**U.S.SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM10-QSB**

 

**ý****   Quarterlyreport under Section 13 or 15(d) of the Securities Exchange Act of 1934**

**for thequarterly period ended March 31, 2006**

 

**o****   Transitionreport under Section 13 or 15(d) of the Securities Exchange Act of 1934 (No feerequired)**

**for theperiod from                     to                     **

 

**CommissionFile Number 0-27666**

 

**NORTHERNCALIFORNIA BANCORP, INC.**

(Name of SmallBusiness Issuer in its Charter)

 

**Incorporatedin the State of California**

**IRSEmployer Identification Number 77-0421107**

Address:  **601 Munras Avenue, Monterey, CA  93940**

Telephone: **(831) 649-4600**

 

Check whether the issuer:(1) filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act during the past 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes   ý                            No   o

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act.Yes   o        No   ý

 

As of April 28, 2006, theCorporation had 1,631,439 shares of common stock outstanding.

 

 

----

 

TABLE OF CONTENTS

 
| **Facing Page**       |                                                                                        |
|-----------------------|---------------------------------------------------------------------------------------------|
| **Table of Contents** |                                                                                        |
| **PART I**            | Financial Information                                                                       |   |
| Item 1                | Financial Statements                                                                        |   |
|                  | Consolidated Balance Sheet                                                                  |   |
|                  | Consolidated Statement of  Operations                                                       |   |
|                  | Consolidated Statement of  Cash Flows                                                       |   |
|                  | Summary of Accounting Policies                                                              |   |
| Item 2                | Management’s Discussion and  Analysis of Financial Condition and Results of Operations |   |
| Item 3                | Internal Controls                                                                           |   |
|                  |                                                                                        |   |
| **PART II**           | ** **                                                                                  | ** ** |
| Item 1                | Legal Proceedings                                                                           |   |
| Item 2                | Unregistered Sales of Equity  Securities and Use of Proceeds                                |   |
| Item 3                | Defaults Upon Senior  Securities                                                            |   |
| Item 4                | Submission of Matters to a  Vote of Security Holders                                        |   |
| Item 5                | Other Information                                                                           |   |
| Item 6                | Exhibits                                                                                    |   |
| Signatures            |                                                                                        |
| Certifications        |                                                                                        |

 

2

----

 

**PART I-FINANCIAL INFORMATION**

 

Item 1.                                FINANCIALSTATEMENTS

 

NORTHERNCALIFORNIA BANCORP, INC.

AND SUBSIDIARY

CONSOLIDATEDBALANCE SHEET

 
| ** **                                                                                                               | ** ** | **MARCH 31  2006** | ** **  | **DECEMBER 31  2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                                                                                                               | ** ** | **(Unaudited)**    | ** **  | ** **            | ** ** |
| ASSETS:                                                                                                                  |       |               |        |                  |       |
| Cash and Due  From Banks                                                                                                 |       | $                  | 4,961,100   |                  | $          | 5,830,600 |   |
| Federal Funds  Sold                                                                                                      |       | 16,765,000         |        | 18,300,000            |       |
| Total Cash and  Cash Equivalents                                                                                         |       | 21,726,100         |        | 24,130,600            |       |
| Trading Assets                                                                                                           |       | 1,433,200          |        | 1,027,500             |       |
| Time Deposits  with other Financial Institutions                                                                         |       | 1,000,000          |        | 1,000,000             |       |
| Investment  Securities, available for sale (Note 4)                                                                      |       | 10,963,500         |        | 11,065,300            |       |
| Investment  Securities, held to maturity cost (fair value approximates $7,213,500 in  2006; $7,161,900 in 2005) (Note 4) |       | 7,021,800          |        | 7,025,000             |       |
| Other  Investments (Note 5)                                                                                              |       | 1,763,100          |        | 2,020,500             |       |
| Loans Held for  Sale                                                                                                     |       | 2,844,800          |        | 5,315,000             |       |
| Loans, net of  allowance for loan losses of $1,101,800 in 2006; $1,100,700 in 2005 (Note 6)                              |       | 105,916,300        |        | 101,985,000           |       |
| Bank Premises  and Equipment, Net                                                                                        |       | 4,353,400          |        | 4,362,300             |       |
| Cash Surrender  Value of Life Insurance                                                                                  |       | 2,485,800          |        | 2,466,700             |       |
| Interest  Receivable and Other Assets                                                                                    |       | 3,640,200          |        | 2,247,200             |       |
| Total Assets                                                                                                             |       | $                  | 163,148,200 |                  | $          | 162,645,100 |   |
|                                                                                                                     |       |               |        |                  |       |
| LIABILITIES AND  SHAREHOLDERS’ EQUITY:                                                                              |       |               |        |                  |       |
|                                                                                                                     |       |               |        |                  |       |
| Non interest  bearing demand                                                                                             |       | $                  | 23,906,600  |                  | $          | 30,814,900 |   |
| Interest-bearing  demand                                                                                                 |       | 17,602,300         |        | 17,824,500            |       |
| Savings                                                                                                                  |       | 9,074,200          |        | 7,659,300             |       |
| Time less than  $100,000                                                                                                 |       | 33,927,400         |        | 32,143,200            |       |
| Time in  denominations of $100,000 or more                                                                               |       | 29,284,100         |        | 29,678,200            |       |
| Total Deposits                                                                                                           |       | 113,794,600        |        | 118,120,100           |       |
|                                                                                                                     |       |               |        |                  |       |
| Federal Home  Loan Bank Borrowed Funds                                                                                   |       | 26,750,000         |        | 24,750,000            |       |
| Junior Subordinated  Debt Securities                                                                                     |       | 8,248,000          |        | 8,248,000             |       |
| Interest Payable  and Other Liabilities                                                                                  |       | 4,014,200          |        | 2,596,100             |       |
| Total  Liabilities                                                                                                       |       | 152,806,800        |        | 153,714,200           |       |
|                                                                                                                     |       |               |        |                  |       |
| Shareholders’  Equity:                                                                                              |       |               |        |                  |       |
| Common Stock -  No Par Value                                                                                             |       |               |        |                  |       |
| Authorized: 2,500,000  in 2006 and 2005                                                                                  |       |               |        |                  |       |
| Outstanding:1,631,439  in 2006 and 2005                                                                                  |       | 4,789,600          |        | 4,771,800             |       |
| Retained  Earnings                                                                                                       |       | 5,557,500          |        | 4,128,600             |       |
| Accumulated  Other Comprehensive Income (Loss) (Note 7)                                                                  |       | (5,700             | )           | 30,500                |       |
| Total  Shareholders’ Equity                                                                                         |       | 10,341,400         |        | 8,930,900             |       |
| Total  Liabilities & Shareholders’ Equity                                                                       |       | $                  | 163,148,200 |                  | $          | 162,645,100 |   |

 

3

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NORTHERNCALIFORNIA BANCORP, INC.

AND SUBSIDIARY

CONSOLIDATEDSTATEMENTS OF OPERATIONS (UNADUITED)

 
| ** **                                                              | ** ** | **THREE-MONTH PERIOD ENDING  MARCH 31** | ** ** |
|-------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                              | ** ** | **2006**                                | ** ** | **2005** | ** ** |
| INTEREST INCOME:                                                        |       |                                    |       |   |   |
| Loans                                                                   |       | $                                       | 2,532,200  |   | $ | 2,104,500 |   |
| Time deposits  with other financial institutions                        |       | 10,700                                  |       | 3,900 |   |
| Investment  securities                                                  |       | 225,300                                 |       | 150,100 |   |
| Federal funds  sold                                                     |       | 172,300                                 |       | 69,400 |   |
| Total Interest  Income                                                  |       | 2,940,500                               |       | 2,327,900 |   |
|                                                                    |       |                                    |       |   |   |
| INTEREST  EXPENSE:                                                      |       |                                    |       |   |   |
| Interest-bearing  transaction accounts                                  |       | 23,200                                  |       | 15,900 |   |
| Savings and time  deposit accounts                                      |       | 317,200                                 |       | 233,100 |   |
| Time deposits in  denominations of $100,000 or more                     |       | 301,900                                 |       | 221,400 |   |
| Notes payable  and other                                                |       | 490,400                                 |       | 340,700 |   |
| Total Interest  Expense                                                 |       | 1,132,700                               |       | 811,100 |   |
|                                                                    |       |                                    |       |   |   |
| Net Interest  Income                                                    |       | 1,807,800                               |       | 1,516,800 |   |
| Provision for  loan losses                                              |       | —                                  |       | 50,000 |   |
| Net interest  income, after provision for loan losses                   |       | 1,807,800                               |       | 1,466,800 |   |
|                                                                    |       |                                    |       |   |   |
| Other income                                                            |       |                                    |       |   |   |
| Service charges  on deposit accounts                                    |       | 138,800                                 |       | 140,400 |   |
| Income from  sales and servicing of Small Business Administration Loans |       | 288,900                                 |       | 235,700 |   |
| Sale of Pacific  Coast Bankers’ Bank Stock                         |       | 1,313,400                               |       | — |   |
| Other income                                                            |       | 983,900                                 |       | 401,500 |   |
| Total other  income                                                     |       | 2,725,000                               |       | 777,600 |   |
|                                                                    |       |                                    |       |   |   |
| NONINTEREST  EXPENSE:                                                   |       |                                    |       |   |   |
| Salaries and  Employee Benefits                                         |       | 945,400                                 |       | 858,300 |   |
| Occupancy and  Equipment Expense                                        |       | 180,800                                 |       | 131,900 |   |
| Professional  Fees                                                      |       | 39,600                                  |       | 37,500 |   |
| Data Processing                                                         |       | 86,300                                  |       | 90,600 |   |
| Other general  and administrative                                       |       | 850,500                                 |       | 747,700 |   |
| Total operating  expenses                                               |       | 2,102,600                               |       | 1,866,000 |   |
|                                                                    |       |                                    |       |   |   |
| Income before  tax provision                                            |       | 2,430,200                               |       | 378,400 |   |
| Income tax  provision                                                   |       | 1,001,300                               |       | 243,300 |   |
| Net income                                                              |       | $                                       | 1,428,900  |   | $ | 135,100 |   |
| Earnings per  common share                                              |       |                                    |       |   |   |
| Basic                                                                   |       | $                                       | 0.876      |   | $ | 0.084 |   |
| Diluted                                                                 |       | $                                       | 0.742      |   | $ | 0.070 |   |

 

4

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NORTHERNCALIFORNIA BANCORP, INC.

