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

**Washington,D.C.  20549**

** **

**FORM10-QSB**

 
| ** ** | **ý** | **Quarterly report under Section  13 or 15(d) of the Securities Exchange Act of  1934**                                                                                                                                                                   |
|------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                |
| ** ** | ** ** | **for the quarterly period ended March  31, 2005**                                                                                                                                                                                                        |
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                |
| ** ** | **o**      | **Transition report under Section  13 or 15(d) of the Securities Exchange Act of  1934 (No fee required)**                                                                                                                                                |
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                |
| ** ** | ** ** | **for the period 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 or 15(d) of theSecurities Exchange Act during the past 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes  ý     No   o

 

As of April 29,2005, the Corporation had 1,608,519 shares of common stock outstanding.

 

 

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**PARTI-FINANCIAL INFORMATION**

 

### Item 1.              FINANCIALSTATEMENTS

 

NORTHERNCALIFORNIA BANCORP, INC.

AND SUBSIDIARY

CONSOLIDATEDBALANCE SHEET

 
| ** **                                                                                                                | ** ** | **MARCH 31  2005** | ** ** | **DECEMBER 31  2004** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ASSETS:                                                                                                                   |       |               |       |                  |       |
| Cash and Due  From Banks                                                                                                  |       | 5,317,900          |       | 5,614,000             |       |
| Federal Funds  Sold                                                                                                       |       | 7,380,000          |       | 11,195,000            |       |
| Total Cash and  Cash Equivalents                                                                                          |       | 12,697,900         |       | 16,809,000            |       |
| Trading Assets                                                                                                            |       | 901,900            |       | 803,700               |       |
| Time Deposits in  Financial Institutions                                                                                  |       | 1,000,000          |       | —                |       |
| Investment  Securities, available for sale (Note 1)                                                                       |       | 8,551,200          |       | 6,834,900             |       |
| Investment  Securities, held to maturity cost (fair value approximates $6,561,100 in  2005; $6,299,700 in 2004) (Note 1)  |       | 6,427,000          |       | 6,219,100             |       |
| Other  Investments (Note 2)                                                                                               |       | 1,823,600          |       | 1,813,500             |       |
| Loans Held for  Sale                                                                                                      |       | 3,637,900          |       | 4,539,500             |       |
| Loans, net of  allowance for loan losses of $1,013,500 in 2005; $963,000 in 2004 (Note 3)                                 |       | 96,830,200         |       | 90,496,300            |       |
| Bank Premises  and Equipment, Net                                                                                         |       | 4,251,500          |       | 2,217,600             |       |
| Cash Surrender Value  of Life Insurance                                                                                   |       | 2,410,200          |       | 2,391,900             |       |
| Interest  Receivable and Other Assets                                                                                     |       | 2,356,000          |       | 1,913,800             |       |
|                                                                                                                      |       |               |       |                  |       |
| Total Assets                                                                                                              |       | 140,887,400        |       | 134,039,300           |       |
|                                                                                                                      |       |               |       |                  |       |
| LIABILITIES AND  SHAREHOLDERS’ EQUITY:                                                                               |       |               |       |                  |       |
| Total Deposits  (Note 4)                                                                                                  |       | 103,354,600        |       | 97,263,200            |       |
| Federal Home  Loan Bank Borrowed Funds                                                                                    |       | 19,650,000         |       | 19,650,000            |       |
| Junior  Subordinated Debt Securities                                                                                      |       | 8,248,000          |       | 8,248,000             |       |
| Interest Payable  and Other Liabilities                                                                                   |       | 2,226,600          |       | 1,557,000             |       |
| Total  Liabilities                                                                                                        |       | 133,479,200        |       | 126,718,200           |       |
|                                                                                                                      |       |               |       |                  |       |
| Shareholders’  Equity:                                                                                               |       |               |       |                  |       |
| Common Stock -  No Par Value  Authorized: 2,500,000 in 2005 and 2004  Outstanding:1,608,519 in 2005 and 1,566,658 in 2004 |       | 4,721,000          |       | 4,719,900             |       |
| Retained  Earnings                                                                                                        |       | 2,660,600          |       | 2,525,600             |       |
| Accumulated  Other Comprehensive Income (Loss)                                                                            |       | 26,600             |       | 75,600                |       |
| Total  Shareholders’ Equity                                                                                          |       | 7,408,200          |       | 7,321,100             |       |
| Total  Liabilities & Shareholders’ Equity                                                                        |       | 140,887,400        |       | 134,039,300           |       |

 

2

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NORTHERNCALIFORNIA BANCORP, INC.

AND SUBSIDIARY

CONSOLIDATEDSTATEMENTS OF OPERATIONS

 
| ** **                                                              | ** ** | **THREE-MONTH PERIOD ENDING  MARCH 31** | ** ** |
|-------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                              | ** ** | **2005**                                | ** ** | **2004** | ** ** |
| INTEREST INCOME:                                                        |       |                                    |       |   |   |
| Loans                                                                   |       | 2,104,500                               |       | 1,509,100 |   |
| Time deposits  with other financial institutions                        |       | 3,900                                   |       | — |   |
| Investment  securities                                                  |       | 150,100                                 |       | 60,400 |   |
| Federal funds  sold                                                     |       | 69,400                                  |       | 24,900 |   |
| Total Interest  Income                                                  |       | 2,327,900                               |       | 1,594,400 |   |
|                                                                    |       |                                    |       |   |   |
| INTEREST  EXPENSE:                                                      |       |                                    |       |   |   |
| Interest-bearing  transaction accounts                                  |       | 15,900                                  |       | 14,000 |   |
| Savings and time  deposit accounts                                      |       | 233,100                                 |       | 159,100 |   |
| Time deposits in  denominations of $100,000 or more                     |       | 221,400                                 |       | 118,200 |   |
| Notes payable  and other                                                |       | 340,700                                 |       | 226,700 |   |
| Total Interest  Expense                                                 |       | 811,100                                 |       | 518,000 |   |
|                                                                    |       |                                    |       |   |   |
| Net Interest  Income                                                    |       | 1,516,800                               |       | 1,076,400 |   |
| Provision for  loan losses                                              |       | 50,000                                  |       | 70,000 |   |
| Net interest  income, after provision for loan losses                   |       | 1,466,800                               |       | 1,006,400 |   |
|                                                                    |       |                                    |       |   |   |
| OTHER INCOME:                                                           |       |                                    |       |   |   |
| Service charges  on deposit accounts                                    |       | 140,400                                 |       | 127,700 |   |
| Income from  sales and servicing of Small Business Administration Loans |       | 235,700                                 |       | 188,600 |   |
| Other income                                                            |       | 401,500                                 |       | 692,000 |   |
| Total other  income                                                     |       | 777,600                                 |       | 1,008,300 |   |
|                                                                    |       |                                    |       |   |   |
| NONINTEREST  EXPENSE:                                                   |       |                                    |       |   |   |
| Salaries and  Employee Benefits                                         |       | 858,300                                 |       | 729,800 |   |
| Occupancy and  Equipment Expense                                        |       | 131,900                                 |       | 132,200 |   |
| Professional  Fees                                                      |       | 37,500                                  |       | 33,400 |   |
| Data Processing                                                         |       | 90,600                                  |       | 91,200 |   |
| Other general  and administrative                                       |       | 747,700                                 |       | 693,200 |   |
| Total operating  expenses                                               |       | 1,866,000                               |       | 1,679,800 |   |
|                                                                    |       |                                    |       |   |   |
| Income before  tax provision                                            |       | 378,400                                 |       | 334,900 |   |
| Income tax  provision                                                   |       | 243,300                                 |       | 133,300 |   |
| Net income                                                              |       | 135,100                                 |       | 201,600 |   |
|                                                                    |       |                                    |       |   |   |
| Earnings per  common share                                              |       |                                    |       |   |   |
| Basic                                                                   |       | 0.084                                   |       | 0.129 |   |
| Diluted                                                                 |       | 0.070                                   |       | 0.107 |   |

 

3

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NORTHERNCALIFORNIA BANCORP, INC.

