10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

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

SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)

For the transition period from                        to                       .

Commission file number 0-25418

CENTRAL COAST BANCORP

(Exact name of registrant as specified in its charter)

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No  

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes  x  No  

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

No par value Common Stock - 10,915,173 shares outstanding at November 2, 2004.

The Index to the Exhibits is located at page 30                                                             Page 1 of 50

PART 1 — FINANCIAL INFORMATION

Item 1. Financial Statements

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

	September 30,		December 31,
In thousands (except share data)	2004		2003
Assets
Cash and due from banks	$      46,345		$      54,446
Federal funds sold	--		47,017
Total cash and equivalents	46,345		101,463
Available-for-sale securities at fair value (amortized cost of $177,340
at September 30, 2004 and $151,618 at December 31, 2003)	179,322		153,727
Loans:
Commercial	230,198		236,836
Real estate-construction	41,599		46,266
Real estate-other	556,771		489,213
Consumer	13,189		11,540
Deferred loan fees, net	(1,208	)	(1,114	)
Total loans	840,549		782,741
Allowance for loan losses	(14,779	)	(16,590	)
Net Loans	825,770		766,151
Premises and equipment, net	3,313		2,787
Other real estate owned	5,250		--
Accrued interest receivable and other assets	13,765		13,712
Total assets	$ 1,073,765		$ 1,037,840
Liabilities and Shareholders' Equity
Deposits:
Demand, noninterest bearing	$    260,703		$    321,980
Demand, interest bearing	137,631		113,215
Savings	259,550		232,610
Time	296,275		270,305
Total Deposits	954,159		938,110
Accrued interest payable and other liabilities	21,856		10,135
Total liabilities	976,015		948,245
Commitments and contingencies (Note 3)
Shareholders’Equity:
Preferred stock-no par value; authorized 1,000,000 shares; none outstanding
Common stock - no par value; authorized 31,250,000 shares;
issued and outstanding: 10,886,211 shares at September 30, 2004
and 9,927,999 shares at December 31, 2003	84,238		66,860
Shares held in deferred compensation trust (452,310 at September 30, 2004
and 411,191 as of December 31, 2003), net of deferred obligation	--		--
Retained earnings	12,353		21,502
Accumulated other comprehensive income (loss) - net of taxes
of $822 at September 30, 2004 and $875 at December 31, 2003	1,159		1,233
Total shareholders' equity	97,750		89,595
Total liabilities and shareholders' equity	$ 1,073,765		$ 1,037,840

See Notes to Consolidated Condensed Financial Statements

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

	Three Months Ended September 30,		Nine Months Ended September 30,
In thousands (except per share data)	2004	2003	2004	2003
Interest Income
Loans (including fees)	$12,180	$11,086	$34,864	$32,976
Investment securities	1,742	1,319	5,021	3,502
Other	58	98	138	260
Total interest income	13,980	12,503	40,023	36,738
Interest Expense
Interest on deposits	2,780	2,743	8,032	8,510
Other	73	102	235	315
Total interest expense	2,853	2,845	8,267	8,825
Net Interest Income	11,127	9,658	31,756	27,913
Provision for Loan Losses	885	630	1,540	930
Net Interest Income after
Provision for Loan Losses	10,242	9,028	30,216	26,983
Noninterest Income
Service charges on deposits	799	806	2,346	2,330
Other	286	732	764	1,801
Total noninterest income	1,085	1,538	3,110	4,131
Noninterest Expenses
Salaries and benefits	3,709	3,407	10,891	10,037
Occupancy	704	630	2,027	1,838
Furniture and equipment	465	431	1,350	1,404
Other	1,457	1,559	4,200	4,293
Total noninterest expenses	6,335	6,027	18,468	17,572
Income Before Provision for
Income Taxes	4,992	4,539	14,858	13,542
Provision for Income Taxes	1,729	1,589	5,143	4,739
Net Income	$  3,263	$  2,950	$  9,715	$  8,803
Basic Earnings per Share	$    0.30	$    0.27	$    0.89	$    0.80
Diluted Earnings per Share	$    0.28	$    0.25	$    0.85	$    0.76

See Notes to Consolidated Condensed Financial Statements

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

In thousands
Nine months ended September 30,	2004		2003
Cash Flows from Operations:
Net income	$     9,715		$     8,803
Reconciliation of net income to net cash provided
by operating activities:
Provision for loan losses	1,540		930
Net (gain) loss on sale of investments	116		(430	)
Depreciation	837		968
Net gain on sale of fixed assets	(10	)	(12	)
Amortization and accretion	635		696
Increase in accrued interest receivable and other assets	(41	)	(579	)
Increase in accrued interest payable and other liabilities	2,399		569
Increase in deferred loan fees	94		103
Net cash provided by operations	15,285		11,048
Cash Flows from Investing Activities:
Proceeds from maturities of available-for-sale securities	16,545		81,301
Purchases of available-for-sale securities	(59,473	)	(138,656	)
Proceeds from sale of available-for-sale securities	16,496		10,214
Net increase in loans	(66,503	)	(5,772	)
Proceeds from sale of equipment	14		12
Purchases of equipment	(1,367	)	(796	)
Net cash used in investing activities	(94,288	)	(53,697	)
Cash Flows from Financing Activities:
Net increase in deposit accounts	16,049		45,500
Net increase (decrease) in other borrowings	9,728		(3,310	)
Cash received for stock options exercised	609		27
Cash paid for shares repurchased	(2,501	)	--
Net cash provided by financing activities	23,885		42,217
Net decrease in cash and equivalents	(55,118	)	(432	)
Cash and equivalents, beginning of period	101,463		66,615
Cash and equivalents, end of period	$   46,345		$   66,183
Noncash Investing and Financing Activities:
The Company obtained $5,250,000 of real estate (OREO) in the first nine months of
2004 and $2,761,000 in the first nine months of 2003 in connection with
foreclosures of delinquent loans
Other Cash Flow Information:
Interest paid	$     7,736		$     8,510
Income taxes paid	5,147		5,081

See Notes to Consolidated Condensed Financial Statements

CENTRAL COAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2004 (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, 2004, the results of operations for the three and nine month periods ended September 30, 2004 and 2003 and cash flows for the nine month periods ended September 30, 2004 and 2003.

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 2003 Annual Report to Shareholders. The results of operations for the three and nine month periods ended September 30, 2004 and 2003 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 26, 2004, the Board of Directors declared a 10% stock dividend, which was distributed on February 27, 2004, to shareholders of record as of February 12, 2004. 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 16.8% for 2004 and 16.1% and 2003; risk free interest rates ranging from 3.08% to 4.35% for 2004 and 2.77% to 3.55% for 2003; and no dividends during the expected term for 2004 and 2003. 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.

	Three Months Ended September 30,				Nine Months Ended September 30,
In thousands (except per share data)	2004		2003		2004		2003
Net Income - As Reported	$      3,263		$      2,950		$      9,715		$      8,803
Compensation expense from amortization of
fair value of stock awards	(317	)	(5	)	(949	)	(15	)
Taxes on compensation expense	130		2		389		6
Pro Forma Net Income	$      3,076		$      2,947		$      9,155		$      8,794
Basic Earnings per Share - As Reported	$             0	.30	$             0	.27	$             0	.89	$             0	.80
Pro Forma Basic Earnings per Share	$             0	.28	$             0	.27	$             0	.84	$             0	.81
Diluted Earnings per Share - As Reported	$             0	.28	$             0	.25	$             0	.85	$             0	.76
Pro Forma Diluted Earnings per Share	$             0	.27	$             0	.25	$             0	.81	$             0	.77

NOTE 3. COMMITMENTS AND CONTINGENCIES

In the normal course of business there are outstanding various commitments to extend credit which are not reflected in the financial statements, including loan commitments of approximately $265,683,000 and standby letters of credit of approximately $10,568,000 at September 30, 2004. However, all such commitments will not necessarily culminate in actual extensions of credit by the Company.

Approximately $42,577,000 of loan commitments outstanding at September 30, 2004 relate to real estate construction loans that are expected to fund within the next twelve months. The remaining commitments primarily relate to commercial revolving lines of credit, other commercial loans and home equity lines of credit. Many of these commitments are expected to expire without being drawn upon. Therefore, the total commitments do not necessarily represent future cash requirements. Each potential borrower and the necessary collateral are evaluated on an individual basis. Collateral varies, but may include real property, bank deposits, debt or equity securities or business assets.

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

NOTE 4. EARNINGS PER SHARE

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

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

	Three Months Ended September 30,		Nine Months Ended September 30,
In thousands (except per share data)	2004	2003	2004	2003
Basic Earnings Per Share
Net income	$  3,263	$  2,950	$  9,715	$  8,803
Weighted average common shares outstanding	10,863	10,911	10,869	10,910
Basic earnings per share	$    0.30	$    0.27	$    0.89	$    0.80
Diluted Earnings Per Share
Net income	$  3,263	$  2,950	$  9,715	$  8,803
Weighted average common shares outstanding	10,863	10,911	10,869	10,910
Dilutive effect of outstanding options	534	495	539	486
Weighted average common shares outstanding - Diluted	11,397	11,406	11,408	11,396
Diluted earnings per share	$    0.28	$    0.25	$    0.85	$    0.76

NOTE 5. COMPREHENSIVE INCOME

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2004		2003		2004		2003
Net income	$ 3,263		$ 2,950		$ 9,715		$ 8,803
Other comprehensive income (loss)- Net unrealized
gain (loss) on available-for-sale securities	2,242		(1,239	)	(142	)	(585	)
Reclassification adjustment for gains included in income	12		(176	)	116		(430	)
Taxes on reclassification adjustment	(5	)	73		(48	)	178
Total other comprehensive income	2,249		(1,342	)	(74	)	(837	)
Total comprehensive income	$ 5,512		$ 1,608		$ 9,641		$ 7,966

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, 2003 and quarterly reports on form 10-Q and current reports on form 8-K.

