<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998.
------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from ________________ to ________________
Commission File No. 0-25418 .
CENTRAL COAST BANCORP
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 77-0367061
------------------------------- ------------------------
(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization)
301 Main Street, Salinas, California 93901
---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(408) 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 such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
No par value Common Stock - 4,808,945 shares outstanding at April 6, 1998.
-----------------
Page 1 of 27
The Index to the Exhibits is located at Page 24
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
CENTRAL COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Unauditied)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
March 31, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 43,024,000 $ 39,891,000
Federal funds sold 52,793,000 64,706,000
- -------------------------------------------------------------------------------------------------------------
Total cash and equivalents 95,817,000 104,597,000
Securities:
Available-for-sale 104,614,000 91,481,000
Held-to-maturity 26,284,000 39,048,000
(Market value: $26,367,000 at March 31, 1998
and $39,105,000 at December 31, 1997)
Loans held for sale 2,208,000 1,331,000
Loans:
Commercial 110,991,000 124,714,000
Real estate-construction 18,917,000 14,645,000
Real estate-other 113,037,000 107,354,000
Installment 8,022,000 9,349,000
- -------------------------------------------------------------------------------------------------------------
Total loans 250,967,000 256,062,000
Allowance for credit losses (4,201,000) (4,223,000)
Deferred loan fees, net (518,000) (568,000)
- -------------------------------------------------------------------------------------------------------------
Net Loans 246,248,000 251,271,000
- -------------------------------------------------------------------------------------------------------------
Premises and equipment, net 2,129,000 2,001,000
Accrued interest receivable and other assets 7,894,000 7,945,000
- -------------------------------------------------------------------------------------------------------------
Total assets $ 485,194,000 $ 497,674,000
=============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand, noninterest bearing $ 104,254,000 $ 126,818,000
Demand, interest bearing 82,591,000 89,107,000
Savings 95,878,000 99,748,000
Time 153,594,000 134,628,000
- -------------------------------------------------------------------------------------------------------------
Total Deposits 436,317,000 450,301,000
Accrued interest payable and other liabilities 3,728,000 3,649,000
- -------------------------------------------------------------------------------------------------------------
Total liabilities 440,045,000 453,950,000
- -------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
SHAREHOLDERS' EQUITY:
Preferred stock - no par value; authorized
1,000,000 shares; no shares issued
Common stock - no par value; authorized 30,000,000 shares;
issued and outstanding: 4,808,945 shares at March 31, 1998
and 4,368,469 shares at December 31, 1997 41,070,000 31,644,000
Retained earnings 4,093,000 11,979,000
Accumulated other comprehensive income - Net unrealized
gain (loss) on available-for-sale securities, net of tax (14,000) 101,000
- -------------------------------------------------------------------------------------------------------------
Shareholders' equity 45,149,000 43,724,000
- -------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 485,194,000 $ 497,674,000
=============================================================================================================
</TABLE>
See notes to Consolidated Condensed Financial Statements
2
<PAGE> 3
CENTRAL COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Three Months Ended March 31, 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Loans (including fees) $6,267,000 $5,932,000
Investment securities 1,780,000 1,110,000
Other 945,000 590,000
- ----------------------------------------------------------------------------------------------------
Total interest income 8,992,000 7,632,000
- ----------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 3,334,000 2,610,000
Other 1,000 2,000
- ----------------------------------------------------------------------------------------------------
Total interest expense 3,335,000 2,612,000
- ----------------------------------------------------------------------------------------------------
NET INTEREST INCOME 5,657,000 5,020,000
PROVISION FOR CREDIT LOSSES 17,000 --
- ----------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 5,640,000 5,020,000
- ----------------------------------------------------------------------------------------------------
OTHER INCOME 394,000 386,000
- ----------------------------------------------------------------------------------------------------
OTHER EXPENSES
Salaries and benefits 2,155,000 1,833,000
Occupancy 219,000 204,000
Furniture and equipment 195,000 178,000
Other 883,000 734,000
- ----------------------------------------------------------------------------------------------------
Total other expenses 3,452,000 2,949,000
- ----------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 2,582,000 2,457,000
PROVISION FOR INCOME TAXES 1,068,000 1,006,000
====================================================================================================
NET INCOME $1,514,000 $1,451,000
====================================================================================================
BASIC EARNINGS PER SHARE $ 0.31 $ 0.31
DILUTED EARNINGS PER SHARE $ 0.29 $ 0.29
====================================================================================================
</TABLE>
See Notes to Consolidated Condensed Financial Statements
3
<PAGE> 4
CENTRAL COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Three months ended March 31, 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income $ 1,514,000 $ 1,451,000
Reconciliation of net income to net cash provided
by operating activities:
Provision for credit losses 17,000 --
Net gain on sale of fixed assets (1,000) (11,000)
Depreciation 139,000 115,000
Amortization and accretion (100,000) (15,000)
(Increase) decrease in accrued interest receivable and
other assets 53,000 (524,000)
Increase in accrued interest payable and other liabilities 367,000 3,040,000
Decrease in deferred loan fees (50,000) (34,000)
- ----------------------------------------------------------------------------------------------------
Net cash provided by operations 1,939,000 4,022,000
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in interest-bearing
deposits in financial institutions -- 600,000
Purchases of investment securities (62,166,000) (32,350,000)
Proceeds from maturities
of investment securities 61,780,000 3,566,000
Net change in loans held for sale (877,000) (165,000)
Net decrease in loans 5,056,000 2,660,000
Proceeds from sale of other real estate owned -- 133,000
Proceeds from sale of fixed assets 1,000 11,000
Capital expenditures (267,000) (884,000)
- ----------------------------------------------------------------------------------------------------
Net cash provided (used) in investing activities 3,527,000 (26,429,000)
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposit accounts (13,984,000) 46,193,000
Net increase (decrease) in short-term borrowings (288,000) 2,800,000
Proceeds from sale of stock 39,000 60,000
Fractional shares repurchased (13,000) (8,000)
- ----------------------------------------------------------------------------------------------------
Net cash provided(used) by financing activities (14,246,000) 49,045,000
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents (8,780,000) 26,638,000
Cash and equivalents, beginning of period 104,597,000 60,657,000
- ----------------------------------------------------------------------------------------------------
Cash and equivalents, end of period $ 95,817,000 $ 87,295,000
====================================================================================================
OTHER CASH FLOW INFORMATION:
Interest paid $ 3,346,000 $ 2,213,000
Income taxes paid -- --
====================================================================================================
</TABLE>
See Notes to Consolidated Condensed Financial Statements
4
<PAGE> 5
CENTRAL COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1998 (Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of Management, the unaudited consolidated condensed financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the Company's consolidated financial
position at March 31, 1998 and December 31, 1997, the results of operations for
the three month periods ended March 31, 1998 and 1997, and cash flows for the
three month periods ended March 31, 1998 and 1997.
