Table of Contents

 

 

 

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

**Washington,D.C.  20549**

 

**FORM 10-Q**

 

**x****   Quarterly report under Section 13 or15(d) of the Securities Exchange Act of 1934 for the quarterly periodended March 31, 2009**

 

**o****   Transition report under Section 13 or15(d) of the Securities Exchange Act of 1934 (No fee required) for theperiod from                 to                 **

 

**Commission File Number 0-27666**

 

**NORTHERN CALIFORNIA BANCORP, INC.**

(Name of Small Business Issuer in its Charter)

 

**Incorporated in the State of California**

**IRS Employer Identification Number 77-0421107**

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

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

 

Check whether theissuer: (1) filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act during the past 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past 90 days.

| Yes  x |   | No  o |
|------------------|--------|-----------------|

 

Indicate by checkmark whether the registrant has submitted electronically and posted on itscorporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of thischapter) during the preceding 12 months (or for such shorter period that theregistrant was required to submit and post such files).  Yes  o   No  o

 

Indicateby check mark whether the registrant is an accelerated filer, a non-acceleratedfiler, or a smaller report5ing company (as defined in Rule 12b-2 of theAct).

 

| Large  accelerated filer  o |   | Accelerated  filer  o         |
|----------------------------------|--------|------------------------------------|
|                             |   |                               |
| Non-accelerated  filer  o   |   | Smaller  reporting company  x |

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act.  Yes  o   No  x

 

As of May 8,2009, the Corporation had 1,803,908 shares of common stock outstanding.

 

 

 

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TABLE OF CONTENTS

 
| **Facing Page**       | 1                                                                                           |
|-----------------------|---------------------------------------------------------------------------------------------|
| **Table of Contents** | 2                                                                                           |
|                  |                                                                                        |
| **PART I**       | Financial Information                                                                       | 3-6 |
| Item 1                | Financial Statements                                                                        |   |
|                  | Consolidated Balance Sheets                                                                 | 3 |
|                  | Consolidated Statements of  Operations                                                      | 4 |
|                  | Consolidated****Statements****of  Changes in Shareholders’ Equity                      | 5 |
|                  | Consolidated  Statements of Cash Flows                                                      | 6 |
|                  | Summary of  Accounting Policies                                                             | 7-14 |
| Item 2                | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 14-31 |
| Item 4T               | Controls and  Procedures                                                                    | 31 |
|                  |                                                                                        |   |
| **PART II**      | Other Information                                                                           |   |
| Item 1                | Legal Proceedings                                                                           | 31 |
| Item 2                | Unregistered  Sales of Equity Securities and Use of Proceeds                                | 32 |
| Item 3                | Defaults  Upon Senior Securities                                                            | 32 |
| Item 4                | Submission  of Matters to a Vote of Security Holders                                        | 32 |
| Item 5                | Other Information                                                                           | 32 |
| Item 6                | Exhibits                                                                                    | 32 |
| Signatures            |                                                                                        | 33 |
| Certifications        |                                                                                        |   |

 

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**PART I-                 FINANCIALINFORMATION**

 

### Item 1. FINANCIALSTATEMENTS

###  

NORTHERNCALIFORNIA BANCORP, INC.

AND SUBSIDIARY

CONSOLIDATEDBALANCE SHEETS

 
| ** **                                                                          | ** ** | **March 31** | ** ** | **December 31** | ** ** |
|-------------------------------------------------------------------------------------|------------|-------------------|------------|----------------------|------------|
| **(in thousands except share data)**                                                | ** ** | **2009**          | ** ** | **2008**             | ** ** |
| ** **                                                                          | ** ** | **(Unaudited)**   | ** ** | **(Audited)**        | ** ** |
| ASSETS:                                                                             |       |              |       |                 |       |
| Cash and Due  From Banks                                                            |       | $                 | 12,316     |                 | $          | 16,348 |   |
| Trading Assets                                                                      |       | 318               |       | 361                  |       |
| Time Deposits  with other Financial Institutions                                    |       | 5,500             |       | 3,500                |       |
| Investment  Securities, available for sale (AFS) (Note 5)                           |       | 95,731            |       | 93,353               |       |
| Other  Investments (Note 6)                                                         |       | 4,067             |       | 3,852                |       |
| Loans Held for  Sale, at lower of cost or market                                    |       | 2,617             |       | 1,650                |       |
| Loans, net of  allowance for loan losses of $2,633 in 2009; $2,413 in 2008 (Note 7) |       | 165,600           |       | 165,530              |       |
| Bank Premises  and Equipment, Net                                                   |       | 4,909             |       | 4,988                |       |
| Cash Surrender  Value of Life Insurance                                             |       | 4,002             |       | 3,969                |       |
| Other Real  Estate Owned                                                            |       | 10,722            |       | 7,364                |       |
| Interest  Receivable and Other Assets                                               |       | 6,690             |       | 5,286                |       |
| Total Assets                                                                        |       | $                 | 312,472    |                 | $          | 306,201 |   |
|                                                                                |       |              |       |                 |       |
| LIABILITIES AND  SHAREHOLDERS’ EQUITY:                                         |       |              |       |                 |       |
|                                                                                |       |              |       |                 |       |
| Non interest bearing  demand                                                        |       | $                 | 30,847     |                 | $          | 25,812 |   |
| Interest-bearing  demand                                                            |       | 16,601            |       | 14,240               |       |
| Savings                                                                             |       | 5,389             |       | 6,159                |       |
| Time less than  $100,000                                                            |       | 100,939           |       | 88,188               |       |
| Time in  denominations of $100,000 or more                                          |       | 55,441            |       | 55,331               |       |
| Total Deposits                                                                      |       | 209,217           |       | 189,730              |       |
|                                                                                |       |              |       |                 |       |
| Short term  borrowed funds                                                          |       | 18,000            |       | 18,000               |       |
| Federal Home  Loan Bank Borrowed Funds                                              |       | 54,500            |       | 66,500               |       |
| Junior  Subordinated Debt Securities                                                |       | 8,248             |       | 8,248                |       |
| Payable for  Investment Securities Purchased                                        |       | 1,500             |       | 3,050                |       |
| Interest Payable  and Other Liabilities                                             |       | 6,830             |       | 6,321                |       |
| Total  Liabilities                                                                  |       | 298,295           |       | 291,849              |       |
|                                                                                |       |              |       |                 |       |
| Shareholders’  Equity:                                                         |       |              |       |                 |       |
| Common Stock -  No Par Value                                                        |       |              |       |                 |       |
| Authorized  10,000,000 in 2009 and 2,500,000 in 2008                                |       |              |       |                 |       |
| Outstanding:1,803,908  in 2009 and 2008                                             |       | 5,173             |       | 5,173                |       |
| Retained  Earnings                                                                  |       | 9,996             |       | 9,481                |       |
| Accumulated  Other Comprehensive Loss (Note 8)                                      |       | (992              | )          | (302                 | )          |
| Total  Shareholders’ Equity                                                    |       | 14,177            |       | 14,352               |       |
| Total  Liabilities & Shareholders’ Equity                             |       | $                 | 312,472    |                 | $          | 306,201 |   |
|                                                                                     |            |                   |            |                      |            |  |  |  |  |

 

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NORTHERNCALIFORNIA BANCORP, INC.

AND SUBSIDIARY

CONSOLIDATEDSTATEMENTS OF OPERATIONS (UNAUDITED)

 
| ** **                                                              | ** ** | **Three-Month Period Ending** | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                              | ** ** | **March 31**             | ** ** |
| **(in thousands except per share data)**                                | ** ** | **2009**                      | ** ** | **2008** | ** ** |
| INTEREST INCOME:                                                        |       |                          |       |   |   |
| Loans                                                                   |       | $                             | 2,992      |   | $ | 3,748 |   |
| Time deposits  with other financial institutions                        |       | 5                             |       | 12 |   |
| Investment  securities                                                  |       | 1,439                         |       | 757 |   |
| Federal funds  sold                                                     |       | —                        |       | 104 |   |
| Total Interest  Income                                                  |       | 4,436                         |       | 4,621 |   |
|                                                                    |       |                          |       |   |   |
| INTEREST  EXPENSE:                                                      |       |                          |       |   |   |
| Interest-bearing  transaction accounts                                  |       | 6                             |       | 12 |   |
| Savings and time  deposit accounts                                      |       | 945                           |       | 842 |   |
| Time deposits in  denominations of $100,000 or more                     |       | 545                           |       | 771 |   |
| Notes payable  and other                                                |       | 877                           |       | 864 |   |
| Total Interest  Expense                                                 |       | 2,373                         |       | 2,489 |   |
|                                                                    |       |                          |       |   |   |
| Net Interest  Income                                                    |       | 2,063                         |       | 2,132 |   |
| Provision for  loan losses                                              |       | 250                           |       | — |   |
| Net interest  income, after provision for loan losses                   |       | 1,813                         |       | 2,132 |   |
|                                                                    |       |                          |       |   |   |
| OTHER INCOME:                                                           |       |                          |       |   |   |
| Service charges  on deposit accounts                                    |       | 191                           |       | 163 |   |
| Income from  sales and servicing of Small Business Administration Loans |       | 38                            |       | 165 |   |
| Other income                                                            |       | 1,097                         |       | 1,461 |   |
| Total other  income                                                     |       | 1,326                         |       | 1,789 |   |
|                                                                    |       |                          |       |   |   |
| NON-INTEREST  EXPENSE:                                                  |       |                          |       |   |   |
| Salaries and  Employee Benefits                                         |       | 798                           |       | 1,105 |   |
| Occupancy and  Equipment Expense                                        |       | 261                           |       | 238 |   |
| Professional  Fees                                                      |       | 63                            |       | 44 |   |
| Data Processing                                                         |       | 89                            |       | 101 |   |
| Other general  and administrative                                       |       | 1,371                         |       | 738 |   |
| Total  non-interest expenses                                            |       | 2,582                         |       | 2,226 |   |
|                                                                    |       |                          |       |   |   |
| Income before  tax provision                                            |       | 557                           |       | 1,695 |   |
| Income tax  provision                                                   |       | 42                            |       | 776 |   |
| Net income                                                              |       | $                             | 515        |   | $ | 919 |   |
|                                                                    |       |                          |       |   |   |
| Earnings per  common share                                              |       |                          |       |   |   |
| Basic                                                                   |       | $                             | 0.286      |   | $ | 0.498 |   |
| Diluted                                                                 |       | $                             | 0.286      |   | $ | 0.496 |   |

 

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NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OFCHANGES IN SHAREHOLDERS’ EQUITY

