10-Q 1 0001.txt 10-Q 12 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2000 . [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-25418 . CENTRAL COAST BANCORP ------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) California 77-0367061. ---------- ----------- (State or other jurisdiction of (IRS Employer ID Number) incorporation or organization) 301 Main Street, Salinas, California. 93901. ------------------------------------- ------ (Address of principal executive offices) (Zip code) (831) 422-6642. --------------- (Registrant's telephone number, including area code) not applicable -------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: No par value Common Stock - 6,903,379 shares outstanding at August 7, 2000. Page 1 of 24 The Index to the Exhibits is located at Page 22 1
PART 1-FINANCIAL INFORMATION Item 1.FINANCIAL STATEMENTS: CENTRAL COAST BANCORP AND SUBSIDIARY CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) June 30, December 31, (In thousands, except for share data) 2000 1999 ---- ---- Assets Cash and due from banks $ 41,505 $ 39,959 Federal funds sold 22,973 - ----------------- --------------- Total cash and equivalents 64,478 39,959 Available-for-sale securities 148,056 145,435 Loans: Commercial 159,458 159,385 Real estate-construction 37,429 35,330 Real estate-other 219,315 188,600 Consumer 10,600 13,003 Deferred loan fees, net (729) (721) ----------------- --------------- Total loans 426,073 395,597 Allowance for loan losses (7,018) (5,596) ----------------- --------------- Net Loans 419,055 390,001 ----------------- --------------- Premises and equipment, net 3,848 3,888 Accrued interest receivable and other assets 13,380 14,162 ----------------- --------------- Total assets $ 648,817 $ 593,445 ================= =============== Liabilities and Shareholders' Equity Deposits: Demand, noninterest bearing $ 153,070 $ 141,389 Demand, interest bearing 94,849 100,871 Savings 106,628 97,833 Time 229,404 178,096 ----------------- --------------- Total Deposits 583,951 518,189 Accrued interest payable and other liabilities 9,679 21,951 ----------------- --------------- Total liabilities 593,630 540,140 ----------------- --------------- Commitments and contingencies (Note 2) Shareholders Equity: Preferred stock-no par value; authorized 1,000,000 shares; no shares issued Common stock - no par value; authorized 25,000,000 shares; issued and outstanding: 6,919,115 shares at June 30, 2000 and 6,440,257 shares at December 31, 1999 47,892 40,223 Shares held in deferred compensation trust (271,862 at June 30, 2000 and 247,148 at December 31, 1999), net of deferred obligation - - Retained earnings 11,837 17,784 Accumulated other comprehensive loss - net of taxes of $3,157 at June 30, 2000 and $3,267 at December 31,1999 (4,542) (4,702) ----------------- --------------- Shareholders' equity 55,187 53,305 ----------------- --------------- Total liabilities and shareholders' equity $ 648,817 $ 593,445 ================= =============== See Notes to Consolidated Condensed Financial Statements
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CENTRAL COAST BANCORP AND SUBSIDIARY CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2000 1999 2000 1999 ---- ---- ---- ---- Interest Income Loans (including fees) $ 10,150 $ 7,686 $ 19,363 $ 14,827 Investment securities 2,197 2,343 4,433 4,591 Other 271 2 387 75 --------------- -------------- ----------------- ----------------- Total interest income 12,618 10,031 24,183 19,493 --------------- -------------- ----------------- ----------------- Interest Expense Interest on deposits 4,365 3,180 8,279 6,266 Other 72 149 220 176 --------------- -------------- ----------------- ----------------- Total interest expense 4,437 3,329 8,499 6,442 --------------- -------------- ----------------- ----------------- Net Interest Income 8,181 6,702 15,684 13,051 Provision for Loan Losses 800 410 1,326 537 --------------- -------------- ----------------- ----------------- Net Interest Income after Provision for Loan Losses 7,381 6,292 14,358 12,514 --------------- -------------- ----------------- ----------------- Noninterest Income 631 591 1,177 1,133 --------------- -------------- ----------------- ----------------- Noninterest Expenses Salaries and benefits 2,467 2,250 4,847 4,581 Occupancy 345 297 678 577 Furniture and equipment 412 294 800 585 Other 1,112 983 2,131 1,904 --------------- -------------- ----------------- ----------------- Total noninterest expenses 4,336 3,824 8,456 7,647 --------------- -------------- ----------------- ----------------- Income Before Income Taxes 3,676 3,059 7,079 6,000 Provision for Income Taxes 1,433 1,065 2,760 2,281 --------------- -------------- ----------------- ----------------- Net Income $ 2,243 $ 1,994 $ 4,319 $ 3,719 =============== ============== ================= ================= Basic Earnings per Share $ 0.32 $ 0.28 $ 0.62 $ 0.53 Diluted Earnings per Share $ 0.31 $ 0.27 $ 0.60 $ 0.51 See Notes to Consolidated Condensed Financial Statements
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CENTRAL COAST BANCORP AND SUBSIDIARY CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWES (Unaudited) (In thousands) Six months ended June 30, 2000 1999 ---- ---- Cash Flows from Operations: Net income $ 4,319 $ 3,719 Reconciliation of net income to net cash provided by operating activities: Provision for loan losses 1,326 537 Net (loss) on sale of fixed assets 18 61 Depreciation 592 403 Amortization and accretion 102 3 Decrease in accrued interest receivable and other assets 544 26 Increase in accrued interest payable and other liabilities 528 965 Increase in deferred loan fees 8 240 -------------- -------------- Net cash provided by operations 7,437 5,954 -------------- -------------- Cash Flows from Investing Activities: Purchases of investment securities (10,209) (88,912) Proceeds from maturities of investment securities 7,884 92,854 Proceeds from sale of investment securities - 5,987 Net decrease in loans held for sale - 844 Net increase in loans (30,388) (43,165) Purchases of premises and equipment (571) (821) -------------- -------------- Net cash used in investing activities (33,284) (33,213) -------------- -------------- Cash Flows from Financing Activities: Net increase in deposit accounts 65,762 14,979 Net increase (decrease) in short-term borrowings (12,662) 12,408 Net decrease in long-term borrowings (138) - Proceeds from issuance of stock 58 1,098 Shares repurchased (2,654) (2,060) -------------- -------------- Net cash provided by financing activities 50,366 26,425 -------------- -------------- Net increase (decrease) in cash and equivalents 24,519 (834) Cash and equivalents, beginning of period 39,959 48,886 -------------- -------------- Cash and equivalents, end of period $ 64,478 $ 48,052 ============== ============== Other Cash Flow Information: Interest paid $ 8,109 $ 6,417 Income taxes paid 3,410 1,589 See Notes to Consolidated Condensed Financial Statements