AND SUBSIDIARY

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

THREE MONTHS ENDEDMARCH 31, 2005 AND 2004

 
| ** **                                                                                | ** ** | **2005**    | ** ** | **2004**    | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|
| **CASH  FLOWS FROM OPERATING ACTIVITIES**                                                 |       |        |       |        |       |
| Net income                                                                                |       | $           | 135,100    |        | $          | 201,600 |   |
| Adjustments to  reconcile net income to net cash  provided  by operating activities: |       |        |       |        |       |
| Depreciation and  amortization expense                                                    |       | 49,700      |       | 16,400      |       |
| Realized gain on  sales of available-for-sale securities, net                             |       | —      |       | 35,700      |       |
| Amortization of  deferred loan (fees) costs                                               |       | 50,300      |       | (29,700     | )          |
| Amortization  (accretion) of discounts and premiums  on  investment securities       |       | 1,400       |       | (9,800      | )          |
| Gain on sale of  equipment                                                                |       | —      |       | 1,000       |       |
| Provision for  loan losses                                                                |       | 50,000      |       | 70,000      |       |
| Increase in  trading assets                                                               |       | (98,200     | )          | (25,100     | )          |
| (Increase)  decrease in interest receivable                                               |       | 25,500      |       | (8,600      | )          |
| Increase in  other assets                                                                 |       | (339,200    | )          | (134,100    | )          |
| Increase in  deferred tax asset                                                           |       | (93,300     | )          | (18,000     | )          |
| Increase  (decrease) in interest payable                                                  |       | 107,000     |       | (2,500      | )          |
| Increase  (decrease) in other liabilities                                                 |       | 562,600     |       | (138,400    | )          |
| Net cash  provided (used) by operating activities                                         |       | 450,900     |       | (41,500     | )          |
|                                                                                      |       |        |       |        |       |
| **CASH  FLOWS FROM INVESTING ACTIVITIES**                                                 |       |        |       |        |       |
| Increase in time  deposits in financial institutions                                      |       | (1,000,000  | )          | —      |       |
| Proceeds from  maturity of investment securities                                          |       | 129,600     |       | 1,352,900   |       |
| Purchase of  investments                                                                  |       | (2,169,200  | )          | (2,192,000  | )          |
| Net increase in  loans                                                                    |       | (6,373,100  | )          | (14,421,700 | )          |
| Loan purchases                                                                            |       | (3,925,900  | )          | (1,180,000  | )          |
| Loan sales                                                                                |       | 3,864,800   |       | 7,672,700   |       |
| Decrease in  loans held for sale                                                          |       | 901,600     |       | 252,800     |       |
| Proceeds from  sale of equipment                                                          |       | 600         |       | 2,400       |       |
| Purchases of  bank premises and equipment                                                 |       | (2,082,900  | )          | (29,700     | )          |
| Net cash used by  investing activities                                                    |       | (10,654,500 | )          | (8,542,600  | )          |
|                                                                                      |       |        |       |        |       |
| **CASH  FLOWS FROM FINANCING ACTIVITIES**                                                 |       |        |       |        |       |
| Net increase in  deposits                                                                 |       | 6,091,400   |       | 3,905,200   |       |
| Proceeds from  borrowings                                                                 |       | —      |       | 4,900,000   |       |
| Proceeds from  exercise of stock options                                                  |       | 1,100       |       | —      |       |
| Net cash  provided (used) by financing activities                                         |       | 6,092,500   |       | 8,805,200   |       |
|                                                                                      |       |        |       |        |       |
| Net increase  (decrease) in cash and cash equivalents                                     |       | (4,111,100  | )          | 221,100     |       |
|                                                                                      |       |        |       |        |       |
| **CASH  AND CASH EQUIVALENTS, BEGINNING**                                                 |       | 16,809,000  |       | 17,193,100  |       |
|                                                                                      |       |        |       |        |       |
| **CASH  AND CASH EQUIVALENTS, ENDING**                                                    |       | $           | 12,697,900 |        | $          | 17,414,200 |   |

 

See Note 7 for supplemental disclosures

 

4

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NOTES TO FINANCIAL STATEMENTS

 
| ** **                                              | ** ** | **MARCH 31  2005** | ** ** | **December 31  2004** | ** ** |
|---------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| (NOTE 1)  INVESTMENT SECURITIES:                        |       |               |       |                  |       |
|                                                    |       |               |       |                  |       |
| Available for  sale:                                    |       |               |       |                  |       |
| Corporate Debt  Securities                              |       | 677,600            |       | 751,700               |       |
| Government  National Mortgage Association               |       | 1,248,600          |       | 1,377,100             |       |
| U.S. government  Agencies                               |       | 6,625,000          |       | 4,706,100             |       |
|                                                    |       | 8,551,200          |       | 6,834,900             |       |
| Held to  maturity:                                      |       |               |       |                  |       |
| State/Local  Agency                                     |       | 6,427,000          |       | 6,219,100             |       |
| (Note 2) OTHER  INVESTMENTS                             |       |               |       |                  |       |
| AT Services LLC                                         |       | 202,100            |       | 202,000               |       |
| Metrocities  Mortgage, LLC                              |       | 10,000             |       | —                |       |
| Federal Home  Loan Bank stock, restricted               |       | 923,600            |       | 923,600               |       |
| Northern  California Bancorp, Inc. Trust I              |       | 93,000             |       | 93,000                |       |
| Northern  California Bancorp, Inc. Trust II             |       | 155,000            |       | 155,000               |       |
| Pacific Coast  Bankers’ Bank Stock                 |       | 439,900            |       | 439,900               |       |
|                                                    |       | 1,823,600          |       | 1,813,500             |       |
| (NOTE 3) LOANS  and ALLOWANCE FOR POSSIBLE LOAN LOSSES: |       |               |       |                  |       |
|                                                    |       |               |       |                  |       |
| Commercial and  Industrial                              |       | 18,435,900         |       | 19,314,300            |       |
| Construction                                            |       | 11,299,300         |       | 7,372,500             |       |
| Real Estate -  Mortgage                                 |       | 67,659,500         |       | 64,339,200            |       |
| Installment                                             |       | 670,400            |       | 622,000               |       |
| Government  Guaranteed Loans Purchased                  |       | 49,900             |       | 51,400                |       |
|                                                    |       | 98,115,000         |       | 91,699,400            |       |
| Allowance for  loan losses                              |       | (1,013,500         | )          | (963,000              | )          |
| Deferred  origination fees, net                         |       | (271,300           | )          | (240,100              | )          |
| Net Loans                                               |       | 96,830,200         |       | 90,496,300            |       |
|                                                    |       |               |       |                  |       |
| Balance at  Beginning of Period                         |       | 963,000            |       | 774,800               |       |
| Recoveries                                              |       | 500                |       | 3,200                 |       |
| Provision for  Possible Loan Losses                     |       | 50,000             |       | 185,000               |       |
| Loans Charged  Off                                      |       | —             |       | —                |       |
| Balance at End  of Period                               |       | 1,013,500          |       | 963,000               |       |
|                                                    |       |               |       |                  |       |
| (NOTE 4)  DEPOSITS:                                     |       |               |       |                  |       |
| Demand                                                  |       | 21,572,500         |       | 22,839,300            |       |
| Interest-Bearing  Demand                                |       | 15,360,500         |       | 16,788,600            |       |
| Savings                                                 |       | 8,049,300          |       | 6,792,800             |       |
| Time Under  $100,000                                    |       | 29,199,900         |       | 26,574,700            |       |
| Time Equal to or  Greater than $100,000                 |       | 29,172,400         |       | 24,267,800            |       |
|                                                    |       | 103,354,600        |       | 97,263,200            |       |

 