** **
| ** **                                                                                                                | ** ** | ** **    | ** ** | ** ** | ** ** | ** **   | ** ** | **Accumulated**    | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------|------------|---------------|------------|------------|------------|--------------|------------|--------------------|------------|------------|------------|
| ** **                                                                                                                | ** ** | ** **    | ** ** | ** ** | ** ** | ** **   | ** ** | **Other Compre-**  | ** ** | ** ** | ** ** |
| ** **                                                                                                                | ** ** | **Number of** | ** ** | **Common** | ** ** | **Retained** | ** ** | **hensive Income** | ** ** | ** ** | ** ** |
| **(in thousands except share data)**                                                                                      | ** ** | **Shares**    | ** ** | **Stock**  | ** ** | **Earnings** | ** ** | **(Loss)**         | ** ** | **Total**  | ** ** |
|                                                                                                                      |       |          |       |       |       |         |       |               |       |       |       |   |   |   |   |
| Balance at  December 31, 2007                                                                                        |       | 1,845,918     |       | $          | 5,502      |         | $          | 8,831              |       | $          | 101        |   | $ | 14,434 |   |
|                                                                                                                      |       |          |       |       |       |         |       |               |       |       |       |
| Cumulative  effect - application of new accounting standard EITF 06-4 and EITF 06-10                                      |       | —        |       | —     |       | (362         | )          | —             |       | (362       | )          |
|                                                                                                                      |       |          |       |       |       |         |       |               |       |       |       |
| Comprehensive  income:                                                                                                    |       |          |       |       |       |         |       |               |       |       |       |
| Net income for  the year                                                                                                  |       | —        |       | —     |       | 1,462        |       | —             |       | 1,462      |       |
| Change in net  unrealized gain on AFS securities and other assets, net of tax reclassification  adjustment and tax effect |       | —        |       | —     |       | —       |       | (403               | )          | (403       | )          |
| Total  comprehensive income                                                                                               |       |          |       |       |       |         |       |               |       | 1,059      |       |
| Stock repurchase                                                                                                          |       | (46,010       | )          | (341       | )          | —       |       | —             |       | (341       | )          |
| $0.25 per share  dividend                                                                                                 |       | —        |       | —     |       | (450         | )          | —             |       | (450       | )          |
| Exercise of  stock options, Including tax benefit                                                                         |       | 4,000         |       | 12         |       | —       |       | —             |       | 12         |       |
|                                                                                                                      |       |          |       |       |       |         |       |               |       |       |       |
| Balance at  December 31, 2008                                                                                        |       | 1,803,908     |       | 5,173      |       | 9,481        |       | (302               | )          | $          | 14,352     |   |
|                                                                                                                      |       |          |       |       |       |         |       |               |       |       |       |
| Comprehensive  income:                                                                                                    |       |          |       |       |       |         |       |               |       |       |       |
| Net income for  the year                                                                                                  |       | —        |       | —     |       | 515          |       | —             |       | 515        |       |
| Change in net  unrealized loss on AFS securities and other assets, net of tax  reclassification adjustment and tax effect |       | —        |       | —     |       | —       |       | (690               | )          | (690       | )          |
|                                                                                                                      |       |          |       |       |       |         |       |               |       |       |       |
| Total  comprehensive income                                                                                               |       |          |       |       |       |         |       |               |       | (175       | )          |
|                                                                                                                      |       |          |       |       |       |         |       |               |       |       |       |
| Balance at  March 31, 2009 (unaudited)                                                                               |       | 1,803,908     |       | $          | 5,173      |         | $          | 9,996              |       | $          | (992       | ) | $ | 14,177 |   |

 

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NO0RTHERNCALIFORNIA BANCORP, INC.

AND SUBSIDIARY

CONSOLIDATEDSTATEMENTS OF CASH FLOWS (UNAUDITED)

THREE MONTHS ENDEDMARCH 31, 2009 AND 2008

 
| ** **                                                                                | ** ** | **2009** | ** ** | **2008** | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| **CASH  FLOWS FROM OPERATING ACTIVITIES**                                                 |       |     |       |     |       |
| Net income                                                                                |       | $        | 515        |     | $          | 919 |   |
| Adjustments to  reconcile net income to net cash provided (used) by operating activities: |       |     |       |     |       |
| Depreciation and  amortization expense                                                    |       | 86       |       | 76       |       |
| Realized gain on  sales of available-for-sale securities, net                             |       | (158     | )          | (229     | )          |
| Amortization of  deferred loan fees, net                                                  |       | 291      |       | 85       |       |
| Net amortization  (accretion) of investment securities,                                   |       | (53      | )          | (31      | )          |
| Provision for  loan losses                                                                |       | 250      |       | —   |       |
| Increase in cash  surrender value of life insurance                                       |       | (33      | )          | (30      | )          |
| Deferred income  tax benefit                                                              |       | (87      | )          | (136     | )          |
| (Increase)  decrease in assets:                                                           |       |     |       |     |       |
| Trading assets                                                                            |       | 43       |       | 238      |       |
| Loans held for  sale                                                                      |       | (967     | )          | 1,770    |       |
| Interest  receivable                                                                      |       | 430      |       | 73       |       |
| Other assets                                                                              |       | (1,722   | )          | 4,304    |       |
| Increase  (decrease) in liabilities:                                                      |       |     |       |     |       |
| Interest payable                                                                          |       | (103     | )          | (161     | )          |
| Other  liabilities                                                                        |       | 612      |       | (263     | )          |
| Net cash  provided (used) by operating activities                                         |       | (896     | )          | 6,615    |       |
|                                                                                      |       |     |       |     |       |
| **CASH  FLOWS FROM INVESTING ACTIVITIES**                                                 |       |     |       |     |       |
| Net change in  time deposits with other financial institutions                            |       | (2,000   | )          | —   |       |
| Activity in  available-for sale securities                                                |       |     |       |     |       |
| Sales                                                                                     |       | 26,744   |       | 28,909   |       |
| Maturities,  prepayments, and calls                                                       |       | (467     | )          | 3,000    |       |
| Purchases                                                                                 |       | (30,926  | )          | (62,426  | )          |
| Net increase in  loans                                                                    |       | (3,737   | )          | (8,799   | )          |
| Loan sales                                                                                |       | —   |       | 8,122    |       |
| Investment in  other real estate owned                                                    |       | (232     | )          | —   |       |
| Proceeds from  sale of equipment                                                          |       | 1        |       | —   |       |
| Additions to  bank premises and equipment                                                 |       | (7       | )          | (143     | )          |
| Net cash used by  investing activities                                                    |       | (10,623  | )          | (31,337  | )          |
|                                                                                      |       |     |       |     |       |
| **CASH  FLOWS FROM FINANCING ACTIVITIES**                                                 |       |     |       |     |       |
| Net increase in  deposits                                                                 |       | 19,487   |       | 16,580   |       |
| Proceeds from  borrowings                                                                 |       | —   |       | 4,000    |       |
| Repayments on  borrowings, net                                                            |       | (12,000  | )          | —   |       |
| Proceeds from  exercise of stock options                                                  |       | —   |       | 12       |       |
| Net cash  provided by financing activities                                                |       | 7,487    |       | 20,592   |       |
|                                                                                      |       |     |       |     |       |
| Net decrease in  cash and cash equivalents                                                |       | (4,032   | )          | (4,130   | )          |
|                                                                                      |       |     |       |     |       |
| **CASH  AND CASH EQUIVALENTS, BEGINNING**                                                 |       | 16,348   |       | 20,153   |       |
|                                                                                      |       |     |       |     |       |
| **CASH  AND CASH EQUIVALENTS, ENDING**                                                    |       | $        | 12,316     |     | $          | 16,023 |   |
|                                                                                      |       |     |       |     |       |

 

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**SUMMARY OF ACCOUNTING POLICIES**

 

(NOTE 1) NATURE OFBUSINESS AND ****BASIS OFPRESENTATION****

 

*Nature of Business*

 

Northern CaliforniaBancorp, Inc. (the “Corporation”) was incorporated on August 29,1995, as a for-profit corporation under the California Corporate laws for theprincipal purpose of engaging in banking and non-banking activities as allowedfor a bank holding company.  TheCorporation’s sources of revenues at this time are dividends on investments,gains on securities transactions and potential dividends, management fees andtax equalization payments, if any, from the Bank.

 

The Corporation owns 100%of Monterey County Bank (the “Bank”) which operates five full service branchesin Monterey County, California. The Corporation owns 100% of the common stockof two unconsolidated special purpose business trusts, “Northern CaliforniaBancorp, Inc. Trust I” and “Northern California Bancorp, Inc. TrustII”.

 

*Basisof Presentation*

 

Theinterim condensed financial statements of Northern California Bancorp, Inc.and subsidiary (“Corporation”) are unaudited and reflect all adjustments(consisting only of normal recurring adjustments), which are, in the opinion ofmanagement, necessary for a fair presentation, in all material respects, of thefinancial position and operating results of the Corporation for the interimperiods.  The results of operations for the three months ended March 31,2009 are not necessarily indicative of the results to be expected for theentire fiscal year ending December 31, 2009.  The year-endbalance sheet data at December 31, 2008 was derived from the auditedfinancial statements.  All materialintercompany balances and transactions have been eliminated in consolidation.

 

Thisfinancial information should be read in conjunction with the audited financialstatements and notes thereto included in the Corporation’s Form 10-K forthe fiscal year ended December 31, 2008.

 

(NOTE 2) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

In September 2006, the Financial AccountingStandards Board (FASB) issued Statement of Financial Accounting Standards No. 157,“Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value, establishesa framework for measuring fair value in generally accepted accountingprinciples, and expands disclosures about fair value measurements. SFAS 157does not require any new fair value measurements, but rather, provides enhancedguidance to other pronouncements that require or permit assets or liabilitiesto be measured at fair value. The Corporation adopted SFAS 157 on January 1,2008. The FASB approved a one-year deferral for the implementation of SFAS 157for non-financial assets and liabilities that are recognized or disclosed atfair value in the financial statements on a nonrecurring basis. The Corporationadopted the provisions of SFAS 157 for non-financial assets and liabilities asof January 1, 2009 without a material impact on the consolidated financialstatements.

 

In December 2007, the FASB issued SFAS 141(R), “BusinessCombinations”. SFAS 141(R) significantly changed the financial accountingand reporting of business combination 

 

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transactions.SFAS 141(R) establishes principles for how an acquirer recognizes andmeasures the identifiable assets acquired, liabilities assumed, and anynon-controlling interest in the acquiree; recognizes and measures the goodwillacquired in the business combination or a gain from a bargain purchase; anddetermines what information to disclose to enable users of the financialstatements to evaluate the nature and financial effects of the businesscombination. SFAS 141(R) is effective for acquisition dates on or afterthe beginning of an entity’s first year that begins after December 15,2008. The Corporation does not expect the implementation of SFAS 141(R) tohave a material impact on its consolidated financial statements, at this time.

 

In April 2009, the FASB issued FSP FAS141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a BusinessCombination That Arise from Contingencies.” FSP FAS 141(R)-1 amends andclarifies SFAS 141(R) to address application issues on initial recognitionand measurement, subsequent measurement and accounting, and disclosure ofassets and liabilities arising from contingencies in a business combination.The FSP is effective for assets and liabilities arising from contingencies inbusiness combinations for which the acquisition date is on or after thebeginning of the first annual reporting period beginning on or after December 15,2008. The Corporation does not expect the adoption of FSP FAS 141(R)-1 to havea material impact on its consolidated financial statements.

 

In April 2009, the FASB issued FSP FAS 157-4, “DeterminingFair Value When the Volume and Level of Activity for the Asset or LiabilityHave Significantly Decreased and Identifying Transactions That Are Not Orderly.”FSP FAS 157-4 provides additional guidance for estimating fair value inaccordance with SFAS 157 when the volume and level of activity for the asset orliability have significantly decreased. The FSP also includes guidance onidentifying circumstances that indicate a transaction is not orderly. FSP FAS157-4 is effective for interim and annual periods ending after June 15,2009, and shall be applied prospectively. Earlier adoption is permitted forperiods ending after March 15, 2009. The Corporation does not expect theadoption of FSP FAS 157-4 to have a material impact on its consolidatedfinancial statements.

 

In April 2009, the FASB issued FSP FAS 107-1and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.”FSP FAS 107-1 and APB 28-1 amends SFAS No. 107, “Disclosures about FairValue of Financial Instruments,” to require disclosures about fair value offinancial instruments for interim reporting periods of publicly tradedcompanies as well as in annual financial statements. In addition, the FSP amendsAPB Opinion No. 28, “Interim Financial Reporting,” to require thosedisclosures in summarized financial information at interim reporting periods.The FSP is effective for interim periods ending after June 15, 2009, withearlier adoption permitted for periods ending after March 15, 2009. TheCorporation does not expect the adoption of FSP FAS 107-1 and APB 28-1 to havea material impact on its consolidated financial statements.

 

In April 2009, the FASB issued FSP FAS 115-1and FAS 124-1, “Recognition and Presentation of Other-Than-TemporaryImpairments.” FSP FAS 115-1 and FAS 124-1 amends other-than-temporaryimpairment guidance for debt securities to make guidance more operational andto improve the presentation and disclosure of other-than-temporary impairmentson debt and equity securities. The FSP does not amend existing recognition andmeasurement guidance related to other-than-temporary impairments of equitysecurities. FSP FAS 115-1 and FAS 124-1 is effective for interim and annualperiods ending after June 15, 2009, with earlier adoption permitted forperiods ending after March 15, 2009. The Corporation does not expect 

 

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theadoption of FSP FAS 115-1 and FAS 124-2 to have a material impact on itsconsolidated financial statements.

