---




SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549








FORM 10-Q





(Mark one)


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

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




| |  | For the quarterly period endedJune 30, 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)








Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No  Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Exchange Act). Yes  x  No  Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest
practicable date:  ̈





No par value Common Stock - 9,919,132 shares outstanding at August 8, 2003.Page 1 of 33





---




|PART
1-FINANCIAL INFORMATION


Item 1. FINANCIAL
STATEMENTS:

CENTRAL
COAST BANCORP AND SUBSIDIARY  CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
|-----------------------------------------------------------------------------------------------------------------------------------------------------

|In thousands (except share data)                                           | June 30, 2003 | December 31, 2002
|-------------------------------------------------------------------------- | ------------- | -----------------
|Assets                                                                     |              
|Cash and due from banks                                                    |               | $   72,597       
|Federal funds sold                                                         |               | 37,370           
|                                                                          
|Total cash and equivalents                                                 |               | 109,967          
|Available-for-sale securities at fair value (amortized cost of $103,744 at |              
|June 30, 2003 and $104,925 at December 31, 2002)                           |               | 107,008          
|Loans:                                                                     |              
|Commercial                                                                 |               | 213,015          
|Real estate-construction                                                   |               | 48,643           
|Real estate-other                                                          |               | 457,126          
|Consumer                                                                   |               | 14,108           
|Deferred loan fees, net                                                    |               | (967             
|                                                                          
|Total loans                                                                |               | 731,925          
|Allowance for loan losses                                                  |               | (15,466          
|                                                                          
|Net Loans                                                                  |               | 716,459          
|                                                                          
|Premises and equipment, net                                                |               | 2,908            
|Other real estate owned                                                    |               | 2,761            
|Accrued interest receivable and other assets                               |               | 11,718           
|                                                                          
|Total assets                                                               |               | $ 950,821        
|                                                                          
|Liabilities and Shareholders' Equity                                       |              
|Deposits:                                                                  |              
|Demand, noninterest bearing                                                |               | $ 230,584        
|Demand, interest bearing                                                   |               | 121,569          
|Savings                                                                    |               | 228,654          
|Time                                                                       |               | 273,479          
|                                                                          
|Total Deposits                                                             |               | 854,286          
|Accrued interest payable and other liabilities                             |               | 12,081           
|                                                                          
|Total liabilities                                                          |               | 866,367          
|                                                                          
|Commitments and contingencies (Note 3)                                     |              
|Shareholders' Equity:                                                      |              
|Preferred stock-no par value; authorized                                   |              
|1,000,000 shares; none outstanding                                         |              
|Common stock - no par value; authorized 25,000,000 shares;                 |              
|issued and outstanding: 9,919,132 shares at June 30, 2003                  |              
|and 9,015,675 shares at December 31, 2002                                  |               | 51,310           
|Shares held in deferred compensation trust (411,191 at June 30, 2003       |              
|and 373,810 as of December 31, 2002), net of deferred obligation           |               | --               
|Retained earnings                                                          |               | 31,235           
|Accumulated other comprehensive income - net of taxes                      |              
|of $1,354 at June 30, 2003 and $994 at December 31, 2002                   |               | 1,909            
|                                                                          
|Total shareholders' equity                                                 |               | 84,454           
|                                                                          
|Total liabilities and shareholders' equity                                 |               | $ 950,821        
|                                                                          

# See
Notes to Consolidated Condensed Financial Statements

---

|CENTRAL
COAST BANCORP AND SUBSIDIARYCONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
|-------------------------------------------------------------------------------------------

|In thousands                | Three Months Ended June 30, | Six Months Ended June 30,
|--------------------------- | --------------------------- | -------------------------
|
|Interest Income             |                            
|Loans (including fees)      |                             | $10,908                  
|Investment securities       |                             | 1,030                    
|Other                       |                             | 90                       
|                           
|Total interest income       |                             | 12,028                   
|                           
|Interest Expense            |                            
|Interest on deposits        |                             | 2,810                    
|Other                       |                             | 102                      
|                           
|Total interest expense      |                             | 2,912                    
|                           
|Net Interest Income         |                             | 9,116                    
|Provision for Loan Losses   |                             | 300                      
|                           
|Net Interest Income after   |                            
|Provision for Loan Losses   |                             | 8,816                    
|                           
|Noninterest Income          |                            
|Service charge on deposits  |                             | 837                      
|Other                       |                             | 742                      
|                           
|Total noninterest income    |                             | 1,579                    
|                           
|Noninterest Expenses        |                            
|Salaries and benefits       |                             | 3,283                    
|Occupancy                   |                             | 611                      
|Furniture and equipment     |                             | 509                      
|Other                       |                             | 1,557                    
|                           
|Total noninterest expenses  |                             | 5,960                    
|                           
|Income Before Provision for |                            
|Income Taxes                |                             | 4,435                    
|Provision for Income Taxes  |                             | 1,551                    
|                           
|Net Income                  |                             | $  2,884                 
|                           
|Basic Earnings per Share    |                             | $    0.29                
|Diluted Earnings per Share  |                             | $    0.28                

# See
Notes to Consolidated Condensed Financial Statements

---

|CENTRAL
COAST BANCORP AND SUBSIDIARYCONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
|-----------------------------------------------------------------------------------------------

|In thousands                                                          |  |            
|--------------------------------------------------------------------- |  | -----------
|
|Cash Flows from Operations:                                           | 
|Net income                                                            |  | $     5,853
|Reconciliation of net income to net cash provided                     | 
|by operating activities:                                              | 
|Provision for loan losses                                             |  | 300        
|Net gain on sale of investments                                       |  | (254       
|Depreciation                                                          |  | 673        
|Net (gain) loss on sale of fixed assets                               |  | (10        
|Amortization and accretion                                            |  | 414        
|Increase in accrued interest receivable and other assets              |  | (89        
|Increase (decrease) in accrued interest payable and other liabilities |  | 751        
|Increase (decrease) in deferred loan fees                             |  | (69        
|                                                                     
|Net cash provided by operations                                       |  | 7,569      
|                                                                     
|Cash Flows from Investing Activities:                                 | 
|Proceeds from maturities of available-for-sale securities             |  | 69,862     
|Purchases of available-for-sale securities                            |  | (77,372    
|Proceeds from sale of available-for-sale securities                   |  | 8,659      
|Net (increase) decrease in loans                                      |  | 10,667     
|Proceeds from sale of equipment                                       |  | 10         
|Purchases of premises and equipment                                   |  | (623       
|                                                                     
|Net cash provided by (used in) investing activities                   |  | 11,203     
|                                                                     
|Cash Flows from Financing Activities:                                 | 
|Net increase in deposit accounts                                      |  | 27,784     
|Net increase (decrease) in other borrowings                           |  | (3,224     
|Cash received for stock options exercised                             |  | 20         
|                                                                     
|Net cash provided by financing activities                             |  | 24,580     
|                                                                     
|Net increase in cash and equivalents                                  |  | 43,352     
|Cash and equivalents, beginning of period                             |  | 66,615     
|                                                                     
|Cash and equivalents, end of period                                   |  | $ 109,967  
|                                                                     
|                                                                     
|Other Cash Flow Information:                                          | 
|Interest paid                                                         |  | $     5,824
|Income taxes paid                                                     |  | $     2,859

|Noncash
Investing and Financing Activities:

The
Company obtained $2,761,000 of real estate (OREO) in the first six months of
2003 and $592,000 in the first six months of 2002 in connection with
foreclosures of delinquent loans.


