UNITED STATES
                   SECURITIES AND EXCHANGE COMMISSION
                         Washington, D.C. 20549

                               FORM 10-K

[X]   ANNUAL  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES
      EXCHANGE ACT OF 1934
      For the Year ended         December  31, 2002
                                 ------------------

                                   OR

[ ]   TRANSITION   REPORT  PURSUANT  TO  SECTION  13  OR  15(d)  OF  THE
      SECURITIES EXCHANGE ACT OF 1934
      For the transition period from             to

                     Commission file number 0-25418
                                           --------

                         CENTRAL COAST BANCORP
                         ---------------------
         (Exact name of registrant as specified in its charter)

            STATE OF CALIFORNIA                    77-0367061
            -------------------                    ----------
    (State or other jurisdiction of              (I.R.S.  Employer
     incorporation or organization)             Identification No.)

   301 Main Street, Salinas, California                 93901
   ------------------------------------                 -----
  (Address of principal executive offices)           (Zip code)

      Registrant's telephone number, including area code (831) 422-6642
                                                        ---------------

    Securities registered pursuant to Section 12(b) of the Act: None

      Securities registered pursuant to Section 12(g) of the Act:

                          Title of each class
                              Common Stock
                             (no par value)


Indicate  by  check  mark  whether  the  registrant  (1) has  filed  all
reports  required  to be filed by Section 13 or 15(d) of the  Securities
Exchange  Act of 1934  during  the  preceding  12  months  (or for  such
shorter  period that the  registrant was required to file such reports),
and (2) has been  subject to such  filing  requirements  for the past 90
days.  Yes  [ X ]   No  [  ]

Indicate by check mark if disclosure of  delinquent  filers  pursuant to
Item 405 of  Regulation  S-K is not  contained  herein,  and will not be
contained,  to the best of the  registrant's  knowledge,  in  definitive
proxy or information  statements  incorporated  by reference in Part III
of this Form 10-K or any amendment to this Form 10-K  [ X].

Indicate by check mark whether the  registrant is an  accelerated  filer
(as defined in Rule 12b-2 of the Act). Yes [ X ]  No [ ]

The aggregate  market value of the voting and  non-voting  common equity
held by  non-affiliates  computed by reference to the price at which the
common  equity  was last sold,  or the  average  bid and asked  price of
such common  equity,  as of the last  business  day of the  registrant's
most recently  completed second fiscal quarter was  $166,515,208.  As of
March 7,  2003, the  registrant  had  9,917,241  shares of Common  Stock
outstanding.

                  DOCUMENTS INCORPORATED BY REFERENCE
The following  documents are  incorporated  by reference  into this Form
10-K: Part III, Items 10 through 13 from  registrant's  definitive proxy
statement for the 2003 annual meeting of shareholders.


The Index to Exhibits is located at page 78               Page 1 of 125 Pages


<PAGE>



                         CENTRAL COAST BANCORP
                                INDEX TO
                       ANNUAL REPORT ON FORM 10-K
                    FOR YEAR ENDED DECEMBER 31, 2002
Part I.                                                        Page
   Item 1.   Business                                               3
   Item 2.   Properties                                            17
   Item 3.   Legal Proceedings                                     18
   Item 4.   Submission of Matters to a Vote of Security Holders   18
Part II.
   Item 5.   Market for the Registrant's Common Equity and
             Related Stockholder Matters                           19
   Item 6.   Selected Financial Data                               21
   Item 7.   Management's Discussion and Analysis of Financial
             Condition and Results of Operations                   24
   Item 7A.  Quantitative and Qualitative Disclosures About
             Market Risks                                          47
   Item 8.   Financial Statements and Supplementary Data           47
   Item 9.   Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure                   69
Part III.
   Item 10.  Directors and Executive Officers of the Registrant    69
   Item 11.  Executive Compensation                                69
   Item 12.  Security Ownership of Certain Beneficial Owners and
             Management and Related Stockholder Matters            69
   Item 13.  Certain Relationships and Related Transactions        69
   Item 14.  Controls and Procedures                               70
Part IV.
   Item 15.  Exhibits, Financial Statement Schedules and Reports   72
             on Form 8-K
Signatures  and  Certifications   under  Section  302  of  the
Sarbanes-Oxley Act                                                 75
Exhibits
  10.19      Lease  agreement  dated July 16,  2002,  related to
             439 Alvarado Street, Monterey, California             79
  23.1       Independent auditors' consent                        124
  99.1       Certification of Chief Executive Officer and Chief
             Financial Officer pursuant to Section 906 of the
             Sarbanes-Oxley Act of 2002                           125

<PAGE>

                                 PART I


ITEM 1.  BUSINESS

GENERAL DEVELOPMENT OF BUSINESS.
Certain  matters  discussed or  incorporated by reference in this Annual
Report on Form 10-K  including,  but not limited to,  matters  described
in  "Item  7  -  Management's   Discussion  and  Analysis  of  Financial
Condition and Results of  Operations,"  are  forward-looking  statements
that are  subject to risks and  uncertainties  that could  cause  actual
results  to differ  materially  from  those  projected.  Changes to such
risks  and   uncertainties,   which  could   impact   future   financial
performance,  include,  among others,  (1) competitive  pressures in the
banking  industry;  (2) changes in the interest  rate  environment;  (3)
general  economic  conditions,  nationally,  regionally and in operating
market  areas,  including  a  decline  in  real  estate  values  in  the
Company's  market  areas;  (4) the effects of  terrorism,  the threat of
terrorism or the impact of  potential  military  conflicts;  (5) changes
in the regulatory  environment;  (6) changes in business  conditions and
inflation;  (7)  changes  in  securities  markets;  (8) data  processing
compliance  problems;  (9)  variances  in the  actual  versus  projected
growth  in  assets;  (10)  return on  assets;  (11)  loan  losses;  (12)
expenses;   (13)  rates  charged  on  loans  and  earned  on  securities
investments;  (14)  rates  paid on  deposits;  and  (15)  fee and  other
noninterest  income  earned,  as  well as  other  factors.  This  entire
Annual Report should be read to put such  forward-looking  statements in
context and to gain a more complete  understanding of the  uncertainties
and  risks   involved  in  the  Company's   business.   Therefore,   the
information  set forth  therein  should  be  carefully  considered  when
evaluating the business prospects of the Company and the Bank.

Central  Coast  Bancorp (the  "Company")  is a  California  corporation,
headquartered  in Salinas,  California  and was organized in 1994 to act
as a bank  holding  company  for Bank of Salinas.  In 1996,  the Company
acquired   Cypress   Bank,   which   was   headquartered   in   Seaside,
California.  Both  banks  were  state-charted  institutions.  In July of
1999,  the  Company  merged  Cypress  Bank into the Bank of Salinas  and
then  renamed Bank of Salinas as  Community  Bank of Central  California
(the  "Bank").   The  Bank  is   headquartered  in  Salinas  and  serves
individuals,    merchants,    small   and    medium-sized    businesses,
professionals,  agribusiness  enterprises  and wage  earners  located in
the California Central Coast area.

On  February  21,  1997,  the former Bank of Salinas  purchased  certain
assets and assumed  certain  liabilities of the Gonzales and Castroville
branch  offices  of Wells  Fargo  Bank.  As a result of the  transaction
the Bank  assumed  deposit  liabilities,  received  cash,  and  acquired
tangible  assets.  This  transaction   resulted  in  intangible  assets,
representing  the excess of the liabilities  assumed over the fair value
of the tangible assets acquired.

In January 1997,  the former  Cypress Bank opened a new branch office in
Monterey,  California,  so that  it  might  better  serve  business  and
individual  customers on the Monterey  Peninsula.  In December 1998, the
former  Bank of  Salinas  opened  an  additional  new  branch  office in
Salinas,  California,  to better provide services to the growing Salinas
community.

In June of 2000,  the Bank  opened a new branch  office in  Watsonville,
which is in Santa Cruz  County.  In October of 2000,  another new branch
office  was opened in  Hollister,  which is in San  Benito  County.  The
opening of these two branch  offices was a first step in  expanding  the
Bank's  service  area to  include  communities  in  contiguous  counties
outside of  Monterey  County.  On April 15,  2002 the Bank  opened a new
branch in  Gilroy,  which is located  at the  southern  end of the Santa
Clara  Valley in Santa  Clara  County.  These three  communities  are of
similar  economic  make-up to the  agricultural  based  communities  the
Bank serves in Monterey County.

As part of the  Bank's  continuing  strategy  to  expand  its  franchise
through denovo  branches,  a new branch was opened in downtown  Monterey
(Monterey Main) on January 21, 2003.

Until August 16, 2001, the Company  conducted no significant  activities
other than  holding  the shares of the  subsidiary  Bank.  On August 16,
2001  the  Company  notified  the  Board  of  Governors  of the  Federal
Reserve  System  (the "Board of  Governors"),  the  Company's  principal
regulator,   that  the   Company   was   engaged  in   certain   lending
activities.  The  Company  purchased  a loan from the Bank that the Bank
had  originated  for a local  agency  that  was  categorized  as a large
issuer  for  taxation  purposes.  The  Company  is  able  to use the tax
benefits of such loans.  The Company may purchase  similar  loans in the
future.  Upon  prior  notification  to  the  Board  of  Governors,   the
Company is  authorized to engage in a variety of  activities,  which are
deemed closely related to the business of banking.

The Bank  operates  through  its main  office  in  Salinas  and  through
eleven  branch  offices  located  in  Castroville,   Gilroy,   Gonzales,
Hollister,  King  City,  Marina,  Monterey  (2),  Salinas,  Seaside  and
Watsonville,  California.  The Bank  offers a full  range of  commercial
banking services,  including the acceptance of demand,  savings and time
deposits,   and  the  making  of  commercial,   real  estate  (including
residential mortgage),  Small Business  Administration,  personal,  home
equity,  automobile and other  installment and term loans. The Bank also
currently  offers  personal  and  business  Visa credit  cards.  It also
offers  ATM and  Visa  debit  cards,  travelers'  checks,  safe  deposit
boxes,  notary  public,   customer  courier  and  other  customary  bank
services.  Most of the Bank's  offices  are open from 9:00 a.m.  to 5:00
p.m.,  Monday  through  Thursday  and 9:00 a.m.  to 6:00 p.m. on Friday.
The Westridge  and Monterey Main branch  offices are also open from 9:00
a.m.  to 1:00 p.m.  on  Saturdays.  Additionally,  on a  24-hour  basis,
customers can bank by telephone or online at the Bank's  Internet  site,
www.community-bnk.com.   The  Bank  also  operates  a  limited   service
facility  in a  retirement  home  located in  Salinas,  California.  The
facility  is open from 10:00 a.m.  to 12:00 p.m.  on  Wednesday  of each
week.  The Bank has automated  teller  machines  (ATMs)  located at each
of its branch locations,  the Monterey County  Fairgrounds,  the Soledad
Correctional  Training  Facility  Credit Union,  Salinas Valley Memorial
Hospital   and  Fort  Hunter   Liggett,   which  is  located  in  Jolon,
California.  The Bank is insured  under the  Federal  Deposit  Insurance
Act and each  depositor's  account  is  insured  up to the legal  limits
thereon.   The  Bank  is   chartered   (licensed)   by  the   California
Commissioner of Financial  Institutions  ("Commissioner") and has chosen
not to become a member of the Federal  Reserve  System.  The Bank has no
subsidiaries.

The  Company  operates  an  on-site  computer  system,   which  provides
independent   processing   of  its   deposits,   loans   and   financial
accounting.

The Bank  concentrates  its lending  activities in four principal areas:
commercial loans (including  agricultural  loans);  consumer loans; real
estate  construction  loans  (both  commercial  and  personal)  and real
estate-other   loans.  At  December  31,  2002,  these  four  categories
accounted  for  approximately  30%,  2%, 10% and 58% of the Bank's  loan
portfolio, respectively.

The  Bank's   deposits  are  attracted   primarily   from   individuals,
merchants,   small  and  medium-sized   businesses,   professionals  and
agribusiness  enterprises.  The Bank's  deposits are not received from a
single  depositor or group of affiliated  depositors the loss of any one
of which would have a materially  adverse  effect on the business of the
Bank.   Approximately   50%  of  the   deposits   are  from   commercial
customers,  42%  are  from  individuals  and  8% are  from  governmental
entities and local agencies.

As of  December  31,  2002,  the  Bank  served  a  total  of  29  state,
municipality  and  governmental  agency  depositors with  $58,127,000 in
deposits.  Of this amount  $10,000,000 is  attributable  to certificates
of  deposit  for  the  State  of  California.  In  connection  with  the
deposits of municipalities or other  governmental  agencies or entities,
the Bank is  generally  required  to pledge  securities  to secure  such
deposits,  except for the first  $100,000  of such  deposits,  which are
insured by the Federal Deposit Insurance Corporation ("FDIC").

As of December 31, 2002,  the Bank had total  deposits of  $826,502,000.
Of  this  total,  $261,242,000  represented  noninterest-bearing  demand
deposits,  $127,692,000  represented  interest-bearing  demand deposits,
and   $437,568,000   represented   interest-bearing   savings  and  time
deposits.

The  principal  sources of the Bank's  revenues  are:  (i)  interest and
fees on loans;  (ii)  interest on  investments  (principally  government
securities);  and (iii)  interest on Federal Funds sold (funds loaned on
a  short-term  basis  to  other  banks).   For  the  fiscal  year  ended
December 31, 2002,  these  sources  comprised  87.4%,  12.1%,  and 0.5%,
respectively, of the Bank's total interest income.

SUPERVISION AND REGULATION

The  common  stock  of  the  Company  is  subject  to  the  registration
requirements  of the  Securities  Act  of  1933,  as  amended,  and  the
qualification  requirements of the California  Corporate  Securities Law
of 1968, as amended.  The Bank's common stock,  however,  is exempt from
such  requirements.   The  Company  is  also  subject  to  the  periodic
reporting  requirements of Section 13 of the Securities  Exchange Act of
1934,  as  amended,  which  include,  but are not  limited  to,  annual,
quarterly and other  current  reports with the  Securities  and Exchange
Commission.

The  Bank  is  licensed  by the  California  Commissioner  of  Financial
Institutions.  Its deposits  are insured by the FDIC,  and it has chosen
not to  become a member of the  Federal  Reserve  System.  Consequently,
the Bank is subject to the  supervision  of, and is  regularly  examined
by, the  Commissioner  and the FDIC.  Such  supervision  and  regulation
include  comprehensive  reviews  of all  major  aspects  of  the  Bank's
business and  condition,  including  its capital  ratios,  allowance for
probable loan losses and other  factors.  However,  no inference  should
be drawn that such  authorities  have  approved  any such  factors.  The
Company   and  the  Bank  are   required  to  file   reports   with  the
Commissioner,  the  FDIC  and the  Board  of  Governors  of the  Federal
Reserve  System  ("Board of  Governors")  and  provide  such  additional
information  as the  Commissioner,  FDIC and the Board of Governors  may
require.

The  Company is a bank  holding  company  within the meaning of the Bank
Holding  Company  Act of 1956,  as amended  (the "Bank  Holding  Company
Act"),  and is registered as such with,  and subject to the  supervision
of,  the Board of  Governors.  The  Company  is  required  to obtain the
approval  of  the  Board  of  Governors  before  it may  acquire  all or
substantially  all of the assets of any bank,  or  ownership  or control
of the  voting  shares  of any  bank if,  after  giving  effect  to such
acquisition  of shares,  the Company  would own or control  more than 5%
of the  voting  shares  of such  bank.  The  Bank  Holding  Company  Act
prohibits  the Company from  acquiring any voting shares of, or interest
in, all or  substantially  all of the assets of, a bank located  outside
the State of  California  unless  such an  acquisition  is  specifically
authorized  by the  laws of the  state in which  such  bank is  located.
Any such  interstate  acquisition  is also subject to the  provisions of
the  Riegle-Neal  Interstate  Banking and  Branching  Efficiency  Act of
1994.

The  Company,  and any  subsidiaries,  which it may acquire or organize,
are deemed to be  "affiliates"  of the Bank  within the  meaning of that
term as defined in the Federal  Reserve  Act.  This means,  for example,
that there are limitations  (a) on loans by the Bank to affiliates,  and
(b) on investments  by the Bank in  affiliates'  stock as collateral for
loans  to any  borrower.  The  Company  and its  subsidiaries  are  also
subject  to  certain  restrictions  with  respect  to  engaging  in  the
underwriting, public sale and distribution of securities.

In addition,  regulations  of the Board of Governors  promulgated  under
the Federal  Reserve  Act require  that  reserves be  maintained  by the
Bank  in  conjunction  with  any  liability  of the  Company  under  any
obligation  (demand  deposits,   promissory  note,   acknowledgement  of
advance,  banker's  acceptance  or similar  obligation)  with a weighted
average  maturity  of less than seven (7) years to the  extent  that the
proceeds  of such  obligations  are used for the  purpose  of  supplying
funds to the Bank for use in its banking  business,  or to maintain  the
availability of such funds.

The Board of  Governors  and the FDIC have  adopted  risk-based  capital
guidelines  for   evaluating  the  capital   adequacy  of  bank  holding
companies  and  banks.  The  guidelines  are  designed  to make  capital
requirements  sensitive to  differences  in risk profiles  among banking
organizations,  to take into account  off-balance sheet exposures and to
aid in making the  definition of bank capital  uniform  internationally.
Under  the  guidelines,  the  Company  and  the  Bank  are  required  to
maintain  capital  equal to at least 8.0% of its assets and  commitments
to  extend  credit,  weighted  by risk,  of which  at  least  4.0%  must
consist  primarily of common equity  (including  retained  earnings) and
the remainder may consist of  subordinated  debt,  cumulative  preferred
stock, or a limited amount of loan loss reserves.

Assets,  commitments to extend credit,  and off-balance  sheet items are
categorized  according to risk and certain assets  considered to present
less risk than  others  permit  maintenance  of capital at less than the
8% ratio.  For  example,  most home  mortgage  loans are placed in a 50%
risk category and therefore  require  maintenance of capital equal to 4%
of  such  loans,  while  commercial  loans  are  placed  in a 100%  risk
category and  therefore  require  maintenance  of capital equal to 8% of
such loans.

The  Company  and the Bank are  subject  to  regulations  issued  by the
Board  of  Governors  and  the  FDIC,  which  require  maintenance  of a
certain  level  of  capital.   These  regulations   impose  two  capital
standards:   a  risk-based  capital  standard  and  a  leverage  capital
standard.

Under the Board of Governors' risk-based capital guidelines, assets reported
on an institution's balance sheet and certain off-balance sheet items
are assigned to risk categories, each of which has an assigned risk
weight.  Capital ratios are calculated by dividing the institution's
qualifying capital by its period-end risk-weighted assets.  The
guidelines establish two categories of qualifying capital:  Tier 1
capital (defined to include common shareholders' equity and
noncumulative perpetual preferred stock) and Tier 2 capital which
includes, among other items, limited life (and in case of banks,
cumulative) preferred stock, mandatory convertible securities,
subordinated debt and a limited amount of reserve for loan losses.
Tier 2 capital may also include up to 45% of the pretax net unrealized
gains on certain available-for-sale equity securities having readily
determinable fair values (i.e. the excess, if any, of fair market
value over the book value or historical cost of the investment
security). The federal regulatory agencies reserve the right to
exclude all or a portion of the unrealized gains upon a determination
that the equity securities are not prudently valued.  Unrealized gains
and losses on other types of assets, such as bank premises and
available-for-sale debt securities, are not included in Tier 2
capital, but may be taken into account in the evaluation of overall
capital adequacy and net unrealized losses on available-for-sale
equity securities will continue to be deducted from Tier 1 capital as
a cushion against risk.  Each institution is required to maintain a
risk-based capital ratio (including Tier 1 and Tier 2 capital) of 8%,
of which at least half must be Tier 1 capital.

Under the Board of Governors'  leverage  capital standard an institution
is  required  to  maintain a minimum  ratio of Tier 1 capital to the sum
of its  quarterly  average total assets and  quarterly  average  reserve
for loan  losses,  less  intangibles  not  included  in Tier 1  capital.
Period-end  assets  may be used in  place  of  quarterly  average  total
assets on a  case-by-case  basis.  The Board of  Governors  and the FDIC
have also adopted a minimum  leverage  ratio for bank holding  companies
as a supplement to the risk-weighted  capital  guidelines.  The leverage
ratio  establishes  a  minimum  Tier 1 ratio  of 3% (Tier 1  capital  to
total  assets) for the highest  rated bank  holding  companies  or those
that have  implemented the risk-based  capital market risk measure.  All
other bank  holding  companies  must  maintain a minimum Tier 1 leverage
ratio  of 4% with  higher  leverage  capital  ratios  required  for bank
holding  companies that have significant  financial  and/or  operational
weakness,  a high risk profile,  or are undergoing or anticipating rapid
growth.

At December 31, 2002,  the Bank and the Company are in  compliance  with
the  risk-based   capital  and  leverage  ratios  described  above.  See
Footnote  13  to  the  Consolidated   Financial  Statements  in  Item  8
"Financial  Statements  and  Supplementary  Data" below for a listing of
the Company's and the Bank's  risk-based  capital ratios at December 31,
2002 and 2001.

The Board of  Governors  and FDIC  adopted  regulations  implementing  a
system  of  prompt  corrective  action  pursuant  to  Section  38 of the
Federal  Deposit  Insurance  Act and Section 131 of the Federal  Deposit
Insurance   Corporation   Improvement  Act  of  1991   ("FDICIA").   The
regulations   establish  five  capital  categories  with  the  following
characteristics:  (1) "Well  capitalized"  - consisting of  institutions
with a  total  risk-based  capital  ratio  of 10% or  greater,  a Tier 1
risk-based  capital  ratio of 6% or greater  and a leverage  ratio of 5%
or greater,  and the  institution  is not  subject to an order,  written
agreement,  capital  directive or prompt  corrective  action  directive;
(2) "Adequately  capitalized" - consisting of institutions  with a total
risk-based  capital ratio of 8% or greater,  a Tier 1 risk-based capital
ratio of 4% or greater and a leverage  ratio of 4% or  greater,  and the
institution  does  not  meet  the  definition  of a  "well  capitalized"
institution;  (3)  "Undercapitalized"  - consisting of institutions with
a total  risk-based  capital  ratio  less  than 8%, a Tier 1  risk-based
capital  ratio of less  than 4%,  or a  leverage  ratio of less than 4%;
(4) "Significantly  undercapitalized"  - consisting of institutions with
a total  risk-based  capital  ratio of less than 6%, a Tier 1 risk-based
capital  ratio of less  than 3%,  or a  leverage  ratio of less than 3%;
(5) "Critically  undercapitalized"  - consisting of an institution  with
a ratio of  tangible  equity  to total  assets  that is equal to or less
than 2%.

The regulations  established  procedures for classification of financial
institutions  within  the  capital  categories,   filing  and  reviewing
capital   restoration   plans   required  under  the   regulations   and
procedures  for issuance of  directives  by the  appropriate  regulatory
agency,  among other matters.  The regulations impose  restrictions upon
all  institutions  to refrain from certain  actions which would cause an
institution   to  be   classified   within   any   one  of   the   three
"undercapitalized"  categories,  such as  declaration  of  dividends  or
other  capital   distributions   or  payment  of  management   fees,  if
following  the   distribution  or  payment  the  institution   would  be
classified  within  one  of  the   "undercapitalized"   categories.   In
addition,  institutions  which  are  classified  in  one  of  the  three
"undercapitalized"  categories  are  subject  to certain  mandatory  and
discretionary   supervisory  actions.   Mandatory   supervisory  actions
include (1) increased  monitoring and review by the appropriate  federal
banking agency;  (2)  implementation of a capital  restoration plan; (3)
total asset growth  restrictions;  and (4) limitation upon acquisitions,
branch  office  expansion,  and new business  activities  without  prior
approval  of  the  appropriate  federal  banking  agency.  Discretionary
supervisory  actions may include (1)  requirements  to augment  capital;
(2) restrictions  upon affiliate  transactions;  (3)  restrictions  upon
deposit  gathering  activities and interest rates paid; (4)  replacement
of senior  executive  officers  and  directors;  (5)  restrictions  upon
activities  of  the  institution  and  its  affiliates;   (6)  requiring
divestiture or sale of the  institution;  and (7) any other  supervisory
action  that  the  appropriate  federal  banking  agency  determines  is
necessary  to further the  purposes  of the  regulations.  Further,  the
federal  banking  agencies  may not  accept a capital  restoration  plan
without  determining,  among  other  things,  that  the plan is based on
realistic  assumptions  and  is  likely  to  succeed  in  restoring  the
depository   institution's   capital.   In   addition,   for  a  capital
restoration plan to be acceptable,  the depository  institution's parent
holding  company must  guarantee that the  institution  will comply with
such capital  restoration  plan.  The aggregate  liability of the parent
holding  company  under the  guaranty is limited to the lesser of (i) an
amount equal to 5 percent of the depository  institution's  total assets
at the time it  became  undercapitalized,  and (ii) the  amount  that is
necessary (or would have been necessary) to bring the  institution  into
compliance  with all capital  standards  applicable with respect to such
institution  as of the time it  fails to  comply  with  the  plan.  If a
depository  institution  fails  to  submit  an  acceptable  plan,  it is
treated  as if it were  "significantly  undercapitalized."  FDICIA  also
restricts  the   solicitation  and  acceptance  of  and  interest  rates
payable on brokered  deposits by insured  depository  institutions  that
are not "well  capitalized."  An  "undercapitalized"  institution is not
allowed to solicit  deposits  by  offering  rates of  interest  that are
significantly  higher than the  prevailing  rates of interest on insured
deposits in the particular  institution's  normal market areas or in the
market areas in which such deposits would otherwise be accepted.

Any  financial   institution   which  is   classified   as   "critically
undercapitalized"  must be placed  in  conservatorship  or  receivership
within 90 days of such  determination  unless it is also determined that
some other  course of action  would  better  serve the  purposes  of the
regulations.   Critically   undercapitalized   institutions   are   also
prohibited  from making (but not  accruing)  any payment of principal or
interest on  subordinated  debt  without the prior  approval of the FDIC
and the FDIC must  prohibit a  critically  undercapitalized  institution
from  taking   certain  other  actions   without  its  prior   approval,
including (1) entering into any material  transaction  other than in the
usual course of business,  including investment expansion,  acquisition,
sale of assets or other similar  actions;  (2) extending  credit for any
highly  leveraged  transaction;  (3) amending  articles or bylaws unless
required  to do so to comply  with any law,  regulation  or  order;  (4)
making any  material  change in  accounting  methods;  (5)  engaging  in
certain  affiliate  transactions;  (6) paying excessive  compensation or
bonuses;  and (7)  paying  interest  on new or  renewed  liabilities  at
rates which would  increase the weighted  average  costs of funds beyond
prevailing rates in the institution's normal market areas.

Under the  FDICIA,  the  federal  financial  institution  agencies  have
adopted   regulations  which  require   institutions  to  establish  and
maintain  comprehensive  written  real  estate  policies  which  address
certain lending  considerations,  including  loan-to-value  limits, loan
administrative  policies,   portfolio  diversification   standards,  and
documentation,   approval  and   reporting   requirements.   The  FDICIA
further  generally  prohibits an insured  state bank from  engaging as a
principal in any activity  that is  impermissible  for a national  bank,
absent  FDIC   determination   that  the  activity   would  not  pose  a
significant  risk to the Bank Insurance  Fund, and that the bank is, and
will  continue  to be,  within  applicable  capital  standards.  Similar
restrictions   apply  to  subsidiaries  of  insured  state  banks.   The
Company  does not  currently  intend to engage in any  activities  which
would be restricted or prohibited under the FDICIA.

The  Federal  Financial   Institution   Examination   Counsel  ("FFIEC")
utilizes the Uniform  Financial  Institutions  Rating  System  ("UFIRS")
commonly   referred  to  as  "CAMELS"  to  classify   and  evaluate  the
soundness  of  financial  institutions.  Bank  examiners  use the CAMELS
measurements to evaluate capital  adequacy,  asset quality,  management,
earnings, liquidity and sensitivity to market risk.

The federal  financial  institution  agencies have established bases for
analysis and standards for assessing a financial  institution's  capital
adequacy  in  conjunction   with  the  risk-based   capital   guidelines
including  analysis  of  interest  rate risk,  concentrations  of credit
risk, risk posed by  non-traditional  activities,  and factors affecting
overall  safety and  soundness.  The safety and soundness  standards for
insured  financial   institutions   include  analysis  of  (1)  internal
controls,  information  systems and  internal  audit  systems;  (2) loan
documentation;  (3) credit  underwriting;  (4) interest  rate  exposure;
(5)  asset  growth;  (6)  compensation,   fees  and  benefits;  and  (7)
excessive  compensation for executive  officers,  directors or principal
shareholders  which could lead to material  financial loss. If an agency
determines  that an institution  fails to meet any standard,  the agency
may  require  the  financial  institution  to  submit  to the  agency an
acceptable  plan  to  achieve  compliance  with  the  standard.  If  the
agency  requires  submission  of a compliance  plan and the  institution
fails to timely  submit an  acceptable  plan or to implement an accepted
plan,   the  agency  must  require  the   institution   to  correct  the
deficiency.  The  agencies may elect to initiate  enforcement  action in
certain  cases rather than rely on an existing plan  particularly  where
failure to meet one or more of the  standards  could  threaten  the safe
and sound operation of the institution.