 

In April 2009, the Securities and ExchangeCommission issued Staff Accounting Bulletin No. 111 (SAB 111). SAB 111amends and replaces SAB Topic 5.M. in the SAB Series entitled “Other ThanTemporary Impairment of Certain Investments in Debt and Equity Securities.” SAB111 maintains the SEC Staff’s previous views related to equity securities andamends Topic 5.M. to exclude debt securities from its scope. The Corporationdoes not expect the implementation of SAB 111 to have a material impact on itsconsolidated financial statements.

 

(NOTE3) STOCK BASED COMPENSATION

 

             Effective January 1, 2006, theCompany adopted SFAS No. 123(R), Share-Based Payment,**which requires that compensation costrelating to share-based payment transactions be recognized in the financialstatements with measurement based upon the fair value of the equity orliability instruments issued. Based on the stock-based compensation awardsoutstanding for the three months ended March 31, 2009 and 2008, there wasno stock-based compensation to expense.

 

Underthe Corporation’s 1998 Stock Option Plan, the Corporation may grant incentivestock options and non-qualified stock options to directors, officers, andemployees of the Corporation and its subsidiary, so long as the Corporationowns a majority of the equity interest of such subsidiary.  Incentive stock options are granted at fairvalue of the common stock on the date of grant. However, an incentive stock option granted to an individual owning 10%or more of the Corporation’s stock after such grant must have an exercise priceof at least 110%****of such fair market value and anexercise period of not more than five years. Non-qualified stock options may be granted at prices not lower than 85%of the fair market value of the common stock on the date of grant.  The Board of Directors is authorized todetermine when options become exercisable within a period not exceeding 10years from the date of grant.  Under thePlan, 64,661 shares of common stock had been reserved for the granting of theseoptions.  At March 31, 2009, 26,161options were outstanding.  During 2009,no options were granted or exercised by officers, employees, and board members;while 36,000 options expired.  As of March 31,2009, all options have been vested and all related compensation expense hasbeen formerly expensed.

 

No further options may begranted under the 1998 Stock Option Plan.  The planprovided that options could be granted for a period of ten years from the datethe plan was adopted by the Board.  TheBoard adopted the plan on April 16, 1998. The plan remains in effect until all options granted under the Plan havebeen satisfied or expired.

 

**Under the Corporation’s 2007 Stock Option Plan, theCorporation may grant incentive**stockoptionsand non-qualified stock options to directors, officers, and employees of theCorporationandits subsidiary, so long as the Corporation owns a majority of the equityinterest of suchsubsidiary.  Incentive stock options are granted at fairvalue of the common stock on the date ofgrant.  However, anincentive stock option granted to an individual owning 10% or more of theCorporation’s stock after such grant must have an exercise price of at least110% of such fair market value and an exercise period of not more than fiveyears.  The Board of Directors isauthorized to determine when options become exercisable within a period notexceeding 10 years from the date of grant. Under the Plan, 300,000 shares of common stock have been reserved forthe granting of these options.  At March 31,2009, no options have been granted

** **

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**under the 2007 stock optionplan.  Thus,** no pre-taxstock-based compensation expense was required for the three months ended March 31,2009 and 2008.

** **

(NOTE 4) EARNINGS PER SHARE

 

**Basic earnings per share represent income available tocommon stockholders divided by the weighted-average number of common sharesoutstanding during the period.  Dilutedearnings per share reflect additional common shares that would have beenoutstanding, if potential dilutive common shares had been issued, as well asany adjustment to income that would result from the assumed issuance.  Potential common shares that may be issued bythe Bank relate to outstanding stock options and warrants and are determinedusing the treasury stock method.**

** **

**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** | ** ** |
|--------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **2009**                                                                     | ** ** | **2008** | ** ** |
| ** **                                                         | ** ** | ** **                                                                   | ** ** | **Weighted** | ** ** | ** ** | ** ** | ** ** | ** ** | **Weighted** | ** ** | ** ** | ** ** |
| **(in thousands except per**                                       | ** ** | **Net**                                                                      | ** ** | **Average** | ** ** | **Per Share** | ** ** | **Net** | ** ** | **Average** | ** ** | **Per Share** | ** ** |
| **share data)**                                                    | ** ** | **Income**                                                                   | ** ** | **Shares** | ** ** | **Amount** | ** ** | **Income** | ** ** | **Shares** | ** ** | **Amount** | ** ** |
| Basic earnings  per share                                          |       | $                                                                            | 515        |   | 1,803,908 |   | $ | 0.286 |   | $ | 919 |   | 1,846,885 |   | $ | 0.498 |   |
|                                                               |       |                                                                         |       |   |   |   |   |   |   |   |   |   |   |
| Effect of  dilutive shares assumed exercise of outstanding options |       | —                                                                       |       | — |   | — |   | — |   | 5,119 |   | (0.002 | ) |
|                                                               |       |                                                                         |       |   |   |   |   |   |   |   |   |   |   |
| Diluted earnings  per share                                        |       | $                                                                            | 515        |   | 1,803,908 |   | $ | 0.286 |   | $ | 919 |   | 1,852,004 |   | $ | 0.496 |   |

 

Thefollowing table presents the investment securities, AFS at March 31, 2009and December 31, 2008:

 
| ** **                       | ** ** | **March 31** | ** **   | **December 31** | ** ** |
|----------------------------------|------------|-------------------|--------------|----------------------|------------|
| **(dollars in thousands)**       | ** ** | **2009**          | ** **   | **2008**             | ** ** |
| (NOTE 5)  INVESTMENT SECURITIES: |       |              |         |                 |       |
| Available for  sale:             |       |              |         |                 |       |
| Corporate Debt  Securities       |       | $                 | 16,027       |                 | $          | 5,866 |   |
| State/Local  Agency              |       | 41,931            |         | 40,551               |       |
| Mortgage Backed  Securities      |       | 11,032            |         | 3,892                |       |
| U.S. government  Agencies        |       | 26,741            |         | 43,044               |       |
|                             |       | $                 |  95,731 |                 | $          | 93,353 |   |

 

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Thefollowing table presents the other investment securities at March 31, 2009and December 31, 2008:

 
| ** **                                       | ** ** | **MARCH 31** | ** **  | **DECEMBER 31** | ** ** |
|--------------------------------------------------|------------|-------------------|-------------|-----------------|------------|
| **(dollars in thousands)**                       | ** ** | **2009**          | ** **  | **2008**        | ** ** |
| (NOTE 6) OTHER  INVESTMENTS                      |       |              |        |            |       |
| AT Services LLC                                  |       | $                 | —      |            | $          | 20 |   |
| Federal Home  Loan Bank stock, restricted        |       | 3,332             |        | 3,097           |       |
| Independent  Bankers Financial Corporation       |       | 51                |        | 51              |       |
| Visa, Inc  Class “B” Stock        |       | 426               |        | 426             |       |
| Metrocities  Mortgage, LLC                       |       | 10                |        | 10              |       |
| Northern  California Bancorp, Inc. Trust I  |       | 93                |        | 93              |       |
| Northern  California Bancorp, Inc. Trust II |       | 155               |        | 155             |       |
|                                             |       | $                 |  4,067 |            | $          | 3,852 |   |

 

Thefollowing table presents information on loans and the allowance for possibleloan losses at March 31, 2009 and December 31, 2008:

 
| (NOTE 7) LOANS  AND ALLOWANCE FOR POSSIBLE LOAN LOSSES: |   |    |    |    |   |
|---------------------------------------------------------|--------|---------|---------|---------|--------|
|                                                    |   |    |    |    |   |
| Commercial and  Industrial                              |   | $       | 31,380  |    | $      | 28,237 |   |
| Construction                                            |   | 15,213  |    | 16,040  |   |
| Real Estate -  Mortgage                                 |   | 120,102 |    | 122,951 |   |
| Installment                                             |   | 1,791   |    | 966     |   |
| Government  Guaranteed Loans Purchased                  |   | 22      |    | 24      |   |
|                                                    |   | 168,508 |    | 168,218 |   |
| Allowance for  loan losses                              |   | (2,633  | )       | (2,413  | )      |
| Deferred origination  fees, net                         |   | (275    | )       | (275    | )      |
| Net Loans                                               |   | $       | 165,600 |    | $      | 165,530 |   |

 
| Balance at  Beginning of Period     |   | $   | 2,413  |   | $      | 2,028 |   |
|-------------------------------------|--------|-----|--------|--------|--------|-------|--------|
| Recoveries                          |   | 1   |   | 3      |   |
| Provision for  Possible Loan Losses |   | 250 |   | 1,132  |   |
| Loans Charged  Off                  |   | (31 | )      | (750   | )      |
| Balance at End  of Period           |   | $   | 2,633  |   | $      | 2,413 |   |

 

(NOTE 8) COMPREHENSIVE INCOME (LOSS):

 

Thecomponents of other comprehensive loss and related tax effects for the threemonth period ended March 31, 2009 and the year ended December 31,2008 are as follows:

 

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| ** **                                                                        | ** ** | **March 31** | ** ** | **December 31** | ** ** |
|-----------------------------------------------------------------------------------|------------|-------------------|------------|----------------------|------------|
| ** **                                                                        | ** ** | **2009**          | ** ** | **2008**             | ** ** |
| ** **                                                                        | ** ** | **(Unaudited)**   | ** ** | **(Audited)**        | ** ** |
| Unrealized  holding losses on available for sale securities and other assets, net |       | $                 | (1,097     | )                    | $          | (284 | ) |
| Reclassification  for gains realized in income                                    |       | (158              | )          | (449                 | )          |
| Net unrealized  losses                                                            |       | (1,255            | )          | (733                 | )          |
| Tax effect                                                                        |       | 565               |       | 330                  |       |
|                                                                              |       |              |       |                 |       |
| Other  comprehensive loss net of tax                                              |       | $                 | (690       | )                    | $          | (403 | ) |

 

Thecomponents of accumulated other comprehensiveincome (loss) and related tax effects are as follows:

 
| ** **                                                             | ** ** | **March 31** | ** ** | **December 31** | ** ** |
|------------------------------------------------------------------------|------------|-------------------|------------|----------------------|------------|
| ** **                                                             | ** ** | **2009**          | ** ** | **2008**             | ** ** |
| ** **                                                             | ** ** | **(Unaudited)**   | ** ** | **(Audited)**        | ** ** |
| Unrealized  holding losses on available for sale securities            |       | $                 | (1,851     | )                    | $          | (577 | ) |
| Unrealized  holding gains on available for sale asset strip receivable |       | 47                |       | 27                   |       |
| Tax effect                                                             |       | 812               |       | 248                  |       |
|                                                                   |       |              |       |                 |       |
| Net-of-tax  amount                                                     |       | $                 | (992       | )                    | $          | (302 | ) |

 

(NOTE 9) SUPPLEMENTALDISCLOSURES OF CASH FLOW INFORMATION:

 
| ** **                                    | ** ** | **March 31** | ** ** |
|-----------------------------------------------|------------|-------------------|------------|
| ** **                                    | ** ** | **2009**          | ** ** | **2008** | ** ** |
| Payments during  the period ending:           |       |              |       |   |   |
| Interest                                      |       | $                 | 2,100      |   | $ | 2,600 |   |
| Income Taxes                                  |       | $                 | 312        |   | $ | 846 |   |
|                                          |       |              |       |   |   |
| Noncash  Investing and Financing Activities:  |       |              |       |   |   |
| Transfer of  loans to other real estate owned |       | $                 | 3,126      |   | $ | — |   |

 

(NOTE 10) FAIR VALUE MEASUREMENTS:

 

Effective January 1, 2008, the Corporation adopted SFAS No. 157,which establishes a hierarchy for measuring fair value under GAAP. Thisstandard applies to all financial assets and liabilities that are beingmeasured and reported at fair value on a recurring and non-recurring basis.Fair value is measured in levels, which are described in more detail below, andis determined based on the observability and reliability of the assumptionsused to determine fair value.

 

**Level 1:** Valuation for assets andliabilities traded in active exchange markets. Valuations are obtained fromreadily available pricing sources for market transactions involving identicalassets or liabilities.

 

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**Level 2:** Valuation for assets andliabilities traded in less active dealer or broker markets. Valuations areobtained from third party pricing services for identical or comparable assetsor liabilities.

