|SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549   FORM 10-Q  (Mark one)
|---------------------------------------------------------------------------------

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

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




| |  | For the quarterly period endedSeptember 30, 2003
| |  | ------------------------------------------------




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

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




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

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

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

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

|(831) 422-6642(Registrants telephone number, including area code)   Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No  Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Exchange Act). Yes  x  No  Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: ̈  No par value Common Stock - 9,926,498 shares outstanding at November 6, 2003.Page 1 of 34  



















PART
1-FINANCIAL INFORMATION


Item 1.FINANCIAL
STATEMENTS:



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

|In thousands (except share data)                                        | September 30, 2003 | December 31, 2002
|----------------------------------------------------------------------- | ------------------ | -----------------
|Assets                                                                  |                   
|Cash and due from banks                                                 |                    | $   61,032       
|Federal funds sold                                                      |                    | 5,151            
|                                                                       
|Total cash and equivalents                                              |                    | 66,183           
|Available-for-sale securities at fair value (amortized cost of $151,991 |                   
|at September 30, 2003 and $104,925 at December 31, 2002)                |                    | 152,959          
|Loans:                                                                  |                   
|Commercial                                                              |                    | 206,274          
|Real estate-construction                                                |                    | 55,584           
|Real estate-other                                                       |                    | 473,650          
|Consumer                                                                |                    | 13,999           
|Deferred loan fees, net                                                 |                    | (1,139           
|                                                                       
|Total loans                                                             |                    | 748,368          
|Allowance for loan losses                                               |                    | (16,272          
|                                                                       
|Net Loans                                                               |                    | 732,096          
|                                                                       
|Premises and equipment, net                                             |                    | 2,787            
|Other real estate owned                                                 |                    | 2,761            
|Accrued interest receivable and other assets                            |                    | 13,097           
|                                                                       
|Total assets                                                            |                    | $ 969,883        
|                                                                       
|Liabilities and Shareholders' Equity                                    |                   
|Deposits:                                                               |                   
|Demand, noninterest bearing                                             |                    | $ 239,802        
|Demand, interest bearing                                                |                    | 134,715          
|Savings                                                                 |                    | 230,137          
|Time                                                                    |                    | 267,348          
|                                                                       
|Total Deposits                                                          |                    | 872,002          
|Accrued interest payable and other liabilities                          |                    | 11,813           
|                                                                       
|Total liabilities                                                       |                    | 883,815          
|                                                                       
|Commitments and contingencies (Note 3)                                  |                   
|Shareholders Equity:                                                    |                   
|Preferred stock-no par value; authorized                                |                   
|1,000,000 shares; none outstanding                                      |                   
|Common stock - no par value; authorized 25,000,000 shares;              |                   
|issued and outstanding: 9,919,636 shares at September 30, 2003          |                   
|and 9,015,675 shares at December 31, 2002                               |                    | 51,316           
|Shares held in deferred compensation trust (411,191 at Sept. 30, 2003   |                   
|and 373,810 as of December 31, 2002), net of deferred obligation        |                    | --               
|Retained earnings                                                       |                    | 34,185           
|Accumulated other comprehensive income (loss) - net of taxes            |                   
|of $402 at September 30, 2003 and $994 at December 31, 2002             |                    | 567              
|                                                                       
|Total shareholders' equity                                              |                    | 86,068           
|                                                                       
|Total liabilities and shareholders' equity                              |                    | $ 969,883        
|                                                                       

|See
Notes to Consolidated Condensed Financial Statements








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

|                                                    | Three Months Ended September 30, | Nine Months Ended September 30,
|--------------------------------------------------- | -------------------------------- | -------------------------------
|
|Interest Income                                     |                                 
|Loans (including fees)                              |                                  | $11,086                        
|Investment securities                               |                                  | 1,319                          
|Other                                               |                                  | 98                             
|                                                   
|Total interest income                               |                                  | 12,503                         
|                                                   
|Interest Expense                                    |                                 
|Interest on deposits                                |                                  | 2,743                          
|Other                                               |                                  | 102                            
|                                                   
|Total interest expense                              |                                  | 2,845                          
|                                                   
|Net Interest Income                                 |                                  | 9,658                          
|Provision for Loan Losses                           |                                  | 630                            
|                                                   
|Net Interest Income after Provision for Loan Losses |                                  | 9,028                          
|                                                   
|Noninterest Income                                  |                                 
|Service Charges on Deposits                         |                                  | 806                            
|Other                                               |                                  | 732                            
|                                                   
|Total noninterest income                            |                                  | 1,538                          
|                                                   
|Noninterest Expenses                                |                                 
|Salaries and benefits                               |                                  | 3,407                          
|Occupancy                                           |                                  | 630                            
|Furniture and equipment                             |                                  | 431                            
|Other                                               |                                  | 1,559                          
|                                                   
|Total noninterest expenses                          |                                  | 6,027                          
|                                                   
|Income Before Provision for                         |                                 
|Income Taxes                                        |                                  | 4,539                          
|Provision for Income Taxes                          |                                  | 1,589                          
|                                                   
|Net Income                                          |                                  | $  2,950                       
|                                                   
|Basic Earnings per Share                            |                                  | $    0.30                      
|Diluted Earnings per Share                          |                                  | $    0.28                      

|See Notes
to Consolidated Condensed Financial Statements








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

|In thousands                                                                                                                                                                             
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|Cash Flows from Operations                                                                                                                                                               
|Net income                                                                                                                                                                               
|Reconciliation of net income to net cash provided                                                                                                                                        
|by operating activities:                                                                                                                                                                 
|Provision for loan losses                                                                                                                                                                
|Net gain on sale of investments                                                                                                                                                          
|Depreciation                                                                                                                                                                             
|Net (gain) loss on sale of fixed assets                                                                                                                                                  
|Amortization and accretion                                                                                                                                                               
|Gain on other real estate owned                                                                                                                                                          
|Increase in accrued interest receivable and other assets                                                                                                                                 
|Increase (decrease) in accrued interest payable and other liabilities                                                                                                                    
|Increase (decrease) in deferred loan fees                                                                                                                                                
|                                                                                                                                                                                         
|Net cash provided by operations                                                                                                                                                          
|                                                                                                                                                                                         
|Cash Flows from Investing Activities:                                                                                                                                                    
|Proceeds from maturities of available-for-sale securities                                                                                                                                
|Purchases of available-for-sale securities                                                                                                                                               
|Proceeds from sale of available-for-sale securities                                                                                                                                      
|Net increase in loans                                                                                                                                                                    
|Proceeds from sale of other owned real estate                                                                                                                                            
|Proceeds from sale of equipment                                                                                                                                                          
|Purchases of premises and equipment                                                                                                                                                      
|                                                                                                                                                                                         
|Net cash used in investing activities                                                                                                                                                    
|                                                                                                                                                                                         
|Cash Flows from Financing Activities:                                                                                                                                                    
|Net increase in deposit accounts                                                                                                                                                         
|Net (decrease) increase in other borrowings                                                                                                                                              
|Cash received for stock options exercised                                                                                                                                                
|                                                                                                                                                                                         
|Net cash provided by financing activities                                                                                                                                                
|                                                                                                                                                                                         
|Net decrease in cash and equivalents                                                                                                                                                     
|Cash and equivalents, beginning of period                                                                                                                                                
|                                                                                                                                                                                         
|Cash and equivalents, end of period                                                                                                                                                      
|                                                                                                                                                                                         
|Noncash Investing and Financing Activities:                                                                                                                                              
|The Company obtained $2,761,000 of real estate (OREO) in the first nine months of 2003 and $591,000
in the first nine months of 2002 in connection with foreclosures of delinquent loans.
|                                                                                                                                                                                         
|Other Cash Flow Information:                                                                                                                                                             
|Interest paid                                                                                                                                                                            
|Income taxes paid                                                                                                                                                                        

# See
Notes to Consolidated Condensed Financial Statements

---

|CENTRAL
COAST BANCORP AND SUBSIDIARYNOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


September
30, 2003 (Unaudited)

NOTE
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 Central Coast Bancorps (the
Companys) consolidated financial position at September 30,
2003, the results of operations for the three and nine month periods ended
September 30, 2003 and 2002 and cash flows for the nine month periods ended
September 30, 2003 and 2002.