Community  Reinvestment Act ("CRA") regulations  evaluate banks' lending
to  low  and  moderate  income   individuals  and  businesses  across  a
four-point  scale from  "outstanding"  to  "substantial  noncompliance,"
and  are a  factor  in  regulatory  review  of  applications  to  merge,
establish  new  branch  offices  or  form  bank  holding  companies.  In
addition,  any bank rated in  "substantial  noncompliance"  with the CRA
regulations may be subject to enforcement proceedings.

The Bank has a current rating of "outstanding" for CRA compliance.

The Company's  ability to pay cash dividends is subject to  restrictions
set  forth  in  the  California  General   Corporation  Law.  Funds  for
payment of any cash  dividends  by the Company  would be  obtained  from
its  investments as well as dividends  and/or  management  fees from the
Bank.  The  payment  of cash  dividends  and/or  management  fees by the
Bank is subject to  restrictions  set forth in the California  Financial
Code,  as well as  restrictions  established  by the  FDIC.  See  Item 5
below for further  information  regarding the payment of cash  dividends
by the Company and the Bank.

COMPETITION

At June 30, 2002,  the  competing  commercial  and savings  banks had 63
branch  offices  in  the  cities  of  Castroville,   Hollister,  Gilroy,
Gonzales,   King  City,   Marina,   Monterey,   Salinas,   Seaside   and
Watsonville   where   the   Bank   has  its   twelve   branch   offices.
Additionally,  the Bank competes  with thrifts and, to a lesser  extent,
credit unions,  finance  companies and other financial service providers
for deposit and loan customers.

Larger  banks  may  have  a  competitive  advantage  because  of  higher
lending  limits and major  advertising  and  marketing  campaigns.  They
also perform services,  such as trust services,  international  banking,
discount  brokerage  and  insurance  services,  which  the  Bank  is not
authorized  nor  prepared  to  offer   currently.   The  Bank  has  made
arrangements  with its  correspondent  banks and with  others to provide
some of  these  services  for its  customers.  For  borrowers  requiring
loans  in  excess  of the  Bank's  legal  lending  limits,  the Bank has
offered,   and  intends  to  offer  in  the  future,  such  loans  on  a
participating   basis  with  its  correspondent  banks  and  with  other
independent  banks,  retaining the portion of such loans which is within
its  lending  limits.  As of December  31,  2002,  the Bank's  aggregate
legal lending limits to a single  borrower and such  borrower's  related
parties were  $13,052,000  on an unsecured  basis and  $21,754,000  on a
fully  secured  basis  based  on  regulatory  capital  and  reserves  of
$87,016,000

The  Bank's  business  is  concentrated  in  its  service  area,   which
primarily  encompasses  Monterey  County,  including the Salinas  Valley
area and also serves Hollister,  in San Benito County,  Watsonville,  in
Santa Cruz County,  and Gilroy,  in Santa Clara  County.  The economy of
the Bank's service area is dependent upon agriculture,  tourism,  retail
sales, population growth and smaller service oriented businesses.

Based upon data as of the most recent practicable date (June 30,
20021),  there were 70  operating  commercial  and  savings  bank branch
offices in  Monterey  County  with  total  deposits  of  $4,830,773,000.
This was an increase of  $355,860,000  over the June 30, 2001  balances.
The  Bank  held  a  total  of  $739,306,000  in  deposits,  representing
approximately  15.3% of total  commercial  and savings banks deposits in
Monterey  County as of June 30, 2002. In the three new  expansion  areas
in the Cities of Gilroy,  Hollister and  Watsonville,  at June 30, 2002,
there  were  9,  8  and  11  branch   offices  with  total  deposits  of
$490,438,000,  $520,561,000  and  $772,272,000,  respectively.  At  that
date, the Bank had deposits of $4,487,000,  $29,994,000  and $14,989,000
in those three communities.

In order to  compete  with the  major  financial  institutions  in their
primary  service areas,  the Bank uses to the fullest  extent  possible,
the  flexibility,  which is accorded  by its  independent  status.  This
includes  an  emphasis  on  specialized   services,   local  promotional
activity,  and personal  contacts by the Bank's officers,  directors and
employees.   The  Bank  also  seeks  to  provide  special  services  and
programs for  individuals  in its primary  service area who are employed
in the  agricultural,  professional and business  fields,  such as loans
for equipment,  furniture,  tools of the trade or expansion of practices
or  businesses.  In the event  there are  customers  whose loan  demands
exceed the Bank's  lending  limits,  the Bank seeks to arrange  for such
loans on a participation  basis with other financial  institutions.  The
Bank also  assists  those  customers  requiring  services not offered by
the Bank to obtain such services from correspondent banks.

Banking is a business  that depends on interest rate  differentials.  In
general,  the  difference  between the interest rate paid by the Bank to
obtain  their  deposits  and  other  borrowings  and the  interest  rate
received by the Bank on loans  extended to customers  and on  securities
held in the Bank's  portfolio  comprise the major  portion of the Bank's
earnings.

Commercial  banks  compete  with savings and loan  associations,  credit
unions,  other  financial  institutions  and other  entities  for funds.
For instance,  yields on corporate and  government  debt  securities and
other  commercial  paper  affect  the  ability  of  commercial  banks to
attract  and hold  deposits.  Commercial  banks also  compete  for loans
with savings and loan  associations,  credit  unions,  consumer  finance
companies, mortgage companies and other lending institutions.

--------
1 "FDIC Institution Office Deposits", June 30, 2002


The  interest  rate   differentials  of  the  Bank,  and  therefore  its
earnings,  are affected not only by general  economic  conditions,  both
domestic  and foreign,  but also by the monetary and fiscal  policies of
the  United  States as set by  statutes  and as  implemented  by federal
agencies,  particularly  the Federal Reserve Board.  This Agency can and
does  implement  national  monetary  policy,  such  as  seeking  to curb
inflation  and  combat  recession,  by its  open  market  operations  in
United  States  government  securities,  adjustments  in the  amount  of
interest-free  reserves that banks and other financial  institutions are
required to maintain,  and adjustments to the discount rates  applicable
to  borrowing   by  banks  from  the  Federal   Reserve   Board.   These
activities   influence  the  growth  of  bank  loans,   investments  and
deposits  and also affect  interest  rates  charged on loans and paid on
deposits.  The  nature and  timing of any  future  changes  in  monetary
policies  and  their  impact on the Bank are not  predictable.  In 2001,
the Federal  Reserve  Board  lowered  rates  eleven times for a total of
475  basis  points.  The  Federal  Funds  rate  went  from  6.50% at the
beginning  of  the  year  to  1.75%  at  the  end  of  the  year.   Such
significant  rate  changes  were  not  anticipated  and  they  adversely
impacted   the   Bank's   net   interest   income  for  2001  and  2002.
Additionally,  in November of 2002,  the Federal  Funds rate was lowered
by  another  50  basis  points  to  1.25%.   Barring  any  further  rate
reductions interest margins should remain relatively constant in 2003.

The FDIC's bank  deposit  insurance  assessment  rates  currently  range
from $0 to $0.27 per $100 of  deposits,  dependent  upon a bank's  risk.
Based upon the above  risk-based  assessment  rate schedule,  the Bank's
current  capital ratios and the Bank's  current levels of deposits,  the
Bank  anticipates  no change in the  assessment  rate  applicable to the
Bank during 2003 from that in 2002.

Since 1996,  California  law  implementing  certain  provisions of prior
federal   law  has   (1) permitted   interstate   merger   transactions;
(2) prohibited  interstate branching through the acquisition of a branch
office  business unit located in California  without  acquisition of the
whole  business  unit  of  the  California   bank;  and   (3) prohibited
interstate   branching  through  de  novo  establishment  of  California
branch  offices.  Initial  entry  into  California  by  an  out-of-state
institution  must be  accomplished  by  acquisition of or merger with an
existing  whole  bank,  which has been in  existence  for at least  five
years.

The federal  financial  institution  agencies,  especially the Office of
the  Comptroller  of the  Currency  ("OCC") and the Board of  Governors,
have taken steps to increase the types of activities  in which  national
banks and bank holding  companies  can engage,  and to make it easier to
engage in such  activities.  The OCC has issued  regulations  permitting
national  banks  to  engage  in a  wider  range  of  activities  through
subsidiaries.  "Eligible  institutions"  (those  national banks that are
well  capitalized,  have a high overall  rating and a  satisfactory  CRA
rating,  and are not  subject  to an  enforcement  order)  may engage in
activities  related to banking through  operating  subsidiaries  subject
to an expedited  application  process. In addition,  a national bank may
apply to the OCC to  engage  in an  activity  through  a  subsidiary  in
which the bank itself may not engage.

In 1999,  the  Gramm-Leach-Bliley  Act was  signed  into  law (the  "GLB
Act").  The GLB Act  eliminates  most  of the  remaining  depression-era
"firewalls"  between  banks,  securities  firms and insurance  companies
which was  established  by The  Banking  Act of 1933,  also known as the
Glass-Steagall   Act   ("Glass-Steagall").   Glass-Steagall   sought  to
insulate banks as depository  institutions  from the perceived  risks of
securities  dealing and underwriting,  and related  activities.  The GLB
Act repeals Section 20 of  Glass-Steagall  which  prohibited  banks from
affiliating  with  securities  firms.  Bank holding  companies  that can
qualify as  "financial  holding  companies"  can now acquire  securities
firms or  create  them as  subsidiaries,  and  securities  firms can now
acquire banks or start banking  activities  through a financial  holding
company.  The GLB Act includes  provisions  which permit  national banks
to  conduct   financial   activities   through  a  subsidiary  that  are
permissible  for a  national  bank to  engage  in  directly,  as well as
certain  activities  authorized  by statute,  or that are  financial  in
nature or  incidental  to  financial  activities  to the same  extent as
permitted  to a  "financial  holding  company" or its  affiliates.  This
liberalization   of  United  States   banking  and  financial   services
regulation   applies   both  to   domestic   institutions   and  foreign
institutions  conducting  business in the United  States.  Consequently,
the common  ownership of banks,  securities firms and insurance firms is
now  possible,  as  is  the  conduct  of  commercial  banking,  merchant
banking,  investment management,  securities  underwriting and insurance
within  a  single  financial  institution  using  a  "financial  holding
company" structure authorized by the GLB Act

Prior  to  the  GLB  Act,   significant   restrictions  existed  on  the
affiliation  of banks with  securities  firms and on the direct  conduct
by banks of securities  dealing and underwriting and related  securities
activities.  Banks were also (with  minor  exceptions)  prohibited  from
engaging in insurance  activities or affiliating with insurers.  The GLB
Act  removes  these   restrictions  and  substantially   eliminates  the
prohibitions   under  the  Bank  Holding  Company  Act  on  affiliations
between banks and insurance  companies.  Bank holding  companies,  which
qualify as financial  holding  companies can now insure,  guarantee,  or
indemnify against loss, harm,  damage,  illness,  disability,  or death;
issue  annuities;  and act as a principal,  agent,  or broker  regarding
such insurance services.

In order for a commercial  bank to affiliate  with a securities  firm or
an insurance  company  pursuant to the GLB Act, its bank holding company
must qualify as a financial  holding  company.  A bank  holding  company
will  qualify if (i) its  banking  subsidiaries  are "well  capitalized"
and  "well  managed"  and (ii) it files  with the Board of  Governors  a
certification  to  such  effect  and a  declaration  that it  elects  to
become a financial  holding  company.  The amendment of the Bank Holding
Company  Act now  permits  financial  holding  companies  to  engage  in
activities,  and  acquire  companies  engaged  in  activities,  that are
financial  in  nature  or  incidental  to  such  financial   activities.
Financial  holding  companies are also permitted to engage in activities
that  are  complementary  to  financial   activities  if  the  Board  of
Governors  determines  that the  activity  does  not pose a  substantial
risk to the  safety  or  soundness  of  depository  institutions  or the
financial  system in general.  These  standards  expand upon the list of
activities  "closely  related to banking" which have to date defined the
permissible   activities  of  bank  holding  companies  under  the  Bank
Holding Company Act.

One   further   effect  of  the  Act  is  to  require   that   financial
institutions  respect  the  privacy of their  customers  and protect the
security  and   confidentiality   of  customers'   non-public   personal
information.  These  regulations  require,  in general,  that  financial
institutions  (1) may not disclose  non-public  personal  information of
customers  to  non-affiliated  third  parties  without  notice  to their
customers,   who  must  have  an   opportunity   to  direct   that  such
information  not be  disclosed;  (2) may not disclose  customer  account
numbers except to consumer reporting  agencies;  and (3) must give prior
disclosure of their privacy  policies before  establishing  new customer
relationships.

The Company and the Bank have not  determined  whether or when either of
them may seek to acquire and  exercise  new powers or  activities  under
the GLB Act,  and the  extent to which  competition  will  change  among
financial  institutions  affected  by the GLB  Act  has  not yet  become
clear.

On October  26,  2001,  President  Bush  signed the USA Patriot Act (the
"Patriot  Act"),  which  includes  provisions   pertaining  to  domestic
security,  surveillance  procedures,  border  protection,  and terrorism
laws to be  administered  by the  Secretary of the  Treasury.  Title III
of the Patriot Act entitled,  "International  Money Laundering Abatement
and  Anti-Terrorist  Financing Act of 2001"  includes  amendments to the
Bank  Secrecy  Act  which  expand  the   responsibilities  of  financial
institutions  in  regard  to  anti-money   laundering   activities  with
particular  emphasis upon  international  money laundering and terrorism
financing  activities  through  designated   correspondent  and  private
banking accounts.

Effective   December  25,  2001,  Section  313(a)  of  the  Patriot  Act
prohibits  any  insured  financial  institution  such as the Bank,  from
providing  correspondent  accounts to foreign  banks which do not have a
physical  presence  in  any  country   (designated  as  "shell  banks"),
subject  to  certain  exceptions  for  regulated  affiliates  of foreign
banks.  Section  313(a) also  requires  financial  institutions  to take
reasonable  steps to ensure that  foreign  bank  correspondent  accounts
are not being used to  indirectly  provide  banking  services to foreign
shell banks,  and Section  319(b)  requires  financial  institutions  to
maintain  records of the owners and agent for  service of process of any
such  foreign   banks  with  whom   correspondent   accounts  have  been
established.

Effective  July 23,  2002,  Section  312 of the  Patriot  Act  creates a
requirement  for special due  diligence for  correspondent  accounts and
private   banking   accounts.   Under   Section  312,   each   financial
institution  that  establishes,  maintains,  administers,  or  manages a
private  banking  account  or a  correspondent  account  in  the  United
States for a non-United  States person,  including a foreign  individual
visiting the United States,  or a representative  of a non-United States
person shall  establish  appropriate,  specific,  and, where  necessary,
enhanced,  due  diligence  policies,  procedures,  and controls that are
reasonably  designed to detect and record  instances of money laundering
through those accounts.

The  Company  and  the  Bank  are not  currently  aware  of any  account
relationships  between the Bank and any foreign  bank or other person or
entity as described  above under  Sections  313(a) or 312 of the Patriot
Act.  The  terrorist  attacks  on  September  11,  2001  have  realigned
national  security  priorities of the United States and it is reasonable
to  anticipate  that the United  States  Congress  may enact  additional
legislation in the future to combat  terrorism  including  modifications
to  existing  laws such as the  Patriot  Act to expand  powers as deemed
necessary.  The  effects  which  the  Patriot  Act  and  any  additional
legislation  enacted by Congress  may have upon  financial  institutions
is  uncertain;   however,   such   legislation   would  likely  increase
compliance  costs and thereby  potentially  have an adverse  effect upon
the Company's results of operations.

On  July  30,  2002,  President  George  W.  Bush  signed  into  law the
Sarbanes-Oxley  Act of  2002  (the  "Act"),  which  responds  to  recent
issues  in  corporate   governance  and   accountability.   Among  other
matters,  key  provisions  of  the  Act  and  rules  promulgated  by the
Securities  and  Exchange  Commission  pursuant  to the Act  include the
following:

o     Expanded oversight of the accounting  profession by creating a new
      independent  public company  oversight  board to be monitored by
      the SEC.

o     Revised  rules on auditor  independence  to restrict the nature of
      non-audit  services  provided  to audit  clients  and to require
      all  services   provided  by  the  independent   auditor  to  be
      pre-approved by the audit committee.

o     Improved  corporate   responsibility   through  mandatory  listing
      standards  relating  to  audit  committees,   certifications  of
      periodic   reports  by  the  CEO  and  CFO  and  making   issuer
      interference with an audit a crime.

o     Enhanced  financial  disclosures,  including  periodic reviews for
      largest  issuers and real time  disclosure  of material  company
      information.

o     Enhanced  criminal  penalties  for a broad  array of  white-collar
      crimes  and  increases  in  the  statute  of   limitations   for
      securities fraud lawsuits.

o     Disclosure  of whether a company has adopted a code of ethics that
      applies   to  the   company's   principal   executive   officer,
      principal  financial  officer,  principal  accounting officer or
      controller,   or  persons  performing  similar  functions,   and
      disclosure  of  any  amendments  or  waivers  to  such  code  of
      ethics.   The  disclosure   obligation   becomes  effective  for
      fiscal  years  ending  on or after  July 15,  2003.  The  ethics
      code  must  contain   written   standards  that  are  reasonably
      designed to deter wrongdoing and to promote:

      -    Honest and ethical  conduct,  including  the  ethical  handling of
           actual or apparent  conflicts  of interest  between  personal
           and professional relationships;

      -    Full, fair,  accurate,  timely, and  understandable  disclosure in
           reports  and  documents  that a  registrant  files  with,  or
           submits to, the  Securities  and Exchange  Commission  and in
           other public communications made by the registrant;

      -    Compliance   with   applicable   governmental   laws,   rules  and
           regulations;

      -    The prompt internal  reporting to an appropriate person or persons
           identified in the code of violations of the code; and

      -    Accountability for adherence to the code.

o     Disclosure of whether a company's  audit committee of its board of
      directors  has a member of the audit  committee who qualifies as
      an  "audit   committee   financial   expert."   The   disclosure
      obligation  becomes  effective  for  fiscal  years  ending on or
      after  July  15,  2003.  To  qualify  as  an  "audit   committe
      financial expert," a person must have:

      -    An understanding of generally accepted  accounting  principles and
           financial statements;

      -    The ability to assess the general  application of such  principles
           in connection  with the accounting  for  estimates,  accruals
           and reserves;

      -    Experience preparing,  auditing, analyzing or evaluating financial
           statements  that present a breadth and level of complexity of
           accounting  issues  that  are  generally  comparable  to  the
           breadth  and  complexity  of issues  that can  reasonably  be
           expected   to  be  raised  by  the   registrant's   financial
           statements,  or experience  actively  supervising one or more
           persons engaged in such activities;

      -    An   understanding   of  internal   controls  and  procedures  for
           financial reporting; and

      -    An understanding of audit committee functions.

A person must have  acquired  the above  listed  attributes  to be
deemed  to  qualify  as  an  "audit  committee  financial  expert"
through any one or more of the following:

      -    Education  and  experience  as  a  principal   financial  officer,
           principal accounting officer,  controller,  public accountant
           or  auditor  or  experience  in one or  more  positions  that
           involve the performance of similar functions;

      -    Experience  actively  supervising a principal  financial  officer,
           principal accounting officer, controller,  public accountant,
           auditor or person performing similar functions;

      -    Experience  overseeing or assessing the  performance  of companies
           or  public  accountants  with  respect  to  the  preparation,
           auditing or evaluation of financial statements; or

      -    Other relevant experience.

The rule  contains a specific  safe  harbor  provision  to clarify
that the designation of a person as an "audit committee  financial
expert"  does not cause that person to be deemed to be an "expert"
for any purpose  under Section 11 of the  Securities  Act of 1933,
as amended,  or impose on such person any duties,  obligations  or
liability  greater  that the  duties,  obligations  and  liability
imposed on such person as a member of the audit  committee and the
board of directors,  absent such  designation.  Such a designation
also does not affect the duties,  obligations  or liability of any
other member of the audit committee or board of directors.

o     A  prohibition  on insider  trading  during  pension plan blackout
      periods.

o     Disclosure of off-balance sheet transactions.

o     A prohibition on certain loans to directors and officers.

o     Conditions on the use of non-GAAP  (generally  accepted accounting
      principles) financial measures.

o     Standards  on   professional   conduct  for  attorneys   requiring
      attorneys  having  an   attorney-client   relationship   with  a
      company,  among other matters,  to report "up the ladder" to the
      audit  committee,  another  board  committee or the entire board
      of directors certain material violations.

o     Expedited  filing  requirements  for Form 4 reports  of changes in
      beneficial   ownership   of   securities   reducing  the  filing
      deadline  to within 2  business  days of the date a  transaction
      triggers an obligation to report.

o     Accelerated filing  requirements for Forms 10-K and 10-Q by public
      companies   which   qualify  as   "accelerated   filers"  to  be
      phased-in over a four year period  reducing the filing  deadline
      for Form 10-K  reports  from 90 days after the  fiscal  year end
      to 60 days and Form 10-Q  reports  from 45 days after the fiscal
      quarter end to 35 days.

o     Disclosure  concerning  website  access to reports on Forms  10-K,
      10-Q  and  8-K,  and  any  amendments  to  those   reports,   by
      "accelerated  filers" as soon as  reasonably  practicable  after
      such  reports and  material  are filed with or  furnished to the
      Securities and Exchange Commission.

o     Proposed  rules  requiring  national   securities   exchanges  and
      national  securities  associations  to  prohibit  the listing of
      any  security  whose  issuer  does  not  meet  audit   committee
      standards  established  pursuant  to  the  Act.  These  proposed
      rules would establish audit committee:

      -     Independence standards for members;

      -     Responsibility   for   selecting  and   overseeing   the  issuer's
            independent accountant;

      -     Responsibility  for  handling  complaints  regarding  the issuer's
            accounting practices;

      -     Authority to engage advisers; and

      -     Funding  requirements  for the  independent  auditor  and  outside
            advisers engaged by the audit committee.

      The proposed audit committee  rules provide a one-year  phase-in
      period for compliance.

The Securities and Exchange  Commission  must adopt final rules by April
26, 2003.

The effect of the Act upon the  Company  is  uncertain;  however,  it is
likely that the Company  will incur  increased  costs to comply with the
Act and the rules and  regulations  promulgated  pursuant  to the Act by
the Securities and Exchange  Commission  and other  regulatory  agencies
having  jurisdiction  over the Company.  The Company does not  currently
anticipate,  however,  that  compliance  with the Act and such rules and
regulations  will have a  material  adverse  effect  upon its  financial
position or results of its operations or its cash flows.

On September  28, 2002,  California  Governor Gray Davis signed into law
the California  Corporate  Disclosure Act (the "CCD Act"),  which became
effective  January  1,  2003.  The  CCD  Act  requires  publicly  traded
corporations  incorporated  or qualified to do business in California to
disclose information about their past history,  auditors,  directors and
officers.  The CCD Act requires the Company to disclose:

o     The name of the  company's  independent  auditor and a description
      of  services,  if any,  performed  for the  company  during  the
      previous 24 months;

o     The  annual  compensation  paid to  each  director  and  executive
      officer,   including   stock  or  stock  options  not  otherwise
      available to other company employees;

o     A description of any loans made to a director at a  "preferential"
      loan rate during the  previous 24 months,  including  the amount
      and terms of the loans;

o     Whether  any  bankruptcy  was  filed  by a  company  or any of its
      directors or executive officers  within the previous 10 years;

o     Whether any  director or  executive  officer of a company has been
      convicted of fraud during the previous 10 years; and

o     Whether a company  violated  any  federal  securities  laws or any
      securities or banking  provisions  of California  law during the
      previous  10 years  for which the  company  was found  liable or
      fined more than $10,000.


The Company does not currently  anticipate  that compliance with the CCD
Act will have a material  adverse effect upon its financial  position or
results of its operations or its cash flows.


Certain  legislative  and  regulatory  proposals  that could  affect the
Bank and the banking  business in general  are  periodically  introduced
before the United States  Congress,  the  California  State  Legislature
and  Federal  and  state  government  agencies.  It is not known to what
extent,  if any,  legislative  proposals will be enacted and what effect
such   legislation   would  have  on  the   structure,   regulation  and
competitive  relationships  of  financial  institutions.  It is  likely,
however,  that such  legislation  could subject the Company and the Bank
to increases  in  regulation,  disclosure  and  reporting  requirements,
competition and the Bank's cost of doing business.

In  addition  to  legislative  changes,  the  various  federal and state
financial  institution  regulatory agencies frequently propose rules and
regulations to implement and enforce already  existing  legislation.  It
cannot  be  predicted  whether  or  in  what  form  any  such  rules  or
regulations  will be  enacted or the  effect  that such and  regulations
may have on the Company and the Bank.

As of December 31, 2002, the Company  employed 246 persons  primarily on
a full time basis.  None of the Company's  employees are  represented by
a labor union and the Company  considers  its  employee  relations to be
good.

ITEM 2.  PROPERTIES

The  headquarters  office and centralized  operations of the Company are
located at 301 Main Street,  Salinas,  California.  The Company owns and
leases  properties  that  house   administrative   and  data  processing
functions and eleven banking  offices.  Owned and leased  facilities are
listed below.

301 Main Street                    1658 Fremont Boulevard
Salinas, California                Seaside, California
23,662 square feet                 2,800 square feet
Leased (term expires 2007,         Leased  (term expires 2009
With two 7 1/2 year renewal        with one 10 year renewal
options)                           options)
Current monthly rent of            Current monthly rent of
$22,262                            $5,273

10601 Merritt Street               228 Reservation Road
Castroville, California            Marina, California
2,500 square feet                  3,000 square feet
Owned                              Leased  (term expires 2004
                                   with three 5 year
                                   renewal options)
                                   Current monthly rent of
                                   $3,183

400 Alta Street                    599 Lighthouse Avenue
Gonzales, California               Monterey, California.
5,175 square feet                  4,856 square feet
Leased  (term expires 2003         Leased  (term expires 2004
with three 5 year renewal          with two 10 year renewal
options)                           options)
Current monthly rent of            Current monthly rent of
$4,132                             $6,435

532 Broadway                       1915 Main Street
King City, California              Watsonville, California
4,000 square feet                  971 square feet
Leased  (term expires 2009         Leased  (term expires 2003
with two 5 year renewal            with two 3 year renewal
options)                           options)
Current monthly rent of            Current monthly rent of
$5,445                             $1,641

1285 North Davis Road              491 Tres Pinos Road
Salinas, California.               Hollister, California
3,200 square feet                  2,800 square feet
Leased  (term expires 2008         Leased  (term expires 2006
with two 5 year renewal            with one 3 year renewal
options)                           option)
Current monthly rent of            Current monthly rent of
$7,728                             $4,060

761 First Street                   439 Alvarado Street
Gilroy, California                 Monterey, California
2,670 square feet                  5,731 square feet
Leased (term expires               Leased (term expires 2008 with three
2007 with one five year            five year renewal
renewal option)                    options) with a one year purchase option
Current monthly rent of            Current monthly rent of
$5,207                             $14,041

The above  leases  contain  options to extend for five to twenty  years.
Included in the above are two  facilities  leased from  shareholders  at
terms and conditions which  management  believes are consistent with the
commercial  lease  market.   Rental  rates  are  adjusted  annually  for
changes  in  certain   economic   indices.   The  annual  minimum  lease
commitments  are set forth in Footnote 5 to the  Consolidated  Financial
Statements  in Item 8  "Financial  Statements  and  Supplementary  Data"
included  in  this  report  and  incorporated  here  by  reference.  The
foregoing  summary  descriptions of certain of the above leased premises
are  qualified in their  entirety by  reference to the lease  agreements
listed as exhibits in Part IV, Item 15 of this Form 10-K.

ITEM 3.  LEGAL PROCEEDINGS

There are no  material  proceedings  adverse to the  Company or the Bank
to  which  any  director,  officer,  affiliate  of  the  Company  or  5%
shareholder  of the Company or the Bank,  or any  associate  of any such
director,  officer,  affiliate or 5%  shareholder of the Company or Bank
are a party,  and none of the  above  persons  has a  material  interest
adverse to the Company or the Bank.

Neither the  Company  nor the Bank are a party to any  pending  legal or
administrative  proceedings  (other  than  ordinary  routine  litigation
incidental  to  the  Company's  or the  Bank's  business)  and  no  such
proceedings are known to be contemplated.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of 2002.


<PAGE>

                               PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

(a)   Market Information

The  Company's  common  stock is listed on the  Nasdaq  National  Market
exchange  (trading symbol:  CCBN). The table below presents the range of
high  and low  prices  for the  common  stock  for the two  most  recent
fiscal   years  based  on  information  provided  to  the  Company  from
Nasdaq.  The  prices  have  been  restated  to  reflect  the  10%  stock
dividends  in  February  2001 and  2003  and the 5 for 4 stock  split in
February 2002.

