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, 2001
                             ------------------

                                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 Identification No.)
incorporation or organization)

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  [ ].

The   aggregate   market   value  of  the  voting   stock  held  by
non-affiliates   of    the   registrant   at   March  7,  2002  was
$167,025,775.70.   As  of   March  7,  2002, the   registrant   had
8,970,235  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  2002  annual  meeting  of
shareholders.


The Index to Exhibits is located at page 72       Page 1 of 200 Pages




                                       1
<PAGE>




                       CENTRAL COAST BANCORP
                             INDEX TO
                    ANNUAL REPORT ON FORM 10-K
                 FOR YEAR ENDED DECEMBER 31, 2001
Part I.                                                       Page
   Item 1.   Business                                               3
   Item 2.   Properties                                            14
   Item 3.   Legal Proceedings                                     15
   Item 4.   Submission of Matters to a Vote of Security Holders   15

Part II.
   Item 5.   Market for the Registrant's Common Equity and
             Related Stockholder Matters                           16
   Item 6.   Selected Financial Data                               18
   Item 7.   Management's Discussion and Analysis of Financial
             Condition and Results of Operations                   21
   Item 7a.  Quantitative and Qualitative Disclosures About
             Market Risks                                          45
   Item 8.   Financial Statements and Supplementary Data           45
   Item 9.   Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure                   67
Part III.
   Item 10.  Directors and Executive Officers of the Registrant    67
   Item 11.  Executive Compensation                                67
   Item 12.  Security Ownership of Certain Beneficial Owners and
             Management                                            67
   Item 13.  Certain Relationships and Related Transactions        67

Part IV.
   Item 14.  Exhibits, Financial Statement Schedules and Reports
             on Form 8-K                                           68
Signatures                                                         71


                                       2
<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,
including  the events of  September  11, 2001 and  thereafter;  (5)
changes in the  regulatory  environment;  (6)  changes in  business
conditions and inflation;  (7) changes in securities  markets;  (8)
data  processing  compliance  problems;  (9) the  California  power
crisis;  (10)  variances in the actual versus  projected  growth in
assets;  (11) return on assets;  (12) loan losses;  (13)  expenses;
(14) rates charged on loans and earned on  securities  investments;
(15) rates  paid on  deposits;  and (16) 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,  located 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

                                       3
<PAGE>

communities  in  contiguous  counties  outside of Monterey  County.
In February 2002, the Bank received  regulatory  approval to open a
new branch in Gilroy,  California.  The estimated  opening date for
the branch is April 15,  2002.  Gilroy 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.

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
nine branch offices  located in Castroville,  Hollister,  Gonzales,
King City,  Marina,  Monterey,  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  improvement,   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
Marina  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  the  Castroville,   Hollister,  Gonzales,  King  City,
Marina,  Monterey,  Salinas,  Seaside and Watsonville  offices, 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,  2001,
these four  categories  accounted  for  approximately  33%, 3%, 14%
and 50% 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.  A  material  portion  of the Bank's
deposits is not  concentrated  within a single industry or group of
related industries.

                                       4
<PAGE>

As of  December  31,  2001,  the Bank  served a total of 27  state,
municipality   and   governmental    agency   depositors   totaling
$82,559,000   in   deposits.   Of  this   amount   $30,000,000   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,  2001,   the  Bank  had  total   deposits  of
$724,862,000.    Of   this    total,    $231,501,000    represented
noninterest-bearing   demand  deposits,   $105,949,000  represented
interest-bearing  demand  deposits,  and  $387,412,000  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, 2001,  these sources  comprised 83.3
percent,  15.9  percent,  and  0.8  percent,  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   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.

                                       5
<PAGE>

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


                                       6
<PAGE>

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, 2001,  the Bank and the Company are in  compliance
with the risk-based  capital and leverage ratios  described  above.
See Footnote 14 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, 2001 and 2000.

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


                                       7
<PAGE>

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



                                       8
<PAGE>

currently  intend  to  engage  in any  activities  which  would  be
restricted or prohibited under the FDICIA.

The Federal  Financial  Institution  Examination  Counsel ("FFIEC")
on  December 13,   1996,  approved  an  updated  Uniform  Financial
Institutions  Rating  System  ("UFIRS").  In  addition  to the five
components  traditionally  included in the so-called "CAMEL" rating
system  which  has been  used by bank  examiners  for a  number  of
years  to  classify  and   evaluate  the   soundness  of  financial
institutions   (including   capital   adequacy,    asset   quality,
management,  earnings and  liquidity),  UFIRS includes for all bank
regulatory  examinations  conducted on or after January 1,  1997, a
new  rating  for a sixth  category  identified  as  sensitivity  to
market  risk.  Ratings in this  category  are  intended  to reflect
the degree to which  changes in interest  rates,  foreign  exchange
rates,  commodity  prices or equity prices may adversely  affect an
institution's  earnings and capital.  The revised  rating system is
identified as the "CAMELS" system.

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.

                                       9
<PAGE>




COMPETITION
-----------

At June 30, 2001,  the competing  commercial  and savings banks had
67  branch  offices  in  the  cities  of  Castroville,   Hollister,
Gonzales,  King  City,  Marina,  Monterey,   Salinas,  Seaside  and
Watsonville   where   the   Bank  has  its  ten   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,
2001,  the  Bank's  aggregate  legal  lending  limits  to a  single
borrower and such borrower's  related  parties were  $10,351,000 on
an unsecured  basis and  $17,252,000 on a fully secured basis based
on regulatory capital of $69,007,000

The Bank's  business is  concentrated  in its service  area,  which
primarily  encompasses  Monterey  County,   including  the  Salinas
Valley  area.  In  2000  the  Bank  expanded  its  service  area to
include  Hollister  and  Watsonville  in San  Benito and Santa Cruz
Counties,  respectively.  As  previously  mentioned,  the  Bank has
received  FDIC  and  State  approval  to open a branch  in  Gilroy,
which is in Santa Clara  County.  The Gilroy  branch is expected to
open in April  2002.  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,
20011),  there  were  71  operating  commercial  and  savings  bank
branch   offices  in  Monterey   County  with  total   deposits  of
$4,474,913,000.  This  was an  increase  of  $409,794,000  over the
June 30, 2000 balances.  The Bank held a total of  $643,094,000  in
deposits,  representing  approximately  14.4% of  total  commercial
and  savings  banks  deposits  in  Monterey  County  as of June 30,
2001.   In  the  two  new   expansion   areas  of   Hollister   and
Watsonville,  at June 30, 2001,  there were 8 and 12 branch offices
with   total   deposits   of   $516,569,000    and    $716,450,000,
respectively.  At that date,  the Bank had deposits of  $23,022,000
and $8,612,000 in those two 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.

--------
1. "FDIC Institution Office Deposits:, June 30, 2001

                                       10
<PAGE>

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.

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 rate changes were not  anticipated  and they
adversely  impacted  the  Bank's net  interest  income for 2001 and
will continue to do so in 2002.

In 1996, pursuant to Congressional  mandate,  the FDIC reduced bank
deposit  insurance  assessment  rates  to a 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 2002 from that in 2001.

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.

                                       11
<PAGE>

On  November  12,  1999,  President  Clinton  signed  into  law The
Financial  Services  Modernization Act of 1999 (the "FSMA"),  which
is potentially  the most  significant  banking  legislation in many
years.  The FSMA  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 FSMA  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  FSMA  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 FSMA.

Prior  to  the  FSMA,  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 FSMA 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  FSMA,  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  must  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


                                       12
<PAGE>

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  FSMA,  and the  extent to which  competition
will change among financial  institutions  affected by the FSMA 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.

Certain  legislative  and  regulatory  proposals  that could affect
the Bank and the  banking  business  in  general  are  periodically


                                       13
<PAGE>

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,  2001,  the  Company   employed  221  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 ten  banking  offices.  Owned and leased
facilities are listed below.

301 Main Street                    1658 Fremont Boulevard
Salinas, California                Seaside, California
32,500 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
$21,397.08                         $5,273.04

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
                                   $3,090.00

400 Alta Street                    599 Lighthouse Avenue
Gonzales, California               Monterey, California.
5,175 square feet                  2,160 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
$4,132.00                          $6,271.92


                                       14
<PAGE>


532 Broadway                       155 Westridge Drive
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
$5,160.00                          $1,602.15

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
$7,728.00                          $3,920.00

761 First Street
Gilroy, California
2,670 square feet
Leased (dated February 2002)
term expires
2007 with one five year
renewal option)
Current monthly rent of
$5,206

The above  leases  contain  options  to extend for three to fifteen
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
of Item 8 Financial  Statements and Supplementary  Data included in
this  report and  incorporated  here by  reference.  The  foregoing
summary  descriptions  of leased  premises  are  qualified in their
entirety by  reference to the lease  agreements  listed as exhibits
hereto at page 72.

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 2001.

                                       15
<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  paid in February  2000 and 2001 and the 5
for 4 stock split in February 2002.

<TABLE>
<CAPTION>


Calendar Year                          Low                   High
-------------                          ---                   ----

<S>                                   <C>                   <C>
2001
   First Quarter                        $13.00               $ 15.80
   Second Quarter                        14.80                 21.00
   Third Quarter                         15.40                 20.08
   Fourth Quarter                        15.72                 18.34

2000
   First Quarter                        $10.42               $ 12.18
   Second Quarter                        10.64                 11.64
   Third Quarter                         11.00                 12.36
   Fourth Quarter                        12.18                 13.41
</TABLE>


The closing price for the  Company's  common stock was $18.62 as of
March 7, 2002.

(b)   Holders
      -------

As of March 7,  2002,  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

                                       16
<PAGE>


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  $9,003,000  as of December  31,
2001.

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  five-for-four  stock split in February
2002,  a ten percent  stock  dividend  in  February  2001 and a ten
percent  stock  dividend  in  2000.  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.

                                       17
<PAGE>




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.
Earnings  per share  information  has been  adjusted  retroactively
for all stock dividends and stock splits.

<TABLE>
<CAPTION>
                                                       As of and for the Year Ended December 31
                                        ------------------------------------------------------------------------
In thousands (except per share data)           2001          2000           1999          1998           1997
                                               ----          ----           ----          ----           ----

<S>                                          <C>          <C>            <C>           <C>            <C>
Operating Results
-----------------
Total Interest Income                        $ 51,747      $ 51,415       $ 41,517      $ 37,354       $ 33,916
Total Interest Expense                         18,360        18,290         13,648        13,319         12,041
                                        ------------------------------------------------------------------------
   Net Interest Income                         33,387        33,125         27,869        24,035         21,875
Provision for Loan Losses                       2,635         3,983          1,484           159             64
                                        ------------------------------------------------------------------------
Net Interest Income After
   Provision for Credit Losses                 30,752        29,142         26,385        23,876         21,811
Noninterest Income                              3,129         2,433          2,231         2,084          1,765
Noninterest Expenses                           19,223        17,408         16,043        13,859         12,573
                                        ------------------------------------------------------------------------
Income before Income Taxes                     14,658        14,167         12,573        12,101         11,003
Income Taxes                                    5,149         5,241          4,522         4,948          4,500
                                        ------------------------------------------------------------------------
Net Income                                    $ 9,509       $ 8,926        $ 8,051       $ 7,153        $ 6,503
----------------------------------------------------------------------------------------------------------------

Basic Earnings Per Share                       $ 1.05        $ 0.94         $ 0.82        $ 0.78         $ 0.72
Diluted Earnings Per Share                       1.01          0.91           0.80          0.72           0.66
----------------------------------------------------------------------------------------------------------------

Financial Condition and
   Capital - Year-End Balances
Total Loans                                 $ 606,300     $ 473,395      $ 395,597     $ 312,170      $ 255,494
Total Assets                                  802,266       706,693        593,445       543,933        497,674
Total Deposits                                724,862       633,209        518,189       489,192        450,301
Shareholders' Equity                           65,336        59,854         53,305        51,199         43,724
----------------------------------------------------------------------------------------------------------------

Financial Condition and
   Capital - Average Balances
Total Loans                                 $ 522,884     $ 424,172      $ 352,936     $ 275,850      $ 243,022
Total Assets                                  727,198       632,953        562,073       499,354        441,013
Total Deposits                                648,664       565,487        494,266       447,598        396,457
Shareholders' Equity                           62,918        55,762         52,069        47,587         39,969
----------------------------------------------------------------------------------------------------------------

Selected Financial Ratios
Rate of Return on:
   Average Total Assets                         1.31%         1.41%          1.43%         1.43%          1.47%
   Average Shareholders' Equity                15.11%        16.01%         15.46%        15.03%         16.27%
Rate of Average Shareholders' Equity
   to Total Average Assets                      8.65%         8.81%          9.26%         9.53%          9.06%
----------------------------------------------------------------------------------------------------------------
</TABLE>

                                       18
<PAGE>


(a)   Average Balance Sheet and Net Interest Margin
      ---------------------------------------------

      (1)  Distribution   of   Assets,   Liabilities  and   Equity;
           Interest  Rates  and Interest  Differential  - 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, 2001 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,
           2001 and   2000  is  set   forth   in   Note  4  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, 2001 are
           set forth in Table  Thirteen of 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 summarized in
           Table Three of 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, 2001 is  summarized in Table Twelve of 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.