Certain information and footnote disclosures normally presented in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These interim consolidated condensed financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's 1997 Annual Report to Shareholders. The
results of operations for the three month periods ended March 31, 1998 and 1997
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 credit losses and the carrying value of
other real estate owned. Management uses information provided by an independent
loan review service in connection with the determination of the allowance for
loan losses.
2. INVESTMENT SECURITIES
The Company is required under Financial Accounting Standards Board (FASB)
Statement No. 115, "Accounting for Investments in Certain Debt and Equity
Securities", to classify debt and equity securities into one of three
categories: held-to-maturity, trading or available-for-sale. Investment
securities classified as held-to-maturity are measured at amortized cost based
on the Company's positive intent and ability to hold such securities to
maturity. Trading securities are bought and held principally for the purpose of
selling them in the near term and are carried at market value with a
corresponding recognition of unrecognized holding gain or loss in the results of
operations. The remaining investment securities are classified as
available-for-sale and are measured at market value with a corresponding
recognition of the unrealized holding gain or loss (net of tax effect) as a
separate component of shareholders' equity until realized. Any gains and losses
on sales of investments are computed on a specific identification basis.
5
<PAGE> 6
The carrying value and approximate market value of securities at March 31, 1998
and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Market
In thousands Cost Gain Losses Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MARCH 31, 1998
AVAILABLE FOR SALE SECURITIES:
U.S. Treasury and agency services
Maturing within 1 year $ 6,991 $ 19 $ -- $ 7,010
Maturing after 1 year but within 5 years 82,587 195 116 82,666
Maturing after 10 years 15,056 -- 122 14,934
Other 4 -- -- 4
- ------------------------------------------------------------------------------------------------------
Total available for sale $104,638 $214 $238 $104,614
- ------------------------------------------------------------------------------------------------------
HELD TO MATURITY SECURITIES:
U.S. Treasury and agency services
Maturing within 1 year $ 16,997 $ 12 $ 3 $ 17,006
Maturing after 1 year but within 5 years 6,400 57 -- 6,457
Maturing after 5 years but within 10 years 41 2 -- 43
Maturing after 10 years 795 15 -- 810
State & Political Subdivision
Maturing after 5 years but within 10 years 2,051 -- -- 2,051
- ------------------------------------------------------------------------------------------------------
Total held to maturity $ 26,284 $ 86 $ 3 $ 26,367
- ------------------------------------------------------------------------------------------------------
Total investment securities $130,922 $300 $241 $130,981
======================================================================================================
DECEMBER 31, 1997
AVAILABLE FOR SALE SECURITIES:
U.S. Treasury and agency services
Maturing within 1 year $ 32,861 $ -- $ 5 $ 32,856
Maturing after 1 year but within 5 years 48,410 184 7 48,587
Bankers' Acceptances
Maturing within 1 year 10,034 -- -- 10,034
Other 4 -- -- 4
- ------------------------------------------------------------------------------------------------------
Total available for sale $ 91,309 $184 $ 12 $ 91,481
- ------------------------------------------------------------------------------------------------------
HELD TO MATURITY SECURITIES:
U.S. Treasury and
agency services
Maturing within 1 year $ 27,484 $ 7 $ 11 $ 27,480
Maturing after 1 year but within 5 years 8,495 66 2 8,559
Maturing after 5 years but within 10 years 20 -- -- 20
Maturing after 10 years 857 6 9 854
State & Political Subdivision
Maturing after 5 years but within 10 years 2,192 -- -- 2,192
- ------------------------------------------------------------------------------------------------------
Total held to maturity $ 39,048 $ 79 $ 22 $ 39,105
- -----------------------------------------------------------------------------------------------------
Total investment securities $130,357 $263 $ 34 $130,586
======================================================================================================
</TABLE>
6
<PAGE> 7
3. LOANS AND ALLOWANCE FOR CREDIT LOSSES
The activity in the allowance for credit losses is summarized as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Three months ended March 31,
In thousands 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Beginning balance $4,223 $4,372
Provision charged to expense 17 --
Loans charged off (69) (88)
Recoveries 30 29
- -------------------------------------------------------------------------------
Ending balance $4,201 $4,313
===============================================================================
</TABLE>
The allowance for credit losses reflects management's judgement as to the level
considered adequate to absorb potential losses inherent in the loan portfolio.
The allowance is increased by provisions charged to expense and reduced by loan
charge-offs net of recoveries. Management determines an appropriate provision
based upon information currently available to analyze credit loss potential,
including (1) the loan portfolio balance in the period; (2) a comprehensive
grading and review of new and existing loans outstanding; (3) actual previous
charge-offs; and, (4) changes in economic conditions.
