**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 
 **FORM
        10 - QSB**
 
 **QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(D)**
 **OF
        THE SECURITIES EXCHANGE ACT OF 1934**
 
 **For
        the quarterly period ended September 30, 2005**
 
 Commission
        File Number: 333-118859
 
 **PACIFIC
        COAST NATIONAL BANCORP**
 (Exact
        name of registrant as specified in its charter)
  **California**
              
              **61-1453556**(State
                  or other jurisdiction of
              
              (I.R.S.
                  Employerincorporation
                  or organization)
              
              Identification
                  No.)905
                  Calle Amanecer, Suite 100, San Clemente, California
                  92673(Address
                  of principal executive offices, including zip code)(949)
                  361- 4300(Registrant’s
                  telephone number, including area
                  code)
  Indicate
        by check mark whether the registrant: (i) 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 (ii) has been subject to such filing requirements
        for
        the past 90 days.
 Yes x
        No o
 
 Indicate
        by check mark whether the registrant is an accelerated filer (as defined
        in Rule
        12b-2 of the Exchange Act).
 
 Yes
o
        No x
 
 The
        number of shares outstanding of the issuer’s Common Stock as of November 7,
        2005, was 2,280,000 shares.
  
  **PACIFIC
        COAST NATIONAL BANCORP**
 
 INDEX
 
 PAGE
 Item
                  1 - Financial Statements (unaudited)Consolidated
                  Balance Sheet at September 30, 2005
              3Consolidated
                  Statements of Operations for the three and nine months endedSeptember
                  30, 2005
              4Consolidated
                  Statement of Cash Flows for the nine months ended September 30,
                  2005.
              5Condensed
                  Notes to Unaudited Consolidated Financial Statements
              6Item
                  2 - Management’s Discussion and Analysis of Financial Condition
                  andResults
                  of Operations
              7Item
                  3 - Controls and Procedures
              18PART
                  II - OTHER INFORMATIONItem
                  1 - Legal Proceedings
              18Item
                  2 - Changes in Securities and Use of Proceeds
              18Item
                  3 - Defaults upon Senior Securities
              18Item
                  4 - Submission of Matters to a Vote of Security Holders
              18Item
                  5 - Other Information
              18Item
                  6 - Exhibits and Reports on Form 8-K
              19Signatures
              20
 
  i
   **PART
        I -** **FINANCIAL
        INFORMATION**
 **ITEM
        1.** **Financial
        Statements**
 
 **PACIFIC
        COAST NATIONAL BANCORP**
 **CONSOLIDATED
        BALANCE SHEET (UNAUDITED)**
 **SEPTEMBER
        30, 2005**
 **(Dollars
        in Thousands)**
 **ASSETS**Cash
                    and Due from Banks
                
                $
                2,067Federal
                    Funds Sold
                
                
                13,225TOTAL
                    CASH AND CASH EQUIVALENTS
                
                
                15,292Investment
                    Securities Held To Maturity
                
                
                5,998Federal
                    Reserve and Federal Home Loan Bank Stock, at Cost
                
                
                585Loans,
                    Net
                
                
                4,908Premises
                    and Equipment, Net
                
                
                1,176Accrued
                    Interest and Other Assets
                
                
                141**TOTAL
                    ASSETS**
                
                $
                28,100**LIABILITIES
                    AND SHAREHOLDERS' EQUITY**DepositsNoninterest-Bearing
                    Demand
                
                $
                2,691Money
                    Market and NOW
                
                
                3,911Savings
                
                
                41Time
                    Deposits Under $100,000
                
                
                942Time
                    Deposits $100,000 and Over
                
                
                1,033TOTAL
                    DEPOSITS
                
                
                8,618Accrued
                    Interest and Other Liabilities
                
                
                41TOTAL
                    LIABILITIES
                
                
                8,659Shareholders'
                    Equity:Common
                    Stock, $0.01 par value; authorized 10,000,000 shares
                
                
                23issued
                    and outstanding 2,280,000 sharesSurplus
                
                
                23,272Accumulated
                    Deficit
                
                
                (
                    3,854
                )TOTAL
                    SHAREHOLDERS' EQUITY
                
                
                19,441**TOTAL
                    LIABILITIES AND SHAREHOLDERS' EQUITY**
                
                $
                28,100


See
        accompanying condensed notes to unaudited consolidated financial
        statements.
  3
  **PACIFIC
        COAST NATIONAL BANCORP**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS (UNAUDITED)**
 **(Dollars
        in Thousands, except per share amounts)**


Three
                  months ended
              
              Nine
                  months endedSeptember
                  30, 2005
              
              September
                  30, 2005**INTEREST
                  INCOME**Interest
                  and Fees on Loans
              
              $
              54
              
              $
              63Interest
                  on Investment Securities
              
              
              188
              
              
              268Other
                  Interest Income
              
              
              5
              
              
              5TOTAL
                  INTEREST INCOME
              
              
              247
              
              
              336**INTEREST
                  ON DEPOSITS**
              
              
              29
              
              
              32NET
                  INTEREST INCOME
              
              
              218
              
              
              304**PROVISION
                  FOR LOAN LOSSES**
              
              
              38
              
              
              43NET
                  INTEREST INCOME AFTERPROVISION
                  FOR LOAN LOSSES
              
              
              180
              
              
              261**NONINTEREST
                  INCOME**Service
                  Charges and Fees
              
              
              1
              
              
              1Other
                  Income
              
              
              2
              
              
              23
              
              
              3**NONINTEREST
                  EXPENSE**Salaries
                  and Employee Benefits
              
              
              442
              
              
              607Occupancy
              
              
              150
              
              
              176Furniture
                  and Equipment
              
              
              45
              
              
              67Data
                  Processing
              
              
              93
              
              
              143Promotional
              
              
              81
              
              
              111Legal
                  and Accounting
              
              
              7
              
              
              18Other
                  Expenses
              
              
              137
              
              
              183Pre-Opening
                  Expenses
              
              
              -
              
              
              1,217955
              
              
              2,522**NET
                  LOSS**
              
              
              (772
              )
              
              (2,258
              )**LOSS
                  PER SHARE - BASIC AND DILUTED**
              
              $
              (0.34
              )
              $
              (0.99
              )WEIGHTED
                  AVERAGE SHARES OUTSTANDINGBASIC
                  AND DILUTED
              
              
              2,280,000
              
              
              2,280,000


See
        accompanying condensed notes to unaudited consolidated financial
        statements.
  4
 
 **PACIFIC
        COAST NATIONAL BANCORP**
 **CONSOLIDATED
        STATEMENT OF CASH FLOWS (UNAUDITED)**
 (Dollars
        in Thousands)


Nine
                  Months EndedSeptember
                  30, 2005OPERATING
                  ACTIVITIESNet
                  Loss
              
              $
              (2,258
              )Adjustments
                  to Reconcile Net Loss toNet
                  Cash Provided by Operating Activities:Depreciation
                  and Amortization
              