See
Notes to Consolidated Condensed Financial Statements








CENTRAL
COAST BANCORP AND SUBSIDIARYNOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTSJune
30, 2003 (Unaudited)


NOTE
1. BASIS OF PRESENTATION AND CONSOLIDATED FINANCIAL STATEMENTS

In
the opinion of management, the unaudited consolidated condensed financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly Central Coast Bancorps (the
Companys) consolidated financial position at June 30, 2003,
the results of operations for the three and six month periods ended June 30,
2003 and 2002 and cash flows for the six month periods ended June 30, 2003 and
2002.

Certain
disclosures normally presented in the notes to the annual financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been omitted. These interim consolidated condensed
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Companys 2002
Annual Report to Shareholders. The results of operations for the three and six
month periods ended June 30, 2003 and 2002 may not necessarily be indicative of
the operating results for the full year.

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. Material estimates that
are particularly susceptible to significant changes in the near term relate to
the determination of the allowance for loan losses.

Management
has determined that since all of the commercial banking products and services
offered by the Company are available in each branch of the Community Bank of
Central California, its bank subsidiary (the Bank), all branches are
located within the same economic environment and management does not allocate
resources based on the performance of different lending or transaction
activities, it is appropriate to aggregate the Bank branches and report them as
a single operating segment.

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

NOTE
2. 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 of accounting for
stock-based compensation. 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; average
stock volatility of 16.1% for 2003 and 16.0% for 2002; risk free interest rates
ranging from 2.77% to 3.55% for 2003 and 2.92% to 6.57% for 2002; and no
dividends during the expected term for 2003 and 2002. The Companys
calculations are based on a multiple option valuation approach and forfeitures
are recognized as they occur.

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

|                                          | Three Months Ended June 30, | Six Months Ended June 30,
|----------------------------------------- | --------------------------- | -------------------------
|
|Net Income - As Reported                  |                             | $2,884                   
|Compensation expense from amortization of |                            
|fair value of stock awards                |                             | (5                       
|Taxes on compensation expense             |                             | 2                        
|                                         
|Pro Forma Net Income                      |                             | $2,881                   
|                                         
|Basic Earnings per Share - As Reported    |                             | $0.29                    
|Pro Forma Basic Earnings per Share        |                             | $0.29                    
|Diluted Earnings per Share - As Reported  |                             | $0.28                    
|Pro Forma Diluted Earnings per Share      |                             | $0.28                    
|                                         

|NOTE
3. COMMITMENTS AND CONTINGENCIES

In
the normal course of business there are outstanding various commitments to
extend credit which are not reflected in the financial statements, including
loan commitments of approximately $200,858,000 and standby letters of credit of
approximately $5,624,000 at June 30, 2003. However, all such commitments will
not necessarily culminate in actual extensions of credit by the Company.

Approximately
$24,465,000 of loan commitments outstanding at June 30, 2003 relate to real
estate construction loans that are expected to fund within the next twelve
months. The remaining commitments primarily relate to revolving lines of credit
or other commercial loans, and many of these commitments are expected to expire
without being drawn upon. Therefore, the total commitments do not necessarily
represent future cash requirements. Each potential borrower and the necessary
collateral are evaluated on an individual basis. Collateral varies, but may
include real property, bank deposits, debt or equity securities or business
assets.

Stand-by
letters of credit are commitments written to guarantee the performance of a
customer to a third party. These guarantees are issued primarily relating to
purchases of inventory by commercial customers and are typically short-term in
nature. Credit risk is similar to that involved in extending loan commitments to
customers and accordingly, evaluation and collateral requirements similar to
those for loan commitments are used. Virtually all such commitments are
collateralized.

In
April 2003, the Bank was served with an Application for a Writ of Mandate by the
City of King which seeks 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 alleges the certificate of
deposit is 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. The Final Judgment has not been issued. The Bank continues
to hold the certificate of deposit.

If
the Final Judgment is adverse to the Bank and is not reversed on appeal and
becomes final, the Bank could sustain the loss of the certificate of deposit as
collateral security for the loan. In such event, the entire $4.4 million 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 matter continues to be uncertain at
the present time; however, the Bank intends to vigorously defend its rights in
respect of the certificate of deposit and has instructed its attorneys to take
all necessary steps to initiate an appeal should an adverse Final Judgment be
rendered.

NOTE
4. EARNINGS PER SHARE

Basic
earnings per share is computed by dividing net income by the weighted average
common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if options or other contracts to issue
common stock were exercised and converted into common stock.

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 three and six-month
periods ended June 30 is reconciled as follows:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                     | Three Months Ended June 30, | Six Months Ended June 30,
|---------------------------------------------------- | --------------------------- | -------------------------
|
|Basic Earnings Per Share                             |                            
|Net income                                           |                             | $  2,884                 
|Weighted average common shares outstanding           |                             | 9,919                    
|                                                    
|Basic earnings per share                             |                             | $    0.29                
|                                                    
|Diluted Earnings Per Share                           |                            
|Net Income                                           |                             | $  2,884                 
|Weighted average common shares outstanding           |                             | 9,919                    
|Dilutive effect of outstanding options               |                             | 432                      
|                                                    
|Weighted average common shares outstanding - Diluted |                             | 10,351                   
|                                                    
|Diluted earnings per share                           |                             | $    0.28                
|                                                    

NOTE
5.  COMPREHENSIVE INCOME

|                                                         | Three Months Ended June 30, | Six Months Ended June 30,
|-------------------------------------------------------- | --------------------------- | -------------------------
|
|Net income                                               |                             | $ 2,884                  
|                                                        
|Other comprehensive income (loss)- Net unrealized        |                            
|gain (loss) on available-for-sale securities             |                             | 445                      
|Reclassification adjustment for gains included in income |                             | (254                     
|Taxes on reclassification adjustment                     |                             | 105                      
|                                                        
|Total other comprehensive income                         |                             | 296                      
|                                                        
|Total comprehensive income                               |                             | $ 3,180                  
|                                                        

|NOTE
6.  STOCK REPURCHASE PLAN

The
Board of Directors has authorized a stock repurchase program under which
repurchases will be made from time to time by the Company in the open market, or
in block purchases, or in privately negotiated transactions, in compliance with
Securities and Exchange Commission rules. The Company has not repurchased any
shares in 2003. As of June 30, 2003, there were approximately 307,900 shares
remaining under the program for repurchase by the Company.








Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL
CONDITION AND RESULTS OF OPERATIONS

In
addition to the historical information contained herein, this report on Form
10-Q contains certain 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 report should be read to put such forward-looking
statements in context. To gain a more complete understanding of the
uncertainties and risks involved in the Companys business this report
should be read in conjunction with Central Coast Bancorps annual report on
Form 10-K for the year ended December 31, 2002.


Critical
Accounting Policies

General

Central
Coast Bancorps financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America
(GAAP). The financial information contained within our statements
is, to a significant extent, financial information that is based on measures of
the financial effects of transactions and events that have already occurred. We
use historical loss factors as one factor in determining the inherent loss that
may be present in our loan portfolio. Actual losses could differ significantly
from the historical factors that we use. Other estimates that we use are related
to the expected useful lives of our depreciable assets. In addition GAAP itself
may change from one previously acceptable method to another method. Although the
economics of our transactions would be the same, the timing of events that would
impact our transactions could change.

Allowance
for Loan Losses

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

Our
allowance for loan losses has three basic components: the formula allowance, the
specific allowance and the unallocated allowance. Each of these components is
determined based upon estimates that can and do change when the actual events
occur. The formula allowance uses an historical loss view as an indicator of
future losses and as a result could differ from the loss incurred in the future.
However, since this history is updated with the most recent loss information,
the errors that might otherwise occur are mitigated. The specific allowance uses
various techniques to arrive at an estimate of the expected 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 addresses
losses that are attributable to various factors including 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 loan losses, see Allowance
for Loan Losses discussion later in this Item.

