|UNITED STATESSECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549   FORM 10-K  (Mark one)
|----------------------------------------------------------------------------------------------

|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|- |  | ----------------------------------------------------

| |  | SECURITIES AND EXCHANGE ACT OF 1934
| |  | -----------------------------------




| |  | For the Year endedDecember 31, 2003
| |  | -----------------------------------




| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|- |  | --------------------------------------------------------

| |  | SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
| |  | -------------------------------------------------




| |  | For the transition period
from    to  .
| |  | ---------------------------------------

|Commission file number  0-25418   CENTRAL COAST BANCORP (Exact name of registrant as specified in its charter)
|--------------------------------------------------------------------------------------------------------------

|California                                                     |  | 77-0367061                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of Incorporation or organization) |  | (I.R.S. Employer Identification No.)

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

|(831) 422-6642(Registrants telephone number, including area code)
Secuties registered pursuant to Section 12(b) of the Act:   NoneSecutities registered pursant to Section 12(g) of the Act:Title of each classCommon 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. YesxNo ̈  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 [ ].

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes   x  No ̈The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrants most recently completed second fiscal
quarter was $166,343,844. As of February 27, 2004, the registrant had
10,894,104 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 14 from registrants definitive proxy statement for the
2003 annual meeting of shareholders.
The Index to Exhibits is located at page 84                                                          Page 1 of 104 Pages  
















CENTRAL
COAST BANCORPINDEX TOANNUAL
REPORT ON FORM 10-KFOR
YEAR ENDED DECEMBER 31, 2003
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|           |       |                                                                                                                                
|---------- | ----- | -------------------------------------------------------------------------------------------------------------------------------
|Part I     |       |                                                                                                                                
|Item 1     |       | Business                                                                                                                       
|Item 2     |       | Properties                                                                                                                     
|Item 3     |       | Legal Proceedings                                                                                                              
|Item 4     |       | Submission of Matters to a Vote of Security Holders                                                                            
|Part II    |      
|Item 5     |       | Market for the Registrant's Common Equity and Related Stockholder Matters                                                      
|Item 6     |       | Selected Financial Data                                                                                                        
|Item 7     |       | Management's Discussion and Analysis of Financial Condition and Results of Operation                                           
|Item 7A    |       | Quantitative and Qualitative Disclosures About Market Risk                                                                     
|Item 8     |       | Financial Statements and Supplementary Data                                                                                    
|Item 9     |       | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                                           
|Item 9A    |       | Controls and Procedures                                                                                                        
|Part III   |      
|Item 10    |       | Directors and Executive Officers of the Registrant                                                                             
|Item 11    |       | Executive Compensation                                                                                                         
|Item 12    |       | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                                 
|Item 13    |       | Certain Relationships and Related Transactions                                                                                 
|Item 14    |       | Principal Accountant Fees and Services                                                                                         
|Part IV    |      
|Item 15    |       | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                                                               
|Signatures |       |                                                                                                                                
|Exhibit    | Index |                                                                                                                                
|3.2        |       | Bylaws, as amended                                                                                                             
|14.1       |       | Code of Ethics                                                                                                                 
|23.1       |       | Independent Auditors' Consent                                                                                                  
|31.1       |       | Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                            
|31.2       |       | Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                        
|32.1       |       | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

---

|PART
I




ITEM
1. BUSINESS

General Development of Business.



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


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


During
1997 and 1998, branch offices in Gonzales and Castroville were acquired and
branch offices in New Monterey and Salinas were opened. 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 April 2002, the Bank opened a new branch
in Gilroy, which is located at the southern end of the Santa Clara Valley in
Santa Clara County. These three communities are of similar economic make-up to
the agricultural based communities the Bank serves in Monterey County.


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


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


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


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


The
Bank concentrates its lending activities in four principal areas: commercial
loans (including agricultural loans); consumer loans; real estate construction
loans (both commercial and personal) and real estate-other loans. At December
31, 2003, these four categories accounted for approximately 30%, 2%, 6% and 62%
of the Banks loan portfolio, respectively.


The
Banks deposits are attracted primarily from individuals, merchants, small
and medium-sized businesses, professionals and agribusiness enterprises. The
Banks deposits are not received from a single depositor or group of
affiliated depositors the loss of any one of which would have a materially
adverse effect on the business of the Bank. Approximately 52% of the deposits
are from commercial customers, 43% are from individuals and 5% are from
governmental entities and local agencies.


As of
December 31, 2003, the Bank served a total of 31 state, municipality and
governmental agency depositors with $50,083,000 in deposits. 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, 2003, the Bank had total deposits of $938,110,000. Of this total,
$321,980,000 represented noninterest-bearing demand deposits, $113,215,000
represented interest-bearing demand deposits, and $502,915,000 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 investment 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, 2003, these sources comprised 89.3%, 10.1%, and 0.6%,
respectively, of the Banks total interest income.



Supervision and Regulation


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


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


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


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


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


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


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


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


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


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


At
December 31, 2003, the Bank and the Company are in compliance with the
risk-based capital and leverage ratios described above. See Footnote 13 to the
Consolidated Financial Statements in Item 8 Financial Statements and
Supplementary Data below for a listing of the Companys and the
Banks risk-based capital ratios at December 31, 2003 and 2002.


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


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


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


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


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


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


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


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


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



Competition


At
June 30, 2003, the competing commercial and savings banks had 74 branch offices
in the cities of Castroville, Hollister, Gilroy, Gonzales, King City, Marina,
Monterey, Salinas, Seaside and Watsonville where the Bank has its twelve branch
offices. Additionally, the Bank competes with thrifts and, to a lesser extent,
credit unions, finance companies and other financial service providers for
deposit and loan customers.


Larger
banks may have a competitive advantage because of higher lending limits and
major advertising and marketing campaigns. They also perform services, such as
trust services, international banking, discount brokerage and insurance
services, which the Bank is not authorized nor prepared to offer currently. The
Bank has made arrangements with its correspondent banks and with others to
provide some of these services for its customers. For borrowers requiring loans
in excess of the Banks legal lending limits, the Bank has offered, and
intends to offer in the future, such loans on a participating basis with its
correspondent banks and with other independent banks, retaining the portion of
such loans which is within its lending limits. As of December 31, 2003, the
Banks aggregate legal lending limits to a single borrower and such
borrowers related parties were $14,914,000 on an unsecured basis and
$24,857,000 on a fully secured basis based on regulatory capital and reserves of
$99,427,000


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


Based
upon data as of the most recent practicable date (June 30, 20031),
there were 74 operating commercial and savings bank branch offices in Monterey
County with total deposits of $5,201,057,000. This was an increase of
$370,284,000 over the June 30, 2002 balances. The Bank held a total of
$794,039,000 in deposits, representing approximately 15.3% of total commercial
and savings banks deposits in Monterey County as of June 30, 2003. In the three
market expansion areas outside of Monterey County, in the Cities of Gilroy,
Hollister and Watsonville, at June 30, 2003, there were 9, 8 and 11 branch
offices with total deposits of $519,265,000, $561,085,000 and $832,436,000,
respectively. At that date, the Bank had deposits of $14,701,000, $34,242,000
and $14,544,000 in those three communities.


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


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


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


_________________

1
"FDIC Institution Office Deposits", June 30, 2003






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
Funds rate went from 6.50% at the beginning of the year to 1.75% at the end of
the year. Such significant rate changes were not anticipated and they adversely
impacted the Banks net interest income. In November of 2002, the Federal
Funds rate was lowered again by 50 basis points to 1.25% and in June 2003
another 25 basis points to 1.00%. These rate changes adversely affected the
Banks net interest income for 2001, 2002 and 2003. Barring any further
rate reductions interest margins are expected to remain relatively constant in
2004.


The
FDICs bank deposit insurance assessment rates currently range from $0 to
$0.27 per $100 of deposits, dependent upon a banks risk. Based upon the
above risk-based assessment rate schedule, the Banks current capital
ratios and the Banks current levels of deposits, the Bank anticipates no
change in the assessment rate applicable to the Bank during 2004 from that in
2003.


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


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


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


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


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


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


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


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


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


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


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


On
July 30, 2002, President George W. Bush signed into law the Sarbanes-Oxley Act
of 2002 (the Act), which responds to recent issues in corporate
governance and accountability. Among other matters, key provisions of the Act
and rules promulgated by the Securities and Exchange Commission pursuant to the
Act include the following:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------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| | -
Expanded oversight of the accounting profession by creating a new independent public
company oversight board to be monitored by the SEC.
| | ------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

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

| | o
Compliance with applicable governmental laws, rules and regulations;
| | ----------------------------------------------------------------------

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

| | o
Accountability for adherence to the code.
| | -------------------------------------------

| | -
Disclosure of whether a companys audit committee of its board of directors  has a
member of the audit committee who qualifies as an audit committee  financial expert. The
disclosure obligation became effective for fiscal  years ending on or after July 15,
2003. To qualify as an audit committee  financial expert, a person must have:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

| | o
An understanding of audit committee functions.
| | ------------------------------------------------

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

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

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

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

| | o
Other relevant experience.
| | ----------------------------

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


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


- Disclosure of off-balance sheet transactions.



- A prohibition
on certain loans to directors and officers.


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


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


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


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


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


-
Rules requiring national securities exchanges and national securities
associations to prohibit the listing of any security whose issuer does not meet
audit committee standards established pursuant to the Act including:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o                 Independence standards for members;
| | -----------------------------------------------------

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

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

| | o
Authority to engage advisers; and
| | -----------------------------------

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

|On
November 4, 2003, the Securities and Exchange Commission adopted changes to the
standards for the listing of issuer securities by the New York Stock Exchange
and Nasdaq Stock Market. The revised standards for listing conform to and
supplement Rule 10A-3 under the Securities Exchange Act of 1934, as amended,
which the Securities and Exchange Commission adopted in April 2003 pursuant to
the Act.


The
Companys securities are listed on the Nasdaq Stock Market. Consequently,
in addition to the rules promulgated by the Securities and Exchange Commission
pursuant to the Act, the Company must also comply with revised listing standards
applicable to Nasdaq listed companies. Generally, listed companies must comply
with the revised listing standards by the first annual meeting of shareholders
following January 15, 2004. The revised Nasdaq listing standards applicable to
the Company include the following:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | -
A  majority of directors of a listed company must be independent, which
excludes:
| | -------------------------------------------------------------------------------------

| | o
Any director who is, or at any time in the past three years was, employed by a listed
company, its parent or a subsidiary;
| | ----------------------------------------------------------------------------------------------------------------------------

| | o
Any  director or any family member who received payments in excess of $60,000 in the
current year or prior three years from a listed company, its parent or a  subsidiary;
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o
Any  director whose family member is employed or during the last three years was
employed as an executive officer of a listed company, its parent or a  subsidiary;
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o
Any director or any family member who is a partner, controlling shareholder or  executive
officer of an organization to which a listed company made payments or  from which a
listed company received payments, for services or property, in the  current year or prior
three years in excess of the greater of $200,000 or 5% of  the recipients
consolidated gross revenues in the year of payment;
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o
Any  director or any family member who is employed as an executive officer of another
organization where during the current year or prior three years an executive  officer of
a listed company served on the compensation committee of such  organization; and
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o
Any  director or any family member who is a partner of the outside auditor of a  listed
company or was a partner or employee of the listed companys auditor  and worked on
the companys audit in the prior three years.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | -
Independent directors of a listed company must meet alone in executive sessions  at least
two times annually.
| | ---------------------------------------------------------------------------------------------------------------

| | -
Listed companies must certify adoption of a resolution or written charter  dealing with
nominations of directors and select nominees for election as  directors either by
determination of a majority of independent directors or by a  nominating committee
consisting solely of independent directors, with certain  exceptions.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | -
Compensation of a listed companys chief executive officer must be  determined
either by a majority of independent directors or by a compensation  committee consisting
solely of independent directors, with certain exceptions.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | -
The  audit committee of a listed company, subject to certain exceptions, must comply
with requirements that include:
| | ----------------------------------------------------------------------------------------------------------------------

| | o
The  committee be comprised of at least three independent directors who have not
participated in the preparation of financial statements for the company, its  parent or
subsidiaries during the last three years;
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o
Each director must be able to read and understand financial statements;
| | -------------------------------------------------------------------------

| | o
At least one director must meet the "financial sophistication" criteria which
the company must certify;
| | ---------------------------------------------------------------------------------------------------------

| | o
The committee must adopt a written charter; and
| | -------------------------------------------------

| | o
The  committee is responsible for the review and approval of all related-party
transactions, except those approved by another board committee comprised of  independent
directors.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | -
The  adoption or amendment of any equity compensation arrangement after June 30,  2003,
such as a stock option plan, requires shareholder approval, subject to  certain
exemptions.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | -
A code of conduct must be adopted by May 4, 2004 that (i) complies with the code  of
ethics requirements of the Act; (ii) covers all directors, officers and  employees; (iii)
includes an enforcement mechanism; and (iv) permits only the  board of directors to grant
waivers from or changes to the code of conduct  affecting directors and executive
officers and requires prompt disclosure  thereof on a Form 8-K filing with the Securities
and Exchange Commission.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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


The
California Corporate Disclosure Act (the CCD Act) became effective
January 1, 2003. The CCD Act requires publicly traded corporations incorporated
or qualified to do business in California to disclose information about their
past history, auditors, directors and officers. The CCD Act requires the Company
to disclose:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

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


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


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


As of
December 31, 2003, the Company employed 255 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.



Website Access


Information
on the Company and its subsidiary Bank may be obtained from the Companys
website www.community-bnk.com. Copies of the Companys annual report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
all amendments thereto are available free of charge on the website as soon as
they are published by the SEC through a link to the Edgar reporting system
maintained by the SEC. Simply select the Central Coast Bancorp menu
item, then click on Corporate Profile and select Central Coast
Bancorp SEC Filings or Central Coast Bancorp SEC Section 16
Reports link.



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 twelve banking offices.
Owned and leased facilities are listed below.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                   | 
|---------------------------------- | 
|301 Main Street                    | 
|Salinas, California                | 
|23,625 square feet                 | 
|Leased - (term expires 2007        | 
|with two 7 1/2 yr renewal options) | 
|Current month rent of $22,262      | 
|                                  
|10601 Merritt Street               | 
|Castroville, California            | 
|2,500 square feet                  | 
|Owned                              | 
|                                   | 
|                                   | 
|                                  
|400 Alta Street                    | 
|Gonzales, California               | 
|5,165 square feet                  | 
|Leased - (term expires 2008        | 
|with two 5 yr renewal options)     | 
|Current month rent of $5,005       | 
|                                  
|532 Broadway                       | 
|King City, California              | 
|4,000 square feet                  | 
|Leased - (term expires 2009        | 
|with two 5 yr renewal options)     | 
|Current month rent of $5,316       | 
|                                  
|1285 North Davis Road              | 
|Salinas, California                | 
|3,200 square feet                  | 
|Leased - (term expires 2008        | 
|with two 5 yr renewal options)     | 
|Current month rent of $7,728       | 
|                                  
|761 First Street                   | 
|Gilroy, California                 | 
|2,670 square feet                  | 
|Leased - (term expires 2007        | 
|with one 5 yr renewal option)      | 
|Current month rent of $5,207       | 
|                                  
|Salinas, California                | 
|5,500 square feet                  | 
|Leased (term expires 2007          | 
|with one five year renewal option) | 
|Current monthly rent of $6,050     | 

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



ITEM
3. LEGAL PROCEEDINGS


As
previously reported in the Registrants filings on Forms 8-K filed with the
Securities and Exchange Commission on April 11, 2003, June 12, 2003, October 9,
2003 and November 26, 2003, and Form 10-Q for the quarterly periods ended June
30, 2003 and September 30, 2003, filed with the Securities and Exchange
Commission on August 13, 2003 and November 12, 2003, respectively, in April
2003, the Bank was served with an Application for a Writ of Mandate by the City
of King which sought the return from the Bank of an approximate $4.4 million
certificate of deposit assigned to the Bank as collateral security for an
approximate $4.4 million loan made by the Bank to a private real estate
developer (a limited liability company). The loan to the developer was made in
conjunction with a redevelopment project with the City of King and/or its
Community Development Agency. The City of King alleged the certificate of
deposit was general fund monies it deposited with the Bank and was not intended
as a pledge for a loan. The certificate of deposit matured on March 30, 2003 and
the $4.4 million loan became due on April 3, 2003. The Bank advised the City of
King of its intention to apply the proceeds of the certificate of deposit to
payment of the loan. Another loan made by the Bank to the developer of this
project is secured by a first deed of trust on the project in the approximate
amount of $4.6 million. A notice of default on this loan was filed on April 21,
2003. Because the loans were not paid on the due dates, the Bank considers the
loans impaired under applicable accounting standards. The aggregate amount of
the two loans currently outstanding and past due in respect of this
redevelopment project is approximately $9.0 million.