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, 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 2004, the Company had net income of $3,263,000 as compared to $2,950,000 reported in the year earlier period. Diluted earnings per share for the two quarters was $0.28 and $0.25, respectively. The annualized return on average equity (ROAE) and return on average assets (ROAA) for the third quarter of 2004 were 13.66% and 1.22% as compared to 13.75% and 1.21% for the same period in 2003.

Net income for the nine months ended September 30, 2004 and 2003 was $9,715,000 and $8,803,000. Diluted earnings per share were $0.85 and $0.76, respectively. For the first nine months of 2004, ROAE was 13.99% and ROAA was 1.25% as compared to 14.25% and 1.27% for the same period in 2003. The earnings per share for the 2003 periods have been adjusted for the 10% stock dividend distributed in February 2004.

The Company continued to experience growth in total assets, loans and deposits during the third quarter of 2004. The Company ended the quarter with total assets of $1,073,765,000, an increase of $24,280,000 (2.3%) from the June 30, 2004 balance and a $35,925,000 (3.5%) increase from year-end 2003. Loan demand picked up in the third quarter as loans increased $40,697,000 (5.1%) from the June 30, 2004 balance to total $840,549,000 at September 30, 2004. This increase was net of a $9.0 million nonperforming loan transaction. Loans have increased $57,808,000 (7.4%) from the year-end 2003. Deposits grew to $954,159,000 at September 30, 2004, an increase of $6,441,000 (0.7%) from June 30, 2004 and an increase of $16,049,500,000 (1.7%) from year-end 2003. On a year-over-year basis, internal growth has generated an increase in assets of $103,882,000 (10.7%); an increase in loans of $92,181,000 (12.3%); and an increase in deposits of $82,157,000 (9.4%).

At September 30, 2004, nonperforming assets totaled $7,281,000, which was a decrease of $3,289,000 from the June 30, 2004 balance of $10,570,000. The decrease was attributable to the charge-off of one of the two loans related to the City of King redevelopment project. The second loan moved from nonaccrual status to OREO in the quarter. (For additional information see 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 2004 with a Tier 1 capital ratio of 10.5% and a total risk-based capital ratio of 11.7% versus 10.5% and 11.8%, respectively, at the end of the third quarter of 2003.

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 $287,000 and $273,000 in taxable equivalent interest income on tax-free investments for the three-month periods ended September 30, 2004 and 2003 and $841,000 and $828,000 for the nine-month periods ended September 30, 2004 and 2003.

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

Condensed Comparative Income Statement

	Three Months Ended September 30,		Percentage Change Increase		Three Months Ended September 30,		Percentage Change Increase
(In thousands, except percentages)	2004	2003	(Decrease)		2004	2003	(Decrease)
Interest Income (1)	$14,267	$12,776	12	%	$40,864	$37,566	9	%
Interest Expense	2,853	2,845	0	%	8,267	8,825	(6	%)
Net interest income	11,414	9,931	15	%	32,597	28,741	13	%
Provision for Loan Losses	885	630	40	%	1,540	930	66	%
Net interest income after
provision for loan losses	10,529	9,301	13	%	31,057	27,811	12	%
Noninterest Income	1,085	1,538	(29	%)	3,110	4,131	(25	%)
Noninterest Expense	6,335	6,027	5	%	18,468	17,572	5	%
Income before income taxes	5,279	4,812	10	%	15,699	14,370	9	%
Income Taxes	1,729	1,589	9	%	5,143	4,739	9	%
Tax Equivalent Adjustment	287	273	5	%	841	828	2	%
Net income	$  3,263	$  2,950	11	%	$  9,715	$  8,803	10	%

(1) Interest on tax-free securities is reported on tax equivalent basis.

Net interest income / net interest margin

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

	Three Months Ended September 30,
(Taxable Equivalent Basis)	2004			2003
(In thousands, except percentages)	Avg. Balance	Interest	Avg. Yield	Avg. Balance	Interest	Avg. Yield
Assets:
Earning Assets
Loans (1) (2)	$802,659	$12,180	6.04%	$722,187	$11,086	6	.09%
Taxable investments	123,704	1,168	3.76%	89,131	773	3	.44%
Tax-exempt securities (tax equiv. basis)	53,255	861	6.43%	48,368	819	6	.72%
Federal funds sold	16,796	58	1.37%	38,626	98	1	.01%
Total Earning Assets	996,414	$14,267	5.70%	898,312	$12,776	5	.64%
Cash & due from banks	54,222			51,848
Other assets	17,053			17,959
	$1,067,689			$968,119
Liabilities & Shareholders' Equity:
Interest bearing liabilities:
Demand deposits	$143,870	$     212	0.59%	$130,645	$     204	0	.62%
Savings	261,444	830	1.26%	233,696	780	1	.32%
Time deposits	287,973	1,738	2.40%	271,275	1,759	2	.57%
Other borrowings	5,433	73	5.35%	6,448	102	6	.28%
Total interest bearing liabilities	698,720	2,853	1.62%	642,064	2,845	1	.76%
Demand deposits	267,033			234,578
Other Liabilities	6,893			6,329
Total Liabilities	972,646			882,971
Shareholders' Equity	95,043			85,148
	$1,067,689			$968,119
Net interest income & margin (3)		$11,414	4.56%		$  9,931	4	.39%

(1) Loan interest income includes fee income of $416,000 and $427,000 for the three months ended September 30, 2004 and 2003, respectively.

(2) Includes the average allowance for loan losses of $17,510,000 and $15,777,000 and average deferred loan fees of $1,127,000 and $1,057,000 for the three months ended September 30, 2004 and 2003, respectively.

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

	Nine Months Ended September 30,
(Taxable Equivalent Basis)	2004				2003
(In thousands, except percentages)	Avg. Balance	Interest	Avg. Yield		Avg. Balance	Interest	Avg. Yield
Assets:
Earning Assets
Loans (1) (2)	$776,315	$34,864	6	.00%	$714,648	$32,976	6	.17%
Taxable investments	123,202	3,339	3	.62%	68,405	1,848	3	.61%
Tax-exempt securities (tax equiv. basis)	51,542	2,523	6	.54%	48,774	2,482	6	.80%
Federal funds sold	16,446	138	1	.12%	30,839	260	1	.13%
Total Earning Assets	967,505	$40,864	5	.64%	863,666	$ 37,566	5	.82%
Cash & due from banks	52,939				50,130
Other assets	16,469				16,604
	$1,036,913				$929,400
Liabilities & Shareholders' Equity:
Interest bearing liabilities:
Demand deposits	$140,011	$     612	0	.58%	$122,102	$     596	0	.65%
Savings	254,899	2,419	1	.27%	218,265	2,506	1	.54%
Time deposits	279,114	5,001	2	.39%	273,390	5,408	2	.64%
Other borrowings	7,790	235	4	.03%	6,534	315	6	.45%
Total interest bearing liabilities	681,814	8,267	1	.62%	620,291	8,825	1	.90%
Demand Deposits	255,992				219,760
Other Liabilities	6,359				6,764
Total Liabilities	944,165				846,815
Shareholders' Equity	92,748				82,585
	$1,036,913				$929,400
Net interest income & margin (3)		$32,597	4	.50%		$28,741	4	.45%

(1) Loan interest income includes fee income of $1,333,000 and $1,251,000 for the nine months ended September 30, 2004 and 2003, respectively

(2) Includes the average allowance for loan losses of $16,971,000 and $15,493,000 and average deferred loan fees of $1,143,000 and $1,010,000 for the nine months ended September 30, 2004 and 2003, respectively.

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

Volume/Rate Analysis
(in thousands)
Three Months Ended September 30, 2004 over 2003
Increase (decrease) due to change in:
Interest-earning assets:	Volume		Rate (4)		Net Change
Net Loans (1)(2)	$ 1,235		$  (141	)	$ 1,094
Taxable investment securities	300		95		395
Tax exempt investment securities (3)	83		(41	)	42
Federal funds sold	(56	)	16		(40	)
Total	1,562		(71	)	1,491
Interest-bearing liabilities:
Demand deposits	21		(13	)	8
Savings deposits	92		(42	)	50
Time deposits	108		(129	)	(21	)
Other borrowings	(16	)	(13	)	(29	)
Total	205		(197	)	8
Interest differential	$ 1,357		$    126		$ 1,483
Nine Months Ended September 30, 2004 over 2003
Increase (decrease) due to change in:
Interest-earning assets:	Volume		Rate (4)		Net Change
Net Loans (1)(2)	$ 2,856		$  (968	)	$ 1,888
Taxable investment securities	1,485		6		1,491
Tax exempt investment securities (3)	141		(100	)	41
Federal funds sold	(122	)	--		(122	)
Total	4,360		(1,062	)	3,298
Interest-bearing liabilities:
Demand deposits	87		(71	)	16
Savings deposits	424		(511	)	(87	)
Time deposits	113		(520	)	(407	)
Other borrowings	61		(141	)	(80	)
Total	685		(1,243	)	(558	)
Interest differential	$ 3,675		$    181		$ 3,856

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

(2)  Loan fees of $416,000 and $427,000 for the quarters ended September 30, 2004 and 2003, and loan fees of $1,333,000 and $1,251,000 for the nine months ended September 30, 2004 and 2003, respectively, have been included in the interest income computation.

(3)  Includes taxable-equivalent adjustments that relate to income on certain securities that are exempt from Federal income taxes. The effective Federal statutory tax rate was 35% for 2004 and 2003.

