,000,000 authorized,  none outstanding Common stock no par value; 10,000,000 shares authorized;  issued and outstanding: 640,200 in 2004 and 638,300 in 2003 |   | 6,435                   |    | 6,407                       |   |
| Additional paid-in capital                                                                                                                                                       |   |                    |    |                        |   |
| Retained earnings                                                                                                                                                                |   | 3,005                   |    | 2,375                       |   |
| Accumulated other comprehensive income -  net unrealized gains (losses) on available-for-sale securities                                                                         |   | (60                     | )       | 31                          |   |
| TOTAL  STOCKHOLDERS’ EQUITY                                                                                                                                                 |   | 9,380                   |    | 8,813                       |   |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                 |   | $                       | 154,780 |                        | $      | 142,284 |   |

 

*The accompanying notes are an integral part of theseconsolidated financial statements*

 

4

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**COAST BANCORP & SUBSIDIARIES**

 

Statement of Operations (unaudited)

(InThousands, except for per share numbers)

 
|                                                 |   | **For the  Three Months Ended  June 30,** |   | **For the  Six Months Ended  June 30,** |   |
|------------------------------------------------------|--------|------------------------------------------------|--------|----------------------------------------------|--------|
|                                                 |   | **2004**                                       |   | **2003**                                     |   | **2004** |   | **2003** |   |
|                                                 |   |                                           |   |                                         |   |   |   |   |   |
| Interest income:                                     |   |                                           |   |                                         |   |   |   |   |   |
| Interest and fees on loans                           |   | $                                              | 1,992  |                                         | $      | 1,793 |   | $ | 3,865 |   | 3,437 |   |
| Interest on taxable securities                       |   | 42                                             |   | 20                                           |   | 91 |   | 39 |   |
| Interest on federal funds sold                       |   | 16                                             |   | 42                                           |   | 31 |   | 90 |   |
| Other interest income                                |   | 7                                              |   | 9                                            |   | 16 |   | 14 |   |
|                                                 |   |                                           |   |                                         |   |   |   |   |   |
| Total interest income                                |   | 2,057                                          |   | 1,864                                        |   | 4,003 |   | 3,580 |   |
|                                                 |   |                                           |   |                                         |   |   |   |   |   |
| Interest expense:                                    |   |                                           |   |                                         |   |   |   |   |   |
| Interest on money market and NOW accounts            |   | 58                                             |   | 64                                           |   | 115 |   | 132 |   |
| Interest on savings deposits                         |   | 12                                             |   | 14                                           |   | 25 |   | 26 |   |
| Interest on time deposits                            |   | 281                                            |   | 297                                          |   | 542 |   | 580 |   |
| Interest on other borrowings                         |   | 64                                             |   | 77                                           |   | 136 |   | 154 |   |
|                                                 |   |                                           |   |                                         |   |   |   |   |   |
| Total interest expense                               |   | 415                                            |   | 452                                          |   | 818 |   | 892 |   |
|                                                 |   |                                           |   |                                         |   |   |   |   |   |
| Net interest income                                  |   | 1,642                                          |   | 1,412                                        |   | 3,185 |   | 2,688 |   |
| Provision for loan losses                            |   | 30                                             |   | 145                                          |   | 70 |   | 154 |   |
|                                                 |   |                                           |   |                                         |   |   |   |   |   |
| Net interest income after provision for  loan losses |   | 1,612                                          |   | 1,267                                        |   | 3,115 |   | 2,534 |   |
|                                                 |   |                                           |   |                                         |   |   |   |   |   |
| Noninterest income:                                  |   |                                           |   |                                         |   |   |   |   |   |
| Service charges on deposit accounts and  other       |   | 139                                            |   | 140                                          |   | 208 |   | 224 |   |
| Gain on sale of loans and servicing fees             |   | 256                                            |   | 254                                          |   | 531 |   | 279 |   |
| Gain on sale of securities                           |   | 0                                              |   | 0                                            |   | 43 |   | 0 |   |
|                                                 |   |                                           |   |                                         |   |   |   |   |   |
| Total noninterest income                             |   | 395                                            |   | 394                                          |   | 782 |   | 503 |   |
|                                                 |   |                                           |   |                                         |   |   |   |   |   |
| Noninterest expense:                                 |   |                                           |   |                                         |   |   |   |   |   |
| Salaries and benefits                                |   | 763                                            |   | 643                                          |   | 1,549 |   | 1,274 |   |
| Net occupancy expense (net of rental  income)        |   | 85                                             |   | 90                                           |   | 163 |   | 185 |   |
| Equipment expense                                    |   | 69                                             |   | 65                                           |   | 132 |   | 130 |   |
| Other expense                                        |   | 473                                            |   | 377                                          |   | 1,003 |   | 740 |   |
|                                                 |   |                                           |   |                                         |   |   |   |   |   |
| Total noninterest expense                            |   | 1,390                                          |   | 1,175                                        |   | 2,847 |   | 2,329 |   |
|                                                 |   |                                           |   |                                         |   |   |   |   |   |
| Income before taxes                                  |   | 617                                            |   | 486                                          |   | 1,050 |   | 708 |   |
| Income taxes                                         |   | 245                                            |   | 203                                          |   | 420 |   | 295 |   |
| Net income                                           |   | $                                              | 372    |                                         | $      | 283 |   | $ | 630 |   | $ | 413 |   |
|                                                 |   |                                           |   |                                         |   |   |   |   |   |
| Earnings per share - Basic                           |   | $                                              | 0.58   |                                         | $      | 0.45 |   | $ | 0.99 |   | $ | 0.65 |   |
| Earnings per share - Diluted                         |   | $                                              | 0.53   |                                         | $      | 0.43 |   | $ | 0.89 |   | $ | 0.62 |   |

