PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS:
CENTRAL COAST BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)

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

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

CENTRAL COAST BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS March 31, 2003 (Unaudited)

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 March 31, 2003 and December 31, 2002, the results of operations and cash flows for the three month periods ended March 31, 2003 and 2002.

Certain disclosures normally presented in the notes to the annual consolidated 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-month periods ended March 31, 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.

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

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

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 $214,480,000 and standby letters of credit of approximately $6,028,000 at March 31, 2003. However, all such commitments will not necessarily culminate in actual extensions of credit by the Company.

Approximately $28,071,000 of loan commitments outstanding at March 31, 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 real estate or commercial loans, and many of these commitments are expected to expire without being drawn upon. Therefore, the total commitments do not necessarily represent future cash requirements. Each potential borrower and the necessary collateral are evaluated on an individual basis. Collateral varies, but may include real property, bank deposits, debt or equity securities or business assets.

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

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 each of the three-month periods ended March 31 is reconciled as follows:

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 March 31, 2003, there were approximately 307,900 shares remaining under the program for repurchase by the Company.

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. 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 certificate of deposit matured on March 30, 2003 and the loan became due on April 3, 2003 and has not been paid. The Bank intends to vigorously defend its rights in respect to the certificate of deposit, however, as the payment on the loan has not been received, the Bank considers the loan impaired. A second loan for $4.6 million, made to the real estate developer, is secured by a first deed of trust. This second loan is in default and a notice of default was filed on April 21, 2003.

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

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

Critical Accounting Policies

General

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

Allowance for Loan Losses

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

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

Stock Based Awards

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

Business Organization

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

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

Overview

Central Coast Bancorp reported record quarterly net income of $2,969,000 for the first quarter of 2003. Net income increased 8.5% over the $2,736,000 reported in the first quarter of 2002. Diluted earnings per share for the first quarter of 2003 increased 11.5% to $0.29 from $0.26 in the prior year period. The earnings per share for the 2002 quarter have been adjusted for the 10% stock dividend distributed in February 2003.

The annualized return on average equity (ROAE) and a return on average assets (ROAA) were 15.1% and 1.33%, as compared to 16.4% and 1.37% for the same period in 2002.

During the first quarter of 2003, the Company experienced modest growth, as total assets increased $15,534,000 (1.7%) to $934,666,000 from the 2002 year-end balance. On a year-over-year basis total assets increased $98,598,000 (11.8%) from the $836,068,000 balance at March 31, 2002. At the end of the first quarter, total loans were $718,663,000, a decrease of $26,690,000 (3.6%) from year-end, but an increase of $99,083,000 (16.0%) on a year-over-year basis. Deposits increased $14,259,000 (1.7%) in the first quarter of 2003 to $840,761,000 from the 2002 year end balance. The increase in deposits includes an $8,000,000 State of California certificate of deposit, which was originated in January 2003. Deposits increased $86,403,000 (11.5%) on a year-over-year basis from March 31, 2002 to March 31, 2003.

As part of our ongoing strategy to expand the Bank’s base within its market area, the Bank opened its twelfth branch in downtown Monterey in January 2003.

Central Coast Bancorp ended the first quarter of 2003 with a Tier 1 capital ratio of 10.2% and a total risk-based capital ratio of 11.5% compared to 9.9% and 11.1% at the end of the first 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 $281,000 in taxable equivalent interest income on tax-free investments for both of the three- month periods ending March 31, 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

Net interest income

Net interest income, the difference between interest earned on loans and investments and interest paid on deposits and other borrowings, is the principal component of the Bank’s earnings. The following table provides a summary of the components of net interest income and the changes within the components for the periods indicated. The second 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 (rate) for the periods indicated.

1) Loan interest income includes fee income of $433,000 and $386,000 for the three month periods ended March 31, 2003 And 2002, respectively. 2) Includes the average allowance for loan losses of $15,294,000 and $11,954,000 and average deferred loan fees of $977,000 and $1,058,000 for the three months ended March 31, 2003 and 2002, respectively. 3) Net interest margin is computed by dividing net interest income by the total average earning assets.