In determining the provision for estimated losses related to specific major
loans, management evaluates its allowance on an individual loan basis, including
an analysis of the credit worthiness, cash flows and financial status of the
borrower, and the condition and the estimated value of the collateral. Specific
valuation allowance for secured loans are determined by the excess of recorded
investment in the loan over the fair market value or net realizable value where
appropriate, of the collateral. In determining overall general valuation
allowances to be maintained and the loan loss allowance ratio, management
evaluates many factors including prevailing and forecasted economic conditions,
regular reviews of the quality of loans, industry experience, historical loss
experience, composition and geographic concentrations of the loan portfolio, the
borrowers' ability to repay and repayment performance and estimated collateral
values.
Management believes that the allowance for credit losses at March 31, 1998 is
prudent and warranted, based on information currently available. However, no
prediction of the ultimate level of loans charged off in future years can be
made with any certainty.
Nonperforming assets are comprised of loans delinquent 90 days or more with
respect to interest or principal, loans for which the accrual of interest has
been discontinued, and other real estate which has been acquired through
foreclosure and is awaiting disposition.
Unless well secured and in the process of collection, loans are placed on
nonaccrual status when a loan becomes 90 days past due as to interest or
principal, when the payment of interest or principal in accordance with the
contractual terms of the loan becomes uncertain or when a portion of the
principal balance has been charged off. When a loan is placed on nonaccrual
status, the accrued and unpaid interest receivable is reversed and the loan is
7
<PAGE> 8
accounted for on the cash or cost recovery method thereafter, until qualifying
for return to accrual status. Generally, a loan may be returned to accrual
status when all delinquent interest and principal become current in accordance
with the terms of the loan agreement and remaining principal is considered
collectible or when the loan is both well secured and in process of collection.
Real estate and other assets acquired in satisfaction of indebtedness are
recorded at the lower of estimated fair market value net of anticipated selling
costs or the recorded loan amount, and any difference between this and the
amount is treated as a loan loss. Costs of maintaining other real estate owned
and gains or losses on the subsequent sale are reflected in current earnings.
Nonperforming loans and other real estate owned (foreclosed properties) are
summarized below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
March 31, December 31,
In thousands 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Past due 90 days or more and still accruing
Real estate $ 5 $ 6
Commercial 173 73
Installment and other -- --
- -------------------------------------------------------------------------------
178 79
- -------------------------------------------------------------------------------
Nonaccrual:
Real estate 548 628
Commercial 94 188
Installment and other 10 --
- -------------------------------------------------------------------------------
652 816
- -------------------------------------------------------------------------------
Total nonperforming loans $830 $895
===============================================================================
Other real estate owned $105 $105
===============================================================================
</TABLE>
4. 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 $96,749,000 and standby letters of credit of
$5,176,000 at March 31, 1998. However, all such commitments will not necessarily
culminate in actual extensions of credit by the Company during 1998.
Approximately $19,398,000 of loan commitments outstanding at March 31, 1998
relate to real estate construction loans and are expected to fund within the
next twelve months. The remainder relate primarily to revolving lines of credit
or other commercial loans, and many of these commitments are expected to expire
without being drawn upon. Therefore, the total commitments do not necessarily
represent future cash requirements. The Banks evaluate each potential borrower
and the necessary collateral on an individual basis. Collateral varies, but may
include real property, bank deposits, debt or equity securities or business
assets.
8
<PAGE> 9
Stand-by letters of credit are commitments written by the Banks to guarantee the
performance of a customer to a third party. These guarantees are issued
primarily relating to purchases of inventory by the Banks' commercial customers
and are typically short-term in nature. Credit risk is similar to that involved
in extending loan commitments to customers and accordingly, the Banks use
evaluation and collateral requirements similar to those for loan commitments.
Virtually all such commitments are collateralized.
5. EARNINGS PER SHARE COMPUTATION
Basic earnings per share is computed by dividing net income by the weighted
average common shares outstanding for the period (4,806,000 and 4,718,000 for
the three month periods ended March 31, 1998 and 1997, respectively). Diluted
earnings per share reflects the potential dilution that could occur if
outstanding stock options and stock purchase warrants were exercised. Diluted
earnings per share is computed by dividing net income by the weighted average
common shares outstanding for the period plus the dilutive effect of options and
warrants (427,000 and 331,000 for the three month periods ended March 31, 1998
and 1997, respectively).
6. RECENTLY ISSUED ACCOUNTING STANDARD
Effective January 1, 1998, Central Coast Bancorp adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". This Statement
requires that all items recognized under accounting standards as components of
comprehensive earnings be reported in an annual financial statement that is
displayed with the same prominence as other annual financial statements. This
Statement also requires that an entity classify items of other comprehensive
earnings by their nature in an annual financial statement. For example, other
comprehensive earnings may include foreign currency translation adjustments,
minimum pension liability adjustments, and unrealized gains and losses on
marketable secuirties classified as available-for-sale. Annual financial
statements for prior periods will be reclassified, as required. Central Coast
Bancorp's total comprehensive earnings were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Three Months Ended March 31,
In thousands 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Net Earnings $1,514 $1,451
Other comprehensive loss - Net unrealized loss on
available-for-sale securities (115) (52)
- ----------------------------------------------------------------------------------------
Total comprehensive earnings $1,399 $1,399
========================================================================================
</TABLE>
9
<PAGE> 10
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain matters discussed or incorporated by reference in this Quarterly Report
on Form 10-Q are forward-looking statements that are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected. Such risks and uncertainties include, but are not limited to, matters
described in Item 2 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Therefore, the information set forth
therein should be carefully considered when evaluating the business prospects of
the Company and the Banks.