 

*The accompanying notes are an integral part of theseconsolidated financial statements*

 

5

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**COASTBANCORP & SUBSIDIARIES**

 

Statement of changes inStockholders’ Equity

(InThousands, Except Number of Shares) (Unaudited)

 
|                                                                                         |                  | **Common  Stock** |       | **Comprehensive  Income** |   | **Retained  Earnings** |   | **Accumulated  Other  Comprehensive  Income** |   | **Total** |   |
|----------------------------------------------------------------------------------------------|-----------------------|-------------------|------------|---------------------------|--------|------------------------|--------|-----------------------------------------------|--------|-----------|--------|
|                                                                                         |                  |              |       |                      |   |
|                                                                                         | **Number of  Shares** |              | **Amount** |                      |   |                   |   |                                          |
|                                                                                         |                  |              |       |                      |   |                   |
| **Balance at  January 1, 2003**                                                         |                  | 632,400           |       | $                         | 6,324  |                   |   |                                          | $      | 1,456     |   | $ | 49 |   | $ | 7,829 |   |
| Exercise of stock options                                                                    |                  | 5,900             |       | 83                        |   |                   |   |                                          |   |      |   | 83 |   |
| Cash dividends                                                                               |                  |              |       |                      |   |                   |   | (63                                           | )      |      |   | (63 | ) |
| **Comprehensive Income**                                                                     |                  |              |       |                      |   |                   |   |                                          |   |      |   |   |   |
| Net income                                                                                   |                  |              |       |                      |   | $                      | 982    |                                          | 982    |      |   |   | 982 |   |
| Unrealized gain on available-for-sale securities,  net of taxes of $2,414                    |                  |              |       |                      |   | (3                     | )      |                                          |   | (3        | )      |   |   |
| Less reclassification adjustments for gains  included in net income, net of taxes of $10,328 |                  |              |       |                      |   | (15                    | )      |                                          |   | (15       | )      | (15 | ) |
| **Total comprehensive income**                                                               |                  |              |       |                      |   | $                      | 964    |                                          |   |      |   |   |   |   |
|                                                                                         |                  |              |       |                      |   |                   |   |                                          |   |      |   |   |   |
| **Balance at December 31,  2003**                                                       |                  | 638,300           |       | $                         | 6,407  |                   |   |                                          | $      | 2,375     |   | $ | 31 |   | $ | 8,813 |   |
| Exercise of stock options                                                                    |                  | 1,900             |       | 28                        |   |                   |   |                                          |   |      |   | 28 |   |
| Cash dividends                                                                               |                  |              |       |                      |   |                   |   |                                          |   |      |   | — |   |
| **Comprehensive Income**                                                                     |                  |              |       |                      |   |                   |   |                                          |   |      |   |   |   |
| Net income                                                                                   |                  |              |       |                      |   | $                      | 630    |                                          | 630    |      |   |   | 630 |   |
| Unrealized loss on available-for-sale  securities, net of taxes                              |                  |              |       |                      |   | (91                    | )      |                                          |   | (91       | )      | (91 | ) |
| **Total comprehensive income**                                                               |                  |              |       |                      |   | $                      | 539    |                                          |   |      |   |   |   |   |
|                                                                                         |                  |              |       |                      |   |                   |   |                                          |   |      |   |   |   |
| **Balance at  June 30, 2004**                                                           |                  | 640,200           |       | $                         | 6,435  |                   |   |                                          | $      | 3,005     |   | $ | (60 | ) | $ | 9,380 |   |

 

*The accompanying notes are an integral part of theseconsolidated financial statements*

 

6

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**COAST BANCORP & SUBSIDIARIES**

 

Statementof Cash Flows(unaudited)

(In Thousands)