                                       19
<PAGE>

           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 of 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,
          2001 is summarized in Table Five of 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 of
          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 of 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, 2001, 2000 and 1999 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, 2001  and  is  incorporated  here by
          reference.

(f)   Return on Equity and Assets
      ---------------------------

      (1) The Selected  Financial  Data  table at  page  16 of this
          section sets forth the ratios  of  net income  to average
          assets  and  average  shareholders'  equity,  and average
          hareholders' equity  to  average  assets.  As the Company
          has never paid a cash dividend, the dividend payout ratio
          is not indicated.

                                       20
<PAGE>

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,
including  the events of  September  11, 2001 and  thereafter;  (5)
changes in the  regulatory  environment;  (6)  changes in  business
conditions and inflation;  (7) changes in securities  markets;  (8)
data  processing  compliance  problems;  (9) the  California  power
crisis;  (10)  variances in the actual versus  projected  growth in
assets;  (11) return on assets;  (12) loan losses;  (13)  expenses;
(14) rates charged on loans and earned on  securities  investments;
(15) rates  paid on  deposits;  and (16) 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.  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 an  estimate of the 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


                                       21
<PAGE>

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 33.


Business Organization

Central Coast Bancorp (the  "Company") is a California  corporation,
located 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").   As  of  December  31,  2001,  the  Bank
operated ten  full-service  branch  offices and one  limited-service
branch  office.  The Bank is  headquartered  in  Salinas  and serves
individuals,   merchants,   small   and   medium-sized   businesses,
professionals,  agribusiness  enterprises  and wage earners  located
in the tri-county area of Monterey, San Benito and Santa Cruz.

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.  In
February 2002, the Bank received regulatory  approval to open a new
branch in Gilroy,  California.  The estimated  opening date for the
branch is April 15, 2002.  Gilroy 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.

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  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.   Except  within  the
"overview"  section below,  interest income and net interest income
are presented on a tax equivalent basis.

                                       22
<PAGE>

Overview

For  the  18th  consecutive  year,  Central  Coast  Bancorp  earned
record net  income on a  year-over-year  basis.  Net income in 2001
increased  6.5% to $9,509,000  versus  $8,926,000 in 2000.  Diluted
earnings  per share for 2001,  after  giving  effect to the 5 for 4
stock  split  distributed  on  February  28,  2002,  was $1.01,  up
11.0%  from the $0.91  reported  for 2000.  For 2001,  the  Company
realized  a return  on  average  equity  of 15.1%  and a return  on
average assets of 1.31%, as compared to 16.0% and 1.41% for 2000.

During  2001,  total  assets of the Company  increased  $95,573,000
(13.5%) to a total of  $802,266,000  at  year-end.  At December 31,
2001,  loans totaled  $606,300,000,  up  $132,905,000  (28.1%) from
the ending  balances on December 31, 2000.  Deposit growth in 2001,
which includes  $30,000,000 of State of California  certificates of
deposit,  was $91,652,000  (14.5%).  Deposits totaled  $724,862,000
at year-end 2001.

These  past  two  years  have  presented  very  different  economic
conditions  for the  banking  business.  In  2000,  interest  rates
were  increasing  with the  prime  rate  ending  the year at 9.50%.
Competition  for  deposits  was strong  and by  December  31,  2000
typical  rates on one-year  certificates  of deposit  exceeded  6%.
On January  4, 2001,  the  Federal  Reserve  Bank made the first of
eleven rate cuts during the year,  which  totaled 475 basis  points
resulting in a in a prime rate of 4.75% at December  31,  2001.  At
each rate cut variable rate loans  repriced  immediately  or by the
quarter  end.  Rates  paid on  deposit  products  were  lowered  as
market  conditions  allowed and  generally  lagged the reduction in
loan  rates.  The  market  rate  for  a  one-year   certificate  at
December 31, 2001was  approximately  2.25%.  However,  certificates
of deposit  with  longer  average  maturities  will not reflect the
decline in rates until they reprice at maturity.  Thus,  throughout
2001   as   earning    assets    repriced    more    quickly   than
interest-bearing  liabilities,  the net  interest  margin  declined
with a resulting  downward  pressure on  earnings.  The increase in
earning  assets  helped to offset the decline in yields.  While the
economic  conditions  for the past two years  were very  different,
our  community  based  banking  model has provided the Company with
continued  growth in customer  base,  assets and  earnings.  We are
proud  of  our  record  of  18   consecutive   years  of  increased
earnings,  particularly  in the face of the  current  economic  and
interest rate environment.

In June and  October of 2000,  the Bank  opened new branch  offices
in  Hollister  and  Watsonville.  Both of these  branches  exceeded
their  budgeted loan and deposit  targets.  The San Benito  Chamber
of Commerce  designated the Hollister  branch as the  "Professional
Service  Business  of the  Year."  The  award  is an  extraordinary
accomplishment  for a business in its first year of  operation.  We
are  very  proud of the way in which  both of  these  new  branches
have  become an  integral  part of their  respective  community  in
such a short time.  The success of these  branches  reinforces  our
strategy of expanding the Bank's  footprint by opening  traditional
branches  in   communities   with  a  similar   economic  base  and
structure  to our existing  markets.  As  announced,  the Bank will
open a new branch in Gilroy early in 2002.  We  anticipate  opening
one additional branch later this year.

Looking  forward  into  2002,  it  appears  the year  will  provide
another  challenging  economic   environment.   If  the  short-term
interest  rates  do not  decrease  further,  we  would  expect  the
Bank's net  interest  margin to be  slightly  lower than the fourth
quarter 2001 rate of about 4.81%.  Current  economic  data suggests
that the  country  will have a slow  recovery.  With these  factors
in mind,  the key for  earnings  growth is to  continue  to develop
solid  banking  relationships,  emphasize  loan quality and control
costs.  In  this,  the  Bank's  twentieth  year of  operations,  we
expect to continue  our record of continued  earnings  growth based
on our current evaluation of economic data available to us.


                                       23
<PAGE>


(A)   Results of Operations

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

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.

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.

As rates  continued  to come down in the  fourth  quarter  of 2001,
the average  rates  received  on earning  assets and the rates paid
on  interest-bearing  liabilities  decreased  accordingly.  In  the
fourth  quarter,  the average rate  received on earning  assets was
6.98% down from 9.16% in the  year-ago  period.  The  average  rate
paid on  interest-bearing  liabilities  was 3.07%  versus  4.49% in
the fourth  quarter of 2000.  The net  interest  margin for the two
periods  was 4.81% and 5.93%,  respectively.  With no further  rate
cuts in the  first  quarter  of 2002,  management  expects  the net
interest  margin will be slightly  lower than the 4.81% achieved in
the fourth quarter.

Net  interest  income  for  2000  was  $33,927,000,   a  $5,293,000
(18.5%)  increase over 1999. The interest  income  component was up
$9,935,000 to  $52,217,000  (23.5%).  About 65% of the increase was
attributable  to growth in the earning  assets with the balance due
to rates.  Average  outstanding  loan balances of $417,075,000  for
2000  reflected  a  19.8%   increase  over  1999   balances.   This
increase   contributed   an   additional   $6,388,000  to  interest
income.  From  July 1,  1999  through  May 15,  2000,  the  Federal


                                       24
<PAGE>

Reserve  Board raised  interest  rates six times for a total of 175
basis  points.  The higher  interest  rates  increased  the average
yield  on  loans  67  basis  points,   which  added  $2,783,000  to
interest  income.   The  securities   portfolio   average  balances
decreased   $12,066,000  (7.8%),  which  offset  the  increases  in
interest  income  by  $757,000.   The  average  yield  received  on
securities  was up 44 basis  points and added  $613,000 to interest
income.  Federal  Funds sold  interest  income  increased  $908,000
due to both higher average balances and higher rates.

Interest expense  increased  $4,642,000  (34.0%) in 2000 over 1999.
The  average  balances of interest  bearing  liabilities  increased
$49,628,000  (13.2%).  The higher average balances  resulted from a
$58,677,000  (36.8%)  increase in time  deposits  offset in part by
an $8,768,000  decrease in interest bearing checking  accounts.  At
times  during  2000,  the  Bank  had  up  to  $40,000,000  in  time
deposits from the State of  California.  This compares to a maximum
of  $20,000,000  in 1999.  Interest  paid on time  certificates  in
2000  increased  $4,569,000,   which  accounted  for  most  of  the
overall   increase   in   interest   expense.    Interest   expense
attributable  to the higher volume in time deposits was  $2,934,000
and the  higher  rates  added  $1,635,000.  Average  rates  paid on
time  certificates  were 75 basis  points  higher  in  2000.  Rates
paid on all  interest  bearing  liabilities  were 66  basis  points
higher  in 2000  than in 1999.  Net  interest  margin  for 2000 was
5.88% versus 5.65% in 1999.

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 Banks'  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.

