** **

**U.S. SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-QSB**

 

**ý****   Quarterlyreport under Section 13 or 15(d) of the Securities Exchange Act of1934 for the quarterly period ended June 30, 2005**

 

**o****   Transitionreport under Section 13 or 15(d) of the Securities Exchange Act of1934 (No fee required) for the periodfrom              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**

 

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

 

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

 

 

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**PART I—FINANCIALINFORMATION**

 

### Item1.                                         FINANCIALSTATEMENTS

 

NORTHERN CALIFORNIA BANCORP, INC.

AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

 
| ** **                                                                                                                 | ** ** | **JUNE 30  2005** | ** ** | **DECEMBER 31  2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------------|------------|
| ASSETS:                                                                                                                    |       |                   |       |                       |       |
| Cash and Due From Banks                                                                                                    |       | 5,978,600              |       | 5,614,000                  |       |
| Federal Funds Sold                                                                                                         |       | 6,720,000              |       | 11,195,000                 |       |
| Total Cash and Cash Equivalents                                                                                            |       | 12,698,600             |       | 16,809,000                 |       |
| Trading Assets                                                                                                             |       | 854,500                |       | 803,700                    |       |
| Time Deposits Financial Institutions                                                                                       |       | 1,000,000              |       | —                     |       |
| Investment Securities, available for sale (Note 1)                                                                         |       | 8,421,700              |       | 6,834,900                  |       |
| Investment Securities, held to maturity cost (fair  value approximates $6,712,400 in 2005; $6,299,700 in 2004) (Note 1)    |       | 6,425,000              |       | 6,219,100                  |       |
| Other Investments (Note 2)                                                                                                 |       | 2,058,600              |       | 1,813,500                  |       |
| Loans Held for Sale                                                                                                        |       | 5,117,600              |       | 4,539,500                  |       |
| Loans, net of allowance for loan losses of  $1,088,900 in 2005; $963,000 in 2004 (Note 3)                                  |       | 101,531,800            |       | 90,496,300                 |       |
| Bank Premises and Equipment, Net                                                                                           |       | 4,276,800              |       | 2,217,600                  |       |
| Cash Surrender Value of Life Insurance                                                                                     |       | 2,426,800              |       | 2,391,900                  |       |
| Interest Receivable and Other Assets                                                                                       |       | 3,856,000              |       | 1,913,800                  |       |
|                                                                                                                       |       |                   |       |                       |       |
| Total Assets                                                                                                               |       | 148,667,400            |       | 134,039,300                |       |
|                                                                                                                       |       |                   |       |                       |       |
| LIABILITIES AND SHAREHOLDERS’ EQUITY:                                                                                 |       |                   |       |                       |       |
|                                                                                                                       |       |                   |       |                       |       |
| Total Deposits (Note 4)                                                                                                    |       | 105,911,600            |       | 97,263,200                 |       |
| Federal Home Loan Bank Borrowed Funds                                                                                      |       | 24,650,000             |       | 19,650,000                 |       |
| Junior Subordinated Debt Secuirites                                                                                        |       | 8,248,000              |       | 8,248,000                  |       |
| Interest Payable and Other Liabilities                                                                                     |       | 1,943,700              |       | 1,557,000                  |       |
| Total Liabilities                                                                                                          |       | 140,753,300            |       | 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                                                                                                          |       | 3,087,100              |       | 2,525,600                  |       |
| Accumulated Other Comprehensive Income (Loss)                                                                              |       | 106,000                |       | 75,600                     |       |
| Total Shareholders’ Equity                                                                                            |       | 7,914,100              |       | 7,321,100                  |       |
| Total Liabilities & Shareholders’ Equity                                                                     |       | 148,667,400            |       | 134,039,300                |       |

 

2

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NORTHERN CALIFORNIA BANCORP, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

 
| ** **                                                              | ** ** | **THREE-MONTH PERIOD ENDING  JUNE 30** | ** ** | **SIX-MONTH PERIOD ENDING  JUNE 30** | ** ** |
|-------------------------------------------------------------------------|------------|---------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                              | ** ** | **2005**                                    | ** ** | **2004**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| INTEREST INCOME:                                                        |       |                                        |       |                                      |       |   |   |   |   |
| Loans                                                                   |       | 2,543,400                                   |       | 1,600,600                                 |       | 4,647,900 |   | 3,109,700 |   |
| Time deposits with other financial institutions                         |       | 7,100                                       |       | —                                    |       | 11,000 |   | — |   |
| Investment securities                                                   |       | 197,000                                     |       | 115,300                                   |       | 347,100 |   | 175,700 |   |
| Federal funds sold                                                      |       | 54,700                                      |       | 27,000                                    |       | 124,100 |   | 51,900 |   |
| Total Interest Income                                                   |       | 2,802,200                                   |       | 1,742,900                                 |       | 5,130,100 |   | 3,337,300 |   |
|                                                                    |       |                                        |       |                                      |       |   |   |   |   |
| INTEREST EXPENSE:                                                       |       |                                        |       |                                      |       |   |   |   |   |
| Interest-bearing transaction accounts                                   |       | 16,900                                      |       | 18,100                                    |       | 32,800 |   | 32,100 |   |
| Savings and time deposit accounts                                       |       | 258,300                                     |       | 203,900                                   |       | 491,400 |   | 363,000 |   |
| Time deposits in denominations of $100,000 or more                      |       | 239,400                                     |       | 124,000                                   |       | 460,800 |   | 242,200 |   |
| Notes payable and other                                                 |       | 375,700                                     |       | 257,400                                   |       | 716,400 |   | 484,100 |   |
| Total Interest Expense                                                  |       | 890,300                                     |       | 603,400                                   |       | 1,701,400 |   | 1,121,400 |   |
|                                                                    |       |                                        |       |                                      |       |   |   |   |   |
| Net Interest Income                                                     |       | 1,911,900                                   |       | 1,139,500                                 |       | 3,428,700 |   | 2,215,900 |   |
| Provision for loan losses                                               |       | 75,000                                      |       | 35,000                                    |       | 125,000 |   | 105,000 |   |
| Net interest income, after provision for loan losses                    |       | 1,836,900                                   |       | 1,104,500                                 |       | 3,303,700 |   | 2,110,900 |   |
|                                                                    |       |                                        |       |                                      |       |   |   |   |   |
| Other income                                                            |       |                                        |       |                                      |       |   |   |   |   |
| Service charges on deposit accounts                                     |       | 176,700                                     |       | 130,600                                   |       | 317,100 |   | 258,300 |   |
| Income from sales and servicing of Small Business  Administration Loans |       | 234,500                                     |       | 212,100                                   |       | 470,200 |   | 400,700 |   |
| Other income                                                            |       | 544,100                                     |       | 785,200                                   |       | 945,600 |   | 1,477,200 |   |
| Total other income                                                      |       | 955,300                                     |       | 1,127,900                                 |       | 1,732,900 |   | 2,136,200 |   |
|                                                                    |       |                                        |       |                                      |       |   |   |   |   |
| NONINTEREST EXPENSE:                                                    |       |                                        |       |                                      |       |   |   |   |   |
| Salaries and Employee Benefits                                          |       | 796,700                                     |       | 788,700                                   |       | 1,655,000 |   | 1,518,500 |   |
| Occupancy and Equipment Expense                                         |       | 155,500                                     |       | 141,500                                   |       | 287,400 |   | 273,700 |   |
| Professional Fees                                                       |       | 35,900                                      |       | 37,100                                    |       | 73,400 |   | 70,500 |   |
| Data Processing                                                         |       | 83,900                                      |       | 93,800                                    |       | 174,500 |   | 185,000 |   |
| Other general and administrative                                        |       | 942,600                                     |       | 737,600                                   |       | 1,690,300 |   | 1,430,800 |   |
| Total operating expenses                                                |       | 2,014,600                                   |       | 1,798,700                                 |       | 3,880,600 |   | 3,478,500 |   |
|                                                                    |       |                                        |       |                                      |       |   |   |   |   |
| Income before tax provision                                             |       | 777,600                                     |       | 433,700                                   |       | 1,156,000 |   | 768,600 |   |
| Income tax provision                                                    |       | 351,100                                     |       | 184,300                                   |       | 594,400 |   | 317,600 |   |
| Net income                                                              |       | 426,500                                     |       | 249,400                                   |       | 561,600 |   | 451,000 |   |
|                                                                    |       |                                        |       |                                      |       |   |   |   |   |
| Earnings per common share                                               |       |                                        |       |                                      |       |   |   |   |   |
| Basic                                                                   |       | 0.265                                       |       | 0.159                                     |       | 0.349 |   | 0.288 |   |
| Diluted                                                                 |       | 0.222                                       |       | 0.131                                     |       | 0.292 |   | 0.237 |   |