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

Net interest income for the third quarter of 2004 was $11,414,000, which was an increase of $1,483,000 (14.9%) from the $9,931,000 recorded in the third quarter of 2003. Both interest income and interest expense increased from their prior year levels. The interest income component increased $1,491,000 (11.7%) on a quarter-over-quarter basis as due to the large increase in earning assets. Average loan balances were $80,472,000 (11.1%) higher in the third quarter of 2004 versus the same quarter in the previous year. This volume difference added $1,094,000 to interest income. However, the average yield earned on loans in the third quarter of 2004 was 6.04%, a decrease of 5 basis points from the yield earned in the third quarter of 2003. The lower loan yield decreased interest income by $141,000. The average balance of taxable investment securities in the third quarter of 2004 was $34,573,000 (38.8%) higher than it was in the third quarter of 2003. The higher balances added $300,000 to interest income. The rates received on those investments increased 32 basis points between the two periods. The higher rates increased interest income $95,000 on a quarter-over-quarter basis. The average balance of the Company’s portfolio of tax-exempt securities increased $4,887,000 (10.1%) from the third quarter of 2003 to the third quarter of 2004. The tax equivalent yield decreased 29 basis points to 6.43% during that period. The higher balance and lower rate combined to increase interest income $42,000.

Interest expense had a slight increase of only $8,000 to $2,853,000 in the third quarter of 2004 as compared to the third quarter of 2003. The average rate paid on interest-bearing liabilities declined 14 basis points to 1.62% for the third quarter of 2004 as compared to 1.76% in the year earlier period. This decrease in rates reduced interest expense by $197,000. Average balances of interest-bearing liabilities in the third quarter of 2004 increased by $56,656,000 (8.8%) over the prior year period. These higher balances added $205,000 to interest expense.

The net interest margin for the third quarter of 2004 was 4.56% as compared to 4.39% in the year earlier period. The net interest margin in the third quarter of 2004 increased 4 basis points from 4.52% in the second quarter of 2004. The increase in net interest margin from the second quarter is primarily a result of slightly higher yields on loans and taxable investment securities as compared to a smaller increase in rates paid on deposit liabilities.

For the nine-month period ending September 30, 2004, net interest income increased $3,856,000 (13.4%) over the first nine months of 2003. The interest income component increased $3,298,000 to $40,864,000. Average balances of earning assets were $104,839,000 (12.2%) higher in the first nine-months of 2004 than the same period in 2003. The average balance of loans was $61,667,000 higher, which contributed $2,856,000 to interest income. The average yield received on loans in the first nine-months of 2004 was 17 basis points lower than the 6.17% received in the year earlier period. The lower yield on loans decreased interest income by $968,000. The average balance of taxable investment securities was $54,797,000 (80.1%) higher in the first nine-months of 2004 than in the year earlier period. The higher balances in taxable investments increased interest income $1,485,000.

Interest expense for the nine-month period ending September 30, 2004 decreased $558,000 (6.3%) from the first nine-months of 2003. Average balances of interest bearing liabilities in the first nine-months of 2004 were $61,523,000 9.9%) higher than in the year earlier period. These volume increases added $685,000 to interest expense. For the first nine-months of 2004, average rates paid on interest bearing liabilities was 1.62% for a decline of 28 basis points from the rates paid in the first nine-months of 2003. The lower rates resulted in a $1,243,000 decrease in interest expense in the first nine-months of 2004 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 2004 resulted in a 5 basis point increase in the net interest margin to 4.50% from 4.45% in the year earlier period.

Provision for Loan Losses

The Bank provided $885,000 for loan losses in the third quarter of 2004 as compared to $630,000 in the third quarter of 2003. For the nine-month period ended September 30, 2004, the Bank provided $1,540,000 compared to $930,000 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, 2004, the ratio of the allowance for loan losses to total loans was 1.76% as compared to 2.12% at December 31, 2003 and 2.17% at September 30, 2003. (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 decreased $453,000 (29.5%) to $1,085,000 in the third quarter of 2004 as compared to $1,538,000 in the third quarter of 2003. Most of the decrease was related to two significant changes. In the third quarter of 2003, the Company recorded operating income of $260,000 from its OREO property and it realized a gain of $176,000 on the sale of investment securities. During the third quarter of this year, the Company did not have any revenue from OREO or gains on the sale of securities.

For the first nine-months of 2004, noninterest income decreased $1,021,000 (24.7%) to $3,110,000 compared to $4,131,000 in the same period last year. Service charges on deposits increased to $2,346,000 from $2,330,000 in 2003. In the first nine-months of 2004, other fee income was $764,000, a decrease of $1,037,000 from the $1,801,000 earned in the same period last year. Within other fees there were three significant changes. Mortgage origination fees decreased $155,000 due to lower volume of home refinancing in 2004. The Company did not have any income from OREO in 2004 as compared to $383,000 in 2003. The Company realized losses of $116,000 on the sale of securities in 2004 as compared to gains of $430,000 in 2003.

Noninterest Expense

Noninterest expenses increased $308,000 (5.1%) to $6,335,000 in the third quarter of 2004 as compared to $6,027,000 in the third quarter 2003. Salary and employee benefits increased $302,000 (8.9%) to $3,709,000 because of additional staffing for the new Santa Cruz and Soledad branches, internal growth, higher benefit costs, and normal salary increases. On a quarter-over-quarter basis, occupancy and fixed asset expenses increased $108,000 (10.2%) from $1,061,000 in 2003 to $1,169,000 in 2004. Costs related to the new Santa Cruz and Soledad branches and higher business volume contributed to the increase. Other expenses for the third quarter of 2004 was $1,457,000, a decrease of $102,000 (6.5%) from the prior year quarter. In the third quarter of 2003, the Company incurred $293,000 in OREO expense as compared to none in 2004. Increase in business volumes, higher audit fees due to compliance with Sarbanes-Oxley internal control requirements and increased promotional costs contributed to offsetting some of the favorable impact of the lower OREO expense. The efficiency ratio for the quarter ended September 30, 2004 was 50.7% as compared to 52.6%, in the year earlier period.

Noninterest expenses for the nine-month period ending September 30, 2004 increased $896,000 (5.1%) to a total of $18,468,000 compared to $17,572,000 for the same period in 2003. Salary and benefit expenses increased $854,000 (8.5%) to $10,891,000 in 2004 versus $10,037,000 in the first nine-months of 2003. The increase was due to the additional staffing for the new Santa Cruz and Soledad branches, higher benefit costs and normal salary increases. For the first nine-months of 2004, occupancy and fixed asset expenses increased $135,000 (4.2%) to $3,377,000 compared to $3,242,000 in the same period last year. Costs related to the two new branches and higher business volume contributed to the increase. Other expenses decreased $93,000 (2.2%) to $4,200,000 for the nine-month period ended September 30, 2004. OREO expenses decreased $546,000 as the Company sold the property in 2003. The same factors discussed in the preceding paragraph contributed to offsetting some of the favorable impact of the lower OREO expense. The efficiency ratio for the first nine-months of 2004 was 51.7% as compared to 53.5% for the same period of 2003.

Provision for Income Taxes

The Company recorded income tax expense of $1,729,000 and $5,143,000 for the quarter and nine-month periods ending September 30, 2004 as compared to $1,589,000 and $4,739,000 for the same periods in 2003. The effective tax rates, considering state and federal taxes, and tax exempt income, for the third quarter and first nine-months of 2004 were 34.6% compared to 35.0% for the same periods in 2003. The effective tax rate was lower in both periods of 2004 as the Company revised the calculation of deferred tax assets for a change in the tax rate.

Securities

At September 30, 2004, available-for-sale securities had a market value of $179,322,000 with an amortized cost basis of $177,340,000. On an amortized cost basis, the investment portfolio decreased by $2,055,000 from the balance at June 30, 2004 and increased $25,722,000 from the balance at December 31, 2003. The pretax unrealized gain of $1,982,000 at September 30, 2004 represented an increase of $3,845,000 from the unrealized loss of $1,863,000 at June 30, 2004 and a decrease of $127,000 from the unrealized gain of $2,109,000 at December 31, 2003. The change from an unrealized loss to an unrealized gain position on the portfolio was the result of the change in interest rates during the third quarter of 2004 as the investment markets reacted to slower economic growth.

Loans

The ending loan balance at September 30, 2004 was $840,549,000, which was an increase of $40,697,000 (5.1%) from the June 30, 2004 balance, an increase of $57,808,000 (7.4%) from the year-end 2003 balance and an increase of $92,181,000 (12.3%) from the September 30, 2003 balance. During the third quarter all loan categories increased from June 30, 2004 balances. The most significant loan growth in the quarter was in the real estate – other category, which increased $31,760,000 (6.0%). Construction loans increased $5,665,000 (2.5%). Commercial loans increased $2,393,000 (6.1%) and Consumer loans increased $927,000 (7.6%). 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 $698 million at September 30, 2004. 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, 2004 and December 31, 2003:

In thousands (except percentages)	September 30, 2004		December 31, 2003
Past due 90 days or more and still accruing interest:
Commercial	$   118		$       --
Real estate	237		--
Consumer and other	--		--
	355		--
Nonaccrual:
Commercial	875		626
Real estate	49		8,973
Consumer and other	--		7
	924		9,606
Restructured (in compliance with modified
terms)- Commercial	752		835
Total nonperforming and restructured loans	2,031		10,441
Other real estate owned	5,250		--
Total nonperforming assets	$7,281		$10,441
Allowance for loan losses as a percentage of
nonperforming and restructured loans	728	%	159	%
Nonperforming and restructured loans to total loans	0.25	%	1.36	%
Allowance for loan losses to nonperforming assets	203	%	159	%
Nonperforming assets to total assets	0.68	%	1.01	%

Nonperforming and restructured loans decreased from $10,570,000 at June 30, 2004 to $2,031,000 at September 30, 2004. Approximately $9.0 million of the nonperforming balance at June 30, 2004 pertained to loans for a commercial and retail redevelopment project in the City of King. During the third quarter of 2004, the Company charged-off a balance of $3.3 million on one of these loans and foreclosed on the other loan. At September 30, 2004, the property was recorded as other real estate owned (OREO) at a value of $5,250,000. (For additional information see Part II Items 1 and 6 (b)). As a result of the aforementioned charge-off, nonperforming assets decreased $3,289,000 from the June 30, 2004 balance. Consequently, the ratio of the allowance for loan losses to nonperforming and restructured loans increased to 728% at September 30, 2004 as compared to 159% at December 31, 2003 and 146% at September 30, 2003. The ratio of the allowance for loan losses to total loans was 1.76% at September 30, 2004 as compared to 2.12% at December 31, 2003 and 2.17% at September 30, 2003. The Company had OREO of $5,250,000 at September 30, 2004, which consisted of the redevelopment project as mentioned above. The Company did not have any OREO properties at December 31, 2003.