                                       25
<PAGE>

<TABLE>
<CAPTION>

Table One:  Analysis of Net Interest Margin on Earning Assets
-----------------------------------------------------------------------------------------------------------------
(Taxable Equivalent Basis)               2001                         2000                      1999
                               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)               $513,077  $ 43,135  8.41%    $417,075 $ 41,405 9.93%  $ 348,086  $ 32,234    9.26%
  Taxable investment
     securities                 99,488     6,000  6.03%     106,754    7,340 6.88%    120,422     7,596    6.31%
  Tax-exempt investment
     securities (3)             48,691     3,307  6.79%      36,601    2,408 6.58%     34,999     2,296    6.56%
  Federal funds sold             8,745       407  4.65%      16,857    1,064 6.31%      3,153       156    4.95%
                            ---------------------        --------------------       --------------------
Total Earning Assets           670,001  $ 52,849  7.89%     577,287 $ 52,217 9.05%    506,660  $ 42,282    8.35%
                                       ----------                   ---------                 ----------
Cash & due from banks           42,551                       39,432                    42,595
Other assets                    14,646                       16,234                    12,818
                            -----------                  -----------                ----------
                              $727,198                     $632,953                 $ 562,073
                            ===========                  ===========                ==========

Liabilities & Shareholders' Equity:
Interest bearing liabilities:
  Demand deposits             $ 97,785   $ 1,254  1.28%    $ 94,948  $ 1,551 1.63%  $ 103,716   $ 1,792    1.73%
  Savings                      129,358     3,940  3.05%     107,075    3,820 3.57%    105,000     3,447    3.28%
  Time deposits                247,388    12,732  5.15%     218,330   12,549 5.75%    159,653     7,980    5.00%
  Other borrowings               8,496       434  5.11%       5,769      370 6.41%      8,125       429    5.28%
                            ---------------------        --------------------       --------------------
Total interest bearing
     liabilities               483,027    18,360  3.80%     426,122   18,290 4.29%    376,494    13,648    3.63%
                                       ----------                   ---------                 ----------
Demand deposits                174,133                      145,134                   125,897
Other Liabilities                7,120                        5,935                     7,613
                            -----------                  -----------                ----------
Total Liabilities              664,280                      577,191                   510,004
Shareholders' Equity            62,918                       55,762                    52,069
                            -----------                  -----------                ----------
                              $727,198                     $632,953                 $ 562,073
                            ===========                  ===========                ==========
Net interest income &
    Margin (4)                         $ 34,489  5.15%             $ 33,927 5.88%             $ 28,634    5.65%
                                      =================            ===============           ===================

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

1. Loans interest includes loan fees of $1,387,000, $997,000 and $1,096,000 in 2001, 2000 and 1999.
2. Average balances of loans include average allowance for loan losses of $9,807,000, $7,097,000 and $4,850,000 and average deferred
   loan fees of $978,000, $719,000 and $796,000 for the years ended December 31, 2001, 2000 and 1999, 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 2001, 2000 and 1999.
4. Net interest margin is computed by dividing net interest income by total average earning assets.
</TABLE>

                                       26
<PAGE>

<TABLE>
<CAPTION>

Table Two: Volume/Rate Analysis
--------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2001 over 2000 (In thousands)
Increase (decrease) due to change in:
                                                                                                       Net
Interest-earning assets:                                    Volume              Rate (4)             Change
                                                            ------              --------             ------
<S>                                                       <C>                 <C>                  <C>
   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
                                                          ===========          ===========         ===========

--------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>

Year Ended December 31, 2000 over 1999 (In thousands)
Increase (decrease) due to change in:
                                                                                                       Net
Interest-earning assets:                                    Volume              Rate (4)             Change
                                                            ------              --------             ------
<S>                                                      <C>                  <C>                 <C>
   Net Loans (1)(2)                                          $ 6,388              $ 2,783             $ 9,171
   Taxable investment securities                                (862)                 606                (256)
   Tax-exempt investment securities(3)                           105                    7                 112
   Federal funds sold                                            678                  230                 908
                                                          -----------          -----------         -----------
     Total                                                     6,309                3,626               9,935
                                                          -----------          -----------         -----------

Interest-bearing liabilities:
   Demand deposits                                              (152)                 (89)               (241)
   Savings deposits                                               68                  305                 373
   Time deposits                                               2,934                1,635               4,569
   Other borrowings                                             (124)                  65                 (59)
                                                          -----------          -----------         -----------
     Total                                                     2,726                1,916               4,642
                                                          -----------          -----------         -----------
Interest differential                                        $ 3,583              $ 1,710             $ 5,293
                                                          ===========          ===========         ===========

--------------------------------------------------------------------------------------------------------------
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 $1,387,000, $997,000 and $1,096,000 for the years ended December 31, 2001, 2000 and 1999, 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 2001, 2000 and 1999.
4. The rate / volume variance has been included in the rate variance.
</TABLE>


                                       27
<PAGE>



Provision for Loan Losses

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
is due to the  change of loans  inside the loan  portfolio  and the
individual  analysis of loan loss allowance  required for each. Net
loan  charge-offs  were  $253,000  in 2001  compared to $208,000 in
2000.  The ratio of net  charge-offs  to average loans  outstanding
was 0.05% in each of the two  years.  The  ratios of the  allowance
for loan losses to total  loans - net of  deferred  fees were 1.94%
at December 31, 2001 and 1.98% at December 31, 2000.

In 2000,  the Bank provided  $3,983,000 for loan losses as compared
to  $1,484,000  in 1999.  In providing  for the  allowance for loan
losses the Company  considered the  significant  growth in the loan
portfolio  of   $77,798,000   (19.7%),   geographic   and  industry
concentrations,   expansion  into  new  geographic   markets,   and
volatility  and   weaknesses  in  the  local   economy,   including
potential  effects of power shortages,  water supply,  and volatile
market  prices  for   agricultural   products.   In  addition,   as
mentioned in the preceding  paragraph,  $1,185,000 was provided for
classified  loans to a single  borrower.  Net loans  charged-off in
1999 totaled  $240,000 or 0.07% of average loans  outstanding.  The
allowance  for loan losses to total  loans - net of  deferred  fees
at December 31, 1999 was 1.41%.

Service Charges and Fees and Other Income

Noninterest  income in 2001  increased  $696,000  (28.6%) over 2000
to a total of  $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.   The  activity  in  mortgage   refinancing  is
expected  to  decline  somewhat  in 2002.  Of the  total  increase,
$362,000  is  related  to  securities  transactions.  In 2001,  the
Bank  realized   gains  of  $168,000  on  the  sale  of  investment
securities versus a loss of $194,000 in 2000.

Noninterest  income  was up  $202,000  (9.1%) in 2000 over the same
period  in 1999.  Service  charges  and  fees  related  to  deposit
accounts  increased  $401,000  (29.8%) due to higher  volumes,  the
full  year  effect  of new fees  implemented  in late  1999 and new
products.   Noninterest  income  was  negatively  impacted  in  the
fourth  quarter of 2000 as the Bank  realized a loss of $194,000 on
the sale and  repositioning  of  investment  securities.  In all of
1999,  the  Bank  had a  realized  gain of  $45,000  on the sale of
investment securities.

Salaries and Benefits

Salary and benefit expenses  increased  $1,538,000  (15.3%) in 2001
over  2000.  The  two  new  branches  opened  in mid to  late  2000
accounted  for  $567,000  of  the  increase  on  a   year-over-year
basis.  Salaries and  benefits  from all other  operations  were up
$971,000   (9.9%).   Due  to  normal  merit  reviews  and  staffing
additions  during  the  year,  base  salaries   increased  $653,000
(9.0%) Benefit costs increased  commensurate with the salaries.  At
the end of 2001,  the full  time  equivalent  (FTE)  staff  was 221
versus 211 at the end of 2000.

For 2000,  increases  in salaries  and  benefits  totaled  $965,000
(10.6%).  Salary  expenses  related to the  staffing of the two new
branch  offices  opened in the  second  half of the 2000  accounted


                                       28
<PAGE>

for  $287,000  of  the   increase.   Salaries  and  benefits   from
continuing  operations  were  up  $678,000  (7.4%).  Base  salaries
increased   $421,000   (6.2%)   due  to   normal   merit   reviews,
competitive  salary  adjustments and staffing  additions during the
year.  Benefit  costs  increased  commensurate  with the  salaries.
At the end of 2000,  the full time  equivalent  (FTE) staff was 211
versus 204 at the end of 1999.

Occupancy and Furniture and Equipment

Occupancy and furniture and equipment  expense  increased  $294,000
(9.2%) to total  $3,475,000  in 2001.  The two  branches  opened in
mid to late  2000  accounted  for  $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
adjustment for the new branches.

Occupancy and fixed assets expense  increased  $542,000  (20.5%) in
2000 over 1999.  The new Hollister and  Watsonville  branch offices
accounted  for  $81,000  of  the  increase.  For  the  rest  of the
Company,  occupancy  and fixed assets  expense  increased  $461,000
(17.4%).  Much of the  increase  is  attributable  to the full year
effect of the  relocation of two branch  offices and  remodeling of
one branch office and operations office space during 1999.

Other Expenses

For the second  consecutive  year, other expenses declined slightly
from  the  prior  year  level.  In  2001,  other  expenses  totaled
$4,129,000  down  $17,000  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.  Cost  control  will be a  continuing  theme in 2002.
The  efficiency  ratio (fully  taxable  equivalent),  calculated by
dividing  noninterest  expense  by the sum of net  interest  income
and  noninterest  income,  for 2001 was 51.1% as  compared to 47.9%
in 2000.

Other  expenses  were down $142,000  (3.3%) in 2000 from 1999.  The
two new branch offices  incurred other expenses  totaling  $45,000.
Thus,  other  expenses  for  other  operations  decreased  $187,000
(4.4%).   In   1999,   the   Bank   incurred   one-time   costs  of
approximately  $263,000  associated  with the merger of the Bank of
Salinas  and  Cypress  Bank  to  form  Community  Bank  of  Central
California.  Normal  price  increases  and  growth  in  the  Bank's
operations  accounted  for  the  remaining  higher  expenses.   The
efficiency ratio (fully taxable equivalent) for 1999 was 52.0%.

Provision for Taxes

The  effective  tax rate on income  was  35.1%,  37.0% and 36.0% in
2001,  2000 and 1999,  respectively.  In November  and  December of
2000  and  in  the  first  quarter  of  2001,  the  Bank  purchased
approximately  $12,600,000  of fixed  rate  municipal  bonds.  As a
result,  in 2001  tax-exempt  interest  income on a tax  equivalent
basis  increased  to be 6.26% of total  interest  income from 4.61%
in 2000.  Accordingly,  the  effective  tax rate fell 1.9% in 2001.
The  effective  tax rate of the  Company  was  higher  in 2000 over
1999  as  tax-exempt  instruments  were  a  smaller  percentage  of
earning  assets.  The  effective  tax  rate  was  greater  than the
federal   statutory   tax  rate  due  to  state  tax   expense   of
$1,858,000,  $1,513,000 and  $1,326,000 in these years.  Tax-exempt
income of $2,754,000  $2,082,000  and  $1,998,000  from  investment
securities   and  loans  in  these  years   helped  to  reduce  the
effective tax rate.


                                       29
<PAGE>

(B)  Balance Sheet Analysis

Central  Coast  Bancorp's  total  assets at December  31, 2001 were
$802,266,000   compared  to  $706,693,000  at  December  31,  2000,
representing  an  increase of 13.5%.  The average  balance of total
assets was  $727,198,000 in 2001,  which  represents an increase of
14.9%  totaling  $94,245,000  over the average  total asset balance
of $632,953,000 in 2000.

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,  2001,
these four  categories  accounted for  approximately  33%, 14%, 50%
and 3% of the Bank's loan portfolio,  respectively,  as compared to
36%,  12%,  50%  and  2%  at  December  31,  2000.   The  Bank  has
developed a very  successful  loan calling  officer  program.  On a
year-over-year  basis  beginning in 1997, the annual  percentage of
loan  growth  has  been 6%,  22%,  27%,  20% and 28%.  The Bank has
attracted  many  new  loan  customers  as  well as  better  serving
existing  customers.  All  categories  of loans  reflect  increased
growth  in  2001.  The  largest  growth  took  place  in  the  real
estate-other  category.  However,  the largest  percentage  gain of
59.1% was in the  consumer  category.  A concerted  effort was made
in  2001  to  offer a  broader  and  more  competitive  package  of
consumer  loans.  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                              2001            2000           1999           1998           1997
-------------------------------------------------------------------------------------------------------------
<S>                                   <C>             <C>            <C>            <C>            <C>
Commercial                            $ 199,761       $ 171,631      $ 159,385      $ 136,685      $ 124,714
Real Estate:
   Construction                          85,314          57,780         35,330         19,929         14,645
   Other                                306,622         234,890        188,600        144,685        107,354
Consumer                                 15,653           9,840         13,003         11,545          9,349
Deferred Loans Fees                      (1,050)           (746)          (721)          (674)          (568)
-------------------------------------------------------------------------------------------------------------
Total Loans                             606,300         473,395        395,597        312,170        255,494
Allowance for
   Loan Losses                          (11,753)         (9,371)        (5,596)        (4,352)        (4,223)
-------------------------------------------------------------------------------------------------------------
Total                                 $ 594,547       $ 464,024      $ 390,001      $ 307,818      $ 251,271
=============================================================================================================
</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


                                       30
<PAGE>

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  2001  were  $513,077,000  representing  an
increase of  $96,002,000  or 23.0% over 2000.  Average net loans in
2000 were  $417,075,000  representing an increase of $68,989,000 or
19.8% over 1999.