Stock
Based Awards

The
Company accounts for its stock based awards using the intrinsic value method in
accordance with Accounting Principles Board (APB) Opinion No. 25 and
related interpretations. Since the Companys stock option plan provides for
the issuance of options at a price of no less than the fair market value at the
date of the grant, no compensation expense has been recognized in the financial
statements.


Business
Organization

Central
Coast Bancorp (the Company) is a California corporation organized in
1994, and is the parent company for Community Bank of Central California, a
state-chartered bank, headquartered in Salinas, California (the
Bank). Its investment in the Bank comprises the major business
activity of the Company. Upon prior notification to the Board of
Governors of the Federal Reserve System, the Company is authorized to
engage in a variety of activities, which are deemed closely related to the
business of banking. The Company is engaged in certain lending activities
related to the purchase of certain tax advantaged loans from the Bank.

The
Bank offers a full range of commercial banking services, including a diverse
range of traditional banking products and services to individuals, merchants,
small and medium-sized businesses, professionals and agribusiness enterprises.
Its principal markets are located in the counties of Monterey, San Benito, Santa
Clara and Santa Cruz, which are in the central coast area of California.


Overview

The
Company had net income of $2,884,000 for the second quarter of 2003. Net income
increased 13.2% over the $2,547,000 reported for the second quarter of 2002.
Diluted earnings per share for the two quarters were $0.28 and $0.25,
respectively. The annualized return on equity (ROE) and the return on assets
(ROA) for the second quarter 2003 were 14.0% and 1.26% as compared to 14.5% and
1.20% for the same period in 2002.

Net
income for the six months ended June 30, 2003 and 2002 was $5,853,000 and
$5,283,000. Diluted earnings per share were $0.57 and $.51, respectively. For
the first six months of 2003 annualized ROE was 14.5% and ROA was 1.30% as
compared to 15.4% and 1.28% for the same period in 2002. The earnings per share
for the 2002 periods have been adjusted for the 10% stock dividend distributed
in February 2003.

The
Company continued to experience growth in assets and deposits during the second
quarter of 2003. At June 30, 2003, the Companys assets totaled
$950,821,000, an increase of $16,155,000 (1.7%) from March 31, 2003 and an
increase of $31,689,000 (3.4%) from year-end 2002. At June 30, 2003, deposits
had grown to $854,286,000, an increase of $13,525,000 (1.6%) from March 31, 2003
and an increase of $27,784,000 (3.4%) from year-end 2002. The deposit growth was
accomplished even with a reduction of $18,000,000 of State of California
certificates of deposit in April 2003. Loan demand has softened in 2003
resulting in a decrease of $13,428,000 (1.8%) from year-end 2002 balances.
However, at June 30, 2003, loans totaled $731,925,000, an increase of
$13,262,000 (1.8%) from March 31, 2003. On a year-over-year basis, internal
growth has generated an increase in assets of $79,887,000 (9.2%); an increase in
loans of $56,889,000 (8.4%); and an increase in deposits of $68,171,000 (8.7%).

At
June 30, 2003, nonperforming assets totaled $13,743,000, which was an increase
of $9,691,000 from the March 31, 2003 balance. The two loans related to the King
City redevelopment project accounted for approximately $9.0 million of the
increase. (For additional information see Note 3 to the consolidated condensed
financial statements  Commitments and Contingencies, Nonaccrual, past Due,
Restructured Loans and Other Real Estate Owned section of this MD& A and
Part II Items 1 and 6. (b)).

Central
Coast Bancorp ended the second quarter of 2003 with a Tier 1 capital ratio of
10.5% and a total risk-based capital ratio of 11.7% compared to 9.7% and 10.9%
at the end of the second quarter of 2002.

Within
the Managements Discussion and Analysis, interest income, net interest
income, net interest margin and the efficiency ratio are presented on a fully
taxable equivalent basis (FTE). These items have been adjusted to
give effect to $274,000 and $279,000 in taxable equivalent interest income on
tax-free investments for the three- month periods ending June 30, 2003 and 2002
and $555,000 and $561,000 for the six-month periods ending June 30, 2003 and
2002.

The
following table provides a summary of the major elements of income and expense
for the periods indicated.


Condensed
Comparative Income Statement
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              | Three Months Ended June 30, | Percentage Change Increase | Six Months Ended June 30, | Percentage Change Increase
|----------------------------- | --------------------------- | -------------------------- | ------------------------- | --------------------------
|
|Interest Income (1)           |                             | $12,302                    |                           | $12,910                   
|Interest Expense              |                             | 2,912                      |                           | 3,518                     
|                             
|Net interest income           |                             | 9,390                      |                           | 9,392                     
|Provision for Loan Losses     |                             | 300                        |                           | 900                       
|                             
|Net interest income after     |                            
|provision for loan losses     |                             | 9,090                      |                           | 8,492                     
|Noninterest Income            |                             | 1,579                      |                           | 962                       
|Noninterest Expense           |                             | 5,960                      |                           | 5,225                     
|                             
|Income before income taxes    |                             | 4,709                      |                           | 4,229                     
|Provision for Income Taxes    |                             | 1,551                      |                           | 1,403                     
|Tax Equivalent Adjustment (1) |                             | 274                        |                           | 279                       
|                             
|Net income                    |                             | $  2,884                   |                           | $  2,547                  
|                             

|1)
Interest on tax-free securities is reported on a tax equivalent basis.






Net
interest income / net interest margin

Net
interest income, the difference between interest earned on loans and investments
and interest paid on deposits and other borrowings, is the principal component
of the Banks earnings. Net interest margin is net interest income
expressed as a percentage of average earning assets. The first two following
tables provide a summary of the components of net interest income and the
changes within the components for the periods indicated. The third table sets
forth a summary of the changes in interest income and interest expense from
changes in average asset and liability balances (volume) and changes in average
interest rates for the periods indicated.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                          | Three months ended June 30,
|----------------------------------------- | ---------------------------
|
|
|Assets:                                   |                            
|Earning Assets:                           |                            
|Loans (1) (2)                             |                            
|Taxable investments                       |                            
|Tax-exempt investments (tax equiv. basis) |                            
|Federal funds sold                        |                            
|                                         
|Total Earning Assets                      |                            
|                                         
|Cash and due from banks                   |                            
|Other assets                              |                            
|                                         
|                                          |                            
|                                         
|Liabilities and Shareholders' Equity:     |                            
|Interest bearing liabilities:             |                            
|Demand deposits                           |                            
|Savings                                   |                            
|Time deposits                             |                            
|Other borrowings                          |                            
|                                         
|Total interest bearing liabilities        |                            
|                                         
|Demand deposits                           |                            
|Other Liabilities                         |                            
|                                         
|Total Liabilities                         |                            
|Shareholders' Equity                      |                            
|                                         
|                                          |                            
|                                         
|Net interest income and margin (3)        |                            
|                                         

|(1) | Loan
interest income includes fee income of $390,000 and $415,000 for the three  months ended
June 30, 2003 and 2002, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes
the average allowance for loan losses of $15,401,000 and $12,283,000  and average
deferred loan fees of $996,000 and $1,186,000 for the three months  ended June 30, 2003
and 2002, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Net
interest margin is computed by dividing net interest income by the total  average earning
assets.
|--- | -----------------------------------------------------------------------------------------------------