 

3

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NORTHERN CALIFORNIA BANCORP, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2005 AND 2004

 
| ** **                                                                         | ** ** | **2005**    | ** ** | **2004**    | ** ** |
|------------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|
| **CASH FLOWS FROM OPERATING ACTIVITIES**                                           |       |        |       |        |       |
| Net income                                                                         |       | $           | 561,600    |        | $          | 451,000 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |       |        |       |        |       |
| Depreciation and amortization expense                                              |       | 97,300      |       | 94,100      |       |
| Realized gain on sales of available-for-sale  securities, net                      |       | —      |       | (35,700     | )          |
| Amortization of deferred loan (fees) costs                                         |       | 50,300      |       | 72,100      |       |
| Amortization (accretion) of discounts and premiums  on investment securities       |       | 2,900       |       | 19,800      |       |
| Gain on sale of equipment                                                          |       | —      |       | (1,300      | )          |
| Provision for loan losses                                                          |       | 125,000     |       | 105,000     |       |
| (Increase) decrease in trading assets                                              |       | (50,800     | )          | 7,900       |       |
| (Increase) decrease in interest receivable                                         |       | (55,000     | )          | (137,100    | )          |
| Increase in other assets                                                           |       | (1,838,400  | )          | (392,500    | )          |
| Increase in deferred tax asset                                                     |       | (24,300     | )          | (63,000     | )          |
| Increase (decrease) in interest payable                                            |       | 200,800     |       | 6,900       |       |
| Increase (decrease) in other liabilities                                           |       | 185,900     |       | (121,100    | )          |
| Net cash provided (used) by operating activities                                   |       | (744,700    | )          | 6,100       |       |
|                                                                               |       |        |       |        |       |
| **CASH FLOWS FROM INVESTING ACTIVITIES**                                           |       |        |       |        |       |
| Increase in time deposits                                                          |       | (1,000,000  | )          | —      |       |
| Proceeds from maturity of investment securities                                    |       | 303,500     |       | 2,537,200   |       |
| Purchase of investments                                                            |       | (2,376,000  | )          | (9,402,500  | )          |
| Net (increase) decrease in loans                                                   |       | (32,850,100 | )          | (16,759,500 | )          |
| Loan purchases                                                                     |       | (3,925,900  | )          | (5,430,000  | )          |
| Loan sales                                                                         |       | 25,565,200  |       | 12,088,200  |       |
| (Increase) decrease in loans held for sale                                         |       | (578,100    | )          | 43,000      |       |
| Proceeds from sale of equipment                                                    |       | 400         |       | 3,100       |       |
| Additions to bank premises and equipment                                           |       | (2,154,200  | )          | (82,600     | )          |
| Net cash used by investing activities                                              |       | (17,015,200 | )          | (17,003,100 | )          |
|                                                                               |       |        |       |        |       |
| **CASH FLOWS FROM FINANCING ACTIVITIES**                                           |       |        |       |        |       |
| Net increase (decrease) in deposits                                                |       | 8,648,400   |       | 9,508,600   |       |
| Proceeds from borrowings                                                           |       | 5,000,000   |       | 4,900,000   |       |
| Repayment of borrowings                                                            |       | —      |       | (2,500,000  | )          |
| Proceeds from exercise of stock options                                            |       | 1,100       |       | —      |       |
| Net cash provided (used) by financing activities                                   |       | 13,649,500  |       | 11,908,600  |       |
|                                                                               |       |        |       |        |       |
| Net increase (decrease) in cash and cash equivalents                               |       | (4,110,400  | )          | (5,088,400  | )          |
|                                                                               |       |        |       |        |       |
| **CASH AND CASH EQUIVALENTS, BEGINNING**                                           |       | 16,809,000  |       | 17,193,100  |       |
|                                                                               |       |        |       |        |       |
| **CASH AND CASH EQUIVALENTS, ENDING**                                              |       | $           | 12,698,600 |        | $          | 12,104,700 |   |

 

See Note 7 for supplemental disclosures

 

4

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NOTESTO FINANCIAL STATEMENTS

 
| ** **                                              | ** ** | **JUNE 30  2005** | ** ** | **December 31  2004** | ** ** |
|---------------------------------------------------------|------------|------------------------|------------|----------------------------|------------|
| (NOTE 1) INVESTMENT SECURITIES:                         |       |                   |       |                       |       |
| Available for sale:                                     |       |                   |       |                       |       |
| Corporate Debt Securities                               |       | 657,000                |       | 751,700                    |       |
| Government National Mortgage Association                |       | 1,078,200              |       | 1,377,100                  |       |
| U.S. government Agencies                                |       | 6,686,500              |       | 4,706,100                  |       |
|                                                    |       | 8,421,700              |       | 6,834,900                  |       |
|                                                    |       |                   |       |                       |       |
| Held to maturity:                                       |       |                   |       |                       |       |
| State/Local Agency                                      |       | 6,425,000              |       | 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                |       | 1,158,600              |       | 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                    |       |
|                                                    |       | 2,058,600              |       | 1,813,500                  |       |
|                                                    |       |                   |       |                       |       |
| (NOTE 3) LOANS and ALLOWANCE FOR POSSIBLE LOAN  LOSSES: |       |                   |       |                       |       |
| Commercial and Industrial                               |       | 20,224,200             |       | 19,314,300                 |       |
| Construction                                            |       | 10,802,400             |       | 7,372,500                  |       |
| Real Estate—Mortgage                               |       | 71,169,400             |       | 64,339,200                 |       |
| Installment                                             |       | 625,900                |       | 622,000                    |       |
| Government Guaranteed Loans Purchased                   |       | 48,400                 |       | 51,400                     |       |
|                                                    |       | 102,870,300            |       | 91,699,400                 |       |
| Allowance for loan losses                               |       | (1,088,900             | )          | (963,000                   | )          |
| Deferred origination fees, net                          |       | (249,600               | )          | (240,100                   | )          |
| Net Loans                                               |       | 101,531,800            |       | 90,496,300                 |       |
|                                                    |       |                   |       |                       |       |
| Balance at Beginning of Period                          |       | 963,000                |       | 774,800                    |       |
| Recoveries                                              |       | 900                    |       | 3,200                      |       |
| Provision for Possible Loan Losses                      |       | 125,000                |       | 185,000                    |       |
| Loans Charged Off                                       |       | —                 |       | —                     |       |
| Balance at End of Period                                |       | 1,088,900              |       | 963,000                    |       |
|                                                    |       |                   |       |                       |       |
| (NOTE 4) DEPOSITS:                                      |       |                   |       |                       |       |
| Demand                                                  |       | 21,948,100             |       | 22,839,300                 |       |
| Interest-Bearing Demand                                 |       | 16,980,400             |       | 16,788,600                 |       |
| Savings                                                 |       | 8,793,800              |       | 6,792,800                  |       |
| Time Under $100,000                                     |       | 30,082,500             |       | 26,574,700                 |       |
| Time Equal to or Greater than $100,000                  |       | 28,106,800             |       | 24,267,800                 |       |
|                                                    |       | 105,911,600            |       | 97,263,200                 |       |