1) Loan interest income includes fee income of $433,000 and $386,000 for the three month periods ended March 31, 2003 and 2002, respectively. 2) 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. 3) Includes taxable-equivalent adjustments that relate to income on certain securities that is 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 first quarter of 2003 was $9,420,000, an $857,000 (10.0%) increase from first quarter of 2002. Interest income increased $300,000 (2.5%) from the first quarter of 2002. While average loan balances increased $117,069,000 (19.7%), increasing interest income by $1,989,000, decreases in both taxable investment balances and the yields received on earning assets offset most of the volume increase from the loans. Although, there was only a 50 basis point decrease in the prime interest rate in 2002, loan yields received in the first quarter of 2003 were down 63 basis points from the year earlier quarter. This decrease in yields reduced interest income $1,099,000. The average balance of taxable investments decreased $33,441,000 to $56,599,000 mostly due to very high principal prepayments received on mortgage securities due to the refinancing of home loans. The high prepayments also reduced the yield received on taxable investments by 108 basis points. The combination of the volume and rate changes on taxable investments decreased interest income $590,000. With the continuing high levels of mortgage refinancing, we would expect the average yield received on the Bank's taxable investment portfolio to continue to decrease from the 4.25% received in the first quarter of 2003.

Interest expense decreased $557,000 (15.4%) as the average rate paid on interest-bearing liabilities declined 65 basis points to 2.04% for the first quarter of 2003 from 2.69% in the year earlier period. This decrease in rates reduced interest expense by $891,000. Average balances of interest-bearing liabilities in the first quarter of 2003 increased by $64,660,000 (11.8%) over the prior year period. These higher balances added $334,000 to interest expense.

The net interest margin for the first quarter of 2003 was 4.54% as compared to 4.62% in the year earlier period and 4.75% in the fourth quarter of 2002. The net interest margin in the first quarter of 2003 reflects the full quarter effect of the 50 basis point decrease in the prime interest rate in November 2002. If the interest rates remain at current levels, we would expect the net interest margin to remain about the same during the second quarter. In a rising rate environment the net interest margin is expected to improve, as the Bank's variable rate assets are expected to reprice more quickly than the interest-bearing liabilities. Conversely, in a declining rate environment the net interest margin is expected to decline.

Provision for Loan Losses

The Bank did not make any provision for loan losses in the first quarter of 2003 and provided $223,000 in the first quarter of 2002. The provision for loan losses is based on factors, which consider the loan growth, 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 March 31, 2003, nonperforming and restructured loans totaled $4,052,000 as compared to $1,808,000 at December 31, 2002 and $2,268,000 at March 31, 2002. The ratios of the allowance for loan losses to nonperforming loans were 378% at March 31, 2003, 843% at December 31, 2002 and 535% at March 31, 2002. The ratio of the allowance for loan losses to total loans was 2.13% at March 31, 2003, 2.04% at December 31, 2002 and 1.96% at March 31, 2002.

Noninterest Income

Noninterest income consists primarily of service charges on deposit accounts and fees for miscellaneous services. Noninterest income totaled $1,014,000 in the first quarter of 2003, which was an increase of $247,000 (32.2%) over the same period in 2002. Service charges on deposit accounts were up $185,000 due to volume and certain fee increases. Other fees and miscellaneous income were up $62,000 on higher volumes mostly related to mortgage refinance activity.

Noninterest Expense

As compared to the first quarter of 2002, noninterest expenses increased $1,000,000 (21.8%) to a total of $5,585,000 in the first quarter of 2003. Salary and employee benefits increased $596,000 (21.7%) because of additional staffing for the new Gilroy and Monterey branches, opened in April 2002 and January 2003, internal growth, and normal salary increases. In the first quarter of 2002, the Company recorded a one time reduction to employee health care costs of $260,000. On a quarter-over-quarter basis, occupancy expenses increased by $176,000 (41.8%). Costs related to the new Gilroy and Monterey branches, expansion of the Hollister branch and enhanced branch security services were the main contributors to the increase. Furniture and equipment expenses increased $40,000 (9.4%). Other expenses for the first quarter of 2003 totaled $1,177,000, which was an increase of $188,000 (19.0%) from the prior year quarter. Increased costs were due to higher volumes and the new Gilroy and Monterey branches. The efficiency ratio for the first quarter of 2003 was 53.5% as compared to 49.1% for the first quarter of 2002.

Provision for Income Taxes

The Company recorded income tax expense of $1,599,000 in the first quarter of 2003 versus $1,505,000 in the first quarter of 2002. The effective tax rate for the three months ended March 31, 2003 was 35.0% compared to 35.5% for the same period in the prior year. The effective tax rate was higher in the first quarter of 2003 due to the decrease in the level of investments in tax exempt securities and loans.

Securities

At March 31, 2003, available-for-sale securities had a fair value of $96,241,000 with an amortized cost basis of $93,483,000. On an amortized cost basis, the investment portfolio decreased $11,441,000 from the December 31, 2002 balance of $104,924,000. The decrease in the portfolio mostly resulted from the continuing high prepayments of principal on mortgage backed securities. However, even as the principal reductions took place, the pretax unrealized gain on the portfolio increased $359,000 from the $2,399,000 balance at December 31, 2002 to total $2,758,000 at March 31, 2003. The increase in securities valuation resulted from lower interest rates in the securities markets at the end of the first quarter of 2003 as compared to December 31, 2002.