On
June 11, 2003, a hearing on the Application for Writ of Mandate by the City of
King was held in the Monterey County Superior Court. At the hearing, the
Superior Court Judge made a preliminary ruling that there was insufficient
evidence of a legislative act by the City of King and that the Mayor of the City
of King therefore lacked authority to pledge or assign the certificate of
deposit to the Bank.


On
September 15, 2003, the Monterey County Superior Court issued a Judgment
confirming its preliminary ruling in the Writ of Mandate proceeding which was
held on June 11, 2003. The Judgment ordered that a Peremptory Writ of Mandate
issue requiring the Bank to return to the City of King the principal balance of
the Certificate of Deposit in the approximate amount of $4.4 million dollars
together with interest accrued at the rate of 6% per annum from March 1, 2003
through the date of the Judgment.


On
September 30, 2003, Bank counsel filed pleadings requesting, among other
matters, to stay enforcement of the Judgment pending a motion for new trial and
to vacate and set aside the Judgment, Statement of Decision contained therein,
and the Writ of Mandate, or to stay enforcement thereof pending the Banks
appeal of the Judgment.


On
November 14, 2003, a hearing was held in the Monterey County Superior Court, to
consider post-judgment motions filed by the Bank in the Banks dispute with
the City of King related to a Certificate of Deposit in the approximate amount
of $4.4 million dollars. At the hearing, among other matters, the Banks
motion for a new trial was denied by the Court. The Bank therefore filed an
appeal on November 17, 2003 with the Sixth District Court of Appeal, regarding
the Judgment issued on September 15, 2003 by the Monterey County Superior Court
as described in greater detail below.


On
November 21, 2003, the Bank and the City of King entered into a Stipulation to
stay the Judgment pending appeal which included in its provisions an agreement
to permit the Bank to retain the Certificate of Deposit during the appeal
process and prior to a final determination, subject, however, to the payment by
the Bank to the City of King of interest thereon at the rate of six percent (6%)
per annum at specified times. The Banks payment of interest and the
Citys acceptance of interest payments, as well as the stipulations of the
parties, does not prejudice the Banks right to contest the obligation to
pay interest and recover amounts paid pursuant to the Stipulation or the
Citys right to contend that it is entitled to recover post-judgment
interest at the higher legal rate of ten percent (10%) per annum.


As
stated above, the Bank has filed an appeal of the Judgment. If the Judgment
remains in effect despite the appeal by the Bank and therefore becomes final,
the Bank could sustain the loss of the certificate of deposit as collateral
security for the loan. In such event, the entire amount of approximately $4.4
million as specified in the Judgment would likely become a charge to the
Banks allowance for loan losses because the nature and extent of other
sources of recovery available to the Bank are uncertain at present.


In
addition to the foregoing, the Bank filed an appeal on January 18, 2004, to
reverse an order issued by the Court on December 16, 2003, requiring the Bank to
pay the attorneys fees and costs incurred by the City of King in
connection with the litigation.


The
outcome of this dispute continues to be uncertain at the present time; however,
the Bank intends to vigorously defend its rights in respect of the certificate
of deposit on appeal of the Judgment.


Except
as disclosed above, there are no material pending legal proceedings, other than
ordinary routine litigation incidental to the Companys business, to which
the Company or the Bank is a party or as to which any of their property is
subject.



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 2003.


PART II



ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES



Market
Information

The
Company's common stock is listed on the Nasdaq National Market exchange  (trading symbol:
CCBN). The table below presents the range of high and low prices for the common stock for
the two most recent fiscal  years based on information provided to the Company from
Nasdaq.  The prices have been restated to reflect the 10% stock dividends in February
2004 and 2003.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Calendar Year  | High | Low         
|-------------- | ---- | ------------
|              
|2003           |      |             
|First Quarter  |      | $         14
|Second Quarter |      | 14          
|Third Quarter  |      | 14          
|Fourth Quarter |      | 15          
|              
|2002           |      |             
|First Quarter  |      | $         13
|Second Quarter |      | 13          
|Third Quarter  |      | 14          
|Fourth Quarter |      | 14          
|               |     

|The
closing price for the Companys common stock was $17.73 as of February
27, 2004.



Holders


As of
February 27, 2004, there were approximately 2,300 holders of the common
stock of the Company. There are no other classes of common equity outstanding.



Dividends


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


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


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


Under
these provisions and considering minimum regulatory capital requirements, the
amount available for distribution from the Bank to the Company was approximately
$20,818,000 as of December 31, 2003.


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 ten
percent stock dividends in February 2004 and 2003, and a five-for-four stock
split in February 2002. 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.



Stock
Repurchases


There
were no stock repurchases during the fourth quarter of 2003. Since October of
1998 and through December 31, 2003, the Board of Directors of the Company has
authorized three separate plans to repurchase up to 5% (in each plan) of the
outstanding shares of the Companys common stock. Purchases are made from
time to time, in the open market and are subject to appropriate regulatory and
other accounting requirements. The following common share amounts and average
prices paid have been adjusted to give effect to all stock dividends and splits
through February 27, 2004. In 2003 and 2002, the Company did not acquire any
shares of its common stock. The Company acquired 379,236 shares of its common
stock in the open market during 2001 at an average price of approximately
$12.65, as adjusted for subsequent stock splits and stock dividends. The Company
completed repurchases under the first and second plans in May 2000 and April
2001, respectively. At December 31, 2003, there were 338,683 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.



ITEM 
6. SELECTED FINANCIAL DATA


The
following table presents selected consolidated financial data concerning the
business of the Company and its subsidiary Bank. This information should be read
in conjunction with the Consolidated Financial Statements, the notes thereto,
and Managements Discussion and Analysis included in this report. The
earnings per share information has been adjusted retroactively to reflect the
effect of all stock dividends and stock splits.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       | As of and for the Year Ended December 31
|-------------------------------------- | ----------------------------------------
|
|Operating Results                      |                                         
|Total Interest Income                  |                                         
|Total Interest Expense                 |                                         
|                                      
|Net Interest Income                    |                                         
|Provision for Loan Losses              |                                         
|                                      
|Net Interest Income After              |                                         
|Provision for Loan Losses              |                                         
|Noninterest Income                     |                                         
|Noninterest Expenses                   |                                         
|                                      
|Income before Provision for Income     |                                         
|Taxes                                  |                                         
|Provision for Income Taxes             |                                         
|                                      
|Net Income                             |                                         
|                                      
|Basic Earnings Per Share               |                                         
|Diluted Earnings Per Share             |                                         
|                                      
|Financial Condition and                |                                         
|Capital - Year-End Balances            |                                         
|Total Loans                            |                                         
|Total Assets                           |                                         
|Total Deposits                         |                                         
|Shareholders' Equity                   |                                         
|                                      
|Financial Condition and                |                                         
|Capital - Average Balances             |                                         
|Total Loans                            |                                         
|Total Assets                           |                                         
|Total Deposits                         |                                         
|Shareholders' Equity                   |                                         
|                                      
|Selected Financial Ratios              |                                         
|Return on Average Total Assets         |                                         
|Return on Average Shareholders' Equity |                                         
|Average Shareholders' Equity           |                                         
|To Total Average Assets                |                                         
|                                      

|(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, 2003 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, 2003 and 2002 is set
forth in Note 3 to the Consolidated Financial Statements included in Item 8
 Financial Statements and Supplementary Data  included in
this report and is incorporated here by reference.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | The book value, maturities and weighted average yields of investment securities
as of December 31, 2003 are set forth in Table Fourteen in Item 7. 
Managements Discussion and Analysis included in this
report and is incorporated here by reference.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(c) | Loan Portfolio
|--- | --------------

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

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

|(3) |  | Nonperforming Loans
|--- |  | -------------------

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

| | A
loan is considered to be impaired when it is probable that the borrower will be  unable
to pay all of the amounts due according to the contractual terms of the  loan agreement.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For
further discussion of nonperforming loans, refer to Table Four and the  Risk
Elements section in Item 7.  Managements  Discussion and Analysis in
this report.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Summary
of Loan Loss Experience
|--- | -------------------------------

|(1) |  | An analysis of the allowance for loan losses showing charged off and recovery
activity as of December 31, 2003 is summarized in Table Five in Item 7 
Managements Discussion and Analysis included in this report
and is incorporated here by reference. Factors used in determination of the
allowance for loan losses are discussed in greater detail in the Risk
Elements section in Item 7  Managements Discussion and
Analysis included in this report and are incorporated here by reference.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | For
further discussion, refer to Table Six in Item 7.  Managements
Discussion and Analysis in this report.
| | --------------------------------------------------------------------------------------------------------------

|(e) | Deposits
|--- | --------

|(1) |  | Table One in Item 7.  Managements Discussion and
Analysis included in this report sets forth the distribution of average
deposits for the years ended December 31, 2003, 2002 and 2001 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, 2003 and is
incorporated here by reference.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(1) |  | The Selected Financial Data table at page 24 of this section sets forth the
ratios of net income to average assets and average shareholders equity,
and average shareholders equity to average assets. As the Company has
never paid a cash dividend, the dividend payout ratio is not indicated.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM
7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION


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



Critical
Accounting Policies


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


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


Our
allowance for loan losses has three basic components: the formula allowance, the
specific allowance and the unallocated allowance. Each of these components is
determined based upon estimates that can and do change when the actual events
occur. The formula allowance uses a 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 Allowance for Loan
Losses on page 40.


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



Business
Organization


Central
Coast Bancorp (the Company) is a California corporation,
headquartered in Salinas, California and was organized in 1994 to act as a bank
holding company for Bank of Salinas. In 1996, the Company acquired Cypress Bank,
which was headquartered in Seaside, California. Both banks were state-chartered
institutions. In July of 1999, the Company merged Cypress Bank into the Bank of
Salinas and then renamed Bank of Salinas as Community Bank of Central California
(the Bank). As of December 31, 2003, the Bank operated twelve
full-service branch offices and one limited-service branch office and conducts
online banking through its web site www.community-bnk.com. The Bank is
headquartered in Salinas and serves individuals, merchants, small and
medium-sized businesses and professionals. The economy in the Banks
service area is heavily weighted towards agribusiness enterprises and the
hospitality industry.


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


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


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


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



Overview


For
the 20th consecutive year, Central Coast Bancorp earned record net
income on a year-over-year basis. Net income for 2003 increased 10% to
$11,569,000 from $10,528,000 in 2002. Diluted earnings per share for 2003, after
giving effect to the 10% stock dividend distributed on February 27, 2004, was
$1.01, up 10% from the $0.92 reported for 2002. For 2003, the Company realized a
return on average equity of 13.8% and a return on average assets of 1.23%, as
compared to 14.5% and 1.23% for 2002.


The
Company reached a significant milestone at during the fourth quarter of 2003, as
total assets exceeded the billion-dollar mark. In 2003, total assets increased
$118,708,000 (13%) to $1,037,840,000 at year-end. At December 31, 2003, loans
totaled $782,741,000, an increase of $37,388,000 (5%) from year-end 2002. At
December 31, 2003, deposits totaled $938,110,000, an increase of $111,608,000
(14%) from year-end 2002.


The
overall economic environment in 2003 in the Companys primary market area
was rather sluggish as reflected in the dramatic decrease in the level of the
loan growth from the prior two years. Loan growth of 5% in 2003 is down from 23%
in 2002 and 28% in 2001. Additionally, most of this limited loan growth took
place late in the year, diminishing the contribution to loan interest income
from current year loan growth. In addition to slower loan growth, interest rates
declined again in 2003. Interest rates earned on both loans and investment
securities were negatively impacted by the continued low interest rate
environment, the year-over-year affect of the 50 basis point reduction in prime
in November 2002 and the additional 25 basis point decrease in June 2003. The
average rate earned on loans in 2003 decreased 65 basis points to 6.09%. The
average rate earned on taxable investment securities decreased 147 basis points
to 3.56% as the higher rate components of mortgage securities prepaid due to
refinancing activity. They were replaced with lower yielding securities. The
lower rates earned on loans and investment securities reduced interest income by
$5,981,000. This was offset in part as the average earning assets increased
$78,827,000 (9.9%) in 2003, which added $4,669,000 in interest income.


The
negative impact on interest income, as discussed above, was more than offset by
decreases in interest expenses on deposit liabilities. While average balances of
interest-bearing deposit liabilities increased $49,815,000 (8.7%), interest
expense decreased $2,389,000 (17.1%) in 2003 from 2002 due to the repricing of
the interest-bearing deposits throughout the year, reflecting the lower interest
rate environment. The higher volume of interest-bearing liabilities increased
interest expense $1,123,000 while the lower rates decreased the expense
$3,512,000. Overall, in 2003, the average rate paid on interest-bearing
liabilities decreased 57 basis points to 1.85%. The resulting net interest
income (FTE) increased $1,077,000 (2.9%) to $38,742,000 in 2003 compared to an
increase of $3,176,000 (9.2%) in 2002 over 2001. The net interest margin for
2003 decreased 30 basis points to 4.43% from 4.73% in 2002 and was 5.15% in
2001.


At
December 31, 2003, nonperforming and restructured loans were $10,441,000, which
was an increase of $8,633,000 from $1,808,000 at December 31, 2002.
Approximately $9.0 million of the nonperforming loans at December 31, 2003
pertained to loans for a commercial/retail redevelopment project in the City of
King. Details of these loans were disclosed in Form 8-K filings made by the
Company on April 11, June 12, October 9 and November 26, 2003 and the Form 10-Q
for the quarters ended June 30 and September 30, 2003 (See Item 3, Legal
Proceedings). The financial impact resulting from the proceedings associated
with these loans negatively affected interest income, interest expense and legal
fees during 2003. There will be some continuing negative financial impact
relating to these loans until final resolution is attained.


Based
on current economic forecasts, it appears that the prime lending rate will
remain unchanged well into 2004. If the rates remain unchanged, we expect the
Companys net interest margin to be consistent with the fourth quarter 2003
level of approximately 4.34%. The Company has received regulatory approval to
open branches in the City of Santa Cruz, Santa Cruz County and the City of
Soledad, Monterey County. We anticipate opening the Santa Cruz branch in the
second quarter of 2004 and the Soledad branch later in the year. Other factors
that remain key for earnings growth are the continuing development of solid
banking relationships, the continued emphasis on loan quality and continued cost
control.