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, 2004, the recorded investment in loans that are considered impaired under SFAS No. 114 was $1,717,000. The total impaired loans include $924,000 of nonaccrual loans, $752,000 of restructured loans and $41,000 in other loans identified as impaired. The impaired loans had related valuation allowances totaling $563,000.

At December 31, 2003, the recorded investment in loans considered impaired was $10,694,000, of which $9,606,000 was included in nonaccrual loans, $835,000 was included in restructured loans and $253,000 in other loans identified as impaired. The impaired loans had valuation allowances totaling $2,516,000.

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, 2004, 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 September 30, 2004, the formula allowance was $10,590,000 compared to $12,400,000 at June 30, 2004 and $12,236,000 at December 31, 2003. The decrease in the formula allowance in the third quarter was primarily a result of a decrease in the balances of supervised loans and a reduction in the factor applied to one classification of supervised loans.

In addition to the formula allowance calculated by the application of the loss factors to the standard loan categories, certain specific allowances may also be calculated. Quarterly, all significant classified and criticized loans are analyzed individually based on the source and adequacy of repayment and specific type of collateral, and an assessment is made of the adequacy of the formula reserve relative to the individual loan. A specific allocation either higher or lower than the formula reserve will be calculated based on the higher/lower-than-normal probability of loss and the adequacy of the collateral. At September 30, 2004, the specific allowance was $2,485,000 on a loan base of $20,907,000 compared to a specific allowance of $2,810,000 on a loan base of $31,537,000 at June 30, 2004 and a specific allowance of $3,059,000 on a loan base of $40,545,000 at December 31, 2004. The decrease in the specific allowance in the third quarter of 2004 was due to the decrease in the level of loans requiring specific valuation allowances coupled with changes of the level of specific allowance applied to several loans.

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, 2004, the unallocated allowance was $1,703,000 compared to $2,022,000 at June 30, 2004 and $1,294,000 at December 31, 2003. The conditions evaluated in connection with the unallocated allowance include the following at the balance sheet date:

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

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

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

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

There can be no assurance that the adverse impact of any of these conditions on the Bank will not be in excess of the unallocated allowance as determined by management at September 30, 2004 and set forth in the preceding paragraph.

The allowance for loan losses totaled $14,779,000 or 1.76% of total loans at June 30, 2004 compared to $17,232,000 or 2.15% at June, 2004, $16,590,000 or 2.12% at December 31, 2003 and $16,272,000 or 2.17% at September 30, 2003. At these dates, the allowance represented 728%, 163%, 159% and 146% of nonperforming loans.

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

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

	Three months ended				Nine months ended
	September 30,				September 30,
In thousands (except percentages)	2004		2003		2004		2003
Beginning balance	$ 17,232		$ 15,466		$   16,590		$   15,235
Provision charged to expense	885		630		1,540		930
Loans charged off	(3,394	)	(86	)	(3,495	)	(237	)
Recoveries	56		262		144		344
Ending balance	$ 14,779		$ 16,272		$   14,779		$   16,272
Ending loan portfolio					$ 840,549		$ 748,368
Allowance for loan losses as percentage of ending loan portfolio					1.76%		2.17%

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, 2004 were approximately $265,583,000 and $10,568,000, respectively. Such loans relate primarily to commercial revolving lines of credit, real estate construction loans, other commercial loans and home equity lines of credit.

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, 2004, liquid assets totaled $174.0 million or 16.2% of total assets as compared to $208.3 million or 20.1% of total assets on December 31, 2003. In addition to liquid assets, the Bank maintains short-term lines of credit with correspondent banks. At September 30, 2004, the Bank had $90,000,000 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 $97,750,000 at September 30, 2004 compared to $89,595,000 at December 31, 2003.

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, 2004 and December 31, 2003 as well as the minimum capital ratios for capital adequacy under the regulatory framework:

	Actual			For Capital Adequacy Purposes:			To Be Categorized Well Capitalized Under Prompt Corrective Action Provisions
Company	Amount	Ratio		Amount	Ratio		Amount	Ratio
As of September 30 2004
Total Capital (to Risk Weighted Assets):	$108,158	11	.7%	$73,778	8	.0%	N/A
Tier 1 Capital (to Risk Weighted Assets):	96,590	10	.5%	36,889	4	.0%	N/A
Tier 1 Capital (to Average Assets):	96,590	9	.1%	42,664	4	.0%	N/A
As of December 31, 2003
Total Capital (to Risk Weighted Assets):	$  99,038	11	.6%	$68,120	8	.0%	N/A
Tier 1 Capital (to Risk Weighted Assets):	88,321	10	.4%	34,060	4	.0%	N/A
Tier 1 Capital (to Average Assets):	88,321	9	.0%	39,314	4	.0%	N/A
Community Bank
As of September 30, 2004
Total Capital (to Risk Weighted Assets):	$102,855	11	.3%	$73,069	8	.0%	$91,336	10	.0%
Tier 1 Capital (to Risk Weighted Assets):	91,396	10	.0%	36,535	4	.0%	54,802	6	.0%
Tier 1 Capital (to Average Assets):	91,396	8	.6%	42,416	4	.0%	53,020	5	.0%
As of December 31, 2003
Total Capital (to Risk Weighted Assets):	$  92,172	10	.9%	$67,420	8	.0%	$84,276	10	.0%
Tier 1 Capital (to Risk Weighted Assets):	81,563	9	.7%	33,710	4	.0%	50,565	6	.0%
Tier 1 Capital (to Average Assets):	81,563	8	.4%	39,064	4	.0%	48,830	5	.0%

The Bank meets the “well capitalized” ratio measures at both September 30, 2004 and December 31, 2003.

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 Company 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. The interest rate risk modeling is a useful tool, but there are certain limits to the rate forecast estimates. Actual rate changes rarely follow any given forecast, asset-liability pricing and other model inputs usually do not remain constant in their historic relationships as new rate environments evolve. However, holding these assumptions constant through the modeling horizon helps to appropriately emphasize specific repricing/mismatch points and their performance implications.

A one year projection of net interest income, as forecast below, was modeled utilizing a forecast balance sheet projected from August 31, 2004 balances.

The following table summarizes the effect on net interest income of three rate scenarios as measured against a most likely rate scenario.

Interest Rate Risk Simulation of Net Interest Income

In thousands	Estimated Impact on One Year Projection of Net Interest Income
Variation from flat rate scenario:
Most likely rates	$ 2,125
Declining rates	(2,762	)
Rising rates	3,488

The Company also estimates rate risk through the use of rate shock analysis. The model calculates both the percent and dollar changes in net interest income (NII) and market value of equity (MVE) projected to occur should the yield curve instantaneously shift up or down in a parallel fashion from its beginning position. MVE measures the impact on equity due to the changes in the market values of assets and liabilities as a result of a change in interest rates. 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 Company measures the volatility of these benchmarks using a twelve-month time horizon. Using the August 31, 2004 balance sheet as the base for the simulation, the following table summarizes the effect on net interest income of a +200 and +/-100 basis point change in interest rates. Due to the current historic low level of interest rates, the potential for interest bearing deposit accounts to respond to further changes in projected rates is limited, therefore calculations for rate decreases greater than 100 bp are misleading and have not been presented.

Interest Rate Risk Simulation of NII

In thousands (except percentages)	% Change in NII from Current 12 Mo. Horizon		Change in NII from Current 12 Mo. Horizon
+ 200bp	12	.4%	$ 5,350
+ 100bp	6	.1%	2,623
- 100bp	(6	.8%)	(2,910	)

These results indicate that the balance sheet is asset sensitive since earnings increase when interest rates rise. The magnitude of the NII change is 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 Company has not changed materially from that at year-end 2003.

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, 2004. 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, 2004, 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, 2004 and December 31, 2003, 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.

At June 30, 2004, the Bank held approximately $9.0 million of nonperforming loans pertaining to a commercial and retail redevelopment project in the City of King. During the third quarter of 2004, the Company charged-off a balance of $3.3 million on one of these loans and foreclosed on the other loan. At September 30, 2004, the property was recorded as other real estate owned (OREO) at a value of $5,250,000. The foreclosure proceedings are separate and apart from the Bank’s actions related to the City of King regarding the CD secured loan in the approximate amount of $4.4 million. Details of these loans have been disclosed on Forms 8-K and Forms 10-Q filed with the Securities and Exchange Commission (SEC) during 2003 as reflected in Form 10-K for the period ended December 31, 2003, filed with the SEC on March 1, 2004.

The outcome of the dispute regarding the above discussed CD secured loan continues to be uncertain at the present time; however, the Bank intends to vigorously defend its rights in respect of the certificate of deposit on appeal of the Judgment.

Except as disclosed above, there are no material pending legal proceedings, other than ordinary routine litigation incidental to the Company’s business, to which the Company or the Bank is a party or as to which any of their property is subject.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.