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

In
preparing such financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance sheet and revenues and expenses for the period. Actual
results could differ significantly from those estimates. Material estimates that
are particularly susceptible to significant changes in the near term relate to
the determination of the allowance for loan losses.

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

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

NOTE
2. STOCK COMPENSATION

The
Company accounts for its stock-based awards using the intrinsic value method in
accordance with Accounting Principles Board No. 25, Accounting for Stock
Issued to Employees and its related interpretations. No compensation expense
has been recognized in the financial statements for employee stock arrangements,
as the Companys stock option plans provide for the issuance of options at
a price of no less than the fair market value at the date of the grant.
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, requires the disclosure of pro forma net income
and earnings per share had the Company adopted the fair value method of
accounting for stock-based compensation. Under SFAS No. 123, the fair value of
stock-based awards to employees is calculated through the use of option pricing
models, even though such models were developed to estimate the fair value of
freely tradable, fully transferable options without vesting restrictions, which
significantly differ from the Companys stock option awards. These models
also require subjective assumptions, including future stock price volatility and
expected time to exercise, which greatly affect the calculated values. The
Companys calculations were made using the Black-Scholes option pricing
model with the following assumptions: expected life, four years following
vesting; average stock volatility of 16.1% for 2003 and 16.0% for 2002; risk
free interest rates ranging from 2.77% to 3.55% for 2003 and 2.92% to 6.57% for
2002; and no dividends during the expected term for 2003 and 2002. The
Companys calculations are based on a multiple option valuation approach
and forfeitures are recognized as they occur.

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

|                                          | Three Months Ended September 30, | Nine Months Ended September 30,
|----------------------------------------- | -------------------------------- | -------------------------------
|
|Net Income - As Reported                  |                                  | $      2,950                   
|Compensation expense from amortization of |                                 
|fair value of stock awards                |                                  | (5                             
|Taxes on compensation expense             |                                  | 2                              
|                                         
|Pro Forma Net Income                      |                                  | $      2,947                   
|                                         
|Basic Earnings per Share - As Reported    |                                  | $        0.30                  
|Pro Forma Basic Earnings per Share        |                                  | $        0.30                  
|Diluted Earnings per Share - As Reported  |                                  | $        0.28                  
|Pro Forma Diluted Earnings per Share      |                                  | $        0.28                  



|NOTE
3. COMMITMENTS AND CONTINGENCIES

In
the normal course of business there are outstanding various commitments to
extend credit which are not reflected in the financial statements, including
loan commitments of approximately $228,222,000 and standby letters of credit of
approximately $7,339,000 at September 30, 2003. However, all such commitments
will not necessarily culminate in actual extensions of credit by the Company.

Approximately
$32,284,000 of loan commitments outstanding at September 30, 2003 relate to real
estate construction loans that are expected to fund within the next twelve
months. The remaining commitments primarily relate to revolving lines of credit
or other commercial loans, and many of these commitments are expected to expire
without being drawn upon. Therefore, the total commitments do not necessarily
represent future cash requirements. Each potential borrower and the necessary
collateral are evaluated on an individual basis. Collateral varies, but may
include real property, bank deposits, debt or equity securities or business
assets.

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

In
addition to the Form 10-Q for the quarterly period ending June 30, 2003, current
reports on Form 8-K were filed with the Commission on April 11, 2003, June 12,
2003 and October 9, 2003, which contained disclosures regarding litigation
between the Bank and the City of King concerning a certificate of deposit as
described below.

In
April 2003, the Bank was served with an Application for a Writ of Mandate by the
City of King which seeks the return from the Bank of an approximate $4.4 million
certificate of deposit assigned to the Bank as collateral security for an
approximate $4.4 million loan made by the Bank to a private real estate
developer (a limited liability company). The loan to the developer was made in
conjunction with a redevelopment project with the City of King and/or its
Community Development Agency. The City of King alleges the certificate of
deposit is general fund monies it deposited with the Bank and was not intended
as a pledge for a loan. The certificate of deposit matured on March 30, 2003 and
the $4.4 million loan became due on April 3, 2003. The Bank advised the City of
King of its intention to apply the proceeds of the certificate of deposit to
payment of the loan. Another loan made by the Bank to the developer of this
project is secured by a first deed of trust on the project in the approximate
amount of $4.6 million. A notice of default on this loan was filed on April 21,
2003 and the loan is in the process of foreclosure and collection. Because the
loans were not paid on the due dates, the Bank considers the loans impaired
under applicable accounting standards. The aggregate amount of the two loans
currently outstanding and past due in respect of this redevelopment project is
approximately $9.0 million.

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

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

On
September 30, 2003, Bank counsel filed pleadings requesting, among other
matters, to stay enforcement of the Judgment pending a motion for new trial and
to vacate and set aside the Judgment, Statement of Decision contained therein,
and the Writ of Mandate, or to stay enforcement thereof pending the Banks
appeal of the Judgment. A hearing was scheduled on October 31, 2003, but has
been rescheduled to November 7 or as soon thereafter as the matter may be heard,
in the Monterey County Superior Court, to consider the Banks Motion for
Stay of the Judgment. A hearing on the Banks Motion for a New Trial and to
vacate the Judgment will be set if the court agrees to consider it. The Bank
continues to hold the certificate of deposit.

The
outcome of this matter continues to be uncertain at the present time; however,
the Bank intends to vigorously defend its rights in respect of the certificate
of deposit and has instructed its attorneys to take all necessary steps to
initiate an appeal in the event that the Banks Motions for Stay of the
Judgment, New Trial and to vacate the Judgment are denied.

If
the Judgment is not reversed on appeal and becomes final, the Bank could sustain
the loss of the certificate of deposit as collateral security for the loan. In
such event, the entire $4.4 million would likely become a charge to the
Banks allowance for loan losses because the nature and extent of other
sources of recovery available to the Bank are uncertain at present.