|                                         | Six months ended June 30,
|---------------------------------------- | -------------------------
|
|
|Assets:                                  |                          
|Earning Assets:                          |                          
|Loans (1) (2)                            |                          
|Taxable investments                      |                          
|Tax-exempt securities (tax equiv. basis) |                          
|Federal funds sold                       |                          
|                                        
|Total Earning Assets                     |                          
|                                        
|Cash and due from banks                  |                          
|Other assets                             |                          
|                                        
|                                         |                          
|                                        
|Liabilities and Shareholders' Equity:    |                          
|Interest bearing liabilities:            |                          
|Demand deposits                          |                          
|Savings                                  |                          
|Time deposits                            |                          
|Other borrowings                         |                          
|                                        
|Total interest bearing liabilities       |                          
|                                        
|Demand deposits                          |                          
|Other Liabilities                        |                          
|                                        
|Total Liabilities                        |                          
|Shareholders' Equity                     |                          
|                                        
|                                         |                          
|                                        
|Net interest income and margin (3)       |                          
|                                        

|(1) | Loan
interest income includes fee income of $823,000 and $801,000 for the six  months ended
June 30, 2003 and 2002, respectively.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes
the average allowance for loan losses of $15,348,000 and $12,123,000  and average
deferred loan fees of $986,000 and $1,127,000 for the six months  ended June 30, 2003 and
2002, respectively.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Net
interest margin is computed by dividing net interest income by the total  average earning
assets.
|--- | -----------------------------------------------------------------------------------------------------

# Volume/Rate
Analysis In thousandsThree Months Ended June 30, 2003 over 2002 Increase (decrease) due to change in:

|                                     |  |          | Net
|------------------------------------ |  | -------- | ---
|
|Net Loans (1)(2)                     |  | $ 1,218  |    
|Taxable investment securities        |  | (310     | )  
|Tax exempt investment securities (3) |  | (11      | )  
|Federal funds sold                   |  | 51       |    
|                                    
|Total                                |  | 948      |    
|                                    
|Interest-bearing liabilities:        | 
|Demand deposits                      |  | (43      | )  
|Savings deposits                     |  | 215      |    
|Time deposits                        |  | 93       |    
|Other borrowings                     |  | (6       | )  
|                                    
|Total                                |  | 259      |    
|                                    
|Interest differential                |  | $    689 |    
|                                    

# Six
Months Ended June 30, 2003 over 2002 Increase (decrease) due to change in:

|                                     |  |         | Net
|------------------------------------ |  | ------- | ---
|
|Net Loans (1)(2)                     |  | $ 3,206 |    
|Taxable investment securities        |  | (747    | )  
|Tax exempt investment securities (3) |  | (14     | )  
|Federal funds sold                   |  | 75      |    
|                                    
|Total                                |  | 2,520   |    
|                                    
|Interest-bearing liabilities:        | 
|Demand deposits                      |  | (31     | )  
|Savings deposits                     |  | 582     |    
|Time deposits                        |  | 16      |    
|Other borrowings                     |  | (7      | )  
|                                    
|Total                                |  | 560     |    
|                                    
|Interest differential                |  | $ 1,960 |    
|                                    

|(1) | The
average balance of non-accruing loans is not significant as a percentage of loans and, as
such, has been included in net loans.
|--- | -----------------------------------------------------------------------------------------------------------------------------------

|(2) | Loan
interest income includes fee income of $390,000 and $415,000 for the three  months ended
June 30, 2003 and 2002, and fee income of $823,000 and $801,000 for  the six months ended
June 30, 2003 and 2002, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes
taxable-equivalent adjustments that relate to income on certain  securities that are
exempt from federal income taxes. The effective federal  statutory tax rate was 35% for
2003 and 35.5% for 2002.  variance.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|Net
interest income for the second quarter of 2003 was $9,390,000 and was
essentially flat from the $9,392,000 recorded in the second quarter of 2002.
Both interest income and interest expense decreased from their prior year
levels. The interest income component decreased $608,000 (4.7%) on a
quarter-over-quarter basis as the increase in volume of earning assets did not
offset the effect from lower rates. Average loan balances were $71,113,000
(11.1%) higher in the second quarter of 2003 versus the same quarter in the
previous year. This volume difference added $1,218,000 to interest income.
However, the average yield earned on loans in the second quarter of 2003 was
6.16%, a decrease of 71 basis points from the yield earned in the second quarter
of 2002. The lower loan yield decreased interest income by $1,262,000. The
average balance of taxable investment securities in the second quarter of 2003
was $25,100,000 (29.8%) lower than it was in the second quarter of 2002. Rates
received on those investments decreased 169 basis points between the two
periods. The combination of the taxable investment securities lower balances and
rates reduced interest income $560,000 on a quarter-over-quarter basis. The
continuing accelerated prepayments on mortgage backed securities due to
refinancing will continue to negatively affect the yields received on these
securities as replacement investments are expected to have lower yields.

Interest
expense decreased $606,000 to $2,912,000 in the second quarter of 2003 as
compared to the second quarter of 2002. Most of the decrease was attributable to
the interest-bearing deposit liabilities. The average rate paid on
interest-bearing liabilities declined 54 basis points to 1.92% for the second
quarter of 2003 as compared to 2.46% in the year earlier period. This decrease
in rates reduced interest expense by $865,000. Average balances of
interest-bearing liabilities in the second quarter of 2003 increased by
$35,609,000 (6.2%) over the prior year period. These higher balances added
$259,000 to interest expense. While there will be some repricing of interest
bearing liabilities going forward, the current levels cannot adjust much lower.

The
net interest margin for the second quarter of 2003 was 4.45% as compared to
4.77% in the year earlier period. The net interest margin in the second quarter
of 2003 decreased 9 basis points from the 4.54% achieved in the first quarter of
2003. The decrease in net interest margin from the first quarter is mostly
attributable to lower yields on loans and taxable investment securities. We
expect the third quarter interest margin to continue to decrease because of
several market factors. The Federal Reserve Board reduced the Federal Funds rate
by 25 basis points in late June 2003. The resulting corresponding reduction in
the prime rate will impact the interest margin in the third quarter as the
Banks variable rate assets are expected to reprice more quickly than the
interest-bearing liabilities. Also, the mortgage-backed securities in the
Banks investment portfolio continue to have very high prepayments due to
the level of current refinancings. Because of current market conditions, these
investments are being replaced with lower yielding securities.

For
the six-month period ending June 30, 2003, net interest income increased
$854,000 (4.8%) over the first six months of 2002. The interest income component
decreased $309,000 to $24,790,000. Average balances of earning assets were
$73,437,000 (9.5%) higher in the first six months of 2003 than the same period
in 2002. The average balance of loans was $93,965,000 higher, which contributed
$3,206,000 to interest income. The average yield received on loans in the first
six months of 2003 was 67 basis points lower than the 6.88% received in the year
earlier period. The lower yield on loans decreased interest income by
$2,360,000. The average balance of taxable investment securities was $29,247,000
(33.6%) lower in the first six-months of 2003 than in the year earlier period.
The lower balances in taxable investments decreased interest income $747,000 and
lower yields on the investment securities decreased interest income an
additional $403,000.

Interest
expense for the six-month period ending June 30, 2003 decreased $1,163,000
(16.3%) from the first six months of 2002. Average interest bearing deposit
balances in the first six-months of 2003 were $49,162,000 (8.9%) higher than in
the year earlier period. These volume increases added $567,000 to interest
expense. For the first six months of 2003, average rates paid on interest
bearing liabilities was 1.98% for a decline of 59 basis points from the rates
paid in the first six-months of 2002. The lower rates resulted in a $1,723,000
decrease in interest expense in the first six months of 2003 from the prior year
period.