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. During the third quarter of 2004, the Company did not repurchase any shares. Year-to-date through September 30, 2004, the Company has repurchased 140,792 shares at a total cost of $2,501,000. During the fourth quarter, the Company intends to continue to repurchase shares up to the remaining 197,891 shares authorized for repurchase under the Plan. The following table summarizes repurchase activity during the third quarter.

Purchases of Central Coast Bancorp Stock

Period	Total Number of Shares Purchased	Average Price Per Share	Shares Purchased as Part of Publicly Announced Plan	Shares Remaining to Purchase Under the Plan
July 1-31, 2004	0		0	197,891
August 1-31, 2004	0		0	197,891
September 1-30, 2004	0		0	197,891
Total	0		0

Item 3. Defaults upon senior securities.

None.

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

None.

Item 5. Other information.

None.

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

(a) Exhibits

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

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

(3.2)        Bylaws, as amended.

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

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

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

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

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

*(10.5)        Form of Nonstatutory Stock Option Agreement under the 1994 Stock Option Plan incorporated by reference from Exhibit 99 to Registration Statement on Form S-8, No. 33-89948, filed with Commission on November 15, 1996.

*(10.6)       Form of Incentive Stock Option Agreement under the 1994 Stock Option Plan incorporated by reference from Exhibit 99 to Registration Statement on Form S-8, No. 33-89948, filed with the Commission on November 15, 1996.

*(10.7)       Form of Director Nonstatutory Stock Option Agreement under the 1994 Stock Option Plan incorporated by reference from Exhibit 99 to Registration Statement on Form S-8, No. 33-89948, filed with the Commission on November 15, 1996.

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

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

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

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

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

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

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

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

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

*(10.17)        2004 Stock Option Plan and Forms of Incentive and Nonstautory Stock Option Agreement incorporated by reference from Exhibit 99.1 to Registration Statement on Form S-8, No. 333-117043, filed with the Commission on June 30, 2004.

(14.1)        Code of Ethics, incorporated by reference from Exhibit 14.1 to the Registrant's 2004 Annual Report on Form 10-K filed with the Commission on March 1, 2004.

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

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

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

(32.1)        Certification of Central Coast Bancorp by its Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*Denotes management contracts, compensatory plans or arrangements.

(b) Reports on Form 8-K.

A report of Form 8-K was filed with the Commission on August 26, 2004 reporting that as of August 12, 2004, the Registrant’s subsidiary, Community Bank of Central California, had taken possession through foreclosure of real estate collateral to offset outstanding loans and other costs related to $9.0 million of nonperforming loans. The loans for a commercial/retail redevelopment project in the City of King which were secured by real estate and certificate of deposit collateral.

A second report on Form 8-K was filed with the Commission on October 4, 2004, reporting a change in directors and an amendment to the Company’s By-Laws.

A third report on Form 8-K was filed with the Commission on October 22, 2004, reporting a press release dated October 19, 2004 regarding the Company’s operating results for the quarter ended September 30, 2004.

A fourth report on Form 8-K was filed with the Commission on November 1, 2004 reporting an amendment to the Company’s By-Laws.

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.

November 2, 2004	CENTRAL COAST BANCORP
	By: /s/NICK VENTIMIGLIA
	Nick Ventimiglia
	(Chief Executive Officer)
	By: /s/ ROBERT STANBERRY
	Robert M. Stanberry
	(Chief Financial Officer,
	Principal Financial and Accounting Officer)

EXHIBIT INDEX

Exhibit Number	Description	Sequential Page Number
3.2	By-Laws, as amended	31
31.1	Certifications of Chief Executive Officer pursuant	48
	to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certifications of Chief Financial Officer pursuant	49
	to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certifications of Chief Executive Officer and Chief	50
	Financial Officer pursuant to Section 906 of the
	Sarbanes-Oxley Act of 2002

EX-3

Exhibit 3.2

BY-LAWS

OF

CENTRAL COAST BANCORP

(A California Corporation)

ARTICLE I

Offices

Section 1. Principal Office. The principal executive office in the State of California for the transaction of the business of the corporation (called the principal office) shall be 301 Main Street, Salinas, California in the County of Monterey. Subject to applicable regulatory authorization therefor, the Board of Directors shall have the authority from time to time to change the principal office from one location to another within the State by amending this Section 1 of the By-Laws.

Section 2. Other Offices. Upon applicable regulatory authorization therefor, one or more branches or other subordinate offices may at any time be fixed and located by the Board of Directors at such place or places within the State of California as it deems appropriate.

ARTICLE II

Meeting of Shareholders

Section 3. Place of Meetings. Meetings of the shareholders shall be held at any place within the State of California that may be designated either by the Board of Directors in accordance with these By-Laws, or by the written consent of all persons entitled to vote at the meeting, given either before or after the meeting and filed with the Secretary of the corporation. If no such designation is made, the meetings shall be held at the principal office of the corporation.

Section 4. Annual Meetings. The annual meeting of the shareholders shall be held on the third Thursday in April in each year, if not a legal holiday, and if a legal holiday, then on the next succeeding business day, at the hour of 5:30 P.M., at which time the shareholders shall elect a Board of Directors, consider reports of the affairs of the corporation, and transact such other business as may properly be brought before the meeting.

If the annual meeting of shareholders shall not be held on the date above specified, the Board of Directors shall cause such a meeting to be held as soon thereafter as convenient and any business transacted or election held at such meeting shall be as valid as if transacted or held at an annual meeting on the date above specified. Notice of proposals which shareholders intend to present at any annual meeting of shareholders and wish to be included in the proxy statement of management of the corporation distributed in connection with such annual meeting must be received at the principal executive offices of the corporation not less than 120 days prior to the date on which, during the previous year, management’s proxy statement for the previous year’s annual meeting was first distributed to shareholders. Any such proposal, and the proponent shareholder, must comply with the eligibility requirements set forth in Rule 14a-8 of the Securities and Exchange Commission.

Section 5. Special Meetings. Special meetings of the shareholders, for any purpose or purposes whatsoever, may be called at any time by a majority of the Board of Directors, Chairman of the Board of Directors, the President, or by holders of shares entitled to cast not less than 10 percent (10%)of the votes at the meeting.

Section 6. Notice of Shareholders’ Meetings. Whenever shareholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given not less than 10 (or, if sent by third class mail, 30) nor more than 60 days before the date of the meeting to each shareholder entitled to vote thereat. Such notice shall state the place, date and hour of the meeting and (1) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (2) in the case of the annual meeting, those matters which the Board of Directors, at the time of the mailing of the notice, intends to present for action by the shareholders, but subject to the provisions of Section 601(f) of the California Corporations Code, any proper matter may be presented at the meeting for such action. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by management for election.

Notice of a shareholders’ meeting shall be given either personally or by first-class mail, or, if the corporation has outstanding shares held of record by 500 or more persons (determined as provided in Section 605 of the California Corporations Code) on the record date for the shareholders’ meeting, notice may be sent by third-class mail, or other means of written communication, addressed to the shareholder at the address of such shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice; or if no such address appears or is given, at the place where the principal office of the corporation is located. The notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication.

If any notice addressed to the shareholder at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at such address, all future notices shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written demand of the shareholder at the principal office of the corporation for a period of one year from the date of the giving of the notice to all other shareholders.

Upon request in writing to the Chairman of the Board of Directors, the President, a Vice President or the Secretary by any person entitled to call a special meeting of shareholders, the officer forthwith shall cause notice to be given to the shareholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, not less than 35 nor more than 60 days after the receipt of the request.

Section 7. Quorum. The presence at any meeting, in person or by proxy, of the persons entitled to vote a majority of the voting shares of the corporation shall constitute a quorum for the transaction of business. Shareholders present at a valid meeting at which a quorum is initially present may continue to do business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by persons voting more than 25 percent of the voting shares.

Section 8. Adjourned Meeting. Any annual or special shareholders’ meeting may be adjourned from time to time, even though a quorum is not present, by vote of the holders of a majority of the voting shares present at the meeting either in person or by proxy, provided that in the absence of a quorum, no other business may be transacted at the meeting except as provided in Section 7 of these by-laws.

Notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than 45 days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting.

Section 9. Waiver or Consent by Shareholders. The transactions of any meeting of shareholders, however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of and presence at such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by Section 6 of these By-Laws or Section 601(f) of the California Corporations Code to be included in the notice but not so included, if such objection is expressly made at the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of shareholders need be specified in any written waiver of notice, consent to the holding of the meeting or approval of the minutes thereof, except as provided in Section 601(f) of the California Corporations Code.

Section 10. Action Without Meeting . Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, except that unanimous written consent shall be required for election of directors to non-vacant positions.

Unless the consents of all shareholders entitled to vote have been solicited or received in writing, notice shall be given to non-consenting shareholders to the extent required by Section 603(b) of the California Corporations Code.

Any shareholder giving written consent, or the shareholder’s proxyholders, or a transferee of the shares or a personal representative of the shareholder or their respective proxyholders, may revoke the consent by a writing received by the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary of the corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the Secretary of the corporation.

Section 11. Voting Rights; Cumulative Voting. Only persons in whose names shares entitled to vote stand on the stock records of the corporation at the close of business on the record date fixed by the Board of Directors as provided in Section 41 of these By-Laws for the determination of shareholders of record shall be entitled to notice of and to vote at such meeting of shareholders. If no record date is fixed, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business or the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board has been taken, shall be the day on which the first written consent is given; and the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the 60th day prior to the date of such other action, whichever is later.

Except as provided in the next following sentence and except as may be otherwise provided in the Articles of Incorporation, each shareholder entitled to vote shall be entitled to one vote for each share held on each matter submitted to a vote of shareholders. In the election of directors, each such shareholder complying with the following paragraph may cumulate such shareholder’s votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the shareholder’s shares are normally entitled, or distribute the shareholder’s votes on the same principle among as many candidates as the shareholder thinks fit.