NOTE
4. EARNINGS PER SHARE

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

There
was no difference in the numerator used in the calculation of basic earnings per
share and diluted earnings per share. The denominator used in the calculation of
basic earnings per share and diluted earnings per share for three and nine month
periods ended September 30 is reconciled as follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                     | Three Months Ended September 30, | Nine Months Ended September 30,
|---------------------------------------------------- | -------------------------------- | -------------------------------
|
|Basic Earnings Per Share                             |                                 
|Net income                                           |                                  | $  2,950                       
|Weighted average common shares outstanding           |                                  | 9,919                          
|                                                    
|Basic earnings per share                             |                                  | $    0.30                      
|                                                    
|Diluted Earnings Per Share                           |                                 
|Net income                                           |                                  | $  2,950                       
|Weighted average common shares outstanding           |                                  | 9,919                          
|Dilutive effect of outstanding options               |                                  | 450                            
|                                                    
|Weighted average common shares outstanding - Diluted |                                  | 10,369                         
|                                                    
|Diluted earnings per share                           |                                  | $    0.28                      
|                                                    

NOTE
5.  COMPREHENSIVE INCOME

|                                                         | Three Months Ended September 30, | Nine Months Ended September 30,
|-------------------------------------------------------- | -------------------------------- | -------------------------------
|
|Net income                                               |                                  | $ 2,950                        
|                                                        
|Other comprehensive income (loss)- Net unrealized        |                                 
|gain (loss) on available-for-sale securities             |                                  | (1,239                         
|Reclassification adjustment for gains included in income |                                  | (176                           
|Taxes on reclassification adjustment                     |                                  | 73                             
|                                                        
|Total other comprehensive income                         |                                  | (1,342                         
|                                                        
|Total comprehensive income                               |                                  | $ 1,608                        
|                                                        

|NOTE
6.  STOCK REPURCHASE PLAN

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











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

In
addition to the historical information contained herein, this report on Form
10-Q contains certain forward-looking statements that are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected. Changes to such risks and uncertainties, which could impact future
financial performance, include, among others, (1) competitive pressures in the
banking industry; (2) changes in the interest rate environment; (3) general
economic conditions, nationally, regionally and in operating market areas,
including a decline in real estate values in the Companys market areas;
(4) the effects of terrorism, the threat of terrorism or the impact of military
conflicts; (5) changes in the regulatory environment; (6) changes in business
conditions and inflation; (7) changes in securities markets; (8) data processing
compliance problems; (9) variances in the actual versus projected growth in
assets; (10) return on assets; (11) loan losses; (12) expenses; (13) rates
charged on loans and earned on securities investments; (14) rates paid on
deposits; and (15) fee and other noninterest income earned, as well as other
factors. This entire report should be read to put such forward-looking
statements in context. To gain a more complete understanding of the
uncertainties and risks involved in the Companys business this report
should be read in conjunction with Central Coast Bancorps annual report on
Form 10-K for the year ended December 31, 2002, and the 2003 quarterly reports
on Form 10-Q and Form 8-K current reports.


Critical
Accounting Policies

General

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

Allowance
for Loan Losses

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

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

Stock
Based Awards

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


Business
Organization

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

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


Overview

For
the third quarter of 2003, the Company had net income of $2,950,000 as compared
to $2,848,000 reported in the year earlier period. Diluted earnings per share
for the two quarters was $0.28 and $0.27, respectively. The annualized return on
equity (ROE) and return on assets (ROA) for the third quarter 2003 were 13.75%
and 1.21% as compared to 15.14% and 1.29% for the same period in 2002.

Net
income for the nine months ended September 30, 2003 and 2002 was $8,803,000 and
$8,131,000. Diluted earnings per share were $0.85 and $0.78, respectively. For
the first nine months of 2003, ROE was 14.25% and ROA was 1.27% as compared to
15.33% and 1.28% for the same period in 2002. The earnings per share for the
2002 periods have been adjusted for the 10% stock dividend distributed in
February 2003.

During
the third quarter of 2003, the Company continued to experience growth in total
assets, loans and deposits. The Company ended the quarter with total assets of
$969,883,000, an increase of $19,062,000 (2.0%) from the June 30, 2003 balance
and a $50,751,000 (5.5%) increase from year-end 2002. Although, loan demand has
not been as vigorous in 2003 as it was in the past two years, loans increased
$16,443,000 (2.2%) from the June 30, 2003 balance to total $748,368,000 at
September 30, 2003. This is slight increase from the year-end 2002 loan total of
$745,353,000. Deposits growth has been steady in 2003 increasing $17,716,000
(2.1%) in the third quarter to a total of $872,002,000 at September 30, 2003.
Year-to-date deposits have increased $45,500,000 (5.5%). On a year-over-year
basis, the Companys focus on internal growth has generated an increase in
assets of $98,568,000 (11.3%); an increase in loans of $37,957,000 (5.3%); and
an increase in deposits of $101,403,000 (13.2%).

At
September 30, 2003, nonperforming assets totaled $13,922,000, which was an
increase of $179,000 from the June 30, 2003 balance of $13,743,000. The two
loans related to the King City redevelopment project accounted for approximately
$9.0 million of the total. (For additional information see Note 3 to the
consolidated condensed financial statements  Commitments and
Contingencies, Nonaccrual, Past Due, Restructured Loans and Other Real Estate
Owned section of this MD& A and Part II Items 1 and 6 (b)).

Central
Coast Bancorp ended the third quarter of 2003 with a Tier 1 capital ratio of
10.5% and a total risk-based capital ratio of 11.8% versus 9.8% and 11.0%,
respectively, at the end of the third quarter of 2002.

Within
the Managements Discussion and Analysis, interest income, net interest
income, net interest margin and the efficiency ratio are presented on a fully
taxable equivalent basis (FTE). These items have been adjusted to
give effect to $273,000 and $280,000 in taxable equivalent interest income on
tax-free investments for the three- month periods ending September 30, 2003 and
2002 and $828,000 and $841,000 for the nine month periods ending September 30,
2003 and 2002.

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


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

|                                                                         | Three Months Ended September 30, | Percentage Change Increase | Nine Months Ended September 30, | Percentage Change Increase
|------------------------------------------------------------------------ | -------------------------------- | -------------------------- | ------------------------------- | --------------------------
|
|Interest Income (1)                                                      |                                  | $12,776                    |                                 | $13,292                   
|Interest Expense                                                         |                                  | 2,845                      |                                 | 3,536                     
|                                                                        
|Net interest income                                                      |                                  | 9,931                      |                                 | 9,756                     
|Provision for Loan Losses                                                |                                  | 630                        |                                 | 925                       
|                                                                        
|Net interest income after                                                |                                 
|provision for loan losses                                                |                                  | 9,301                      |                                 | 8,831                     
|Noninterest Income                                                       |                                  | 1,538                      |                                 | 992                       
|Noninterest Expense                                                      |                                  | 6,027                      |                                 | 5,257                     
|                                                                        
|Income before income taxes                                               |                                  | 4,812                      |                                 | 4,566                     
|Income Taxes                                                             |                                  | 1,589                      |                                 | 1,438                     
|Tax Equivalent Adjustment                                                |                                  | 273                        |                                 | 280                       
|                                                                        
|Net income                                                               |                                  | $  2,950                   |                                 | $  2,848                  
|                                                                        
|(1) Interest on tax-free securities is reported on tax equivalent basis.