(A)
Results of Operations

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


Net
interest income represents the excess of interest and fees earned on
interest-earning assets (loans, securities and federal funds sold) over the
interest paid on deposits and borrowed funds. Net interest margin is net
interest income expressed as a percentage of average earning assets. These items
have been adjusted to give effect to $1,099,000, $1,119,000 and $1,102,000 in
taxable equivalent interest income on tax-free investments for the years ending
December 31, 2003, 2002 and 2001.


Net
interest income for 2003 was $38,742,000, a $1,077,000 (2.9%) increase over 2002
even with a decrease in the interest income component of $1,312,000. Average
earning assets increased $78,827,000 (9.9%) in 2003, which resulted in an
increase of $4,669,000 in interest income. Most of this increase was
attributable to the year-over-year effect of the 2002 loan growth as average
loans outstanding increased $65,847,000 (10.1%) to $720,908 in 2003. The
November 2002 and June 2003 reductions in the Federal Funds rate of 50 and 25
basis points was the major cause of the average rate received on earning assets
decreasing 73 basis points to 5.75% in 2003. Within the earning assets, the 2003
loan rates were negatively impacted as the average yield on loans decreased 65
basis points to 6.09%. The average rate received in 2003 on taxable investment
securities decreased 147 basis points as higher rate components of the mortgage
securities prepaid due to refinancing activity. They were replaced with lower
yielding securities. The lower rates earned on loans and investment securities
reduced interest income by $5,981,000.


The
impact on net interest income caused by the lower interest income during 2003
was more than offset by decreases in interest expenses on deposit liabilities
resulting in the overall increase in net interest income of $1,077,000. While
average balances of interest bearing deposit liabilities increased $49,815,000
(8.7%), interest expense decreased $2,389,000 (17.1%) in 2003 from 2002 mainly
due to the repricing of the interest-bearing deposits throughout the year,
reflecting the lower interest rate environment. The higher volume of
interest-bearing liabilities increased interest expense $1,123,000 while the
lower rates decreased the expense $3,512,000. Overall, in 2003, the average rate
paid on interest-bearing liabilities decreased 57 basis points to 1.85%.


The
net interest margin for 2003 decreased 30 basis points to 4.43% from 4.73% in
2002. The net interest margin for the 4th quarter of 2003 was 4.34%,
which was a decrease of 41 basis points from 4.75% in the 4th quarter
of 2002 and down five basis points from the 3rdquarter of 2003.
Assuming no further interest rate decreases in early 2004, management expects
the net interest margin in 2004 to be consistent with the level during the
4th quarter of 2003.


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


Interest
expense decreased $4,405,000 (-24.0%) in 2002 from 2001 mainly due to repricing
of the time deposits as they matured throughout the year and lower rates paid on
other interest-bearing deposits. The lower rates resulted in a reduction of
$7,040,000 in interest expense in 2002. This reduction was offset in part by a
higher volume of interest-bearing liabilities as their average balances
increased $94,032,000 (19.5%) resulting in a $2,635,000 increase in interest
expense. Overall, in 2002 the average rate paid on interest-bearing liabilities
decreased 138 basis points to 2.42% from 3.80% in 2001.


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
Companys interest income and expenses. Table One provides an analysis of
net interest margin on earning assets setting forth average assets, liabilities
and shareholders equity; interest income earned and interest expense paid
and average rates earned and paid; and the net interest margin on earning
assets. Table Two presents an analysis of volume and rate change on net interest
income and expense.



Table
One: Analysis of Net Interest Margin on Earning Assets
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(Taxable Equivalent Basis)            | 2003 | 2002     | 2001 |            
|------------------------------------- | ---- | -------- | ---- | -----------
|
|Assets:                               |     
|Earning Assets                        |     
|Loans (1) (2)                         |      | $720,908 |      | $  43,924  
|Taxable investment                    |     
|securities                            |      | 78,311   |      | 2,785      
|Tax-exempt investment                 |     
|securities (3)                        |      | 48,622   |      | 3,296      
|Federal funds sold                    |      | 27,510   |      | 303        
|                                     
|Total Earning Assets                  |      | 875,351  |      | $  50,308  
|                                     
|Cash and due from banks               |      | 51,026   |      |            
|Other assets                          |      | 16,830   |      |            
|                                     
|                                      |      | $943,207 |      |            
|                                     
|Liabilities and Shareholders' Equity: |     
|Interest bearing liabilities:         |     
|Demand deposits                       |      | $124,877 |      | $       796
|Savings                               |      | 222,403  |      | 3,284      
|Time deposits                         |      | 272,249  |      | 7,068      
|Other borrowings                      |      | 6,441    |      | 418        
|                                     
|Total interest bearing                |     
|liabilities                           |      | 625,970  |      | 11,566     
|                                     
|Demand deposits                       |      | 226,699  |      |            
|Other Liabilities                     |      | 6,664    |      |            
|                                     
|Total Liabilities                     |      | 859,333  |      |            
|Shareholders' Equity                  |      | 83,874   |      |            
|                                     
|                                      |      | $943,207 |      |            
|                                     
|Net interest income and               |     
|Margin (4)                            |      |          |      | $  38,742  
|                                     

|1. |  | Loans interest includes loan fees of $1,682,000, $1,632,000 and $1,387,000 in 2003, 2002 and 2001.
|-- |  | --------------------------------------------------------------------------------------------------

|2. |  | Average balances of loans include average allowance for loan losses of
$15,697,000, $13,008,000 and $9,807,000 and average deferred loan fees of
$1,039,000, $1,125,000 and $978,000 for the years ended December 31, 2003, 2002
and 2001, 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 2003, 2002
and 2001.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. |  | Net interest margin is computed by dividing net interest income by total average earning assets.
|-- |  | ------------------------------------------------------------------------------------------------

Table
Two: Volume/Rate Analysis

|Year Ended December 31, 2003 over 2002 |  |         |   |        
|-------------------------------------- |  | ------- | - | -------
|
|
|Interest-earning assets:              
|Net Loans (1)(2)                       |  | $ 4,438 |   | $(4,655
|Taxable investment securities          |  | 71      |   | (1,153 
|Tax exempt investment securities (3)   |  | (42     | ) | (19    
|Federal funds sold                     |  | 202     |   | (154   
|                                      
|Total                                  |  | 4,669   |   | (5,981 
|                                      
|Interest-bearing liabilities:         
|Demand deposits                        |  | (34     | ) | (478   
|Savings deposits                       |  | 914     |   | (1,348 
|Time deposits                          |  | 297     |   | (1,720 
|Other borrowings                       |  | (54     | ) | 34     
|                                      
|Total                                  |  | 1,123   |   | (3,512 
|                                      
|Interest differential                  |  | $ 3,546 |   | $(2,469
|                                      

|Year Ended December 31, 2002 over 2001 |  |         |  
|-------------------------------------- |  | ------- | -
|
|
|Interest-earning assets:              
|Net Loans (1)(2)                       |  | $11,941 |  
|Taxable investment securities          |  | (1,362  | )
|Tax-exempt investment securities (3)   |  | 37      |  
|Federal funds sold                     |  | 306     |  
|                                      
|Total                                  |  | 10,922  |  
|                                      
|Interest-bearing liabilities:         
|Demand deposits                        |  | 389     |  
|Savings deposits                       |  | 1,498   |  
|Time deposits                          |  | 807     |  
|Other borrowings                       |  | (59     | )
|                                      
|Total                                  |  | 2,635   |  
|                                      
|Interest differential                  |  | $ 8,287 |  
|                                      

|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 $1,682,000, $1,632,000 and $1,387,000 for the years ended December 31, 2003, 2002 and 2001 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 2003, 2002
and 2001.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. |  | The rate / volume variance has been included in the rate variance.
|-- |  | ------------------------------------------------------------------

|Provision
for Loan Losses


The
Company provided $1,475,000 for loan losses in 2003 down from $3,584,000 in
2002. The lower provision reflected the reduced level of lending activity in the
local area in 2003. Net loan charge-offs were $120,000 in 2003 compared to
$102,000 in 2002. The ratio of net charge-offs to average loans outstanding was
0.02% in both 2003 and 2002. Nonperforming and restructured loans were
$10,441,000 at December 31, 2003, compared to $1,808,000 at December 31, 2002.
Approximately $9.0 million of the nonperforming loans at December 31, 2003
pertain to loans for a commercial/retail redevelopment project in the City of
King. Details of these loans have been disclosed in Form 8-K filings made by the
Company on April 11, June 12, October 9 and November 26, 2003 and the Form 10-Q
for the quarters ended June 30 and September 30, 2003. For additional
information, see Item 3, Legal Proceedings. The ratio of
nonperforming and restructured loans to total loans at December 31, 2003, was
1.33% compared to 0.24% at December 31, 2002. At December 31, 2003, the Company
did not have any OREO as the only property previously held was sold in the
fourth quarter of 2003. The ratio of the allowance for loan losses to total
loans  net of deferred fees increased to 2.12% at December 31, 2003 from
2.04% at December 31, 2002.


The
Company provided $3,584,000 for loan losses in 2002 up from $2,635,000 in 2001.
The provision in 2002 reflected the changes in the loan categories and
continuing growth in the loan portfolio, and the uncertain economy. Net loan
charge-offs decreased $151,000 (59.7%) in 2002 from $253,000 charged off in
2001. The ratio of net charge-offs to average loans outstanding was 0.02% in
2002 compared to 0.05% in 2001. Nonperforming and restructured loans decreased
$521,000 (22.4%) in 2002 from the $2,329,000 reported at December 31, 2001. The
ratio of nonperforming and restructured loans to total loans was 0.38% at
December 31, 2001. The ratio of the allowance for loan losses to total loans
 net of deferred fees was 1.94% at December 31, 2001.



Service
Charges and Fees and Other Income


Noninterest
income was $5,617,000 in 2003, an increase of $1,952,000 (53.3%) over 2002.
Service charges on deposit accounts added $778,000 (33.2%) due to increased
business activity, growth in accounts, certain service fee increases and
increased diligence on collecting fees. Increased volumes in other non-deposit
service charges and mortgage origination fees added an additional $127,000
(13.3%). The Company realized gains on the sale of available-for-sale securities
of $590,000, which was a $488,000 increase from 2002. The Company also recorded
$564,000 in revenue from the operation of an OREO property that was sold in the
fourth quarter of 2003 with a gain of $52,000.


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



Salaries
and Benefits


Salary
and benefit expenses increased $1,377,000 (11.4%) to $13,506,000 in 2003 over
2002. Salary expense for the Monterey branch opened in January 2003 represented
$528,000 of the increase. Salaries and benefits from all other operations
increased $589,000 (4.8%) after adjusting for a $260,000 one time reduction in
health care costs in the first quarter of 2002. Base salaries increased $319,000
(3.5%) due to normal merit increases and staffing additions during the year. At
the end of 2003, the full time equivalent (FTE) staff was 255 versus 239 at the
end of 2002.


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



Occupancy
and Furniture and Equipment


Occupancy
and furniture and equipment expense increased $677,000 (17.8%) to $4,476,000 in
2003 over 2002. Operations of the new Monterey branch represented $262,000 of
the increase. Most of the remaining $415,000 increase in this category was
related to higher costs for security services, normal rent increases and
improvements on leased buildings, and service contracts on computers and
equipment.


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



Other
Expenses


Other
expenses increased $1,260,000 (27.6%) to $5,828,000 in 2003 over 2002. The
operations of the new Monterey branch represented $88,000 of the increase.
Expenses relating to the operation of an OREO property and the City of King
legal proceedings added $1,079,000 to other expenses in 2003. After adjusting
for the new Monterey branch, the OREO and legal expenses, other expenses were
only $93,000 (2.0%) higher in 2003. The OREO property was sold in December.


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


The
efficiency ratio (fully taxable equivalent) calculated by dividing noninterest
expense by the sum of net interest income and noninterest income, for 2003 was
53.7% as compared to 49.6% in 2002. The higher efficiency ratio reflects the
effect of expenses growing at a faster rate than income in 2003 primarily due to
the opening of the new Monterey branch and the additional legal expenses. The
efficiency ratio (fully taxable equivalent) for 2001 was 51.1%.



Provision
for Taxes


The
effective tax rate on income was 35.7%, 34.7% and 35.1% in 2003, 2002 and 2001,
respectively. In 2003, the interest earned on tax-exempt investment securities
and loans increased $905,000 from 2002. Since the overall interest income
decreased $1,292,000 in 2003, the tax-exempt income became a larger portion of
interest income. However, the increase in noninterest income was $1,952,000,
which offset the reduction in interest income and resulted in an increase in the
tax rate. The effective tax rate was greater than the federal statutory tax rate
due to state tax expense of $1,901,000, $1,660,000 and $1,522,000 in 2003, 2002
and 2001. Tax-exempt income of $4,071,000, $3,185,000 and $2,754,000 from
investment securities and loans in 2003, 2002 and 2001 helped to reduce the
effective tax rate.



(B)
Balance Sheet Analysis


Central
Coast Bancorps total assets at December 31, 2003 were $1,037,840,000
compared to $919,132,000 at December 31, 2002, representing an increase of
$118,608,000 (12.9%). The average balance of total assets was $943,207,000 in
2003, which represents an increase of $85,198,000 (9.9%) over the average total
asset balance of $858,009,000 in 2002.



Loans


The
Company 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, 2003, these four categories accounted for approximately 30%, 6%,
62% and 2% of the Companys loan portfolio, respectively, as compared to
30%, 10%, 58% and 2% at December 31, 2002. Since 1999, the annual percentage
loan growth from the prior year has been 5%, 23%, 28%, 20% and 27%, primarily as
a result of the success of the loan calling officer program. The calling program
not only has attracted many new loan customers, but also serves as an effective
way of ensuring continual contact with existing customers. Real estate-other
loans provided the largest percentage (12.7) as well as absolute dollar ($55.3
million) growth in 2003. Construction loans outstanding at the end of 2003 were
down $27.9 million as several large loans paid off or moved to the real-estate
other category during the year. Demand for large commercial construction loans
slowed during 2003, which was indicative of the overall weakness in the local
economy. As reported in 2002 and thereafter, large project residential
construction opportunities in Monterey County continue to be limited as there
are very few projects receiving governmental approval. There was a decrease in
consumer loans, as much of the lending activity to individuals was in home
equity lines of credit which are reflected in the real estate-other category.
Table Three summarizes the composition of the loan portfolio for the past five
years as of December 31:



Table
Three: Loan Portfolio Composition
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In thousands       | 2003 | 2002      | 2001 | 2000      | 1999 |           |   |           |  
|------------------ | ---- | --------- | ---- | --------- | ---- | --------- | - | --------- | -
|Commercial         |      | $ 236,836 |      | $ 224,840 |      | $ 199,761 |   | $ 171,631 |  
|Real Estate:       |     
|Construction       |      | 46,266    |      | 74,214    |      | 85,314    |   | 57,780    |  
|Other              |      | 489,213   |      | 433,921   |      | 306,622   |   | 234,890   |  
|Consumer           |      | 11,540    |      | 13,414    |      | 15,653    |   | 9,840     |  
|Deferred Loan Fees |      | (1,114    | )    | (1,036    | )    | (1,050    | ) | (746      | )
|                  
|Total Loans        |      | 782,741   |      | 745,353   |      | 606,300   |   | 473,395   |  
|Allowance for      |     
|Loan Losses        |      | (16,590   | )    | (15,235   | )    | (11,753   | ) | (9,371    | )
|                  
|Total              |      | $ 766,151 |      | $ 730,118 |      | $ 594,547 |   | $ 464,024 |  
|                  

|The
majority of the Companys loans are direct loans made to individuals, local
businesses and agri-businesses. The Company relies substantially on local
promotional activity, personal contacts by Company officers, directors and
employees to compete with other financial institutions. The Company 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
Company such as personal lines of credit and loans to finance purchases of
autos, boats, recreational vehicles, mobile homes and various other consumer
items. The real estate construction loans are generally composed of commitments
to customers within the Companys service area for construction of both
commercial properties and custom and semi-custom single family residences. Other
real estate loans consist primarily of loans to the Company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 Company does
not make long-term mortgage loans; however, the Company has informal
arrangements in place with mortgage lenders to assist customers in securing
single-family mortgage financing.