No shareholder shall be entitled to cumulate votes in favor of any candidate or candidates unless such candidate’s or candidates’ names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting prior to the voting of the shareholder’s intention to cumulate the shareholder’s votes. If any one shareholder has given such notice, such fact shall be announced to all shareholders and proxies present, who may then cumulate their votes for candidates in nomination.

In any election of directors, the candidates receiving the highest number of votes of the shares entitled to be voted for them, up to the number of directors to be elected by such shares, are elected.

Voting may be by voice or ballot, provided that any election of directors must be by ballot upon the demand of any shareholder made at the meeting and before the voting begins.

Section 12. Proxies. Every person entitled to vote shares may authorize another person or persons to act by proxy with respect to such shares. All proxies must be in writing and must be signed by the shareholder confirming the proxy or his attorney-in-fact. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy continues in full force and effect until revoked by the person executing it prior to the vote pursuant thereto, except as otherwise provided in Section 705 of the California Corporations Code. Such revocation may be effected by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by the person executing the prior proxy and presented to the meeting, or as to any meeting, by attendance at such meeting and voting in person by the person executing the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. The proxy solicited by management for any annual meeting of shareholders shall confer discretionary authority upon management’s proxy holders to vote with respect to any shareholder proposal offered at such meeting, the proponent of which has not notified the corporation, within the time period specified by Section 4 of these By-Laws, of his or her intention to present such proposal at the annual meeting. Specific reference to such voting authority shall be made in management’s proxy statement for each annual meeting.

Section 13. Voting by Joint Holders or Proxies. Shares or proxies standing in the names of two or more persons shall be voted or represented in accordance with the vote or consent of the majority of such persons. If only one of such persons is present in person or by proxy, that person shall have the right to vote all such shares, and all of the shares standing in the names of such persons shall be deemed to be represented for the purpose of determining a quorum. This section shall apply to the voting of shares by two or more administrators, executors, trustees or other fiduciaries, or joint proxy holders, unless the instrument or order of court appointing them shall otherwise direct.

Section 14. Inspectors of Election. In advance of any meeting of shareholders the Board may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any persons so appointed fail to appear or refuse to act, the chairman of any meeting of shareholders may, and on the request of any shareholder or a shareholder’s proxy shall, appoint inspectors of election (or persons to replace those who so fail or refuse) at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one or three inspectors are to be appointed. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all.

The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies, receive votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result and do such acts as may be proper to conduct the election or vote with fairness to all shareholders.

ARTICLE III

Directors Management

Section 15. Powers. Subject to any provisions of the Articles of Incorporation, of the By-Laws and of law limiting the powers of the Board of Directors or reserving powers to the shareholders, the Board of Directors shall, directly or by delegation, manage the business and affairs of the corporation and exercise all corporate powers permitted by law.

Section 16. Number and Qualification of Directors. The authorized number of directors shall be not less than Seven (7) nor more than Thirteen (13), until changed by amendment of the Articles of Incorporation or, if not prohibited by the Articles, by an amendment of this By-Law adopted by the shareholders. The exact number of directors within said range shall be fixed by a resolution adopted by the Board of Directors; and unless and until so amended, the exact number of directors is hereby fixed at nine (9). Directors need not be shareholders of the corporation.

Nomination for election of members of the Board of Directors may be made by the Board of Directors or by any stockholder of any outstanding class of capital stock of the corporation entitled to vote for the election of directors. Notice of intention to make any nominations shall be made in writing and shall be delivered or mailed to the President of the corporation not less than 21 days nor more than 60 days prior to any meeting of stockholders called for the election of directors; provided however, that if less than 21 days notice of the meeting is given to shareholders, such notice of intention to nominate shall be mailed or delivered to the President of the corporation not later than the close of business on the tenth day following the day on which the notice of meeting was mailed; provided further that if notice of such meeting is sent by third-class mail as permitted by Section 6 of these By-Laws, no notice of intention to make nominations shall be required. Such notification shall contain the following information to the extent known to the notifying shareholder: (a) the name and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the number of shares of capital stock of the corporation owned by each proposed nominee; (d) the name and residence address of the notifying shareholder; and (e) the number of shares of capital stock of the corporation owned by the notifying shareholder. Nominations not made in accordance herewith may, in the discretion of the Chairman of the meeting, be disregarded and upon the Chairman’s instructions, the inspectors of election can disregard all votes cast for each such nominee. A copy of this paragraph shall be set forth in a notice to shareholders of any meeting at which Directors are to be elected.

Section 17. Election and Term of Office. The directors shall be elected annually by the shareholders at the annual meeting of the shareholders; provided that if, for any reason, said annual meeting or an adjournment thereof is not held or the directors are not elected thereat, then the directors may be elected at any special meeting of the shareholders called and held for that purpose. The term of office of the directors shall, except as provided in Section 18 of these By-Laws, begin immediately after their election and shall continue until their respective successors are elected and qualified.

Section 18. Removal of Directors. A director may be removed from office by the Board of Directors if he is declared of unsound mind by the order of court or convicted of a felony. Any or all of the directors may be removed from office without cause by a vote of shareholders holding a majority of the outstanding shares entitled to vote at an election of directors; however, unless the entire Board of Directors is removed, an individual director shall not be removed if the votes cast against removal, or not consenting in writing to such removal, would be sufficient to elect such director if voted cumulatively at an e1ection at which the same total number of votes were cast, or, if such action is taken by written consent, all shares entitled to vote were voted, and the entire number of directors authorized at the time of the director’s most recent election were then being elected. A director may also be removed from office by the superior court of the county in which the principal office is located, at the suit of shareholders holding at least ten percent (10%) of the number of outstanding shares of any class, in case of fraudulent or dishonest acts or gross abuse of authority or discretion with reference to the corporation, in the manner provided by law.

No reduction of the authorized number of directors shall have the effect of removing any director before his term of office expires.

Section 19. Vacancies. A vacancy or vacancies on the Board of Directors shall exist on the death, resignation, or removal of any director, or if the authorized number of directors is increased or the shareholders fail to elect the full authorized number of directors.

Except for a vacancy created by the removal of a director, vacancies on the Board of Directors may be filled by a majority of the remaining directors although less than a quorum, or by a sole remaining director, and each director elected in this manner shall hold office until his successor is elected at an annual or special shareholders’ meeting.

The shareholders may elect a director at any time to fill any vacancy not filled by the directors. Any such election by written consent other than to fill a vacancy created by removal requires the consent of a majority of the outstanding shares entitled to vote.

Any director may resign effective upon giving written notice to the Chairman of the Board of Directors, the President, the Secretary or the Board of Directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective.

Section 20. Place of Meetings. Regular and special meetings of the Board of Directors shall be held at any place within the State of California that is designated by resolution of the Board or, either before or after the meeting, consented to in writing by all the Board members. If the place of a regular or special meeting is not fixed by resolution or written consents of the Board, it shall be held at the corporation’s principal office.

Section 21. Organizational Meetings. Immediately following each annual shareholders' meeting, the Board of Directors shall hold an organizational meeting at a date and time adopted by the Board of Directors by Resolution to organize, elect officers, and transact other business. Notice of this meeting shall not be required.

Section 22. Other Regular Meetings. Other regular meetings of the Board of Directors shall be held at such time and place as the Board of Directors by resolution shall determine. Notice of these regular meetings shall not be required.

Section 23. Special Meetings. Special meetings of the Board of Directors for any purpose may be called at any time by the Chairman of the Board of Directors, or the President, or any Vice President, or the Secretary, or any two directors.

Special meetings of the Board shall be held upon four days’ notice by mail or 24 hours notice delivered personally or by telephone or telegraph. If notice is by telephone, it shall be complete when the person calling the meeting believes in good faith that the notified person has heard and acknowledged the notice. If the notice is by mail or telegraph, it shall be complete when deposited in the United States mail or delivered to the telegraph office at the place where the corporation’s principal office is located, charges prepaid and addressed to the notified person at such person’s address appearing on the corporate records or, if it is not on these records or is not readily ascertainable, at the place where the regular Board meeting is held.

Section 24. Quorum. A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn a meeting under Section 26 of these By-Laws. Every act done or decision made by a majority of the directors present at a meeting at which a quorum is present shall be regarded as the act of the Board of Directors, unless the vote of a greater number is required by law, the Articles of Incorporation, or these By-Laws. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by a majority of the required quorum for such meeting.

Section 25. Contents of Notice and Waiver of Notice. Neither the business to be transacted at, nor the purpose of, any regular or special Board meeting need be specified in the notice or waiver of notice of the meeting. Notice of a meeting need not be given to any director who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, either before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to said director. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting.

Section 26. Adjournment. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place.

Section 27. Notice of Adjournment. Notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place are fixed at the meeting being adjourned, except that if the meeting is adjourned for more than 24 hours such notice shall be given prior to the adjourned meeting to the directors who were not present at the time of the adjournment.

Section 28. Telephone Participation. Members of the Board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meetings can hear one another. Such participation constitutes presence in person at such meeting.

Section 29. Action Without Meeting. The Board of Directors may take any action without a meeting that may be required or permitted to be taken by the Board at a meeting, if all members of the Board individually or collectively consent in waiting to the action. The written consent or consents shall be filed in the minutes of the proceedings of the Board of Directors. Such action by written consent shall have the same effect as a unanimous vote of directors.

Section 30. Fees and Compensation. Directors and members of committees shall receive neither compensation for their services nor reimbursement for their expenses unless these payments are fixed by resolution of the Board.

ARTICLE IV

Officers

Section 31. Officers. The officers of the corporation shall be a President, a Secretary, and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board (who shall be chosen from the Board of Directors), one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Chief Financial Officers, and any other officers who may be appointed under Section 33 of these By-Laws. Any two or more officers, except those of President and Secretary, may be held by the same person.