5

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(Note 5) COMPREHENSIVE INCOME:

 

The components of other comprehensive income and related tax effects forthe three month periods ending March 31, 2005 and 2004 are as follows:

 
| ** **                                                                                     | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Unrealized  holding gains (losses) on available - for - sale securities and other assets,  net |       | (89,000  | )          | 75,600   |       |
| Tax effect                                                                                     |       | 40,000   |       | (34,000  | )          |
|                                                                                           |       |     |       |     |       |
| Net-of-tax  amount                                                                             |       | (49,000  | )          | 41,600   |       |

 

The components of accumulated other comprehensive income and related taxeffects are as follows:

 
| ** **                                                           | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Unrealized  holding gains (losses) on available for sales securities |       | (163,100 | )          | 1,600    |       |
| Unrealized  holding gains on available for sale strip receivable     |       | 211,500  |       | 172,000  |       |
| Tax effect                                                           |       | (21,800  | )          | (78,100  | )          |
|                                                                 |       |     |       |     |       |
| Net-of-tax  amount                                                   |       | 26,600   |       | 95,500   |       |

 

(Note 6) STOCK OPTIONPLAN:

** **

**The Corporation applies APB Opinion 25 and relatedInterpretations in accounting for the plan. Accordingly, no compensation cost has been recognized.  Had compensation cost for the Corporation’sstock-based compensation plan been determined based on the fair value at thegrant date for awards under the plan consistent with the method prescribed bySFAS No. 123 as amended by SFAS 148, the Corporation’s net income and basicearnings per share would have been adjusted by the compensation cost net oftaxes to the pro forma amounts indicated below:**

 
| ** **                       | ** ** | **3 Months Ended** | ** ** | **3 Months Ended** | ** ** |
|----------------------------------|------------|--------------------|------------|--------------------|------------|
| ** **                       | ** ** | **2005**           | ** ** | **2004**           | ** ** |
| Net Income:                      |       |               |       |               |       |
| As reported                      |       | $                  | 135,100    |               | $          | 201,600 |   |
| Pro forma                        |       | $                  | 135,100    |               | $          | 80,900 |   |
|                             |       |               |       |               |       |
| Compensation  cost, net of taxes |       | $                  | —     |               | $          | 120,700 |   |
|                             |       |               |       |               |       |
| Basic earnings  per share:       |       |               |       |               |       |
| As reported                      |       | $                  | 0.084      |               | $          | 0.129 |   |
| Pro forma                        |       | $                  | 0.084      |               | $          | 0.052 |   |
|                             |       |               |       |               |       |
| Diluted earnings  per share:     |       |               |       |               |       |
| As reported                      |       | $                  | 0.070      |               | $          | 0.107 |   |
| Pro forma                        |       | $                  | 0.070      |               | $          | 0.043 |   |

 

6

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Statementof Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-BasedCompensation,” as amended by SFAS No. 148 “Accounting for Stock-BasedCompensation —Transition and Disclosure,” encourages all entities to adopt afair value based method of accounting for employee stock compensation plans,whereby compensation cost is measured at the grant date based on the value ofthe award and is recognized over the service period, which is usually thevesting period.  However, it also allowsan entity to continue to measure compensation cost for those plans using theintrinsic value based method of accounting prescribed by Accounting PrinciplesBoard (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,”whereby compensation cost is the excess, if any, of the quoted market price ofthe stock at the grant date (or other measurement date) over the amount anemployee must pay to acquire the stock. Stock options issued under the Corporation’s stock option plan have nointrinsic value at the grant date, and under Opinion No. 25 no compensationcost is recognized for them.

 

Thefair value of these options was estimated at the grant date using theBlack-Scholes option pricing model with the following weighted-average assumptionsfor 2004, no options were granted in 2005: risk-free interest rate of 4.78% for2004; dividend yield of .017% for; expected option life of 5.18 years for 2004;and volatility of 20% in 2004.  Duringthe current year 500 options were excised and 6,200 options were terminated.

 

(NOTE7) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 
| ** **                          | ** ** | **3/31/05** | ** ** | **3/31/04** | ** ** |
|-------------------------------------|------------|-------------|------------|-------------|------------|
| Payments during  the period ending: |       |        |       |        |       |
| Interest                            |       | 680,500     |       | 520,600     |       |
| Income Taxes                        |       | 252,500     |       | 146,100     |       |

 

(Note 8) ****Basisof presentation****

 

Theinterim condensed financial statements of Northern California Bancorp,Inc. are unaudited and reflect all adjustments (consisting only of normalrecurring adjustments), which are, in the opinion of management, necessary fora fair presentation, in all material respects, of the financial position andoperating results of the Company for the interim periods.  The results ofoperations for the three months ended March 31, 2005 are not necessarilyindicative of the results to be expected for the entire fiscal yearending December 31, 2005.  The year-end balance sheet dataat December 31, 2004 was derived from the audited financialstatements.

 

Thisfinancial information should be read in conjunction with the audited financialstatements and notes thereto included in the Company’s Form 10-KSB for thefiscal year ended December 31, 2004.

 

7

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

** **

**StatementsRegarding Forward-Looking Information**

** **

**Except for historicalinformation contained herein, the matters discussed or incorporated byreference in this report contain forward-looking statements within the meaningof Section 27A of the Securities Act of 1933, as amended (the “Securities Act”),and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”),that involve substantial risks and uncertainties.  When used in thisreport, or in the documents incorporated by reference herein, the words “anticipate,”“believe,” “estimate,” “may,” “intend,” “expect,” and similar expressionsidentify certain of such forward-looking statements.  Actual results ofMonterey County Bank could differ materially from such forward-lookingstatements contained herein.  Factors that could cause future results tovary from current expectations include, but are not limited to, the following:changes in economic conditions (both generally and more specifically in themarkets in which the Bank operates); changes in interest rates, deposit flows,loan demand, real estate values and competition; changes in accountingprinciples, policies or guidelines and in government legislation and regulation(which change from time to time and over which the Bank has no control); otherfactors affecting the Bank’s operations, markets, products and services; andother risks detailed in this Form 10-QSB and in the Bank’s other reports filedwith the Federal Deposit Insurance Corporation and pursuant to the rules andregulations of the Securities and Exchange Commission.  Readers arecautioned not to place undue reliance on these forward-looking statements,which reflect management’s analysis only as of the date hereof.  The Bankundertakes no obligation to publicly revise these forward-looking statements toreflect events or circumstances that arise after the date thereof.**

 

 

**OVERVIEW**

 

Thefollowing discussion reviews and analyzes the operating results and financialcondition 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, 2005 net income was $135,100, compared to $201,600 forthe same period in 2004.  For the threemonths ended March 31, 2005 interest income after provision for loan lossesincreased $460,400, other income decreased $230,700, while operating expenseincreased $186,200 and income tax provision increased $110,000.