AND SUBSIDIARY

CONSOLIDATEDSTATEMENTS OF CASH FLOWS (UNAUDITED)

THREE MONTHS ENDEDMARCH 31, 2006 AND 2005

 
| ** **                                                                                | ** ** | **2006**   | ** ** | **2005**    | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------|------------|-------------|------------|
| **CASH  FLOWS FROM OPERATING ACTIVITIES**                                                 |       |       |       |        |       |
| Net income                                                                                |       | $          | 1,428,900  |        | $          | 135,100 |   |
| Adjustments to  reconcile net income to net cash Provided (used) by operating activities: |       |       |       |        |       |
| Depreciation and  amortization expense                                                    |       | 69,100     |       | 49,700      |       |
| Realized (gain)  loss on sales of available-for-sale securities, net                      |       | (1,313,400 | )          | —      |       |
| Amortization of  deferred loan (fees) costs                                               |       | 81,000     |       | 50,300      |       |
| Amortization  (accretion) of discounts and premiums on investment securities              |       | 700        |       | 1,400       |       |
| Provision for  loan losses                                                                |       | —     |       | 50,000      |       |
| Stock based  compensation                                                                 |       | 17,800     |       | —      |       |
| Increase in  trading assets                                                               |       | (405,700   | )          | (98,200     | )          |
| Decrease in  interest receivable                                                          |       | 115,200    |       | 25,500      |       |
| Increase in other  assets                                                                 |       | (1,496,100 | )          | (339,200    | )          |
| Increase in  deferred tax asset                                                           |       | (82,100    | )          | (93,300     | )          |
| Increase in  interest payable                                                             |       | 58,800     |       | 107,000     |       |
| Increase in  other liabilities                                                            |       | 1,359,300  |       | 562,600     |       |
| Net cash  provided (used) by operating activities                                         |       | (166,500   | )          | 450,900     |       |
|                                                                                      |       |       |       |        |       |
| **CASH  FLOWS FROM INVESTING ACTIVITIES**                                                 |       |       |       |        |       |
| Increase in time  deposits                                                                |       | —     |       | (1,000,000  | )          |
| Proceeds from  maturity/sale of investment securities                                     |       | 1,843,000  |       | 129,600     |       |
| Purchase of  investments                                                                  |       | (153,500   | )          | (2,169,200  | )          |
| Net increase in  loans                                                                    |       | (7,719,700 | )          | (6,373,100  | )          |
| Loan purchases                                                                            |       | (5,500,000 | )          | (3,925,900  | )          |
| Loan sales                                                                                |       | 9,207,400  |       | 3,864,800   |       |
| Decrease in  loans held for sale                                                          |       | 2,470,200  |       | 901,600     |       |
| Proceeds from  sale of equipment                                                          |       | 17,800     |       | 600         |       |
| Additions to  bank premises and equipment                                                 |       | (77,700    | )          | (2,082,900  | )          |
| Net cash  provided (used) by investing activities                                         |       | 87,500     |       | (10,654,500 | )          |
|                                                                                      |       |       |       |        |       |
| **CASH  FLOWS FROM FINANCING ACTIVITIES**                                                 |       |       |       |        |       |
| Net increase  (decrease) in deposits                                                      |       | (4,325,500 | )          | 6,091,400   |       |
| Proceeds from  borrowings                                                                 |       | 4,000,000  |       | —      |       |
| Repayments of  borrowings                                                                 |       | (2,000,000 | )          | —      |       |
| Proceeds from  exercise of stock options                                                  |       | —     |       | 1,100       |       |
| Net cash  provided (used) by financing activities                                         |       | (2,325,500 | )          | 6,092,500   |       |
|                                                                                      |       |       |       |        |       |
| Net decrease in  cash and cash equivalents                                                |       | (2,404,500 | )          | (4,111,100  | )          |
|                                                                                      |       |       |       |        |       |
| **CASH  AND CASH EQUIVALENTS, BEGINNING**                                                 |       | 24,130,600 |       | 16,809,000  |       |
|                                                                                      |       |       |       |        |       |
| **CASH  AND CASH EQUIVALENTS, ENDING**                                                    |       | $          | 21,726,100 |        | $          | 12,697,900 |   |

 

See Note 8 for supplemental disclosures

 

5

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**SUMMARY OFACCOUNTING POLICIES**

 

(NOTE 1) ****BASISOF PRESENTATION****

 

Theinterim condensed financial statements of Northern California Bancorp,Inc. are unaudited and reflect all adjustments (consisting only of normalrecurring adjustments), which are, in the opinion of management, necessary fora fair presentation, in all material respects, of the financial position andoperating results of the Company for the interim periods.  The results ofoperations for the three months ended March 31, 2006 are not necessarily indicativeof the results to be expected for the entire fiscal year ending December31, 2006.  The year-end balance sheet data at December 31, 2005was derived from the audited financial statements.

 

Thisfinancial information should be read in conjunction with the audited financialstatements and notes thereto included in the Company’s Form 10-KSB for thefiscal year ended December 31, 2005.

 

(NOTE 2)  RECENTLY ISSUED ACCOUNTINGPRONOUNCEMENTS

 

Priorto January 1, 2006, the Bank accounted for its stock options under therecognition and measurement principles of Accounting Principle Board (APB)Opinion No. 25, *Accounting for Stock Issuedto Employees* (APB No. 25), and related interpretations. Accordingly,no stock-based employee compensation cost was reflected in net earnings priorto January 1, 2006 as all options to purchase common stock of the Bank had anexercise price equal to, or greater than, the market value of the underlyingcommon stock on the date of grant.

 

EffectiveJanuary 1, 2006, the Bank began recording compensation expense associated withstock-based awards in accordance with Statement of Financial AccountingStandards (SFAS) No. 123 (revised 2004), *Share-BasedPayment* (SFAS No. 123R) as interpreted by SEC Staff AccountingBulletin No. 107. SFAS No. 123R supersedes APB No. 25, and amends SFAS No. 95 *Statement of Cash Flows*. Generally, theapproach in SFAS No. 123R is similar to the approach described in SFAS No. 123,*Accounting for Stock Based Compensation*(SFASNo. 123). However, SFAS No. 123R requires all stock-based payments toemployees, including grants of employee stock options, to be recognized in theincome statement based on their fair values at the date of grant. Thestock-based compensation expense amount recorded was $17,800 in the first quarterof 2006.

 

The fair value of each option granted is estimated on the date of grantusing the Black-Scholes option-pricing model. The Bank uses the following inputvariables as of the grant date, to arrive at the fair value for each grant:

 

6

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1)                   Grant date

2)                   Options granted

3)                   Exercise price

4)                   Stock price on date of grant

5)                   Expected dividend rate

6)                   Expected volatility

7)                   Risk free interest rate on grant date

8)                   Expected term

9)                   Expected forfeiture rate

 

Proforma information regarding net income and earnings per share for the threemonths ended March 31, 2005 is presented below as if the Bank had accounted forall stock-based compensation under the fair value method of SFAS No. 123. InFebruary 2004, options were granted that provided full vesting on January 1,2005.

 
| ** **                                                             | ** ** | **Three months  ended March 31,  2005** | ** ** |
|------------------------------------------------------------------------|------------|-----------------------------------------|------------|
|                                                                   |       |                                    |       |
| Reported net  earnings                                                 |       | $                                       | 135,100    |   |
| Stock-based  employee compensation expense, net of related tax effects |       | (18,900                                 | )          |
| Pro forma net  earnings                                                |       | $                                       | 116,200    |   |
|                                                                   |       |                                    |       |
| Earnings per  share as reported:                                       |       |                                    |       |
| Basic                                                                  |       | $                                       | 0.084      |   |
| Diluted                                                                |       | $                                       | 0.070      |   |
| Pro forma  earnings per share:                                         |       |                                    |       |
| Basic                                                                  |       | $                                       | 0.072      |   |
| Diluted                                                                |       | $                                       | 0.060      |   |

 

(NOTE 3). EARNINGS PER SHARE

 

**Basic earnings per share represents income available tocommon stockholders divided by the weighted-average number of common sharesoutstanding during the period. Diluted earnings per share reflects additionalcommon shares that would have been outstanding, if potential dilutive commonshares had been issued, as well as any adjustment to income that would resultfrom the assumed issuance. Potential common shares that may be issued by theBank relate to outstanding stock options and warrants and are determined usingthe treasury stock method.**