Loans

The ending loan balance at March 31, 2003 was $718,663,000, which was a decrease of $26,690,000 (3.6%) from the year-end 2002 balance and an increase of $99,083,000 (16.0%) from the March 31, 2002 balance. Year-over-year, the most significant percentage change has been with the construction loans as their balance has decreased 36.4% from $90,612,000 at March 31, 2002 to $57,598,000 at March 31, 2003. The decrease in construction loans is indicative of a lower level of economic activity in the local economy. With the exception of real estate-other loans, which experienced slight growth in the first quarter of 2003, all categories of loans decreased compared to the December 31, 2002 balances. Construction loans accounted for $16.6 million of the $26.7 decrease in the first quarter of 2003 as several large construction loans paid off in the quarter from external financing sources. Commercial vacancy rates in Monterey County rose slightly in 2002, but were significantly lower than the San Francisco Bay Area. Economic projections for 2003 anticipate continued low vacancy rates due to a lack of appropriately zoned land, available water and slow growth political pressure. 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 $551 million at March 31, 2003. Although management believes this real estate concentration has no more than the normal risk of collectibility, a substantial decline in the economy in general, or a decline in real estate values in the 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 most 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 March 31, 2003 and December 31, 2002:

Nonperforming and restructured loans increased $2,244,000 from the December 31, 2002 balances. During the first quarter of 2003, the Bank classified a real estate loan with an outstanding balance of $2.8 million into nonaccrual status. This loan is secured by a real estate first deed of trust and is currently in the process of foreclosure. At March 31, 2003, nonperforming and restructured loans were 0.58% of total loans, which was up from 0.25% at December 31, 2002. The ratio of nonperforming assets to total assets was 0.43% at March 31, 2003 versus 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 March 31, 2002, the recorded investment in loans that were considered impaired under SFAS No. 114 was $4,851,000. The total impaired loans include $3,102,000 of nonaccrual loans and $912,000 of restructured loans and $837,000 in other loans identified as impaired. Impaired loans had valuation allowances totaling $1,461,000. At December 31, 2002, the recorded investment in loans considered impaired was $2,618,000 of which $870,000 was included in nonaccrual loans and $933,000 was included in restructured loans and $815,000 in other loans identified as impaired. Impaired loans had valuation allowances totaling $1,165,000. Other than for the loan discussed in the following paragraph and the impaired loans disclosed above, management is not aware of any other potential problem loans, which were accruing and current at March 31, 2003, where serious doubt exists as to the ability of the borrower to comply with the present repayment terms.

On April 2, 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. The loan was made in conjunction with a redevelopment project with the City of King and/or its Community Development Agency. The certificate of deposit matured on March 30, 2003 and the loan became due on April 3, 2003 and has not been paid. The Bank intends to vigorously defend its rights in respect to the certificate of deposit, however, as the payment on the loan has not been received, the Bank considers the loan impaired and, depending on the outcome of the matter, may require a charge to the allowance for loan losses and potential additional provision for loan losses. A second loan for $4.6 million, made to the real estate developer, is secured by a first deed of trust. The second loan is in default and a notice of default was filed on April 21, 2003. Based on current circumstances and the collateral position of the Bank, the second loan is not currently considered to be impaired. On April 11, 2003, the Company filed a Form 8-K with the SEC that addressed this matter.

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 March 31, 2003, the formula allowance was $11,170,000 compared to $12,002,000 at December 31, 2002. The decrease in the formula allowance was primarily a result of a decrease in the balances of loans outstanding and the level of classified loans.

In addition to the formula allowance calculated by the application of the loss factors to the standard loan categories, certain specific allowances may also be calculated. Quarterly, all significant classified and criticized loans are analyzed individually based on the source and adequacy of repayment and specific type of collateral, and an assessment is made of the adequacy of the formula reserve relative to the individual loan. A specific allocation either higher or lower than the formula reserve will be calculated based on the higher/lower-than-normal probability of loss and the adequacy of the collateral. At March 31, 2003, the specific allowance was $1,803,000 on a loan base of $28,864,000 compared to a specific allowance of $1,830,000 on a loan base of $32,180,000 at December 31, 2002. The decrease in the specific allowance in the first quarter of 2003 was due to the decrease in loans requiring specific valuation allowances.

The unallocated allowance contains amounts that are based on management’s evaluation of conditions that are not directly measured in the determination of the formula and specific allowances. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem loans or portfolio segments. At March 31, 2003, the unallocated allowance was $2,331,000 compared to $1,403,000 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 March 31, 2003 and set forth in the preceding paragraph.