 
|                                                                               |   | **For the  Six Months Ended  June 30,** |   |
|------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|
|                                                                               |   | **2004**                                     |   | **2003** |   |
| Operating activities                                                               |   |                                         |   |   |   |
| Net income                                                                         |   | $                                            | 630    |   | $ | 413 |   |
| Adjustments to reconcile net income to Net  cash provided by operating activities: |   |                                         |   |   |   |
| Depreciation and amortization                                                      |   | 198                                          |   | 177 |   |
| Provision for loan losses                                                          |   | 70                                           |   | 154 |   |
| Realized gain on investment securities                                             |   | (43                                          | )      | — |   |
| Other items - net                                                                  |   | (180                                         | )      | (117 | ) |
| Net cash  provided by operating activities                                         |   | 675                                          |   | 627 |   |
|                                                                               |   |                                         |   |   |   |
| Investing activities                                                               |   |                                         |   |   |   |
| Proceeds from sale of investment securities                                        |   | 5,094                                        |   | — |   |
| Maturities of investment securities                                                |   | 1,000                                        |   | — |   |
| Purchase of investment securities                                                  |   | (2,019                                       | )      | — |   |
| Net change in loans                                                                |   | (5,064                                       | )      | (14,979 | ) |
| Increase in Federal Reserve Bank and FHLB  Stock                                   |   | (455                                         | )      | (125 | ) |
| Purchase of premises and equipment                                                 |   | (829                                         | )      | (938 | ) |
| Net cash  provided (used) by investing activities                                  |   | (2,273                                       | )      | (16,042 | ) |
|                                                                               |   |                                         |   |   |   |
| Financing activities                                                               |   |                                         |   |   |   |
| Increase (decrease) in deposits                                                    |   | 11,849                                       |   | 11,696 |   |
| Principle payments on notes payable                                                |   | (49                                          | )      | (48 | ) |
| Proceeds from exercise of options                                                  |   | 28                                           |   | 13 |   |
| Net cash  provided (used) by financing actvities                                   |   | 11,828                                       |   | 11,661 |   |
|                                                                               |   |                                         |   |   |   |
| Increase  (decrease) in cash and cash equivalents                                  |   | 10,230                                       |   | (3,754 | ) |
|                                                                               |   |                                         |   |   |   |
| Cash and cash equivalents at beginning of  period                                  |   | 14,673                                       |   | 23,212 |   |
|                                                                               |   |                                         |   |   |   |
| Cash and cash equivalents at end of period                                         |   | $                                            | 24,903 |   | $ | 19,458 |   |

 

*The accompanying notes are an integral part of theseconsolidated financial statements*

 

7

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**Note1**                                                      **Basis ofPresentation**

 

The accompanying financial information has been prepared in accordancewith the Securities and Exchange Commission rules and regulations for quarterlyreporting and therefore does not necessarily include all information andfootnote disclosures normally included in financial statements prepared inaccordance with generally accepted accounting principles.  This information should be read inconjunction with the Company’s Annual Report for the year endedDecember 31, 2003 filed on Form 10-KSB.

 

Operating results for interim periods are not necessarily indicative ofoperating results for an entire fiscal year. In the opinion of management, the unaudited financial information forthe three month and six month period ended June 30, 2004 and 2003 reflectall adjustments, consisting only of normal recurring accruals and provisions,necessary for a fair presentation.

 

Some matters discussed in this Form 10-QSB may be “forward-lookingstatements” within the meaning of the Private Litigation Reform Act of 1995 andtherefore may involve risks, uncertainties and other factors which may causeour actual results to be materially different from the results expressed orimplied by our forward-looking statements. These statements generally appear with words such as “anticipate”,“believe”, “estimate”, “may”, “intend”, and “expect”.

 

**Note 2****                                                      EarningsPer Share**

 

Effective December 31, 1997, the Bank adopted SFAS No. 128, *“Earningsper Share”.*  Accordingly,basic earnings per share are computed by dividing income available to commonshareholders by the weighted average number of common shares outstanding duringeach period.  The computation of dilutedearnings per share also considers the number of shares issuable upon theassumed exercise of outstanding common stock options.  All earnings per common share amounts presented have beenrestated in accordance with the provisions of this statement.

 
|                                          |   | **For the  Three Months Ended  June 30,** |   | **For the  Six Months Ended  June 30,** |   |
|-----------------------------------------------|--------|------------------------------------------------|--------|----------------------------------------------|--------|
|                                          |   | **2004**                                       |   | **2003**                                     |   | **2004** |   | **2003** |   |
|                                          |   | **Shares**                                     |   | **Shares**                                   |   | **Shares** |   | **Shares** |   |
| Used in Basic EPS                             |   | 638,104                                        |   | 633,300                                      |   | 637,305 |   | 633,027 |   |
| Dilutive Effect of Outstanding Stock  Options |   | 70,938                                         |   | 29,453                                       |   | 67,963 |   | 30,546 |   |
| Earnings per share - Diluted                  |   | 709,042                                        |   | 662,753                                      |   | 705,268 |   | 663,573 |   |

 

**Note3**                                                      **Stock-BasedCompensation**

 

SFAS No. 123, “Accounting for Stock-Based Compensation,” encourages,but does not require, companies to record compensation cost for stock-basedemployee compensation plans at fair value. The Company has chosen to continue to account for stock-basedcompensation using the intrinsic value method prescribed in AccountingPrinciples Board (“APB”) Opinion No. 25, *“Accounting for Stock Issued to Employees,”*and related interpretations. Accordingly, compensation cost for stock options is measured as theexcess, if any, of the quoted market price of the Company’s stock at the dateof the grant over the amount an employee must pay to acquire the stock.