 Calendar Year                            Low            High
 -------------                            ---            ----
 2002
    First Quarter                        $15.10         $18.64
    Second Quarter                        15.25          22.04
    Third Quarter                         16.14          20.91
    Fourth Quarter                        15.55          18.46

 2001
    First Quarter                        $11.82         $14.36
    Second Quarter                        13.45          19.09
    Third Quarter                         14.00          18.25
    Fourth Quarter                        14.29          16.67


The  closing  price for the  Company's  common  stock  was  $17.10 as of
March 7, 2003.

(b)   Holders

As of March 7,  2003,  there  were approximately  2,300  holders  of the
common  stock of the  Company.  There  are no other  classes  of  common
equity outstanding.

(c)   Dividends

The Company's  shareholders  are entitled to receive  dividends when and
as declared by its Board of Directors,  out of funds  legally  available
therefor,  subject  to the  restrictions  set  forth  in the  California
General  Corporation Law (the  "Corporation  Law").  The Corporation Law
provides   that  a   corporation   may  make  a   distribution   to  its
shareholders if the  corporation's  retained earnings equal at least the
amount  of  the  proposed  distribution.  The  Corporation  Law  further
provides that, in the event that  sufficient  retained  earnings are not
available   for   the   proposed   distribution,   a   corporation   may
nevertheless  make a distribution  to its  shareholders  if it meets two
conditions,   which   generally   stated  are  as  follows:    (1)   the
corporation's  assets  equal at least 1-1/4 times its  liabilities;  and
 (2)   the  corporation's  current  assets  equal at least  its  current
liabilities  or, if the  average of the  corporation's  earnings  before
taxes on income  and  before  interest  expenses  for the two  preceding
fiscal  years was less than the  average of the  corporation's  interest
expenses for such fiscal years,  then the  corporation's  current assets
must equal at least
1-1/4  times its  current  liabilities.  Funds for  payment  of any cash
dividends  by the Company  would be  obtained  from its  investments  as
well as dividends and/or management fees from the Bank.

The  payment  of cash  dividends  by the  subsidiary  Bank is subject to
restrictions   set  forth  in  the   California   Financial   Code  (the
"Financial  Code").  The  Financial  Code  provides  that a bank may not
make a cash  distribution  to its  shareholders  in excess of the lesser
of (a) the bank's  retained  earnings;  or (b) the bank's net income for
its last three fiscal years, less the amount of any  distributions  made
by the  bank  or by any  majority-owned  subsidiary  of the  bank to the
shareholders  of the bank  during  such  period.  However,  a bank  may,
with  the  approval  of the  Commissioner,  make a  distribution  to its
shareholders  in  an  amount  not  exceeding  the  greater  of  (a)  its
retained  earnings;  (b) its net income for its last fiscal year; or (c)
its net  income  for its  current  fiscal  year.  In the event  that the
Commissioner  determines  that  the  shareholders'  equity  of a bank is
inadequate  or that the  making of a  distribution  by the bank would be
unsafe or unsound,  the  Commissioner may order the bank to refrain from
making a proposed distribution.

The FDIC may also  restrict  the payment of  dividends  if such  payment
would be  deemed  unsafe or  unsound  or if after  the  payment  of such
dividends,  the bank would be included in one of the  "undercapitalized"
categories  for  capital  adequacy  purposes  pursuant  to  the  Federal
Deposit  Insurance  Corporation  Improvement Act of 1991.  Additionally,
while the Board of  Governors  has no general  restriction  with respect
to the payment of cash  dividends by an adequately  capitalized  bank to
its  parent  holding  company,  the  Board  of  Governors  might,  under
certain   circumstances,   place   restrictions  on  the  ability  of  a
particular  bank to pay  dividends  based upon peer group  averages  and
the  performance  and  maturity  of the  particular  bank,  or object to
management  fees on the basis that such fees cannot be  supported by the
value  of the  services  rendered  or are not  the  result  of an  arm's
length transaction.

Under  these  provisions  and  considering  minimum  regulatory  capital
requirements,  the amount  available for  distribution  from the Bank to
the Company was approximately $11,480,000 as of December 31, 2002.

To date,  the Company has not paid a cash  dividend and  presently  does
not  intend  to pay  cash  dividends  in  the  foreseeable  future.  The
Company  distributed  a ten percent stock  dividend in February  2003, a
five-for-four  stock split in  February  2002,  and a ten percent  stock
dividend  in 2001.  The Board of  Directors  will  determine  payment of
dividends  in  the  future  after   consideration   of  various  factors
including  the  profitability  and  capital  adequacy of the Company and
the Bank.


ITEM  6.  SELECTED FINANCIAL DATA

The  following  table  presents  selected  consolidated  financial  data
concerning  the business of the Company and its  subsidiary  Bank.  This
information   should  be  read  in  conjunction  with  the  Consolidated
Financial  Statements,  the notes thereto,  and Management's  Discussion
and  Analysis   included  in  this   report.   The  earnings  per  share
information  has been  adjusted  retroactively  to reflect the effect of
all stock dividends and stock splits.
<TABLE>
<CAPTION>
--------------------------------------------------------------------
In thousands (except       As of and for the Year Ended December 31
per share data)             2002    2001     2000    1999     1998
--------------------------------------------------------------------
<S>                          <C>    <C>     <C>     <C>     <C>

Operating Results
Total Interest Income     $50,501 $51,747  $51,415 $41,517  $37,354
Total Interest Expense     13,955  18,360   18,290  13,648   13,319
                         -------------------------------------------
   Net Interest Income     36,546  33,387   33,125  27,869   24,035
Provision for Loan Losses   3,584   2,635    3,983   1,484      159
                         -------------------------------------------
Net Interest Income
After Provision for
   Loan Losses             32,962  30,752   29,142  26,385   23,876
Noninterest Income          3,665   3,129    2,433   2,231    2,084
Noninterest Expenses       20,496  19,223   17,408  16,043   13,859
                         -------------------------------------------
Income before Income
Taxes                      16,131  14,658   14,167  12,573   12,101
Income Taxes                5,603   5,149    5,241   4,522    4,948
                         -------------------------------------------
Net Income                $10,528  $9,509  $ 8,926  $8,051  $ 7,153
====================================================================

Basic Earnings Per         $ 1.06  $ 0.95  $  0.85  $ 0.75  $  0.71
Diluted Earnings Per Share   1.02    0.92     0.83    0.73     0.65
====================================================================

Financial Condition and
 Capital - Year-End Balances
Total Loans             $745,353 $606,300 $473,395 $395,597 $312,170
Total Assets             919,132  802,266  706,693  593,445  543,933
Total Deposits           826,502  724,862  633,209  518,189  489,192
Shareholders' Equity      78,076   65,336   59,854   53,305   51,199
--------------------------------------------------------------------

Financial Condition and
 Capital - Average Balances
Total Loans             $668,069 $522,884 $424,172 $352,936 $275,850
Total Assets             858,009  727,198  632,953  562,073  499,354
Total Deposits           772,111  648,664  565,487  494,266  447,598
Shareholders' Equity      72,519   62,918   55,762   52,069   47,587
--------------------------------------------------------------------

Selected Financial Ratios
Return on Average Total
  Assets                    1.23%   1.31%    1.41%   1.43%    1.43%
Return on Average
  Shareholders' Equity     14.52%  15.11%   16.01%  15.46%   15.03%
Average Shareholders'
  Equity to Total
  Average Assets            8.45%   8.65%    8.81%   9.26%    9.53%
--------------------------------------------------------------------
</TABLE>

(a)   Average Balance Sheet and Net Interest Margin

      (1)  Distribution  of Assets,  Liabilities  and  Equity;  Interest
           Rates and Interest  Differential is set forth in Table One in
           Item 7. - "Management's  Discussion and Analysis" included in
           this report sets forth the Company's  average  balance sheets
           (based on daily  averages) and an analysis of interest  rates
           and the  interest  rate  differential  for each of the  three
           years  in  the  period   ended   December  31,  2002  and  is
           incorporated here by reference.

      (2)  Volume/Rate  Analysis  -  Information  as to  the  impact  of
           changes in average  rates and  average  balances  on interest
           earning assets and interest bearing  liabilities is set forth
           in  Table  Two in  Item  7. -  "Management's  Discussion  and
           Analysis" and is incorporated here by reference.

(b)   Investment Portfolio

      (1)  The book value of  investment  securities at December 31, 2002 and
           2001 is set  forth  in Note 3 to the  Consolidated  Financial
           Statements  included in Item 8 -  "Financial  Statements  and
           Supplementary   Data"    included   in  this  report  and  is
           incorporated here by reference.

      (2)  The book value,  maturities  and weighted  average  yields of
           investment  securities  as of December 31, 2002 are set forth
           in Table Thirteen in Item 7. -  "Management's  Discussion and
           Analysis"  included in this report and is  incorporated  here
           by reference.

      (3)  There were no issuers of securities  for which the book value
           was  greater  than 10% of  shareholders'   equity  other than
           U.S.    Government   and   U.S.   Government   Agencies   and
           Corporations.

 (c)  Loan Portfolio

      (1)  The  composition  of the loan portfolio is set forth in Table
           Three in Item 7. -  "Management's  Discussion  and  Analysis"
           included  in  this  report  and  is   incorporated   here  by
           reference.

      (2)  The maturity  distribution  of the loan portfolio at December
           31,  2002  is  set  forth  in  Table  Twelve  in  Item  7.  -
           "Management's  Discussion  and  Analysis"  included  in  this
           report and is incorporated here by reference.

      (3)  Nonperforming Loans

           The Company's  current policy is to cease  accruing  interest
           when a loan  becomes  90 days  past  due as to  principal  or
           interest,  when the full  timely  collection  of  interest or
           principal   becomes  uncertain  or  when  a  portion  of  the
           principal  balance has been charged  off,  unless the loan is
           well  secured and in the process of  collection.  When a loan
           is placed on nonaccrual  status,  the accrued and uncollected
           interest  receivable  is reversed  and the loan is  accounted
           for on the cash or cost  recovery  method  thereafter,  until
           qualifying for return to accrual  status.  Generally,  a loan
           may  be  returned  to  accrual  status  when  all  delinquent
           interest and principal  become current in accordance with the
           terms of the  loan  agreement  or when the loan is both  well
           secured and in process of collection.
           A loan is  considered to be impaired when it is probable that
           the  borrower  will be unable to pay all of the  amounts  due
           according to the contractual terms of the loan agreement

           For  further  discussion  of  nonperforming  loans,  refer to
           Table  Four  and the  "Risk  Elements"  section  in Item 7. -
           "Management's Discussion and Analysis" in this report.

(d)   Summary of Loan Loss Experience

      (1) An analysis of the allowance for loan losses  showing  charged off
          and recovery  activity as of December  31, 2002 is  summarized
          in  Table  Five  in  Item  7 -  "Management's  Discussion  and
          Analysis"  included  in this report and is  incorporated  here
          by   reference.   Factors   used  in   determination   of  the
          allowance for loan losses are  discussed in greater  detail in
          the "Risk Elements"  section of  "Management's  Discussion and
          Analysis"  included in this report and are  incorporated  here
          by reference.

      (2) Management  believes that any  allocation of the allowance for
          probable loan losses into loan categories  lends an appearance
          of  exactness,  which does not exist in that the  allowance is
          utilized  in total and is  available  for all loans.  Further,
          management  believes that the  breakdown of historical  losses
          as shown in Table  Five in Item 7 -  "Management's  Discussion
          and  Analysis"   included  in  this  report  is  a  reasonable
          representation   of  management's   expectation  of  potential
          losses inherent in the portfolio.  However,  the allowance for
          loan losses  should not be  interpreted  as an  indication  of
          when  charge-offs  will  occur or as an  indication  of future
          charge-off trends.

          For  further  discussion,  refer  to  Table  Six in  Item 7. -
          "Management's Discussion and Analysis" in this report.

(e) Deposits

      (1) Table One in Item 7. - "Management's Discussion and Analysis"
          included in this report sets forth the distribution of average
          deposits for the years ended December 31, 2002, 2001 and 2000 and is
          incorporated here by reference.

      (2) Table Eleven in Item 7. - "Management's Discussion and Analysis"
          included in this report sets forth the maturities of time certificates
          of deposit of $100,000 or more at December 31, 2002 and is
          incorporated here by reference.

(f) Return on Equity and Assets

      (1) The Selected  Financial Data table at page 21 of this section sets
          forth the ratios of net income to average  assets and  average
          shareholders'  equity,  and  average  shareholders'  equity to
          average  assets.   As  the  Company  has  never  paid  a  cash
          dividend, the dividend payout ratio is not indicated.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

Certain  matters  discussed or  incorporated by reference in this Annual
Report on Form 10-K  including,  but not limited to,  matters  described
in  "Item  7  -  Management's   Discussion  and  Analysis  of  Financial
Condition and Results of  Operations,"  are  forward-looking  statements
that are  subject to risks and  uncertainties  that could  cause  actual
results  to differ  materially  from  those  projected.  Changes to such
risks  and   uncertainties,   which  could   impact   future   financial
performance,  include,  among others,  (1) competitive  pressures in the
banking  industry;  (2) changes in the interest  rate  environment;  (3)
general  economic  conditions,  nationally,  regionally and in operating
market  areas,  including  a  decline  in  real  estate  values  in  the
Company's  market  areas;  (4) the effects of  terrorism,  the threat of
terrorism or the impact of  potential  military  conflicts;  (5) changes
in the regulatory  environment;  (6) changes in business  conditions and
inflation;  (7)  changes  in  securities  markets;  (8) data  processing
compliance  problems;  (9)  variances  in the  actual  versus  projected
growth  in  assets;  (10)  return on  assets;  (11)  loan  losses;  (12)
expenses;   (13)  rates  charged  on  loans  and  earned  on  securities
investments;  (14)  rates  paid on  deposits;  and  (15)  fee and  other
noninterest  income  earned,  as  well as  other  factors.  This  entire
Annual Report should be read to put such  forward-looking  statements in
context and to gain a more complete  understanding of the  uncertainties
and  risks   involved  in  the  Company's   business.   Therefore,   the
information  set forth  therein  should  be  carefully  considered  when
evaluating the business prospects of the Company and the Bank.

Critical Accounting Policies
----------------------------

General

Central   Coast   Bancorp's   financial   statements   are  prepared  in
accordance with accounting  principles  generally accepted in the United
States of America (GAAP).  The financial  information  contained  within
our statements is, to a significant extent,  financial  information that
is based on  measures  of the  financial  effects  of  transactions  and
events that have already  occurred.  We use  historical  loss factors as
one factor in  determining  the inherent loss that may be present in our
loan  portfolio.  Actual  losses  could  differ  significantly  from the
historical  factors  that  we  use.  Other  estimates  that  we use  are
related to the expected  useful  lives of our  depreciable  assets.  The
Company   applies   Accounting   Principles   Board   ("APB")   No.  25,
"Accounting  for Stock Issued to Employees" and related  interpretations
to account  for its stock  based  awards.  In  addition  GAAP itself may
change  from  one  previously   acceptable  method  to  another  method.
Although  the  economics  of our  transactions  would be the  same,  the
timing of events that would impact our transactions could change.

Allowance for Loan Losses

The  allowance  for  loan  losses  is based  on the  probable  estimated
losses that may be sustained  in our loan  portfolio.  The  allowance is
based  on  two  basic   principles  of  accounting.   (1)  Statement  of
Financial   Accountings   Standards   (SFAS)  No.  5   "Accounting   for
Contingencies",  which  requires  that  losses be accrued  when they are
probable of occurring and  estimable  and (2) SFAS No. 114,  "Accounting
by Creditors for  Impairment of a Loan",  which  requires that losses be
accrued  based on the  differences  between  the  value  of  collateral,
present  value of future  cash flows or values  that are  observable  in
the secondary market and the loan balance.

Our  allowance for loan losses has three basic  components:  the formula
allowance,  the specific allowance and the unallocated  allowance.  Each
of these  components is determined  based upon estimates that can and do
change  when the actual  events  occur.  The formula  allowance  uses an
historical  loss view as an indicator  of future  losses and as a result
could  differ  from the loss  incurred  in the  future.  However,  since
this  history is updated  with the most  recent  loss  information,  the
errors  that  might   otherwise   occur  are  mitigated.   The  specific
allowance  uses  various  techniques  to arrive at an  estimate of loss.
Historical  loss  information,  and fair market value of collateral  are
used to estimate  those  losses.  The use of these values is  inherently
subjective  and our  actual  losses  could be  greater  or less than the
estimates.   The   unallocated   allowance   captures  losses  that  are
attributable  to  various  economic   events,   industry  or  geographic
sectors whose impact on the  portfolio  have occurred but have yet to be
recognized  in either the  formula or specific  allowances.  For further
information regarding our allowance for credit losses, see page 36.

Stock Based Compensation

Under APB No. 25,  compensation  cost for stock  options is  measured as
the excess,  if any, of the fair market value of the Company's  stock at
the date of the grant over the amount  required to be paid.  Because the
Company's  stock option  plans  provide for the issuance of options at a
price of no less than the fair  market  value at the date of the  grant,
no  compensation  cost is required to be recognized for the stock option
plan.  For  further   information   regarding  the  proforma  effect  on
reported  net  income  and  earnings  per  share as if the  Company  had
elected to  recognize  compensation  cost based on the fair value of the
options  granted  at the date of grant as  prescribed  by SFAS No.  123,
"Accounting  for  Stock-Based  Compensation"  see  Note  1 and 9 to  the
Consolidated  Financial  Statements in Item 8 - Financial Statements and
Supplementary Data.

Business Organization

Central  Coast  Bancorp  (the  "Company")  is a  California  corporation,
headquartered  in Salinas,  California  and was  organized in 1994 to act
as a bank  holding  company  for Bank of  Salinas.  In 1996,  the Company
acquired  Cypress Bank, which was  headquartered in Seaside,  California.
Both  banks  were  state-chartered  institutions.  In July of  1999,  the
Company  merged  Cypress  Bank into the Bank of Salinas and then  renamed
Bank of Salinas as Community  Bank of Central  California  (the  "Bank").
As of December 31, 2002,  the Bank operated  eleven  full-service  branch
offices  and  one  limited-service  branch  office  and  conducts  online
banking  through  its  web  site   www.community-bnk.com.   The  Bank  is
headquartered  in Salinas and serves  individuals,  merchants,  small and
medium-sized  businesses  and  professionals.  The  economy in the Bank's
service area is heavily  weighted  towards  agribusiness  enterprises and
the hospitality industry.

In June of 2000,  the Bank  opened a new branch  office in  Watsonville,
which is in Santa Cruz  County.  In October of 2000,  another new branch
office  was opened in  Hollister,  which is in San  Benito  County.  The
opening of these two branch  offices was a first step in  expanding  the
Bank's  service  area to  include  communities  in  contiguous  counties
outside of  Monterey  County.  On April 15,  2002 the Bank  opened a new
branch in  Gilroy,  which is located  at the  southern  end of the Santa
Clara  Valley in Santa  Clara  County.  These three  communities  are of
similar  economic  make-up to the  agricultural  based  communities  the
Bank serves in Monterey County.

As part of the  Bank's  continuing  strategy  to  expand  its  franchise
through denovo  branches,  a new branch was opened in downtown  Monterey
(Monterey Main) on January 21, 2003.

Until August 16, 2001, the Company  conducted no significant  activities
other than  holding  the shares of the Bank.  On August  16,  2001,  the
Company  notified the Board of Governors of the Federal  Reserve  System
(the "Board of  Governors"),  the Company's  principal  regulator,  that
the  Company  was  engaged in certain  lending  activities.  The Company
purchased  a loan  from the Bank  that  the  Bank had  originated  for a
local  agency  that  was  categorized  as a large  issuer  for  taxation
purposes.  The  Company is able to use the tax  benefits  of such loans.
The  Company  may  purchase  similar  loans in the  future.  Upon  prior
notification  to the Board of  Governors,  the Company is  authorized to
engage in a variety of activities,  which are deemed closely  related to
the business of banking.

The   following   analysis  is   designed   to  enhance   the   reader's
understanding  of the Company's  financial  condition and the results of
its  operations  as reported in the  Consolidated  Financial  Statements
included  in this  Annual  Report.  Reference  should  be made to  those
statements  and the "Selected  Financial  Data"  presented  elsewhere in
this  report for  additional  detailed  information.  Average  balances,
including such balances used in calculating  certain  financial  ratios,
are  generally  comprised  of average  daily  balances  for the Company.
Within  "Management's  Discussion and Analysis"  interest income and net
interest income are presented on a tax equivalent basis.

Overview

For the 19th consecutive  year,  Central Coast Bancorp earned record net
income on a  year-over-year  basis.  Net income for 2002 increased 10.7%
to  $10,528,000  from  $9,509,000  in 2001.  Diluted  earnings per share
for 2002,  after  giving  effect to the 10% stock  dividend  distributed
on February 28, 2003,  was $1.02,  up 10.9% from the $0.92  reported for
2001.  For 2002,  the  Company  realized a return on  average  equity of
14.5% and a return on  average  assets of 1.23%,  as  compared  to 15.1%
and 1.31% for 2001.

At December  31,  2002,  the Company had total  assets of  $919,132,000,
which was an increase of  $116,866,000  (14.6%) from  year-end  2001. At
December 31, 2002, loans totaled  $745,353,000,  up $139,053,000 (22.9%)
from the  ending  balances  on  December  31,  2001.  Deposit  growth in
2002,  which is net of a  $20,000,000  decrease  in State of  California
certificates of deposit,  was  $101,640,000  (14.0%).  Deposits  totaled
$826,502,000  at  year-end  2002  compared to  $724,862,000  at year-end
2001.

As  discussed  in  last  year's  annual  report,  the  475  basis  point
reduction  in the prime  interest  rate  during  2001 had a  significant
impact  on  the  Company's  net  interest  income.   As  each  rate  cut
occurred,  variable rate loans repriced  immediately  or, at the latest,
by  quarter's  end.  However,   rates  paid  on  deposit  products  were
lowered  as market  conditions  allowed  and  generally  lagged the more
immediate  reduction  in loan  rates.  As a result,  the  average  yield
earned on  assets  in 2001  decreased  116  basis  points to 7.89%  from
9.05% in 2000.  Meanwhile,  the average  rate paid on  liabilities  only
decreased  49 basis  points to 3.80%  from  4.29%.  This  resulted  in a
decrease  in the net  interest  margin  in 2001  compared  to 2000 of 73
basis points to 5.15% from 5.88%.

The  decrease  in  interest  rates in 2001  continued  to affect the net
interest  income in 2002 as the lower  rates  were in place for the full
year.  In  addition,  there was another 50 basis  point  decrease in the
prime  interest  rate in  November  2002.  Thus,  the  average  yield on
earning  assets for 2002  decreased 141 basis points to 6.48%.  However,
the rates  paid on the  deposit  liabilities  adjusted  more  rapidly in
2002  especially  in time  deposits as the higher  yielding  instruments
matured and  repriced at  significantly  lower  rates.  The average rate
paid on liabilities  for 2002  decreased 138 basis points to 2.42%.  The
overall  effect on the net  interest  margin was a decrease  of 42 basis
points to 4.73% in 2002 as compared  to the 73 basis  point  decrease in
2001.

The cumulative  effect of the two-year  growth in average earning assets
of  $219,237,000  (38.0%) from  $577,287,000  in 2000 to $796,524,000 in
2002 very  nearly  offset the  decrease  in  interest  income due to the
lower  rates.  This  growth  coupled  with the lower  rates  paid on the
deposit  liabilities  resulted in an increase in net interest  income of
$3,176,000  (9.2%) to  $37,665,000  for 2002  compared to an increase of
$562,000 in 2001 over 2000.

One key  measure  of the  acceptance  by our  local  communities  of our
banking  franchise  is  provided  by the  FDIC/OTS  Summary of  Deposits
annual  "Market  Share  Report"  issued in  December  of each year as of
June  30th.  This  year's  report  states  that  Community  Bank was the
third largest bank serving  Monterey  County with a deposit market share
of  15.30%  up from  14.37%  in 2001.  The Bank  was just  $6.1  million
under the second  largest.  The Bank also  increased its market share in
each of the  communities  it  serves  outside  of  Monterey  County.  By
year-end  2002,  the Bank's  deposits had increased an additional  $40.4
million  from the June 30 totals.  The Bank made another step forward in
January  2003 by opening a branch in downtown  Monterey.  We believe our
attention to customer  service,  close  involvement with the communities
we serve and emphasis on  relationship  banking  have been  instrumental
to  our  continuing  year-after-year  growth  in  earnings,  assets  and
deposits.

For the second  straight  year,  the  economic  data  suggests  that the
country  will  continue  to  have a  slow  recovery.  If the  short-term
interest rates remain stable,  we expect the Bank's net interest  margin
to hold around the fourth  quarter  2002 level of  approximately  4.75%.
With a  relatively  constant  net interest  margin,  the  year-over-year
effect of the 2002 growth in earning  assets will support  growth in the
level of interest  income.  Other  factors  that remain key for earnings
growth are the continuing  development  of solid banking  relationships,
the continued  emphasis on loan quality and continued  cost control.  As
we celebrated  the Bank's  twentieth  anniversary  in February  2003, we
looked  forward  with  cautious  optimism  based  on our  evaluation  of
economic and Bank  performance  data  available to us to continuing  our
record of continued earnings growth in 2003.

(A)   Results of Operations
---------------------------

Net  Interest  Income/Net  Interest  Margin  (fully  taxable  equivalent
basis)

Net interest  income  represents  the excess of interest and fees earned
on  interest-earning  assets (loans,  securities and federal funds sold)
over the  interest  paid on deposits and  borrowed  funds.  Net interest
margin is net  interest  income  expressed  as a  percentage  of average
earning  assets.  These  items  have  been  adjusted  to give  effect to
$1,119,000,  $1,102,000  and  $802,000  in taxable  equivalent  interest
income on tax-free  investments  for the years ending December 31, 2002,
2001 and 2000.

Net  interest  income for 2002 was  $37,665,000,  which was a $3,176,000
(9.2%)  increase  over  2001.  The  increase  was in spite  of  interest
income    decreasing    $1,229,000   to   $51,620,000   in   2002.   The
year-over-year  effect of the 475 basis point  decrease in prime rate in
2001 coupled with an additional  50 basis point  decrease in November of
2002 caused the yield on average  assets in 2002 to  decrease  141 basis
points  to  6.48%.   The  lower  rates   reduced   interest   income  by
$12,151,000.  The  largest  portion of the  decrease  ($10,935,000)  was
related to the loan  portfolio,  as the average  rate  earned  decreased
167 basis points to 6.74%.  The rates  earned on the taxable  investment
portfolio  decreased 100 basis points to 5.03%.  This  decrease  reduced
interest   income  on  those   securities   $771,000.   Because  of  the
continuing  loan demand,  the proceeds from maturities of securities and
the growth in deposits  were  utilized to fund the growth in loans.  The
average balance of taxable investment  securities decreased  $22,594,000
to  $76,894,000.  This change  reduced  interest  income by  $1,362,000.
The  growth  in  the  loan  portfolio  resulted  in an  increase  in the
average loan balance of  $141,984,000  for 2002.  These higher  balances
added   $11,941,000  to  interest   income  and  helped  to  offset  the
decreases detailed above.

The impact on net interest  income caused by the lower  interest  income
during 2002 was more than offset by  decreases  in interest  expenses on
deposit  liabilities  resulting in the overall  increase in net interest
income  of  $3,176,000.   While  average  balances  of  deposit  bearing
liabilities  increased  $94,032,000 (19.5%),  interest expense decreased
$4,405,000  (-24.0%)  in 2002 from 2001 mainly due to  repricing  of the
time  deposits  as  they  matured   throughout  the  year.  The  average
balance of time  deposits  increased  $15,675,000  during  2002 and as a
result interest expense increased  $807,000.  However,  the average rate
paid on time  deposits  decreased  192  basis  points  to  3.23%,  which
decreased  interest  expense  $5,048,000.  Overall,  in 2002 the average
rate paid on  interest-bearing  liabilities  decreased  138 basis points
to 2.42% from 3.80% in 2001.

The effect of the above volume and rate  changes  resulted in a decrease
in the net  interest  margin  for 2002 of 42 basis  points to 4.73% from
5.15% in 2001.  The net interest  margin for the 4th quarter of 2002 was
4.75%,  which was a  decrease  of 6 basis  points  from 4.81% in the 4th
quarter of 2001 and down just one basis  point  from the 3rd  quarter of
2002.  Assuming a stable rate  environment in 2003,  management  expects
the net  interest  margin to be  consistent  with the level  during  the
second half of 2002.


Net  interest  income  for  2001  was  $34,489,000,  a  $562,000  (1.7%)
increase over 2000.  The rapidly  changing  interest rates in 2001 had a
significant  impact on the Bank's interest  income and interest  expense
during the year.  Interest  income  increased  $632,000  (1.2%) to total
$52,849,000  in 2001. The average  balance of loans  outstanding in 2001
was  $96,002,000  (23.0%)  higher  than  it was  in  2000.  This  higher
volume of loans  contributed  $9,559,000  to  interest  income  from the
prior year results.  The average rate received on loans  decreased  from
9.93% in 2000 to  8.41%  in 2001.  This  decrease  of 152  basis  points
reduced  interest  income  $7,829,000.  In  December  of 2000 and during
the first  quarter  of 2001,  the Bank  increased  its  holdings  of tax
exempt  securities.   This  resulted  in  an  increase  of  $899,000  in
interest  earned on tax-exempt  securities  in 2001, of which,  $798,000
was due do higher  volume and  $101,000  was due to higher  rates.  Both
the  average   rate  and  balance   decreased   on  taxable   investment
securities  resulting in a decrease of  $1,340,000  in interest  income.
Interest  earned on Fed  funds  sold was down  $657,000  due both to the
volume  and  rates.  Overall,  the  average  rate  received  on  earning
assets  in 2001  decreased  116  basis  points  to 7.89%  from the 9.05%
received in 2000.