4 CENTRAL COAST BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS June 30, 2000 (Unaudited) 1. CONSOLIDATED FINANCIAL STATEMENTS In the opinion of Management, the unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly Central Coast Bancorp's (the "Company's") consolidated financial position at June 30, 2000 and December 31, 1999, the results of operations for the three and six month periods ended June 30, 2000 and 1999 and cash flows for the six month periods ended June 30, 2000 and 1999. Certain disclosures normally presented in the notes to the financial statements prepared in accordance with generally accepted accounting principles have been omitted. These interim consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1999 Annual Report to Shareholders. The results of operations for the three and six month periods ended June 30, 2000 and 1999 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 and the carrying value of other real estate owned. Management uses information provided by an independent loan review service in connection with the determination of the allowance for loan losses. 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. 2. COMMITMENTS AND CONTINGENCIES In the normal course of business there are outstanding various commitments to extend credit which are not reflected in the financial statements, including loan commitments of approximately $120,725,000 and standby letters of credit of $1,881,000 at June 30, 2000. However, all such commitments will not necessarily culminate in actual extensions of credit by the Company during 2000. Approximately $21,809,000 of loan commitments outstanding at June 30, 2000 are for real estate construction loans and are expected to fund within the next twelve months. The remaining commitments primarily relate to revolving lines of credit or other commercial loans, and many of these are expected to expire without being drawn upon. Therefore, the total commitments do not necessarily represent future cash requirements. Each potential borrower and the necessary collateral are evaluated on an individual basis. Collateral varies, but may include real property, bank deposits, debt or equity securities or business assets. Stand-by letters of credit are commitments written to guarantee the performance of a customer to a third party. These guarantees are issued primarily relating to purchases of inventory by commercial customers and are typically short-term in nature. Credit risk is similar to that involved in extending loan commitments to customers and accordingly, evaluation and collateral requirements similar to those for loan commitments are used. Virtually all such commitments are collateralized. 5 3. EARNINGS PER SHARE COMPUTATION Basic earnings per share is computed by dividing net income by the weighted average common shares outstanding for the period (6,967,000 and 7,018,000 for the three and six month periods ended June 30, 2000, and 7,142,000 and 7,051,000 for the three and six month periods ended June 30, 1999). Diluted earnings per share reflect the potential dilution that could occur if outstanding stock options and stock purchase warrants were exercised. Diluted earnings per share is computed by dividing net income by the weighted average common shares outstanding for the period plus the dilutive effect of options and warrants (192,000 and 195,000 for the three and six month periods ended June 30, 2000 and 204,000 and 281,000 for the three and six month periods ended June 30, 1999). 4. COMPREHENSIVE EARNINGS
Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2000 1999 2000 1999 ---- ---- ---- ---- Net Earnings $ 2,243 $ 1,994 $ 4,319 $ 3,719 Other comprehensive income (loss)- Net unrealized gain (loss) on available-for-sale securities 216 (1,504) 160 (2,296) Reclassification adjustment for gains included in income, net of taxes of $4 and $(13) for the three and six month periods ended June 30, 1999 - (5) - 8 -------------- -------------- ------------- -------------- Total comprehensive earnings $ 2,459 $ 485 $ 4,479 $ 1,431 ============== ============== ============= ==============
5. STOCK DIVIDEND On January 31, 2000, the Board of Directors declared a ten percent stock dividend, which was distributed on February 28, 2000, to shareholders of record as of February 14, 2000. All share and per share data have been retroactively adjusted to reflect the stock dividend. 6 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. The reader of this report should understand that all such forward-looking statements are subject to various uncertainties and risks that could affect their outcome. The Company's actual results could differ materially from those suggested by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, variances in the actual versus projected growth in assets, return on assets, loan losses, expenses, rates charged on loans and earned on securities investments, rates paid on deposits, competition effects, fee and other noninterest income earned, general economic conditions, nationally, regionally and in the operating market areas of the Company and the Bank, changes in the regulatory environment, changes in business conditions and inflation, changes in securities markets, 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, 1999. Interest income and net interest income are presented on a fully taxable equivalent basis (FTE) within the Management's Discussion and Analysis. 