The
impact of the above changes in volumes and rates for earning assets and interest bearing
liabilities for the first six months of 2003 resulted in a decreases in the net interest
margin of 21 basis points to 4.49% from 4.70% in the year earlier period.

Provision
for Loan Losses

The
Bank provided $300,000 for loan losses in the second quarter of 2003 as compared
to $900,000 in the second quarter of 2002. For the six-month period ended June
30, 2003, the Bank provided $300,000 compared to $1,123,000 in the year earlier
period. The provision for loan losses that has been recorded is based on factors
which consider the growth or decline in the level of loans, changes in the level
of nonperforming and classified assets, changing portfolio mix and prevailing
local and national economic conditions to establish the required level of loan
loss reserves. At June 30, 2003, the ratio of the allowance for loan losses to
total loans was 2.11% as compared to 2.04% at December 31, 2002 and 1.93% at
June 30, 2002. (See the Credit Risk and Allowance for Loan
Losses sections for additional discussion.).


Noninterest
Income

Noninterest
income consists primarily of service charges on deposit accounts and fees for
miscellaneous services. Noninterest income totaled $1,579,000 in the second
quarter of 2003, which was up $617,000 (64.1%) from $575,000 in the same period
in 2002. Service charges on deposit accounts were up $262,000 (45.6%) due to
higher volumes and certain fee increases. Commissions on mortgage brokerage
services increased $56,000 (65%) from $86,000 in 2002 to $142,000 in the second
quarter of 2003 as new mortgage loan and refinance activity were up
significantly from the levels in the second quarter of 2002. The Company
realized net gains totaling $254,000 on the sale of investment securities in the
second quarter of 2003 which was an increase of $152,000 from the $102,000
realized in the second quarter of 2002. Also in the second quarter of 2003, the
Company had operating income of $123,000 from its OREO property as compared to
none in 2002.

For
the first six-months of 2003, noninterest income increased $864,000 (50.0%) to
$2,593,000 compared to $1,729,000 in the same period last year. Service charges
on deposits increased $447,000 (41.5%) to total $1,524,000 in 2003 due to higher
volumes and the effect of certain fee increases. In the first half of
2003,income from other fees was $1,069,000 for a $417,000 (64%) increase over
the $652,000 earned in the first half of 2002. In other fees, mortgage
origination fees, gains on the sale of securities and the OREO income discussed
in the previous paragraph were the major contributors to the increase.


Noninterest
Expense

As
compared to the second quarter of 2002, noninterest expenses increased $735,000
(14.1%) to a total of $5,960,000 in the second quarter of 2003. Salary and
employee benefits totaled $3,283,000, an increase of $239,000 (7.9%), because of
additional staffing for the new Monterey branch, opened in January 2003,
internal growth, higher benefit costs, and normal salary increases. On a
quarter-over-quarter basis, occupancy and fixed asset expenses increased
$224,000 (25.0%) from $896,000 in 2002 to $1,120,000 in 2003. Costs related to
the new Monterey branch, increased security and higher business volume
contributed to the increase. Other expenses for the second quarter of 2003
totaled $1,557,000, which was an increase of $272,000 (21.2%) from the prior
year quarter. In the second quarter of 2003, the Bank incurred $257,000 in OREO
expense as compared to none in 2002. Legal fees increased $164,000 to total
$214,000 primarily due to the City of King litigation discussed in two Form 8-K
filings on April 11 and June 12, 2003. All other expenses decreased $199,000 on
a quarter-over-quarter basis. The efficiency ratio for the second quarter of
2003 was 54.3% from 50.5% for the second quarter of 2002.

Noninterest
expenses for the six-month period ending June 30, 2003 increased $1,735,000
(17.7%) to a total of $11,545,000 compared to $9,810,000 for the same period in
2002. Salary and benefit expenses increased $835,000 (14.4%) to $6,630,000 in
2003 versus $5,795,000 in the first six-months of 2002. In the first quarter of
2002, the Company recorded a one-time reduction to employee health care of
$260,000. The balance of the increase was due to the additional staffing for the
new Monterey branch, higher benefit costs and normal salary increases. For the
first six months of 2003 occupancy and fixed asset expenses increased $440,000
(25.2%) to $2,181,000 compared to $1,741,000 in the same period last year. Costs
related to the new Monterey branch, increased security and higher business
volume contributed to the increase. Other expenses increased $460,000 (20.2%) to
total $2,734,000 most of the increase was due to OREO expenses and legal fees as
discussed in the previous paragraph. The efficiency ratio for the first six
months of 2003 was 53.9% as compared to 49.8% for the same period of 2002.


Provision
for Income Taxes

The
effective tax rates, considering state and federal taxes, and tax exempt income,
for the second quarter and first six-months of 2003 were 35.0% compared to 35.5%
for the same periods in 2002. The estimated tax rates in 2003 are slightly lower
as tax exempt loans and investment securities represent a higher percentage of
income.


Securities

At
June 30, 2003, available-for-sale securities had a market value of $107,008,000
with an amortized cost basis of $103,744,000. On an amortized cost basis, the
investment portfolio increased by $10,261,000 from the balance at March 31, 2003
and decreased $1,180,000 from the balance at December 31, 2002. The unrealized
gain of $3,264,000 at June 30, 2003 represented an increase of $507,000 from the
unrealized gain of $2,758,000 at March 31, 2003 and an increase of $866,000 from
the unrealized gain of $2,399,000 at December 31, 2002. The increase in the
unrealized gain on the portfolio was the result of the continuing downward shift
in the yield curve in the second quarter of 2003. Because of the lower market
rates, mortgage backed securities have been subjected to record prepayments as
homeowners refinance. This has affected the yield on Banks investment
portfolio as higher yielding securities are prepaying and then being replaced
with lower yielding securities. The average yield received on the taxable
securities decreased 98 basis points from 4.25% in the first quarter of 2003 to
3.27% in the second quarter.


Loans

The
ending loan balance at June 30, 2003 was $731,925,000, which was an increase of
$13,262,000 (1.8%) from the March 31,2003 balance, a decrease of $13,428,000
(1.8%) from the year-end 2002 balance and an increase of $56,889,000 (8.4%) from
the June 30, 2002 balance. During the quarter, real estate  other and
consumer loans increased while commercial and construction loans decreased from
March 31, 2003 balances. The most significant loan growth has been in the real
estate  other category, which increased $21,481,000 (4.9%). Approximately
half of that increase came from providing term loans for certain completed
construction loan projects. Construction loans decreased $8,955,000 (15.5%) as
projects were completed. Demand for new construction projects has remained
relatively stable. Within its primary market area, the Bank has diversified its
risk both as to property type and location. See Credit Risk below
for a discussion regarding real estate risk.


Credit
Risk

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

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

The
Company has significant extensions of credit and commitments to extend credit
which are secured by real estate, totaling approximately $560 million at June
30, 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 Banks
primary market areas in particular, could have an adverse impact on the
collectibility of these loans. The ultimate recovery of these loans is generally
dependent on the successful operation, sale or refinancing of the real estate.
The Bank monitors the effects of current and expected market conditions and
other factors on the collectibility of real estate loans. When, in
managements judgment, these loans are impaired, an appropriate provision
for losses is recorded. The more significant assumptions management considers
involve estimates of the following: lease, absorption and sale rates; real
estate values and rates of return; operating expenses; inflation; and
sufficiency of collateral independent of the real estate including, in limited
instances, personal guarantees. Notwithstanding the foregoing, abnormally high
rates of impairment due to general or local economic conditions could adversely
affect the Companys future prospects and results of operations.