 

8

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Had compensation costs for the Company’s stock option plan beendetermined based on the fair value at the grant dates for awards under thisplan consistent with the method of SFAS No. 123, the Company’s net income andearnings per share would have been reduced for 2004 and 2003 to the pro formaamounts indicated below:

 
|                                                                                            |   | **For the  Three Months Ended  June 30,** |   | **For the  Six Months Ended  June 30,** |   |
|-------------------------------------------------------------------------------------------------|--------|------------------------------------------------|--------|----------------------------------------------|--------|
|                                                                                            |   | **2004**                                       |   | **2003**                                     |   | **2004** |   | **2003** |   |
|                                                                                            |   |                                           |   |                                         |   |   |   |   |   |
| Net Income:                                                                                     |   |                                           |   |                                         |   |   |   |   |   |
| As reported                                                                                     |   | $                                              | 372    |                                         | $      | 283 |   | $ | 630 |   | $ | 413 |   |
| Stock-based compensation using the  intrinsic value method                                      |   | —                                         |   | —                                       |   | — |   | — |   |
| Stock-Based compensation that would have  been reported using the fair value method of SFAS 123 |   | (10                                            | )      | (10                                          | )      | (20 | ) | (23 | ) |
| Pro Forma net income                                                                            |   | $                                              | 362    |                                         | $      | 273 |   | $ | 610 |   | $ | 390 |   |
|                                                                                            |   |                                           |   |                                         |   |   |   |   |   |
| Basic earnings per share:                                                                       |   |                                           |   |                                         |   |   |   |   |   |
| As reported                                                                                     |   | $                                              | 0.58   |                                         | $      | 0.45 |   | $ | 0.99 |   | $ | 0.65 |   |
| Proforma                                                                                        |   | $                                              | 0.57   |                                         | $      | 0.43 |   | $ | 0.96 |   | $ | 0.62 |   |
|                                                                                            |   |                                           |   |                                         |   |   |   |   |   |
| Diluted earnings per share:                                                                     |   |                                           |   |                                         |   |   |   |   |   |
| As reported                                                                                     |   | $                                              | 0.53   |                                         | $      | 0.43 |   | $ | 0.89 |   | $ | 0.62 |   |
| Pro forma                                                                                       |   | $                                              | 0.51   |                                         | $      | 0.41 |   | $ | 0.86 |   | $ | 0.59 |   |

 

**Note4****                                                      CurrentAccounting Pronouncements**

 

In December 2003, FASB issued FASB Interpretation (FIN) No. 46*,“Consolidation of Variable Interest Entities, an Interpretation**of ARB No51.” *This interpretationaddresses the consolidation of variable interest entities as defined in theInterpretations.  This Interpretationwill require companies that have issued trust preferred securities todeconsolidate the related entities.  TheCompany has deconsolidated the Coast Bancorp Statutory Trust I, which did nothave a material impact on the Company’s financial statements.

 

**Item 2.****  Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

The unaudited financial statements have been prepared in accordancewith the instructions to form 10-QSB and contain statements relating to futureresults of the Company that are considered to be “forward looking statements”within the meaning of the Private Securities Litigation Reform Act of1995.  These statements relate to, amongother things, credit loss reserve adequacy, and simulation of changes ininterest rates.  Actual results maydiffer materially from those expressed or implied as a result of certain risksand uncertainties, including, but not limited to, changes in political andeconomic conditions, interest rate fluctuations, competitive product andpricing pressures 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, political and global changes arising from the terroristattacks of September 11, 2001 as well as the war in Iraq and itsaftermath, success in gaining regulatory approvals when required as well asother risks and uncertainties detailed elsewhere in this quarterly report orfrom time to time in the filings of the Company with the Securities ExchangeCommission.  Such forward-lookingstatements speak only as of the date on which such statements are made, and thecorporation undertakes no obligation to update any forward-looking statement toreflect events or circumstances after the date on which such statement is madeor to reflect the occurrence of unanticipated events.  The accompanying financial information should be read inconjunction with Coast Bancorp’s Annual Report on Form 10-KSB for the yearended December 31, 2003.

 

Descriptionof Business

 

*CoastBancorp*

 

CoastBancorp, (the “Bancorp” or “Coast Bancorp”) headquartered in San Luis Obispo,California, is a California corporation incorporated in 2001.  Coast Bancorp became the bank holdingcompany of Coast National Bank on May 31, 2001 through a corporatereorganization.  In the reorganization,Coast National Bank became the wholly-owned subsidiary of Coast Bancorp and theshareholders of the Bank became shareholders of Coast Bancorp.  Coast Bancorp is operated through atwo-tiered corporate structure.  At theholding company level the affairs of Coast Bancorp are overseen by a Board ofDirectors elected by the shareholders of Coast Bancorp at the annual meeting ofshareholders.  The business of the Bankis overseen by a Board of Directors elected by Coast Bancorp, the sole owner ofthe Bank.  As of the date of this Form10-QSB the respective members of the Board of Directors of the Bank and theBoard of

 

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Directorsof Coast Bancorp are identical.  CoastBancorp is subject to the regulations of, and examination by, the Board ofGovernors of the Federal Reserve System. At present, Coast Bancorp does not engage in any material businessactivities other than the ownership of the Bank.  Financial information presented herein for June 30, 2004 andcomparative information for December 31, 2003 and June 30, 2003 isinclusive of the consolidated Company.