 

8

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The followingtable sets forth certain selected financial ratios of the Corporation at andfor the three months ended, March 31, 2005 and 2004.

 
| ** **                                         | ** ** | **The three months  Ended March 31, 2005**       | ** ** | **The three months  Ended March 31, 2004** | ** ** |
|----------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                         | ** ** | **(Dollars in thousands except per share data)** | ** ** |
|                                               |       |                                             |       |                                       |       |
| Summary of Operating  Results:                     |       |                                             |       |                                       |       |
|                                               |       |                                             |       |                                       |       |
| Total interest  income                             |       | 2,328                                            |       | 1,594                                      |       |
| Total interest  expense                            |       | 811                                              |       | 518                                        |       |
| Net interest  income                               |       | 1,517                                            |       | 1,076                                      |       |
|                                               |       |                                             |       |                                       |       |
| Provision for  possible loan losses                |       | 50                                               |       | 70                                         |       |
| Net interest  income after provision for loan loss |       | 1,467                                            |       | 1,006                                      |       |
|                                               |       |                                             |       |                                       |       |
| Total other  income                                |       | 778                                              |       | 1,008                                      |       |
| Total other  expense                               |       | 1,866                                            |       | 1,680                                      |       |
|                                               |       |                                             |       |                                       |       |
| Income (loss)  before taxes                        |       | 378                                              |       | 335                                        |       |
| Provision for  income tax                          |       | 243                                              |       | 133                                        |       |
|                                               |       |                                             |       |                                       |       |
| Net income  (loss)                                 |       | 135                                              |       | 202                                        |       |
|                                               |       |                                             |       |                                       |       |
| Per Common Share  Data:                            |       |                                             |       |                                       |       |
|                                               |       |                                             |       |                                       |       |
| Net income -  Primary (1)                          |       | 0.084                                            |       | 0.129                                      |       |
| Net income -  Diluted (2)                          |       | 0.070                                            |       | 0.107                                      |       |
| Book value, end  of period (3)                     |       | 4.61                                             |       | 4.25                                       |       |
| Avg shares  outstanding (4)                        |       | 1,608,147                                        |       | 1,566,658                                  |       |
|                                               |       |                                             |       |                                       |       |
| Balance Sheet  Data:                               |       |                                             |       |                                       |       |
|                                               |       |                                             |       |                                       |       |
| Total loans, net  of unearned income (5)           |       | 100,468                                          |       | 84,484                                     |       |
| Total assets                                       |       | 140,887                                          |       | 116,780                                    |       |
| Total deposits                                     |       | 103,355                                          |       | 82,038                                     |       |
| Stockholders’  equity (6)                     |       | 7,408                                            |       | 6,654                                      |       |

 

9

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| ** **                                            | ** ** | **The three months  Ended March 31, 2005** | ** ** | **The three months  Ended March 31, 2004** | ** ** |
|-------------------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
| Selected  Financial Ratios (4):                       |       |                                       |       |                                       |       |
|                                                  |       |                                       |       |                                       |       |
| Return on  average assets (5)                         |       | 0.39                                       | %          | 0.74                                       | %          |
| Return on  average stockholders’ equity (5)      |       | 7.31                                       | %          | 12.33                                      | %          |
| Net interest  spread                                  |       | 4.40                                       | %          | 3.98                                       | %          |
|                                                  |       |                                       |       |                                       |       |
| Net interest  margin                                  |       | 4.87                                       | %          | 4.38                                       | %          |
|                                                  |       |                                       |       |                                       |       |
| Avg  shareholders’ equity to average assets      |       | 5.34                                       | %          | 6.02                                       | %          |
|                                                  |       |                                       |       |                                       |       |
| Risked-Based  capital ratios                          |       |                                       |       |                                       |       |
| Tier 1                                                |       | 7.94                                       | %          | 8.58                                       | %          |
| Total                                                 |       | 14.24                                      | %          | 16.13                                      | %          |
| Total loans to  total deposits  at end of period |       | 97.21                                      | %          | 102.98                                     | %          |
|                                                  |       |                                       |       |                                       |       |
| Allowance to  total loans at end of period            |       | 1.00                                       | %          | 1.00                                       | %          |
|                                                  |       |                                       |       |                                       |       |
| Nonperforming  loans to total loans at end of period  |       | 0.04                                       | %          | 0.03                                       | %          |
|                                                  |       |                                       |       |                                       |       |
| Net charge-offs  to average loans                     |       | 0.00                                       | %          | 0.00                                       | %          |

 

----

(1)   Primaryearnings per share amounts were computed on the basis of the weighted averagenumber of shares of common stock outstanding during the year.  The weighted average number of common sharesused for this computation was 1,608,147 and 1,566,658 for March 31, 2005 and2004, respectively.

 

(2)   Dilutedearnings (loss) per share amounts were computed on the basis of the weightedaverage number of shares of common stock and common stock equivalentsoutstanding during the year.  Commonstock equivalents include director/employee stock options. The weighted averagenumber of shares used for this computation was 1,922,325 and 1,878,032 forMarch 31, 2005 and 2004, respectively.

 

(3)   Weightedaverage common shares.

 

(4)   Includesloans being held for sale.

 

(5)   Averagesare of daily balances.

 

(6)   March31, 2005 calculated on an annualized basis.

 

10

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**NETINTEREST INCOME**

 

Netinterest income, the difference between (a) interest and fees earned oninterest-earning assets and (b) interest paid on interest-bearing liabilities,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 portfolio, the availability of particular sources offunds and changes in prevailing interest rates.

 

Netinterest income for the three months ended March 31, 2005 was $1,516,800compared to $1,076,400 for the same period in 2004.  The increase of $440,400 resulted from totalinterest income increasing $733,500, while total interest expense increased $293,100.  Average interest earning assets increased $29,024,000(29.51%), while the average rate earned decreased 94 basis points.  Average interest bearing liabilitiesincreased $24,932,000 (30.15%), while the average rate paid increased 50 basispoints.

 

Thefollowing table shows the components of the Bank’s net interest income, settingforth, for each the three months ended March 31, 2005 and 2004, (i) averageassets, liabilities and investments, (ii) interest income earned oninterest-earning assets and interest expense paid on interest-bearingliabilities, (iii) average yields earned on interest-earning assets and averagerates paid on interest-bearing liabilities, (iv) the net interest spread (i.e.,the average yield earned on interest-earning assets less the average rate paidon interest-bearing liabilities) and (v) the net interest yield on averageinterest-earning assets (i.e., net interest income divided by averageinterest-earning assets).  Yields arecomputed on a tax-equivalent basis, resulting in adjustments to interest earnedon non-taxable securities of $33,800 in 2005, no tax-exempt securities wereheld in 2003.  Non-accrual loans andoverdrafts are included in average loan balances.  Average loans are presented net of unearnedincome.

 

11

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**INTERESTSPREAD ANALYSIS:**