Interest  expense  was  $70,000  higher in 2001 over 2000,  as the lower
rates paid  approximately  offset the increase in the volume of interest
bearing  liabilities.  Average balances of interest-bearing  liabilities
were higher in 2001 by $56,905,000,  which added  $2,694,000 to interest
expense.  Average rates paid on  interest-bearing  liabilities were down
49  basis  points  for  the  year.  The  lower  rates  reduced  interest
expense  in 2001  by  $2,624,000.  Interest  paid  on  interest  bearing
liabilities  generally  adjusts  more  slowly in response to market rate
changes as time deposits and borrowings  adjust at maturity.  The effect
of the above volume and rate  changes  resulted in a decrease in the net
interest  margin  for 2001 of 73 basis  points  to 5.15%  from  5.88% in
2000.

Table  One,  Analysis  of Net  Interest  Margin on Earning  Assets,  and
Table Two,  Analysis of Volume and Rate Changes on Net  Interest  Income
and  Expenses,  are  provided  to enable  the reader to  understand  the
components   and  past  trends  of  the  Bank's   interest   income  and
expenses.  Table One  provides  an analysis  of net  interest  margin on
earning   assets   setting  forth  average   assets,   liabilities   and
shareholders'  equity;  interest income earned and interest expense paid
and  average  rates  earned  and paid;  and the net  interest  margin on
earning  assets.  Table Two  presents  an  analysis  of volume  and rate
change on net interest income and expense.

Table One:  Analysis of Net Interest Margin on Earning Assets
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
(Taxable Equivalent Basis)                2002                                  2001                                2000
                               Avg.                   Avg.          Avg.                   Avg.         Avg.                   Avg.
In thousands (except         Balance    Interest     Yield        Balance    Interest    Yield        Balance    Interest    Yield
   percentages)
------------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>           <C>       <C>        <C>           <C>       <C>         <C>          <C>         <C>
Assets:
Earning Assets
  Loans (1) (2)              $ 655,061    $ 44,141      6.74%      $ 513,077   $ 43,135    8.41%    $ 417,075   $ 41,405      9.93%
  Taxable investment
     securities                 76,894       3,867      5.03%         99,488      6,000    6.03%      106,754      7,340      6.88%
  Tax-exempt investment
     securities (3)             49,240       3,357      6.82%         48,691      3,307    6.79%       36,601      2,408      6.58%
  Federal funds sold            15,329         255      1.66%          8,745        407    4.65%       16,857      1,064      6.31%
                            -----------------------              -----------------------           ----------------------
Total Earning Assets           796,524    $ 51,620      6.48%        670,001   $ 52,849    7.89%      577,287   $ 52,217      9.05%
                                       ------------                          -----------                      -----------
Cash & due from banks           47,419                                42,551                           39,432
Other assets                    14,066                                14,646                           16,234
                            -----------                          ------------                     ------------
                             $ 858,009                             $ 727,198                        $ 632,953
                            ===========                          ============                     ============

Liabilities & Shareholders' Equity:
Interest bearing liabilities:
  Demand deposits            $ 128,192     $ 1,308      1.02%       $ 97,785    $ 1,254    1.28%     $ 94,948    $ 1,551      1.63%
  Savings                      178,459       3,718      2.08%        129,358      3,940    3.05%      107,075      3,820      3.57%
  Time deposits                263,063       8,491      3.23%        247,388     12,732    5.15%      218,330     12,549      5.75%
  Other borrowings               7,345         438      5.96%          8,496        434    5.11%        5,769        370      6.41%
                            -----------------------              -----------------------            -----------------------
Total interest bearing
     liabilities               577,059      13,955      2.42%        483,027     18,360    3.80%      426,122     18,290      4.29%
                                       ------------                          -----------                      -----------
Demand deposits                202,397                               174,133                          145,134
Other Liabilities                6,034                                 7,120                            5,935
                            -----------                          ------------                     ------------
Total Liabilities              785,490                               664,280                          577,191
Shareholders' Equity            72,519                                62,918                           55,762
                            -----------                          ------------                     ------------
                             $ 858,009                             $ 727,198                        $ 632,953
                            ===========                          ============                     ============
Net interest income &
    Margin (4)                            $ 37,665      4.73%                  $ 34,489    5.15%                $ 33,927      5.88%
                                       =======================               ====================             ======================
------------------------------------------------------------------------------------------------------------------------------------

1. Loans interest includes loan fees of $1,632,000, $1,387,000 and $997,000 in 2001, 2001 and 2000.
2. Average balances of loans include average allowance for loan losses of $13,008,000, $9,807,000 and $7,097,000 and average
     deferred loan fees of $1,125,000, $978,000 and $719,000 for the years ended December 31, 2002, 2001 and 2000, respectively.
3. Includes taxable-equivalent adjustments for income on securities that is exempt from
    federal income taxes. The federal statutory tax rate was 35% for 2002, 2001 and 2000.
4. Net interest margin is computed by dividing net interest income by total average earning assets.
</TABLE>

<TABLE>
<CAPTION>

Table Two: Volume/Rate Analysis
------------------------------------------------------------------------------------------------------
Year Ended December 31, 2002 over 2001
(In thousands)
Increase (decrease) due to change in:                                                         Net
                                          Volume                  Rate (4)                  Change
                                          ------                  --------                  ------
<S>                                          <C>                        <C>                 <C>
Interest-earning assets:
   Net Loans (1)(2)                        $ 11,941                $ (10,935)                 $ 1,006
   Taxable investment securities             (1,362)                    (771)                  (2,133)
   Tax exempt investment securities (3)          37                       13                       50
   Federal funds sold                           306                     (458)                    (152)
                                       -------------            -------------            -------------
     Total                                   10,922                  (12,151)                  (1,229)
                                       -------------            -------------            -------------

Interest-bearing liabilities:
   Demand deposits                              389                     (335)                      54
   Savings deposits                           1,498                   (1,720)                    (222)
   Time deposits                                807                   (5,048)                  (4,241)
   Other borrowings                             (59)                      63                        4
                                       -------------            -------------            -------------
     Total                                    2,635                   (7,040)                  (4,405)
                                       -------------            -------------            -------------
Interest differential                       $ 8,287                 $ (5,111)                 $ 3,176
                                       =============            =============            =============

------------------------------------------------------------------------------------------------------
 Year Ended December 31, 2001 over 2000
(In thousands)
Increase (decrease) due to change in:
                                                                                                Net
                                            Volume                  Rate (4)                  Change
                                            ------                  --------                  ------
Interest-earning assets:
   Net Loans (1)(2)                         $ 9,559                 $ (7,829)                 $ 1,730
   Taxable investment securities               (501)                    (839)                  (1,340)
   Tax-exempt investment securities(3)          798                      101                      899
   Federal funds sold                          (513)                    (144)                    (657)
                                       -------------            -------------            -------------
     Total                                    9,343                   (8,711)                     632
                                       -------------            -------------            -------------

Interest-bearing liabilities:
   Demand deposits                               46                     (343)                    (297)
   Savings deposits                             798                     (678)                     120
   Time deposits                              1,675                   (1,492)                     183
   Other borrowings                             175                     (111)                      64
                                       -------------            -------------            -------------
     Total                                    2,694                   (2,624)                      70
                                       -------------            -------------            -------------
Interest differential                       $ 6,649                 $ (6,087)                   $ 562
                                       =============            =============            =============

------------------------------------------------------------------------------------------------------
1. The average balance of non-accruing loans is immaterial as a percentage of total loans and, as such,
   has been included in net loans.
2. Loan fees of $1,632,000, $1,387,000 and $997,000 for the years ended December 31, 2002, 2001 and 2000 respectively, have
    been included in the interest income computation.
3. Includes taxable-equivalent adjustments for income on securities that is exempt from  federal income taxes. The federal statutory
    tax rate was 35% for 2002, 2001 and 2000.
4. The rate / volume variance has been included in the rate variance.
</TABLE>

Provision for Loan Losses

The  Bank  provided   $3,584,000   for  loan  losses  in  2002  up  from
$2,635,000  in 2001.  The  provision in 2002  reflects the change in the
mix and  continuing  growth  in the loan  portfolio  and the  continuing
uncertain  economy.  Net loan charge-offs were $102,000 in 2002 compared
to  $253,000  in 2001.  The ratio of net  charge-offs  to average  loans
outstanding   was   0.02%   in  2002   compared   to   0.05%   in  2001.
Nonperforming  and  restructured  loans were  $1,820,000 at December 31,
2002,  compared  to  $2,329,000  at  December  31,  2001.  The  ratio of
nonperforming  and  restructured  loans  to  total  loans  was  0.24% at
December 31, 2002  compared to 0.38% at December 31, 2001.  The ratio of
the  allowance  for loan losses to total  loans - net of  deferred  fees
was 2.04% at December 31, 2002 compared to 1.94% at December 31, 2001.

The Bank  provided  $2,635,000  for loan  losses in 2001 as  compared to
$3,983,000  in  2000.  The  2000  provision  included  $1,185,000  as  a
reserve  for  certain  classified  loans  to a single  borrower.  During
2001,  reductions in  outstanding  balances on those loans allowed for a
reallocation  of $370,000 of that allowance.  The remaining  decrease in
the  amount of the  provision  for loan  losses was due to the change of
the mix of loans in the loan  portfolio and the  individual  analysis of
loan loss allowance  required for each loan type. Net loans  charged-off
in 2000  were  $208,000  or  0.05% of  average  loans  outstanding.  The
ratio  of  the  allowance  for  loan  losses  to  total  loans  - net of
deferred fees was 1.98% at December 31, 2000.

Service Charges and Fees and Other Income

Noninterest  income  in 2002  increased  $536,000  (17.1%)  over 2001 to
$3,665,000.  Service  charges  accounted for much of the increase rising
$418,000 (21.7%) due to increased business  activity.  Other noninterest
income  increased  $118,000  (9.7%)  as  mortgage  origination  fees and
other   non-deposit   related  fees  also  reflected  higher  levels  of
activity  in 2002.  Gains on the sale of  available-for-sale  securities
were  $102,000  down  $66,000  from the prior year.  This  decrease  was
offset by a $79,000  gain on the sale of OREO in 2002  versus  $4,000 in
2001.

Noninterest  income  in 2001  increased  $696,000  (28.6%)  over 2000 to
$3,129,000.  Service  charges  and  fees  related  to  deposit  accounts
increased  $175,000  (10.0%) due to  increased  business  activity.  The
low  interest  rates  generated   increased   business  for  the  Bank's
mortgage   origination   activities.   Fees  related  to  this  activity
doubled  to  $334,000  in 2001  from  $167,000  in  2000.  Of the  total
increase,  $362,000  is related  to  securities  transactions.  In 2001,
the Bank  realized  gains of $168,000 on the sale of  available-for-sale
securities versus a loss of $194,000 in 2000.

Salaries and Benefits

Salary and benefit  expenses  increased  $510,000  (4.4%) to $12,129,000
in 2002 over  2001.  Salary  expense  for the  Gilroy  branch  opened in
April 2002 was $271,000 of the  increase.  Salaries  and  benefits  from
all other  operations  increased  $499,000  (4.3%) before a $260,000 one
time  reduction  in  health  care  costs in the first  quarter  of 2002.
Base salaries  increased  $433,000  (5.0%) due to normal merit increases
and staffing  additions  during the year.  At the end of 2002,  the full
time equivalent (FTE) staff was 239 versus 221 at the end of 2001.

Salary and benefit expenses  increased  $1,538,000  (15.3%) in 2001 over
2000.  Salary  expense  for the two new  branches  opened in mid to late
2000 was $567,000 of the increase on a  year-over-year  basis.  Salaries
and benefits from all other  operations  were up $971,000  (9.9%).  Base
salaries  increased  $653,000  (9.0%) due to normal merit  increases and
staffing  additions  during  the  year.  Benefit  costs  increases  were
commensurate  with the salary  increases.  At the end of 2000,  the full
time equivalent (FTE) staff was 211.

Occupancy and Furniture and Equipment

Occupancy  and  furniture  and  equipment  expense  increased   $324,000
(9.3%) to  $3,799,000  in 2002 over 2001.  Operations  of the new Gilroy
branch  resulted  in  $117,000 of the  increase.  Most of the  remaining
$207,000  increase  in this  category  was  related to higher  costs for
security  services,  rent on leased  buildings and service  contracts on
computers and equipment.

Occupancy  and  furniture  and  equipment  expense  increased   $294,000
(9.2%)  to  $3,475,000  in  2001  over  2000.   Operations  of  the  two
branches  opened  in  mid to  late  2000  resulted  in  $121,000  of the
increase  on  a   year-over-year   basis.   Higher  energy  costs  added
$45,000,   an  increase  of  29.2%   exclusive  of  the  new   branches.
Equipment  related expenses and depreciation  increased  $108,000 (6.5%)
after adjusting for the new branches.

Other Expenses

Other  expenses  increased  $439,000  (10.6%) to $4,568,000 in 2002 over
2001.  The  higher  costs were  mostly  related  to  increased  business
activity  related  to the Bank's  continuing  growth.  Operating  losses
for  2002  increased  $101,000  from a total of  $44,000  in 2001 as the
continuing slow economy contributed to an increase in such losses.

Other  expenses  decreased  $17,000  to  $4,129,000  in 2001 from  2000.
Adjusted for the two new branches  added in 2000,  other  expenses  were
down $29,000.  With the  declining  interest  rate  environment  and the
weak economic  conditions in 2001,  management  made a concerted  effort
to control these costs.

The efficiency ratio (fully taxable  equivalent)  calculated by dividing
noninterest  expense by the sum of net interest  income and  noninterest
income,  for  2002  was  49.6%  as  compared  to  51.1%  in  2001.  This
indicates  that the growth in revenues  during 2002  outpaced the growth
in expenses.  The efficiency  ratio (fully taxable  equivalent) for 2000
was 47.9% .


Provision for Taxes

The  effective  tax rate on income was  34.7%,  35.1% and 37.0% in 2002,
2001  and  2000,   respectively.   In  2002,  the  interest   earned  on
tax-exempt  investment  securities  and loans  increased  $412,000  from
2001. Since the overall  interest income  decreased  $1,246,000 in 2002,
the   tax-exempt   income  became  a  larger  portion  of  total  income
resulting  in a  favorable  reduction  in the tax  rate.  In the  fourth
quarter  of 2000 and in the first  quarter of 2001,  the Bank  purchased
approximately  $12,600,000 of fixed rate municipal  bonds.  As a result,
the  2001  tax-exempt   interest  income  on  a  tax  equivalent   basis
increased  to 6.26%  of total  interest  income  from  4.61% in 2000 and
the  effective  tax rate fell 1.9% in 2001.  The  effective tax rate was
greater  than the  federal  statutory  tax rate due to state tax expense
of  $1,660,000  $1,522,000  and  $1,513,000  in  2002,  2001  and  2000.
Tax-exempt   income  of  $3,185,000   $2,754,000  and  $2,082,000   from
investment  securities  and  loans in 2002,  2001  and  2000  helped  to
reduce the effective tax rate.


(B)  Balance Sheet Analysis
---------------------------

Central  Coast   Bancorp's  total  assets  at  December  31,  2002  were
$919,132,000   compared   to   $802,266,000   at  December   31,   2001,
representing  an increase of $116,866,000  (14.6%).  The average balance
of total assets was  $858,009,000 in 2002,  which represents an increase
of  $130,811,000  (18.0%)  over  the  average  total  asset  balance  of
$727,198,000 in 2001.

Loans

The Bank  concentrates  its lending  activities in four principal areas:
commercial   loans   (including   agricultural   loans);   real   estate
construction  loans (both  commercial and personal);  real  estate-other
loans and consumer  loans.  At December 31, 2002,  these four categories
accounted  for  approximately  30%,  10%,  58% and 2% of the Bank's loan
portfolio,  respectively,  as  compared  to  33%,  14%,  50%  and  3% at
December 31, 2001.  Since 1998, the annual  percentage  loan growth from
the prior  year has been 22%,  27%,  20%,  28% and 23%,  primarily  as a
result  of  the  success  of  the  loan  calling  officer  program.  The
calling  program not only has  attracted  many new loan  customers,  but
also serves as an  effective  way of  ensuring  continual  contact  with
existing  customers.   Real  estate-other  loans  provided  the  largest
percentage  (41.5) as well as absolute  dollar ($127.3  million)  growth
in 2002.  Construction  loans  outstanding  at the end of 2002 were down
$11.1 million as several large  projects were  completed in the year and
were moved into real  estate-other.  Demand for commercial  construction
loans  remained  relatively  stable  during  the  year.  However,  large
project  residential  construction  opportunities in Monterey County are
becoming limited as there are very few projects  receiving  governmental
approval.  There  was a  decrease  in  consumer  loans,  as  much of the
lending  activity  to  individuals  is in home  equity  lines of  credit
which are  reflected  in the real  estate-other  category.  Table  Three
summarizes  the  composition  of the loan  portfolio  for the past  five
years as of December 31:
<TABLE>
<CAPTION>

Table Three: Loan Portfolio Composite
-------------------------------------------------------------------------------------------------------------------------------
In thousands                    2002              2001                    2000                    1999                    1998
-------------------------------------------------------------------------------------------------------------------------------
<S>                        <C>               <C>                     <C>                     <C>                     <C>
Commercial                 $ 224,840         $ 199,761               $ 171,631               $ 159,385               $ 136,685
Real Estate:
   Construction               74,214            85,314                  57,780                  35,330                  19,929
   Other                     433,921           306,622                 234,890                 188,600                 144,685
Consumer                      13,414            15,653                   9,840                  13,003                  11,545
Deferred Loans Fees           (1,036)           (1,050)                   (746)                   (721)                   (674)
-------------------------------------------------------------------------------------------------------------------------------
Total Loans                  745,353           606,300                 473,395                 395,597                 312,170
Allowance for
   Loan Losses               (15,235)          (11,753)                 (9,371)                 (5,596)                 (4,352)
-------------------------------------------------------------------------------------------------------------------------------
Total                      $ 730,118         $ 594,547               $ 464,024               $ 390,001               $ 307,818
===============================================================================================================================
</TABLE>

The majority of the Bank's  loans are direct loans made to  individuals,
local  businesses  and  agri-businesses.  The Bank relies  substantially
on local  promotional  activity,  personal  contacts  by Bank  officers,
directors  and employees to compete with other  financial  institutions.
The Bank makes loans to  borrowers  whose  applications  include a sound
purpose,  a viable repayment source and a plan of repayment  established
at inception and generally backed by a secondary source of repayment.

Commercial  loans  consist of credit lines for  operating  needs,  loans
for equipment  purchases,  working  capital,  and various other business
loan products.  Consumer  loans include a range of traditional  consumer
loan products  offered by the Bank such as personal  lines of credit and
loans to  finance  purchases  of autos,  boats,  recreational  vehicles,
mobile homes and various other consumer items.  The  construction  loans
are generally  composed of  commitments  to customers  within the Bank's
service area for  construction of both commercial  properties and custom
and  semi-custom  single  family  residences.  Other real  estate  loans
consist  primarily  of loans to the Bank's  depositors  secured by first
trust deeds on commercial  and  residential  properties  typically  with
short-term  maturities  and original  loan to value ratios not exceeding
75%. In general,  except in the case of loans with SBA  guarantees,  the
Bank  does not make  long-term  mortgage  loans;  however,  the Bank has
informal   arrangements  in  place  with  mortgage   lenders  to  assist
customers in securing single-family mortgage financing.

Average  net loans in 2002 were  $655,061,000  representing  an increase
of  $141,984,000  or 27.7%  over  2001.  Average  net loans in 2001 were
$513,077,000  representing  an  increase  of  $96,002,000  or 23.0% over
2000.

Risk  Elements  - The  Bank  assesses  and  manages  credit  risk  on an
ongoing basis  through  stringent  credit review and approval  policies,
extensive   internal   monitoring   and   established   formal   lending
policies.   Additionally,  the  Bank  contracts  with  an  outside  loan
review  consultant to  periodically  examine new loans and to review the
existing  loan  portfolio.  Management  believes its ability to identify
and  assess  risk  and  return  characteristics  of the  Company's  loan
portfolio  is  critical  for   profitability   and  growth.   Management
strives  to  continue  the  historically  low  level of loan  losses  by
continuing   its  emphasis  on  credit  quality  in  the  loan  approval
process,  active  credit  administration  and regular  monitoring.  With
this in mind,  management has designed and  implemented a  comprehensive
loan review and grading  system that  functions  to  continually  assess
the credit risk inherent in the loan portfolio.

Ultimately,  the credit  quality of the Bank's  loans may be  influenced
by  underlying  trends in the national  and local  economic and business
cycles.   The  Bank's  business  is  mostly   concentrated  in  Monterey
County.  The County's  economy is highly  dependent on the  agricultural
and  tourism  industries.  The  agricultural  industry  is  also a major
driver of the economies of San Benito  County and the southern  portions
of Santa Cruz and Santa Clara  Counties,  which  represent  the areas of
the Bank's recent branch  expansion.  As a result,  the Bank lends money
to  individuals  and  companies  dependent  upon  the  agricultural  and
tourism industries.

The Company has  significant  extensions  of credit and  commitments  to
extend credit which are secured by real estate,  totaling  approximately
$568 million at December 31, 2002.  Although  management  believes  this
real  estate   concentration  has  no  more  than  the  normal  risk  of
collectibility,  a substantial  decline in the economy in general,  or a
decline in real  estate  values in the Bank's  primary  market  areas in
particular,  could  have an  adverse  impact  on the  collectibility  of
these  loans.  The  ultimate   recovery  of  these  loans  is  generally
dependent on the successful  operation,  sale or refinancing of the real
estate.  The Bank  monitors the effects of current and  expected  market
conditions  and  other  factors  on the  collectibility  of real  estate
loans.  When, in  management's  judgment,  these loans are impaired,  an
appropriate  allowance  for  probable  losses  is  recorded.   The  more
significant  assumptions  management  considers involve estimates of the
following:  lease,  absorption  and sale rates;  real estate  values and
rates of return;  operating  expenses;  inflation;  and  sufficiency  of
collateral  independent  of  the  real  estate  including,   in  limited
instances,   personal   guarantees.   Not  withstanding  the  foregoing,
abnormally  high  rates  of  impairment  due to  general/local  economic
conditions  could adversely  affect the Company's  future  prospects and
results of operations.

In extending  credit and  commitments  to borrowers,  the Bank generally
requires  collateral  and/or  guarantees  as security.  The repayment of
such  loans is  expected  to come from cash flow or from  proceeds  from
the sale of selected  assets of the  borrowers.  The Bank's  requirement
for collateral and/or  guarantees is determined on a case-by-case  basis
in connection with management's  evaluation of the  creditworthiness  of
the  borrower.   Collateral   held  varies  but  may  include   accounts
receivable,  inventory, property, plant and equipment,  income-producing
properties,  residences  and other real  property.  The Bank secures its
collateral  by  perfecting  its interest in business  assets,  obtaining
deeds of trust, or outright  possession  among other means.  Loan losses
from  lending  transactions  related  to  real  estate  and  agriculture
compare  favorably  with the Bank's loan losses on its loan portfolio as
a whole.

Management   believes  that  its  lending   policies  and   underwriting
standards  will  tend  to  mitigate  losses  in  an  economic  downturn,
however,  there is no  assurance  that  losses will not occur under such
circumstances.  The Bank's  loan  policies  and  underwriting  standards
include,  but are not  limited  to,  the  following:  1)  maintaining  a
thorough   understanding   of  the  Bank's  service  area  and  limiting
investments   outside  of  this   area,   2)   maintaining   a  thorough
understanding  of  borrowers'  knowledge  and capacity in their field of
expertise,  3) basing real estate  construction  loan  approval not only
on salability  of the project,  but also on the  borrowers'  capacity to
support  the  project  financially  in the event it does not sell within
the original  projected time period,  and 4) maintaining  conforming and
prudent  loan to value  and  loan to cost  ratios  based on  independent
outside  appraisals  and ongoing  inspection  and analysis by the Bank's
construction  lending  officers.  In  addition,   the  Bank  strives  to
diversify  the risk inherent in the  construction  portfolio by avoiding
concentrations to individual borrowers and on any one project.

Nonaccrual, Past Due and Restructured Loans

Management  generally  places  loans  on  nonaccrual  status  when  they
become 90 days  past due,  unless  the loan is well  secured  and in the
process of  collection.  Loans are charged  off when,  in the opinion of
management,   collection   appears  unlikely.   Table  Four  sets  forth
nonaccrual  loans,  loans  past  due 90 days or more,  and  restructured
loans  performing in  compliance  with  modified  terms,  as of December
31:

<TABLE>
<CAPTION>

Table Four: Non-Performing Loans
-------------------------------------------------------------------------------------------
In thousands                        2002        2001         2000        1999         1998
-------------------------------------------------------------------------------------------
<S>                                  <C>        <C>         <C>          <C>          <C>
Past due 90 days or more and
 still accruing
   Commercial                        $ -        $ 68        $ 215        $ 51         $ 73
   Real estate                         -           -           10         303        1,174
   Consumer and other                  5          12            5           -            -
-------------------------------------------------------------------------------------------
                                       5          80          230         354        1,247
-------------------------------------------------------------------------------------------
Nonaccrual:
   Commercial                        272         702          329          11          333
   Real estate                       598         592            -       1,565          543
   Consumer and other                  -           -            -           -            -
-------------------------------------------------------------------------------------------
                                     870       1,294          329       1,576          876
-------------------------------------------------------------------------------------------
Restructured (in compliance with
   modified terms)- Commercial       933         955        1,010           -            -
-------------------------------------------------------------------------------------------
Total                            $ 1,808     $ 2,329      $ 1,569     $ 1,930      $ 2,123
===========================================================================================
</TABLE>

Interest due but excluded from interest  income on nonaccrual  loans was
approximately  $24,000  in 2002,  $45,000  in 2001 and  $64,000 in 2000.
In 2002 and 2001,  interest income  recognized from payments received on
nonaccrual  loans  was  $40,000  and  $69,000,  respectively  (none  was
recognized in 2000).

A loan is impaired when,  based on current  information  and events,  it
is probable  that the Company  will be unable to collect all amounts due
according  to the  contractual  terms  of the loan  agreement.  Impaired
loans are measured  based on the present  value of expected  future cash
flows  discounted  at  the  loan's  effective  interest  rate  or,  as a
practical  expedient,  at the loan's observable market price or the fair
value of the collateral if the loan is collateral-dependent.

At  December  31,  2002,  the  recorded  investment  in  loans  that are
considered  impaired  was  $2,618,000  of which  $870,000 is included in
nonaccrual  loans,  and  $933,000  is  included  in  restructured  loans
above.  At December 31, 2001 impaired  loans were  $2,418,000,  of which
$1,294,000  are included as non accrual  loans  above,  and $955,000 are
included as  restructured  loans above.  Impaired  loans had a valuation
allowance of $1,165,000  and $536,000,  in 2002 and 2001,  respectively.
The  average  recorded  investments  in impaired  loans  during 2002 and
2001  were   $2,338,000  and  $2,638,000,   respectively.   The  Company
recognized  interest income on impaired loans of $143,000,  $191,000 and
$161,000  in  2002,  2001 and  2000,  respectively  (including  interest
income  of  $66,000  in 2002  and  $98,000  in  both  2001  and  2000 on
restructured loans).

There were no troubled debt  restructurings  or loan  concentrations  in
excess of 10% of total loans not  otherwise  disclosed  as a category of
loans  as  of  December  31,  2002.  Management  is  not  aware  of  any
potential  problem  loans,  which were  accruing and current at December
31, 2002,  where  serious doubt exists as to the ability of the borrower
to comply with the  present  repayment  terms  except for one loan which
was  placed on  nonaccrual  in  February  of 2003.  Management  believes
that amounts due on this loan will be fully collected.

Other Real Estate Owned

The Company  held no real estate  acquired  by  foreclosure  at December
31, 2002 or 2001.

Allowance for Loan Losses

The Bank  maintains  an  allowance  for loan  losses  to  absorb  losses
inherent in the loan  portfolio.  The  allowance is based on our regular
assessments  of the  probable  estimated  losses  inherent  in the  loan
portfolio  and  to  a  lesser  extent,  unused  commitments  to  provide
financing.  Determining  the  adequacy of the  allowance  is a matter of
careful  judgment,  which  reflects  consideration  of  all  significant
factors  that  affect  the  collectibility  of the  portfolio  as of the
evaluation  date. Our methodology  for measuring the  appropriate  level
of the  allowance  relies on several  key  elements,  which  include the
formula  allowance,  specific  allowances for  identified  problem loans
and  the  unallocated  reserve.   The  unallocated   allowance  contains
amounts that are based on  management's  evaluation of  conditions  that
are not  directly  measured  in the  determination  of the  formula  and
specific allowances.