 

**Level 3:** Valuation for assets andliabilities that are derived from other valuation methodologies, includingoption pricing models, discounted cash flow models, and similar techniques, andnot based on market exchange, dealer, or broker traded transactions. Thesevaluations incorporate certain assumptions and projections in determining thefair value assigned to such assets or liabilities.

 

The Corporation measures and reports available-for-sale securities andmortgage servicing rights at fair value on a recurring basis. The followingtable shows the balances of these assets based on the SFAS No. 157designated levels.

 
| ** **                                  | ** ** | **At March 31, 2009** | ** ** |
|---------------------------------------------|------------|----------------------------|------------|
| **(dollars in thousands)**                  | ** ** | **Total**                  | ** ** | **(Level 1)** | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** |
| Investment  securities — AFS and other |       | $                          | 94,231     |   | $ | — |   | $ | 94,231 |   | $ | — |   |
|                                             |            |                            |            |  |  |  |  |  |  |  |  |  |  |

 

The Corporation may also be required, from time to time, to measurecertain other non-financial assets at fair value on a non-recurring basis inaccordance with GAAP. During the three months ended March 31, 2009, wemeasured collateral dependent impaired loans and Other Real Estate Owned OREOat fair value. The assets are measured at fair value on a non-recurring basisand the following table provides the assets’ SFAS No. 157 designatedlevels, as well as the fair value losses recognized during the three monthsended March 31, 2009.

 
| **(dollars in   thousands)** | ** ** | **Total** | ** ** | **(Level 1)** | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** | **Losses for the  three months  ended March  31, 2009** | ** ** |
|------------------------------|------------|-----------|------------|---------------|------------|---------------|------------|---------------|------------|---------------------------------------------------------|------------|
| Impaired loans               |       | $         | 5,071      |          | $          | —        |       | $             | —     |                                                    | $          | 5,071 |   | $ | 31 |   |
| OREO                         |       | 10,722    |       | —        |       | —        |       | 10,722        |       | 267                                                     |       |
|                         |       | $         | 15,793     |          | $          | —        |       | $             | —     |                                                    | $          | 15,793 |   | $ | 298 |   |

 

(NOTE 11) OFF-BALANCE SHEET COMMITMENTS:

 

The Bank is a party tofinancial instruments with off-balance-sheet risk in the normal course ofbusiness to meet the financing needs of its customers.  These financial instruments includecommitments to extend credit.  Suchcommitments involve, to varying degrees, elements of credit and interest raterisk in excess of the amount recognized in the consolidated balance sheets.

 

The Bank’s exposure tocredit loss is represented by the contractual amount of these commitments.  The Bank uses the same credit policies inmaking commitments as it does for on-balance-sheet instruments.

 

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**At March 31, 2009 and December 31, 2008, suchcommitments to extend credit were $16,418,000 and $13,941,000, respectively, ofundisbursed lines of credit, undisbursed loans in process, and commitmentletters.**

** **

**The Bank has two letters of credit issued by FederalHome Loan Bank of San Francisco. One letter of credit in the amount of$330,000, expiring April 17, 2011, is used to secure local agencydeposits.  The beneficiary of the letterof credit is the Administrator of Local Agency Security, Department ofFinancial Institutions.  The other letterof credit in the amount of $650,000, expiring February 17, 2019, hasMasterCard International Inc. as the beneficiary.**

** **

**ITEM2:**                                    MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

** **

**Statements Regarding Forward-Looking Information**

** **

**Exceptfor historical information contained herein, the matters discussed orincorporated by reference in this report contain forward-looking statementswithin the meaning of Section 27A of the Securities Act of 1933, asamended (the “Securities Act”), and Section 21E of the Securities ExchangeAct of 1934 (the “Exchange Act”), that involve substantial risks anduncertainties.  When used in this report, or in the documents incorporatedby reference herein, the words “anticipate,” “believe,” “estimate,” “may,” “intend,”“expect,” and similar expressions identify certain of such forward-lookingstatements.  Actual results of Monterey County Bank could differmaterially from such forward-looking statements contained herein.  Factorsthat could cause future results to vary from current expectations include, butare 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-Qand in the Bank’s other reports filed with the Federal Deposit InsuranceCorporation and pursuant to the rules and regulations of the Securitiesand Exchange Commission.  Readers are cautioned not to place unduereliance on these forward-looking statements, which reflect management’sanalysis only as of the date hereof.  The Corporation undertakes noobligation to publicly revise these forward-looking statements to reflectevents or circumstances that arise after the date thereof.**

** **

**CRITICAL ACCOUNTING POLICIES**

 

The preparation of financialstatements in accordance with accounting principles generally accepted in theUnited States of America requires management to make a number of judgments,estimates and assumptions that affect the reported amount of assets,liabilities, income and expenses in the Corporation’s financial statements andaccompanying notes.  Management believesthat the judgments, estimates and assumptions used in preparation of theCorporation’s financial statements are appropriate given the factualcircumstances as of March 31, 2009.

 

Various elements of the Corporation’s accounting policies, by theirnature, are inherently subject to estimation techniques, valuation assumptionsand other subjective assessments.

 

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Criticalaccounting policies are those that involve the most complex and subjectivedecisions and assessments and have the greatest potential impact on the Corporation’sresults of operation.  In particular,management has identified one accounting policy that, due to judgments,estimates and assumptions inherent in this policy, and the sensitivity of theCorporation’s financial statements to those judgments, estimates andassumptions, is critical to an understanding of the Corporation’s financialstatements.  This policy relates to themethodology that determines the Corporation’s allowance for loan losses.  Management has discussed the development andselection of this critical accounting policy with the Corporation’s AuditCommittee of the Board of Directors. Although Management believes the level of the allowance at March 31,2009 is adequate to absorb losses inherent in the loan portfolio, a decline inthe regional economy may result in increasing losses that cannot reasonably bepredicted at this time.  For furtherinformation regarding the allowance for loan losses see “Provision andAllowance for Loan Losses” included elsewhere herein.

 

**OVERVIEW**

 

Thefollowing discussion reviews and analyzes the consolidated operating resultsand financial condition of the Corporation, focusing on the Bank.  It should be read in conjunction with thefinancial statements and the other financial data presented elsewhere herein.

 

For the threemonths ended March 31, 2009 net income was $515,000, compared to $919,000for the same period in 2008.  For thethree months ended March 31, 2009 net interest income after provision forloan losses decreased $319,000, total non-interest income decreased $463,000,non-interest expense increased $356,000 and the income tax provision decreased$734,000.

 

During the firstquarter of 2009 compared to the first quarter of 2008 decreases consisted of$127,000 in income from the sales and servicing of Small BusinessAdministration loans, $364,000 in other income, and $307,000 in salaries andemployee benefits.  Other general andadministrative expense increased $633,000 in the first quarter of 2009 comparedto the first quarter of 2008.

 

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The followingtable sets forth certain selected financial ratios of the Corporation for thethree months ended March 31, 2009 and 2008.

 
| ** **                                                     | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------------------------------------------|------------|---------------------------------------|------------|
| **(in thousands except share data)**                           | ** ** | **2009**                              | ** ** | **2008** | ** ** |
| Summary of  Operating Results:                                 |       |                                  |       |   |   |
| Total interest  income                                         |       | $                                     | 4,436      |   | $ | 4,621 |   |
| Total interest  expense                                        |       | 2,373                                 |       | 2,489 |   |
| Net interest  income                                           |       | 2,063                                 |       | 2,132 |   |
|                                                           |       |                                  |       |   |   |
| Provision for  possible loan losses                            |       | 250                                   |       | — |   |
| Net interest  income after provision for loan losses           |       | 1,813                                 |       | 2,132 |   |
|                                                           |       |                                  |       |   |   |
| Total  non-interest income                                     |       | 1,326                                 |       | 1,789 |   |
| Total  non-interest expenses                                   |       | 2,582                                 |       | 2,226 |   |
|                                                           |       |                                  |       |   |   |
| Income before  taxes                                           |       | 557                                   |       | 1,695 |   |
| Provision for  income taxes                                    |       | 42                                    |       | 776 |   |
|                                                           |       |                                  |       |   |   |
| Net income                                                     |       | $                                     | 515        |   | $ | 919 |   |
|                                                           |       |                                  |       |   |   |
| Per Common Share  Data:                                        |       |                                  |       |   |   |
|                                                           |       |                                  |       |   |   |
| Net income -  Primary (1)                                      |       | $                                     | 0.286      |   | $ | 0.498 |   |
| Net income -  Diluted (2)                                      |       | 0.286                                 |       | 0.496 |   |
| Book value, end  of period                                     |       | 7.86                                  |       | 7.97 |   |
| Average shares  outstanding (3)                                |       | 1,803,908                             |       | 1,846,885 |   |
|                                                           |       |                                  |       |   |   |
| Balance Sheet  Data:                                           |       |                                  |       |   |   |
|                                                           |       |                                  |       |   |   |
| Total loans, net  of unearned income (4)                       |       | $                                     | 171,125    |   | $ | 169,965 |   |
| Total assets                                                   |       | 312,742                               |       | 270,982 |   |
| Total deposits                                                 |       | 209,217                               |       | 183,913 |   |
| Shareholders’  equity                                     |       | 14,177                                |       | 14,747 |   |
| ** **                                                     | ** ** | ** **                            | ** ** | ** ** | ** ** |
| ** **                                                     | ** ** | **2009**                              | ** ** | **2008** | ** ** |
| Selected  Financial Ratios:                                    |       |                                  |       |   |   |
|                                                           |       |                                  |       |   |   |
| Return on  average assets (5) (6)                         |       | .65                                   | %          | 1.41 | % |
| Return on  average shareholders’ equity (5) (6)      |       | 13.98                                 | %          | 24.83 | % |
| Net interest  spread                                           |       | 2.97                                  | %          | 3.02 | % |
| Net yield on  interest earning assets (5)                      |       | 3.22                                  | %          | 3.60 | % |
| Avg  shareholders’ equity to average assets (5)           |       | 4.65                                  | %          | 5.67 | % |
| Risked-Based  capital ratios                                   |       |                                  |       |   |   |
| Tier 1                                                         |       | 8.37                                  | %          | 9.68 | % |
| Total                                                          |       | 11.62                                 | %          | 13.14 | % |
| Total loans to  total deposits at end of period (4)            |       | 80.40                                 | %          | 91.11 | % |
| Allowance for  loan losses to total loans at end of period (4) |       | 1.54                                  | %          | 1.19 | % |
| Nonperforming  loans to total loans at end of period (4)       |       | 3.08                                  | %          | 2.05 | % |
| Net charge-offs  to average loans (4)                          |       | 0.02                                  | %          | 0.00 | % |

 

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----

(1)        Basicearnings per share amounts were computed on the basis of the weighted averagenumber of shares of common stock outstanding during the year.  The weighted average number of common sharesused for this computation was 1,803,908 and 1,846,885 for March 31, 2009and 2008, respectively.

 

(2)        Dilutedearnings per share amounts were computed on the basis of the weighted averagenumber of shares of common stock and common stock equivalents outstanding duringthe year.  Common stock equivalentsinclude director/employee stock options. The weighted average number of sharesused for this computation was 1,803,908 and 1,852,004 for March 31, 2009and 2008, respectively.

 

(3)   Weighted average common shares.

 

(4)   Includes loans being held for sale.

 

(5)   Averages are of daily balances.

 

(6)   March 31, 2009 calculated on anannualized basis.

 

**NETINTEREST INCOME**

 

Netinterest income, the difference between (a) interest and fees earned oninterest-earning assets and (b) interest paid on interest-bearingliabilities, is the most significant component 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 and interest-earning liabilities, the availability ofparticular sources of funds and changes in prevailing interest rates.

 

Net interest income forthe three months ended March 31, 2009 was $2,063,000 compared to$2,132,000 for the same period in 2008. The decrease of $69,000 resulted primarily from the decrease in interestrates.

 

**DISTRIBUTION,RATE AND YIELD ANALYSIS OF NET INTEREST INCOME:**

 

The following tables showthe consolidated average balances of earning assets, and interest-bearingliabilities; the amount of interest income and interest expense; the averageyield or rate for each category of average interest-earning assets and averageinterest-bearing liabilities; and the net interest income and the net interestspread for the periods indicated.  Yieldsare computed on a tax-equivalent basis, resulting in adjustments to interestearned on municipal bonds of $244,000 and $58,000 for the three months ended March 31,2009 and 2008, respectively.  Non-accrualloans and overdrafts are included in average loan balances.  Average loans are presented net of unearnedincome.