Any officer of the corporation may be excluded by resolution of the Board of Directors or by a provision of these By-Laws from participation, other than in the capacity of a director, in major policymaking functions of the corporation.

If requested by the Board of Directors, each officer and employee of the corporation shall give bond of suitable amount with security to be approved by the Board of Directors, conditioned on the honest and faithful discharge of his duties as such officer or employee. At the discretion of the Board, such bonds may be schedule or blanket form and the premiums shall be paid by the corporation. The amount of such bonds, the form of coverage, and the name of the company providing the surety therefor shall be reviewed annually by the Board of Directors. Action shall be taken by the Board at that time approving the amount of the bond to be provided by each officer and employee of the corporation for the ensuing year.

Section 32. Election. The officers of the corporation, except those appointed under Section 33 of these By-Laws, shall be chosen annually by the Board of Directors, and each shall hold his office until he resigns or is removed or otherwise disqualified to serve, or his successor is elected and qualified.

Section 33. Subordinate Officers. The Board of Directors may appoint, and may authorize the President to appoint, any other officers that the business of the corporation may require, each of whom shall hold office for the period, have the authority, and perform the duties specified in the By-Laws or by the Board of Directors.

Section 34. Removal and Resignation. Any officer may be removed with or without cause either by the Board of Directors at any regular or special directors’ meeting or, except for an officer chosen by the Board, by any officer on whom the power of removal may be conferred by the Board.

Any officer may resign at any time by giving written notice to the Board of directors, the President or the Secretary of the corporation. An officer’s resignation shall take effect when it is received or at any later time specified in the resignation. Unless the resignation specifies otherwise, its acceptance by the corporation shall not be necessary to make it effective.

Section 35. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification, or any other cause shall be filled in the manner prescribed in the By-Laws for regular appointments to the office.

Section 36. Chairman of the Board. The Board of Directors may in its discretion elect a Chairman of the Board, who shall preside at all meetings of the Board of Directors at which the Chairman is present and shall exercise and perform other powers and duties assigned to the Chairman by the Board or prescribed by the By-Laws.

Section 37. President. Subject to any supervisory powers that may be given by the Board of Directors or the By-Laws to the Chairman of the Board, the President shall be the corporation's chief executive officer and shall, subject to the control of the Board of Directors, have general supervision, direction, and control over the corporation’s business and affairs. The President shall preside as Chairman at all shareholders’ meetings and at all directors’ meetings not presided over by the Chairman of the Board. He shall be ex officio a member of all the standing committees except the Audit Committee, shall have the general powers and duties of management usually vested in a corporation’s president; shall have any other powers and duties that are prescribed by the Board of Directors or these By-Laws; and shall be primarily responsible for carrying out all orders and resolutions of the Board of Directors.

Section 38. Vice Presidents. If the President is absent or is unable or refuses to act, the Vice Presidents in order of their rank as fixed by the Board of Directors or, if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions on, the President. Each Vice President shall have any other duties that are prescribed for said Vice President by the Board of Directors or the By-Laws.

Section 39. Secretary. The Secretary shall keep or cause to be kept, and be available at the principal office and any other place that the Board of Directors specifies, a book of minutes of all directors' and shareholders' meetings. The minutes of each meeting shall state the time and place that it was held; whether it was regular or special; if a special meeting, how it was authorized; the notice given; the names of those present or represented at shareholders’ meetings; and the proceedings of the meetings. A similar minute book shall be kept for each committee of the Board.

The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation’s transfer agent, a share register, or duplicate share register, showing the shareholders’ names and addresses, the number and classes of shares held by each, the number and date of each certificate issued for these shares, and the number and date of cancellation of each certificate surrendered for cancellation.

The Secretary shall give, or cause to be given, notice of all directors’ and shareholders’ meeting, required to be given under these By-Laws or by law, shall keep the corporate seal in safe custody, and shall have any other powers and perform any other duties that are prescribed by the Board of Directors or these By-Laws.

The Secretary shall be deemed not to be an executive officer of the corporation and the Secretary shall be excluded from participation, other than in the capacity of director if the Secretary is also a director, in major policymaking functions of the corporation.

Section 40. Chief Financial Officer. The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the corporation's properties and business transactions, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director.

The Chief Financial Officer shall deposit all money and other valuables in the name and to the credit of the corporation with the depositories designated by the Board of Directors. The Chief Financial Officer shall disburse the corporation’s funds as ordered by the Board of Directors; shall render to the President and directors, whenever they request it, an account of all his transactions as Chief Financial Officer and of the corporation’s financial condition; and shall have any other powers and perform any other duties that are prescribed by the Board of Directors or By-Laws.

If required by the Board of Directors, the Chief Financial Officer shall give the corporation a bond in the amount and with the surety or sureties specified by the Board for faithful performance of the duties of that person’s office and for restoration to the corporation of all its books, papers, vouchers, money, and other property of every kind in that person’s possession or under that person’s control on that person’s death, resignation, retirement, or removal from office.

ARTICLE V

General Corporate Matters

Section 41. Record Date and Closing of Stockbooks. The Board of Directors may fix a time in the future as a record date for determining shareholders entitled to notice of and to vote at any shareholders’ meeting; to receive any dividend, distribution, or allotment of rights; or to exercise rights in respect of any other lawful action, including change, conversion, or exchange of shares. The record date shall not, however, be more than 60 nor less than 10 days prior to the date of such meeting nor more than 60 days prior to any other action. If a record date is fixed for a particular meeting or event, only shareholders of record on that date are entitled to notice and to vote and to receive the dividend, distribution, or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date.

A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board fixes a new record date for the adjourned meeting, but the Board shall fix a new record date if the meeting is adjourned for more than 45 days.

Section 42. Corporate Records and Inspection by Shareholders and Directors. Books and records of account and minutes of the proceedings of the shareholders, Board, and committees of the Board shall be kept available at the principal office for inspection by the shareholders to the extent required by Section 1601 of the California Corporations Code. A record of the shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each, shall be kept available for inspection at the principal office or at the office of the corporation’s transfer agent or registrar.

A shareholder or shareholders holding at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation shall have an absolute right to do either or both of the following: (1) inspect and copy the record of shareholders’ names and addresses and shareholdings during usual business hours upon five business days’ prior written demand upon the corporation, or (2) obtain from the transfer agent for the corporation, upon five business days prior written demand and upon the tender of its usual charges for such a list (the amount of which charges shall be stated to the shareholder by the transfer agent upon request), a list of the shareholders’ names and addresses, who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which it has been compiled or as of a date specified by the shareholder subsequent to the date of demand. The record of shareholders shall also be open to inspection and copying by any shareholder or holder of a voting trust certificate at any time during usual business hours upon written demand on the corporation, for a purpose reasonably related to such holder’s interests as a shareholder or holder of a voting trust certificate. Inspection and copying may be made in person or by agent or attorney.

Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation and its subsidiary corporations, domestic or foreign. Such inspection by a director may be made in person or by agent or attorney and includes the right to copy and make extracts.

Section 43. Checks, Drafts, Evidences of Indebtedness. All checks, drafts, or other orders for payment of money, notes and all mortgages, or other evidences of indebtedness, issued in the name of or payable to the corporation, and all assignments and endorsements of the foregoing, shall be signed or endorsed by the person or persons and in the manner specified by the Board of Directors.

Section 44. Corporate Contracts and Instruments: How Executed. Except as otherwise provided in the By-Laws, officers, agents, or employees must be authorized by the Board of Directors to enter into any contract or execute any instrument in the corporation's name and on its behalf. This authority may be general or confined to specific instances.

Section 45. Stock Certificates. One or more certificates for shares of the corporation's capital stock shall be issued to each shareholder for any of such shareholder's shares that are fully paid. The corporate seal or its facsimile may be fixed on certificates. All certificates shall be signed by the Chairman of the Board, President, or a Vice President and the Secretary, Treasurer, or an Assistant Secretary. Any or all of the signatures on the certificate may be facsimile signatures.

Section 46. Lost Certificates. Ho new share certificate that replaces an old one shall be issued unless the old one is surrendered and canceled at the same time; provided, however, that if any share certificate is lost, stolen, mutilated, or destroyed, the Board of Directors may authorize issuance of a new certificate replacing the old one on any terms and conditions, including a reasonable arrangement for indemnification of the corporation, that the Board may specify.

Section 47. Reports to Shareholders. The requirement for the annual report to shareholders referred to in Section 1501(a) of the California Corporations Code is hereby expressly waived so long as there are less than 100 holders of record of the corporation's shares. The Board of Directors shall cause to be sent to the shareholders such annual or other periodic reports as they consider appropriate or as otherwise required by law. In the event the corporation has 100 or more holders of its shares, an annual report complying with Section 1501(a) and, when applicable, Section 1501(b) of the California Corporations Code, shall be sent to the shareholders not later than 120 days after the close of the fiscal year and at least 15 days prior to the annual meeting of shareholders to be held during the next fiscal year.

If no annual report for the last fiscal year has been sent to shareholders, the corporation shall, upon the written request of any shareholder made more than 120 days after the close of such fiscal year, deliver or mail to the person making the request within 30 days thereafter the financial statements referred to in Section 1501(a) for such year.

A shareholder or shareholders holding at least five percent (54) of the outstanding shares of any class of a corporation may make a written request to the corporation for an income statement of the corporation for the three-month, six-month, or nine-month period of the current fiscal year ended more than 30 days prior to the date of the request and a balance sheet of the corporation as of the end of such period and, in addition, if no annual report for the last fiscal year has been sent to shareholders, the statements referred to in Section 1501(a) of the California Corporations Code for the last fiscal year. The statement shall be delivered or mailed to the person making the request within 30 days thereafter. A copy of the statements shall be kept on file in the principal office of the corporation for 12 months and they shall be exhibited at all reasonable times to any shareholder demanding an examination of them or a copy shall be mailed to such shareholder. The income statements and balance sheets referred to shall be accompanied by the report thereon, if any, of any independent accountants engaged by the corporation or the certificate of an authorized officer of the corporation that such financial statements were prepared without audit from the books and records of the corporation.