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

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

Nonaccrual,
Past Due, Restructured Loans and Other Real Estate Owned (OREO)

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. 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 terms of the loan agreement and remaining
principal is considered collectible or when the loan is both well secured and in
the process of collection. Loans are charged off when, in the opinion of
management, collection appears unlikely. The following table sets forth
nonaccrual loans, loans past due 90 days or more, restructured loans performing
in compliance with modified terms and OREO at June 30, 2003 and December 31,
2002:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                      | June 30, | December 31,
|----------------------------------------------------- | -------- | ------------
|
|Past due 90 days or more and still accruing interest: |         
|Commercial                                            |          | $     518   
|Real estate                                           |          | 4,574       
|Consumer and other                                    |          | --          
|                                                     
|                                                      |          | 5,092       
|                                                     
|Nonaccrual:                                           |         
|Commercial                                            |          | 603         
|Real estate                                           |          | 4,399       
|Consumer and other                                    |          | --          
|                                                     
|                                                      |          | 5,002       
|                                                     
|Restructured (in compliance with modified             |         
|terms)- Commercial                                    |          | 888         
|                                                     
|Total nonperforming and restructured loans            |          | 10,982      
|                                                     
|Other  real estate  owned                             |          | 2,761       
|                                                     
|Total nonperforming assets                            |          | $13,743     
|                                                     

|                                                    |  |     
|--------------------------------------------------- |  | ----
|Allowance for loan losses as a percentage of        |  |     
|nonperforming and restructured  loans               |  | 141 
|Nonperforming and restructured loans to total loans |  | 1.53
|Allowance for loan losses to nonperforming assets   |  | 113 
|Nonperforming assets to total assets                |  | 1.45

|Nonperforming
assets increased $11,935,000 from the December 31, 2002 balance. Almost all of
this increase is attributable to three loans. During the second quarter of 2003,
the Company acquired one OREO property with a value of $2,761,000. This loan was
on nonaccrual at March 31, 2003. The Company expects to close the sale of this
OREO property in the third quarter of 2003. There are two other loans totaling
approximately $9.0 million that pertain to the redevelopment project in the City
of King, details of which have been included in two Form 8-K filings made by the
Company on April 11 and June 12, 2003. One of these loans for $4.6 million is
included in the real estate 90 days past due and still accruing category as it
is secured by the property and is in the process of foreclosure and collection.
The second loan for $4.4 million is included in the nonaccrual category. No
additional legal proceedings regarding the second loan have occurred since the
filing of the Form 8-K on June 12. (For additional information see Note 3 to the
consolidated condensed financial statements  Commitments and Contingencies
and Part II Items 1 and 6. (b)). At June 30, 2003, nonperforming and
restructured loans, excluding the OREO property, were 1.53% of total loans,
which was up from 0.58% at March 31, 2003 and 0.25% at December 31, 2002. The
ratio of nonperforming assets to total assets was 1.45% at June 30, 2003, 0.43%
at March 31, 2003 and 0.20% at December 31, 2002.

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
June 30, 2003, the recorded investment in loans that are considered impaired
under SFAS No. 114 was $11,142,000. The total impaired loans include $4,574,000
of loans past due 90 days or more and still accruing interest, $5,002,000 of
nonaccrual loans and $888,000 of restructured loans and $678,000 in other loans
identified as impaired. The impaired loans had related valuation allowances
totaling $3,034,000. At December 31, 2002, the recorded investment in loans
considered impaired was $2,618,000, of which $870,000 was included in nonaccrual
loans, $933,000 was included in restructured loans and $815,000 in other loans
identified as impaired. The impaired loans at December 31, 2002 had valuation
allowances totaling $1,165,000. Other than for the impaired loans disclosed
above, management is not aware of any other potential problem loans, which were
accruing and current at June 30, 2003, where serious doubt exists as to the
ability of the borrower to comply with the present repayment terms.


Allowance
for Loan Losses

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

The
formula allowance is calculated by applying loss factors to outstanding loans
and certain unused commitments, in each case based on the internal risk grade of
such loans and commitments. Changes in risk grades of both performing and
nonperforming loans affect the amount of the formula allowance. Loss factors are
based on our historical loss experience and may be adjusted for significant
factors that, in managements judgment, affect the collectibility of the
portfolio as of the evaluation date. At June 30,2003, the formula allowance was
$12,261,000 compared to $11,170,000 at March 31, 2003 and $12,002,000 at
December 31, 2002. The increase in the formula allowance in the second quarter
was primarily a result of an increase in the balances of substandard classified
real estate loans.

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 significant classified and 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 June 30, 2003, the specific allowance was $2,436,000 on a loan base of
$32,960,000 compared to a specific allowance of $1,803,000 on a loan base of
$28,864,000 at March 31, 2003 and 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 the second quarter of 2003 was due to the increase in the level of loans
requiring specific valuation allowances.

The
unallocated allowance contains amounts that are based on managements
evaluation of conditions that are not directly measured in the determination of
the formula and specific allowances. The evaluation of the inherent loss with
respect to these conditions is subject to a higher degree of uncertainty because
they are not identified with specific problem loans or portfolio segments. At
June 30, 2003, the unallocated allowance was $769,000 compared to $2,331,000 at
March 31, 2003 and $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  Banks current
portfolio.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|There
can be no assurance that the adverse impact of any of these conditions on the
Bank will not be in excess of the unallocated allowance as determined by
management at June 30, 2003 and set forth in the preceding paragraph.

The
allowance for loan losses totaled $15,466,000 or 2.11% of total loans at June
30, 2003 compared to $15,304,000 or 2.13% at March 31, 2003,$15,235,000 or 2.04%
at December 31, 2002 and $13,012,000 or 1.93% at June 30, 2002. At these dates,
the allowance represented 141%, 378%, 843% and 707% 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.

The
following table summarizes activity in the allowance for loan losses for the
periods indicated:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                 | Three months ended June 30, | Six months ended June 30,
|---------------------------------------------------------------- | --------------------------- | -------------------------
|
|Beginning balance                                                |                             | $   15,304               
|Provision charged to expense                                     |                             | 300                      
|Loans charged off                                                |                             | (150                     
|Recoveries                                                       |                             | 12                       
|                                                                
|Ending balance                                                   |                             | $   15,466               
|                                                                
|Ending loan portfolio                                            |                             |                          
|                                                                
|Allowance for loan losses as percentage of ending loan portfolio |                             |                          

|Liquidity

Liquidity
management refers to the Companys ability to provide funds on an ongoing
basis to meet fluctuations in deposit levels as well as the credit needs and
requirements of its clients. Both assets and liabilities contribute to the
Companys liquidity position. Federal Funds lines, short-term investments
and securities, and loan repayments contribute to liquidity, along with deposit
increases, while loan funding and deposit withdrawals decrease liquidity. The
Bank assesses the likelihood of projected funding requirements by reviewing
historical funding patterns, current and forecasted economic conditions and
individual client funding needs. Commitments to fund loans and outstanding
standby letters of credit at June 30, 2003 were approximately $200,858,000 and
$5,624,000, 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 and sellable SBA loans. On June 30,
2003, consolidated liquid assets totaled $140.2 million or 14.7% 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 Bank maintains short-term lines of
credit with correspondent banks. At June 30, 2003, the Bank had $80,000,000
available under these credit lines. 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.


Capital
Resources

The
Companys total shareholders equity was $84,454,000 at June 30, 2003
compared to $78,076,000 at December 31, 2002.