Average
net loans in 2003 were $720,908,000 representing an increase of $65,847,000 or
10.1% over 2002. Average net loans in 2002 were $655,061,000 representing an
increase of $141,984,000 or 27.7% over 2001.


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


Ultimately,
the credit quality of the Companys loans may be influenced by underlying
trends in the national and local economic and business cycles. The
Company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 Companys recent branch
expansion. As a result, the Company 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 $600 million at
December 31, 2003. Although management believes this real estate concentration
has no more than the normal risk of collectibility, a substantial decline in the
economy in general, or a decline in real estate values in the Company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 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, an appropriate allowance
for probable losses is recorded. The more significant assumptions management
considers involve estimates of the following: lease, absorption and sale rates;
real estate values and rates of return; operating expenses; inflation; and
sufficiency of collateral independent of the real estate including, in limited
instances, personal guarantees. Not withstanding the foregoing, abnormally high
rates of impairment due to general/local economic conditions could adversely
affect the Companys future prospects and results of operations.


In
extending credit and commitments to borrowers, the 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 creditworthiness of the borrower. Collateral
held varies but may include accounts receivable, inventory, property, plant and
equipment, income-producing properties, residences and other real property. The
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.


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 Companys loan policies
and underwriting standards include, but are not limited to, the following: 1)
maintaining a thorough understanding of the Company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 Companys construction lending officers. In
addition, the Company strives to diversify the risk inherent in the construction
portfolio by avoiding concentrations to individual borrowers and on any one
project.



Nonaccrual,
Past Due and Restructured Loans


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



Table
Four: Non-Performing Loans
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In thousands                                | 2003 | 2002      | 2001 | 2000    | 1999
|------------------------------------------- | ---- | --------- | ---- | ------- | ----
|Past due 90 days or more and still accruing
|Commercial                                  |      | $       - |      | $     - |     
|Real estate                                 |      | -         |      | -       |     
|Consumer and other                          |      | -         |      | 5       |     
|                                           
|                                            |      | -         |      | 5       |     
|                                           
|Nonaccrual:                                 |     
|Commercial                                  |      | 626       |      | 272     |     
|Real estate                                 |      | 8,973     |      | 598     |     
|Consumer and other                          |      | 7         |      | -       |     
|                                           
|                                            |      | 9,606     |      | 870     |     
|                                           
|Restructured (in compliance with            |     
|modified terms)- Commercial                 |      | 835       |      | 933     |     
|                                           
|Total                                       |      | $10,441   |      | $1,808  |     
|                                           

|Interest
due but excluded from interest income on nonaccrual loans was approximately
$650,000 in 2003, $24,000 in 2002, and $45,000 in 2001. The large increase in
2003 resulted from placing the loans for a commercial/retail redevelopment
project in the City of King on nonaccrual status. Interest income recognized
from payments received on nonaccrual loans was $73,000, $40,000 and $69,000 in
2003, 2002 and 2001, respectively.


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


At
December 31, 2003, the recorded investment in loans that are considered impaired
was $10,694,000 of which $9,606,000 is included in nonaccrual loans, and
$835,000 is included in restructured loans above. At December 31, 2002, the
recorded investment in loans that are considered impaired was $2,618,000 of
which $870,000 is included in nonaccrual loans, and $933,000 is included in
restructured loans above. Such impaired loans had a valuation allowance of
$2,516,000 and $1,165,000, in 2003 and 2002, respectively. The average recorded
investment in impaired loans during 2003 and 2002 was $11,918,000 and
$2,338,000, respectively. The Company recognized interest income on impaired
loans of $244,000, $143,000 and $191,000 in 2003, 2002 and 2001, respectively
(including interest income of $69,000 in 2003, $66,000 in 2002 and $98,000 in
2001 on restructured loans).


There
were no troubled debt restructurings or loan concentrations in excess of 10% of
total loans not otherwise disclosed as a category of loans as of December 31,
2003. Management is not aware of any potential problem loans, which were
accruing and current at December 31, 2003, where serious doubt exists as to the
ability of the borrower to comply with the present repayment terms.



Other
Real Estate Owned


The
Company held no real estate acquired by foreclosure at December 31, 2003 or
2002.



Allowance
for Loan Losses


The
Company 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 reserve 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, 2003, the formula allowance
was $12,236,000 compared to $12,002,000 at December 31, 2002. The increase in
the formula allowance was primarily a result of the growth in loan and loan
commitment balances subject to these formula allowances of $67,279,000 in 2003.


In
addition to the formula allowance calculated by the application of the loss
factors to the standard loan categories, certain specific allowances may also be
calculated. Quarterly, all criticized loans are analyzed individually based on
the source and adequacy of repayment and specific type of collateral, and an
assessment is made of the adequacy of the formula reserve relative to the
individual loan. A specific allocation either higher or lower than the formula
reserve will be calculated based on the higher/lower-than-normal probability of
loss and the adequacy of the collateral. At December 31, 2003, the specific
allowance was $3,059,000 on a loan base of $40,545,000 compared to a specific
allowance of $1,830,000 on a loan base of $32,180,000 at December 31, 2002. The
increase in the specific allowance in 2003 was due both a larger base of loans
requiring specific valuation allowances and some of those loans requiring a
higher specific 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 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, 2003, the unallocated allowance was $1,294,000 compared to
$1,402,000 at December 31, 2002. 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 Companys
current portfolio.


There
can be no assurance that the adverse impact of any of these conditions on the
Company will not be in excess of the unallocated allowance as determined by
management at December 31, 2003 and set forth in the preceding paragraph.


The
allowance for loan losses totaled $16,590,000 or 2.12% of total loans at
December 31, 2003 compared to $15,235,000 or 2.04% at December 31, 2002. At
those two dates, the allowance represented 159 percent and 843 percent of
nonperforming loans.


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


Table
Five summarizes, for the years indicated, the activity in the allowance for loan
losses.



Table
Five: Allowance for Loan Losses
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In thousands (except percentages)                 | Year Ended 12/31/2003 | Year Ended 12/31/2002 | Year Ended 12/31/2001 | Year Ended 12/31/2000 | Year Ended 12/31/1999 |             |      |             |      |            
|------------------------------------------------- | --------------------- | --------------------- | --------------------- | --------------------- | --------------------- | ----------- | ---- | ----------- | ---- | -----------
|Average loans outstanding                         |                       | $ 737,644             |                       | $ 669,104             |                       | $ 523,862   |      | $ 424,891   |      | $ 353,732  
|                                                 
|Allowance for possible                            |                      
|loan losses at beginning of  period               |                       | $   15,235            |                       | $   11,753            |                       | $     9,371 |      | $     5,596 |      | $     4,352
|Loans charged off:                                |                      
|Commercial                                        |                       | (285                  | )                     | (53                   | )                     | (349        | )    | (273        | )    | (333       
|Real estate                                       |                       | (21                   | )                     | (219                  | )                     | (2          | )    | -           |      | (41        
|Consumer                                          |                       | (167                  | )                     | (81                   | )                     | (79         | )    | (119        | )    | (26        
|                                                 
|                                                  |                       | (473                  | )                     | (353                  | )                     | (430        | )    | (392        | )    | (400       
|                                                 
|Recoveries of loans previously charged off:       |                      
|Commercial                                        |                       | 268                   |                       | 214                   |                       | 162         |      | 170         |      | 143        
|Real estate                                       |                       | 55                    |                       | -                     |                       | -           |      | -           |      | 7          
|Consumer                                          |                       | 30                    |                       | 37                    |                       | 15          |      | 14          |      | 10         
|                                                 
|                                                  |                       | 353                   |                       | 251                   |                       | 177         |      | 184         |      | 160        
|                                                 
|Net loans charged off                             |                       | (120                  | )                     | (102                  | )                     | (253        | )    | (208        | )    | (240       
|Provision for loan losses                         |                      
|charged to operating   expenses                   |                       | 1,475                 |                       | 3,584                 |                       | 2,635       |      | 3,983       |      | 1,484      
|                                                 
|Allowance for possible                            |                      
|loan losses at end of   period                    |                       | $   16,590            |                       | $   15,235            |                       | $   11,753  |      | $     9,371 |      | $     5,596
|                                                 
|Ratio of net charge-offs                         
|to average loans   outstanding                    |                       | 0                     | .02%                  | 0                     | .02%                  | 0           | .05% | 0           | .05% | 0          
|Provision of allowance   for possible loan losses |                      
|to average loans   outstanding                    |                       | 0                     | .20%                  | 0                     | .54%                  | 0           | .50% | 0           | .94% | 0          
|Allowance for possible   loan losses to loans     |                      
|net of deferred fees at   year end                |                       | 2                     | .12%                  | 2                     | .04%                  | 1           | .94% | 1           | .98% | 1          

|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, 2003
and 2002.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Table
Six: Allowance for Loan Losses by Loan Category

|                  | December 31, 2003 | December 31, 2002
|----------------- | ----------------- | -----------------
|
|Commercial        |                   | $  6,485         
|Real estate       |                   | 8,199            
|Consumer          |                   | 612              
|                 
|Total allocated   |                   | 15,296           
|Total unallocated |                   | 1,294            
|                 
|Total             |                   | $16,590          
|                 

|Deposits


At
December 31, 2003, deposits were $938,110,000 up from $826,502,000 at the end of
2002. At year-end 2003, the Company did not have any State of California time
deposits as compared to $10,000,000 at the end of 2002. The deposit growth in
2003, giving effect to the decrease of the State of California certificates, was
$121,608,000 (14.7%). Savings deposits increased $51,521,000 (28.5%) to
$232,610,000. Noninterest bearing demand deposits increased $60,738,000 (23.2%)
to $321,980,000. Much of the increase in noninterest demand deposits was due to
large agricultural based businesses that experienced increased activity near
year-end. Due to normal seasonal fluctuations management expects that a large
portion of this increase may flow out of the Company in the first quarter of
2004.



Capital
Resources


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


The
Companys primary capital resource is shareholders equity, which
increased $11,519,000 or 14.8% from the previous year-end. The Companys
ratio of total risk-based capital to risk-adjusted assets was 11.6% at December
31, 2003 compared to 10.9% at December 31, 2002. Tier 1 risk-based capital to
risk-adjusted assets for the Company was 10.4% at December 31, 2003, compared to
9.7% at December 31, 2002. The capital ratios are higher in 2003 as compared to
2002 as the growth in regulatory capital levels grew at a slightly higher rate
than the level of risked-based assets.


The
following table shows the Companys and the Banks actual capital
amounts and ratios as of December 31, 2003 and 2002 as well as the minimum
capital ratios to be categorized as well capitalized under the
regulatory framework:

Table Seven: Capital Ratios
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                         | Actual | For Capital Adequacy Purposes | To Be Categorized Well Capitalized Under Prompt Corrective Action Provisions
|---------------------------------------- | ------ | ----------------------------- | ----------------------------------------------------------------------------
|
|As of December 31, 2003:                 |       
|Total Capital (to Risk Weighted Assets)  |       
|Company                                  |        | $99,038                       |                                                                             
|Community Bank                           |        | 92,172                        |                                                                             
|Tier 1 Capital (to Risk Weighted Assets) |       
|Company                                  |        | 88,321                        |                                                                             
|Community Bank                           |        | 81,563                        |                                                                             
|Tier 1 Capital (to Average Assets)       |       
|Company                                  |        | 88,321                        |                                                                             
|Community Bank                           |        | 81,563                        |                                                                             
|                                        
|As of December 31, 2002:                 |       
|Total Capital (to Risk Weighted Assets)  |       
|Company                                  |        | $86,334                       |                                                                             
|Community Bank                           |        | 79,470                        |                                                                             
|Tier 1 Capital (to Risk Weighted Assets) |       
|Company                                  |        | 76,374                        |                                                                             
|Community Bank                           |        | 69,621                        |                                                                             
|Tier 1 Capital (to Average Assets)       |       
|Company                                  |        | 76,374                        |                                                                             
|Community Bank                           |        | 69,621                        |                                                                             
|                                        

|See
the discussion of capital requirements in Supervision and Regulation
and in Footnote 13  Regulatory Matters in the Consolidated Financial
Statements in Item 8  Financial Statements and Supplementary Data.



Inflation


The
impact of inflation on a financial institution differs significantly from that
exerted on manufacturing, or other commercial concerns, primarily because its
assets and liabilities are largely monetary. In general, inflation primarily
affects the Company indirectly through its effect on market rates of interest,
and thus the ability of the Company 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 2003.







Market
Risk Management


Overview.The goal for managing the assets and liabilities of the Company is to
maximize shareholder value and earnings while maintaining a high quality balance
sheet without exposing the Company to undue interest rate risk. The Board of
Directors has overall responsibility for the Companys interest rate risk
management policies. The Company 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 Company uses simulation models to forecast earnings,
net interest margin and market value of equity.


Simulation
of earnings is the primary tool used to measure the sensitivity of earnings to
interest rate changes. Using computer modeling techniques, the Company is able
to estimate the potential impact of changing interest rates on earnings. A
balance sheet forecast is prepared quarterly using inputs of actual loan,
securities and interest bearing liabilities (i.e. deposits/borrowings) positions
as the beginning base.


The
Company measures the interest rate risk embedded in its current portfolio based
on interest rates evolving over time along four forecast paths. Net interest
margin and net interest income are calculated as the forecast balance sheet is
processed against these four interest rate scenarios. One scenario is a flat
rate based on the current rate environment. One scenario is an economic
forecast, based on underlying economic and financial sector modeling. The other
two are a rising and declining scenario based on gradual rate ramps, which
embody rate relationships. The nature of the specified rate tests is a gradual
but significant change in interest rates projected to evolve over 12 months. The
interest rate risk modeling is a useful tool, but there are certain limits to
the rate forecast estimates. Actual rate changes rarely follow any given
forecast, asset-liability pricing and other model inputs usually do not remain
constant in their historic relationships as new rate environments evolve.
However, holding these assumptions constant through the modeling horizon helps
to appropriately emphasize specific repricing/mismatch points and their
performance implications.


The
Companys 2004 net interest income, as forecast below, was modeled
utilizing a forecast balance sheet projected from year-end 2003 balances.