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  grade 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
branch  expansion  plan.  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   $453  million  at  December   31,  2001.   Although
management  believes  this real  estate  concentration  has no more
that 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   provision   for   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  credit-worthiness of the borrower.


                                       31
<PAGE>

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,
for December 31:

<TABLE>
<CAPTION>
Table Four: Non-Performing Loans
-------------------------------------------------------------------------------------------------------
In thousands                                          2001       2000       1999       1998       1997
-------------------------------------------------------------------------------------------------------
<S>                                                  <C>        <C>        <C>       <C>         <C>
Past due 90 days or more and still accruing
   Commercial                                      $    68    $   215    $    51    $    73      $  73
   Real estate                                           -         10        303      1,174          6
   Consumer and other                                   12          5          -          -          -
-------------------------------------------------------------------------------------------------------
                                                        80        230        354      1,247         79
-------------------------------------------------------------------------------------------------------
Nonaccrual:
   Commercial                                          702        329         11        333        188
   Real estate                                         592          -      1,565        543        628
   Consumer and other                                    -          -          -          -          -
-------------------------------------------------------------------------------------------------------
                                                     1,294        329      1,576        876        816
-------------------------------------------------------------------------------------------------------
Restructured (in compliance with modified
   terms)- Commercial                                  955      1,010          -          -          -
-------------------------------------------------------------------------------------------------------
Total                                              $ 2,329    $ 1,569    $ 1,930    $ 2,123      $ 895
=======================================================================================================
</TABLE>


Interest  due but  excluded  from  interest  income  on  nonaccrual
loans  was  approximately  $45,000  in  2001,  $64,000  in 2000 and
$82,000  in 1999.  In 2001 and  1999,  interest  income  recognized
from  payments   received  on  nonaccrual  loans  was  $69,000  and
$21,000, 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


                                       32
<PAGE>

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, 2001,  the  recorded  investment  in loans that are
considered   impaired  was   $2,418,000  of  which   $1,294,000  is
included  in  nonaccrual   loans,   and  $955,000  is  included  in
restructured   loans   above.   Impaired   loans  had  a  valuation
allowance  of  $536,000.   The  average   recorded   investment  in
impaired   loans   during   2001  was   $2,638,000.   The   Company
recognized   interest   income  on  impaired   loans  of  $191,000,
$161,000  and  $92,000  in  2001,   2000  and  1999,   respectively
(including  interest  income of  $98,000 on  restructured  loans in
2001 and in 2000).

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,  2001.  Management  is not
aware of any  potential  problem  loans,  which were  accruing  and
current at December  31,  2001,  where  serious  doubt exists as to
the ability of the  borrower  to comply with the present  repayment
terms.

The  Company  held  no  real  estate  acquired  by  foreclosure  at
December 31, 2001 or 2000.


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, 2001 the formula  allowance  was  $9,043,000  compared
to  $7,336,000  at December 31,  2000.  The increase in the formula
allowance  was  primarily  a result of the growth in loan  balances
in this category of $134,904,000 in 2001.

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  higher
than  the  formula   reserve  will  be  calculated   based  on  the
higher-than-normal   probability   of  loss  and/or  a   collateral
shortfall.   At  December  31,  2001  the  specific  allowance  was
$1,678,000  on loan  base of  $18,922,000  compared  to a  specific


                                       33
<PAGE>

allowance of  $1,111,000  on a loan base of  $8,076,000 at December
31,  2000.  The  increase  in the  specific  allowance  in 2001 was
primarily  attributable  to one  credit,  which was  performing  at
year-end.

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,  2001  the   unallocated
allowance  was  $1,032,000  compared to  $925,000  at December  31,
2000. 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 2001 and set
forth in the preceding paragraph.

The  allowance  for loan  losses  totaled  $11,753,000  or 1.94% of
total loans at December 31, 2001  compared to  $9,371,000  or 1.98%
at  December  31,  2000.   At  those  two  dates,   the   allowance
represented 505 and 597 percent of nonperforming loans.

In  2000,   the   allowance   for  loan  losses  was  increased  in
consideration  of the  significant  growth in the loan portfolio of
$77,798,000  (19.7%),   geographic  and  industry   concentrations,
expansion   into  new  geographic   markets,   and  volatility  and
weaknesses in the local  economy,  including  potential  effects of
power  shortages,  water  supply,  and volatile  market  prices for
agricultural  products.  In  addition,  approximately  $1.2 million
was  provided  as  a  result  of  the  downward  classification  to
substandard of several loans to a single borrower.

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.


                                       34
<PAGE>


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)       12/31/01     12/31/00     12/31/99      12/31/98      12/31/97
--------------------------------------------------------------------------------------------------------

<S>                                      <C>          <C>          <C>           <C>          <C>
Average loans outstanding                $523,862     $424,891     $ 353,732     $ 276,437    $ 243,593
--------------------------------------------------------------------------------------------------------

Allowance for possible loan losses
 at beginning of period                   $ 9,371      $ 5,596       $ 4,352       $ 4,223      $ 4,372

Loans charged off:
   Commercial                                (349)        (273)         (333)         (130)        (279)
   Real estate                                 (2)           -           (41)          (16)        (100)
   Consumer                                   (79)        (119)          (26)          (31)         (61)
--------------------------------------------------------------------------------------------------------
                                             (430)        (392)         (400)         (177)        (440)
--------------------------------------------------------------------------------------------------------
Recoveries of loans previously
 charged off:
   Commercial                                 162          170           143           116          162
   Real estate                                  -            -             7            20           28
   Consumer                                    15           14            10            11           37
--------------------------------------------------------------------------------------------------------
                                              177          184           160           147          227
--------------------------------------------------------------------------------------------------------
Net loans charged off                        (253)        (208)         (240)          (30)        (213)

Additions to allowance charged
  to operating expenses                     2,635        3,983         1,484           159           64
--------------------------------------------------------------------------------------------------------
Allowance for possible loan
  losses at end of period                $ 11,753      $ 9,371       $ 5,596       $ 4,352      $ 4,223
--------------------------------------------------------------------------------------------------------

Ratio of net charge-offs to
  average loans outstanding                 0.05%        0.05%         0.07%         0.01%        0.09%

Provision of allowance for possible loan
 losses to average loans outstanding        0.50%        0.94%         0.42%         0.06%        0.03%

Allowance for possible loan losses to loans
 net of deferred fees at year end           1.94%        1.98%         1.41%         1.39%        1.65%
--------------------------------------------------------------------------------------------------------
</TABLE>


                                       35
<PAGE>


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, 2001 and 2000.

<TABLE>
<CAPTION>

Table Six:  Allowance for Loan Losses by Loan Category
----------------------------------------------------------------------------------------
                                    December 31, 2001             December 31, 2000
                                    -----------------             -----------------
                                             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                          $  7,397         33%           $ 5,602          36%
Real estate                            3,019         64%             2,589          62%
Consumer                                 305          3%               255           2%
----------------------------------------------------------------------------------------
Total allocated                       10,721        100%             8,446         100%
Total unallocated                      1,032                           925
----------------------------------------------------------------------------------------
   Total                            $ 11,753                       $ 9,371
----------------------------------------------------------------------------------------
</TABLE>

Other Real Estate Owned

The  Company  held  no  real  estate  acquired  by  foreclosure  at
December 31, 2001 or 2000.

Deposits

At  December  31,  2001,  deposits  totaled  $724,862,000  up  from
$633,210,000  at the  end  of  2000.  The  2001  year-end  balances
included   $30,000,000   in   certificates   from   the   State  of
California.  These  deposits  are placed in the Bank at its request
and are  secured  by pledged  investment  securities.  The  deposit
growth  in  2001,   exclusive  of  the  State   certificates,   was
$61,652,000 (9.7%).

Capital Resources

The current and projected  capital  position of the Company and the
impact  of  capital  plans and  long-term  strategies  is  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, 2001,  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  negotiated  transactions  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  applicable
stock  dividends and splits.  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,  2001,  there
were 279,904 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  $5.5 million or 9.2% from the previous  year-end.


                                       36
<PAGE>

The ratio of total risk-based  capital to risk-adjusted  assets was
11.1% at December  31,  2001,  compared  to 12.3% at  December  31,
2000. Tier 1 risk-based  capital to  risk-adjusted  assets was 9.9%
at December  31,  2001,  compared to 11.1% at  December  31,  2000.
The  capital  ratios  are  lower  in  2001 as  compared  to 2000 as
risked-based assets grew at a higher rate than did capital.

<TABLE>
<CAPTION>

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

                                          2001      2000
                                          ----      ----
<S>                                      <C>      <C>
Tier 1 Capital                            9.9%     11.1%
Total Capital                            11.1%     12.3%
Leverage                                  8.4%      9.1%

</TABLE>

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

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
2001.

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.

                                       37
<PAGE>

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 2002 net interest income,  as forecast below, was modeled
utilizing a forecast  balance  sheet  projected  from year-end 2001
balances.

The following assumptions were used in the modeling activity:
      Earning asset growth of 5.6% based on ending balances
      Loan growth of 4.0% based on ending balances
      Investment  and funds  sold  growth  of 8.2%  based on ending
      balances
      Deposit growth of 4.0% based on ending balances
      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, 2001
<TABLE>
<CAPTION>
                                       Estimated Impact on
                                        2001 Net Interest
                                             Income
                                             ------
                                         (in thousands)
   Variation from flat rate scenario
<S>                                         <C>
    +200                                     $3,149
    -200                                    ($3,569)
</TABLE>

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:


                                       38
<PAGE>


Table Nine:  Interest  Rate Risk  Simulation  of NII as of December
31, 2001
<TABLE>
<CAPTION>

                                  % Change             Change
                                   in NII              in NII
                                 from Current        from Current
                               12 Mo. Horizon      12 Month Horizon
                               --------------      ----------------
                                                    (in thousands)
<S>                               <C>                  <C>
      + 200bp                      16%                  $5,413
      - 200bp                     (20%)                ($6,981)
</TABLE>

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,  2001,  the  cumulative
gap  through  the  one-year  time  horizon   indicates  a  slightly
liability  sensitive  position.  Somewhere  between  one  and  five
years  the  Bank  moves  into an  asset  sensitive  position.  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.   The  asset   sensitivity  is
validated  by the  modeling as  presented  in Tables Eight and Nine
and the  actual  operating  results  in  2001  as the net  interest
margin   decreased   during  a  rapidly   falling   interest   rate
environment.

