Central Coast Bancorp Reports 12% Increase in Third Quarter Earnings per Share

Central Coast Bancorp (NASDAQ: CCBN), the holding company for Community Bank of Central California, today announced third quarter diluted earnings per share of $0.28, a 12% increase over the $0.25 earned in the third quarter of 2003. Net income increased to $3,263,000 as compared to $2,950,000 reported in the year earlier period. The annualized return on average equity (ROAE) and the 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 increased to $9,715,000 from $8,803,000 for the nine months ended September 30, 2003. Diluted earnings per share increased to $0.85 from $0.76, for the comparative periods. 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 decrease in loans due to a nonperforming commercial and retail redevelopment project transaction discussed below. 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 $16,049,000 (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%).

"With the continued growth of our loan portfolio, we are pleased with the overall quality of the portfolio as we ended the quarter with the ratio of nonperforming loans consisting of 90 day past due and nonaccrual loans compared to total loans of 0.15%. This compares favorably to the most recent peer average of 0.69%," stated Nick Ventimiglia, Chairman, and CEO. "We continue to expand the coverage of our franchise with the opening of the Santa Cruz branch in July and the upcoming opening of the Soledad branch on October 25th. Our year-to-date earnings of $9,715,000 are 10.3% ahead of last year. If the current quarter earnings trend continues for the rest of the year, we anticipate that the Company could achieve its 21st consecutive year of increased earnings."

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 $287,000 and $273,000 in taxable equivalent interest income on tax-free investments for the three-month periods ending September 30, 2004 and 2003. Net interest income for the third quarter of 2004 was $11,414,000, which was an increase of $1,483,000 (14.9%) over the third quarter of 2003. Interest income for the third quarter of 2004 was $14,267,000, an increase of $1,491,000 (11.7%) from the third quarter of 2003. Average earning assets in the third quarter of 2004 increased $98,102,000 (10.9%) over the prior year period. The average rate received on earning assets increased to 5.70% in the third quarter of 2004 from 5.64% in the third quarter of 2003.

Interest expense for the third quarter of 2004 increased slightly to $2,853,000 from $2,845,000 in the prior year period. 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. Most of this decrease was due to the year-over-year repricing of time certificates of deposit. Average balances of interest-bearing liabilities in the third quarter of 2004 increased by $56,656,000 (8.8%) over the prior year period. The lower rates nearly offset the effect of the higher volume of interest bearing liabilities.

The net interest margin for the third quarter of 2004 was 4.56% as compared to 4.52% for the second quarter of 2004 and 4.39% in the third quarter of 2003. Based on the mid-quarter timing of the two most recent interest rate increases by the Federal Reserve Open Market Committee, we expect some continuing improvement in the net interest margin going forward.

The Company provided $885,000 for loan losses in the third quarter of 2004 as compared to $590,000 in the second quarter of 2004 and $630,000 in the third quarter of 2003. Nonperforming and restructured loans were $2,031,000 at September 30, 2004 as compared to $10,570,000 at June 30, 2004 and $11,161,000 at September 30, 2003. Approximately $9.0 million of the nonperforming loans at June 30, 2004 and September 30, 2003 pertain 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. The Company is continuing its legal appeal process against the City of King. 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. Additional disclosures on Form 8-K were filed with the SEC on March 22, 2004, June 14, 2004 and August 12, 2004. The ratio of the allowance for loan losses to nonperforming loans was 728% at September 30, 2004, 159% at December 31, 2003 and 146% at September 30, 2003. The large change in the ratio resulted from the significant decrease in nonperforming loans in the third quarter of 2004 due to the aforementioned charge-off and foreclosure of the redevelopment project loans. 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 as mentioned above. The Company did not have any OREO properties at December 31, 2003. The Company had OREO of $2,761,000 at September 30, 2003, which consisted of one property acquired through foreclosure in the second quarter of 2003 that was subsequently sold.