 

*CoastNational Bank*

 

CoastNational Bank (the “Bank”) was chartered June 16, 1997 (charter #23222) byThe Office of the Comptroller of the Currency as a national bank.  The Bank commenced operations on that datewith two offices, 16 employees and $6,250,000 in capital.  The original branch offices were located at486 Marsh Street, San Luis Obispo and 1199 Grand Avenue, Arroyo Grande,California.  Since that time, anadditional branch office was opened in June 1998 at 948 Morro BayBoulevard in Morro Bay, California and another branch office was opened inJuly 1999 at 1193 Los Osos Valley Road in Los Osos, California.  In July 2002, a loan production officewas opened at 930 South Broadway Street in Santa Maria, California.  In May 2003 the Bank opened anotherloan production office in Bakersfield, California.

 

Whenthe Bank opened for business in June 1997, it purchased the real estateand building that housed the Arroyo Grande branch office.  On October 14, 1999, the Bank purchasedan adjacent lot next to the San Luis Obispo main office on Marsh Street.  A few months later on February 1, 2000,the Bank also purchased the contiguous property and building that was home tothe San Luis Obispo main office at 486 Marsh Street.  Construction of a new head office building on the adjacent lotbegan on October 11, 2001 and was completed on November 25,2002.  The new main office, located at500 Marsh Street is approximately 10,700 square feet with the San Luis Obispobranch operation occupying the ground floor and the administrative officesoccupying the second floor.  Theoriginal main office at 486 Marsh Street now houses the Bank’s Small BusinessLending Center and the Bank’s Note Department.

 

OnMarch 29, 2002, the Bank purchased a vacant site on Morro Bay Boulevard inMorro Bay that is approximately one block from the existing branch.  The purpose for this acquisition was theconstruction and relocation of the Morro Bay branch to a larger facility with adrive-through lane.  Construction beganin the first quarter of 2004 with completion anticipated in the third quarter2004.

 

Asof June 30, 2004, the Bank had a total of 65 employees.  A number of these employees are part-timehowever. Part-time employees are converted to full-time equivalent employees onthe percentage of their weekly hours worked compared to 40 hours.  On a full-time equivalent basis, employeesrepresent 60 positions.  The Bank valuesits employees and believes that it enjoys satisfactory working relations withthem.  They are actively engaged individuallyand as a team in contributing to the Bank’s realization of its vision andmission.

 

**Critical Accounting Policies**

 

Ouraccounting policies are integral to understanding the results reported.  In preparing its consolidated financialstatements, the Company is required to make judgments and estimates that mayhave a significant impact upon its financial results.  Certain accounting policies require the Company to makesignificant estimates and assumptions, which have a material impact on thecarrying value of certain assets and liabilities, and are considered criticalaccounting policies.  The estimates andassumptions used are based on the historical experiences and other factors,which are believed to be reasonable under the circumstances.  Actual results could differ significantlyfrom these estimates and assumptions, which could have a material impact on thecarrying value of assets and liabilities at the balance sheet dates and resultsof operations for the reporting periods. For example, the Company’s determination of the adequacy of itsallowance for loan losses is particularly susceptible to management’s judgmentand estimates.  The following is a briefdescription of our current accounting policies involving significant managementvaluation judgments.

 

*Allowancefor Loan Losses*

 

Theallowance for loan losses represents management’s best estimate of lossesinherent in the existing loan portfolio. The allowance for loan losses is increased by the provision for loanlosses charged to expense and reduced by loans charged off, net ofrecoveries.  The allowance for loanlosses is determined based on management’s assessment of several factors:reviews and evaluation of individual loans, changes in the nature and volume ofthe loan portfolio, current economic conditions and the related impact onspecific borrowers and industry groups, historical loan loss experiences andthe levels of classified and nonperforming loans.

 

Loansare considered impaired if, based on current information and events, it is probablethat we will be unable to collect the scheduled payments of principal orinterest when due according to the contractual terms of the loanagreement.  The measurement of impairedloans is generally based on the present value of expected future cash flowsdiscounted at the historical effective interest rate stipulated in the loanagreement, except that all collateral-dependent loans are measured forimpairment based on the fair value of the collateral.  In measuring the fair value of the collateral, management usesassumptions and methodologies consistent with those that would be utilized byunrelated third parties.

 

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Changesin the financial condition of individual borrowers, in economic conditions, inhistorical loss experience and in the condition of the various markets in whichcollateral may be sold may all affect the required level of the allowance forloan losses and the associated provision for loan losses.

 

*Availablefor Sale Securities*

 

Thefair value of most securities classified as available for sale are based onquoted market prices.  If quoted marketprices are not available, fair values are extrapolated from the quoted pricesof similar instruments.

 

**Overview**

 

Asof June 30, 2004, total consolidated assets of Coast Bancorp were $154.7million in comparison to total assets of $142.2 million as of December 31,2003. This represents an increase of $12.5 million, or 8.8%.  Compared to total assets of $133.6 millionat June 30, 2003, the company has increased assets by $21.1 million, or15.8%, over the last twelve months.

 

For the three months ended June 30, 2004 the Bancorp reportedconsolidated net income of $372,000 or $0.53 diluted earnings per sharecompared to net income of $283,000 and $0.43 diluted earnings per share for thesame period during 2003.  For the sixmonths ended June 30, 2004 the Bancorp reported consolidated net income of$630,000 or $0.89 diluted earnings per share compared to consolidated netincome of $413,000 or $0.62 diluted earnings per share for the same period in2003.  The increase in net income wasdue in part to loan growth and to the sale of the government guaranteed portionof SBA loans.