The  formula  allowance  is  calculated  by  applying  loss  factors  to
outstanding  loans and certain  unused  commitments,  in each case based
on the  internal  risk grade of such loans and  commitments.  Changes in
risk  grades of both  performing  and  nonperforming  loans  affect  the
amount  of  the  formula  allowance.  Loss  factors  are  based  on  our
historical loss  experience and may be adjusted for significant  factors
that,  in  management's  judgment,  affect  the  collectibility  of  the
portfolio as of the  evaluation  date. At December 31, 2002, the formula
allowance  was  $12,002,000  compared  to  $9,043,000  at  December  31,
2001.  The increase in the formula  allowance  was primarily a result of
the  growth  in loan  and  loan  commitment  balances  subject  to these
formula allowances of $148,845,000 in 2002.

In addition to the formula  allowance  calculated by the  application of
the loss  factors to the  standard  loan  categories,  certain  specific
allowances  may also be  calculated.  Quarterly,  all  criticized  loans
are  analyzed   individually   based  on  the  source  and  adequacy  of
repayment  and specific  type of  collateral,  and an assessment is made
of the  adequacy  of the  formula  reserve  relative  to the  individual
loan.  A specific  allocation  either  higher or lower than the  formula
reserve  will  be  calculated  based  on  the   higher/lower-than-normal
probability  of loss and the  adequacy  of the  collateral.  At December
31,  2002,  the  specific  allowance  was  $1,830,000  on a loan base of
$32,180,000  compared to a specific  allowance of  $1,678,000  on a loan
base  of   $18,922,000  at  December  31,  2001.  The  increase  in  the
specific  allowance  in  2002  was  due  to the  larger  base  of  loans
requiring specific valuation allowances.

The   unallocated   allowance   contains   amounts  that  are  based  on
management's  evaluation of conditions that are not directly measured in
the   determination  of  the  formula  and  specific   allowances.   The
evaluation  of the  inherent  loss with respect to these  conditions  is
subject  to  a  higher  degree  of  uncertainty  because  they  are  not
identified  with  specific  problem  loans  or  portfolio  segments.  At
December 31, 2002, the  unallocated  allowance was  $1,402,000  compared
to  $1,032,000  at  December  31,  2001.  The  conditions  evaluated  in
connection with the unallocated  allowance  include the following at the
balance sheet date:

o     The current  national and local economic and business  conditions,
   trends and  developments,  including the condition of various  market
   segments within our lending area;

o     Changes   in   lending   policies   and   procedures,    including
   underwriting  standards  and  collection,  charge-off,  and  recovery
   practices;

o     Changes in the nature, mix,  concentrations and volume of the loan
   portfolio;

o     The  effect of other  external  factors  such as  competition  and
   legal and regulatory  requirements  on the level of estimated  credit
   losses in the Bank's current portfolio.

There  can be no  assurance  that  the  adverse  impact  of any of these
conditions  on the  Bank  will  not  be in  excess  of  the  unallocated
allowance  as  determined  by  management  at December  31, 2002 and set
forth in the preceding paragraph.

The  allowance  for loan losses  totaled  $15,235,000  or 2.04% of total
loans  at  December  31,  2002  compared  to  $11,753,000  or  1.94%  at
December 31, 2001.  At those two dates,  the allowance  represented  837
percent and 505 percent of nonperforming loans.

It is the  policy of  management  to  maintain  the  allowance  for loan
losses at a level  adequate  for risks  inherent in the loan  portfolio.
Based  on   information   currently   available  to  analyze  loan  loss
potential,   including   economic   factors,   overall  credit  quality,
historical  delinquency and a history of actual charge-offs,  management
believes  that the loan  loss  provision  and  allowance  are  adequate.
However,  no  prediction  of the ultimate  level of loans charged off in
future years can be made with any certainty.

Table Five  summarizes,  for the years  indicated,  the  activity in the
allowance for loan losses.
<TABLE>
<CAPTION>

Table Five:  Allowance for Loan Losses
------------------------------------------------------------------------------------------------------------------------------------
                                  Year Ended            Year Ended            Year Ended           Year Ended            Year Ended
In thousands (except percentages)  12/31/02              12/31/01             12/31/00              12/31/99              12/31/98
------------------------------------------------------------------------------------------------------------------------------------

<S>                                <C>                   <C>                  <C>                   <C>                   <C>
Average loans outstanding          $ 669,104             $ 523,862            $ 424,891             $ 353,732             $ 276,437
------------------------------------------------------------------------------------------------------------------------------------

Allowance for possible loan losses
 at beginning of period             $ 11,753               $ 9,371              $ 5,596               $ 4,352               $ 4,223

Loans charged off:
   Commercial                            (53)                 (349)                (273)                 (333)                 (130)
   Real estate                          (219)                   (2)                   -                   (41)                  (16)
   Consumer                              (81)                  (79)                (119)                  (26)                  (31)
------------------------------------------------------------------------------------------------------------------------------------
                                        (353)                 (430)                (392)                 (400)                 (177)
------------------------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously
 charged off:
   Commercial                            214                   162                  170                   143                   116
   Real estate                             -                     -                    -                     7                    20
   Consumer                               37                    15                   14                    10                    11
------------------------------------------------------------------------------------------------------------------------------------
                                         251                   177                  184                   160                   147
------------------------------------------------------------------------------------------------------------------------------------
Net loans charged off                   (102)                 (253)                (208)                 (240)                  (30)

Additions to allowance charged
  to operating expenses                3,584                 2,635                3,983                 1,484                   159
------------------------------------------------------------------------------------------------------------------------------------
Allowance for possible loan
  losses at end of period           $ 15,235              $ 11,753              $ 9,371               $ 5,596               $ 4,352
====================================================================================================================================

Ratio of net charge-offs to
  average loans outstanding            0.02%                 0.05%                0.05%                 0.07%                 0.01%

Provision of allowance for possible loan
 losses to average loans outstanding   0.54%                 0.50%                0.94%                 0.42%                 0.06%

Allowance for possible loan losses to loans
 net of deferred fees at year end      2.04%                 1.94%                1.98%                 1.41%                 1.39%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

As part  of its  loan  review  process,  management  has  allocated  the
overall  allowance  based  on  specific  identified  problem  loans  and
historical  loss  data.  Table  Six  summarizes  the  allocation  of the
allowance for loan losses at December 31, 2002 and 2001.
<TABLE>
<CAPTION>
Table Six:  Allowance for Loan Losses by Loan Category
-----------------------------------------------------------------------------------
                                  December 31, 2002             December 31, 2001
                                  -----------------             -----------------
                                           Percent of                    Percent of
                                           loans in each                 loans in each
                                           category to                   category to
In thousands(except percentages)  Amount   total loans          Amount   total loans
-----------------------------------------------------------------------------------

<S>                                <C>           <C>             <C>           <C>
Commercial                         $ 6,750       30%             $ 7,397       33%
Real estate                          6,874       67%               3,019       64%
Consumer                               209        2%                 305        3%
-----------------------------------------------------------------------------------
Total allocated                     13,833      100%              10,721      100%
Total unallocated                    1,402                         1,032
-----------------------------------------------------------------------------------
   Total                          $ 15,235                      $ 11,753
===================================================================================
</TABLE>


Deposits

At December 31, 2002,  deposits were  $826,502,000 up from  $724,862,000
at the end of 2001. The 2002 year-end balances  included  $10,000,000 in
certificates  from the State of  California  as compared to  $30,000,000
at the  end of  2001.  These  deposits  are  placed  in the  Bank at its
request and are secured by pledged  investment  securities.  The deposit
growth in 2002, exclusive of the State of California  certificates,  was
$121,640,000   (17.3%).   Management   believes   the  large  growth  in
deposits  may have  been due in part to  customers  moving  money out of
the stock market.  We do not  anticipate  that deposits will increase in
2003 at or near the 2002  growth  levels  and a  recovery  in the  stock
market could potentially result in an outflow of deposits.

Capital Resources

The  current  and  projected  capital  position  of the  Company and the
impact  of  capital   plans  and  long-term   strategies   are  reviewed
regularly by  management.  The  Company's  capital  position  represents
the level of capital  available  to  support  continued  operations  and
expansion.

Since  October  of 1998 and  through  December  31,  2002,  the Board of
Directors  of  the  Company  has  authorized  three  separate  plans  to
repurchase  up to 5% (in each  plan) of the  outstanding  shares  of the
Company's  common  stock.  Purchases  are made from time to time, in the
open  market  and  are  subject  to  appropriate  regulatory  and  other
accounting   requirements.   The  following  common  share  amounts  and
average  prices  paid have  been  adjusted  to give  effect to all stock
dividends and splits  through  December 31, 2002.  In 2002,  the Company
did not acquire  any shares of its common  stock.  The Company  acquired
313,419  shares of its  common  stock in the open  market  during  2001,
513,618 in 2000 and 250,835 in 1999 at average  prices of  approximately
$15.31,  $11.88  and  $10.66  per  share,   respectively.   The  Company
completed  repurchases  under the first and second plans in May 2000 and
April 2001,  respectively.  At December  31,  2002,  there were  307,894
shares remaining to repurchase  under the third plan. These  repurchases
are made with the  intention  to lessen the  dilutive  impact of issuing
new  shares  to  meet  stock   option  plans  as  well  as  for  capital
management objectives.

The Company's  primary capital resource is shareholders'  equity,  which
increased  $12,740,000  or 19.5% from the previous  year-end.  The ratio
of  total  risk-based  capital  to  risk-adjusted  assets  was  10.9% at
December  31,  2002  compared  to 11.1% at  December  31,  2001.  Tier 1
risk-based  capital to  risk-adjusted  assets was 9.7% at  December  31,
2002,  compared to 9.9% at December  31,  2001.  The capital  ratios are
slightly   lower  in  2002  as   compared   to  2001  as  the  level  of
risked-based  assets  grew at a slightly  higher rate than the growth in
regulatory capital levels.

Table Seven: Capital Ratios
                                        As of December 31,
                                        -----------------

Central Coast Bancorp                     2002      2001
---------------------                     ----      ----
Tier 1 Capital                             9.7%      9.9%
Total Capital                             10.9%     11.1%
Leverage                                   8.6%      8.4%


See  the  discussion  of  capital   requirements  in  "Supervision   and
Regulation"   and  in   Footnote   13  -   Regulatory   Matters  in  the
Consolidated  Financial  Statements in Item 8 - Financial Statements and
Supplementary Data.

Inflation

The   impact  of   inflation   on  a   financial   institution   differs
significantly  from that exerted on  manufacturing,  or other commercial
concerns,  primarily  because  its assets and  liabilities  are  largely
monetary.   In  general,   inflation   primarily   affects  the  Company
indirectly  through  its effect on market  rates of  interest,  and thus
the ability of the Bank to attract  loan  customers.  Inflation  affects
the growth of total assets by increasing  the level of loan demand,  and
potentially  adversely  affects the Company's  capital  adequacy because
loan  growth  in  inflationary  periods  can  increase  faster  than the
corresponding  rate that  capital  grows  through  retention of earnings
the  Company  generates  in the  future.  In  addition to its effects on
interest  rates,  inflation  directly  affects the Company by increasing
the  Company's  operating  expenses.  Inflation  did not have a material
effect upon the Company's results of operations during the year 2002.

Market Risk Management

Overview.  The goal for  managing  the  assets  and  liabilities  of the
Bank is to maximize  shareholder  value and earnings while maintaining a
high quality  balance sheet without  exposing the Bank to undue interest
rate risk.  The Board of Directors  has overall  responsibility  for the
Company's  interest  rate  risk  management  policies.  The  Bank has an
Asset and Liability  Management  Committee (ALCO), which establishes and
monitors  guidelines to control the  sensitivity  of earnings to changes
in interest rates.

Asset/Liability  Management.   Activities  involved  in  asset/liability
management  include  but are  not  limited  to  lending,  accepting  and
placing  deposits,  investing in securities  and issuing debt.  Interest
rate risk is the primary  market risk  associated  with  asset/liability
management.  Sensitivity  of earnings to interest  rate  changes  arises
when  yields  on  assets  change  in a  different  time  period  or in a
different  amount  from  that  of  interest  costs  on  liabilities.  To
mitigate  interest  rate risk,  the  structure  of the balance  sheet is
managed  with the goal that  movements  of interest  rates on assets and
liabilities  are  correlated  and contribute to earnings even in periods
of  volatile  interest  rates.  The  asset/liability  management  policy
sets  limits  on the  acceptable  amount  of  variance  in net  interest
margin   and   market   value  of   equity   under   changing   interest
environments.  The Bank uses  simulation  models to  forecast  earnings,
net interest margin and market value of equity.

Simulation  of  earnings  is  the  primary  tool  used  to  measure  the
sensitivity  of  earnings  to  interest  rate  changes.  Using  computer
modeling  techniques,  the  Company is able to  estimate  the  potential
impact  of  changing  interest  rates  on  earnings.   A  balance  sheet
forecast is prepared  quarterly using inputs of actual loan,  securities
and interest bearing  liabilities (i.e.  deposits/borrowings)  positions
as  the  beginning  base.  The  forecast   balance  sheet  is  processed
against three  interest  rate  scenarios.  The  scenarios  include a 200
basis point rising rate  forecast,  a flat rate forecast and a 200 basis
point  falling  rate  forecast  which take place  within a one year time
frame.  The net  interest  income is  measured  during the first year of
the  rate  changes  and in the year  following  the  rate  changes.  The
Company's  2003 net  interest  income,  as forecast  below,  was modeled
utilizing  a  forecast   balance  sheet  projected  from  year-end  2002
balances.

The following assumptions were used in the modeling activity:
o     Earning asset growth of 6.0% based on ending balances
o     Loan growth of 4.0% based on ending balances
o     Investment and funds sold growth of 22.6% based on ending balances
o     Deposit growth of 8.8% based on ending balances
o     Balance sheet target balances were the same for all rate scenarios

The following  table  summarizes the effect on net interest  income of a
+/-200 basis  point  change in interest  rates as measured  against a flat
rate (no change) scenario.

Table Eight:  Interest Rate Risk  Simulation  of Net Interest  Income as
of December 31, 2002:
                                   Estimated Impact on
                                   2003 Net Interest
                                         Income
                                         ------
Variation from flat rate scenario     (in thousands)

    +200                                   $4,286
   - 200                                  ($3,747)

The simulations of earnings do not  incorporate any management  actions,
which  might  moderate  the  negative   consequences  of  interest  rate
deviations.  Therefore,  they do not reflect likely actual results,  but
serve as conservative estimates of interest rate risk.

The  Company  also uses a second  simulation  scenario  that rate shocks
the balance  sheet with an immediate  parallel  shift in interest  rates
of  +/-200  basis  points.  This  scenario  provides  estimates  of  the
future  market  value of equity  (MVE) and net  interest  income  (NII).
MVE  measures  the  impact on equity  due to the  changes  in the market
values of assets  and  liabilities  as a result of a change in  interest
rates.  The Bank  measures the  volatility of these  benchmarks  using a
twelve month time  horizon.  Using the  December 31, 2001 balance  sheet
as the base for the  simulation,  the  following  table  summarizes  the
effect  on net  interest  income  of a  +/-200  basis  point  change  in
interest rates:

Table Nine:  Interest  Rate Risk  Simulation  of NII as of December  31, 2002

                                  % Change             $ Change
                                    in NII               in NII
                                 from Current         from Current
                               12 Mo. Horizon       12 Month Horizon
                               --------------       ----------------
                                                     (in thousands)
      + 200bp                      24%                   $8,585
      - 200bp                     (28%)                 ($9,851)

These results  indicate that the balance sheet is asset  sensitive since
earnings  increase  when interest  rates rise.  The magnitude of the NII
change is within the Company's  policy  guidelines.  The asset liability
management  policy  limits  aggregate  market risk,  as measured in this
fashion,  to an  acceptable  level  within the  context  of  risk-return
trade-offs.

Gap  analysis  provides  another  measure of  interest  rate  risk.  The
Company does not actively  use gap  analysis in managing  interest  rate
risk.  It is presented  here for  comparative  purposes.  Interest  rate
sensitivity  is a  function  of  the  repricing  characteristics  of the
Bank's   portfolio   of  assets   and   liabilities.   These   repricing
characteristics  are the time frames  within which the  interest-bearing
assets and  liabilities  are subject to change in interest  rates either
at  replacement,   repricing  or  maturity.  Interest  rate  sensitivity
management  focuses on the maturity of assets and  liabilities and their
repricing   during  periods  of  changes  in  market   interest   rates.
Interest  rate  sensitivity  is measured as the  difference  between the
volumes of assets and  liabilities in the Bank's current  portfolio that
are subject to  repricing  at various  time  horizons.  The  differences
are known as interest sensitivity gaps.

As  reflected   in  Table  Ten,  at  December   31,  2002,   other  than
immediately,  the cumulative gap indicates an asset  sensitive  position
through  all  time  horizons.   This  interest  rate  sensitivity  table
categorizes  interest-bearing  transaction deposits and savings deposits
as  repricing  immediately.   However,  as  has  been  observed  through
interest   rate  cycles,   the  deposit   liabilities   do  not  reprice
immediately.  Consequently,  the Bank's net  interest  income  varies as
though the Bank is asset  sensitive,  i.e.  as  interest  rates rise net
interest income increases and vice versa.

<TABLE>
<CAPTION>
Table Ten: Interest Rate Sensitivity
------------------------------------------------------------------------------------------------------------------------------------
December 31, 2002
Assets and Liabilities                                         Over three
which Mature or Reprice:                       Next day        months and              Over one
                                              and within         within               and within                Over
(In thousands)                  Immediately  three months       one year              five years             five years     Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>          <C>               <C>                   <C>                    <C>        <C>
Interest earning assets:
Investments                         $ 1,306      $ 12,240          $ 8,896               $ 40,914               $ 43,967   $ 107,323
Loans, excluding
   nonaccrual loans
   and overdrafts                    16,709       498,858           49,616                146,951                 31,231     743,365
------------------------------------------------------------------------------------------------------------------------------------
Total                              $ 18,015     $ 511,098         $ 58,512              $ 187,865               $ 75,198   $ 850,688
====================================================================================================================================
Interest bearing
   liabilities:
Interest bearing demand           $ 127,692           $ -              $ -                    $ -                    $ -   $ 127,692
Savings                             181,089             -                -                      -                      -     181,089
Time certificates                         -        77,721          137,516                 40,440                    802     256,479
Other Borrowings                          -            62              280                  2,811                  3,507       6,660
------------------------------------------------------------------------------------------------------------------------------------
Total                             $ 308,781      $ 77,783        $ 137,796               $ 43,251                $ 4,309   $ 571,920
====================================================================================================================================
Interest rate
   sensitivity gap               $ (290,766)    $ 433,315        $ (79,284)             $ 144,614               $ 70,889
Cumulative interest
   rate sensitivity gap          $ (290,766)    $ 142,549         $ 63,265              $ 207,879              $ 278,768
------------------------------------------------------------------------------------------------------------------------------------
December 31, 2001
Interest rate
   sensitivity gap               $ (213,700)    $ 287,399        $ (85,838)             $ 135,009              $ 118,479
Cumulative interest
   rate sensitivity gap          $ (213,700)     $ 73,699        $ (12,139)             $ 122,870              $ 241,349
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Liquidity

Liquidity  management  refers to the Company's  ability to provide funds
on an ongoing basis to meet  fluctuations  in deposit  levels as well as
the  credit  needs and  requirements  of its  clients.  Both  assets and
liabilities  contribute to the  Company's  liquidity  position.  Federal
funds  lines,   short-term   investments   and   securities,   and  loan
repayments  contribute  to  liquidity,  along  with  deposit  increases,
while loan  funding  and deposit  withdrawals  decrease  liquidity.  The
Bank  assesses the  likelihood  of  projected  funding  requirements  by
reviewing  historical funding patterns,  current and forecasted economic
conditions  and individual  client  funding  needs.  Commitments to fund
loans and  outstanding  standby  letters of credit at December 31, 2002,
were  approximately  $186,982,000  and  $5,169,000,  respectively.  Such
loans  relate   primarily  to  revolving   lines  of  credit  and  other
commercial loans, and to real estate construction loans.

The Company's  sources of liquidity  consist of overnight  funds sold to
correspondent  banks,  unpledged marketable  investments,  loans pledged
to  the  Federal  Home  Loan  Bank  of  San  Francisco  ("FHLB-SF")  and
sellable SBA loans.  On December 31, 2002,  consolidated  liquid  assets
totaled  $74.4  million or 8.1% of total  assets as  compared  to $110.0
million or 13.7% of total  consolidated  assets on  December  31,  2001.
In addition to liquid  assets,  the Bank maintains  short-term  lines of
credit  with  correspondent  banks and has several  agreements  in place
for obtaining  brokered  certificates of deposit.  At December 31, 2002,
the Bank  had  $76,944,000  available  under  the  credit  lines  and by
policy could have  negotiated  for up to  $89,000,000  in brokered CD's.
Informal  agreements  are  also in place  with  various  other  banks to
purchase  participations  in loans,  if  necessary.  The Company  serves
primarily a business and  professional  customer base and, as such,  its
deposit  base is  susceptible  to  economic  fluctuations.  Accordingly,
management  strives to maintain a balanced  position of liquid assets to
volatile and cyclical deposits.

Liquidity  is affected  by  portfolio  maturities  as well as the effect
interest  rate  fluctuations  have on the market  values of both  assets
and  liabilities.  The Bank holds all of its  investment  securities  in
the  available-for-sale  category.  This enables the Bank to sell any of
its  unpledged  securities  to  meet  liquidity  needs.  In  periods  of
rising interest rates,  such as experienced  throughout most of 1999 and
the first half of 2000, bond prices  decreased,  which resulted in large
unrealized  losses within the Bank's  investment  portfolio.  Unrealized
losses  limit the Bank's  ability to sell  these  securities  to provide
liquidity  without  realizing  those  losses.  As a means for  providing
liquidity  from the  investment  portfolio  when  there  are  unrealized
losses,   the   Bank   has  a  master   repurchase   agreement   with  a
correspondent  bank.  Such a  repurchase  agreement  allows  the Bank to
pledge  securities as  collateral  for  borrowings  to obtain  liquidity
without  having to sell a security at a loss.  In a  declining  interest
rate  environment  such as  experienced in 2001 and 2002, as bond prices
increase, liquidity is more easily obtained through security sales.

The maturity  distribution of  certificates of deposit in  denominations
of $100,000 or more is set forth in Table  Eleven.  These  deposits  are
generally more rate sensitive  than other deposits and,  therefore,  are
more  likely  to be  withdrawn  to obtain  higher  yields  elsewhere  if
available.

Table Eleven:  Certificates of Deposit in Denominations of $100,000 or More
-----------------------------------------------------------
In thousands                              December 31, 2002
-----------------------------------------------------------
 Three months or less                              $57,625

 Over three months through six months               49,483

 Over six months through twelve months              52,896

 Over twelve months                                 33,687

-----------------------------------------------------------
 Total                                            $193,691
===========================================================

Loan demand also affects the Bank's liquidity position.  Table Twelve
presents the maturities of loans for the period indicated.

Table Twelve:  Loan Maturities - December 31, 2002
-------------------------------------------------------------------
                                One year
                   One year     through        Over
 In thousands      or less      five years   five years    Total
-------------------------------------------------------------------

  Commercial      $ 131,017     $ 69,366     $ 24,457    $ 224,840

  Real estate -
   construction      64,944        9,270            -       74,214

  Real estate -
    other            61,400      127,855      244,666      433,921

   Consumer           7,089        5,573          752       13,414

-------------------------------------------------------------------
  Total           $ 264,450    $ 212,064    $ 269,875    $ 746,389
-------------------------------------------------------------------

Loans shown above with maturities greater than one year
include $281,107,000 of floating interest rate loans and
$200,832,000 of fixed rate loans.

The maturity  distribution  and yields of the investment  portfolios (on
a taxable equivalent basis) are presented in Table Thirteen:

<TABLE>
<CAPTION>
Table Thirteen:  Securities Maturities and Weighted Average Yields
-------------------------------------------------------------------------------------
                                              December 31, 2002     December 31, 2001
                                                        Weighted             Weighted
                                              Market    Average     Market    Average
In thousands (except percentages)              Value     Yield       Value     Yield
-------------------------------------------------------------------------------------
<S>                                              <C>        <C>        <C>       <C>
Available for sale securities:
U.S. Treasury and agency securities
     Maturing within 1 year                      $ 102      1.71%      $ 103     2.27%
     Maturing after 1 year but within 5 years        9      5.63%     47,223     6.21%
     Maturing after 5 years but within 10 years  8,857      3.24%     17,898     4.62%
     Maturing after 10 years                    32,488      6.34%     10,262     6.87%
State & Political Subdivision
     Maturing within 1 year                          -          -          -        -
     Maturing after 1 year but within 5 years    4,017      4.37%      3,823     7.05%
     Maturing after 5 year but within 10 Years  25,277      4.37%     23,151     6.58%
     Maturing after 10 years                    24,698      4.84%     22,867     6.95%
Corporate Debt Securities
     Maturing within 1 year                          -          -          -        -
     Maturing after 10 years                    10,569      2.44%     10,590     3.01%
Other                                            1,306          -      1,236        -
-------------------------------------------------------------------------------------
Total investment securities                  $ 107,323      4.74%  $ 137,153     5.96%
=====================================================================================
</TABLE>

The  principal  cash  requirements  of  the  Company  are  for  expenses
incurred in the support of  administration  and  operations of the Bank.
These  cash   requirements  are  funded  through  direct   reimbursement
billings  to  the  Bank.  For  non-banking  functions,  the  Company  is
dependent  upon the  payment  of cash  dividends  by the Bank to service
its  commitments.  The Company  expects that the cash  dividends paid by
the  Bank  to the  Company  will be  sufficient  to  meet  this  payment
schedule.

Off-Balance Sheet Items

The Bank has certain ongoing  commitments under operating  leases.  (See
Footnote  5  to  the  Consolidated   Financial   Statements  in  Item  8
"Financial  Statements  and  Supplementary  Data" for the terms.)  These
commitments do not significantly impact operating results.

As of December  31,  2002,  commitments  to extend  credit were the only
financial  instruments  with  off-balance  sheet risk.  The Bank has not
entered  into  any  contracts  for  freestanding   financial  derivative
instruments such as futures,  swaps,  options etc., and did not identify
any  embedded  derivatives.   Loan  and  letter  of  credit  commitments
increased to  $192,151,000  from  $170,076,000 at December 31, 2001. The
commitments  represent  25.8% of total  loans at  year-end  2002  versus
28.1% a year ago.  The  majority of the  commitments  have a maturity of
one  year  or  less.   Commitments  for  home  equity  lines  of  credit
totaling  $20,180,000,  which have a ten-year  maturity,  are the single
largest category of commitments exceeding a one-year maturity.

Disclosure of Fair Value

Statement  of  Financial  Accounting  Standards  No.  107,  "Disclosures
About Fair Value of Financial  Statements,"  requires the  disclosure of
fair value of most  financial  instruments,  whether  recognized  or not
recognized in the  financial  statements.  The intent of presenting  the
fair  values  of  financial   instruments  is  to  depict  the  market's
assessment of the present  value of net future cash flows  discounted to
reflect both current  interest rates and the market's  assessment of the
risk that the cash flows will not occur.

In  determining  fair values,  the Company used the carrying  amount for
cash, short-term  investments,  accrued interest receivable,  short-term
borrowings  and  accrued  interest  payable as all of these  instruments
are short term in nature.  Securities  are  reflected  at quoted  market
values.  Loans  and  deposits  have  a long  term  time  horizon,  which
required  more  complex   calculations  for  fair  value  determination.
Loans are grouped into  homogeneous  categories  and broken down between
fixed  and  variable  rate  instruments.  Loans  with a  variable  rate,
which  reprice  quickly,  are valued at carrying  value.  The fair value
of fixed rate  instruments is estimated by  discounting  the future cash
flows using current  rates.  Credit risk and repricing  risk factors are
included  in the  current  rates.  Fair  value for  nonaccrual  loans is
reported  at  carrying  value  and is  included  in the net loan  total.
Since the  allowance for loan losses  exceeds any  potential  adjustment
for  nonaccrual  valuation,  no further  valuation  adjustment  has been
made.

Demand  deposits,  savings and certain  money market  accounts are short
term in  nature  so the  carrying  value  equals  the  fair  value.  For
deposits  that extend over a period in excess of four  months,  the fair
value is estimated by  discounting  the future cash  payments  using the
rates currently offered for deposits of similar remaining maturities.

At year-end 2002,  the fair values  calculated on the Bank's assets were
0.3% above the carrying  values  versus 0.5% under the  carrying  values
at year-end 2001.

Website Access

Information  on the  Company  and its  subsidiary  Bank may be  obtained
from  the  Company's  website   www.community-bnk.com.   Copies  of  the
Company's  annual report on Form 10-K,  quarterly  reports on Form 10-Q,
current  reports on Form 8-K, and all  amendments  thereto are available
free of charge on the website as soon as they are  published  by the SEC
through  a link to the Edgar  reporting  system  maintained  by the SEC.
Simply select the "Central Coast  Bancorp" menu item,  then click on the
"Central Coast Bancorp SEC Filings" link.