 

7

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**The weighted-average number of shares used in computingbasic and diluted earnings per share is as follows:**

 
| ** **                                                         | ** ** | **Earnings per share calculation  For the three months ended March 31,** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **2006**                                                                 | ** ** | **2005** | ** ** |
| ** **                                                         | ** ** | **Net  Income**                                                          | ** ** | **Weighted  Average  Shares** | ** ** | **Per Share  Amount** | ** ** | **Net  Income** | ** ** | **Weighted  Average  Shares** | ** ** | **Per Share  Amount** | ** ** |
| Basic earnings  per share                                          |       | $                                                                        | 1,428,900  |   | 1,631,439 |   | $ | 0.876 |   | $ | 135,100 |   | 1,608,147 |   | $ | 0.084 |   |
|                                                               |       |                                                                     |       |   |   |   |   |   |   |   |   |   |   |
| Effect of  dilutive shares assumed exercise of outstanding options |       | —                                                                   |       | 293,140 |   | (0.134 | ) | — |   | 314,178 |   | (0.014 | ) |
|                                                               |       |                                                                     |       |   |   |   |   |   |   |   |   |   |   |
| Diluted earnings  per share                                        |       | $                                                                        | 1,428,900  |   | 1,924,579 |   | $ | 0.742 |   | $ | 135,100 |   | 1,922,325 |   | $ | 0.070 |   |

 

8

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| ** **                                              | ** ** | **MARCH 31  2006** | ** **  | **DECEMBER 31  2005** | ** ** |
|---------------------------------------------------------|------------|--------------------|-------------|-----------------------|------------|
|                                                    |       |               |        |                  |       |
| (NOTE 4)  INVESTMENT SECURITIES:                        |       |               |        |                  |       |
|                                                    |       |               |        |                  |       |
| Available for  sale:                                    |       |               |        |                  |       |
| Corporate Debt  Securities                              |       | $                  | 632,300     |                  | $          | 630,500 |   |
| Government  National Mortgage Association               |       | 745,400            |        | 837,800               |       |
| U.S. government  Agencies                               |       | 9,585,800          |        | 9,597,000             |       |
|                                                    |       | $                  | 10,963,500  |                  | $          | 11,065,300 |   |
|                                                    |       |               |        |                  |       |
| Held to  maturity:                                      |       |               |        |                  |       |
| State/Local  Agency                                     |       | $                  | 7,021,800   |                  | $          | 7,025,000 |   |
|                                                    |       |               |        |                  |       |
| (NOTE 5) OTHER  INVESTMENTS                             |       |               |        |                  |       |
| AT Services LLC                                         |       | $                  | 40,000      |                  | $          | 40,000 |   |
| Metrocities  Mortgage, LLC                              |       | 10,000             |        | 10,000                |       |
| Pan Pacific Bank                                        |       | 100,000            |        | 100,000               |       |
| Federal Home  Loan Bank stock, restricted               |       | 1,365,100          |        | 1,182,600             |       |
| Northern  California Bancorp, Inc. Trust I              |       | 93,000             |        | 93,000                |       |
| Northern  California Bancorp, Inc. Trust II             |       | 155,000            |        | 155,000               |       |
| Pacific Coast  Bankers’ Bank Stock                 |       | —             |        | 439,900               |       |
|                                                    |       | $                  | 1,763,100   |                  | $          | 2,020,500 |   |
|                                                    |       |               |        |                  |       |
| (NOTE 6) LOANS  and ALLOWANCE FOR POSSIBLE LOAN LOSSES: |       |               |        |                  |       |
|                                                    |       |               |        |                  |       |
| Commercial and  Industrial                              |       | $                  | 22,595,600  |                  | $          | 20,920,900 |   |
| Construction                                            |       | 9,542,300          |        | 10,455,900            |       |
| Real Estate -  Mortgage                                 |       | 74,190,800         |        | 71,005,800            |       |
| Installment                                             |       | 993,700            |        | 942,300               |       |
| Government  Guaranteed Loans Purchased                  |       | 43,700             |        | 45,300                |       |
|                                                    |       | 107,366,100        |        | 103,370,200           |       |
| Allowance for  loan losses                              |       | (1,101,800         | )           | (1,100,700            | )          |
| Deferred  origination fees, net                         |       | (348,000           | )           | (284,500              | )          |
| Net Loans                                               |       | $                  | 105,916,300 |                  | $          | 101,985,000 |   |
|                                                    |       |               |        |                  |       |
| Balance at  Beginning of Period                         |       | $                  | 1,100,700   |                  | $          | 963,000 |   |
| Recoveries                                              |       | 1,100              |        | 1,900                 |       |
| Provision for  Possible Loan Losses                     |       | —             |        | 150,000               |       |
| Loans Charged  Off                                      |       | —             |        | (14,200               | )          |
| Balance at End  of Period                               |       | $                  | 1,101,800   |                  | $          | 1,100,700 |   |

 

9

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(Note7) COMPREHENSIVE INCOME:

 

Thecomponents of other comprehensive income and related tax effects for the threemonth periods ending March 31, 2006 and 2005 are as follows:

 
| ** **                                                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Unrealized  holding losses on available - for - sale securities and other assets, net |       | $        | (65,900    | )        | $          | (89,000 | ) |
| Tax effect                                                                            |       | 29,700   |       | 40,000   |       |
|                                                                                  |       |     |       |     |       |
| Net-of-tax  amount                                                                    |       | $        | (36,200    | )        | $          | (49,000 | ) |

 

Thecomponents of accumulated other comprehensive income and related tax effectsare as follows:

 
| ** **                                                       | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Unrealized  holding losses on available for sales securities     |       | $        | (153,000   | )        | $          | (163,100 | ) |
| Unrealized  holding gains on available for sale strip receivable |       | 142,600  |       | 211,500  |       |
| Tax effect                                                       |       | 4,700    |       | (21,800  | )          |
|                                                             |       |     |       |     |       |
| Net-of-tax  amount                                               |       | $        | (5,700     | )        | $          | 26,600 |   |

 

(NOTE 8) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 
| ** **                          | ** ** | **3/31/06** | ** ** | **3/31/05** | ** ** |
|-------------------------------------|------------|-------------|------------|-------------|------------|
| Payments during  the period ending: |       |        |       |        |       |
| Interest                            |       | $           | 1,073,900  |        | $          | 680,500 |   |
| Income Taxes                        |       | 994,000     |       | 252,500     |       |
|                                     |            |             |            |             |            |  |  |

 

10

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**ITEM 2:**                 MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

**Statements Regarding Forward-Looking Information**

 

**Except for historical information contained herein, thematters discussed or incorporated by reference in this report containforward-looking statements within the meaning of Section 27A of the SecuritiesAct of 1933, as amended (the “Securities Act”), and Section 21E of theSecurities Exchange Act of 1934 (the “Exchange Act”), that involve substantialrisks and uncertainties.  When used in this report, or in the documentsincorporated by reference herein, the words “anticipate,” “believe,” “estimate,”“may,” “intend,” “expect,” and similar expressions identify certain of suchforward-looking statements.  Actual results of Monterey County Bank coulddiffer materially from such forward-looking statements contained herein. Factors that could cause future results to vary from current expectations include,but are not limited to, the following: changes in economic conditions (bothgenerally and more specifically in the markets in which the Bank operates);changes in interest rates, deposit flows, loan demand, real estate values andcompetition; changes in accounting principles, policies or guidelines and ingovernment legislation and regulation (which change from time to time and overwhich the Bank has no control); other factors affecting the Bank’s operations,markets, products and services; and other risks detailed in this Form 10-QSBand in the Bank’s other reports filed with the Federal Deposit InsuranceCorporation and pursuant to the rules and regulations of the Securities andExchange Commission.  Readers are cautioned not to place undue reliance onthese forward-looking statements, which reflect management’s analysis only asof the date hereof.  The Bank undertakes no obligation to publicly revisethese forward-looking statements to reflect events or circumstances that ariseafter the date thereof.**

 

**OVERVIEW**

 

The following discussionreviews and analyzes the operating results and financial condition of theCorporation, focusing on the Bank. It should be read in conjunction with thefinancial statements and the other financial data presented elsewhere herein.

 

For the three monthsended March 31, 2006 net income was $1,428,900, compared to $135,100 for thesame period in 2005. For the three months ended March 31, 2006 interest incomeafter provision for loan losses increased $341,000, other income increased $1,974,400,while operating expense increased $236,600 and income tax provision increased $758,000.

