----

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**U.S.SECURITIES AND EXCHANGE COMMISSION****Washington D.C.  20549**

**FORM10-QSB**

 

| **ý** | **Quarterly report  under Section 13 or 15(d) of the Securities Exchange Act of 1934**                     |
|------------|------------------------------------------------------------------------------------------------------------|
|       |                                                                                                       |
|       | **for  the quarterly period ended June 30, 2001**                                                          |
|       |                                                                                                       |   |
| **o**      | **Transition report  under Section 13 or 15(d) of the Securities Exchange Act of 1934 (No fee  required)** |
|       |                                                                                                       |   |
|       | **for  the period from _____ to _____**                                                                    |

**Commission File Number 0-27666**

| **NORTHERN CALIFORNIA BANCORP,  INC.**          |
|-------------------------------------------------|
| ****                                            |
| (Name of Small  Business Issuer in its Charter) |

     Incorporated in the State of **California**

IRSEmployer Identification Number **77-0421107**

Address:**  601 MunrasAvenue, Monterey, CA  93940**

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

 

             Checkwhether the issuer: (1) filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act during the past 12 months (or for suchshorter 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

             Asof August 3, 2001, the Corporation had 1,215,855 shares of common stockoutstanding.

----

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**PART I-FINANCIAL INFORMATION**

**Item 1.  FinancialStatements**

NORTHERNCALIFORNIA BANCORP, INC.AND SUBSIDIARYCONSOLIDATED BALANCE SHEET

|                                                | JUNE  30  2001                                       |       | DECEMBER  31  2000 |       |
|-----------------------------------------------------|------------------------------------------------------|------------|--------------------|------------|
|                                                |                                                      |       |                    |       |
| ASSETS:                                             |                                                 |       |               |       |
|                                                |                                                 |       |               |       |
| Cash and Cash Equivalents                           | 3,675,100                                            |       | 4,306,200          |       |
| Federal Funds Sold                                  | 7,665,000                                            |       | 13,050,000         |       |
| Due From Bank - Time  Deposits                      | 200,000                                              |       | 200,000            |       |
| Investment Securities,  available for sale (Note 1) | 11,672,900                                           |       | 7,346,100          |       |
| Investment Securities,  held to maturity (Note 1)   | 0                                                    |       | 11,050,900         |       |
| Trading Account                                     | 316,700                                              |       | 168,000            |       |
| Other Investments                                   | 257,000                                              |       | 40,000             |       |
| Loans Held for Sale                                 | 1,444,100                                            |       | 2,549,500          |       |
| Gross Loans (Note 2)                                | 44,779,800                                           |       | 41,211,500         |       |
| Allowance for Possible  Loan Losses (Note 3)        | (512,300                                             | )          | (468,500           | )          |
| Deferred Origination  Fees                          | (72,700                                              | )          | (41,100            | )          |
|                                                |                                                      |       |                    |       |
|                                                | Net  Loans                                           | 44,194,800 |               | 40,701,900 |   |
| Bank Premises and  Equipment, Net                   | 1,790,600                                            |       | 1,773,200          |       |
| Interest Receivable  and Other Assets               | 3,842,500                                            |       | 2,685,700          |       |
|                                                |                                                      |       |                    |       |
|                                                | Total  Assets                                        | 75,058,700 |               | 83,871,500 |   |
|                                                |                                                      |       |                    |       |
|                                                |                                                 |       |               |       |
| LIABILITIES AND  SHAREHOLDERS' EQUITY:              |                                                 |       |               |       |
|                                                |                                                 |       |               |       |
| Total Deposits (Note  4)                            | 63,785,900                                           |       | 72,218,300         |       |
| Short-term Borrowing                                | 200,000                                              |       | 75,000             |       |
| Long-term Borrowing                                 | 1,000,000                                            |       | 800,000            |       |
| Federal Home Loan Bank  Borrowed Funds              | 4,000,000                                            |       | 5,000,000          |       |
| Interest Payable and  Other Liabilities             | 933,800                                              |       | 916,900            |       |
|                                                |                                                      |       |                    |       |
|                                                | Total  Liabilities                                   | 69,919,700 |               | 79,010,200 |   |
|                                                |                                                      |       |                    |       |
|                                                |                                                 |       |               |       |
| Shareholders' Equity:                               |                                                 |       |               |       |
|                                                |                                                 |       |               |       |
|                                                | Common  Stock - No Par Value                         |       |               |       |   |
|                                                | Authorized:  2,500,000 in 2001 and 2000              |       |               |       |   |
|                                                | Outstanding:1,215,855  in 2001 and 1,223,425 in 2000 | 3,705,200  |               | 3,716,700  |   |
|                                                | Retained  Earnings                                   | 1,414,700  |               | 1,054,600  |   |
|                                                | Accumulated  Other Comprehensive Income (Loss)       | 19,100     |               | 90,000     |   |
|                                                |                                                      |       |                    |       |
|                                                | Total  Shareholders' Equity                          | 5,139,000  |               | 4,861,300  |   |
|                                                |                                                      |       |                    |       |
|                                                | Total  Liabilities & Shareholders' Equity        | 75,058,700 |               | 83,871,500 |   |
|                                                |                                                      |       |                    |       |
|                                                     |                                                      |            |                    |            |  |  |

             NORTHERN CALIFORNIABANCORP, INC.AND SUBSIDIARY             CONSOLIDATED STATEMENTS OFOPERATIONS

 