|Net
interest income / net interest margin

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

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

|(1) |  | Loan interest income includes fee income of $427,000 and $429,000 for the three
month periods ended September 30, 2003 and 2002, respectively.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Includes the average allowance for loan losses of $15,777,000 and $13,356,000
and average deferred loan fees of $1,057,000 and $1,173,000 for the three months
ended September 30, 2003 and 2002, respectively.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

|(1) |  | Loan interest income includes fee income of $1,251,000 and $1,230,000 for the
nine month periods ended September 30, 2003 and 2002, respectively.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Includes the average allowance for loan losses of $15,493,000 and $12,538,000
and average deferred loan fees of $1,010,000 and $1,143,000 for the nine months
ended September 30, 2003 and 2002, respectively.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

# Volume/Rate
Analysis

|In thousands                        
|------------------------------------
|
|
|Net Loans (1)(2)                    
|Taxable investment securities       
|Tax exempt investment securities (3)
|Federal funds sold                  
|                                    
|Total                               
|                                    
|Interest-bearing liabilities:       
|Demand deposits                     
|Savings deposits                    
|Time deposits                       
|Other borrowings                    
|                                    
|Total                               
|                                    
|Interest differential               
|                                    

|Nine Months Ended September 30, 2003 over 2002 Increase (decrease) due to change in: |  |         |  
|------------------------------------------------------------------------------------ |  | ------- | -
|
|
|Net Loans (1)(2)                                                                     |  | $ 3,955 |  
|Taxable investment securities                                                        |  | (515    | )
|Tax exempt investment securities (3)                                                 |  | (27     | )
|Federal funds sold                                                                   |  | 183     |  
|                                                                                    
|Total                                                                                |  | 3,596   |  
|                                                                                    
|Interest-bearing liabilities:                                                        | 
|Demand deposits                                                                      |  | (43     | )
|Savings deposits                                                                     |  | 749     |  
|Time deposits                                                                        |  | 231     |  
|Other borrowings                                                                     |  | (33     | )
|                                                                                    
|Total                                                                                |  | 904     |  
|                                                                                    
|Interest differential                                                                |  | $ 2,692 |  
|                                                                                    

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

|(2) |  | Loan fees of $427,000 and $429,000 for the quarters ended September 30, 2003 and
2002, and loan fees of $1,251,000 and $1,230,000 for the nine months ended
September 30, 2003 and 2002, respectively, have been included in the interest
income computation.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

|Net
interest income for the third quarter of 2003 was $9,931,000, which was an
increase of $175,000 (1.8%) from the $9,756,000 recorded in the third quarter of
2002. Both interest income and interest expense decreased from their prior year
levels. The interest income component decreased $516,000 (3.9%) on a
quarter-over-quarter basis as the increase in volume of earning assets did not
offset the effect from lower rates. Average loan balances were $44,849,000
(6.6%) higher in the third quarter of 2003 versus the same quarter in the
previous year. This volume difference added $1,070,000 to interest income.
However, the average yield earned on loans in the third quarter of 2003 was
6.09%, a decrease of 65 basis points from the yield earned in the third quarter
of 2002. The lower loan yield decreased interest income by $1,586,000. The
average balance of taxable investment securities in the third quarter of 2003
was $17,237,000 (24.0%) higher than it was in the third quarter of 2002. The
higher balances added $212,000 to interest income. However, rates received on
those investments decreased 144 basis points between the two periods. The lower
rates reduced interest income $323,000 on a quarter-over-quarter basis. The
average balance of the Companys portfolio of tax-exempt securities
decreased $809,000 (1.6%) from the third quarter of 2002 to the third quarter of
2003. The tax equivalent yield decreased 5 basis points to 6.72% during that
period. The lower balance and rate combined to decrease interest income $20,000.

Interest
expense decreased $691,000 to $2,845,000 in the third quarter of 2003 as
compared to the third quarter of 2002. The average rate paid on interest-bearing
liabilities declined 62 basis points to 1.76% for the third quarter of 2003 as
compared to 2.37% in the year earlier period. This decrease in rates reduced
interest expense by $1,029,000. Average balances of interest-bearing liabilities
in the third quarter of 2003 increased by $50,895,000 (8.6%) over the prior year
period. These higher balances added $338,000 to interest expense. Without
further rate changes from the Federal Reserve Bank, we do not anticipate that
the deposit rates will adjust much lower.

The
net interest margin for the third quarter of 2003 was 4.39% as compared to 4.76%
in the year earlier period. The net interest margin in the third quarter of 2003
decreased 6 basis points from 4.45% in the second quarter of 2003. The decrease
in net interest margin from the second quarter is primarily a result of lower
yields on loans and taxable investment securities from the 25 basis point
decrease in the Federal Funds rate in late June 2003 and the lower market rates
on investment securities. The yield on earning assets decreased more than the
rates paid on the deposit liabilities.

For
the nine-month period ending September 30, 2003, net interest income increased
$1,029,000 (3.7%) over the first nine months of 2002. The interest income
component decreased $825,000 to $37,566,000. Average balances of earning assets
were $77,602,000 (9.9%) higher in the first nine-months of 2003 than the same
period in 2002. The average balance of loans was $77,414,000 higher, which
contributed $3,955,000 to interest income. The average yield received on loans
in the first nine-months of 2003 was 66 basis points lower than the 6.83%
received in the year earlier period. The lower yield on loans decreased interest
income by $3,527,000. The average balance of taxable investment securities was
$13,583,000 (16.6%) lower in the first nine-months of 2003 than in the year
earlier period. The lower balances in taxable investments decreased interest
income $515,000. Yields on the investment securities decreased 146 basis point
to 3.61% and that resulted in a $746,000 decrease in interest income.

Interest
expense for the nine-month period ending September 30, 2003 decreased $1,854,000
(17.4%) from the first nine-months of 2002. Average balances of interest bearing
liabilities in the first nine-months of 2003 were $49,597,000 (8.7%) higher than
in the year earlier period. These volume increases added $904,000 to interest
expense. For the first nine-months of 2003, average rates paid on interest
bearing liabilities was 1.90% for a decline of 60 basis points from the rates
paid in the first nine-months of 2002. The lower rates resulted in a $2,758,000
decrease in interest expense in the first nine-months of 2003 from the prior
year period.

The
impact of the above changes in volumes and rates for earning assets and interest
bearing liabilities for the first nine-months of 2003 resulted in a decreases in
the net interest margin of 27 basis points to 4.45% from 4.72% in the year
earlier period.






Provision
for Loan Losses

The
Bank provided $630,000 for loan losses in the third quarter of 2003 as compared
to $925,000 in the third quarter of 2002. For the nine-month period ended
September 30, 2003, the Bank provided $930,000 compared to $2,048,000 in the
year earlier period. The provision for loan losses that has been recorded is
based on factors which consider the growth or decline in the level of loans,
changes in the level of nonperforming and classified assets, changing portfolio
mix and prevailing local and national economic conditions to establish the
required level of loan loss reserves. At September 30, 2003, the ratio of the
allowance for loan losses to total loans was 2.17% as compared to 2.04% at
December 31, 2002 and 1.96% at September 30, 2002. (See the Credit
Risk and Allowance for Loan Losses sections for additional
discussion).