 

11

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The following table sets forth certain selectedfinancial ratios of the Corporation at and for the three months ended, March31, 2006 and 2005.

 
| ** **                                         | ** ** | **The three months  Ended March 31, 2006**       | ** ** | **The three months  Ended March 31, 2005** | ** ** |
|----------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                         | ** ** | **(Dollars in thousands except per share data)** | ** ** |
|                                               |       |                                             |       |                                       |       |
| Summary of  Operating Results:                     |       |                                             |       |                                       |       |
|                                               |       |                                             |       |                                       |       |
| Total interest  income                             |       | $                                                | 2,941      |                                       | $          | 2,328 |   |
| Total interest  expense                            |       | 1,133                                            |       | 811                                        |       |
| Net interest  income                               |       | 1,808                                            |       | 1,517                                      |       |
|                                               |       |                                             |       |                                       |       |
| Provision for  possible loan losses                |       | —                                           |       | 50                                         |       |
| Net interest  income after provision for loan loss |       | 1,808                                            |       | 1,467                                      |       |
|                                               |       |                                             |       |                                       |       |
| Total other  income                                |       | 2,725                                            |       | 778                                        |       |
| Total other  expense                               |       | 2,103                                            |       | 1,866                                      |       |
|                                               |       |                                             |       |                                       |       |
| Income before  taxes                               |       | 2,430                                            |       | 378                                        |       |
| Provision for  income tax                          |       | 1,001                                            |       | 243                                        |       |
|                                               |       |                                             |       |                                       |       |
| Net income                                         |       | 1,429                                            |       | 135                                        |       |
|                                               |       |                                             |       |                                       |       |
| Per Common Share  Data:                            |       |                                             |       |                                       |       |
|                                               |       |                                             |       |                                       |       |
| Net income -  Primary (1)                          |       | $                                                | 0.876      |                                       | $          | 0.084 |   |
| Net income -  Diluted (2)                          |       | 0.742                                            |       | 0.070                                      |       |
| Book value, end  of period (3)                     |       | 6.43                                             |       | 4.61                                       |       |
| Avg shares  outstanding (4)                        |       | 1,631,439                                        |       | 1,608,147                                  |       |
|                                               |       |                                             |       |                                       |       |
| Balance Sheet  Data:                               |       |                                             |       |                                       |       |
|                                               |       |                                             |       |                                       |       |
| Total loans, net  of unearned income (5)           |       | $                                                | 108,761    |                                       | $          | 100,468 |   |
| Total assets                                       |       | 163,148                                          |       | 140,887                                    |       |
| Total deposits                                     |       | 113,795                                          |       | 103,355                                    |       |
| Stockholders’  equity (6)                     |       | 10,341                                           |       | 7,408                                      |       |

 

12

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| ** **                                           | ** ** | **The three months  Ended March 31, 2006** | ** ** | **The three months  Ended March 31, 2005** | ** ** |
|------------------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
| Selected Financial  Ratios (4):                      |       |                                       |       |                                       |       |
|                                                 |       |                                       |       |                                       |       |
| Return on  average assets (5)                        |       | 3.64                                       | %          | 0.39                                       | %          |
| Return on  average stockholders’ equity (5)     |       | 59.10                                      | %          | 7.31                                       | %          |
| Net interest  spread                                 |       | 4.36                                       | %          | 4.40                                       | %          |
| Net interest  margin                                 |       | 4.96                                       | %          | 4.87                                       | %          |
| Avg  shareholders’ equity to average assets     |       | 6.15                                       | %          | 5.34                                       | %          |
| Risked-Based  capital ratios                         |       |                                       |       |                                       |       |
| Tier 1                                               |       | 10.10                                      | %          | 7.94                                       | %          |
| Total                                                |       | 15.29                                      | %          | 14.24                                      | %          |
| Total loans to  total deposits at end of period      |       | 95.58                                      | %          | 97.21                                      | %          |
| Allowance to  total loans at end of period           |       | 1.00                                       | %          | 1.00                                       | %          |
| Nonperforming  loans to total loans at end of period |       | 0.02                                       | %          | 0.04                                       | %          |
| Net charge-offs  to average loans                    |       | 0.00                                       | %          | 0.00                                       | %          |

 

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(1)          Primaryearnings per share amounts were computed on the basis of the weighted averagenumber of shares of common stock outstanding during the year. The weighted averagenumber of common shares used for this computation was 1,631,439 and 1,608,147 forMarch 31, 2006 and 2005, respectively.

 

(2)          Dilutedearnings (loss) per share amounts were computed on the basis of the weightedaverage number of shares of common stock and common stock equivalentsoutstanding during the year. Common stock equivalents include director/employeestock options. The weighted average number of shares used for this computationwas 1,924,579 and 1,922,325 for March 31, 2006 and 2005, respectively.

 

(3)          Weightedaverage common shares.

 

(4)          Includesloans being held for sale.

 

(5)          Averagesare of daily balances.

 

(6)          March 31,2006 calculated on an annualized basis.

 

**NET INTEREST INCOME**

 

Net interest income, thedifference between (a) interest and fees earned on interest-earning assets and(b) interest paid on interest-bearing liabilities, is the most significantcomponent of the Bank’s earnings. Changes in net interest income from period toperiod result from increases or decreases in the average balances ofinterest-earning assets portfolio, the availability of particular sources offunds and changes in prevailing interest rates.

 

13

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Net interest income forthe three months ended March 31, 2006 was $1,807,800 compared to $1,516,800 forthe same period in 2005. The increase of $291,000 resulted from total interestincome increasing $612,600, while total interest expense increased $321,600. Averageinterest earning assets increased $20,478,000 (16.08%), while the average rateearned increased 60 basis points. Average interest bearing liabilitiesincreased $15,888,000 (14.76%), while the average rate paid increased 66 basispoints.

 

The following tableshows the components of the Bank’s net interest income, setting forth, for eachthe three months ended March 31, 2006 and 2005, (i) average assets, liabilitiesand investments, (ii) interest income earned on interest-earning assets andinterest expense paid on interest-bearing liabilities, (iii) average yieldsearned on interest-earning assets and average rates paid on interest-bearingliabilities, (iv) the net interest spread (i.e., the average yield earned oninterest-earning assets less the average rate paid on interest-bearingliabilities) and (v) the net interest yield on average interest-earning assets(i.e., net interest income divided by average interest-earning assets). Yieldsare computed on a tax-equivalent basis, resulting in adjustments to interestearned on municipal bonds of $36,700 in 2006 and $33,800 in 2005. Non-accrualloans and overdrafts are included in average loan balances. Average loans arepresented net of unearned income.

 

14

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**INTEREST SPREAD ANALYSIS:**

 
| ** **                            | ** ** | **Three  Months  Ended March 31,** | ** ** | **Twelve  Months  Ended December 31,** | ** ** |
|---------------------------------------|------------|------------------------------------|------------|----------------------------------------|------------|
| ** **                            | ** ** | **2006**                           | ** ** | **2005**                               | ** ** | **2005** | ** ** |
| ** **                            | ** ** | **Avg  Bal**                       | ** ** | **Int  Earn  Paid**                    | ** ** | **Avg  %  Rate** | ** ** | **Avg  Bal** | ** ** | **Int  Earn  Paid** | ** ** | **Avg  %  Rate** | ** ** | **Avg  Bal** | ** ** | **Int  Earn  Paid** | ** ** | **Avg  %  Rate** | ** ** |
| ** **                            | ** ** | **(Dollars  in thousands)**        | ** ** |
| Interest Earning  Assets:             |       |                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Time Deposits -  Financial Inst.      |       | $                                  | 1,000      |                                   | $          | 11 |   | 4.30 |   | $ | 667 |   | $ | 4 |   | 2.00 |   | $ | 1,000 |   | $ | 29 |   | 3.00 |   |
| Invest securities  - Taxable          |       | 14,041                             |       | 134                                    |       | 3.82 |   | 9,929 |   | 74 |   | 2.99 |   | 13,237 |   | 441 |   | 3.33 |   |
| Invest securities  - Tax free         |       | 7,023                              |       | 119                                    |       | 6.75 |   | 6,419 |   | 109 |   | 7.00 |   | 7,026 |   | 445 |   | 6.33 |   |
| Federal funds  sold                   |       | 15,915                             |       | 172                                    |       | 4.33 |   | 11,129 |   | 69 |   | 2.49 |   | 10,481 |   | 352 |   | 3.36 |   |
| Total investments                     |       | 37,979                             |       | 436                                    |       | 4.59 |   | 28,144 |   | 256 |   | 3.64 |   | 30,744 |   | 1,267 |   | 4.12 |   |
|                                  |       |                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                 |       |                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction                          |       | 11,276                             |       | 353                                    |       | 12.53 |   | 11,139 |   | 350 |   | 12.58 |   | 9,952 |   | 1,269 |   | 12.75 |   |
| Real estate                           |       | 73,459                             |       | 1,557                                  |       | 8.48 |   | 64,347 |   | 1,199 |   | 7.45 |   | 72,608 |   | 5,935 |   | 8.17 |   |
| Installment                           |       | 969                                |       | 25                                     |       | 10.46 |   | 616 |   | 16 |   | 10.56 |   | 853 |   | 56 |   | 6.57 |   |
| Commercial                            |       | 24,178                             |       | 598                                    |       | 9.89 |   | 23,137 |   | 539 |   | 9.33 |   | 25,550 |   | 2,302 |   | 9.01 |   |
| Total loans                           |       | 109,881                            |       | 2,533                                  |       | 9.22 |   | 99,239 |   | 2,105 |   | 8.49 |   | 108,963 |   | 9,561 |   | 8.77 |   |
|                                  |       |                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Interest earning  assets        |       | $                                  | 147,860    |                                   | $          | 2,969 |   | 8.03 |   | $ | 127,382 |   | $ | 2,362 |   | 7.42 |   | $ | 139,707 |   | $ | 10,828 |   | 7.75 |   |
|                                  |       |                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest Bearing  Liabilities:        |       |                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Int-bearing  demand                   |       | $                                  | 12,517     |                                   | $          | 15 |   | 0.47 |   | $ | 12,079 |   | $ | 8 |   | 0.25 |   | $ | 12,584 |   | $ | 32 |   | 0.26 |   |
| Money market savings                  |       | 4,451                              |       | 9                                      |       | 0.77 |   | 4,386 |   | 8 |   | 0.77 |   | 4,818 |   | 32 |   | 0.66 |   |
| Savings deposits                      |       | 8,147                              |       | 20                                     |       | 0.99 |   | 7,595 |   | 19 |   | 0.98 |   | 7,476 |   | 80 |   | 1.07 |   |
| Time deposits  >$100M              |       | 30,163                             |       | 302                                    |       | 4.00 |   | 27,458 |   | 221 |   | 3.23 |   | 29,908 |   | 990 |   | 3.31 |   |
| Time deposits  <$100M              |       | 33,197                             |       | 297                                    |       | 3.58 |   | 28,202 |   | 214 |   | 3.04 |   | 31,981 |   | 971 |   | 3.04 |   |
| Other Borrowing                       |       | 35,031                             |       | 490                                    |       | 5.60 |   | 27,898 |   | 341 |   | 4.88 |   | 32,998 |   | 1,567 |   | 4.75 |   |
| Total interest bearing  liabilities   |       | $                                  | 123,506    |                                   | $          | 1,133 |   | 3.67 |   | $ | 107,618 |   | $ | 811 |   | 3.01 |   | $ | 119,765 |   | $ | 3,672 |   | 3.07 |   |
|                                  |       |                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest  income                  |       |                               |       | 1,836                                  |       |   |   |   |   | 1,551 |   |   |   |   |   | 7,156 |   |   |   |
|                                  |       |                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest  spread                  |       |                               |       |                                   |       | 4.36 |   |   |   |   |   | 4.40 |   |   |   |   |   | 4.68 |   |
|                                  |       |                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net yield on  interest earning assets |       |                               |       |                                   |       | 4.96 |   |   |   |   |   | 4.87 |   |   |   |   |   | 5.12 |   |