|                                | Three  Months Ended  June 30                                  |      | Six  Months Ended  June 30 |      |
|-------------------------------------|---------------------------------------------------------------|-----------|----------------------------|-----------|
|                                |                                                               |      |                            |      |
|                                | 2001                                                          |      | 2000                       |      | 2001 |   | 2000 |   |
|                                |                                                               |      |                            |      |  |   |  |   |
| INTEREST INCOME:                    |                                                          |      |                       |      |   |   |   |   |
|                                | Interest and Fees on  Loans                                   | 1,151,500 |                       | 1,063,000 |   | 2,309,800 |   | 2,083,800 |   |
|                                | Interest on Time  Deposits with Financial Institutions        | 4,300     |                       | 1,500     |   | 7,600 |   | 4,500 |   |
|                                | Interest on Investment  Securities                            | 201,500   |                       | 233,400   |   | 370,000 |   | 408,900 |   |
|                                | Interest on Federal  Funds                                    | 52,900    |                       | 61,800    |   | 174,300 |   | 103,500 |   |
|                                |                                                               |      |                            |      |  |   |  |   |
|                                | Total Interest Income                                         | 1,410,200 |                       | 1,359,700 |   | 2,861,700 |   | 2,600,700 |   |
|                                |                                                               |      |                            |      |  |   |  |   |
|                                |                                                          |      |                       |      |   |   |   |   |
| INTEREST EXPENSE:                   |                                                          |      |                       |      |   |   |   |   |
|                                | Interest on  Interest-Bearing Transaction Accounts            | 35,900    |                       | 29,000    |   | 59,000 |   | 56,000 |   |
|                                | Interest on Savings  Accounts                                 | 13,400    |                       | 14,600    |   | 38,700 |   | 28,000 |   |
|                                | Interest on Time  Deposits                                    | 501,500   |                       | 448,600   |   | 1,003,500 |   | 877,200 |   |
|                                | Interest on Other  Borrowed Funds                             | 101,400   |                       | 83,300    |   | 202,800 |   | 163,800 |   |
|                                |                                                               |      |                            |      |  |   |  |   |
|                                | Total Interest Expense                                        | 652,200   |                       | 575,500   |   | 1,304,000 |   | 1,125,000 |   |
|                                |                                                               |      |                            |      |  |   |  |   |
|                                |                                                          |      |                       |      |   |   |   |   |
|                                | Net Interest Income                                           | 758,000   |                       | 784,200   |   | 1,557,700 |   | 1,475,700 |   |
|                                |                                                               |      |                            |      |  |   |  |   |
| PROVISION FOR POSSIBLE  LOAN LOSSES | 40,000                                                        |      | 50,000                     |      | 50,000 |   | 75,000 |   |
|                                |                                                               |      |                            |      |  |   |  |   |
|                                | Net Interest Income  After Provision for Possible Loan Losses | 718,000   |                       | 734,200   |   | 1,507,700 |   | 1,400,700 |   |
|                                |                                                               |      |                            |      |  |   |  |   |
|                                |                                                          |      |                       |      |   |   |   |   |
| NONINTEREST INCOME:                 |                                                          |      |                       |      |   |   |   |   |
|                                | Service Charges on  Deposit Accounts                          | 123,500   |                       | 101,400   |   | 244,900 |   | 208,900 |   |
|                                | SBA Loan Sales &  Servicing Income                        | 191,800   |                       | 88,600    |   | 268,200 |   | 157,900 |   |
|                                | Other Operating Income                                        | 534,600   |                       | 491,200   |   | 1,211,600 |   | 934,400 |   |
|                                |                                                               |      |                            |      |  |   |  |   |
|                                | Total Noninterest  Income                                     | 849,900   |                       | 681,200   |   | 1,724,700 |   | 1,301,200 |   |
|                                |                                                               |      |                            |      |  |   |  |   |
|                                |                                                          |      |                       |      |   |   |   |   |
| NONINTEREST EXPENSE:                |                                                          |      |                       |      |   |   |   |   |
|                                | Salaries and Employee  Benefits                               | 536,200   |                       | 471,600   |   | 1,100,700 |   | 938,500 |   |
|                                | Occupancy and  Equipment Expense                              | 88,500    |                       | 70,400    |   | 165,700 |   | 143,700 |   |
|                                | Professional Fees                                             | 30,000    |                       | 24,100    |   | 69,200 |   | 43,500 |   |
|                                | Data Processing                                               | 64,200    |                       | 61,800    |   | 127,700 |   | 123,900 |   |
|                                | FDIC & State  Assessments                                 | 3,900     |                       | 4,800     |   | 14,000 |   | 9,700 |   |
|                                | Other Operating  Expenses                                     | 583,000   |                       | 547,400   |   | 1,122,000 |   | 1,049,800 |   |
|                                | Income Tax Expense                                            | 120,100   |                       | 81,500    |   | 273,000 |   | 117,400 |   |
|                                |                                                               |      |                            |      |  |   |  |   |
|                                | Total Noninterest  Expense                                    | 1,425,900 |                       | 1,261,600 |   | 2,872,300 |   | 2,426,500 |   |
|                                |                                                               |      |                            |      |  |   |  |   |
|                                | NET INCOME (LOSS)                                             | 142,000   |                       | 153,800   |   | 360,100 |   | 275,400 |   |
|                                |                                                               |      |                            |      |  |   |  |   |
|                                |                                                          |      |                       |      |   |   |   |   |
|                                |                                                          |      |                       |      |   |   |   |   |
| Earnings Per Common  Share          |                                                          |      |                       |      |   |   |   |   |
|                                | Primary                                                       | 0.12      |                       | 0.13      |   | 0.30 |   | 0.23 |   |
|                                | Diluted                                                       | 0.10      |                       | 0.11      |   | 0.25 |   | 0.19 |   |
|                                     |                                                               |           |                            |           |  |  |  |  |  |  |  |

NORTHERNCALIFORNIA BANCORP, INC.AND SUBSIDIARYCONSOLIDATED STATEMENTS OF CASH FLOWSSIX MONTHS ENDED JUNE 30, 2001 AND 2000

 

|                                                    | 2001                                         |        | 2000       |       |
|---------------------------------------------------------|----------------------------------------------|-------------|------------|------------|
|                                                    |                                              |        |            |       |
| NET INCOME                                              | 360,100                                      |        | 275,400    |       |
| Adjustments to net  income:                             |                                         |        |       |       |
|                                                    | Depreciation  and amortization expense       | 58,400      |       | 57,600     |   |
|                                                    | Amortization/Accretion  on investments       | 3,800       |       | 1,100      |   |
|                                                    | (Gain)  loss on sale of securities           | (130,100    | )          | (5,300     | ) |
|                                                    | Provision  for possible loan losses          | 50,000      |       | 75,000     |   |
|                                                    | (Increase)decrease  in deferred servicing    | 2,800       |       | 10,400     |   |
|                                                    | Amortization  of deferred income             | (1,100      | )          | (1,100     | ) |
|                                                    | Increase  (decrease) in accrued expenses     | 214,600     |       | (105,300   | ) |
|                                                    | (Increase)  decrease in prepaid expenses     | (1,290,100  | )          | (694,200   | ) |
|                                                    | Increase  (decrease) in interest payable     | 2,600       |       | 29,500     |   |
|                                                    | (Increase)  decrease in interest receivable  | 131,300     |       | (62,000    | ) |
|                                                    | (Increase)  decrease in loans held for sale  | 1,577,200   |       | (778,800   | ) |
|                                                    |                                         |             |       |            |   |
|                                                    | Total  adjustments to net income             | 619,400     |       | (1,473,100 | ) |
|                                                    |                                         |             |       |            |   |
| Net cash provided  (used) by operations                 | 979,500                                      |        | (1,197,700 | )          |
|                                                    |                                         |        |       |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES                   |                                         |        |       |       |
|                                                    | Proceeds  from maturity of due from time     | 0           |       | 100,000    |   |
|                                                    | Proceeds  from maturity of investments       | 3,999,400   |       | 2,330,500  |   |
|                                                    | Proceeds  from sale of investments           | 18,417,700  |       | 400,600    |   |
|                                                    | Purchase  of securities                      | (16,003,300 | )          | (8,914,400 | ) |
|                                                    | Net  (increase) decrease in loans            | (4,014,700  | )          | (1,144,700 | ) |
|                                                    | Stock  repurchase                            | (11,500     | )          | 0          |   |
|                                                    | Capital  expenditures                        | (75,800     | )          | (13,400    | ) |
|                                                    |                                              |        |            |       |
| Net cash provided  (used) in investing activities       | 2,311,800                                    |        | (7,241,400 | )          |
|                                                    |                                              |        |            |       |
|                                                    |                                         |        |       |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES                   |                                         |        |       |       |
|                                                    | Net  increase (decrease) in deposit accounts | (8,432,400  | )          | 4,161,700  |   |
|                                                    | Net  increase (decrease) in borrowed funds   | (875,000    | )          | 50,000     |   |
|                                                    |                                         |             |       |            |   |
| Net cash provided  (used) by financing activities       | (9,307,400                                   | )           | 4,211,700  |       |
|                                                    |                                              |        |            |       |
|                                                    |                                         |        |       |       |
| Net increase  (decrease) in cash & cash equivalents | (6,016,100                                   | )           | (4,227,400 | )          |
| Cash & cash  equivalents - beginning of year        | 17,556,200                                   |        | 10,945,200 |       |
|                                                    |                                              |        |            |       |
|                                                    |                                         |        |       |       |
| Cash & cash  equivalents - end of period            | 11,540,100                                   |        | 6,717,800  |       |

