PART 1-FINANCIAL INFORMATION

Item 1.FINANCIAL STATEMENTS:

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

See Notes to Consolidated Condensed Financial Statements

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

See Notes to Consolidated Condensed Financial Statements

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

CENTRAL COAST BANCORP AND SUBSIDIARY
NOTES 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. 123 is as follows.

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 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, 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

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.

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

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.

Net interest margin is computed by dividing net interest income by the total average earning assets.

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.

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.

Net interest margin is computed by dividing net interest income by the total average earning assets.

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.

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.

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.

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:

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:

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

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

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

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:

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:

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.

6.Exhibits and reports on Form 8-K.

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 99 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 2002 Annual Report on Form 10-K filed with the Commission on March 20, 2003

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

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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.

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.

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:

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;

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

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):

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

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.

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:

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;

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

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):

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

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.

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:

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

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

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.