The
following table summarizes the effect on net interest income of three rate
scenarios as measured against a most likely rate scenario.
Table Eight: Interest Rate Risk Simulation of Net Interest Income as of December 31, 2003
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In thousands                      | Estimated Impact on 2004 Net Interest Income
|--------------------------------- | --------------------------------------------
|Variation from flat rate scenario |                                             
|Most likely rates                 |                                             
|Declining rates                   |                                             
|Rising rates                      |                                             

|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 estimates rate risk through the use of rate shock analysis. The
model calculates both the percent and dollar changes in net interest income
(NII) and market value of equity (MVE) projected to occur should the yield curve
instantaneously shift up or down in a parallel fashion from its beginning
position. 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. In
the rate shock analysis, the forecast balance sheet is processed against seven
interest rate scenarios. These seven interest rate scenarios include the flat
rate scenario described above, and six additional rate shock scenarios ranging
from +300 to -300 basis points around the flat scenario in 100 basis point
increments. These rate shock scenarios assume that interest rates increase or
decrease immediately and remain at the new level in the future. The Company
measures the volatility of these benchmarks using a twelve-month time horizon.
Using the December 31, 2003 balance sheet as the base for the simulation, the
following table summarizes the effect on net interest income of a +200 and
+/-100 basis point change in interest rates. Due to the current historic low
level of interest rates, the potential for interest bearing deposit accounts to
respond to further changes in projected rates is limited, therefore calculations
for rate decreases greater than 100 bp are misleading and have not been
presented.
Table Nine: Interest Rate Risk Simulation of NII as of December 31, 2003
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|        | % Change in NII from | Change in NII from
|------- | -------------------- | ------------------
|
|+ 200bp |                      | 16                
|+ 100bp |                      | 8                 
|- 100bp |                      | (9                

|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 Company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
Company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, the gap analysis categorizes interest-bearing
transaction deposits and savings deposits as repricing immediately. This causes
an immediate prospective of liability sensitivity. However, as has been observed
through interest rate cycles, the deposit liabilities do not reprice
immediately. Even with that bias, the next day through three months highly asset
sensitive position more than offsets the immediately repricing liabilities.
During the three month to one year horizon as the time deposits reprice, the gap
analysis moves towards a fairly balanced position at the end of the one year
time frame. Based on the gap analysis at December 31, 2003 we would expect net
interest income to grow more rapidly early in an up rate cycle with slowing
growth from the six month to one year time phase and then increasing in the
longer horizon. The reverse would happen in a falling rate environment. Overall
the balance sheet would considered to be asset sensitive.


Table
Ten: Interest Rate Sensitivity - December 31, 2003
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Assets and Liabilities which Mature or Reprice: |  |             |   |             |  |              |  
|----------------------------------------------- |  | ----------- | - | ----------- |  | ------------ | -
|
|Interest earning assets:                        | 
|Investments                                     |  | $     1,367 |   | $  11,912   |  | $        114 |  
|Loans, excluding                                | 
|nonaccrual loans                                | 
|and overdrafts                                  |  | 17,667      |   | 491,004     |  | 43,513       |  
|                                               
|Total                                           |  | $   19,034  |   | $502,916    |  | $   43,627   |  
|                                               
|Interest bearing                                | 
|liabilities:                                    | 
|Interest bearing demand                         |  | $ 113,215   |   | $         - |  | $          - |  
|Savings                                         |  | 232,610     |   | -           |  | -            |  
|Time certificates                               |  | -           |   | 75,693      |  | 149,950      |  
|Other Borrowings                                |  | -           |   | 20          |  | 61           |  
|                                               
|Total                                           |  | $ 345,825   |   | $  75,713   |  | $ 150,001    |  
|                                               
|Interest rate                                   | 
|sensitivity gap                                 |  | $(326,791   | ) | $427,203    |  | $(106,384    | )
|Cumulative interest                             | 
|rate sensitivity gap                            |  | $(326,791   | ) | $100,412    |  | $    (5,972  | )
|                                               
|December 31, 2002                               | 
|Interest rate                                   | 
|sensitivity gap                                 |  | $(290,766   | ) | $433,315    |  | $  (79,284   | )
|Cumulative interest                             | 
|rate sensitivity gap                            |  | $(290,766   | ) | $142,549    |  | $   63,265   |  
|                                               
|                                                | 

|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
Company 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, 2003, were approximately $219,963,000
and $8,403,000, 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, 2003, consolidated liquid assets totaled $208.3 million
or 20.0% of total assets as compared to $102.6 million or 11.2% of total
consolidated assets on December 31, 2002. In addition to liquid assets, the
Company maintains short-term lines of credit with correspondent banks and has
several agreements in place for obtaining brokered certificates of deposit. At
December 31, 2003, the Company had $80,000,000 available under the credit lines
and by policy could have negotiated for up to $103,100,000 in brokered
CDs. Informal agreements are also in place with various other banks to
purchase participations in loans, if necessary. The Company serves primarily a
business and professional customer base and, as such, its deposit base is
susceptible to economic fluctuations. Accordingly, management strives to
maintain a balanced position of liquid assets to volatile and cyclical deposits.


Liquidity
is affected by portfolio maturities as well as the effect interest rate
fluctuations have on the market values of both assets and liabilities. The
Company holds all of its investment securities in the available-for-sale
category. This enables the Company 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 Companys investment
portfolio. Unrealized losses limit the Company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 Company has a master repurchase agreement with a correspondent bank.
Such a repurchase agreement allows the Company 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 2002
and 2003, as bond prices increase, liquidity is more easily obtained through
security sales.


The
contractual obligations of the Company, summarized by type of obligation and
payment due date, are set forth in Table Eleven.



Table
Eleven: Contractual Obligations  December 31, 2003
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In thousands | Long-term Debt Payments | Operating Lease Obligations
|------------ | ----------------------- | ---------------------------
|2004         |                         | $        81                
|2005         |                         | 1,287                      
|2006         |                         | 92                         
|2007         |                         | 99                         
|2008         |                         | 1,340                      
|Thereafter   |                         | 1,575                      
|            
|Total        |                         | $   4,474                  
|            

|In
addition to those obligations listed above, in the normal course of business the
Company will make cash distributions for the payment of interest on interest
bearing deposit accounts and the payment of quarterly tax estimates.


The
maturity distribution of certificates of deposit in denominations of $100,000 or
more is set forth in Table Twelve. 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
Twelve: Certificates of Deposit in Denominations of $100,000 or More
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In thousands                          | December 31, 2003
|------------------------------------- | -----------------
|Three months or less                  |                  
|Over three months through six months  |                  
|Over six months through twelve months |                  
|Over twelve months                    |                  
|                                     
|Total                                 |                  
|                                     

|Loan
demand also affects the Companys liquidity position. Table Thirteen
presents the maturities of loans for the period indicated.



Table
Thirteen: Loan Maturities  December 31, 2003
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In thousands               | One year or less | One year through five years | Over five years | Total    
|-------------------------- | ---------------- | --------------------------- | --------------- | ---------
|Commercial                 |                  | $134,380                    |                 | $  72,489
|Real estate - construction |                  | 38,322                      |                 | 7,944    
|Real estate - other        |                  | 58,108                      |                 | 156,506  
|Consumer                   |                  | 5,378                       |                 | 4,713    
|                          
|Total                      |                  | $236,188                    |                 | $241,652 
|                          

|Loans
shown above with maturities greater than one year include $277,456,000 of
floating interest rate loans and $270,211,000 of fixed rate loans.



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



Table
Fourteen: Securities Maturities and Weighted Average Yields
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                           | December 31, 2003 | December 31, 2002
|------------------------------------------ | ----------------- | -----------------
|
|Available for sale securities:            
|U.S. Treasury and agency securities       
|Maturing within 1 year                     |                   | $       101      
|Maturing after 1 year but within 5 years   |                   | 14,050           
|Maturing after 5 years but within 10 years |                   | 18,332           
|Maturing after 10 years                    |                   | 57,785           
|State and Political Subdivision            |                  
|Maturing after 1 year but within 5 years   |                   | 4,638            
|Maturing after 5 year but within 10 Years  |                   | 31,192           
|Maturing after 10 years                    |                   | 14,995           
|Corporate Debt Securities                  |                  
|Maturing after 10 years                    |                   | 11,267           
|Other                                      |                   | 1,367            
|                                          
|Total investment securities                |                   | $153,727         
|                                          

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


As of
December 31, 2003, commitments to extend credit were the only financial
instruments with off-balance sheet risk. These instruments are created in the
normal course of business and are consistent with practices in the banking
industry. These off balance sheet loan commitments are taken into consideration
in the calculation of risk-weighted assets, so their potential impact on capital
is analyzed on an on-going basis. At December 31, 2003 the Company had loan and
letter of credit commitments of $228,366,000, (NOTE 11) an increase from
$192,151,000 at December 31, 2002. The commitments represent 29.1% of total
loans at year-end 2003 versus 25.8% a year ago. The majority of the commitments
have a maturity of one year or less. Commitments for home equity lines of credit
totaling $31,092,000, which have a ten-year maturity, are the single largest
category of commitments exceeding a one-year maturity. The Company has not
entered into any contracts for freestanding financial derivative instruments
such as futures, swaps, options etc.



Disclosure
of Fair Value


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


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


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


At
year-end 2003, the fair values calculated on the Companys assets were 1.9%
above the carrying values versus 0.3% under the carrying values at year-end
2002.



Other
Matters


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



ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


The
information required by Item 7A of Form 10-K is contained in the Market Risk
Management section of Item 7  Managements Discussion and
Analysis of Financial Condition and Results of Operation on page 45.



ITEM 
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                          | Page
|--------------------------------------------------------- | ----
|Independent Auditors' Report                              |     
|Consolidated Balance Sheets, December 31, 2003 and 2002   |     
|Consolidated Statements of Income for the years           |     
|ended December 31, 2003, 2002 and 2001                    |     
|Consolidated Statements of Cash Flows for the years ended |     
|December 31, 2003, 2002 and 2001                          |     
|Consolidated Statements of Shareholders' Equity for the   |     
|years ended December 31, 2003, 2002 and 2001              |     
|Notes  to Consolidated Financial Statements               |     

|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.



















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, 2003 and 2002, and the related
consolidated statements of income, shareholders equity and cash flows for
each of the three years in the period ended December 31, 2003. 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, 2003 and 2002, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2003 in
conformity with accounting principles generally accepted in the United States of
America.



/s/ DELOITTE
& TOUCHE LLP



San
Francisco, CaliforniaFebruary 19, 2004










Consolidated
Balance Sheets  Central Coast Bancorp and Subsidiary

In
thousands (except share data)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|December 31,                                                      | 2003 | 2002         
|----------------------------------------------------------------- | ---- | -------------
|Assets                                                            |     
|Cash and due from banks                                           |      | $      54,446
|Federal funds sold                                                |      | 47,017       
|                                                                 
|Total cash and equivalents                                        |      | 101,463      
|Available-for-sale securities at fair value                       |      | 153,727      
|Loans:                                                            |     
|Commercial                                                        |      | 236,836      
|Real estate-construction                                          |      | 46,266       
|Real estate-other                                                 |      | 489,213      
|Consumer                                                          |      | 11,540       
|Deferred loan fees, net                                           |      | (1,114       
|                                                                 
|Total loans                                                       |      | 782,741      
|Allowance for loan losses                                         |      | (16,590      
|                                                                 
|Net Loans                                                         |      | 766,151      
|                                                                 
|Premises and equipment, net                                       |      | 2,787        
|Accrued interest receivable and other assets                      |      | 13,712       
|                                                                 
|Total assets                                                      |      | $ 1,037,840  
|                                                                 
|Liabilities and Shareholders Equity                              |     
|Deposits:                                                         |     
|Demand, noninterest bearing                                       |      | $    321,980 
|Demand, interest bearing                                          |      | 113,215      
|Savings                                                           |      | 232,610      
|Time                                                              |      | 270,305      
|                                                                 
|Total deposits                                                    |      | 938,110      
|Accrued interest payable and other liabilities                    |      | 10,135       
|                                                                 
|Total liabilities                                                 |      | 948,245      
|                                                                 
|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 31,250,000 shares;        |     
|outstanding: 9,927,999 and 9,015,675 shares                       |     
|at December 31, 2003 and 2002                                     |      | 66,860       
|Shares held in deferred compensation trust (411,191 and 373,810   |     
|shares at December 31, 2003 and 2002), net of deferred obligation |      | -            
|Retained earnings                                                 |      | 21,502       
|Accumulated other comprehensive income, net of taxes of           |     
|$875 in 2003 and $994 in 2002                                     |      | 1,233        
|                                                                 
|Total shareholders' equity                                        |      | 89,595       
|                                                                 
|Total liabilities and shareholders' equity                        |      | $ 1,037,840  
|                                                                 
|                                                                  |     

|See
notes to Consolidated Financial Statements









Consolidated
Statements of Income Central Coast Bancorp and Subsidiary

In
thousands (except per share  data)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Years Ended December 31,                 | 2003 | 2002       | 2001
|---------------------------------------- | ---- | ---------- | ----
|Interest Income                         
|Loans (including fees)                   |      | $ 43,924   |     
|Investment securities                    |      | 4,982      |     
|Federal funds sold                       |      | 303        |     
|                                        
|Total interest income                    |      | 49,209     |     
|                                        
|Interest Expense                         |     
|Interest on deposits                     |      | 11,148     |     
|Other                                    |      | 418        |     
|                                        
|Total interest expense                   |      | 11,566     |     
|                                        
|Net Interest Income                      |      | 37,643     |     
|Provision for Loan Losses                |      | (1,475     | )   
|                                        
|Net Interest Income after                |     
|Provision for Loan Losses                |      | 36,168     |     
|                                        
|Noninterest Income                       |     
|Service charges on deposits              |      | 3,120      |     
|Other income                             |      | 2,497      |     
|                                        
|Total noninterest income                 |      | 5,617      |     
|                                        
|Noninterest Expenses                     |     
|Salaries and benefits                    |      | 13,506     |     
|Occupancy                                |      | 2,555      |     
|Furniture and equipment                  |      | 1,921      |     
|Other                                    |      | 5,828      |     
|                                        
|Total noninterest expenses               |      | 23,810     |     
|                                        
|Income Before Provision for Income Taxes |      | 17,975     |     
|Provision for Income Taxes               |      | 6,406      |     
|                                        
|Net Income                               |      | $ 11,569   |     
|                                        
|Basic Earnings per Share                 |      | $     1.06 |     
|Diluted Earnings per Share               |      | $     1.01 |     
|                                        
|                                         |     

|See Notes
to Consolidated Financial Statements








Consolidated Statements
of Cash FlowsCentral Coast Bancorp and SubsidiaryIn thousands
|--------------------------------------------------------------------------------------------------------------------------------------------

|Years ended December 31,                                  | 2003 | 2002       | 2001
|--------------------------------------------------------- | ---- | ---------- | ----
|Cash Flows from Operations:                               |     
|Net income                                                |      | $   11,569 |     
|Reconciliation of net income to net cash provided         |     
|by operating activities:                                  |     
|Provision for loan losses                                 |      | 1,475      |     
|Depreciation                                              |      | 1,296      |     
|Amortization and accretion                                |      | 966        |     
|Provision for deferred income taxes                       |      | (789       | )   
|Gain on sale of securities                                |      | (590       | )   
|Net (gain) loss on sale of equipment                      |      | (12        | )   
|Gain on sale of other real estate owned                   |      | (52        | )   
|Decrease (increase) in accrued interest receivable        |     
|and other assets                                          |      | (942       | )   
|Increase (decrease) in accrued interest                   |     
|payable and other liabilities                             |      | 509        |     
|(Decrease) increase in deferred loan fees                 |      | 78         |     
|                                                         
|Net cash provided by operations                           |      | 13,508     |     
|                                                         
|Cash Flows from Investing Activities:                     |     
|Proceeds from maturities of available-for-sale securities |      | 87,029     |     
|Proceeds from sale of available-for-sale securities       |      | 19,183     |     
|Purchase of available-for-sale securities                 |      | (153,026   | )   
|Net increase in loans                                     |      | (37,647    | )   
|Proceeds from sale of other real estate owned             |      | 426        |     
|Proceeds from sale of equipment                           |      | 12         |     
|Purchases of equipment                                    |      | (1,124     | )   
|                                                         
|Net cash used in investing activities                     |      | (85,147    | )   
|                                                         
|Cash Flows from Financing Activities:                    
|Net increase in deposit accounts                          |      | 111,608    |     
|Net increase (decrease) in other borrowings               |      | (5,242     | )   
|Cash received for stock options exercised                 |      | 121        |     
|Cash paid for shares repurchased                          |      | -          |     
|                                                         
|Net cash provided by financing activities                 |      | 106,487    |     
|                                                         
|Net increase (decrease) in cash and equivalents           |      | 34,848     |     
|Cash and equivalents, beginning of year                   |      | 66,615     |     
|                                                         
|Cash and equivalents, end of year                         |      | $ 101,463  |     
|                                                         
|                                                          |     

|Noncash
Investing and Financing Activities:


The
Company obtained $2,761 and $591 in real estate (OREO) in 2003 and 2002,
respectively, in connection with foreclosures of delinquent loans (none in
2001). In 2003 $2,700 of loans were made related to the sale of the OREO. In
2002 and 2001stock option exercises and stock repurchases totaling $ 263 and
$84, respectively were performed through a stock for stock exercise
under the Companys stock option and deferred compensation plans . There
were none in 2003 (see Note 9).
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                             |  |          | 
|---------------------------- |  | -------- | 
|Other Cash Flow Information:
|Interest paid                |  | $11,714  | 
|Income taxes paid            |  | $  7,497 | 
|                            
|                             | 

|See
Notes to Consolidated Financial Statements








Consolidated
Statements of Shareholders EquityCentral Coast Bancorp and SubsidiaryIn
thousands (except share data)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Years Ended December 31,           | Common Stock | Retained  | Accululated Other Comprehensive |         
|---------------------------------- | ------------ | --------- | ------------------------------- | --------
|
|Balances, January 1, 2001          |              | 8,402,498 |                                 | $ 44,472
|Net income                         |              | -         |                                 | -       
|Changes in unrealized gains/losses |             
|on securities available for sale,  |             
|net of taxes of $511               |              | -         |                                 | -       
|Reclassification adjustment for    |             
|gains included in income,          |             
|net of taxes of $69                |              | -         |                                 | -       
|                                  
|Total comprehensive income         |              |           |                                 |         
|                                  
|10% stock dividend                 |              | 836,410   |                                 | 11,098  
|Stock options exercised            |              | 38,291    |                                 | 203     
|Shares repurchased                 |              | (313,419  | )                               | (4,940  
|Tax benefit of stock options       |             
|exercised                          |              | -         |                                 | 65      
|                                  
|Balances, December 31, 2001        |              | 8,963,780 |                                 | 50,898  
|Net income                         |              | -         |                                 | -       
|Changes in unrealized gains/losses |             
|on securities available for sale,  |             
|net of taxes of $1,334             |              | -         |                                 | -       
|Reclassification adjustment for    |             
|gains included in income,          |             
|net of taxes of $42                |              | -         |                                 | -       
|                                  
|Total comprehensive income         |              |           |                                 |         
|                                  
|Stock options exercised            |              | 51,895    |                                 | 221     
|Tax benefit of stock options       |             
|exercised                          |              | -         |                                 | 170     
|                                  
|Balances, December 31, 2002        |              | 9,015,675 |                                 | 51,289  
|                                  
|Net income                         |              | -         |                                 | -       
|Changes in unrealized gains/losses |             
|on securities available for sale,  |             
|net of taxes of $121               |              | -         |                                 | -       
|Reclassification adjustment for    |             
|gains included in income,          |             
|net of taxes of $242               |              | -         |                                 | -       
|                                  
|Total comprehensive income         |              |           |                                 |         
|                                  
|10% stock dividend                 |              | 901,567   |                                 | 15,450  
|Stock options exercised            |              | 10,757    |                                 | 75      
|Tax benefit of stock options       |             
|exercised                          |              | -         |                                 | 46      
|                                  
|Balances, December 31, 2003        |              | 9,927,999 |                                 | $ 66,860
|                                  

|See
Notes to Consolidated Financial Statements







NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

Central
Coast Bancorp and Subsidiary Years ended December 31, 2003, 2002 and 2001


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 relates
to the determination of the allowance for loan losses.


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


Basis
of presentation  Stock dividend. On January 26, 2004 the Board of
Directors declared a 10% stock dividend, which will be distributed on February
27, 2004, to shareholders of record as of February 12, 2004. All earnings per
share data and share data related to the stock option information have been
retroactively adjusted to reflect the above dividend as well as a 10% stock
dividend in January 2003 and a 5 for 4 stock split in January 2002.


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


Investment
securities are classified at the time of purchase into one of three
categories: held-to-maturity, trading or available-for-sale. Investment
securities classified as held-to-maturity are measured at amortized
cost based on the Companys positive intent and ability to hold such
securities to maturity. Trading securities are bought and held
principally for the purpose of selling them in the near term and are carried at
market value with a corresponding recognition of unrecognized holding gain or
loss in the results of operations. The remaining investment securities are
classified as available-for-saleand are measured at market
value with a corresponding recognition of the unrealized holding gain or loss
(net of tax effect) as a separate component of shareholders equity until
realized. Accretion of discounts and amortization of premiums arising at
acquisition are included in income using methods approximating the effective
interest method. Gains and losses on sales of investments, if any, are
determined on a specific identification basis. At December 31, 2003 and 2002 all
of the Companys investments were classified as available-for-sale.


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


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


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


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


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


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


Intangible
assetsrepresenting 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 fundsconsist of $4,474,000 borrowed from the Federal Home Loan
Bank collateralized by certain real estate loans and investment securities and
are included in other liabilities.


Stock
compensation.The Company accounts for its stock-based awards using the
intrinsic value method in accordance with Accounting Principles Board No. 25,
Accounting for Stock Issued to Employees and its related interpretations.
No compensation expense has been recognized in the financial statements for
employee stock arrangements, as the Companys stock option plans provide
for the issuance of options at a price of no less than the fair market value at
the date of the grant. Statement of Financial Accounting Standards (SFAS) No.
123, Accounting for Stock-Based Compensation, requires the disclosure of
pro forma net income and earnings per share had the Company adopted the fair
value method as of the beginning of fiscal year 1995. Under SFAS No. 123, the
fair value of stock-based awards to employees is calculated through the use of
option pricing models, even though such models were developed to estimate the
fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Companys stock option
awards. These models also require subjective assumptions, including future stock
price volatility and expected time to exercise, which greatly affect the
calculated values. The Companys calculations were made using the
Black-Scholes option pricing model with the following assumptions: expected
life, four years following vesting for 2003, 2002 and 2001; average stock
volatility of 16.1% for 2003, 16.0% for 2002 and 15.6% for 2001; risk free
interest rates ranging from 2.77% to 6.57% for 2003, 2.92% to 6.57% for 2002,
and 4.14% to 6.57% for 2001; and no dividends during the expected term for 2003,
2002 and 2001. The Companys calculations are based on a multiple option
valuation approach and forfeitures are recognized as they occur.


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

In
thousands (except per share data)
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Years Ended December 31,                       | 2003 | 2002     | 2001 |          |    
|---------------------------------------------- | ---- | -------- | ---- | -------- | ---
|Net Income - As Reported                       |      | $ 11,569 |      | $ 10,528 |    
|Compensation expense from amortization of fair |     
|value of stock awards                          |      | (437     | )    | (150     | )  
|Taxes on compensation expense                  |      | 179      |      | 64       |    
|                                              
|Pro Forma Net Income                           |      | $ 11,311 |      | $ 10,442 |    
|                                              
|Basic Earnings per Share - As Reported         |      | $    1   | .06  | $    0   | .97
|Pro Forma Basic Earnings per Share             |      | $    1   | .04  | $    0   | .96
|Diluted Earnings per Share - As Reported       |      | $    1   | .01  | $    0   | .92
|Pro Forma Diluted Earnings per Share           |      | $    0   | .99  | $    0   | .92
|                                              

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


Derivative
Instruments and hedging activities.The Company did not enter into
freestanding derivative contracts and was not involved in any hedging activities
and did not identify any embedded derivatives requiring bifurcation and separate
valuation during 2003, 2002 or 2001.


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


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


Recently
issued accounting pronouncements.Effective January 1, 2003, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities, which addresses accounting for restructuring and similar
costs for restructuring activities initiated after December 31, 2002.. SFAS No.
146 supersedes previous accounting guidance, principally Emerging Issues Task
Force Issue No. 94-3. SFAS No. 146 requires that the liability for costs
associated with an exit or disposal activity be recognized when the liability is
incurred. Under Issue 94-3, a liability for an exit cost was recognized at the
date of a companys commitment to an exit plan. SFAS No. 146 also
establishes that the liability should initially be measured and recorded at fair
value. The adoption of SFAS No. 146 did not have any effect on the financial
position, results of operations, or cash flows, as the Company did not recognize
any restructuring costs in 2003.


In
November 2002, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation No. (FIN) 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others.FIN 45 expands on the accounting
guidance of Statements No. 5, 57, and 107 and incorporates without change the
provisions of FIN 34, which is superceded. FIN 45 elaborates on the existing
disclosure requirements for most guarantees and requires that guarantors
recognize a liability for the fair value of guarantees at inception. The
disclosure requirements of FIN 45 were effective for financial statement periods
ending after December 15, 2002. The initial recognition and measurement
provisions of FIN 45 are applied on a prospective basis to guarantees issued or
modified after December 31, 2002. The adoption of the measurement provisions of
FIN 45 did not have a material effect on the Companys financial position,
results of operations, or cash flows.


In
January 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities.The purpose of this interpretation is to provide guidance on how
to identify a variable interest entity (VIE) and to determine when the assets,
liabilities, noncontrolling interests, and results of operations of a VIE need
to be included in a companys consolidated financial statements. A company
that holds variable interests in an entity will need to consolidate that entity
if the companys interest in the VIE is such that the company will absorb a
majority of the VIEs expected losses and/or receive a majority of the
VIEs expected residual returns, if they occur. New disclosure requirements
are also prescribed by FIN 46. Fin 46 is effective for all VIEs created
after January 31, 2003 and becomes effective for VIEs that existed before
February 1, 2003 for the first period ending after December 15, 2003. As of
December 31, 2003, the Company does not believe it has any VIEs for which
this interpretation would require consolidation.


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, 2003 the
Company maintained reserves of approximately $1,771,000 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, 2003 and
2002 consisted of the following:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In thousands                        | Amortized Cost | Unrealized Gain | Unrealized Loss | Market Value
|----------------------------------- | -------------- | --------------- | --------------- | ------------
|December 31, 2003                  
|Available for sale securities:     
|U.S. Treasury and Agency Securities |                | $  90,405       |                 | $   507     
|State and Political Subdivision     |                | 48,281          |                 | 2,605       
|Corporate Debt Securities           |                | 11,565          |                 | -           
|Other                               |                | 1,367           |                 | -           
|                                   
|Total investment securities         |                | $151,618        |                 | $3,112      
|                                   
|December 31, 2002                   |               
|Available for sale securities:      |               
|U.S. Treasury and Agency Securities |                | $  40,027       |                 | $1,429      
|State and Political Subdivision     |                | 52,045          |                 | 1,985       
|Corporate Debt Securities           |                | 11,547          |                 | -           
|Other                               |                | 1,306           |                 | -           
|                                   
|Total investment securities         |                | $104,925        |                 | $3,414      
|                                   

|As of
December 31, 2003, unrealized losses on securities were comprised of the
following:
|-----------------------------------------------------------------------------------------

|                                    | Less Than 12 Months | More Than 12 Months | Total
|----------------------------------- | ------------------- | ------------------- | -----
|
|December 31, 2003                  
|Available for sale securities:     
|U.S. Treasury and Agency Securities |                     | $46,977             |      
|State and Political Subdivision     |                     | -                   |      
|Corporate Debt Securities           |                     | -                   |      
|                                   
|Total investment securities         |                     | $46,977             |      
|                                   

|At
December 31, 2003, the Company held 150 securities, of which 14 had market
values below amortized cost. Of these 14 securities, 5 securities have been
carried  with an unrealized loss for over 12 consecutive
months.  The lower market values are due to either current interest rates
or new preferred issue rates being greater at December 31, 2003.  No
security has sustained an other than temporary  loss of value due to a
downgrade in credit ratings.  All principal is expected to be paid when the
security matures or is called by the issuer.  The lower market values are
considered temporary and not a permanent impairment.


The
amortized cost and estimated fair value of debt securities at December 31, 2003,
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.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In thousands                               | Amortized Cost | Market Value
|------------------------------------------ | -------------- | ------------
|Available for sale securities:            
|Maturing within 1 year                     |                | $       101 
|Maturing after 1 year but within 5 years   |                | 18,353      
|Maturing after 5 years but within 10 years |                | 48,354      
|Maturing after 10 years                    |                | 83,443      
|Other                                      |                | 1,367       
|                                          
|Total investment securities                |                | $151,618    
|                                          

|At
December 31, 2003 and 2002, securities with a market value of $89,968,000 and
$90,952,000 were pledged as collateral for deposits of public funds and other
purposes as required by law or contract.


In
2003, security sales resulted in gross realized losses of $21,000 and gross
realized gains of $611,000. In 2002, security sales resulted in gross realized
losses of $23,000 and gross realized gains of $125,000. In 2001, security sales
resulted in gross realized losses of $26,000 and gross realized gains of
$194,000.


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 $600,000,000. The Company monitors the effects of current and
expected market conditions and other factors on the collectibility of real
estate loans. When, in managements judgment, these loans are impaired,
appropriate reserves for losses are provided. The more significant assumptions
management considers involve estimates of the following: lease, absorption and
sale rates; real estate values and rates of return; operating expenses;
inflation; and sufficiency of collateral independent of the real estate
including, in limited instances, personal guarantees.


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


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

|In thousands                 | 2003 | 2002     | 2001
|---------------------------- | ---- | -------- | ----
|Balance, beginning of year   |      | $ 15,235 |     
|Provision charged to expense |      | 1,475    |     
|Loans charged off            |      | (473     | )   
|Recoveries                   |      | 353      |     
|                            
|Balance, end of year         |      | $ 16,590 |     
|                            

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


Management
believes that the allowance for loan losses at December 31, 2003 is adequate,
based on information currently available. However, no prediction of the ultimate
level of loans charged off in future years can be made with any certainty.


Non-performing
loans at December 31 are summarized below:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In thousands                                 | 2003 | 2002     
|-------------------------------------------- | ---- | ---------
|Past due 90 days or more and still accruing:
|Real estate                                  |      | $       -
|Commercial                                   |      | -        
|Consumer and other                           |      | -        
|                                            
|                                             |      | -        
|                                            
|Nonaccrual:                                  |     
|Real estate                                  |      | 8,973    
|Commercial                                   |      | 626      
|Consumer and other                           |      | 7        
|                                            
|                                             |      | 9,606    
|                                            
|Restructured (in compliance with modified    |     
|terms) - Commercial                          |      | 835      
|                                            
|Total nonperforming loans                    |      | $10,441  
|                                            

|Interest
due but excluded from interest income on nonaccrual loans was approximately
$650,000 in 2003, $24,000 in 2002, and $45,000 in 2001. Interest income
recognized from payments received on nonaccrual loans was $73,000, $40,000 and
$69,000 in 2003, 2002 and 2001, respectively.