 

NOTES TO FINANCIAL STATEMENTS

|                                                         | JUNE  30  2001                          |       | DECEMBER  31  2000 |       |
|--------------------------------------------------------------|-----------------------------------------|------------|--------------------|------------|
|                                                         |                                         |       |                    |       |
| (NOTE 1) INVESTMENT  SECURITIES:                             |                                    |       |               |       |
| Available for sale:                                          |                                    |       |               |       |
|                                                         | U. S. Government  Agencies              | 11,045,000 |               | 6,727,100  |   |
|                                                         | Other Securities                        | 627,900    |               | 619,000    |   |
|                                                         |                                         |       |                    |       |
| Total Securities  Available for Sale                         | 11,672,900                              |       | 7,346,100          |       |
|                                                         |                                    |       |               |       |
| Held to maturity:                                            |                                    |       |               |       |
|                                                         | US Government  Securities               | 0          |               | 9,051,700  |   |
|                                                         | State and Local Agency  Securities      | 0          |               | 1,999,200  |   |
|                                                         |                                         |       |                    |       |
|                                                         | 0                                       |       | 11,050,900         |       |
|                                                         |                                         |       |                    |       |
|                                                         |                                    |       |               |       |
| (NOTE 2) GROSS LOANS:                                        |                                    |       |               |       |
|                                                         |                                    |       |               |       |
|                                                         | Commercial and  Industrial              | 11,668,500 |               | 10,438,600 |   |
|                                                         | Construction                            | 2,646,400  |               | 2,313,800  |   |
|                                                         | Real Estate - Mortgage                  | 29,462,400 |               | 27,801,600 |   |
|                                                         | Installment                             | 867,800    |               | 518,500    |   |
|                                                         | Government Guaranteed  Loans Purchased  | 134,700    |               | 139,000    |   |
|                                                         |                                         |       |                    |       |
|                                                         | Gross Loans                             | 44,779,800 |               | 41,211,500 |   |
|                                                         |                                    |       |               |       |
| (NOTE 3) ALLOWANCE FOR  POSSIBLE LOAN LOSSES:                |                                    |       |               |       |
|                                                         |                                    |       |               |       |
|                                                         | Balance at Beginning  of Period         | 468,500    |               | 400,000    |   |
|                                                         | Recoveries                              | 1,800      |               | 7,400      |   |
|                                                         | Provision for Possible  Loan Losses     | 50,000     |               | 130,000    |   |
|                                                         | Loans Charged Off                       | (8,000     | )                  | (68,900    | ) |
|                                                         |                                         |       |                    |       |
|                                                         | Balance at End of  Period               | 512,300    |               | 468,500    |   |
|                                                         |                                    |       |               |       |
| (NOTE 4) DEPOSITS:                                           |                                    |       |               |       |
|                                                         |                                    |       |               |       |
|                                                         | Demand                                  | 14,122,600 |               | 25,311,200 |   |
|                                                         | Interest-Bearing  Transaction           | 10,068,700 |               | 10,651,600 |   |
|                                                         | Savings                                 | 4,055,700  |               | 2,963,400  |   |
|                                                         | Time Under $100,000                     | 21,025,900 |               | 18,145,100 |   |
|                                                         | Time Equal to or  Greater than $100,000 | 14,513,000 |               | 15,147,000 |   |
|                                                         |                                         |       |                    |       |
|                                                         | 63,785,900                              |       | 72,218,300         |       |
|                                                         |                                    |       |               |       |
| (NOTE 5) SUPPLEMENTAL  DISCLOSURES OF CASH FLOW INFORMATION: |                                    |       |               |       |
|                                                         |                                    |       |               |       |
|                                                         | Payments during the  period ending:     | 6/30/01    |               | 6/30/00    |   |
|                                                         |                                         |       |                    |       |
|                                                         | Interest                                | 736,700    |               | 465,300    |   |
|                                                         | Income Taxes                            | 273,000    |               | 117,400    |   |
|                                                              |                                         |            |                    |            |  |  |

 

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

**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 the financial statementsand the other financial data presented elsewhere herein.

             Forthe six months, ended June 30, 2001 net income was $360,100, an increase of$84,700 when compared to the same period in 2000.  The increase in earnings during this period was the result of a$107,000 increase in net interest income after provision for loan losses and a$423,500 increase in non-interest income, partially offset by a $445,800increase in non-interest expense.

 

             Thefollowing table sets forth certain selected financial ratios of the Corporationat and for the six months ended, June 30, 2001 and 2000.

|                                                           | For  the six months  Ended June 30, 2001      |   | For  the six months  Ended June 30, 2000 |   |
|----------------------------------------------------------------|-----------------------------------------------|--------|------------------------------------------|--------|
|                                                           |                                               |   |                                          |   |
|                                                           | (Dollars  in thousands except per share data) |   |
|                                                           |                                          |   |                                     |   |
| Summary of Operating  Results:                                 |                                          |   |                                     |   |
|                                                           |                                          |   |                                     |   |
| Total interest income                                          | 2,862                                         |   | 2,601                                    |   |
| Total interest expense                                         | 1,304                                         |   | 1,125                                    |   |
|                                                           |                                               |   |                                          |   |
| Net interest income                                            | 1,558                                         |   | 1,476                                    |   |
|                                                           |                                          |   |                                     |   |
| Provision for possible   loan losses                 | 50                                            |   | 75                                       |   |
|                                                           |                                               |   |                                          |   |
| Net interest income  after   provision for loan loss | 1,508                                         |   | 1,401                                    |   |
|                                                           |                                          |   |                                     |   |
| Total other income                                             | 1,725                                         |   | 1,301                                    |   |
| Total other expense                                            | 2,599                                         |   | 2,309                                    |   |
|                                                           |                                               |   |                                          |   |
|                                                           |                                          |   |                                     |   |
| Income (loss) before  taxes                                    | 633                                           |   | 393                                      |   |
| Provision for income  tax                                      | 273                                           |   | 117                                      |   |
|                                                           |                                               |   |                                          |   |
|                                                           |                                          |   |                                     |   |
| Net income (loss)                                              | 360                                           |   | 275                                      |   |
|                                                           |                                          |   |                                     |   |
| Per Common Share Data:                                         |                                          |   |                                     |   |
|                                                           |                                          |   |                                     |   |
| Net income - Primary  (1)                                      | 0.30                                          |   | 0.23                                     |   |
| Net income - Diluted  (2)                                      | 0.25                                          |   | 0.19                                     |   |
| Book value, end of  period                                     | 4.23                                          |   | 3.51                                     |   |
| Avg shares outstanding  (3)                                    | 1,216,208                                     |   | 1,223,425                                |   |
|                                                           |                                          |   |                                     |   |
| Balance Sheet Data:                                            |                                          |   |                                     |   |
|                                                           |                                          |   |                                     |   |
| Total loans, net of   unearned income (4)            | 46,151                                        |   | 41,085                                   |   |
| Total assets                                                   | 75,059                                        |   | 69,695                                   |   |
| Total deposits                                                 | 63,786                                        |   | 59,724                                   |   |
| Stockholders' equity                                           | 5,139                                         |   | 4,299                                    |   |