Noninterest
Income

Noninterest
income consists primarily of service charges on deposit accounts and fees for
miscellaneous services. Noninterest income increased $546,000 (55.0%) to
$1,538,000 in the third quarter of 2003 as compared to $992,000 in the third
quarter of 2002. Service charges on deposit accounts increased $162,000 (25.2%)
due to higher volumes. Other noninterest income increased $384,000 (110%). In
the third quarter of 2003, the Bank realized a gain of $176,000 on the sale of
investment securities and recorded operating income of $260,000 from its OREO
property as compared to no activity in those areas in the third quarter of 2002.
In the third quarter of 2002, the Bank realized a gain of $71,000 on the sale of
an OREO property.

For
the first nine-months of 2003, noninterest income increased $1,410,000 (51.8%)
to $4,131,000 compared to $2,721,000 in the same period last year. Service
charges on deposits increased $609,000 (35.4%) to $2,330,000 in 2003 due to
higher volumes and the effect of certain fee increases. In the first nine-months
of 2003, other fee income was $1,801,000, an $801,000 (80%) increase over the
$1,000,000 earned in the same period last year. Within other fees, mortgage
origination fees, gains on the sale of securities and the OREO operating income
were the major contributors to the increase offset by a $71,000 gain on the sale
of OREO property in 2002.


Noninterest
Expense

Noninterest
expenses increased $770,000 (14.7%) to $6,027,000 in the third quarter of 2003
as compared to $5,257,000 in the third quarter 2002. Salary and employee
benefits increased $237,000 (7.5%) to $3,407,000 because of additional staffing
for the new Monterey branch, opened in January 2003, internal growth, higher
benefit costs, and normal salary increases. On a quarter-over-quarter basis,
occupancy and fixed asset expenses increased $43,000 (4.2%) from $1,018,000 in
2002 to $1,061,000 in 2003. Costs related to the new Monterey branch, increased
security and higher business volume contributed to the increase. Other expenses
for the third quarter of 2003 was $1,559,000, an increase of $490,000 (45.8%)
from the prior year quarter. In the third quarter of 2003, the Bank incurred
$293,000 in OREO expense as compared to only $1,000 in 2002. Legal fees
increased $113,000 to $148,000 primarily due to the City of King litigation
previously discussed in the Companys Form 10-Q for the quarter ended June
30, 2003 and Form 8-K filings on April 11, June 12 and October 9, 2003. All
other expenses increased $85,000 on a quarter-over-quarter basis. The efficiency
ratio for the quarter ended September 30, 2003 was 52.6% as compared to 48.9%,
in the year earlier period.

Noninterest
expenses for the nine-month period ending September 30, 2003 increased
$2,505,000 (16.6%) to a total of $17,572,000 compared to $15,067,000 for the
same period in 2002. Salary and benefit expenses increased $1,072,000 (12.0%) to
$10,037,000 in 2003 versus $8,965,000 in the first nine-months of 2002. The
increase was due to the additional staffing for the new Monterey branch, higher
benefit costs and normal salary increases and the impact of a one-time reduction
to employee health care expenses of $260,000 in the first quarter of 2002. For
the first nine-months of 2003, occupancy and fixed asset expenses increased
$483,000 (17.5%) to $3,242,000 compared to $2,759,000 in the same period last
year. Costs related to the new Monterey branch, increased security and higher
business volume contributed to the increase. Other expenses increased $950,000
(28.4%) to $3,343,000 for the nine-month period ended September 30, 2003. OREO
expenses increased $548,000 to $549,000. Legal fees increased $261,000 due to
the City of King matter as discussed in the previous paragraph. As a result of
the above increases, the efficiency ratio for the first nine-months of 2003 was
53.5% as compared to 49.5% for the same period of 2002.


Provision
for Income Taxes

The
effective tax rate, considering state and federal taxes, and tax exempt income,
for the third quarter and first nine months of 2003 was 35.0% in each period as
compared to 33.6% and 34.8% for the same periods in 2002. In the third quarter
of 2002, the Company reduced its estimated year-to-date tax provision from 35.5%
to 35.0%.


Securities

At
September 30, 2003, available-for-sale securities had a market value of
$152,959,000 with an amortized cost basis of $151,991,000. On an amortized cost
basis, the investment portfolio increased by $48,247,000 from the balance at
June 30, 2003 and $47,066,000 from the balance at December 31, 2002. The
unrealized gain of $968,000 at September 30, 2003 represented a decrease of
$2,296,000 from the unrealized gain of $3,264,000 at June 30, 2003 and a
decrease of $1,430,000 from the unrealized gain of $2,398,000 at December 31,
2002. The decrease in the unrealized gain on the portfolio was the result of an
upward shift in the yield curve in the third quarter of 2003. At the securities
pricing date for September 2003, the five through ten year market rates for
securities were more than 100 basis points higher than at the June 2003 pricing
date. The Company was more active in the investment markets in the third quarter
of 2003 as it reinvested principal from mortgage prepayments as well as
investing new funds.


Loans

The
ending loan balance at September 30, 2003 was $748,368,000, which was an
increase of $16,443,000 (2.2%) from the June 30, 2003 balance, an increase of
$3,015,000 (0.4%) from the year-end 2002 balance and an increase of $37,957,000
(5.3%) from the September 30, 2002 balance. During the third quarter, real
estate  other and construction loans increased while commercial and
consumer loans decreased from June 30, 2003 balances. The most significant loan
growth has been in the real estate  other category, which increased
$16,524,000 (3.6%). Construction loans had the highest percentage growth as they
increased $6,941,000 (14.3%). Commercial loans decreased $6,714,000 (3.2%) due
to seasonal fluctuations in the lines of credit and the pay-off of a large
short-term loan. Within its primary market area, the Bank has diversified its
risk both as to property type and location. See Credit Risk below
for a discussion regarding real estate risk.


Credit
Risk

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

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

The
Company has significant extensions of credit and commitments to extend credit
which are secured by real estate, totaling approximately $589 million at
September 30, 2003. Although management believes this real estate concentration
has no more than the normal risk of collectibility, a substantial decline in the
economy in general, or a decline in real estate values in the Banks
primary market areas in particular, could have an adverse impact on the
collectibility of these loans. The ultimate recovery of these loans is generally
dependent on the successful operation, sale or refinancing of the real estate.
The Bank monitors the effects of current and expected market conditions and
other factors on the collectibility of real estate loans. When, in
managements judgment, these loans are impaired, an appropriate provision
for losses is recorded. The more significant assumptions management considers
involve estimates of the following: lease, absorption and sale rates; real
estate values and rates of return; operating expenses; inflation; and
sufficiency of collateral independent of the real estate including, in limited
instances, personal guarantees. Notwithstanding the foregoing, abnormally high
rates of impairment due to general or local economic conditions could adversely
affect the Companys future prospects and results of operations.

