<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

[x]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the Quarterly Period Ended      September 30, 1998 .
                                   ---------------------

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the Transition Period from            to 
                               ----------    ----------

                          Commission File No. 0-25418 .
                                             ----------

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


            California                                        77-0367061  
----------------------------------                    --------------------------
  (State or other jurisdiction of                      (IRS Employer ID Number)
  incorporation or organization)


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


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

                                 not applicable
         ---------------------------------------------------------------
         (Former name, former address and former fiscal year, if changed
                              since last report.)

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 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 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 - 4,913,970 shares outstanding at October 29, 1998.

                                  Page 1 of 30
                 The Index to the Exhibits is located at Page 30
<PAGE>
<TABLE>
<CAPTION>

                                            PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements:
                                        CENTRAL COAST BANCORP AND SUBSIDIARIES
                                  CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
------------------------------------------------------------------------------------------------------------------------------
                                                                               September 30, 1998           December 31, 1997
------------------------------------------------------------------------------------------------------------------------------
Assets
<S>                                                                                  <C>                          <C>        
  Cash and due from banks                                                            $40,827,000                  $39,891,000
  Federal funds sold                                                                  47,507,000                   64,706,000
------------------------------------------------------------------------------------------------------------------------------
    Total cash and equivalents                                                        88,334,000                  104,597,000
  Securities:
    Available-for-sale                                                               109,002,000                   91,481,000
    Held-to-maturity                                                                           -                   39,048,000
    (Market value: $39,105,000 at December 31, 1997)

  Loans held for sale                                                                  4,523,000                    1,331,000
  Loans:
    Commercial                                                                       129,101,000                  124,714,000
    Real estate-construction                                                          21,887,000                   14,645,000
    Real estate-other                                                                132,522,000                  107,354,000
    Installment                                                                       10,199,000                    9,349,000
------------------------------------------------------------------------------------------------------------------------------
    Total loans                                                                      293,709,000                  256,062,000
    Allowance for credit losses                                                      (4,346,000)                  (4,223,000)
    Deferred loan fees, net                                                            (628,000)                    (568,000)
------------------------------------------------------------------------------------------------------------------------------
  Net Loans                                                                          288,735,000                  251,271,000
------------------------------------------------------------------------------------------------------------------------------
  Premises and equipment, net                                                          2,434,000                    2,001,000
  Accrued interest receivable and other assets                                         6,644,000                    7,945,000
------------------------------------------------------------------------------------------------------------------------------
Total assets                                                                        $499,672,000                 $497,674,000
==============================================================================================================================
Liabilities and Shareholders' Equity
  Deposits:
    Demand, noninterest bearing                                                     $113,299,000                 $126,818,000
    Demand, interest bearing                                                          94,079,000                   89,107,000
    Savings                                                                          101,678,000                   99,748,000
    Time                                                                             136,191,000                  134,628,000
------------------------------------------------------------------------------------------------------------------------------
    Total Deposits                                                                   445,247,000                  450,301,000
  Accrued interest payable and other liabilities                                       4,794,000                    3,649,000
------------------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                    450,041,000                  453,950,000
------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 4)
Shareholders Equity:
  Preferred stock-no par value; authorized
    1,000,000 shares; no shares issued
  Common stock - no par value; authorized 30,000,000 shares;
    issued and outstanding: 4,903,970 shares at September 30,
    1998 and 4,368,469 shares at December 31, 1997                                    41,195,000                   31,644,000
  Retained earnings                                                                    7,772,000                   11,979,000
  Accumulated other comprehensive income - Net unrealized
    gain (loss) on available-for-sale securities, net of tax                             664,000                      101,000
------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity                                                                  49,631,000                   43,724,000
------------------------------------------------------------------------------------------------------------------------------ 
Total liabilities and shareholders' equity                                          $499,672,000                 $497,674,000
==============================================================================================================================
See Notes to Consolidated Condensed Financial Statements

</TABLE>
<PAGE>
<TABLE>
<CAPTION>



                                        CENTRAL COAST BANCORP AND SUBSIDIARIES
                               CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)

                                               Three Months Ended September 30,           Nine Months Ended September 30,
                                                1998                 1997                  1998                   1997
------------------------------------------------------------------------------------------------------------------------------

Interest Income
<S>                                           <C>                  <C>                   <C>                   <C>           
   Loans (including fees)                     $  7,040,000         $  6,309,000          $  19,976,000         $   18,565,000
   Investment securities                         1,853,000            1,612,000              5,660,000              4,235,000
   Other                                           690,000              816,000              2,220,000              2,123,000
------------------------------------------------------------------------------------------------------------------------------
       Total interest income                     9,583,000            8,737,000             27,856,000             24,923,000
------------------------------------------------------------------------------------------------------------------------------
Interest Expense
   Interest on deposits                          3,358,000            3,105,000             10,109,000              8,644,000
   Other
                                                         -               20,000                      -                 92,000
------------------------------------------------------------------------------------------------------------------------------
       Total interest expense                    3,358,000            3,125,000             10,109,000              8,736,000
------------------------------------------------------------------------------------------------------------------------------
Net Interest Income                              6,225,000            5,612,000             17,747,000             16,187,000
Provision for Credit Losses                                                                                                 -
                                                    40,000                    -                 81,000
------------------------------------------------------------------------------------------------------------------------------
Net Interest Income after
   Provision for Credit Losses                   6,185,000            5,612,000             17,666,000             16,187,000
------------------------------------------------------------------------------------------------------------------------------

Other Income                                       490,000              428,000              1,415,000              1,234,000
------------------------------------------------------------------------------------------------------------------------------

Other Expenses
   Salaries and benefits                         2,074,000            1,926,000              6,281,000              5,668,000
   Occupancy                                       222,000              213,000                714,000                654,000
   Furniture and equipment                         241,000              205,000                671,000                592,000
   Other                                           777,000              856,000              2,558,000              2,479,000
------------------------------------------------------------------------------------------------------------------------------
       Total other expenses                      3,314,000            3,200,000             10,224,000              9,393,000
------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes                       3,361,000            2,840,000              8,857,000              8,028,000
Provision for Income Taxes                       1,391,000            1,155,000              3,664,000              3,284,000
==============================================================================================================================
       Net Income                             $  1,970,000         $  1,685,000         $    5,193,000        $     4,744,000
==============================================================================================================================

Basic Earnings per Share                           $  0.41             $   0.35                $  1.08                $  1.00
Diluted Earnings per Share                         $  0.38             $   0.32                $  0.99                $  0.91
==============================================================================================================================
See Notes to Consolidated Condensed Financial Statements

</TABLE>
<PAGE>
<TABLE>
<CAPTION>



                                        CENTRAL COAST BANCORP AND SUBSIDIARIES
                             CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

--------------------------------------------------------------------------------------------------------------------------
Nine months ended September 30,                                                          1998                        1997
--------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operations:
<S>                                                                              <C>                         <C>         
   Net income                                                                    $  5,193,000                $  4,744,000
   Reconciliation of net income to net cash provided
   by operating activities:
     Provision for credit losses                                                       81,000                           -
     Net gain on sale of fixed assets                                                  (1,000)                    (11,000)
     Depreciation                                                                     414,000                     378,000
     Amortization and accretion                                                        22,000                    (218,000)
     Loss on other real estate owned                                                        -                      17,000
     (Increase) decrease in accrued interest receivable and other assets              721,000                  (1,300,000)
     Increase in accrued interest payable and other liabilities                     1,269,000                   2,142,000
     Increase (decrease) in deferred loan fees                                         60,000                     (82,000)
--------------------------------------------------------------------------------------------------------------------------
       Net cash provided by operations                                              7,759,000                   5,670,000
--------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
   Net decrease in interest-bearing
     deposits in financial institutions                                                     -                     999,000
   Purchases of investment securities                                             (72,512,000)               (103,288,000)
   Proceeds from maturities
     of investment securities                                                      95,160,000                  69,026,000
   Net change in loans held for sale                                               (3,192,000)                   (229,000)
   Net increase in loans                                                          (37,605,000)                 (4,852,000)
   Proceeds from sale of other real estate owned                                            -                     709,000
   Proceeds from sale of fixed assets                                                   1,000                      11,000
   Capital expenditures                                                              (847,000)                 (1,138,000)
--------------------------------------------------------------------------------------------------------------------------
       Net cash used by in investing activities                                   (18,995,000)                (38,762,000)
--------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
   Net increase (decrease) in deposit accounts                                    (5,054,000)                  76,924,000
   Net increase (decrease) in short-term borrowings                                 (124,000)                   2,500,000
   Proceeds from sale of stock                                                       163,000                      360,000
   Fractional shares repurchased                                                     (12,000)                      (8,000)
--------------------------------------------------------------------------------------------------------------------------
       Net cash provided(used) by financing activities                            (5,027,000)                  79,776,000
--------------------------------------------------------------------------------------------------------------------------
   Net increase (decrease) in cash and equivalents                               (16,263,000)                  46,684,000
Cash and equivalents, beginning of period                                        104,597,000                   60,657,000
--------------------------------------------------------------------------------------------------------------------------
Cash and equivalents, end of period                                               $88,334,000                $107,341,000
==========================================================================================================================