** **
| ** **                            | ** ** | **Three  Months  Ended March 31,** | ** ** | **Twelve  Months  Ended December 31,** | ** ** |
|---------------------------------------|------------|------------------------------------|------------|----------------------------------------|------------|
| ** **                            | ** ** | **2005**                           | ** ** | **2004**                               | ** ** | **2004** | ** ** |
| ** **                            | ** ** | **Avg  Bal**                       | ** ** | **Int  Earn  Paid**                    | ** ** | **Avg  %  Rate** | ** ** | **Avg  Bal** | ** ** | **Int  Earn  Paid** | ** ** | **Avg  %  Rate** | ** ** | **Avg  Bal** | ** ** | **Int  Earn  Paid** | ** ** | **Avg  %  Rate** | ** ** |
| ** **                            | ** ** | **(Dollars  in thousands)**        | ** ** |
| Interest Earning  Assets:             |       |                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Time Deposits in  Financial Inst.     |       | 667                                |       | 4                                      |       | 2.34 |   | 0 |   | 0 |   | 0 |   | 0 |   | 0 |   | 0 |   |
| Invest securities  - Taxable          |       | 9,929                              |       | 74                                     |       | 2.99 |   | 7,778 |   | 60 |   | 3.07 |   | 10,755 |   | 301 |   | 2.80 |   |
| Invest securities  - Tax free         |       | 6,419                              |       | 109                                    |       | 6.79 |   | 0 |   | 0 |   | 0 |   | 3,456 |   | 226 |   | 6.55 |   |
| Federal funds  sold                   |       | 11,129                             |       | 69                                     |       | 2.49 |   | 10,399 |   | 25 |   | 0.96 |   | 10,479 |   | 141 |   | 1.35 |   |
| Total investments                     |       | 28,144                             |       | 256                                    |       | 3.64 |   | 18,177 |   | 85 |   | 1.86 |   | 24,691 |   | 669 |   | 2.71 |   |
|                                  |       |                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                 |       |                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction                          |       | 11,139                             |       | 350                                    |       | 12.58 |   | 6,185 |   | 189 |   | 12.21 |   | 7,384 |   | 794 |   | 10.76 |   |
| Real estate                           |       | 64,347                             |       | 1,199                                  |       | 7.45 |   | 54,296 |   | 974 |   | 7.18 |   | 59,393 |   | 4,500 |   | 7.58 |   |
| Installment                           |       | 616                                |       | 16                                     |       | 10.56 |   | 536 |   | 14 |   | 10.29 |   | 548 |   | 40 |   | 7.38 |   |
| Commercial                            |       | 23,137                             |       | 539                                    |       | 9.33 |   | 19,164 |   | 333 |   | 6.95 |   | 19,545 |   | 1,421 |   | 7.27 |   |
| Total loans                           |       | 99,239                             |       | 2,105                                  |       | 8.49 |   | 80,181 |   | 1,510 |   | 7.53 |   | 86,870 |   | 6,756 |   | 7.78 |   |
|                                  |       |                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Interest  earning assets        |       | 127,382                            |       | 2,362                                  |       | 7.42 |   | 98,358 |   | 1,594 |   | 6.48 |   | 111,561 |   | 7,425 |   | 6.66 |   |
|                                  |       |                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest Bearing  Liabilities:        |       |                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Int-bearing demand                    |       | 12,079                             |       | 8                                      |       | 0.25 |   | 13,305 |   | 8 |   | 0.25 |   | 13,099 |   | 33 |   | 0.25 |   |
| Money market  savings                 |       | 4,386                              |       | 8                                      |       | 0.77 |   | 2,956 |   | 6 |   | 0.78 |   | 3,894 |   | 32 |   | 0.81 |   |
| Savings deposits                      |       | 7,595                              |       | 19                                     |       | 0.98 |   | 7,847 |   | 20 |   | 1.00 |   | 7,924 |   | 81 |   | 1.02 |   |
| Time deposits  >$100M              |       | 27,458                             |       | 221                                    |       | 3.23 |   | 16,215 |   | 118 |   | 2.92 |   | 18,795 |   | 562 |   | 2.99 |   |
| Time deposits  <$100M              |       | 28,202                             |       | 214                                    |       | 3.04 |   | 19,127 |   | 140 |   | 2.92 |   | 24,264 |   | 711 |   | 2.93 |   |
| Other Borrowing                       |       | 27,898                             |       | 341                                    |       | 4.88 |   | 23,236 |   | 227 |   | 3.90 |   | 24,347 |   | 1,018 |   | 4.18 |   |
| Total interest  bearing liabilities   |       | 107,618                            |       | 811                                    |       | 3.01 |   | 82,686 |   | 518 |   | 2.51 |   | 92,324 |   | 2,436 |   | 2.64 |   |
|                                  |       |                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest  income                  |       |                               |       | 1,551                                  |       |   |   |   |   | 1,076 |   |   |   |   |   | 4,989 |   |   |   |
|                                  |       |                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest  spread                  |       |                               |       |                                   |       | 4.40 |   |   |   |   |   | 3.98 |   |   |   |   |   | 4.02 |   |
|                                  |       |                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net yield on  interest earning assets |       |                               |       |                                   |       | 4.87 |   |   |   |   |   | 4.38 |   |   |   |   |   | 4.47 |   |

 

12

----

 

** **
| ** **                       | ** ** | **Three Months  Ended March 31,  2005 vs 2004** | ** ** | **Twelve Months  Ended December 31,  2004 vs 2003** | ** ** |
|----------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                       | ** ** | **Increase (Decrease)  Due to changes**         | ** ** | **Increase (Decrease)  Due to Changes**             | ** ** |
| ** **                       | ** ** | **Avg**                                         | ** ** | **Avg**                                             | ** ** | ** ** | ** ** | **Avg** | ** ** | **Avg** | ** ** | ** ** | ** ** |
| ** **                       | ** ** | **Volume**                                      | ** ** | **Rate**                                            | ** ** | **Total** | ** ** | **Volume** | ** ** | **Rate** | ** ** | **Total** | ** ** |
| ** **                       | ** ** | **(Dollars in thousands)**                      | ** ** |
| Interest Earning  Assets:        |       |                                            |       |                                                |       |   |   |   |   |   |   |   |   |
| Time Deposits -  Financial Inst. |       | 0                                               |       | 4                                                   |       | 4 |   | 0 |   | 0 |   | 0 |   |
| Invest  securities - Taxable     |       | 17                                              |       | (2                                                  | )          | 14 |   | 97 |   | (96 | ) | 2 |   |
| Invest  securities - Tax free    |       | 0                                               |       | 109                                                 |       | 109 |   | 0 |   | 226 |   | 226 |   |
| Federal funds  sold              |       | 2                                               |       | 43                                                  |       | 45 |   | 17 |   | 27 |   | 44 |   |
| Total  investments               |       | 18                                              |       | 154                                                 |       | 172 |   | 115 |   | 158 |   | 272 |   |
|                             |       |                                            |       |                                                |       |   |   |   |   |   |   |   |   |
| Loans                            |       |                                            |       |                                                |       |   |   |   |   |   |   |   |   |
| Construction                     |       | 151                                             |       | 10                                                  |       | 162 |   | 339 |   | 86 |   | 425 |   |
| Real estate                      |       | 180                                             |       | 45                                                  |       | 225 |   | 923 |   | (8 | ) | 915 |   |
| Installment                      |       | 2                                               |       | 0                                                   |       | 2 |   | 4 |   | (1 | ) | 3 |   |
| Commercial                       |       | 69                                              |       | 138                                                 |       | 207 |   | 231 |   | 8 |   | 239 |   |
| Total loans                      |       | 403                                             |       | 193                                                 |       | 596 |   | 1,497 |   | 84 |   | 1,582 |   |
|                             |       |                                            |       |                                                |       |   |   |   |   |   |   |   |   |
| Total Interest  Earning Assets   |       | 421                                             |       | 346                                                 |       | 768 |   | 1,611 |   | 242 |   | 1,854 |   |
|                             |       |                                            |       |                                                |       |   |   |   |   |   |   |   |   |
| Interest Bearing  Deposits:      |       |                                            |       |                                                |       |   |   |   |   |   |   |   |   |
| Int-bearing  demand              |       | (1                                              | )          | 0                                                   |       | (0 | ) | 6 |   | 0 |   | 6 |   |
| Money market  savings            |       | 3                                               |       | (0                                                  | )          | 3 |   | 11 |   | (2 | ) | 9 |   |
| Savings deposits                 |       | (2                                              | )          | 0                                                   |       | (1 | ) | 20 |   | (1 | ) | 19 |   |
| Time deposits  >$100M         |       | 82                                              |       | 21                                                  |       | 103 |   | 75 |   | (24 | ) | 51 |   |
| Time deposits  <$100M         |       | 66                                              |       | 9                                                   |       | 74 |   | 129 |   | (36 | ) | 93 |   |
| Other Borrowing                  |       | 45                                              |       | 68                                                  |       | 114 |   | 306 |   | 32 |   | 338 |   |
|                             |       |                                            |       |                                                |       |   |   |   |   |   |   |   |   |
| Total interest  bearing deposits |       | 194                                             |       | 99                                                  |       | 293 |   | 547 |   | (32 | ) | 516 |   |
|                             |       |                                            |       |                                                |       |   |   |   |   |   |   |   |   |
| Net change in  net interest      |       | 227                                             |       | 248                                                 |       | 475 |   | 1,064 |   | 274 |   | 1,338 |   |

 

13

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**Provisionand Allowance for Loan Losses**

 

The provision forloan losses is an expense charged against operating income and added to theallowance for loan losses.  The allowancefor loan losses represents amounts set aside for the specific purpose ofabsorbing losses that may occur in the Bank’s loan portfolio.