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"). Other than its investment in the Bank, the Company currently conducts no other significant business activities, although it is authorized to engage in a variety of activities which are deemed closely related to the business of banking upon prior approval of the Board of Governors of the Federal Reserve System (the "FRB"), the Company's principal federal regulator. 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 located in Salinas Valley, Pajaro Valley and the Monterey Peninsula areas. Overview -------- Central Coast Bancorp recorded net income of $2,243,000 for the quarter ended June 30, 2000, which was a 12.5% increase over the $1,994,000 reported for the same period of 1999. Diluted earnings per share for the second quarter of 2000 was $0.31 versus $0.27 reported in the year earlier period. The return on equity (ROE) and the return on assets (ROA) for the second quarter of 2000 were 16.5% and 1.45% as compared to 15.2% and 1.45% for the same period in 1999. Net income for the six months ended June 30, 2000 and 1999 was $4,319,000 and $3,719,000 with diluted earnings per share of $.60 and $.51, respectively. For the first six months of 2000, ROE was 16.0% and ROA was 1.42% as compared to 14.4% and 1.39% for the same period in 1999. The earnings per share for the 1999 periods have been adjusted for the 10% stock dividend distributed in February 2000. The Company continued to achieve good year over year internal growth as assets increased $76,064,000 (13.3%) to total $648,817,000 at June 30, 2000. Loans totaled $426,073,000, up $65,661,000 (18.2%) from the ending balances on June 30, 1999. Deposit balances at quarter-end totaled $583,951,000 up $79,779,000 (15.8%) from the year earlier balances. The deposit growth included $20,000,000 of State of California certificates of deposit placed in the Bank in February 2000. Central Coast Bancorp ended the second quarter of 2000 with a Tier 1 capital ratio of 11.8% and a total risk-based capital ratio of 13.1% versus 13.0% and 14.2%, respectively, at the end of the second quarter of 1999. 7 In October 1998, the Company announced a 5% stock repurchase plan the purpose of which was to aid in the management of the Company's capital. The last purchase of stock under this plan was made on May 22, 2000. Under this plan, the Company purchased 337,150 shares at an average price of $14.98 and with a total value of $5,052,000. In the second quarter of 2000, the Board of Directors authorized a second stock repurchase plan for an additional 5% of the then outstanding shares. Under this plan, the Company may repurchase up to approximately 348,000 shares, and as of June 30, 2000, the Company had repurchased 41,935 shares with a total value of $643,000. The following table provides a summary of the major elements of income and expense for the periods indicated.
Condensed Comparative Income Statement Percentage Percentage Three Months Ended Change Six Months Ended Change June 30, Increase June 30, Increase (In thousands, except percentages) 2000 1999 (Decrease) 2000 1999 (Decrease) ---- ---- ---------- ---- ---- ---------- Interest Income (1) $ 12,815 $ 10,229 25% $ 24,575 $ 19,867 24% Interest Expense 4,437 3,329 33% 8,499 6,442 32% ---------- ---------- ---------- --------- --------- --------- Net interest income 8,378 6,900 21% 16,076 13,425 20% Provision for Loan Losses 800 410 95% 1,326 537 147% ---------- ---------- ---------- --------- --------- --------- Net interest income after provision for loan losses 7,578 6,490 17% 14,750 12,888 14% Noninterest Income 631 591 7% 1,177 1,133 4% Noninterest Expense 4,336 3,824 13% 8,456 7,647 11% ---------- ---------- ---------- --------- --------- --------- Income before income taxes 3,873 3,257 19% 7,471 6,374 17% Income Taxes 1,433 1,065 35% 2,760 2,281 21% Tax Equivalent Adjustment 197 198 -1% 392 374 5% ---------- ---------- ---------- --------- --------- --------- Net income $ 2,243 $ 1,994 12% $ 4,319 $3,719 16% ========== ========== ========== ========= ========= ========= 1) Interest on tax-free securities is reported on tax equivalent basis.
Net interest income / net interest margin ----------------------------------------- Net interest income, the difference between interest earned on loans and investments and interest paid on deposits and other borrowings, is the principal component of the Bank's earnings. Net interest margin is net interest income expressed as a percentage of average earning assets. Second quarter 2000 net interest income of $8,378,000 was a 21.4% increase of $1,478,000 over the same period in 1999. The interest income component was up $2,586,000 (25.3%). Average loan balances were $73,341,000 (21.7%) higher in the second quarter of 2000 versus the year earlier period. This volume difference added $1,668,000 to interest income. The average loan yield for the second quarter of 2000 was 80 basis points higher than the average yield in the year earlier quarter. The higher yield increased interest income by $796,000. There have been six rate increases implemented by the Bank in the past twelve months as a result of the rate tightening by the Federal Reserve Board. For the past year, as investment securities have matured or been reduced by principal payments the funds have been allocated to loans and/or overnight Federal funds sold. The average balance of investment securities in the second quarter of 2000 was lower by $14,310,000 (8.8%) over the second quarter of 1999. Average balances for Federal funds sold for these two periods increased $16,451,000 to $16,787,000. Interest income for the investing activities increased $122,000 on a period over period basis. Interest expense was up $1,108,000 (33.3%) on a quarter over quarter basis. The average balances on interest bearing liabilities were $50,768,000 (13.6%) higher in the second quarter of 2000 versus the same quarter in 1999. The higher balances accounted for $669,000 of the increase in interest expense. Rates paid on interest bearing liabilities increased 63 basis points on a quarter over quarter basis and accounted for $439,000 of the interest expense increase. 