 

15

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**Rate and Volume Analysis:**

 
| ** **                       | ** ** | **Three Months  Ended March 31,  2006 vs 2005** | ** ** | **Twelve Months  Ended December 31,  2005 vs 2004** | ** ** |
|----------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                       | ** ** | **Increase (Decrease)  Due to changes**         | ** ** | **Increase (Decrease)  Due to Changes**             | ** ** |
| ** **                       | ** ** | **Avg  Volume**                                 | ** ** | **Avg  Rate**                                       | ** ** | **Total** | ** ** | **Avg  Volume** | ** ** | **Avg  Rate** | ** ** | **Total** | ** ** |
| ** **                       | ** ** | **(Dollars in thousands)**                      | ** ** |
| Interest Earning  Assets:        |       |                                            |       |                                                |       |   |   |   |   |   |   |   |   |
| Time Deposits -  Financial Inst. |       | $                                               | 2          |                                                | $          | 5 |   | $ | 7 |   | $ | 29 |   | $ | — |   | $ | 29 |   |
| Invest  securities - Taxable     |       | 31                                              |       | 29                                                  |       | 60 |   | 69 |   | 70 |   | 140 |   |
| Invest  securities - Tax free    |       | 10                                              |       | (1                                                  | )          | 9 |   | 234 |   | (15 | ) | 218 |   |
| Federal funds  sold              |       | 30                                              |       | 73                                                  |       | 103 |   | 0 |   | 211 |   | 211 |   |
| Total  investments               |       | 73                                              |       | 106                                                 |       | 179 |   | 332 |   | 266 |   | 598 |   |
|                             |       |                                            |       |                                                |       |   |   |   |   |   |   |   |   |
| Loans                            |       |                                            |       |                                                |       |   |   |   |   |   |   |   |   |
| Construction                     |       | 4                                               |       | (1                                                  | )          | 3 |   | 276 |   | 198 |   | 474 |   |
| Real estate                      |       | 170                                             |       | 188                                                 |       | 358 |   | 1,003 |   | 433 |   | 1,437 |   |
| Installment                      |       | 9                                               |       | (0                                                  | )          | 9 |   | 22 |   | (7 | ) | 16 |   |
| Commercial                       |       | 24                                              |       | 34                                                  |       | 58 |   | 437 |   | 443 |   | 880 |   |
| Total loans                      |       | 208                                             |       | 220                                                 |       | 428 |   | 1,739 |   | 1,067 |   | 2,806 |   |
|                             |       |                                            |       |                                                |       |   |   |   |   |   |   |   |   |
| Total Interest  Earning Assets   |       | $                                               | 280        |                                                | 326        |   | 607 |   | 2,070 |   | 1,333 |   | 3,404 |   |
|                             |       |                                            |       |                                                |       |   |   |   |   |   |   |   |   |
| Interest Bearing  Deposits:      |       |                                            |       |                                                |       |   |   |   |   |   |   |   |   |
| Int-bearing  demand              |       | $                                               | —     |                                                | $          | 7 |   | $ | 7 |   | $ | (1 | ) | $ | 1 |   | $ | (0 | ) |
| Money market  savings            |       | —                                          |       | 0                                                   |       | 0 |   | 7 |   | (7 | ) | 0 |   |
| Savings deposits                 |       | —                                          |       | 1                                                   |       | 1 |   | (5 | ) | 4 |   | (1 | ) |
| Time deposits  >$100M         |       | 22                                              |       | 59                                                  |       | 80 |   | 332 |   | 97 |   | 429 |   |
| Time deposits  <$100M         |       | 37                                              |       | 45                                                  |       | 82 |   | 226 |   | 34 |   | 260 |   |
| Other Borrowing                  |       | 87                                              |       | 63                                                  |       | 150 |   | 362 |   | 187 |   | 549 |   |
|                             |       |                                            |       |                                                |       |   |   |   |   |   |   |   |   |
| Total interest  bearing deposits |       | 147                                             |       | 173                                                 |       | 321 |   | 922 |   | 316 |   | 1,237 |   |
|                             |       |                                            |       |                                                |       |   |   |   |   |   |   |   |   |
| Net change in  net interest      |       | $                                               | 133        |                                                | $          | 153 |   | $ | 286 |   | $ | 1,148 |   | $ | 1,017 |   | $ | 2,167 |   |

 

16

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**Provision and Allowance for LoanLosses**

 

The provision for loanlosses is an expense charged against operating income and added to theallowance for loan losses. The allowance for loan losses represents amounts setaside for the specific purpose of absorbing losses that may occur in the Bank’sloan portfolio.

 

The allowance for loanlosses reflects management’s ongoing evaluation of the risks inherent in theloan portfolio both generally and with respect to specific loans, the state ofthe economy, and the level of net loan losses experienced in the past. Managementand the Board of Directors review the results of the State Banking Departmentand FDIC examinations, independent accountants’ observations, and the Bank’sinternal review as additional indicators to determine if the amount in theallowance for loan losses is adequate to protect against estimated futurelosses. It is the Bank’s current practice, which could change in accordancewith the factors mentioned above, to maintain an allowance, which is at leastequal to the sum of the following percentage of loan balances by loan category.

 

| **Loan Category**                             | ** ** | **Reserve%** | ** ** |
|-----------------------------------------------|------------|--------------|------------|
|                                          |       |         |       |
| Classified  Loans:                            |       |         |       |
| Loans classified  loss                        |       | 100.00       | %          |
| Loans classified  doubtful                    |       | 50.00        | %          |
| Loans classified  substandard                 |       |         |       |
| Real Estate  Secured                          |       | 5.00         | %          |
| Non Real Estate  Secured                      |       | 20.00        | %          |
|                                          |       |         |       |
| Unclassified  Loans:                          |       |         |       |
| Real Estate -  Loan to value 80% or less      |       | 0.10         | %          |
| Real Estate -  Loan to value over 80%         |       | 0.70         | %          |
| Real Estate -  Construction                   |       | 0.25         | %          |
| Loans to  Individuals                         |       | 3.00         | %          |
| Commercial                                    |       | 2.00         | %          |
| SBA Loans –  Unguaranteed portion        |       | 2.00         | %          |
| Unfunded Loan  Commitments                    |       | .25          | %          |
| Concentration  Risk Factor – Real Estate |       | .10          | %          |
| Economic Risk  Factor                         |       | .20          | %          |
| SBA Loans -  Guaranteed portion               |       | 0.00         | %          |
| Cash Secured  Loans                           |       | 0.00         | %          |

 

Although no assurance canbe given that actual losses will not exceed the amount provided for in theallowance, Management believes that the allowance is adequate to provide forall estimated credit losses in light of all known relevant factors. At March31, 2006 and 2005 the Bank’s allowance stood at 1.02 percent and 1.00 percentof gross loans, respectively. No provision was made to the allowance during thethree months ended March 31, 2006, compared with a provision of $50,000 for thesame period in 2005. No loans were charged off during the three months endedMarch 31, 2006 or March 31, 2005. Recoveries for the same periods were $1,100and $500, respectively.

 

17

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The Bank’snon-performing (delinquent 90 days or more and non-accrual) loans as apercentage of total loans were 0.02 percent at March 31, 2006 compared with 0.04percent for the same period in 2005.

 

Based upon statisticsreleased by Federal and state banking authorities regarding banks of similarsize or otherwise located in California, management believes that the Bank ‘sratios of delinquent and non performing loans to total loans are far betterthan average. Prudent collection efforts, and tighter lending controls, areresponsible for the Bank’s strong performance on these measures of creditquality. However, no assurance can be given that the Bank’s loan portfolio willcontinue to measure well against its peers on these ratios and qualitymeasures, or that losses will not otherwise occur in the future.