 

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| ** **                                                  | ** ** | **Three Months Ended March 31, 2009** | ** ** | **Three Months Ended March 31, 2008** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                  | ** ** | **Average**                                | ** ** | ** **                                 | ** ** | **Yield/** | ** ** | **Average** | ** ** | ** ** | ** ** | **Yield/** | ** ** |
| **(dollars in thousands)**                                  | ** ** | **Balance**                                | ** ** | **Interest**                               | ** ** | **Rate** | ** ** | **Balance** | ** ** | **Interest** | ** ** | **Rate** | ** ** |
| Assets:                                                     |       |                                       |       |                                       |       |   |   |   |   |   |   |   |   |
| Loans                                                       |       | $                                          | 172,891    |                                       | $          | 2,992 |   | 6.92 | % | $ | 172,284 |   | $ | 3,748 |   | 8.70 | % |
| Time deposits -  in other banks                             |       | 8,188                                      |       | 5                                          |       | 0.24 | % | 1,478 |   | 12 |   | 3.25 | % |
| Investment  securities - taxable                            |       | 64,903                                     |       | 898                                        |       | 5.53 | % | 45,867 |   | 626 |   | 5.46 | % |
| Investment  securities - nontaxable                         |       | 40,166                                     |       | 785                                        |       | 7.82 | % | 11,060 |   | 189 |   | 6.84 | % |
| Federal funds  sold                                         |       | —                                     |       | —                                     |       | 0.00 | % | 12,879 |   | 104 |   | 3.23 | % |
| Total interest-earning  assets                              |       | 286,148                                    |       | 4,680                                      |       | 6.54 | % | 243,568 |   | 4,679 |   | 7.68 | % |
|                                                        |       |                                       |       |                                       |       |   |   |   |   |   |   |   |   |
| Allowance for  credit losses                                |       | (2,398                                     | )          |                                       |       |   |   | (2,029 | ) |   |   |   |   |
| Non-interest  bearing assets:                               |       |                                       |       |                                       |       |   |   |   |   |   |   |   |   |
| Cash and due  from banks                                    |       | 8,299                                      |       |                                       |       |   |   | 7,374 |   |   |   |   |   |
| Premises and  equipment                                     |       | 4,959                                      |       |                                       |       |   |   | 4,897 |   |   |   |   |   |
| Accrued interest  receivable                                |       | 1,910                                      |       |                                       |       |   |   | 1,174 |   |   |   |   |   |
| Other assets                                                |       | 16,051                                     |       |                                       |       |   |   | 5,970 |   |   |   |   |   |
| Total average  assets                                       |       | $                                          | 314,969    |                                       |       |   |   |   | $ | 260,954 |   |   |   |   |   |
|                                                        |       |                                       |       |                                       |       |   |   |   |   |   |   |   |   |
| Liabilities and  Shareholders’ Equity:                 |       |                                       |       |                                       |       |   |   |   |   |   |   |   |   |
| Interest-bearing  liabilities:                              |       |                                       |       |                                       |       |   |   |   |   |   |   |   |   |
| Interest-bearing  demand                                    |       | $                                          | 13,811     |                                       | $          | 5 |   | 0.14 | % | $ | 13,586 |   | $ | 9 |   | 0.26 | % |
| Money market  savings                                       |       | 1,604                                      |       | 1                                          |       | 0.24 | % | 1,695 |   | 3 |   | 0.71 | % |
| Savings deposits                                            |       | 5,885                                      |       | 7                                          |       | 0.48 | % | 6,276 |   | 16 |   | 1.02 | % |
| Time deposits  >$100M                                    |       | 55,866                                     |       | 545                                        |       | 3.90 | % | 61,693 |   | 771 |   | 5.00 | % |
| Time deposits  <$100M                                    |       | 95,477                                     |       | 938                                        |       | 3.93 | % | 66,884 |   | 826 |   | 4.94 | % |
| Other Borrowing                                             |       | 92,981                                     |       | 877                                        |       | 3.77 | % | 63,737 |   | 864 |   | 5.42 | % |
| Total  interest-bearing liabilities                         |       | 265,624                                    |       | 2,373                                      |       | 3.57 | % | 213,871 |   | 2,489 |   | 4.66 | % |
|                                                        |       |                                       |       |                                       |       |   |   |   |   |   |   |   |   |
| Non-interest  bearing liabilities:                          |       |                                       |       |                                       |       |   |   |   |   |   |   |   |   |
| Noninterest-bearing  checking                               |       | 28,134                                     |       |                                       |       |   |   | 26,197 |   |   |   |   |   |
| Accrued interest  payable                                   |       | 1,725                                      |       |                                       |       |   |   | 2,022 |   |   |   |   |   |
| Other  liabilities                                          |       | 4,755                                      |       |                                       |       |   |   | 4,059 |   |   |   |   |   |
| Total  Liabilities                                          |       | 300,238                                    |       |                                       |       |   |   | 246,149 |   |   |   |   |   |
| Total  shareholders equity                                  |       | 14,731                                     |       |                                       |       |   |   | 14,805 |   |   |   |   |   |
| Total average  liabilities and shareholders equity          |       | $                                          | 314,969    |                                       |       |   |   |   | $ | 260,954 |   |   |   |   |   |
|                                                        |       |                                       |       |                                       |       |   |   |   |   |   |   |   |   |
| Net interest  income                                        |       |                                       |       | $                                          | 2,307      |   |   |   |   |   | $ | 2,190 |   |   |   |
|                                                        |       |                                       |       |                                       |       |   |   |   |   |   |   |   |   |
| Interest income  as a percentage of average earning assets  |       |                                       |       |                                       |       | 6.54 | % |   |   |   |   | 7.68 | % |
| Interest expense  as a percentage of average earning assets |       |                                       |       |                                       |       | 3.32 | % |   |   |   |   | 4.09 | % |
| Net yield on  interest earning assets                       |       |                                       |       |                                       |       | 3.22 | % |   |   |   |   | 3.60 | % |
| Net interest  spread                                        |       |                                       |       |                                       |       | 2.97 | % |   |   |   |   | 3.02 | % |

 

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**Rate andVolume Analysis:**

 

The following tables show the increase or decrease in interest income,interest expense and net interest income, resulting from changes in rates andvolumes, for the three months ended March 31, 2009 compared with the sameperiod in 2008.

 
| ** **                                | ** ** | **Increase (decrease) in the three months ended**         | ** ** |
|-------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                | ** ** | **March 31, 2009 compared with March 31, 2008** | ** ** |
| **(dollars in thousands)**                | ** ** | **Volume**                                                | ** ** | **Rate** | ** ** | **Total** | ** ** |
|                                      |       |                                                      |       |   |   |   |   |
| Increase (decrease)  in interest income:  |       |                                                      |       |   |   |   |   |
| Loans                                     |       | $                                                         | 13         |   | $ | (769 | ) | $ | (756 | ) |
| Time deposits -  in other banks           |       | 54                                                        |       | (61 | ) | (7 | ) |
| Invest  securities - taxable              |       | 260                                                       |       | 12 |   | 272 |   |
| Invest  securities - nontaxable           |       | 497                                                       |       | 99 |   | 596 |   |
| Federal funds  sold                       |       | (104                                                      | )          | — |   | (104 | ) |
|                                      |       | 720                                                       |       | (719 | ) | 1 |   |
|                                      |       |                                                      |       |   |   |   |   |
| Increase  (decrease) in interest expense: |       |                                                      |       |   |   |   |   |
| Interest-bearing  demand                  |       | —                                                    |       | (4 | ) | (4 | ) |
| Money market  savings                     |       | —                                                    |       | (2 | ) | (2 | ) |
| Savings deposits                          |       | (1                                                        | )          | (8 | ) | (9 | ) |
| Time deposits  >$100M                  |       | (73                                                       | )          | (153 | ) | (226 | ) |
| Time deposits  <$100M                  |       | 353                                                       |       | (241 | ) | 112 |   |
| Other Borrowing                           |       | 397                                                       |       | (384 | ) | 13 |   |
|                                      |       | 676                                                       |       | (792 | ) | (116 | ) |
| Increase in net  interest income:         |       | $                                                         | 44         |   | $ | 73 |   | $ | 117 |   |

 

**Provisionand Allowance for Loan Losses**

 

TheCorporation maintains a detailed, systematic analysis and procedural disciplineto determine the amount of the allowance for loan losses (“ALL”).  TheALL is based on estimates and is intended to be adequate to provide forprobable losses inherent in the loan portfolio.  This processinvolves deriving probable loss estimates that are based on individual loanloss estimation, historical loss rates and management’s judgment.

 

TheCorporation employs several methodologies for estimating probablelosses.  Methodologies are determined based on a number of factors,including type of asset, risk rating, concentrations, and collateral value.

 

TheCorporation calculates the required ALL on a monthly basis and makes adjustingentries quarterly. The review of the adequacy of the allowance takes intoconsideration such factors as concentrations of credit, changes in the growth,size and composition of the loan portfolio, overall and individual portfolioquality, review of specific problem loans, collateral, guarantees and economicconditions that may affect the borrowers’ ability to pay and/or the value ofthe underlying collateral.  Additional factors considered include:geographic location of borrowers, changes in the Company’s product-specificcredit policy and lending staff experience.  These estimates dependon subjective factors and, therefore, contain inherent uncertainties.

 

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TheCorporation’s ALL is maintained at a level believed adequate by management toabsorb known and inherent probable losses on existing loans.  Aprovision for loan losses is charged to expense.  The allowance ischarged for losses when management believes that full recovery on the loan isunlikely.  Generally, the Company charges off any loan classified asa “loss”; portions of loans which are deemed to be uncollectible; overdraftswhich have been outstanding for more than 90 days; and, all other unsecuredloans past due 120 or more days.  Subsequent recoveries, if any, arecredited to the ALL.

 

Although noassurance can be given that actual losses will not exceed the amount providedfor in the allowance, Management believes that the allowance is adequate toprovide for all estimated credit losses in light of all known relevant factors.At March 31, 2009 and 2008 the Bank’s allowance stood at 1.54 percent and 1.19 percent,respectively.

 

Provisions made tothe allowance during the three months ended March 31, 2009 were $250,000compared to no provisions for the same period in 2008.  Loans charged off during the three monthsended March 31, 2009 totaled $31,000 compared to no charge offs for thesame period in 2008.  Recoveries totaled$1,000 during the three months ended March 31, 2009 and 2008.

 

During the threemonths ended March 31, 2009, $3,126,000 of loans secured by real estatewere foreclosed and transferred to other real estate owned.

 

TheBank’s non-performing (delinquent 90 days or more and on non-accrual) net loansas a percentage of total loans were 3.08 percent and 2.05 percent as of the endof March 31, 2009 and 2008, respectively. The significant increase in non-accrual loans is primarily attributableto the continued economic slowdown and the softening of the real estate market.

 

**Non-InterestIncome**

 

Total non-interestincome for the three months ended March 31, 2009 was $1,326,000 compared with $1,789,000for the same period in 2008.  Thedecrease of $463,000 primarily resulted from income of $694,000 related to theVisa, Inc. initial public stock offering booked in 2008, write down of$267,000 on other real estate owned, decrease of $127,000 in income from salesand servicing of Small Business Administration Loans and decreases in gain onsale of securities of $71,000; partially offset by an increase in merchantcredit card discount fees of $420,000 and mark to market loss of $41,000 ontrading assets compared to a loss of $294,000 in 2008.

 

**Non-InterestExpense**

 

Salary andbenefits expense for the three months ended March 31, 2009 decreased $307,000 compared with thesame period in 2008.  The decrease wasdue to elimination of bonus accruals, staff vacancies and the elimination ofthree positions during the fourth quarter of 2008.

 

Total occupancyand equipment expense for the three months ended March 31, 2009 was $261,000 compared to $238,000 forthe same period in 2008.  The increasewas primarily due to a $10,000 increase in depreciation expense and nominalincreases in utilities and janitorial expenses.