Section 48. Indemnification of Corporate Agents. The corporation shall have power to indemnify each of its agents to the fullest extent permissible by the California General Corporation Law. Without limiting the generality of the foregoing sentence, the corporation:

(a) is authorized to provide indemnification of agents in excess of that expressly permitted by section 317 of the California General Corporation Law for those agents of the corporation for breach of duty to the corporation and its shareholders, provided, however, that the corporation is not authorized to provide indemnification of any agent for any acts or omissions or transactions from which a director may not be relieved of liability as set forth in the exception to section 204(a)(10) of the California General Corporation Law or as to circumstances in which indemnity is expressly prohibited by section 317 of the California General Corporation law; and

(b) shall have power to purchase and maintain insurance on behalf of any agent of the corporation against any liability asserted against or incurred by the agent in such capacity or arising out of the agent’s status as such, whether or not the corporation would have the power to indemnify the agent against such liability under the provisions of section 317 of the California General Corporation Law, and shall have power to advance the expenses reasonably expected to be incurred by such agent in defending any such proceeding upon receipt of the undertaking required by subdivision (f) of such section. The term “agent” used in this section 48 shall have the same meaning as such term in section 317 of the California General Corporation Law.

ARTICLE VI

Amendments

Section 49. Amendments by Shareholders. New By-Laws may be adopted or these By-Laws may be amended or repealed by the affirmative vote or written consent of a majority of the outstanding shares entitled to vote.

Section 50. Amendments By Directors. Subject to the right of shareholders under the preceding Section 49 of these By-Laws, By-Laws other than a By-Law fixing or changing the authorized number of directors may be adopted, amended, or repealed by the Board of Directors. However, if the Articles of Incorporation, or a By-Law adopted by the shareholders, provide for an indefinite number of directors within specified limits, the directors may adopt or amend a By-Law or resolution fixing the exact number of directors within those limits.

ARTICLE VII

Committees of the Board of Directors

Section 51. Committees of the Board of Directors. The Board of Directors shall, by resolution adopted by a majority of the authorized number of directors, designate the following standing committees:

(1) An Audit Committee which shall consist of at least three members of the Board of Directors, none of whom shall be active officers of the corporation. The duties of this committee shall be to make suitable examination every 12 months of the affairs of the corporation. The result of such examination shall be reported, in writing, to the Board of Directors stating whether the corporation is in a sound and solvent condition, whether adequate internal audit controls and procedures are being maintained, and recommending to the Board such changes in the manner of doing business, etc. as shall be deemed advisable. The Audit Committee, upon its own recommendation and with the approval of the Board of Directors, may employ a qualified firm of Certified Public Accountants to make a suitable examination and audit of the corporation. If such a procedure is followed, the one annual examination and audit of such firm of accountants and the presentation of its report to the Board of Directors will be deemed sufficient to comply with the requirements of this section of these By-Laws.

The Board of Directors may, by resolution adopted by a majority of the authorized number of directors, also designate one or more additional standing committees including, but not limited to, a Loan Committee, an Investment Committee and/or an Executive Committee consisting of two or more directors who shall be appointed by, and hold office at, the pleasure of the Board of Directors. The Board of Directors may, except as hereinafter limited, and to extent permissible under applicable law, delegate to such committees any of the powers and authorities of the Board of Directors.

The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors.

The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. Any such committee to the extent provided in the resolution of the Board of Directors shall have all the authority of the Board, except with respect to:

(1) The approval of any action for which shareholder approval is also required.

(2) The filling of vacancies on the Board or in any committee.

(3) The fixing of compensation of the directors for serving on the Board or on any committee.

(4) The amendment or repeal of By-Laws or the adoption of new By-Laws.

(5) The amendment or repeal of any resolution of the Board which by its express terms is not so amendable or repealable.

(6) A distribution to the shareholders of the corporation as defined in Section 166 of the California Corporations Code, except at a rate or in a periodic amount or within a price range determined by the Board.

(7) The appointment of other committees of the Board or the members thereof.

The Board of Directors shall designate a chairman for each committee who shall have the sole power to call any committee meeting other than a meeting set by the Board. Except as otherwise established by the Board of Directors, Article III of these By-Laws shall apply to committees of the Board and action by such committees, mutatis mutandis.

Amendment to Article III, Section 16 as of October 31, 2004

Article III, Section 16 of the Central Coast Bancorp By-Laws shall be amended as follows:

The second sentence of Section 16 is amended to read: “The exact number of directors within said range shall be fixed by an amendment of this Section 16 of these By-Laws adopted by the Board of Directors; and unless and until so amended, the exact number of directors is hereby fixed at ten (10).”

Amendment to Article III, Section 16 as of September 27, 2004

Article III, Section 16 of the Central Coast Bancorp By-Laws shall be amended as follows:

The second sentence of Section 16 is amended to read: “The exact number of directors within said range shall be fixed by an amendment of this Section 16 of these By-Laws adopted by the Board of Directors; and unless and until so amended, the exact number of directors is hereby fixed at ten (11).”

Amendment to Article III, Section 16 as of January 26, 2004

Article III, Section 16 of the Central Coast Bancorp By-Laws shall be amended as follows:

The second sentence of Section 16 is amended to read: “The exact number of directors within said range shall be fixed by an amendment of this Section 16 of these By-Laws adopted by the Board of Directors; and unless and until so amended, the exact number of directors is hereby fixed at ten (10).”

Amendment to Article II, Section 11 as of June 11, 2001

Section 11 of Article II of the Central Coast Bancorp By-Laws shall be amended in its entirety to read as follows:

Section 11. Voting Rights; No Cumulative Voting. Only persons in whose names shares entitled to vote stand on the stock records of the corporation at the close of business on the record date fixed by the Board of Directors as provided in Section 41 of these By-Laws for the determination of shareholders of record shall be entitled to notice of and to vote at a meeting of shareholders. If no record date is fixed, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business or the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; the record date for determining corporate action in writing without a meeting, when no prior action by the Board of Directors has been taken, shall be the day on which the first written consent is given; and the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the 60^th day prior to the date of such other action, whichever is later.

No holder of any class of stock of the corporation shall be entitled to cumulate votes in connection with any election of directors of the corporation.

In any election of directors, the candidates receiving the highest number of votes of the shares entitled to be voted for them are elected.

Voting may be by voice or ballot, provided that any election of directors must be by ballot upon the demand of any shareholder made at the meeting and before the voting begins.

Amendment to Article III, Section 17 as of June 11, 2001

Section 17 of Article III of the Central Coast Bancorp By-Laws shall be amended in its entirety to read as follows:

Section 17. Election and Term of Office. The directors shall be elected annually by the shareholders at the annual meeting of the shareholders; provided, that if for any reason, the annual meeting or an adjournment thereof is not held or the directors are not elected thereat, then the directors may be elected at any special meeting of the shareholders called and held for that purpose. The term of office of the directors shall, except as provided in Section 18, begin immediately after their election and shall continue until their respective successors are elected and qualified. In the event that the authorized number of directors shall be fixed at nine (9) or more, the board of directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist of one-third of the directors or as close an approximation as possible. The initial term of office of the directors of Class I shall expire at the annual meeting to be held during fiscal year 2002, the initial term of office of the directors of Class II shall expire at the annual meeting to be held during fiscal year 2003 and the initial term of office of the directors of Class III shall expire at the annual meeting to be held during fiscal year 2004. At each annual meeting, commencing with the annual meeting to be held during fiscal year 2002, each of the successors to the directors of the class whose term shall have expired at such annual meeting shall be elected for a term running until the third annual meeting next succeeding his or her election and until his or her successor shall have been duly elected and qualified. In the event that the authorized number of directors shall be fixed with at least six (6) but less than nine (9), the board of directors shall be divided into two classes, designated Class I and Class II. Each class shall consist of one-half of the directors or as close an approximation as possible. At each annual meeting, each of the successors to the directors of the class whose term shall have expired at such annual meeting shall be elected for a term running until the second annual meeting next succeeding his or her election and until his or her successor shall have been duly elected and qualified. Notwithstanding the rule that the classes shall be as nearly equal in number of directors as possible, in the event of any change in the authorized number of directors, each director then continuing to serve as such shall nevertheless continue as a director of the class of which he or she is a member until the expiration of his or her current term, or his or her prior death, resignation or removal. At such annual election, the directors chosen to succeed those whose terms then expire shall be of the same class as the directors they succeed, unless, by reason of any intervening changes in the authorized number of directors, the board of directors shall designate one or more directorships whose term then expires as directorships of another class in order more nearly to achieve equality of number of directors among the classes.

This Section 17 may be amended or repealed only by approval of the board of directors and the outstanding shares (as defined in Section 152 of the California General Corporation Law) voting as a single class, notwithstanding Section 903 of the California General Corporation Law.

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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, 2004

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 and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

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

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

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

5. The registrant’s other certifying officer 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 :

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

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

Date: November 2, 2004	/s/ NICK VENTIMIGLIA
	Nick Ventimiglia, Chief Executive Officer

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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, 2004

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 and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

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

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

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

5. The registrant’s other certifying officer 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 :

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

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

Date: November 2, 2004	/s/ ROBERT M. STANBERRY
	Robert M. Stanberry, Chief Financial Officer

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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, 2004

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

1. The Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

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

Dated:	November 2, 2004	/s/ NICK VENTIMIGLIA
		Nick Ventimiglia
		Chief Executive Officer
Dated:	November 2, 2004	/s/ ROBERT M. STANBERRY
		Robert M. Stanberry
		Senior Vice President and
		Chief Financial Officer

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.