 Other Matters

The  terrorist  actions on  September  11, 2001 and the threat of terror
since,  and the  threat of war with Iraq  have had  significant  adverse
effects  upon  the  United   States   economy.   Whether  the  terrorist
activities  in the future and the  actions of the United  States and its
allies in  combating  terrorism  on a  worldwide  basis  will  adversely
impact  the  Company  and  the  extent  of  such  impact  is  uncertain.
However,  such  events  have  had and may  continue  to have an  adverse
effect on the economy in the  Company's  market  areas.  Such  continued
economic  deterioration  could  adversely  affect the  Company's  future
results of operations by, among other  matters,  reducing the demand for
loans  and  other   products  and  services   offered  by  the  Company,
increasing  nonperforming  loans  and  the  amounts  reserved  for  loan
losses, and causing a decline in the Company's stock price.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The  information  required by Item 7A of Form 10-K is  contained  in the
Market  Risk  Management  section of Item 7 -  "Management's  Discussion
and Analysis of Financial  Condition and Results of  Operations" on page
40.


ITEM  8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                   Page
                                                                   ----
Independent Auditors' Report                                        48
Consolidated Balance Sheets, December 31, 2002 and 2001             49
Consolidated Statements of Income for the years
   ended December 31, 2002, 2001 and 2000                           50
Consolidated Statements of Cash Flows for the years ended
   December 31, 2002, 2001 and 2000                                 51
Consolidated Statements of Shareholders' Equity for the
    years ended December 31, 2002, 2001 and 2000                    52
 Notes  to Consolidated Financial Statements                     53-68

All schedules  have been omitted since the required  information  is not
present in amounts  sufficient to require  submission of the schedule or
because  the  information  required  is  included  in  the  Consolidated
Financial Statements or notes thereto.
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders of Central Coast Bancorp:

We  have  audited  the  accompanying   consolidated  balance  sheets  of
Central Coast  Bancorp and  subsidiary as of December 31, 2002 and 2001,
and  the  related  consolidated  statements  of  income,   shareholders'
equity  and cash flows for each of the three  years in the period  ended
December 31, 2002.  These  financial  statements are the  responsibility
of  the  Company's  management.  Our  responsibility  is to  express  an
opinion on these financial statements based on our audits.

We  conducted   our  audits  in  accordance   with  auditing   standards
generally  accepted  in the United  States of America.  Those  standards
require  that we  plan  and  perform  the  audit  to  obtain  reasonable
assurance  about whether the financial  statements  are free of material
misstatement.  An audit includes  examining,  on a test basis,  evidence
supporting  the amounts and  disclosures  in the  financial  statements.
An audit also includes  assessing  the  accounting  principles  used and
significant  estimates  made by  management,  as well as evaluating  the
overall  financial  statement  presentation.  We believe that our audits
provide a reasonable basis for our opinion.

In our opinion,  such consolidated  financial statements present fairly,
in all  material  respects,  the  financial  position  of Central  Coast
Bancorp and  subsidiary  at December 31, 2002 and 2001,  and the results
of their  operations  and their cash  flows for each of the three  years
in the period ended  December  31, 2002 in  conformity  with  accounting
principles generally accepted in the United States of America.


/s/ DELOITTE & TOUCHE

San Francisco, California
January 22, 2003
(February 28, 2003 as to the effects of the stock dividend described in Note 1)

<PAGE>

Consolidated Balance Sheets
Central Coast Bancorp and Subsidiary
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
December 31,                                        2002             2001
-------------------------------------------------------------------------------

<S>                                              <C>              <C>
Assets
  Cash and due from banks                        $ 63,915,000     $ 55,245,000
  Federal funds sold                                2,700,000                -
-------------------------------------------------------------------------------
    Total cash and equivalents                     66,615,000       55,245,000

  Available-for-sale securities at fair value     107,323,000      137,153,000

  Loans:
    Commercial                                    224,840,000      199,761,000
    Real estate-construction                       74,214,000       85,314,000
    Real estate-other                             433,921,000      306,622,000
    Consumer                                       13,414,000       15,653,000
    Deferred loan fees, net                        (1,036,000)      (1,050,000)
-------------------------------------------------------------------------------
    Total loans                                   745,353,000      606,300,000
    Allowance for loan losses                     (15,235,000)     (11,753,000)
-------------------------------------------------------------------------------
  Net Loans                                       730,118,000      594,547,000
-------------------------------------------------------------------------------
  Premises and equipment, net                       2,959,000        2,962,000
  Accrued interest receivable and other assets     12,117,000       12,359,000
-------------------------------------------------------------------------------
Total assets                                    $ 919,132,000    $ 802,266,000
===============================================================================
Liabilities and Shareholders' Equity
  Deposits:
    Demand, noninterest bearing                 $ 261,242,000    $ 231,501,000
    Demand, interest bearing                      127,692,000      105,949,000
    Savings                                       181,089,000      122,861,000
    Time                                          256,479,000      264,551,000
-------------------------------------------------------------------------------
  Total deposits                                  826,502,000      724,862,000
  Accrued interest payable and other liabilities   14,554,000       12,068,000
-------------------------------------------------------------------------------
Total liabilities                                 841,056,000      736,930,000
-------------------------------------------------------------------------------
Commitments and contingencies (Notes 5 and 11)
Shareholders' Equity:
  Preferred stock-no par value; authorized
    1,000,000 shares; none outstanding
  Common stock - no par value; authorized
    25,000,000 shares; outstanding: 9,015,675 and
    8,963,780 shares at December 31,2002 and 2001  51,289,000       50,898,000
  Shares held in deferred compensation trust
    (373,810 shares in 2002 and 2001), net of
    deferred obligation                                     -                -
  Retained earnings                                25,383,000       14,855,000
  Accumulated other comprehensive income (loss),
    net of taxes of $994,000 in 2002 and $297,000
    in 2001                                         1,404,000         (417,000)
-------------------------------------------------------------------------------
Total shareholders' equity                         78,076,000       65,336,000
-------------------------------------------------------------------------------
Total liabilities and shareholders' equity      $ 919,132,000    $ 802,266,000
===============================================================================
</TABLE>
See notes to Consolidated Financial Statements


<PAGE>
Consolidated Statements of Income
Central Coast Bancorp and Subsidiary
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                     2002                          2001                          2000
-------------------------------------------------------------------------------------------------------------------


<S>                                       <C>                           <C>                           <C>
Interest Income
   Loans (including fees)                 $ 44,141,000                  $ 43,135,000                  $ 41,405,000
   Investment securities                     6,105,000                     8,205,000                     8,945,000
   Federal funds sold                          255,000                       407,000                     1,065,000
-------------------------------------------------------------------------------------------------------------------
       Total interest income                50,501,000                    51,747,000                    51,415,000
-------------------------------------------------------------------------------------------------------------------
Interest Expense
   Interest on deposits                     13,517,000                    17,926,000                    17,921,000
   Other                                       438,000                       434,000                       369,000
-------------------------------------------------------------------------------------------------------------------
       Total interest expense               13,955,000                    18,360,000                    18,290,000
-------------------------------------------------------------------------------------------------------------------
Net Interest Income                         36,546,000                    33,387,000                    33,125,000
Provision for Loan Losses                   (3,584,000)                   (2,635,000)                   (3,983,000)
-------------------------------------------------------------------------------------------------------------------
Net Interest Income after
   Provision for Loan Losses                32,962,000                    30,752,000                    29,142,000
-------------------------------------------------------------------------------------------------------------------

Noninterest Income
   Service charges on deposits               2,342,000                     1,924,000                     1,749,000
   Other income                              1,323,000                     1,205,000                       684,000
-------------------------------------------------------------------------------------------------------------------
      Total noninterest income               3,665,000                     3,129,000                     2,433,000
-------------------------------------------------------------------------------------------------------------------

Noninterest Expenses
   Salaries and benefits                    12,129,000                    11,619,000                    10,081,000
   Occupancy                                 1,997,000                     1,642,000                     1,479,000
   Furniture and equipment                   1,802,000                     1,833,000                     1,702,000
   Other                                     4,568,000                     4,129,000                     4,146,000
-------------------------------------------------------------------------------------------------------------------
     Total noninterest expenses             20,496,000                    19,223,000                    17,408,000
-------------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes    16,131,000                    14,658,000                    14,167,000
Provision for Income Taxes                   5,603,000                     5,149,000                     5,241,000
-------------------------------------------------------------------------------------------------------------------
       Net Income                         $ 10,528,000                   $ 9,509,000                   $ 8,926,000
===================================================================================================================

Basic Earnings per Share                        $ 1.06                        $ 0.95                        $ 0.85
Diluted Earnings per Share                      $ 1.02                        $ 0.92                        $ 0.83
===================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements


<PAGE>
Consolidated Statements of Cash Flows
Central Coast Bancorp and Subsidiary
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Years ended December 31,                                              2002                        2001                       2000
----------------------------------------------------------------------------------------------------------------------------------

<S>                                                           <C>                          <C>                        <C>
Cash Flows from Operations:
   Net income                                                 $ 10,528,000                 $ 9,509,000                $ 8,926,000
   Reconciliation of net income to net cash provided
   by operating activities:
     Provision for loan losses                                   3,584,000                   2,635,000                  3,983,000
     Depreciation                                                1,272,000                   1,361,000                  1,266,000
     Amortization and accretion                                    782,000                     665,000                      8,000
     Provision for deferred income taxes                        (1,589,000)                 (1,260,000)                (1,852,000)
     Loss (gain) on sale of securities                            (102,000)                   (168,000)                   194,000
     Net loss on sale of equipment                                  17,000                      23,000                     19,000
     Gain on other real estate owned                               (79,000)                     (4,000)                   (67,000)
   Decrease (increase) in accrued interest receivable
    and other assets                                              (308,000)                    164,000                  1,077,000
   Increase (decrease) in accrued interest
    payable and other liabilities                                 (920,000)                 (2,420,000)                 3,492,000
   (Decrease) increase in deferred loan fees                       (14,000)                    304,000                     25,000
----------------------------------------------------------------------------------------------------------------------------------
       Net cash provided by operations                          13,171,000                  10,809,000                 17,071,000
----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
   Proceeds from maturities of available-for-sale securities   119,594,000                  46,672,000                 70,751,000
   Proceeds from sale of available-for-sale securities          16,714,000                  77,962,000                 19,806,000
   Purchase of available-for-sale securities                  (103,788,000)               (108,665,000)               (91,174,000)
   Net change in loans held for sale                                     -                           -                          -
   Net increase in loans                                      (139,141,000)               (133,462,000)               (78,031,000)
   Proceeds from sale of other real estate owned                   670,000                     199,000                          -
   Proceeds from sale of equipment                                       -                           -                          -
   Purchases of equipment                                       (1,286,000)                   (611,000)                (1,132,000)
----------------------------------------------------------------------------------------------------------------------------------
       Net cash used in investing activities                  (107,237,000)               (117,905,000)               (79,780,000)
----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
   Net increase in deposit accounts                            101,640,000                  91,652,000                115,021,000
   Net increase (decrease) in other borrowings                   3,575,000                     935,000                (11,744,000)
   Cash received for stock options exercised                       221,000                     119,000                     76,000
   Cash paid for shares repurchased                                      -                  (4,857,000)                (6,111,000)
----------------------------------------------------------------------------------------------------------------------------------
       Net cash provided by financing activities               105,436,000                  87,849,000                 97,242,000
----------------------------------------------------------------------------------------------------------------------------------
  Net increase (decrease) in cash and equivalents               11,370,000                 (19,247,000)                34,533,000
Cash and equivalents, beginning of year                         55,245,000                  74,492,000                 39,959,000
----------------------------------------------------------------------------------------------------------------------------------
Cash and equivalents, end of year                             $ 66,615,000                $ 55,245,000               $ 74,492,000
==================================================================================================================================
Noncash Investing and Financing Activities:

The Company obtained $591,000 of real estate (OREO) in 2002 in connection with foreclosures of delinquent loans
(none in 2001 or 2000).  In 2002, 2001 and 2000 stock option exercises and stock repurchases totaling  $263,000,
$84,000 and $20,000, respectively were performed through a "stock for stock" exercise under the Company's
stock option and deferred compensation plans (see Note 9).
----------------------------------------------------------------------------------------------------------------------------------
Other Cash Flow Information:
   Interest paid                                              $ 14,491,000                $ 18,695,000               $ 17,121,000
   Income taxes paid                                             6,962,000                   8,203,000                  5,970,000
==================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements

<PAGE>
Consolidated Statements of Shareholders' Equity
Central Coast Bancorp and Subsidiary
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                               Accumulated Other
 Years Ended December 31,                         Common Stock                  Retained         Comprehensive
 2002, 2001 and 2000                          Shares           Amount           Earnings         Income (Loss)            Total
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>            <C>                <C>                <C>               <C>
 Balances, January 1, 2000                     8,050,321      $ 40,223,000       $ 17,784,000       $ (4,702,000)     $ 53,305,000
    Net income                                         -                 -          8,926,000                  -         8,926,000
    Changes in unrealized gains/losses
       on securities available for sale,
       net of taxes of $2,449,000                      -                 -                  -          3,526,000         3,526,000
    Reclassification adjustment for
       losses included in income,
       net of taxes of $80,000                         -                 -                  -            114,000           114,000
                                                                                                                  -----------------
    Total comprehensive income                                                                                          12,566,000
                                                                                                                  -----------------
    10% stock dividend                           805,033        10,266,000        (10,266,000)                 -                 -
    Stock options exercised                       16,248            96,000                  -                  -            96,000
    Shares repurchased                          (469,104)       (6,131,000)                 -                  -        (6,131,000)
    Tax benefit of stock options exercised             -            18,000                  -                  -            18,000
-----------------------------------------------------------------------------------------------------------------------------------
 Balances, December 31, 2000                   8,402,498        44,472,000         16,444,000         (1,062,000)       59,854,000
    Net income                                         -                 -          9,509,000                  -         9,509,000
    Changes in unrealized gains/losses
       on securities available for sale,
       net of taxes of $511,000                        -                 -                  -            744,000           744,000
    Reclassification adjustment for
       gains included in income,
       net of taxes of $69,000                         -                 -                  -            (99,000)          (99,000)
                                                                                                                  -----------------
    Total comprehensive income                                                                                          10,154,000
                                                                                                                  -----------------
    10% stock dividend                           836,410        11,098,000        (11,098,000)                 -                 -
    Stock options exercised                       38,291           203,000                  -                  -           203,000
    Shares repurchased                          (313,419)       (4,940,000)                 -                  -        (4,940,000)
    Tax benefit of stock options exercised             -            65,000                  -                  -            65,000
-----------------------------------------------------------------------------------------------------------------------------------
 Balances, December 31, 2001                   8,963,780        50,898,000         14,855,000           (417,000)       65,336,000
    Net income                                         -                 -         10,528,000                  -        10,528,000
    Changes in unrealized gains/losses
       on securities available for sale,
       net of taxes of $1,334,000                      -                 -                  -          1,881,000         1,881,000
    Reclassification adjustment for
       gains included in income,
       net of taxes of $42,000                         -                 -                  -            (60,000)          (60,000)
                                                                                                                  -----------------
    Total comprehensive income                                                                                          12,349,000
                                                                                                                  -----------------
    Stock options exercised                       51,895           221,000                  -                  -           221,000
    Tax benefit of stock options exercised             -           170,000                  -                  -           170,000
-----------------------------------------------------------------------------------------------------------------------------------
 Balances, December 31, 2002                   9,015,675      $ 51,289,000       $ 25,383,000        $ 1,404,000      $ 78,076,000
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements

<PAGE>
NOTES  TO CONSOLIDATED FINANCIAL STATEMENTS
Central Coast Bancorp and Subsidiary
Years ended December 31, 2002, 2001 and 2000

Note  1.   Significant   Accounting   Policies   and   Operations.   The
consolidated  financial  statements  include  Central Coast Bancorp (the
"Company") and its  wholly-owned  subsidiary,  Community Bank of Central
California  (the  "Bank").  All  material   intercompany   accounts  and
transactions  are  eliminated  in  consolidation.   The  accounting  and
reporting  policies of the Company  and the Bank  conform to  accounting
principles  generally  accepted  in the  United  States of  America  and
prevailing  practices  within the banking  industry.  In preparing  such
financial  statements,  management  is  required to make  estimates  and
assumptions  that affect the reported  amounts of assets and liabilities
as of the date of the balance  sheet and  revenues  and expenses for the
period.   Actual   results   could  differ   significantly   from  those
estimates.  The material  estimate that is  particularly  susceptible to
significant  changes  in the near term  relate to the  determination  of
the allowance for loan losses.

Community  Bank of  Central  California  operates  eleven  full  service
branch  offices  in  Monterey,  Santa  Clara,  Santa Cruz and San Benito
Counties,  serving small and medium sized  business  customers,  as well
as  individuals.   The  Bank  focuses  on  business  loans  and  deposit
services to customers throughout its service area.

Basis of  presentation - Stock  dividend.  On January 27, 2003 the Board
of Directors  declared a 10% stock  dividend,  which was  distributed on
February 28, 2003,  to  shareholders  of record as of February 14, 2003.
All  earnings  per share data and share data related to the stock option
information  have  been  retroactively  adjusted  to  reflect  the stock
dividend.

Cash and Cash  Equivalents  consist  of cash on hand,  amounts  due from
banks and Federal funds sold.

Investment  securities  are  classified at the time of purchase into one
of three categories:  held-to-maturity,  trading or  available-for-sale.
Investment securities  classified as "held-to-maturity"  are measured at
amortized  cost based on the  Company's  positive  intent and ability to
hold such  securities to maturity.  "Trading  securities" are bought and
held  principally  for the purpose of selling  them in the near term and
are  carried  at  market  value  with  a  corresponding  recognition  of
unrecognized  holding  gain or loss in the  results of  operations.  The
remaining investment  securities are classified as  "available-for-sale"
and are measured at market  value with a  corresponding  recognition  of
the  unrealized  holding  gain or loss (net of tax effect) as a separate
component  of   shareholders'   equity  until  realized.   Accretion  of
discounts  and  amortization  of  premiums  arising at  acquisition  are
included in income using methods  approximating  the effective  interest
method.  Gains  and  losses  on  sales  of  investments,   if  any,  are
determined  on a specific  identification  basis.  At December  31, 2002
and  2001  all  of  the  Company's   investments   were   classified  as
available-for-sale.

Loans are stated at the  principal  amount  outstanding,  reduced by any
charge-offs.   Loan   origination   fees   and   certain   direct   loan
origination  costs are deferred and the net amount is  recognized  using
the effective yield method,  generally over the contractual  life of the
loan.

Interest  income is accrued  as  earned.  The  accrual  of  interest  on
loans is  discontinued  and any accrued and unpaid  interest is reversed
when  principal  or interest is ninety  days past due,  when  payment in
full of  principal  or interest is not expected or when a portion of the
principal  balance has been  charged  off.  Income on such loans is then
recognized  only to the  extent  that  cash is  received  and  where the
future  collection  of  principal  is probable.  Senior  management  may
grant a waiver from  nonaccrual  status if a loan is well secured and in
the  process  of  collection.  When  a  loan  is  placed  on  nonaccrual
status,  the accrued and unpaid interest  receivable is reversed and the
loan is accounted  for on the cash or cost recovery  method  thereafter,
until  qualifying for return to accrual  status.  Generally,  a loan may
be  returned  to  accrual  status  when all   delinquent  interest   and
principal  become  current in accordance  with the original terms of the
loan  agreement  or when the loan is both well secured and in process of
collection.

The  allowance  for loan  losses is an amount that  management  believes
will be  adequate  to  absorb  losses  inherent  in  existing  loans and
commitments  to extend credit,  based on evaluations of  collectibility,
prior loss  experience and other  factors.  The allowance is established
through a provision  charged to expense.  Loans are charged  against the
allowance  when  management  believes  that  the  collectibility  of the
principal  is unlikely.  In  evaluating  the adequacy of the  allowance,
management   considers   numerous   factors   such  as  changes  in  the
composition  of  the  portfolio,   overall   portfolio   quality,   loan
concentrations,  specific  problem  loans,  and current and  anticipated
local  economic  conditions  that may affect the  borrowers'  ability to
pay.

A loan is impaired when,  based on current  information  and events,  it
is probable  that the Company  will be unable to collect all amounts due
according  to the  contractual  terms  of the loan  agreement.  Impaired
loans are measured  based on the present  value of expected  future cash
flows  discounted  at  the  loan's  effective  interest  rate  or,  as a
practical  expedient,  at the loan's observable market price or the fair
value of the collateral if the loan is collateral-dependent.

Real estate and other assets  acquired in  satisfaction  of indebtedness
are  recorded  at the  lower  of  estimated  fair  market  value  net of
anticipated   selling  costs  or  the  recorded  loan  amount,  and  any
difference   between  this  and  the  loan  amount  is  charged  to  the
allowance.  Costs of maintaining  other real estate   owned,  subsequent
write downs  and gains or losses on the  subsequent  sale are  reflected
in current earnings.

Premises   and   equipment   are   stated  at  cost   less   accumulated
depreciation  and   amortization.   Depreciation  and  amortization  are
computed  on a  straight-line  basis over the lesser of the lease  terms
or  estimated  useful lives of the assets,  which are  generally 3 to 30
years.

Intangible  assets  representing  the excess of the purchase  price over
the fair value of tangible net assets  acquired,  are being amortized on
a  straight-line  basis  over  seven  years  and are  included  in other
assets.

Other  borrowed  funds consist of  $6,660,000  borrowed from the Federal
Home  Loan  Bank   collateralized  by  certain  real  estate  loans  and
investment securities.

Stock  compensation.  The Company  accounts for its  stock-based  awards
using  the  intrinsic   value  method  in  accordance   with  Accounting
Principles  Board No. 25,  Accounting  for Stock Issued to Employees and
its  related   interpretations.   No   compensation   expense  has  been
recognized   in   the   financial    statements   for   employee   stock
arrangements,  as the  Company's  stock  option  plans  provide  for the
issuance  of  options at a price of no less than the fair  market  value
at the date of the grant.  Statement of Financial  Accounting  Standards
(SFAS) No. 123,  Accounting for Stock-Based  Compensation,  requires the
disclosure  of pro  forma  net  income  and  earnings  per share had the
Company  adopted  the fair value  method as of the  beginning  of fiscal
year 1995.  Under SFAS No.  123,  the fair value of  stock-based  awards
to employees is  calculated  through the use of option  pricing  models,
even though such models  were  developed  to estimate  the fair value of
freely   tradable,    fully   transferable   options   without   vesting
restrictions,  which  significantly  differ  from  the  Company's  stock
option  awards.  These  models  also  require  subjective   assumptions,
including  future stock price  volatility and expected time to exercise,
which   greatly   affect   the   calculated    values.   The   Company's
calculations  were made using the  Black-Scholes  option  pricing  model
with the following  assumptions:  expected  life,  four years  following
vesting for 2002, 2001 and 2000;  average stock  volatility of 16.0% for
2002,  15.6%  for 2001 and 15.3% for  2000;  risk  free  interest  rates
ranging  from  2.92% to 6.57%  for 2002,  4.14% to 6.57%  for 2001,  and
4.52% to 6.57% for 2000;  and no dividends  during the expected term for
2002,  2001  and  2000.  The  Company's  calculations  are  based  on  a
multiple  option  valuation  approach and  forfeitures are recognized as
they occur.

A summary of the pro forma  effects to reported  net income and earnings
per share as if the Company had elected to recognize  compensation  cost
based  on the  fair  value  of the  options  granted  at  grant  date as
prescribed by SFAS No. 123 is as follows.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
Years Ended December 31,                                2002          2001          2000
--------------------------------------------------------------------------------------------

<S>                                                <C>            <C>           <C>
Net Income - As Reported                           $ 10,528,000   $ 9,509,000   $ 8,926,000

Compensation expense from amortization of fair
  value of stock awards, net of taxes of $64,000,
  $121,000 and $260,000 in 2002,  2001 and 2000         (86,000)     (176,000)     (377,000)
--------------------------------------------------------------------------------------------
Pro Forma Net Income                               $ 10,442,000   $ 9,333,000   $ 8,549,000
============================================================================================

Basic Earnings per Share - As Reported                   $ 1.06        $ 0.95        $ 0.85
Pro Forma Basic Earnings per Share                       $ 1.06        $ 0.94        $ 0.82
Diluted Earnings per Share - As Reported                 $ 1.02        $ 0.92        $ 0.83
Pro Forma Diluted Earnings per Share                     $ 1.01        $ 0.90        $ 0.80
============================================================================================
</TABLE>

Income taxes are provided  using the asset and liability  method.  Under
this method,  deferred tax assets and  liabilities  are  recognized  for
the  future  tax  consequences  of  differences  between  the  financial
statement  carrying  amounts  of  existing  assets and  liabilities  and
their  respective tax bases.  Deferred tax assets and liabilities  arise
principally  from  differences in reporting  provisions for loan losses,
interest on nonaccrual  loans,  depreciation,  state franchise taxes and
accruals related to the salary  continuation  plan.  Deferred tax assets
and  liabilities  are measured using enacted tax rates expected to apply
to  taxable  income in the years in which  those  temporary  differences
are  expected to be  recovered  or settled.  The effect on deferred  tax
assets  and  liabilities  of a  change  in tax  rates is  recognized  in
income in the period that includes the enactment date.

Derivative  Instruments  and  hedging  activities.  The  Company did not
enter into  freestanding  derivative  contracts  and was not involved in
any hedging  activities  and did not identify  any embedded  derivatives
requiring  bifurcation  and  separate  valuation  during  2002,  2001 or
2000.

Comprehensive   income  includes  net  income  and  other  comprehensive
income,  which  represents  the  changes  in its net  assets  during the
period  from  non-owner  sources.  The  Company's  only  source of other
comprehensive  income  is  derived  from  unrealized  gain  and  loss on
securities  available-for-sale  and  is  presented  net  of  tax  in the
accompanying statements of shareholders' equity.

Segment  reporting.  The  Company  operates  a single  line of  business
with  no  customer   accounting  for  more  than  10%  of  its  revenue.
Management  evaluates the Company's  performance as a whole and does not
allocate  resources  based on the  performance  of different  lending or
transaction  activities.  Accordingly,  the Company  and its  subsidiary
operate as one business segment.

Recently issued  accounting  pronouncements.  Effective January 1, 2002,
the  Company  adopted  SFAS  No.  141,  "Business   Combinations"  which
addresses the  elimination of pooling  accounting  treatment in business
combinations  and the  financial  accounting  and reporting for acquired
goodwill and other  intangible  assets at  acquisition  and SFAS No.142,
"Goodwill  and  Other  Intangible  Assets"  which  addresses   financial
accounting  and  reporting  for acquired  goodwill and other  intangible
assets at acquisition in transactions  other than business  combinations
covered by SFAS  No.141,  and the  accounting  treatment of goodwill and
other  intangible  assets after  acquisition and initial  recognition in
the  financial  statements.  The  adoption of these  statements  did not
have  a  material  effect  on  the  Company's   consolidated   financial
position, results of operations, or cash flows.

Effective   January  1,  2002,   the  Company   adopted  SFAS  No.  144,
"Accounting For The Impairment Or Disposal Of Long-Lived  Assets".  SFAS
No. 144  supersedes  SFAS No. 121,  "Accounting  For The  Impairment  Of
Long-Lived  Assets And For Long-Lived  Assets To Be Disposed Of" and the
accounting  and  reporting  provisions of  Accounting  Principles  Board
("APB")  Opinion  No.  30,   "Reporting  The  Results  Of  Operations  -
Reporting  The  Effects  Of  Disposal  Of A Segment Of A  Business,  And
Extraordinary,   Unusual   and   Infrequently   Occurring   Events   And
Transactions".  SFAS  No.  144  unifies  the  accounting  treatment  for
various  types of  long-lived  assets to be  disposed  of, and  resolves
implementation  issues  related to SFAS No.  121.  The  adoption of SFAS
No.  144 did not  have a  material  effect  on the  Company's  financial
position, results of operations, or cash flows.

 Effective   April  1,  2002,   the  Company   adopted   SFAS  No.  145,
"Rescission  of FASB  Statements  No. 4, 44, and 64,  Amendment  of FASB
Statement  No. 13, and  Technical  Corrections".  SFAS No. 145  rescinds
and amends these statements to eliminate any  inconsistency  between the
required  accounting for  sale-leaseback  transactions  and the required
accounting for certain lease  modifications  that have economic  effects
that are  similar  to  sale-leaseback  transactions.  SFAS No.  145 also
amends  other  existing  authoritative  pronouncements  to make  various
technical    corrections,    clarify   meanings,   or   describe   their
applicability  under changed  conditions  including  clarification  that
gains  or  losses  from  normal  extinguishments  of  debt  need  not be
classified  as  extraordinary  items.  The  adoption of SFAS No. 145 did
not  have  a  material  effect  on  the  Company's  financial  position,
results of operations, or cash flows.