 

**NetInterest Income**

 

Net interest income is the amount by which the interest andamortization of fees generated from loans and other earning assets exceed thecost of funding those assets, usually deposit account interest expense.  Net interest income depends on thedifference between gross interest and fees earned on the loans and investmentportfolios and the interest rates paid on deposits and borrowings (“theinterest rate spread”).  Net interestincome was $1,642,000 for the quarter ended June 30, 2004, compared to$1,412,000 for the quarter ended June 30, 2003, representing an increaseof 16.3%.  Net interest income was$3,185,000 for the six months ended June 30, 2004, compared to $2,688,000for the six months ended June 30, 2003, representing an increase of 18.5%.  This increase, while offset somewhat bylower interest rates, was primarily the result of the loan growth generated bythe Bank’s branches.

 

The following table sets forth the components of net interest income,average earning assets and net interest margin: (in thousands)

 
|                   |   | **Three  Months Ended  June 30,** |    | **Six Months  Ended  June 30,** |   | **Year Ended  December 31,  2003** |   |
|------------------------|--------|----------------------------------------|---------|--------------------------------------|--------|-----------------------------------------|--------|
|                   |   | **2004**                               |    | **2003**                             |   | **2004**                                |   | **2003** |   |   |
|                   |   |                                   |    |                                 |   |                                    |   |   |   |   |   |
| Interest Income        |   | $                                      | 2,057   |                                 | $      | 1,864                                   |   | $ | 4,003 |   | $ | 3,580 |   | $ | 7,444 |   |
| Interest Expense       |   | 415                                    |    | 452                                  |   | 818                                     |   | 892 |   | 1,413 |   |
|                   |   |                                   |    |                                 |   |                                    |   |   |   |   |   |
| Net Interest Income    |   | $                                      | 1,642   |                                 | $      | 1,412                                   |   | $ | 3,185 |   | $ | 2,688 |   | $ | 6,031 |   |
|                   |   |                                   |    |                                 |   |                                    |   |   |   |   |   |
| Average Earning Assets |   | $                                      | 133,706 |                                 | $      | 118,374                                 |   | $ | 131,260 |   | $ | 114,619 |   | $ | 120,807 |   |
| Net Interest Margin    |   | 4.91                                   | %       | 4.77                                 | %      | 4.85                                    | %      | 4.69 | % | 4.99 | % |

 

**Provisionfor Loan Losses**

 

Management of the Bank and the Bancorp believes that the allowance forloan losses is adequate.  The Bank hasestablished a monitoring system for loans in order to identify impaired loansand potential problem loans and to permit periodic evaluation of impairment andadequacy of the allowance for loan losses in a timely manner.  The monitoring system and allowance for loanlosses methodology have evolved over a period of years, and loanclassifications have been incorporated into the determination of the allowancefor loan losses.  This monitoring systemand allowance methodology includes a loan-by-loan analysis for all classifiedloans as well as loss factors for the balance of the unclassified portfolio.  Classified loans are reviewed individuallyto estimate the amount of probable

 

11

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losses that needs to be included in the allowance.  These reviews include analysis of financialinformation as well as evaluation of collateral securing the credit.  Loss factors on the unclassified portion ofthe portfolio are based on such factors as historical loss experience, currentportfolio delinquency and trends, and other inherent risk factors such aseconomic conditions, concentrations in the portfolio, risk levels of particularloan categories, internal loan review and management oversight.

 

The Company made a $70,000 contribution to the allowance for loanlosses for the six months ended June 30, 2004 compared to $154,000 for thesame period in 2003.  Managementbelieves that the allowance, which equals 1.04% of total loans at June 30,2004, is adequate to cover future losses. The allowance for loan losses at December 31, 2003 was 1.03% oftotal loans.

 

Changes in the allowance for loan losses for the three months ended andthe six months ended June 30, 2004 and 2003 are as follows (dollar amountsin thousands):

 
|                                  |   | **Three  Months Ended  June 30,** |   | **Six Months  Ended  June 30,** |   |
|---------------------------------------|--------|----------------------------------------|--------|--------------------------------------|--------|
|                                  |   | **2004**                               |   | **2003**                             |   | **2004** |   | **2003** |   |
|                                  |   |                                   |   |                                 |   |   |   |   |   |
| Allowance, Beginning of Period        |   | $                                      | 1,146  |                                 | $      | 1,010 |   | $ | 1,109 |   | $ | 1,000 |   |
| Provision for Loan Losses             |   | 30                                     |   | 145                                  |   | 70 |   | 155 |   |
| Loans Charged Off - net of recoveries |   | 1                                      |   | (105                                 | )      | (2 | ) | (105 | ) |
|                                  |   |                                   |   |                                 |   |   |   |   |   |
| Allowance, End of Period              |   | $                                      | 1,177  |                                 | $      | 1,050 |   | $ | 1,177 |   | $ | 1,050 |   |

 

**Non-interestIncome**

 

Non-interest income represents deposit account service charges andother types of fee income.  Non-interestincome for the three months ended June 30, 2004 totaled $395,000 comparedto $394,000 for the same period in 2003 a slight increase.  Non-interest income for the six months endedJune 30, 2004 totaled $782,000 compared to $503,000 for the same period in2003 a 55.4% increase.  During the sixmonths ended June 30, 2004, the Bank elected to realize gains of $483,000from the sale of the guaranteed portion of government guaranteed loans as comparedto $236,000 for the six months ending 2003. It has been the Company’s policy to sell securities due in one year ifthe gain will result in higher income after reinvesting the proceeds.  There were no sales for the three monthsending June 30, 2004.  For the sixmonths ending June 30, 2004 gains on these sales were $43,000 resulting inan increase of 59 basis points on the portion reinvested.