Other Cash Flow Information:
   Interest paid                                                                $   9,762,000               $   7,913,000
   Income taxes paid                                                                3,210,000                   1,615,000
==========================================================================================================================
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>




                     CENTRAL COAST BANCORP AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                         September 30, 1998 (Unaudited)

1. 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 the Company's  consolidated  financial
position at September 30, 1998 and December 31, 1997,  the results of operations
for the three and nine month periods ended September 30, 1998 and 1997, and cash
flows for the nine month periods ended September 30, 1998 and 1997.

Certain disclosures  normally presented in the notes to the financial statements
prepared in accordance with generally accepted  accounting  principles 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  1997 Annual Report to  Shareholders.  The results of
operations  for the three and nine month  periods  ended  September 30, 1998 and
1997 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 credit losses and the carrying value of
other real estate owned.  Management uses information provided by an independent
loan review service in connection  with the  determination  of the allowance for
loan losses.

2. INVESTMENT SECURITIES

The  Company is required  under  Financial  Accounting  Standards  Board  (FASB)
Statement  No.  115,  "Accounting  for  Investments  in Certain  Debt and Equity
Securities",   to  classify  debt  and  equity  securities  into  one  of  three
categories:   held-to-maturity,   trading  or   available-for-sale.   Investment
securities  classified as held-to-maturity  are measured at amortized cost based
on the  Company's  positive  intent  and  ability  to hold  such  securities  to
maturity.  Trading securities are bought and held principally for the purpose of
selling  them  in  the  near  term  and  are  carried  at  market  value  with a
corresponding recognition of unrecognized holding gain or loss in the results of
operations.    The   remaining   investment   securities   are   classified   as
available-for-sale  and  are  measured  at  market  value  with a  corresponding
recognition  of the  unrealized  holding  gain or loss (net of tax  effect) as a
separate component of shareholders' equity until realized.  Any gains and losses
on sales of investments are computed on a specific identification basis.


<PAGE>
<TABLE>
<CAPTION>



The carrying value and  approximate  market value of securities at September 30,
1998 and December 31, 1997 are as follows:

-------------------------------------------------------------------------------------------------------------------------
                                                                    Amortized     Unrealized   Unrealized         Market
In thousands                                                             Cost           Gain       Losses          Value
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>            <C>           <C>          <C>     
September 30, 1998
Available for sale securities:
U.S. Treasury and agency securities
     Maturing within 1 year                                         $  19,989      $      93     $      -     $   20,082
     Maturing after 1 year but within 5 years                          60,686            572            -         61,258
     Maturing after 10 years                                           25,017            457            -         25,474
State & Political Subdivision
     Maturing after 5 years  but within 10 years                        2,180              4            -          2,184
Other                                                                       4              -            -              4
-------------------------------------------------------------------------------------------------------------------------
Total investment securities                                         $ 107,876      $   1,126     $      -     $  109,002
=========================================================================================================================

December 31, 1997
Available for sale securities:
U.S. Treasury and agency securities
     Maturing within 1 year                                         $  32,861      $       -     $      5     $   32,856
     Maturing after 1 year but within 5 years                          48,410            184            7     $   48,587
Bankers' Acceptances
     Maturing within 1 year                                            10,034              -            -         10,034
Other                                                                       4              -            -              4
-------------------------------------------------------------------------------------------------------------------------
      Total available for sale                                      $  91,309      $     184     $      -     $   91,481
-------------------------------------------------------------------------------------------------------------------------   
Held to maturity securities:
U.S. Treasury and agency securities
     Maturing within 1 year                                         $  27,484      $       7     $     11     $   27,480
     Maturing after 1 year but within 5 years                           8,495             66            2          8,559
     Maturing after 5 years but within 10 years                            20              -            -             20
     Maturing after 10 years                                              857              6            9            854
State & Political Subdivision
     Maturing after 5 years but within 10 years                         2,192              -            -          2,192
-------------------------------------------------------------------------------------------------------------------------
        Total held to maturity                                      $  39,048     $       79      $    22     $   39,105
-------------------------------------------------------------------------------------------------------------------------
Total investment securities                                         $ 130,357     $      263      $    34     $  130,586
=========================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


3. LOANS AND ALLOWANCE FOR CREDIT LOSSES

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


-------------------------------------------------------------------------------------------------------------------
                                             Three months ended                          Nine months ended
                                                September 30,                              September 30,
In thousands                                  1998             1997                      1998            1997
-------------------------------------------------------------------------------------------------------------------
<S>                                         <C>             <C>                        <C>             <C>        
   Beginning balance                        $     4,228     $     4,203                $     4,223     $     4,372
   Provision charged to expense                      40               -                         81               -
   Loans charged off                                 (4)           (174)                       (94)           (417)
   Recoveries                                        82              79                        136             153
-------------------------------------------------------------------------------------------------------------------
   Ending balance                           $     4,346     $     4,108                $     4,346     $     4,108
===================================================================================================================
</TABLE>

The allowance for credit losses reflects management's  judgement as to the level
considered  adequate to absorb  potential losses inherent in the loan portfolio.
The allowance is increased by provisions  charged to expense and reduced by loan
charge-offs net of recoveries.  Management  determines an appropriate  provision
based upon  information  currently  available to analyze credit loss  potential,
including  (1) the loan  portfolio  balance in the period;  (2) a  comprehensive
grading and review of new and existing loans  outstanding;  (3) actual  previous
charge-offs; and, (4) changes in economic conditions.

In  determining  the provision for estimated  losses  related to specific  major
loans, management evaluates its allowance on an individual loan basis, including
an analysis of the credit  worthiness,  cash flows and  financial  status of the
borrower, and the condition and the estimated value of the collateral.  Specific
valuation  allowances for secured loans are determined by the excess of recorded
investment in the loan over the fair market value or net realizable  value where
appropriate,  of  the  collateral.  In  determining  overall  general  valuation
allowances  to be  maintained  and the loan  loss  allowance  ratio,  management
evaluates many factors including  prevailing and forecasted economic conditions,
regular reviews of the quality of loans,  industry  experience,  historical loss
experience, composition and geographic concentrations of the loan portfolio, the
borrowers' ability to repay and repayment  performance and estimated  collateral
values.

Management  believes  that the allowance for credit losses at September 30, 1998
is adequate, based on information currently available. However, no prediction of
the  ultimate  level of loans  charged off in future  years can be made with any
certainty.

Nonperforming  assets are  comprised  of loans  delinquent  90 days or more with
respect to interest or  principal,  loans for which the accrual of interest  has
been  discontinued,  and  other  real  estate  which has been  acquired  through
foreclosure and is awaiting disposition.