              
              51Provision
                  for Loan Losses
              
              
              43Noncash
                  compensation expense for organizer warrants
              
              
              495Other
                  Items - Net
              
              
              (273
              )NET
                  CASH (USED) BY OPERATING ACTIVITIES
              
              
              (1,942
              )INVESTING
                  ACTIVITIESPurchases
                  of Federal Reserve Bank Stock
              
              
              (585
              )Purchases
                  of Investment Securities
              
              
              (5,998
              )Net
                  Change in Loans
              
              
              (4,951
              )Purchase
                  of Premises and Equipment
              
              
              (1,147
              )NET
                  CASH (USED) BY INVESTING ACTIVITIES
              
              
              (12,681
              )FINANCING
                  ACTIVITIESNet
                  Change in Deposits
              
              
              8,618Payments
                  on Notes Payable and Due To Organizers
              
              
              (1,560
              )Proceeds
                  from Sale of Common Stock
              
              
              22,800NET
                  CASH PROVIDED BY FINANCING ACTIVITIES
              
              
              29,858INCREASE
                  IN CASH AND CASH EQUIVALENTS
              
              
              15,235Cash
                  and Cash Equivalents at Beginning of Period
              
              
              57CASH
                  AND CASH EQUIVALENTS AT END OF PERIOD
              
              $
              15,292


See
        accompanying condensed notes to unaudited consolidated financial
        statements
  5
  **PACIFIC
        COAST NATIONAL BANCORP**
 **CONDENSED
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **Note
        1 - Basis of Presentation**
 
 The
        consolidated financial statements include the amounts of Pacific Coast National
        Bancorp (the “Company”) and its wholly-owned subsidiary, Pacific Coast National
        Bank (the “Bank”). All significant inter-company accounts have been eliminated
        on consolidation. The Bank opened for business on May 16, 2005. Prior to
        May 16,
        2005, the Company was a “Development-Stage Company” as defined by Statement on
        Financial Standards 7. The cumulative loss from operations through the Company’s
        development period (July 2, 2003 to May 16, 2005) was $2.3 million.
  The
        accounting principles followed by the Company and the methods of applying
        these
        principles conform with accounting principles generally accepted in the United
        States of America (GAAP) and with general practices within the banking industry.
        In preparing financial statements in conformity with GAAP, management is
        required to make estimates and assumptions that affect the reported amounts
        in
        the financial statements. Actual results could differ significantly from
        those
        estimates. Material estimates common to the banking industry that are
        particularly susceptible to significant change in the near term include,
        but are
        not limited to, the determination of the allowance for loan losses, the
        valuation of real estate acquired in connection with or in lieu of foreclosure
        on loans, and valuation allowances associated with deferred tax assets, the
        recognition of which are based on future taxable income.
  The
        consolidated interim financial statements included in this report are unaudited
        but reflect all adjustments which, in the opinion of management, are necessary
        for a fair presentation of the financial position and results of operations
        for
        the interim periods presented. All such adjustments are of a normal recurring
        nature. The results of operations for the period ended September 30, 2005
        are
        not necessarily indicative of the results of a full year’s operations. For
        further information, refer to the financial statements and footnotes included
        in
        the Company’s annual report on Form 10-KSB for the year ended December 31,
        2004.
 
 **Note
        2 - Loss Per Share**
  Loss
        per
        common share is based on the weighted average number of common shares
        outstanding during the period. The effects of potential common shares
        outstanding during the period would be included in diluted loss per
        share;
        however, the effect of potential shares would be antidilutive during all
        periods
        presented.
 
 **Note
        3 - Stock-Based Compensation**
  The
        Company accounts for stock-based employee compensation as prescribed by APB
        Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and has
        adopted Statement of Financial Accounting Standards 148, “Accounting for
        Stock-Based Compensation - Transition and Disclosure” (“SFAS 148”), that amends
        certain aspects of Financial Accounting Standards No. 123, “Accounting for
        Stock-Based Compensation” (“SFAS 123”). APB 24 provides that compensation
        expense relative to the Company’s employee stock options is measured based on
        the intrinsic value of the stock options granted. SFAS 123 and 148 require
        pro
        forma disclosures of net income (loss) and net income (loss) per share as
        if the
        fair value based method of accounting for stock-based awards had been applied
        for employee grants. They also require disclosure of option status on a more
        prominent and frequent basis. The Company accounts for stock options and
        warrants issued to non-employees based on the fair value method, but has
        not
        elected this treatment for grants to employees and board members. Under the
        fair
        value based method, compensation cost is recorded based on the value of the
        award at the grant date and is recognized over the service period.
  In
        December 2004, the FASB issued SFAS No. 123 (Revised), *Share-Based
        Payment* .
        This
        standard revises SFAS No. 123, APB Opinion No. 25 and related accounting
        interpretations, and eliminates the use of the intrinsic value method for
        employee stock-based compensation. SFAS No. 123 (R) requires compensation
        costs
        related to share-based payment transactions to be recognized in the financial
        statements over the period that an employee provides service in exchange
        for the
        award. Currently, the Company uses the intrinsic value method of APB Opinion
        No.
        25 to value share-based options granted to employees and board members. The
        new
        standard requires the expensing of all share-based compensation, including
        options, using the fair value-based method. The effective date of this standard
        for the Company will be January 1, 2006. Management is currently assessing
        the
        impact that this new standard will have on the Company’s financial
        statements.
  6
 As
        part
        of the Company’s initial stock offering, the Company’s outside Directors were
        awarded a total of 64,000 warrants in recognition of the expertise imparted,
        time expended and the substantial financial risks undertaken by the Directors.
        Since these warrants were not subject to shareholder approval, pro forma
        disclosure is presented below.
  The
        fair
        value of each warrant grant was estimated at the grant date using the
        Black-Scholes option-pricing model. The Black-Scholes option-pricing valuation
        model was developed for use in estimating the fair value of traded options
        and
        warrants that have no vesting restrictions and are fully transferable. In
        addition, option valuation models require the input of highly subjective
        assumptions, including the expected stock price volatility. Because the
        Company’s stock options and warrants have characteristics significantly
        different from those of traded options, and because changes in the subjective
        input assumptions can materially affect the fair value estimate, in management’s
        opinion, the existing models do not necessarily provide a reliable single
        measure of the fair value of its stock options and warrants.
  The
        following table illustrates the effect on net loss and earnings per share
        if the
        fair value based method had been applied to all outstanding and unvested
        director warrants:


Nine
                  Months EndedSeptember
                  30, 2005Net
                  loss, as reported
              
              $
              (2,258
              )Deduct:
                  fair value based Director warrants
              
              
              (211
              )Pro
                  forma net loss, on a fair value basis
              
              $
              (2,469
              )Loss
                  per share:As
                  reported
              
              $
              (0.99
              )Pro
                  forma
              
              $
              (1.08
              )


The
        Company has not presented any additional pro forma information related to
        employee option grants since its stock option plan is subject to shareholder
        approval.
 
 **ITEM
        2.** **Management’s
        Discussion and Analysis of Financial Condition and Results of
        Operations.**
 
 **MANAGEMENT’S
        DISCUSSION AND ANALYSIS**
 **OF
        FINANCIAL CONDITION AND RESULTS OF OPERATIONS**
 
 The
        following discussion and analysis presents our consolidated financial condition
        as of September 30, 2005 and results of operations for the three months and
        nine
        months ended September 30, 2005. The discussion should be read in conjunction
        with our financial statements and the notes related thereto which appear
        elsewhere in this Quarterly Report on Form 10-QSB.
 