 

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Professional feesfor the three months ended March 31, 2009 were $63,000 compared to $44,000 for thesame period in 2008.  The increase wasprimarily due to an increase in loan collection expense.

 

Data processingexpense for the three months ended March 31, 2009 was $89,000 compared to $101,000 for thesame period in 2008.  The decrease of$12,000 was due primarily continued efforts control expenses.

 

Other general andadministrative expenses for the three months ended March 31, 2009 totaled $1,371,000 compared with$738,000 for the same period in 2008, which is an increase of $633,000.  Significant changes occurred in the followingcategories; increases occurred in merchant credit card processing expense of $257,000,other real estate owned expense of $141,000, collection expense of $73,000,FDIC insurance premiums of $14,000, ATM expense of $14,000,loan expense of $14,000, credit card program of $12,000 and in 2008 a credit of$110,000 resulted from the reversal of an accrued reserve for Visa, Inc.lawsuit settlement;while business development expense decreased $25,000.

 

**Provisionfor Income Taxes**

 

Thetax provision was $42,000 for the three months ended March 31, 2009compared to tax provision of $776,000 for the same period in 2008, representing7.53% and 45.78% of pre-tax income for those periods.  The decrease in the effective tax rate for2009 is a direct result of the Bank’s investing in tax-exempt securities andrecognition of a tax benefit for losses on trading assets.

 

Theamount of the tax provision is determined by applying the Corporation’sstatutory income tax rates to pre-tax book income, adjusted for permanentdifferences between pre-tax book income and actual taxable income. Suchpermanent differences include but are not limited to tax-exempt interestincome; increases in the cash surrender value of bank-owned life insurance,certain other expenses that are not allowed as tax deductions, and tax credits.

 

Deferredtax assets and liabilities are measured using the enacted tax rates expected toapply to taxable income in the periods in which the deferred tax asset orliability is expected to be realized or settled.  The Bank maintains a valuation allowance withrespect to deferred tax assets due to the uncertainty surrounding therealization of certain net deferred tax assets.

 

**LOANS**

 

Average loansrepresented 60.42% of average earning assets and 54.89% of average total assetsfor the three months ended March 31, 2009 compared with 70.73% and 66.02%,respectively during 2008. For the three months ended March 31,2009, average loansincreased 0.35% to $172,891,000 from $172,284,000 for the same period in2008.  Average real estate loansincreased $5,456,000 (4.77%), average construction loans decreased $7,544,000(31.99%), average commercial loans increased $2,028,000 (6.06%), and averageinstallment loans increased $667,000 (75.57%).

 

The Bank’scommercial and industrial loans are generally made for the purpose of providingworking capital, financing the purchase of equipment or inventory, and otherbusiness purposes. Such loans generally have maturities of one year orlonger.  Short-term business loans aregenerally intended to finance current transactions and typically provide formonthly interest payments with principal being payable at maturity or at 90-dayintervals. Term loans (usually for 

 

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a term of two tofive years) normally provide for monthly installments of principal andinterest.  The Bank from time to timeutilizes accounts receivable and inventory as security for loans.

 

The Bank is arecognized leader for Small Business Administration lending in Monterey County,and holds SBA’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.  Suchloans are made at floating interest rates, generally with longer terms (up to25 years) than are available on a conventional loan basis to smallbusinesses.  The unguaranteed portion of the loans, although generallysupported by collateral, is considered to be more risky than conventionalcommercial loans because they may be based upon credit standards the Bank wouldnot otherwise apply, such as lower cash flow coverage, or longer repaymentterms.

 

The Bank’s realestate loan portfolio consists of both real estate construction loans and realestate mortgage loans.  The Bank has initiateda program to generate more commercial and industrial real estate loans, whichgenerally yield higher returns than normal commercial loans.  The Bank has also developed a broker programfor generating residential real estate loans. Real estate construction loans are made for a much shorter term, andoften at higher interest rates, than conventional single-family residentialreal estate loans.  The cost ofadministering such loans is often higher than for other real estate loans, asprincipal is drawn on periodically as construction progresses.

 

The Bank alsomakes real estate loans secured by a first deed of trust on single familyresidential properties and commercial and industrial real estate.  California commercial banks are permitted,depending on the type and maturity of the loan, to lend up to 90 percent of thefair market value of real property (or more if the loan is insured either byprivate mortgage insurers or governmental agencies).  In certain instances, the appraised value mayexceed the actual amount that could be realized on foreclosure, or declines inmarket value subsequent to making the 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.  Consumer installment loans generally providefor monthly payments of principal and interest, at a fixed rate.  Most of the Bank’s consumer installment loansare generally secured by the personal property being purchased.  The Bank generally makes consumer loans tothose customers with a prior banking relationship with the Bank.

 

**Non-performingand Non-accrual Loans**

 

The Bank’s presentpolicy is to cease accruing interest on loans which are past due as to principalor interest 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 on non-accrual,previously accrued and unpaid interest is generally reversed out of income unlessadequate collateral from which to collect the principal of, and interest on,the loan appears to be available.

 

The Bank generallyrepurchases from the secondary market the guaranteed portion of Small BusinessAdministration (SBA) guaranteed loans when those loans are placed onnon-accrual status.  After theforeclosure and collection process is complete, the SBA reimburses the Bank forthis principal balance.  Therefore, althoughthese balances do not earn interest during this period, they generally do notresult in a loss of principal to the Bank. The information 

 

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provided in the followingtable is net of the $1,503,000 guaranteed by the Small Business Administration.

 

The followingtable presents information with respect to loans which, as of the datesindicated, were past due 90 days or more or were placed on non-accrual status(referred to collectively as “non-performing loans”):

 
| ** **                                                              | ** ** | **Three  months as of   March 31,** | ** **   | **Twelve  months as of  December 31,** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------------------|--------------|---------------------------------------------|------------|
| ** **                                                              | ** ** | **2009**                                 | ** **   | **2008**                                    | ** ** | **2008** | ** ** |
| ** **                                                              | ** ** | **(Dollars  in thousands)**              | ** **   | ** **                                  | ** ** |
| Accruing, past  due 90 days or more:                                    |       |                                     |         |                                        |       |   |   |
|                                                                    |       |                                     |         |                                        |       |   |   |
| Real Estate                                                             |       | $                                        | —       |                                        | $          | — |   | $ | — |   |
| Commercial                                                              |       | —                                   |         | —                                      |       | — |   |
| Installment                                                             |       | —                                   |         | —                                      |       | — |   |
| Other                                                                   |       | —                                   |         | —                                      |       | — |   |
| Total accruing                                                          |       | —                                   |         | —                                      |       | — |   |
|                                                                    |       |                                     |         |                                        |       |   |   |
| Nonaccrual  Loans:                                                      |       |                                     |         |                                        |       |   |   |
|                                                                    |       |                                     |         |                                        |       |   |   |
| Real Estate                                                             |       | 4,746                                    |         | 3,200                                       |       | 6,876 |   |
| Commercial                                                              |       | 520                                      |         | 115                                         |       | 215 |   |
| Installment                                                             |       | —                                   |         | 175                                         |       | — |   |
| Other                                                                   |       | —                                   |         | —                                      |       | — |   |
| Total nonaccrual                                                        |       | 5,266                                    |         | 3,490                                       |       | 7,091 |   |
|                                                                    |       |                                     |         |                                        |       |   |   |
| Total  nonperforming                                                    |       | 5,266                                    |         | 3,490                                       |       | 7,091 |   |
| Other Real  Estate Owned                                                |       | 10,722                                   |         | —                                      |       | 7,364 |   |
|                                                                    |       | $                                        |  15,988 |                                        | $          | 3,490 |   | $ | 14,455 |   |
|                                                                    |       |                                     |         |                                        |       |   |   |
| Total loans end  of period                                              |       | 171,125                                  |         | 169,965                                     |       | 169,868 |   |
|                                                                    |       |                                     |         |                                        |       |   |   |
| Ratio of  nonperforming loans to total loans at end of period           |       | 3.08                                     | %            | 2.05                                        | %          | 4.18 | % |
|                                                                    |       |                                     |         |                                        |       |   |   |
| Ratio of  nonperforming assets to total loans and OREO at end of period |       | 8.79                                     | %            | 2.05                                        | %          | 8.16 | % |

 

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  Summary of Loan LossExperience

 
| ** **                                                                     | ** ** | **As of  the period  Ended March 31,** | ** ** | **As of  the  Year ended  December 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|---------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                     | ** ** | **2009**                                    | ** ** | **2008**                                      | ** ** | **2008** | ** ** |
| ** **                                                                     | ** ** | **(Dollars  in thousands)**                 | ** ** |
|                                                                           |       |                                        |       |                                          |       |   |   |
| Average loans  outstanding                                                     |       | $                                           | 172,891    |                                          | $          | 172,284 |   | $ | 166,960 |   |
|                                                                           |       |                                        |       |                                          |       |   |   |
| Total loans  outstanding at end of the period                                  |       | $                                           | 171,125    |                                          | $          | 169,965 |   | $ | 169,868 |   |
|                                                                           |       |                                        |       |                                          |       |   |   |
| Allowance,  beginning of period                                                |       | $                                           | 2,413      |                                          | $          | 2,028 |   | $ | 2,028 |   |
|                                                                           |       |                                        |       |                                          |       |   |   |
| Loans charged  off during period:                                              |       |                                        |       |                                          |       |   |   |
| Commercial                                                                     |       | —                                      |       | —                                        |       | 187 |   |
| Installment                                                                    |       | 29                                          |       | —                                        |       | — |   |
| Real Estate                                                                    |       | 2                                           |       | —                                        |       | 563 |   |
| Other                                                                          |       | —                                      |       | —                                        |       | — |   |
| Total charge  offs                                                             |       | 31                                          |       | —                                        |       | 750 |   |
|                                                                           |       |                                        |       |                                          |       |   |   |
| Recoveries  during period:                                                     |       |                                        |       |                                          |       |   |   |
| Commercial                                                                     |       | 1                                           |       | 1                                             |       | 3 |   |
| Installment                                                                    |       | —                                      |       | —                                        |       | — |   |
| Real Estate                                                                    |       | —                                      |       | —                                        |       | — |   |
| Other                                                                          |       | —                                      |       | —                                        |       | — |   |
| Total recoveries                                                               |       | 1                                           |       | 1                                             |       | 3 |   |
|                                                                           |       |                                        |       |                                          |       |   |   |
| Net loans  charged off during the period                                       |       | 30                                          |       | (1                                            | )          | 747 |   |
|                                                                           |       |                                        |       |                                          |       |   |   |
| Additions to  allowance for possible loan losses                               |       | 250                                         |       | —                                        |       | 1,132 |   |
|                                                                           |       |                                        |       |                                          |       |   |   |
| Allowance, end  of period                                                      |       | $                                           | 2,633      |                                          | $          | 2,029 |   | $ | 2,413 |   |
|                                                                           |       |                                        |       |                                          |       |   |   |
| Ratio of net  loans charged off to average loans outstanding during the period |       | 0.02                                        | %          | 0.00                                          | %          | 0.45 | % |
|                                                                           |       |                                        |       |                                          |       |   |   |
| Ratio of  allowance to total loans at end of period                            |       | 1.54                                        | %          | 1.19                                          | %          | 1.42 | % |
|                                                                           |       |                                        |       |                                          |       |   |   |
| Ratio of  nonperforming loans to allowance for loan losses at end of period    |       | 200.08                                      | %          | 172.01                                        | %          | 293.82 | % |

 

**Non-performingAssets**

 

The followingtable presents information with respect to nonperforming assets, as of thedates indicated. The non-accrual loans are net of the guaranteed portion ofSmall Business Administration loans and the other real estate owned wasacquired through foreclosure.  The otherreal estate owned was recorded at fair value on the date of acquisition.