 

**Non-interestExpense**

 

Non-interest expense represents salaries, occupancy expenses,professional expenses, outside services and other miscellaneous expensesnecessary to conduct business. Noninterest expense for the three months ended June 30, 2004totaled $1,390,000 compared to $1,175,000 for the same period in 2003 for anincrease of 18.3%.  Non-interest expensefor the six months ended June 30, 2004 totaled $2,847,000 compared to$2,329,000 for the same period in 2003 for an increase of 22.2%.  This increase is primarily due to thecontinuing growth of the Bank’s government guaranteed lending departmentspecializing in Small Business Administration lending programs, the increasedexpense associated with the Bank’s new head office building, and the overallexpansion of the Bank’s customer base. The number of full time equivalent employees necessary to provide superiorcustomer service was 60 in June 2004 compared to 53 in June 2003.

 

**IncomeTaxes**

 

The Company recorded a $245,000 tax provision during the three monthsended June 30, 2004 compared to $203,000 during the same period in2003.  The Company recorded a $420,000tax provision for the six months ended June 30, 2004 compared to $295,000during the same period in 2003.

 

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**FinancialCondition**

 

*BalanceSheet Summary*

 

As of June 30, 2004, total consolidated assets of Coast Bancorpwere $154.7 million in comparison to total assets of $142.2 million as ofDecember 31, 2003. This represents an increase of $12.5 million, or8.8%.  Compared to total assets of$133.6 million at June 30, 2003, the company has increased assets by $21.1million, or 15.8%, over the last twelve months.  These increases are the result of significant growth in depositsof all types.

 

The majority of the growth in deposits has been invested in loans,which have increased by $8.3 million, or 7.9%, from $104.6 million atJune 30, 2003 to $112.9 million at June 30, 2004.  The balance of the deposit growth has beeninvested in Fed Funds to fund continuing strong loan demand and to meet theongoing liquidity needs of the Bank.

 

*Earnings Summary*

 

Consolidated net income for the three months ended June 30, 2004was $372,000 or $0.53 diluted earnings per share compared to net income of$283,000 or $0.43 diluted earnings per share for the same period during2003.  Consolidated net income for thesix months ended June 30, 2004 was $630,000 or $0.89 diluted earnings pershare compared to net income of $413,000 or $0.62 diluted earnings per sharefor the same period during 2003.  Theincrease in earnings in 2004 as compared to the same three and six-month periodin 2003 was still attained in the face of the lingering effects on the Bank’snet interest margin following reductions in short-term rates by the FederalReserve of 50 basis points on November 7, 2002 and another 25 basis pointson June 25, 2003, as well as increases in non-interest expenses such asthose associated with the opening of the Bank’s new head office building aswell as the continuing expansion of the Bank’s Government Guaranteed lendingdepartment, and the payment of quarterly interest on the Company’s TrustPreferred borrowing.  The increase inshort term rates of 25 basis points recently instituted by the Federal Reservehas not had an effect as of this date.

 

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**Asset Quality**

 

As of June 30, 2004, the Company had no loans on non-accrual andno loans 90 days or more past due and still accruing.  As of June 30, 2003 the Company had one loan in the amount$54,000 on nonaccrual and no loans 90 day past due and still accruing. As ofDecember 31, 2003 the company had no loans on non-accrual or loans 90 dayspast due and still accruing.  As ofJune 30, the Company has had no OREO during 2004 or 2003.

 

**Capital**

 

The objective of the Company’s asset/liability strategy is to manageliquidity and interest rate risk. Ultimately, management seeks to monitor the safety and soundness of theBank and its capital base, while maintaining adequate net interest margins andspreads to provide an appropriate return to the stockholders.

 

Stockholders equity at June 30, 2004 was $9.380 million, comparedto $8.813 million at December 31, 2003. Stockholders equity increased primarily from net income of $630,000.

 

The Company is required to meet certain minimum risk-based capitalguidelines and leverage ratios set by the bank regulatory authorities. Therisk-based capital standards establish capital requirements that are moresensitive to risk differences between various assets, consider off balancesheet activities in assessing capital adequacy, and minimize the disincentivesto holding liquid, low risk assets.  Theleverage ratio consists of tangible Tier I capital divided by average totalassets.