 

5

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(NOTE5) COMPREHENSIVE INCOME:

 

The components of othercomprehensive income and related tax effects for the six month periods ending June 30,2005 and 2004 are as follows:

 
| ** **                                                                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Unrealized holding gains (losses) on available - for  - sale securities and other assets, net |       | 55,300   |       | (95,300  | )          |
| Tax effect                                                                                    |       | (24,900  | )          | 52,400   |       |
|                                                                                          |       |     |       |     |       |
| Net-of-tax amount                                                                             |       | 30,400   |       | (42,900  | )          |

 

The components of accumulatedother comprehensive income and related tax effects for the six month periodsending June 30, 2005 and 2004 are as follows:

 
| ** **                                                           | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Unrealized holding gains (losses) on available for  sales securities |       | (26,100  | )          | (153,700 | )          |
| Unrealized holding gains on available for sale strip  receivable     |       | 218,900  |       | 173,700  |       |
| Tax effect                                                           |       | (86,800  | )          | (9,000   | )          |
|                                                                 |       |     |       |     |       |
| Net-of-tax amount                                                    |       | 106,000  |       | 11,000   |       |

 

(NOTE 6) STOCK OPTIONPLAN:

 

**The Corporation applies APBOpinion 25 and related Interpretations in accounting for the plan.  Accordingly, no compensation cost has beenrecognized.  Had compensation cost for theCorporation’s stock-based compensation plan been determined based on the fairvalue at the grant date for awards under the plan consistent with the methodprescribed by SFAS No. 123 as amended by SFAS 148, the Corporation’s netincome and basic earnings per share would have been adjusted by thecompensation cost net of taxes to the pro forma amounts indicated below:**

** **

**6**

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** **
| ** **                      | ** ** | **3 Months Ended  June 30** | ** ** | **6 Months Ended  June 30** | ** ** |
|---------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                      | ** ** | **2005**                         | ** ** | **2004**                         | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net income:                     |       |                             |       |                             |       |   |   |   |   |
| As reported                     |       | $                                | 426,500    |                             | $          | 249,400 |   | $ | 561,600 |   | $ | 451,000 |   |
| Pro forma                       |       | $                                | 419,000    |                             | $          | 244,200 |   | $ | 554,100 |   | $ | 346,300 |   |
|                            |       |                             |       |                             |       |   |   |   |   |
| Compensation cost, net of taxes |       | $                                | 7,500      |                             | $          | 5,200 |   | $ | 7,500 |   | $ | 104,700 |   |
|                            |       |                             |       |                             |       |   |   |   |   |
| Earnings per share:             |       |                             |       |                             |       |   |   |   |   |
| Basic—as reported          |       | $                                | 0.265      |                             | $          | 0.159 |   | $ | 0.349 |   | $ | 0.288 |   |
| Basic—pro forma            |       | $                                | 0.261      |                             | $          | 0.156 |   | $ | 0.345 |   | $ | 0.221 |   |
|                            |       |                             |       |                             |       |   |   |   |   |
| Diluted—as reported        |       | $                                | 0.222      |                             | $          | 0.131 |   | $ | 0.292 |   | $ | 0.237 |   |
| Diluted—pro forma          |       | $                                | 0.218      |                             | $          | 0.128 |   | $ | 0.288 |   | $ | 0.182 |   |

 

Statement of FinancialAccounting 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 nocompensation cost is recognized for them.

 

The fair value of theseoptions was estimated at the grant date using the Black-Scholes option pricingmodel with the following weighted-average assumptions for 2005 and 2004:risk-free interest rate of 4.22% and 5.31% for 2005 and 2004, respectively;dividend yield of .017% for 2005 and 2004, respectively; expected option lifeof 4.96 and 4.90 years for 2005 and 2004, respectively; and volatility of 20%in 2005 and 2004.  During the currentyear 10,000 options were granted, 500 options were excised and 6,200 optionswere terminated.

 

(NOTE7) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 
| Payments during the period ending: | ** ** | **6/30/05** | ** ** | **6/30/04** | ** ** |
|------------------------------------|------------|-------------|------------|-------------|------------|
| Interest                           |       | 1,477,000   |       | 1,114,600   |       |
| Income Taxes                       |       | 631,000     |       | 364,600     |       |

 

7

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(NOTE 8) ****BASISOF PRESENTATION****

 

The interim condensedfinancial statements of Northern California Bancorp, Inc. areunaudited and reflect all adjustments (consisting only of normal recurringadjustments), which are, in the opinion of management, necessary for a fairpresentation, in all material respects, of the financial position and operatingresults of the Company for the interim periods.  The results of operationsfor the six months ended June 30, 2005 are not necessarily indicativeof the results to be expected for the entire fiscal year ending December 31,2005.  The year-end balance sheet data at December 31, 2004 wasderived from the audited financial statements.

 

This financial informationshould be read in conjunction with the audited financial statements and notesthereto included in the Company’s Form 10-KSB for the fiscal yearended December 31, 2004.

 

8

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

** **

**Statements Regarding Forward-Looking Information**

** **

**Except for historical information contained herein, thematters discussed or incorporated by reference in this report containforward-looking statements within the meaning of Section 27A of theSecurities Act of 1933, as amended (the “Securities Act”), and Section 21Eof the Securities Exchange Act of 1934 (the “Exchange Act”), that involvesubstantial risks and uncertainties.  When used in this report, or in thedocuments incorporated by reference herein, the words “anticipate,” “believe,” “estimate,”“may,” “intend,” “expect,” and similar expressions identify certain of suchforward-looking statements.  Actual results of Monterey County Bank coulddiffer materially from such forward-looking statements contained herein. Factors that could cause future results to vary from current expectationsinclude, but are not limited to, the following: changes in economic conditions(both generally and more specifically in the markets in which the Bankoperates); changes in interest rates, deposit flows, loan demand, real estatevalues and competition; changes in accounting principles, policies orguidelines and in government legislation and regulation (which change from timeto time and over which the Bank has no control); other factors affecting theBank’s operations, markets, products and services; and other risks detailed inthis Form 10-QSB and in the Bank’s other reports filed with the FederalDeposit Insurance Corporation and pursuant to the rules and regulations ofthe Securities and Exchange Commission.  Readers are cautioned not toplace undue reliance on these forward-looking statements, which reflectmanagement’s analysis only as of the date hereof.  The Bank undertakes noobligation to publicly revise these forward-looking statements to reflectevents 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.

 

Forthe six months ended June 30, 2005 net income was $561,600, compared to $451,000for the same period in 2004.  For the sixmonths ended June 30, 2005 interest income after provision for loan lossesincreased $1,192,800, total other income decreased $403,300, while operatingexpense increased $402,100 and income tax provision increased $276,800.