 Statements
        contained in this report that are not purely historical are forward-looking
        statements within the meaning of Section 21E of the Securities Exchange Act
        of
        1934, as amended, including our expectations, intentions, beliefs, or strategies
        regarding the future. Any
        statements in this document about expectations, beliefs, plans, objectives,
        assumptions or future events or performance are not historical facts and
        are
        forward-looking statements. These statements are often, but not always, made
        through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “will continue,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and
“outlook,” and similar expressions. Accordingly, these statements involve
        estimates, assumptions and uncertainties, which could cause actual results
        to
        differ materially from those expressed in them. Any forward-looking statements
        are qualified in their entirety by reference to the factors discussed throughout
        this document. All
        forward-looking statements concerning economic conditions, rates of growth,
        rates of income or values as may be included in this document are based on
        information available to us on the dates noted, and we assume no obligation
        to
        update any such forward-looking statements. It is important to note that
        our
        actual results may differ materially from those in such forward-looking
        statements due to fluctuations in interest rates, inflation, government
        regulations, economic conditions, customer disintermediation and competitive
        product and pricing pressures in the geographic and business areas in which
        we
        conduct operations, including our plans, objectives, expectations and intentions
        and other factors discussed under the section entitled “Risk Factors,” in our
        Annual Report on Form 10-KSB for the year ended December 31, 2004, including
        the
        following:
 
 7
 ●
              we
                  have limited operating history upon which to base an estimate of
                  our
                  future financial performance;
 ●
              we
                  have incurred substantial start-up expenses associated with our
                  organization and our recent public offering and expect to sustain
                  losses
                  or achieve minimal profitability during our initial years of
                  operations;
 ●
              if
                  we are unable to implement our business plan and strategies, we
                  will be
                  hampered in our ability to develop business and serve or customers,
                  which,
                  in turn, could have an adverse effect on our financial
                  performance;
 ●
              if
                  we fail to retain our key employees, growth and profitability could
                  be
                  adversely affected;
 ●
              we
                  face substantial competition in our primary market
                  area;
 ●
              the
                  Bank’s current legally mandated lending limits are lower than those
                  of our
                  competitors, which may impair our ability to attract
                  borrowers;
 ●
              an
                  economic downturn, especially one affecting our primary service
                  area, may
                  have an adverse effect on our financial
                  performance;
 ●
              changes
                  in governmental economic and monetary policies, the Internal Revenue
                  Code
                  and banking and credit regulations, as well as other factors, will
                  affect
                  the demand for loans and the ability of the Bank to attract
                  deposits;
 ●
              changes
                  in the general level of interest rates and other economic factors
                  can
                  affect the Bank’s interest income by affecting the spread between
                  interest-earning assets and interest-bearing
                  liabilities;
 ●
              we
                  have no current intentions of paying cash
                  dividends;
 ●
              we
                  are subject to significant government regulation and legislation
                  that
                  increases the cost of doing business and inhibits our ability to
                  compete;
 ●
              we
                  may not be able to raise additional capital on terms favorable
                  to
                  us.
  These
        factors and the risk factors referred to in our Annual Report on Form 10-KSB
        for
        the year ended December 31, 2004 could cause actual results or outcomes to
        differ materially from those expressed in any forward-looking statements
        made by
        us, and you should not place undue reliance on any such forward-looking
        statements. Any forward-looking statement speaks only as of the date on which
        it
        is made and we do not undertake any obligation to update any forward-looking
        statement or statements to reflect events or circumstances after the date
        on
        which such statement is made or to reflect the occurrence of unanticipated
        events. New factors emerge from time to time, and it is not possible for
        us to
        predict which will arise. In addition, we cannot assess the impact of each
        factor on our business or the extent to which any factor, or combination
        of
        factors, may cause actual results to differ materially from those contained
        in
        any forward-looking statements.
 
 **Critical
        Accounting Policies**
  Our
        accounting policies are integral to understanding the results reported. In
        preparing its consolidated financial statements, the Company is required
        to make
        judgments and estimates that may have a significant impact upon its financial
        results. Certain accounting policies require the Company to make significant
        estimates and assumptions, which have a material impact on the carrying value
        of
        certain assets and liabilities, and are considered critical accounting policies.
        The estimates and assumptions used are based on the historical experiences
        and
        other factors, which are believed to be reasonable under the circumstances.
        Actual results could differ significantly from these estimates and assumptions,
        which could have a material impact on the carrying value of assets and
        liabilities at the balance sheet dates and results of operations for the
        reporting periods. For example, the Company’s determination of the adequacy of
        its allowance for loan losses is particularly susceptible to management’s
        judgment and estimates. The following is a brief description of our current
        accounting policies involving significant management valuation
        judgments.
 
 8
 
 *Allowance
        for Loan Losses*
  The
        allowance for loan losses represents management’s best estimate of losses
        inherent in the existing loan portfolio. The allowance for loan losses is
        increased by the provision for loan losses charged to expense and reduced
        by
        loans charged off, net of recoveries. The allowance for loan losses is
        determined based on management’s assessment of several factors: reviews and
        evaluation of individual loans, changes in the nature and volume of the loan
        portfolio, current economic conditions and the related impact on specific
        borrowers and industry groups, historical loan loss experiences and the levels
        of classified and nonperforming loans.
 
 Loans
        are
        considered impaired if, based on current information and events, it is probable
        that we will be unable to collect the scheduled payments of principal or
        interest when due according to the contractual terms of the loan agreement.
        The
        measurement of impaired loans is generally based on the present value of
        expected future cash flows discounted at the historical effective interest
        rate
        stipulated in the loan agreement, except that all collateral-dependent loans
        are
        measured for impairment based on the fair value of the collateral. In measuring
        the fair value of the collateral, management uses assumptions and methodologies
        consistent with those that would be utilized by unrelated third
        parties.
 
 Changes
        in the financial condition of individual borrowers, in economic conditions,
        in
        historical loss experience and in the condition of the various markets in
        which
        collateral may be sold may all affect the required level of the allowance
        for
        loan losses and the associated provision for loan losses.
 
 *Deferred
        Tax Assets*
 
 Management
        estimates the need for a valuation allowance on deferred tax assets by comparing
        the total recorded to the amount available for carry back and the amount
        that
        will be utilized by estimated future earnings.
 
 **Executive
        Overview**
  ***Introduction***
  Pacific
        Coast National Bancorp is a bank holding company headquartered in San Clemente,
        California, offering a broad array of banking services through our wholly
        owned
        banking subsidiary, Pacific Coast National Bank. The Bank’s principal markets
        include the coastal regions of Southern Orange County and Northern San Diego
        County. As of September 30, 2005, the Company had, on a consolidated basis,
        total assets of $28.1 million, net loans of $4.9 million, total deposits
        of $8.6
        million, and shareholders’ equity of $19.4 million. The Bank currently operates
        through a main office located at 905 Calle Amanecer, San Clemente, California
        and a branch office at 499 North El Camino Real, Encinitas, California.
 