Business Organization
Central Coast Bancorp (the "Company") is a California corporation organized in
1994, and is the parent company for Bank of Salinas and Cypress Bank (the
"Banks"), state-chartered banks, headquartered in Salinas and Seaside,
California, respectively. Other than its investment in the Banks, the Company
currently conducts no other significant business activities, although it is
authorized to engage in a variety of activities which are deemed closely related
to the business of banking upon prior approval of the Board of Governors of the
Federal Reserve System (the "FRB"), the Company's principal regulator.
The Banks offer a full range of commercial banking services, offering a diverse
range of traditional banking products and services to individuals, merchants,
small and medium-sized businesses, professionals and agribusiness enterprises
located in the Salinas Valley and Monterey Peninsula.
Summary of Financial Results
At March 31, 1998, total assets of Central Coast Bancorp were $485,194,000, a
decrease of $12,480,000 or 2.5% from December 31, 1997 total assets of
$497,674,000. Average total assets for the quarters ended March 31, 1998 and
1997 were $484,958,000 and $390,871,000, respectively.
On February 21, 1997, the Bank of Salinas purchased certain assets and assumed
certain liabilities of the Gonzales and Castroville offices of Wells Fargo Bank
(including total deposit liabilities of approximately $34 million). As a result
of the transaction the Bank assumed deposit liabilities, received cash and
acquired tangible assets. In addition, the transaction resulted in intangible
assets, representing the excess of the liabilities assumed over the fair value
of the tangible assets acquired.
Net loans at March 31, 1998 were $246,248,000 compared to $251,271,000 at
December 31, 1997, a decrease of $5,023,000 or 2.0%. The decrease in loan
balances is primarily the result of decreases in commercial loan categories
partially offset by increases in term real
10
<PAGE> 11
estate loan categories. Commercial loans decreased $13,723,000 or 11.0% to
$110,991,000 at March 31, 1998 from $124,714,000 at December 31, 1997. The
decrease in commercial loan balances is primarily due to seasonal fluctuation
related to the agribusiness sector of the local economy.
Partially offsetting this decrease, was an increase in term real estate, real
estate construction and land development loans. Real estate mortgage loan
balances of $113,037,000 at March 31, 1998 represented an increase of $5,683,000
or 5.3% over $107,354,000 at December 31, 1997. Real estate construction and
land development loans of $18,917,000 at March 31, 1998 represented an increase
of $4,272,000 or 29.2% from $14,645,000 at December 31, 1997.
The Company designated securities with an estimated market value of $104,614,000
as available-for-sale at March 31, 1998. The amortized cost of securities
designated as available-for-sale on that date was $104,638,000. The
available-for-sale portfolio at March 31, 1998 consisted primarily of U.S.
Treasury bills and notes and securities issued by U.S. government-sponsored
agencies (FNMA, FHLMC and FHLB) with maturities within five years and U.S.
government-sponsored agencies mortgage backed securities with maturities greater
than ten years. During the three months ended March 31, 1998, the Company made
securities purchases of $62,166,000 to replace $49,014,000 of maturities and to
more fully employ excess liquidity.
Securities designated as held-to-maturity at March 31, 1998 were carried at an
amortized cost of $26,284,000. The estimated market value of the
held-to-maturity portfolio at March 31, 1998 was $26,367,000. The
held-to-maturity portfolio at March 31, 1998 consists primarily of U.S. Treasury
bills and notes and securities issued by U.S. government-sponsored agencies with
maturities within five years. Investment securities classified as
held-to-maturity are measured at amortized cost based on the Company's intent
and ability to hold such securities to maturity. During the three months ended
March 31, 1998, $12,766,000 held-to-maturity securities matured and were not
replaced.
Other earning assets are comprised of Federal funds sold and time deposits at
other financial institutions. Federal funds sold balances of $52,793,000 at
March 31, 1998 represent a decrease of $11,913,000 over $64,706,000 at December
31, 1997. The decrease in federal funds sold primarily reflects investment of
funds into higher yielding available-for-sale securities. The Company held no
time deposits in other financial institutions at March 31, 1998 and at December
31, 1997.
Total deposits were $436,317,000 at March 31, 1998 which represented a decrease
of $13,984,000 or 3.1% over balances of $450,301,000 at December 31, 1997. The
decrease in total deposits includes decreases in all deposit categories, except
time deposits. Noninterest-bearing demand deposits were $104,254,000 at March
31, 1998 compared to $126,818,000 at December 31, 1997, a decrease of
$22,564,000 or 17.8%. The decrease in noninterest bearing demand balances is
partially due to seasonal fluctuation. Interest bearing demand balances
decreased $6,516,000 or 7.3% to $82,591,000 at March 31, 1998 from $89,107,000
at December 31, 1997. Savings balances of $95,878,000 represent a decrease of
$3,870,000 or 3.9% from $99,748,000 at December 31, 1997. Partially offsetting
these
11
<PAGE> 12
decreases, time deposits increased $18,966,000 or 14.1% to $153,594,000 at March
31, 1998 from $134,628,000 at December 31, 1997.
12
<PAGE> 13
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Net income for the three months ended March 31, 1998 was $1,514,000 compared to
$1,451,000 ($.31 basic and $.29 diluted earnings per share) for the comparable
period in 1997. The following discussion highlights changes in certain items in
the consolidated condensed statements of income.