In June  2002,  the FASB  issued  SFAS No.  146,  "Accounting  for Costs
Associated   with  Exit  or  Disposal   Activities",   which   addresses
accounting  for   restructuring   and  similar   costs.   SFAS  No.  146
supersedes previous  accounting  guidance,  principally  Emerging Issues
Task Force Issue No.  94-3.  The Company  will adopt the  provisions  of
SFAS No. 146 for restructuring  activities  initiated after December 31,
2002.  SFAS No. 146 requires  that the  liability  for costs  associated
with an exit or disposal  activity be  recognized  when the liability is
incurred.  Under  Issue  No.  94-3,  a  liability  for an exit  cost was
recognized  at the date of the  Company's  commitment  to an exit  plan.
SFAS No. 146 also  establishes  that the liability  should  initially be
measured  and  recorded  at fair  value.  Accordingly,  SFAS No. 146 may
affect the timing of recognizing future  restructuring  costs as well as
the amounts recognized.

Effective   October  1,  2002,   the  Company   adopted  SFAS  No.  147,
"Acquisitions of Certain  Financial  Institutions - an Amendment of FASB
Statements No. 72 and 144 and FASB  Interpretation  No.9", which removes
acquisitions   of  financial   institutions   from  the  scope  of  both
Statement 72 and  Interpretation  9 and requires those  transactions  be
accounted  for in accordance  with FASB  Statements  No. 141,  "Business
Combinations"   and  SFAS  No.  142,   "Goodwill  and  Other  Intangible
Assets".  This  Statement  is  effective  for  acquisitions  on or after
October 1, 2002 with earlier  application  permitted for the  transition
provisions for previously  recorded  unidentifiable  intangible  assets.
The  adoption  of SFAS No.  147 did not have a  material  effect  on the
Company's financial position, results of operations, or cash flows.


Effective   December  31,  2002  the  Company   adopted  SFAS  No.  148,
"Accounting  for Stock Based  Compensation - Transition and Disclosure -
an Amendment of FASB  Statement  No, 123",  which  provides  alternative
methods of  transition  for a  voluntary  change to the fair value based
method of accounting for stock-based  employee  compensation  and amends
the   disclosure   requirements   of  No.  123  to   require   prominent
disclosures in both annual and interim  financial  statements within the
Significant   Accounting   Policies   footnote   about  the   method  of
accounting for stock-based  employee  compensation and the effect of the
method used  (intrinsic  value or fair value) on reported  results.  The
Company  continues  to account for  stock-based  compensation  using the
intrinsic value method in accordance with  Accounting  Principles  Board
Opinion  No.  25,  "Accounting  for  Stock  Issued  to  Employees",  and
presents the required  disclosures  in  accordance  with SFAS No. 123 as
amended by SFAS No.  148.  The  adoption  of SFAS No. 148 did not have a
material  effect  on  the  Company's  financial  position,   results  of
operations, or cash flows.

Note 2.  Cash  and  Due  from  Banks.  The  Company,  through  its  bank
subsidiary,  is required to maintain  reserves with the Federal  Reserve
Bank.  Reserve  requirements  are based on a percentage of deposits.  At
December  31, 2002 the  Company  maintained  reserves  of  approximately
$1,609,000  in the  form of  vault  cash  and  balances  at the  Federal
Reserve to satisfy regulatory requirements.

Note 3. Securities.  The Company's investment securities portfolio as
of December 31, 2002 and 2001 consisted of the following:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
                                        Amortized  Unrealized Unrealized    Market
In thousands                               Cost       Gain       Loss       Value
-------------------------------------------------------------------------------------
<S>                                       <C>         <C>             <C>   <C>
December 31, 2002
Available for sale securities:
U.S. Treasury and Agency Securities       $ 40,027    $ 1,429         $ -   $ 41,456
State & Political Subdivision               52,045      1,985          38     53,992
Corporate Debt Securities                   11,547          -         978     10,569
Other                                        1,306          -           -      1,306
-------------------------------------------------------------------------------------
Total investment securities              $ 104,925    $ 3,414     $ 1,016  $ 107,323
=====================================================================================
December 31, 2001
Available for sale securities:
U.S. Treasury and Agency Securities       $ 74,578      $ 961        $ 53   $ 75,486
State & Political Subdivision               50,523        186         868     49,841
Corporate Debt Securities                   11,530          -         940     10,590
Other                                        1,236          -           -      1,236
-------------------------------------------------------------------------------------
Total investment securities              $ 137,867    $ 1,147     $ 1,861  $ 137,153
=====================================================================================
</TABLE>

The  amortized  cost and  estimated  fair  value of debt  securities  at
December 31, 2002,  based on projected  average  life,  are shown in the
next  table.   Projected   maturities   will  differ  from   contractual
maturities  because  issuers  may  have  the  right  to call  or  prepay
obligations with or without call or prepayment penalties.

----------------------------------------------------------------------------
                                                     Amortized    Market
In thousands                                            Cost       Value
----------------------------------------------------------------------------
Available for sale securities:
     Maturing within 1 year                               $ 102       $ 102
     Maturing after 1 year but within 5 years             3,907       4,026
     Maturing after 5 years but within 10 years          33,280      34,134
     Maturing after 10 years                             66,330      67,755
     Other                                                1,306       1,306
----------------------------------------------------------------------------
Total investment securities                           $ 104,925   $ 107,323
============================================================================

At  December  31,  2002 and  2001,  securities  with a  market  value of
$90,952,000  and  $120,472,000  were pledged as collateral  for deposits
of public funds and other purposes as required by law or contract.

In 2002,  security sales  resulted in gross  realized  losses of $23,000
and  gross  realized  gains  of  $125,000.   In  2001,   security  sales
resulted in gross  realized  losses of $26,000 and gross  realized gains
of $194,000.  In 2000,  such sales resulted in gross realized  losses of
$194,000 and no gross realized gains.

Note 4.  Loans and  allowance for loan losses.  The  Company's  business
is concentrated in Monterey  County,  California whose economy is highly
dependent  on  the  agricultural  industry.  As a  result,  the  Company
lends  money  to   individuals   and   companies   dependent   upon  the
agricultural   industry.  In  addition,   the  Company  has  significant
extensions  of  credit  and  commitments  to  extend  credit  which  are
secured by real  estate,  the  ultimate  recovery of which is  generally
dependent  on the  successful  operation,  sale or  refinancing  of real
estate,  totaling approximately  $571,000,000.  The Company monitors the
effects of current and expected  market  conditions and other factors on
the   collectibility  of  real  estate  loans.   When,  in  management's
judgment,  these loans are  impaired,  appropriate  reserves  for losses
are provided.  The more  significant  assumptions  management  considers
involve  estimates of the following:  lease,  absorption and sale rates;
real estate values and rates of return;  operating expenses;  inflation;
and   sufficiency   of  collateral   independent   of  the  real  estate
including, in limited instances, personal guarantees.

In  extending   credit  and   commitments  to  borrowers,   the  Company
generally  requires  collateral  and/or  guarantees  as  security.   The
repayment  of such  loans is  expected  to come  from  cash flow or from
proceeds  from  the  sale  of  selected  assets  of the  borrowers.  The
Company's  requirement  for collateral  and/or  guarantees is determined
on a case-by-case  basis in connection with  management's  evaluation of
the credit  worthiness of the borrower.  Collateral  held varies but may
include accounts receivable,  inventory,  property, plant and equipment,
income-producing  properties,  residences and other real  property.  The
Company  secures its  collateral by perfecting  its interest in business
assets,  obtaining  deeds of trust, or outright  possession  among other
means.  Loan losses  from  lending  transactions  related to real estate
and  agriculture  compare  favorably  with the Company's  loan losses on
its loan portfolio as a whole.

The activity in the allowance for loan losses is summarized as follows:

----------------------------------------------------------------------
In thousands                       2002           2001           2000
----------------------------------------------------------------------
   Balance, beginning of year  $ 11,753       $  9,371       $  5,596
   Provision charged to
    expense                       3,584          2,635          3,983
   Loans charged off               (353)          (430)          (392)
   Recoveries                       251            177            184
----------------------------------------------------------------------
   Balance, end of year        $ 15,235       $ 11,753       $  9,371
======================================================================

In  determining  the provision for estimated  losses related to specific
major loans,  management  evaluates its allowance on an individual  loan
basis,  including an analysis of the credit  worthiness,  cash flows and
financial  status of the  borrower,  and the condition and the estimated
value of the  collateral.  Specific  valuation  allowances  for  secured
loans are  determined  by the excess of recorded  investment in the loan
over the fair market value or net  realizable  value where  appropriate,
of the  collateral.  In  determining  overall  level of allowances to be
maintained  and  the  loan  loss  allowance  ratio,  management  uses  a
formula  allowance  calculated by applying  loss factors to  outstanding
loans and certain unused  commitments  and an unallocated  allowance for
amounts that are based on  management's  evaluation of  conditions  that
are not  directly  measured in the  determination  of the  specific  and
formula   allowances.   In  determining  these  allowances,   management
evaluates many factors  including  prevailing  and  forecasted  economic
conditions,   regular   reviews  of  the  quality  of  loans,   industry
experience,  historical  loss  experience,  composition  and  geographic
concentrations  of the loan portfolio,  the borrowers'  ability to repay
and repayment performance and estimated collateral values.

Management  believes  that the allowance for loan losses at December 31,
2002 is adequate,  based on information  currently  available.  However,
no  prediction  of the  ultimate  level of loans  charged  off in future
years can be made with any certainty.

Non-performing loans at December 31 are summarized below:

----------------------------------------------------------------------
In thousands                                   2002              2001
----------------------------------------------------------------------
Past due 90 days or more and still accruing:
   Real estate                                  $ -              $ 68
   Commercial                                     -                 -
   Consumer and other                             5                12
----------------------------------------------------------------------
                                                  5                80
----------------------------------------------------------------------
Nonaccrual:
   Real estate                                  598               592
   Commercial                                   272               702
   Consumer and other                             -                 -
----------------------------------------------------------------------
                                                870             1,294
----------------------------------------------------------------------
Restructured (in compliance with modified
   terms) - Commercial                          933               955
----------------------------------------------------------------------
Total nonperforming loans                   $ 1,808           $ 2,329
======================================================================

Interest due but excluded from interest  income on nonaccrual  loans was
approximately  $24,000,  $45,000  and  $64,000  in  2002,  2001 and 2000
respectively.   In  2002  and  2001,  interest  income  recognized  from
payments   received  on  nonaccrual   loans  was  $40,000  and  $69,000,
respectively (none was recognized in 2000).

At  December  31,  2002,  the  recorded  investment  in  loans  that are
considered   impaired  under  SFAS  No.  114  was  $2,618,000  of  which
$870,000  are  included as  nonaccrual  loans  above,  and  $933,000 are
included  as  restructured  loans  above.  At  December  31,  2001,  the
recorded  investment in loans that was  considered  impaired  under SFAS
No. 114 was  $2,418,000 of which  $1,294,000  are included as nonaccrual
loans above,  and $955,000  are  included as  restructured  loans above.
Such impaired  loans had valuation  allowances  totaling  $1,165,000 and
$536,000,  in 2002 and 2001,  respectively,  based on the estimated fair
values of the collateral.  The average  recorded  investment in impaired
loans   during   2002   and   2001  was   $2,338,000   and   $2,638,000,
respectively.   The  Company  recognized  interest  income  on  impaired
loans  of  $143,000,  $191,000  and  $161,000  in 2002,  2001 and  2000,
respectively  (including  interest income of $66,000 in 2002 and $98,000
in both 2001 and 2000 on  restructured  loans).  At December  31,  2002,
there were no commitments to lend  additional  funds to borrowers  whose
loans were classified as nonaccrual.

The Company held no real estate acquired by foreclosure at December
31, 2002 or 2001.

Note 5.  Premises and  equipment.  Premises and  equipment  owned by the
Company at December 31 are summarized as follows:

---------------------------------------------------------------------
In thousands                                     2002           2001
---------------------------------------------------------------------
Land                                          $   121        $   121
Building                                          265            265
Furniture and equipment                         7,175          6,606
Leasehold improvement                           2,685          2,460
---------------------------------------------------------------------
                                               10,246          9,452
Accumulated depreciation and amortization      (7,287)        (6,490)
---------------------------------------------------------------------
Premises and equipment, net                   $ 2,959        $ 2,962
=====================================================================

The  Company  also leases  facilities  under  agreements  that expire in
March  2003  through  October  2009 with  options  to extend for five to
twenty years.  These  include two  facilities  leased from  shareholders
at terms and conditions  which  management  believes are consistent with
the market.  Rental rates are  adjusted  annually for changes in certain
economic indices.  Rental expense was approximately  $793,000,  $675,000
and  $634,000,  including  rent  expense to  shareholders  of  $130,000,
$133,000  and  $122,000  in  2002,  2001  and  2000  respectively.   The
minimum  annual rental  commitments  under these  leases,  including the
remaining  rental  commitment  under the leases to  shareholders  are as
follows:

---------------------------------------------------------------------
                                                           Operating
In thousands                                                Leases
---------------------------------------------------------------------
         2003                                                $   969
         2004                                                    923
         2005                                                    808
         2006                                                    675
         2007                                                    446
   Thereafter                                                    326
---------------------------------------------------------------------
Total                                                        $ 4,147
=====================================================================

Note 6. Income Taxes.  The provision for income taxes is as follows:

---------------------------------------------------------------------
In thousands                        2002          2001          2000
---------------------------------------------------------------------
   Current:
     Federal                    $  5,063     $   4,577     $   5,160
     State                         2,129         1,832         1,933
---------------------------------------------------------------------
     Total                         7,192         6,409         7,093
---------------------------------------------------------------------
   Deferred:
     Federal                     (1,120)         (950)       (1,432)
     State                         (469)         (310)         (420)
---------------------------------------------------------------------
     Total                       (1,589)       (1,260)       (1,852)
---------------------------------------------------------------------
   Total                        $ 5,603     $   5,149     $   5,241
=====================================================================


A  reconciliation  of the Federal  income tax rate to the  effective tax
rate is as follows:

---------------------------------------------------------------------

                                        2002       2001       2000
---------------------------------------------------------------------
   Statutory Federal income tax rate    35.0%       35.0%      35.0%
   State income taxes (net of
     Federal income tax benefit)         6.8%        6.9%       7.1%
   Tax exempt interest income           (6.7%)      (6.4%)     (5.0%)
   Other                                (0.4%)      (0.4%)     (0.1%)
---------------------------------------------------------------------
   Effective tax rate                   34.7%       35.1%      37.0%
=====================================================================

The tax effects of temporary  differences  that give rise to significant
portions of the  deferred tax assets and  deferred  tax  liabilities  at
December 31, 2002 and 2001, are presented below:

---------------------------------------------------------------------
In thousands                                  2002            2001
---------------------------------------------------------------------
Deferred tax assets:
   Provision for loan losses                 $ 6,831         $ 5,206
   Unrealized (gain) loss on available
    for sale securities                         (994)            297
   Salary continuation plan                      862             755
   Depreciation and amortization                 108             209
   State income taxes                             52             127
   Excess serving rights                          10              12
   Interest on nonaccrual loans                   18              20
   Other                                         240             203
---------------------------------------------------------------------
Net deferred tax asset                       $ 7,127         $ 6,829
=====================================================================

The Company believes that it is more likely than not that it will
realize the above deferred tax assets in future periods; therefore, no
valuation allowance has been provided against its deferred tax
assets.

Note 7. Other  Noninterest  Expense.  Other  expense for the years ended
December 31, 2002, 2001 and 2000 consists of the following:

---------------------------------------------------------------------
In thousands                      2002          2001          2000
---------------------------------------------------------------------
   Marketing                     $   565       $   473       $   644
   Professional fees                 540           457           430
   Customer expenses                 526           525           413
   Stationary and supplies           370           372           377
   Data processing                   268           272           314
   Amortization of intangibles       257           257           257
   Shareholder and director          245           229           253
   Dues and assessments              245           177           179
   Insurance                         226           216           216
   Other                           1,326         1,151         1,063
---------------------------------------------------------------------
Total                            $ 4,568       $ 4,129       $ 4,146
=====================================================================

Note 8.  Earnings  Per Share.  Basic  earnings  per share is computed by
dividing net income by the weighted  average  common shares  outstanding
for the  period,  as  adjusted  to give  effect to all stock  splits and
dividends.  Diluted  earnings per share reflects the potential  dilution
that could occur if options or other  contracts  to issue  common  stock
were   exercised  and  converted   into  common  stock.   There  was  no
difference in the numerator  used in the  calculation  of basic earnings
per share and diluted  earnings per share.  The denominator  used in the
calculation of basic  earnings per share and diluted  earnings per share
for each of the years ended December 31 is reconciled as follows:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
In thousands (expect per share data)               2002          2001          2000
-----------------------------------------------------------------------------------------
<S>                                                 <C>            <C>           <C>
Basic Earnings Per Share
Net income                                          $ 10,528       $ 9,509       $ 8,926
Weighted average common shares outstanding             9,898         9,951        10,467
                                               ------------------------------------------
   Basic earnings per share                           $ 1.06        $ 0.95        $ 0.85
=========================================================================================

Diluted Earnings Per Share
Net Income                                          $ 10,528       $ 9,509       $ 8,926
Weighted average common shares outstanding             9,898         9,951        10,467
Dilutive effect of outstanding options                   460           433           309
                                               ------------------------------------------
   Weighted average common shares
   outstanding - Diluted                              10,358        10,384        10,776
                                               ------------------------------------------
   Diluted earnings per share                         $ 1.02        $ 0.92        $ 0.83
=========================================================================================
</TABLE>

Note 9.  Employee  Benefit  Plans.  The  Company  has two  stock  option
plans  under  which  incentive  stock  options  or  nonqualified   stock
options  may be  granted  to  certain  key  employees  or  directors  to
purchase shares of common stock.  All stock option  information has been
adjusted  to give  effect to all stock  splits  and  dividends.  Options
are  granted  at a price  not less  than the  fair  market  value of the
common stock on the date of grant.  Options  vest over  various  periods
not in excess of ten years  from date of grant and  expire not more than
ten years  from date of grant.  The  weighted  average  value of options
granted  in 2002,  2001 and 2000 was  $4.77,  $4.50 and $3.84 per share,
respectively.  As of December 31, 2002,  1,922,075  shares are available
for future grants under the plans.

Activity under the stock option plans is as follows:
--------------------------------------------------------------------

                                                             Weighted
                                                             Average
                                                             Exercise
                                                 Shares      Price
--------------------------------------------------------------------
   Balances, January 1, 2000
    818,084 exercisable at a weighted average
    exercise price of $5.50                      932,643      $5.94
     Granted (weighted average fair value $3.84
     per share)                                  265,064      10.64
     Expired                                      (9,075)     10.58
     Exercised                                   (19,658)      4.85
--------------------------------------------------------------------
   Balances, December 31, 2000
    862,524 exercisable at a weighted average
    exercise price of $5.76                    1,168,974       7.00
     Granted (weighted average fair value $4.50
     per share)                                    5,500      14.44
     Exercised                                   (48,164)      4.23
--------------------------------------------------------------------
   Balances, December 31, 2001
    937,230 exercisable at a weighted average
    exercise price of $6.44                    1,126,310       5.27
     Granted (weighted average fair value $4.77
     per share)                                   11,000      18.05
     Expired                                      (2,521)     14.55
     Exercised                                   (71,785)      5.28
--------------------------------------------------------------------
   Balances, December 31, 2002
    963,764 exercisable at a weighted average
    exercise price of $6.85                    1,063,004      $6.72
--------------------------------------------------------------------

Additional  information  regarding  options  outstanding  as of December
31, 2002 is as follows:
---------------------------------------------------------------------
                      Options Outstanding         Options Exercisable
                      -------------------         -------------------
                         Weighted Average
                            Remaining  Weighted             Weighted
                           Contractual  Average              Average
    Range of      Number      Life     Exercise    Number   Exercise
Exercise Prices Outstanding  (years)     Price   Exercisable  Price
---------------------------------------------------------------------
 $3.71 -  4.84    230,253      2.4       $3.89     230,253     $3.89
  5.90 -  5.97    433,454      3.9        5.92     433,454      5.92
  9.25 - 11.90    382,797      6.6       10.47     298,223     10.42
 14.45 - 16.08     16,500      9.4       16.33       1,834     14.45
---------------------------------------------------------------------
  3.71 - 16.08  1,063,004      4.6       $7.34     963,764     $6.85
=====================================================================

401(k) Savings Plan

The Company has a 401(k)  Savings  Plan under which  eligible  employees
may elect to make tax deferred  contributions  from their annual salary,
to a maximum  established  annually by the IRS. The Company  matches 25%
of  the  employees'  contributions.  The  Company  may  make  additional
contributions   to  the  plan  at  the   discretion   of  the  Board  of
Directors.  All  employees  meeting  age and  service  requirements  are
eligible to participate in the Plan.  Company  contributions  vest after
3 years of service.  Company  contributions  during 2002,  2001 and 2000
which are funded  currently,  totaled  $134,000,  $129,000 and $114,000,
respectively.

Salary Continuation Plan

The Company has a salary  continuation  plan for three  officers,  which
provides  for a stated  retirement  benefit  for each  participant  upon
reaching  age 63. The  Company  accrues  such  post-retirement  benefits
over the  vesting  periods  (of five or ten  years)  based on a discount
rate of 7.5%.  In the event of a change in control of the  Company,  the
officers'  benefits will fully vest. The Company  recorded  compensation
expense  of  $101,000,  $94,000  and  $292,000  in 2002,  2001 and 2000.
Accrued   compensation   payable  under  the  salary  continuation  plan
totaled $1,335,000 and $1,233,000 at December 31, 2002 and 2001.

Deferred Compensation Plan

The  Company  has a deferred  compensation  plan for the  benefit of the
Board of  Directors  and certain  officers.  In addition to the deferral
of compensation,  the plan allows  participants the opportunity to defer
taxable  income  derived  from  the  exercise  of  stock  options.   The
participant's  may,  after  making an election  to defer  receipt of the
option shares for a specified  period of time,  use a  "stock-for-stock"
exercise  to tender  to the  Company  mature  shares  with a fair  value
equal  to  the  exercise  price  of the  stock  options  exercised.  The
Company  simultaneously  delivers new shares to the participant equal to
the value of shares  surrendered  and the remaining  shares under option
are placed in a trust  administered by a third- party trust company,  to
be  distributed  in  accordance  with the  terms  of each  participant's
election to defer.  During 2002,  2001 and 2000 no shares were  tendered
under the plan.  At  December  31,  2002,  373,810  shares  (with a fair
value  of   approximately   $7,386,000)   were  held  in  the   Deferred
Compensation Trust.

Note 10.  Disclosures  About Fair Value of  Financial  Instruments.  The
estimated  fair value amounts have been  determined  by using  available
market  information and appropriate  valuation  methodologies.  However,
considerable  judgment is required to  interpret  market data to develop
the estimates of fair value.  Accordingly,  the estimates  presented are
not  necessarily  indicative  of the amounts that could be realized in a
current  market  exchange.  The  use  of  different  market  assumptions
and/or  estimation   techniques  may  have  a  material  effect  on  the
estimated fair value amounts.

---------------------------------------------------------------------
                         December 31, 2002         December 31, 2001
                        Carrying    Estimated     Carrying   Estimated
In thousands             Amount    Fair Value      Amount   Fair Value
---------------------------------------------------------------------
Financial Assets
Cash and equivalents     $ 66,615   $ 66,615      $ 55,245  $ 55,245
Securities                107,323    107,323       137,153   137,153
Loans, net                730,118    733,124       594,547   598,475

Financial Liabilities
Demand deposits           388,934    388,934       337,450   337,450
Time Deposits             256,479    259,233       264,551   267,362
Savings                   181,089    181,089       122,861   122,861
Other borrowings            9,716      9,716         6,141     6,141
---------------------------------------------------------------------

The following  estimates and assumptions  were used to estimate the fair
value of the financial instruments.

Cash and equivalents - The carrying  amount is a reasonable  estimate of
fair value.

Securities  - Fair  values of  securities  are  based on  quoted  market
prices or dealer  quotes.  If a quoted  market price was not  available,
fair  value  was  estimated  using  quoted  market  prices  for  similar
securities.

Loans,  net  -  Fair  values  for  certain   commercial,   construction,
revolving   customer   credit  and  other   loans  were   estimated   by
discounting  the future cash flows using  current rates at which similar
loans  would  be made to  borrowers  with  similar  credit  ratings  and
similar maturities, adjusted for the allowance for loan losses.

Certain  adjustable  rate  loans  have  been  valued  at their  carrying
values,  if no  significant  changes in credit  standing  have  occurred
since  origination and the interest rate adjustment  characteristics  of
the loan  effectively  adjust  the  interest  rate to  maintain a market
rate of return.  For  adjustable  rate loans,  which have had changes in
credit quality,  appropriate  adjustments to the fair value of the loans
are made.

Demand,    time   and   savings   deposits   -   The   fair   value   of
noninterest-bearing  and  adjustable  rate  deposits  and savings is the
amount  payable  upon demand at the  reporting  date.  The fair value of
fixed-rate  interest-bearing  deposits  with  fixed  maturity  dates was
estimated by discounting  the cash flows using rates  currently  offered
for deposits of similar remaining maturities.

Other  Borrowings  - The  carrying  amount is a  reasonable  estimate of
fair value.

Off-balance  sheet  instruments  - The  fair  value  of  commitments  to
extend  credit is estimated  using the fees  currently  charged to enter
into  similar  agreements,  taking into account the  remaining  terms of
the    agreements   and   the   present    credit-worthiness    of   the
counterparties.  The fair  values of standby and  commercial  letters of
credit are based on fees  currently  charged for similar  agreements  or
on the  estimated  cost  to  terminate  them  or  otherwise  settle  the
obligations   with  the   counterparties.   The  fair   values  of  such
off-balance  sheet  instruments  were not  significant  at December  31,
2002 and 2001, therefore, have not been included in the table above.

Note 11.  Commitments  and  Contingencies.  The  Company is  involved in
certain  legal  actions   arising  from  normal   business   activities.
Management,  based  upon the  advise  of  legal  counsel,  believes  the
ultimate  resolution  of all  pending  legal  actions  will  not  have a
material effect on the financial statements.

In  the  normal  course  of  business  there  are  various   commitments
outstanding  to extend  credit which are not  reflected in the financial
statements,  including loan  commitments of  approximately  $186,982,000
and  $166,386,000  at December 31, 2002 and 2001 and standby  letters of
credit  and  financial   guarantees  of  $5,169,000  and  $3,690,000  at
December  31,  2002 and 2001.  The Bank does not  anticipate  any losses
as a result of these commitments.

Approximately  $30,858,000 of loan  commitments  outstanding at December
31, 2002 relate to  construction  loans and are  expected to fund within
the next twelve  months.  The  remainder  relate  primarily to revolving
lines  of  credit  or  other  commercial   loans.  Many  of  these  loan
commitments   are   expected  to  expire   without   being  drawn  upon.
Therefore the total  commitments  do not  necessarily  represent  future
cash requirements.

Stand-by   letters  of credit  are  commitments  written  by the Bank to
guarantee  the  performance  of a  customer  to  a  third  party.  These
guarantees  are issued  primarily  relating to purchases of inventory by
the Bank's  commercial  customers,  are  typically  short-term in nature
and virtually all such commitments are collateralized.

Most of the  outstanding  commitments  to extend  credit are at variable
rates tied to the  Bank's  reference  rate of  interest.  The  Company's
exposure  to  credit  loss in the event of  nonperformance  by the other
party to the financial  instrument for  commitments to extend credit and
standby  letters  of credit  issued is the  contractual  amount of those
instruments.  The  Company  uses  the same  credit  policies  in  making
commitments    and    conditional    obligations    as   it   does   for
on-balance-sheet  instruments.  The Company  controls the credit risk of
the off-balance  sheet financial  instruments  through the normal credit
approval and monitoring process.

Note 12.  Related  Party Loans.  The Company makes loans to officers and
directors and their  associates  subject to loan committee  approval and
ratification  by the  Board  of  Directors.  These  transactions  are on
substantially  the  same  terms  as  those  prevailing  at the  time for
comparable  transactions  with  unaffiliated  parties and do not involve
more than  normal  risk of  collectibility.  An  analysis  of changes in
related  party  loans  for  the  year  ended  December  31,  2002  is as
follows:

---------------------------------------------------------------------
Beginning Balance        Additions       Repayments    Ending Balance
---------------------------------------------------------------------
   $4,015,000           $10,172,000      $10,585,000      $3,602,000
=====================================================================

Committed lines of credit, undisbursed loans and standby letters of
credit to directors and officers were approximately $3,226,000 and
$6,021,000 at December 31, 2002 and 2001.

Note  13.  Regulatory  Matters.   The  Company  is  subject  to  various
regulatory   capital   requirements   administered  by  federal  banking
agencies.  Failure to meet  minimum  capital  requirements  can initiate
certain  mandatory and  possibly,  additional  discretionary  actions by
regulators  that, if undertaken,  could have a direct material effect on
the Company's  financial  statements.  Capital  adequacy  guidelines and
the regulatory  framework for prompt  corrective action require that the
Company  meet  specific   capital   adequacy   guidelines  that  involve
quantitative  measures of the Company's assets,  liabilities and certain
off-balance  sheet  items  as  calculated  under  regulatory  accounting
practices.  The Company's capital amounts and  classifications  are also
subject to  qualitative  judgments by the regulators  about  components,
risk weighting and other factors.