The allowance for loan losses totaled $15,304,000 or 2.13% of total loans at March 31, 2003 compared to $15,235,000 or 2.04% at December 31, 2002 and $12,144,000 or 1.96% at March 31, 2002. At these dates, the allowance represented 378%, 843% and 535% 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:

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 March 31, 2003, were approximately $214,480,000 and $6,028,000, 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 March 31, 2003, consolidated liquid assets totaled $151.8 million or 16.2% of total assets as compared to $102.6 million or 11.2% of total consolidated assets on December 31, 2002. In addition to liquid assets, the Bank maintains short-term lines of credit with correspondent banks. At March 31, 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 $81,255,000 at March 31, 2003 compared to $78,076,000 at December 31, 2002. The increase is the result of the first quarter earnings and the increase in the net unrealized gain on available-for-sale investment securities.

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 March 31, 2003 and December 31, 2002 as well as the minimum capital ratios for capital adequacy and well capitalized classifications under the regulatory framework:

The Bank meets the “well capitalized” ratio measures at both March 31, 2003 and December 31, 2002.

Overview

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

Asset/Liability Management

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

Simulation of earnings is the primary tool used to measure the sensitivity of earnings to interest rate changes. Using computer modeling techniques, the Company is able to estimate the potential impact of changing interest rates on earnings. A balance sheet forecast is prepared using inputs of actual loan, securities and interest bearing liabilities (i.e. deposits/borrowings) positions as the beginning base. The forecast balance sheet is processed against three interest rate scenarios. The scenarios include a 200 basis point rising rate forecast, a flat rate forecast and a 200 basis point falling rate forecast which take place within a one year time frame. The net interest income is measured during the first year of the rate changes and in the year following the rate changes. The latest simulation forecast using December 31, 2002 balances and measuring against a flat rate environment, calculated that in a one-year horizon an increase in interest rates of 200 basis points would result in an increase of $4,286,000 in net interest income. Conversely, a 200 basis point decrease would result in a decrease of $3,747,000 in net interest income. The basic structure of the balance sheet has not changed significantly from the last simulation run.

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

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Based upon an evaluation made within 90 days prior to the date of this report, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a—14(c)) are adequate and effective in timely alerting them to material information relating to the Company required to be included in the Company's filings with the SEC under the Securities Exchange Act of 1934.

Changes in Internal Controls

There were no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation.

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 March 31, 2003 and December 31, 2002, commitments to extend credit and letters of credit were the only financial instruments with off-balance sheet risk (See footnote 2 in the financial statements). 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 the 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 published by the SEC through a link to the Edgar reporting system maintained by the SEC. Simply select the “Central Coast Bancorp” menu item, then click on the “Central Coast Bancorp SEC Filings” link.

PART II — OTHER INFORMATION

(a) Exhibits

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.

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.

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

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.

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.

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.

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.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

Lease agreement dated November 18, 2002, related to 439 Alvarado Street, Monterey, California incorporated by reference from Exhibit 10.16 to the Registrant’s 2001 Annual Report on Form 10-K filed with the Commission on March 21, 2003.

The Registrant’s only subsidiary is its wholly owned subsidiary, Community Bank of Central California.

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

A current report on Form 8-K was filed with the Commission on April 11, 2003, reporting a subsequent event related to a loan transaction. On April 2, 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. The loan was made in conjunction with a redevelopment project with the City of King and/or its Community Development Agency. The certificate of deposit matured on March 30, 2003 and the loan became due on April 3, 2003 and has not been paid. The Bank intends to vigorously defend its rights in respect to the certificate of deposit, however, as the payment on the loan has not been received, the Bank considers the loan impaired and, depending on the outcome of the matter, may require a charge to the allowance for loan losses and potential additional provision for loan losses. A second loan for $4.6 million, made to the real estate developer, is secured by a first deed of trust. The second loan is in default and a notice of default was filed on April 21, 2003.

A second report on Form 8-K was filed with the Commission on April 22, 2003, reporting a press release dated April 21, 2003 regarding the Company’s operating results for the quarter ended March 31, 2003.

CERTIFICATIONS UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Regarding the Quarterly Report on Form 10-Q – For the Quarter Ended March 31, 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 quarterly 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 quarterly report.

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report.

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a) designed such disclosure controls and procedures 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 quarterly report is being prepared;

(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

CERTIFICATIONS UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Regarding the Quarterly Report on Form 10-Q – For the Quarter Ended March 31, 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 quarterly 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 quarterly report.

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report.

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a) designed such disclosure controls and procedures 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 quarterly report is being prepared;

(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 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

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