 

 

|                                                              | For  the six months  Ended June 30, 2001 |   | For  the six months  Ended June 30, 2000 |   |
|-------------------------------------------------------------------|------------------------------------------|--------|------------------------------------------|--------|
|                                                              | ****                                     |   | ****                                     |   |
|                                                              |                                     |   |                                     |   |
| Selected Financial  Ratios (4):                                   |                                     |   |                                     |   |
|                                                              |                                     |   |                                     |   |
|                                                              |                                     |   |                                     |   |
| Return on average  assets(5)                                      | 0.98                                     | %      | .82                                      | %      |
|                                                              |                                     |   |                                     |   |
| Return on average   stockholders' equity(6)             | 14.63                                    | %      | 15.48                                    | %      |
|                                                              |                                     |   |                                     |   |
| Net interest spread                                               | 4.08                                     | %      | 4.66                                     | %      |
|                                                              |                                     |   |                                     |   |
| Net interest margin                                               | 4.82                                     | %      | 5.42                                     | %      |
|                                                              |                                     |   |                                     |   |
| Avg shareholders'  equity   to average assets           | 6.67                                     | %      | 5.32                                     | %      |
|                                                              |                                     |   |                                     |   |
| Risked-Based capital  ratios                                      |                                     |   |                                     |   |
|                                                              | Tier 1                                   | 10.11  | %                                        | 9.90   | % |
|                                                              | Total                                    | 11.04  | %                                        | 10.77  | % |
|                                                              |                                     |   |                                     |   |   |
| Total loans to total  deposits   at end of period       | 72.35                                    | %      | 68.79                                    | %      |
|                                                              |                                     |   |                                     |   |
| Allowance to total  loans   at end of period            | 1.11                                     | %      | 1.01                                     | %      |
|                                                              |                                     |   |                                     |   |
| Non-performing loans  to total   loans at end of period | 0.18                                     | %      | 0.06                                     | %      |
|                                                              |                                     |   |                                     |   |
| Net charge-offs to   average loans                      | 0.01                                     | %      | 0.13                                     | %      |
|                                                                   |                                          |        |                                          |        |  |  |  |

 

----

(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 1,216,208 and 1,223,425 for June 30, 2001 and2000, respectively.(2)         Diluted earnings (loss) pershare amounts were computed on the basis of the weighted average number ofshares of common stock and common stock equivalents outstanding during theyear.  Common stock equivalents includedirector/employee stock options. The weighted average number of shares used forthis computation was 1,434,079 and 1,419,936 for June 30, 2001 and 2000,respectively.(3)         Weighted average commonshares.(4)         Includes loans being held forsale.(5)         Averages are of dailybalances.(6)         June 30, 2001 calculated on anannualized basis.

**NET INTEREST INCOME**

             Netinterest income, the difference between (a) interest and fees earned oninterest-earning assets and (b) interest paid on interest-bearing liabilities,is the most significant component of the Bank's earnings.  Changes in net interest income from periodto period 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-month period ended June 30, 2001 was $1,557,700compared to $1,475,000 for the same period in 2000.  The increase of $82,000 resulted from total interest incomeincreasing $261,000, while total interest expense increased $179,000.  Average interest earning assets increased$7,420,000 (12.72%) with average loans increasing $4,397,000 and investmentsincreasing $3,024,000, while the average rate earned decreased 51 basispoints.  The average interest rateearned on loans increased 3 basis points while the average interest ratedearned on investments decreased 169 basis points.  Average interest bearing liabilities increased $6,099,000(12.52%), while the average rate paid increased 14 basis points.

             Thefollowing table shows the components of the Bank’s net interest income, settingforth, for each the six months ended June 30, 2001 and 2000 and for the twelvemonths ended December 31, 2000, (i) average assets, liabilities andinvestments, (ii) interest income earned on interest-earning assets andinterest expense paid on interest-bearing liabilities, (iii) average yieldsearned on interest-earning assets and average rates paid on interest-bearingliabilities, (iv) the net interest spread (i.e., the average yield earned oninterest-earning assets less the average rate paid on interest-bearingliabilities) and (v)the net interest yield on average interest-earning assets(i. e., net interest income divided by average interest-earning assets).  Yields are computed on a tax-equivalentbasis, resulting in adjustments to interest earned on non-taxable securities of$16,500 and $104,500 for the six months ended June 30, 2001 and 2000,respectively.  Non-accrual loans andoverdrafts are included in average loan balances.  Average loans are presented net of unearned income.