 

The allowance for loanlosses reflects management’s ongoing evaluation of the risks inherent in theloan portfolio both generally and with respect to specific loans, the state ofthe economy, and the level of net loan losses experienced in the past.  Management and the Board of Directors reviewthe results of the State Banking Department and FDIC examinations, independentaccountants’ observations, and the Bank’s internal review as additionalindicators to determine if the amount in the allowance for loan losses isadequate to protect against estimated future losses.  It is the Bank’s current practice, whichcould change in accordance with the factors mentioned above, to maintain anallowance, which is at least equal to the sum of the following percentage ofloan balances by loan category.

 

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

 

Although no assurance canbe given that actual losses will not exceed the amount provided for in theallowance, Management believes that the allowance is adequate to provide forall estimated credit losses in light of all known relevant factors. At March31, 2005 and 2004 the Bank’s allowance stood at 1.00 percent and 1.00 percentof gross loans, respectively.  Aprovision of $50,000 was made to the allowance during the three months endedMarch 31, 2005, compared with a provision of $70,000 for the same period in 2004.  No loans were charged off during the threemonths ended March 31, 2005.  Recoveriesfor the same periods were $500 and $600, respectively.

 

14

----

 

TheBank’s non-performing (delinquent 90 days or more and non-accrual) loans as apercentage of total loans were 0.04 percent at March 31, 2005 compared with 0.03percent for the same period in 2004.

 

Based upon statisticsreleased by Federal and state banking authorities regarding banks of similarsize or otherwise located in California, Management believes that the Bank'sratios of delinquent and non performing loans to total loans are far betterthan average.  Prudent collectionefforts, and tighter lending controls, are responsible for the Bank’s strongperformance on these measures of credit quality.  However, no assurance can be given that theBank’s loan portfolio will continue to measure well against its peers on theseratios and quality measures, or that losses will not otherwise occur in thefuture.

 

 

**Non-InterestIncome**

 

Total other income forthe three months ended March 31, 2005 was $777,600 compared with $1,008,300 forthe same period in 2004.  The decrease of$230,700 was the result of income from SBA loan sales and servicing increasing$47,100 and service charges on deposit accounts increasing $12,700; while incomefrom other service charges, commissions and fees decreased $290,500.  The decrease in other service charges,commissions and fees was due primarily to a $239,000 mark to market loss ontrading assets.

 

The sale of SmallBusiness Administration (SBA) guaranteed loans, is a significant contributor tothe Bank’s income.  SBA guaranteed loansyield up to 3 3/4% over the New York prime rate, and the guaranteed portionscan be sold at premiums, which vary with market conditions.  SBA loans are guaranteed by the full faith ofthe United States Government from 75 to 85 percent of the principalamount.  The guaranteed portion has riskscomparable for an investor to a U. S. Government security and can usually besold in the secondary financial market, either at a premium or at a yield whichallows the Bank to maintain a significant spread for itself.

 

There can be noassurance that the gains on sale will continue at, or above, the levelsrealized in the past three years.  Inaddition, increasing competition among lenders for qualified SBA borrowersmakes it difficult for the Bank to continually expand its program in this area,and may limit the level of premium that can be earned with regard thereto.  Furthermore, the SBA recently began requiringlenders to share a portion of premiums in excess of 10% earned on the sale ofthe guaranteed portions, and to pay 50 basis points on the outstandingguaranteed balance.  Management cannotpredict the significance of the impact these changes will have on SBA income.

 

**Non-InterestExpense**

 

Salary andbenefits expense for the three months ended March 31, 2005 increased $128,500compared with the same period in 2004. The increase was due merit pay increases, increased employee benefitscost and increased bonus accrual.

 

Total occupancyand equipment expense for the three months ended March 31, 2005 was $131,900compared to $132,200 for the same period in 2004.

 

15

----

 

Professional feesfor the three months ended March 31, 2005 increased $4,100 compared to the sameperiod in 2004.  The increase was due to legalfees increasing $4,900; while accounting/audit fees decreased $800.

 

Data processingexpense for the three months ended March 31, 2005 was $90,600 compared to$90,700 for the same period in 2004.

 

Other expenses for thethree months ended March 31, 2005 totaled $991,000 compared with $826,500 forthe same period in 2004.  Significantchanges occurred in the following categories with increases in income taxexpense $110,000, donations $15,300, director fees $13,000, merchant expense$11,100, entertainment and meals $6,300, collection expense $5,800 and telephoneexpense and decreases in business development $6,200 and loan expense $4,100.

 

**LOANS**

 

Loans represented 77.91of average earning assets, and 72.01% of average total assets for the threemonths ended March 31, 2005 compared with 81.52% and 74.18%, respectivelyduring 2004. For the three months ended March 31, 2005, average loans increased23.77% from $80,181,000 for the same period in 2004 to $99,239,000.  Average construction loans increased $4,954,000(80.10%) real estate loans increased $10,051,000 (18.51%), commercial loansincreased $3,972,000 (20.73%) and average installment loans increased $80,000 (14.94%).

 

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 ranging from one yearto several years.  Short-term businessloans are generally intended to finance current transactions and typicallyprovide for monthly interest payments with principal being payable at maturityor at 90-day intervals. Term loans (usually for a term of two to five years)normally provide for monthly installments of principal and interest.  The Bank from time to time utilizes accountsreceivable 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, but generally for longer terms (upto 25 years) than are available on a conventional basis to smallbusinesses.  The unguaranteed portion of the loans, although generallysupported by collateral, is considered to be more risky than conventional commercialloans because they may be based upon credit standards the Bank would nototherwise apply, such as lower cash flow coverage, or longer repayment terms.

 

The Bank’s realestate loan portfolio consists both of real estate construction loans and realestate mortgage loans.  The Bank hasinitiated a program to generate more commercial and industrial real estateloans, which generally yield higher returns than normal commercial loans.  The Bank has also developed a broker programfor generating residential real estate loans. The Bank does not make real estate development loans.  Real estateconstruction loans are made for a much shorter term, and often at higherinterest rates, than conventional single-family residential real estateloans.  The cost of administering suchloans is often higher than for other real estate loans, as principal is drawnon periodically as construction progresses.

 

16

----

 

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 made for the purpose of financingthe purchase of various types of consumer goods, home improvement loans, autoloans and other personal loans.  Consumerinstallment loans generally provide for monthly payments of principal andinterest, at a fixed rate.  Most of theBank’s consumer installment loans are generally secured by the personalproperty being purchased.  The Bankgenerally makes consumer loans to those customers with a prior bankingrelationship with the Bank.

 

**Non-performingand Non-accrual Loans**

 

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

 

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

 

17

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| ** **                                                    | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                    | ** ** | **2005**                          | ** ** | **2004** | ** ** |
| ** **                                                    | ** ** | **(Dollars in thousands)**        | ** ** |
| Accruing, past  due 90 days or more:                          |       |                              |       |   |   |
|                                                          |       |                              |       |   |   |
| Real Estate                                                   |       | 0                                 |       | 0 |   |
| Commercial                                                    |       | 0                                 |       | 0 |   |
| Installment                                                   |       | 0                                 |       | 0 |   |
| Other                                                         |       | 0                                 |       | 0 |   |
| Total accruing                                                |       | 0                                 |       | 0 |   |
|                                                          |       |                              |       |   |   |
| Nonaccrual  Loans:                                            |       |                              |       |   |   |
|                                                          |       |                              |       |   |   |
| Commercial                                                    |       | 42                                |       | 29 |   |
| Installment                                                   |       | 0                                 |       | 0 |   |
| Other                                                         |       | 0                                 |       | 0 |   |
| Total nonaccrual                                              |       | 42                                |       | 29 |   |
|                                                          |       |                              |       |   |   |
| Total  nonperforming                                          |       | 42                                |       | 29 |   |
|                                                          |       |                              |       |   |   |
| Total loans end  of period                                    |       | 100,468                           |       | 84,484 |   |
|                                                          |       |                              |       |   |   |
| Ratio of  nonperforming loans to total loans at end of period |       | 0.04                              | %          | 0.03 | % |

 

These ratios have beenmaintained as a result of conservative underwriting criteria, frequent reviewof new and delinquent loans and a firm collection policy (with the assistanceof outside legal counsel).  The Bank doesnot have any foreign loans or loans for highly leveraged transactions.