Net interest income
Net interest income, the difference between interest earned on loans and
investments and interest paid on deposits and other borrowings, is the principal
component of the Banks' earnings. The components of net interest income are as
follows:
<TABLE>
<CAPTION>
(Unaudited)
Three months ended March 31,
In thousands (except percentages) 1998 1997
- --------------------------------------------------------------------------------------------
Avg Avg Avg Avg
Balance Interest Yield Balance Interest Yield
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning Assets
Loans(1)(2) $245,425 $6,267 10.4% $231,523 $5,932 10.4%
Investment Securities 121,504 1,780 5.9% 78,696 1,110 5.7%
Other 70,211 945 5.5% 45,667 590 5.2%
-------- ------ -------- ------
Total Earning Assets 437,140 8,992 8.3% 355,886 7,632 8.7%
------ ------
Cash and due from banks 37,718 26,983
Other assets 10,100 8,002
-------- --------
$484,958 $390,871
======== ========
LIABILITES & SHAREHOLDERS'
EQUITY:
Interest bearing
liabilities:
Demand deposits $ 86,596 $ 422 2.0% $ 86,789 $ 437 2.0%
Savings 99,572 942 3.8% 92,579 926 4.1%
Time deposits 142,025 1,970 5.6% 92,332 1,247 5.5%
Other borrowings 61 1 6.6% 923 2 0.9%
-------- ------ -------- ------
Total interest bearing
liabilities 328,254 3,335 4.1% 272,623 2,612 3.9%
------ ------
Demand deposits 108,580 80,170
Other Liabilities 3,308 1,464
-------- --------
Total Liabilities 440,142 354,257
Shareholders' Equity 44,816 36,614
-------- --------
$484,958 $390,871
======== ========
Net interest income and
margin (net yield)(3) $5,657 5.2% $5,020 5.7%
====== ==== ====== ====
</TABLE>
- ----------------------------------------
(1) Loan interest income includes fee income of $244,000 and $276,000 for the
three month periods ended March 31, 1998 and 1997, respectively.
(2) Includes the average allowance for loan losses of $4,207,000 and $4,354,000
and average deferred loan fees of $548,000 and $649,000 for the three
months ended March 31, 1998 and 1997, respectively.
(3) Net interest margin is computed by dividing net interest income by the
total average earning assets.
13
<PAGE> 14
Net interest income for the three months ended March 31, 1998 was $5,657,000
representing an improvement of $637,000 or 12.7% over $5,020,000 for the
comparable period in 1997. The increase in net interest income is comprised of
an increase of $1,360,000 or 17.8% in interest income partially offset by an
increase in interest expense of $723,000 or 27.7%.
As a percentage of average earning assets, the net interest margin for the first
quarter of 1998 was 5.2% and compares to 5.7% in the same period one year
earlier. On average, the loan to deposit ratio of the Company decreased to 56.2%
in the first quarter of 1998 from 65.8% in the same period last year.
Interest income recognized in the three months ended March 31, 1998 was
$8,992,000 representing an increase of $1,360,000 or 17.8% over $7,632,000 for
the same period of 1997. The increase in interest income was primarily due to an
increase in the volume of average earning assets. Earning assets averaged
$437,140,000 in the three months ended March 31, 1998 compared to $355,886,000
in the same period in 1997, representing an increase of $81,254,000 or 22.8%.
The increase in average earning assets included an increase in average loans of
$13,902,000 or 6% and increases in investment securities and fed funds sold of
$42,808,000 and $24,544,000 or 54.4% and 53.7%, respectively.
The average yield on interest earning assets decreased to 8.3% in the three
months ended March 31, 1998 compared to 8.7% for the same period of 1997. The
decrease in average yield is attributed to a decrease in the proportion of loans
to total earning assets to 56.1% in the first quarter of 1998 from 65.1% in the
same period in 1997. Loan fees recognized during the quarter ended March 31,
1998 were $244,000 compared to $276,000 one year earlier.
Partially offsetting the increase in interest income was an increase in the cost
of liabilities funding the growth in average earning assets. Interest expense
for the three months ended March 31, 1998 was $3,335,000 and represented an
increase of $723,000 or 27.7% over $2,612,000 for the comparable period in 1997.
During the three months ended March 31, 1998, the average rate paid by the Banks
on interest-bearing liabilities was 4.1% compared to 3.9% for the same period in
1997. The increase in interest expense for the first quarter of 1998 reflects an
increase in the proportion of time deposits to total interest bearing
liabilities to 43.3% in the first quarter of 1998 from 33.9% in the same period
in 1997. Average interest bearing liabilities were $328,254,000 in the three
months ended March 31, 1998 compared to $272,623,000 for the same period in
1997, an increase of $55,631,000 or 20.4%. Partially offsetting the impact on
net interest income resulting from the increase in interest bearing liabilities
was an increase in average noninterest bearing demand deposits. Average
noninterest bearing demand deposits of $108,580,000 for the quarter ended March
31, 1998 represented an increase of $28,410,000 or 35.4% over $80,170,000 for
the same period one year earlier.
Credit Risk and Provision for Credit Losses
The Company 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 Company contracts with an
outside loan review consultant to periodically grade new loans and to review the
existing loan portfolio. Management believes
14
<PAGE> 15
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 credit 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, credit quality may be influenced by underlying trends in the
economic and business cycles. The Company's business is concentrated in Monterey
County, California whose economy is highly dependent on the agricultural
industry. As a result, the Company lends money to individuals and companies
dependent upon the agricultural industry. In addition, the Company has
significant extensions of credit and commitments to extend credit which are
secured by real estate, totaling approximately $159,685,000. The ultimate
recovery of these loans is generally dependent on the successful operation, sale
or refinancing of the real estate. The Company monitors the effects of current
and expected market conditions and other factors on the collectibility of real
estate loans. When, in management's judgement, these loans are impaired,
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.
In extending credit and commitments to borrowers, the Company 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 Company's requirement for collateral and/or
guarantees is determined on a case-by-case basis in connection with management's
evaluation of the credit worthiness 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 Company
secures its collateral by perfecting its interest in business assets, obtaining
deeds of trust, or outright possession among other means. Credit losses from
lending transactions related to real estate and agriculture compare favorably
with the Company's credit losses on its loan portfolio as a whole.