**INTEREST SPREAD ANALYSIS:**

|                                  | The  Six Months  Ended June 30, |          | The  Twelve Months  Ended December 31, |          |
|---------------------------------------|---------------------------------|---------------|----------------------------------------|---------------|
|                                  | 2001                            |          | 2000                                   |          | 2000 |   |
|                                  |                                 |          |                                        |          |  |   |
|                                  | 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:             |                            |          |                                   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                  |                            |          |                                   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Int-bearing deposits  at other banks  | 200                             |          | 8                                      |     | 7.61 |     | 140 |     | 5 |     | 6.50 |     | 164 |   | 10 |   | 6.36 |   |
| Invest securities -  Taxable          | 11,678                          |          | 353                                    |          | 6.05 |   | 5,647 |   | 206 |   | 7.29 |   | 5,553 |   | 396 |   | 7.12 |   |
| Invest securities -  Non-Taxable      | 552                             |          | 25                                     |          | 9.09 |   | 7,651 |   | 307 |   | 8.04 |   | 9,325 |   | 746 |   | 8.00 |   |
| Federal funds sold                    | 7,148                           |          | 174                                    |          | 4.88 |   | 3,325 |   | 104 |   | 6.23 |   | 4,776 |   | 303 |   | 6.35 |   |
|                                  |                                 |          |                                   |          |  |   |   |   |  |   |
| Total investments                     | 19,578                          |          | 560                                    |          | 5.73 |   | 16,762 |   | 622 |   | 7.42 |   | 19,818 |   | 1455 |   | 7.34 |   |
|                                  |                            |          |                                   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                 |                            |          |                                   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                  | Construction                    | 2,499         |                                   | 145           |   | 11.57 |   | 3,526 |   | 179 |   | 10.14 |   | 3,147 |   | 329 |   | 10.45 |   |
|                                  | Real estate                     | 28,658        |                                   | 1,394         |   | 9.73 |   | 25,220 |   | 1,207 |   | 9.57 |   | 25,211 |   | 2,451 |   | 9.72 |   |
|                                  | Installment                     | 715           |                                   | 41            |   | 11.54 |   | 449 |   | 27 |   | 12.22 |   | 511 |   | 68 |   | 13.30 |   |
|                                  | Commercial                      | 14,099        |                                   | 730           |   | 10.36 |   | 12,379 |   | 671 |   | 10.84 |   | 12,643 |   | 1,451 |   | 11.48 |   |
|                                  |                                 |          |                                   |          |  |   |   |   |  |   |
| Total loans                           | 45,971                          |          | 2,310                                  |          | 10.05 |   | 41,575 |   | 2,084 |   | 10.02 |   | 41,512 |   | 4,299 |   | 10.36 |   |
|                                  |                            |          |                                   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Interest earning  assets        | 65,549                          |          | 2,870                                  |     | 8.76 |     | 58,337 |     | 2,705 |     | 9.27 |     | 61,330 |     | 5,754 |     | 9.38 |   |
|                                  |                                 |          |                                   |          |  |   |   |   |  |   |
|                                  |                            |          |                                   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest Bearing  Liabilities:        |                            |          |                                   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Int-bearing demand                    | 9,302                           |          | 47                                     |          | 1.00 |   | 8,406 |   | 42 |   | 0.99 |   | 8,917 |   | 89 |   | 1.00 |   |
| Money market savings                  | 1,350                           |          | 13                                     |          | 1.86 |   | 1,580 |   | 14 |   | 1.81 |   | 1,428 |   | 26 |   | 1.84 |   |
| Savings deposits                      | 4,108                           |          | 39                                     |          | 1.89 |   | 2,832 |   | 28 |   | 1.98 |   | 3,185 |   | 63 |   | 1.98 |   |
| Time deposits  >$100M              | 15,065                          |          | 437                                    |          | 5.80 |   | 11,893 |   | 337 |   | 5.67 |   | 13,019 |   | 764 |   | 5.87 |   |
| Time deposits  <$100M              | 19,271                          |          | 567                                    |          | 5.88 |   | 19,197 |   | 540 |   | 5.62 |   | 19,049 |   | 1,105 |   | 5.80 |   |
| Other Borrowing                       | 5,717                           |          | 201                                    |          | 7.03 |   | 4,805 |   | 162 |   | 6.74 |   | 4,402 |   | 280 |   | 6.36 |   |
|                                  |                                 |          |                                   |          |  |   |   |   |  |   |
| Total interest bearing  liabilities   | 54,813                          |     | 1,302                                  |          | 4.75 |     | 48,714 |     | 1,123 |     | 4.61 |     | 49,998 |     | 2,328 |     | 4.66 |     |
|                                  |                                 |          |                                   |          |  |   |   |   |  |   |
| Net interest income                   |                            |          | 1,568                                  |          |   |   |   |   | 1,582 |   |   |   |   |   | 3,426 |   |   |   |
| Net interest spread                   |                            |          |                                   |          | 4.01 |   |   |   |   |   | 4.66 |   |   |   |   |   | 4.73 |   |
| Net yield on interest  earning assets |                            |     |                                   |     | 4.78 |     |   |     |   |     | 5.42 |     |   |     |   |     | 5.59 |   |

 

 

|                                 | Six  Months  Ended June 30,  2001vs 2000 |           | Twelve  Months  Ended December 31,  2000 vs 1999 |           |
|--------------------------------------|------------------------------------------|----------------|--------------------------------------------------|----------------|
| Increase(Decrease)  Due to changes   | Increase(Decrease)  Due to Changes       |
|                                 |                                          |           |                                                  |           |
|                                 | Avg  Volume                              |           | Avg  Rate                                        |           | Total |   | Avg  Volume |   | Avg  Rate |   | Total |   |
|                                 |
|                                 |                                          |           |                                                  |           |
|                                 | (Dollars  in thousands)                  |           |
|                                 |                                     |           |
| Interest Earning  Assets:            |                                     |           |                                             |           |   |   |   |   |   |   |   |   |
|                                 |                                     |           |                                             |           |   |   |   |   |   |   |   |   |
| Int-bearing deposits  at other banks | 2                                        |      | 1                                                |      | 3 |      | (1 | ) | 2 |      | 1 |   |
| Invest securities -  Taxable         | 220                                      |           | (72                                              | )              | 147 |   | 137 |   | 38 |   | 174 |   |
| Invest securities -  Non-Taxable     | (285                                     | )              | 3                                                |           | (282 | ) | 249 |   | 34 |   | 283 |   |
| Federal funds sold                   | 119                                      |           | (48                                              | )              | 71 |   | (42 | ) | 68 |   | 26 |   |
|                                 |                                          |           |                                                  |           |
|                                 |                                     |           |                                             |           |   |   |   |   |   |   |   |   |
| Total investments                    | 56                                       |           | (117                                             | )              | (61 | ) | 343 |   | 141 |   | 484 |   |
|                                 |                                     |           |                                             |           |   |   |   |   |   |   |   |   |
| Loans                                |                                     |           |                                             |           |   |   |   |   |   |   |   |   |
|                                 | Construction                             | (52            | )                                                | 18             |   | (34 | ) | 104 |   | 50 |   | 154 |   |
|                                 | Real  estate                             | 165            |                                             | 22             |   | 187 |   | 578 |   | 205 |   | 783 |   |
|                                 | Installment                              | 16             |                                             | (2             | ) | 14 |   | 14 |   | 1 |   | 15 |   |
|                                 | Commercial                               | 93             |                                             | (33            | ) | 60 |   | (37 | ) | 171 |   | 134 |   |
|                                 |                                          |           |                                                  |           |
|                                 | Total  loans                             | 222            |                                             | 4              |   | 226 |   | 658 |   | 428 |   | 1,086 |   |
|                                 |                                     |           |                                             |           |   |   |   |   |   |   |   |   |
|                                 |                                     |           |                                             |           |   |   |   |   |   |   |   |   |
| Total Interest Earning  Assets       | 278                                      |           | (113                                             | )              | 165 |   | 1,001 |   | 569 |   | 1,570 |   |
|                                 |                                          |           |                                                  |           |
|                                 |                                     |           |                                             |           |   |   |   |   |   |   |   |   |
| Interest Bearing  Liabilities:       |                                     |           |                                             |           |   |   |   |   |   |   |   |   |
| Int-bearing demand                   | 4                                        |           | 0                                                |           | 4 |   | 11 |   | (1 | ) | 10 |   |
| Money market savings                 | (2                                       | )              | 0                                                |           | (2 | ) | (4 | ) | (1 | ) | (4 | ) |
| Savings deposits                     | 13                                       |           | (2                                               | )              | 11 |   | (5 | ) | 1 |   | (4 | ) |
| Time deposits  >$100M             | 90                                       |           | 10                                               |           | 100 |   | 201 |   | 39 |   | 240 |   |
| Time deposits  <$100M             | 2                                        |           | 25                                               |           | 27 |   | 242 |   | 48 |   | 290 |   |
| Other Borrowing                      | 31                                       |           | 8                                                |           | 39 |   | (2 | ) | 10 |   | 7 |   |
|                                 |                                          |           |                                                  |           |
| Total interest bearing  liabilities  | 138                                      |           | 42                                               |           | 180 |   | 445 |   | 96 |   | 540 |   |
|                                 |                                          |           |                                                  |           |
|                                 |                                     |           |                                             |           |   |   |   |   |   |   |   |   |
| Net change in net  interest          | 140                                      |           | (155                                             | )              | (15 | ) | 556 |   | 473 |   | 1,030 |   |

 

 

**Provision and 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, which have been setaside for the specific purpose of absorbing losses, which may occur in theBank's loan portfolio.