Unless  well  secured  and in the  process  of  collection,  loans are placed on
nonaccrual  status  when a loan  becomes  90 days  past  due as to  interest  or
principal,  when the payment of interest or  principal  in  accordance  with the
contractual  terms  of the  loan  becomes  uncertain  or when a  portion  of the
principal  balance has been  charged  off.  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 process of collection.

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

Nonperforming  loans and other real estate  owned  (foreclosed  properties)  are
summarized below:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
                                             September 30,      December 31,
In thousands                                    1998              1997
-----------------------------------------------------------------------------
<S>                                           <C>               <C>     
Past due 90 days or more and still accruing
   Real estate                                $        -        $         6
   Commercial                                         73                 73
   Installment and other                               -                  -
-----------------------------------------------------------------------------
                                                      73                 79
-----------------------------------------------------------------------------
Nonaccrual:
   Real estate                                       706                628
   Commercial                                        312                188
   Installment and other                               6                  -
-----------------------------------------------------------------------------
                                                   1,024                816
-----------------------------------------------------------------------------
Total nonperforming loans                     $    1,097        $       895
=============================================================================
Other real estate owned                       $        -        $       105
=============================================================================
</TABLE>

4. 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  $117,192,000 and standby letters of credit of
$1,603,000  at  September  30,  1998.  However,  all such  commitments  will not
necessarily culminate in actual extensions of credit by the Company during 1998.

Approximately  $20,198,000 of loan commitments outstanding at September 30, 1998
relate to real  estate  construction  loans and are  expected to fund within the
next twelve months.  The remainder relate primarily to revolving lines of credit
or other commercial  loans, 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.

5. EARNINGS PER SHARE COMPUTATION

Basic  earnings  per share is computed by  dividing  net income by the  weighted
average common shares  outstanding  for the period  (4,842,000 and 4,823,000 for
the three and nine month  periods ended  September  30, 1998,  and 4,795,000 and
4,763,000  for the  three and nine  month  periods  ended  September  30,  1997,
respectively).  Diluted earnings per share reflects the potential  dilution that
could occur if  outstanding  stock  options  and stock  purchase  warrants  were
exercised.  Diluted earnings per share is computed by dividing net income by the
weighted  average  common  shares  outstanding  for the period plus the dilutive
effect of options and warrants (393,000 and 412,000 for the three and nine month
periods ended  September 30, 1998 and 443,000 and 423,000 for the three and nine
month periods ended September 30, 1997, respectively).

6. RECENTLY ISSUED ACCOUNTING STANDARDS

Effective January 1, 1998,  Central Coast Bancorp adopted Statement of Financial
Accounting Standards No. 130, "Reporting  Comprehensive  Income". This Statement
requires that all items recognized  under accounting  standards as components of
comprehensive  earnings  be reported in an annual  financial  statement  that is
displayed with the same prominence as other annual  financial  statements.  This
Statement  also requires that an entity  classify  items of other  comprehensive
earnings by their nature in an annual financial  statement.  For example,  other
comprehensive  earnings may include foreign  currency  translation  adjustments,
minimum  pension  liability  adjustments,  and  unrealized  gains and  losses on
marketable  securities  classified  as   available-for-sale.   Annual  financial
statements for prior periods will be  reclassified,  as required.  Central Coast
Bancorp's total comprehensive earnings were as follows:
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------
                                                     Three Months Ended                   Nine Months Ended
                                                       September 30,                        September 30,
In thousands                                        1998             1997                1998            1997
------------------------------------------------------------------------------------------------------------------
<S>                                                <C>             <C>                <C>             <C>        
Net Earnings                                       $     1,970     $     1,685        $     5,193     $     4,744
Other comprehensive gain - Net unrealized
     gain on available-for-sale securities                 448              89                563             132
------------------------------------------------------------------------------------------------------------------
Total comprehensive earnings                       $     2,418     $     1,774        $     5,756     $     4,876
==================================================================================================================
</TABLE>

Effective  July 1, 1998 the Company  adopted  Statement of Financial  Accounting
Standards  (SFAS) No. 133,  "Accounting  for Derivative  Instruments and Hedging
Activities", which establishes accounting and reporting standards for derivative
instruments and hedging activities.  In connection with the adoption of SFAS 133
the  Company   reclassified   certain  securities  with  an  amortized  cost  of
$18,085,000  and  a  fair  value  of  $18,202,000   from   held-to-maturity   to
available-for-sale.  Adoption of this statement did not have any other impact on
the Company's consolidated financial position and had no impact on the Company's
results of operations or cash flows.

7. STOCK DIVIDEND

On January 20, 1998 the Board of Directors declared a 10% stock dividend, to
be distributed on March 3, 1998, to shareholders of record as of February 17,
1998. All share and per share data including stock option and warrant 
information have been retroactively adjusted to reflect the stock dividend.


<PAGE>
Item 2.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Certain matters  discussed or incorporated by reference in this Quarterly Report
on Form 10-Q  including,  but not  limited  to,  matters  described  in Item 7 -
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations,"  are  forward-looking  statements  that are  subject  to risks  and
uncertainties  that could cause actual results to differ  materially  from those
projected.  Changes to such risks and  uncertainties,  which could impact future
financial  performance,  include, among others, (1) competitive pressures in the
banking  industry;  (2) changes in the interest  rate  environment;  (3) general
economic conditions, nationally, regionally and in the operating market areas of
the  Company  and the Banks;  (4)  changes in the  regulatory  environment;  (5)
changes in business conditions and inflation; (6) changes in securities markets;
and  (7)  effects  of  Year  2000  problems  discussed  herein.  Therefore,  the
information set forth therein should be carefully considered when evaluating the
business prospects of the Company and the Banks.


Business Organization

Central Coast Bancorp (the "Company") is a California  corporation  organized in
1994,  and is  the  parent  company  for  Bank  of  Salinas  and  Cypress  Bank,
state-chartered  banks,  headquartered  in  Salinas  and  Seaside,   California,
respectively (the "Banks").  Other than its investment in the Banks, the Company
currently  conducts no other  significant  business  activities,  although it is
authorized to engage in a variety of activities which are deemed closely related
to the business of banking upon prior  approval of the Board of Governors of the
Federal Reserve System (the "FRB"), the Company's principal regulator.

The Banks offer 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
located in the Salinas Valley and Monterey Peninsula.

Summary of Financial Results

At September 30, 1998, total assets of Central Coast Bancorp were  $499,672,000,
an  increase  of  $1,998,000  or 0.4% from  December  31,  1997 total  assets of
$497,674,000. Average total assets for the quarters ended September 30, 1998 and
1997 were $503,059,000 and $454,245,000, respectively.

On February 21, 1997, the Bank of Salinas  purchased  certain assets and assumed
certain  liabilities of the Gonzales and Castroville offices of Wells Fargo Bank
(including total deposit liabilities of approximately $34 million).  As a result
of the  transaction  the Bank assumed  deposit  liabilities,  received  cash and
acquired  tangible assets. In addition,  the transaction  resulted in intangible
assets,  representing the excess of the liabilities  assumed over the fair value
of the tangible assets acquired.

Net loans at September 30, 1998 were  $288,735,000  compared to  $251,271,000 at
December 31, 1997,  an increase of  $37,464,000  or 14.9%.  The increase in loan
balances is primarily  the result of  significant  increases in term real estate
loan  categories,  in addition to  increases  in real  estate  construction  and
commercial  loans.  Term real estate  loans  increased  $25,168,000  or 23.4% to
$132,522,000  at September 30, 1998 from  $107,354,000 at December 31, 1997. The
increase  in term real  estate  loan  balances  is  primarily  due to  favorable
economic conditions spurring business expansion and refinancing activities.

Enhancing  this  increase,  was  an  increase  in  commercial  and  real  estate
construction   and  land   development   loans.   Commercial  loan  balances  of
$129,101,000 at September 30, 1998 represented an increase of $4,387,000 or 3.5%
over  $124,714,000  at December  31,  1997.  Real estate  construction  and land
development  loans of $21,887,000 at September 30, 1998  represented an increase
of $7,242,000 or 49.5% from  $14,645,000 at December 31, 1997 due to the success
of  key  marketing  strategies  capturing  the  benefit  of  favorable  economic
conditions.

