Central Coast Bancorp Announces Record Quarterly Earnings

Market Wire, July, 2004

Central Coast Bancorp (NASDAQ: CCBN), the holding company for Community Bank of Central California, today announced record quarterly net income of $3,260,000 for the second quarter of 2004. Net income increased 13.0% over the $2,884,000 reported for the second quarter of 2003. Diluted earnings per share for the second quarter of 2004 increased 16.0% to $0.29 from $0.25 in the prior year period. The annualized return on average equity (ROAE) and the return on average assets (ROAA) for the second quarter of 2004 were 14.3% and 1.27% as compared to 14.0% and 1.26% for the same period in 2003.

Net income for the six months ended June 30, 2004 increased 10.2% to $6,452,000 from $5,853,000 for six months ended June 30, 2003. Diluted earnings per share increased to $0.57 from $0.51, for the comparative periods. For the first six months of 2004 the annualized ROAE was 14.2% and the ROAA was 1.27% as compared to 14.5% and 1.30% 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.

Growth in the Company's balance sheet has been modest in the first six months of 2004. At June 30, 2004, the Company's assets totaled $1,049,485,000, an increase of $28,263,000 (2.8%) from March 31, 2004 and an increase of $11,645,000 (1.1%) from year-end 2003. At June 30, 2004, loans had grown to $799,852,000, an increase of $25,327,000 (3.3%) from March 31, 2004 and an increase of $17,111,000 (2.2%) from year-end 2003. At June 30, 2004, deposits had grown to $947,718,000, an increase of $30,132,000 (3.3%) from March 31, 2004 and an increase of $9,608,000 (1.0%) from year-end 2003. On a year-over-year basis, the Company's focus on internal growth has generated an increase in assets of $98,664,000 (10.4%); an increase in loans of $67,927,000 (9.3%); and an increase in deposits of $93,432,000 (10.9%).

"The last several years of declining and then historically low interest rates coupled with a slow down in economic activity presented many challenges for community bankers. We are pleased that throughout that time we have been able to continue to grow our banking franchise and carry on our record of increasing earnings," stated Nick Ventimiglia, Chairman, and CEO. "With the Federal Reserve Board's action to raise the Fed Funds rate on June 30 and the concurrent change in the prime rate, we anticipate a near term improvement in the Company's net interest margin.The interest rates on a significant amount of our loans adjust within a very short time frame after a prime rate change as compared to a longer time frame for rates on the deposit liabilities to adjust. We continue to expand our banking footprint and are enthusiastically looking forward to opening our new branch in the City of Santa Cruz on the 26th of this month. We also anticipate opening a new branch in Soledad around the first of October."

Financial Summary:

Interest income, net interest income, net interest margin and the efficiency ratio are discussed below on a fully taxable equivalent basis. These items have been adjusted to give effect to $281,000 and $274,000 in taxable equivalent interest income on tax-free investments for the three-month periods ending June 30, 2004 and 2003. Net interest income for the second quarter of 2004 was $10,833,000, which was an increase of $1,443,000 (15.4%) over the second quarter of 2003. Interest income for the second quarter of 2004 was $13,531,000, an increase of $1,229,000 (10.0%) from the second quarter of 2003. Average earning assets in the second quarter of 2004 increased $117,497,000 (13.9%) over the prior year period. This increase in the volume of earning assets added $1,572,000 to interest income. The interest due to the higher volume was offset in part by the effect of lower yields received on earning assets. The average yield on earning assets in the second quarter of 2004 was 5.64% as compared to 5.82% in the year earlier period. The 18 basis point reduction in the average yield received resulted in a decrease in interest income of $343,000.

Interest expense continued to decline as the effect of lower rates offset increased interest expense due to higher deposit volume. Interest expense decreased $214,000 (7.3%) in the second quarter of 2004, as the average rate paid on interest-bearing liabilities declined 33 basis points to 1.59% compared to 1.92% in the year earlier period. This decrease in rates reduced interest expense by $534,000. Average balances of interest-bearing liabilities in the second quarter of 2004 increased by $72,583,000 (11.9%) over the prior year period. The higher volume added $320,000 to interest expense.

The net interest margin for the second quarter of 2004 was 4.52% up from 4.42% for the first quarter of 2004 and 4.45% in the second quarter of 2003. The favorable increase in the margin from the first quarter of 2004 resulted from a 6 basis point increase in average yield on earning assets coupled with a 5 basis point decrease on the rates paid on the interest bearing liabilities. The 25 basis point increase in the prime rate in late June is expected to favorably impact the net interest margin in the third quarter. However, the increase in the general market interest rates is causing upward pressure on time deposit rates, which may offset some of the favorable impact of the higher prime rate.