 

**Non-Interest Income**

 

Total other income forthe three months ended March 31, 2006 was $2,725,000 compared with $777,600 forthe same period in 2005. The increase of $1,947,400 resulted from the gain onsale of the Bank’s investment in Pacific Coast Bankers’ Bank of $1,313,400, incomefrom SBA loan sales and servicing increasing $53,200 and income from otherservice charges, commissions and fees increased $582,400. The increase in otherservice charges, commissions and fees was due primarily to a $186,600 mark tomarket gain on trading assets compared with a $239,000 mark to market loss in2005 and an increase of $112,600 in fee income from credit card programs.

 

The Bank entered into anagreement in February 2006 with GC Acquisitions, LLC (“GCA”), the owner of a portfolio of consumer credit card contracts andreceivables, under which the Bank will offer MasterCard® credit cards toqualifying GCA credit card contract holders. GCA will, through itsaffiliates, agents and vendors, establish new credit card accounts with theBank for certain of its existing credit card contract holders, service thecredit card accounts and own the receivables generated from the accounts. Theconversion of the portfolio began in March 2006 with approximately 178,000customers being contacted, by March 31st 88,408 had been activated. GCAwill maintain reserve deposits with the Bank based on cardholder activity andavailable credit. The Bank’s revenues from the program will be dependent on thenumber of cards in the portfolio and the amount of reserve deposits maintained.

 

The sale of Small BusinessAdministration (SBA) guaranteed loans is a significant contributor to the Bank’sincome. SBA guaranteed loans yield up to 3 3/4% over the New York prime rate,and the guaranteed portions can be sold at premiums, which vary with marketconditions. SBA loans are guaranteed by the full faith of the United StatesGovernment from 75 to 85 percent of the principal amount. The guaranteedportion has risks comparable for an investor to a U. S. Government security andcan usually be sold in the secondary financial market, either at a premium orat a yield which allows the Bank to maintain a significant spread for itself.

 

There can be no assurancethat the gains on sale will continue at, or above, the levels realized in thepast three years. In addition, increasing competition among lenders forqualified SBA borrowers makes it difficult for the Bank to continually expandits program in this area, and may limit the level of premium that can be earnedwith regard thereto. Furthermore, the SBA recently began requiring lenders toshare a portion of premiums in excess of 10% earned

 

18

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on the sale of the guaranteed portions, and to pay 50 basis points onthe outstanding guaranteed balance. Management cannot predict the significanceof the impact these changes will have on SBA income.

 

**Non-Interest Expense**

 

Salary and benefitsexpense for the three months ended March 31, 2006 increased $87,100 comparedwith the same period in 2005. The increase was due to merit pay increases, increasedemployee benefits cost and increased bonus accrual.

 

Total occupancy andequipment expense for the three months ended March 31, 2006 was $180,800compared to $131,900 for the same period in 2005. The increase was due toincreases in depreciation expense of $19,100, property taxes $6,000 andutilities $5,200; while premises rental income decreased $17,600.

 

Professional fees for thethree months ended March 31, 2006 was $39,600 compared to $37,500 for the sameperiod in 2005.

 

Data processing expense forthe three months ended March 31, 2006 was $86,300 compared to $90,600 for thesame period in 2005.

 

Other general andadministrative expenses for the three months ended March 31, 2006 totaled $850,500compared with $747,700 for the same period in 2005. Significant changesoccurred in the following categories with increases in merchant expense$46,100, advertising expense $23,800, donations $11,800, bank fees $8,900, stationaryand supplies $6,500, and dues and memberships $5,300; while collection expense decreased$5,000.

 

The income tax provisionfor the three months ended March 31, 2006 totaled $1,001,300 compared with$243,300 for the same period of 2005. The increase of $758,000 was dueprimarily to a $591,000 provision related to the gain on sale of the Bank’sinvestment in Pacific Coast Bankers’ Bank.

 

**LOANS**

 

Loans represented 74.31%of average earning assets, and 69.40% of average total assets for the threemonths ended March 31, 2006 compared with 77.91% and 72.01%, respectivelyduring 2005. For the three months ended March 31, 2005, average loans increased10.72% from $99,239,000 for the same period in 2005 to $109,881,000. Averagereal estate loans increased $9,112,000 (14.16%), average commercial loansincreased $1,041,000 (4.50%), average installment loans increased $353,000 (57.17%)and average construction loans increased $137,000 (1.23%).

 

The Bank’s commercial andindustrial loans are generally made for the purpose of providing workingcapital, financing the purchase of equipment or inventory, and other businesspurposes. Such loans generally have maturities ranging from one year to severalyears. Short-term business loans are generally intended to finance currenttransactions and typically provide for monthly interest payments with principalbeing payable at maturity or at 90-day intervals. Term loans (usually for aterm of two to five years) normally provide for monthly installments

 

19

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of principal and interest. The Bank from time to time utilizes accountsreceivable and inventory as security for loans.

 

The Bank is a recognizedleader for Small Business Administration lending in Monterey County, and holdsSBA’s coveted Preferred Lender Status. Generally, SBA loans are guaranteed, by theSBA, for 75 to 85 percent of their principal amount, which can be retained inportfolio or sold to investors. Such loans are made at floating interest rates,but generally for longer terms (up to 25 years) than are available on aconventional basis to small businesses.  The unguaranteed portion of theloans, although generally supported by collateral, is considered to be morerisky than conventional commercial loans because they may be based upon creditstandards the Bank would not otherwise apply, such as lower cash flow coverage,or longer repayment terms.

 

The Bank’s real estateloan portfolio consists both of real estate construction loans and real estatemortgage loans. The Bank has initiated a program to generate more commercialand industrial real estate loans, which generally yield higher returns thannormal commercial loans. The Bank has also developed a broker program forgenerating residential real estate loans. The Bank does not make real estatedevelopment loans.  Real estate construction loans are made for a muchshorter term, and often at higher interest rates, than conventionalsingle-family residential real estate loans. The cost of administering suchloans is often higher than for other real estate loans, as principal is drawnon periodically as construction progresses.

 

The Bank also makes realestate loans secured by a first deed of trust on single family residentialproperties and commercial and industrial real estate. California commercialbanks are permitted, depending on the type and maturity of the loan, to lend upto 90 percent of the fair market value of real property (or more if the loan isinsured either by private mortgage insurers or governmental agencies). Incertain instances, the appraised value may exceed the actual amount that couldbe realized on foreclosure, or declines in market value subsequent to makingthe loan can impair the Bank’s security.

 

Consumer loans are madefor the purpose of financing the purchase of various types of consumer goods,home improvement loans, auto loans and other personal loans. Consumerinstallment loans generally provide for monthly payments of principal andinterest, at a fixed rate. Most of the Bank’s consumer installment loans aregenerally secured by the personal property being purchased. The Bank generallymakes consumer loans to those customers with a prior banking relationship withthe Bank.

 

**Non-performing and Non-accrualLoans**

 

The Bank’s present policyis to cease accruing interest on loans which are past due as to principal orinterest 90 days or more, except for loans which are well secured or whencollection of interest and principal is deemed likely. When a loan is placed onnon-accrual, previously accrued and unpaid interest is generally reversed outof income unless adequate collateral from which to collect the principal of,and interest on, the loan appears to be available.

 

The following tablepresents information with respect to loans which, as of the dates indicated,were past due 90 days or more or were placed on non-accrual status (referred tocollectively as “non-performing loans”):

 

20

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| ** **                                                    | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                    | ** ** | **2006**                          | ** ** | **2005** | ** ** |
| ** **                                                    | ** ** | **(Dollars in thousands)**        | ** ** |
| Accruing,                                                     |       |                              |       |   |   |
| past due 90 days  or more:                                    |       |                              |       |   |   |
|                                                          |       |                              |       |   |   |
| Real Estate                                                   |       | $                                 | 0          |   | $ | 0 |   |
| Commercial                                                    |       | 0                                 |       | 0 |   |
| Installment                                                   |       | 0                                 |       | 0 |   |
| Other                                                         |       | 0                                 |       | 0 |   |
| Total accruing                                                |       | 0                                 |       | 0 |   |
|                                                          |       |                              |       |   |   |
| Nonaccrual  Loans:                                            |       |                              |       |   |   |
|                                                          |       |                              |       |   |   |
| Commercial                                                    |       | 18                                |       | 42 |   |
| Installment                                                   |       | 0                                 |       | 0 |   |
| Other                                                         |       | 0                                 |       | 0 |   |
| Total nonaccrual                                              |       | 18                                |       | 42 |   |
|                                                          |       |                              |       |   |   |
| Total nonperforming                                           |       | 18                                |       | 42 |   |
|                                                          |       |                              |       |   |   |
| Total loans end  of period                                    |       | 108,761                           |       | 100,468 |   |
|                                                          |       |                              |       |   |   |
| Ratio of  nonperforming loans to total loans at end of period |       | 0.02                              | %          | 0.04 | % |
|                                                               |            |                                   |            |  |  |  |  |

 

These ratios have beenmaintained as a result of conservative underwriting criteria, frequent reviewof new and delinquent loans and a firm collection policy (with the assistanceof outside legal counsel). The Bank does not have any foreign loans or loansfor highly leveraged transactions.