8 Net interest margin for the second quarters of 2000 and 1999 were 5.85% and 5.52%, respectively. For the six-month period ending June 30, 2000, net interest income increased $2,651,000 (19.7%) over the first six months of 1999. The interest income component increased $4,708,000 to $24,575,000. Average balances of earning assets were $74,841,000 (15.3%) higher in the first six months of 2000 than the same period in 1999. The average balance of loans was $76,457,000 higher, which accounted for $3,519,000 of the increase in interest income. The average yield received on loans in the first six months of 2000 was 49 basis points higher than the 9.23% received in the year earlier period. The higher yield on loans added $1,017,000 to interest income. The average balance of investment securities in the first six months of 2000 was lower by $10,910,000 (6.8%) over the year earlier period. Average balances for Federal funds sold for these two periods increased $9,294,000 to $12,561,000. Interest income for the investing activities increased $172,000 on a period over period basis. As mentioned in the quarterly analysis above, Federal funds interest rates were increased six times for a total of 150 basis points since June 30, 1999. As a result, the average yield of 8.77% received on all earning assets in the six months ended June 30, 2000 was 57 basis points higher than the yield received in the first six months of 1999. Interest expense for the six-month period increased $2,057,000 (31.9%) from the expense in the same 1999 period. Volume increases in deposits and borrowings added $1,358,000 of interest expense. Overall average rates paid on interest-bearing liabilities in the first six months of 2000 increased 54 basis points to 4.13% from the same period in 1999. The interest expense increase attributable to the higher rates was $699,000. Net interest margin for the first six months of 2000 was 5.74% versus 5.54% in the year earlier period. 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 second two tables set 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. 9
(Unaudited) Three months ended June 30, (Taxable Equivalent Basis) 2000 1999 ------------------------------------ ------------------------------------ Avg. Avg. Avg. Avg. (In thousands, except percentages) Balance Interest Yield Balance Interest Yield ------- -------- ----- ------- -------- ----- Assets: Earning Assets Loans (1) (2) $ 411,435 $ 10,150 9.92% $ 338,094 $ 7,686 9.12% Taxable investments 112,353 1,805 6.46% 126,560 1,951 6.18% Tax-exempt securities (tax equiv. basis) 35,800 588 6.61% 35,903 590 6.59% Federal funds sold 16,787 272 6.52% 336 2 2.39% ------------ ----------- ------------ ------------ Total Earning Assets 576,375 $ 12,815 8.94% 500,893 $10,229 8.19% ----------- ------------ Cash & due from banks 38,201 41,023 Other assets 7,615 11,186 ------------ ------------ $ 622,191 $ 553,102 ============ ============ Liabilities & Shareholders' Equity: Interest bearing liabilities: Demand deposits $ 97,755 $ 392 1.61% $ 102,864 $ 457 1.78% Savings 99,037 856 3.48% 101,001 816 3.24% Time deposits 221,695 3,117 5.65% 156,071 1,907 4.90% Other borrowings 4,481 72 6.46% 12,264 149 4.87% ------------ ----------- ------------ ------------ Total interest bearing liabilities 422,968 4,437 4.22% 372,200 3,329 3.59% ----------- ------------ Demand deposits 139,707 123,985 Other Liabilities 5,028 4,311 ------------ ------------ Total Liabilities 567,703 500,496 Shareholders' Equity 54,488 52,606 ------------ ------------ $ 622,191 $ 553,102 ============ ============ Net interest income & margin (3) $ 8,378 5.85% $ 6,900 5.52% =========== ========= ============ ========= --------------------------------------------------------------------------------------------------------------------------- 1 Loan interest income includes fee income of $238,000 and $307,000 for the three month periods ended June 30, 2000 and 1999, respectively. 2 Includes the average allowance for loan losses of $6,422,000 and $4,536,000 and average deferred loan fees of $738,000 and $853,000 for the three months ended June 30, 2000 and 1999, respectively. 3 Net interest margin is computed by dividing net interest income by the total average earning assets. 4 Includes the unrealized loss on available-for-sale securities.
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(Unaudited) Six months ended June 30, (Taxable Equivalent Basis) 2000 1999 ------------------------------- ------------------------------- Avg. Avg. Avg. Avg. (In thousands, except percentages) Balance Interest Yield Balance Interest Yield ------- -------- ----- ------- -------- ----- Assets: Earning Assets Loans (1) (2) $400,526 $19,363 9.72% $324,069 $14,827 9.23% Taxable investments 114,387 3,650 6.42% 126,992 3,844 6.10% Tax-exempt securities (tax equiv. basis) 35,813 1,175 6.60% 34,118 1,121 6.62% Federal funds sold 12,561 387 6.20% 3,267 75 4.63% ------------ ---------- ------------ ----------- Total Earning Assets 563,287 $24,575 8.77% 488,446 $19,867 8.20% ---------- ----------- Cash & due from banks 37,704 41,708 Other assets (4) 7,829 11,062 ------------ ------------ $608,820 $541,216 ============ ============ Liabilities & Shareholders' Equity: Interest bearing liabilities: Demand deposits $97,221 $ 797 1.65% $97,974 $ 812 1.67% Savings 100,620 1,731 3.46% 104,901 1,706 3.28% Time deposits 209,445 5,751 5.52% 151,585 3,748 4.99% Other borrowings 6,976 220 6.34% 7,222 176 4.91% ------------ ---------- ------------ ----------- Total interest bearing liabilities 414,262 8,499 4.13% 361,682 6,442 3.59% ---------- ----------- Demand deposits 135,172 123,125 Other Liabilities 5,192 4,232 ------------ ------------ Total Liabilities 554,626 489,039 Shareholders' Equity 54,194 52,177 ------------ ------------ $608,820 $541,216 ============ ============ Net interest income & margin (3) $16,076 5.74% $13,425 5.54% ========== ======== =========== ======== ---------------------------------------------------------------------------------------------------------------------------- 1 Loan interest income includes fee income of $474,000 and $548,000 for the six month periods ended June 30, 2000 and 1999, respectively 2 Includes the average allowance for loan losses of $6,110,000 and $4,452,000 and average deferred loan fees of $712,000 and $786,000 for the six months ended June 30, 2000 and 1999, respectively. 3 Net interest margin is computed by dividing net interest income by the total average earning assets. 4 Includes the unrealized loss on available-for-sale securities.