The Company designated securities with an estimated market value of $109,002,000
as  available-for-sale  at September 30, 1998.  The amortized cost of securities
designated   as   available-for-sale   on  that  date  was   $107,876,000.   The
available-for-sale  portfolio at September 30, 1998 consisted  primarily of U.S.
Treasury  bills  and notes and  securities  issued by U.S.  government-sponsored
agencies  (FNMA,  FHLMC and FHLB)  with  maturities  within  five years and U.S.
government-sponsored agencies mortgage backed securities with maturities greater
than ten years.  During the nine months ended  September  30, 1998,  the Company
made  securities  purchases of $72,512,000 to replace  $68,989,000 of maturities
and to more  fully  employ  excess  liquidity.  During  the  nine  months  ended
September  30,  1998,  $26,171,000   held-to-maturity   securities  matured  and
$18,085,000 were transferred to available-for-sale.

Other earning  assets are  comprised of Federal  funds sold.  Federal funds sold
balances  of   $47,507,000  at  September  30,  1998  represent  a  decrease  of
$17,199,000 over $64,706,000 at December 31, 1997. The decrease in federal funds
sold primarily reflects the growth in the loan portfolio.

Total  deposits were  $445,247,000  at September 30, 1998 which  represented  an
decrease of  $5,054,000 or 1.1% over  balances of  $450,301,000  at December 31,
1997.  The  decrease  in  total  deposits  includes  increases  in  all  deposit
categories,  except  noninterest  bearing  demand.   Noninterest-bearing  demand
deposits were  $113,299,000  at September 30, 1998 compared to  $126,818,000  at
December  31,  1997,  a  decrease  of  $13,519,000  or 10.7%.  The  decrease  in
noninterest  bearing demand  balances is partially due to seasonal  fluctuation.
Interest bearing demand balances increased  $4,972,000 or 5.6% to $94,079,000 at
September 30, 1998 from  $89,107,000 at December 31, 1997.  Savings  balances of
$101,678,000  represent an increase of  $1,930,000 or 1.9% from  $99,748,000  at
December 31, 1997. Time deposits increased $1,563,000 or 1.2% to $136,191,000 at
September 30, 1998 from $134,628,000 at December 31, 1997.

<PAGE>

THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

Net income for the three months ended  September 30, 1998 was  $1,970,000  ($.41
basic and $.38 diluted  earnings per share)  compared to $1,685,000  ($.35 basic
and $.32 diluted  earnings  per share) for the  comparable  period in 1997.  The
following  discussion  highlights  changes in certain items in the  consolidated
condensed statements of income.


Net interest income

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 Banks'  earnings.  The components of net interest income are as
follows:
<TABLE>
<CAPTION>

                                                                    (Unaudited)
                                                          Three months ended September 30,
In thousands (except percentages)                    1998                                       1997
-------------------------------------------------------------------------------------------------------------------
                                        Avg                     Avg               Avg                       Avg
                                      Balance       Interest    Yield            Balance       Interest     Yield
-------------------------------------------------------------------------------------------------------------------
Assets:
Earning Assets
<S>                                    <C>            <C>        <C>            <C>            <C>        <C>  
  Loans (1)(2)                         $ 281,126      $7,040     9.9%           $ 240,882       $6,309     10.4%
  Investment Securities                  122,148       1,853     6.0%             108,777        1,612      5.9%
  Other                                   50,015         690     5.5%              58,938          816      5.5%
                                       ---------      ------    -----           ---------       ------     -----
Total Earning Assets                     453,289       9,583     8.4%             408,597        8,737      8.5%
                                                      ------                                    ------     
Cash and due from banks                   39,311                                   35,679
Other assets                              10,459                                    9,969
                                       ---------                                --------- 
                                       $ 503,059                                $ 454,245
                                       =========                                =========
Liabilities & Shareholders'
  Equity:
Interest bearing liabilities:
  Demand deposits                      $  90,110      $  445     2.0%           $  92,604       $  465      2.0%
  Savings                                103,828         997     3.8%              95,152          971      4.0%
  Time deposits                          139,847       1,916     5.4%             119,178        1,669      5.6%
  Other borrowings                             -           -      n/a               1,740           20      4.6%
                                       ---------      ------    -----           ---------       ------     -----                  
Total interest bearing
  liabilities                            333,785       3,358     4.0%             308,674        3,125      4.0%
Demand deposits                          116,278                                  101,386
Other Liabilities                          4,554                                    3,361
                                       ---------                                --------- 
Total Liabilities                        454,617                                  413,421
Shareholders' Equity                      48,442                                   40,824
                                       ---------                                --------- 
                                       $ 503,059                                $ 454,245
                                       =========                                =========
Net interest income and
margin (net yield) (3)                                $6,225     5.4%                           $5,612      5.4%
--------------------------------------------------    ======    ======                          ======     =====

1   Loan interest income includes fee income of $241,000 and $225,000 for the three month periods ended
    September 30, 1998 and 1997, respectively.
2   Includes the average allowance for loan losses of $4,302,000 and $4,158,000 and average deferred loan fees
    of $622,000 and $537,000 for the three months ended September 30, 1998 and 1997, respectively.
3   Net interest margin is computed by dividing net interest income by the total average earning assets.
</TABLE>

Net interest income for the three months ended September 30, 1998 was $6,225,000
representing  an  improvement  of  $613,000  or 10.9%  over  $5,612,000  for the
comparable  period in 1997. The increase in net interest  income is comprised of
an  increase  of $846,000  or 9.7% in  interest  income  partially  offset by an
increase in interest expense of $233,000 or 7.5%.

As a percentage of average earning assets, the net interest margin for the third
quarter  of 1998 was  5.4% and  compares  to 5.4% in the  same  period  one year
earlier. On average, the loan to deposit ratio of the Company increased to 63.5%
in the third quarter of 1998 from 59.9% in the same period last year.

Interest  income  recognized  in the three months ended  September  30, 1998 was
$9,583,000  representing an increase of $846,000 or 9.7% over $8,737,000 for the
same period of 1997.  The increase in interest  income was  primarily  due to an
increase  in the volume of  average  earning  assets.  Earning  assets  averaged
$453,289,000   in  the  three  months  ended  September  30,  1998  compared  to
$408,597,000 in the same period in 1997, representing an increase of $44,692,000
or 10.9%. The increase in average earning assets included an increase in average
net loans of $40,244,000 or 16.7% and in investment securities of $13,371,000 or
12.3%, partially offset by a decrease of $8,923,000 or 15.1% in fed funds sold.

The average  yield on interest  earning  assets  decreased  to 8.4% in the three
months ended  September  30, 1998  compared to 8.5% for the same period of 1997.
Included in average  yield is a decrease in the yield on average  loans,  net of
the average  allowance  for loan losses and average  deferred loan fees, to 9.9%
for the three months ended September 30, 1998, from 10.4% for the same period in
1997.  Included in the net yield on loans were fees of $241,000 and $225,000 for
the three  month  periods  ended  September  30,  1998 and  1997,  respectively.
Partially  offsetting  this  decrease,  was an increase in the average  yield on
investment  securities to 6.0%, for the quarter ended  September 30, 1998,  from
5.9%,  for the same period in the prior year. The average yield on federal funds
sold for the three months ended  September  30, 1998,  compared to that in 1997,
remained unchanged.

The  average  cost of  deposits  of 4.0% for the three  months  ended  September
30,1998  compares  to 4.0% for the same  period  in 1997.  The  average  cost of
savings and time deposits decreased to 3.8% and 5.4% respectively, for the three
month period ended  September  30,1998 from 4.0% and 5.6% for the same period in
the prior  year.  This  decrease  in rates  was  offset  by an  increase  in the
percentage  of  average  time  deposits   included  in  total  interest  bearing
liabilities.  Average time deposits for the three months ended September 30,1998
represents  41.9% of the average total  interest  bearing  liabilities  for that
period, compared to 38.6% for the same period in the prior year.