 The
        Company was incorporated under the laws of the State of California on July
        2,
        2003, to organize and serve as the holding company for the Bank. In 2005,
        an
        initial public offering of our common stock was completed, issuing 2,280,000
        shares at a price of $10.00 per share. The net proceeds received from the
        offering were approximately $20.5 million. The Bank opened for business on
        May
        16, 2005.
 
 The
        following discussion focuses on the Company’s financial condition as of
        September 30, 2005 and results of operations for the three months and nine
        months ended September 30, 2005. The Company’s principal operations for the
        three months and the nine months ended September 30, 2005 consisted of the
        operations of Pacific Coast National Bank which opened for business May 16,
        2005. The three months ended September 30, 2005, was the first full quarter
        of
        operations for the bank. Therefore, operations during that period increased
        substantially due to growth in deposits and loans.
 
 **Results
        of Operations for the Three Months Ended September 30,
        2005**
  ***Net
        Interest Income and Net Interest Margin***
  Net
        interest income is the difference between interest income, principally from
        loan, lease and investment securities portfolios, and interest expense,
        principally on customer deposits and borrowings. Net interest income is our
        principal source of earnings. Changes in net interest income result from
        changes
        in volume, spread and margin. Volume refers to the average dollar level of
        interest-earning assets and interest-bearing liabilities. Spread refers to
        the
        difference between the average yield on interest-earning assets and the average
        cost of interest-bearing liabilities. Margin refers to net interest income
        divided by average interest-earning assets, and is influenced by the level
        and
        relative mix of interest-earning assets and interest-bearing
        liabilities.
 
 9
 Net
        interest income was $218 thousand in the third quarter of 2005. Our net interest
        margin was 3.6%.
 
 Total
        interest income was $247 thousand for the third quarter of 2005. Average
        net
        loans were $2.5 million and average investments, primarily overnight investments
        with other banks, were $21.5 million.
 
 Total
        interest expense was $29 thousand in the third quarter of 2005, paid on average
        interest-bearing deposits of $5.1 million for the same period.
 
 The
        following table sets forth our average balances of assets, liabilities and
        shareholders’ equity, in addition to the major components of net interest income
        and our net interest margin for the quarter ended September 30,
        2005.





**Three
                  Months Ended September 30, 2005**ASSETS:
              
              Average
                  Balance
              
              Income
                  / Expense
              
              Average
                  Rate or Yield(Dollars
                  in thousands)Interest-earning
                  assets:Net
                  loans and leases
              
              $
              2,493
              
              $
              54
              
              
              8.59
              %Securities
                  of U.S. government agencies
              
              
              2,760
              
              
              29
              
              
              4.22
              %Other
                  investment securities
              
              
              1,107
              
              
              14
              
              
              4.87
              %Securities
                  purchased under agreements to resell and federal funds sold
              
              
              17,640
              
              
              150
              
              
              3.37
              %Total
                  interest-earning assets
              
              
              23,999
              
              
              247
              
              
              4.08
              %Total
                  noninterest-earning assets
              
              
              2,436TOTAL
                  ASSETS
              
              
              26,436LIABILITIES
                  AND STOCKHOLDERS’ EQUITY:Interest-bearing
                  liabilities:Money
                  market deposits
              
              
              3,041
              
              
              16
              
              
              2.10
              %NOW
                  deposits
              
              
              660
              
              
              1
              
              
              0.60
              %Savings
                  deposits
              
              
              29
              
              
              0
              
              
              0.91
              %Time
                  certificates of deposit in denominations of $100,000 or more
              
              
              885
              
              
              7
              
              
              3.30
              %Other
                  time deposits
              
              
              505
              
              
              5
              
              
              3.58
              %Total
                  interest-bearing liabilities
              
              
              5,119
              
              
              29
              
              
              2.27
              %Noninterest-bearing
                  liabilities:Noninterest-bearing
                  deposits
              
              
              1,449Other
                  liabilities
              
              
              22Total
                  noninterest-bearing liabilities
              
              
              1,471**SHAREHOLDERS’
                  EQUITY**
              
              
              19,846TOTAL
                  LIABILITIES AND SHAREHOLDERS’ EQUITY
              
              
              26,436Net
                  interest income
              
              
              
              
              
              218Net
                  interest spread
              
              
              
              
              
              
              
              
              1.81
              %Net
                  interest margin
              
              
              
              
              
              
              
              
              3.60
              %


Changes
        in volume and changes in interest rates affect our interest income and interest
        expense. The effect of these changes is typically displayed in a volume,
        mix and
        rate analysis table which compares the changes in income and expense over
        periods. Since the Company has a limited operating history, data to analyze
        these changes is not currently available.
 
 10
 ***Provision
        for Loan Losses***
  We
        determine a provision for loan losses that we consider sufficient to maintain
        an
        allowance to absorb probable losses inherent in our portfolio as of the balance
        sheet date. For additional information concerning this determination, see
        the
        section of this discussion and analysis captioned *“Allowance
        for Loan Losses.”*
 
 In
        the
        third quarter of 2005, our provision for loan and lease losses was $38 thousand.
        The provision amount is directly related to loan volumes. Because the Bank
        recently opened, there were no charge-offs or non-performing loans during
        the
        third quarter of 2005.
 
 ***Noninterest
        Income***
  The
        non-interest income for the quarter ended September 30, 2005 was $3 thousand.
        Due to the low volume of accounts and the brief amount of time any of the
        accounts had been opened, minimal service charges were collected.
 
 ***Noninterest
        Expense***
  Our
        total
        noninterest expense was $955 thousand in the third quarter of 2005. While
        it is
        anticipated that the overall volume of noninterest expense will continue
        to
        increase as the Bank grows, management is committed to controlling costs
        and
        expects to moderate these increases relative to revenue growth.
 
 Salaries
        and employee benefits totaled $442 thousand for the third quarter of 2005.
        The
        Bank employed 21 full-time equivalent employees as of September 30, 2005.
        The
        volume of assets per employee as of the end of the third quarter of 2005
        was
        $1,338,000.
 
 Occupancy
        and equipment expenses totaled $195 thousand for the third quarter of 2005,
        attributable primarily to lease costs and depreciation expense associated
        with
        the two banking locations.
 
 Data
        processing expense was $93 thousand for the third quarter of 2005, attributable
        primarily to the costs associated with the core processing system and network
        maintenance and security.
 
 Promotional
        expenses were $81 thousand for the third quarter of 2005. This included expenses
        for advertising in the bank’s two primary markets, direct mail campaigns to
        local businesses, and sponsorship of key community events.
 
 Professional
        fees of $7 thousand for the third quarter of 2005 were primarily attributable
        to
        operational audit expenses and compliance services fees.
 
 Other
        expenses of $137 thousand for the third quarter of 2005 included office supplies
        ($47 thousand); director training and other holding company expenses ($11
        thousand); auto and mileage expense ($10 thousand); regulatory assessments
        ($9
        thousand); armored car and courier expense ($7 thousand); allowance for credit
        losses on off-balance sheet credit exposures ($5 thousand); check printing
        costs
        ($3 thousand); workers compensation insurance ($3 thousand); recruiting expenses
        ($8 thousand); and loan-related expenses ($6 thousand) .
 