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Volume/Rate Analysis (in thousands) Three Months Ended June 30, 2000 over 1999 Increase (decrease) due to change in: Net Volume Rate (5) Change ------- --------- ------- Interest-earning assets: Net Loans (1)(2) $ 1,668 $ 796 $2,464 Taxable investment securities (219) 73 (146) Tax exempt investment securities (4) (2) - (2) Federal funds sold 98 172 270 ----------- ------------ ---------- Total 1,545 1,041 2,586 ----------- ------------ ---------- Interest-bearing liabilities: Demand deposits (23) (42) (65) Savings deposits (16) 56 40 Time deposits 802 408 1,210 Other borrowings (94) 17 (77) ----------- ------------ ---------- Total 669 439 1,108 ----------- ------------ ---------- Interest differential $ 876 $ 602 $1,478 =========== ============ ==========
Volume/Rate Analysis (in thousands) Six Months Ended June 30, 2000 over 1999 Increase (decrease) due to change in: Net Volume Rate (5) Change ------ -------- ------ Interest-earning assets: Net Loans (1)(3) $ 3,519 $1,017 $4,536 Taxable investment securities (383) 189 (194) Tax exempt investment securities (4) 56 (2) 54 Federal funds sold 215 97 312 ------------- ------------ ------------ Total 3,407 1,301 4,708 ------------- ------------ ------------ Interest-bearing liabilities: Demand deposits (6) (9) (15) Savings deposits (70) 95 25 Time deposits 1,440 563 2,003 Other borrowings (6) 50 44 ------------- ------------ ------------ Total 1,358 699 2,057 ------------- ------------ ------------ Interest differential $ 2,049 $ 602 $2,651 ============= ============ ============ 1. The average balance of non-accruing loans is immaterial as a percentage of total loans and, as such, has been included in net loans. 2. Loan fees of $238,000 and $307,000 for the quarters ended June 30, 2000 and 1999, respectively, have been included in the interest income computation. 3. Loan fees of $474,000 and $548,000 for the six months ended June 30, 2000 and 1999, respectively, have been included in the interest income computation. 4. 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 34% for 2000 and 1999. 5. The rate / volume variance has been included in the rate variance.
12 Provision for Loan Losses ------------------------- The provision for loan losses was $800,000 in the second quarter of 2000 as compared to $410,000 in the second quarter of 1999 and $526,000 in the first quarter of 2000. For the six-month period ended June 30, 2000, the Bank provided $1,326,000 versus $537,000 in the year earlier period. Loan balances increased $30,144,000 in the second quarter of 2000 and are up $65,661,000 on year over year basis. In addition to these new, unseasoned loans, several ongoing economic forces have caused management to increase its provision for loan losses. Among these are continued pressure on the Salinas Valley agricultural industry due to poor market prices. In addition, as the Federal Reserve Board's program to slow down consumer spending takes effect, the tourism industry will be impacted. Together, customers in the agriculture and tourism industries represent 36% of the Bank's total loans and loan commitments outstanding as of June 30, 2000. At June 30, 2000 and 1999, non-performing assets were $796,000 and $3,490,000, respectively. The ratios of the allowance for loan losses to total loans on those two dates were 1.65% and 1.35%, respectively. Noninterest Income ------------------ Noninterest income consists primarily of service charges on deposit accounts and fees for miscellaneous services. Noninterest income totaled $631,000 in the second quarter of 2000, which was up $40,000 (6.8%) over the same period in 1999. Income from service charges on deposit accounts was $99,000 higher mostly due to higher volumes and new business account fees. This increase was partially offset by the fact that in the second quarter of 1999, the Company realized a gain of $45,000 from the sale of investment securities versus no gains in 2000. For the first six-months of 2000, noninterest income was $1,177,000 versus $1,133,000 in the same period last year. Service charges on deposits were up $139,000 (21.2%) due to higher volumes and new business account fees. As the interest rates rose, the activity in residential mortgage lending slowed significantly in the first half of 2000. Consequently, the fees generated from mortgage originations decreased $80,000 (46.2%) in the first six months of 2000 as compared to the same period in 1999. As reported in the quarterly analysis in the preceding paragraph, a gain of $45,000 was recognized on the sale of investment securities in the second quarter of 1999 versus no gains in 2000. Noninterest Expense ------------------- Noninterest expenses increased $512,000 (13.4%) to a total of $4,336,000 in the second quarter of 2000 versus the second quarter of 1999. Salary and employee benefits increased $217,000 (9.6%) because of additional staff due to growth, higher benefit costs, and normal salary increases. On a quarter over quarter basis, premises and fixed asset expenses were higher by $166,000 (28.1%). Ongoing costs associated with two branch relocations and remodel of office space in the second half of 1999 were the major factors contributing to the increased premises and fixed asset expenses. Other expenses for the second quarter of 2000 were $1,112,000 for an increase of $129,000 over the prior year quarter. Various items related to higher business volume and some price increases contributed to the increase. The overhead efficiency ratios (fully tax equivalent) for the 2000 and 1999 second quarters were 48.1% and 51.0%, respectively. Noninterest expenses for the six-month period ending June 30, 2000 were $8,456,000 versus $7,647,000 for the same period in 1999. Salaries and benefits increased $266,000 (5.8%) due to increased staffing levels, higher benefit costs and normal salary progressions. Premises and fixed asset expenses were up $316,000 (27.2%) due to the items as detailed in the previous paragraph. Other expenses increased $227,000 (11.9%). Factors contributing to the increase were as discussed above. The overhead efficiency ratio (fully tax equivalent) for the first six-months of 2000 was 49.0% as compared to 52.5% in the same period of 1999. Provision for Income Taxes -------------------------- The effective tax rate for the second quarter and first six-months of 2000 was 39.0% for both periods versus 34.8% and 38.0% in the same two periods of 1999. 