                                       39
<PAGE>



<TABLE>
<CAPTION>

Table Ten: Interest Rate Sensitivity
December 31, 2001

---------------------------------------------------------------------------------------------------------------
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                   $    1,236      $  10,590       $    103     $  51,061     $  74,163   $ 137,153
Loans, excluding
   nonaccrual loans
   and overdrafts                 13,874        373,040         60,292       108,898        47,594     603,698
---------------------------------------------------------------------------------------------------------------
Total                         $   15,110      $ 383,630       $ 60,395     $ 159,959     $ 121,757   $ 740,851
===============================================================================================================
Interest bearing
   liabilities:
Interest bearing demand       $  105,949      $       -      $       -     $       -     $       -   $ 105,949
Savings                          122,861              -              -             -             -     122,861
Time certificates                      -         96,153        145,990        22,240           168     264,551
Other Borrowings                       -             78            243         2,710         3,110       6,141
---------------------------------------------------------------------------------------------------------------
Total                         $  228,810      $  96,231      $ 146,233     $  24,950     $   3,278   $ 499,502
===============================================================================================================
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
---------------------------------------------------------------------------------------------------------------
December 31, 2000
Interest rate
   sensitivity gap            $ (183,847)     $ 241,129      $(103,528)    $  83,474     $ 156,490
Cumulative interest
   rate sensitivity gap       $ (183,847)     $  57,282      $ (46,246)    $  37,228     $ 193,718
---------------------------------------------------------------------------------------------------------------
</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, 2001,  were
approximately  $166,386,000  and  $3,690,000,   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,  2001,
consolidated  liquid  assets  totaled  $110.0  million  or 13.7% of
total  assets  as  compared  to  $132.0  million  or 18.7% of total
consolidated  assets on December  31,  2000.  In addition to liquid
assets,  the  Bank  maintains  short  term  lines  of  credit  with
correspondent   banks.   At  December  31,   2001,   the  Bank  had
$80,000,000   available   under  these   credit   lines.   Informal


                                       40
<PAGE>

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
affect  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,
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

<TABLE>
<CAPTION>
---------------------------------------------------------------
In thousands                                December 31, 2001
---------------------------------------------------------------
<S>                                                <C>
 Three months or less                            $  75,503

 Over three months through six months               42,833

 Over six months through twelve months              65,889

 Over twelve months                                 17,405

-----------------------------------------------------------
 Total                                           $ 201,630
===========================================================
</TABLE>


                                       41
<PAGE>


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

<TABLE>
<CAPTION>

 Table Twelve:  Loan Maturities - December 31, 2001
------------------------------------------------------------------------------------------
                                         One year
                      One year           through              Over
 In thousands         or less           five years         five years           Total
------------------------------------------------------------------------------------------

<S>                    <C>                 <C>                <C>               <C>
  Commercial           $ 100,100           $ 77,547           $ 22,114          $ 199,761

  Real estate -
   construction           72,141                916             12,257             85,314

  Real estate -
    other                 40,602             95,263            170,757            306,622

   Consumer               10,081              4,951                621             15,653

------------------------------------------------------------------------------------------
  Total                $ 222,924          $ 178,677          $ 205,749          $ 607,350
------------------------------------------------------------------------------------------

 Loans shown above with maturities greater than one year include $290,459,000 of floating
 interest rate loans and $93,967,000 of fixed rate loans.

</TABLE>


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, 2001              December 31, 2000
                                                                    Weighted                      Weighted
                                                       Market        Average           Market      Average
In thousands (except percentages)                       Value         Yield             Value       Yield
-----------------------------------------------------------------------------------------------------------
Available for sale securities:
<S>                                                    <C>            <C>            <C>           <C>
U.S. Treasury and agency securities
     Maturing within 1 year                            $     103       2.27%         $     300       5.79%
     Maturing after 1 year but within 5 years             47,223       6.21%            12,902       6.28%
     Maturing after 5 years but within 10 years           17,898       4.62%            61,559       6.45%
     Maturing after 10 years                              10,262       6.87%            10,366       6.42%
State & Political Subdivision
     Maturing within 1 year                                    -           -               238       3.80%
     Maturing after 1 year but within 5 years              3,823       7.05%             1,366       7.92%
     Maturing after 5 year but within 10 Years            23,151       6.58%            16,562       6.61%
     Maturing after 10 years                              22,867       6.95%            26,671       6.88%
Corporate Debt Securities
     Maturing within 1 year                                    -           -             9,957       8.24%
     Maturing after 10 years                              10,590       3.01%            11,192       7.75%
Other                                                      1,236           -             1,163           -
-----------------------------------------------------------------------------------------------------------
Total investment securities                            $ 137,153       5.96%         $ 152,276       6.70%
===========================================================================================================
</TABLE>


                                       42
<PAGE>

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  Note 5 of the  financial  statements  for the  terms.)  These
commitments do not significantly impact operating results.

As of December  31,  2001,  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 $170,076,000 from $150,473,000 at
December  31,  2000.  The  commitments  represent  28.1%  of  total
loans at year-end  2001 versus  31.8% a year ago.  The  majority of
the  commitments  have a maturity of one year or less.  Commitments
for home equity lines of credit  totaling  $14,700,000,  which have
a  ten-year   maturity,   are  the  single   largest   category  of
commitments exceeding a one-year maturity.

Disclosure of Fair Value

The  Financial   Accounting   Standards  Board  ("FASB"),   adopted
Statement   of   Financial   Accounting   Standards   Number   107,
"Disclosures About Fair Value of Financial  Statements,"  requiring
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  2001 the fair values  calculated  on the Bank's assets
were  0.5%  above  the  carrying   values  versus  0.4%  under  the
carrying values at year-end 2000.

                                       43
<PAGE>


Accounting Pronouncements

In June 2001,  the Financial  Accounting  Standards  Board ("FASB")
issued  Statement  of  Financial  Accounting  Standards  (SFAS) No.
141,  "Business   Combinations"  covering  elimination  of  pooling
accounting   treatment  in  business   combinations  and  financial
accounting   and   reporting   for  acquired   goodwill  and  other
intangible  assets at  acquisition.  SFAS No.  141  supersedes  APB
Opinion  No.  16,   "Business   Combinations"   and  SFAS  No.  38,
"Accounting   for   Preacquisition   Contingencies   of   Purchased
Enterprises"  and is effective  for  transactions  initiated  after
June 30,  2001.  Under  SFAS No.  141,  all  mergers  and  business
combinations  initiated  after the effective date must be accounted
for as "purchase"  transactions.  A merger or business  combination
was  considered  initiated  if the major terms of the  transaction,
including   the  exchange  or  conversion   ratio,   were  publicly
announced or otherwise  disclosed to  shareholders of the combining
companies  prior to the effective  date.  Goodwill in any merger or
business   combination   which  was  not  initiated  prior  to  the
effective  date  will be  recognized  as an asset in the  financial
statements,  measured  as the  excess  of the  cost of an  acquired
entity  over  the  net  of the  amounts  assigned  to  identifiable
assets  acquired  and  liabilities  assumed,  and then  tested  for
impairment to assess losses and expensed  against  earnings only in
the periods in which the  recorded  value of goodwill  exceeded its
implied  fair  value.  The FASB  concurrently  issued SFAS No. 142,
"Goodwill  and  Other  Intangible   Assets"  to  address  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.
SFAS No. 142  supersedes  APB Opinion No. 17,  "Intangible  Assets"
and is  required  to be applied  at the  beginning  of an  entity's
fiscal  year  to  all   goodwill   and  other   intangible   assets
recognized  in its financial  statements  at that date,  for fiscal
years  beginning  after  December 15, 2001.  It is not certain what
effect  SFAS No.  141 and SFAS  No.  142 may have  upon the pace of
business  combinations  in the banking  industry in general or upon
prospects  of any  merger  or  business  combination  opportunities
involving  the Company in the future.  The Company was  required to
adopt SFAS No. 142  beginning  January 1, 2002.  The  Company  does
not expect the  adoption of SFAS No. 142 to have a material  effect
on its financial  position,  results of  operations,  or cash flows
as the Company  had no goodwill as of December  31, 2001 and all of
the  Company's  intangible  assets  at 2001 have  finite  lives and
will continue to be amortized.

Other Matters

The  terrorist  actions on September 11, 2001 and  thereafter  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.


                                       44
<PAGE>




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 37.


ITEM  8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                           Page
                                                           ----
Independent Auditors' Report                                46

Consolidated Balance Sheets, December 31, 2001 and 2000     47

Consolidated Statements of Income for the years ended
   December 31, 2001, 2000 and 1999                         48

Consolidated Statements of Cash Flows for the years ended
   December 31, 2001, 2000 and 1999                         49

Consolidated Statements of Shareholders' Equity for the
   years ended December 31, 2001, 2000 and 1999             50

Notes to Consolidated Financial Statements               51-66

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.


                                       45
<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, 2001 and
2000,   and  the  related   consolidated   statements   of  income,
shareholders'  equity  and cash  flows for each of the three  years
in  the  period   ended   December  31,   2001.   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, 2001 and
2000,  and the  results  of their  operations  and their cash flows
for each of the three years in the period  ended  December 31, 2001
in conformity  with  accounting  principles  generally  accepted in
the United States of America.




San Francisco, California
January 24, 2002
(February 28, 2002 as to the stock split information in Note 1)

                                       46
<PAGE>


Consolidated Balance Sheets
Central Coast Bancorp and Subsidiary

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
December 31,                                                                     2001                   2000
-----------------------------------------------------------------------------------------------------------------
Assets
<S>                                                                          <C>                    <C>
  Cash and due from banks                                                    $ 55,245,000           $ 51,411,000
  Federal funds sold                                                                    -             23,081,000
-----------------------------------------------------------------------------------------------------------------
    Total cash and equivalents                                                 55,245,000             74,492,000

  Available-for-sale securities at fair value                                 137,153,000            152,276,000

  Loans:
    Commercial                                                                199,761,000            171,631,000
    Real estate-construction                                                   85,314,000             57,780,000
    Real estate-other                                                         306,622,000            234,890,000
    Consumer                                                                   15,653,000              9,840,000
    Deferred loan fees, net                                                    (1,050,000)              (746,000)
-----------------------------------------------------------------------------------------------------------------
    Total loans                                                               606,300,000            473,395,000
    Allowance for loan losses                                                 (11,753,000)            (9,371,000)
-----------------------------------------------------------------------------------------------------------------
  Net Loans                                                                   594,547,000            464,024,000
-----------------------------------------------------------------------------------------------------------------
  Premises and equipment, net                                                   2,962,000              3,735,000
  Accrued interest receivable and other assets                                 12,359,000             12,166,000
-----------------------------------------------------------------------------------------------------------------
Total assets                                                                $ 802,266,000          $ 706,693,000
=================================================================================================================
Liabilities and Shareholders' Equity
  Deposits:
    Demand, noninterest bearing                                             $ 231,501,000          $ 207,002,000
    Demand, interest bearing                                                  105,949,000             88,285,000
    Savings                                                                   122,861,000            110,204,000
    Time                                                                      264,551,000            227,719,000
-----------------------------------------------------------------------------------------------------------------
  Total deposits                                                              724,862,000            633,210,000
  Accrued interest payable and other liabilities                               12,068,000             13,629,000
-----------------------------------------------------------------------------------------------------------------
Total liabilities                                                             736,930,000            646,839,000
-----------------------------------------------------------------------------------------------------------------
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: 8,963,780 and 8,402,498 shares
    at December 31, 2001 and 2000                                              50,898,000             44,472,000
  Shares held in deferred compensation trust (299,048 shares in 2001
    and 271,862 shares in 2000), net of deferred obligation                             -                      -
  Retained earnings                                                            14,855,000             16,444,000
  Accumulated other comprehensive (loss), net of taxes of
    $297,000 in 2001 and $738,000 in 2000                                        (417,000)            (1,062,000)
-----------------------------------------------------------------------------------------------------------------
Total shareholders' equity                                                     65,336,000             59,854,000
-----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                  $ 802,266,000          $ 706,693,000
=================================================================================================================
See notes to Consolidated Financial Statements
</TABLE>

                                       47
<PAGE>

Consolidated Statements of Income
Central Coast Bancorp and Subsidiary
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Years Ended December 31,                              2001                 2000                   1999
-------------------------------------------------------------------------------------------------------------


<S>                                                 <C>                  <C>                    <C>
Interest Income
   Loans (including fees)                           $ 43,135,000         $ 41,405,000           $ 32,234,000
   Investment securities                               8,205,000            8,945,000              9,127,000
   Fed funds sold                                        407,000            1,065,000                156,000
-------------------------------------------------------------------------------------------------------------
       Total interest income                          51,747,000           51,415,000             41,517,000
-------------------------------------------------------------------------------------------------------------
Interest Expense
   Interest on deposits                               17,926,000           17,921,000             13,218,000
   Other                                                 434,000              369,000                430,000
-------------------------------------------------------------------------------------------------------------
       Total interest expense                         18,360,000           18,290,000             13,648,000
-------------------------------------------------------------------------------------------------------------
Net Interest Income                                   33,387,000           33,125,000             27,869,000
Provision for Loan Losses                             (2,635,000)          (3,983,000)            (1,484,000)
-------------------------------------------------------------------------------------------------------------
Net Interest Income after
   Provision for Loan Losses                          30,752,000           29,142,000             26,385,000
-------------------------------------------------------------------------------------------------------------