 

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| ** **                                                              | ** ** | ** **                 | ** ** | ** **            | ** ** | **As of the** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------|------------|-----------------------|------------|---------------|------------|
| ** **                                                              | ** ** | **As of the period**       | ** ** | **Year ended**        | ** ** |
| ** **                                                              | ** ** | **Ended March 31,**   | ** ** | **December 31,** | ** ** |
| ** **                                                              | ** ** | **2009**                   | ** ** | **2008**              | ** ** | **2008**      | ** ** |
| ** **                                                              | ** ** | **(Dollars in thousands)** | ** ** |
| Nonaccrual loans                                                        |       | $                          | 5,266      |                  | $          | 3,490         |       | $ | 7,091 |   |
| Other real  estate owned, net                                           |       | 10,722                     |       | —                |       | 7,364         |       |
| Total  nonperforming assets                                             |       | $                          | 15,988     |                  | $          | 3,490         |       | $ | 14,455 |   |
|                                                                    |       |                       |       |                  |       |          |       |
| Nonperforming  loans to total gross loans                               |       | 3.08                       | %          | 2.05                  | %          | 4.18          | %          |
| Nonperforming  assets to total gross loans plus other real estate owned |       | 8.79                       | %          | 2.05                  | %          | 8.16          | %          |

** **

**Deposits**

 

Average interest bearingand non-interest bearing deposits for the three months ended March 31, 2009 were $200,777,000an increase of 13.86% compared with the same period in 2008.  Average certificates of deposit represented75.38% of average deposits for the three months ended March 31, 2009 compared with 72.92% for the same period in2008.  Average interest bearing checking,money market and savings accounts as a group were 10.61% of average depositsfor the three months ended March 31,2009 compared with 12.23% for the same period in 2008.  Average demand deposits represented 14.01% ofaverage deposits for the three months ended March 31, 2009 compared with 14.86% for the same period in2008.

 

The following table setsforth the scheduled maturities of the Company’s time deposits in denominationsof $100,000 or greater at March 31, 2009:

 

Maturities of TimeDeposits of$100,000 or More(Dollars in Thousands)

 
| Three months or  less                  |   | $      | 11,619 |   |
|----------------------------------------|--------|--------|--------|--------|
| Over three  months through six months  |   | 10,921 |   |
| Over six months  through twelve months |   | 21,503 |   |
| Over twelve  months                    |   | 11,398 |   |
| Total                                  |   | $      | 55,441 |   |

** **

**Borrowing**

** **

**The Corporation has a line of credit with Marshall &Ilsley Bank in the amount of $3,000,000, at a floating interest rate based onthe one month LIBOR Rate plus 2.75% with a floor rate of 4.50% and a maturitydate of March 31, 2009.  Subsequentto year end, the line of credit was extended until May 31, 2009.  At March 31, 2009, the line of creditwas fully advanced.**

 

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**The Bank has lines of credit from the Federal Home LoanBank (FHLB) of San Francisco, the Federal Reserve Bank of San Francisco, Bankof the West, M & I Marshall & Ilsley Bank, Pacific CoastBankers’ Bank and The Independent Bank with remaining available borrowingcapacity on March 31, 2009 of $1,274,000, $19,803,00, $4,500,000,$5,000,000, $6,000,000 and $5,000,000, respectively.  The Federal Home Loan Bank line of credit hasa maximum borrowing capacity of 25% of the Bank’s total assets, adjustedquarterly.  The Federal Home Loan Bankline of credit is secured by a portion of the Bank’s real estate secured loansand securities at March 31, 2009. The total principal balance of pledged loans and securities at theFederal Home Loan Bank was $37,322,000 and $26,743,000, respectively.  The Federal Reserve Bank discount window lineis secured by a portion of the Bank’s securities at March 31, 2009.  At March 31, 2009, the total marketvalue of securities pledged to the Federal Reserve Bank was $25,060,000 with anoutstanding loan balance of $15,000,000. **The loan bears an interest rate of 0.50% and amaturity date of May 8, 2009.

** **

**The following table providesinformation on eighteen FHLB advances outstanding at March 31, 2009.**

** **
| ** ** | ** ** | ** ** | ** ** | **Funding** | ** ** | **Maturity** | ** ** |
|------------|------------|------------|------------|-------------|------------|--------------|------------|
| **Amount** | ** ** | **Rate**   | ** ** | **Date**    | ** ** | **Date**     | ** ** |
| $          | 1,000,000  |       | 7.72       | %           | 6/1/00     |         | 6/3/30     |   |
| 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      |       |
| 1,500,000  |       | 5.52       | %          | 7/17/06     |       | 7/18/11      |       |
| 3,500,000  |       | 5.49       | %          | 7/17/06     |       | 7/18/11      |       |
| 1,000,000  |       | 5.22       | %          | 8/25/06     |       | 8/25/11      |       |
| 5,000,000  |       | 5.20       | %          | 7/30/07     |       | 7/30/12      |       |
| 2,500,000  |       | 4.88       | %          | 8/20/07     |       | 8/20/10      |       |
| 5,000,000  |       | 5.00       | %          | 9/18/07     |       | 9/18/14      |       |
| 3,000,000  |       | 4.84       | %          | 10/1/07     |       | 10/1/12      |       |
| 4,000,000  |       | 2.70       | %          | 1/24/08     |       | 1/24/11      |       |
| 2,000,000  |       | 3.32       | %          | 5/14/08     |       | 5/16/11      |       |
| 5,000,000  |       | 3.57       | %          | 10/2/08     |       | 10/4/10      |       |
| 3,000,000  |       | 3.00       | %          | 11/21/08    |       | 11/22/10     |       |
| 3,000,000  |       | 3.26       | %          | 11/21/08    |       | 11/2/11      |       |
| 3,000,000  |       | 3.92       | %          | 11/21/08    |       | 11/21/13     |       |
| $          | 54,500,000 |       |       |        |       |         |       |   |

** **

**The**Bank of the West, Marshall & Ilsley Bank, PacificCoast Bankers’ Bank and The Independent Bank federal funds lines of credit areunsecured.  The Bank did not utilize anyovernight borrowings in 2009 or 2008.

** **

**The Bank has two letters of credit issued by FederalHome Loan Bank of San Francisco. One letter of credit in the amount of$330,000, expiring April 17, 2011, is used to secure local agencydeposits.  The beneficiary of the letterof credit is the Administrator of Local Agency Security, Department ofFinancial Institutions.  The other letterof credit in the amount of $650,000, expiring February 17, 2019, hasMasterCard International Inc. as the beneficiary.**

** **

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**Table of Contents**

** **

**CapitalResources**

 

TheCorporation maintains capital to comply with regulatory requirements, toprovide a margin of safety for its depositors and stockholders, and to providefor future growth and the ability to pay dividends.  At March 31, 2009,shareholders’ equity was $14,177,000 versus $14,352,000 at December 31,2008.  The Corporation paid no cashdividends to shareholders for the three months ended March 31, 2009and $451,000 for the year ended December 31, 2008.  The Bank paid cash dividends to theCorporation of $500,000 for the three months ended March 31, 2009and no dividends for the year ended December 31, 2008.

 

The FDIC andFederal Reserve Board have adopted capital adequacy guidelines for use in theirexamination and regulation of banks and bank holding companies.  If the capital of a bank or bank holdingcompany falls below the minimum levels established by these guidelines, it maybe denied approval to acquire or establish additional banks or non-bankbusinesses, or the FDIC or Federal Reserve Board may take other administrativeactions.  The guidelines employ two measuresof capital:  (1) risk-based capitaland (2) leverage capital.

 

In general, therisk-based capital guidelines provide detailed definitions of which obligationswill be treated as capital, and assign different weights to various assets andoff-balance sheet items, depending upon the perceived degree of credit riskassociated with each asset.  Each assetis assigned to one of four risk-weighted categories.  For example, 0 percent for cash andunconditionally guaranteed government securities; 20 percent for deposits withother banks and fed funds; 50 percent for state bonds and certain residentialreal estate loans; and 100 percent for commercial loans and other assets.  Capital is categorized as either Tier 1capital, consisting of common stock and retained earnings (or deficit), or Tier2 capital, which includes limited-life preferred stock and allowance for loanlosses (subject to certain limitations). The guidelines also define and set minimum capital requirements(risk-based capital ratios), which increased over a transition period, ended December 31,1992.  Under the final 1992 rules, allbanks were required to maintain Tier 1 capital of at least 4 % and totalcapital of 8.0% of risk-adjusted assets. The Bank had a Tier 1 capital to totalrisk-adjusted assets capital ratio of 10.89% and 11.19% at March 31, 2009and 2008, respectively.  The Bank’s Tier1 capital exceeds the minimum regulatory requirement by $14,983,000.  The Bank had a Total Risk-Based capital torisk-adjusted assets ratio of 12.11% and 12.27% at March 31, 2009 and2008, respectively.  The Bank’s TotalRisk-Based capital exceeds the minimum regulatory requirement by $8,937,000.

 

The Tier 1 leveragecapital ratio guidelines require a minimum leverage capital ratio of 4% of Tier1 capital to total assets less goodwill. The Bank had a leverage capital ratio of 7.53% and 8.07% at March 31,2009 and 2008, respectively.  The Bank’sTier 1 leverage capital exceeds the minimum regulatory requirement by$11,095,000.

 

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

 

The Corporation’s Boardof Directors approved a stock repurchase program pursuant to which theCorporation, from time to time and at management’s discretion, may repurchaseup to $500,000 of the Corporation’s outstanding shares.  The Corporation repurchased 46,010 shares ofcommon stock at an average cost of $7.51 per share in open market transactionsduring 2008.  No shares of common stockhave been repurchased during the first three months of 2009.

 

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In October 2008, the Board and the holders of more than a majorityof our issued and outstanding common stock approved by written consent, anamendment to the Corporation’s articles of incorporation (the “Amendment”).  The Amendment authorizes the Corporation toissue up to 10,000,000 shares of preferred stock, which may be issued from timeto time in one or more series as determined by the Board.  The Board is authorized to designate allrights, preferences, privileges and restrictions attendant to each series aswell as the number of shares authorized for issuance in each series of thepreferred stock, which matters shall be expressed in resolutions adopted by theBoard and filed with the Secretary of State of the state of California.  Additionally, the Amendment authorizes theCorporation to issue an additional 7,500,000 shares of common stock for a totalof 10,000,000 shares of common stock authorized for issuance after theAmendment.  The Amendment becameeffective January 23, 2009. There were no shares issued in 2009.

 

## **Other Regulatory Matters**

 

TheFederal Deposit Insurance Corporation requested the Bank consent to aregulatory order resulting from its 2008 Consumer Compliance Examination, whichwas completed in 2009.  The Bank does notagree with some of the provisions of the draft order and is seeking expertopinions regarding the matters at issue. As a result of the Bank’s refusal to sign the order in accord with theFDIC’s time frame, the FDIC has indicated to the Bank that it will proceed withthe Administrative Hearing process to enforce the order. The FDIC is assertingthat three credit and debit card programs operated by third-party vendorsviolated certain provision of Federal law, which the Bank disputes, and theFDIC is demanding that the Bank make restitution to affected customers as aresult of the alleged violations.  TheBank also believes that restitution is inappropriate under the circumstances.The financial and non-financial impact of this matter is not known as of thebalance sheet date and as of the issuance date of this report.

 

## **Liquidity**

## ** **

Liquidityrepresents the ability to provide sufficient cash flows or cash resources in amanner that enables an entity to meet its obligations in a timely fashion andadequately provide for anticipated future cash needs.

 

For the Bank,liquidity considerations involve the capacity to meet expected and potentialrequirements of depositors seeking access to balances and to provide for thecredit demands of borrowing customers. In the ordinary course of the Bank’s business, funds are generated fromthe repayment of loans, maturities within the investment securities portfolioand the acquisition of deposit balances and short-term borrowings.  In addition, the Bank has a line of credit fromthe Federal Home Loan Bank of San Francisco of approximately $68,222,000, basedon 25 percent of the Bank’s total assets as reported in the most recentquarterly Consolidated Reports of Condition and Income for a bank with DomesticOffices Only.  The line of credit issubject to pledging of acceptable collateral. The Bank has a borrowing line with the Federal Reserve Bank of SanFrancisco secured****a portion of the Bank’ssecurities.  Additionally the Bank hasunsecured federal funds lines of credit with Bank of the West of $4,500,000, Marshall &Ilsley Bank of $5,000,000, PacificCoast Bankers’ Bank of $6,000,000 and The Independent Bank of $5,000,000 tomeet temporary liquidity requirements.  Available borrowing capacities on March 31,2009 were $4,500,000, $5,000,000, $6,000,000 and $5,000,000, respectively.