 

18

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## **Summaryof Loan Loss Experience**

 
| ** **                                                                     | ** ** | **Three Months Ended  March 31,** | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|
| ** **                                                                     | ** ** | **2005**                          | ** ** | **2004**                          | ** ** |
| ** **                                                                     | ** ** | **(Dollars in thousands)**        | ** ** |
| Average loans  outstanding                                                     |       | 99,239                            |       | 80,181                            |       |
|                                                                           |       |                              |       |                              |       |
| Allowance,  beginning of period                                                |       | 963                               |       | 775                               |       |
|                                                                           |       |                              |       |                              |       |
| Loans charged  off during period:                                              |       |                              |       |                              |       |
| Commercial                                                                     |       | 0                                 |       | 0                                 |       |
| Installment                                                                    |       | 0                                 |       | 0                                 |       |
| Real Estate                                                                    |       | 0                                 |       | 0                                 |       |
| Other                                                                          |       | 0                                 |       | 0                                 |       |
| Total charge  offs                                                             |       | 0                                 |       | 0                                 |       |
|                                                                           |       |                              |       |                              |       |
| Recoveries  during period:                                                     |       |                              |       |                              |       |
| Commercial                                                                     |       | 0                                 |       | 0                                 |       |
| Installment                                                                    |       | 0                                 |       | 0                                 |       |
| Other                                                                          |       | 0                                 |       | 0                                 |       |
| Total recoveries                                                               |       | 0                                 |       | 0                                 |       |
|                                                                           |       |                              |       |                              |       |
| Net Loans  charged off during the period                                       |       | 0                                 |       | 0                                 |       |
|                                                                           |       |                              |       |                              |       |
| Additions to  allowance for possible loan losses                               |       | 50                                |       | 70                                |       |
|                                                                           |       |                              |       |                              |       |
| Allowance, end  of period                                                      |       | 1,013                             |       | 845                               |       |
|                                                                           |       |                              |       |                              |       |
| Ratio of net  loans charged off to average Loans outstanding during the period |       | 0.00                              | %          | 0.00                              | %          |
|                                                                           |       |                              |       |                              |       |
| Ratio of  allowance to total loans at end of period                            |       | 1.00                              | %          | 1.00                              | %          |

 

**FundingSources**

 

Average deposits for thethree months ended March 31, 2005 were $101,366,000 an increase of 31.09%compared with the same period in 2004. Average certificates of deposit represented 54.91% of average depositsfor the three months ended March 31, 2005. Average interest bearing checking, money market and savings accounts asa group was 23.74% of average deposits. Average demand deposits represented 21.35% of average deposits.

 

19

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The following table sets forth the scheduled maturities of the Company’stime deposits in denominations of $100,000 or greater at March 31, 2005:

 

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

 

| Three months or  less                  |   | $      | 8,708  |   |
|----------------------------------------|--------|--------|--------|--------|
| Over three  months through six months  |   | 3,961  |   |
| Over six months  through twelve months |   | 10,731 |   |
| Over twelve  months                    |   | 5,772  |   |
| Total                                  |   | $      | 29,172 |   |

 

**TheBank has lines of credit from the Federal Home Loan Bank of San Francisco andPacific Coast Bankers’ Bank with available borrowing capacity on March 31, 2005of $3,322,000 and $4,500,000, respectively. The Federal Home Loan Bank line of credit has a maximum borrowingcapacity of twenty five percent (25%) of the Bank’s total assets, adjustedquarterly.  The Federal Home Loan Bankline of credit is secured by some of the Bank’s real estate secured loans andsecurities.  At March 31, 2005 the totalprincipal balances of pledged loans was $25,910,100 and securities of $7,873,600.  The following table provides information on eight(8) advances totaling $19,650,000 outstanding at March 31, 2005.**

** **

| ** ** | ** ** | ** ** | ** ** | **Funding** | ** ** | **Maturity** | ** ** |
|------------|------------|------------|------------|-------------|------------|--------------|------------|
| **Amount** | ** ** | **Rate**   | ** ** | **Date**    | ** ** | **Date**     | ** ** |
| 1,000,000  |       | 6.86       | %          | 8/10/00     |       | 8/10/05      |       |
| 3,900,000  |       | 2.83       | %          | 10/29/02    |       | 10/31/05     |       |
| 1,000,000  |       | 2.54       | %          | 2/4/03      |       | 2/6/06       |       |
| 1,000,000  |       | 1.77       | %          | 3/9/04      |       | 3/9/06       |       |
| 2,750,000  |       | 3.44       | %          | 9/27/02     |       | 9/27/07      |       |
| 1,000,000  |       | 7.72       | %          | 6/1/00      |       | 6/3/30       |       |
| 4,000,000  |       | 5.96       | %          | 8/2/04      |       | 7/28/34      |       |
| 5,000,000  |       | 5.63       | %          | 12/24/04    |       | 12/22/34     |       |

** **

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

** **

**The Pacific Coast Bankers’ Bank line of credit isunsecured.  The Bank did not utilize anyovernight borrowings in 2005 or 2004.**

 

**CapitalResources**

 

TheCompany maintains capital to comply with legal requirements, to provide amargin of safety for its depositors and stockholders, and to provide for futuregrowth and the ability to pay dividends. At March 31, 2005, stockholders’ equity was $7,408,200 versus $7,321,100at December 31, 2004.  The Company paid a$0.165 per share cash dividend in 2004 and a $0.15 per share cash dividend in2003.  The Bank paid no cash dividendsduring the three months ended March 31, 2005.

 

20

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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 twomeasures of capital:  (1) risk-basedcapital and (2) leverage capital.

 

Under current rules, all banks are required tomaintain Tier 1 capital of at least 4 percent and total capital of 8.0% ofrisk-adjusted assets. The Bank had a Tier 1 risk-based capital ratio of 10.93%and a total risk-based capital ratio of 11.80% at March 31, 2005, well abovethe minimum regulatory requirements.  TheCompany had a Tier 1 risk-based capital ratio of 7.94% and a total risk-basedcapital ratio of 14.24% at March 31, 2005.

 

The leverage capital ratio guidelines require aminimum leverage capital ratio of 3% of Tier 1 capital to total assets lessgoodwill.  The Company had a leveragecapital ratio of 6.73% at March 31, 2005 while the Bank’s leverage capitalratio was 9.30%.

 

Under regulatory guidelines, the $8 million in TrustPreferred Securities outstanding will qualify as Tier 1 capital up to 25% ofTier 1 capital.  Any additional TrustPreferred Securities will qualify as Tier 2 capital.

 

## **Liquidity**

 

Liquidityrepresents a bank’s ability to provide sufficient cash flows or cash resourcesin a manner that enables it to meet obligations in a timely fashion andadequately provides for anticipated future cash needs.  For the Bank, liquidity considerationsinvolve the capacity to meet expected and potential requirements of depositorsseeking access to balances and to provide for the credit demands of borrowingcustomers.  In the ordinary course of theBank’s business, funds are generated from the repayment of loans, maturitieswithin the investment securities portfolio and the acquisition of depositbalances and short-term borrowings.  Inaddition, the Bank has lines of credit from the Federal Home Loan Bank of SanFrancisco of approximately $33,155,500****anda $4,500,000 federal funds line of credit with the Pacific Coast Bankers’ Bankto meet temporary liquidity requirements.