The Company recorded a $17,000 provision for loan losses through a charge to
earnings in the quarter ended March 31, 1998 and no provision was recorded
during that period in 1997. The small increase in the provision reflects the
strengthening economy, continued strong credit performance and an increase in
the rate of recovery of loan balances previously charged off. Loan balances of
$69,000, which were previously identified and fully reserved for, were
charged-off in the first quarter of 1998 compared to $88,000 charged-off in the
same period one year earlier. Recoveries of loan balances previously charged-off
were $30,000 for the quarter ended March 31, 1998 compared to $29,000 for the
same period in 1997. See Note 3 of the consolidated condensed financial
statements for further discussion of nonperforming loans and the allowance for
credit losses.
At March 31, 1998 the allowance for credit losses was $4,201,000 or 1.67% of
total loans, compared to $4,223,000 or 1.65% at December 31, 1997.
15
<PAGE> 16
Management believes that the allowance for loan losses is maintained at an
adequate level for known and anticipated future risks inherent in the loan
portfolio. However, the Company's loan portfolio, particularly the real estate
related segments, may be adversely affected if California's economic conditions
and the Monterey County real estate market were to weaken. As a result, the
level of nonperforming loans, the provision for loan losses and the level of the
allowance for loan losses may increase.
Noninterest Income and Expense
Noninterest income consists primarily of service charges on deposit accounts and
fees for miscellaneous services. Total other income was $394,000 for the three
months ended March 31, 1998 as compared to $386,000 for the same period of 1997.
Noninterest income for the first quarter of 1998 represented an increase of 2.1%
over the first quarter of 1997. The increase in noninterest income is primarily
attributed to an increase in service charges on deposit accounts of $70,000
offsetting nonrecurring revenues in the prior year.
Noninterest expense increased $503,000 or 17.1% to $3,452,000 in the quarter
ended March 31, 1998 from $2,949,000 in the same period one year earlier. The
increase in noninterest expenses is primarily due to increases in salaries and
benefits, occupancy and equipment and supplies expense. As a percentage of
average earning assets, other expenses, on an annualized basis, decreased to
3.2% in the three months ended March 31, 1998 from 3.3% in the comparable period
of 1997.
Salary and benefits expense was $2,155,000 in the three months ended March 31,
1998 compared to $1,833,000 in the same period one year earlier, an increase of
$322,000 or 17.6%. The increase in salary and benefits expense is primarily due
to increased headcount related to the branch acquisition by Bank of Salinas
during the first quarter of 1997.
Occupancy expense for the quarter ended March 31, 1998 was $219,000 and
represented an increase of $15,000 or 7.4% over $204,000 for the same period
last year. The increase in occupancy expense relates to the branch acquisition
by Bank of Salinas during the first quarter of 1997.
Furniture and equipment expense for the first quarter of 1998 increased $17,000
or 9.6% to $195,000 from $178,000 for the same period last year. The increase in
furniture and equipment expense is the result of a program for upgrading the
Company's internal systems in addition to the impact of facilities expansion by
the Banks.
Other expenses increased $149,000 or 20.3% to $883,000 in the three months ended
March 31, 1998 from $734,000 for the comparable period one year earlier. The
increase in other expenses is comprised of increases in promotional expenses,
customer expenses, operating expenses and amortization of intangibles. Partially
offsetting these increases were decreases in loan expenses and stationery and
supplies.
16
<PAGE> 17
LIQUIDITY AND INTEREST RATE SENSITIVITY
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
Banks assess the likelihood of projected funding requirements by reviewing
historical funding patterns, current and forecasted economic conditions and
individual client funding needs. Commitments to fund loans and outstanding
standby letters of credit at March 31, 1998, were approximately $96,749,000 and
$5,176,000, respectively. Such loans relate primarily to revolving lines of
credit and other commercial loans, and to real estate construction loans.
The Company's sources of liquidity consist of its deposits with other banks,
overnight funds sold to correspondent banks, unpledged short-term, marketable
investments and loans held for sale. On March 31, 1998, consolidated liquid
assets totaled $143 million or 29.5% of total assets as compared to $164.2
million or 33.0% of total consolidated assets on December 31, 1997. In addition
to liquid assets, the Banks maintain lines of credit with correspondent banks
for up to $20,000,000 available on a short-term basis. Informal agreements are
also in place with various other banks to purchase participations in loans, if
necessary. The Company serves primarily a business and professional customer
base and, as such, its deposit base is susceptible to economic fluctuations.
Accordingly, management strives to maintain a balanced position of liquid assets
to volatile and cyclical deposits.
Liquidity is also affected by portfolio maturities and the effect of interest
rate fluctuations on the marketability of both assets and liabilities. In
addition, it has been the Company's policy to restrict average maturities in the
investment portfolio to not more than three years. The short-term repricing
characteristics of the loan and investment portfolios, and loan agreements which
generally require monthly interest payments, provide the Banks with additional
secondary sources of liquidity. Another key liquidity ratio is the ratio of
gross loans to total deposits, which was 57.5% at March 31, 1998 and 56.9% at
December 31, 1997.
Interest rate sensitivity
Interest rate sensitivity is a measure of the exposure to fluctuations in the
Banks' future earnings caused by fluctuations in interest rates. Such
fluctuations result from the mismatch in repricing characteristics of assets and
liabilities at a specific point in time. This mismatch, or interest rate
sensitivity gap, represents the potential mismatch in the change in the rate of
accrual of interest revenue and interest expense from a change in market
interest rates. Mismatches in interest rate repricing among assets and
liabilities arise primarily from the interaction of various customer businesses
(i.e., types of loans versus the types of deposits maintained) and from
management's discretionary investment and funds gathering activities. The
Company attempts to manage its exposure to interest rate sensitivity, but due to
its size and direct competition from the major banks, it must offer products
which are competitive in the market place, even if less than optimum with
respect to its interest rate exposure.