 

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Asa matter of policy, the Bank seeks to maintain a level of liquid assets,including marketable investment securities, equal to a least 15 percent oftotal assets (“total liquidity”). Additionally the Bank maintains secondarysources of liquidity (borrowing lines from other institutions) equal to atleast an additional 10 percent of assets. Within these ratios, the Bank generally has excess funds available tosell as federal funds on a daily basis, and is able to fund its own liquidityneeds without the need of short-term borrowing. The Bank’s total liquidity at March 31, 2009 and 2008was 33.35% and 32.46%, respectively, while its average loan to average depositratio for such years was 86.11% and 97.70%, respectively.

 

Brokered deposits aredeposit instruments, such as certificates of deposit, deposit notes, bankinvestment contracts and certain municipal investment contracts that are issuedthrough brokers and dealers who then offer and/or sell these depositinstruments to one or more investors. Additionally, deposits on which a financial institution pays an interestrate significantly higher than prevailing rates are considered to be brokereddeposits.  Federal law and regulationrestricts banks from soliciting or accepting brokered deposits, unless the bankis well capitalized under Federal guidelines. The Bank had $1,996,000 in brokered deposits through the Certificate ofDeposit Account Registry Service (CDARS) at March 31, 2009 compared withno brokered deposits at March 31,2008.

 

**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 Bank instituted formal asset/liabilitypolicies 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 expects to generate earnings fromincreasing loan volume, appropriate loan pricing and expense control and notfrom trying to accurately forecast interest rates.  Another important function of asset/liabilitymanagement is managing the risk/return relationships between interest raterisk, liquidity, market risk and capital adequacy.  The Bank gives priority to liquidity concernsfollowed by capital adequacy, then interest rate risk and market risk in theinvestment portfolio.  The policy of theBank will be to control the exposure of the Bank’s earnings to changinginterest rates by generally maintaining a position within a narrow range aroundan “earnings neutral position.” An earnings neutral position is defined as themix of assets and liabilities that generate a net interest margin that is notaffected by interest rate changes. However, Management does not believe that the Bank can maintain atotally earnings neutral position. Further, the actual timing of repricing of assets and liabilities doesnot always correspond to the timing assumed by the Bank for analyticalpurposes.  Therefore, changes in marketrates of interest will generally impact the Bank’s net interest income and netinterest 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 model converts a fed funds rate changeinto rate changes for each major class of asset and liability, then simulatesthe bank’s net interest margin based on the bank’s actual repricing over a oneyear period, assuming that maturities are reinvested in instruments identicalto those maturing during the period.  Thefollowing table shows the affect on net interest income of a 100 and a 200 basis

 

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point rate shock at March 31,2009.  The table does not includeprojections for decreases in rates, as the Federal Funds target rate iscurrently between 0% and 0.25%.

 
| **Rate Shock Increase in  Basis Points** | ** ** | **Percent Increase in Net  Interest Income** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| 100                                                          |       | 2.6                                                              | %          |
| 200                                                          |       | 6.0                                                              | %          |

 

**InvestmentSecurities**

 

The Corporation maintains a trading account, at fair value, consisting of marketable securities.  At March 31, 2009 and 2008 the account value was $318,000 and $986,000, respectively.  The Corporation has investment of $10,000 in Metrocities Mortgage, LLC.  In addition, the Corporation has investments in Northern California Bancorp Trust I of $93,000 and Northern California Bancorp Trust II of $155,000. These are special-purpose trust subsidiaries which were formed to facilitate the issuance of trust preferred securities.

 

Thefollowing table sets forth the book and market value of the investmentsecurities, AFS at March 31, 2009:

 
| ** **                                 | ** ** | **INVESTMENT PORTFOLIO MIX** | ** ** |
|--------------------------------------------|------------|------------------------------|------------|
| ** **                                 | ** ** | **MARCH 31, 2009**      | ** ** |
| **(dollars in thousands)**                 | ** ** | **Book Value**               | ** ** | **Market Value** | ** ** |
| Investment  Securities, Available for Sale |       |                         |       |   |   |
| Corporate Debt  Securities                 |       | $                            | 17,126     |   | $ | 16,027 |   |
| State/Local  Agency Bonds                  |       | 41,844                       |       | 41,931 |   |
| Mortgage Backed  Securities                |       | 11,114                       |       | 11,032 |   |
| U.S. Government  Agency Securities         |       | 26,000                       |       | 26,741 |   |
| Total                                      |       | $                            | 96,084     |   | $ | 95,731 |   |

 
| ** **                                       | ** ** | **INVESTMENT PORTFOLIO MIX** | ** **  |
|--------------------------------------------------|------------|------------------------------|-------------|
| ** **                                       | ** ** | **MARCH 31, 2009**      | ** **  |
| ** **                                       | ** ** | **Book Value**          | ** **  | **Market Value** | ** ** |
| Other Investments, at cost        |       |                         |        |   |   |
| Metrocities  Mortgage, LLC                       |       | $                            | 10          |   | $ | 10 |   |
| Federal Home  Loan Bank stock, restricted        |       | 3,332                        |        | 3,332 |   |
| Northern  California Bancorp, Inc. Trust I  |       | 93                           |        | 93 |   |
| Northern  California Bancorp, Inc. Trust II |       | 155                          |        | 155 |   |
| Independent  Bankers Financial Corporation       |       | 51                           |        | 51 |   |
| Visa, Inc.  Stock                           |       | 426                          |        | 426 |   |
|                                             |       | $                            |  4,067 |   | $ | 4,067 |   |

 

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The contractualmaturities of investment securities as well as yields based on amortized costof those securities at March 31, 2009 are shown below.  Actual maturities may differ from contractualmaturities because issuers have the right to call or prepay obligations with orwithout call or prepayment penalties.

 
| ** **                     | ** ** | ** **           | ** **  | ** **     | ** ** | **After one year to** | ** ** | **After five years to** | ** ** | ** ** | ** ** | ** **    | ** ** | ** ** | ** ** | ** **    | ** ** |
|--------------------------------|------------|----------------------|-------------|----------------|------------|-----------------------|------------|-------------------------|------------|------------|------------|---------------|------------|------------|------------|---------------|------------|
| ** **                     | ** ** | **One year or less** | ** **  | **five years** | ** ** | **ten years**         | ** ** | **After ten years**     | ** ** | **Total**  | ** ** |
| **(Dollars in thousands)**     | ** ** | **Amount**           | ** **  | **Yield (1)**  | ** ** | **Amount**            | ** ** | **Yield (1)**           | ** ** | **Amount** | ** ** | **Yield (1)** | ** ** | **Amount** | ** ** | **Yield (1)** | ** ** | **Amount** | ** ** | **Yield (1)** | ** ** |
| Available-for-sale             |       |                 |        |           |       |                  |       |                    |       |       |       |          |       |       |       |          |       |   |   |   |   |
| Corporate Debt  Securities     |       | $                    | 4,944       |           | 9.07       | %                     | $          | 11,083                  |       | 8.82       | %          | $             | —     |       | 0.00       | %             | $          | — |   | 0.00 | % | $ | 16,027 |   | 8.90 | % |
| Mortgage Backed  Securities    |       | —               |        | 0.00           | %          | —                |       | 0.00                    | %          | 5,634      |       | 4.80          | %          | 5,398      |       | 6.34          | %          | 11,032 |   | 5.12 | % |
| State/Local  Agency Securities |       | —               |        | 0.00           | %          | —                |       | 0.00                    | %          | 360        |       | 4.91          | %          | 41,571     |       | 5.30          | %          | 41,931 |   | 5.29 | % |
| U.S. Government  Agencies      |       | —               |        | 0.00           | %          | 3,016                 |       | 3.00                    | %          | —     |       | 0.00          | %          | 23,725     |       | 5.15          | %          | 26,741 |   | 4.90 | % |
|                           |       | $                    |  4,944 |           | 9.07       | %                     | $          | 14,099                  |       | 7.67       | %          | $             | 5,994      |       | 4.81       | %             | $          | 70,694 |   | 5.33 | % | $ | 95,731 |   | 5.86 | % |

** **

**Item 4T.  Controls and Procedures**

** **

(a) The Bank’sChief Executive Officer and its Chief Financial Officer, after evaluating theeffectiveness of the Bank’s disclosure controls and procedures as defined inExchange Act Rules 13a-15(e) promulgated under the Exchange Act as ofthe end of the period covered by this report (the “Evaluation Date”) haveconcluded that as of the Evaluation Date, the Bank’s disclosure controls andprocedures were adequate and effective to ensure that material informationrelating to the Bank would be made known to them by others within the Bank,particularly during the period in which this report was being prepared.  Disclosure controls and procedures aredesigned to ensure that information required to be disclosed by us in thereports that we file or submit under the Exchange Act is recorded, processed,summarized and reported, within the time periods specified in the Securitiesand Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controlsand procedures designed to ensure that information required to be disclosed byus in the reports that we file under the Exchange Act is accumulated andcommunicated to our management, including our Chief Executive Officer and ChiefFinancial Officer, as appropriate to allow timely decisions regarding requireddisclosure.

 

(b) Changesin Internal Controls:  In the quarterended March 31,2009, the Company did not make anysignificant changes in, nor take any corrective actions regarding, its internalcontrols or other factor that could significantly affect these controls.

 

**PART II-OTHERINFORMATION**

 

**Item1.  Legal Proceedings.**

 

The Corporation, the Bank and Charles T. Chrietzberg, Jr. were named as defendants in a lawsuit filed November 3, 2008 in the Monterey County Court-Civil Division by Golden State Bank.  The lawsuit involves claims related to loan participations purchased by Golden State Bank from Monterey County Bank.  The lawsuit seeks to compel arbitration of the issues, rescission of the participation agreements, payment of all principal and interest, damages, attorneys’ fees and costs.

 

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The defendants have reviewed the lawsuit, categorically deny all of the allegations and will vigorously defend the suit.  The parties have agreed to have this matter decided by binding arbitration.

 

The Bank was named as defendant in a lawsuit filed February 26, 2009 in Monterey County Court-Civil Division by Tighorn Financial Services, LLC (“Tighorn”).  The lawsuit seeks to compel the Bank to continue its credit card sponsorship and the servicing of a credit card portfolio under a card sponsorship agreement with Tighorn.  Pursuant to termination provisions contained in the parties’ agreement, the Bank gave Tighorn written notice of termination of the agreement in June 2008.

 

The Bank has reviewed the lawsuit, categorically denies all of the allegations, believes it gave proper notice, and will vigorously defend the suit.

 

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 Corporation or the Bank.

 

**Item2.  Unregistered Sales of EquitySecurities and Use of Proceeds**

 

None

 

**Item3.  Defaults of Senior Securities**

 

None

 

**Item 4.  Submission of Matters to a Vote of SecurityHolders.**

** **

None

 

#### **Item 5.  Other Information.**

####  

None

 

#### **Item 6.  Exhibits**

####  

| A.     |   | EXHIBITS |
|--------|--------|----------|
|   |   |     |
|   |   | 31.1     | Certification of the  Chief Executive Officer of Northern California Bancorp, Inc. pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002. |
|   |   |     |   |
|   |   | 31.2     | Certification of the Chief Financial Officer of Northern California  Bancorp, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of  2002. |
|   |   |     |   |
|   |   | 32.1     | Certification of the Chief Executive Officer of Northern California  Bancorp, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of  2002. |
|   |   |     |   |
|   |   | 32.2     | Certification of the Chief Financial Officer of Northern California  Bancorp, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of  2002. |

 

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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 14, 2009 | By:                                |   /s/ Charles  T. Chrietzberg, Jr. |
|                    |                               |     Charles  T. Chrietzberg, Jr. |
|                    |                               |     Chairman  of the Board & |
|                    |                               |     Chief  Executive Officer |
|                    |                               |   |
|                    |                               |   |
| Date: May 14, 2009 | By:                                |   /s/ Bruce  N. Warner |
|                    |                               |     Bruce  N. Warner |
|                    |                               |     Chief  Financial Officer and |
|                    |                               |     Principal  Accounting Officer |

 

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