 

Asa matter of policy, the Bank seeks to maintain a level of liquid assets,including marketable investment securities, equal to a least 10 percent oftotal assets (“primary liquidity”), while maintaining sources of secondaryliquidity (borrowing lines from other institutions) equal to at least anadditional 10 percent of assets.  Withinthese ratios, the Bank generally has excess funds available to sell as federalfunds on a daily basis, and is able to fund its own liquidity needs without theneed of short-term borrowing.  The Bank’sprimary liquidity at March 31, 2005 was 11.23 percent.

 

The Corporation’ssources of revenues and liquidity are the dividends, tax equalization paymentsor management fees from the Bank, gains on securities held in a tradingaccount.  The ability of the Bank to paysuch items to the Corporation is subject to limitations under state and Federallaw.

 

21

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## **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/liability policiesat 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 changing interestrates by generally maintaining a position within a narrow range around an “earningsneutral position.” An earnings neutral position is defined as the mix of assetsand liabilities that generate a net interest margin that is not affected byinterest rate changes.  However,Management does not believe that the Bank can maintain a totally earningsneutral position.  Further, the actualtiming of repricing of assets and liabilities does not always correspond to thetiming assumed by the Bank for analytical purposes.  Therefore, changes in market rates ofinterest will generally impact on the Bank’s net interest income and netinterest margin for long or short periods of time.

 

The Bank monitors its interest rate risk on aquarterly basis through the use of a model which calculates the effect onearnings of changes in the fed funds rate. The model converts a fed funds rate change into rate changes for eachmajor class of asset and liability, then simulates the bank’s net interestmargin based on the bank’s actual repricing over a one year period, assumingthat maturities are reinvested in instruments identical to those maturingduring the period.  At March 31, 2005 theaffect of a 2% increase in the federal funds sold rate, expressed, as apercentage of equity, was a positive 5.27%; while a 2% decrease in the federalfunds sold rate, expressed, as a percentage of equity, was a negative 5.10%.

 

The Corporation’s sources of revenues and liquidityare the dividends, tax equalization payments or management fees from the Bank,gains on securities held in a trading account and the line of credit from thePacific Coast Bankers’ Bank.  The abilityof the Bank to pay such items to the Corporation is subject to limitationsunder state and Federal law.

 

22

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**InvestmentSecurities**

 

The Corporation maintainsa trading account, at fair value, consisting of marketable securities.  At March 31, 2005 the account value was$901,900.  The Corporation has a $202,100investment in AT Service LLC, which provides title insurance services forcommercial, industrial and residential properties, as well as other real estaterelated financial and informational services, including escrow, real estateinformation, trustee sale guarantees and real estate tax exchanges.  In addition the Corporation has investmentsin Northern California Bancorp Trust I ($93,000) and Northern CaliforniaBancorp Trust II ($155,000), these are special-purpose trust subsidiaries whichwere formed to facilitate the issuance of trust preferred securities.

 

The following table setsforth the book and market value of the Bank’s investment securities at March31, 2005:

 
| ** **                                  | ** ** | **INVESTMENT  PORTFOLIO MIX** | ** ** |
|---------------------------------------------|------------|-------------------------------|------------|
| ** **                                  | ** ** | **March 31, 2005**            | ** ** |
| ** **                                  | ** ** | **Book  Value**               | ** ** | **Market  Value** | ** ** |
| Securities  Available for Sale              |       |                          |       |   |   |
|                                        |       |                          |       |   |   |
| Government  National Mortgage Association   |       | 1,266,600                     |       | 1,249,000 |   |
| U.S. Government  Agency Securities          |       | 6,697,800                     |       | 6,624,600 |   |
| Corporate Debt  Securities                  |       | 750,000                       |       | 677,600 |   |
| Total                                       |       | 8,714,400                     |       | 8,551,200 |   |
|                                        |       |                          |       |   |   |
| Held to Maturity                            |       |                          |       |   |   |
| State/Local  Agencies                       |       | 6,426,900                     |       | 6,561,100 |   |
|                                        |       |                          |       |   |   |
| Other  Investments, at cost                 |       |                          |       |   |   |
| AT Services LLC                             |       | 202,100                       |       | 202,100 |   |
| Metrocities  Mortgage, LLC                  |       | 10,000                        |       | 10,000 |   |
| Federal Home  Loan Bank stock, restricted   |       | 923,600                       |       | 923,600 |   |
| Northern  California Bancorp, Inc. Trust I  |       | 93,000                        |       | 93,000 |   |
| Northern  California Bancorp, Inc. Trust II |       | 155,000                       |       | 155,000 |   |
| Pacific Coast  Bankers’ Bank Stock     |       | 439,900                       |       | 439,900 |   |
|                                        |       | 1,823,600                     |       | 1,823,600 |   |

 

23

----

 

 

The followingtable summarizes the maturity of the Bank’s investment securities at March 31,2005:

 
| ** **                              | ** ** |
|-----------------------------------------|------------|
| ** **                              | ** ** |
| ** **                              | ** ** | **INVESTMENT  PORTFOLIO MATURITIES** | ** ** |
| ** **                              | ** ** | **(Dollars  in thousands)** | ** ** |
| ** **                              | ** ** | **Available for Sale** | ** ** |
| ** **                              | ** ** | **Amortized Cost** | ** ** | **Fair Value** | ** ** |
| Due between one  and five years         |       | 4,697,800 |   | 4,644,000 |   |
| Due between five  and ten years         |       | 2,750,000 |   | 2,658,200 |   |
| GNMA – Mortgage  Backed Securities |       | 1,266,600 |   | 1,249,000 |   |
|                                    |       | 8,714,400 |   | 8,551,300 |   |

** **
| ** **             | ** ** | **Held to Maturity** | ** ** |
|------------------------|------------|----------------------|------------|
| ** **             | ** ** | **Amortized Cost**   | ** ** | **Fair Value** | ** ** |
| Due in over ten  years |       | 6,427,000            |       | 6,561,100 |   |

 

**Item 3. Controls and Procedures**

 

(a)Evaluation of Disclosure Controls and Procedures:  An evaluation of the Company’s disclosurecontrols and procedures (as Defined in Section 13(a) – 14(c) of the SecuritiesExchange Act of 1934 (the “Act”) was carried out under the supervision and withthe participation of the Company’s Chief Executive Officer, Chief FinancialOfficer and other members of the Company’s management within the 90-day periodpreceding the filing date of this quarterly report.  The Company’s Chief Executive Officer andChief Financial Officer concluded that the Company’s disclosure controls andprocedures as currently in effect are effective in ensuring that theinformation required to be disclosed by the Registrant in the reports it filesor submits under the Act is (i) accumulated and communicated to the Company’smanagement (including the Chief Executive Officer and Chief Financial Officer)in a timely manner, and (ii) recorded, processed, summarized and reportedwithin the time periods specified in the SEC’s rules and forms.

 

(b)Changes in Internal Controls:  In thequarter ended March 31, 2005, the Company did not make any significant changesin, nor take any corrective actions regarding, its internal controls or otherfactor that could significantly affect these controls.

 

24

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**PARTII-OTHER INFORMATION**

 

**Item1.  Legal Proceedings.**

 

None

 

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

 

None

 

#### **Item5.  Other Information.**

 

None

 

#### **Item6.  Exhibits and Reports on Form 8-K.**

 

A.            EXHIBITS

 

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

 

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

 

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

 

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

 

B.            Reportson Form 8-K

 

None

 

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

 
|   | NORTHERN CALIFORNIA  BANCORP, INC. |
|--------|------------------------------------|
|   |                               |   |
| Date:  |  May 10, 2005                 |   | By: | /s/ Charles T.  Chrietzberg, Jr. |   |
|   |                               | Charles  T. Chrietzberg, Jr. |
|   |                               | Chairman  of the Board & |
|   |                               | Chief  Executive Officer |
|   |                               |   |
|   |                               |   |
| Date:  |  May 10, 2005                 |   | By: | /s/ Bruce N. Warner |   |
|   |                               | Bruce  N. Warner |
|   |                               | Chief Financial Officer and |
|   |                               | Principal Accounting Officer |

 

25

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