Quantitative  measures  established  by  regulation  to  ensure  capital
adequacy  require the Company to  maintain  minimum  ratios of total and
Tier 1 capital (as defined in the regulations) to  risk-weighted  assets
(as defined) and a minimum  leverage  ratio of Tier 1 capital to average
assets (as  defined).  Management  believes,  as of  December  31,  2002
that the Company  meets all capital  adequacy  requirements  to which it
is subject.

As of December  31, 2002 and 2001,  the most recent  notifications  from
the Federal Deposit Insurance  Corporation  categorized the Bank as well
capitalized  under  the  regulatory   framework  for  prompt  corrective
action.   To  be  categorized  as  "well   capitalized"  the  Bank  must
maintain  minimum  total  risk-based,  Tier  1  risk-based  and  Tier  1
leverage  ratios as set forth in the table.  There are no  conditions or
events since that  notification  that  management  believes have changed
the institution's category.

The following  table shows the  Company's and the Bank's actual  capital
amounts  and  ratios  at  December  31, as well as the  minimum  capital
ratios to be  categorized  as "well  capitalized"  under the  regulatory
framework:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
                                                                              To Be Categorized
                                                                            Well Capitalized Under
                                                            For Capital       Prompt Corrective
                                       Actual           Adequacy Purposes:    Action Provisions:
                                       ------           ------------------    ------------------
                                  Amount        Ratio    Amount        Ratio   Amount    Ratio
------------------------------------------------------------------------------------------------
<S>                           <C>               <C>   <C>                <C>    <C>         <C>
As of December 31, 2002:
Total Capital (to Risk Weighted Assets)
   Company                    $ 86,334,000      10.9% $ 63,321,000       8.0%        N/A
   Community Bank               79,470,000      10.2%   62,607,000       8.0% $ 78,259,000 10.0%
Tier 1 Capital (to Risk Weighted Assets)
   Company                      76,374,000       9.7%   31,660,000       4.0%        N/A
   Community Bank               69,621,000       8.9%   31,304,000       4.0%   46,955,000  6.0%
Tier 1 Capital (to Risk Average Assets)
   Company                      76,374,000       8.6%   35,576,000       4.0%        N/A
   Community Bank               69,621,000       7.9%   35,324,000       4.0%   44,155,000  5.0%
                               -----------------------------------------------------------------

As of December 31, 2001:
Total Capital (to Risk Weighted Assets)
   Company                    $ 73,518,000      11.1% $ 52,971,000       8.0%        N/A
   Community Bank               65,318,000      10.0%   52,202,000       8.0% $ 65,252,000 10.0%
Tier 1 Capital (to Risk Weighted Assets)
   Company                      65,198,000       9.9%   26,486,000       4.0%        N/A
   Community Bank               57,117,000       8.8%   26,101,000       4.0%   39,151,000  6.0%
Tier 1 Capital (to Risk Average Assets)
   Company                      65,198,000       8.4%   30,896,000       4.0%        N/A
   Community Bank               57,117,000       7.5%   30,470,000       4.0%   38,088,000  5.0%
------------------------------------------------------------------------------------------------
</TABLE>

The  ability of the  Company to pay cash  dividends  in the future  will
largely  depend  upon the cash  dividends  paid to it by its  subsidiary
Bank.  Under State and  Federal law  regulating  banks,  cash  dividends
declared by a Bank in any  calendar  year  generally  may not exceed its
net income for the preceding three fiscal years,  less  distributions to
the  Company,  or its retained  earnings.  Under these  provisions,  and
considering   minimum  regulatory  capital   requirements,   the  amount
available   for   distribution   from  the  Bank  to  the   Company  was
approximately $11,480,000 as of December 31, 2002.

The Bank is subject to certain  restrictions  under the Federal  Reserve
Act,  including  restrictions  on the extension of credit to affiliates.
In  particular,  the Bank is  prohibited  from  lending  to the  Company
unless the loans are  secured by  specified  types of  collateral.  Such
secured  loans and other  advances  from the Bank is  limited  to 10% of
Bank  shareholders'  equity,  or a maximum of $7,139,000 at December 31,
2002.  No such advances were made during 2002 or 2001.

Note 14. Central Coast Bancorp (Parent Company Only)
The condensed  financial  statements of Central Coast Bancorp follow (in
thousands):

Condensed Balance Sheets
------------------------------------------------------------------------
December 31,                                         2002          2001
------------------------------------------------------------------------
Assets:
   Cash - interest bearing account with Bank      $ 2,585         $ 997
   Loans                                            3,936         7,063
   Investment in Bank                              71,322        57,672
   Premises and equipment, net                      1,142         1,174
   Other Assets                                     1,747         1,149
------------------------------------------------------------------------
     Total assets                                $ 80,732       $ 68,055
========================================================================
Liabilities and Shareholders' Equity
   Liabilities                                    $ 2,656       $ 2,719
   Shareholders' Equity                            78,076        65,336
------------------------------------------------------------------------
     Total liabilities and shareholders' equity  $ 80,732       $ 68,055
========================================================================

Condensed Income Statements
-------------------------------------------------------------------------
Years ended December 31,                      2002       2001       2000
-------------------------------------------------------------------------
   Management fees                        $ 10,164    $ 9,888    $ 8,700
   Interest income                             322        109          -
   Other income                                  -          3          -
   Cash dividends received from the Bank         -     10,500      7,000
-------------------------------------------------------------------------
     Total income                           10,486     20,500     15,700
   Operating expenses                       10,162      9,812      9,257
-------------------------------------------------------------------------
   Income before income taxes and equity
      in undistributed net income of Bank      324     10,688      6,443
   Provision (credit) for income taxes          42         66       (206)
   Equity in undistributed
     net income of Bank                     10,246     (1,113)     2,277
-------------------------------------------------------------------------
   Net income                               10,528      9,509      8,926
   Other comprehensive income (loss)         1,821        645      3,640
-------------------------------------------------------------------------
   Total comprehensive income             $ 12,349   $ 10,154   $ 12,566
=========================================================================

Condensed Statements of Cash Flows
---------------------------------------------------------------------
Years ended December 31,                       2002     2001    2000
---------------------------------------------------------------------
Increase (decrease) in cash:
Operations:
   Net income                              $ 10,528  $ 9,509  $ 8,926
   Adjustments to reconcile net
     income to net cash provided
     by operations:
     Equity in undistributed
       net income of Bank                   (10,246)   1,113  (2,277)
     Depreciation                               710      841     778
     Gain on sale of equipment                    8       17       -
     (Increase) decrease in other assets       (181)  (1,324)   (127)
     Increase in liabilities                    107    1,000     380
---------------------------------------------------------------------
     Net cash provided by operations            926   11,156   7,680
---------------------------------------------------------------------
Investing Activities:
   Contribution to subsidiary                (2,000)       -       -
   Net (increase) decrease in loans           3,127   (7,063)      -
   Purchases of equipment                      (686)    (302)   (612)
---------------------------------------------------------------------
     Net cash provided by (used in)
     investing activities                       441   (7,365)   (612)
---------------------------------------------------------------------
Financing Activities:
   Stock repurchases                              -   (4,857) (6,111)
   Stock options exercised                      221      119      94
---------------------------------------------------------------------
     Net cash used in financing activities      221   (4,738) (6,017)
---------------------------------------------------------------------
     Net increase (decrease) in cash          1,588     (947)  1,051
   Cash balance, beginning of year              997    1,944     893
---------------------------------------------------------------------
   Cash balance, end of year                $ 2,585    $ 997  $1,944
=====================================================================

Note 15. Selected Quarterly Information (unaudited)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
In thousands (except per share data)
                                                 2002                                     2001
Three months ended                Dec.31   Sep.30   June 30   Mar.31       Dec.31    Sep.30  June 30   Mar.31
----------------------------------------------------------------------------------------------------------------

<S>                               <C>     <C>       <C>       <C>          <C>      <C>      <C>       <C>
Interest income                   $12,951 $ 13,012  $ 12,631  $ 11,907     $ 12,331 $ 13,052 $ 12,944  $ 13,420
Interest expense                    3,276    3,536     3,518     3,625        3,930    4,681    4,823     4,926
----------------------------------------------------------------------------------------------------------------
Net interest income                 9,675    9,476     9,113     8,282        8,401    8,371    8,121     8,494
Provision for loan losses           1,536      925       900       223        1,680      760       75       120
----------------------------------------------------------------------------------------------------------------
Net interest income after
  provision for loan losses         8,139    8,551     8,213     8,059        6,721    7,611    8,046     8,374
Total noninterest income              944      992       962       767          777      927      775       650
Total noninterest expenses          5,429    5,257     5,225     4,585        4,759    4,749    4,776     4,939
----------------------------------------------------------------------------------------------------------------
Income before taxes                 3,654    4,286     3,950     4,241        2,739    3,789    4,045     4,085
Provision for income taxes          1,257    1,438     1,403     1,505          680    1,421    1,522     1,526
----------------------------------------------------------------------------------------------------------------
Net income                        $ 2,397  $ 2,848   $ 2,547   $ 2,736      $ 2,059  $ 2,368  $ 2,523   $ 2,559
================================================================================================================
Per common share:
   Basic earnings per share        $ 0.25   $ 0.29    $ 0.25    $ 0.27       $ 0.21   $ 0.24   $ 0.25    $ 0.25
   Diluted earnings per share        0.24     0.27      0.25      0.26         0.20     0.24     0.24      0.24
----------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>
ITEM  9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
        ACCOUNTING AND FINANCIAL DISCLOSURE.

             Not applicable.


                                PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

           The information required by Item 10 of Form 10-K is
incorporated by reference to the information contained in the
Company's Proxy Statement for the 2003 Annual Meeting of Shareholders
which will be filed pursuant to Regulation 14A.


ITEM 11.  EXECUTIVE COMPENSATION

The  information  required  by Item 11 of Form 10-K is  incorporated  by
reference  to  the   information   contained  in  the  Company's   Proxy
Statement  for the 2003  Annual  Meeting of  Shareholders  which will be
filed pursuant to Regulation 14A.


ITEM  12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

The  information  required  by Item 12 of Form 10-K is  incorporated  by
reference  to  the   information   contained  in  the  Company's   Proxy
Statement  for the 2003  Annual  Meeting of  Shareholders  which will be
filed pursuant to Regulation 14A.


ITEM  13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  required  by Item 13 of Form 10-K is  incorporated  by
reference  to  the   information   contained  in  the  Company's   Proxy
Statement  for the 2003  Annual  Meeting of  Shareholders  which will be
filed pursuant to Regulation 14A.

ITEM 14. CONTROLS AND PROCEDURES


Quarterly Evaluation of the Company's Disclosure Controls and Internal
Controls. Within the 90 days prior to the date of this annual report
on Form 10-K, the Company evaluated the effectiveness of the design
and operation of its "disclosure controls and procedures" (Disclosure
Controls), and its "internal controls and procedures for financial
reporting" (Internal Controls). This evaluation (the Controls
Evaluation) was done under the supervision and with the participation
of management, including our Chief Executive Officer (CEO) and Chief
Financial Officer (CFO). Rules adopted by the SEC require that in this
section of the annual report on Form 10-K we present the conclusions
of the CEO and the CFO about the effectiveness of our Disclosure
Controls and Internal Controls based on and as of the date of the
Controls Evaluation.


CEO and CFO Certifications. Appearing immediately following the
Signatures section of this annual report on Form 10-K there are two
separate forms of "Certifications" of the CEO and the CFO. The first
form of Certification is required in accord with Section 302 of the
Sarbanes-Oxley Act of 2002 (the Section 302 Certification). This
section of the annual report on Form 10-K which you are currently
reading is the information concerning the Controls Evaluation referred
to in the Section 302 Certifications and this information should be
read in conjunction with the Section 302 Certifications for a more
complete understanding of the topics presented.


Disclosure Controls and Internal Controls. Disclosure Controls are
procedures that are designed with the objective of ensuring that
information required to be disclosed in our reports filed under the
Securities Exchange Act of 1934 (Exchange Act), such as this annual
report on Form 10-K, is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commission's (SEC) rules and forms. Disclosure Controls are also
designed with the objective of ensuring that such information is
accumulated and communicated to our management, including the CEO and
CFO, as appropriate to allow timely decisions regarding required
disclosure. Internal Controls are procedures which are designed with
the objective of providing reasonable assurance that (1) our
transactions are properly authorized; (2) our assets are safeguarded
against unauthorized or improper use; and (3) our transactions are
properly recorded and reported, all to permit the preparation of our
financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP").


Limitations on the Effectiveness of Controls. The Company's
management, including the CEO and CFO, does not expect that our
Disclosure Controls or our Internal Controls will prevent all error
and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that
the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the Company
have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the
control. The design of any system of controls also is based in part
upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions; over time,
control may become inadequate because of changes in conditions, or the
degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be
detected.


Scope of the Controls Evaluation. The CEO/CFO evaluation of our
Disclosure Controls and our Internal Controls included a review of the
controls' objectives and design, the controls' implementation by the
Company and the effect of the controls on the information generated
for use in this annual report on Form 10-K. In the course of the
Controls Evaluation, we sought to identify risks related to data
errors, controls problems or acts of fraud and to confirm that
appropriate controls were in place to mitigate these risks. This type
of evaluation will be done on a quarterly basis so that the
conclusions concerning controls effectiveness can be reported in our
quarterly reports on Form 10-Q and annual report on Form 10-K.


Our Internal Controls are also evaluated on an ongoing basis by our
Internal Audit Service Providers, by other personnel in our Finance
organization and by our independent auditors in connection with their
audit and review activities. The overall goals of these various
evaluation activities are to monitor our Internal Controls and to make
modifications as necessary; our intent in this regard is that the
Internal Controls will be maintained as dynamic systems that change
(including with improvements and corrections) as conditions warrant.


Among other matters, we sought in our evaluation to determine whether
there were any "significant deficiencies" or "material weaknesses" in
the Company's Internal Controls, or whether the Company had identified
any acts of fraud involving personnel who have a significant role in
the company's Internal Controls. This information was important both
for the Controls Evaluation generally and because items 5 and 6 in the
Section 302 Certifications of the CEO and CFO require that the CEO and
CFO disclose that information to our Board's Audit Committee and to
our independent auditors and to report on related matters in this
section of the annual report on Form 10-K. In the professional
auditing literature, "significant deficiencies" are referred to as
"reportable conditions"; these are control issues that could have a
significant adverse effect on the ability to record, process,
summarize and report financial data in the financial statements. A
"material weakness" is defined in the auditing literature as a
particularly serious reportable condition where the internal control
does not reduce to a relatively low level the risk that misstatements
caused by error or fraud may occur in amounts that would be material
in relation to the financial statements and not be detected within a
timely period by employees in the normal course of performing their
assigned functions. We also sought to deal with other controls matters
in the Controls Evaluation, and in each case if a problem was
identified, we considered what revision, improvement and/or correction
to make in accord with our on-going procedures.


In accord with SEC requirements, the CEO and CFO note that, since the
date of the Controls Evaluation to the date of this annual report on
Form 10-K, there have been no significant changes in Internal Controls
or in other factors that could significantly affect Internal Controls,
including any corrective actions with regard to significant
deficiencies and material weaknesses.


Conclusions. Based upon the Controls Evaluation, our CEO and CFO have
concluded that, subject to the limitations noted above, the Company's
Disclosure Controls and Internal Controls (as defined in Exchange Act
Rule13a-14(c)) are adequate and effective in timely alerting them to
material information relating to the Company required to be included
in the Company's filings with the SEC under the Securities Exchange
Act of 1934.


<PAGE>
                                   PART IV


ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K

          (a)(1)    Financial   Statements.   Listed  and  included  in
                                    Part II, Item 8.

             (2)Financial Statement Schedules.  Not applicable.

             (3)Exhibits.

                (2.1) Agreement  and Plan of  Reorganization  and Merger
                      by and between  Central Coast Bancorp,  CCB Merger
                      Company  and  Cypress   Coast  Bank  dated  as  of
                      December 5,  1995,  incorporated by reference from
                      Exhibit   99.1  to  Form  8-K,   filed   with  the
                      Commission on December 7, 1995.

                (3.1) Articles of Incorporation,  as amended, incorporated by
                      reference from  Exhibit  10.18  to  the  Registrant's
                      2001 Annual   Report  on  Form  10-K   filed  with  the
                      Commission on March 26, 2002.

                (3.2) Bylaws,  as amended,  incorporated  by  reference
                      from  Exhibit  3.2 to Form  10-Q,  filed  with the
                      Commission on August 13, 2001.

                (4.1) Specimen  form  of  Central   Coast  Bancorp  stock
                      certificate, incorporated  by reference  from the
                      Registrant's 1994  Annual  Report on Form 10-K  filed
                      with the Commission on March 31, 1995.


               (10.1) Lease agreement dated December 12, 1994,
                      related to 301 Main Street, Salinas, California
                      incorporated by reference from the Registrant's
                      1994 Annual Report on Form 10-K filed with the
                      Commission on March 31, 1995.

               (10.2) King City Branch Lease incorporated by
                      reference from Exhibit 10.3 to Registration
                      Statement on Form S-4, No. 33-76972, filed with
                      the Commission on March 28, 1994.

               (10.3) Amendment  to  King  City  Branch  Lease,
                      incorporated  by  reference  from  Exhibit 10.4 to
                      Registration  Statement on Form S-4, No. 33-76972,
                      filed with the Commission on March 28, 1994.

              *(10.4) 1994 Stock  Option  Plan,  as amended and
                      restated,  incorporated  by reference from Exhibit
                      9.9 to  Registration  Statement  on Form S-8,  No.
                      33-89948,  filed with the  Commission  on November
                      15, 1996.

              *(10.5) Form   of   Nonstatutory   Stock   Option
                      Agreement   under  the  1994  Stock   Option  Plan
                      incorporated  by  reference  from  Exhibit  4.3 to
                      Registration  Statement on Form S-8, No. 33-89948,
                      filed with Commission on November 15, 1996.

              *(10.6) Form   of    Incentive    Stock    Option
                      Agreement   under  the  1994  Stock   Option  Plan
                      incorporated  by  reference  from  Exhibit  4.4 to
                      Registration  Statement on Form S-8, No. 33-89948,
                      filed with the Commission on November 15, 1996.

              *(10.7) Form  of  Director   Nonstatutory   Stock
                      Option  Agreement under the 1994 Stock Option Plan
                      incorporated  by  reference  from  Exhibit  4.5 to
                      Registration  Statement on Form S-8, No. 33-89948,
                      filed with the Commission on November 15, 1996.

              *(10.8) Form of Bank of  Salinas  Indemnification
                      Agreement for  directors  and  executive  officers
                      incorporated  by  reference  from  Exhibit 10.9 to
                      Amendment No. 1 to Registration  Statement on Form
                      S-4, No.  33-76972,  filed with the  Commission on
                      April 15, 1994.

              *(10.9) 401(k)  Pension and Profit  Sharing  Plan
                      Summary   Plan    Description    incorporated   by
                      reference   from  Exhibit  10.8  to   Registration
                      Statement  on Form S-4, No.  33-76972,  filed with
                      the Commission on March 28, 1994.

             *(10.10) Form of  Executive  Employment  Agreement
                      incorporated  by reference  from Exhibit  10.13 to
                      the  Company's  1996  Annual  Report  on Form 10-K
                      filed with the Commission on March 31, 1997.

             *(10.11) Form  of  Executive  Salary  Continuation
                      Agreement  incorporated  by reference from Exhibit
                      10.14 to the Company's  1996 Annual Report on Form
                      10-K filed with the Commission on March 31, 1997.

             *(10.12) Form   of    Indemnification    Agreement
                      incorporated  by  reference  from Exhibit D to the
                      Proxy  Statement  filed  with  the  Commission  on
                      September   3,   1996,    in    connection    with
                      Registrant's  1996  Annual  Shareholders'  Meeting
                      held on September 23, 1996.

              (10.13) Purchase  and  Assumption  Agreement  for
                      the  Acquisition  of  Wells  Fargo  Bank  Branches
                      incorporated  by reference  from Exhibit  10.17 to
                      the  Registrant's  1996 Annual Report on Form 10-K
                      filed with the Commission on March 31, 1997.

              (10.14) Lease   agreement   dated   November  27,  2001
                      related  to  491  Tres  Pinos   Road,   Hollister,
                      California  incorporated by reference from Exhibit
                      10.17 to the  Registrant's  2001 Annual  Report on
                      Form 10-K filed with the  Commission  on March 26,
                      2002.

              (10.15) Lease   agreement  dated  February  11,  2002,
                      related to 761 First  Street,  Gilroy,  California
                      incorporated  by reference  from Exhibit  10.18 to
                      the  Registrant's  2001 Annual Report on Form 10-K
                      filed with the Commission on March 26, 2002.

              (10.16) Lease   agreement  dated  November  18,  2002,
                      related to 439 Alvarado Street, Monterey.

               (21.1) The   Registrant's   only  subsidiary  is  its  wholly
                      owned subsidiary, Community Bank of Central California.

               (23.1) Independent Auditors' Consent

               (99.1) Certification of Chief Executive Officer and Chief
                      Financial Officer pursuant to Section 906 the
                      Sarbanes-Oxley Act of 2002

                     *Denotes management  contracts,  compensatory plans
                      or arrangements.

            (b) Reports  on Form 8-K.  A current  report on Form 8-K was
           filed with the  Commission  on January 22, 2003,  reporting a
           press release dated January 22, 2003  regarding the Company's
           operating  results for the  quarter  and year ended  December
           31, 2002,  and a second report on Form 8-K was filed with the
           Commission  on January 28,  2003,  reporting a press  release
           dated  January 28, 2003  regarding  the  Company's  10% stock
           dividend declared on January 27, 2003.

An Annual Report for the fiscal year ended December 31, 2002, and
Notice of Annual Meeting and Proxy Statement for the Company's 2003
Annual Meeting will be mailed to security holders subsequent to the
date of filing this Report.  Copies of said materials will be
furnished to the Commission in accordance with the Commission's Rules
and Regulations.

<PAGE>



                             SIGNATURES
Pursuant to the  requirements  of Section 13 or 14(d) of the  Securities
Exchange Act of 1934,  the  Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
             CENTRAL COAST BANCORP

Date: March 20, 2003      By:    /s/ NICK VENTIMIGLIA
                            --------------------------------------
                           Nick Ventimiglia, Chief Executive
                           Officer (Principal Executive Officer)

Date: March 20, 2003      By:   /s/ ROBERT STANBERRY
                             --------------------------------------
                           Robert Stanberry, Chief Financial Officer
                           (Principal Financial and Accounting Officer)

Pursuant to the  requirements  of the  Securities  Exchange  Act of 1934
this report has been  signed  below by the  following  persons on behalf
of the Registrant in the capacities and on the dates indicated.

 Signature                      Title                     Date
 ---------                      -----                     ----


/s/ C. EDWARD BOUTONNET        Director                  3/20/03
-----------------------
(C. Edward Boutonnet)

                               Director                  3/20/03
-----------------------
(Bradford G. Crandall)

/s/ ALFRED P. GLOVER           Director                  3/20/03
-----------------------
(Alfred P. Glover)

/s/ MICHAEL T. LAPSYS          Director                  3/20/03
-----------------------
(Michael T. Lapsys)

/s/ ROBERT M. MRAULE           Director                  3/20/03
-----------------------
(Robert M. Mraule)

/s/ DUNCAN L. MCCARTER         Director                  3/20/03
-----------------------
(Duncan L. McCarter)

/s/ LOUIS A. SOUZA             Director                  3/20/03
-----------------------
(Louis A. Souza)

/s/ MOSE E. THOMAS             Director                  3/20/03
-----------------------
(Mose E. Thomas)

/s/ NICK VENTIMIGLIA           Chairman and CEO          3/20/03
-----------------------
(Nick Ventimiglia)



 CERTIFICATIONS UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Nick Ventimiglia, certify that:

1.    I have  reviewed  this annual report on Form 10-K of Central Coast
Bancorp.
2.    Based on my  knowledge,  this  annual  report does not contain any
untrue  statement  of a material  fact or omit to state a material  fact
necessary to make the  statements  made,  in light of the  circumstances
under which such  statements  were made, not misleading  with respect to
the period covered by this annual report.
3.    Based  on  my  knowledge,  the  financial  statements,  and  other
financial  information  included in this annual  report,  fairly present
in  all  material   respects  the   financial   condition,   results  of
operations  and  cash  flows  of the  registrant  as of,  and  for,  the
periods presented in this annual report.
4.    The registrant's  other  certifying  officer and I are responsible
for  establishing  and  maintaining  disclosure  controls and procedures
(as  defined  in  Exchange   Act  Rules   13a-14  and  15d-14)  for  the
registrant and we have:
      (a) designed  such  disclosure  controls and  procedures to ensure
that  material  information  relating to the  registrant,  including its
consolidated  subsidiaries,  is made known to us by others  within those
entities,  particularly  during the period in which this  annual  report
is being prepared;
      (b) evaluated the  effectiveness  of the  registrant's  disclosure
controls  and  procedures  as of a date  within  90  days  prior  to the
filing date of this annual report (the "Evaluation Date"); and
      (c)  presented  in this annual  report our  conclusions  about the
effectiveness  of the disclosure  controls and  procedures  based on our
evaluation as of the Evaluation Date.
5.    The registrant's  other  certifying  officer and I have disclosed,
based on our most recent  evaluation,  to the registrant's  auditors and
the audit  committee  of  registrant's  board of  directors  (or persons
performing the equivalent functions):
      (a) all  significant  deficiencies  in the design or  operation of
internal   controls  which  could  adversely   affect  the  registrant's
ability to record,  process,  summarize  and report  financial  data and
have identified for the  registrant's  auditors any material  weaknesses
in internal controls; and
      (b) any fraud,  whether or not material,  that involves management
or other  employees  who  have a  significant  role in the  registrant's
internal controls.
6.    The registrant's  other certifying officer and I have indicated in
this  annual  report  whether or not there were  significant  changes in
internal  controls or in other factors that could  significantly  affect
internal   controls   subsequent   to  the  date  of  our  most   recent
evaluation,   including   any   corrective   actions   with   regard  to
significant deficiencies and material weaknesses.

Date: March 20, 2003      /s/NICK VENTIMIGLIA
                          -----------------------
                          Nick Ventimiglia, Chief Executive Officer



I, Robert M. Stanberry, certify that:

1.    I have  reviewed  this annual report on Form 10-K of Central Coast
Bancorp.
2.    Based on my  knowledge,  this  annual  report does not contain any
untrue  statement  of a material  fact or omit to state a material  fact
necessary to make the  statements  made,  in light of the  circumstances
under which such  statements  were made, not misleading  with respect to
the period covered by this annual report.
3.    Based  on  my  knowledge,  the  financial  statements,  and  other
financial  information  included in this annual  report,  fairly present
in  all  material   respects  the   financial   condition,   results  of
operations  and  cash  flows  of the  registrant  as of,  and  for,  the
periods presented in this annual report.
4.    The registrant's  other  certifying  officer and I are responsible
for  establishing  and  maintaining  disclosure  controls and procedures
(as  defined  in  Exchange   Act  Rules   13a-14  and  15d-14)  for  the
registrant and we have:
      (a) designed  such  disclosure  controls and  procedures to ensure
that  material  information  relating to the  registrant,  including its
consolidated  subsidiaries,  is made known to us by others  within those
entities,  particularly  during the period in which this  annual  report
is being prepared;
      (b) evaluated the  effectiveness  of the  registrant's  disclosure
controls  and  procedures  as of a date  within  90  days  prior  to the
filing date of this annual report (the "Evaluation Date"); and
      (c)  presented  in this annual  report our  conclusions  about the
effectiveness  of the disclosure  controls and  procedures  based on our
evaluation as of the Evaluation Date.
5.    The registrant's  other  certifying  officer and I have disclosed,
based on our most recent  evaluation,  to the registrant's  auditors and
the audit  committee  of  registrant's  board of  directors  (or persons
performing the equivalent functions):
      (a) all  significant  deficiencies  in the design or  operation of
internal   controls  which  could  adversely   affect  the  registrant's
ability to record,  process,  summarize  and report  financial  data and
have identified for the  registrant's  auditors any material  weaknesses
in internal controls; and
      (b) any fraud,  whether or not material,  that involves management
or other  employees  who  have a  significant  role in the  registrant's
internal controls.
6.    The registrant's  other certifying officer and I have indicated in
this  annual  report  whether or not there were  significant  changes in
internal  controls or in other factors that could  significantly  affect
internal   controls   subsequent   to  the  date  of  our  most   recent
evaluation,   including   any   corrective   actions   with   regard  to
significant deficiencies and material weaknesses.

Date: March 20, 2003      /s/  ROBERT STANBERRY
                          -----------------------
                           Robert M Stanberry, Senior Vice President and
                           Chief Financial Officer
<PAGE>




                         EXHIBIT INDEX


Exhibit                                            Sequential
Number                    Description             Page Number
------                    -----------             -----------


 10.16      Lease agreement dated November 18,
            2002, related to 439 Alvarado Street,
            Monterey, California                        79


 23.1       Independent auditors'consent               124


 99.1       Certification of Chief Executive Officer
            and Chief Financial Officer pursuant to
            Section 906 the Sarbanes-Oxley Act of
            2002                                       125