 Pre-opening
        expenses for the nine month period ended September 30, 2005 were $1.217 million.
 
 ***Income
        Taxes***
  No
        federal or state tax expense or benefit has been recorded for the quarter
        ended
        September 30, 2005, based upon net operating losses. The Company will begin
        to
        recognize income tax benefit at the time it becomes profitable.
 
 **Financial
        Condition as of September 30, 2005**
  Total
        assets as of September 30, 2005 were $28.1 million, consisting primarily
        of cash
        and investments of $21.9 million and net loans of $4.9 million.
 
 As
        of
        September 30, 2005, total deposits were $8.6 million, and shareholders’ equity
        was $19.4 million.
 
 11
 ***Short-Term
        Investments and Interest-bearing Deposits in Other Financial
        Institutions***
  At
        September 30, 2005, the Bank had $13.2 million in federal funds sold. Federal
        funds sold allow the Bank to meet liquidity requirements and provide temporary
        holdings until the funds can be otherwise deployed or invested. At September
        30,
        2005, the Company had an interest-bearing deposit of $750 thousand with The
        Independent BankersBank, with a term of 90 days and a rate of
        3.60%.
 
 ***Investment
        Securities***
  Our
        investment portfolio will primarily serve as a source of interest income
        and,
        secondarily, as a source of liquidity and a management tool for our interest
        rate sensitivity. We manage our investment portfolio according to a written
        investment policy established by our Board of Directors and implemented by
        our
        Investment/Asset-liability Committee.
 
 At
        September 30, 2005, the Bank’s investment securities consisted $6.0 million in
        U.S. government-sponsored agencies, with an estimated fair value of $6.0
        million
        and a weighted average yield of 4.2%, and $585 thousand in Federal Reserve
        Bank
        Stock, having a book value of $585 thousand, an estimate fair value of $585
        thousand, and a weighted average yield of 6.0%.
 
 ***Loan
        Portfolio***
  Our
        primary source of income is interest on loans. The following table presents
        the
        composition of our loan portfolio by category as of the dates
        indicated:
 
 As
        of
        September 30, 2005, net loans were $4.9 million. Net loans as a percentage
        of
        total assets were 17.5% as of September 30, 2005. Gross loans as of September
        30, 2005, were $5.0 million; unearned fees were $21 thousand; reserves for
        loan
        and lease losses were $43 thousand.
 
 The
        commercial loan portfolio will be comprised of lines of credit for working
        capital and term loans to finance equipment and other business assets. The
        lines
        of credit typically are limited to a percentage of the value of the assets
        securing the line. Lines of credit and term loans typically are reviewed
        annually and can be supported by accounts receivable, inventory, equipment
        and
        other assets of the client’s businesses. At September 30, 2005, commercial loans
        totaled $1.2 million, 24.3% of total funded loans.
 
 The
        consumer loan portfolio will consist of personal lines of credit and loans
        to
        acquire personal assets such as automobiles and boats. The lines of credit
        generally have terms of one year and the term loans generally have terms
        of
        three to five years. The lines of credit typically have floating rates. At
        September 30, 2005, consumer loans totaled $13 thousand, 0.3% of total funded
        loans.
 
 The
        real
        estate loan portfolio will be comprised of construction loans and short-term
        mortgage loans. Construction loans consist primarily of single-family
        residential properties, have a term of less than one year and have floating
        rates and commitment fees. Construction loans are typically made to builders
        that have an established record of successful project completion and loan
        repayment. Short-term mortgage loans typically are secured by commercial
        properties occupied by the borrower, have terms of three to seven years with
        both fixed and floating rates. At September 30, 2005, real estate-secured
        loans
        totaled $3.7 million, 75.4% of total funded loans.
 
 Loan
        concentrations are considered to exist when there are amounts loaned to a
        multiple number of borrowers engaged in similar activities that would cause
        them
        to be similarly impacted by economic or other conditions. The Bank has
        established select concentrations percentages within the loan portfolio.
        It also
        includes families of credit considered of either higher risk or worthy of
        further review as part of its concentration reporting. While the framework
        has
        been set in place to evaluate the Bank’s potential risk in its portfolio, the
        overall concentration results are not meaningful at this time as limited
        activity presently exists.
 
 Management
        may renew loans at maturity when requested by a customer whose financial
        strength appears to support such a renewal or when such a renewal appears
        to be
        in the best interest of the Bank. The Bank requires payment of accrued interest
        in such instances and may adjust the rate of interest, require a principal
        reduction, or modify other terms of the loan at the time of renewal. Loan
        terms
        vary according to loan type. The following table shows the maturity distribution
        of loans and leases as of September 30, 2005:




12


**As
                  of September 30, 2005****(Dollars
                  in thousands)****One
                  Year**
              
              **Over
                  1 Year****or
                  Less**
              
              **through
                  5 Years**
              
              **Over
                  5 Years**
              
              **Total****Fixed
                  Rate**
              
              **Floating
                  or Adjustable Rate**
              
              **Fixed
                  Rate**
              
              **Floating
                  or Adjustable Rate**Real
                  estate — construction
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -Real
                  estate — secured
              
              
              1,088
              
              
              -
              
              
              2,662
              
              
              -
              
              
              -
              
              
              3,750Commercial
                  and industrial
              
              
              546
              
              
              663
              
              
              -
              
              
              -
              
              
              -
              
              
              1,209Consumer
              
              
              -
              
              
              13
              
              
              -
              
              
              -
              
              
              -
              
              
              13Total
              
              $
              1,634
              
              $
              676
              
              $
              2,662
              
              $
              -
              
              $
              -
              
              $
              4,972


***Nonperforming
        Loans, Leases and Assets***
  Nonperforming
        assets consist of loans and leases on nonaccrual status, loans 90 days or
        more
        past due and still accruing interest, loans that have been restructured
        resulting in a reduction or deferral of interest or principal, OREO, and
        other
        repossessed assets. As of September 30, 2005, there were no nonperforming
        assets.
 
 A
        potential problem loan is defined as a loan where information about possible
        credit problems of the borrower is known, causing management to have serious
        doubts as to the ability of the borrower to comply with the present loan
        payment
        terms and which may result in the inclusion of such loan in one of the
        nonperforming asset categories. An internally classified loan list is maintained
        that helps management assess the overall quality of the loan portfolio and
        the
        adequacy of the allowance for loan losses. Loans classified as “special mention”
        are those that contain a weakness that, if left unattended, could develop
        into a
        problem affecting the ultimate collectibility of the loan. Loans classified
        as
“substandard” are those loans with clear and defined weaknesses, such as highly
        leveraged positions, unfavorable financial ratios, uncertain repayment resources
        or poor financial condition, which may jeopardize recoverability of the loan.
        Loans classified as “doubtful” are those loans that have characteristics similar
        to substandard loans, but also have an increased risk that loss may occur
        or at
        least a portion of the loan may require a charge-off if liquidated at present.
        Although loans classified as substandard do not duplicate loans classified
        as
        doubtful, both substandard and doubtful loans may include some loans that
        are
        past due at least 90 days, are on nonaccrual status or have been restructured.
        Loans classified as “loss” are those loans that are in the process of being
        charged-off. The Bank had no loans classified in these categories at September
        30, 2005.
 