17
<PAGE> 18
The Company's natural position is asset-sensitive (based upon the significant
amount of variable rate loans and the repricing characteristics of its deposit
accounts). This natural position provides a hedge against rising interest rates,
but has a detrimental effect during times of interest rate decreases.
The following table sets forth the distribution of repricing opportunities,
based on contractual terms, of the Banks' earning assets and interest-bearing
liabilities at March 31, 1998, the interest rate sensitivity gap (i.e. interest
rate sensitive assets less interest rate sensitive liabilities), the cumulative
interest rate sensitivity gap, the interest rate sensitivity gap ratio (i.e.
interest rate sensitive assets divided by interest rate sensitive liabilities)
and the cumulative interest rate sensitivity gap ratio.
<TABLE>
<CAPTION>
March 31, 1998
- ------------------------------------------------------------------------------------------------------
In thousands
- ------------------------------------------------------------------------------------------------------
Over three
Assets and Liabilities Next day months and Over one
which Mature or and within within and within Over
Reprice Immediately three months one year five years five years Total
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold $ 52,793 $ -- $ -- $ -- $ -- $ 52,793
Investment securities -- 7,996 16,010 89,067 17,825 130,898
Loans, excluding
nonaccrual loans
and overdrafts 10,564 170,838 8,908 55,200 5,651 251,161
- ------------------------------------------------------------------------------------------------------
Total $ 63,357 $178,834 $ 24,918 $144,267 $ 23,476 $434,852
======================================================================================================
Interest bearing
liabilities:
Interest bearing demand $ 82,591 $ -- $ -- $ -- $ -- $ 82,591
Savings 95,878 -- -- -- -- 95,878
Time certificates 43 38,044 90,723 24,730 54 153,594
Other Borrowings -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------
Total $ 178,512 $ 38,044 $ 90,723 $ 24,730 $ 54 $332,063
======================================================================================================
Interest rate
sensitivity gap $(115,155) $140,790 $(65,805) $119,537 $ 23,422
Cumulative interest
rate sensitivity gap $(115,155) $ 25,635 $(40,170) $ 79,367 $102,789
Ratios:
Interest rate
sensitivity gap 0.35 4.70 0.27 5.83 434.74
Cumulative interest
rate sensitivity gap 0.35 1.12 0.87 1.24 1.31
- ------------------------------------------------------------------------------------------------------
</TABLE>
It is management's objective to maintain stability in the net interest margin in
times of fluctuating interest rates by maintaining an appropriate mix of
interest sensitive assets and liabilities. The Banks strive to achieve this goal
through the composition and maturities of the investment portfolio and by
adjusting pricing of interest-bearing liabilities, however, as noted
18
<PAGE> 19
above, the ability to manage interest rate exposure may be constrained by
competitive pressures.
CAPITAL RESOURCES
The Company's total shareholders' equity was $45,149,000 at March 31, 1998
compared to $43,724,000 at December 31, 1997.
The Company and the Banks are subject to regulations issued by the Board of
Governors and the FDIC which require maintenance of a certain level of capital.
These regulations impose two capital standards: a risk-based capital standard
and a leverage capital standard.
Under the Board of Governors' risk-based capital guidelines, assets reported on
an institution's balance sheet and certain off-balance sheet items are assigned
to risk categories, each of which has an assigned risk weight. Capital ratios
are calculated by dividing the institution's qualifying capital by its
period-end risk-weighted assets. The guidelines establish two categories of
qualifying capital: Tier 1 capital (defined to include common shareholders'
equity and noncumulative perpetual preferred stock) and Tier 2 capital defined
to include limited life (and in the case of banks, cumulative) preferred stock,
mandatory convertible securities, subordinated debt and a limited amount of
reserves for loan and lease losses. Each institution is required to maintain a
risk-based capital ratio (including Tier 1 and Tier 2 capital) of 8%, of which
at least half must be Tier 1 capital.
Under the Board of Governors' leverage capital standard an institution is
required to maintain a minimum ratio of Tier 1 capital to the sum of its
quarterly average total assets and quarterly average reserve for loan losses,
less intangibles not included in Tier 1 capital. Period-end assets may be used
in place of quarterly average total assets on a case-by-case basis. A minimum
leverage ratio of 3% is required for institutions which have been determined to
be in the highest of five categories used by regulators to rate financial
institutions and which are not experiencing or anticipating significant growth.
All other organizations are required to maintain leverage ratios of at least 100
to 200 basis points above the 3% minimum.