Credit Risk and Provision for Credit Losses

The  Company  assesses  and  manages  credit  risk on an ongoing  basis  through
stringent credit review and approval policies, extensive internal monitoring and
established formal lending policies. Additionally, the Company contracts with an
outside loan review consultant to periodically grade new loans and to review the
existing loan portfolio.  Management believes its ability to identify and assess
risk and return  characteristics of the Company's loan portfolio is critical for
profitability  and growth.  Management  strives to continue the historically low
level of credit 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,  credit  quality  may be  influenced  by  underlying  trends  in the
economic and business cycles. The Company's business is concentrated in Monterey
County,  California  whose  economy  is  highly  dependent  on the  agricultural
industry.  As a result,  the Company  lends money to  individuals  and companies
dependent  upon  the  agricultural   industry.  In  addition,  the  Company  has
significant  extensions  of credit and  commitments  to extend  credit which are
secured  by real  estate,  totaling  approximately  $202,363,000.  The  ultimate
recovery of these loans is generally dependent on the successful operation, sale
or refinancing of the real estate.  The Company  monitors the effects of current
and expected market  conditions and other factors on the  collectibility of real
estate  loans.  When,  in  management's  judgement,  these  loans are  impaired,
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.

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

The Company  recorded a $40,000  provision  for loan losses  through a charge to
earnings in the quarter  ended  September 30, 1998 and no provision was recorded
during  the  comparable  period in 1997.  The small  amount of  increase  in the
provision  in  relation  to the  increase in loans  reflects  the  strengthening
economy,  continued  strong  credit  performance  and an increase in the rate of
recovery of loan balances previously charged-off. Loan balances of $4,000, which
were previously identified and fully reserved for, were charged-off in the third
quarter of 1998  compared  to $174,000  charged-off  in the same period one year
earlier. Recoveries of loan balances previously charged-off were $82,000 for the
quarter  ended  September  30,  1998  compared to $79,000 for the same period in
1997. See Note 3 of the consolidated  condensed financial statements for further
discussion of nonperforming loans and the allowance for credit losses.

At September 30, 1998 the allowance for credit losses was $4,346,000 or 1.48% of
total loans, compared to $4,223,000 or 1.65% at December 31, 1997.

Management  believes  that the  allowance  for loan losses is  maintained  at an
adequate  level for known and  anticipated  future  risks  inherent  in the loan
portfolio.  However, the Company's loan portfolio,  particularly the real estate
related segments,  may be adversely affected if California's economic conditions
and the  Monterey  County real estate  market were to weaken.  As a result,  the
level of nonperforming loans, the provision for loan losses and the level of the
allowance for loan losses could increase.

Noninterest Income and Expense

Noninterest income consists primarily of service charges on deposit accounts and
fees for miscellaneous  services.  Total other income was $490,000 for the three
months ended  September  30, 1998 as compared to $428,000 for the same period of
1997.  Noninterest  income for the third quarter of 1998 represented an increase
of 14.5% over the third quarter of 1997. The increase in  noninterest  income is
primarily attributed to an increase in mortgage referral fees of $45,000.

Noninterest  expense  increased  $114,000 or 3.6% to  $3,314,000  in the quarter
ended  September  30, 1998 from  $3,200,000 in the same period one year earlier.
The increase in  noninterest  expenses is primarily due to increases in salaries
and benefits,  and occupancy and equipment  expense.  As a percentage of average
earning assets, other expenses, on an annualized basis, decreased to 2.9% in the
three  months ended  September  30, 1998 from 3.1% in the  comparable  period of
1997.

Salary and benefits  expense was $2,074,000 in the three months ended  September
30, 1998 compared to $1,926,000 in the same period one year earlier, an increase
of $148,000 or 7.7%.  The increase in salary and  benefits  expense is primarily
due to growth and changes in the staffing of the Company.

Occupancy  expense for the quarter  ended  September  30, 1998 was  $222,000 and
represented an increase of $9,000 or 4.2% over $213,000 for the same period last
year.  Furniture and equipment  expense for the third quarter of 1998  increased
$36,000 or 17.6% to $241,000  from  $205,000 for the same period last year.  The
increase  in  furniture  and  equipment  expense is the result of a program  for
upgrading the Company's internal systems in addition to the impact of facilities
moves and expansion by the Banks.

Other expenses  decreased  $79,000 or 9.2% to $777,000 in the three months ended
September 30, 1998 from $856,000 for the comparable period one year earlier. Due
largely to decreases in loan and supplies expenses.


<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

Net income for the nine months ended  September 30, 1998 was  $5,193,000  ($1.08
basic and $.99 diluted  earnings per share) compared to $4,744,000  ($1.00 basic
and $.91 diluted  earnings  per share) for the  comparable  period in 1997.  The
following  discussion  highlights  changes in certain items in the  consolidated
condensed statements of income.

Net Interest income

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 Banks'  earnings.  The components of net interest income are as
follows:
<TABLE>
<CAPTION>


                                                                    (Unaudited)
                                                          Nine months ended September 30,
In thousands (except percentages)                    1998                                          1997
---------------------------------------------------------------------------------------------------------------------
                                     Avg                         Avg               Avg                      Avg
                                   Balance        Interest      Yield            Balance       Interest    Yield
---------------------------------------------------------------------------------------------------------------------
Assets:
Earning Assets
<S>     <C>                      <C>             <C>           <C>              <C>            <C>         <C>  
  Loans (1)(2)                   $  263,830      $  19,976     10.1%            $  237,525     $ 18,565    10.4%
  Investment Securities             125,819          5,660      6.0%                97,310        4,235     5.8%
  Other                              54,374          2,220      5.5%                52,057        2,123     5.5%
                                 ----------      ---------     -----            ----------     --------    -----
Total Earning Assets                444,023         27,856      8.4%               386,892       24,923     8.6%
                                                 ---------                                     --------
Cash and due from banks              38,516                                         32,537
Other assets                         10,450                                          9,305
                                 ----------                                     ----------
                                 $  492,989                                     $  428,734
                                 ==========                                     ==========

Liabilities & Shareholders'
  Equity:
Interest bearing liabilities:
  Demand deposits                $   87,707      $   1,282      2.0%            $   93,623     $  1,417     2.0%
  Savings                           100,290          2,864      3.8%                93,775        2,832     4.0%
  Time deposits                     143,455          5,963      5.6%               106,293        4,395     5.5%
  Other borrowings                        -              -      n/a                  2,502           92     4.9%
                                 ----------      ---------     -----            ----------     --------    -----     
Total interest bearing
  Liabilities                       331,452         10,109      4.1%               296,193        8,736     3.9%
                                                 ---------                                     --------
Demand deposits                     111,017                                         91,368
Other Liabilities                     3,996                                          2,102
                                 ----------                                     ----------
Total Liabilities                   446,465                                        389,663
Shareholders' Equity                 46,524                                         39,071
                                 ----------                                     ----------
                                 $  492,989                                     $  428,734
                                 ==========                                     ==========
Net interest income and
Margin (net yield) (3)                           $  17,747     5.3%                           $ 16,187     5.6%
------------------------------------------------ =========    =====                           ========    =====

1    Loan interest income includes fee income of $747,000 and $838,000 for the nine month periods ended September 30,
     1998 and 1997, respectively.
2    Includes the average allowance for loan losses of $4,239,000 and $4,264,000 and average deferred loan fees
     of $566,000 and $570,000 for the nine months ended September 30, 1998 and 1997, respectively.
3    Net interest margin is computed by dividing net interest income by the total average earning assets.
</TABLE>


Net interest income for the nine months ended September 30, 1998 was $17,747,000
representing  an  improvement  of  $1,560,000 or 9.6% over  $16,187,000  for the
comparable  period in 1997. The increase in net interest  income is comprised of
an increase of $2,933,000  or 11.8% in interest  income  partially  offset by an
increase in interest expense of $1,373,000 or 15.7%.