 ***Allowance
        for Loan Losses***
  Implicit
        in the Bank’s lending activities is the fact that loan losses will be
        experienced and that the risk of loss will vary with the type of loan being
        made
        and the creditworthiness of the borrower over the term of the loan. To reflect
        the currently perceived risk of loss associated with the loan portfolio,
        additions are made to the allowance for loan losses in the form of direct
        charges against income to ensure that the allowance is available to absorb
        possible loan losses. The factors that influence the amount include, among
        others, the remaining collateral and/or financial condition of the borrowers,
        historical loan loss, changes in the size and composition of the loan portfolio,
        and general economic conditions.
 
 The
        amount of the allowance equals the cumulative total of the provisions made
        from
        time to time, reduced by loan charge-offs and increased by recoveries of
        loans
        previously charged-off. Until management has adequate historical data upon
        which
        to base the estimate of the allowance for loan losses, a balance of
        approximately 1.0% of the outstanding principal will be used unless additional
        information regarding the ability of the borrower to repay the loan, current
        economic conditions or other pertinent factors indicate a different allowance
        is
        needed. Thus, the allowance was $43.5 thousand, or 0.88% of outstanding
        principal as of September 30, 2005.
 
 In
        addition, a separate allowance for credit losses on off-balance sheet credit
        exposures is maintained for the undisbursed portion of approved loans. Although
        the loss exposure to the Bank is reduced because the funds have not been
        released to the borrower, under certain circumstances the Bank may be required
        to continue to disburse funds on a troubled credit. As of September 30, 2005,
        this allowance was $5.0 thousand.
 
 13
 Credit
        and loan decisions are made by management and the Board of Directors in
        conformity with loan policies established by the board of directors. The
        Bank’s
        practice is to charge-off any loan or portion of a loan when the loan is
        determined by management to be uncollectible due to the borrower’s failure to
        meet repayment terms, the borrower’s deteriorating or deteriorated financial
        condition, the depreciation of the underlying collateral, the loan’s
        classification as a loss by regulatory examiners, or other reasons. During
        the
        third quarter of 2005, there were no charge-offs.
 
 ***Nonearning
        Assets***
  Premises,
        leasehold improvements and equipment totaled $1.12 million at September 30,
        2005, net of accumulated depreciation of $62.7 thousand. There are no definitive
        agreements regarding acquisition or disposition of owned or leased facilities
        and, for the near-term future, there are no significant changes anticipated
        in
        the total occupancy expense.
 
 ***Deposits***
 
 Deposits
        are our primary source of funds. The following table sets forth, for the
        periods
        indicated, the distribution of our average deposit account balances and average
        cost of funds on each category of deposits as of September 30,
        2005:


**Three
                  Months Ended September 30, 2005****Average
                  Balance**
              
              **Percent
                  of Deposits**
              
              **Average
                  Rate****(Dollars
                  in thousands)**Noninterest-bearing
                  demand deposits
              
              $
              1,449
              
              
              22
              %
              
              0
              %Money
                  market deposits
              
              
              3,041
              
              
              46
              %
              
              2.10
              %NOW
                  deposits
              
              
              660
              
              
              10
              %
              
              0.60
              %Savings
                  deposits
              
              
              29
              
              
              0
              %
              
              0.91
              %Time
                  certificates of deposit in denominations of $100,000 or more
              
              
              885
              
              
              13
              %
              
              3.30
              %Brokered
                  certificates of deposits
              
              
              -
              
              
              0
              %
              
              3.58
              %Other
                  time deposits
              
              
              505
              
              
              8
              %Total
                  deposits
              
              $
              6,568
              
              
              100
              %
              
              1.77
              %


The
        following table sets forth the amount and maturities of the time deposits
        of
        $100,000 or more as of September 30, 2005:


**At
                  September 30, 2005****Time
                  Deposits of $100,00 or more**
              
              **Other
                  Time Deposits**
              
              **Total
                  Time Deposits****(Dollars
                  in thousands)**Three
                  months or less
              
              $
              301
              
              
              43
              
              $
              343Over
                  three months through six months
              
              
              -
              
              
              10
              
              
              10Over
                  six months through 12 months
              
              
              732
              
              
              882
              
              
              1,614Over
                  12 months
              
              
              -
              
              
              8
              
              
              8Total
              
              $
              1,033
              
              $
              942
              
              $
              1,975


***Return
        on Equity and Assets***
  The
        following table sets forth certain information regarding the Company’s return on
        equity and assets for the periods indicated:




14


**At
                  September 30, 2005**Return
                  of assets
              
              
              -9.96
              %Return
                  on equity
              
              
              -14.40
              %Dividend
                  payout ratio
              
              
              0
              %Equity
                  to assets ratio
              
              
              69.2
              %


***Off-Balance
        Sheet Arrangements and Loan Commitments***
  Neither
        the Company nor the Bank had any material off-balance sheet
        arrangements.
  At
        September 30, 2005, the Company had outstanding loan origination commitments
        and
        unused commercial and retail lines of credit of $1.4 million and no standby
        letters of credit. Management believes the Bank has sufficient funds available
        to meet current origination and other lending commitments. Certificates of
        deposit that are scheduled to mature within one year totaled $1.6 million
        at
        September 30, 2005.
 
 ***Borrowings***
  The
        Company has access to a variety of borrowing sources including federal funds
        purchased. As of September 30, 2005, there were no borrowings
        outstanding.
 
 ***Capital
        Resources and Capital Adequacy Requirements***
  The
        risk-based capital regulations established and administered by the banking
        regulatory agencies discussed previously are applicable to the Bank. Risk-based
        capital guidelines are designed to make regulatory capital requirements more
        sensitive to differences in risk profiles among banks, to account for
        off-balance sheet exposure, and to minimize disincentives for holding liquid
        assets. Under the regulations, assets and off-balance sheet items are assigned
        to broad risk categories, each with appropriate weights. The resulting capital
        ratios represent capital as a percentage of total risk weighted assets and
        off-balance sheet items. Under the prompt corrective action regulations,
        to be
        adequately capitalized a bank must maintain minimum ratios of total capital
        to
        risk-weighted assets of 8.00%, Tier 1 capital to risk-weighted assets of
        4.00%,
        and Tier 1 capital to total assets of 4.00%. Failure to meet these capital
        requirements can initiate certain mandatory and possibly additional
        discretionary, actions by regulators that, if undertaken, could have a direct
        material effect on the Bank’s financial statements.
 
 As
        of
        September 30, 2005, the Bank was categorized as well-capitalized. A
        well-capitalized institution must maintain a minimum ratio of total capital
        to
        risk-weighted assets of at least 10.00%, a minimum ratio of Tier 1 capital
        to
        risk weighted assets of at least 6.00%, and a minimum ratio of Tier 1 capital
        to
        total assets of at least 5.00% and must not be subject to any written order,
        agreement, or directive requiring it to meet or maintain a specific capital
        level.