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

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

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

Management
generally places loans on nonaccrual status when they become 90 days past due,
unless the loan is well secured and in the process of collection. When a loan is
placed on nonaccrual status, the accrued and unpaid interest receivable is
reversed and the loan is accounted for on the cash or cost recovery method
thereafter, until qualifying for return to accrual status. Generally, a loan may
be returned to accrual status when all delinquent interest and principal become
current in accordance with the terms of the loan agreement and remaining
principal is considered collectible or when the loan is both well secured and in
the process of collection. Loans are charged off when, in the opinion of
management, collection appears unlikely. The following table sets forth
nonaccrual loans, loans past due 90 days or more, restructured loans performing
in compliance with modified terms and OREO at September 30, 2003 and December
31, 2002:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                    | September 30, | December 31,
|--------------------------------------------------- | ------------- | ------------
|
|Past due 90 days or more and still accruing:        |              
|Commercial                                          |               | $     139   
|Real estate                                         |               | 4,836       
|Consumer and other                                  |               | --          
|                                                   
|                                                    |               | 4,975       
|                                                   
|Nonaccrual:                                         |              
|Commercial                                          |               | 925         
|Real estate                                         |               | 4,399       
|Consumer and other                                  |               | --          
|                                                   
|                                                    |               | 5,324       
|                                                   
|Restructured (in compliance with modified           |              
|terms)- Commercial                                  |               | 862         
|                                                   
|Total nonperforming and restructured assets         |               | 11,161      
|                                                   
|Other real estate owned                             |               | 2,761       
|                                                   
|Total nonperforming assets                          |               | $13,922     
|                                                   
|Allowance for loan losses as a percentage of        |              
|nonperforming and restructured  loans               |               | 146         
|Nonperforming and restructured loans to total loans |               | 1.52        
|Allowance for loan losses to nonperforming assets   |               | 117         
|Nonperforming assets to total assets                |               | 1.44        

|Nonperforming
assets increased $12,114,000 from the December 31, 2002 balance. Almost all of
this increase is attributable to three loans. During the second quarter of 2003,
the Company acquired one OREO property with a value of $2,761,000. The expected
closing of the sale of this OREO property has moved from the third quarter to
the fourth quarter of 2003. There are two other loans totaling approximately
$9.0 million that pertain to the redevelopment project in the City of King,
details of which have been included in the Form 10-Q for June 30, 2003 and in
the Form 8-K filings made by the Company on April 11, June 12 and October 9,
2003. The loan in the approximate amount of $4.4 million, secured by a
certificate of deposit, which is the subject of the litigation between the Bank
and the City of King is included in the nonaccrual category. The second loan in
the approximate amount of $4.6 million is included in the real estate 90 days
past due and still accruing category as it is secured by the property and is in
the process of foreclosure and collection. (For additional information see Note
3 to the consolidated condensed financial statements  Commitments and
Contingencies and Part II Items 1 and 6 (b)). At September 30, 2003,
nonperforming and restructured loans, excluding the OREO property, were 1.52% of
total loans, consistent with the 1.53% at June 30, 2003 and up from 0.25% at
December 31, 2002. The ratio of nonperforming assets to total assets was 1.44%
at September 30, 2003, 1.45% at June 30, 2003, and 0.20% at December 31, 2002.

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

At
September 30, 2003, the recorded investment in loans that are considered
impaired under SFAS No. 114 was $10,999,000. The total impaired loans include
$4,574,000 of loans past due 90 days or more and still accruing interest,
$5,324,000 of nonaccrual loans, $862,000 of restructured loans and $239,000 in
other loans identified as impaired. The impaired loans had related valuation
allowances totaling $2,661,000. At December 31, 2002, the recorded investment in
loans considered impaired was $2,618,000, of which $870,000 was included in
nonaccrual loans, $933,000 was included in restructured loans and $815,000 in
other loans identified as impaired. The impaired loans at December 31, 2002 had
valuation allowances totaling $1,165,000. Other than for the impaired loans
disclosed above, management is not aware of any other potential problem loans,
which were accruing and current at September 30, 2003, where serious doubt
exists as to the ability of the borrower to comply with the present repayment
terms.


Allowance
for Loan Losses

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

The
formula allowance is calculated by applying loss factors to outstanding loans
and certain unused commitments, in each case based on the internal risk grade of
such loans and commitments. Changes in risk grades of both performing and
nonperforming loans affect the amount of the formula allowance. Loss factors are
based on our historical loss experience and may be adjusted for significant
factors that, in managements judgment, affect the collectibility of the
portfolio as of the evaluation date. At June 30, 2003, the formula allowance was
$12,214,000 compared to $12,261,000 at June 30, 2003 and $12,002,000 at December
31, 2002.

In
addition to the formula allowance calculated by the application of the loss
factors to the standard loan categories, certain specific allowances may also be
calculated. Quarterly, all significant classified and criticized loans are
analyzed individually based on the source and adequacy of repayment and specific
type of collateral, and an assessment is made of the adequacy of the formula
reserve relative to the individual loan. A specific allocation either higher or
lower than the formula reserve will be calculated based on the
higher/lower-than-normal probability of loss and the adequacy of the collateral.
At September 30, 2003, the specific allowance was $2,711,000 on a loan base of
$31,323,000 compared to a specific allowance of $2,436,000 on a loan base of
$32,960,000 at June 30, 2003 and a specific allowance of $1,830,000 on a loan
base of $32,180,000 at December 31, 2002. The increase in the specific allowance
in the third quarter of 2003 was due to the increase in the level of loans
requiring higher specific valuation allowances.

The
unallocated allowance contains amounts that are based on managements
evaluation of conditions that are not directly measured in the determination of
the formula and specific allowances. The evaluation of the inherent loss with
respect to these conditions is subject to a higher degree of uncertainty because
they are not identified with specific problem loans or portfolio segments. At
September 30, 2003, the unallocated allowance was $1,347,000 compared to
$769,000 at June 30, 2003 and $1,402,000 at December 31, 2002. The conditions
evaluated in connection with the unallocated allowance include the following at
the balance sheet date:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

The
allowance for loan losses totaled $16,272,000 or 2.17% of total loans at
September 30, 2003 compared to $15,466,000 or 2.11% at June 30, 2003,
$15,235,000 or 2.04% at December 31, 2002 and $13,947,000 or 1.96% at September
30, 2002. At these dates, the allowance represented 146%, 141%, 843% and 682% of
nonperforming loans.

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

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

|                                                                 | Three months ended September 30, | Nine months ended September 30,
|---------------------------------------------------------------- | -------------------------------- | -------------------------------
|
|Beginning balance                                                |                                  | $   15,466                     
|Provision charged to expense                                     |                                  | 630                            
|Loans charged off                                                |                                  | (86                            
|Recoveries                                                       |                                  | 262                            
|                                                                
|Ending balance                                                   |                                  | $   16,272                     
|                                                                
|Ending loan portfolio                                            |                                  |                                
|                                                                
|Allowance for loan losses as percentage of ending loan portfolio |                                  |                                

|Liquidity

Liquidity
management refers to the Companys ability to provide funds on an ongoing
basis to meet fluctuations in deposit levels as well as the credit needs and
requirements of its clients. Both assets and liabilities contribute to the
Companys liquidity position. Federal funds lines, short-term investments
and securities, and loan repayments contribute to liquidity, along with deposit
increases, while loan funding and deposit withdrawals decrease liquidity. The
Bank assesses the likelihood of projected funding requirements by reviewing
historical funding patterns, current and forecasted economic conditions and
individual client funding needs. Commitments to fund loans and outstanding
standby letters of credit at September 30, 2003 were approximately $228,222,000
and $7,339,000, respectively. Such loans relate primarily to revolving lines of
credit and other commercial loans, and to real estate construction loans.