Noninterest Income
   Service charges on deposits                         1,924,000            1,749,000              1,348,000
   Other income                                        1,205,000              684,000                883,000
-------------------------------------------------------------------------------------------------------------
      Total noninterest income                         3,129,000            2,433,000              2,231,000
-------------------------------------------------------------------------------------------------------------

Noninterest Expenses
   Salaries and benefits                              11,619,000           10,081,000              9,116,000
   Occupancy                                           1,642,000            1,479,000              1,301,000
   Furniture and equipment                             1,833,000            1,702,000              1,338,000
   Other                                               4,129,000            4,146,000              4,288,000
-------------------------------------------------------------------------------------------------------------
     Total noninterest expenses                       19,223,000           17,408,000             16,043,000
-------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes              14,658,000           14,167,000             12,573,000
Provision for Income Taxes                             5,149,000            5,241,000              4,522,000
-------------------------------------------------------------------------------------------------------------
       Net Income                                    $ 9,509,000          $ 8,926,000            $ 8,051,000
=============================================================================================================

Basic Earnings per Share                             $      1.05          $      0.94            $      0.82
Diluted Earnings per Share                           $      1.01          $      0.91            $      0.80
=============================================================================================================
See Notes to Consolidated Financial Statements
</TABLE>

                                       48
<PAGE>

Consolidated Statements of Cash Flow
Central Coast Bancorp and Subsidiary
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Years ended December 31,                                                       2001              2000               1999
----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operations:
<S>                                                                        <C>               <C>                <C>
   Net income                                                              $ 9,509,000       $ 8,926,000        $ 8,051,000
   Reconciliation of net income to net cash provided
   by operating activities:
     Provision for loan losses                                               2,635,000         3,983,000          1,484,000
     Depreciation                                                            1,361,000         1,266,000            936,000
     Amortization and accretion                                                665,000             8,000            136,000
     Provision for deferred income taxes                                    (1,260,000)       (1,852,000)          (871,000)
     Loss (gain) on sale of securities                                        (168,000)          194,000            (45,000)
     Net loss on sale of equipment                                              23,000            19,000            126,000
     Gain on other real estate owned                                            (4,000)          (67,000)                 -
   Decrease (increase) in accrued interest receivable
    and other assets                                                           164,000         1,077,000         (2,241,000)
   Increase (decrease) in accrued interest
    payable and other liabilities                                           (2,420,000)        3,492,000          2,110,000
   Increase in deferred loan fees                                              304,000            25,000             47,000
----------------------------------------------------------------------------------------------------------------------------
       Net cash provided by operations                                      10,809,000        17,071,000          9,733,000
----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
   Proceeds from maturities of available-for-sale securities                46,672,000        70,751,000        100,042,000
   Proceeds from sale of available-for-sale securities                      77,962,000        19,806,000          5,988,000
   Purchase of available-for-sale securities                              (108,665,000)      (91,174,000)       (89,498,000)
   Net change in loans held for sale                                                 -                 -          6,168,000
   Net increase in loans                                                  (133,462,000)      (78,031,000)       (84,049,000)
   Proceeds from sale of other real estate owned                               199,000                 -            387,000
   Proceeds from sale of equipment                                                   -                 -             26,000
   Purchases of equipment                                                     (611,000)       (1,132,000)        (2,087,000)
----------------------------------------------------------------------------------------------------------------------------
       Net cash used in investing activities                              (117,905,000)      (79,780,000)       (63,023,000)
----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
   Net increase in deposit accounts                                         91,652,000       115,021,000         28,997,000
   Net increase (decrease) in other borrowings                                 935,000       (11,744,000)        16,950,000
   Cash received for stock options exercised                                   119,000            76,000          1,098,000
   Cahs paid for shares repurchased                                         (4,857,000)       (6,111,000)        (2,682,000)
----------------------------------------------------------------------------------------------------------------------------
       Net cash provided by financing activities                            87,849,000        97,242,000         44,363,000
----------------------------------------------------------------------------------------------------------------------------
  Net increase (decrease) in cash and equivalents                          (19,247,000)       34,533,000         (8,927,000)
Cash and equivalents, beginning of year                                     74,492,000        39,959,000         48,886,000
----------------------------------------------------------------------------------------------------------------------------
Cash and equivalents, end of year                                         $ 55,245,000      $ 74,492,000       $ 39,959,000
============================================================================================================================
Noncash Investing and Financing Activities:
The Company obtained $335,000 of real estate (OREO) in 1999 in connection with forclosures of delinquent loans
(none in 2001 or 2000).  In 2001, 2000 and 1999 stock option exercises and stock repurchases totaling  $84,000,
$20,000 and $666,000, 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                                                          $ 18,695,000      $ 17,121,000       $ 13,733,000
   Income taxes paid                                                         8,203,000         5,970,000          3,569,000
============================================================================================================================
See Notes to Consolidated Financial Statements
</TABLE>

                                       49
<PAGE>

Consolidated Statements of Shareholders' Equity
Central Coast Bancorp and Subsidiary

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                                                     Accumulated Other
Years Ended December 31,                     Common Stock               Retained       Comprehensive
2001, 2000 and 1999                      Shares         Amount          Earnings       Income (Loss)         Total
---------------------------------------------------------------------------------------------------------------------
<S>                                     <C>           <C>              <C>                <C>          <C>
 Balances, January 1, 1999               7,640,056     $ 41,103,000     $ 9,733,000        $ 363,000    $ 51,199,000
    Net income                                   -                -       8,051,000                -       8,051,000
    Changes in unrealized losses
       on securities available for sale,
       net of taxes of $3,502,000                -                -               -       (5,039,000)     (5,039,000)
    Reclassification adjustment for
       gains included in income,
       net of taxes of $19,000                   -                -               -          (26,000)        (26,000)
                                                                                                     ----------------
    Total comprehensive income                                                                             2,986,000
                                                                                                     ----------------
    Stock options and warrants
      exercised                            667,790        1,764,000               -                -       1,764,000
    Shares repurchased                    (257,525)      (3,348,000)              -                -      (3,348,000)
    Tax benefit of stock options
      exercised                                  -          704,000               -                -         704,000
---------------------------------------------------------------------------------------------------------------------
 Balances, December 31, 1999             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
       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 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
---------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
</TABLE>

                                       50
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Central Coast Bancorp and Subsidiary
Years ended December 31, 2001, 2000 and 1999

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  ten full service
branch  offices in Monterey,  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.

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, 2001 and 2000 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


                                       51
<PAGE>

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  $6,141,000  borrowed  from the
Federal  Home Loan Bank  collaterallized  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.   Note  9  to  the   Consolidated
Financial  Statements  contains 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
Statement of Financial  Accounting  Standards No. 123, "Accounting
for Stock-Based Compensation."

                                       52
<PAGE>

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.

Stock   split.   On  January  28,  2002  the  Board  of  Directors
declared a 5 for 4 stock split which was  distributed  on February
28,  2002,  to  shareholders  of record as of February  14,  2002.
All share and per share data  including  stock  option and warrant
information  have  been  retroactively  adjusted  to  reflect  the
stock split.

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.  In  June  2001,  the
Financial  Accounting  Standards Board ("FASB") issued Statement of
Financial   Accounting   Standards   (SFAS)  No.   141,   "Business
Combinations"    covering   elimination   of   pooling   accounting
treatment in business  combinations  and financial  accounting  and
reporting  for  acquired  goodwill and other  intangible  assets at
acquisition.   SFAS  No.   141  is   effective   for   transactions
initiated  after June 30,  2001.  Under SFAS No.  141,  all mergers
and business  combinations  initiated after the effective date must
be  accounted  for  as  "purchase"  transactions.  Goodwill  in any
merger or business  combination  which was not  initiated  prior to
the  effective   date  will  be  recognized  as  an  asset  in  the
financial  statements,  measured  as the  excess  of the cost of an
acquired   entity  over  the  net  of  the   amounts   assigned  to
identifiable  assets  acquired and  liabilities  assumed,  and then
tested  for  impairment  to  assess  losses  and  expensed  against
earnings  only in the  periods  in  which  the  recorded  value  of
goodwill  exceeded  its implied fair value.  The FASB  concurrently
issued  SFAS No. 142,  "Goodwill  and Other  Intangible  Assets" to
address  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  Company  is  required  to  adopt  SFAS  No.  142
beginning  January 1, 2002.  Early adoption is not  permitted.  The
Company  does not  expect  the  adoption  of SFAS No. 142 to have a
material effect on its financial  position,  results of operations,
or cash flows as the Company  had no  goodwill  as of December  31,
2001 and all of the  Company's  intangible  assets at December  31,
2001 have finite lives and will continue to be amortized.

                                       53
<PAGE>

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  $975,000 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, 2001 and 2000 consisted of the
following:

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------
                                         Amortized    Unrealized    Unrealized     Market
In thousands                                Cost         Gain          Loss        Value
---------------------------------------------------------------------------------------------
<S>                                         <C>              <C>           <C>      <C>
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
=============================================================================================
December 31, 2000
Available for sale securities:
U.S. Treasury and Agency Securities        $  85,589       $   169      $   631    $  85,127
State & Political Subdivision                 45,851            93        1,107       44,837
Corporate Debt Securities                     21,473             -          324       21,149
Other                                          1,163             -            -        1,163
---------------------------------------------------------------------------------------------
Total investment securities                $ 154,076       $   262      $ 2,062    $ 152,276
=============================================================================================
</TABLE>

The amortized  cost and estimated  fair value of debt  securities
at December  31,  2001,  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.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
                                                              Amortized           Market
In thousands                                                    Cost              Value
------------------------------------------------------------------------------------------
<S>                                                             <C>               <C>
Available for sale securities:
     Maturing within 1 year                                   $     103         $     103
     Maturing after 1 year but within 5 years                    50,545            51,046
     Maturing after 5 years but within 10 years                  41,093            41,049
     Maturing after 10 years                                     44,890            43,719
     Other                                                        1,236             1,236
------------------------------------------------------------------------------------------
Total investment securities                                   $ 137,867         $ 137,153
==========================================================================================
</TABLE>

At December  31, 2001 and 2000,  securities  with a market  value
of $120,472,000  and  $94,178,000  were pledged as collateral for
deposits  of public  funds and other  purposes as required by law
or contract.

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  unrealized  gains.  In 1999,  such sales resulted in gross
realized gains of $45,000 and no gross unrealized losses.

                                       54
<PAGE>

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  $453,000,000.  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  provisions for
losses   are   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.

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:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
In thousands                                            2001                     2000                   1999
-------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                      <C>                    <C>
   Balance, beginning of year                       $  9,371                  $ 5,596                $ 4,352
   Provision charged to expense                        2,635                    3,983                  1,484
   Loans charged off                                    (430)                    (392)                  (400)
   Recoveries                                            177                      184                    160
-------------------------------------------------------------------------------------------------------------
   Balance, end of year                             $ 11,753                  $ 9,371                $ 5,596
=============================================================================================================
</TABLE>


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.


                                       55
<PAGE>

Management   believes  that  the  allowance  for  loan  losses  at
December  31, 2001 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:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
In thousands                                                                2001                      2000
-----------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                       <C>
Past due 90 days or more and still accruing:
   Real estate                                                           $    68                   $    10
   Commercial                                                                  -                       215
   Consumer and other                                                         12                         5
-----------------------------------------------------------------------------------------------------------
                                                                              80                       230
-----------------------------------------------------------------------------------------------------------
Nonaccrual:
   Real estate                                                               592                         -
   Commercial                                                                702                       329
   Consumer and other                                                          -                         -
-----------------------------------------------------------------------------------------------------------
                                                                           1,294                       329
-----------------------------------------------------------------------------------------------------------
Restructured (in compliance with modified
   terms) - Commercial                                                       955                     1,010
-----------------------------------------------------------------------------------------------------------
Total nonperforming loans                                                $ 2,329                   $ 1,569
===========================================================================================================
</TABLE>


Interest  due but  excluded  from  interest  income on  nonaccrual
loans was  approximately  $45,000,  $64,000  and  $82,000 in 2001,
2000 and 1999  respectively.  In 2001 and  1999,  interest  income
recognized  from  payments   received  on  nonaccrual   loans  was
$69,000 and $21,000, respectively (none was recognized in 2000).