At
December 31, 2003, the recorded investment in loans that are considered impaired
under SFAS No. 114 was $10,694,000 of which $9,606,000 is included as nonaccrual
loans above, and $835,000 is included as restructured loans above. At December
31, 2002, the recorded investment in loans that was considered impaired under
SFAS No. 114 was $2,618,000 of which $870,000 is included as nonaccrual loans
above, and $933,000 is included as restructured loans above. Such impaired loans
had valuation allowances totaling $2,516,000 and $1,165,000, in 2003 and 2002,
respectively, based on the estimated fair values of the collateral. The average
recorded investment in impaired loans during 2003 and 2002 was $11,918,000 and
$2,338,000, respectively. The Company recognized interest income on impaired
loans of $244,000, $143,000 and $191,000 in 2003, 2002 and 2001, respectively
(including interest income of $69,000, $66,000 and $98,000 in 2003, 2002 and
2001 on restructured loans). At December 31, 2003, 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, 2003 or
2002.


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

|In thousands                              | 2003 | 2002      
|----------------------------------------- | ---- | ----------
|Land                                      |      | $      121
|Building                                  |      | 300       
|Furniture and equipment                   |      | 7,889     
|Leasehold improvement                     |      | 2,893     
|                                         
|                                          |      | 11,203    
|Accumulated depreciation and amortization |      | (8,416    
|                                         
|Premises and equipment, net               |      | $   2,787 
|                                         

|The
Company also leases facilities under agreements that expire in March 2003
through October 2009 with options to extend for three to twenty years. These
include two facilities leased from shareholders at terms and conditions which
management believes are consistent with the market. Rental rates are adjusted
annually for changes in certain economic indices. Rental expense was
approximately $1,075,000, $793,000 and $675,000, including rent expense to
related parties of $129,000, $130,000 and $133,000 in 2003, 2002 and 2001
respectively. The minimum annual rental commitments under these leases,
including the remaining rental commitment under the leases to shareholders are
as follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In thousands | Operating Leases
|------------ | ----------------
|2004         |                 
|2005         |                 
|2006         |                 
|2007         |                 
|2008         |                 
|Thereafter   |                 
|            
|Total        |                 
|            

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

|In thousands | 2003 | 2002    | 2001 |         |  
|------------ | ---- | ------- | ---- | ------- | -
|Current:    
|Federal      |      | $ 5,065 |      | $ 5,063 |  
|State        |      | 2,130   |      | 2,129   |  
|            
|Total        |      | 7,195   |      | 7,192   |  
|            
|Deferred:    |     
|Federal      |      | (559    | )    | (1,120  | )
|State        |      | (230    | )    | (469    | )
|            
|Total        |      | (789    | )    | (1,589  | )
|            
|Total        |      | $ 6,406 |      | $ 5,603 |  
|            

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

|                                  | 2003 | 2002 | 2001 |    |      |   
|--------------------------------- | ---- | ---- | ---- | -- | ---- | --
|Statutory Federal income tax rate |      | 35   | .0%  | 35 | .0%  | 35
|State income taxes (net of        |     
|Federal income tax benefit)       |      | 7    | .0%  | 6  | .8%  | 6 
|Tax exempt interest income        |      | (6   | .2%) | (6 | .7%) | (6
|Other                             |      | (0   | .1%) | (0 | .4%) | (0
|                                 
|Effective tax rate                |      | 35   | .7%  | 34 | .7%  | 35
|                                 

|The
tax effects of temporary differences that give rise to significant portions of
the deferred tax assets and deferred tax liabilities at December 31, 2003 and
2002, are presented below:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In thousands                                     | 2003 | 2002    |   |         |   | 
|------------------------------------------------ | ---- | ------- | - | ------- | - | 
|Deferred tax assets:                            
|Provision for loan losses                        |      | $ 7,439 |   | $ 6,831 |   | 
|Unrealized gain on available for sale securities |      | (875    | ) | (994    | )
|Salary continuation plan                         |      | 986     |   | 862     |  
|Depreciation and amortization                    |      | (87     | ) | 108     |  
|State income taxes                               |      | (19     | ) | 52      |  
|Excess serving rights                            |      | 7       |   | 10      |  
|Interest on nonaccrual loans                     |      | 310     |   | 18      |  
|Other                                            |      | 270     |   | 240     |  
|                                                
|Net deferred tax asset                           |      | $ 8,031 |   | $ 7,127 |  
|                                                

|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, 2003, 2002
and 2001 consists of the following:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In thousands                         | 2003 | 2002   | 2001
|------------------------------------ | ---- | ------ | ----
|Professional fees                    |      | $1,023 |     
|Other real estate operating expenses |      | 674    |     
|Customer expenses                    |      | 604    |     
|Marketing                            |      | 588    |     
|Stationary and supplies              |      | 398    |     
|Shareholder and director             |      | 280    |     
|Data processing                      |      | 259    |     
|Amortization of intangibles          |      | 257    |     
|Dues and assessments                 |      | 246    |     
|Insurance                            |      | 222    |     
|Other                                |      | 1,277  |     
|                                    
|Total                                |      | $5,828 |     
|                                    

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

|In thousands (except per share data)                 | 2003 | 2002      | 2001
|---------------------------------------------------- | ---- | --------- | ----
|Basic Earnings Per Share                            
|Net income                                           |      | $11,569   |     
|Weighted average common shares outstanding           |      | 10,912    |     
|                                                    
|Basic earnings per share                             |      | $    1.06 |     
|                                                    
|Diluted Earnings Per Share                           |     
|Net Income                                           |      | $11,569   |     
|Weighted average common shares outstanding           |      | 10,912    |     
|Dilutive effect of outstanding options               |      | 490       |     
|                                                    
|Weighted average common shares outstanding - Diluted |      | 11,402    |     
|                                                    
|Diluted earnings per share                           |      | $    1.01 |     
|                                                    

|There
were 658 and 6,000 option shares in 2003 and 2002, respectively (none in 2001),
considered to be antidilutive and therefore omitted from the above calculations
of diluted earnings per share.


Note
9. Employee Benefit Plans. The Company has two stock option plans under
which incentive stock options or nonqualified stock options have been granted to
certain key employees or directors to purchase shares of common stock. All stock
option information has been adjusted to give effect to all stock splits and
dividends. Options are granted at a price not less than the fair market value of
the common stock on the date of grant. Options vest over various periods not in
excess of ten years from date of grant and expire not more than ten years from
date of grant. As of December 31, 2003, 1,911,993 shares are available for
future grants under the plans.


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

|                                                                    | Shares | Weighted Average Exercise Price |  
|------------------------------------------------------------------- | ------ | ------------------------------- | -
|Balances, January 1, 2001                                           |        |                                 |  
|948,776 exercisable at a weighted average exercise price of $5.24   |        | 1,285,871                       |  
|Granted (weighted average fair value $4.09 per share)               |        | 6,050                           |  
|Exercised                                                           |        | (52,980                         | )
|                                                                   
|Balances, December 31, 2001                                         |       
|1,030,953 exercisable at a weighted average exercise price of $5.86 |        | 1,238,941                       |  
|Granted (weighted average fair value $4.34 per share)               |        | 12,100                          |  
|Expired                                                             |        | (2,773                          | )
|Exercised                                                           |        | (78,963                         | )
|                                                                   
|Balances, December 31, 2002                                         |       
|1,060,140 exercisable at a weighted average exercise price of $6.22 |        | 1,169,305                       |  
|Granted (weighted average fair value $15.09 per share)              |        | 202,290                         |  
|Exercised                                                           |        | (11,834                         | )
|                                                                   
|Balances, December 31, 2003                                         |       
|1,147,387 exercisable at a weighted average exercise price of $6.55 |        | 1,359,761                       |  
|                                                                   

|Additional
information regarding options outstanding as of December 31, 2003 is as follows:
|-------------------------------------------------------------------------------------------

|          | Options Outstanding | Options Exercisable |  
|--------- | ------------------- | ------------------- | -
|
|$       3 | .37                 |                     | -
|5         | .36                 |                     | -
|8         | .42                 |                     | -
|13        | .13                 |                     | -
|         
|$       3 | .37                 |                     | -
|         

|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 2003, 2002 and 2001,
which are funded currently, totaled $157,000, $134,000 and $129,000,
respectively.



Salary
Continuation Plan


The
Company has a salary continuation plan for three officers, which provides for a
stated retirement benefit for each participant upon reaching age 63. The Company
accrues such post-retirement benefits over the vesting periods (of five or ten
years) based on a discount rate of 7.5%. In the event of a change in control of
the Company, the officers benefits will fully vest. The Company recorded
compensation expense of $109,000, $101,000 and $94,000 in 2003, 2002 and 2001.
Accrued compensation payable under the salary continuation plan totaled
$1,444,000 and $1,335,000 at December 31, 2003 and 2002.



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 2003, 2002 and 2001 no shares were tendered under the plan. At
December 31, 2002, 411,191 shares (with a fair value of approximately
$7,414,000) were held in the Deferred Compensation Trust.


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

|                      | December 31, 2003 | December 31, 2002 |  |          | 
|--------------------- | ----------------- | ----------------- |  | -------- | 
|
|Financial Assets     
|Cash and equivalents  |                   | $101,463          |  | $101,463 | 
|Securities            |                   | 153,727           |  | 153,727  | 
|Loans, net            |                   | 766,151           |  | 785,874  | 
|                      |                  
|Financial Liabilities |                  
|Demand deposits       |                   | 435,195           |  | 435,195  | 
|Time Deposits         |                   | 270,305           |  | 296,067  | 
|Savings               |                   | 232,610           |  | 232,610  | 
|Other borrowings      |                   | 4,474             |  | 4,474    | 
|                     

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


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


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


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


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


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


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


Off-balance
sheet instruments  The fair value of commitments to extend credit is
estimated using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the present
credit-worthiness of the counterparties. The fair values of standby and
commercial letters of credit are based on fees currently charged for similar
agreements or on the estimated cost to terminate them or otherwise settle the
obligations with the counterparties. The fair values of such off-balance sheet
instruments were not significant at December 31, 2003 and 2002, therefore, have
not been included in the table above.


Note
11. Commitments and Contingencies. The Company is involved in certain legal
actions arising from normal business activities. Except as discussed below,
management believes the ultimate resolution of all other pending legal actions
will not have a material effect on the financial statements.


During
2003, the Bank was served with an Application for a Writ of Mandate by the City
of King which sought the return from the Bank of a $4,400,000 certificate of
deposit assigned to the Bank as collateral security for a $4,400,000 loan made
by the Bank to a private real estate developer (a limited liability company).
The loan to the developer was made in conjunction with a redevelopment project
with the City of King and/or its Community Development Agency. The City of King
alleged the certificate of deposit was general fund monies it deposited with the
Bank and was not intended as a pledge for a loan. The certificate of deposit
matured on March 30, 2003 and the $4,400,000 loan became due on April 3, 2003.
The Bank advised the City of King of its intention to apply the proceeds of the
certificate of deposit to payment of the loan. Another loan made by the Bank to
the developer of this project is secured by a first deed of trust on the project
in the amount of $4,600,000. A notice of default on this loan was filed on April
21, 2003. Because the loans were not paid on the due dates, the Bank considers
the loans impaired under applicable accounting standards. The aggregate amount
of the two loans currently outstanding and past due in respect of this
redevelopment project is $9,000,000.


On
June 11, 2003, a hearing on the Application for Writ of Mandate by the City of
King was held in the Monterey County Superior Court. At the hearing, the
Superior Court Judge made a preliminary ruling that there was insufficient
evidence of a legislative act by the City of King and that the Mayor of the City
of King therefore lacked authority to pledge or assign the certificate of
deposit to the Bank.


On
September 15, 2003, the Monterey County Superior Court issued a Judgment
confirming its preliminary ruling in the Writ of Mandate proceeding which was
held on June 11, 2003. The Judgment ordered that a Peremptory Writ of Mandate
issue requiring the Bank to return to the City of King the principal balance of
the Certificate of Deposit in the amount of $4,400,000 together with interest
accrued at the rate of 6% per annum from March 1, 2003 through the date of the
Judgment.


On
September 30, 2003, Bank counsel filed pleadings requesting, among other
matters, to stay enforcement of the Judgment pending a motion for new trial and
to vacate and set aside the Judgment, Statement of Decision contained therein,
and the Writ of Mandate, or to stay enforcement thereof pending the Banks
appeal of the Judgment.


On
November 14, 2003, a hearing was held in the Monterey County Superior Court to
consider post-judgment motions filed by the Bank in the Banks dispute with
the City of King related to a Certificate of Deposit in the amount of
$4,400,000. At the hearing, among other matters, the Banks motion for a
new trial was denied by the Court. The Bank therefore filed an appeal on
November 17, 2003 with the Sixth District Court of Appeal regarding the Judgment
issued on September 15, 2003 by the Monterey County Superior Court as described
in greater detail below.


On
November 21, 2003, the Bank and the City of King entered into a Stipulation to
stay the Judgment pending appeal which included in its provisions an agreement
to permit the Bank to retain the Certificate of Deposit during the appeal
process and prior to a final determination, subject, however, to the payment by
the Bank to the City of King of interest thereon at the rate of six percent (6%)
per annum at specified times. The Banks payment of interest and the
Citys acceptance of interest payments, as well as the stipulations of the
parties, does not prejudice the Banks right to contest the obligation to
pay interest and recover amounts paid pursuant to the Stipulation or the
Citys right to contend that it is entitled to recover post-judgment
interest at the higher legal rate of ten percent (10%) per annum.


As
stated above, the Bank has filed an appeal of the Judgment. If the Judgment
remains in effect despite the appeal by the Bank and therefore becomes final,
the Bank could sustain the loss of the certificate of deposit as collateral
security for the loan. In such event, the entire amount of $4,400,000 as
specified in the Judgment would likely become a charge to the Banks
allowance for loan losses because the nature and extent of other sources of
recovery available to the Bank are uncertain at present.


In
addition to the foregoing, the Bank filed an appeal on January 18, 2004, to
reverse an order issued by the Court on December 16, 2003, requiring the Bank to
pay the attorneys fees and costs incurred by the City of King in
connection with the litigation.


The
outcome of this dispute continues to be uncertain at the present time; however,
the Bank intends to vigorously defend its rights in respect of the certificate
of deposit on appeal of the Judgment.


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 $219,963,000 and $186,982,000 at December 31, 2003
and 2002 and standby letters of credit and financial guarantees of $8,403,000
and $5,169,000 at December 31, 2003 and 2002. The Bank does not anticipate any
losses as a result of these commitments.


Approximately
$29,415,000 of loan commitments outstanding at December 31, 2003 relate to
construction loans and are expected to fund within the next twelve months. The
remainder relate primarily to revolving lines of credit or other commercial
loans. Many of these loan commitments are expected to expire without being drawn
upon. Therefore the total commitments do not necessarily represent future cash
requirements.


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


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


Note
12. Related Party Loans. The Company makes loans to officers and directors
and their associates subject to loan committee approval and ratification by the
Board of Directors. These transactions are on substantially the same terms as
those prevailing at the time for comparable transactions with unaffiliated
parties and do not involve more than normal risk of collectibility. An analysis
of changes in related party loans for the year ended December 31, 2003 is as
follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Beginning Balance | Additions | Repayments  | Ending Balance |             |  |           
|----------------- | --------- | ----------- | -------------- | ----------- |  | ----------
|$3,602,000        |           | $10,100,000 |                | $10,856,000 |  | $2,846,000
|                 

|Committed
lines of credit, undisbursed loans and standby letters of credit to directors
and officers were approximately $6,114,000 and $3,226,000 at December 31, 2003
and 2002.


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 consolidated 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, 2003 that the Company meets all capital adequacy requirements to
which it is subject.