13 Securities ---------- At June 30, 2000, available-for-sale securities had a market value of $148,056,000 with an amortized cost basis of $155,755,000. The unrealized loss of $7,699,000 at June 30, 2000 was a decrease of $366,000 from the unrealized loss at March 31, 2000. The slightly lower unrealized loss was the result of a leveling of interest rates in the securities markets in the second quarter. Other than for short term funds management, the Bank did not purchase securities during the second quarter of 2000. Loans ----- Ending loan balances at June 30, 2000 were $426,073,000, which was an increase of $30,476,000 (7.7%) from year-end 1999 balances and $65,661,000 (18.2%) from June 30, 1999 balances. With the exception of consumer loans, all other categories of loans were higher on a year over year basis. Loan demand has remained brisk and the current pipeline would indicate that the demand is continuing into the third quarter. Nonperforming Assets -------------------- Nonperforming assets are comprised of loans delinquent 90 days or more with respect to interest or principal, loans for which the accrual of interest has been discontinued, and other real estate which has been acquired through foreclosure and is awaiting disposition. Unless well secured and in the process of collection, loans are placed on nonaccrual status when a loan becomes 90 days past due as to interest or principal, when the payment of interest or principal in accordance with the contractual terms of the loan becomes uncertain or when a portion of the principal balance has been charged off. When a loan is placed on nonaccrual status, the accrued and unpaid interest receivable is reversed and the loan is accounted for on the cash or cost recovery method thereafter, until qualifying for return to accrual status. Generally, a loan may be returned to accrual status when all delinquent interest and principal become current in accordance with the terms of the loan agreement and remaining principal is considered collectible or when the loan is both well secured and in process of collection. Real estate and other assets acquired in satisfaction of indebtedness are recorded at the lower of estimated fair market value net of anticipated selling costs or the recorded loan amount, and any difference between this and the amount is treated as a loan loss. The costs of maintaining other real estate owned and gains or losses on the subsequent sale are reflected in current earnings. The following is a summary of nonperforming assets:
(In thousands, except percentages) June 30, December 31, 2000 1999 -------------- --------------- Past due 90 days or more and still accruing : Real estate $ 102 $ 303 Commercial 59 51 Consumer and other 50 - -------------- ---------------- 211 354 -------------- ---------------- Nonaccrual: Real estate - 1,565 Commercial 443 11 Consumer and other 44 - -------------- ---------------- 487 1,576 -------------- ---------------- Total nonperforming loans 698 1,930 -------------- ---------------- Other real estate owned 100 180 -------------- ---------------- Total nonperforming assets $ 798 $ 2,110 ============== ================ Allowance for loan losses as a percentage of nonperforming loans 1005% 290% Nonperforming loans to total loans 0.16% 0.49%
14 Nonperforming loans decreased $1,234,000 during the first six months of 2000 with $326,000 of that in the second quarter. This decrease coupled with the year-to-date increase of the provision for the allowance for loan losses resulted in improvement in the coverage ratio of the allowance for loan losses to nonperforming loans from 290% at year-end to 1005%. At June 30, 2000, the recorded investment in loans that are considered impaired under SFAS No. 114 was $2,073,000 of which $487,000 are included in nonaccrual loans above. Such impaired loans had valuation allowances totaling $617,000 based on the estimated fair value of the collateral. Allowance for Loan Losses ------------------------- The allowance for loan losses reflects management's judgement as to the level considered adequate to absorb probable losses inherent in the loan portfolio. The allowance is increased by provisions charged to expense and reduced by loan charge-offs net of recoveries. Management determines an appropriate provision based upon information currently available to analyze loan loss potential, including (1) the loan portfolio balance in the period; (2) a comprehensive grading and review of new and existing loans outstanding; (3) actual previous charge-offs; and, (4) changes in economic conditions. In determining the provision for estimated losses related to specific major loans, management evaluates its allowance on an individual loan basis, including an analysis of the creditworthiness, cash flows and financial status of the borrower, and the condition and the estimated value of the collateral. Specific valuation allowances for secured loans are determined by the excess of recorded investment in the loan over the fair market value or net realizable value where appropriate, of the collateral. In determining overall general valuation allowances to be maintained and the loan loss allowance ratio, management evaluates many factors including prevailing and forecasted economic conditions, regular reviews of the quality of loans, industry experience, historical loss experience, composition and geographic concentrations of the loan portfolio, the borrowers' ability to repay and repayment performance and estimated collateral values. Management believes that the allowance for loan losses at June 30, 2000 is adequate, based on information currently available. However, no prediction of the ultimate level of loans charged off in future years can be made with any certainty. The following table summarizes activity in the allowance for loan losses for the periods indicated:
Three months ended June 30, Six months ended June 30, (In thousands, except percentages) 2000 1999 2000 1999 ---- ---- ---- ---- Beginning balance $ 6,136 $ 4,398 $ 5,596 $ 4,352 Provision charged to expense 800 410 1,326 537 Loans charged off (3) (37) (19) (127) Recoveries 85 111 115 120 -------------- ------------- ------------- ------------- Ending balance $ 7,018 $ 4,882 $ 7,018 $ 4,882 ============== ============= ============= ============= Ending loan portfolio $426,073 $360,412 ============= ============= Allowance for loan losses as percentage of ending loan portfolio 1.65% 1.35%
15 Liquidity --------- Liquidity management refers to the Company's ability to provide funds on an ongoing basis to meet fluctuations in deposit levels as well as the credit needs and requirements of its clients. Both assets and liabilities contribute to the Company's liquidity position. Federal funds lines, short-term investments and securities, and loan repayments contribute to liquidity, along with deposit increases, while loan funding and deposit withdrawals decrease liquidity. The Bank assesses the likelihood of projected funding requirements by reviewing historical funding patterns, current and forecasted economic conditions and individual client funding needs. Commitments to fund loans and outstanding standby letters of credit at June 30, 2000 were approximately $120,725,000 and $1,881,000, respectively. Such loan commitments relate primarily to revolving lines of credit and other commercial loans, and to real estate construction loans. The Company's sources of liquidity consist of its deposits with other banks, overnight funds sold to correspondent banks, unpledged short-term, marketable investments and loans available for sale. On June 30, 2000, consolidated liquid assets totaled $90.0 million or 13.9% of total assets as compared to $91.1 million or 15.4% of total consolidated assets on December 31, 1999. In addition to liquid assets, the Bank maintains lines of credit with correspondent banks for up to $80,000,000 available on a short-term basis. Informal agreements are also in place with various other banks to purchase participations in loans, if necessary. The Company serves primarily a business and professional customer base and, as such, its deposit base is susceptible to economic fluctuations. Accordingly, management strives to maintain a balanced position of liquid assets to volatile and cyclical deposits. Capital Resources ----------------- The Company's total shareholders' equity was $55,187,000 at June 30, 2000 compared to $53,305,000 at December 31, 1999. 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. A banking organization's total qualifying capital includes two components, core capital (Tier 1 capital) and supplementary capital (Tier 2 capital). Core capital, which must comprise at least half of total capital, includes common shareholders' equity, qualifying perpetual preferred stock, trust preferred securities and minority interests, less goodwill. Supplementary capital includes the allowance for loan losses (subject to certain limitations), other perpetual preferred stock, trust preferred securities, certain other capital instruments and term subordinated debt. The Company's major capital components are shareholders' equity in core capital, and the allowance for loan losses in supplementary capital. The following table shows the Company's actual capital amounts and ratios at June 30, 2000 and December 31, 1999 as well as the minimum capital ratios for capital adequacy under the regulatory framework:
For Capital Actual Adequacy Purposes: Amount Ratio Amount Ratio ------ ----- ------ ----- As of June 30, 2000 Total Capital (to Risk Weighted Assets): $ 64,975,000 13.1% $ 39,811,000 8.0% Tier 1 Capital (to Risk Weighted Assets): 58,788,000 11.8% 19,905,000 4.0% Tier 1 Capital (to Average Assets): 58,788,000 9.5% 24,888,000 4.0% As of December 31, 1999 Total Capital (to Risk Weighted Assets): $ 62,489,000 13.8% $ 36,125,000 8.0% Tier 1 Capital (to Risk Weighted Assets): 56,938,000 12.6% 18,062,000 4.0% Tier 1 Capital (to Average Assets): 56,938,000 9.7% 23,593,000 4.0%
16 Year 2000 --------- During 1998 and 1999, management of the Company focused the appropriate resources to address the potential problems that could arise regarding the Year 2000 (Y2K) century date change. The Company's mission critical systems were evaluated, modified as required and contingency plans were put into place should the systems have experienced any failures. The Y2K readiness of vendors and customers was also evaluated and monitored. The century date change passed without any operational difficulties for the Company, its vendors or its customers. There are certain dates within the year 2000 that have been identified as critical processing dates. The first was January 31, the end of the first month of the year. The second was February 29, leap year day. The third was March 31, the end of the first quarter. The Company did not experience any processing problems on those dates. Upcoming dates during the year are October 10, the first date to require an 8-digit field (10/10/2000) and December 31, the end of the year. Those dates were tested as part of the Y2K project. The Company does not anticipate having any processing problems on those dates, however failure by third parties to adequately remediate Y2K issues could have an impact upon Central Coast Bancorp, which is impossible to quantify. Nevertheless, the Company currently expects that its Y2K compliance efforts will be successful without material adverse effects on its business. Item 3. MARKET RISK MANAGEMENT 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. Based on a forecast using May 31, 2000 balances and measuring against a flat rate environment, in a one-year horizon an increase in interest rates of 200 basis points would result in an increase of $1,980,000 in net interest income. Conversely, a 200 basis point decrease would result in a decrease of $2,470,000 in net interest income. 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. 