 

9

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Thefollowing table sets forth certain selected financial ratios of the Corporationat and for the six months ended, June 30, 2005 and 2004.

 
| ** **                                        | ** ** | **The six months  Ended June 30, 2005**      | ** ** | **The six months  Ended June 30, 2004** | ** ** |
|---------------------------------------------------|------------|---------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                        | ** ** | **(Dollars in thousands except  per share data)** | ** ** |
| Summary of Operating Results:                     |       |                                              |       |                                         |       |
|                                              |       |                                              |       |                                         |       |
| Total interest income                             |       | 5,130                                             |       | 3,337                                        |       |
| Total interest expense                            |       | 1,701                                             |       | 1,121                                        |       |
| Net interest income                               |       | 3,429                                             |       | 2,216                                        |       |
|                                              |       |                                              |       |                                         |       |
| Provision for possible loan losses                |       | 125                                               |       | 105                                          |       |
| Net interest income after provision for loan loss |       | 3,304                                             |       | 2,111                                        |       |
|                                              |       |                                              |       |                                         |       |
| Total other income                                |       | 1,733                                             |       | 2,136                                        |       |
| Total other expense                               |       | 3,881                                             |       | 3,479                                        |       |
|                                              |       |                                              |       |                                         |       |
| Income (loss) before taxes                        |       | 1,156                                             |       | 769                                          |       |
| Provision for income tax                          |       | 594                                               |       | 318                                          |       |
|                                              |       |                                              |       |                                         |       |
| Net income (loss)                                 |       | 562                                               |       | 451                                          |       |
|                                              |       |                                              |       |                                         |       |
| Per Common Share Data:                            |       |                                              |       |                                         |       |
|                                              |       |                                              |       |                                         |       |
| Net income—Primary(1)                        |       | 0.349                                             |       | 0.288                                        |       |
| Net income—Diluted(2)                        |       | 0.292                                             |       | 0.237                                        |       |
| Book value, end of period(3)                      |       | 4.92                                              |       | 4.35                                         |       |
| Avg shares outstanding(4)                         |       | 1,608,334                                         |       | 1,566,658                                    |       |
|                                              |       |                                              |       |                                         |       |
| Balance Sheet Data:                               |       |                                              |       |                                         |       |
|                                              |       |                                              |       |                                         |       |
| Total loans, net of unearned income(5)            |       | 106,649                                           |       | 86,788                                       |       |
| Total assets                                      |       | 148,667                                           |       | 120,129                                      |       |
| Total deposits                                    |       | 105,912                                           |       | 87,641                                       |       |
| Stockholders’ equity(6)                      |       | 7,914                                             |       | 6,873                                        |       |

 

10

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| ** **                                          | ** ** | **The six months  Ended June 30, 2005**      | ** ** | **The six months  Ended June 30, 2004** | ** ** |
|-----------------------------------------------------|------------|---------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                          | ** ** | **(Dollars in thousands except  per share data)** | ** ** |
| Selected Financial Ratios(4):                       |       |                                              |       |                                         |       |
|                                                |       |                                              |       |                                         |       |
| Return on average assets(5)                         |       | 0.79                                              | %          | 0.79                                         | %          |
| Return on average stockholders’ equity(5)      |       | 14.89                                             | %          | 13.54                                        | %          |
|                                                |       |                                              |       |                                         |       |
| Net interest spread                                 |       | 4.95                                              | %          | 3.78                                         | %          |
|                                                |       |                                              |       |                                         |       |
| Net interest margin                                 |       | 5.40                                              | %          | 4.21                                         | %          |
|                                                |       |                                              |       |                                         |       |
| Avg shareholders’ equity to average assets     |       | 5.33                                              | %          | 5.80                                         | %          |
|                                                |       |                                              |       |                                         |       |
| Risked-Based capital ratios                         |       |                                              |       |                                         |       |
| Tier 1                                              |       | 8.04                                              | %          | 8.61                                         | %          |
| Total                                               |       | 13.92                                             | %          | 16.01                                        | %          |
| Total loans to total deposits at end of period      |       | 100.70                                            | %          | 99.03                                        | %          |
|                                                |       |                                              |       |                                         |       |
| Allowance to total loans at end of period           |       | 1.01                                              | %          | 1.02                                         | %          |
|                                                |       |                                              |       |                                         |       |
| Nonperforming loans to total loans at end of period |       | 0.04                                              | %          | 0.03                                         | %          |
|                                                |       |                                              |       |                                         |       |
| Net charge-offs to average loans                    |       | 0.00                                              | %          | 0.00                                         | %          |

 

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(1)          Primaryearnings per share amounts were computed on the basis of the weighted averagenumber of shares of common stock outstanding during the year.  The weighted average number of common sharesused for this computation was 1,608,334 and 1,566,658 for June 30, 2005and 2004, 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 1,921,167 and 1,902,384 for June 30,2005 and 2004, respectively.

 

(3)          Weightedaverage common shares.

 

(4)          Includesloans being held for sale.

 

(5)          Averagesare of daily balances.

 

(6)          June 30,2005 calculated on an annualized basis.

 

11

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**NET INTERESTINCOME**

 

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

 

Netinterest income for the six months ended June 30, 2005 was $3,428,700compared to $2,215,900 for the same period in 2004.  The increase of $1,212,800 resulted fromtotal interest income increasing $1,792,800, while total interest expense increased$580,000.  Average interest earningassets increased $26,773,000 (26.06%), while the average rate earned decreased 171basis points.  Average interest bearingliabilities increased $22,246,000 (25.16%), while the average rate paid increased53 basis points.

 

Thefollowing table shows the components of the Bank’s net interest income, settingforth, for each the six months ended June 30, 2005 and 2004, (i) averageassets, liabilities and investments, (ii) interest income earned oninterest-earning assets and interest expense paid on interest-bearing liabilities,(iii) average yields earned on interest-earning assets and average ratespaid 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 $67,700 and $21,300 in 2005 and 2004, respectively.  Non-accrual loans and overdrafts are includedin average loan balances.  Average loansare presented net of unearned income.

 

12

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**INTERESTSPREAD ANALYSIS:**

 
| ** **                           | ** ** | **Six Months  Ended June 30,** | ** ** | **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—Financial Inst.   |       | 835                                 |       | 11                                         |       | 2.63 |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Invest securities—Taxable       |       | 10,592                              |       | 196                                        |       | 3.70 |   | 10,231 |   | 138 |   | 2.70 |   | 10,755 |   | 301 |   | 2.80 |   |
| Invest securities—Tax free      |       | 6,422                               |       | 218                                        |       | 6.80 |   | 1,783 |   | 58 |   | 6.47 |   | 3,456 |   | 226 |   | 6.55 |   |
| Federal funds sold                   |       | 9,221                               |       | 124                                        |       | 2.69 |   | 10,552 |   | 52 |   | 0.98 |   | 10,479 |   | 141 |   | 1.35 |   |
| Total investments                    |       | 27,070                              |       | 549                                        |       | 4.06 |   | 22,566 |   | 248 |   | 2.19 |   | 24,691 |   | 669 |   | 2.71 |   |
|                                 |       |                                |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                |       |                                |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction                         |       | 11,304                              |       | 761                                        |       | 13.46 |   | 7,037 |   | 381 |   | 10.83 |   | 7,384 |   | 794 |   | 10.76 |   |
| Real estate                          |       | 67,088                              |       | 2,768                                      |       | 8.25 |   | 56,927 |   | 2,049 |   | 7.20 |   | 59,393 |   | 4,500 |   | 7.58 |   |
| Installment                          |       | 620                                 |       | 27                                         |       | 8.67 |   | 563 |   | 22 |   | 7.95 |   | 548 |   | 40 |   | 7.38 |   |
| Commercial                           |       | 23,417                              |       | 1,092                                      |       | 9.32 |   | 19,199 |   | 659 |   | 6.86 |   | 19,545 |   | 1,421 |   | 7.27 |   |
| Total loans                          |       | 102,429                             |       | 4,648                                      |       | 9.08 |   | 83,726 |   | 3,111 |   | 7.43 |   | 86,870 |   | 6,756 |   | 7.78 |   |
|                                 |       |                                |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Interest earning assets        |       | 129,499                             |       | 5,197                                      |       | 8.03 |   | 106,293 |   | 3,359 |   | 6.32 |   | 111,561 |   | 7,425 |   | 6.66 |   |
|                                 |       |                                |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest Bearing Liabilities:        |       |                                |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Int-bearing demand                   |       | 12,273                              |       | 15                                         |       | 0.25 |   | 13,347 |   | 17 |   | 0.25 |   | 13,099 |   | 33 |   | 0.25 |   |
| Money market savings                 |       | 4,589                               |       | 17                                         |       | 0.76 |   | 3,798 |   | 15 |   | 0.82 |   | 3,894 |   | 32 |   | 0.81 |   |
| Savings deposits                     |       | 7,935                               |       | 39                                         |       | 0.98 |   | 7,731 |   | 39 |   | 1.01 |   | 7,924 |   | 81 |   | 1.02 |   |
| Time deposits >$100M              |       | 28,188                              |       | 461                                        |       | 3.27 |   | 16,437 |   | 242 |   | 2.95 |   | 18,795 |   | 562 |   | 2.99 |   |
| Time deposits <$100M              |       | 28,956                              |       | 452                                        |       | 3.12 |   | 22,259 |   | 324 |   | 2.91 |   | 24,264 |   | 711 |   | 2.93 |   |
| Other Borrowing                      |       | 28,721                              |       | 716                                        |       | 4.99 |   | 24,845 |   | 484 |   | 3.90 |   | 24,347 |   | 1,018 |   | 4.18 |   |
| Total interest bearing liabilities   |       | 110,663                             |       | 1,701                                      |       | 3.07 |   | 88,417 |   | 1,121 |   | 2.54 |   | 92,324 |   | 2,436 |   | 2.64 |   |
|                                 |       |                                |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                  |       |                                |       | 3,496                                      |       |   |   |   |   | 2,237 |   |   |   |   |   | 4,989 |   |   |   |
|                                 |       |                                |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest spread                  |       |                                |       |                                       |       | 4.95 |   |   |   |   |   | 3.78 |   |   |   |   |   | 4.02 |   |
|                                 |       |                                |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net yield on interest earning assets |       |                                |       |                                       |       | 5.40 |   |   |   |   |   | 4.21 |   |   |   |   |   | 4.47 |   |