The
Companys sources of liquidity consist of overnight funds sold to
correspondent banks, unpledged marketable investments, loans pledged to the
Federal Home Loan Bank of San Francisco (FHLB-SF) and sellable SBA
loans. On September 30, 2003, liquid assets totaled $166.3 million or 17.1% of
total assets as compared to $102.6 million or 11.2% of total assets on December
31, 2002. In addition to liquid assets, the Bank maintains short-term lines of
credit with correspondent banks. At September 30, 2003, the Bank had $80,000,000
available under these credit lines. Informal agreements are also in place with
various other banks to purchase participations in loans, if necessary. The
Company serves primarily a business and professional customer base and, as such,
its deposit base is susceptible to economic fluctuations. Accordingly,
management strives to maintain a balanced position of liquid assets to volatile
and cyclical deposits.


Capital
Resources

The
Companys total shareholders equity was $86,068,000 at September 30,
2003 compared to $78,076,000 at December 31, 2002.

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

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

|                                          | Actual: | For Capital Adequacy Purposes: | To Be Categorized Well Capitalized Under Prompt Corrective Action Provisions:
|----------------------------------------- | ------- | ------------------------------ | -----------------------------------------------------------------------------
|
|Company                                   |        
|As of September 30, 2003                  |        
|Total Capital (to Risk Weighted Assets):  |         | $95,609                        |                                                                              
|Tier 1 Capital (to Risk Weighted Assets): |         | 85,396                         |                                                                              
|Tier 1 Capital (to Average Assets):       |         | 85,396                         |                                                                              
|                                         
|As of December 31, 2002                   |        
|Total Capital (to Risk Weighted Assets):  |         | $86,334                        |                                                                              
|Tier 1 Capital (to Risk Weighted Assets): |         | 76,374                         |                                                                              
|Tier 1 Capital (to Average Assets):       |         | 76,374                         |                                                                              
|                                         
|Community Bank                            |        
|As of September 30, 2003                  |        
|Total Capital (to Risk Weighted Assets):  |         | $88,686                        |                                                                              
|Tier 1 Capital (to Risk Weighted Assets): |         | 78,580                         |                                                                              
|Tier 1 Capital (to Average Assets):       |         | 78,580                         |                                                                              
|                                         
|As of December 31, 2002                   |        
|Total Capital (to Risk Weighted Assets):  |         | $79,470                        |                                                                              
|Tier 1 Capital (to Risk Weighted Assets): |         | 69,621                         |                                                                              
|Tier 1 Capital (to Average Assets):       |         | 69,621                         |                                                                              

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

Item
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Overview

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


Asset/Liability
Management

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

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

The
Company measures the interest rate risk embedded in its current portfolio based
on interest rates evolving over time along four forecast paths. Net interest
margin and net interest income are calculated as the forecast balance sheet is
processed against these four interest rate scenarios. One scenario is a flat
rate based on the current rate environment. One scenario is an economic
forecast, based on underlying economic and financial sector modeling. The other
two are a rising and declining scenario based on gradual rate ramps which embody
rate relationships. The nature of the specified rate tests is a gradual but
significant change in interest rates projected to evolve over 12 months.

Rate
risk is also estimated through the use of rate shock analysis. The model
calculates both the percent and dollar changes in net interest income and market
value of equity projected to occur should the yield curve instantaneously shift
up or down in a parallel fashion from its beginning position. In the rate shock
analysis, the forecast balance sheet is processed against seven interest rate
scenarios. These seven interest rate scenarios include the flat rate scenario
described above, and six additional rate shock scenarios ranging from +300 to
-300 basis points around the flat scenario in 100 basis point increments. These
rate shock scenarios assume that interest rates increase or decrease immediately
and remain at the new level in the future.

The
latest simulation forecasts, using August 31, 2003 balances, indicate that the
balance sheet is asset sensitive (earnings increase when interest rates rise and
vice versa); and the basic structure of the balance sheet as of September 30,
2003 has not changed significantly from that simulation run. The magnitude of
all the simulation results are within the Companys policy guidelines. The
asset liability management policy limits aggregate market risk, as measured in
this fashion, to an acceptable level within the context of risk-return
trade-offs.

The
simulations of earnings do not incorporate any management actions, which might
moderate the negative consequences of interest rate deviations. Therefore, they
do not reflect likely actual results, but serve as conservative estimates of
interest rate risk. The risk profile of the Bank has not changed materially from
that at year-end 2002.

Item
4. CONTROLS AND PROCEDURES

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

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


OTHER
MATTERS


Terrorist
Acts

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


Off-Balance
Sheet Items

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

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


Website
Access

Information
on the Company and its subsidiary Bank may be obtained from the Companys
website www.community-bnk.com. Copies of the Companys annual report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
all amendments thereto are available free of charge on the website as soon as
they are filed with the SEC. To access these reports through a link to the Edgar
reporting system simply select the Central Coast Bancorp  Corporate
Profile menu item, then click on the Central Coast Bancorp SEC
Filings link. Section 16 insider filings can also be accessed through the
website. Follow the same instructions and select Central Coast Bancorp SEC
Section 16 Reports.










PART
II  OTHER INFORMATION

Item
1.  Legal proceedings.

In
addition to the Form 10-Q for the quarterly period ending June 30, 2003, current
reports on Form 8-K were filed with the Commission on April 11, 2003, June 12,
2003 and October 9, 2003, which contained disclosures regarding litigation
between the Bank and the City of King concerning a certificate of deposit as
described below.

In
April 2003, the Bank was served with an Application for a Writ of Mandate by the
City of King which seeks the return from the Bank of an approximate $4.4 million
certificate of deposit assigned to the Bank as collateral security for an
approximate $4.4 million loan made by the Bank to a private real estate
developer (a limited liability company). The loan to the developer was made in
conjunction with a redevelopment project with the City of King and/or its
Community Development Agency. The City of King alleges the certificate of
deposit is general fund monies it deposited with the Bank and was not intended
as a pledge for a loan. The certificate of deposit matured on March 30, 2003 and
the $4.4 million loan became due on April 3, 2003. The Bank advised the City of
King of its intention to apply the proceeds of the certificate of deposit to
payment of the loan. Another loan made by the Bank to the developer of this
project is secured by a first deed of trust on the project in the approximate
amount of $4.6 million. A notice of default on this loan was filed on April 21,
2003 and it is in the process of foreclosure and collection. Because the loans
were not paid on the due dates, the Bank considers the loans impaired under
applicable accounting standards. The aggregate amount of the two loans currently
outstanding and past due in respect of this redevelopment project is
approximately $9.0 million.

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

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

On
September 30, 2003, Bank counsel filed pleadings requesting, among other
matters, to stay enforcement of the Judgment pending a motion for new trial and
to vacate and set aside the Judgment, Statement of Decision contained therein,
and the Writ of Mandate, or to stay enforcement thereof pending the Banks
appeal of the Judgment. A hearing was scheduled on October 31, 2003, but has
been rescheduled to November 7 or as soon thereafter as the matter may be heard,
in the Monterey County Superior Court, to consider the Banks Motion for
Stay of the Judgment. A hearing on the Banks Motion for a New Trial and to
vacate the Judgment will be set if the court agrees to consider it. The Bank
continues to hold the certificate of deposit.