 

The Company maintains capital ratios above the Federal regulatoryguidelines for “well-capitalized” bank holding companies.  The ratios for the Bank are as follows:

 
|                            |   | **Regulatory  Standard**    |   | **Coast  National Bank** |   | **Coast  National Bank**      |   |
|---------------------------------|--------|-----------------------------|--------|--------------------------|--------|-------------------------------|--------|
|                            |   | **Adequately  Capitalized** |   | **Well  Capitalized**    |   | **As of  June 30, 2004** |   | **As of  December 31, 2003** |   |
| Total risk-based capital ratio  |   | 8.00                        | %      | 10.00                    | %      | 12.44                         | %      | 12.51 | % |
| Tier 1 risk-based capital ratio |   | 4.00                        | %      | 6.00                     | %      | 11.47                         | %      | 11.54 | % |
| Tier 1 leverage capital ratio   |   | 4.00                        | %      | 5.00                     | %      | 9.29                          | %      | 9.49 | % |

 

**Liquidity**

 

The objective of liquidity management is to ensure the continuousavailability of funds to meet the demands of depositors, investors andborrowers.  Asset liquidity is primarilyderived from loan payments and the maturity of other earning assets.  Liquidity from liabilities is obtained primarilyfrom the receipt of new deposits.  TheBank’s Investment Committee is responsible for the managing of the on- and off-balance sheet commitments to meet the needs of customers while achieving theBank’s financial objectives.

 

Management is not aware of any future capital expenditures or othersignificant demands on commitments which would severely impair liquidity.  As of the six months ended June 30,2004, the Bank had a loan-to-deposit ratio of 80.72%.

 

**Item 3****.  Controls and****Procedures**

 

Based on their evaluation as of June 30, 2004, the Bancorp’s ChiefExecutive Officer and Chief Financial Officer have concluded that the Bancorp’sdisclosure controls and procedures are effective to ensure that informationrequired to be disclosed in the reports that the Bancorp files or submits underthe Securities Exchange Act of 1934 is recorded, processed, summarized andreported within the time periods specified in the Securities and ExchangeCommission’s rules and forms.  Therehave been no significant changes in the Bancorp’s internal controls or in otherfactors that could significantly affect those controls subsequent to the dateof their evaluation.

 

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**PART II****– OTHERINFORMATION**

 

**ITEM 1 – LEGAL PROCEEDINGS**

 

Notapplicable.

 

**ITEM 2 – CHANGES IN SECURITIES**

 

Notapplicable.

 

**ITEM 3 – DEFAULTS UPON SENIOR SECURITIES**

 

Notapplicable.

 

**ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

(a)                                  Coast Bancorp’s 2004 Annual Meeting ofShareholders was held on June 23, 2004 (the “Meeting”).  The Meeting involved the followingproposals:

 

1.     To elect nine (9) persons to the Board ofDirectors to serve until the next Annual Meeting of Shareholders and untiltheir successors are elected and have qualified.

 

2.     To approve the appointment of Vavrinek,Trine, Day & Co. LLP as independent public accountants for the Company’s2004 fiscal year, and

 

(b)                                 Proxies for the meeting were solicitedpursuant to Regulation 14A under the Securities and Exchange Act of 1934, asamended.  There were no solicitations inopposition to management’s nominees as listed in the proxy statement, and allsuch nominees were elected.

 

OnProposal No. 2 to approve the appointment of Vavrinek, Trine, Day & Co. LLPas independent public accountants for the Company’s 2004 fiscal year, 500,922shares voted in favor of approval, none voted against approval, 750 sharesabstained, and there were zero (0) broker non-votes.  Accordingly, Proposal No. 2 was passed by the shareholders.

 

(c)                                  There was no settlement between the Companyand any other person terminating any solicitation subject to Rule 14a-11.

 

**ITEM 5 – OTHER INFORMATION**

 

Notapplicable.

 

**ITEM 6 – EXHIBITS AND REPORTS ON FORM 8-K**

 

(a)          EXHIBITS

 
| Exhibit  31 - |   | RULE  13a-14(a) CERTIFICATIONS    |
|---------------|--------|-----------------------------------|
|          |   |                              |
|          |   | 31.1                              | Certification  of Chief Executive Officer |
|          |   | 31.2                              | Certification  of Chief Financial Officer |
|          |   |                              |
| Exhibit  32 - |   | SECTION 1350  CERTIFICATIONS |
|          |   |                              |
|          |   | 32.1                              | Certification  of Chief Executive Officer |
|          |   | 32.2                              | Certification  of Chief Financial Officer |

 

(b)         Reportson Form 8-K

 

NoForm 8-K’s were filed by the Bank during the quarter ended June 30, 2004.

 

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**Signatures**

 

In accordance with the requirements of the Exchange Act of 1934, theregistrant has caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
|   |                 | COAST BANCORP                     |
|--------|----------------------|-----------------------------------|
|   |                 |                              |
|   |                 |                              |
| Date:  | August 11, 2004 | /s/ Jack C. Wauchope              |   |
|   |                 | Jack C. Wauchope                  |
|   |                 | Chairman of the Board             |
|   |                 | President/Chief Executive Officer |
|   |                 | (Principal Executive Officer)     |
|   |                 |                              |
|   |                 |                              |
| Date:  | August 11, 2004 | /s/ Berta F. Olson                |   |
|   |                 | Berta F. Olson                    |
|   |                 | Senior Vice President             |
|   |                 | Chief Financial Officer           |
|   |                 | (Principal Financial Officer)     |

 

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