 

13

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**INTERESTSPREAD ANALYSIS (Continued):**

 
| ** **                         | ** ** | **Six Months  Ended June 30,  2005 vs 2004  Increase (Decrease)  Due to changes** | ** ** | **Twelve Months  Ended December 31,  2004 vs 2003  Increase (Decrease)  Due to Changes** | ** ** |
|------------------------------------|------------|----------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|
| ** **                         | ** ** | **Avg  Volume**                                                                        | ** ** | **Avg  Rate**                                                                                 | ** ** | **Total** | ** ** | **Avg  Volume** | ** ** | **Avg  Rate** | ** ** | **Total** | ** ** |
| ** **                         | ** ** | **(Dollars in thousands)**                                                             | ** ** |
| Interest Earning Assets:           |       |                                                                                   |       |                                                                                          |       |   |   |   |   |   |   |   |   |
| Time Deposits—Financial Inst. |       | 11                                                                                     |       | 0                                                                                             |       | 11 |   | 0 |   | 0 |   | 0 |   |
| Invest securities—Taxable     |       | 5                                                                                      |       | 53                                                                                            |       | 58 |   | 97 |   | (96 | ) | 2 |   |
| Invest securities—Tax free    |       | 150                                                                                    |       | 10                                                                                            |       | 161 |   | 226 |   | 0 |   | 226 |   |
| Federal funds sold                 |       | (7                                                                                     | )          | 79                                                                                            |       | 72 |   | 17 |   | 27 |   | 44 |   |
| Total investments                  |       | 159                                                                                    |       | 142                                                                                           |       | 302 |   | 115 |   | 158 |   | 273 |   |
|                               |       |                                                                                   |       |                                                                                          |       |   |   |   |   |   |   |   |   |
| Loans                              |       |                                                                                   |       |                                                                                          |       |   |   |   |   |   |   |   |   |
| Construction                       |       | 231                                                                                    |       | 149                                                                                           |       | 380 |   | 339 |   | 86 |   | 425 |   |
| Real estate                        |       | 366                                                                                    |       | 354                                                                                           |       | 719 |   | 923 |   | (8 | ) | 915 |   |
| Installment                        |       | 2                                                                                      |       | 2                                                                                             |       | 5 |   | 4 |   | (1 | ) | 3 |   |
| Commercial                         |       | 145                                                                                    |       | 288                                                                                           |       | 433 |   | 231 |   | 8 |   | 239 |   |
| Total loans                        |       | 744                                                                                    |       | 793                                                                                           |       | 1,537 |   | 1,497 |   | 84 |   | 1,582 |   |
|                               |       |                                                                                   |       |                                                                                          |       |   |   |   |   |   |   |   |   |
| Total Interest Earning Assets      |       | 903                                                                                    |       | 935                                                                                           |       | 1,839 |   | 1,611 |   | 242 |   | 1,854 |   |
|                               |       |                                                                                   |       |                                                                                          |       |   |   |   |   |   |   |   |   |
| Interest Bearing Deposits:         |       |                                                                                   |       |                                                                                          |       |   |   |   |   |   |   |   |   |
| Int-bearing demand                 |       | (1                                                                                     | )          | 0                                                                                             |       | (1 | ) | 6 |   | 0 |   | 6 |   |
| Money market savings               |       | 3                                                                                      |       | (1                                                                                            | )          | 2 |   | 11 |   | (2 | ) | 9 |   |
| Savings deposits                   |       | 0                                                                                      |       | (0                                                                                            | )          | (0 | ) | 20 |   | (1 | ) | 19 |   |
| Time deposits >$100M            |       | 173                                                                                    |       | 46                                                                                            |       | 219 |   | 75 |   | (24 | ) | 51 |   |
| Time deposits <$100M            |       | 97                                                                                     |       | 31                                                                                            |       | 128 |   | 129 |   | (36 | ) | 93 |   |
| Other Borrowing                    |       | 76                                                                                     |       | 157                                                                                           |       | 232 |   | 306 |   | 32 |   | 338 |   |
|                               |       |                                                                                   |       |                                                                                          |       |   |   |   |   |   |   |   |   |
| Total interest bearing deposits    |       | 348                                                                                    |       | 231                                                                                           |       | 579 |   | 547 |   | (32 | ) | 516 |   |
|                               |       |                                                                                   |       |                                                                                          |       |   |   |   |   |   |   |   |   |
| Net change in net interest         |       | 556                                                                                    |       | 704                                                                                           |       | 1,259 |   | 1,064 |   | 274 |   | 1,338 |   |

 

14

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**Provisionand Allowance for Loan Losses**

 

Theprovision for loan losses is an expense charged against operating income andadded to the allowance for loan losses. The allowance for loan losses represents amounts set aside for thespecific purpose of absorbing losses that may occur in the Bank’s loanportfolio.

 

Theallowance for loan losses reflects management’s ongoing evaluation of the risksinherent in the loan portfolio both generally and with respect to specificloans, the state of the economy, and the level of net loan losses experiencedin the past.  Management and the Board ofDirectors review the results of the State Banking Department and FDICexaminations, independent accountants’ observations, and the Bank’s internalreview as additional indicators to determine if the amount in the allowance forloan losses is adequate 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          | %          |

 

Althoughno assurance can be given that actual losses will not exceed the amountprovided for in the allowance, Management believes that the allowance isadequate to provide for all estimated credit losses in light of all knownrelevant factors. At June 30, 2005 and 2004 the Bank’s allowance stood at1.01 percent and 1.02 percent of gross loans, respectively.  A provision of $125,000 was made to theallowance during the six months ended June 30, 2005, compared with aprovision of $105,000 for the same period in 2004.  No loans were charged off during the sixmonths ended June 30, 2005 and 2004, respectively.  Recoveries for the same periods were $900 and$1,100, respectively.