As a percentage of average earning assets, the net interest margin for the first
nine  months of 1998 was 5.3% and  compares  to 5.6% in the same period one year
earlier. On average, the loan to deposit ratio of the Company decreased to 60.7%
in the first half of 1998 from 62.5% in the same period last year.

Interest  income  recognized  in the nine months  ended  September  30, 1998 was
$27,856,000 representing an increase of $2,933,000 or 11.8% over $24,923,000 for
the same period of 1997. The increase in interest income was primarily due to an
increase  in the volume of  average  earning  assets.  Earning  assets  averaged
$444,023,000   in  the  nine  months  ended   September  30,  1998  compared  to
$386,892,000 in the same period in 1997, representing an increase of $57,131,000
or 14.8%. The increase in average earning assets included an increase in average
loans of  $26,305,000  or 11.1% and increases in investment  securities  and fed
funds sold of $28,509,000 and $2,317,000 or 29.3% and 4.5%, respectively.

The  average  yield on interest  earning  assets  decreased  to 8.4% in the nine
months ended  September  30, 1998  compared to 8.6% for the same period of 1997.
The decrease in average yield is  attributed to a decrease in the  proportion of
loans to total  earning  assets to 59.4% in the first  nine  months of 1998 from
61.4% in the same period in 1997.  Loan fees  recognized  during the nine months
ended September 30, 1998 were $747,000 compared to $838,000 one year earlier.

Partially offsetting the increase in interest income was an increase in the cost
of liabilities  funding the growth in average earning assets.  Interest  expense
for the nine months ended  September 30, 1998 was $10,109,000 and represented an
increase of $1,373,000 or 15.7% over  $8,736,000  for the  comparable  period in
1997.  During the nine months ended September 30, 1998, the average rate paid by
the Banks on interest-bearing liabilities was 4.1% compared to 3.9% for the same
period in 1997.  The  increase in interest  expense for the first nine months of
1998 reflects an increase in the  proportion of time deposits to total  interest
bearing  liabilities to 43.3% in the first nine months of 1998 from 35.9% in the
same period in 1997.  Average interest bearing  liabilities were $331,452,000 in
the nine months ended September 30, 1998 compared to  $296,193,000  for the same
period in 1997, an increase of  $35,259,000 or 11.9%.  Partially  offsetting the
impact on net interest  income  resulting from the increase in interest  bearing
liabilities  was an increase in average  noninterest  bearing  demand  deposits.
Average  noninterest bearing demand deposits of $111,017,000 for the nine months
ended  September 30, 1998  represented  an increase of $19,649,000 or 21.5% over
$91,368,000 for the same period one year earlier.


Provision for Credit Losses

The Company  recorded an $81,000  provision for loan losses  through a charge to
earnings in the nine  months  ended  September  30,  1998 and no  provision  was
recorded  during the comparable  period in 1997. The small amount of increase in
the  provision in relation to the increase in loans  reflects the  strengthening
economy,  continued  strong  credit  performance  and an increase in the rate of
recovery of loan  balances  previously  charged off.  Loan  balances of $94,000,
which were previously identified and fully reserved for, were charged-off in the
first three quarters of 1998 compared to $417,000 charged-off in the same period
one year  earlier.  Recoveries  of loan  balances  previously  charged-off  were
$136,000 for the three  quarters  ended  September 30, 1998 compared to $153,000
for the same period in 1997. See Note 3 of the consolidated  condensed financial
statements for further  discussion of nonperforming  loans and the allowance for
credit losses.

Noninterest Income and Expense

Total other income was $1,415,000  for the nine months ended  September 30, 1998
as compared to $1,234,000  for the same period of 1997.  Noninterest  income for
the first three quarters of 1998  represented an increase of 14.7% over that for
1997. The increase in noninterest income is primarily  attributed to an increase
in service charges on deposit accounts of $111,000 and mortgage referral fees of
$101,000 offsetting nonrecurring revenues in the prior year.

Noninterest  expense  increased  $831,000  or 8.8% to  $10,224,000  in the three
quarters  ended  September 30, 1998 from  $9,393,000 in the same period one year
earlier.  The increase in noninterest  expenses is primarily due to increases in
salaries and benefits,  and occupancy and equipment expense.  As a percentage of
average earning assets,  other expenses,  on an annualized  basis,  decreased to
3.1% in the nine months  ended  September  30, 1998 from 3.2% in the  comparable
period of 1997.

Salary and benefits  expense was  $6,281,000 in the nine months ended  September
30, 1998 compared to $5,668,000 in the same period one year earlier, an increase
of $613,000 or 10.8%.  The increase in salary and benefits  expense is primarily
due to increased  headcount related to the branch acquisition by Bank of Salinas
during the first quarter of 1997.

Occupancy  expense for the three quarters ended  September 30, 1998 was $714,000
and represented an increase of $60,000 or 9.2% over $654,000 for the same period
last year. The increase in occupancy  expense relates to the branch  acquisition
by Bank of Salinas  during the first  quarter  of 1997 and the  relocation  of a
branch by Bank of Salinas during the second quarter of 1998.

Furniture and equipment  expense for the first three  quarters of 1998 increased
$79,000 or 13.3% to $671,000  from  $592,000 for the same period last year.  The
increase  in  furniture  and  equipment  expense is the result of a program  for
upgrading the  Company's  internal  data  processing  systems in addition to the
impact of facilities moves and expansion by the Banks.

Other expenses  increased $79,000 or 3.2% to $2,558,000 in the nine months ended
September 30, 1998 from  $2,479,000 for the comparable  period one year earlier.
The increase in other  expenses is comprised  of  increases in  advertising  and
operating expenses and amortization of intangibles.  Partially  offsetting these
increases were decreases in loan expenses and stationery and supplies.


LIQUIDITY AND INTEREST RATE SENSITIVITY

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
Banks assess 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 September 30, 1998, were approximately $117,192,000
and $1,603,000,  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 its deposits  with other banks,
overnight funds sold to correspondent banks,  unpledged  short-term,  marketable
investments  and loans  available for sale. On September 30, 1998,  consolidated
liquid  assets  totaled  $115  million or 23.1% of total  assets as  compared to
$164.2  million or 33.0% of total  consolidated  assets on December 31, 1997. In
addition to liquid assets, the Banks maintain lines of credit with correspondent
banks for up to $20,000,000 available on a short-term basis. Informal agreements
are also in place with various other banks to purchase  participations in loans,
if necessary.  The Company serves primarily a business and professional customer
base and, as such,  its deposit base is  susceptible  to economic  fluctuations.
Accordingly, management strives to maintain a balanced position of liquid assets
to volatile and cyclical deposits.

Liquidity is also  affected by portfolio  maturities  and the effect of interest
rate  fluctuations  on the  marketability  of both  assets and  liabilities.  In
addition, it has been the Company's policy to restrict average maturities in the
investment  portfolio to not more than three  years.  The  short-term  repricing
characteristics of the loan and investment portfolios, and loan agreements which
generally require monthly interest  payments,  provide the Banks with additional
secondary  sources of  liquidity.  Another key  liquidity  ratio is the ratio of
gross loans to total  deposits,  which was 66.0% at September 30, 1998 and 56.9%
at December 31, 1997.

Interest Rate Sensitivity

Interest rate  sensitivity is a measure of the exposure to  fluctuations  in the
Banks'  future  earnings   caused  by  fluctuations  in  interest  rates.   Such
fluctuations result from the mismatch in repricing characteristics of assets and
liabilities  at a  specific  point in time.  This  mismatch,  or  interest  rate
sensitivity gap,  represents the potential mismatch in the change in the rate of
accrual  of  interest  revenue  and  interest  expense  from a change  in market
interest  rates.   Mismatches  in  interest  rate  repricing  among  assets  and
liabilities arise primarily from the interaction of various customer  businesses
(i.e.,  types  of  loans  versus  the  types of  deposits  maintained)  and from
management's  discretionary  investment  and  funds  gathering  activities.  The
Company attempts to manage its exposure to interest rate sensitivity, but due to
its size and direct  competition  from the major banks,  it must offer  products
which are  competitive  in the  market  place,  even if less than  optimum  with
respect to its interest rate exposure.