             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 Boardof Directors review the results of the California Department of FinancialInstitutions and FDIC examinations, independent accountants' observations, andthe Bank 's internal review as additional indicators to determine if the amountin the allowance for loan losses is adequate to protect against estimatedfuture losses.  It is the Bank 'scurrent practice, which could change in accordance with the factors mentionedabove, to maintain an allowance that is at least equal to the sum of thefollowing percentage of loan balances by loan category.

 

| Loan Category                                 | Reserve%                 |
|-----------------------------------------------|--------------------------|
|                                          |                     |
| Classified  Loans:                            |                     |
| Loans  classified loss                        | 100.00%                  |
| Loans  classified doubtful                    | 50.00%                   |
| Loans  classified substandard                 |                     |
|                                          | Real  Estate Secured     | 5.00% |
|                                          | Non  Real Estate Secured | 20.00% |
|                                          |                     |
| Unclassified  Loans:                          |                     |
| Real  Estate - Loan to value 80% or less      | 0.10%                    |
| Real  Estate - Loan to value over 80%         | 0.50%                    |
| Real  Estate - Construction                   | 0.15%                    |
| 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                         | .25%                     |
| 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, 2001 and 2000 the Bank’s allowance stood at 1.11and 1.01 percent, respectively.  Aprovision of $50,000 was made to the allowance during the six months ended June30, 2001 compared with $75,000 in the same period in 2000.   Charged off loans during the six monthsended June 30, 2001 and 2000 totaled $8,000 and $58,000 respectively.  Recoveries for the same periods were $1,800and $2,500, respectively.

             TheBank’s non-performing (delinquent 90 days or more and non-accrual) loans as apercentage of total loans were 0.18 percent at June 30, 2001 compared with 0.06percent at June 30, 2000.

             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.  Prudent collectionefforts, and tighter lending controls, are responsible for the Bank’s strongperformance on these measures of credit quality.  However, no assurance can be given that the Bank's loan portfoliowill continue to measure well against its peers on these ratios and qualitymeasures, or that losses will not otherwise occur in the future.

 

**Non-Interest Income**

             Totalnon-interest income for the six months ended June 30, 2001 was $1,724,700,compared with $1,301,200 for the same period in 2000.  The increase of  $423,500was the result of a $277,200 increase in income from other operating income, a$36,000 increase in service charges on deposit accounts and an increase of$110,300 in SBA loan sales and servicing. The significant increase in other operating income was due primarily togains on sales of securities of $119,500 and commercial banking loanorigination fees of $57,750.

             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 80 percent of theprincipal amount.  The guaranteedportion has risks comparable for an investor to a U. S. Government security andcan usually be sold in the secondary financial market, either at a premium orat a yield which allows the Bank to maintain a significant spread for itself.

             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.  The level of premium income onlonger-term loans has been significantly reduced due to the volume of loansthat have been paid off early.

**Non-Interest Expense**

             Salaryand benefits expense for the six months ended June 30, 2001 increased $165,700compared with the same period in 2000. The Bank added to its employee benefits program a matching of employeecontributions to its 401K Plan, matching 100% of each employees contribution upto 6% of the employees earnings; this accounted for $32,800 of the increase insalary and benefits.  The remainder ofthe increase was due primarily to employee merit pay increases, bonus accruals,and an increase of two full time equivalent staff positions.

             Totaloccupancy and equipment expense for the six months ended June 30, 2001 was$165,700 compared to $143,700 for the same period in 2000.  The increase was due to leasing additionaloffice space in Monterey and increases under existing lease agreements.

             Forthe six months ended June 30, 2001 professional fees were $69,200 compared with$43,500 the same period in 2000. Accounting/audit fees increased $12,200 and legal fees increased$13,500.

             Dataprocessing for the six months ended June 30, 2001 increased $3,900 compared tothe same period in 2000.

             Otherexpenses for the six months ended June 30, 2001 totaled $1,408,500 comparedwith $1,174,100 for the same period in 2000. Significant changes occurred in the following categories with increasesin merchant expense of $68,700, collection expense $3,700, bank fees $7,900,security $5,000, entertainment & meals expense $4,700, loan expense $3,600,FDIC and State assessments $4,300 and income tax $155,600 with decreases inadvertising expense $5,300, miscellaneous $6,500, business development expense$3,000, subscriptions $3,100 and telephone expense $3,000.

**LOANS**

             Loansrepresented 69.91% of average earning assets, and 62.31% of average totalassets for the six months ended June 30, 2001, compared with 71.27% and 62.15%,respectively during 2000.  For the sixmonths ended June 30, 2001 average loans increased 10.58% from $41,575,000 forthe same period in 2000 to $45,971,000. Average installment loans increased $266,000 (59.26%), averagecommercial loans increased $1,720,000 (13.98) and average real estate loansincreased $3,438,000 (13.63%), while construction loans decreased $1,027,000(29.13%).

             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 terms ranging from oneyear 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 and interest.  The Bank from time to time utilizes accountsreceivable 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, the SBA guarantees SBA loans for75 to 80 percent of their principal amount, which can be retained in portfolioor sold to investors.  Such loans aremade at floating interest rates, but generally for longer terms (up to 25years) than are available on a conventional basis to small businesses. The unguaranteed portion of the loans, although generally supported bycollateral, is considered to be more risky than conventional commercial loansbecause they may be based upon credit standards the Bank would not otherwiseapply, such as lower cash flow coverage, or longer repayment terms.

             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 and industrialreal estate loans, which generally yield higher returns than normal commercialloans.  The Bank has also developed abroker 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 may exceed the actualamount, which could be realized on foreclosure, or declines in market valuesubsequent 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.

**Nonperforming and Nonaccrual 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"):

 

|                                                           | Six  Months Ended  June 30, |            |
|----------------------------------------------------------------|-----------------------------|-----------------|
|                                                           | 2001                        |            | 2000 |   |
|                                                           |                             |            |  |   |
|                                                           | (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                                                     | 83                          |            | 25 |   |
| Installment                                                    | 0                           |            | 0 |   |
| Other                                                          | 0                           |            | 0 |   |
|                                                           |                             |            |  |   |
|                                                           | Total  non-accrual          | 83              |   | 25 |   |
|                                                           |                        |            |   |   |
|                                                           |                        |            |   |   |
|                                                           | Total  non-performing       | 83              |   | 25 |   |
|                                                           |                        |            |   |   |
|                                                           |                        |            |   |   |
| Total loans end of  period                                     | 46,224                      |            | 40,666 |   |
|                                                           |                        |            |   |   |
|                                                           |                        |            |   |   |
| Ratio of  non-performing loans to total loans at end of period | 0.18                        |     % | 0.06 |    % |

 

             Theseratios have been maintained as a result of a strengthening of underwritingcriteria, frequent review of new and delinquent loans and a firm collectionpolicy (with the assistance of outside legal counsel).  The Bank does not have any foreign loans orloans for highly leveraged transactions.