 

15

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TheBank’s non-performing (delinquent 90 days or more and non-accrual) loans as apercentage of total loans were 0.13 percent at June 30, 2005 compared with0.03 percent for the same period in 2004.

 

Basedupon statistics released by Federal and state banking authorities regardingbanks of similar size or otherwise located in California, Management believesthat the Bank ‘s ratios of delinquent and non performing loans to total loansare far better than average.  Prudentcollection efforts, and tighter lending controls, are responsible for the Bank’sstrong performance 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 otherincome for the six months ended June 30, 2005 was $1,732,900 compared with$2,136,200 for the same period in 2004. The decrease of $403,300 was the result of income from SBA loan salesand servicing increasing $69,500 and service charges on deposit accounts increasing$58,800; while income from other service charges, commissions and feesdecreased $531,600.  The decrease inother service charges, commissions and fees was due primarily to a $348,300 markto market loss on trading assets, and a decrease of $159,000 in commercialbanking origination fees.  The decreasein commercial banking origination fees was offset by an increase in loancommitment fees, as the Bank has increased its sales of loan participationsreducing the volume of loans producing origination fees.

 

Thesale of Small Business Administration (SBA) guaranteed loans, is a significantcontributor to the Bank’s income.  SBAguaranteed loans yield up to 3 3/4% over the New York prime rate, and theguaranteed portions can be sold at premiums, which vary with marketconditions.  SBA loans are guaranteed bythe full faith of the United States Government from 75 to 85 percent of theprincipal amount.  The guaranteed portionhas risks comparable for an investor to a U. S. Government security and canusually be sold in the secondary financial market, either at a premium or at ayield which allows the Bank to maintain a significant spread for itself.

 

Therecan be no assurance that the gains on sale will continue at, or above, thelevels realized in the past three years. In addition, increasing competition among lenders for qualified SBAborrowers makes it difficult for the Bank to continually expand its program inthis area, and may limit the level of premium that can be earned with regardthereto.  Furthermore, the SBA recentlybegan requiring lenders to share a portion of premiums in excess of 10% earnedon the sale of the guaranteed portions, and to pay 50 basis points on theoutstanding guaranteed balance. Management cannot predict the significance of the impact these changeswill have on SBA income.

 

**Non-InterestExpense**

 

Salaryand benefits expense for the six months ended June 30, 2005 increased $136,500compared with the same period in 2004. The increase was due merit pay increases, increased employee benefitscost and increased bonus accrual.

 

16

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Totaloccupancy and equipment expense for the six months ended June 30, 2005 was$287,400 compared to $273,700 for the same period in 2004.

 

Professionalfees for the six months ended June 30, 2005 increased $2,900 compared to thesame period in 2004.  The increase wasdue to legal fees increasing $4,900; while accounting/audit fees decreased $800.

 

Dataprocessing expense for the six months ended June 30, 2005 was $174,500compared to $185,000 for the same period in 2004.  

 

Other generaland administrative expenses for the six months ended June 30, 2005 totaled$1,690,300 compared with $1,430,800 for the same period in 2004.  Significant changes occurred in the followingcategories with increases in provision for possible losses on debt securities$93,000, possible losses on unfunded commitments$40,000, director fees $25,900,donations $15,300, director fees $13,000, merchant expense $11,100, entertainmentand meals $23,600, telephone expense $9,800, entertainment and meals $9,400,insurance expense $9,300, Liberty Advantage card program expense $7,400,  collection expense $7,100, bank fees $6,800,advertising $6,500, subscriptions and publications $6,300 and dues/memberships $6,100.

 

**LOANS**

 

Loansrepresented 79.10% of average earning assets, and 72.62% of average totalassets for the six months ended June 30, 2005 compared with 81.50% and 73.23%,respectively during 2004. For the six months ended June 30, 2005, averageloans increased 22.34% from $83,726,000 for the same period in 2004 to $102,429,000.  Average construction loans increased $4,268,000(60.65%) real estate loans increased $10,161,000 (17.85%), commercial loansincreased $4,217,000 (21.97%) and average installment loans increased $57,000 (10.07%).

 

TheBank’s commercial and industrial loans are generally made for the purpose ofproviding working capital, financing the purchase of equipment or inventory,and other business purposes. Such loans generally have maturities ranging fromone year to several years.  Short-termbusiness loans are generally intended to finance current transactions andtypically provide for monthly interest payments with principal being payable atmaturity or at 90-day intervals. Term loans (usually for a term of two to fiveyears) normally provide for monthly installments of principal andinterest.  The Bank from time to timeutilizes accounts receivable and inventory as security for loans.

 

TheBank is a recognized leader for Small Business Administration lending inMonterey 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 conventionalcommercial loans because they may be based upon credit standards the Bank wouldnot otherwise apply, such as lower cash flow coverage, or longer repaymentterms.

 

17

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TheBank’s real estate loan portfolio consists both of real estate constructionloans and real estate mortgage loans. The Bank has initiated a program to generate more commercial andindustrial real estate loans, which generally yield higher returns than normalcommercial loans.  The Bank has alsodeveloped a broker program for generating residential real estate loans.  The Bank does not make real estatedevelopment loans.  Real estate construction loans are made for a muchshorter term, and often at higher interest rates, than conventionalsingle-family residential real estate loans. The cost of administering such loans is often higher than for other realestate loans, as principal is drawn on periodically as construction progresses.

 

TheBank also makes real estate loans secured by a first deed of trust on singlefamily residential 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.

 

Consumerloans are made for the purpose of financing the purchase of various types ofconsumer goods, home improvement loans, auto loans and other personalloans.  Consumer installment loansgenerally provide for monthly payments of principal and interest, at a fixedrate.  Most of the Bank’s consumerinstallment loans are generally secured by the personal property beingpurchased.  The Bank generally makesconsumer loans to those customers with a prior banking relationship with theBank.

 

**Non-performingand Non-accrual Loans**

 

TheBank’s present policy is to cease accruing interest on loans which are past dueas to principal or interest 90 days or more, except for loans which are wellsecured or when collection 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.

 

Thefollowing table presents information with respect to loans which, as of thedates indicated, were past due 90 days or more or were placed on non-accrualstatus (referred to collectively as “non-performing loans”):

 

18

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| ** **                                                    | ** ** | **Six Months Ended**       | ** ** |
|---------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                    | ** ** | **June 30,**          | ** ** |
| ** **                                                    | ** ** | **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:                                             |       |                       |       |   |   |
|                                                          |       |                       |       |   |   |
| Real Estate                                                   |       | 0                          |       | 0 |   |
| Commercial                                                    |       | 137                        |       | 28 |   |
| Installment                                                   |       | 0                          |       | 0 |   |
| Other                                                         |       | 0                          |       | 0 |   |
| Total nonaccrual                                              |       | 137                        |       | 28 |   |
|                                                          |       |                       |       |   |   |
| Total nonperforming                                           |       | 137                        |       | 28 |   |
|                                                          |       |                       |       |   |   |
| Total loans end of period                                     |       | 106,649                    |       | 86,788 |   |
|                                                          |       |                       |       |   |   |
| Ratio of nonperforming loans to total loans at end  of period |       | 0.13                       | %          | 0.03 | % |

 

Theseratios have been maintained as a result of conservative underwriting criteria,frequent review of new and delinquent loans and a firm collection policy (withthe assistance of outside legal counsel). The Bank does not have any foreign loans or loans for highly leveragedtransactions.