The Company's  natural position is  asset-sensitive  (based upon the significant
amount of variable rate loans and the repricing  characteristics  of its deposit
accounts). This natural position provides a hedge against rising interest rates,
but has a detrimental effect during times of interest rate decreases.

The  following  table sets forth the  distribution  of repricing  opportunities,
based on contractual  terms,  of the Banks' earning assets and  interest-bearing
liabilities  at September  30, 1998,  the interest  rate  sensitivity  gap (i.e.
interest rate sensitive  assets less interest rate sensitive  liabilities),  the
cumulative  interest rate  sensitivity  gap, the interest rate  sensitivity  gap
ratio (i.e.  interest rate  sensitive  assets divided by interest rate sensitive
liabilities) and the cumulative interest rate sensitivity gap ratio.


<PAGE>
<TABLE>
<CAPTION>

September 30,1998
-------------------------------------------------------------------------------------------------------------------

In thousands (except ratios)
-------------------------------------------------------------------------------------------------------------------
                                                          Over three
 Assets and Liabilities                    Next day       months and       Over one
    which Mature or                       and within        within        and within       Over
        Reprice           Immediately     three months     one year       five years    five years      Total
-------------------------------------------------------------------------------------------------------------------
Interest earning assets:
<S>                       <C>             <C>            <C>              <C>           <C>            <C>       
Federal funds sold        $    47,507     $        -     $        -       $      -      $       -      $   47,507
Investment securities               4          2,000         18,085         61,215         27,698         109,002
Loans, excluding
   Nonaccrual loans
   and overdrafts              12,033        189,263         17,095         66,481         10,552         295,424

-------------------------------------------------------------------------------------------------------------------
Total                     $    59,544     $  191,263     $   35,180       $127,696      $  38,250      $  451,933
===================================================================================================================
Interest bearing
   liabilities:
Interest bearing demand   $    94,079     $        -     $        -       $      -      $       -      $   94,079
Savings                       101,678              -              -              -              -         101,678
Time certificates                  53         36,972         85,426         13,629            111         136,191
-------------------------------------------------------------------------------------------------------------------
Total                     $   195,810     $  36,972      $   85,426       $ 13,629      $     111      $  331,948
===================================================================================================================
Interest rate
   sensitivity gap        $  (136,266)    $ 154,291      $  (50,246)      $114,067      $  38,139
Cumulative interest
   rate sensitivity gap   $  (136,266)    $  18,025      $  (32,221)      $ 81,846      $ 119,985
Ratios:
Interest rate
   sensitivity gap               0.30          5.17            0.41           9.37         344.59
Cumulative interest
   rate sensitivity gap          0.30          1.08            0.90           1.25           1.36
-------------------------------------------------------------------------------------------------------------------
</TABLE>

It is management's objective to maintain stability in the net interest margin in
times  of  fluctuating  interest  rates by  maintaining  an  appropriate  mix of
interest sensitive assets and liabilities. The Banks strive to achieve this goal
through the  composition  and  maturities  of the  investment  portfolio  and by
adjusting pricing of interest-bearing liabilities,  however, as noted above, the
ability to manage  interest  rate  exposure may be  constrained  by  competitive
pressures.

CAPITAL RESOURCES

The Company's total  shareholders'  equity was $49,631,000 at September 30, 1998
compared to $43,724,000 at December 31, 1997.

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


Under the Board of Governors' risk-based capital guidelines,  assets reported on
an institution's  balance sheet and certain off-balance sheet items are assigned
to risk  categories,  each of which has an assigned risk weight.  Capital ratios
are  calculated  by  dividing  the  institution's   qualifying  capital  by  its
period-end  risk-weighted  assets.  The  guidelines  establish two categories of
qualifying  capital:  Tier 1 capital  (defined to include  common  shareholders'
equity and  noncumulative  perpetual  preferred  stock) and Tier 2 capital which
includes,  among other  items,  limited  life(and in case of banks,  cumulative)
preferred  stock,  mandatory  convertible  securities,  subordinated  debt and a
limited amount of reserve for credit losses. Effective October 1,1998, the Board
of Governors and other federal bank regulatory  agencies  approved  including in
Tier 2  capital  up to 45%  of  the  pretax  net  unrealized  gains  on  certain
available-for-sale  equity  securities  having readily  determinable fair values
(i.e. the excess, if any, of fair market value over the book value or historical
cost of the investment  security).  The federal regulatory  agencies reserve the
right to exclude all or a portion of the unrealized  gains upon a  determination
that the equity securities are not prudently valued. Unrealized gains and losses
on other types of assets,  such as bank  premises  and  available-for-sale  debt
securities, are not included in Tier 2 capital, but may be taken into account in
the  evaluation  of  overall  capital  adequacy  and net  unrealized  losses  on
available-for-sale  equity  securities  will continue to be deducted from Tier 1
capital as a cushion  against risk.  Each  institution is required to maintain a
risk-based  capital ratio  (including Tier 1 and Tier 2 capital) of 8%, of which
at least half must be Tier 1 capital.

Under the Board of  Governors'  leverage  capital  standard  an  institution  is
required  to  maintain  a  minimum  ratio  of Tier 1  capital  to the sum of its
quarterly  average total assets and quarterly  average  reserve for loan losses,
less intangibles not included in Tier 1 capital.  Period-end  assets may be used
in place of quarterly average total assets on a case-by-case basis. The Board of
Governors and other federal  regulatory  agencies have adopted a revised minimum
leveraged ratio for banks holding companies as a supplement to the risk-weighted
capital guidelines.  The old rule established a 3% minimum leverage standard for
well-run   banking   organizations   (bank  holding   companies  and  banks)with
diversified  risk  profiles.  Banking  organizations  which did not exhibit such
characteristics  or had  greater  risk due to  significant  growth,  among other
factors, were required to maintain a minimum leverage ratio 1% to 2% higher. The
old rule did not take into account the implementation of the market risk capital
measure set forth in the federal regulatory agency capital adequacy  guidelines.
The  revised  leverage  ratio  establishes  a minimum  Tier1 ratio of 3% (Tier 1
capital to total assets) for the highest  rated bank holding  companies or those
that have implemented the risk-based capital market risk measure. All other bank
holding  companies  must  maintain a minimum  Tier 1  leverage  ratio of 4% with
higher  leverage  capital ratios  required for bank holding  companies that have
significant  financial and/or operational  weakness, a high risk profile, or are
undergoing  or  anticipating  rapid  growth.  The old rule remains in effect for
banks, however, the federal regulatory agencies are currently continuing work on
revised leverage rule for banks.

The following  table shows the Company's  actual  capital  amounts and ratios at
September 30, 1998 and December 31, 1997 as well as the minimum  capital  ratios
for capital adequacy under the regulatory framework:
<TABLE>
<CAPTION>

                                                                                                 For Capital
                                                                  Actual                   Adequacy Purposes:
                                                    ----------------------------     -----------------------------
                                                         Amount         Ratio             Amount          Ratio
------------------------------------------------------------------------------------------------------------------
As of September 30, 1998
<S>                                                     <C>               <C>            <C>                 <C> 
Total Capital (to Risk Weighted Assets):                $ 51,382,000      15.1%          $ 27,307,000        8.0%
Tier 1 Capital (to Risk Weighted Assets):                 47,114,000      13.8%            13,653,000        4.0%
Tier 1 Capital (to Average Assets):                       47,114,000       9.6%            19,724,000        4.0%

As of December 31, 1997
Total Capital (to Risk Weighted Assets):                $ 45,782,000      15.2%          $ 24,046,000        8.0%
Tier 1 Capital (to Risk Weighted Assets):                 41,968,000      14.0%            12,023,000        4.0%
Tier 1 Capital (to Average Assets):                       41,968,000       9.6%            17,570,000        4.0%
------------------------------------------------------------------------------------------------------------------
</TABLE>