The
Company and the Bank are subject to regulations issued by the Board of Governors
of the Federal Reserve System and the FDIC which require maintenance of a
certain level of capital. Under the regulations, capital requirements are based
upon the composition of an institutions asset base and the risk factors
assigned to those assets. The guidelines characterize an institutions
capital as being Tier 1 capital (defined to be principally
shareholders equity less intangible assets) and Tier 2 capital
(defined to be principally the allowance for loan losses, limited to one and
one-fourth percent of gross risk weighted assets). The guidelines require the
Company and the Bank to maintain a risk-based capital target ratio of 8%,
one-half or more of which should be in the form of Tier 1 capital.

The
following table shows the Companys and the Banks actual capital
amounts and ratios at June 30, 2003 and December 31, 2002 as well as the minimum
capital ratios for capital adequacy under the regulatory framework:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                          | Actual: | For Capital Adequacy Purposes: | To Be Categorized Well Capitalized Under Prompt Corrective Action Provisions:
|----------------------------------------- | ------- | ------------------------------ | -----------------------------------------------------------------------------
|
|Company                                   |        
|As of June 30, 2003                       |        
|Total Capital (to Risk Weighted Assets):  |         | $92,276                        |                                                                              
|Tier 1 Capital (to Risk Weighted Assets): |         | 82,375                         |                                                                              
|Tier 1 Capital (to Average Assets):       |         | 82,375                         |                                                                              
|As of December 31, 2002                   |        
|Total Capital (to Risk Weighted Assets):  |         | $86,334                        |                                                                              
|Tier 1 Capital (to Risk Weighted Assets): |         | 76,374                         |                                                                              
|Tier 1 Capital (to Average Assets):       |         | 76,374                         |                                                                              
|Community Bank                            |        
|As of June 30, 2003                       |        
|Total Capital (to Risk Weighted Assets):  |         | $85,355                        |                                                                              
|Tier 1 Capital (to Risk Weighted Assets): |         | 75,561                         |                                                                              
|Tier 1 Capital (to Average Assets):       |         | 75,561                         |                                                                              
|As of December 31, 2002                   |        
|Total Capital (to Risk Weighted Assets):  |         | $79,470                        |                                                                              
|Tier 1 Capital (to Risk Weighted Assets): |         | 69,621                         |                                                                              
|Tier 1 Capital (to Average Assets):       |         | 69,621                         |                                                                              

|The
Bank meets the well capitalized ratio measures at both June 30, 2003
and December 31, 2002.

Item
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Overview

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


Asset/Liability
Management

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

Simulation
of earnings is the primary tool used to measure the sensitivity of earnings to
interest rate changes. Using
computer modeling techniques, the Company is able to estimate the potential
impact of changing interest rates on earnings. A balance sheet forecast is
prepared using inputs of actual loan, securities and interest bearing
liabilities (i.e. deposits/borrowings) positions as the beginning base. The
forecast balance sheet is processed against three interest rate scenarios. The
scenarios include a 300 basis point rising rate forecast, a flat rate forecast
and a 300 basis point falling rate forecast which take place within a one year
time frame. The net interest income is measured during the first year of the
rate changes and in the year following the rate changes. The latest simulation
forecast using May 31, 2003 balances and measuring against a flat rate
environment, calculated that in a one-year horizon an increase in interest rates
of 300 basis points would result in an increase of $2,753,000 in net interest
income. Conversely, a 300 basis point decrease would result in a decrease of
$3,661,000 in net interest income. The basic structure of the balance sheet has
not changed significantly from the last simulation run.

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 risk profile of the Bank has not changed materially from
that at year-end 2002.

Item
4. CONTROLS AND PROCEDURES

(a)
Disclosure Controls and Procedures: An evaluation of the Companys
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) was carried out under the supervision and with the participation
of the Companys Chief Executive Officer, Chief Financial Officer and other
members of the Companys senior management as of the end of the
Companys fiscal quarter ended June 30, 2003. The Companys Chief
Executive Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures as currently in effect are effective in
ensuring that the information required to be disclosed by the Company in the
reports it files or submits under the Exchange Act is (i) accumulated and
communicated to the Companys management (including the Chief Executive
Officer and Chief Financial Officer) to allow timely decisions regarding
required disclosure, and (ii) recorded, processed, summarized and reported
within the time periods specified in the Commissions rules and forms.

(b)
Internal Control Over Financial Reporting: An evaluation of any changes in the
Companys internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)), that occurred during the Companys
fiscal quarter ended June 30, 2003, was carried out under the supervision and
with the participation of the Companys Chief Executive Officer, Chief
Financial Officer and other members of the Companys senior management. The
Companys Chief Executive Officer and Chief Financial Officer concluded
that no change identified in connection with such evaluation has materially
affected, or is reasonably likely to materially affect, the Companys
internal control over financial reporting.


OTHER
MATTERS


Terrorist
Acts

The
terrorist actions on September 11, 2001 and thereafter have had significant
adverse effects upon the United States economy. Whether the terrorist activities
in the future and the actions of the United States and its allies in combating
terrorism on a worldwide basis, including the current military action in Iraq,
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.


Off-Balance
Sheet Items

The
Company has certain ongoing commitments under operating leases. These
commitments do not significantly impact operating results. As of June 30, 2003
and December 31, 2002, commitments to extend credit and letters of credit were
the only financial instruments with off-balance sheet risk (See Note 3 to the
consolidated condensed financial statements  Commitments and
Contingencies). The Company has not entered into any contracts for financial
derivative instruments such as futures, swaps, options or similar instruments.

Certain
financial institutions have elected to use special purpose vehicles
(SPV) to dispose of problem assets. A SPV is typically a subsidiary
company with an asset and liability structure and legal status that makes it
obligations secure even if the parent corporation goes bankrupt. Under such
circumstances, these financial institutions may exclude the problem assets from
their reported impaired and non-performing assets. The Company does not use SPV
or other structures to dispose of problem assets.


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, as well as Section 16 reports and 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. To obtain
copies of or to view the Companys reports on 10-K, 10-Q and, 8-K, select
the Central Coast Bancorp menu item, on the popup menu click on
Corporate Profile then select Central Coast Bancorp SEC
Filings. To obtain copies of or to view Section 16 reports filed by the
Companys insiders, select Central Coast Bancorp SEC Section 16
Reports.






PART
II  OTHER INFORMATION
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item | 1.
Legal proceedings.
|---- | ---------------------

| |  | In April
2003, the Bank was served with an Application for a Writ of Mandate by the  City of King
which seeks 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 alleges the
certificate of  deposit is 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. The Final Judgment has not been issued.
The Bank continues  to hold the certificate of deposit.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item | 2.
Changes in securities.
|---- | -------------------------

| | None. | 
| | ----- | 

|Item | 3.
Defaults upon senior securities.
|---- | -----------------------------------

| | None. | 
| | ----- | 

|Item | 4.
Submission of matters to a vote of security holders.
|---- | -------------------------------------------------------

| | THE FOLLOWING
ARE THE VOTING RESULTS OF THE REGISTRANTSS ANNUAL MEETING OF THE  SHAREHOLDERS HELD
ON MAY 22, 2003:
| | -------------------------------------------------------------------------------------------------------------------

| | PROPOSAL NO.
1: ELECTION OF DIRECTORS
| | -------------------------------------

| |                              | 
| | ---------------------------- | 
| | NOMINEE                      | 
| | MICHAEL T. LAPSYS (Class 2)  | 
| | DUNCAN L. McCARTER (Class 2) | 
| | NICK VENTIMIGLIA (Class 2)   | 