**Actual**
              
              **For
                  Capital Adequacy Purposes**
              
              **To
                  Be Well Capitalized Under Prompt Corrective Action
                  Problems****Amount**
              
              **Ratio**
              
              **Amount**
              
              **Ratio**
              
              **Amount**
              
              **Ratio****(Dollars
                  in thousands)****As
                  of September 30, 2005**Total
                  Capital (to risk-weighted assets)
              
              $
              18,504
              
              
              159.49
              %
              $
              929
              
              
              >8
              %
              $
              1,161
              
              
              >10
              %Tier
                  1 capital (to risk-weighted assets)
              
              $
              18,456
              
              
              159.08
              %
              $
              465
              
              
              >4
              %
              $
              697
              
              
              >6
              %Tier
                  1 capital (to average assets)
              
              $
              18,456
              
              
              71.73
              %
              $
              1,032
              
              
              >4
              %
              $
              1,289
              
              
              >5
              %




15


***Liquidity
        Management***
  The
        stock
        offering closed April 30, 2005 with 2,280,000 shares sold representing $22.8
        million in gross total capital raised. Of this sum $19.5 million was injected
        into the Bank. Pre-opening costs totaled $1.6 million in 2004 and $722 thousand
        in 2005 for a total of $2.3 million, consisting of legal and professional
        fees
        of $1.05 million, consulting fees of $742 thousand, marketing costs of $103
        thousand, occupancy costs of $133 thousand, and other operating costs of
        $404
        thousand. In addition, both capital and pre-opening expenses were increased
        by
        $495,000 representing the fair value of the stock warrants issued to
        non-director organizers. These warrants were granted in recognition of the
        expertise imparted, time expended and the substantial financial risks undertaken
        by the organizers. Also, the Company funded certain expenses and the purchase
        of
        certain capital assets totaling $536,000 that were reimbursed and purchased
        by
        the Bank in June 2005. At September 30, 2005, the Company (excluding the
        Bank)
        had approximately $980,000 in remaining cash proceeds. These funds can be
        used
        for Company operations, investment and for later infusion into the Bank and
        other corporate activities. The primary source of liquidity for the Company
        will
        be dividends paid by the Bank. The Bank is currently restricted from paying
        dividends without regulatory approval that will not be granted until the
        accumulated deficit has been eliminated.
 
 The
        Bank’s liquidity is monitored by its staff, the Investment/Asset-Liability
        Committee and the Board of Directors, who will review historical funding
        requirements, current liquidity position, sources and stability of funding,
        marketability of assets, options for attracting additional funds, and
        anticipated future funding needs, including the level of unfunded commitments.
 
 The
        Bank’s primary sources of funds will be retail and commercial deposits, loan and
        securities repayments, other short-term borrowings, and other funds provided
        by
        operations. While scheduled loan repayments and maturing investments are
        relatively predictable, deposit flows and early loan prepayments are more
        influenced by interest rates, general economic conditions, and competition.
        The
        Bank will maintain investments in liquid assets based upon management’s
        assessment of (1) the need for funds, (2) expected deposit flows, (3) yields
        available on short-term liquid assets, and (4) objectives of the asset/liability
        management program.
 
 As
        loan
        demand increases, greater pressure will be exerted on the Bank’s liquidity.
        However, it is management’s intention to maintain a conservative loan to deposit
        ratio in the range of 80% over time. Given this goal, the Bank will not
        aggressively pursue lending opportunities if sufficient funding sources
        ( *i.e.* ,
        deposits, Fed Funds, etc.) are not available, nor will the Bank seek to attract
        transient volatile, non-local deposits with above market interest rates.
        As of
        September 30, 2005, the loan to deposit ratio was 57%.
 
 The
        Bank
        had cash and cash equivalents of $15.3 million, or 54% of total Bank assets,
        at
        September 30, 2005. Management feels that with the capital injection from
        the
        proceeds of the offering, the Bank should have more than adequate liquidity
        to
        meet anticipated future funding needs.
 
 The
        Bank
        is subject to various regulatory capital requirements administered by federal
        and state banking agencies, which could affect its ability to pay dividends
        to
        the Company. Failure to meet minimum capital requirements can initiate certain
        mandatory and discretionary actions by regulators that, if undertaken, could
        have a direct material adverse effect on our financial statements. The minimum
        ratios required for the Bank to be considered “well capitalized” for regulatory
        purposes, and therefore eligible to consider the payment of dividends to
        the
        Company, will be 10% total capital to risk weighted assets, 6% tier 1 capital
        to
        risk weighted assets and 5% tier 1 capital to average assets. At September
        30,
        2005, the Bank was considered “well capitalized” by regulatory standards.
 
 ***Quantitative
        and Qualitative Disclosure About Market Risks***
 
 Interest
        rate risk is the most significant market risk affecting the bank. Other types
        of
        market risk, such as foreign currency risk and commodity price risk, do not
        arise in the normal course of the bank’s business activities. Interest rate risk
        can be defined as the exposure to a movement in interest rates that could
        have
        an adverse effect on the net interest income or the market value of the bank’s
        financial instruments. The ongoing monitoring and management of this risk
        is an
        important component of the asset and liability management process, which
        is
        governed by policies established by the Company’s Board of Directors and carried
        out by the Bank’s Investment/Asset-liability Committee. The
        Investment/Asset-liability Committee’s objectives are to manage the exposure to
        interest rate risk over both the one year planning cycle and the longer term
        strategic horizon and, at the same time, to provide a stable and steadily
        increasing flow of net interest income.
 
 16
 The
        primary measurement of interest rate risk is earnings at risk, which is
        determined through computerized simulation modeling. The primary simulation
        model assumes a static balance sheet, using the balances, rates, maturities
        and
        repricing characteristics of all of the Bank’s existing assets and liabilities.
        Net interest income is computed by the model assuming market rates remaining
        unchanged and comparing those results to other interest rate scenarios with
        changes in the magnitude, timing and relationship between various interest
        rates. At September 30, 2005, no such analysis was performed as the results
        would not yet have been meaningful. In the future, rising and declining interest
        rate simulations in 100 basis point increments over a 12-month period will
        be
        performed. The impact of imbedded options in such products as callable and
        mortgage-backed securities, real estate mortgage loans and callable borrowings
        will be considered. Changes in net interest income in the rising and declining
        rate scenarios will then measured against the net interest income in the
        rates
        unchanged scenario. The Investment/Asset-liability Committee will utilize
        the
        results of the model to quantify the estimated exposure of net interest income
        to sustained interest rate changes.
 