The Federal  Deposit  Insurance  Corporation  Improvement Act of 1991 ("FDICIA")
substantially  revised  banking  regulations  and  established  a framework  for
determination of capital adequacy of financial  institutions.  Under the FDICIA,
financial  institutions are placed into one of five capital adequacy  categories
as follows:  (1) "well  capitalized"  consisting  of  institutions  with a total
risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of
6% or greater and a leverage ratio of 5% or greater,  and the institution is not
subject to an order,  written agreement,  capital directive or prompt corrective
action directive; (2) "adequately capitalized" consisting of institutions with a
total  risk-based  capital ratio of 8% or greater,  a Tier 1 risk-based  capital
ratio  of 4% or  greater  and a  leverage  ratio  of  4%  or  greater,  and  the
institution  does not meet the definition of a "well  capitalized"  institution;
(3)  "undercapitalized"  consisting  of  institutions  with a  total  risk-based
capital  ratio less than 8%, a Tier 1 risk-based  capital ratio of less than 4%,
or a  leverage  ratio of less  than  4%;  (4)  "significantly  undercapitalized"
consisting of institutions  with a total  risk-based  capital ratio of less than
6%, a Tier 1 risk-based  capital  ratio of less than 3%, or a leverage  ratio of
less  than  3%;  and,  (5)  "critically   undercapitalized"   consisting  of  an
institution  with a ratio of tangible equity to total assets that is equal to or
less than 2%.

Financial  institutions  classified as  undercapitalized or below are subject to
various limitations including,  among other matters, certain supervisory actions
by bank regulatory authorities and restrictions related to (I) growth of assets,
(ii)  payment  of  interest  on  subordinated  indebtedness,  (iii)  payment  of
dividends or other capital distributions, and (iv) payment of management fees to
a parent holding company. The FDICIA requires the bank regulatory authorities to
initiate corrective action regarding  financial  institutions which fail to meet
minimum capital requirements. Such action may, among other matters, require that
the financial  institution  augment capital and reduce total assets.  Critically
undercapitalized  financial institutions may also be subject to appointment of a
receiver or  conservator  unless the financial  institution  submits an adequate
capitalization plan.




INFLATION

The impact of inflation on a financial  institution  differs  significantly from
that exerted on manufacturing,  or other commercial concerns,  primarily because
its assets and liabilities are largely monetary. In general, inflation primarily
affects the Company  indirectly  through its effect on market rates of interest,
and thus the ability of the Banks to attract loan customers.  Inflation  affects
the  growth  of  total  assets  by  increasing  the  level of loan  demand,  and
potentially adversely affects the Company's capital adequacy because loan growth
in inflationary  periods can increase at rates higher than the rate that capital
grows  through  retention  of earnings  which the  Company  may  generate in the
future. In addition to its effects on interest rates, inflation directly affects
the Company by increasing the Company's operating expenses.

The effect of inflation was not material to the Company's  results of operations
during the periods covered by this report.
<PAGE>

OTHER MATTERS

Year 2000
As the year 2000 approaches, a critical issue has emerged regarding how existing
application  software  programs and operating  systems can accommodate this date
value. In brief, many existing  application software products in the marketplace
were designed to only accommodate a two digit date position which represents the
year (e.g.,  "95""is stored on the system and  represents  the year 1995).  As a
result, the year 1999 (i.e., "99") could be the maximum date value these systems
will be able to  accurately  process.  This is not just a  banking  problem,  as
corporations around the world and in all industries are similarly impacted.

The Company is uncertain  regarding the  consequences  of the Year 2000 issue on
the  future  results of  operations,  liquidity  and  financial  condition;  but
believes  that  failure to ensure that its systems are in  compliance  with Year
2000  requirements  could have a material  adverse effect on its business.  As a
result,  the  Company  has  made  addressing  Year  2000  issues a  priority  of
management  and the Board.  Based upon actions  implemented to date, the Company
currently  anticipates that it will be successful in addressing Year 2000 issues
and anticipates no materially adverse processing problems.

All mission  critical  systems  have been  identified  by the  Company,  and the
Company is currently  testing,  or developing  contingency  plans, for each. The
term "mission  critical" refers to an application or system that is vital to the
successful  continuance  of core business  activity.  Significantly  all mission
critical  hardware  and  software  utilized by the Company are provided by third
parties.  This requires that the Company is in close contact with relevant 
vendors and  contractors as it conducts  testing and contingency  planning. 
The Company anticipates  that  all of its  mission  critical  systems  will
be tested and implemented,  or that  contingency  plans will be written and 
in place, by March 31, 1999.

The Company has made disclosures to all existing and new customers regarding the
importance  of the Year 2000  issue and its  relevance  to the  Company  and the
customer. The Company is conducting an ongoing effort to identify customers that
represent material risk exposure to the institution, to evaluate their Year 2000
preparedness and risk to the Company and to implement appropriate risk controls.

The Company  also  continues  to evaluate  the cost to address Year 2000 issues.
Most costs incurred to date are in conjunction  with the planned  replacement of
systems.  The  cost  of  system  replacements  accelerated  to  meet  Year  2000
requirements  and Year 2000 project  specific costs have not been significant to
the operations of Company as a whole. The Company believes that it will meet its
Year 2000 compliance  commitments  using existing  resources,  without incurring
significant incremental expenses.

Despite efforts  undertaken to date and as projected,  there can be no assurance
that problems will not arise which could have an adverse impact upon the Company
due, among other matters, to the complexities  involved in computer  programming
related to  resolution  of Year 2000  problems  and the fact that the systems of
other  companies on which Central Coast  Bancorp and its  subsidiaries,  Bank of
Salinas and Cypress  Bank,  may rely must also be corrected  on a timely  basis.
Many phases of the Company's Year 2000  preparedness  plan have been  completed:
the Company has identified,  assess and prioritized  mission  critical  systems;
developed  Year 2000 testing  strategies  and plans;  implemented a customer due
diligence  program;  and tested most  mission  critical  systems.  But,  delays,
mistakes or failures in correcting  Year 2000 system problems by other companies
on which  Central  Coast  Bancorp and its  subsidiaries  may rely,  could have a
significant adverse impact upon Central Coast Bancorp and its subsidiaries, Bank
of Salinas and Cypress  Bank,  and their ability to mitigate the risk of adverse
impact of Year 2000 problems for their customers.

The   disclosure   set  forth   above   contains   forward-looking   statements.
Specifically,  such  statements  are contained in sentences  including the words
"expect" or "anticipate" or "could" or "should". Such forward-looking statements
are subject to inherent risks and uncertainties that may cause actual results to
differ materially from those  contemplated by such  forward-looking  statements.
The  factors  that may cause  actual  results  to differ  materially  from those
contemplated  by the  forward-looking  statements  include  the failure by third
parties adequately to remediate Year 2000 issues or the inability of the Company
to complete testing software changes on the time schedules  currently  expected.
Nevertheless,  the  Company  currently  expects  that its Year  2000  compliance
efforts will be successful without material adverse effects on its business.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The reader is referred to pages 28 to 29 of the Annual  Report on Form 10--K for
information  on market  risk.  There  have  been no  significant  changes  since
December 31, 1997 (also see pages 22 - 23 of this report).


<PAGE>


                           PART II - OTHER INFORMATION

Item 1.  Legal proceedings.

                           None.

Item 2.   Changes in securities.

                           None.

Item 3.   Defaults upon senior securities.

                           None.

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

                           None.

Item 5.   Other information.

                           None.

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

                  (a)       Exhibits


                           (27.1)  Financial Data Schedules

                           Reports on Form 8-K - None





<PAGE>



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.


October 30, 1998                                     CENTRAL COAST BANCORP


                                                     By:  \S\JAYME C. FIELDS
                                                     --------------------------
                                                     Jayme C. Fields, Controller
                                                     (Principal Financial and
                                                     Accounting Officer)




<PAGE>




                                  EXHIBIT INDEX


Exhibit
Number                     Description                               Page

27.1                       Financial Data Schedule                    31