The following table shows the Company's actual capital amounts and ratios at
March 31, 1998 and December 31, 1997 as well as the minimum capital ratios for
capital adequacy under the regulatory framework:
<TABLE>
<CAPTION>
For Capital
Actual Adequacy Purposes:
--------------------- ---------------------
Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AS OF MARCH 31, 1998
Total Capital (to Risk Weighted Assets): 47,079,000 15.9% 23,727,000 8.0%
Tier 1 Capital (to Risk Weighted Assets): 43,629,000 14.7% 11,863,000 4.0%
Tier 1 Capital (to Average Assets): 43,629,000 9.0% 19,397,000 4.0%
AS OF DECEMBER 31, 1997:
Total Capital (to Risk Weighted Assets): 45,782,000 15.2% 24,046,000 8.0%
Tier 1 Capital (to Risk Weighted Assets): 41,968,000 14.0% 12,023,000 4.0%
Tier 1 Capital (to Average Assets): 41,968,000 9.6% 17,570,000 4.0%
- --------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
substantially revised banking regulations and established a framework for
determination of capital adequacy of financial institutions. Under the FDICIA,
financial institutions are placed into one of five capital adequacy categories
as follows: (1) "well capitalized" consisting of institutions with a total
risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of
6% or greater and a leverage ratio of 5% or greater, and the institution is not
subject to an order, written agreement, capital directive or prompt corrective
action directive; (2) "adequately capitalized" consisting of institutions with a
total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital
ratio of 4% or greater and a leverage ratio of 4% or greater, and the
institution does not meet the definition of a "well capitalized" institution;
(3) "undercapitalized" consisting of institutions with a total risk-based
capital ratio less than 8%, a Tier 1 risk-based capital ratio of less than 4%,
or a leverage ratio of less than 4%; (4) "significantly undercapitalized"
consisting of institutions with a total risk-based capital ratio of less than
6%, a Tier 1 risk-based capital ratio of less than 3%, or a leverage ratio of
less than 3%; and, (5) "critically undercapitalized" consisting of an
institution with a ratio of tangible equity to total assets that is equal to or
less than 2%.
Financial institutions classified as undercapitalized or below are subject to
various limitations including, among other matters, certain supervisory actions
by bank regulatory authorities and restrictions related to (i) growth of assets,
(ii) payment of interest on subordinated indebtedness, (iii) payment of
dividends or other capital distributions, and (iv) payment of management fees to
a parent holding company. The FDICIA requires the bank regulatory authorities to
initiate corrective action regarding financial institutions which fail to meet
minimum capital requirements. Such action may, among other matters, require that
the financial institution augment capital and reduce total assets. Critically
undercapitalized financial institutions may also be subject to appointment of a
receiver or conservator unless the financial institution submits an adequate
capitalization plan.
INFLATION
The impact of inflation on a financial institution differs significantly from
that exerted on manufacturing, or other commercial concerns, primarily because
its assets and liabilities are largely monetary. In general, inflation primarily
affects the Company indirectly through its effect on market rates of interest,
and thus the ability of the Banks to attract loan customers. Inflation affects
the growth of total assets by increasing the level of loan demand, and
potentially adversely affects the Company's capital adequacy because loan growth
in inflationary periods can increase at rates higher than the rate that capital
grows through retention of earnings which the Company may generate in the
future. In addition to its effects on interest rates, inflation directly affects
the Company by increasing the Company's operating expenses.
20
<PAGE> 21
The effect of inflation was not material to the Company's results of operations
during the periods covered by this report.
OTHER MATTERS
As the year 2000 approaches, a critical issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. In brief, many existing application software products in the marketplace
were designed to only accommodate a two digit date position which represents the
year (e.g., "95""is stored on the system and represents the year 1995). As a
result, the year 1999 (i.e., "99") could be the maximum date value these systems
will be able to accurately process. This is not just a banking problem, as
corporations around the world and in all industries are similarly impacted.
Management is in the process of working with its software vendors to assure that
the Company is prepared for the year 2000. Also, the Company has put procedures
in place to inquire whether the system of key borrowers are year 2000 compliant.
At present, the Company does not have an estimate of the total cost of
evaluating and fixing any potential year 2000 problems.
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The reader is referred to pages 28 to 29 of the Annual Report on Form 10-K for
information on market risk. There have been no significant changes since
December 31, 1997.
21
<PAGE> 22
PART II - OTHER INFORMATION
Item 1. Legal proceedings.
None.
Item 2. Changes in securities.
None.
Item 3. Defaults upon senior securities.
None.
Item 4. Submission of matters to a vote of security holders.
None.
Item 5. Other information.
None.
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibits
(27.1) Financial Data Schedules
(b) Reports on Form 8-K - On April 29, 1998 the registrant
filed a Current Report on Form 8-K, reporting under Item 5
"Other Events" that Andrew Ausonio resigned his position
as director effective April 16, 1998
22
<PAGE> 23
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.
May 11, 1998 CENTRAL COAST BANCORP
By \s\ JAYME C. FIELDS
----------------------------------
Jayme C. Fields, Controller
(Principal Financial and
Accounting Officer)
23
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------ ----------- ----
<S> <C> <C>
27.1 Financial Data Schedule 25
</TABLE>
24
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ITEM 7 -
"FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" AND IS QUALIFIED IN ITS ENTIRELY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN THIS REPORT AND
INCORPORATED HEREIN BY REFERENCE.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 43,024
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 52,793
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 104,614
<INVESTMENTS-CARRYING> 26,284
<INVESTMENTS-MARKET> 26,367
<LOANS> 252,657
<ALLOWANCE> 4,201
<TOTAL-ASSETS> 485,194
<DEPOSITS> 436,317
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,728
<LONG-TERM> 0
0
0
<COMMON> 41,070
<OTHER-SE> 4,079
<TOTAL-LIABILITIES-AND-EQUITY> 485,194
<INTEREST-LOAN> 6,267
<INTEREST-INVEST> 1,780
<INTEREST-OTHER> 945
<INTEREST-TOTAL> 8,992
<INTEREST-DEPOSIT> 3,334
<INTEREST-EXPENSE> 3,335
<INTEREST-INCOME-NET> 5,657
<LOAN-LOSSES> 17
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,452
<INCOME-PRETAX> 2,582
<INCOME-PRE-EXTRAORDINARY> 2,582
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,514
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.29
<YIELD-ACTUAL> 5.2
<LOANS-NON> 652
<LOANS-PAST> 178
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,223
<CHARGE-OFFS> 69
<RECOVERIES> 30
<ALLOWANCE-CLOSE> 4,201
<ALLOWANCE-DOMESTIC> 4,201
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