At December 31, 2001,  the recorded  investment  in loans that are
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.  At December 31, 2000,
the  recorded  investment  in loans that are  considered  impaired
was  $1,691,000  of which  $215,000  are  included  as  nonaccrual
loans above,  and  $1,010,000 are included as  restructured  loans
above.  Such  impaired  loans had valuation  allowances  totalling
$536,000 and $809,000,  in 2001 and 2000,  respectively,  based on
the  estimated  fair  values  of  the   collateral.   The  average
recorded  investment  in impaired  loans  during 2001 and 2000 was
$2,638,000 and $2,129,000,  respectively.  The Company  recognized
interest  income  on  impaired  loans of  $191,000,  $161,000  and
$92,000 in 2001, 2000 and 1999,  respectively  (including interest
income  of  $98,000  on  restructured  loans in 2001 and in 2000).
At  December  31,  2001,   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, 2001 or 2000.

Note 5. Premises and  equipment.  Premises and equipment  owned by
the Company at December 31 are summarized as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
In thousands                                                           2001               2000
-----------------------------------------------------------------------------------------------
<S>                                                                   <C>                <C>
Land                                                                $   121            $   121
Building                                                                265                260
Furniture and equipment                                               6,606              6,390
Leasehold improvement                                                 2,460              2,223
-----------------------------------------------------------------------------------------------
                                                                      9,452              8,994
Accumulated depreciation and amortization                            (6,490)            (5,259)
-----------------------------------------------------------------------------------------------
Premises and equipment, net                                         $ 2,962            $ 3,735
===============================================================================================
</TABLE>

                                       56
<PAGE>

The Company also leases  facilities  under  agreements that expire
in March  2003  through  October  2009 with  options to extend for
five to fifteen 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  $675,000,  $634,000  and  $565,000,  including
lease expense to shareholders  of $133,000,  $122,000 and $121,000
in 2001,  2000 and 1999  respectively.  The minimum  annual rental
commitments  under these leases,  including  the remaining  rental
commitment under the leases to shareholders are as follows:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
                                                                                   Operating
In thousands                                                                        Leases
---------------------------------------------------------------------------------------------

             <S>                                                                      <C>
              2002                                                                   $   708
              2003                                                                       642
              2004                                                                       593
              2005                                                                       480
              2006                                                                       480
        Thereafter                                                                       691
---------------------------------------------------------------------------------------------
Total                                                                                $ 3,594
=============================================================================================
</TABLE>

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

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
In thousands                             2001             2000              1999
-----------------------------------------------------------------------------------
<S>                                   <C>              <C>               <C>
   Current:
     Federal                          $ 4,577          $ 5,160           $ 3,863
     State                              1,832            1,933             1,530
-----------------------------------------------------------------------------------
     Total                              6,409            7,093             5,393
-----------------------------------------------------------------------------------
   Deferred:
     Federal                             (950)          (1,432)             (667)
     State                               (310)            (420)             (204)
-----------------------------------------------------------------------------------
     Total                             (1,260)          (1,852)             (871)
-----------------------------------------------------------------------------------
   Total                              $ 5,149          $ 5,241           $ 4,522
-----------------------------------------------------------------------------------
</TABLE>


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

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
                                                 2001            2000            1999
---------------------------------------------------------------------------------------
<S>                                              <C>             <C>             <C>
   Statutory Federal income tax rate             35.0%           35.0%           35.0%
   State income taxes (net of
     Federal income tax benefit)                  6.9%            7.1%            7.0%
   Tax exempt interest income                    (6.4%)          (5.0%)          (5.4%)
   Other                                         (0.4%)          (0.1%)          (0.6%)
---------------------------------------------------------------------------------------
   Effective tax rate                            35.1%           37.0%           36.0%
---------------------------------------------------------------------------------------
</TABLE>

                                       57
<PAGE>


The tax  effects  of  temporary  differences  that  give  rise to
significant  portions  of the  deferred  tax assets and  deferred
tax  liabilities  at December  31, 2001 and 2000,  are  presented
below:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
In thousands                                            2001                  2000
---------------------------------------------------------------------------------------
<S>                                                      <C>                   <C>
Deferred tax assets:
   Provision for loan losses                             $ 5,206               $ 4,053
   Unrealized loss on available for sale securities          297                   738
   Salary continuation plan                                  755                   618
   Depreciation and amortization                             209                   258
   State income taxes                                        127                   251
   Excess serving rights                                      12                    15
   Interest on nonaccrual loans                               20                    51
   Accrual to cash adjustments                                 -                     -
   Other                                                     202                    26
---------------------------------------------------------------------------------------
Net deferred tax asset                                   $ 6,828               $ 6,010
---------------------------------------------------------------------------------------
</TABLE>

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,  2001,  2000 and 1999  consists of the
following:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
In thousands                                  2001              2000                1999
---------------------------------------------------------------------------------------------
<S>                                             <C>                <C>                 <C>
   Customer expenses                          $   525            $   413             $   398
   Marketing                                      473                644                 475
   Professional fees                              457                430                 452
   Stationary and supplies                        372                377                 444
   Data processing                                272                314                 306
   Amortization of intangibles                    257                257                 257
   Shareholder and director                       229                253                 250
   Insurance                                      216                216                 180
   Dues and assessments                           177                179                 139
   Other                                        1,151              1,063               1,387
---------------------------------------------------------------------------------------------
Total                                         $ 4,129            $ 4,146             $ 4,288
---------------------------------------------------------------------------------------------
</TABLE>


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.  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.


                                       58
<PAGE>

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)                           2001      2000       1999
-------------------------------------------------------------------------------------------
<S>                                                           <C>       <C>        <C>
Basic Earnings Per Share
Net income                                                    $ 9,509   $ 8,926    $ 8,051
Weighted average common shares outstanding                      9,046     9,515      9,724
                                                             ------------------------------
   Basic earnings per share                                   $  1.05   $  0.94    $  0.82
===========================================================================================

Diluted Earnings Per Share
Net Income                                                    $ 9,509   $ 8,926    $ 8,051
Weighted average common shares outstanding                      9,046     9,515      9,724
Dilutive effect of outstanding options                            394       281        338
                                                             ------------------------------
   Weighted average common shares outstanding - Diluted         9,440     9,796     10,062
                                                             ------------------------------
   Diluted earnings per share                                 $  1.01   $  0.91    $  0.80
===========================================================================================
</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.  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 2001,  2000 and 1999 was  $4.95,  $4.22  and  $3.68 per
share,  respectively.  As of December  31, 2001,  1,433,399  shares
are available for future grants under the plans.

Activity under the stock option plans is as follows:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                                                                             Weighted
                                                                                             Average
                                                                                             Exercise
                                                                             Shares           Price
-------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                <C>
Balances, January 1, 1999                                                   1,443,341         $ 4.54
  1,125,990 exercisable at a weighted average exercise price of $3.70
     Granted                                                                   28,642          10.98
     Expired                                                                  (15,908)          6.50
     Exercised                                                               (608,217)          1.99
-------------------------------------------------------------------------------------------------------
Balances, December 31, 1999                                                   847,858           6.54
  743,713 exercisable at a weighted average exercise price of $6.05
     Granted                                                                  240,968          11.70
     Expired                                                                   (8,250)         11.64
     Exercised                                                                (17,871)          5.33
-------------------------------------------------------------------------------------------------------
Balances, December 31, 2000                                                 1,062,705           7.70
  784,113 exercisable at a weighted average exercise price of $6.34
     Granted                                                                    5,000          15.89
     Exercised                                                                (43,786)          4.65
-------------------------------------------------------------------------------------------------------
Balances, December 31, 2001                                                 1,023,919         $ 5.80
  852,027 exercisable at a weighted average exercise price of $7.09
-------------------------------------------------------------------------------------------------------
</TABLE>

                                       59
<PAGE>

Additional   information   regarding  options   outstanding  as  of
December 31, 2001 is as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                                  Options Outstanding                                 Options Exercisable
                                                  -------------------                                 -------------------
                                                    Weighted Average
                                                       Remaining           Weighted                                 Weighted
           Range of                 Number            Contractual           Average                Number           Average
        Exercise Prices           Outstanding         Life (years)       Exercise Price          Exercisable     Exercise Price
----------------------------------------------------------------------------------------------------------------------------------
<S>  <C>             <C>            <C>                   <C>               <C>                    <C>               <C>
     $ 3.12    -     5.32           227,240               3.5               $ 4.34                 227,240           $4.34
       6.49    -     6.90           422,061               4.9                 6.52                 422,061            6.52
      10.18    -    15.89           374,618               7.6                11.33                 202,726           11.35
----------------------------------------------------------------------------------------------------------------------------------
     $ 3.12    -    15.89         1,023,919               5.6               $ 7.79                 852,027           $7.09
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


Additional Stock Plan Information

As  discussed  in Note 1, the Company  continues to account 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.

Statement of Financial  Accounting  Standards  No. 123, "Accounting
for  Stock-Based  Compensation," (SFAS 123) 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
1995.  Under  SFAS 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  weighted average  assumptions for
2001:  expected life, four years following  vesting;  average stock
volatility of 15.6%;  risk free  interest  rates ranging from 4.14%
to  6.57%;   and  no  dividends   during  the  expected  term.  The
Company's  calculations  are based on a multiple  option  valuation
approach  and  forfeitures  are  recognized  as they occur.  If the
computed  fair  values of the 2001,  2000 and 1999  awards had been
amortized  to expense  over the vesting  period of the awards,  pro
forma net  income  would  have  been  $9,334,000  ($1.03  basic and
$0.99  diluted  earnings  per share),  $8,548,000  000 ($0.90 basic
and $0.87 diluted  earnings per share) and $7,939,000  ($0.82 basic
and $0.79  diluted  earnings  per  share)  in 2001,  2000 and 1999,
respectively.  The impact of outstanding  non-vested  stock options
granted  prior  to 1995  has  been  excluded  from  the  pro  forma
calculation;  accordingly,  the  2001,  2000  and  1999  pro  forma
adjustments   are  not   indicative  of  future  period  pro  forma
adjustments,  when the  calculation  will  apply to all  applicable
stock options.

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 2001,  2000 and
1999 which are funded currently,  totaled $129,000,  $114,000 and
$94,000, respectively.


                                       60
<PAGE>

Salary Continuation Plan

The  Company  has a salary  continuation  plan for  three  officers
which  provides for  retirement  benefits 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 $94,000,  $292,000 and  $256,000 in 2001,  2000 and 1999
respectively.   Accrued   compensation  payable  under  the  salary
continuation  plan totaled  $1,233,000  and  $1,140,000 at December
31, 2001 and 2000, respectively.

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  2001 and 2000 no shares  were  tendered
under  the  plan.  In  1999,  60,126  shares  with a fair  value of
approximately  $666,000  were  tendered  to  the  Company  using  a
"stock-for-stock"  exercise.  At December 31, 2001,  299,048 shares
(with a fair value of  approximately  $6,579,000)  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.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                                   December 31, 2001                            December 31, 2000
                                               Carrying        Estimated                    Carrying        Estimated
In thousands                                    Amount        Fair Value                     Amount        Fair Value
----------------------------------------------------------------------------------------------------------------------
<S>                                            <C>              <C>                         <C>              <C>
Financial Assets
Cash and equivalents                           $ 55,245         $ 55,245                    $ 74,492         $ 74,492
Securities                                      137,153          137,153                     152,276          152,276
Loans, net                                      594,547          598,475                     464,024          461,060

Financial Liabilities
Demand deposits                                 337,450          337,450                     295,287          295,287
Time Deposits                                   264,551          267,362                     227,719          228,724
Savings                                         122,861          122,861                     110,204          110,204
Other borrowings                                  6,141            6,141                       5,206            5,206
----------------------------------------------------------------------------------------------------------------------
</TABLE>



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

                                       61
<PAGE>

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, 2001 and 2000,  therefore,  have not
been included in the table above.