 

21

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**Summary of Loan Loss Experience**

 
| ** **                                                                     | ** ** | **Three Months Ended  March 31,  2006** | ** ** | **Three Months Ended  March 31,  2005** | ** ** |
|--------------------------------------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                     | ** ** | **(Dollars in thousands)**              | ** ** |
| Average loans  outstanding                                                     |       | $                                       | 109,881    |                                    | $          | 99,239 |   |
|                                                                           |       |                                    |       |                                    |       |
| Allowance,  beginning of period                                                |       | 1,101                                   |       | 963                                     |       |
|                                                                           |       |                                    |       |                                    |       |
| Loans charged  off during period:                                              |       |                                    |       |                                    |       |
| Commercial                                                                     |       | 0                                       |       | 0                                       |       |
| Installment                                                                    |       | 0                                       |       | 0                                       |       |
| Real Estate                                                                    |       | 0                                       |       | 0                                       |       |
| Other                                                                          |       | 0                                       |       | 0                                       |       |
| Total charge  offs                                                             |       | 0                                       |       | 0                                       |       |
|                                                                           |       |                                    |       |                                    |       |
| Recoveries  during period:                                                     |       |                                    |       |                                    |       |
| Commercial                                                                     |       | 1                                       |       | 0                                       |       |
| Installment                                                                    |       | 0                                       |       | 0                                       |       |
| Other                                                                          |       | 0                                       |       | 0                                       |       |
| Total recoveries                                                               |       | 1                                       |       | 0                                       |       |
|                                                                           |       |                                    |       |                                    |       |
| Net Loans  charged off during the period                                       |       | (1                                      | )          | 0                                       |       |
|                                                                           |       |                                    |       |                                    |       |
| Additions to  allowance for possible loan losses                               |       | 0                                       |       | 50                                      |       |
|                                                                           |       |                                    |       |                                    |       |
| Allowance, end  of period                                                      |       | 1,102                                   |       | 1,013                                   |       |
|                                                                           |       |                                    |       |                                    |       |
| Ratio of net  loans charged off to average Loans outstanding during the period |       | 0.00                                    | %          | 0.00                                    | %          |
|                                                                           |       |                                    |       |                                    |       |
| Ratio of  allowance to total loans at end of period                            |       | 1.02                                    | %          | 1.00                                    | %          |
|                                                                                |            |                                         |            |                                         |            |  |  |

 

**Deposits**

 

Average deposits for thethree months ended March 31, 2006 were $112,747,000 an increase of 11.23%compared with the same period in 2005. Average certificates of depositrepresented 56.20% of average deposits for the three months ended March 31, 2006.Average interest bearing checking, money market and savings accounts as a groupwas 22.27% of

 

22

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average deposits for the three months ended March 31, 2006. Averagedemand deposits represented 21.53% of average deposits for the three monthsended March 31, 2006.

 

The following table sets forth the scheduledmaturities of the Company’s time deposits in denominations of $100,000 orgreater at March 31, 2006:

 

Maturities of TimeDeposits of

$100,000 or More

(Dollarsin Thousands)

 

| Three months or  less                  |   | $          | 9,196,000  |   |
|----------------------------------------|--------|------------|------------|--------|
| Over three  months through six months  |   | 5,358,800  |       |
| Over six months  through twelve months |   | 11,843,000 |       |
| Over twelve  months                    |   | 2,886,300  |       |
| Total                                  |   | $          | 29,284,100 |   |

 

**Borrowing**

 

**The Bank has lines of credit from the Federal Home LoanBank of San Francisco, Bank of the West, Pacific Coast Bankers’ Bank and TheIndependent Bank with available borrowing capacity on March 31, 2006 of $1,852,100,$4,500,000, $6,000,000 and $5,000,000, respectively. The Federal Home Loan Bankline of credit has a maximum borrowing capacity of twenty five percent (25%) ofthe Bank’s total assets, adjusted quarterly. The Federal Home Loan Bank line ofcredit is secured by some of the Bank’s real estate secured loans andsecurities. At March 31, 2006 the total principal balances of pledged loans was$29,998,100 and the carrying value of securities was $10,318,400. The followingtable provides information on nine (9) advances totaling $26,750,000outstanding at March 31, 2006.**

 
| **Amount** | ** ** | **Rate** | ** ** | **Funding  Date** | ** ** | **Maturity  Date** | ** ** |
|------------|------------|----------|------------|-------------------|------------|--------------------|------------|
| 2,750,000  |       | 3.44     | %          | 9/27/02           |       | 9/27/07            |       |
| 3,000,000  |       | 4.30     | %          | 6/17/05           |       | 6/17/10            |       |
| 5,000,000  |       | 4.96     | %          | 11/14/05          |       | 11/15/10           |       |
| 2,250,000  |       | 4.75     | %          | 1/26/06           |       | 1/26/11            |       |
| 1,750,000  |       | 4.72     | %          | 1/26/06           |       | 1/26/11            |       |
| 1,000,000  |       | 7.72     | %          | 6/1/00            |       | 6/3/30             |       |
| 4,000,000  |       | 5.96     | %          | 8/2/04            |       | 7/28/34            |       |
| 5,000,000  |       | 5.63     | %          | 12/24/04          |       | 12/22/34           |       |
| 2,000,000  |       | 5.13     | %          | 5/4/05            |       | 5/1/35             |       |

 

**The Bank has a letter of credit in the amount of$105,000, expiring April 17, 2006, issued by Federal Home Loan Bank of SanFrancisco, which is used to secure local agency deposits. The beneficiary ofthe letter of credit is the Administrator of Local Agency Security, Departmentof Financial Institutions.**

 

**The**Bank of the West, Pacific Coast Bankers’ Bank and TheIndependent Bank lines of credit are unsecured. The Bank did notutilize any overnight borrowings in 2006 or 2005.

 

23

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**Capital Resources**

 

The Company maintainscapital to comply with legal requirements, to provide a margin of safety forits depositors and stockholders, and to provide for future growth and theability to pay dividends. At March 31, 2006, stockholders’ equity was $10,341,400versus $8,930,900 at December 31, 2005. The Company paid cash dividends of$0.20 and $0.165 in 2005 and 2004, respectively. The Bank paid no cash dividendsduring the three months ended March 31, 2006.

 

The FDIC and FederalReserve Board have adopted capital adequacy guidelines for use in theirexamination and regulation of banks and bank holding companies. If the capitalof a bank or bank holding company falls below the minimum levels established bythese guidelines, it may be denied approval to acquire or establish additionalbanks or non-bank businesses, or the FDIC or Federal Reserve Board may takeother administrative actions. The guidelines employ two measures of capital:  (1) risk-basedcapital and (2) leverage capital.

 

Under current rules, allbanks are required to maintain Tier 1 capital of at least 4 percent and totalcapital of 8.0% of risk-adjusted assets. The Bank had Tier 1 risk-based capitalratios of 12.18% and 10.93% at March 31, 2006 and 2005, respectively. The Bankhad Total risk-based capital ratios of 13.05% and 11.80% at March 31, 2006 and2005, respectively. These ratios are well above the minimum regulatoryrequirements. The Company had Tier 1 risk-based capital ratios of 10.35% and7.94% at March 31, 2006 and 2005, respectively. The Company had Totalrisk-based capital ratios of 15.72% and 14.24% at March 31, 2006 and 2005,respectively.

 

The leverage capitalratio guidelines require a minimum leverage capital ratio of 3% of Tier 1capital to total assets less goodwill. The Company had leverage capital ratiosof 8.02% and 6.73% at March 31, 2006 and 2005, respectively; while the Bank’sleverage capital ratios were 10.25% and 9.30% at March 31, 2006 and 2005.

 

Under regulatoryguidelines, the $8 million in Trust Preferred Securities outstanding willqualify as Tier 1 capital up to 25% of Tier 1 capital. Any additional TrustPreferred Securities will qualify as Tier 2 capital.

 

**Liquidity**

 

Liquidity represents abank’s ability to provide sufficient cash flows or cash resources in a mannerthat enables it to meet obligations in a timely fashion and adequately providesfor anticipated future cash needs. For the Bank, liquidity considerationsinvolve the capacity to meet expected and potential requirements of depositorsseeking access to balances and to provide for the credit demands of borrowingcustomers. In the ordinary course of the Bank’s business, funds are generatedfrom the repayment of loans, maturities within the investment securitiesportfolio and the acquisition of deposit balances and short-term borrowings. Inaddition, the Bank has a secured line of credit from the Federal Home Loan Bankof San Francisco of approximately $40,265,000****and unsecured federal funds lines of credit with Bank of the West, Pacific Coast Bankers’ Bankand The Independent Bank of $4,500,000, $6,000,000 and $5,000,000,respectively; to meet temporary liquidity requirements.

 

As a matter of policy,the Bank seeks to maintain a level of liquid assets, including marketableinvestment securities, equal to a least 10 percent of total assets (“primaryliquidity”),

 

24

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whilemaintaining sources of secondary liquidity (borrowing lines from otherinstitutions) equal to at least an additional 10 percent of assets. Withinthese ratios, the Bank generally has excess funds available to sell as federalfunds on a daily basis, and is able to fund its own liquidity needs without theneed of short-term borrowing. The Bank’s primary liquidity at March 31, 2006was 14.41 percent, while primary liquidity plus available borrowing was 24.58percent of total assets.