The
outcome of this matter continues to be uncertain at the present time; however,
the Bank intends to vigorously defend its rights in respect of the certificate
of deposit and has instructed its attorneys to take all necessary steps to
initiate an appeal in the event that the Banks Motions for Stay of the
Judgment, New Trial and to vacate the Judgment are denied.

If
the Judgment is not reversed on appeal and becomes final, the Bank could sustain
the loss of the certificate of deposit as collateral security for the loan. In
such event, the entire $4.4 million would likely become a charge to the
Banks allowance for loan losses because the nature and extent of other
sources of recovery available to the Bank are uncertain at present.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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
|--- | --------

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

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

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

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

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

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

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

| | *(10.4) | 1994 Stock
Option Plan, as amended and restated, incorporated by reference from  Exhibit 99 to
Registration Statement on Form S-8, No. 33-89948, filed with the  Commission on November
15, 1996.
| | ------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

| | (32.1) | Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
| | ------ | ------------------------------------------------------------------------------------------------------------------------------

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

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

| |  | In
addition to the Form 10-Q for the quarterly period ending June 30, 2003, current
reports on Form 8-K were filed with the Commission on April 11, 2003, June 12,
2003 and October 9, 2003, which contained disclosures regarding litigation
between the Bank and the City of King concerning a certificate of deposit as
described below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In
April 2003, the Bank was served with an Application for a Writ of Mandate by the
City of King which seeks the return from the Bank of an approximate $4.4 million
certificate of deposit assigned to the Bank as collateral security for an
approximate $4.4 million loan made by the Bank to a private real estate
developer (a limited liability company). The loan to the developer was made in
conjunction with a redevelopment project with the City of King and/or its
Community Development Agency. The City of King alleges the certificate of
deposit is general fund monies it deposited with the Bank and was not intended
as a pledge for a loan. The certificate of deposit matured on March 30, 2003 and
the $4.4 million loan became due on April 3, 2003. The Bank advised the City of
King of its intention to apply the proceeds of the certificate of deposit to
payment of the loan. Another loan made by the Bank to the developer of this
project is secured by a first deed of trust on the project in the approximate
amount of $4.6 million. A notice of default on this loan was filed on April 21,
2003 and it is in the process of foreclosure and collection. Because the loans
were not paid on the due dates, the Bank considers the loans impaired under
applicable accounting standards. The aggregate amount of the two loans currently
outstanding and past due in respect of this redevelopment project is
approximately $9.0 million.
| |  | On
June 11, 2003, a hearing on the Application for Writ of Mandate by the City of
King was held in the Monterey County Superior Court. At the hearing, the
Superior Court Judge made a preliminary ruling that there was insufficient
evidence of a legislative act by the City of King and that the Mayor of the City
of King therefore lacked authority to pledge or assign the certificate of
deposit to the Bank.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | On
September 15, 2003, the Monterey County Superior Court issued a Judgment
confirming its preliminary ruling in the Writ of Mandate proceeding which was
held on June 11, 2003. The Judgment ordered that a Peremptory Writ of Mandate
issue requiring the Bank to return to the City of King the principal balance of
the Certificate of Deposit in the approximate amount of $4.4 million dollars
together with interest accrued at the rate of 6% per annum from March 1, 2003
through the date of the Judgment.

On
September 30, 2003, Bank counsel filed pleadings requesting, among other
matters, to stay enforcement of the Judgment pending a motion for new trial and
to vacate and set aside the Judgment, Statement of Decision contained therein,
and the Writ of Mandate, or to stay enforcement thereof pending the Banks
appeal of the Judgment. A hearing was scheduled on October 31, 2003, but has
been rescheduled to November 7 or as soon thereafter as the matter may be heard,
in the Monterey County Superior Court, to consider the Banks Motion for
Stay of the Judgment. A hearing on the Banks Motion for a New Trial and to
vacate the Judgment will be set if the court agrees to consider it. The Bank
continues to hold the certificate of deposit.                                                                                                                                                                                    
| |  | The
outcome of this matter continues to be uncertain at the present time; however,
the Bank intends to vigorously defend its rights in respect of the certificate
of deposit and has instructed its attorneys to take all necessary steps to
initiate an appeal in the event that the Banks Motions for Stay of the
Judgment, New Trial and to vacate the Judgment are denied.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | If
the Judgment is not reversed on appeal and becomes final, the Bank could sustain
the loss of the certificate of deposit as collateral security for the loan. In
such event, the entire $4.4 million would likely become a charge to the
Banks allowance for loan losses because the nature and extent of other
sources of recovery available to the Bank are uncertain at present.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | A
report on Form 8-K was filed with the Commission on October 21, 2003, reporting
a press release dated October 31, 2003 regarding the Companys operating
results for the quarter ended September 30, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

---

|SIGNATURES

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

|                 |                            
|---------------- | ---------------------------
|October 30, 2003 | CENTRAL COAST BANCORP      
|                
|                 | By: /s/ NICK VENTIMIGLIA   
|                 | Nick Ventimiglia           
|                 | Chief Executive Officer    
|                
|                 | By: /s/ ROBERT M. STANBERRY
|                 | Robert M. Stanberry        
|                 | (Chief Financial Officer,  
|                 | Principal Financial and    
|                 | AccountingOfficer)         

---

# EXHIBIT
INDEX

|               |  |                                                               
|-------------- |  | --------------------------------------------------------------
|               |  |                                                               
|Exhibit Number |  | Description                                                   
|              
|31.1           |  | Certifications of Chief Executive Officer pursuant            
|               |  | to Section 302 of the Sarbanes-Oxley Act of 2002              
|              
|31.2           |  | Certifications of Chief Financial Officer pursuant            
|               |  | to Section 302 of the Sarbanes-Oxley Act of 2002              
|              
|              
|32.1           |  | Certification of Chief Executive Officer and Chief Financial  
|               |  | Officer pursuant to Section 906 the Sarbanes-Oxley Act of 2002
|              
|              

---

|EXHIBIT 31.1

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


I,
Nick Ventimiglia, certify that:

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

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

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

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

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

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

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

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

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

|                        |  | 
|----------------------- |  | 
|Dated: October 30, 2003 |  | 
|                        |  | 
|                        |  | 
|                       

---

|EXHIBIT
31.2

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


I,
Robert M. Stanberry, certify that:

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

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

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

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

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

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

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

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

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

|                        |  | 
|----------------------- |  | 
|Dated: October 30, 2003 |  | 
|                        |  | 
|                        |  | 

---

|EXHIBIT 32.1


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

Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of
section 1350, chapter 63 of title 18, United States Code), each of the
undersigned officers of Central Coast Bancorp, a California corporation (the
Company), does hereby certify that:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|1. | The
Companys Quarterly Report on Form 10-Q for the quarter ended June 30,  2003 (the
Form 10-Q) fully complies with the requirements of Section  13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|                        |  | 
|----------------------- |  | 
|Dated: October 30, 2003 |  | 
|                        |  | 
|                        |  | 
|                       
|Dated: October 30, 2003 |  | 
|                        |  | 
|                        |  | 
|                        |  | 

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