17 PART II - OTHER INFORMATION Item 1. Legal proceedings. None. Item 2. Changes in securities. None. Item 3. Defaults upon senior securities. None. Item 4. Submission of matters to a vote of security holders. THE FOLLOWING ARE THE VOTING RESULTS OF THE REGISTRANTS'S ANNUAL MEETING OF THE SHAREHOLDERS HELD ON MAY 25, 2000: PROPOSAL NO. 1: ELECTION OF DIRECTORS Number of Affirmative Votes --------------------------- C. EDWARD BOUTONNET 5,491,981 BRADFORD G. CRANDALL 5,491,932 ALFRED P. GLOVER 5,494,221 MICHAEL T. LAPSYS 5,494,101 DUNCAN L. McCARTER 5,493,765 ROBERT M. MRAULE, D.D.S., M.D. 5,494,150 LOUIS M. SOUZA 5,494,101 MOSE E. THOMAS, JR. 5,494,101 NICK VENTIMIGLIA 5,494,150 PROPOSAL NO. 2: APPROVAL OF DELOITTE & TOUCHE LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE 2000 FISCAL YEAR. Number of Shares Number of Number of Indicated As Votes Cast For Votes Cast Against Abstentions -------------- ------------------ ----------- 5,421,052 6,180 72,451 TOTAL NUMBER OF SHARES VOTED: 5,499,683. Item 5. Other information. None. 18 Item 6. Exhibits and reports on Form 8-K. (a) Exhibits (2.1) Agreement and Plan of Reorganization and Merger by and between Central Coast Bancorp, CCB Merger Company and Cypress Coast Bank dated as of December~5, 1995, incorporated by reference from Exhibit 99.1 to Form 8-K filed with the Commission on December 7, 1995. (3.1) Articles of Incorporation, incorporated by reference from Exhibit 4.8 to Registration Statement on Form S-8, No. 33-89948, filed with the Commission on March 3, 1995. (3.2) Bylaws, as amended, incorporated by reference from the Registrant's 1998 Annual Report on Form 10-K filed with the Commission on March 29,1999. (4.1) Specimen form of Central Coast Bancorp stock certificate incorporated by reference from the Registrant's 1994 Annual Report on Form 10-K filed with the Commission on March 31, 1995. (10.1) Lease agreement dated December 12, 1994, related to 301 Main Street, Salinas, California incorporated by reference from the Registrant's 1994 Annual Report on Form 10-K filed with the Commission on March 31, 1995. (10.2) King City Branch Lease incorporated by reference from Exhibit 10.3 to Registration Statement on Form S-4, No. 33-76972, filed with the Commission on March 28, 1994. (10.3) Amendment to King City Branch Lease incorporated by reference from Exhibit 10.4 to Registration Statement on Form S-4, No. 33-76972, filed with the Commission on March 28, 1994. *(10.4) 1982 Stock Option Plan, as amended, incorporated by reference from Exhibit 4.2 to Registration Statement on Form S-8, No. 33-89948, filed with the Commission on March 3, 1995. *(10.5) Form of Nonstatutory Stock Option Agreement under the 1982 Stock Option Plan incorporated by reference from Exhibit 4.6 to Registration Statement on Form S-8, No. 33-89948, filed with the Commission on March 3, 1995. *(10.6) Form of Incentive Stock Option Agreement under the 1982 Stock Option Plan incorporated by reference from Exhibit 4.7 to Registration Statement on Form S-8, No. 33-89948, filed with the Commission on March 3, 1995. *(10.7) 1994 Stock Option Plan incorporated by reference from Exhibit 4.1 to Registration Statement on Form S-8, No. 33-89948, filed with the Commission on March 3, 1995. *(10.8) 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 March 3, 1995. *(10.9) 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 March 3, 1995. 19 *(10.10) 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 March 3, 1995. *(10.11) Form of Bank of Salinas Indemnification Agreement for directors and executive officers incorporated by reference from Exhibit 10.9 to Amendment No. 1 to Registration Statement on Form S-4, No. 33-76972, filed with the Commission on April 15, 1994. *(10.12) 401(k) Pension and Profit Sharing Plan Summary Plan Description incorporated by reference from Exhibit 10.8 to Registration Statement on Form S-4, No. 33-76972, filed with the Commission on March 28, 1994. *(10.13) Form of Employment Agreement incorporated by reference from Exhibit 10.13 to the Company's 1996 Annual Report on Form 10-K filed with the Commission on March 31, 1997. *(10.14) Form of Executive Salary Continuation Agreement incorporated by reference from Exhibit 10.14 to the Company's 1996 Annual Report on Form 10-K filed with the Commission on March 31, 1997. *(10.15) 1994 Stock Option Plan, as amended, incorporated by reference from Exhibit A to the Proxy Statement filed with the Commission on September 3, 1996 in connection with Registrant's 1996 Annual Shareholders' Meeting held on September 23, 1996. *(10.16) Form of Indemnification Agreement, incorporated by reference from Exhibit D to the Proxy Statement filed with the Commission on September 3, 1996 in connection with Registrant's 1996 Annual Shareholders' Meeting held on September 23, 1996. (10.17) Purchase and Assumption Agreement for the Acquisition of Wells Fargo Bank Branches incorporated by reference from Exhibit 10.17 to Registrant's 1996 Annual Report on Form 10-K filed with the Commission on March 31, 1997. *(10.18) Employee Stock Ownership Plan and Trust Agreement incorporated by reference from Exhibit 10.18 to Registrant's 1996 Annual Report on Form 10-K filed with the Commission on March 31, 1997. (10.19) Lease agreement dated March 7, 1997, related to 484 Lighthouse Avenue, Monterey, California incorporated by reference from Exhibit 10.19 to Registrant's 1997 Annual Report on Form 10-K filed with the Commission on March 27, 1998. (21.1) The Registrant's only subsidiary is its wholly-owned subsidiary, Community Bank of Central California. (27.1) Financial Data Schedule *Denotes management contracts, compensatory plans or arrangements. (b) Reports on Form 8-K - A current report on Form 8-K was filed with the Commission on May 17, 2000 to report the Board of Directors' authorization of a stock repurchase program of up to five percent of the Registrant's outstanding shares. This followed the completion of the previous five percent repurchase plan authorized in October, 1998. 20 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. July 28, 2000 CENTRAL COAST BANCORP By: /S/ ROBERT M. STANBERRY -------------------------- Robert M. Stanberry (Chief Financial Officer, Principal Financial and Accounting Officer) 21 EXHIBIT INDEX Exhibit Number Description Page ------ ----------- ---- 27.1 Financial Data Schedule 23 22