| | PROPOSAL NO.2:
APPROVAL OF THE APPOINTMENT OF DELOITTE AND TOUCHE LLP AS INDEPENDENT PUBLIC ACCOUNTANTS
FOR THE 2003 FISCAL YEAR
| | --------------------------------------------------------------------------------------------------------------------------------

| | FOR 8,323,464
AGAINST  16,300  ABSTAIN  40,448
| | ----------------------------------------------

| | TOTAL NUMBER
OF SHARES VOTED: 8,380,212
| | ---------------------------------------

| | IN ADDITION,
THE FOLLOWING DIRECTORS CONTINUE IN OFFICE AS MEMBERS OF THE CLASS  DESIGNATED AND WERE
NOT SUBJECT TO SHAREHOLDER ELECTION AT THE ANNUAL MEETING:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | ALFRED P.
GLOVER (Class 1)  LOUIS A. SOUZA (Class 1)  MOSE E. THOMAS, JR. (Class 1)  C. EDWARD
BOUTONNET (Class 3)  BRADFORD G. CRANDALL (Class 3)  ROBERT M. MRAULE, D.D.S., M.D.
(Class 3)
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item | 5.Other information.
|---- | --------------------

| | None. | 
| | ----- | 

|Item | 6.Exhibits and reports on Form 8-K.
|---- | -----------------------------------

|(a) | Exhibits
|--- | --------

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

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

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

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

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

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

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

| | *(10.4) | 1994 Stock
Option Plan, as amended and restated, incorporated by reference from  Exhibit 99 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
| | ------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

| | (32.1) | Certification
of 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.
|--- | --------------------

| |  | As previously
reported, a current report on Form 8-K was filed with the Commission  on April 11, 2003.
Another Form 8-K was filed on June 12, 2003. Both related to  the following. In April
2003, the Bank was served with an Application for a Writ  of Mandate by the City of King
which seeks 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 alleges the
certificate of deposit is 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. The Final Judgment has not been issued.
The Bank continues  to hold the certificate of deposit.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | A second
report on Form 8-K was filed with the Commission on July 23, 2003,  reporting a press
release dated July 22, 2003 regarding the Companys  operating results for the
quarter ended June 30, 2003.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|SIGNATURES

Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|               |                            
|-------------- | ---------------------------
|August 8, 2003 | CENTRAL COAST BANCORP      
|              
|               | By: /s/ NICK VENTIMIGLIA   
|               | Nick Ventimiglia           
|               | Chief Executive Officer    
|              
|               | By: /s/ ROBERT M. STANBERRY
|               | Robert M. Stanberry        
|               | (Chief Financial Officer,  
|               | Principal Financial and    
|               | AccountingOfficer)         

---

# EXHIBIT
INDEX

|               |  |                                                               
|-------------- |  | --------------------------------------------------------------
|               |  |                                                               
|Exhibit Number |  | Description                                                   
|              
|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 Chief Executive Officer and Chief Financial  
|               |  | Officer pursuant to Section 906 the Sarbanes-Oxley Act of 2002
|              
|              

---

|EXHIBIT 31.1

CERTIFICATIONS
UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002  REGARDING THE QUARTERLY REPORT ON
FORM 10-Q - FOR THE QUARTER ENDED JUNE 30, 2003


I,
Nick Ventimiglia, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Central Coast Bancorp;

2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;3.
Based on my knowledge, the  financial statements, and other financial information
included in this report,  fairly present in all material respects the financial
condition, results of  operations and cash flows of the registrant as of, and for, the
periods  presented in this report;

4.
The registrants other certifying officer(s)  and I are responsible for establishing
and maintaining disclosure controls and  procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the  registrant and have:
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|(a) | Designed
such disclosure controls and procedures, or caused such disclosure  controls and
procedures to be designed under our supervision, to ensure that  material information
relating to the registrant, including its consolidated  subsidiaries, is made known to us
by others within those entities, particularly  during the period in which this report is
being prepared;
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Evaluated
the  effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the  disclosure
controls and procedures, as of the end of the period covered by this  report based on
such evaluation; and
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Disclosed
in this report any change in  the registrants internal control over financial
reporting that occurred  during the registrants most recent fiscal quarter (the
registrants  fourth fiscal quarter in the case of an annual report) that has
materially  affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5.
The registrants other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the registrants
board of directors (or persons performing the equivalent functions):
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(a) | All
significant deficiencies and material weaknesses in the design or operation of  internal
control over financial reporting which are reasonably likely to  adversely affect the
registrants ability to record, process, summarize and  report financial
information; and
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Any
fraud, whether or not material, that  involves management or other employees who have a
significant role in the  registrants internal control over financial reporting.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|--------------------- |  | 
|Dated: August 8, 2003 |  | 
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|                      |  | 
|                     

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|EXHIBIT
31.2

CERTIFICATIONS
UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002  REGARDING THE QUARTERLY REPORT ON
FORM 10-Q - FOR THE QUARTER ENDED JUNE 30, 2003


I,
Robert M. Stanberry, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Central Coast Bancorp;

2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;3.
Based on my knowledge, the  financial statements, and other financial information
included in this report,  fairly present in all material respects the financial
condition, results of  operations and cash flows of the registrant as of, and for, the
periods  presented in this report;

4.
The registrants other certifying officer(s)  and I are responsible for establishing
and maintaining disclosure controls and  procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the  registrant and have:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(a) | Designed
such disclosure controls and procedures, or caused such disclosure  controls and
procedures to be designed under our supervision, to ensure that  material information
relating to the registrant, including its consolidated  subsidiaries, is made known to us
by others within those entities, particularly  during the period in which this report is
being prepared;
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Evaluated
the  effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the  disclosure
controls and procedures, as of the end of the period covered by this  report based on
such evaluation; and
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Disclosed
in this report any change in  the registrants internal control over financial
reporting that occurred  during the registrants most recent fiscal quarter (the
registrants  fourth fiscal quarter in the case of an annual report) that has
materially  affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5.
The registrants other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the registrants
board of directors (or persons performing the equivalent functions):
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(a) | All
significant deficiencies and material weaknesses in the design or operation of  internal
control over financial reporting which are reasonably likely to  adversely affect the
registrants ability to record, process, summarize and  report financial
information; and
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Any
fraud, whether or not material, that  involves management or other employees who have a
significant role in the  registrants internal control over financial reporting.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                      |  | 
|--------------------- |  | 
|Dated: August 8, 2003 |  | 
|                      |  | 
|                      |  | 

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|EXHIBIT 32.1


Certification
of Central Coast Bancorp 
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Regarding Quarterly Report on
Form 10-Q for the Quarter Ended June 30, 2003

Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of
section 1350, chapter 63 of title 18, United States Code), each of the
undersigned officers of Central Coast Bancorp, a California corporation (the
Company), does hereby certify that:
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|1. | The
Companys Quarterly Report on Form 10-Q for the quarter ended June 30,  2003 (the
Form 10-Q) fully complies with the requirements of Section  13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | Information
contained in the Form 10-Q fairly presents, in all material respects, the financial
condition and results of operations of the Company.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------

|                      |  | 
|--------------------- |  | 
|Dated: August 8, 2003 |  | 
|                      |  | 
|                      |  | 
|                     
|Dated: August 8, 2003 |  | 
|                      |  | 
|                      |  | 
|                      |  | 

|A
signed original of this written statement required by Section 906 has been provided to
Central Coast Bancorp and will be retained by Central Coast Bancorp and furnished to the
Securities and Exchange Commission or its staff upon request.
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