**Summary of Loan Loss Experience**

|                                                                           | Six  Months Ended  June 30, 2001 |             | Six  Months Ended  June 30, 2000 |            |
|--------------------------------------------------------------------------------|----------------------------------|------------------|----------------------------------|-----------------|
|                                                                           |                                  |             |                                  |            |
|                                                                           | (Dollars  in thousands)          |             |
|                                                                           |                             |             |                             |            |
| Average loans  outstanding                                                     | 45,971                           |             | 41,575                           |            |
|                                                                           |                             |             |                             |            |
|                                                                           |                             |             |                             |            |
| Allowance, beginning  of period                                                | 468                              |             | 400                              |            |
|                                                                           |                             |             |                             |            |
|                                                                           |                             |             |                             |            |
| Loans charged off  during period:                                              |                             |             |                             |            |
|                                                                           | Commercial                       | 8                |                             | 56              |   |
|                                                                           | Installment                      | 0                |                             | 2               |   |
|                                                                           | Real  Estate                     | 0                |                             | 0               |   |
|                                                                           | Other                            | 0                |                             | 0               |   |
|                                                                           |                                  |             |                                  |            |
|                                                                           | Total  charge offs               | 8                |                             | 58              |   |
|                                                                           |                             |             |                             |            |
| Recoveries during  period:                                                     |                             |             |                             |            |
|                                                                           | Commercial                       | 1                |                             | 2               |   |
|                                                                           | Installment                      | 1                |                             | 0               |   |
|                                                                           | Other                            | 0                |                             | 0               |   |
|                                                                           |                                  |             |                                  |            |
|                                                                           | Total  recoveries                | 2                |                             | 2               |   |
|                                                                           |                             |             |                             |            |
| Net Loans charged off  during the period                                       | 6                                |        | 56                               |       |
|                                                                           |                             |             |                             |            |
| Additions to allowance  for possible loan losses                               | 50                               |        | 75                               |            |
|                                                                           |                             |             |                             |            |
| Allowance, end of  period                                                      | 512                              |             | 419                              |            |
|                                                                           |                             |             |                             |            |
| Ratio of net loans  charged off to average Loans outstanding during the period | 0.01                             |      % | 0.13                             |     % |
|                                                                           |                             |             |                             |            |
| Ratio of allowance to  totalloans at end of period                             | 1.11                             |    %        | 1.00                             | %               |

**Funding Sources**

             Averagedeposits for the six months ended June 30, 2001 were $62,283,000 an increase of9.10% compared with the average balance for 2000.  Average certificates of deposit represented 55.13% of averagedeposits for the six months ended June 30, 2001.  Average interest bearing checking, money market and savingsaccounts as a group were 23.70% of average deposits.  Average demand deposits represented 21.17% of average deposits.

             TheCompany has a $1,000,000 term loan with United Security Bank with a maturity ofJuly 5. 2011.  The interest rate is afloating rate based on United Security Bank’s reference rate plus seventy five(75) basis points.  Interest is payablemonthly, with quarterly principal payments of $27,777.77 beginning October 5, 2002.

             TheCompany has a $200,000 revolving line of credit with the Pacific Coast Bankers'Bank which matures in July 2001.  Theinterest rate is a floating rate based on the prime lending rate plus seventyfive (75) basis points.  At June 30,2001 the line of credit was fully advanced.

             TheBank has a line of credit from the Federal Home Loan Bank of San Francisco witha maximum borrowing limit on June 30, 2001 of approximately $10,000,000.  Certain of the Bank’s real estate securedloans and investment securities secure the line of credit.  At June 30, 2001 the Bank had four$1,000,000 advances which bear interest at 4.83%, 6.81%,  6.86% and 7.71%, respectively.  The advances mature in October 2003, June2004, August 2005 and June 2030, respectively. The Bank did not utilize any short-term borrowings in 2000, 1999 or1998.

             TheBank has a $105,000 letter of credit issued by the Federal Home Loan Bank ofSan Francisco to secure the uninsured portion of local agency depositsmaintained with the Bank.  The letter ofcredit matures April 17, 2006.

 

**Capital Resources**

             TheBank maintains capital to comply with legal requirements, to provide a marginof safety for its depositors and stockholders, and to provide for future growthand the ability to pay dividends.  AtJune 30, 2001, stockholders’ equity was $5,139,000 versus $4,861,300 atDecember 31, 2000. The Company paid a ten (10%) percent stock dividend in 2000,1999 and 1998.  The Bank paid cashdividends to the Corporation totaling $100,000 during the six months ended June 30, 2001, $100,000, and $50,000in 2000 and 1999, respectively.

             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-bankbusinesses, or the FDIC or Federal Reserve Board may take other administrativeactions.  The guidelines employ twomeasures of capital:  (1) risk-basedcapital and (2) leverage capital.

             Undercurrent rules, all banks were 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 10.11% and a total risk-based capital ratio of11.04% at June 30, 2001 well above the minimum regulatory requirements.

             Theleverage capital ratio guidelines require a minimum leverage capital ratio of3% of Tier 1 capital to total assets less goodwill.  The Bank had a leverage capital ratio of 7.54% at June 30, 2001.

 

**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 considerations involvethe capacity to meet expected and potential requirements of depositors seekingaccess to balances and to provide for the credit demands of borrowingcustomers.  In the ordinary course ofthe Bank's business, funds are generated from the repayment of loans,maturities within the investment securities portfolio and the acquisition ofdeposit balances and short-term borrowings. The Bank has a line of credit fromthe Federal Home Loan Bank of San Francisco of approximately $10,000,000 and a$2,500,000 unsecured Federal Funds Purchased line with the Pacific CoastBankers' Bank 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 15 percent oftotal assets ("primary liquidity"), while maintaining sources ofsecondary liquidity (borrowing lines from other institutions) equal to at leastan additional 10 percent of assets.  Inaddition, it seeks to generally limit loans to not more than 90 percent ofdeposits.  Within these ratios, the Bank generally has excess fundsavailable to sell as federal funds on a daily basis, and is able to fund itsown liquidity needs without the need of short-term borrowing.  The Bank's total liquidity at June 30, 2001was 30.55 percent; while its average loan to deposit ratio for the six monthsended June 30, 2000 was 73.81 percent.