 

19

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## **Summaryof Loan Loss Experience**

 
| ** **                                                                     | ** ** | **Six Months Ended**       | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------------|------------|----------------------|------------|
| ** **                                                                     | ** ** | **June 30,**          | ** ** | **June 30,**    | ** ** |
| ** **                                                                     | ** ** | **2005**                   | ** ** | **2004**             | ** ** |
| ** **                                                                     | ** ** | **(Dollars in thousands)** | ** ** |
| Average loans outstanding                                                      |       | 102,429                    |       | 83,726               |       |
|                                                                           |       |                       |       |                 |       |
| 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:                                                      |       |                       |       |                 |       |
| Real Estate                                                                    |       | 0                          |       | 1                    |       |
| Commercial                                                                     |       | 1                          |       | 0                    |       |
| Installment                                                                    |       | 0                          |       | 0                    |       |
| Other                                                                          |       | 0                          |       | 0                    |       |
| Total recoveries                                                               |       | 1                          |       | 1                    |       |
|                                                                           |       |                       |       |                 |       |
| Net Loans charged off during the period                                        |       | (1                         | )          | (1                   | )          |
|                                                                           |       |                       |       |                 |       |
| Additions to allowance for possible loan losses                                |       | 125                        |       | 105                  |       |
|                                                                           |       |                       |       |                 |       |
| Allowance, end of period                                                       |       | 1,089                      |       | 881                  |       |
|                                                                           |       |                       |       |                 |       |
| 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                             |       | 1.01                       | %          | 1.02                 | %          |

 

20

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**FundingSources**

 

Averagedeposits for the six months ended June 30, 2005 were $103,257,000 anincrease of 25.92% compared with the same period in 2004.  Average certificates of deposit represented55.34% of average deposits for the six months ended June 30, 2005.  Average interest bearing checking, moneymarket and savings accounts as a group was 24.02% of average deposits.  Average demand deposits represented 20.64% ofaverage deposits.

 

Thefollowing table sets forth the scheduled maturities of the Company’s timedeposits in denominations of $100,000 or greater at June 30, 2005:

 

Maturities of TimeDeposits of$100,000 or More

(Dollars in Thousands)

 

| Three months or less                  |   | $     | 6,611  |   |
|---------------------------------------|--------|-------|--------|--------|
| Over three months through six months  |   | 7,528 |   |
| Over six months through twelve months |   | 8,981 |   |
| Over twelve months                    |   | 4,986 |   |
| Total                                 |   | $     | 28,107 |   |

 

**The Bank has lines of creditfrom the Federal Home Loan Bank of San Francisco, Bank of the West, PacificCoast Bankers’ Bank and The Independent Bank with available borrowing capacityon June 30, 2005 of $811,000, $4,500,000, $6,000,000 and $5,000,000,respectively.  The Federal Home Loan Bankline of credit has a maximum borrowing capacity of twenty five percent (25%) ofthe Bank’s total assets, adjusted quarterly. The Federal Home Loan Bank line of credit is secured by some of the Bank’sreal estate secured loans and securities. At June 30, 2005 the total principal balances of pledged loans was$29,028,600 and securities of $7,703,800. The following table provides information on ten (10) advancestotaling $24,650,000 outstanding at June 30, 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      |       |
| 3,000,000  |       | 4.30       | %          | 6/17/05     |       | 6/17/10      |       |
| 1,000,000  |       | 7.72       | %          | 6/1/00      |       | 6/3/30       |       |
| 4,000,000  |       | 5.96       | %          | 8/2/04      |       | 7/28/34      |       |
| 5,000,000  |       | 5.63       | %          | 12/24/04    |       | 12/22/34     |       |
| 2,000,000  |       | 5.13       | %          | 5/4/05      |       | 5/1/35       |       |

 

**The Bank has a letter of creditin the amount of $105,000, expiring April 17, 2006, issued by Federal HomeLoan Bank of San Francisco, which is used to secure local agency deposits.  The beneficiary of the letter of credit isthe Administrator of Local Agency Security, Department of FinancialInstitutions.**

 

21

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**The**Bank of the West, Pacific Coast Bankers’ Bank and TheIndependent Bank lines of credit are unsecured.  The Bank did not utilize any overnightborrowings 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 June 30, 2005, stockholders’ equity was $7,914,100 versus$7,321,100 at December 31, 2004. The Company paid a $0.165 per share cash dividend in 2004 and a $0.15per share cash dividend in 2003.  TheBank paid no cash dividends during the six months ended June 30, 2005.

 

TheFDIC and Federal Reserve Board have adopted capital adequacy guidelines for usein their examination 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-bank businesses,or the FDIC or Federal Reserve Board may take other administrativeactions.  The guidelines employ twomeasures of capital:  (1) risk-basedcapital and (2) leverage capital.

 

Undercurrent rules, all banks are required to maintain Tier 1 capital of at least 4percent and total capital of 8.0% of risk-adjusted assets. The Bank had a Tier1 risk-based capital ratio of 11.12% and a total risk-based capital ratio of12.06% at June 30, 2005, well above the minimum regulatoryrequirements.  The Company had a Tier 1risk-based capital ratio of 8.17% and a total risk-based capital ratio of14.16% at June 30, 2005.

 

Theleverage capital ratio guidelines require a minimum leverage capital ratio of3% of Tier 1 capital to total assets less goodwill.  The Company had a leverage capital ratio of6.75% at June 30, 2005 while the Bank’s leverage capital ratio was 9.30%.

 

Underregulatory guidelines, the $8 million in Trust Preferred Securities outstandingwill qualify as Tier 1 capital up to 25% of Tier 1 capital.  Any additional Trust Preferred Securitieswill 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 a secured line of credit from the Federal Home Loan Bankof San Francisco of approximately $34,844,000****and unsecured federal funds lines of credit with Bank of the West, Pacific Coast Bankers’ Bankand The Independent Bank of $4,500,000, $6,000,000 and $5,000,000,respectively; to meet temporary liquidity requirements.

 

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

 

22

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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 June 30, 2005 was 9.90 percent of total assets, whileprimary liquidity plus available borrowing was 21.00% of total assets.

 

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. The ability of the Bank to pay such items to the Corporation is subjectto limitations under state and Federal law.

 

## **InterestRate Risk**

 

Management of interestrate sensitivity (asset/liability management) involves matching and repricingrates of interest-earning assets with interest-bearing liabilities in a mannerdesigned to optimize net interest income within the constraints imposed byregulatory authorities, liquidity determinations and capitalconsiderations.  The Bank institutedformal asset/liability policies at the end of 1989.

 

Thepurpose for asset/liability management is to provide stable net interest incomegrowth by protecting the Bank’s earnings from undue interest rate risk.  The Bank expects to generate earnings fromincreasing loan volume, appropriate loan pricing and expense control and notfrom trying to accurately forecast interest rates.  Another important function of asset/liabilitymanagement is managing the risk/return relationships between interest raterisk, liquidity, market risk and capital adequacy.  The Bank gives priority to liquidity concernsfollowed by capital adequacy, then interest rate risk and market risk in theinvestment portfolio.  The policy of theBank will be to control the exposure of the Bank’s earnings to changinginterest rates by generally maintaining a position within a narrow range aroundan “earnings neutral position.” An earnings neutral position is defined as themix of assets and liabilities that generate a net interest margin that is notaffected by interest rate changes. However, Management does not believe that the Bank can maintain atotally earnings neutral position. Further, the actual timing of repricing of assets and liabilities doesnot always correspond to the timing assumed by the Bank for analyticalpurposes.  Therefore, changes in marketrates of interest will generally impact on the Bank’s net interest income andnet interest margin for long or short periods of time.