As of
December 31, 2003 and 2002, the most recent notifications from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well capitalized the Bank must maintain minimum total risk-based,
Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There
are no conditions or events since that notification that management believes
have changed the institutions category.


The
following table shows the Companys and the Banks actual capital
amounts and ratios as of December 31, 2003 and 2002 as well as the minimum
capital ratios to be categorized as well capitalized under the
regulatory framework:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                         | Actual | For Capital Adequacy Purposes | To Be Categorized Well Capitalized Under Prompt Corrective Action Provisions
|---------------------------------------- | ------ | ----------------------------- | ----------------------------------------------------------------------------
|
|As of December 31, 2003:                 |       
|Total Capital (to Risk Weighted Assets)  |       
|Company                                  |        | $99,038                       |                                                                             
|Community Bank                           |        | 92,172                        |                                                                             
|Tier 1 Capital (to Risk Weighted Assets) |       
|Company                                  |        | 88,321                        |                                                                             
|Community Bank                           |        | 81,563                        |                                                                             
|Tier 1 Capital (to Average Assets)       |       
|Company                                  |        | 88,321                        |                                                                             
|Community Bank                           |        | 81,563                        |                                                                             
|                                        
|As of December 31, 2002:                 |       
|Total Capital (to Risk Weighted Assets)  |       
|Company                                  |        | $86,334                       |                                                                             
|Community Bank                           |        | 79,470                        |                                                                             
|Tier 1 Capital (to Risk Weighted Assets) |       
|Company                                  |        | 76,374                        |                                                                             
|Community Bank                           |        | 69,621                        |                                                                             
|Tier 1 Capital (to Average Assets)       |       
|Company                                  |        | 76,374                        |                                                                             
|Community Bank                           |        | 69,621                        |                                                                             
|                                        

|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
$20,818,000 as of December 31, 2003.


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
$8,284,000 at December 31, 2003. No such advances were made during 2003 or 2002.

Note
14. Central Coast Bancorp (Parent Company Only)



The
condensed financial statements of Central Coast Bancorp follow (in thousands):



Condensed
Balance Sheets
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|December 31,                               | 2003 | 2002    
|------------------------------------------ | ---- | --------
|Assets:                                   
|Cash - interest bearing account with Bank  |      | $  3,541
|Loans                                      |      | 3,612   
|Investment in Bank                         |      | 82,837  
|Premises and equipment, net                |      | 1,127   
|Other Assets                               |      | 1,903   
|                                          
|Total assets                               |      | $93,020 
|                                          
|Liabilities and Shareholders' Equity       |     
|Liabilities                                |      | $  3,425
|Shareholders' Equity                       |      | 89,595  
|                                          
|Total liabilities and shareholders' equity |      | $93,020 
|                                          

|Condensed Income
Statements
|---------------------------

|Years ended December 31,              | 2003 | 2002     | 2001
|------------------------------------- | ---- | -------- | ----
|Management fees                       |      | $ 10,362 |     
|Interest income                       |      | 201      |     
|Other income                          |      | 12       |     
|Cash dividends received from the Bank |      | -        |     
|                                     
|Total income                          |      | 10,575   |     
|Operating expenses                    |      | 10,755   |     
|                                     
|Income before income taxes and equity |     
|in undistributed net income of Bank   |      | (180     | )   
|Provision (credit) for income taxes   |      | (64      | )   
|Equity in undistributed               |     
|net income of Bank                    |      | 11,685   |     
|                                     
|Net income                            |      | 11,569   |     
|Other comprehensive income (loss)     |      | (171     | )   
|                                     
|Total comprehensive income            |      | $ 11,398 |     
|                                     

|Condensed
Statements of Cash Flows
|----------------------------------

|Years ended December 31,                            | 2003 | 2002      | 2001
|--------------------------------------------------- | ---- | --------- | ----
|Operating Activities:                               |     
|Net income                                          |      | $ 11,569  |     
|Reconciliation of  net                              |     
|income to net cash provided                         |     
|by operations:                                      |     
|Equity in undistributed                             |     
|net income of Bank                                  |      | (11,685   | )   
|Depreciation                                        |      | 667       |     
|(Gain) loss on sale of equipment                    |      | (12       | )   
|Increase in other assets                            |      | (156      | )   
|Increase in liabilities                             |      | 768       |     
|                                                   
|Net cash provided by operations                     |      | 1,151     |     
|                                                   
|Investing Activities:                               |     
|Contribution to subsidiary                          |      | -         |     
|Net (increase) decrease in loans                    |      | 324       |     
|Proceeds from sale of equipment                     |      | 12        |     
|Purchases of equipment                              |      | (652      | )   
|                                                   
|Net cash provided by (used in) investing activities |      | (316      | )   
|                                                   
|Financing Activities:                               |     
|Stock repurchases                                   |      | -         |     
|Stock options exercised                             |      | 121       |     
|                                                   
|Net cash provided by (used in) financing activities |      | 121       |     
|                                                   
|Net increase (decrease) in cash                     |      | 956       |     
|Cash balance, beginning of year                     |      | 2,585     |     
|                                                   
|Cash balance, end of year                           |      | $   3,541 |     
|                                                   

|Note
15. Selected Quarterly Information (unaudited)
|---------------------------------------------------

|In thousands (except per share data)      | 2003 | 2002   
|----------------------------------------- | ---- | -------
|
|Interest income                           |      | $12,471
|Interest expense                          |      | 2,741  
|                                         
|Net interest income                       |      | 9,730  
|Provision for loan losses                 |      | 545    
|                                         
|Net interest income after                 |     
|provision for loan losses                 |      | 9,185  
|Total noninterest income                  |      | 1,486  
|Total noninterest expenses                |      | 6,238  
|                                         
|Income before provision for  income taxes |      | 4,433  
|Provision for income taxes                |      | 1,667  
|                                         
|Net income                                |      | $2,766 
|                                         
|Per common share:                         |     
|Basic earnings per share                  |      | $0.26  
|Diluted earnings per share                |      | $0.25  
|                                         

|ITEM
9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING AND FINANCIAL DISCLOSURE.
|-----------------------------------------------------------------------------------------------

| | Not applicable.
| | ---------------

|ITEM 
9A. CONTROLS AND PROCEDURES


(a)
Under the supervision and with the participation of our management, including our principal executive
officer and principal financial officer, we conducted an evaluation of the
effectiveness of our disclosure controls and procedures, as such term is defined
in Rule 13a-15(e) promulgated under the Exchange Act, as of the end of the
period covered by this Annual Report on Form 10-K. Based on their evaluation,
our principal executive officer and principal financial officer concluded that
the Companys disclosure controls and procedures are effective at that
time.


(b)
There was no change in our internal control over financial reporting that
occurred during the fourth quarter of 2003 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.



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 2004 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 2004 Annual
Meeting of Shareholders which will be filed pursuant to Regulation 14A.

ITEM
12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  MANAGEMENT AND RELATED
STOCKHOLDER MATTERS


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 2004 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 2004 Annual
Meeting of Shareholders which will be filed pursuant to Regulation 14A.



ITEM
14. PRINCPAL ACCOUNTANT FEES AND SERVICES


The
information required by Item 14 of Form 10-K is incorporated by reference to the
information contained in the Companys Proxy Statement for the 2004 Annual
Meeting of Shareholders which will be filed pursuant to Regulation 14A.



PART
IV



ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTSON FORM 8-K
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(2) | Financial
Statement Schedules.  Not applicable.
|--- | -----------------------------------------------

|(3) | Exhibits.
|--- | ---------

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

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

|(3.2) | Bylaws,
as amended.
|----- | -------------------

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

|(10.16) | Lease
agreement dated November 18, 2002, related to 439 Alvarado Street,  Monterey, California
incorporated by reference from Exhibit 10.16 to the  Registrants 2002 Annual Report
on Form 10-K filed with the Commission on  March 20, 2003.
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(14.1) | Code
of Ethics
|------ | --------------

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

|(23.1) | Independent
Auditors Consent
|------ | -----------------------------

|(31.1) | Certifications
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|------ | ----------------------------------------------------------------------------------------------------

|(31.2) | Certifications
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|------ | ----------------------------------------------------------------------------------------------------

|(32.1) | Certification
of Central Coast Bancorp by its Chief Executive Officer and Chief  Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | *Denotes management
contracts, compensatory plans or arrangements.
| | ------------------------------------------------------------------

|(b) | Reports
on Form 8-K
|--- | -------------------

|(1) | As
previously reported in the Registrants filings on Forms 8-K filed with  the
Securities and Exchange Commission on April 11, 2003, June 12, 2003, October  9, 2003 and
November 26, 2003, and Form 10-Q for the quarterly periods ended  June 30, 2003 and
September 30, 2003, filed with the Securities and Exchange  Commission on August 13, 2003
and November 12, 2003, respectively, the Bank was  served with an Application for a Writ
of Mandate by the City of King which  sought the return from the Bank of an approximate
$4.4 million certificate of  deposit assigned to the Bank as collateral security for an
approximate $4.4  million loan made by the Bank to a private real estate developer (a
limited  liability company). The loan to the developer was made in conjunction with a
redevelopment project with the City of King and/or its Community Development  Agency. The
City of King alleged the certificate of deposit was general fund  monies it deposited
with the Bank and was not intended as a pledge for a loan.  The certificate of deposit
matured on March 30, 2003 and the $4.4 million loan  became due on April 3, 2003. The
Bank advised the City of King of its intention  to apply the proceeds of the certificate
of deposit to payment of the loan.  Another loan made by the Bank to the developer of
this project is secured by a  first deed of trust on the project in the approximate
amount of $4.6 million. A  notice of default on this loan was filed on April 21, 2003.
Because the loans  were not paid on the due dates, the Bank considers the loans impaired
under  applicable accounting standards. The aggregate amount of the two loans currently
outstanding and past due in respect of this redevelopment project is  approximately $9.0
million.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On June
11, 2003, a hearing on the Application for Writ of Mandate by the City of  King was held
in the Monterey County Superior Court. At the hearing, the  Superior Court Judge made a
preliminary ruling that there was insufficient  evidence of a legislative act by the City
of King and that the Mayor of the City  of King therefore lacked authority to pledge or
assign the certificate of  deposit to the Bank.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On September
15, 2003, the Monterey County Superior Court issued a Judgment  confirming its
preliminary ruling in the Writ of Mandate proceeding which was  held on June 11, 2003.
The Judgment ordered that a Peremptory Writ of Mandate  issue requiring the Bank to
return to the City of King the principal balance of  the Certificate of Deposit in the
approximate amount of $4.4 million dollars  together with interest accrued at the rate of
6% per annum from March 1, 2003  through the date of the Judgment.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On September
30, 2003, Bank counsel filed pleadings requesting, among other  matters, to stay
enforcement of the Judgment pending a motion for new trial and  to vacate and set aside
the Judgment, Statement of Decision contained therein,  and the Writ of Mandate, or to
stay enforcement thereof pending the Banks  appeal of the Judgment.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On November
14, 2003, a hearing was held in the Monterey County Superior Court to  consider
post-judgment motions filed by the Bank in the Banks dispute with  the City of King
related to a Certificate of Deposit in the approximate amount  of $4.4 million dollars.
At the hearing, among other matters, the Banks  motion for a new trial was denied
by the Court. The Bank therefore filed an  appeal on November 17, 2003 with the Sixth
District Court of Appeal regarding  the Judgment issued on September 15, 2003 by the
Monterey County Superior Court  as described in greater detail below.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On November
21, 2003, the Bank and the City of King entered into a Stipulation to  stay the Judgment
pending appeal which included in its provisions an agreement  to permit the Bank to
retain the Certificate of Deposit during the appeal  process and prior to a final
determination, subject, however, to the payment by  the Bank to the City of King of
interest thereon at the rate of six percent (6%)  per annum at specified times. The Banks
payment of interest and the  Citys acceptance of interest payments, as well as the
stipulations of the  parties, does not prejudice the Banks right to contest the
obligation to  pay interest and recover amounts paid pursuant to the Stipulation or the
Citys right to contend that it is entitled to recover post-judgment  interest at
the higher legal rate of ten percent (10%) per annum.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As stated
above, the Bank has filed an appeal of the Judgment. If the Judgment  remains in effect
despite the appeal by the Bank and therefore becomes final,  the Bank could sustain the
loss of the certificate of deposit as collateral  security for the loan. In such event,
the entire amount of approximately $4.4  million as specified in the Judgment would
likely become a charge to the  Banks allowance for loan losses because the nature
and extent of other  sources of recovery available to the Bank are uncertain at present.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The outcome
of this dispute continues to be uncertain at the present time; however,  the Bank intends
to vigorously defend its rights in respect of the certificate  of deposit on appeal of
the Judgment.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The
Registrant filed a Form 8-K dated January 7, 2004 announcing a first time  ever
achievement  total assets of approximately $1,037,000,000 as of  December 31, 2003.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The
Registrant filed a Form 8-K dated January 23, 2004  announcing their annual  earnings for
the year ended December 31, 2003.
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(4) | The
Registrant filed a Form 8-K dated  January 27, 2004 announcing a 10% stock  dividend.
|--- | -----------------------------------------------------------------------------------------

|(5) | The
Registrant  filed a Form 8-K dated January 27, 2004, announcing the addition of Don
Chapin, Jr. to its Board of Directors.
|--- | ------------------------------------------------------------------------------------------------------------------------------

|An
Annual Report for the fiscal year ended December 31, 2003, and Notice of Annual
Meeting and Proxy Statement for the Companys 2004 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.










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: February 23, 2004                                     By  /s/ NICK VENTIMIGLIA | 
|Nick Ventimiglia, Chief Executive                                                    | 
|Officer (Principal Executive Officer)                                                | 
|                                                                                     | 
|Date: February 23, 2004                                    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        
|(C. Edward Boutonnet)    |      
|/s/ DONALD D. CHAPIN     |       | Director        
|(Donald D. Chapin)       |      
|/s/ BRADFORD G. CRANDALL |       | Director        
|(Bradford G. Crandall)   |      
|/s/ ALFRED P. GLOVER     |       | Director        
|(Alfred P. Glover)       |      
|/s/ MICHAEL T. LAPSYS    |       | Director        
|(Michael T. Lapsys)      |      
|/s/ ROBERT M. MRAULE     |       | Director        
|(Robert M. Mraule)       |      
|/s/ DUNCAN L. MCCARTER   |       | Director        
|(Duncan L. McCarter)     |      
|/s/ LOUIS A. SOUZA       |       | Director        
|(Louis A. Souza)         |      
|/s/ MOSE E. THOMAS       |       | Director        
|(Mose E. Thomas)         |      
|/s/ NICK VENTIMIGLIA     |       | Chairman and CEO
|(Nick Ventimiglia)       |      

|EXHIBIT
INDEX
|-------------

|Exhibit Number | Description | Sequential Page Number                             
|-------------- | ----------- | ---------------------------------------------------
|3              | .2          | Bylaws, as amended                                 
|              
|14             | .1          | Code of Ethics                                     
|              
|23             | .1          | Independent Auditors' Consent                      
|              
|31             | .1          | Certifications of Chief Executive Officer pursuant 
|               |             | to Section 302 of the Sarbanes-Oxley Act of 2002   
|              
|31             | .2          | Certifications of Chief Financial Officer pursuant 
|               |             | to Section 302 of the Sarbanes-Oxley Act of 2002   
|              
|32             | .1          | Certifications of Chief Executive Officer and Chief
|               |             | Financial Officer pursuant to Section 906 of the   
|               |             | Sarbanes-Oxley Act of 2002