 

TheCorporation’s sources of revenues and liquidity are the dividends, taxequalization payments or management fees from the Bank, gains on securitiesheld in a trading account. The ability of the Bank to pay such items to theCorporation is subject to limitations under state and Federal law.

 

**InterestRate Risk**

 

Management of interest rate sensitivity(asset/liability management) involves matching and repricing rates ofinterest-earning assets with interest-bearing liabilities in a manner designedto optimize net interest income within the constraints imposed by regulatoryauthorities, liquidity determinations and capital considerations. The Bankinstituted formal asset/liability policies at the end of 1989.

 

The purpose forasset/liability management is to provide stable net interest income growth byprotecting the Bank’s earnings from undue interest rate risk. The Bank expectsto generate earnings from increasing loan volume, appropriate loan pricing andexpense control and not from trying to accurately forecast interest rates. Anotherimportant function of asset/liability management is managing the risk/returnrelationships between interest rate risk, liquidity, market risk and capitaladequacy. The Bank gives priority to liquidity concerns followed by capitaladequacy, then interest rate risk and market risk in the investment portfolio. Thepolicy of the Bank will be to control the exposure of the Bank’s earnings tochanging interest rates by generally maintaining a position within a narrowrange around an “earnings neutral position.” An earnings neutral position isdefined as the mix of assets and liabilities that generate a net interestmargin that is not affected by interest rate changes. However, Management doesnot believe that the Bank can maintain a totally earnings neutral position. Further,the actual timing of repricing of assets and liabilities does not alwayscorrespond to the timing assumed by the Bank for analytical purposes. Therefore,changes in market rates of interest will generally impact on the Bank’s netinterest income and net interest margin for long or short periods of time.

 

The Bank monitors itsinterest rate risk on a quarterly basis through the use of a model whichcalculates the effect on earnings of changes in the fed funds rate. The modelconverts a fed funds rate change into rate changes for each major class ofasset and liability, then simulates the bank’s net interest margin based on thebank’s actual repricing over a one year period, assuming that maturities arereinvested in instruments identical to those maturing during the period. AtMarch 31, 2006 the affect of a 200 basis points increase in the federal fundssold rate, expressed, as a percentage of equity, was a positive 5.60%; while a 200basis points decrease in the federal funds sold rate, expressed, as apercentage of equity, was a negative 5.30%.

 

The Corporation’s sourcesof revenues and liquidity are the dividends, tax equalization payments ormanagement fees from the Bank, gains on securities held in a trading accountand

 

25

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the line of credit from the Pacific Coast Bankers’ Bank. The ability ofthe Bank to pay such items to the Corporation is subject to limitations understate and Federal law.

 

**Investment Securities**

 

The Corporation maintainsa trading account, at fair value, consisting of marketable securities. At March31, 2006 the account value was $1,433,200. The Corporation has a $40,000investment in AT Service LLC, which provides title insurance services forcommercial, industrial and residential properties, as well as other real estaterelated financial and informational services, including escrow, real estateinformation, trustee sale guarantees and real estate tax exchanges. In additionthe Corporation has investments in Northern California Bancorp Trust I($93,000) and Northern California Bancorp Trust II ($155,000), these arespecial-purpose trust subsidiaries which were formed to facilitate the issuanceof trust preferred securities.

 

The following table setsforth the book and market value of the Bank’s investment securities at March31, 2006:

 
| ** **                                  | ** ** | **INVESTMENT PORTFOLIO MIX** | ** ** |
|---------------------------------------------|------------|------------------------------|------------|
| ** **                                  | ** ** | **March 31, 2006**           | ** ** |
| ** **                                  | ** ** | **Book  Value**              | ** ** | **Market  Value** | ** ** |
| Securities  Available for Sale              |       |                         |       |   |   |
| Government  National Mortgage Association   |       | $                            | 765,000    |   | $ | 745,400 |   |
| U.S. Government  Agency Securities          |       | 9,719,300                    |       | 9,585,900 |   |
| Corporate Debt  Securities                  |       | 632,200                      |       | 632,200 |   |
| Total                                       |       | $                            | 11,116,500 |   | $ | 10,963,500 |   |
|                                        |       |                         |       |   |   |
| Held to Maturity                            |       |                         |       |   |   |
| State/Local  Agencies                       |       | $                            | 7,021,800  |   | $ | 7,213,500 |   |
|                                        |       |                         |       |   |   |
| Other  Investments, at cost                 |       |                         |       |   |   |
| AT Services LLC                             |       | $                            | 40,000     |   | $ | 40,000 |   |
| Metrocities  Mortgage, LLC                  |       | 10,000                       |       | 10,000 |   |
| Federal Home  Loan Bank stock, restricted   |       | 1,365,100                    |       | 1,365,100 |   |
| Northern  California Bancorp, Inc. Trust I  |       | 93,000                       |       | 93,000 |   |
| Northern  California Bancorp, Inc. Trust II |       | 155,000                      |       | 155,000 |   |
| Pan Pacific Bank  Stock                     |       | 100,000                      |       | 100,000 |   |
|                                        |       | $                            | 1,763,100  |   | $ | 1,763,100 |   |

 

26

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The following tablesummarizes the maturity of the Bank’s investment securities at March 31, 2006:

 
| ** **                              | ** ** | **INVESTMENT PORTFOLIO MATURITIES** | ** ** |
|-----------------------------------------|------------|-------------------------------------|------------|
| ** **                              | ** ** | **(Dollars in thousands)**          | ** ** |
| ** **                              | ** ** | **Amortized  Cost**                 | ** ** | **Fair Value** | ** ** |
| Available for  Sale                     |       |                                |       |   |   |
| Due between one  and five years         |       | $                                   | 7,719,300  |   | $ | 7,617,700 |   |
| Due between five  and ten years         |       | 2,632,200                           |       | 2,600,400 |   |
| GNMA – Mortgage  Backed Securities |       | 765,000                             |       | 745,400 |   |
|                                    |       | $                                   | 11,116,500 |   | $ | 10,963,500 |   |
|                                    |       |                                |       |   |   |
| Held to Maturity                        |       |                                |       |   |   |
| Due in over ten  years                  |       | $                                   | 7,021,800  |   | $ | 7,213,500 |   |

 

**Item 3. Controls and Procedures**

 

(a) The Bank’s Chief Executive Officer and itsChief Financial Officer, after evaluating the effectiveness of the Bank’sdisclosure controls and procedures as defined in Exchange Act Rules 13a-15(e)promulgated under the Exchange Act as of the end of the period covered by thisreport (the “Evaluation Date”) have concluded that as of the Evaluation Date,the Bank’s disclosure controls and procedures were adequate and effective toensure that material information relating to the Bank would be made known tothem by others within the Bank, particularly during the period in which thisreport was being prepared. Disclosure controls and procedures are designed toensure that information required to be disclosed by us in the reports that wefile or submit under the Exchange Act is recorded, processed, summarized andreported, within the time periods specified in the Securities and ExchangeCommission’s rules and forms. Disclosure controls and procedures include,without limitation, controls and procedures designed to ensure that informationrequired to be disclosed by us in the reports that we file under the ExchangeAct is accumulated and communicated to our management, including our ChiefExecutive Officer and Chief Financial Officer, as appropriate to allow timelydecisions regarding required disclosure.

 

(b) Changes in Internal Controls:  In the quarter ended March 31, 2006, theCompany did not make any significant changes in, nor take any correctiveactions regarding, its internal controls or other factor that couldsignificantly affect these controls.

 

27

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**PARTII-OTHER INFORMATION**

 

**Item 1.  Legal Proceedings.**

 

There are no known pending legal proceedings to which the Company or its subsidiary is a party, or to which any of their properties is subject, other than ordinary litigation arising in the normal course of business activities. Although the amount of any ultimate liability with respect to such proceedings cannot be determined, in the opinion of management, any such liability will not have a material effect on the consolidated financial position of the Company and its subsidiary.

 

**Item 2.  UnregisteredSales of Equity Securities and use of Proceeds**

 

None

 

**Item 3.  Default ofSenior Securities**

 

None

 

**Item 4.  Submissionof Matters to a vote of Security Holders.**

 

None

 

#### **Item 5.  OtherInformation.**

 

None

 

#### **Item 6.  Exhibitsand Reports on Form 8-K.**

####  

A.                         EXHIBITS

 

31.1       Certification of the Chief ExecutiveOfficer of Northern California Bancorp, Inc. pursuant to Section 302 of theSarbanes-Oxley Act of 2002.

 

31.2       Certification of the Chief Financial Officer of Northern CaliforniaBancorp, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1       Certification of the Chief Executive Officer of Northern CaliforniaBancorp, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2       Certification of the Chief Financial Officer of Northern CaliforniaBancorp, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

B.                           Reportson Form 8-K

 

None

 

28

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In accordance with therequirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.

 
|   | NORTHERN CALIFORNIA  BANCORP, INC. |
|--------|------------------------------------|
|   |                               |
| Date:  | May 10, 2006                       |   | By: |   /s/ Charles  T. Chrietzberg, Jr. |   |
|   |                               | Charles T. Chrietzberg,  Jr. |
|   |                               | Chairman of the Board  &  Chief Executive Officer |
|   |                               |
|   |                               |
| Date:  | May 10, 2006                       |   | By: |   /s/ Bruce  N. Warner |   |
|   |                               | Bruce N. Warner |
|   |                               | Chief Financial Officer  and  Principal Accounting Officer |
|        |                                    |  |  |  |  |  |

 

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