**Interest Rate Risk**

             Managementof interest rate sensitivity (asset/liability management) involves matching andrepricing rates of interest-earning assets with interest-bearing liabilities ina manner designed to optimize net interest income within the constraintsimposed by regulatory 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/liability management ismanaging the risk/return relationships between interest rate risk, liquidity,market risk and capital adequacy.  TheBank gives priority to liquidity concerns followed by capital adequacy, theninterest rate risk and market risk in the investment portfolio.  The policy of the Bank will be to controlthe exposure of the Bank's earnings to changing interest rates by generallymaintaining a position within a narrow range around an "earnings neutralposition." An earnings neutral position is defined as the mix of assetsand liabilities that generate a net interest margin that is not affected byinterest rate changes.  However,Management does not believe that the Bank can maintain a totally earningsneutral position.  Further, the actualtiming of repricing of assets and liabilities does not always correspond to thetiming assumed by the Bank for analytical purposes.  Therefore, changes in market rates of interest will generallyimpact on the Bank’s net interest income and net interest margin for long orshort 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, 2001 the affect of a 2% increase in the federal funds soldrate would result in a 4.6% increase in equity.  A 2% decrease in the federal funds sold rate would result in a4.9% decrease in equity.

**Investment Securities**

             Thefollowing table sets forth the book and market value of the Bank's investmentsecurities at June 30, 2001:

                                                                                                                        INVESTMENTPORTFOLIO MIX

 

|                               | Book  Value            |   | Market   value |
|------------------------------------|------------------------|--------|----------------|
|                               |                        |   |                |
|                               | (Dollars in thousands) |
|                               |                   |   |           |
|                               |                   |   |           |
| Available  for sale:               |                   |   |           |
| Federal  Home Loan Bank Stock      | 278                    |   | 278            |
| Pacific  Coast Bankers' Bank Stock | 350                    |   | 350            |
| U.S.  Government Agencies          | 11,216                 |   | 11,045         |
|                               |                        |   |                |
|                               |                   |   |           |
| Total                              | 11,844                 |   | 11,673         |
|                               |                        |   |                |

 

             Thefollowing table summarizes the maturity of the Bank's investment securities atJune 30, 2001:

 

|                   | INVESTMENT  PORTFOLIO MATURITIES |   |
|------------------------|----------------------------------|--------|
|                   | (Dollars  in thousands)          |   |
|                   |                             |   |   |   |   |   |   |   |   |   |
|                   |                             |   | over 1 |   | over 3 |   | over 5 |   |   |   |
|                   | 1 year                           |   | through |   | through |   | through |   | over |   |
|                   | or less                          |   | 3 years |   | 5 years |   | 15 years |   | 15 years |   |
|                   |                                  |   |  |   |  |   |  |   |  |   |
|                   |                             |   |   |   |   |   |   |   |   |   |
| U.S. Agency securities | ---                              |   | --- |   | --- |   | 11,045 |   | --- |   |
|                   |                             |   |   |   |   |   |   |   |   |   |
| Equity Securities      | 628                              |   | --- |   | --- |   | --- |   | --- |   |
|                   |                                  |   |  |   |  |   |  |   |  |   |
|                   |                             |   |   |   |   |   |   |   |   |   |
| Total                  | 628                              |   | --- |   | --- |   | 11,045 |   | --- |   |

**PART II-OTHER INFORMATION**

**Item 4.  Submission ofMatters to a vote of Security Holders.**

             Thefollowing proposals were presented to shareholders at the Corporation's annualshareholders' meeting held on May 17, 2001.

Proposal Number 1:     Election of Directors

 

|                         | **Number of  Affirmative Votes** |   | **Number of  Votes Withheld** |   |
|------------------------------|----------------------------------|--------|-------------------------------|--------|
|                         | ****                             |   | ****                          |   |
| Charles T.  Chrietzberg, Jr. | 952,473                          |   | 47,446                        |   |
| Sandra G. Chrietzberg        | 948,830                          |   | 51,089                        |   |
| Peter J. Coniglio            | 952,680                          |   | 47,239                        |   |
| Carla S. Hudson              | 953,474                          |   | 46,445                        |   |
| John M. Lotz                 | 950,997                          |   | 48,922                        |   |

 

| Proposal  Number 2: | Amend  the Company’s 1998 Stock Option Plan to increase the number of shares covered  thereunder from 332,750 to 461,821. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------|

 

| Number  of         |   | Number  of     |   | Number  of  |   |
|--------------------|--------|----------------|--------|-------------|--------|
| Affirmative  Votes |   | Votes  Against |   | Abstentions |   |
|                    |   |                |   |             |   |
| 872,265            |   | 62,579         |   | 5,751       |   |

** **

**Item 6.  Exhibits andReports on Form 8-K.**

A.         EXHIBITS

| Item      |   | Description                                                                                     |   |
|-----------|--------|-------------------------------------------------------------------------------------------------|--------|
| 2         |   | Plan  of Merger and Meger Agreement, Monterey County Bank with Monterey                         |
|      |   | County  Merger Corporation un the Charter of Monterey County Bank under                         |
|      |   | the  Title of Monterey County Bank, joined in by Northern California Bancorp,                   |
|      |   | Inc.  dated November 1, 1995.                                                              |
|      |   | Filed  as exhibit to Form 10KSB dated December 31, 1995.                                        |
| 3 (i)     |   | Articles  of Incorporation                                                                      |
|      |   | Filed  as exhibit to Form 10KSB dated December 31, 1995.                                        |
| 3 (ii)    |   | Bylaws                                                                                          |
|      |   | Filed  as exhibit to Form 10KSB dated December 31, 1995.                                        |
| 10 (i) D  |   | Lease  agreement Carmel Branch Office                                                           |
|      |   | Filed  as exhibit to Form 10KSB dated December 31, 1995.                                        |
| 10 (ii) A |   | (1)  Employment Contract of Charles T.  Chrietzberg, Jr., dated January 1, 2000            |
|      |   | Filed  as exhibit to Form 10KSB dated December 31, 1999.                                        |
|      |   | (2)  Deferred Compensation Agreement, dated  December 31, 1993                             |
|      |   | Filed  as exhibit to Form 10KSB dated December 31, 1995.                                        |
|      |   | (3)  Northern California Bancorp, Inc. 1998  Stock Option Plan and Stock Option Agreements |
|      |   | Filed  as exhibit to Form 10KSB dated December 31, 1998.                                        |
|      |   | (4)  Amendment to the Salary Continuation  Agreement Dated December 31, 1993               |
|      |   | Filed  as exhibit to Form 10KSB dated December 31, 1999.                                        |
|      |   | (5)  Life Insurance Endorsement Method Split  Dollar Plan Agreement                        |
|      |   | Filed  as exhibit to Form 10KSB dated December 31, 1999.                                        |
|           |        |                                                                                                 |        |  |

B.          Reportson Form 8-K             None

             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  9, 2001 |   | By:                                | /s/  Charles T. Chrietzberg, Jr. |   |
|   |            |   |                               |  |   |
|   |            |   |                               |   | Charles  T. Chrietzberg, Jr. |   |
|   |            |   |                               |   | Chief  Executive Officer |   |
|   |            |   |                               |   | and  President |   |
|   |            |   |                               |   |   |   |
| Date:  | August  9, 2001 |   | By:                                | /s/  Bruce N. Warner |   |
|   |            |   |                               |  |   |
|   |            |   |                               |   | Bruce  N. Warner |   |
|   |            |   |                               |   | Chief  Financial Officer and |   |
|   |            |   |                               |   | Principal  Accounting Officer |   |