 The
        following table sets forth, on a stand-alone basis, the Bank’s amounts of
        interest-earning assets and interest-bearing liabilities outstanding at
        September 30, 2005, which are anticipated, based upon certain assumptions,
        to
        reprice or mature in each of the future time periods shown. The projected
        repricing of assets and liabilities anticipates prepayments and scheduled
        rate
        adjustments, as well as contractual maturities under an interest rate unchanged
        scenario within the selected time intervals. While it is believed that such
        assumptions are reasonable, there can be no assurance that assumed repricing
        rates will approximate actual future deposit activity.
 **As
                    of September 30, 2005****Volumes
                    Subject to Repricing Within****0-1
                    Days**
                
                **2-90
                    Days**
                
                **91-365
                    Days**
                
                **1-3
                    Years**
                
                **Over
                    3 Years**
                
                **Non-Interest
                    Sensitive**
                
                **Total****(Dollars
                    in thousands)****Assets:**Short-term
                    investments and federal funds sold
                
                $
                13,225
                
                $
                750
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                1,317
                
                $
                15,292Investment
                    securities
                
                
                -
                
                
                -
                
                
                3,998
                
                
                2,000
                
                
                585
                
                
                -
                
                
                6,583Loans
                
                
                -
                
                
                1,640
                
                
                -
                
                
                -
                
                
                3,332
                
                
                -
                
                
                4,972Fixed
                    and other assets
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                1,253
                
                
                1,253Total
                    Assets
                
                $
                13,225
                
                $
                2,390
                
                $
                3,998
                
                $
                2,000
                
                $
                3,917
                
                $
                2,570
                
                $
                28,100**Liabilities
                    and Stockholders’ Equity:**Interest-bearing
                    checking, savings and money market accounts
                
                $
                3,952
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                2,691
                
                $
                6,643Certificates
                    of deposit
                
                
                -
                
                
                343
                
                
                1,624
                
                
                8
                
                
                -
                
                
                -
                
                
                1,975Borrowed
                    funds
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Other
                    liabilities
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                41
                
                
                41Stockholders’
                    equity
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                19,441
                
                
                19,441Total
                    liabilities and stockholders’ equity
                
                $
                3,952
                
                $
                343
                
                $
                1,624
                
                $
                8
                
                $
                -
                
                $
                22,173
                
                $
                28,100Period
                    Gap
                
                $
                9,273
                
                $
                2,047
                
                $
                2,374
                
                $
                1,992
                
                $
                3,917Cumulative
                    gap
                
                $
                9,273
                
                $
                11,320
                
                $
                13,694
                
                $
                15,686
                
                $
                19,603Period
                    gap to total assets
                
                
                33.0
                %
                
                7.3
                %
                
                8.4
                %
                
                7.1
                %
                
                13.9
                %Cumulative
                    gap to total assets
                
                
                33.0
                %
                
                40.3
                %
                
                48.7
                %
                
                55.8
                %
                
                69.8
                %Cumulative
                    interest-earnings assets to cumulative interest-bearing liabilities
                
                
                334.6
                %
                
                363.6
                %
                
                331.4
                %
                
                364.7
                %
                
                430.7
                %


Certain
        shortcomings are inherent in the method of analysis presented in the gap
        table.
        For example, although certain assets and liabilities may have similar maturities
        or periods of repricing, they may react in different degrees to changes in
        market interest rates. Additionally, certain assets, such as adjustable-rate
        loans, have features that restrict changes in interest rates, both on a
        short-term basis and over the life of the asset. More importantly, changes
        in
        interest rates, prepayments and early withdrawal levels may deviate
        significantly from those assumed in the calculations in the table. As a result
        of these shortcomings, the Bank will focus more on earnings at risk simulation
        modeling than on gap analysis. Even though the gap analysis reflects a ratio
        of
        cumulative gap to total assets within acceptable limits, the earnings at
        risk
        simulation modeling is considered by management to be more informative in
        forecasting future income at risk.
  17
 **ITEM
        3.** **Controls
        and Procedures**
 
 With
        the
        participation of management, the Company’s chief executive officer and the chief
        financial officer reviewed and evaluated the Company’s disclosure controls and
        procedures as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
        Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the
        period covered by this report. Based on this evaluation, the chief executive
        officer and chief financial officer concluded that the disclosure controls
        and
        procedures are effective to ensure that the information required to be disclosed
        by the Company in reports that it files or submits under the Exchange Act
        is
        recorded, processed, summarized and reported to the Company’s management within
        the time periods specified in the Securities and Exchange Commission’s rules and
        forms.
 
 There
        have been no significant changes in the Company’s internal controls for
        financial reporting or in other factors that could significantly affect these
        controls, including any significant deficiencies or material weaknesses of
        internal controls that would require corrective action. In connection with
        the
        new rules, the Company is currently in the process of further reviewing and
        documenting its disclosure controls and procedures, including its internal
        accounting controls, and may from time to time make changes aimed at enhancing
        their effectiveness ands ensuring that the Company’s systems evolve with its
        business.
  **PART
        II -** **OTHER
        INFORMATION**
  **ITEM
        1.** **Legal
        Proceedings**
 
 There
        are
        no material pending legal proceedings to which the Company or the Bank is
        a
        party or to which any of our properties are subject; nor are there material
        proceedings known to the Company, in which any director, officer or affiliate
        or
        any principal shareholder is a party or has an interest adverse to the Company
        or the Bank.
  **ITEM
        2.** **Changes
        in Securities and Use of Proceeds**
 
 On
        November 10, 2004, the Securities and Exchange Commission declared effective
        the
        Company’s Registration Statement on Form SB-2 (File No. 333-118859) related to
        the initial public offering of the Company’s common stock, $0.01 par value. In
        addition, on May 11, 2005, a Form SB-2 MEF was filed under Rule 462 registering
        additional shares of common stock and warrants to purchase common stock under
        the public offering. A total of 3,448,800 shares of common stock were
        registered, of which 690,000 shares are issuable under registered common
        stock
        warrants (warrants to purchase an aggregate of 456,000 shares of common stock
        at
        an exercise price of $12.50 per share issued to the initial shareholders
        of the
        Company in connection with the offering, and warrants to purchase an aggregate
        of 234,000 shares of common stock at an exercise price of $10.00 per share
        issued to the organizers of the Company). On April 30, 2005, the initial
        public
        offering was completed having sold 2,280,000 shares at $10.00 per share,
        for an
        aggregate of $22.8 million.
 
 **ITEM
        3.** **Defaults
        Upon Senior Securities**
 
 None.
  **ITEM
        4.** **Submission
        of Matters to a Vote of Security Holders**
 
 None.
  **ITEM
        5.** **Other
        Information**
 
 Not
        applicable.
  18
 **ITEM
        6.** **Exhibits** **and Reports on Form 8-K**
 
 (a)
              Exhibits
  **Exhibit
                  Number**
              
              **Description
                  of Exhibit**31.1
              
              Certification
                  of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 200231.2
              
              Certification
                  of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 200232.1
              
              Certification
                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of 2002.
 
 (b)
              Reports
                  on Form 8-K
 
 None
  19
 SIGNATURES  
 Pursuant
        to the requirements of the Securities Act of 1934, the registrant has duly
        caused this Report to be signed on its behalf by the undersigned, thereunto
        duly
        authorized.
 
 PACIFIC COAST NATIONAL BANCORPDate:
                November 9, 2005
              By:
              /s/
                Colin M. ForknerColin
                M. ForknerChief
                Executive Officer
 Date:
                November 9, 2005
              By:
              /s/
                Terry StalkTerry
                StalkChief
                Financial Officer






20