Note 11.  Commitments  and  Contingencies.  The Company is involved
in  a  number  of  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
$166,386,000  and  $149,839,000  at December  31, 2001 and 2000 and
standby  letters of credit and  financial  guarantees of $3,690,000
and  $4,634,000  at December  31, 2001 and 2000.  The Bank does not
anticipate any losses as a result of these commitments.

Approximately   $43,059,000  of  loan  commitments  outstanding  at
December  31, 2001 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.

                                       62
<PAGE>

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
collaterallized.

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, 2001 is as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
  Beginning Balance              Additions             Repayments           Ending Balance
------------------------------------------------------------------------------------------
<S>       <C>                   <C>                   <C>                     <C>
          $ 4,882,000           $ 14,101,000          $ 14,968,000            $ 4,015,000
------------------------------------------------------------------------------------------
</TABLE>


Committed lines of credit, undisbursed loans and standby letters
of credit to directors and officers were approximately $6,021,000
and $2,461,000 at December 31, 2001 and 2000.

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,  2001  that the  Company  meets all
capital adequacy requirements to which it is subject.

As of  December  31, 2001 and 2000,  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.

                                       63
<PAGE>


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, 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%
                                         -----------------------------------------------------------------------

As of December 31, 2000:
Total Capital (to Risk Weighted Assets):
   Company                                 $ 66,892,000     12.3%  $ 43,490,000     8.0%           N/A
   Community Bank                            63,866,000     11.8%    43,273,000     8.0%  $ 54,092,000    10.0%
Tier 1 Capital (to Risk Weighted Assets)
   Company                                   60,098,000     11.1%    21,745,000     4.0%           N/A
   Community Bank                            57,073,000     10.6%    21,637,000     4.0%    32,455,000     6.0%
Tier 1 Capital (to Risk Average Assets)
   Company                                   60,098,000      9.1%    26,344,000     4.0%           N/A
   Community Bank                            57,073,000      8.7%    26,251,000     4.0%    32,814,000     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
$9,003,000 as of December 31, 2001.

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
$5,716,000  at  December  31,  2001.  No such  advances  were  made
during 2001 or 2000.


                                       64
<PAGE>


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

<TABLE>
<CAPTION>
Condensed Balance Sheets
---------------------------------------------------------------------------------------------------
December 31,                                                         2001                     2000
---------------------------------------------------------------------------------------------------
<S>                                                              <C>                      <C>
Assets:
   Cash - interest bearing account with Bank                     $    997                 $  1,944
   Loans                                                            7,063                        -
   Investment in Bank                                              57,672                   56,823
   Premises and equipment, net                                      1,174                    1,730
   Other Assets                                                     1,149                    1,142
---------------------------------------------------------------------------------------------------
     Total assets                                                $ 68,055                 $ 61,639
===================================================================================================
Liabilities and Shareholders' Equity
   Liabilities                                                   $  2,719                 $  1,785
   Shareholders' Equity                                            65,336                   59,854
---------------------------------------------------------------------------------------------------
     Total liabilities and shareholders' equity                  $ 68,055                 $ 61,639
===================================================================================================
</TABLE>


<TABLE>
<CAPTION>
Condensed Income Statements
------------------------------------------------------------------------------------------------------
Years ended December 31,                                    2001               2000              1999
------------------------------------------------------------------------------------------------------
<S>                                                      <C>                <C>               <C>
   Management fees                                      $  9,888           $  8,700           $ 7,704
   Interest income                                           109                  -                 -
   Other income                                                3                  -                14
   Cash dividends received from the Bank                  10,500              7,000               500
------------------------------------------------------------------------------------------------------
     Total income                                         20,500             15,700             8,218
   Operating expenses                                      9,812              9,257             8,212
------------------------------------------------------------------------------------------------------
   Income before income taxes and equity
      in undistributed net income of Bank                 10,688              6,443                 6
   Provision (credit) for income taxes                        66               (206)             (206)
   Equity in undistributed
     net income of Bank                                   (1,113)             2,277             7,839
------------------------------------------------------------------------------------------------------
   Net income                                              9,509              8,926             8,051
   Other comprehensive income (loss)                         645              3,640            (5,065)
------------------------------------------------------------------------------------------------------
   Total comprehensive income                           $ 10,154           $ 12,566           $ 2,986
======================================================================================================
</TABLE>


                                       65
<PAGE>

<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
---------------------------------------------------------------------------------------------------
Years ended December 31,                                         2001           2000          1999
---------------------------------------------------------------------------------------------------
<S>                                                         <C>             <C>           <C>
Increase (decrease) in cash:
Operations:
   Net income                                                 $ 9,509        $ 8,926       $ 8,051
   Adjustments to reconcile net
     income to net cash provided
     by operations:
     Equity in undistributed
       net income of Bank                                       1,113         (2,277)       (7,839)
     Depreciation                                                 841            778           546
     Gain on sale of equipment                                     17              -           (10)
     (Increase) decrease in other assets                       (8,387)          (127)           31
     Increase in liabilities                                    1,000            380           285
---------------------------------------------------------------------------------------------------
     Net cash provided by operations                            4,093          7,680         1,064
---------------------------------------------------------------------------------------------------
Investing Activities:
   Proceeds from sale of equipment                                  -              -            18
   Purchases of equipment                                        (302)          (612)         (944)
---------------------------------------------------------------------------------------------------
     Net cash used by investing activities                       (302)          (612)         (926)
---------------------------------------------------------------------------------------------------
Financing Activities:
   Stock repurchases                                           (4,857)        (6,111)       (2,682)
   Stock options and warrants exercised                           119             94         1,098
---------------------------------------------------------------------------------------------------
     Net cash used by financing activities                     (4,738)        (6,017)       (1,584)
---------------------------------------------------------------------------------------------------
     Net increase (decrease) in cash                             (947)         1,051        (1,446)
   Cash balance, beginning of year                              1,944            893         2,339
---------------------------------------------------------------------------------------------------
   Cash balance, end of year                                  $   997        $ 1,944       $   893
===================================================================================================
</TABLE>


<TABLE>
<CAPTION>

Note 15. Selected Quarterly Information (unaudited)
----------------------------------------------------------------------------------------------------------
In thousands (except per share data)
                                               2001                                  2000
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 revenue               $ 12,331  $ 13,052 $ 12,944 $ 13,420   $ 13,656 $ 13,576 $ 12,618 $ 11,565
Interest expense                  3,930     4,681    4,823    4,926      4,890    4,901    4,437    4,062
                               ---------------------------------------------------------------------------
Net interest revenue              8,401     8,371    8,121    8,494      8,766    8,675    8,181    7,503
Provision for loan losses         1,680       760       75      120      1,127    1,530      800      526
                               ---------------------------------------------------------------------------
Net interest revenue after
  provision for loan losses       6,721     7,611    8,046    8,374      7,639    7,145    7,381    6,977
Total noninterest revenues          777       927      775      650        584      672      631      546
Total noninterest expenses        4,759     4,749    4,776    4,939      4,654    4,298    4,336    4,120
                               ---------------------------------------------------------------------------
Income before taxes               2,739     3,789    4,045    4,085      3,569    3,519    3,676    3,403
Income taxes                        680     1,421    1,522    1,526      1,215    1,266    1,433    1,327
                               ---------------------------------------------------------------------------
Net income                     $  2,059  $  2,368 $  2,523 $  2,559   $  2,354 $  2,253 $  2,243 $  2,076
                               ===========================================================================
Per common share:
   Basic earnings per share    $   0.23  $   0.26 $   0.28 $   0.28   $   0.26 $   0.24 $   0.23 $   0.21
   Dilutive earnings per share     0.23      0.26     0.26     0.26       0.25     0.23     0.22     0.21
----------------------------------------------------------------------------------------------------------
The principal market on which the company's common stock is traded is Nasdaq.
</TABLE>


                                       66
<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  2002  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 2002 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 2002 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 2002 Annual  Meeting of  Shareholders  which will
be filed pursuant to Regulation 14A.


                                       67
<PAGE>


             PART IV


ITEM 14.  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.

               (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) 1982    Stock   Option   Plan,   as   amended,
                     incorporated  by reference from Exhibit 4.2 to
                     Registration   Statement   on   Form  S-8, No.
                     33-89948, filed with the Commission  on  March
                     3, 1995.

             *(10.5) Form of  Nonstatutory  Stock Option  Agreement
                     under the 1982 Stock Option Plan  incorporated
                     by reference from Exhibit 4.6 to  Registration
                     Statement  on Form S-8,  No.  33-89948,  filed
                     with the Commission on March 3, 1995.

                                       68
<PAGE>

             *(10.6) Form  of  Incentive  Stock  Option   Agreement
                     under the 1982 Stock Option Plan  incorporated
                     by reference from Exhibit 4.7 to  Registration
                     Statement  on Form S-8,  No.  33-89948,  filed
                     with the Commission on March 3, 1995.

             *(10.7) 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.

             *(10.8) 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 March 3, 1995.

             *(10.9) 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 March 3, 1995.

            *(10.10) 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 March
                     3, 1995.

            *(10.11) 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.

            *(10.12) 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.

            *(10.13) Form of 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.

            *(10.14) 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.

            *(10.15) 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.

                                       69
<PAGE>

             (10.16) 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.

             (10.17) Lease  agreement   dated  November  27,  2001,
                     related  to  491  Tres Pinos Road , Hollister,
                     California.

             (10.18) Lease   agreement   dated  February  11, 2002,
                     related   to   761   First   Street,   Gilroy,
                     California.

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

              (23.1) Independent Auditors' Consent

               *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  29,  2002,
           reporting  a  press   release  dated  January  24,  2001
           regarding  the  Company's   operating  results  for  the
           quarter and year ended  December 31, 2001,  and a second
           report  on Form 8-K was  filed  with the  Commission  on
           February  6,  2002,  reporting  a  press  release  dated
           January 28, 2002  regarding the Company's  five-for-four
           stock split declared on January 28, 2002.

      An Annual Report for the fiscal year ended December 31, 2001,
and Notice of Annual Meeting and Proxy Statement for  the Company's
2002 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.


                                       70
<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 25, 2002      By:/s/ NICK VENTIMIGLIA
                             -------------------------------
                             Nick Ventimiglia, President and
                             Chief Executive Officer
                             (Principal Executive Officer)


Date: March 25, 2002     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                  3/25/02
------------------------
(C. Edward Boutonnet)

/s/ BRADFORD G. CRANDALL       Director                  3/25/02
------------------------
(Bradford G. Crandall)

                               Director                  3/25/02
------------------------
(Alfred P. Glover)

                               Director                  3/25/02
------------------------
(Michael T. Lapsys)

/s/ ROBERT M. MRAULE           Director                  3/25/02
------------------------
(Robert M. Mraule)

                               Director                  3/25/02
------------------------
(Duncan L. McCarter)

/s/ LOUIS A. SOUZA             Director                  3/25/02
------------------------
(Louis A. Souza)

                               Director                  3/25/02
------------------------
(Mose E. Thomas)

/s/ NICK VENTIMIGLIA          Chairman, President        3/25/02
------------------------      and CEO
(Nick Ventimiglia)

                                       71
<PAGE>



                         EXHIBIT INDEX
                         -------------


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

 3.1       Articles of Incorporation, as amended                    73

10.17      Lease agreement dated November 27, 2001, related to      81
           491 Tres Pinos Road , Hollister, California

10.18      Lease agreement dated February 11, 2002, related to     158
           761 First Street, Gilroy, California

23.1       Independent auditors' consent.                          200





                                       72