 

TheBank monitors its interest rate risk on a quarterly basis through the use of amodel which calculates the effect on earnings of changes in the fed fundsrate.  The model converts a fed fundsrate change into rate changes for each major class of asset and liability, thensimulates the bank’s net interest margin based on the bank’s actual repricingover a one year period, assuming that maturities are reinvested in instrumentsidentical to those maturing during the period. At June 30, 2005 the affect of a 2% increase in the federal fundssold rate, expressed, as a percentage of equity, was a positive 1.58%; while a2% decrease in the federal funds sold rate, expressed, as a percentage ofequity, was a negative 1.46%.

 

TheCorporation’s sources of revenues and liquidity are the dividends, taxequalization payments or management fees from the Bank, gains on securitiesheld in a trading account and the line of credit from the Pacific Coast Bankers’Bank.  The ability of the Bank to paysuch items to the Corporation is subject to limitations under state and Federallaw.

 

23

----

 

**InvestmentSecurities**

 

TheCorporation maintains a trading account, at fair value, consisting ofmarketable securities.  At June 30,2005 the account value was $854,500.  TheCorporation has a $202,100 investment in AT Service LLC, which provides titleinsurance services for commercial, industrial and residential properties, aswell as other real estate related financial and informational services,including escrow, real estate information, trustee sale guarantees and realestate tax exchanges.  The Corporationhas a $10,000 investment in Metrocities Mortgage LLC.  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.

 

Thefollowing table sets forth the book and market value of the Bank’s investmentsecurities at June 30, 2005:

 
| ** **                                      | ** ** | **INVESTMENT PORTFOLIO MIX** | ** ** |
|-------------------------------------------------|------------|------------------------------|------------|
| ** **                                      | ** ** | **June 30, 2005**       | ** ** |
| ** **                                      | ** ** | **Book**                     | ** ** | **Market** | ** ** |
| ** **                                      | ** ** | **Value**                    | ** ** | **Value** | ** ** |
| Securities Available for Sale                   |       |                         |       |   |   |
|                                            |       |                         |       |   |   |
| Government National Mortgage Association        |       | 1,087,600                    |       | 1,078,200 |   |
| U.S. Government Agency Securities               |       | 6,703,200                    |       | 6,686,500 |   |
| Corporate Debt Securities                       |       | 657,000                      |       | 657,000 |   |
| Total                                           |       | 8,447,800                    |       | 8,421,700 |   |
|                                            |       |                         |       |   |   |
| Held to Maturity                                |       |                         |       |   |   |
| State/Local Agencies                            |       | 6,425,000                    |       | 6,712,400 |   |
|                                            |       |                         |       |   |   |
| Other Investments, at cost                      |       |                         |       |   |   |
| AT Services LLC                                 |       | 202,100                      |       | 202,100 |   |
| Metrocities Mortgage, LLC                       |       | 10,000                       |       | 10,000 |   |
| Federal Home Loan Bank stock, restricted        |       | 1,158,600                    |       | 1,158,600 |   |
| 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 |   |
|                                            |       | 2,058,600                    |       | 2,058,600 |   |

 

24

----

 

Thefollowing table summarizes the maturity of the Bank’s investment securities at June 30,2005:

 
| ** **                           | ** ** | **INVESTMENT PORTFOLIO MATURITIES** | ** ** |
|--------------------------------------|------------|-------------------------------------|------------|
| ** **                           | ** ** | **(Dollars in thousands)**          | ** ** |
| ** **                           | ** ** | **Available for Sale**              | ** ** |
| ** **                           | ** ** | **Amortized Cost**                  | ** ** | **Fair Value** | ** ** |
| Due between one and five years       |       | 4,703,200                           |       | 4,688,800 |   |
| Due between five and ten years       |       | 2,657,000                           |       | 2,654,700 |   |
| GNMA—Mortgage Backed Securities |       | 1,087,600                           |       | 1,078,200 |   |
|                                 |       | 8,447,800                           |       | 8,421,700 |   |

 
| ** **            | ** ** | **Held to Maturity** | ** ** |
|-----------------------|------------|----------------------|------------|
| ** **            | ** ** | **Amortized Cost**   | ** ** | **Fair Value** | ** ** |
| Due in over ten years |       | 6,425,000            |       | 6,712,400 |   |

 

**Item 3.  Controls and Procedures**

** **

(a) Evaluation of Disclosure Controls andProcedures:  An evaluation of the Company’sdisclosure controls and procedures (as Defined in Section 13(a)–14(c) ofthe Securities Exchange Act of 1934 (the “Act”) was carried out under thesupervision and with the participation of the Company’s Chief ExecutiveOfficer, Chief Financial Officer and other members of the Company’s managementwithin the 90-day period preceding the filing date of this quarterlyreport.  The Company’s Chief ExecutiveOfficer and Chief Financial Officer concluded that the Company’s disclosurecontrols and procedures as currently in effect are effective in ensuring thatthe information required to be disclosed by the Registrant in the reports itfiles or submits under the Act is (i) accumulated and communicated to theCompany’s management (including the Chief Executive Officer and Chief FinancialOfficer) in a timely manner, and (ii) recorded, processed, summarized andreported within the time periods specified in the SEC’s rules and forms.

 

(b) Changes in InternalControls:  In the quarter ended June 30,2005, the Company did not make any significant changes in, nor take anycorrective actions regarding, its internal controls or other factor that couldsignificantly affect these controls.

 

25

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**PART II—OTHER INFORMATION**

 

**Item1.  Legal Proceedings.**

 

None

 

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

** **

**The following proposals werepresented to shareholders at the Corporation’s annual shareholders’ meetingheld on May 19, 2005.**

** **

**Proposal Number 1:**          Electionof Directors

** **
| ** **                       | ** ** | **Number of  Affirmative Votes** | ** ** | **Number of  Votes Withheld** | ** ** |
|----------------------------------|------------|----------------------------------|------------|-------------------------------|------------|
| Charles T. Chrietzberg, Jr. |       | 1,323,208                        |       | 2,554                         |       |
| Sandra G. Chrietzberg            |       | 1,323,208                        |       | 2,554                         |       |
| Peter J. Coniglio                |       | 1,323,085                        |       | 2,677                         |       |
| Carla S. Hudson                  |       | 1,323,208                        |       | 2,554                         |       |
| John M. Lotz                     |       | 1,320,421                        |       | 5,341                         |       |

 

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

####  

None

 

#### **Item 6. Exhibits and Reports on Form 8-K.**

####  

A.                         EXHIBITS

 

31.1               Certification of the Chief Executive Officer ofNorthern California Bancorp, Inc. pursuant to Section 302 of theSarbanes-Oxley Act of 2002.

 

31.2               Certification of the Chief Financial Officerof Northern California Bancorp, Inc. pursuant to Section 302 of theSarbanes-Oxley Act of 2002.

 

32.1               Certification of the Chief Executive Officerof Northern California Bancorp, Inc. pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

 

32.2               Certification of the Chief Financial Officerof Northern California Bancorp, Inc. pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

 

B.                           Reportson Form 8-K

 

None

 

26

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Inaccordance with the requirements of the Exchange Act, the registrant causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
|                        | NORTHERN  CALIFORNIA BANCORP, INC. |
|-----------------------------|------------------------------------|
|                        |                               |
| Date: August 11,  2005 | By:                                | /s/ Charles T.  Chrietzberg, Jr. |   |
|                        |                               | Charles T. Chrietzberg, Jr. |
|                        |                               | *Chairman of the Board &* |
|                        |                               | *Chief Executive Officer* |
|                        |                               |   |
|                        |                               |   |
| Date: August 11,  2005 | By:                                | /s/ Bruce N.  Warner |   |
|                        |                               | Bruce N. Warner |
|                        |                               | *Chief Financial Officer and* |
|                        |                               | *Principal Accounting Officer* |
|                             |                                    |  |  |  |

 

27

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